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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED AUGUST 31, 1996
COMMISSION FILE NUMBER 0-27664
UNIDIGITAL INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 13-3856672
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
20TH WEST 20TH STREET
9TH FLOOR
NEW YORK, NEW YORK 10011
(Address of principal executive offices) (Zip Code)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE (212) 337-0330
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of each class
- ----------------------------
Common Stock, $.01 par value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
------ -----
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Issuer's revenues for its fiscal year ended August 31, 1996 were
$11,659,818.
The aggregate market value of the Common Stock held by non-affiliates of the
registrant based on the closing price of $6.00 on November 5, 1996 was
$7,135,296.
The number of shares of the Company's $.01 par value Common Stock
outstanding as of November 5, 1996 is 3,189,216 shares.
Transitional Small Business Disclosure Format (check one) Yes No X
---- ----
The following documents are incorporated into the Annual Report on Form
10-KSB: Portions of the Registrant's definitive Proxy Statement for its 1997
Annual Meeting of Stockholders are incorporated by reference into Part III of
this Report.
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UNIDIGITAL INC.
FORM 10-KSB
INDEX
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10-KSB PART AND ITEM NO. PAGE NO.
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PART I
Item 1 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 4 Submission of Matters to a Vote of Security-Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
PART II
Item 5 Market for Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 6 Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 8 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . 34
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Item 10 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Item 11 Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . 35
Item 12 Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Item 13 Exhibits, List and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Unidigital Inc. (the "Company"), a Delaware corporation, was organized on
October 18, 1995 for the purpose of becoming the parent holding company for
Linographics Corporation ("Linographics") and Elements (UK) Limited
("Elements") (collectively, the "Predecessor Companies") and Linographics
(Delaware) Corporation ("Linographics Delaware"). Subsequently, the Company
formed Unidigital/Cardinal Corporation ("Cardinal"). All references herein to
the "Company" mean collectively, Unidigital, the Predecessor Companies,
Linographics Delaware and Cardinal unless the context requires otherwise.
The Company provides a full range of digital prepress and digital printing
services to the corporate and professional graphic arts industry in the New
York City, San Francisco and London markets. Digital prepress services involve
preparing an image for reproduction by any of several printing processes. Using
advanced computer technology, the Company provides the imaging and reproduction
services required by graphic artists in connection with the creation of designs
for their clients, which include end-users of printed media such as consumer
packaging, marketing and advertising materials. The Company's services afford
graphic designers the ability to make numerous changes and enhancements in
their designs throughout the design approval process with shorter turnaround
times and at reduced costs as compared to traditional prepress methods. Once a
design is approved, the Company provides the vital technological and service
interface between graphic artists and traditional commercial volume printers
necessary to translate the approved design into the format required for volume
printing. Digital printing services involve taking a computer generated graphic
design and translating it directly into a printed image on a printing press.
The Company conducts operations through four wholly-owned subsidiaries,
Linographics, Elements, Linographics Delaware and Cardinal. Linographics
engages in the digital prepress business in New York City. Elements engages in
the digital prepress business and through its wholly-owned subsidiary, Regent
Communications Limited ("Regent") operates the document production and digital
print business in London. Linographics Delaware owns and operates the San
Francisco based prepress business. Cardinal, formed in August 1996, engages in
the digital prepress and digital print business in New York City. Hereinafter
unless otherwise stated, references to the acquisition of Cardinal relate to
Cardinal's acquisition of certain assets of Cardinal Communications Group, Inc.
INITIAL PUBLIC OFFERING
On February 6, 1996 Unidigital completed an initial public offering (the
"IPO") of 1,000,000 shares of Common Stock at a price of $6.00 per share, and
on February 21, 1996 the underwriters exercised their overallotment option for
the purchase of an additional 150,000 shares. Unidigital realized aggregate
net proceeds of approximately $5,200,000. The Company used a portion of the net
proceeds of the IPO to repay certain indebtedness under the Company's credit
facilities and intends to use the balance for general operational and working
capital purposes.
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COMPANY STRATEGY
The Company's business strategy for growth focuses on maintaining and
expanding its competitive position in the markets it currently serves and
establishing competitive market positions in other strategic geographic areas,
both within the United States and globally. The principal elements of the
Company's strategy include:
o Continuing to expand its short-run color digital printing which
provides a value-added service for current customers and provides
additional cross-selling opportunities;
o Continuing to anticipate and meet the evolving needs of its customer
base by making capital investments in emerging digital imaging,
prepress and digital printing technologies which have been tested in
the marketplace and which the Company believes will become widely
accepted;
o Enlarging its customer base and sales volume per customer by
continuing and strengthening its focused marketing and operational
programs that emphasize quality control, customer service, rapid
turnaround and competitive pricing; and
o Acquiring prepress businesses and printing businesses and companies
located in the United States and foreign markets that have developed
client bases or possess technological capabilities compatible with, or
complementary to, those of the Company.
Expansion of Digital Printing. The Company's business strategy includes the
continued expansion of its short-run color digital printing. With the
acquisition of Cardinal, and the installation of an Indigo (color printer) in
London, the Company believes that in the future short-run color digital
printing will constitute an increasingly larger segment of the Company's
business.
Investments in Equipment. The Company continually assesses the digital
prepress and printing markets to select appropriate equipment to deliver
services to its clients. Upon identifying new or upgraded items of equipment,
the Company further examines whether the equipment will provide revenues from
sales to its client base. The Company considers these factors, as well as its
goals of providing rapid turnaround in making equipment leasing or purchasing
decisions. The Company will continue to assume the role of market follower with
respect to purchases and utilization of computer technology by continuing to
support the computer hardware and software products widely used by graphic
artists.
Expansion of Client Base. The Company believes that graphic artists will
continue to move toward the adoption of digital production platforms for
several reasons: (i) the artist can exercise a greater degree of control over
the entire creative and production process; (ii) the total time it takes to
complete projects is significantly reduced from weeks (using conventional
methods) to days, or hours, using digital methods; and (iii) providers of
digital prepress services are typically more accessible to graphic artists than
conventional printers by virtue of their geographic proximity to urban centers.
The Company, through its sales and marketing efforts, seeks to convert users
of traditional prepress services to the Company's computer-based services, by
educating them as to the speed to market, quality and other advantages which
may be achieved through digital production of designs and printed images and by
providing prospective and existing customers with technical assistance and
informal training in the use of the computer hardware and software necessary to
implement the Company's services. In pursuing this strategy, the Company
believes it can expand both its client base and the level of services provided
to existing clients.
Acquisitions. The Company's growth has been enhanced by recent acquisitions
of businesses in San Francisco and New York City. The Company wishes to expand
by acquiring companies with
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established customers and technological capabilities compatible with or
complementary to those of the Company. The Company plans to link all of its
sites through high speed telecommunications links that will permit data which
is input in one location to be output at another location based upon uniform
standards of quality control and on a similar price schedule. The Company
believes that expanded remote output capabilities will be an attractive
value-added service for existing and prospective international customers.
RECENT ACQUISITIONS
On March 14, 1996, the Company through its wholly-owned subsidiary,
Linographics Delaware, acquired certain assets for $170,000 and assumed certain
liabilities aggregating $140,500 of TX Unlimited, Inc. ("TX"), a San Francisco,
California based graphics arts company. The purchase price included an $85,000
payment at closing and the balance of $85,000 payable in eight quarterly
installments commencing September, 1996 of $11,600, which includes interest at
6% per annum. The acquisition was recorded using the purchase method of
accounting. Although the assets, liabilities and operations of TX are not
material in relation to those of the Company this acquisition was consummated
because of its strategic location.
On August 9, 1996, Cardinal acquired certain assets and assumed certain
liabilities of Cardinal Communications Group, Inc. and its affiliate C-Max
Graphics, Inc. The assets purchased included the customer list, inventory,
equipment, trade name and 34,000 square feet of commercial real estate. The
purchase price included cash payments of $1,450,000, issuance of $250,000 of
restricted Common Stock of the Company (39,216 shares) and the assumption of
certain lease obligations and real estate taxes and mortgages. The Company
funded the purchase price from the proceeds of a $1,400,000 term loan. The
acquisition was accounted for using the purchase method of accounting. This
acquisition marked the Company's entry into short-run color digital print
services in the New York City market.
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COMPANY HISTORY
Linographics was founded in 1989 by William E. Dye, the President and Chief
Executive Officer of Unidigital, and a former individual business partner
(collectively the former partners), and has engaged in the digital prepress
business in the New York City market since inception. In September 1994, the
former partners of Linographics, formed Elements, which acquired the prepress
business and certain related liabilities of Lyledale Limited ("Lyledale"), in
London for a purchase price of approximately $336,000. Lyledale continued to
engage in the document production business. In connection with the formation of
Elements, the Company borrowed an aggregate of $190,000 from the former
partners, which loans are evidenced by promissory notes due March 1, 1997 which
bear interest from January 1996 through maturity at 7.5% per annum. In
connection with the resignation in June 1996 of the former partner, he received
approximately $323,000 in satisfaction of loans made by him to Linographics and
Elements. In March 1995, Elements acquired all of the outstanding capital stock
of Lyledale, which subsequently changed its name to Regent, for a purchase
price of approximately $529,000 consisting of cash, deferred cash payments, a
20% capital stock interest in Elements and certain options to acquire Elements'
capital stock granted to the sellers. In October 1995, Elements repurchased
those options for an aggregate purchase price of $281,000.
On October 18, 1995, Unidigital was incorporated in Delaware. Unidigital was
formed for the purpose of becoming the parent holding company for Linographics,
Elements and Linographics Delaware by exchanging 1,990,000 shares of Common
Stock for all of the outstanding shares of the capital stock of the Predecessor
Companies and Linographics Delaware (the "Formation"). Upon its incorporation,
10,000 shares of Common Stock were issued to the former partners for nominal
consideration. Unidigital Inc., an existing New York corporation, was
subsequently merged into Unidigital.
FORWARD-LOOKING INFORMATION
Except for the historical information contained in this Form 10-KSB, certain
information herein contains forward looking information. The matters referred
to in such statements could be affected by uncertainties involved in the
Company's business, including without limitation the effect of economic and
market conditions. Based upon the Company's current level of operations,
management believes that cash flow from operations and existing cash on hand,
will be adequate to meet the anticipated future requirements for working
capital, capital expenditures and scheduled payments of interest and principal
under its credit facilities and capital lease obligations.
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BUSINESS
The Company provides a full range of digital prepress and digital print
services to the corporate and professional graphic arts industry in the New
York City, San Francisco and London markets. Specific services provided by the
Company to its clients include production and finishing of photographic quality
or high resolution color proofs, production of electronic color separations,
retouching and manipulation of photographic images, digital photography, large
format color proofs for signage, Adobe Postcript(R) imagesetting, production of
plate-ready film and digital scanning of artwork. The Company also provides
short-run black and white and color digital printing and document creation
services.
INDUSTRY BACKGROUND
Prepress. Prepress services include the steps necessary to translate
computer-generated graphic designs into high quality color proofs used by
graphic artists in the design and approval process, and to subsequently
transform those proofs into high resolution masters or other prepress products
suitable for volume printing. Prepress services include the production of high
resolution scans, camera-ready art for printers mechanicals, plate-ready film
for high quality color work, contract or match proofs, imagesetting, electronic
color separations and color transparencies. "Color separation" refers to the
creation of color images, text and layout necessary for volume printing of a
final design. "Match Prints(R)" refers to the creation of a color corrected
proof which serves as a standard to enable a printer to calibrate a
conventional printing press.
The prepress industry has estimated annual sales of approximately $7.0
billion in the United States and approximately $600 million in the United
Kingdom. The prepress services market consists of a variety of providers,
including typesetters, service bureaus, color separators and commercial
printers which may provide some or all prepress services, and is highly
fragmented among many market participants, which tend to be smaller companies
serving local or regional markets.
Prior to the widespread use of computers, the production of graphic designs
was a labor-intensive mechanical process whereby rough sketches of proposed
designs were manually produced for presentation to clients for approval. After
selection by a client, these sketches or proofs would be converted by various
prepress professionals into high resolution masters required for volume
printing of the design. While the graphic artist was responsible for the
overall design-to-print process, he or she had relatively little direct control
in the implementation of the design or the production of the finished product.
As computers gained widespread acceptance in the graphic design industry
(over 96% of all graphic designers use computers) and with the introduction of
powerful computer design programs, the relationships among graphic artists,
prepress professionals and printers in the production of printed materials have
undergone considerable change. Graphic artists can now create digital computer
images that contain all of the information needed to produce high quality color
output of their designs, either as color proofs or high resolution film
masters. This shift of the design and prepress industries from mechanical to
digital platforms has permitted graphic designers to take greater control of
the production process and created a demand for new technologies, services and
approaches to production of graphic designs. The combined result has been the
creation of a new type of prepress service provider -- digital prepress service
companies.
A further benefit provided by digital prepress service is the ability to
provide quality prepress services at substantially reduced costs due to the
elimination of several labor intensive steps.
Digital Short-Run Printing. Prior to the introduction of digital printing
presses, conventional printers utilized a variety of methods (e.g., web,
offset, graveure) to produce volume quantities of printed materials.
Traditional high volume printers require a large physical plant and
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need to produce large print runs to operate profitably. Offset and web
printing, the two dominant printing methods, require that images first be
transferred to printing plates which then are installed on the presses so that
ink may be transferred to paper. Digital printing eliminates several of these
steps by taking a computer-generated graphic design, and translating it
directly into a printed image on the press. Short-run printing generally
involves print-runs of 5,000 copies or less. By eliminating several labor
intensive steps required for offset printing, digital printers can make small
runs of printed products with the same quality as offset printers and can do so
at a lower cost.
Digital presses have other advantages over conventional presses in addition
to lower costs. Turnaround times are quicker for digital presses than than they
are for offset presses. In addition, the relatively small size of digital
presses and the print run allows for decentralization of the printing process
by placing the press close to the ultimate user of the printed product. The
combination of low cost and rapid output coupled with direct computer linkage
to and data storage at the press and local output permits a digital press to
deliver the printed material exactly when and where it is needed and enables a
customer to obtain time-sensitive, low-volume, short-life expectancy products
on an economical basis. The combination of these capabilities is known as
"print-on-demand." In addition, by storing the document digitally, changes can
be made easily and more frequently relative to conventional printing, thereby
creating an affordable option for custom printing of offset quality materials
as well. This distribution method enables customers to realize savings through
reduced waste and inventory, as well as providing customers with greater
flexibility in selecting their printed materials. It has been estimated that
the print-on-demand segment of the overall printing industry is presently $7
billion and is expected to triple by the year 2000.
Document Creation Services. Document creation is a relatively small niche
industry which provides typesetting and related services to financial and
commercial printers. Services provided include input word processing;
typesetting; formatting; and output production of documents on disk,
camera-ready art and printer's proofs.
SERVICES OFFERED AND EQUIPMENT USED
The Company provides a comprehensive array of high quality digital prepress
services including production and finishing of photographic quality or high
resolution color proofs, production of electronic color separations, Adobe
Postcript(R) imagesetting, production of plate-ready films and digital scanning
of artwork. These services are an intermediate and necessary step between
creative art and actual printing of a graphic design. The Company also provides
short-run digital printing and document creation services.
Digital Prepress. Digital prepress services provided by the Company fall
into two broad categories: scanning (i.e., input services); and printing (i.e.,
output services). Scanning involves the imaging of artwork using laser optics
which are digitized and then output to film, tape or disk. Output services
consist of: i) producing printed images of digitized files created by graphic
designers onto a variety of surfaces as either high quality color proofs or
prepress products required for volume printing of the design; ii) production of
color proofs of varying sizes and resolution; and iii) production of prepress
products required for volume printing of a design, which include high
resolution scans, camera-ready art for printer's mechanicals, plate-ready film
for a high quality color work, contract or Match Prints(R), Adobe Postscript(R)
imagesetting, color separation and color transparencies. In connection with the
production of color proofs, the Company also offers mounting, laminating and
other finishing services.
For the year ended August 31, 1996, the Company's digital imaging and
prepress service business accounted for approximately 81% of the Company's net
sales. With the acquisition of Cardinal, which provides a digital short-run
print capability, and the installation of the Indigo
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printer in London, the Company expects that this business category will
decrease in relation to total net sales.
The Company provides production services to magazine publishers and
advertising agencies which involves both digital prepress services and
production work on original designs, such as placing scanned images into
existing layouts.
As a value-added service, the Company offers a remote output service via
high speed telecommunications link between its New York City, San Francisco and
London offices whereby a client with computer-generated files in one location
can have immediate access to output at the other location based upon uniform
standards of quality control and customer service at predictable prices. As the
Company expands geographically, it will offer remote output service in each
location, thereby giving its clients greater and more efficient distribution
options.
While the equipment used by the Company in providing digital prepress
services is not unique or proprietary, the Company believes that the manner in
which it delivers digital prepress services--rapid turnaround of time-sensitive
projects (including in-house messenger service), reputation for quality and a
service and operations structure designed to handle a high volume of projects--
distinguishes it from its competitors.
Digital Short-Run Printing. The Company provides digital short-run printing
in New York City and London. The Company's London operations offer finished
documents on-demand using the Xerox Docutech(R), a high speed digital press.
This machine receives computer-generated files and produces, on a 135
page-per-minute basis, finished and bound black and white printed materials.
This service is also sold on a per page pricing structure. The Company's black
and white digital printing services are generally used for the production of
financial documents (such as offering circulars), but the Company also produces
training, software and equipment manuals. With the introduction of its digital
color printing service in both New York and London, using the Indigo E-Print
1000, the Company offers "one stop shopping" to clients--that is, the ability
to take a design through the approval, production and printing phases at one
location with one vendor.
Document Creation. The Company also provides document creation services
generally to meet the needs of financial printers in the London market. The
Company provides a large pool of operators on a 24-hour basis to assist
financial printers in the production of financial and legal documentation.
Services provided include input word processing, typesetting, formatting, and
output production of documents on disk, camera-ready proofs and printer's
proofs. The Company's document creation operators can be linked remotely to the
financial printers and can provide services directly to the financial printers'
clients. The Company's operators may also be linked to the Company's Xerox
Docutech(R) for purposes of producing black and white short-runs of documents.
For the year ended August 31, 1996, the Company's document creation and
short-run digital printing business accounted for approximately 19% of the
Company's net sales. With the acquisition of Cardinal, which provides a digital
short-run print capability, and the installation of the Indigo printer in
London, the Company expects that this business category will increase in
relation to total net sales.
Revenues generated from the Company's current document creation operations
represent a small portion of its overall revenues. The Company's continuing
focus will be to develop and expand its prepress and digital printing
operations.
Equipment. The Company maintains an extensive array of advanced
computerized equipment used to provide its services.
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All of the Company's major items of equipment are in good working order.
CUSTOMERS
The Company's prepress customers consist of graphic design firms,
advertising agencies, publishers, corporations and individual graphic artists.
The Company receives individual orders from customers on a project-by-project
basis rather than under long-term service contracts. Continued engagements for
successive jobs are dependent primarily upon customers' satisfaction with
services previously provided. Many of the Company's customer relationship are
longstanding, and the Company believes that its relationships with customers
and its reputation for quality service are excellent. The Company has a
diversified client base, with the largest client accounting for less than 7% of
fiscal 1996 net sales.
SALES AND MARKETING
The Company markets its services to a broad and diverse client base
encompassing various industries by direct sales methods targeted at existing
and potential customers. The Company sells its services utilizing sales persons
and a director of sales in each of its locations. In developing its short-run
digital printing services, the Company seeks customers from its existing client
base and by specifically targeting and marketing to other end-users of printed
color media encompassing a broad base of industries.
COMPETITION
The Company's prepress business operates in a highly competitive and
fragmented market. Competition in the prepress industry is based on several
factors, including quality, price and speed of turnaround. The Company's
competitors include other providers of prepress services and commercial
printers.
Prepress Providers. The Company competes directly with other digital
prepress providers, which generally are smaller companies and provide some, but
not all of the services provided by the Company, as well as storefront copy
shops which provide some of the Company's lower end services such as the
printing of color proofs. Other direct competitors include traditional
providers of prepress services, which may have greater financial, marketing and
other resources than the Company, and which are attempting to assimilate and
master a rapidly evolving technology, and the in-house graphics departments of
large consumers of prepress services, such as advertising agencies and large
corporations. Presently, only the largest consumers can economically perform
these services in-house. However, as technology improves and becomes less
expensive (as it historically has), the Company expects that it will lose a
portion of its business to existing or potential clients who purchase digital
prepress equipment and perform some portion of their prepress requirements
in-house. The Company believes it can effectively compete with in-house
providers due to its ability to provide services 24 hours a day, 6 days a week,
at competitive prices. In addition, since the Company serves hundreds of
clients annually, the Company is able to spread the capital cost of the
equipment quickly, thereby permitting the Company to make frequent upgrades and
to purchase and lease state-of-the-art equipment which in-house providers may
not be able to do on a cost effective basis.
The Company believes that to remain competitive it must maintain customer
relationships and recognize, develop and exploit new technologies and
additional services which meet the evolving needs of its client base.
Commercial Printers. The Company competes indirectly with commercial
printers which often provide prepress services to their clients in connection
with volume printing services. The Company believes that it has a competitive
advantage over such conventional printers for several reasons. Unlike many
printers, the Company's operations are located in large urban areas with
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high concentrations of corporate clients and graphic artists which facilitates
rapid turnaround and direct client contact. Also, most printers cannot support,
nor do they have broad experience supporting, the hardware and software widely
used by graphic designers (Apple Macintosh(R) and PostScript(R))--the Company's
precise areas of expertise.
The Company's digital short-run printing business faces competition from
conventional printers which have added, or plan to add, digital presses, and
some of the Company's prepress competitors which have purchased digital
presses. In this dynamic market, the Company believes it has several
competitive advantages over conventional printers and prepress service
providers in addition to those listed above. First, the Company already handles
large numbers of relatively small jobs and is geared to process these types of
jobs on a volume basis with the proper service mentality. Second, the Company
has an existing base of clients which the Company believes are likely to become
users of digital presses. Third, since digital printing provides another type
of output from the graphic artist's computer files and the Company's clients
are accustomed to turning to the Company for output services, the Company
believes its customers will turn to the Company to provide this value-added
service. Finally, the Company already has the computer hardware, software and
expertise to support digital printing.
The Company provides document creation services in the London market only.
The Company has two main competitors for these services. Although competition
is intense, the Company has, through use of appropriate technology and by
providing a comprehensive range of services, continued to increase its market
share and believes that it is the largest provider of these services in the
London market.
EMPLOYEES
As of November 5, 1996, the Company had approximately 205 full-time
employees - 135 in the United States and 70 in the United Kingdom. None of the
Company's employees is covered by a collective bargaining agreement. The
Company considers its employee relations to be satisfactory.
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ITEM 2. PROPERTIES
The Company currently leases approximately 15,100 square feet in New York
City, under leases which expire in 1997 with a two-year renewal option, and
10,300 square feet in London, which lease expires in 2000. The Company occupies
approximately 2,900 square feet of space in San Francisco and is negotiating a
lease. The Company acquired approximately 34,000 square feet of commercial real
estate upon its acquisition of the assets of Cardinal. The Company believes
that its current facilities are suitable and adequate for its current
operations and short-term foreseeable needs, and that it will be able to renew
these leases or obtain alternative space for such facilities upon the
expiration of the current leases. Additional facilities will be required to
support growth as the Company expands into new geographic areas.
ITEM 3. LEGAL PROCEEDINGS
There is no material litigation pending to which the Company is a party or
to which any of its properties is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Company did not submit any matters to a vote of security-holders during
the quarter ended August 31, 1996.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to February 1, 1996, there was no established market for the Company's
Common Stock. Since February 1, 1996 the Common Stock has been quoted on the
Nasdaq National Market under the symbol "UNDG". The following table sets forth
the high and low bid information for the Company's Common Stock for the
quarters indicated (since February 1, 1996) as reported by the Nasdaq National
Market. The quotes represent inter-dealer prices without adjustments or
mark-ups, mark-downs or commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
COMMON STOCK
HIGH LOW
---- ---
<S> <C> <C>
QUARTER ENDED
February 29, 1996 . . . . . . . . . . . . . . . . . . $6 7/8 $5
May 31, 1996 . . . . . . . . . . . . . . . . . . . . . $9 1/4 $4 7/16
August 31, 1996 . . . . . . . . . . . . . . . . . . . $8 5/8 $5 11/16
</TABLE>
On November 5, 1996, the closing sales price as reported by the Nasdaq
National Market, of the Common Stock was $6.
As of November 5, 1996 the approximate number of holders of record of the
Common Stock was 32. A number of the Company's record holders represent public
shareholders whose securities are held in a so-called "street name."
The Company has not paid or declared cash dividends on its Common Stock
since its inception. The Company currently intends to retain any future
earnings to finance the growth of the business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future.
13
<PAGE> 14
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company provides a full range of digital prepress and digital printing
services to the corporate and professional graphic arts industry in the New
York City, San Francisco and London markets. Digital prepress services involve
preparing an image for reproduction by any of several printing processes. Using
advanced computer technology, the Company provides the imaging and reproduction
services required by graphic artists in connection with the creation of designs
for their clients, which include end-users of printed media such as consumer
product packaging, marketing and advertising materials. The Company's services
afford graphic artists the ability to make numerous changes and enhancements in
their designs throughout the design approval process with shorter turnaround
times and at reduced costs as compared to traditional prepress methods. Once a
design is approved, the Company provides the vital technological and service
interface between graphic artists and traditional commercial volume printers
necessary to translate the approved design into the format required for volume
printing. The Company's services also include digital scanning, document
creation services such as typesetting and short run digital printing.
RESULTS OF OPERATIONS
The following analysis of the results of operations includes the Company
which for the fiscal year ended August 31, 1996, contains the consolidated
results of operations of Linographics, Elements and Regent for 12 months,
Linographics Delaware since March 14, 1996 and Cardinal since August 9, 1996.
For the fiscal year ended August 31, 1995 the combined results of operations
include Linographics and Elements for 12 months and Regent since March 1, 1995.
All intercompany transactions have been eliminated.
Comparison of Fiscal Year Ended August 31, 1996 and August 31, 1995
Net sales for the fiscal year ended August 31, 1996 increased 36.5% to
$11,659,818 compared to $8,542,020 for the fiscal year ended August 31, 1995.
This increase is principally due to the introduction of digital printing in
London and to the inclusion of 12 months of operations for Regent in the fiscal
year ended August 31, 1996 compared to six months of operations for Regent in
the fiscal year ended August 31, 1995 and volume growth in both the U.S. and
United Kingdom operations. Net sales for the Company's United Kingdom
operations for the fiscal year ended August 31, 1996 increased 51.7% to
$6,098,843 compared to $4,019,398 for the fiscal year ended August 31, 1995.
Net sales for the Company's U.S. operations for the fiscal year ended August
31, 1996 increased 23% to $5,560,975 compared to $4,522,622 for the fiscal year
ended August 31, 1995.
Cost of sales for the fiscal year ended August 31, 1996 increased 44.1% to
$5,621,668 compared to $3,900,703 for the fiscal year ended August 31, 1995.
Cost of sales as a percentage of net sales increased from 45.7% for the fiscal
year ended August 31, 1995 to 48.2% for the fiscal year ended August 31, 1996
due to higher costs associated with digital print. Cost of sales for the
Company's United Kingdom operations for the fiscal year ended August 31, 1996
increased 75.9% to $3,167,855 compared to $1,801,038 for the fiscal year ended
August 31, 1995 primarily associated with the increase in sales and Regent's
digital print business which commenced operations in the first quarter of
fiscal 1996 and the associated higher cost of sales related to digital print.
Cost of sales for the Company's U.S. operations for the fiscal year ended
August 31, 1996 increased 16.9% to $2,453,813 compared to $2,099,665 for the
fiscal year ended August 31, 1995 primarily associated with the increase in
sales.
Selling, general and administrative expenses for the fiscal year ended
August 31, 1996 increased 61.3% to $3,593,302 compared to $2,227,524 for the
fiscal year ended August 31, 1995. Selling, general and administrative expenses
as a percentage of net sales increased from 26.1% for the fiscal year ended
August 31, 1995 to 30.8% for the fiscal year ended August 31, 1996 due to
14
<PAGE> 15
higher variable costs, including commissions and increases in administrative
costs. Selling, general and administrative expenses for the Company's United
Kingdom operations for the fiscal year ended August 31, 1996 increased 35.9% to
$1,704,803 compared to $1,254,147 for the fiscal year ended August 31, 1995.
These increases are primarily attributable to variable expenses commensurate
with increased revenues. Selling, general and administrative expenses for the
Company's U.S. operations for the fiscal year ended August 31, 1996 increased
94.0% to $1,888,499 compared to $973,377 for the fiscal year ended August 31,
1995. The increase in U.S. costs relates to additional management and
administrative personnel, costs associated with Unidigital which did not exist
in 1995 and the transition of customer accounts (from non-commission) to
commissioned sales personnel.
Principal stockholder/officers' compensation for the fiscal year ended
August 31, 1996 decreased 36.6% to $456,172 compared to $719,125 for the fiscal
year ended August 31, 1995. This decrease is due to the implementation of an
employment contract with the Company's principal stockholder/officer and the
resignation of the principal stockholder's former partner.
Income from operations for the fiscal year ended August 31, 1996 increased
17.3% to $1,988,676 compared to $1,694,668 for the fiscal year ended August 31,
1995 primarily attributable to increased sales.
Interest expense for the fiscal year ended August 31, 1996 increased 67.6%
to $326,805 compared to $194,995 for the fiscal year ended August 31, 1995.
This increase is attributable to increases in the Company's credit facility
borrowings and capital lease obligations.
Interest and other income for the fiscal year ended August 31, 1996 of
$232,397 includes $132,681 of interest income associated with the Initial
Public Offering proceeds and other income of $99,716. Other income includes
settlement proceeds received by the Company's Elements subsidiary from former
salespersons.
Income tax expense for the fiscal year ended August 31, 1996 increased to
$1,064,327 compared to $356,000 for the fiscal year ended August 31, 1995. The
Company currently pays Federal, state and local income tax at the corporate
level for its U.S. operations where previously Linographics paid only local
corporate income tax on the U.S. operations as a result of its Subchapter S
corporation status.
Net income for the fiscal year ended August 31, 1996 decreased 27.4% to
$829,941 compared to $1,143,673 for the fiscal year ended August 31, 1995 due
to the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of funds has been the net proceeds from its
February 1, 1996 Initial Public Offering of $5,200,000, increased borrowings
under its credit facilities and cash flow from operations. Cash flow from
operations for the fiscal year ended August 31, 1996 and 1995 was $1,488,318
and $713,424, respectively. Cash used in investing activities for the fiscal
year ended August 31, 1996 and 1995 was $3,056,770 and $814,599, respectively.
This increase relates primarily to the Cardinal and Linographics Delaware
acquisitions. Cash flow provided by financing activities for the fiscal years
ended August 31, 1996 and 1995 was $5,555,895 and $126,250, respectively.
The Company maintains borrowing arrangements with banks in both New York and
London. The Company has combined credit facilities with its New York bank for
its U.S. operations, aggregating $3,450,000 which consists of (i) a $150,000
term loan relating to Linographics and term loans aggregating $150,000 relating
to Linographics Delaware, (ii) a $750,000 line of credit which is available to
Cardinal for working capital purposes, (iii) a $1,400,000 term loan related to
Cardinal which matures on September 1, 1997, (iv) an $850,000 line of credit
related to
15
<PAGE> 16
Linographics, and (v) a $150,000 line of credit related to Linographics
Delaware. The term loans excluding the Cardinal $1,400,000 which is at prime,
bear interest at either the bank's prime rate plus 1/2% or at a fixed rate
determined at the time of borrowing, at the Company's option. The lines of
credit bear interest at prime plus 1/2%. At August 31, 1996 the Company's U.S.
term loan balance was $1,891,665 bearing interest at 9% and $553,000 was
outstanding under the lines of credit. Unidigital is a guarantor on all bank
debts of the U.S. subsidiaries.
The credit facilities contain covenants which require the Company to
maintain certain tangible net worth and debt service coverage ratios, as
defined, based on the combined assets of the U.S. parent and subsidiaries. At
August 31, 1996 the Company was in compliance with the covenants under the
[Acredit facilities. The lines of credit, which are renewable annually each
December, are secured by a first priority lien on the assets of Linographics.
The Company's London operations have combined credit facilities of $1,190,000
(Pound Sterling 764,000) for working capital purposes which are renewable
annually. At August 31, 1996 the Company's outstanding balance under the credit
facilities was $1,188,973 bearing interest at 8.75%. At August 31, 1996 the
Company was in compliance with the covenants under the lines of credit.
Subsequent to year end, the Company renegotiated its credit facility
arrangements with its banks in both the United States and the United Kingdom.
Each of the credit facility documents contain financial covenants as defined.
The U.S. lines of credit have been adjusted to the following amounts:
$1,200,000 for Cardinal, $700,000 for Linographics and $450,000 for
Linographics Delaware with each facility bearing interest at prime plus 1/2%.
The facilities are secured by equipment and accounts receivable.
The U.K. credit facilities have been replaced with a combined line of credit
for up to approximately $1,404,000 (Pound Sterling 900,000) secured against the
assets of Elements and Regent with a guarantee from Unidigital of Pound Sterling
500,000. The new facility bears interest at 2.25% over the bank's base rate for
borrowings up to Pound Sterling 600,000 and bears interest at 2.75% for
borrowings in excess of such amount.
The Company expects that cash flow from operations will be sufficient to
fund its capital lease obligations, debt service payments under its credit
facilities, capital expenditures and operations for the foreseeable future. The
Company may require additional financing to consummate future acquisitions.
There can be no assurance that the Company will be able to secure additional
financing.
Inflation, Foreign Currency Fluctuations and Interest Rate Changes
Although the Company cannot accurately determine the precise effect thereof
on its operations, it does not believe inflation, currency fluctuations or
interest rate changes have historically had a material effect on revenues,
sales or results of operations. Inflation, currency fluctuations and changes in
interest rates have however, at various times, had significant effects on the
economies of the United States and United Kingdom and could adversely impact
the Company's revenues, sales and results of operations in the future. If there
is a material adverse change in the relationship between the United Kingdom
Pound Sterling and the United States Dollar, such change would adversely affect
the results of the Company's United Kingdom operations as reflected in the
Company's financial statements. The Company has not hedged its exposure with
respect to this currency risk, and does not expect to do so in the future,
since it does not believe that it is economically beneficial.
16
<PAGE> 17
ITEM 7. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Unidigital Inc.
We have audited the consolidated balance sheet of Unidigital Inc. as of
August 31, 1996 and the related consolidated statement of income, cash flows
and stockholders' equity for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audit provides a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Unidigital Inc. at August 31, 1996 and the consolidated results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
New York, New York
October 25, 1996 except for
Note 4 which the date
is November 14, 1996 ERNST & YOUNG LLP
17
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Linographics Corporation
We have audited the accompanying combined balance sheet of Linographics
Corporation and Affiliates (the "Predecessor Companies" of Unidigital Inc.) as
at August 31, 1995 and the related combined statements of operations,
stockholders' equity and cash flows for the year ended August 31, 1995. These
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audit. We did not audit the consolidated financial statements of a United
Kingdom affiliate and its subsidiary included in the combined totals for 1995,
which statements constitute approximately 60% of combined assets at August 31,
1995 and 47% of combined revenues for the year then ended. Those statements
were audited by other auditors, whose report has been furnished to us and our
opinion, insofar as it relates to the amounts included for such statements, is
based solely on the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
combined financial statements referred to above present fairly, in all material
respects, the combined financial position of Linographics Corporation and
Affiliates as at August 31, 1995, and their combined results of operations and
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
CORNICK, GARBER & SANDLER, LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
November 2, 1995
18
<PAGE> 19
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Elements (UK) Limited
We have audited the consolidated balance sheet of Elements (UK) Limited and
subsidiary as at August 31, 1995 and the related consolidated statements of
profit and loss and cash flow and changes in shareholders' equity for the year
ended August 31, 1995, all of which are not separately included herein. These
financial statements are the responsibility of the Group's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America and the United Kingdom. These
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Elements (UK) Limited and subsidiary as at August 31, 1995, and the
consolidated results of their operations, cash flows and changes in
shareholders' equity for the year then ended, in conformity with generally
accepted accounting principles in the United States of America.
BLICK ROTHENBERG
CHARTERED ACCOUNTANTS
REGISTERED AUDITOR
London, England
October 31, 1995
19
<PAGE> 20
UNIDIGITAL INC.
CONSOLIDATED BALANCE SHEETS
As of August 31,
<TABLE>
<CAPTION>
1996 1995*
----------- -----------
<S> <C> <C>
ASSETS
Cash & cash equivalents (Note 2) . . . . . . . . . . . . . . . . . . . . . . $4,145,514 $ 186,802
Accounts receivable, net of allowance of $200,814 in 1996 and $110,000
in 1995 (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,207,857 2,334,275
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . 835,129 266,115
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,188,500 2,787,192
Property, plant and equipment, net (Note 3) . . . . . . . . . . . . . . . . . 8,594,985 2,965,376
Intangible assets, net (Note 2) . . . . . . . . . . . . . . . . . . . . . . . 797,213 776,539
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,628 20,905
---------- ----------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,623,326 $6,550,012
=========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Due to banks (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,741,973 $816,317
Current portion of long term debt (Note 4) . . . . . . . . . . . . . . . . . 77,800 --
Current portion of capital lease obligations (Note 5) . . . . . . . . . . . . 1,476,076 644,299
Current portion of payments for acquisition of business and cancellation
of options (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202,930 139,545
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . 1,792,973 792,936
Income taxes payable (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . 216,366 310,675
Loans and notes payable to stockholders (Note 6) . . . . . . . . . . . . . . 361,039 --
Deferred income taxes (Note 8) . . . . . . . . . . . . . . . . . . . . . . . -- 62,000
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 5,869,157 2,765,772
Loans and notes payable to stockholders (Note 6) . . . . . . . . . . . . . . -- 190,172
Noncurrent portion of long term debt (Note 4) . . . . . . . . . . . . . . . . 1,898,865 --
Noncurrent portion of capital lease obligations (Note 5) . . . . . . . . . . 1,974,033 810,888
Noncurrent portion of payments for acquisition of business and
cancellation of options (Note 2) . . . . . . . . . . . . . . . . . . . . . -- 139,545
Deferred income taxes (Note 8) . . . . . . . . . . . . . . . . . . . . . . . 516,596 39,000
----------- ----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,258,651 3,945,377
Stockholders' equity: (Note 7)
Preferred stock, par value $.01; 5,000,000 shares authorized; none
issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Common stock, par value $.01; 10,000,000 shares authorized; 3,189,216
shares issued and outstanding in 1996 and 120 in 1995 . . . . . . . . . . . 31,892 3,015
Additional paid-in-capital . . . . . . . . . . . . . . . . . . . . . . . . . 5,462,153 162,803
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,897,252 2,450,834
Cumulative foreign translation adjustment (Note 2) . . . . . . . . . . . . . (26,622) (12,017)
---------- ---------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . 7,364,675 2,604,635
----------- ----------
Total Liabilities and Stockholders' Equity . . . . . . . . . . . . . . . . . $17,623,326 $6,550,012
=========== ==========
</TABLE>
See notes to financial statements.
*Combined Predecessors
20
<PAGE> 21
UNIDIGITAL INC.
CONSOLIDATED INCOME STATEMENT
For the year ended August 31,
<TABLE>
<CAPTION>
1996 1995*
------------ ----------
<S> <C> <C>
REVENUES
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,659,818 $8,542,020
----------- ----------
EXPENSES
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,621,668 3,900,703
Selling general and administrative expenses . . . . . . . . . . . . . . . . . 3,593,302 2,227,524
Principal stockholder/officers' compensation . . . . . . . . . . . . . . . . 456,172 719,125
----------- ----------
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 9,671,142 6,847,352
----------- ----------
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,988,676 1,694,668
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (326,805) (194,995)
Interest and other income . . . . . . . . . . . . . . . . . . . . . . . . . . 232,397 --
----------- ----------
Income before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . 1,894,268 1,499,673
Provision for income taxes (including nonrecurring provision relating to
termination of subchapter S status on February 1, 1996) (Note 8) . . . . . 1,064,327 356,000
------------ ----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 829,941 $1,143,673
============ ==========
Net income per common share . . . . . . . . . . . . . . . . . . . . . . . . . $ .31 $ .57
============ ==========
Weighted average common shares outstanding . . . . . . . . . . . . . . . . . 2,643,828 2,000,000
Pro forma income data (Note 2):
Historical income before income taxes . . . . . . . . . . . . . . . . . . . $ 1,894,268
Pro forma adjustment for principal stockholder/officers'
compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,769
------------
Pro forma income before income taxes . . . . . . . . . . . . . . . . . . . 1,967,037
Pro forma income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 794,616
------------
Pro forma net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,172,421
============
Pro forma income per common share . . . . . . . . . . . . . . . . . . . . . $ .44
============
</TABLE>
See notes to financial statements.
*Combined Predecessors
21
<PAGE> 22
UNIDIGITAL INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the years ended August 31,
<TABLE>
<CAPTION>
1996 1995*
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 829,941 $ 1,143,673
------------ -----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 1,056,845 535,042
Provision for deferred income taxes . . . . . . . . . . . . . . . . . . . . 415,060 91,000
Provision for bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . 103,849 73,000
Changes in assets and liabilities net of effects of asset purchases
of TX Unlimited, Inc. and Cardinal Communications Group, Inc.
and C-Max Graphics Inc.:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . (963,734) (1,329,185)
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . (565,783) (134,754)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21,723) (725)
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . 729,598 93,239
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . (95,735) 242,134
----------- -----------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 658,377 (430,249)
----------- -----------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . 1,488,318 713,424
----------- -----------
INVESTING ACTIVITIES:
Additions to property and equipment . . . . . . . . . . . . . . . . . . . . . (1,279,502) (466,008)
Business acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,777,268) (348,591)
----------- -----------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . (3,056,770) (814,599)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from due to banks and long-term debt . . . . . . . . . . . . . . . . 2,635,656 505,162
Payments of due to banks and long-term debt . . . . . . . . . . . . . . . . . (177,754) --
Payments of capital lease obligations . . . . . . . . . . . . . . . . . . . . (692,311) (569,084)
Payments of notes for cancellation of options and acquisition of
business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (356,185) --
Stockholder loans/(repayments) . . . . . . . . . . . . . . . . . . . . . . . (327,556) 190,172
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (750,000) --
Proceeds from sale of common stock, net of issuance costs . . . . . . . . . . 5,224,045 --
----------- ----------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . 5,555,895 126,250
----------- -----------
Effect of Foreign Exchange Rates on Cash: . . . . . . . . . . . . . . . . . . (28,731) (5,693)
----------- -----------
NET INCREASE (DECREASE) IN CASH/CASH EQUIVALENTS . . . . . . . . . . . . . . 3,958,712 19,382
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . 186,802 167,420
----------- -----------
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . $ 4,145,514 $ 186,802
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 257,742 $ 177,297
=========== ===========
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 889,673 $ 22,839
=========== ===========
NON-CASH TRANSACTIONS:
Equipment acquired under capital lease obligations . . . . . . . . . . . . . $ 1,013,849 $ 1,225,377
=========== ===========
Dividends payable as note . . . . . . . . . . . . . . . . . . . . . . . . . . $ 498,000
-----------
Business acquisitions net of liabilities of $2,096,909 . . . . . . . . . . . $ 2,062,268
===========
</TABLE>
See notes to financial statements.
*Combined Predecessors
22
<PAGE> 23
UNIDIGITAL INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED AUGUST 31, 1996
<TABLE>
<CAPTION>
ADDITIONAL FOREIGN TOTAL
COMMON PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
STOCK CAPITAL EARNINGS ADJUSTMENT EQUITY
------ --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at August 31, 1994 . . . . . $ 3,000 $ 1,307,161 $ 1,310,161
Net income . . . . . . . . . . . . . 1,143,673 1,143,673
Issuance of shares in connection
with acquisition of United
Kingdom operations . . . . . . . . 15 162,803 162,818
Difference arising from
translation of foreign financial
statements . . . . . . . . . . . . (12,017) (12,017)
------- --------- ---------- -------- ------------
Balance at August 31, 1995* . . . . . 3,015 162,803 2,450,834 (12,017) 2,604,635
Cost of cancellation of options
to purchase an additional
interest in Elements . . . . . . . (162,803) (118,538) (281,341)
Exchange of S Corporation stock . . (3,015) (16,985) (20,000)
Formation (including merger of
Linographics, Elements and
Linographics Delaware) . . . . . . 20,000 20,000
Issuance of 1,150,000 shares of
common stock in connection
with the Initial Public Offering . 11,500 5,212,545 5,224,045
Issuance of 39,216 shares
of common stock in
connection with the
Cardinal asset acquisition . . . . 392 249,608 250,000
Dividends paid . . . . . . . . . . . (1,248,000) (1,248,000)
Net income . . . . . . . . . . . . . 829,941 829,941
Difference arising from translation
of foreign financial statements . . (14,605) (14,605)
------- ---------- ----------- -------- -----------
Balance at August 31, 1996 . . . . . $31,892 $5,462,153 $ 1,897,252 $(26,622) $ 7,364,675
======= ========== =========== ======== ===========
</TABLE>
See notes to financial statements.
*Combined Predecessors
23
<PAGE> 24
UNIDIGITAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996
NOTE 1. ORGANIZATION
Unidigital Inc. a Delaware corporation, was organized on October 18, 1995
for the purpose of becoming the parent holding company for Linographics
Corporation ("Linographics") and Elements (UK) Limited ("Elements")
(collectively, the "Predecessor Companies") and Linographics (Delaware)
Corporation ("Linographics Delaware"). Subsequently, the Company formed
Unidigital/Cardinal Corporation ("Cardinal"). All references herein to the
"Company" mean collectively, Unidigital, the Predecessor Companies,
Linographics Delaware and Cardinal unless the context requires otherwise.
Unidigital conducts operations through four wholly-owned subsidiaries:
Linographics, Elements, Linographics Delaware and Cardinal. Linographics
engages in the digital prepress business in New York City. Elements engages in
the digital prepress business and through its wholly-owned subsidiary, Regent
Communication Limited ("Regent") which was acquired in March, 1995, operates
the document production and digital print business in London. Linographics
Delaware owns and operates the San Francisco based prepress business. Cardinal
engages in the digital prepress and digital printing services to advertising
agencies, publishers and corporations in the New York City and surrounding
area.
On February 6, 1996 Unidigital completed an Initial Public Offering (the
"IPO") of 1,000,000 shares of Common Stock at a price of $6.00 per share, and
on February 21, 1996 the underwriters exercised their over-allotment option for
the purchase of an additional 150,000 shares. Unidigital realized aggregate
net proceeds of approximately $5,200,000. The Company used a portion of the net
proceeds of the IPO to repay certain indebtedness under the Company's credit
facilities and for general operational and working capital purposes. The
Company intends to use the balance of such funds for acquisitions of businesses
and working capital.
On March 14, 1996 Linographics Delaware purchased certain assets for
$170,000 and assumed certain liabilities aggregating $140,500 of TX Unlimited,
Inc., a San Francisco, California based graphics arts company. The purchase
price included an $85,000 payment at closing and the balance of $85,000 which
is payable in eight quarterly installments commencing September, 1996, of
$11,600, which includes interest of 6% per annum. The acquisition was recorded
using the purchase method of accounting and the results of operations are
included in the financial statements since the date of acquisition.
On August 9, 1996, the Company, through Cardinal, consummated the
acquisition of certain assets of Cardinal Communications Group, Inc. and C-Max
Graphics, Inc. (C-Max and Cardinal Communications Group, Inc. are referred to
collectively as the "Seller"). The assets purchased included the Seller's
entire customer list, inventory, equipment, trade name and 34,000 square feet
of commercial real estate in New York City. The purchase price included cash
payments of $1,450,000, issuance of $250,000 of restricted Common Stock of the
Company (39,216 shares) and the assumption of certain liabilities and real
estate taxes and mortgages. The Company funded the cash purchase price from
proceeds of a $1,400,000 term loan from Chase Manhattan Bank ("Chase"). The
acquisition was recorded using the purchase method of accounting and the
results of operations are included in the financial statements since the date
of acquisition. The aggregate purchase price of approximately $2,200,000, which
includes costs incurred in connection with the acquisition, approximates the
estimated fair value of the net assets acquired. The preliminary allocation of
purchase price, which does not include goodwill, may change upon final
determination of the fair value of the net assets acquired.
24
<PAGE> 25
The following supplemental unaudited pro forma information is presented as
if the Company had completed the Regent Acquisition and the Cardinal
Acquisition and the related borrowings as of September 1, 1994 and 1995
respectively:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,447,105 18,530,700
Income before taxes . . . . . . . . . . . . . . . . . . . . . . 1,012,481 148,797
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . (51,847) 385,612
Net (loss) income per share . . . . . . . . . . . . . . . . . . (.02) .12
</TABLE>
NOTE 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company invests excess daily cash balances in commercial paper with
maturities not exceeding 30 days. The Company considers such investments to be
cash equivalents.
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Credit is extended based on an evaluation of the customer's financial
conditions, and generally advance payment is not required. Anticipated credit
losses are provided for in the consolidated financial statements and
consistently have been within management's expectations.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided on the straight-line method over the estimated useful
lives ranging from: three years for automobiles and computer software, five to
seven years for furniture and equipment, 40 years for real property including
related improvements and leasehold improvements over the lesser of the
estimated useful life of the leasehold improvement or the term of the related
lease including exercisable renewal options.
Intangible Assets
Intangible assets include goodwill, which is being amortized over 15 years
and deferred financing costs which will be amortized over the life of the
related debt. Amortization of approximately $32,517 and $34,562 was recorded
for the years ended August 31, 1996 and 1995, respectively.
It is the Company's policy to account for goodwill at the lower of amortized
cost or fair value. As part of an ongoing review of the valuation and
amortization of intangible assets, management assesses the carrying value of
the Company's intangible assets if facts and circumstances suggest
25
<PAGE> 26
that it may be impaired. If this review indicates that the intangibles will not
be recoverable as determined by a non-discounted cash flow analysis of the
Company over the remaining amortization period, the carrying value of the
Company's intangibles would be reduced to its estimated realizable value. As a
result, the Company has determined that goodwill is fairly stated at August 31,
1996.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
("FAS 121") effective for fiscal years beginning after December 15, 1995. The
Company expects that the adoption of FAS 121 will not have a material effect on
its financial statements.
Stock Options
In accordance with Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," ("APB 25") compensation costs for stock is
recognized in income based on the excess, if any, of the quoted market price of
the stock at the grant date of the award or other measurement date over the
amount an employee must pay to acquire that stock.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock Based Compensation," ("FAS 123") which
establishes financial accounting and reporting standards for stock based
employee compensation plans including stock purchase plans, stock options,
restricted stock and stock appreciation rights. The Company has elected to
continue accounting for stock based compensation under the provisions of APB
25. The disclosure requirements of FAS 123 will be effective for the Company's
financial statements beginning in the first quarter of 1996.
Foreign Currency Translation
The portion of the Company's financial statements relating to the United
Kingdom operations are translated into U.S. Dollars using period end exchange
rates (One Pound = $1.56 and $1.55 at August 31, 1996 and 1995, respectively
for balance sheet accounts) and average exchange rates (One Pound = $1.55 and
$1.59 for the year ended August 31, 1996 and 1995, respectively for the income
statement accounts). The translation difference is reflected as a separate
component of stockholders' equity.
Termination of Subchapter Status and Related Income Tax Matters
Linographics previously filed federal and state income tax returns under
Subchapter S of the Internal Revenue Code in which its income was reportable by
and taxed to its stockholders. As a result of the IPO, the Subchapter S status
was necessarily terminated effective February 1, 1996. Accordingly, $367,000 of
federal, state and local income taxes, applicable to temporary differences in
the recognition of income and expenses for financial accounting and income tax
reporting purposes existing at February 1, 1996, has been recorded and charged
to operations for the year ended August 31, 1996. These nonrecurring charges
result solely from the termination of the Subchapter S status in the United
States.
Subsequent to February 1, 1996 income taxes on U.S. earnings are taxed at a
combined effective tax rate of approximately 46.5%, whereas previously, only
local income taxes on U.S. earnings were payable at the corporate level.
Deferred income taxes are recognized in accordance with Statement of
Financial Accounting Standards 109. Deferred income taxes result from
differences between the financial statement and tax bases of assets and
liabilities.
26
<PAGE> 27
Regent Acquisition - Cancellation of Options
As part of the purchase of Regent, in March, 1995, two of its former
stockholders were each granted an option to acquire for 50,000 (pound Sterling)
an additional 6-1/2% share interest in Elements exercisable upon a public
floatation of its stock. In November 1995, the options were cancelled in
consideration for payments of approximately 180,000 (pound Sterling)
(approximately $281,000), of which 75,000 (pound Sterling) remains payable and
(approximately $117,000) is due in installments to April 1, 1997.
Income Statement - Pro Forma Information
The pro forma information on the income statement gives effect to the
historical combined results of operations adjusted for (i) the reduced level of
salaries paid to the principal stockholder/officer and the former partner and
(ii) the income tax effect of Linographics changing from Subchapter S status to
Subchapter C status as if these had occurred effective September 1, 1995.
Pro forma net income per common share is based on pro forma net income and
the weighted average number of common shares outstanding.
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating
fair values of financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance sheet
approximates fair value.
Due to banks - lines of credit: The carrying amount of the Company's
borrowings under its lines of credit approximates fair value as the interest
rates charged approximate the respective market rates and there is a relatively
short period to maturity.
Term loans: The carrying amount of the Company's term loans with variable
interest rates approximates fair value as the interest rates charged on such
debt fluctuate upon changes in the underlying market rates.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31,
1996 1995
----------- ----------
<S> <C> <C>
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,057,789 $ --
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 7,608,765 3,429,083
Furniture and office equipment . . . . . . . . . . . . . . . . . . . . . . 297,310 119,000
Computer software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185,926 125,656
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . 380,396 196,117
Automobile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,105 --
----------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,542,291 3,869,856
Less accumulated depreciation and amortization . . . . . . . . . . . . . . (1,947,306) (904,480)
----------- ---------
Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,594,985 $2,965,376
=========== ==========
</TABLE>
27
<PAGE> 28
NOTE 4. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
AMOUNT OUTSTANDING
------------------------
FACILITY AUGUST 31, AUGUST 31,
AMOUNT 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
DUE TO BANKS:
Lines of Credit in the United States; interest
at prime rate plus 1/2%.
Linographics . . . . . . . . . . . . . . . . . . . . . . . . . . $ 850,000 -- $ 160,317
Linographics Delaware . . . . . . . . . . . . . . . . . . . . . . 150,000 103,000 --
Cardinal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750,000 450,000 --
Credit facilities in the United Kingdom;
interest at the bank's overdraft rate
plus 3%; facility amount is approximately pounds Sterling 763,000 1,190,000 1,188,973 656,000
---------- ---------
$1,741,973 $ 816,317
========== =========
TERM LOANS:
Five year term loans in the United States, interest
at prime rate plus 1/2% or at a fixed rate
(determined at the time of borrowing)
Linographics . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000 -- --
Linographics Delaware, matures March 11, 2001; . . . . . . . . . 150,000 141,665 --
monthly installments of $2,500 plus interest
Term loan for Cardinal, matures September 1, 1997;
monthly interest only at prime . . . . . . . . . . . . . . . . . 1,400,000 1,400,000 --
SBA loan, Unidigital/Cardinal, matures
December 1, 2014; interest at prime rate plus 2.75%* . . . . . . 350,000 --
Installment note due seller of TX Unlimited Inc.
payable in eight (8) quarterly installments
of $11,600 including interest at 6%. . . . . . . . . . . . . . . 85,000 --
---------- --------
1,976,665 --
Less current portion . . . . . . . . . . . . . . . . . . . . . . . (77,800) --
---------- --------
$1,898,865 --
========== ========
</TABLE>
*This obligation was assigned to the Company in connection with the Cardinal
acquisition.
The U.S. credit facilities contains tangible net worth and debt service
coverage covenants as defined, based on the combined assets of Linographics and
Linographics Delaware. The credit facilities are collateralized by all of the
assets of Linographics and Unidigital. The lines of credit are renewable
annually and require a 30-day period per year during which no amounts may be
outstanding for the Linographics Delaware borrowings thereunder.
The U.K. working capital facilities include a factor arrangement relative to
accounts receivable with the bank under a recourse agreement.
28
<PAGE> 29
Maturities of term loan principal are as follows:
<TABLE>
<CAPTION>
YEAR ENDING LINOGRAPHICS TX INSTALLED
AUGUST 31, DELAWARE CARDINAL NOTE SBA LOAN TOTAL
- --------- -------- -------- ---- -------- -----
<S> <C> <C> <C> <C> <C>
1997 . . . . . . . $ 30,000 -- $42,500 $ 5,300 $77,800
1998 . . . . . . . 30,000 1,400,000 42,500 5,900 1,478,400
1999 . . . . . . . 30,000 -- 6,500 36,500
2000 . . . . . . . 30,000 7,300 37,300
2001 . . . . . . . 21,665 8,100 29,765
Remainder . . . . . 316,900 316,900
-------- ---------- ------- -------- ----------
$141,665 $1,400,000 $85,000 $350,000 $1,976,665
======== ========== ======= ======== ==========
</TABLE>
Subsequent to year end, the Company has renegotiated its credit facility
arrangements with its banks in both the United States and the United Kingdom.
Each of the credit facility documents contain financial covenants as defined.
The U.S. lines of credit have been adjusted to the following amounts:
$1,200,000 for Cardinal, $700,000 for Linographics and $450,000 for
Linographics Delaware with each facility bearing interest at prime plus 1/2%.
The facilities are secured by equipment and accounts receivable.
The U.K. credit facilities have been replaced with a combined line of credit
for up to approximately $1,404,000 (pounds Sterling 900,000) secured against the
assets of Elements and Regent with a guarantee from Unidigital of pounds
Sterling 500,000. The new facility bears interest at 2.25% over the bank's base
rate for borrowings up to pounds Sterling 600,000 and bears interest at 2.75%
for borrowings in excess of such amount.
NOTE 5. OBLIGATIONS UNDER CAPITAL LEASES
The Company leases certain production equipment and a vehicle which have
been classified as capital leases. Accordingly, at August 31, 1996 the cost of
such assets of $4,699,267, has been included in property and equipment and the
principal portion of the remaining lease payments is reflected as a liability
on the balance sheet. At August 31, 1995, equipment held under capital lease
obligations was $2,253,853.
Future minimum payments under these leases are as follows:
<TABLE>
<CAPTION>
AUGUST 31,
1996
----------
<S> <C>
Year ending:
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,798,371
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,105,029
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 712,353
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 440,644
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,800
----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,106,197
Less amount representing interest . . . . . . . . . . . . . . . . . . . . . . 656,088
----------
Present value of minimum lease payments . . . . . . . . . . . . . . . . . . . 3,450,109
Less current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,476,076
----------
Noncurrent portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,974,033
==========
</TABLE>
NOTE 6. LOANS AND NOTES PAYABLE TO STOCKHOLDERS
Loans payable to the stockholders, consisting of two loans aggregating
$361,039, are due on March 1, 1997, and bear interest at 7.5% and 8% per annum.
29
<PAGE> 30
NOTE 7. STOCKHOLDERS' EQUITY
Common Stock
The Company has authorized 10,000,000 shares of Common Stock, $.01 par
value, of which 3,189,216 shares were issued and outstanding at August 31,
1996. The Company has reserved for issuance i) 300,000 shares of Common Stock
upon exercise of options granted or to be granted under its Stock Option Plans
and ii) 80,000 shares of Common Stock upon exercise of warrants issued to
Burnham Securities Inc., the managing underwriter of the Company's IPO. The
underwriter's warrants are exercisable at a price of $7.20 per share for a
period of four years commencing February 1, 1997.
Pursuant to the 1995 Long Term Stock Investment Plan, (the "Plan") the
Company may grant to eligible employees incentive stock options, as defined in
the Internal Revenue Code of 1986, as amended. A maximum of 300,000 shares of
Common Stock has been reserved for issuance under the Plan. The Company has
granted options to purchase 103,000 shares of Common Stock, at exercise prices
ranging from $5.50 to $6.75 per share (fair market value of the Common Stock at
the time of grant) as of August 31, 1996.
In connection with the acquisition of Elements, a former selling shareholder
was issued an option, which expires in February 2002, to purchase 50,000 shares
of Unidigital stock at $6.00 per share.
In December 1995, Linographics made loans in an aggregate amount of $750,000
to its two principal stockholder/officers which were funded primarily by
borrowings under its credit facilities. These loans were subsequently repaid
prior to the effective date of the Offering upon the declaration and payment of
$750,000 of dividends. In January 1996, Linographics declared a dividend of
$109,000, paid in the form of notes. The $859,000 total of these dividends,
plus dividends of $389,000 paid in November 1995 in the form of notes,
represents Linographics' accumulated Subchapter S earnings from inception to
November 30, 1995.
Preferred Stock
The Company has authorized 5,000,000 shares of Preferred Stock, $.01 par
value, which may be issued by the Board of Directors on such terms and with
such rights, preferences and designations as the Board of Directors may
determine without further action by the Company's stockholders. There were no
shares of Preferred Stock issued or approved for issuance as of August 31,
1996.
30
<PAGE> 31
NOTE 8. INCOME TAXES
The Company accounts for income taxes using the liability method. Deferred
tax assets and liabilities are recognized for the expected future tax
consequences of events that have been recognized in the financial statements or
tax returns.
The following comprises income tax expense on the statements of operations:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1996 1995
---------- ----------
<S> <C> <C>
U.S. income taxes:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 437,089 $ 43,000
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . 357,575 28,000
---------- ----------
794,664 71,000
---------- ----------
United Kingdom income taxes:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . 211,642 222,000
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,021 63,000
---------- ----------
269,663 285,000
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,064,327 $ 356,000
========== ==========
</TABLE>
The following reconciles income tax expense, computed at the statutory
United States Federal corporate rate, to income tax expense on the statements
of operations.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1996 1995
---------- ----------
<S> <C> <C>
Income taxes at United States Federal statutory rate . . . . . . $ 644,051 $ 510,000
State and local income taxes . . . . . . . . . . . . . . . . . . 148,814 71,000
Non-deductible goodwill expense and difference between
United States and United Kingdom tax rates and other . . . . . 16,462 9,000
Effect of Subchapter S status . . . . . . . . . . . . . . . . . (112,000) (234,000)
Effect of termination of Subchapter S election . . . . . . . . . 367,000 --
---------- ----------
Total per statements of operations . . . . . . . . . . . . . $1,064,327 $ 356,000
========== ==========
</TABLE>
The liability for deferred income taxes is based on U.S. and United Kingdom
income tax rates applied to temporary differences in the recognition of income
and expenses for income tax and financial accounting purposes as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Use of cash basis for United States income tax purposes . . . $ 316,047 $ 74,000
Difference in depreciation methods . . . . . . . . . . . . . . 260,573 39,000
---------- ----------
Total deferred tax liability . . . . . . . . . . . . . . . . 576,620 113,000
Less deferred tax asset:
Allowance for doubtful accounts . . . . . . . . . . . . . . . (60,024) --
Pre-acquisition loss carryforwards of Regent . . . . . . . . . -- (12,000)
--------- ----------
Net deferred tax liability . . . . . . . . . . . . . . . . . $ 516,596 $ 101,000
========== ==========
</TABLE>
As a result of the Initial Public Offering, Linographics' Subchapter S
status was terminated and additional Federal and state deferred income tax
liabilities and a charge to operations of approximately $367,000 were recorded
on the date of termination.
31
<PAGE> 32
NOTE 9. COMMITMENTS
The Company leases their premises under operating lease agreements which
expire at various dates through May 2000. Linographics' leases, which expire in
June 1997, provide for options to renew for an additional two years.
The Company also leases certain production equipment under operating leases
which expire at various dates through June 2000.
Aggregate minimum rental payments for premises and equipment under operating
leases are as follows:
<TABLE>
<CAPTION>
TOTAL PREMISES EQUIPMENT
----- -------- ---------
<S> <C> <C> <C>
Year ending August 31:
1997 . . . . . . . . . . . . . . . . . . . . . . $ 774,057 $ 293,935 $ 480,122
1998 . . . . . . . . . . . . . . . . . . . . . . 430,068 131,479 298,589
1999 . . . . . . . . . . . . . . . . . . . . . . 398,824 131,479 267,345
2000 . . . . . . . . . . . . . . . . . . . . . . 393,635 131,479 262,156
2001 . . . . . . . . . . . . . . . . . . . . . . 387,385 131,479 255,906
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . $2,383,969 $ 819,851 $1,564,118
========== ========== ==========
</TABLE>
Aggregate rental expense for the year ended August 31, 1996 approximated
$378,000. Rental expense for the year ended August 31, 1995 approximated
$291,000.
A five year employment agreement effective January 1, 1996 provides for an
annual salary of $250,000 with annual increases of not less than the annual
increase in the Consumer Price Index ("CPI") for the Company's President.
An employment agreement with the managing director of Elements provides for
an annual salary of pounds Sterling 96,000 ($147,000) to February 28, 1997.
NOTE 10. SEGMENT INFORMATION
Since September 1, 1994, the Company has conducted operations in both the
United States and the United Kingdom. The following summarizes the operations
by location for the years ended August 31, 1996 and 1995:
<TABLE>
<CAPTION>
AUGUST 31, 1996 AUGUST 31, 1995
----------------------- -----------------------
UNITED UNITED UNITED UNITED
STATES KINGDOM STATES KINGDOM
--------- --------- ---------- --------
<S> <C> <C> <C> <C>
Net sales $ 5,560,975 $6,098,843 $4,522,622 $4,019,398
=========== ========== ========== ==========
Income from operations $ 762,491 $1,226,185 $1,048,345* $1,051,986
=========== ========== ========== ==========
Identifiable assets $13,333,558 $4,289,768 $2,599,733 $3,950,279
=========== ========== ========== ==========
</TABLE>
*Excludes compensation deduction for the Chief Executive Officer.
32
<PAGE> 33
The operations conducted by Regent since its acquisition, effective March 1,
1995, are considered to be a separate industry segment. The following
summarizes operations by industry segment for the years ended August 31, 1996
and 1995:
<TABLE>
<CAPTION>
AUGUST 31, 1996 AUGUST 31, 1995
------------------------- ------------------------
DIGITAL DOCUMENT DIGITAL DOCUMENT
IMAGING AND CREATION AND IMAGING AND CREATION AND
PREPRESS SHORT-RUN PREPRESS SHORT-RUN
SERVICE PRINTING SERVICE PRINTING
SEGMENT SEGMENT SEGMENT SEGMENT
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . $ 9,386,162 $2,273,656 $ 7,768,251 $ 773,769
=========== ========== =========== ==========
Income from operations . . . $ 1,851,660 $ 137,016 $ 2,010,975* $ 89,356
=========== ========== =========== ==========
Identifiable assets . . . . $15,013,746 $2,609,580 $ 4,781,289 $1,768,623
=========== ========== =========== ==========
</TABLE>
*Excludes compensation deduction for the Chief Executive Officer.
NOTE 11. EMPLOYEE BENEFIT PLAN
The Company adopted a 401(k) Plan effective January 1, 1996, in which most
of the Company's U.S. employees are eligible to participate. Although the Plan
provides for discretionary employer contributions, there were none for the year
ended August 31, 1996.
33
<PAGE> 34
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On August 28, 1996, Unidigital selected Ernst & Young LLP to act as
independent accountants for the Company and informed the prior auditors,
Cornick, Garber & Sandler, LLP, the Company's independent accountants since
October 1995, of its decision. In connection with its audits for each of the
two years in the period ended August 31, 1995 and thereafter, there were no
disagreements with the prior auditors on any matters of accounting principles
or practices, financial statement disclosure, or auditing scope or procedures.
The prior auditors' report on the Company's financial statements for each of
the two years in the period ended August 31, 1995 contained no adverse opinion
or disclaimer of opinion and was not modified or qualified as to uncertainty,
audit scope, or accounting principles. The decision to change accountants was
approved by the Board of Directors of the Company. The prior auditors have
furnished the Company with a letter addressed to the Securities and Exchange
Commission stating their agreement with the above statements.
34
<PAGE> 35
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The information relating to the Company's directors, nominees for election
as directors and executive officers under the headings "Election of Directors"
and "Executive Officers" in the Company's definitive proxy statement for the
1997 Annual Meeting of Stockholders is incorporated herein by reference to such
proxy statement.
ITEM 10. EXECUTIVE COMPENSATION
The discussion under the heading "Executive Compensation" in the Company's
definitive proxy statement for the 1997 Annual Meeting of Stockholders is
incorporated herein by reference to such proxy statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The discussion under the heading "Security Ownership of Certain Beneficial
Owners and Management" in the Company's definitive proxy statement for the 1997
Annual Meeting of Stockholders is incorporated by reference to such proxy
statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The discussion under the heading "Certain Relationships and Related
Transactions" in the Company's definitive proxy statement for the 1997 Annual
Meeting of Stockholders is incorporated herein by reference to such proxy
statement.
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT NO. DESCRIPTION OF EXHIBIT
<TABLE>
<S> <C>
**3.1 Certificate of Incorporation. Incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement which
became effective February 1, 1996 (File number 33-99656);
**3.2 By-Laws. Incorporated by reference to Exhibit 3.2 the
Company's Registration Statement which became effective
February 1, 1996 (File number 33-99656);
**3.3 Certificate of Amendment of Certificate of Incorporation.
Incorporated by reference to Exhibit 3.3 to the Company's
Registration Statement which became effective February 1, 1996
(File number 33-99656);
**4.2 Form of Representative's Warrant Agreement including form of
Representative's Warrant, between the Registrant and the
Representative. Incorporated by reference to Exhibit 4.2 to
the Company's Registration Statement which became effective
February 1, 1996 (File number 33-99656);
**9.1 Voting Trust Agreement dated as of November 3, 1995 between
William E. Dye and Jeffrey W. Leiderman. Incorporated by
reference to Exhibit 9.1 to the Company's Registration
Statement which became effective February 1, 1996 (File number
33-99656);
+**10.1 Employment Agreement dated as of November 2, 1995 between
William E. Dye and the Registrant. Incorporated by reference
to Exhibit 10.1 to the Company's Registration Statement which
became effective February 1, 1996 (File number 33-99656);
+**10.2 Employment Agreement dated as of November 2, 1995 between
Stephen J. McErlain and the Registrant. Incorporated by
reference to Exhibit 10.2 to the Company's Registration
Statement which became effective February 1, 1996 (File number
33-99656);
</TABLE>
<PAGE> 36
<TABLE>
<S> <C>
+**10.3 Employment Agreement dated March 1, 1995 between Anthony
Manser and Elements. Incorporated by reference to Exhibit 10.3
to the Company's Registration Statement which became effective
February 1, 1996 (File number 33-99656);
**10.4 Lease Agreement dated May 1993 between Dezer Properties and
Linographics Corporation for Suite 901. Incorporated by
reference to Exhibit 10.4 to the Company's Registration
Statement which became effective February 1, 1996 (File number
33-99656);
**10.5 Lease Agreement dated June 1992 between Dezer Properties and
Linographics Corporation for Suite 902. Incorporated by
reference to Exhibit 10.5 to the Company's Registration
Statement which became effective February 1, 1996 (File number
33-99656);
**10.6 Lease Agreement dated February 1993 between Dezer Properties
and Linographics Corporation for Suite 904. Incorporated by
reference to Exhibit 10.6 to the Company's Registration
Statement which became effective February 1, 1996 (File number
33-99656);
**10.7 Lease Agreement dated March 1994 between Dezer Properties and
Linographics Corporation for Suite 1004. Incorporated by
reference to Exhibit 10.7 to the Company's Registration
Statement which became effective February 1, 1996 (File number
33-99656);
**10.8 Lease Agreement dated August 1995 between Dezer Properties and
Linographics Corporation for Suite 504. Incorporated by
reference to Exhibit 10.8 to the Company's Registration
Statement which became effective February 1, 1996 (File number
33-99656);
**10.9 Lease Agreement dated as of April 20, 1995 between The Stock
Exchange (Holdings) Limited and Lyledale Limited for 69 Wilson
Street. Incorporated by reference to Exhibit 10.9 to the
Company's Registration Statement which became effective
February 1, 1996 (File number 33-99656);
**10.10 Lease Agreement dated as of December 25, 1994 between Collin
Estates Limited and Lyledale Limited for 48 Margaret Street.
Incorporated by reference to Exhibit 10.10 to the Company's
Registration Statement which became effective February 1, 1996
(File number 33-99656);
**10.11 1995 Unidigital Inc. Long-Term Stock Investment Plan.
Incorporated by reference to Exhibit 10.11 to the Company's
Registration Statement which became effective February 1, 1996
(File number 33-99656);
**10.12 1995 Directors Stock Option Plan. Incorporated by reference to
Exhibit 10.12 to the Company's Registration Statement which
became effective February 1, 1996 (File number 33-99656);
**10.13 Asset Purchase Agreement dated November 22, 1995 between
Linographics Corporation and TX Unlimited, Inc. Incorporated
by reference to Exhibit 10.13 to the Company's Registration
Statement which became effective February 1, 1996 (File number
33-99656);
**10.14 Stock Purchase Agreement dated as of August 9, 1995 among
Jeffrey W. Leiderman, William E. Dye and Stephen J. McErlain.
Incorporated by reference to Exhibit 10.14 to the Company's
Registration Statement which became effective February 1, 1996
(File number 33-99656);
</TABLE>
36
<PAGE> 37
<TABLE>
<S> <C>
**10.15 Share Purchase Agreement By Way of Deed dated as of August 9,
1995 among Jeffrey W. Leiderman, William E. Dye, Stephen J.
McErlain and Anthony Manser. Incorporated by reference to
Exhibit 10.15 to the Company's Registration Statement which
became effective February 1, 1996 (File number 33-99656);
**10.16 Asset Purchase Agreement dated as of August 2, 1996 by and
among Unidigital Inc., Unidigital/Cardinal Corporation,
Cardinal Communications Group Inc., C-Max. Incorporated by
reference to the Company's Form 8-K dated August 19, 1996;
*10.17 Separation Agreement between Unidigital Inc. and Stephen
McErlain dated July 15, 1996;
*10.18 Line of credit and term loans between Unidigital/Cardinal
Corporation and Chase Manhattan Bank;
*10.19 Line of Credit between Linographics Corporation and Chase
Manhattan Bank;
*10.20 Line of Credit between Linographics (Delaware) Corporation and
Chase Manhattan Bank;
*10.21 Term loan between Linographics (Delaware) Corporation and
Chase Manhattan Bank;
*10.22 Credit facilities between Elements and Regent and Lloyds Bank;
**16.0 Letter re: Change in Certifying Accountants. Incorporated by
reference to the Company's Form 8-K dated September 4, 1996;
*21.1 Subsidiaries.
</TABLE>
- ----------------------
* Filed herewith.
** Previously filed.
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit pursuant to Item 6(a) of Regulation S-B.
(b) Reports filed on Form 8-K
-- On August 19, 1996 the Company filed a Form 8-K describing the
acquisition of specific assets and assumption of certain
liabilities related to Cardinal Communications Group, Inc. and
C-Max Graphics. On October 15, 1996, the Company filed a Form
8-K/A containing the required financial statements and pro
forma information
-- On September 4, 1996 the Company filed a Form 8-K announcing
the change in its certifying accountants.
37
<PAGE> 38
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
UNIDIGITAL INC.
Dated: November 22, 1996 By: /s/ WILLIAM E. DYE
-------------------------------
Name: William E. Dye
Title: President, Chief Executive
Officer and Chairman of the Board
of Directors
In accordance with the Exchange Act, this report has been signed below by
the following person on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ WILLIAM E. DYE President, Chief Executive Officer and November 22, 1996
- ------------------------ Chairman of the Board of Directors
William E. Dye (principal executive officer)
/s/ ANTHONY MANSER Vice President, Director November 22, 1996
- ------------------------
Anthony Manser
/s/ KEVIN H. RICH Vice President and Chief Financial November 22, 1996
- ------------------------ Officer (principal financial and
Kevin H. Rich accounting officer)
/s/ PETER SAAD Senior Vice President and Chief November 22, 1996
- ------------------------ Operating Officer, Director
Peter Saad
/s/ HARVEY SILVERMAN Director November 22, 1996
- ------------------------
Harvey Silverman
/s/ DAVID WACHSMAN Director November 22, 1996
- ------------------------
David Wachsman
</TABLE>
38
<PAGE> 39
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PREDECESSOR COMPANIES PRIOR TO THE FORMATION:
Linographics Corporation and Affiliates:
Independent Auditors' Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Combined Balance Sheets as at August 31, 1995 and November 30, 1995
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Combined Statements of Operations for the Years Ended August 31, 1995
and August 31, 1994 and for the Three Month Periods Ended November 30, 1995
and 1994 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Combined Statements of Stockholders' Equity for the Years Ended August 31, 1995
and August 31, 1994 and for the Three Month Period Ended November 30, 1995
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Combined Statements of Cash Flows for the Years Ended August 31, 1995
and August 31, 1994 and for the Three Month Periods Ended November 30, 1995
and 1994 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Notes to Combined Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8
Unaudited Pro Forma Statement of Operations for the Year Ended
August 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-17
UNIDIGITAL INC.:
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-18
Balance Sheet as at October 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-19
Notes to Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-20
UNITED KINGDOM OPERATIONS PRIOR TO ACQUISITION:
Lyledale Limited (Trading as "Elements"):
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-21
Statements of Operations for the Years Ended January 31, 1995 and January 31,
1994 (Audited) and for the One Month Ended February 28, 1995 (Unaudited) . . . . . . . . . . . . . . . . . . . . . F-22
Statements of Cash Flows for the Years Ended January 31, 1995 and January 31,
1994 (Audited) and for the One Month Ended February 28, 1995 (Unaudited) . . . . . . . . . . . . . . . . . . . . . F-23
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-24
</TABLE>
F-1
<PAGE> 40
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Linographics Corporation
We have audited the accompanying combined balance sheet of Linographics
Corporation and Affiliates as at August 31, 1995 and the related combined
statements of operations, stockholders' equity and cash flows for each of the
two years in the period ended August 31, 1995. These financial statements are
the responsibility of the Companies' management. Our responsibility is to
express an opinion on these financial statements based on our audit. We did not
audit the consolidated financial statements of a United Kingdom affiliate and
its subsidiary included in the combined totals for 1995, which statements
constitute approximately 60% of combined assets at August 31, 1995 and 47% of
combined revenues for the year then ended. Those statements were audited by
other auditors, whose report has been furnished to us and our opinion, insofar
as it relates to the amounts included for such statements, is based solely on
the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
combined financial statements referred to above present fairly, in all material
respects, the combined financial position of Linographics Corporation and
Affiliates as at August 31, 1995, and their combined results of operations and
cash flows for each of the two years in the period then ended, in conformity
with generally accepted accounting principles.
CORNICK, GARBER & SANDLER, LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
November 2, 1995
With respect to Note M
January 10, 1996
F-2
<PAGE> 41
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Elements (UK) Limited
We have audited the consolidated balance sheet of Elements (UK) Limited and
subsidiary as at August 31, 1995 and the related consolidated statements of
profit and loss and cash flow and changes in shareholders' equity for the year
ended August 31, 1995, all of which are not separately included herein. These
financial statements are the responsibility of the Group's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America and the United Kingdom. These
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Elements (UK) Limited and subsidiary as at August 31, 1995, and the
consolidated results of their operations, cash flows and changes in
shareholders' equity for the year then ended, in conformity with generally
accepted accounting principles in the United States of America.
BLICK ROTHENBERG
CHARTERED ACCOUNTANTS
REGISTERED AUDITOR
London, England
October 31, 1995
F-3
<PAGE> 42
LINOGRAPHICS CORPORATION AND AFFILIATES
COMBINED BALANCE SHEETS AS AT AUGUST 31, 1995
AND NOVEMBER 30, 1995 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
NOVEMBER 30, 1995
AUGUST 31, -------------------------
1995 HISTORICAL PRO FORMA
------------ ------------ ---------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and money market mutual funds . . . . . . . . . . . . . $ 186,802 $ 268,328 $ 208,328
Accounts receivable (less allowance for doubtful
accounts of $109,700 and $114,000 at August 31, 1995
and November 30, 1995, respectively) (Note E) . . . . . . . 2,334,275 2,706,977 2,706,977
Prepaid expenses and other current assets . . . . . . . . . . 266,115 400,871 400,871
---------- ---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . 2,787,192 3,376,176 3,316,176
Property and equipment -- net (Notes A and D) . . . . . . . . . 2,965,376 2,895,937 2,895,937
Goodwill (Note C) . . . . . . . . . . . . . . . . . . . . . . . 776,539 753,470 753,470
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 20,905 40,635 40,635
---------- ---------- ----------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . $6,550,012 $7,066,218 $7,006,218
========== ========== ==========
LIABILITIES
Due to banks (Note E) . . . . . . . . . . . . . . . . . . . . . $ 816,317 $ 980,124 $1,670,124
Current portion of capital lease obligations (Note F) . . . . . 644,299 573,198 573,198
Current portion of payments for acquisition of business
and cancellation of options (Note C) . . . . . . . . . . . . . 139,545 237,538 237,538
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 461,533 559,299 559,299
Accrued expenses (Notes A and M) . . . . . . . . . . . . . . . 331,403 444,397 444,397
Income taxes payable (Note H) . . . . . . . . . . . . . . . . . 310,675 349,631 349,631
Deferred income taxes (Note H) . . . . . . . . . . . . . . . 62,000 72,000 95,000
---------- ---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . 2,765,772 3,216,187 3,929,187
Loans and notes payable to stockholders (Notes G and M) . . . . 190,172 578,998 687,998
Noncurrent portion of capital lease obligations (Note F) . . . 810,888 730,390 730,390
Noncurrent portion of payments due for acquisition of
business and cancellation of options (Note C) . . . . . . . . 139,545 153,250 153,250
Deferred income taxes (Note H) . . . . . . . . . . . . . . . . 39,000 41,000 456,000
---------- ---------- ----------
Total liabilities . . . . . . . . . . . . . . . . . . . . 3,945,377 4,719,825 5,956,825
---------- ---------- ----------
Commitments (Note I)
STOCKHOLDERS' EQUITY
(NOTES A, C, J AND M)
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . 3,015 3,015 20,000
Additional paid-in capital . . . . . . . . . . . . . . . . . . 162,803
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 2,450,834 2,379,055 1,065,070
Cumulative foreign translation adjustment . . . . . . . . . . . (12,017) (35,677) (35,677)
--------- --------- ---------
Total stockholders' equity . . . . . . . . . . . . . . . . 2,604,635 2,346,393 1,049,393
---------- ---------- ----------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . $6,550,012 $7,066,218 $7,006,218
========== ========== ==========
</TABLE>
The notes to financial statements are made a part hereof.
F-4
<PAGE> 43
LINOGRAPHICS CORPORATION AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEARS ENDED AUGUST 31, ENDED NOVEMBER 30,
----------------------------- ------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . $8,542,020 $4,110,997 $2,717,822 $1,910,392
---------- ---------- ---------- ----------
Cost of sales . . . . . . . . . . . . . . . . . . 3,900,703 1,739,882 1,188,485 830,511
Selling, general and administrative expenses
(not including principal stockholder/officers'
compensation) . . . . . . . . . . . . . . . . . 2,227,524 842,720 761,694 488,562
Principal stockholder/officers' compensation . . 719,125 844,615 155,000 191,538
---------- ---------- ---------- ----------
Total operating expenses . . . . . . . . . . 6,847,352 3,427,217 2,105,179 1,510,611
---------- ---------- ---------- ----------
Income from operations (Note K) . . . . . . 1,694,668 683,780 612,643 399,781
Interest expense . . . . . . . . . . . . . . . . 194,995 35,800 60,884 43,976
---------- ---------- ---------- ----------
Income before income taxes . . . . . . . . . . . 1,499,673 647,980 551,759 355,805
Income taxes (Note H) . . . . . . . . . . . . . . 356,000 62,000 116,000 98,000
---------- ---------- ---------- ----------
NET INCOME . . . . . . . . . . . . . . . . . . . $1,143,673 $ 585,980 $ 435,759 $ 257,805
========== ========== ========== ==========
Pro forma income data (unaudited):
Historical income before income taxes . . . . . $1,499,673 $ 551,759
Pro forma adjustment for principal
stockholder/officers' compensation (Notes
B and I) . . . . . . . . . . . . . . . . . . . 319,125 55,000
---------- ----------
Pro forma income before income taxes . . . . . 1,818,798 606,759
Pro forma income taxes (Note B) . . . . . . . . 741,000 262,000
---------- ----------
Pro forma net income . . . . . . . . . . . . . $1,077,798 $ 344,759
========== ==========
Pro forma net income per common share . . . . . $ .54 $ .17
========== =========
Pro forma common shares outstanding
(Note B) . . . . . . . . . . . . . . . . . . . 2,000,000 2,000,000
========== ==========
</TABLE>
The notes to financial statements are made a part hereof.
F-5
<PAGE> 44
LINOGRAPHICS CORPORATION AND AFFILIATES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1994 AND 1995
AND THE THREE MONTHS ENDED NOVEMBER 30, 1995 (UNAUDITED)
(NOTES A, C, J AND M)
<TABLE>
<CAPTION>
CUMULATIVE
ADDITIONAL FOREIGN
COMMON PAID-IN RETAINED TRANSLATION
STOCK CAPITAL EARNINGS ADJUSTMENT
------ ------- -------- ----------
<S> <C> <C> <C> <C>
Balance at September 1, 1993 . . . . . . . . . . . . . $3,000 $ 721,181
Net income . . . . . . . . . . . . . . . . . . . . . . 585,980
------ ----------
Balance at August 31, 1994 . . . . . . . . . . . . . . 3,000 1,307,161
Net income . . . . . . . . . . . . . . . . . . . . . . 1,143,673
Issuance of shares in connection with acquisition of
United Kingdom operations . . . . . . . . . . . . . . 15 $162,803
Difference arising from translation of foreign
financial statements . . . . . . . . . . . . . . . . . $ (12,017)
------ -------- ---------- ----------
BALANCE AT AUGUST 31, 1995 . . . . . . . . . . . . . . 3,015 162,803 2,450,834 (12,017)
Net income . . . . . . . . . . . . . . . . . . . . . . 435,759
Cost of cancellation of options to purchase an
additional interest in Elements . . . . . . . . . . . (162,803) (118,538)
Dividends paid . . . . . . . . . . . . . . . . . . . . (389,000)
Difference arising from translation of foreign
financial statements . . . . . . . . . . . . . . . (23,660)
------ -------- ---------- ----------
BALANCE AT NOVEMBER 30, 1995
(UNAUDITED) . . . . . . . . . . . . . . . . . . . . . $3,015 $ -- $2,379,055 $ (35,677)
====== ======== ========== ==========
</TABLE>
The notes to financial statements are made a part hereof.
F-6
<PAGE> 45
LINOGRAPHICS CORPORATION AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THREE MONTHS
AUGUST 31, ENDED NOVEMBER 30,
----------------------- -----------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND MONEY
MARKET MUTUAL FUNDS
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . $1,143,673 $ 585,980 $ 435,759 $ 257,805
---------- ---------- ---------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . 500,480 229,221 179,888 94,359
Amortization of goodwill . . . . . . . . . . . . . . . 34,562 14,320 3,435
Provision for deferred income taxes . . . . . . . . . 91,000 17,000 12,000 (6,000)
Provision for doubtful accounts . . . . . . . . . . . 73,000 30,000 4,600 37,500
Net changes in assets and liabilities (net of effect
of acquisitions):
Accounts receivable . . . . . . . . . . . . . . . . (1,329,185) (266,497) (397,448) (874,293)
Prepaid expenses and other current assets . . . . . (134,754) (25,158) (136,843) (40,599)
Other assets . . . . . . . . . . . . . . . . . . . . (725) (4,759) (19,730) (725)
Accounts payable and accrued expenses . . . . . . . 93,239 (133,729) 220,438 498,509
Income taxes payable . . . . . . . . . . . . . . . . 242,134 2,343 42,372 88,447
---------- ----------- --------- ---------
Total adjustments . . . . . . . . . . . . . . . . (430,249) (151,579) (80,403) (199,367)
---------- ----------- --------- ---------
Net cash provided by operating activities . . . . 713,424 434,401 355,356 58,438
---------- ----------- --------- ---------
Cash flows from investing activities:
Additions to property and equipment . . . . . . . . . . . (466,008) (368,842) (98,591) (150,139)
Acquisitions of United Kingdom operations . . . . . . . . (348,591) (70,769) (265,860)
---------- ----------- --------- ---------
Net cash used for investing activities . . . . . (814,599) (439,611) (98,591) (415,999)
---------- ----------- --------- ---------
Cash flows from financing activities:
Net proceeds from bank borrowings . . . . . . . . . . . . 505,162 34,507 174,681 121,473
Payments on capital lease obligations . . . . . . . . . . (569,084) (95,731) (173,442) (110,463)
Loans from stockholders . . . . . . . . . . . . . . . . . 190,172 190,172
Payments for cancellation of options . . . . . . . . . (163,968)
---------- ---------- ---------- ---------
Net cash provided by (used for) financing
activities . . . . . . . . . . . . . . . . . . . 126,250 (61,224) (162,729) 201,182
---------- ---------- ---------- ---------
Effect of foreign exchange rates on cash . . . . . . . . . (5,693) (12,510) 15,271
---------- ---------- ---------- ---------
NET INCREASE (DECREASE) IN CASH AND
MONEY MARKET MUTUAL FUNDS . . . . . . . . . . . . . . . . 19,382 (66,434) 81,526 (141,108)
Cash and money market mutual funds --
beginning of period . . . . . . . . . . . . . . . . . . . 167,420 233,854 186,802 167,420
---------- ---------- ---------- ---------
Cash and money market mutual funds -- end of period . . . . $ 186,802 $ 167,420 $ 268,328 $ 26,312
========== ========== ========== =========
Supplemental disclosures:
Interest paid . . . . . . . . . . . . . . . . . . . . . . $ 177,297 $ 35,800 $ 58,584 $ 43,976
========== ========== ========== =========
Income taxes paid . . . . . . . . . . . . . . . . . . . . $ 22,839 $ 42,657 $ 61,362 $ 15,296
========== ========== ========== =========
Noncash transactions:
Equipment acquired under capital lease obligations . . . $1,225,377 $ 40,500 $ 31,661 $ 229,173
========== ========== ========== =========
Notes issued for payment of dividends and
cancellation of stock options . . . . . . . . . . . . . $ 670,088
==========
</TABLE>
The notes to financial statements are made a part hereof.
F-7
<PAGE> 46
LINOGRAPHICS CORPORATION AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED NOVEMBER 30, 1994
AND FOR THE PERIOD SUBSEQUENT TO AUGUST 31, 1995 IS UNAUDITED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation and Principles of Combination:
The accompanying combined financial statements include the accounts of
Linographics Corporation ("Linographics") and of Elements (UK) Limited
("Elements") and its wholly-owned subsidiary, Regent Communications Limited
("Regent"). Linographics, Elements and Regent are collectively referred to
herein as the "Companies". Elements is 81% owned by the stockholders of
Linographics. All significant intercompany accounts and transactions have been
eliminated in combination. The business of Elements was acquired on September
1, 1994 and Regent was acquired on March 1, 1995. The accounts of Elements and
Regent are included in the combined financial statements from the dates of
their acquisition.
Prior to the effective date of the proposed initial public offering (the
"Offering"), the Companies will have effected a series of transactions (the
"Formation") in which the stock of the entities included in these combined
financial statements, together with a subsequently formed inactive corporation,
owned by the same stockholders, will be held by a newly formed corporation,
Unidigital Inc. ("Unidigital"), and the outstanding stock of Unidigital will
be held by the stockholders of the Companies. This transaction will be
accounted for as a pooling of interests.
Description of Businesses:
The Companies operate in two business segments. The digital imaging and
pre-press service segment's operations are conducted in both New York City and
London, while, at present, the document creation and short-run digital printing
segment's operations are conducted by Regent in London.
Property and Equipment:
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method at rates which are designed to write off the assets over
their estimated useful lives. Leasehold improvements are amortized over the
terms of the applicable leases or their useful lives, whichever is less.
Interim Combined Financial Statements:
The combined financial statements for the three months ended November 30,
1995 and 1994 have been prepared by management and are unaudited. Management
believes they contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly these financial statements for the periods
presented. Interim results are not necessarily indicative of results or cash
flows to be expected for a full fiscal year.
Income Taxes:
Linographics files its Federal and state income tax returns under the
provisions of Subchapter S of the Internal Revenue Code, pursuant to which its
taxable income is reportable on the tax returns of its stockholders and the
Federal and state incomes taxes thereon are payable by them. Local income taxes
are paid by Linographics at the corporate level. Elements and Regent file their
income tax returns in the United Kingdom and pay corporate income taxes
pursuant to United Kingdom tax regulations. Deferred income taxes are
recognized in accordance with Statement of Financial Accounting Standards No.
109. Deferred income taxes result from differences between the financial
statement and tax bases of assets and liabilities.
F-8
<PAGE> 47
LINOGRAPHICS CORPORATION AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED NOVEMBER 30, 1994
AND FOR THE PERIOD SUBSEQUENT TO AUGUST 31, 1995 IS UNAUDITED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Foreign Currency, Translation:
The financial statements of Elements and Regent are translated into United
States dollars using period-end exchange rates (1 pound sterling = $1.55 at
August 31, 1995 and $1.53 at November 30, 1995) for balance sheet accounts and
average exchange rates (1 pound sterling = $1.58 for the year ended August 31,
1995 and the three months ended November 30, 1994 and 1 pound sterling = $1.56
for the three months ended November 30, 1995) for the statements of operations
and cash flows. The translation difference is recorded as a separate component
of stockholders' equity.
Net Income Per Share:
Because of the combined presentation of the Companies, as described above,
net income per share data is not presented because such amounts are not deemed
to be meaningful.
NOTE B -- PRO FORMA INFORMATION:
The pro forma information on the combined statements of operations gives
effect to the historical combined results of operations adjusted for (i) the
reduced level of salaries to be paid to two principal stockholder/officers (see
Note I) and (ii) the income tax effect of Linographics changing from
Sub-chapter S status to Subchapter C status (see Note H), at which time income
in the United States will be taxed at an effective rate of 46.5%, as if these
had occurred effective September 1, 1994.
Pro forma net income per common share is based on pro forma net income and
the number of common shares to be outstanding after the Formation.
The pro forma combined balance sheet information as at November 30, 1995
gives effect to (i) the Formation, (ii) $750,000 of loans by Linographics to
its two principal stockholder/officers in December 1995, which was primarily
funded by bank borrowings, (iii) $859,000 of subsequent dividends by
Linographics (representing the distribution of S Corporation earnings through
November 30, 1995), of which $109,000 was declared in January 1996 and paid
with a note and $750,000 was declared and paid prior to the Offering and
applied against the loans receivable from the principal stockholder/officers
and (iv) $438,000 of additional deferred income tax liabilities which will
result from the termination of Linographics' Subchapter S status at the time of
the Formation.
NOTE C -- ACQUISITIONS:
Effective September 1, 1994, the stockholders of Linographics formed
Elements which purchased the assets and digital imaging business of Lyledale
Limited ("Lyledale") at a cost of $336,629.
Effective March 1, 1995, Elements purchased the remaining document creation
and short-run printing business of Lyledale and acquired its remaining net
assets through the purchase of all of Lyledale's capital stock at a cost of
$529,341, which includes a 20% stock interest in Elements valued at $162,803.
Lyledale's name was then changed to Regent. These acquisitions have been
accounted for under the purchase method of accounting. Accordingly, the
operations and cash flows of the digital imaging business are included in the
combined financial statements for the three months ended November 30, 1994 and
the year ended August 31, 1995, while the operations and cash flows of the
document creation and short-run printing business are included in the financial
statements for the periods after February 28, 1995. The excess of the cost over
the fair market value of the net assets acquired has been recorded as goodwill,
which is being amortized to operations over a 15-year period. The unpaid
balance of the purchase price at November 30, 1995 is payable in quarterly
installments of $46,515 through May 10, 1997.
F-9
<PAGE> 48
LINOGRAPHICS CORPORATION AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED NOVEMBER 30, 1994
AND FOR THE PERIOD SUBSEQUENT TO AUGUST 31, 1995 IS UNAUDITED)
NOTE C -- ACQUISITIONS: (CONTINUED)
As part of the purchase of Regent, two of its former stockholders were each
granted an option to acquire for pound Sterling 50,000 an additional 6-1/2%
share interest in Elements exercisable upon a public flotation of its stock.
However, as a result of the proposed Offering and Formation, in November 1995,
the options were cancelled in consideration for payments of approximately pound
Sterling 180,000 (approximately $281,000), of which pound Sterling 75,000
(approximately $117,000) is due in installments to April 1, 1997.
The following summarizes, on a pro forma basis, the unaudited results of
operations of the Companies as if the foregoing acquisitions had both occurred
as of September 1, 1993:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, THREE MONTHS ENDED
------------------------ NOVEMBER 30,
1995 1994 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net sale . . . . . . . . . . . . . . . $9,320,815 $8,000,976 $2,393,638
========== ========== ==========
Income before income taxes . . . . . . $1,284,583 $1,066,078 $ 330,209
========== ========== ==========
Net income . . . . . . . . . . . . . . $ 995,583 $ 843,078 $ 237,209
========== ========== ==========
</TABLE>
The foregoing information is not necessarily indicative of either the
results of operations that would have occurred had the acquisitions taken place
on September 1, 1993 or future operating results of the combined companies.
In November 1995, Linographics agreed to purchase for $170,000 and the
assumption of certain liabilities, which aggregate approximately $134,000 at
December 31, 1995, the operating assets of TX Unlimited, Inc. ("TX"), a San
Francisco, California based graphic arts company currently operating under the
protection of Chapter 11 of the United States Bankruptcy Code. The purchase
contract was subsequently assigned to a newly formed, inactive corporation,
owned by the same stockholders as Linographics, which is to be included in the
Formation. Consummation of the acquisition is subject to certain conditions,
including bankruptcy court approval. The purchase price is payable $85,000 at
the closing, with the balance due in eight quarterly installments of $11,600,
which include interest at 6% per annum. The assets, liabilities and operations
of TX prior to the acquisition were not material in relation to those of the
Company.
At each balance sheet date, the Company intends to review for impairment the
unamortized goodwill balance from each of its acquisitions using relevant cash
flows and profitability information, estimated future operating results, trends
and other available information with respect to each business. If it appears
that there has been a change in events or circumstances which indicate that the
unamortized balance may not be fully recoverable, an evaluation for impairment
will be made using undiscounted estimated future cash flows of the business as
the basis for determining whether an impairment has occurred and the difference
between the carrying value of the goodwill of the business and the estimated
fair value of the related business as the basis for recording a write-down.
F-10
<PAGE> 49
LINOGRAPHICS CORPORATION AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED NOVEMBER 30, 1994
AND FOR THE PERIOD SUBSEQUENT TO AUGUST 31, 1995 IS UNAUDITED)
NOTE D -- PROPERTY AND EQUIPMENT:
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
COST
----------------------- ESTIMATED
AUGUST 31, NOVEMBER 30, USEFUL LIFE
1995 1995 (YEARS)
-------- ------- -----------
<S> <C> <C> <C>
Production equipment . . . . . . . . . . $1,175,230 $1,225,637 5 - 7
Equipment held under capital leases . . . 2,253,853 2,268,533 5 - 7
Furniture and office equipment . . . . . 119,000 145,296 5 - 7
Computer software . . . . . . . . . . . . 125,656 130,839 3
Leasehold improvements . . . . . . . . . 196,117 206,435 Life of lease
---------- ----------
Total . . . . . . . . . . . . . . . . 3,869,856 3,976,740
Less accumulated depreciation and
amortization . . . . . . . . . . . . . . 904,480 1,080,803
---------- ----------
Balance . . . . . . . . . . . . . . . . . $2,965,376 $2,895,937
========== ==========
</TABLE>
NOTE E -- DUE TO BANKS:
Effective December 21, 1995, Linographics has new combined credit facilities
with a New York bank in the aggregate amount of $1,300,000. The facilities
consist of $300,000 of five-year term loans (of which $150,000 may be borrowed
by Linographics for leasehold improvements and $150,000 may be borrowed for the
purchase of equipment and for the operations of TX subsequent to its
acquisition) and $1,000,000 of lines of credit (of which up to $850,000 may be
borrowed by Linographics for working capital, with advances not to exceed 80%
of Linographics' eligible accounts receivable and up to $150,000 may be
borrowed for working capital for the operations of TX subsequent to its
acquisition). Interest on the term loans is at the bank's prime rate plus 1/2%
or at a fixed rate (determined at the time of borrowings), at the borrowers,
option. In December 1995, Linographics borrowed $150,000 under the term loans
at an interest rate of 9%. Interest on borrowings under the lines of credit is
at the bank's prime rate plus 1/2%. At November 30, 1995, Linographics had an
outstanding balance of $160,000 under the lines of credit and, in December
1995, borrowed an additional $690,000 at an interest rate of 9%.
The credit agreement contains tangible net worth and debt service, coverage
covenants based on the combined assets of Linographics and its United States
affiliates. The credit facilities are collateralized by all of the assets of
Linographics and require the corporate guaranty of Unidigital upon consummation
of the Offering. The lines of credit are renewable annually each December and
require a 30-day period per year during which no amounts may be outstanding for
the TX borrowings thereunder.
F-11
<PAGE> 50
LINOGRAPHICS CORPORATION AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED NOVEMBER 30, 1994
AND FOR THE PERIOD SUBSEQUENT TO AUGUST 31, 1995 IS UNAUDITED)
NOTE E -- DUE TO BANKS: (CONTINUED)
Elements and Regent have combined overdraft facilities at their bank of pound
Sterling 300,000 (approximately $460,000 at November 30, 1995 exchange rates).
Interest is payable monthly at the bank's overdraft rate plus 3% (9.75% at
August 31 and November 30, 1995). Borrowings under a pound Sterling 250,000
facility are collateralized by the assets of Elements and are payable on demand.
At August 31, 1995 and November 30, 1995, loans of approximately $392,000 and
$434,000, respectively, were outstanding.
Regent factors certain of its customer receivables with a bank on a recourse
basis, which is treated as a financing transaction for financial accounting
purposes. At August 31, 1995, and November 30, 1995, receivables of
approximately $426,000 and $575,000, respectively, were held by the bank
against advances of approximately $264,000 and $386,000, respectively, paid to
Regent.
NOTE F -- OBLIGATIONS UNDER CAPITAL LEASES:
The Companies lease certain production equipment and a vehicle which have
been classified as capital leases. Accordingly, at August 31, 1995, and
November 30, 1995 the cost of such assets of $2,253,853 and $2,268,533,
respectively, has been included in property and equipment and the principal
portion of the remaining lease payments is reflected as a liability on the
balance sheet.
Future minimum payments under these leases are as follows:
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
1995 1995
---- ----
<S> <C> <C>
Year ending:
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 825,025 $ 757,611
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469,842 399,766
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244,391 206,195
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144,643 142,962
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,540 67,116
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,774,441 1,573,650
Less amount representing interest at 8.7% to 20.8% a year . . . . 319,254 270,062
---------- ----------
Present value of minimum lease payments . . . . . . . . . . . . . 1,455,187 1,303,588
Less current maturities . . . . . . . . . . . . . . . . . . . . . 644,299 573,198
---------- ----------
Noncurrent portion . . . . . . . . . . . . . . . . . . . . . . . . $ 810,888 $ 730,390
========== ==========
</TABLE>
NOTE G -- LOANS AND NOTES PAYABLE TO STOCKHOLDERS:
Through November 30, 1995, loans payable to the stockholders aggregating
$190,172 by Elements and Regent had no specific due date and were noninterest
bearing. In January 1996, these loans were converted to notes payable due on
March 1, 1997, which bear interest at 7.5% a year. In November 1995 and January
1996, Linographics declared dividends of $389,000 and $109,000, respectively.
The dividends were issued in the form of notes due on March 1, 1997, which bear
interest at 7.5% a year.
NOTE H -- INCOME TAXES:
Linographics has made a Subchapter S election for Federal and state income
tax purposes and, accordingly, its taxable earnings have been reportable on the
personal income tax returns of its stockholders: local income taxes on these
earnings are payable at the corporate level. Income taxes on the earnings of
Elements and Regent are payable in accordance with United Kingdom regulations.
F-12
<PAGE> 51
LINOGRAPHICS CORPORATION AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED NOVEMBER 30, 1994
AND FOR THE PERIOD SUBSEQUENT TO AUGUST 31, 1995 IS UNAUDITED)
NOTE H -- INCOME TAXES:(CONTINUED)
The following comprises income tax expense on the statements of operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED AUGUST 31, NOVEMBER 30,
-------------------- -------------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Local income taxes:
Currently payable . . . . . . . . . . . . . . $ 43,000 $45,000 $ 27,000 $21,000
Deferred . . . . . . . . . . . . . . . . . . . 28,000 17,000 11,000 (6,000)
-------- ------- -------- -------
71,000 62,000 38,000 15,000
-------- ------- -------- -------
United Kingdom income taxes:
Currently payable . . . . . . . . . . . . . . 222,000 77,000 83,000
Deferred . . . . . . . . . . . . . . . . . . . 63,000 1,000
-------- -------- -------
285,000 78,000 83,000
-------- ------- -------- -------
Total . . . . . . . . . . . . . . . . . . . $356,000 $62,000 $116,000 $98,000
======== ======= ======== =======
</TABLE>
The following reconciles income tax expense, computed at the statutory
United States Federal corporate rate, to income tax expense on the statements
of operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED AUGUST 31, NOVEMBER 30,
-------------------- ------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income taxes at United States Federal
statutory rate . . . . . . . . . . . . . $510,000 $220,000 $188,000 $121,000
Local income taxes . . . . . . . . . . . . 71,000 62,000 38,000 15,000
Nondeductible goodwill expense and
difference between United States and
United Kingdom tax rates . . . . . . . . 9,000 6,000 9,000
Effect of Subchapter S status . . . . . . (234,000) (220,000) (116,000) (47,000)
-------- -------- -------- --------
Total per statements of operations . . . $356,000 $ 62,000 $116,000 $198,000
======== ======== ======== ========
</TABLE>
The liability for deferred income taxes is based on local and United Kingdom
income tax rates applied to temporary differences in the recognition of income
and expenses for income tax and financial accounting purposes as follows:
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
1995 1995
---------- ------------
<S> <C> <C>
Deferred tax liabilities:
Use of cash basis for United States income tax purposes . . . . . $ 74,000 $ 84,000
Difference on depreciation methods . . . . . . . . . . . . . . . 39,000 41,000
-------- --------
Total deferred tax liability . . . . . . . . . . . . . . . . . 113,000 125,000
Less deferred tax asset:
Pre-acquisition loss carryforwards of Regent . . . . . . . . . . (12,000) (12,000)
-------- --------
Net deferred tax liability . . . . . . . . . . . . . . . . . . $101,000 $113,000
======== ========
</TABLE>
F-13
<PAGE> 52
LINOGRAPHICS CORPORATION AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED NOVEMBER 30, 1994
AND FOR THE PERIOD SUBSEQUENT TO AUGUST 31, 1995 IS UNAUDITED)
NOTE H -- INCOME TAXES:(CONTINUED)
As a result of the Formation, Linographics' Subchapter S status will be
terminated and, based on the above temporary differences at November 30, 1995,
it will record additional Federal and state deferred income tax liabilities and
a charge to operations of approximately $438,000 on the date of termination.
NOTE I -- COMMITMENTS:
The Companies have leased their premises under operating lease agreements
which expire at various dates through May 2005. Linographics' leases, which
expire in June 1997, provide for options to renew for an additional two years.
The Companies also lease certain production equipment under operating leases
which expire at various dates through June 2000.
Aggregate minimum rental payments for premises and equipment under operating
leases are as follows:
<TABLE>
<CAPTION>
TOTAL PREMISES EQUIPMENT
---------- ---------- ---------
<S> <C> <C> <C>
Year ending August 31:
1996 . . . . . . . . . . . . . . . . . . . $ 435,966 $ 308,565 $127,401
1997 . . . . . . . . . . . . . . . . . . . 370,956 293,757 77,199
1998 . . . . . . . . . . . . . . . . . . . 142,554 130,428 12,126
1999 . . . . . . . . . . . . . . . . . . . 136,236 130,428 5,808
2000 . . . . . . . . . . . . . . . . . . . 134,850 130,428 4,422
Remaining term of lease 554,702 554,702
---------- ---------- --------
Total . . . . . . . . . . . . . . . . . . $1,775,264 $1,548,308 $226,956
========== ========== ========
</TABLE>
Rental expense for the years ended August 31, 1995, and 1994 and the three
months ended November 30, 1995 and 1994 aggregated approximately $291,000,
$228,000, $97,000 and $75,000, respectively.
An employment agreement with the managing director of Elements provides for
an annual salary of pound Sterling 96,000 to February 28, 1997.
The two principal stockholder/officers of the Companies have entered into
employment agreements for terms of five years and two years, respectively,
which will become effective January 1, 1996. The agreements provide for
aggregate salaries of $400,000 a year and for increases from time to time at
the sole discretion of the Board of Directors. However, one agreement provides
for annual increases of not less than the annual increase in the Consumer Price
Index.
F-14
<PAGE> 53
LINOGRAPHICS CORPORATION AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED NOVEMBER 30, 1994
AND FOR THE PERIOD SUBSEQUENT TO AUGUST 31, 1995 IS UNAUDITED)
NOTE J -- STOCKHOLDERS' EQUITY:
The combined common stock and retained earnings at August 31, 1995 and
November 30, 1995 are comprised of the following:
<TABLE>
<CAPTION>
RETAINED EARNINGS
------------------------------------
COMMON AUGUST 31, NOVEMBER 30,
STOCK 1995 1995
------ ---------- -----------
<S> <C> <C> <C>
Linographics:
Authorized 200 shares, no par value; issued and
outstanding 20 shares at stated value . . . . . . . $3,000 $1,897,251 $1,304,554
Elements:
Authorized 1,000 shares, pound Sterling .10 par value
each at August 31, 1995 and 10,000 shares, pound
Sterling .01 par value each at November 30, 1995;
issued and outstanding 100 shares at August 31, 1995;
and 1,000 shares at November 30, 1995 . . . . . . . 15 553,583 569,001
------ ---------- ----------
Combined totals . . . . . . . . . . . . . . . . . $3,015 $2,450,834 $1,873,555
====== ========== ==========
</TABLE>
NOTE K -- SEGMENT INFORMATION:
Since September 1, 1994, the Companies have conducted their operations in
both the United States and the United Kingdom. The following summarizes these
operations by location for the year ended August 31, 1995:
<TABLE>
<CAPTION>
UNITED
UNITED STATES KINGDOM
------------- ----------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . $4,522,622 $4,019,396
========== ==========
Income from operations (excluding compensation of
chief executive officer) . . . . . . . . . . . . . . . . $1,048,345 $1,051,986
========== ==========
Identifiable assets at August 31, 1995 . . . . . . . . . . $2,599,733 $3,950,279
========== ==========
</TABLE>
The operations conducted by Regent since its acquisition, effective March 1,
1995, are considered to be a separate industry segment. The following
summarizes operations by industry segment for the year ended August 31, 1995:
<TABLE>
<CAPTION>
DIGITAL DOCUMENT
IMAGING AND CREATION AND
PREPRESS SHORT-RUN
SERVICE PRINTING
SEGMENT SEGMENT*
---------- ----------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . $7,768,251 $ 773,769
========== ==========
Income from operatiions (excluding compensation of
chief executive officer) . . . . . . . . . . . . . . . . $2,010,975 $ 89,356
========== ==========
Identifiable assets at August 31, 1995 . . . . . . . . . . $4,781,389 $1,768,623
========== ==========
</TABLE>
*From March 1, 1995 to August 31, 1995.
F-15
<PAGE> 54
LINOGRAPHICS CORPORATION AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED NOVEMBER 30, 1994
AND FOR THE PERIOD SUBSEQUENT TO AUGUST 31, 1995 IS UNAUDITED)
NOTE L -- RELATED PARTY TRANSACTION
During the year ended August 31, 1995 and the three months ended November
30, 1995, fees for financial consulting services of $15,000 and $9,000,
respectively, were paid to a company which is owned by an individual who became
a stockholder of Linographics in August 1995.
NOTE M -- SUBSEQUENT EVENTS:
In December 1995, Linographics made loans in an aggregate amount of $750,000
to its two principal stockholder/officers which were funded primarily by
borrowings under its credit facilities. These loans were subsequently repaid
prior to the effective date of the Offering upon the declaration of $750,000 of
dividends. In January 1996, Linographics declared a dividend of $109,000, paid
in the form of notes due on March 1, 1997 and bearing interest at 7.5% a year.
The $859,000 total of these dividends, plus dividends of $389,000 paid in
November 1995, represents Linographics' accumulated Subchapter S earnings from
inception to November 30, 1995. The Subchapter S status will be terminated at
the time of the Formation (see Notes A and H).
F-16
<PAGE> 55
LINOGRAPHICS CORPORATION AND AFFILIATES
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1995
The following unaudited pro forma statement of operations gives effect to
the acquisition of Regent as if such acquisition had occurred on September 1,
1994, rather than March 1, 1995. This statement is presented for illustrative
purposes only and, therefore, is not necessarily indicative of the operating
results that would have been achieved had the purchase occurred as of the
earlier date, nor is it necessarily indicative of the combined operating
results which may occur in the future. The historical amount column includes
the audited financial statements of the Companies for the year ended August 31,
1995, which are included elsewhere in this Prospectus, and the unaudited
financial statements of Regent for the six months prior to its acquisition.
<TABLE>
<CAPTION>
HISTORICAL AMOUNTS
----------------------------------------
REGENT
LINOGRAPHICS (SIX MONTHS
CORPORATION ENDED PRO FORMA ADJUSTED PRO
AND AFFILIATES FEBRUARY 28, 1995) ADJUSTMENTS FORMA
-------------- ------------------ ----------- ------------
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . $8,542,020 $ 778,795 $ -- $9,320,815
---------- --------- ----- ----------
Cost of sales . . . . . . . . . . . . . . . . . 3,900,703 561,400 4,462,103
Selling, general . . . . . . . . . . . . . . . 9,471(1)
and administrative . . . . . . . . . . . . . 19,334(2)
expenses . . . . . . . . . . . . . . . . . . 2,227,524 453,795 (50,115)(3) 2,660,009
---------- ---------- --------- ----------
Total operating expenses . . . . . . . . . . 6,128,227 1,015,195 (21,310) 7,122,112
---------- ---------- --------- ----------
Income (loss) from operations . . . . . . . . 2,413,793 (236,400) 21,310 2,198,703
Interest expense . . . . . . . . . . . . . . . 194,995 194,995
Income taxes . . . . . . . . . . . . . . . . . 356,000 (80,000) 13,000(4) 289,000
---------- ---------- --------- ----------
Income (loss) before principal
stockholder/officers' compensation . . . . . . 1,862,798 (156,400) 8,310 1,714,708
Principal stockholder/officers'
compensation . . . . . . . . . . . . . . . . . 719,125 719,125
---------- ---------- -------- ----------
NET INCOME (LOSS) . . . . . . . . . . . . . . . $1,143,673 $ (156,400) $ 8,310 $ 995,583
========== ========== ======== ==========
</TABLE>
The pro forma adjustments column is comprised of the following:
(1) To record the elimination of salaries and fees paid to the former
stockholders of Regent and record the annual salary to the managing
director of Elements, pursuant to his employment agreement.
(2) To record amortization of goodwill.
(3) To eliminate the loss on sale of the assets of Elements, recorded in
September 1994.
(4) To record the income tax effect of the foregoing adjustments based on the
applicable currently enacted United Kingdom income tax rates.
F-17
<PAGE> 56
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Unidigital Inc.
We have audited the accompanying balance sheet of Unidigital Inc. as at
October 31, 1995. This financial statement is the responsibility of the
company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the aforementioned balance sheet presents fairly, in all
material respects, the financial position of Unidigital Inc. as at October 31,
1995 in conformity with generally accepted accounting principles.
CORNICK, GARBER & SANDLER, LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
November 3, 1995
F-18
<PAGE> 57
UNIDIGITAL INC.
BALANCE SHEET
AS AT OCTOBER 31, 1995
ASSETS
<TABLE>
<S> <C>
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100
----
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100
====
STOCKHOLDERS' EQUITY
Preferred stock -- authorized 5,000,000 shares,
$.01 par value each; none issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ --
Common stock -- authorized 10,000,000 shares,
$.01 par value each; issued 10,000 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
----
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100
====
</TABLE>
The attached notes are made a part hereof.
F-19
<PAGE> 58
UNIDIGITAL INC.
NOTES TO BALANCE SHEET
NOTE 1 -- ORGANIZATION AND DESCRIPTION OF BUSINESS:
Unidigital Inc. ("Unidigital") was formed as the successor to Linographics
Corporation and Elements (UK) Limited ("Elements") and its wholly-owned
subsidiary Regent Communications Limited ("Regent") (collectively the
"Predecessor Companies"), and Linographics (Delaware) Corporation
("Linographics Delaware"), a newly-formed inactive corporation, which were
under common control.
In connection with the consummation of an initial public offering
contemplated by Unidigital pursuant to a registration statement to be filed
with the Securities and Exchange Commission, the stockholders of the
Predecessor Companies and Linographics Delaware will contribute all of their
stock in these companies to Unidigital in exchange for 1,990,000 shares of the
common stock of Unidigital.
The combined financial statements of the Predecessor Companies are included
elsewhere in this Prospectus. Unidigital is not engaged in any other activity.
NOTE 2 -- STOCK OPTIONS:
Unidigital has adopted the "1995 Unidigital Inc. Long-Term Stock Investment
Plan," which provides for the granting of options to officers and employees to
purchase shares of common stock until November 2005. The options may be either
incentive stock options (as defined in the Internal Revenue Code) or
non-qualified options, which may also be granted to nonemployees for services
rendered to the Company. In addition, stock appreciation rights, reload options
and limited rights may be granted under the plan. The length, vesting schedule,
option price and other terms of the options are determined at the time each
option is granted. However, the term of incentive stock options may not exceed
10 years and incentive stock option exercise prices may not be less than the
fair market value of the stock on the date of grant. Additionally, incentive
stock options granted to an officer or employee owning more than 10% of the
outstanding common stock may not exceed 5 years and the option price may not be
less than 110% of the fair market value of the stock on the date of grant.
Unidigital has also adopted the "1995 Directors Stock Option Plan," which
provides for the granting of non-qualified options to nonemployee directors.
The terms of the stock options are determined at the time of each grant.
However, the option exercise prices may not be less than the fair market value
of the stock on the date of grant.
The total number of shares of common stock issuable under these plans is
limited to 300,000 shares.
In connection with the acquisition of Elements and its wholly-owned
subsidiary in the United Kingdom, two selling stockholders were granted options
to acquire, under certain conditions, additional shares of Elements for (pounds
Sterling) 50,000 each. As a result of the contemplated initial public offering
by Unidigital, the above options were cancelled in consideration for payments of
approximately (pounds Sterling) 180,000 by the Predecessor Companies and by the
issuance to one of the individuals of an option expiring in February 2002 to
purchase 50,000 shares of Unidigital's common stock.
F-20
<PAGE> 59
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Lyledale Limited (Trading as "Elements")
We have audited the accompanying statements of operations and cash flows of
Lyledale Limited (trading as "Elements") for each of the two years ended
January 31, 1995 and January 31, 1994. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America and the United Kingdom. These
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of the operations and cash flows of
Lyledale Limited (trading as "Elements") for the two years then ended, in
conformity with generally accepted accounting principles.
BLICK ROTHENBERG
CHARTERED ACCOUNTANTS
REGISTERED AUDITOR
London, England
October 31, 1995
F-21
<PAGE> 60
LYLEDALE LIMITED (TRADING AS "ELEMENTS")
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JANUARY 31, 1995 AND 1994 (AUDITED)
AND FOR THE ONE MONTH ENDED FEBRUARY 28, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31, ONE MONTH
------------------------ ENDED
1995 1994 FEBRUARY 28, 1995
---------- ---------- -----------------
(UNAUDITED)
(pound sterling)
<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . 2,028,366 2,190,617 54,186
---------- ---------- ---------
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . 1,155,951 1,155,587 45,932
Selling, general and administrative expenses (Note D) . . . 610,992 780,433 114,682
---------- ---------- ---------
Total operating expenses . . . . . . . . . . . . . . . . 1,766,963 1,936,020 160,614
---------- ---------- ---------
Income (loss) from operations . . . . . . . . . . . . . 261,403 254,597 (106,428)
Interest expense . . . . . . . . . . . . . . . . . . . . . 115,339 130,739
Income taxes (Notes A and C) . . . . . . . . . . . . . . . 58,772 19,539 27,546
---------- ---------- ---------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . 87,232 104,319 (133,974)
========== ========== ==========
</TABLE>
The notes to financial statements are made a part hereof.
F-22
<PAGE> 61
LYLEDALE LIMITED (TRADING AS "ELEMENTS")
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 1995 AND 1994 (AUDITED)
AND FOR THE ONE MONTH ENDED FEBRUARY 28, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31, ONE MONTH
------------------------ ENDED
1995 1994 FEBRUARY 28, 1995
---------- --------- -----------------
(UNAUDITED)
(pound sterling)
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . 87,232 104,319 (133,974)
---------- --------- ---------
Adjustments to reconcile results of operations to net cash
provided by operating activities
Depreciation and amortization . . . . . . . . . . . . . . 143,185 155,105 4,114
Loss on disposal of property and equipment . . . . . . . . 29,026 2,595
Provision for deferred income taxes . . . . . . . . . . . 27,546
Net changes in assets and liabilities (net of effect of
acquisition):
Accounts receivable . . . . . . . . . . . . . . . . . . 355,475 (163,693) 36,920
Prepaid expenses and other current assets . . . . . . . 74,510 (6,099) 13,610
Accounts payable and accrued expenses . . . . . . . . . (484,124) 98,669 91,699
Income taxes payable . . . . . . . . . . . . . . . . . . 58,772 19,539
--------- --------- ---------
Total adjustments . . . . . . . . . . . . . . . . . . . 176,844 103,521 176,484
--------- --------- ---------
Net cash provided by operating activities . . . . . . . 264,076 207,840 42,510
--------- --------- ---------
Cash flows from investing activities:
Additions to property and equipment . . . . . . . . . . . . (141,815) (86,076) (8,792)
Acquisition of business . . . . . . . . . . . . . . . . . . (28,447)
Proceeds on sale of property and equipment . . . . . . . . . 132,814 1,725 10,000
--------- --------- ---------
Net cash provided by (used for) investing activities (9,001) (112,798) 1,208
--------- --------- ---------
Cash flows from financing activities:
Net bank borrowings (repayments) . . . . . . . . . . . . . (83,737) 67,426 (38,163)
Payments on capital lease obligations . . . . . . . . . . . (79,478) (162,177) (5,956)
Proceeds from issuance of shares of stock . . . . . . . . . 20
Dividends paid to stockholders . . . . . . . . . . . . . . (92,000)
--------- --------- ---------
Net cash used for financing activities . . . . . . . . (255,215) (94,731) (44,119)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH . . . . . . . . . . . . . . . (140) 311 (401)
Cash -- beginning of period . . . . . . . . . . . . . . . . . 541 230 401
--------- --------- ---------
Cash -- end of period . . . . . . . . . . . . . . . . . . . . 401 541 -0-
========= ========= =========
Supplemental disclosures:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . 59,813 80,718
========= =========
Income taxes paid . . . . . . . . . . . . . . . . . . . . . 42,539
=========
Equipment acquired under capital lease obligations . . . . . 96,449 96,200
========= =========
</TABLE>
The notes to financial statements are made a part hereof.
F-23
<PAGE> 62
LYLEDALE LIMITED (TRADING AS "ELEMENTS")
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1995 AND 1994 (AUDITED)
AND FOR THE ONE MONTH ENDED FEBRUARY 28, 1995 (UNAUDITED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation:
The financial statements which are stated in pounds sterling have been
prepared in conformity with generally accepted accounting principles in the
United Kingdom. If generally accepted accounting principles in the United
States had been utilized, there would be no material difference in net
earnings.
Description of Business:
Lyledale's operations consisted of two segments, (i) digital imaging and
pre-press service and (ii) document creation and short-run digital printing.
Effective September 1, 1994, Lyledale sold the assets and business of its
digital imaging and pre-press service segment. As a result, the attached
statement of operations for the year ended January 31, 1995 includes the
operations of this segment through the date of sale.
Depreciation and Amortization:
Depreciation of fixed assets is calculated using the accelerated method at
rates which are designed to write off the assets over their estimated useful
life.
Goodwill relating to a business purchased by Lyledale is being amortized
over 10 years using the straight-line method.
Income Taxes:
Deferred taxation is provided on the liability method on all timing
differences which are expected to reverse in the future without being replaced,
calculated at the rate at which it is expected that taxation will be payable.
NOTE B -- RENT EXPENSE:
Rent expense, under operating leases for premises and equipment, included in
the attached statements of operations is pound sterling 45,592 and pound
sterling 67,073 for the years ended January 31, 1995 and January 31, 1994,
respectively, and (pound Sterling) 8,127 for the one month ended February 28,
1995.
NOTE C -- INCOME TAXES:
The provision for income taxes included in the attached statements of
operations is summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
JANUARY 31, ONE MONTH
------------------ ENDED
1995 1994 FEBRUARY 28, 1995
------ ------- -----------------
(pound sterling)
<S> <C> <C> <C>
Currently payable . . . . . . . . . . . . . . . 58,772 19,539
Deferred . . . . . . . . . . . . . . . . . . . . 27,546
------ ------- ------
Totals . . . . . . . . . . . . . . . . . . 58,772 $19,539 27,546
====== ======= ======
</TABLE>
NOTE D -- SUBSEQUENT EVENT:
Effective March 1, 1995, the capital stock of Lyledale was sold. In
connection with the sale, severance pay of pound sterling 90,000 was paid to
certain stockholders of Lyledale. Such amount is included in selling, general
and administrative expenses for the one month ended February 28, 1995.
F-24
<PAGE> 1
SEPARATION AGREEMENT
SEPARATION AGREEMENT (this "Agreement") dated as of July 15, 1996, by
and between Unidigital, Inc., a Delaware corporation (the "Corporation"), and
Stephen McErlain ("McErlain").
W I T N E S S E T H :
WHEREAS, McErlain was previously an executive officer and employee of
the Corporation and currently is a director of the Corporation; and
WHEREAS, the Corporation and McErlain desire to provide for the
amicable severance of the employment relationship between the Corporation and
McErlain.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Resignation.
(a) McErlain resigned as an executive officer and employee
of the Corporation, including all affiliates of the Corporation, controlling
corporations, divisions and subsidiaries of the Corporation (the "Affiliates"),
effective as of June 1, 1996 and hereby resigns as a director of the
Corporation and the Affiliates, such resignation to be effective as of the date
hereof.
(b) Upon the execution hereof and except as otherwise
provided herein, McErlain shall not be entitled to any further salary,
reimbursement for expenses or additional stock options from the Corporation or
the Affiliates.
2. Consideration. The Corporation hereby agrees to provide
McErlain with the following separation benefits:
(a) Upon the execution hereof, full repayment of the
outstanding principal and accrued interest owed by the Corporation to McErlain
under that certain promissory note due March 1, 1997 in the principal amount of
$331,000 and which bears interest at 7.5% per annum (the "Note"), less $12,500
(such amount having been previously paid by the Corporation to McErlain in June
1996), such repayment to be made by certified check, or Unidigital check,
subject to collection;
(b) A grant of a Nonstatutory Stock Option (the "Option")
to purchase a total of 6,000 shares of Common Stock of the Corporation pursuant
to the terms and conditions set forth in the Corporation's 1995 Long-Term Stock
Investment Plan (the "Plan") and the Stock Option Agreement in substantially
the form attached hereto as Exhibit A; and
(c) Health insurance benefits (in the same manner and
amount which exists at the time of signing this Agreement) for twenty-seven
(27) months, commencing June 1, 1996,
<PAGE> 2
provided, however, that such coverage shall be extended to include McErlain's
spouse and dependent children.
3. Restricted Securities; Notice of Transfer; Right of First
Refusal. (a) McErlain hereby acknowledges and understands that the shares of
Common Stock underlying the Option and the shares of Common Stock currently held
by McErlain (together, hereinafter referred to as the "Common Stock") constitute
"restricted securities" under the Securities Act of 1933, as amended (the
"Securities Act") and must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available. McErlain further acknowledges that the Corporation is under no
obligation to register the Common Stock.
(b) If McErlain proposes to sell, assign, exchange, convey,
donate, pledge, mortgage or otherwise transfer ("Transfer") all or any part of
the Common Stock, he shall give written notice (the "Notice of Transfer") to the
Corporation and William E. Dye at least thirty (30) days prior to the closing of
such Transfer. The Notice of Transfer shall set forth (i) McErlain's bona fide
intention to Transfer all or part of the Common Stock; (ii) the number of shares
of Common Stock to be transferred; (iii) the material terms and conditions for
the proposed offer, including the price; and (iv) the identity of the person or
entity to whom it is proposed that the Common Stock be transferred.
(c) The Corporation, within twenty (20) days after its
receipt of the Notice of Transfer, may elect to purchase all, but not less than
all, of the Common Stock to be transferred by McErlain for the price and upon
the terms described in the Notice of Transfer by delivering to McErlain a
written notice that the Corporation elects to purchase such shares of Common
Stock. Payment for such shares of Common Stock is to be made in cash, by wire
transfer or by delivery of a certified check, such payment to be made within 10
days following the date of the Corporation's notice of its election to purchase
such shares of Common Stock.
(d) If the Corporation does not elect to purchase the Common
Stock proposed to be transferred by McErlain, within the 20-day period stated
above, William E. Dye may, within such 20-day period, elect to purchase such
shares of Common Stock for the price and upon the terms described in the Notice
of Transfer by delivering to McErlain, not later than twenty (20) days after the
Corporation's receipt of the Notice of Transfer, a written notice that he elects
to purchase such shares of Common Stock. Payment for such shares of Common
Stock is to be made in cash, by wire transfer or by delivery of a certified
check, such payment to be made within 10 days following the date of William E.
Dye's notice of his election to purchase such shares of Common Stock.
(e) The parties hereto understand and agree that the
provisions set forth in this Section 3 shall remain in effect until such time
that McErlain is permitted to freely transfer the Common Stock in accordance
with Rule 144(k), promulgated under the Securities Act.
2
<PAGE> 3
4. Consulting Duties. McErlain is hereby retained as a consultant
to the Corporation for a period of two years commencing on September 1, 1996.
Consulting duties shall include such duties as may from time to time be agreed
upon by the Corporation's Chief Executive Officer, William E. Dye, or his
designee, and McErlain. McErlain agrees to make himself available to the
extent required to perform such consulting duties. The means by which McErlain
performs such consulting duties shall be determined by McErlain, in his sole
discretion. For such consulting services, the Corporation shall pay to
McErlain a consultation retainer fee of $4,000 per month, such payments
commencing September 15, 1996, which amount shall be fully earned on the first
day of the month and payable on the 15th day of each month during the period of
consulting and otherwise in accordance with the Corporation's customary payroll
practices. No further payment shall be made by the Corporation to McErlain for
services rendered to the Corporation, unless otherwise agreed to by both
parties. During the term of this consulting arrangement, the Corporation shall
reimburse McErlain for all reasonable, out-of-pocket expenses incurred by him
in connection with the performance of consulting services hereunder. Such
reimbursement shall be made to McErlain promptly following his submission to
the Corporation of receipts and other documentation reasonably satisfactory to
the Corporation of such expenses. The Corporation and McErlain agree that
McErlain is an independent contractor and not an employee of the Corporation
and that the Corporation is not obligated to provide McErlain with any worker's
compensation insurance coverage. Any income or other taxes based upon the
payments made to McErlain by the Corporation will be the sole responsibility of
McErlain.
5. Release by McErlain. Except for the obligations expressly
arising hereunder for the transactions contemplated hereby, McErlain hereby
fully, irrevocably and unconditionally releases and discharges the Corporation,
its agents, officers, employees, shareholders, directors, successors and
assigns from any and all manner of claims, complaints, demands, causes of
action, obligations, liabilities, costs, expenses (including attorneys' fees
and costs) and damages, of every kind, either at law or in equity, arising from
his employment with or separation of employment from the Corporation, including
without limitation, any claim relating to (i) health benefit claims, (ii) any
federal, state, or local employment discrimination or fair employment law, such
as the federal Age Discrimination in Employment Act and the Civil Rights Acts
of 1964 and 1991, (iii) any and all unused vacation time with the Corporation,
(iv) any taxes incurred because of or in connection with the provisions of this
Agreement, (v) any amounts now or hereafter claimed by McErlain as owed by the
Corporation to McErlain for the reimbursement of business expenses, (excluding
those business expenses owed by the Corporation to McErlain pursuant to Section
4 hereof) (vi) any amounts now or hereafter claimed by McErlain as owed by the
Corporation to McErlain under the Note, and (vii) except as otherwise provided
in any Stock Option Agreements in favor of McErlain, any options or shares of
capital stock now or hereafter claimed by McErlain as owed by the Corporation
to McErlain under the Plan; provided, however, that this release shall not
extend to fraudulent or criminal conduct. In addition, and not in limitation
of the foregoing, McErlain hereby forever releases and discharges the
Corporation from any liability or obligation to reinstate or employ him in any
employment capacity. The Corporation acknowledges that McErlain was and will
continue to be indemnified for his actions as an officer, director and employee
of the
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<PAGE> 4
Corporation and the Affiliates through the date of this Agreement and is covered
in such capacities during such time. The parties hereto understand and agree
that the foregoing release shall not adversely impact any indemnification rights
McErlain may have against the Corporation for all acts taken by him as an
officer, director or employee of the Corporation, prior to his resignation of
such positions, to the fullest extent permitted by Delaware law and as provided
in the Corporation's Certificate of Incorporation and By-Laws and by any private
insurance maintained by the Corporation for such purpose. McErlain understands
and agrees that the Corporation shall not be obligated to carry private
insurance for such purpose in connection with McErlain's duties as a consultant.
6. Release by the Corporation. The Corporation hereby fully,
irrevocably and unconditionally releases and discharges McErlain from any and
all manner of claims, complaints, demands, causes of action, obligations,
liabilities, costs, expenses (including attorneys' fees and costs) and damages,
of every kind, either at law or in equity, arising from McErlain's employment
with or separation of employment from the Corporation, including without
limitation McErlain's services as an executive officer and a member of the Board
of Directors of the Corporation, provided, however, that this release shall not
extend to fraudulent or criminal conduct.
7. Covenants Not to Sue.
(a) McErlain represents and warrants that he has not filed,
nor has he assigned to any third person, any complaints, charges or claims for
relief against the Corporation with any local, state or federal court or
administrative agency. McErlain further agrees and covenants not to sue or to
bring, or assign to any third person, any claims or charges against the
Corporation or its agents, officers, employees, shareholders, directors,
successors and assigns with respect to any matter arising before the date hereof
or covered by the release set forth in Section 5, and not to assert against the
Corporation in any suit, action, litigation or proceeding any matter arising
before the date hereof or covered by the release set forth in Section 5.
(b) The Corporation represents and warrants that it has not
filed, nor has it assigned to any third person, any complaints, charges or
claims for relief against McErlain with any local, state or federal court or
administrative agency. The Corporation further agrees and covenants not to sue
or to bring, or assign to any third person, any claims or charges against
McErlain with respect to any matter arising before the date hereof or covered by
the release set forth in Section 6, and not to assert against McErlain in any
suit, action, litigation or proceeding any matter arising before the date hereof
or covered by the release set forth in Section 6.
8. Ownership of Rights. (a) Any and all writings, inventions,
improvements, processes, procedures and/or techniques which McErlain has made,
conceived, discovered or developed, either solely or jointly with any other
person or persons, at any time during the term of his employment with the
Corporation, whether during working hours or at any other time and whether at
the request or upon the suggestion of the Corporation or otherwise, which relate
to any
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<PAGE> 5
business carried on by the Corporation, are the sole and exclusive property of
the Corporation. McErlain shall promptly make full disclosure to the
Corporation of all such writings, inventions, improvements, processes,
procedures and techniques, and shall do everything necessary or desirable to
vest the absolute title thereto in the Corporation.
(b) Any and all writings, inventions, improvements,
processes, procedures and/or techniques which McErlain may make, conceive,
discover or develop, either solely or jointly with any other person or persons,
at any time subsequent to the date hereof, will be the sole and exclusive
property of McErlain.
9. Non-Disclosure of Information. McErlain acknowledges that by
virtue of his position he has been privy to the Corporation's and the
Affiliates' trade secrets including but not limited to the Corporation's and
the Affiliates' customers list and private processes, as they may exist or as
the Corporation and the Affiliates may determine from time to time, and that
such secrets are valuable, special and unique assets of the Corporation's and
the Affiliates' business and constitute confidential information and trade
secrets of the Corporation and the Affiliates (hereafter collectively
"Confidential Information"). McErlain shall not, for a period of two (2) years
after the execution of this Agreement, whether intentionally or negligently,
disclose all or any part of the Confidential Information to any person, firm,
corporation, association or any other entity for any reason or purpose
whatsoever, nor shall McErlain and any other person by, through or with
McErlain, and for a period of two (2) years after the execution of this
Agreement, whether intentionally or negligently, make use of any of the
Confidential Information for any purpose or for the benefit of any other person
or entity, other than the Corporation or the Affiliates, as the case may be,
under any circumstances. Additionally, McErlain shall not take any action
which in any manner shall be injurious to the Corporation or the Affiliates.
The Corporation and McErlain agree that a violation of the foregoing covenants
will cause irreparable injury to the Corporation, and that in the event of a
breach or threatened breach by McErlain of the provisions of this Section 9,
the Corporation shall be entitled to an injunction restraining McErlain from:
(a) Disclosing, in whole or in part, any Confidential
Information, or from rendering any services to any person, firm, corporation,
association or other entity to whom any such information, in whole or in part,
has been disclosed by McErlain or is threatened by McErlain to be disclosed in
violation of this Agreement.
(b) Continuing such injurious actions. Nothing herein
stated shall be construed as prohibiting the Corporation from pursuing any
other rights and remedies, at law or in equity, available to the Corporation
for such breach or threatened breach, including the recovery of damages from
McErlain.
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10. Restrictive Covenant
(a) For a period of two (2) years after the execution of
this Agreement, McErlain covenants and agrees that, within a radius of
twenty-five (25) miles from each of the present places of the Corporation's and
the Affiliates' business or any other area in which the Corporation or the
Affiliates are engaged in business, he shall not own, manage, operate, control,
be employed by, participate in, or be connected in any manner with the
ownership, management, operation, or control, whether directly or indirectly,
as an individual on his own account, or as a partner, member, joint venturer,
officer, director or shareholder of a corporation or other entity, of any
business similar to or competitive with the type of business currently
conducted or proposed to be conducted by the Corporation or the Affiliates at
the time of the execution of this Agreement.
(b) For a period of two (2) years after the execution of
this Agreement, McErlain further covenants he shall not interfere with, solicit
or disrupt or attempt to interfere with, solicit or disrupt the relationship,
contractual or otherwise, between the Corporation or the Affiliates and any
customer, supplier, lessee or employee of the Corporation or the Affiliates.
(c) McErlain acknowledges that the restrictions contained
in this Section 10 are reasonable. In that regard, it is the intention of the
parties to this Agreement that the provisions of this Section 10 shall be
enforced to the fullest extent permissible under the law and public policy
applied in each jurisdiction in which enforcement is sought. Accordingly, if
any portion of this Section 10 shall be adjudicated or deemed to be invalid or
unenforceable, the remaining portions shall remain in full force and effect,
and such invalid or unenforceable portion shall be limited to the particular
jurisdiction in which such adjudication is made.
13. Specific Performance. McErlain acknowledges that any breach by
him of Sections 8, 9, or 10 of this Agreement would substantially and
materially impair and irreparably harm the Corporation's business and goodwill;
that such impairment and harm would be difficult to measure and, therefore,
total compensation in solely monetary terms would be inadequate. McErlain
therefore agrees that in the event of any breach or threatened breach by him of
Sections 8, 9, or 10 of this Agreement, the Corporation shall be entitled, in
addition to monetary damages or other remedies, to equitable relief, including
injunctive relief, and payment by McErlain of all costs and expenses incurred
by the Corporation in enforcing said Section against him, including attorneys'
fees incurred by the Corporation; provided, however, that in the event the
Corporation is unsuccessful in obtaining the judicial relief requested
hereunder, McErlain shall be entitled to payment by the Corporation of all
costs and expenses incurred by McErlain in defending the Corporation's claims
hereunder, including reasonable attorney's fees incurred by McErlain.
14. Confidentiality. The parties hereto agree that a material item
of this Agreement is an agreement to keep confidential the terms and conditions
of this Agreement. No disclosure shall be made by any of the parties hereto
except to the extent that any of the parties is obligated to make
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<PAGE> 7
disclosure to such party's attorneys and accountants in the rendering of
professional services, or pursuant to the securities laws or any other laws of
the United States or any other state.
15. Public Statements. Except as required by applicable law, the
Corporation hereby agrees not to make any public statement or issue any press
release concerning this Agreement or the transactions contemplated hereby
without providing McErlain an opportunity to comment on such public statement or
press release. The Corporation further agrees to provide McErlain with a copy
of any public filing made by the Corporation with respect to this Agreement or
the transactions contemplated hereby on the date such public filing is made.
16. Further Assurances; Cooperation.
(a) The Corporation hereby agrees to execute and deliver
such other documents, instruments and agreements and to take such other action
as may be necessary, proper or appropriate to carry out the terms of this
Agreement, including, without limitation, the following:
(i) On or prior to August 5, 1996, the Corporation
shall prepare and deliver to McErlain, a Form 4, reflecting
McErlain's separation of employment from the Corporation, and,
if necessary, the option grant contemplated by this Agreement;
(ii) Promptly following execution of this Agreement,
the Corporation shall deliver to McErlain a copy of each filing
made with the Securities and Exchange Commission on McErlain's
behalf;
(iii) At the request of McErlain, the Corporation
shall provide McErlain information and/or documentation
reasonably necessary for the determination of McErlain's
holdings in the Corporation, the tax basis of such holdings and
the acquisition date of such holdings; and
(iv) Promptly following execution of this Agreement,
the Corporation shall issue or cause to be issued and delivered
to McErlain, a stock certificate or certificates evidencing the
shares of Common Stock of the Corporation owned by McErlain.
(b) McErlain hereby agrees to execute and deliver such
other documents, instruments and agreements and to take such other action as
may be necessary, proper or appropriate to carry out the terms of this
Agreement. McErlain further agrees to use his best efforts to cooperate and
assist the Corporation at its cost and expense, but without remuneration to
McErlain, upon the request of the Corporation, in defending any claims, suits,
actions, litigation, demands, losses or controversies whatsoever against the
Corporation that arise from the activities of the Corporation prior to the date
of the effectiveness of McErlain's resignation as an officer, director and
employee of the Corporation.
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17. Breach. (a) The parties agree that in the event one party
breaches any part of this Agreement, legal proceedings may be instituted
against that party for breach of contract. The non-prevailing party in such
legal proceedings shall reimburse the prevailing party for the reasonable costs
and expenses, including reasonable attorneys' fees, incurred. The parties
further agree that the "prevailing party" shall be determined by the judge
rendering the decision in such proceeding and that the parties will be bound by
such judge's decision.
(b) In the event that the Corporation breaches its obligation to
pay McErlain the consultation retainer fee set forth in Section 4 hereof,
McErlain shall be entitled to recover the following amounts from the
Corporation:
Date of Breach Amount
-------------- ------
9/1/96 - 2/28/97 Three times the outstanding amount
owed to McErlain by the Corporation
under Section 4 hereof.
3/1/97 - 8/31/97 Two times the outstanding amount
owed to McErlain by the Corporation
under Section 4 hereof.
9/1/97 - 8/31/98 The outstanding amount owed to
McErlain by the Corporation under
Section 4 hereof.
18. Notices. All notices required or permitted under this
Agreement shall be in writing and delivered by any method providing for proof
of delivery. Any notice shall be deemed to have been given on the date of
delivery to a location specified by the other party, or by attempted delivery
with proof thereof. Notices shall be delivered to the parties at the following
addresses until a different address has been designated by notice to the other
party:
If to the Corporation:
Unidigital Inc.
20 West 20th Street
New York, New York 10011
Attention: William E. Dye, President and
Chief Executive Officer
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<PAGE> 9
With a copy to:
Buchanan Ingersoll
500 College Road East
Princeton, New Jersey 08540
Attention: David J. Sorin, Esq.
If to McErlain:
31 West 10th Street
New York, New York 10011
With a copy to:
Saviano, Tobias & Weinberger, P.C.
Attorneys at Law
12th Floor
Three New York Plaza
New York, New York 10004
Attention: Steven I. Weinberger, Esq.
19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
20. Entire Agreement. This Agreement contains the entire agreement
among the parties hereto with respect to the subject matter hereof, and no
modification hereof shall be effective unless in writing and signed by the
party against which it is sought to be enforced. Except as set forth above,
this Agreement supersedes all prior understandings, negotiations and agreements
relating to the subject matter hereof. The parties hereto understand and agree
that the Employment Agreement between McErlain and the Corporation dated as of
November 2, 1995 is null and void and is of no further force and effect.
McErlain and the Corporation affirm that the only consideration for executing
this Agreement are the terms stated herein, and that no other promises or
agreements of any kind have been made to or with either of them by any person
or entity whatsoever to cause them to sign this Agreement. The Corporation
represents that it has the corporate power, authority and legal right to
deliver this Agreement and that the execution, delivery and performance of this
Agreement by the Corporation has been duly authorized by all necessary
corporate action. McErlain represents that he has had an opportunity to
discuss and review the terms of this Agreement fully with his attorney.
McErlain further represents that he has carefully read this Agreement,
understands the contents hereof, and executes the same as his own free act.
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<PAGE> 10
21. Expenses. Each of the parties hereto shall bear such party's
own expenses in connection with this Agreement and the transaction contemplated
hereby.
22. Governing Law; Jurisdiction. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York
applicable to agreements made and to be performed entirely within such State.
Any action arising out of or relating to any of the provisions of this
Agreement shall be brought and prosecuted only in the courts of, or located in,
the State of New York, and the parties hereto consent to the jurisdiction and
venue of said courts.
23. Headings. The headings in this Agreement are solely for
convenience of reference and shall not affect the interpretation of any of the
provisions hereof.
24. Severability. If any provision herein contained shall be held
to be illegal or unenforceable, such holding shall not affect the validity or
enforceability of the other provisions of this Agreement.
25. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the Corporation and the Affiliates, and their respective
successors and assigns, and upon McErlain and his executors, administrators,
legal representatives, heirs and assigns.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have caused this Separation
Agreement to be executed as of the date first above written.
UNIDIGITAL INC.
By /s/ WILLIAM E. DYE
-------------------------------------
William E. Dye, President and
Chief Executive Officer
/s/ STEPHEN McERLAIN
-------------------------------------
Stephen McErlain
11
<PAGE> 1
[LOGO] CHASE
GRID TIME PROMISSORY NOTE
New York, NY
August 8, 1996
For value received, the undersigned unconditionally (and if more than
one, jointly and severally) promises to pay to the order of THE CHASE MANHATTAN
BANK ("Chase"), at its office located at 380 Madison Avenue New York, New York
10017, or to such other address as Chase may notify the undersigned, the sum of
Seven Hundred Fifty Thousand Dollars********($ 750,000.00) or such unpaid
principal amount of each loan made to the undersigned by Chase and outstanding
under this Note, on the maturity date(s) as shown on the attached schedule or
any continuation of the schedule.
This Note includes any Schedule or Rider attached hereto.
MATURITY DATE(S). Each loan shall mature on the last day of the
Interest Period therefor, as noted on the Interest Period column on the attached
schedule. As to a Variable Rate loan, if no Interest Period is noted, then such
loan is payable On Demand.
INTEREST. The undersigned promise(s) to pay interest on the unpaid
balance of the principal amount of each such loan from and including the date of
each such loan to but excluding the date such loan shall be paid in full at the
following applicable rates (check Other Rate box if applicable):
Variable Rate: A rate of interest per year which shall automatically
increase or decrease from time to time so that at all
times such rate shall remain equal to that rate of
interest from time to time announced by Chase at its
head office as its prime commercial lending rate (the
"Prime Rate") PLUS 1/2. Changes in the rate of
interest hereunder shall be effective as of and for
the entire day on which such change in the Prime Rate
becomes effective.
and
[ ] Other Rate: see Rider(s) attached hereto.
Interest shall be payable, as to a Variable Rate loan, on THE FIRST DAY
of each month and as to an Other Rate loan, on the last day of each Interest
Period, or if such Interest Period is more than 90 days, then or the 90th day
after the date of such loan and on the last day of such Interest Period, unless
otherwise specified on a Rider attached hereto, in respect of the corresponding
principal. Interest shall be calculated on the basis of a year of 360 days and
payable for the actual number of days elapsed.
After the occurrence of an Event of Default set forth below, Chase, at
its option, by written notice to the undersigned may increase the interest rate
on this Note by an additional four percent (4%) per year effective on the date
of such notice.
PAYMENTS. All payments under this Note shall be made in lawful money of
the United States of America and in immediately available funds at Chase's
office specified above. Chase may (but shall not be obligated to debit the
amount of any payment (principal or interest) under this Note when due to any
deposit account of (an of) the undersigned with Chase. If the undersigned are
more than one, all obligations of each of the undersigned under this Note shall
be joint and several. This Note may be prepaid without premium unless otherwise
specified on a Rider attached hereto. Chase may apply any money received or
collected for payment of this Note to the principal of, interest on or any other
amount payable under, this Note in any order that Chase may elect.
Reg Bnk Note 2 Legal 331 Page 1 May 10, 1995
<PAGE> 2
Whenever any payment to be made hereunder (including principal and
interest) shall be stated to be due on a day on which Chase's head office is not
open for business, that payment will be due on the next following banking day,
and any extension of time shall in each case be included in the computation of
interest payable on this Note.
If any payment (principal or interest) shall not be paid when due other
than a payment of the entire principal balance of the Note due upon acceleration
after default, the undersigned shall pay a late payment charge equal to five
percent (5%) of the amount of such delinquent payment, provided that the amount
of such late payment charge shall be not less than $25 nor more than $500.
AUTHORIZATIONS. The undersigned hereby authorizes Chase to make loans
and disburse the proceeds thereof to the account listed below and to make
repayments of such loans by debiting such account upon oral, telephonic or
telecopied instructions made by any person purporting to be an officer or agent
of the undersigned who is empowered to make such requests and give such
instructions. The undersigned may amend these instructions, from time to time,
effective upon actual receipt of the amendment by Chase. Chase shall not be
responsible for the authority, or lack of authority, of any person giving such
telephonic instructions to Chase pursuant to these provisions. By executing this
Note, the undersigned agrees to be bound to repay any loan obtained hereunder as
reflected on Chase's books and records and made in accordance with these
authorizations, regardless of the actual receipt of the proceeds thereof.
RECORDS. The date, amount and maturity date of each loan under this
Note and each payment of principal, loan(s) to which such principal is applied
(which shall be at the discretion of Chase) and the outstanding principal
balance of loans, shall be recorded by Chase on its books and prior to any
transfer of this Note (or, at the discretion of Chase at any other time)
endorsed by Chase on the schedule attached or any continuation of the schedule.
Any such endorsement shall be conclusive absent manifest error.
REPRESENTATIONS AND WARRANTIES. If the undersigned is other than an
individual, the undersigned represents and warrants upon the execution and
delivery of this Note and upon each loan request hereunder that (a) it is duly
organized and validly existing under the laws of the jurisdiction of its
organization or incorporation and, if relevant under such laws, in good
standing; (b) it has the power to execute and deliver this Note and to perform
its obligations hereunder and has taken all necessary action to authorize such
execution, delivery and performance; (c) such execution, delivery and
performance do not violate or conflict with any law applicable to it, any
provision of its organizational documents, any order or judgment of any court or
other agency of government applicable to it or any of its assets or any material
contractual restriction binding on or materially affecting it or any of its
assets: (d) to the best of undersigned's knowledge, all governmental and other
consents that are required to have been obtained by it with respect to this Note
have been obtained and are in full force and effect and all conditions of any
such consents have been complied with; (e) its obligations under this Note
constitute its legal, valid and binding obligations, enforceable in accordance
with its terms except to the extent that such enforcement may be limited by
applicable bankruptcy, insolvency or other similar laws affecting creditors'
rights generally; (f) all financial statements and related information furnished
and to be furnished to Chase from time to time by the undersigned are true and
complete and fairly present the financial or other information stated therein as
at such dates or for the periods covered thereby; (g) there are no actions,
suits proceedings or investigations pending or, to the knowledge of the
undersigned, threatened against or affecting the undersigned before any court,
governmental agency or arbitrator, which involve forfeiture of any assets of the
undersigned or which may materially adversely affect the financial condition,
operations, properties of business of the undersigned or the ability of the
undersigned to perform its obligation under this Note; and (h) there has been no
material adverse change in the financial condition of the undersigned since the
last such financial statements or information. If the undersigned is an
individual, the undersigned represents and warrant, at the times set forth at
the beginning of this section, the correctness of clauses (c), (d), (e), (f),
(g) and (h) above to the extent applicable to an individual.
NO COMMITMENT. This Note does not create and shall not be deemed or
construed to create any contractual commitment to tend by Chase. Any such
commitment in respect of this Note can only be made by and shall only be
effective to the extent set forth in a separate writing expressly designated for
that purpose and subscribed by a duly authorized officer of Chase.
Reg Bnk Note 2 Legal 331 Page 2 May 10, 1995
<PAGE> 3
SECURITY. As collateral security for the payment of this Note and of
any and all other obligations and liabilities of the undersigned to Chase, now
existing or hereafter arising, the undersigned grants to Chase a security
interest in and a lien upon and right of offset against all moneys, deposit
balances, securities or other property or interest therein of the undersigned
now or at any time hereafter held or received by or for or left in the
possession or control of Chase or any of its affiliates, including subsidiaries,
whether for safekeeping, custody, transmission, collection, pledge or for any
other or different purpose.
DEFAULT. IF ANY OF THE FOLLOWING EVENTS OF DEFAULT SHALL OCCUR with
respect to any of the undersigned (each an "Event of Default"):
(a) the undersigned shall fail to pay the principal of, or
interest on, this Note, or any other amount payable under this
Note, as and when due and payable;
(b) any representation or warranty made or deemed made by the
undersigned in this Note or in any document granting security
or support for (or otherwise executed in connection with) this
Note or by any third party supporting or liable with respect
to this Note (whether by guaranty, subordination, grant of
security or any other credit support, a "Third Party") in any
document evidencing the obligations of a Third Party (this
Note and all of the foregoing documents and all agreements,
instruments or other documents executed by the undersigned or
a Third Party being the "Facility Documents") or which is
contained in any certificate, document, opinion, financial or
other statement furnished at any time under or in connection
with any Facility Document, shall prove to have been incorrect
in any material respect on or as of the date made or deemed
made;
(c) the undersigned or any Third Party shall fail to perform or
observe any term, covenant or agreement contained in any
Facility Document on its part to be performed or observed, and
such failure shall continue for 30 consecutive days;
(d) the undersigned or any Third Party shall fail to pay when due
any indebtedness (including but not limited to indebtedness
for borrowed money) or if any such indebtedness shall become
due and payable, or shall be capable of becoming due and
payable at the option of any holder thereof, by acceleration
of its maturity, or if there shall be any default by the
undersigned or any Third Party under any agreement relating to
such indebtedness;
(e) the undersigned or any Third Party: (i) shall generally not,
or be unable to, or shall admit in writing its inability to,
pay its debts as such debts become due; (ii) shall make an
assignment for the benefit of creditors; (iii) shall file a
petition in bankruptcy or for any relief under any law of any
jurisdiction relating to reorganization, arrangement,
readjustment of debt, dissolution or liquidation; (iv) shall
have any such petition filed against it and the same shall
remain undismissed for a period of 30 days or shall consent or
acquiesce thereto; or (v) shall have had a receiver, custodian
or trustee appointed for all or a substantial part of its
property;
(f) if the undersigned or any Third Party is an individual, such
individual shall die or be declared incompetent;
(g) any Third Party Facility Document shall at any time and for
any reason cease to be in full force and effect or shall be
declared null and void, or its validity or enforceability
shall be contested by the relevant Third Party or such Third
Party shall deny it has any further liability or obligation
under any Facility Document or shall fail to perform its
obligations under any Facility Document;
(h) any security agreement or other agreement (whether by the
undersigned or any Third Party granting a security interest
lien, mortgage or other encumbrance securing obligations under
and Facility Document shall at any time and for any reason
cease to create a valid and perfected first priority security
interest lien, mortgage or other encumbrance in or on the
property purported to be subject to such agreement or shall
cease to be in full force and effect or shall be declared null
and void, or the validity or enforceability of any such
agreement shall be contested by any party to such agreement,
or such party shall deny it has any further liability or
obligation under such agreement of any such party shall fail
to perform any of its obligations under such agreement;
(i) the undersigned shall make or permit to be made any material
change in the character management or direction of the
undersigned's business or operations (including, but not
limited to, change in its executive management or in the
ownership of its capital stock which effects a change in the
control of any such business or operations), which is not
satisfactory to Chase;
(j) the undersigned or any Third Party shall suffer a material
adverse change in its business, financial condition,
properties or prospects;
Reg Bnk Note 2 Legal 331 Page 3 May 10, 1995
<PAGE> 4
(k) any action, suit, proceeding or investigation against or
affecting the undersigned or a Third Party before any court or
governmental agency which involves forfeiture of any assets of
the undersigned or a Third Party shall have been commenced; or
(1) one or more judgments, decrees or orders for the payment of
money in excess of $50,000 in the aggregate shall be rendered
against the undersigned and shall continue unsatisfied and in
effect for a period of 30 consecutive days without being
vacated, discharged, satisfied or stayed or bonded pending
appeal.
THEN, IN ANY SUCH CASE, if Chase shall elect by notice to the undersigned, the
unpaid principal amount of this Note, together with accrued interest, shall
become forthwith due and payable; provided that in the case of an event of
default under (e) above, the unpaid principal amount of this Note, together with
accrued interest, shall immediately become due and payable without any notice or
other action by Chase.
THE EVENTS OF DEFAULT AND REMEDIES SET FORTH ABOVE ARE IN ADDITION TO
AND WITHOUT IN ANY WAY DIMINISHING ANY RIGHT BY CHASE TO MAKE DEMAND FOR PAYMENT
AT ANY TIME.
CERTAIN WAIVERS. The undersigned waive(s) presentment, notice of
dishonor, protest and any other notice or formality with respect to this Note.
COSTS. The undersigned agree(s) to reimburse Chase an demand for all
costs, expenses and charges (including, without limitation, fees and charges of
external legal counsel for Chase and costs allocated by its internal legal
department) in connection with the preparation, interpretation, performance or
enforcement of this Note and the Facility Documents.
NOTICES. All notices, requests, demands or other communications to or
upon the undersigned or Chase shall be in writing and shall be deemed to be
delivered upon receipt if delivered by hand or overnight courier or five days
after mailing to the address (a) of the undersigned as set forth next to the
undersigned's execution of this Note, (b) of Chase as first set forth above, or
(c) of the undersigned or Chase at such other address as the undersigned or
Chase shall specify to the other in writing.
ASSIGNMENT. This Note shall be binding upon the undersigned and its or
their successors and shall inure to the benefit of Chase and its successors and
assigns.
AMENDMENT AND WAIVER. This Note may be amended only by a writing signed
on behalf of each party and shall be effective only to the extent set forth in
that writing. No delay by Chase in exercising any power or right hereunder shall
operate as a waiver thereof or of any other power or right; nor shall any single
or partial exercise of any power or right preclude other or future exercise
thereof, or the exercise of any other power or right hereunder.
GOVERNING LAW: JURISDICTION. This Note shall be governed by and
construed in accordance with the laws of the State of New York, Connecticut or
New Jersey, depending on the location of the Chase office set forth in this
Note. The undersigned consent(s) to the nonexclusive jurisdiction and venue of
the state or federal courts located in such state. In the event of a dispute
hereunder, suit may be brought against the undersigned is such courts or in any
jurisdiction where the undersigned or any of its assets may be located. Service
of process by Chase in connection with any dispute shall be binding on the
undersigned if sent to the undersigned by registered mail at the address(es)
specified below or to such further address(es) as the undersigned may specify to
Chase in writing.
MAXIMUM INTEREST. Notwithstanding any other provision of this Note, the
undersigned shall not be required to pay any amount pursuant to this Note which
is in excess of the maximum amount permitted to be charged by national banks
under applicable law and any such excess interest paid shall be refunded to the
undersigned or applied to principal owing hereunder.
Reg Bnk Note 2 Legal 331 Page 4 May 10, 1995
<PAGE> 5
COMMERCIAL TRANSACTION. IF THE UNDERSIGNED IS A CONNECTICUT DOMICILED
ENTITY OR RESIDENT, EACH OF THE UNDERSIGNED HEREBY ACKNOWLEDGES THAT THIS NOTE
AND THE TRANSACTIONS CONTEMPLATED HEREBY CONSTITUTE COMMERCIAL TRANSACTIONS
WITHIN THE MEANING OF SECTION 52L-278a OF THE CONNECTICUT GENERAL STATUTES.
EACH OF THE UNDERSIGNED EXPRESSLY WAIVES ANY AND ALL RIGHTS, CONSTITUTIONAL OR
OTHERWISE, WITH RESPECT TO NOTICE AND HEARING AND ANY RIGHTS UNDER CHAPTER 903a
OF THE CONNECTICUT GENERAL STATUTES IN CONNECTION WITH ANY PREJUDGMENT REMEDY
AVAILABLE TO CHASE.
BORROWER WAIVERS. THE UNDERSIGNED HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE(S) (TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW) ANY
RIGHT TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR RELATING TO THIS NOTE
OR ANY FACILITY DOCUMENT, AND AGREES THAT ANY SUCH DISPUTE SHALL, AT CHASE'S
OPTION, BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
IN ADDITION, THE UNDERSIGNED WAIVES THE RIGHT TO INTERPOSE ANY DEFENSE
BASED UPON ANY STATUTE OF LIMITATIONS OR ANY CLAIM OF DELAY BY CHASE AND ANY
SET-OFF OR COUNTERCLAIM OF ANY NATURE OR DESCRIPTION.
Chase Account No. to be charged for Disbursements
and Payments: 002-1-543954
Address for notices: Unidigital/Cardinal Corporation
20 West 20th Street By: William E. Dye
New York, NY 10011 Print Name: William E. Dye
Title: President
By:
Telecopier No. ( ) Print Name:
Title:
Reg Bnk Note 2 Legal 331 Page 5 May 10, 1995
<PAGE> 6
[LOGO] CHASE
GRID TIME PROMISSORY NOTE
New York, NY
August 8, 1996
For value received, the undersigned unconditionally (and if more than
one, jointly and severally) promises to pay to the order of THE CHASE MANHATTAN
BANK ("Chase"), at its office located at 380 Madison Avenue New York, New York
10017, or to such other address as Chase may notify the undersigned, the sum of
One Million Four Hundred Thousand ******** DOLLARS ($1,400,000.00 ) or such
unpaid principal amount of each loan made to the undersigned by Chase and
outstanding under this Note, on the maturity date(s) as shown on the attached
schedule or any continuation of the schedule.
This Note includes any Schedule or Rider attached hereto.
MATURITY DATE(S). Each loan shall mature on the last day of the
Interest Period therefor, as noted on the Interest Period column on the attached
schedule. As to a Variable Rate loan, if no Interest Period is noted, then such
loan is payable ON DEMAND.
INTEREST. The undersigned promise(s) to pay interest on the unpaid
balance of the principal amount of each such loan from and including the date of
each such loan to but excluding the date such loan shall be paid in full at the
following applicable rates (check Other Rate box if applicable):
Variable Rate: A rate of interest per year which shall automatically
increase or decrease from time to time so that at all
times such rate shall remain equal to that rate of
interest from time to time announced by Chase at its
head office as its prime commercial lending rate (the
"Prime Rate") PLUS 0 %. Changes in the rate of
interest hereunder shall be effective as of and for
the entire day on which such change in the Prime Rate
becomes effective.
and
[ ] Other Rate: see Rider(s) attached hereto.
Interest shall be payable, as to a Variable Rate loan, on THE FIRST DAY
of each month and as to an Other Rate loan, on the last day of each Interest
Period, or if such Interest Period is more than 90 days, then on the 90th day
after the date of such loan and on the last day of such Interest Period, unless
otherwise specified on a Rider attached hereto, in respect of the corresponding
principal. Interest shall be calculated on the basis of a year of 360 days and
payable for the actual number of days elapsed.
After the occurrence of an Event of Default set forth below, Chase, at
its option, by written notice to the undersigned may increase the interest rate
on this Note by an additional four percent (4%) per year effective on the date
of such notice.
PAYMENTS. All payments under this Note shall be made in lawful money of
the United States of America and in immediately available funds at Chase's
office specified above. Chase may (but shall not be obligated to) debit the
amount of any payment (principal or interest) under this Note when due to any
deposit account of (any of) the undersigned with Chase. If the undersigned are
more than one, all obligations of each of the undersigned under this Note shall
be joint and several. This Note may be prepaid without premium unless otherwise
specified on a Rider attached hereto. Chase may apply any money received or
collected for payment of this Note to the principal of, interest on or any other
amount payable under, this Note in any order that Chase may elect.
Whenever any payment to be made hereunder (including principal and
interest) shall be stated to be due on a day on which Chase's head office is not
open for business, that payment will be due on the next
Reg Bnk Note 2 Legal 331 Page 1 May 10, 1995
<PAGE> 7
following banking day, and any extension of time shall in each case be included
in the computation of interest payable on this Note.
If any payment (principal or interest) shall not be paid when due other
than a payment of the entire principal balance of the Note due upon acceleration
after default, the undersigned shall pay a late payment charge equal to five
percent (5%) of the amount of such delinquent payment, provided that the amount
of such late payment charge shall be not less than $25 nor more than $500.
AUTHORIZATIONS. The undersigned hereby authorizes Chase to make loans
and disburse the proceeds thereof to the account listed below and to make
repayments of such loans by debiting such account upon oral, telephonic or
telecopied instructions made by any person purporting to be an officer or agent
of the undersigned who is empowered to make such requests and give such
instructions. The undersigned may amend these instructions, from time to time,
effective upon actual receipt of the amendment by Chase. Chase shall not be
responsible for the authority, or lack of authority, of any person giving such
telephonic instructions to Chase pursuant to these provisions. By executing this
Note, the undersigned agrees to be bound to repay any loan obtained hereunder as
reflected on Chase's books and records and made in accordance with these
authorizations, regardless of the actual receipt of the proceeds thereof.
RECORDS. The date, amount and maturity date of each loan under this
Note and each payment of principal, loan(s) to which such principal is applied
(which shall be at the discretion of Chase) and the outstanding principal
balance of loans, shall be recorded by Chase on its books and prior to any
transfer of this Note (or, at the discretion of Chase at any other time)
endorsed by Chase on the schedule attached or any continuation of the schedule.
Any such endorsement shall be conclusive absent manifest error.
REPRESENTATIONS AND WARRANTIES. If the undersigned is other than an
individual, the undersigned represents and warrants upon the execution and
delivery of this Note and upon each loan request hereunder, that: (a) it is duly
organized and validly existing under the laws of the jurisdiction of its
organization or incorporation and, if relevant under such laws, in good
standing; (b) it has the power to execute and deliver this Note and to perform
its obligations hereunder and has taken all necessary action to authorize such
execution, delivery and performance; (c) such execution, delivery and
performance do not violate or conflict with any law applicable to it, any
provision of its organizational documents, any order or judgment of any court or
other agency of government applicable to it or any of its assets or any material
contractual restriction binding on or materially affecting it or any of its
assets; (d) to the best of undersigned's knowledge, all governmental and other
consents that are required to have been obtained by it with respect to this Note
have been obtained and are in full force and effect and all conditions of any
such consents have been complied with; (e) its obligations under this Note
constitute its legal, valid and binding obligations, enforceable in accordance
with its terms except to the extent that such enforcement may be limited by
applicable bankruptcy, insolvency or other similar laws affecting creditors'
rights generally; (f) all financial statements and related information furnished
and to be furnished to Chase from time to time by the undersigned are true and
complete and fairly present the financial or other information stated therein as
at such dates or for the periods covered thereby; (g) there are no actions,
suits, proceedings or investigations pending or, to the knowledge of the
undersigned, threatened against or affecting the undersigned before any court,
governmental agency or arbitrator, which involve forfeiture of any assets of the
undersigned or which may materially adversely affect the financial condition,
operations, properties or business of the undersigned or the ability of the
undersigned to perform its obligation under this Note; and (h) there has been no
material adverse change in the financial condition of the undersigned since the
last such financial statements or information. If the undersigned is an
individual, the undersigned represents and warrants at the times set forth at
the beginning of this section, the correctness of clauses (c), (d), (e), (f),
(g) and (h) above to the extent applicable to an individual.
NO COMMITMENT. This Note does not create and shall not be deemed or
construed to create any contractual commitment to lend by Chase. Any such
commitment in respect of this Note can only be made by and shall only be
effective to the extent set forth in a separate writing expressly designated for
that purpose and subscribed by a duly authorized officer of Chase.
Reg Bnk Note 2 Legal 331 Page 2 May 10, 1995
<PAGE> 8
SECURITY. As collateral security for the payment of this Note and of
any and all other obligations and liabilities of the undersigned to Chase, now
existing or hereafter arising, the undersigned grants to Chase a security
interest in and a lien upon and right of offset against all moneys, deposit
balances, securities or other property or interest therein of the undersigned
now or at any time hereafter held or received by or for or left in the
possession or control of Chase or any of its affiliates, including subsidiaries,
whether for safekeeping, custody, transmission, collection, pledge or for any
other or different purpose.
DEFAULT. IF ANY OF THE FOLLOWING EVENTS OF DEFAULT SHALL OCCUR with
respect to any of the undersigned (each an "Event of Default"):
(a) the undersigned shall fail to pay the principal of, or
interest on, this Note, or any other amount payable under this
Note, as and when due and payable;
(b) any representation or warranty made or deemed made by the
undersigned in this Note or in any document granting security
or support for (or otherwise executed in connection with) this
Note or by any third party supporting or liable with respect
to this Note (whether by guaranty, subordination, grant of
security or any other credit support a "Third Party") in any
document evidencing the obligations of a Third Party (this
Note and all of the foregoing documents and all agreements,
instruments or other documents executed by the undersigned or
a Third Party being the "Facility Documents") or which is
contained in any certificate, document opinion, financial or
other statement furnished at any time under or in connection
with any Facility Document, shall prove to have been incorrect
in any material respect on or as of the date made or deemed
made;
(c) the undersigned or any Third Party shall fail to perform or
observe any term, covenant or agreement contained in any
Facility Document on its part to be performed or observed, and
such failure shall continue for 30 consecutive days;
(d) the undersigned or any Third Party shall fail to pay when due
any indebtedness (including but not limited to indebtedness
for borrowed money) or if any such indebtedness shall become
due and payable, or shall be capable of becoming due and
payable at the option of any holder thereof, by acceleration
of its maturity, or if there shall be any default by the
undersigned or any Third Party under any agreement relating to
such indebtedness;
(e) the undersigned or any Third Party: (i) shall generally not or
be unable to, or shall admit in writing its inability to, pay
its debts as such debts become due; (ii) shall make an
assignment for the benefit of creditors; (iii) shall file a
petition in bankruptcy or for any relief under any law of any
jurisdiction relating to reorganization, arrangement,
readjustment of debt, dissolution or liquidation; (iv) shall
have any such petition filed against it and the same shall
remain undismissed for a period of 30 days or shall consent or
acquiesce thereto; or (v) shall have had a receiver, custodian
or trustee appointed for all or a substantial part of its
property;
(f) if the undersigned or any Third Party is an individual, such
individual shall die or be declared incompetent;
(g) any Third Party Facility Document shall at any time and for
any reason cease to be in full force and effect or shall be
declared null and void, or its validity or enforceability
shall be contested by the relevant Third Party or such Third
Party shall deny it has any further liability or obligation
under any Facility Document or shall fail to perform its
obligations under any Facility Document,
(h) any security agreement or other agreement (whether by the
undersigned or any Third Party) granting a security interest
lien, mortgage or other encumbrance securing obligations under
any Facility Document shall at any time and for any reason
cease to create a valid and perfected first priority security
interest lien, mortgage or other encumbrance in or on the
property purported to be subject to such agreement or shall
cease to be in full force and effect or shall be declared null
and void, or the validity or enforceability of any such
agreement shall be contested by any party to such agreement,
or such party shall deny it has any further liability or
obligation under such agreement or any such party shall fail
to perform any of its obligations under such agreement;
(i) the undersigned shall make or permit to be made any material
change in the character, management or direction of the
undersigned's business or operations (including, but not
limited to, a change in its executive management or in the
ownership of its capital stock which effects a change in the
control of any such business or operations), which is not
satisfactory to Chase;
(j) the undersigned or any Third Party shall suffer a material
adverse change in its business, financial condition,
properties or prospects;
(k) any action, suit, proceeding or investigation against or
affecting the undersigned or a Third Party
Reg Bnk Note 2 Legal 331 Page 3 May 10, 1995
<PAGE> 9
before any court or governmental agency which involves
forfeiture of any assets of the undersigned or a Third Party
shall have been commenced; or
(1) one or more judgments, decrees or orders for the payment of
money in excess of $50,000 in the aggregate shall be rendered
against the undersigned and shall continue unsatisfied and in
effect for a period of 30 consecutive days without being
vacated, discharged, satisfied or stayed or bonded pending
appeal.
THEN, IN ANY SUCH CASE, if Chase shall elect by notice to the undersigned, the
unpaid principal amount of this Note, together with accrued interest, shall
become forthwith due and payable; provided that in the case of an event of
default under (e) above, the unpaid principal amount of this Note, together with
accrued interest, shall immediately become due and payable without any notice or
other action by Chase.
THE EVENTS OF DEFAULT AND REMEDIES SET FORTH ABOVE ARE IN ADDITION TO
AND WITHOUT IN ANY WAY DIMINISHING ANY RIGHT BY CHASE TO MAKE DEMAND FOR PAYMENT
AT ANY TIME.
CERTAIN WAIVERS. The undersigned waive(s) presentment notice of
dishonor, protest and any other notice or formality with respect to this Note.
COSTS. The undersigned agree(s) to reimburse Chase on demand for all
costs, expenses and charges (including, without limitation, fees and charges of
external legal counsel for Chase and costs allocated by its internal legal
department) in connection with the preparation, interpretation, performance or
enforcement of this Note and the Facility Documents.
NOTICES. All notices, requests, demands or other communications to or
upon the undersigned or Chase shall be in writing and shall be deemed to be
delivered upon receipt if delivered by hand or overnight courier or five days
after mailing to the address (a) of the undersigned as set forth next to the
undersigned's execution of this Note, (b) of Chase as first set forth above, or
(c) of the undersigned or Chase at such other address as the undersigned or
Chase shall specify to the other in writing.
ASSIGNMENT. This Note shall be binding upon the undersigned and its or
their successors and shall inure to the benefit of Chase and its successors and
assigns.
AMENDMENT AND WAIVER. This Note may be amended only by a writing signed
on behalf of each party and shall be effective only to the extent set forth in
that writing. No delay by Chase in exercising any power or right hereunder shall
operate as a waiver thereof or of any other power or right nor shall any single
or partial exercise of any power or right preclude other or future exercise
thereof, or the exercise of any other power or right hereunder.
GOVERNING LAW: JURISDICTION. This Note shall be governed by and
construed in accordance with the laws of the State of New York, Connecticut or
New Jersey, depending on the location of the Chase office set forth in this
Note. The undersigned consent(s) to the nonexclusive jurisdiction and venue of
the state or federal courts located in such state. In the event of a dispute
hereunder, suit may be brought against the undersigned is such courts or in any
jurisdiction where the undersigned or any of its assets may be located. Service
of process by Chase in connection with any dispute shall be binding on the
undersigned if sent to the undersigned by registered mail at the address(es)
specified below or to such further address(es) as the undersigned may specify to
Chase in writing.
MAXIMUM INTEREST. Notwithstanding any other provision of this Note, the
undersigned shall not be required to pay any amount pursuant to this Note which
is in excess of the maximum amount permitted to be charged by national banks
under applicable law and any such excess interest paid shall be refunded to the
undersigned or applied to principal owing hereunder.
COMMERCIAL TRANSACTION. IF THE UNDERSIGNED IS A CONNECTICUT DOMICILED
ENTITY OR RESIDENT, EACH OF THE UNDERSIGNED HEREBY ACKNOWLEDGES THAT THIS NOTE
AND THE TRANSACTIONS CONTEMPLATED HEREBY CONSTITUTE COMMERCIAL TRANSACTIONS
WITHIN THE MEANING OF SECTION 52L-278a OF THE CONNECTICUT GENERAL STATUTES. EACH
OF THE UNDERSIGNED EXPRESSLY WAIVES ANY AND ALL RIGHTS, CONSTITUTIONAL OR
OTHERWISE, WITH
Reg Bnk Note 2 Legal 331 Page 4 May 10, 1995
<PAGE> 10
RESPECT TO NOTICE AND HEARING AND ANY RIGHTS UNDER CHAPTER 903a OF THE
CONNECTICUT GENERAL STATUTES IN CONNECTION WITH ANY PREJUDGMENT REMEDY AVAILABLE
TO CHASE.
BORROWER WAIVERS. THE UNDERSIGNED HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE(S) (TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW) ANY
RIGHT TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR RELATING TO THIS NOTE
OR ANY FACILITY DOCUMENT, AND AGREES THAT ANY SUCH DISPUTE SHALL, AT CHASE'S
OPTION, BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
IN ADDITION, THE UNDERSIGNED WAIVES THE RIGHT TO INTERPOSE ANY DEFENSE
BASED UPON ANY STATUTE OF LIMITATIONS OR ANY CLAIM OF DELAY BY CHASE AND ANY
SET-OFF OR COUNTERCLAIM OF ANY NATURE OR DESCRIPTION.
Chase Account No. to be charged for
Disbursements and Payments:
002-1-543954
----------------------------------------
Address for notices: Unidigital/Cardinal Corporation
-------------------------------
20 West 20th Street By: /s/ William E. Dye
- --------------------------------- -------------------------------------
New York, NY 10011 Print Name: William E. Dye
- --------------------------------- -----------------------------
Title: President
- --------------------------------- ----------------------------------
By:
- --------------------------------- -------------------------------------
Print Name:
- --------------------------------- -----------------------------
Telecopier No. ( ) - Title:
------------------ ----------------------------------
Reg Bnk Note 2 Legal 331 Page 5 May 10, 1995
<PAGE> 11
GUARANTY BY CORPORATION
WHEREAS, Unidigital/Cardinal Corporation (hereinafter referred to as
the "Borrower"), a corporation organized under the laws of Delaware, (has
obtained or desires or may desire at some time and/or from time to time to
obtain financial accommodation from THE CHASE MANHATTAN BANK and/or any of its
subsidiaries and/or affiliates (hereinafter, with their respective successors
and assigns, collectively or individually, as the context may require, referred
to as the "Bank"); and
WHEREAS, the undersigned (hereinafter referred to as the "Guarantor"),
a corporation organized under the laws of Delaware, represents that it owns
directly or indirectly a substantial amount of the stock of the Borrower and/or
is financially interested in its affairs and expects to derive advantage from
each and every such accommodation;
1. NOW, THEREFORE, for valuable consideration, the receipt whereof by
the Guarantor is hereby acknowledged, and to induce the Bank, at its option, at
any time or from time to time, to extend financial accommodation, with or
without security, to or for the account of the Borrower, or in respect of which
the Borrower may be liable in any capacity (the term "financial accommodation"
including, without limitation, extension of loans, credit or accommodation,
issuance or confirmation of letters of credit or creation of acceptances, or
discount or purchase of, or loans on, accounts, leases, instruments, securities,
documents, chattel paper and other security arrangements, or other property, or
entering into any foreign exchange, precious metals or other contract or
agreement between Borrower and the Bank), the Guarantor hereby unconditionally
guarantees to the Bank, irrespective of the validity, regularity or
enforceability of any instrument, writing or arrangement relating to or the
subject of any such financial accommodation (each such instrument, writing or
arrangement being hereinafter referred to as, and included in the term, "Credit
Arrangement") or of the obligations thereunder and irrespective of any present
or future law or order of any government (whether of right or in fact and
whether the Bank shall have consented thereto) or of any agency thereof
purporting to reduce, amend, restructure or otherwise affect any obligation of
the Borrower or other obligor or to vary the terms of payment, that the Borrower
will promptly perform and observe every agreement and condition in any Credit
Arrangement to be performed or observed by the Borrower, that all sums stated to
be payable in, or which become payable under, any Credit Arrangement, and all
other sums which may be owing by the Borrower to the Bank now or hereafter, will
be promptly paid in full when due, whether at maturity or earlier by reason of
acceleration or otherwise, or, if now due, when payment thereof shall be
demanded by the Bank, together with interest and any and all legal and other
costs and expenses paid or incurred in connection therewith by the Bank, and, in
case of one or more extensions of time of payment or renewals, in whole or in
part, of any Credit Arrangement or obligation, that the same will be promptly
paid or performed when due, according to each such extension or renewal, whether
at maturity or earlier by reason of acceleration or otherwise. The Guarantor
agrees that, as between the Guarantor and the Bank, the obligations of the
Borrower guaranteed hereunder may be declared to be due and payable for purposes
of this guaranty notwithstanding any stay, injunction or other prohibition which
may prevent, delay or vitiate any such declaration as against the Borrower and
that, in the event of any such declaration (or attempted declaration), such
obligations (whether or not due and payable by the Borrower) shall forthwith
become due and payable by the Guarantor for purposes of this guaranty. The
Guarantor further guarantees that all payments made by the Borrower to the Bank
on any obligation hereby guaranteed will, when made, be final and agrees that
if any such payment is recovered from, or repaid by, the Bank in whole or in
part in any bankruptcy, insolvency or similar proceeding instituted by or
against the Borrower, this guaranty shall continue to be fully applicable to
such obligation to the same extent as though the payment so recovered or repaid
had never been originally made on such obligation.
2. The Guarantor hereby consents that from time to time, without notice
to or further consent of the Guarantor, the performance or observance by the
Borrower of any Credit Arrangement or obligation may be waived or the time of
performance thereof extended by the Bank, and payment of any obligation hereby
guaranteed may be accelerated in accordance with any agreement between the Bank
and any party liable with respect thereto, or may be extended, or any Credit
Arrangement may be renewed in whole or in part, or the terms of any Credit
Arrangement or any part thereof may be changed, including increase or decrease
in the rate of interest thereon, or any collateral therefor may be exchanged,
surrendered or otherwise dealt with as the Bank may determine, and any of the
acts mentioned in any Credit Arrangement may be done, all without affecting the
liability of the Guarantor hereunder. The Guarantor hereby waives presentment of
any instrument, demand of payment, protest and notice of non-payment or protest
thereof or of any exchange, sale, surrender or other handling or disposition of
any such collateral, and any requirement that the Bank exhaust any right, power
or remedy or proceed against the Borrower under any Credit Arrangement or
against any other person under any other guaranty of, or security for, any of
the obligations guaranteed hereunder. No payment by the Guarantor pursuant to
any provision hereunder shall entitle the Guarantor, by subrogation to the
rights of the Bank or otherwise, to any payment by the Borrower (or out of the
property of the Borrower) except after payment in full of all sums (including
interest, costs and expenses) which may be or become payable by the Borrower to
the Bank at any time or from time to time.
3. This guaranty shall be a continuing guaranty, and the co-guarantor
or co-guarantors, if any, or any other party liable upon or in respect of any
obligation hereby guaranteed may be released without affecting the liability of
the Guarantor, and the Bank may continue to act in reliance hereon until the
receipt by the Bank, at its principal office at 1 Chase Manhattan Plaza, New
York, New York 10081, and by the departments and offices of the Bank extending
financial accommodation to the Borrower, of written notice from the Guarantor
not to give further financial accommodation in reliance hereon, provided that
such notice shall not affect the obligations of the Guarantor hereunder with
respect to any such accommodation given prior to such notice.
<PAGE> 12
equivalent of such unpaid amount in United States currency computed at the
Bank's selling rate, most recently in effect on or prior to the date such
guaranteed obligation becomes due, for cable transfers of such foreign currency
to the place where such guaranteed obligation is payable. In any case in which
the Guarantor shall make or shall be obligated to make such payment in United
States currency, the Guarantor shall hold the Bank harmless from any loss
incurred by the Bank arising from any change in the value of United States
currency in relation to such foreign currency between the date such guaranteed
obligation becomes due and the date the Bank is actually able, following the
conversion of the United States currency paid by the Guarantor into such foreign
currency and remittance of such foreign currency to the place where such
guaranteed obligation is payable, to apply such foreign currency to such
obligation. The term "foreign currency" as used herein shall be deemed to refer
to that type of such currency which under applicable laws and regulations may be
used to pay and discharge such guaranteed obligation.
9. No provision of this guaranty may be modified or waived without the
prior written consent of the Bank.
IN WITNESS WHEREOF, the Guarantor has caused this instrument to be duly
executed by its proper officers this 8th day of August, 1990.
Unidigital Inc
Attest: By /s/ William E. Dye
----------------------
Title: President
/s/ Kevin H. Rich
- -------------------------
Secretary
[Seal]
<PAGE> 13
STATE OF ___________________
} ss.:
COUNTY OF __________________
On the 8th day of August , 19 96 , before me came William Dye
------- ---------- ---- --------------
_________________________, to me known, who, being by me duly sworn, did depose
and say that he resides at 305 Second Avenue, New York, NY 10003; that he is
-------------------------------------
President of Unidigital Inc , the corporation described in and which
- ---------------- ---------------------
executed the foregoing instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the Board of Directors of said corporation; and that he
signed his name thereto by like order.
/s/ William E. Dye
-----------------------------------------
I, /s/ KHM Kevin H. Rich
----------------------------------------------------------------------
as Secretary of Unidigital Inc , a corporation
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duly organized and existing under the laws of Delaware , hereby
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certify that a meeting of the Board of Directors of said Corporation was duly
called and held on the 8 day of August , 19 96 , and that at said
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meeting, at which a quorum was present and voting throughout, the following
preambles and resolution, upon motion duly made and seconded, were duly and
unanimously adopted:
"WHEREAS, Unidigital/Cardinal Corporation (hereinafter referred to
----------------------------------- as the 'Borrower'), a corporation
organized and existing under the laws of Delaware has obtained or
desires or may desire at some time and/or from time to time to obtain
loans or other financial accommodation from or conduct transactions
with The Chase Manhattan Bank, and/or any of its subsidiaries and/or
affiliates (hereinafter referred to as the 'Bank'); and
WHEREAS, this Corporation owns directly or indirectly a substantial amount
of the stock of the Borrower and/or is financially interested in its
affairs and expects to derive advantage from each and every such loan,
accommodation and/or transaction,
NOW, THEREFORE, BE IT
RESOLVED, that this Corporation guarantee the liabilities and obligations
of the Borrower and of others to the Bank in the manner set forth in the
agreement of guaranty presented to this meeting, which said agreement of
guaranty and all of the terms and provisions thereof are in all respects
approved and adopted, and that any of the officers of this Corporation be
and hereby are, and each of them hereby is, authorized and directed to
execute in the name and on behalf of this Corporation and to deliver to the
Bank an agreement of guaranty in said form with such changes, if any, as
the officer or officers of this Corporation executing the same may approve,
and to do such other acts and things as may be necessary or advisable in
order to carry out and perform on the part of this Corporation the
covenants, conditions and agreements on its part to be carried out and
performed as provided in said agreement of guaranty and in order to carry
out and effect the full intent and purposes of this resolution."
As said Secretary, I further certify that the foregoing preambles and
resolution have not been repealed, annulled, altered or amended in any respect
but remain in full force and effect and that the annexed instrument is the form
of the agreement of guaranty presented to said meeting and referred to in and
approved by the aforesaid resolution.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of
the said Corporation this 8th day of August , 19 96
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/s/ KHM
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As Secretary of Said Corporation
<PAGE> 14
COLLATERAL AGREEMENT
[Third Party]
In consideration of one or more loans, letters of credit or other
financial accommodations made, issued or extended by THE CHASE MANHATTAN BANK,
N.A. or any of its subsidiaries and/or affiliates (hereinafter, with their
respective successors and assigns, collectively or individually, as the context
may require, called the ("Bank"), to
Unidigital/Cardinal Corporation
(the "Obligor"), the undersigned hereby agrees that the Bank shall have the
rights, remedies and benefits hereinafter set forth.
1. DEFINITIONS.
The following terms shall have the following meanings:
"Liabilities" means any and all indebtedness, obligations and
liabilities of any kind of the Obligor to the Bank and also to others to the
extent of their participations granted to or interests therein created or
acquired for them by the Bank, now or hereafter existing, arising directly
between the Obligor and the Bank or acquired outright conditionally or as
collateral security from another by the Bank, absolute or contingent, joint
and/or several, secured or unsecured, due or not due, contractual or tortious,
liquidated or unliquidated, arising by operation of law or otherwise, direct or
indirect, including, without limiting the generality of the foregoing,
indebtedness, obligations and liabilities to the Bank of the Obligor as a
member of any partnership, syndicate, association or other group, and whether
incurred by the Obligor as principal, surety, endorsor, guarantor,
accommodation party or otherwise.
"Collateral" means each of the following as identified in Exhibit A,
attached hereto and made a part hereof, and shall include the proceeds,
products, renewals or substitutions of any thereof: (a) the deposits of the
undersigned with the Bank (whether or not held in trust, or in any custody,
safekeeping, investment management accounts, or other accounts of the
undersigned with the Bank or any of its subsidiaries and affiliates) (the
"Deposits") and all certificates, receipts and other instruments evidencing
such Deposits; (b) the shares of stock, bonds and other instruments and
securities (whether or not held in trust or in any custody, safekeeping,
investment management accounts or other accounts of the undersigned with the
Bank or any other custodian or trustee) (the "Securities"); and (c) all assets
held in trust, or in any custody, safekeeping, investment management accounts,
or other accounts of the undersigned with the Bank (and all additions,
investments and reinvestments thereof made pursuant to any agreement between
the undersigned and the Bank) (the "Account Assets").
2. PLEDGE AND GRANT OF SECURITY INTEREST.
As security for the payment of all the Liabilities, the undersigned
hereby pledges, transfers and assigns to the Bank and grants to the Bank a
security interest in, and a general lien upon and/or right of set-off against,
the Collateral.
3. AGREEMENTS OF THE UNDERSIGNED AND RIGHTS OF THE BANK.
So long as any Liability is outstanding or the Bank shall have any
commitment to make or maintain any financial accommodation to the Obligor, the
undersigned agrees as follows and hereby irrevocably authorizes and empowers
the Bank to exercise the rights set forth below, at its option, at any time and
from time to time, for its own use and benefit, either in its own name or in
the name of the undersigned.
(a) DEPOSITS: The Bank is hereby authorized: (i) to renew the Deposits
on such terms and for such period(s) as the Bank may deem appropriate; (ii) to
demand collect, and receive payment of any and all monies or proceeds due or to
become due under said Deposits or any part thereof; (iii) to execute any and
all instruments required for the withdrawal or repayment of same, or any part
thereof; (iv) to complete in any respect any instrument for the withdrawal or
repayment of funds signed by the undersigned; and (v) in all respects to deal
with said Deposits as the owner thereof.
(b) SECURITIES: The Bank is hereby authorized: (i) to transfer to the
account of the Bank any Securities whether in the possession of, or registered
in the name of The Depository Trust Company (the "DTC") or other clearing
corporation or held otherwise; (ii) to transfer to the account of the Bank with
any Federal Reserve Bank any Securities held in book entry form with any such
Federal Reserve Bank; and (iii) to transfer to the name of the Bank or its
nominee any Securities registered in the name of the undersigned and held by
the Bank and, in connection therewith, complete and deliver any necessary stock
powers or other transfer instruments.
With respect to any Securities in the possession of or registered in
the name of a custodian bank or nominee therefor, the undersigned agrees to
cause such custodian bank or nominee either to enter into an agreement with the
Bank satisfactory to the Bank in form and content confirming that the
Securities are held for the account of the Bank, or at the discretion of the
Bank and subject to the written instructions of the Bank, deliver any such
Securities to the Bank and/or cause any such Securities to be put in bearer
form, registered in the name of the Bank or its nominee, or transferred to the
account of the Bank with any Federal Reserve Bank, the DTC, or other clearing
corporation. In addition, at the request of the Bank, the undersigned agrees to
properly complete, execute and deliver to the Bank Form U-1 of the Board of
Governors of the Federal Reserve Bank with respect to extensions of credit
secured by margin stock (as defined in Regulation U of the Board of Governors
of the Federal Reserve Bank).
In furtherance of the pledge of, and grant of a security interest in,
the Securities, payments, distributions and/or dividends in securities,
property or cash including , without limitation, dividends representing stock
or liquidating dividends or a distribution or return of capital upon or in
respect of any Security or any part thereof resulting from any split-up,
revision or reclassification of any Security or any part thereof or received in
exchange for any Security or any part thereof as a result of a merger,
consolidation or otherwise) shall be paid directly to and, at the discretion of
the Bank, retained by the Bank and held by it until applied as herein provided,
as additional Collateral pledged under and subject to the terms hereof. With
respect to any Securities held in an account maintained by the Bank as
financial intermediary, the undersigned hereby gives notice to the Bank of the
Bank's security interest in such Securities.
So long as any Liability is outstanding or the Bank shall have any
commitment to make or maintain any financial accommodation to the Obligor, the
undersigned hereby grants to the Bank an irrevocable proxy to (i) vote or cause
to be voted any and all Securities and (ii) give or cause to be given consents,
waivers and ratifications in with respect thereof, provided that until the
occurrence of a Default or other event which with the giving of notice or the
passage of time or both would constitute a Default, the undersigned shall be
entitled to (i) vote or cause to be voted any and all Securities and (ii) give
or cause to be given consents, waivers and ratifications in respect thereof,
but only to the extent that no vote shall be cast nor consent, waiver or
ratification given or taken which shall be inconsistent with any provision
hereof or of any agreement or instrument with respect to the Liabilities.
(c) FURTHER RIGHTS AND AGREEMENTS: The Bank is hereby authorized inits
name, or in the name of the undersigned, to (i) execute, file, register, or
cause to be filed or registered, one or more financing statements under the
Uniform Commercial Code, or any other filings necessary or desirable under the
laws of any jurisdiction to create perfect or preserve the security interest
and lien granted hereby, naming the undersigned as "Debtor" and the Bank as
secured party and indicating types or describing the items of Collateral herein
specified, all without notice (except such notice as may be required by
applicable law and cannot be waived) and without notice except to account for
property actually received by it; (ii) demand, sue for, collect or receive any
money or property at any time payable or receivable on account or in exchange
for, or make any compromise or settlement deemed desirable with respect to, any
item of the Collateral, but shall be under no obligation to do so; (iii) in its
discretion, extend the time of payment, arrange for payment in installments, or
otherwise modify the terms of any Liability or release any item of the
Collateral, without thereby incurring responsibility to, or discharging or
otherwise affecting any obligation of, the undersigned; and (iv) make any
notification (to the issuer of any certificate or Security, or otherwise) or
take any other action in connection with the perfection or preservation of the
security interest and lien hereby created or any enforcement of remedies, and
retain any documents evidencing the title of the undersigned to any item of the
Collateral.
In furtherance of the foregoing, the undersigned agrees that it will
not sell, assign, transfer or otherwise dispose of, grant any option with
respect to, or further pledge, mortgage or otherwise encumber any item of the
Collateral, or any interest therein, or file or permit to be filed in any
jurisdiction any financing or like statement perfecting such pledge, mortgage
or security interest in which the Bank is not named as the sole secured party.
In addition, at the request of the Bank the undersigned agrees to do, from time
to time, all other things which the Bank may deem necessary or advisable in
order to perfect and preserve the security interest and lien hereby created and
to give effect to the rights granted to the Bank under this Collateral
Agreement. Notwithstanding the foregoing, the Bank shall not under any
circumstances be deemed responsibility for or obligation or duty with respect
to the Collateral or any proceeds thereof, and shall not be required to take
any action of any kind to collect, preserve or protect its or the undersigned's
rights in the Collateral or take any steps necessary to preserve any rights
against prior parties to any item of the collateral. The undersigned releases
the Bank from any claims, causes of action and demands at any time arising out
of or with respect to this Collateral Agreement, the use or disposition of the
Collateral or any action taken or omitted to be taken by the Bank with respect
thereto, and the undersigned hereby agrees to hold the Bank harmless from and
with respect to any and all claims, causes of action and demands.
In connection with the rights granted to the Bank hereunder, and so long
as any Liability is outstanding or the Bank shall have any commitment to make or
maintain any financial accommodation to the Obligor, the undersigned hereby
irrevocably appoints the Bank as its true and lawful attorney-in-fact to take
all action with respect to the Deposits as set forth in Section 3(a) hereof, to
sell or otherwise transfer any item of the Collateral and to execute any related
transfer by deed whenever such sale or transfer by the Bank is authorized by
this Collateral Agreement.
In addition, the undersigned agrees that in the event that any
Collateral is held by the Bank in a fiduciary capacity for or on behalf of the
undersigned as the beneficial owner thereof, any agreements executed by the
undersigned in connection therewith are hereby amended to authorize and direct
the pledge, hypothecation and/or transfer of such Collateral to the Bank as
secured party by the Bank as fiduciary in accordance with the terms, covenants
and conditions of this Collateral Agreement. The rights granted to the Bank
pursuant to this Collateral Agreement are in addition to the rights granted to
the Bank pursuant to any such agreements. In case of conflict between the
provisions of this Collateral Agreement and those of any other such agreement,
the provisions hereof shall prevail.
<PAGE> 15
insured party.
The undersigned hereby agrees that any additional Collateral received
by the Bank from the undersigned shall be governed by the terms and conditions
of this Collateral Agreement, as if such additional Collateral were listed on
Exhibit A on the date hereof, and hereby appoints the Bank as its agent to note
any such additional Collateral on Exhibit A, provided, however, that any failure
by the Bank so to note such additional Collateral shall not in any way
prejudice or otherwise affect the Bank's assets hereunder in connection with
such additional Collateral.
4. LOAN VALUE OF THE COLLATERAL; CURRENCY CONVERSION.
So long as any Liability is outstanding or the Bank shall have any
commitment to make or maintain any financial accommodation to the Obligor, the
amount of the Liabilities shall not exceed the aggregate Loan Value (as defined
hereafter) of the Collateral. The undersigned will, upon the request of the
Bank, supplement the Collateral to the extent necessary to ensure compliance
herewith. For the purposes hereof, "Loan Value" means the value assigned by the
Bank from time to time, in its sole reasonable discretion, to each item of the
Collateral.
For the purposes of any calculation hereunder, any currency in which the
Collateral is denominated (the "Collateral Currency") shall be converted into
the currency of the Liabilities (the "Liability Currency") at the Bank's rate of
exchange for the purchase of the Liability Currency with the Collateral
Currency. For this purpose, the Bank's rate of exchange shall be the spot rate
of exchange quoted by the Bank at such place as the Bank deems appropriate (or,
if no such rate is quoted on any relevant date, shall be estimated by the Bank
on the basis of the Bank's last quoted spot rate) or such other prevailing rate
as the Bank deems more appropriate.
5. ABSOLUTE AND UNCONDITIONAL OBLIGATIONS.
The obligations of the undersigned under this Collateral Agreement shall
be absolute and unconditional irrespective of: (i) any lack of validity or
enforceability of any of the Liabilities or any agreement or instrument relating
thereto; (ii) any change in the time, manner or place of payment of, or in any
other term of all or any of the Liabilities, or any other amendment or waiver
of, or any consent to or departure from, any agreement or instrument relating to
any of the Liabilities; (iii) any release, exchange, perfection or
non-perfection of any item of the Collateral or any release of, or amendment or
waiver or consent to, or departure from, any guaranty, subordination or other
credit support for all or any of the Liabilities; (iv) the release or discharge
in full or in part of one or more Obligors, if more than one; (v) any other
circumstance which might otherwise constitute a defense available to, or a
discharge of, the Obligor or a guarantor of the Liabilities or a party agreeing
to subordinate its claim to the Liabilities; or (vi) any law, regulation or
order now or hereafter in effect in any jurisdiction affecting any of the terms
of, or the rights of the Bank with respect to, the Liabilities or any agreement
or instrument relating to any of the Liabilities.
In addition, the undersigned agrees that this Collateral Agreement shall
continue to be effective or be reinstated, as the case may be, if at any time
any payment of any of the Liabilities is rescinded or must otherwise be returned
by the Bank upon the insolvency, bankruptcy, or reorganization of the Obligor or
otherwise all as though such payment had not been made.
6. REPRESENTATIONS AND WARRANTIES.
The undersigned represents and warrants as follows:
(a) DEPOSITS AND ACCOUNT ASSETS: (i) the undersigned is the sole,
absolute and/or beneficial owner of the Deposits, or is legally empowered to
grant the security interest and lien hereby created; (ii) the Deposits are free
of all liens, security interests, and encumbrances, and the undersigned has not
made any prior assignment or transfer of any kind of said Deposits, the proceeds
thereof or interests thereon or therein, except such as may have been created in
favor of the Bank; (iii) the undersigned has not withdrawn, cancelled, been
repaid or redeemed all or any part of said Deposits; (iv) there is no pending
application for the withdrawal, cancellation, payment or redemption of said
Deposits; and (v) to the best knowledge of the undersigned, if the Deposits
include now or hereafter an International Banking Facility Time Deposit (as
defined in Regulation D of the Board of Governors of the Federal Reserve
System), any extensions of credit made in reliance upon this Collateral
Agreement or upon said Deposits shall be used to support only non-U.S.
activities of the Obligor or its foreign affiliates.
(b) SECURITIES: (i) the Securities have been duly authorized and are
fully paid and non-assessable; (ii) the undersigned is the sole, absolute and/or
beneficial owner of the Securities, or the undersigned is legally empowered to
grant the security interest and lien hereby created; (iii) the Securities are
free and clear of any lien except the security interest created by this
Collateral Agreement; (iv) no authorization, approval, or other action by, and
no notice to or filing with, any governmental authority or regulatory body is
required either for the pledge by the undersigned of the Securities or for the
exercise by the Bank of the voting and other rights provided for in this
Collateral Agreement or the remedies in respect of the Securities pursuant to
this Collateral Agreement; and (v) none of the Securities constitutes
"restricted securities" as such term is defined in Rule 144 of the Securities
Act of 1933, as amended.
(c) IN GENERAL: (i) if the undersigned is a corporation, it is duly
organized and validly existing under the laws of the jurisdiction of its
incorporation, it has full power, authority and legal right to execute and
deliver this Collateral Agreement and perform its obligations hereunder, and
the execution, delivery and performance hereof have been duly authorized by all
necessary corporate action and will not conflict with any provisions of its
governing instruments; (ii) the execution, delivery and performance of this
Collateral Agreement will not violate any provisions of applicable law or
regulation or any order of any court or regulatory body and will not result in
the breach of, or constitute a default, or require any consent, under any
agreement, instrument or document to which the undersigned is a party or by
which it or any of its property may be bound or affected; (iii) all
authorizations, consents, approvals and licenses of, and filings and
registrations with, any governmental authority required under applicable law or
regulations for the undersigned to make and perform this Collateral Agreement
have been obtained and are in full force and effect; (iv) this Collateral
Agreement constitutes a legal, valid and binding obligation of the undersigned,
enforceable against it in accordance with its terms; (v) the undersigned is
subject to civil and commercial law with respect to its obligations under this
Collateral Agreement, and the execution, delivery and performance by the
undersigned of this Collateral Agreement constitute private and commercial acts
rather than governmental or public acts, and neither the undersigned nor any of
its properties or revenues are entitled to rights of immunity from suit, court
jurisdiction, attachment prior to judgment, attachment in aid of execution of a
judgment, set off, execution of a judgment or any other process with respect to
its obligations under this Collateral Agreement; and (vi) the undersigned
expects to derive a substantial benefit from each and every financial
accommodation heretofore or hereafter extended by the Bank to the Obligor.
7. DEFAULT.
Each of the following events or conditions constitutes a default
hereunder ("Default"):
(i) if the undersigned shall fail to perform or observe any term,
covenant, or condition on its part to be performed or observed hereunder; (ii)
if the Obligor or any backer, owner, acceptor, endorser, guarantor, surety,
accommodation party or other person liable upon or for any of the Liabilities
including, without limitation, the undersigned ("Liability Party") shall fail to
perform or observe any term, covenant or condition on its part to be performed
or observed under any instrument or agreement with respect to any of the
Liabilities or delivered pursuant thereto; (iii) if any sum payable upon any of
the Liabilities shall not be paid when due; (iv) if any indebtedness of the
Obligor or of any Liability Party for borrowed money shall become due and
payable by acceleration of maturity thereof; (v) if any representations and
warranties of the undersigned stated in Section 6 hereof shall be false or
misleading at any time; (vi) if any representations and warranties made by the
Obligor in any instrument or agreement evidencing any of the Liabilities or
delivered in connection therewith shall be false or misleading at any time;
(vii) if the Obligor or any Liability Party (if a natural person) shall die;
(viii) if the Obligor or any Liability Party (if a corporation) shall dissolve,
merge or consolidate with another corporation, or sell, assign, lease or
otherwise dispose of, whether in one transaction or in a series of transactions,
all or substantially all of its assets (whether now owned or hereafter acquired)
to any person or entity, without the prior written consent of the Bank; (ix) if
a decree or order shall be entered for relief by a court having jurisdiction of
the Obligor or any Liability Party (a) in an involuntary bankruptcy case under
the federal bankruptcy laws, as now or hereafter constituted, or under any other
applicable bankruptcy, insolvency, or other similar law of the United States or
other nation or political subdivision thereof, (b) appointing a receiver,
liquidator, assignee, custodian, trustee or sequestrator of the Obligor or any
Liability Party or for any substantial part of its or their property, or (c)
ordering the reorganization, dissolution, winding-up of or liquidation of its or
their affairs, and the continuation of any such decree or order shall be
unstayed and in effect, or any case or other proceeding seeking any such decree
or order shall continue undismissed, for a period of 60 consecutive days; (x) if
the Obligor or any Liability Party shall, or (if a corporation) shall take any
corporate action to (a) commence a voluntary case under any federal bankruptcy
laws, as now or hereafter constituted, (b) seek to take advantage of any other
applicable bankruptcy, insolvency, or similar law affecting the rights of
creditors generally, of the United States or other nation or any state or
political subdivision thereof, or (c) apply for or consent to the appointment of
or taking of possession by a receiver, liquidator, assignee, trustee, custodian
or sequestrator of the Obligor or any Liability Party or other person or for any
substantial part of its or their property; (xi) if the Obligor or any Liability
Party shall make any assignment for the benefit of creditors; (xii) if the
Obligor or any Liability Party shall admit in writing its or their inability, or
be generally unable, to pay its or their debts as they become due; or (xiii) if
any governmental authority or any court at the instance thereof shall take
possession of any substantial part of the property of or assume control over the
affairs or operations of, or a receiver shall be appointed of, or of any
substantial part of the property of, or a writ or order of attachment or
garnishment shall be issued or made against any of the property of, the Obligor
or any Liability Party; then, in each such case (whether such Default be that of
the Obligor, the undersigned or any Liability Party), unless and to the extent
that the Bank shall otherwise elect, the Bank shall be entitled to exercise all
or any of the rights and remedies hereinafter provided.
8. REMEDIES.
Upon the occurrence of any Default, the Bank shall have the rights and
remedies with respect to the Collateral of a secured party under the Uniform
Commercial Code (whether or not the Code is in effect in the jurisdiction where
the rights and remedies are asserted) and such further rights granted to the
Bank hereby.
The Bank may, with respect to the Collateral or any part thereof which
shall then be or shall thereafter come into the possession or custody of the
Bank or any of its agents, associates or correspondents, sell or cause to be
sold in the Borough of Manhattan, New York City, or elsewhere, in one or more
sales or parcels, at such price as the Bank may deem best, and for cash or on
credit or for other property, or for immediate or future delivery, without
assumption of any credit risk, all or any item of the Collateral, at any
broker's board or at public or private sale, in any reasonable manner
permissible under the Uniform Commercial Code (except that, to the extent
permissible thereunder, the undersigned hereby waives the requirements of said
Code), and the Bank or anyone else may be the purchaser of any or all of the
Collateral so
<PAGE> 16
sold and thereafter hold the same free from any claim or right of whatsoever
kind including, without limitation, any equity of redemption of the
undersigned, any such right and equity being hereby expressly waived and
released.
In addition, the Bank may, in its sole discretion, without regard to
any premium or penalty which may result from liquidation of any Deposit prior
to maturity, or the sale or other disposition of any Security: (i) convert all
or any portion of the Collateral Currency into the Liability Currency at the
Bank's rate of exchange for the purchase of the Liability Currency with the
Collateral Currency; (ii) hold any and all monies or proceeds representing the
Collateral in a cash collateral account denominated in the Liability Currency
or such other currency as the Bank may reasonably select; (iii) invest such
monies or proceeds as the Bank may deem appropriate on behalf of the
undersigned; and (iv) apply all or any portion of the Collateral, in its sole
discretion, first, to all costs and expenses of the Bank in enforcing its
rights and pursuing its remedies hereunder, second, to the payment of interest
on the Liabilities and any fees or commissions to which the Bank may be
entitled, third, to the payment of principal of the Liabilities, whether or not
then due, and fourth, to the undersigned or whosoever may be entitled thereto.
The undersigned will pay to the Bank all expenses (including reasonable
attorneys' fees and legal expenses incurred by the Bank) of, or incidental to,
the enforcement of any of the provisions hereof or of any of the Liabilities,
or perfecting the rights of the Bank hereunder or any actual or attempted sale,
or any exchange, enforcement, collection, compromise or settlement of any item
of the Collateral or receipt of the proceeds thereof, and for the care of the
Collateral and defending or asserting the rights and claims of the Bank in
respect thereof, by litigation or otherwise, including expense of insurance,
stamp duty and registration fees; and all such costs, fees and expenses shall
be Liabilities as such term is used in this collateral Agreement. The
obligation of the undersigned to pay to the Bank such costs, fees and expenses
shall be secured by the Collateral. The undersigned will do any and all acts
and things which may be necessary or advisable to enable the Bank to consummate
any proposed sale or other disposition of the collateral pursuant to this
Collateral Agreement.
9. JURISDICTION.
The undersigned hereby consents to the non-exclusive jurisdiction of
the State and Federal courts sitting in the State of New York and agrees that,
in the event of dispute hereunder, suit may be brought against the undersigned
in such courts or in any other jurisdiction where the undersigned or any of its
assets may be found, and the undersigned hereby irrevocably submits to the
jurisdiction of such courts. The undersigned hereby irrevocably appoints CT
Corporation System, with an office on the date hereof at 277 Park Avenue, New
York, NY 10017, United States, as its agent for service of process. In
addition, the undersigned consents to the service of process by mailing copies
of such process to the undersigned at its most recent mailing address as set
forth in the records of the Bank. The undersigned further agrees that any
action or proceeding brought against the Bank shall be brought only in a New
York State or United States Federal court sitting in New York County.
10. NOTICES.
Unless otherwise agreed in writing, notices shall be given to the Bank
and the undersigned by ordinary mail or telex addressed to the Bank or the
undersigned at their respective addresses set forth in the signature page of
this Collateral Agreement, or such other address communicated in writing by
either such party to the other. Notices to the Bank shall be effective upon
receipt.
11. MISCELLANEOUS.
(a) The Bank may assign, transfer and/or deliver to any transferee of
any of the Liabilities any or all of the Collateral and thereafter shall be
fully discharged from all responsibility with respect to the Collateral so
assigned, transferred and/or delivered except to account to the undersigned
for any item of the Collateral so assigned, transferred or delivered. Such
transferee shall be vested with all the powers and rights of the Bank hereunder
with respect to such Collateral, but the Bank shall retain all rights and
powers hereby given with respect to any of the Collateral not so assigned,
transferred or delivered. The remedies and benefits herein expressly specified
are ??? and not exclusive of any rights, remedies or benefits which the Bank
may have under law or under other agreements or arrangements with the
undersigned, the Obligor or any Liability Party. The undersigned hereby waives
presentment, notice of dishonor and protest of all instruments included in or
evidencing the Liabilities or the Collateral and any and all other notices and
demands whatsoever, whether or not relating to such instruments.
(b) No amendment or waiver of any provision of this Collateral
Agreement nor consent to any departure by the undersigned shall be effective
unless the same shall be in writing and signed by the undersigned and the
Bank, and such waiver or consent shall be effective only in the specific
instance and for the specific purpose to which given. No failure on the part of
the Bank to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof or preclude any other or further exercise thereof
or the exercise of any other right.
(c) The provisions of this Collateral Agreement are intended to be
severable. If for any reason any provision of this Collateral Agreement shall
be held invalid or unenforceable in whole or in part in any jurisdiction, such
provision shall, as to such jurisdiction, be ineffective to the extent of such
invalidity or unenforceability thereof without in any manner affecting the
validity or enforceability thereof in any other jurisdiction or the remaining
provisions thereof in any jurisdiction.
(d) As used herein, the term "undersigned" shall be deemed to include
all signatories hereto, if more than one. In such event, the terms, covenants
and conditions on the part of the undersigned to be performed or observed and
the representations and warranties made herein shall be joint and several, and
all provisions hereof regarding the Collateral of the undersigned shall apply
to any item of the Collateral belonging to any of them.
(e) This Collateral Agreement shall be binding upon the heirs,
executors, administrators, assigns and successors of the undersigned and
constitute a continuing agreement applicable to all future as well as existing
Liabilities, whether or not of the character contemplated as of the date of
this Collateral Agreement.
(f) This Agreement shall be governed by and construed according to the
laws of the State of New York.
(g) Unless the context otherwise requires, all terms used herein which
are defined in the Uniform Commercial Code shall have the meanings therein
stated.
IN WITNESS WHEREOF, the undersigned has executed this Collateral Agreement
this 8th day of August , 19 96
-------- -------------- ----
[If Individual(s):]
- --------------------------------------- --------------------------------
[Signature] [Signature]
- --------------------------------------- --------------------------------
[Typed or Printed Name] [Typed or Printed Name]
- --------------------------------------- --------------------------------
Address Address
2. [If Corporation:] 3. [If Partnership:]
UNIDIGITAL INC.
- --------------------------------------- --------------------------------
[Corporate Name], a [Partnership Name]
Delaware corporation By:
- --------------------------- -----------------------------
General Partner
By: /s/ William E. Dye By:
------------------------------------ -----------------------------
Title: President General Partner
By: ___________________________________ By: ____________________________
Title: General Partner
20 West 20th Street New York N.Y. 10011
- --------------------------------------- --------------------------------
Address Address
[Corporate Seal]
ACCEPTED: Address for notices to the Bank
The Chase Manhattan Bank The Chase Manhattan Bank
2099 Broadway, 2nd Floor
New York, New York 10023
<PAGE> 17
DESCRIPTION OF THE COLLATERAL
1. Deposits
Type of
Deposit Location Contract or
(CD, TD, (NY IBF- Certificate Issue or Principal
etc.) NY, etc.) Number Opening Date Maturity Date Amount
-------- --------- ----------- ------------ ------------- ---------
2. Stocks, Bonds and Other Instruments and Securities
Nature of Security Number of Face Amount Certificate
or Obligation Name of Issuer Units (if Applicable) Number
- ------------------ -------------- --------- --------------- -----------
Commercial Paper Ford 1,750,000
3. All Assets Held or To Be Held in the Following Custody Accounts, Safekeeping
Accounts and/or Investment Management Accounts:
Type of Account Account Number Location
<PAGE> 1
THE CHASE MANHATTAN BANK, N.A. DONALD E. FURRER
380 Madison Avenue Vice President
New York, New York 10017
[LOGO] CHASE
January 12, 1996
Mr. William Dye, President
Linographics Corp.
20 West 20th Street
New York, New York 10011
Dear Bill:
Reference is made to the Credit Agreement dated as of December 19, 1995, as
amended, between Linographics Corporation (the "Borrower") and The Chase
Manhattan Bank, N.A. (the "Bank") (as amended or otherwise modified from time to
time). Terms used herein which are defined in the Credit Agreement are used
herein as therein.
It is hereby agreed by the Borrower and the Bank as follows:
The Credit Agreement is, effective as of January 12, 1996, hereby amended as
follows:
1. All references to T/X Corporation will now apply to Linographics (Delaware
Corporation). Linographics (Delaware Corporation) will be a wholly owned
subsidiary of Unidigital Corp. We delete our reference to T/X Corporation as a
wholly owned subsidiary of Linographics Corp.
2. Covenants, Post Distribution of S-Corp Earnings, is amended to require a
Minimum Tangible Net Worth of $775,000 through 3/31/96, at which time the
requirement for the Minimum Tangible Net Worth Covenant shall increase to
$800,000.
3. With reference to the Minimum Debt Service Coverage Covenant, it is noted
that no principal defined as Short Term Bank Borrowing is included in the Fixed
Principal calculation of this covenant.
4. The Business Term Loan Agreement dated 12/21/95 is amended by deleting
Section i, Loans or Investments, and Section j, Dividends.
On and after the effective date of this letter amendment, each reference in the
Credit Agreement to "this Agreement", "hereunder", "hereof", or words of like
import referring to the Credit Agreement, shall mean the Credit Agreement as
amended by this letter amendment.
<PAGE> 2
If you agree to the terms and provisions hereof, please evidence your agreement
by executing and returning this letter to The Chase Manhattan Bank, N.A., 380
Madison Avenue, New York, New York 10017, Attention: Donald Furrer. This letter
amendment shall become effective as of January 12, 1996 when and if the
counterparts of this letter amendment shall have been executed by the Lender and
the Borrower.
Except as specifically amended above, the Credit Agreement and all other Loan
Documents, shall remain in full force and effect and are hereby ratified and
confirmed.
Sincerely,
THE CHASE MANHATTAN BANK, N.A,
/s/Donald Furrer
- -----------------------------
Donald Furrer, Vice President
The foregoing is acknowledged and agreed to as of January 1996:
--,
Linographics Corporation
By: /s/ William E. Dye
- ----------------------
ITS: President
Date: 11/12/96
<PAGE> 3
GRID TIME PROMISSORY NOTE
(PRIME RATE--360-DAY BASIS)
$850,000.00 New York, New York
12/22, 1995
For value received, the undersigned unconditionally (and if more than one,
jointly and severally) promises to pay to the order of THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION) (the "Bank"), at its principal office located at 1
Chase Manhattan Plaza, New York, New York 10081, the principal amount of
Eight Hundred Fifty Thousand DOLLARS ($850,000.00) or, if less, the unpaid
principal amount of each loan made to the undersigned by the Bank and
outstanding under this Note, on the maturity date(s) as shown on the attached
schedule or any continuation of the schedule.
The undersigned promise(s) to pay interest on the unpaid balance of the
principal amount of each such loan from and including the date of each such
loan to but excluding the due date of such loan at a variable rate per annum
equal to: (a) that rate of interest from time to time announced by the Bank at
said principal office as its prime commercial lending rate (the "Prime Rate")
plus (b) 1/2% (the "Margin"). Interest shall be payable on the first day of
each calendar month (commencing on the first such date occurring after the date
of the first such loan) and on any payment of such principal. Any principal not
paid when due (whether at stated maturity, by acceleration or otherwise) shall
bear interest from and including the date due to but excluding the date paid in
full at a variable rate per annum equal to: (x) 2% plus (y) the Prime Rate plus
(z) the Margin; such interest to be payable on demand and on any payment of
such principal. The interest rate on this Note shall change in accordance with,
and changes in such interest rate shall be effective as of the effective date
of, announcements by the Bank of changes in the Prime Rate. Interest shall be
calculated on the basis of a year of 360 days for the actual number of days
elapsed.
All payments under this Note shall be made in lawful money of the United
States of America and in immediately available funds at the Bank's principal
office specified above. If any loan evidenced by this Note becomes due and
payable on a Saturday, Sunday or a day that is not a banking day in New York
City, the maturity of such loan shall be extended to the next succeeding
banking day, and interest shall be payable for such extension on such loan at
the rate of interest specified in this Note. The Bank may (but shall not be
obligated to) debit the amount of any payment under this Note that is not made
when due to any deposit account of (any of) the undersigned with the Bank. If
the undersigned are more than one, all obligations of each of the undersigned
under this Note shall be joint and several. This Note may be prepaid without
penalty.
The date, amount and maturity date of each loan under this Note and each
payment of principal, loan(s) to which such principal is applied (which shall
be at the discretion of the Bank) and the outstanding principal balance of
loans, shall be recorded by the Bank on its books and prior to any transfer of
this Note (or, at the discretion of the Bank at any other time) endorsed by the
Bank on the schedule attached or any continuation of the schedule. Any such
endorsement shall be conclusive in the absence of manifest error.
If any of the following events of default shall occur with respect to (any of)
the undersigned: (a) the undersigned shall fail to pay the principal of, or
interest on, this Note, or any other amount payable under this Note, as and
when due and payable; (b) any representation or warranty made or deemed made by
the undersigned in this Note or in any document granting security or support
for (or otherwise executed in connection with) this Note or by any third party
supporting or liable with respect to this Note (whether by guaranty,
subordination, grant of security or any other credit support, a "Third Party")
in any document evidencing the obligations of a Third Party (this Note and all
of the foregoing documents of the undersigned or a Third Party being the
"Facility Documents") or which is contained in any certificate, document,
opinion, financial or other statement furnished at any time under or in
connection with any Facility Document, shall prove to have been incorrect in
any material respect on or as of the date made or deemed made; (c) the
undersigned or any Third Party shall fail to perform or observe any term,
covenant or agreement contained in any Facility Document on its part to be
performed or observed; (d) the undersigned or any Third Party shall fail to pay
when due any indebtedness (including but not limited to indebtedness for
borrowed money) or if any such indebtedness shall become due and payable, or
shall be capable of becoming due and payable at the option of any holder
thereof, by acceleration of its maturity, or if there shall be any default by
the undersigned or any Third Party under any agreement relating to such
indebtedness; (e) the undersigned or any Third Party: (i) shall generally not,
or be unable to, or shall admit in writing its inability to, pay its debts as
such debts become due; (ii) shall make an assignment for the benefit of
creditors; (iii) shall file a petition in bankruptcy or for any relief under
any law of any jurisdiction relating to reorganization, arrangement,
readjustment of debt, dissolution or liquidation; (iv) shall have any such
petition filed against it and the same shall remain undismissed for a period of
30 days or shall consent or acquiesce thereto; or (v) shall have had a
receiver, custodian or trustee appointed for all or a substantial part of its
property; (f) the undersigned or any Third Party shall die, dissolve or for any
reason cease to be in existence or if the undersigned or any Third Party is a
partnership, any general partner shall die, dissolve or for any reason cease to
be in existence or cease to be a partner; (g) any Third Party Facility Document
shall at any time and for any reason cease to be in full force and effect or
shall be declared null and void, or its validity or enforceability shall be con-
<PAGE> 4
tested by the relevant Third Party or such Third Party shall deny it has any
further liability or obligation under any Facility Document or shall fail to
perform its obligations under any Facility Document; (h) any security agreement
or other agreement whether by the undersigned or any Third Party) granting a
security interest, lien, mortgage or other encumbrance securing obligations
under any Facility Document shall at any time and for any reason cease to
create a valid and perfected first priority security interest, lien, mortgage
or other encumbrance in or on the property purported to be subject to such
agreement or shall cease to be in full force and effect or shall be declared
null and void, or the validity or enforceability of any such agreement shall
be contested by any party to such agreement, or such party shall deny it has
any further liability or obligation under such agreement or any such party
shall fail to perform any of its obligations under such agreement: THEN, in
any such case, if the Bank shall elect by notice to the undersigned, the
unpaid principal amount of this Note, together with accrued interest shall
become forthwith due and payable; provided that in the case of an event of
default under (e) above, the unpaid principal amount of this Note, together
with accrued interest, shall immediately become due and payable without any
notice or other action by the Bank.
The undersigned waive(s) presentment, notice of dishonor, protest and any
other notice or formality with respect to this Note.
The undersigned agree(s) to reimburse the Bank on demand for all costs,
expenses and charges (including, without limitation, fees and charges of
external legal counsel for the Bank and costs allocated by its internal legal
department) in connection with the interpretation, performance or enforcement
of this Note.
This Note shall be binding on (each of) the undersigned and its successors and
assigns and shall inure to the benefit of the Bank and its successors and
assigns, except that the undersigned may not delegate any obligations
hereunder without the prior written consent of the Bank. Without limiting any
provision of this Note, the obligations under this Note shall continue in full
force and effect and shall be binding on: (a) the estate of the undersigned if
(any of) the undersigned is an individual; and (b) any successor partnership
and on previous partners and their respective estates if (any of) the
undersigned is a partnership, regardless of any change in the partnership as a
result of death, retirement or otherwise.
The undersigned consent(s) to the nonexclusive jurisdiction and venue of the
state or federal courts located in the City of New York. Service of process by
the Bank in connection with any dispute shall be binding on the undersigned if
sent to the undersigned by registered mail at the address(es) specified below.
The undersigned waive(s) any right the undersigned may have to jury trial.
This Note shall be governed by, and interpreted and construed in accordance
with, the law of the State of New York; provided that the foregoing is not
intended to limit the maximum rate of interest which may be charged or
collected by the Bank on this Note if, under the law applicable to it, the Bank
may charge or collect such interest at a higher rate than is permissible under
the law of said State. In no case shall the interest on this Note exceed the
maximum amount which the Bank may charge or collect under such law applicable
to it.
Address for notices:
20 West 20th Street Linographics Corporation
- ----------------------------------- -----------------------------------
New York, NY 10011 By /s/ William E. Dye
- ----------------------------------- --------------------------------
Title: President
- ----------------------------------- By --------------------------------
Title:
Address for notices:
- ----------------------------------- -----------------------------------
- ----------------------------------- By --------------------------------
Title:
- ----------------------------------- By --------------------------------
Title:
<PAGE> 5
[LETTERHEAD] CHASE MANHATTAN
December 19, 1995
BY HAND
Mr. William E. Dye, President
Linographics Corporation
20 West 20th Street
New York, New York 10011
Dear Mr. Dye:
The Chase Manhattan Bank, N.A. (the "Bank") is pleased to make available to
Linographics Corporation (Linographics) and T/X Corporation (T/X), its
wholly-owned subsidiary, Credit Facilities in the aggregate amount of
$1,300,000, including $300,000 in Term Loans to provide for the purchase of
equipment and leasehold improvements, and Lines of Credit to be extended at the
Bank's sole discretion, of up to $1,000,000 for working capital, subject but not
limited to, the following terms and conditions:
LINOGRAPHICS CORPORATION:
TERM LOAN/LEASING FACILITY
FACILITY:
A $150,000 five (5) year term loan shall be extended to Linographics for
leasehold improvements.
AMORTIZATION:
Sixty (60) monthly principal payments of $2,500, plus interest, and a final
principal payment, now estimated to be $2,500, due at maturity plus interest
thereon.
INTEREST RATE:
Floating Rate Option:
Bank's Prime Rate, plus one-half (1/2%) percent in effect from time to time,
360 day basis.
<PAGE> 6
- 2 -
Fixed Rate Option:
Bank's fixed rate money market option (herein called "Fixed Rate"). The Fixed
Rate shall be quoted to Linographics from time to time as of the date hereof and
fixed at the funding under the terms herein set forth. Interest shall be
calculated on the basis of a 360 day year. the fixed rate is subject to
availability as determined by the Bank. An indicative rate if the Term loan
closed today would be 8.25%.
PREPAYMENT:
FLOATING RATE:
Full or partial prepayment shall be permitted at any time without penalty on the
floating rate option.
FIXED RATE:
Full prepayment shall only be permitted provided that Linographics, in
consideration of its privilege to prepay the term loan, shall make an additional
payment to the Bank, which shall be equal to (a) the outstanding balance of the
Term Loan times (b) the years and/or fraction thereof remaining until the
maturity of the Term Loan times (c) the difference between (i) the Fixed Rate
and (ii) the yield on United States Government treasury obligations with a
maturity approximately equal to the remaining Term Loan term, if such yield is
less than the Fixed Rate. No partial prepayment shall be permitted.
COMMITMENT FEE:
Linographics shall pay the Bank a non-refundable fee of 1/2% ($750) of the Term
Loan, which is due upon signing of the Commitment Letter. If for any reason
whatsoever the Term Loan does not close, other than the willful default of the
Bank in making the Term Loan, the Bank may retain the entire Commitment Fee as
liquidated damages in view of the difficulty of establishing the actual damage
incurred by the Bank as a result of failure to close.
LINE OF CREDIT
FACILITY:
Up to a maximum of $850,000 will be available for working capital purposes.
INTEREST RATE:
Borrowings will be priced at the Bank's Prime Rate, plus one-half (1/2%)
percent.
BORROWING BASE:
All drawdowns will be subject to a maximum borrowing base not to exceed 80% of
eligible accounts receivable aged ninety (90) days and less. Linographics will
provide a monthly borrowing base certificate to the Bank within thirty (30) days
after the end of each month so long as there are loans outstanding under the
Line of Credit.
<PAGE> 7
- 3 -
Any credit which the Bank may extend will be on terms and conditions as we may
require at the time Linographics requests an advance and must be evidenced by
documents in form and substance satisfactory to the Bank.
FACILITY FEE:
A facility fee of one half (1/2%) percent ($4,250) payable upon signing of this
Commitment Letter. Thereafter, one half (1/2%) percent of the entire Line of
Credit will be collected on an annual basis on the anniversary date of the Line
of Credit.
The Bank will continue to offer the Credit Facility as outlined herein in its
sole discretion subject to the Linographics economic and financial condition
remaining acceptable to the Bank and Linographics maintenance of a satisfactory
relationship with the Bank. In any event, this Credit Facility is available
until December 31, 1996.
T/X CORPORATION:
TERM LOAN/LEASING FACILITY
FACILITY:
A $150,000 five (5) year term loan shall be extended to T/X for equipment
acquisition.
AMORTIZATION:
Sixty (60) monthly principal payments of $2,500, plus interest, and a final
principal payment, now estimated to be $2,500, due at maturity plus interest
thereon.
INTEREST RATE:
Floating Rate Option:
Bank's Prime Rate, plus one-half (1/2%) percent in effect from time to time, 360
day basis.
Fixed Rate Option:
Bank's fixed rate money market option (herein called "Fixed Rate"). The Fixed
Rate shall be quoted to T/X from time to time as of the date hereof and fixed at
the funding under the terms herein set forth. Interest shall be calculated on
the basis of a 360 day year. the fixed rate is subject to availability as
determined by the Bank. An indicative rate if the Term loan closed today would
be 8.25%.
PREPAYMENT:
FLOATING RATE:
Full or partial prepayment shall be permitted at any time without penalty on the
floating rate option.
<PAGE> 8
- 4 -
FIXED RATE:
Full prepayment shall only be permitted provided that T/X, in consideration of
its privilege to prepay the term loan, shall make an additional payment to the
Bank, which shall be equal to (a) the outstanding balance of the Term Loan times
(b) the years and/or fraction thereof remaining until the maturity of the Term
Loan times (c) the difference between (i) the Fixed Rate and (ii) the yield on
United States Government treasury obligations with a maturity approximately
equal to the remaining Term Loan term, if such yield is less than the Fixed
Rate. No partial prepayment shall be permitted.
COMMITMENT FEE:
T/X shall pay the Bank a non-refundable fee of 1/2% ($750) of the Term Loan
which is due upon signing of the Commitment Letter. If for any reason whatsoever
the Term Loan does not close, other than the willful default of the Bank in
making the Term Loan, the Bank may retain the entire Commitment Fee as
liquidated damages in view of the difficulty of establishing the actual damage
incurred by the Bank as a result of failure to close.
LINE OF CREDIT
FACILITY:
Up to a maximum of $150,000 will be available for working capital purposes.
INTEREST RATE:
Borrowings will be priced at the Bank's Prime Rate, plus one-half (1/2%)
percent.
CLEAN-UP:
No amounts may be outstanding under this facility during a 30 consecutive day
period during the year.
Any credit which the Bank may extend will be on terms and conditions as we may
require at the time the T/X requests an advance and must be evidenced by
documents in form and substance satisfactory to the Bank.
FACILITY FEE:
A facility fee of one half (1/2%) percent ($750) payable upon signing of this
Commitment Letter. Thereafter, one half (1/2%) percent of the entire Line of
Credit will be collected on an annual basis on the anniversary date of the Line
of Credit.
The Bank will continue to offer the Credit Facility as outlined herein in its
sole discretion subject to T/X's economic and financial condition remaining
acceptable to the Bank and the T/X's maintenance of a satisfactory relationship
with the Bank. In any event, this Credit Facility is available until December
31, 1996.
<PAGE> 9
- 5 -
GENERAL CONDITIONS OF THE CREDIT FACILITY:
All extensions of credit which the Bank may grant will be evidenced by documents
in form and substance satisfactory to the Bank. The Bank will require the
Companies to furnish the following support, which must remain in place as long
as the Credit Facilities as outlined herein are outstanding:
COLLATERAL/CONDITIONS:
1) Priority UCC-1 Filing + GSA on all assets of Linographics Corp and T/X
Corp.
2) Management will subordinate $376,000 of loans due officers that will arise
out of payments to stockholders of $750,000, of which $500,000 will then be
lent back to the company by Linographics stockholders/officers. As it is
intended for these notes to be repaid at the time of, and with proceeds from
the Initial Public Offering (IPO), the bank will release its above
subordination at the time of the IPO, for it to be replaced by a loan of
$376,000 from Unidigital Corp to Linographics Corp, which is to be
subordinated to the Bank.
3) Require a no material adverse change letter from Management for Draft FYE
8/31/95.
4) Monthly borrowing base certificate when line is outstanding for Linographics
New York operation, with advances up to 80% of eligible A/R's 90 days and
less.
5) The Bank will release the subordination of the $376,000 loan from Unidigital
Corp to Linographics Corp. upon Linographics compliance with the Tangible Net
Worth Covenant exclusive of this subordinated debt.
6) Upon completion of Initial Public Offering (IPO), Chase will acquire
Corporate Guarantee of Unidigital Corp, the new parent holding company for
all facilities. The personal guaranties of Bill Dye and Steve McErlain will
be released upon successful completion of the IPO, and compliance with all
covenants and conditions as stated in this Commitment Letter.
COVENANTS: ALL COVENANTS ARE TO BE MEASURED FOR LINOGRAPHICS AND U.S. AFFILIATES
ON A COMBINED BASIS.
Pre-Distribution of S-Corp. Earnings
1. Minimum Tangible Net Worth (TNW) of $1.5 million, with TNW defined as Net
Worth plus subordinated debt less all intangibles including due from affiliates.
2. Minimum Debt Service Coverage (DSC) of 1.5 times, with DSC defined as
Earnings before interest, taxes, depreciation, and amortization (EBITDA) divided
by total fixed principal and lease payments plus interest expense.
Post-Distribution of S-Corp. Earnings
1) Minimum Tangible Net Worth of $800M.(Same definition as above)
2) Minimum Debt Service Coverage of 1.5 times (Same definition as above)
REPORTING:
1) Annual Fiscal consolidated statements prepared on an audited basis delivered
to the bank within 120 days for Unidigital Corp, along with consolidating
statements for each subsidiary.
2) Quarterly 10 K and 10 Q report for Unidigital Corp.
3) Internally prepared statements on Linographics and T/X on a semi-annual
basis.
<PAGE> 10
- 6 -
This letter is for your information only and is not to be shown to or relied
upon by third parties. This letter constitutes the entire understanding between
the Bank and the Company and supersedes all prior discussions.
The Credit Facility described herein will not be made available to the Companies
until they acknowledge its understanding and agreement to the above terms and
conditions. If this letter correctly sets forth your understanding of the terms
and conditions regarding the Credit Facility, please indicate your acceptance by
signing in the space indicated and returning the original to the Bank no later
than December 30, 1995. If not accepted by you, the offer contained herein shall
at the Bank's option expire. The Commitment Fee of $1,500 and Facility Fee of
$5,000 shall be payable upon your acceptance of this letter.
We appreciate this opportunity to work with you and look forward to the
continued development of our mutually beneficial relationship.
Very truly yours,
THE CHASE MANHATTAN BANK, N.A.
BY: /s/ Donald Furrer
-------------------------
Donald Furrer
Vice President
AGREED AND ACCEPTED
ON THIS DAY 21st DAY OF DECEMBER 1995
LINOGRAPHICS CORPORATION
BY: /s/ William E. Dye
-------------------------
Title: President
T/X CORPORATION
BY:
-------------------------
Title:
-----------------------
<PAGE> 11
GUARANTY BY CORPORATION
WHEREAS, Linographics Corporation (hereinafter referred to as the
"Borrower"), a corporation organized under the laws of NEW YORK, (has obtained
or desires or may desire at some time and/or from time to time to obtain
financial accommodation from THE CHASE MANHATTAN BANK, N.A. and/or any of its
subsidiaries and/or affiliates (hereinafter, with their respective successors
and assigns, collectively or individually, as the context may require, referred
to as the "Bank"); and
WHEREAS, the undersigned (hereinafter referred to as the "Guarantor"),
a corporation organized under the laws of Delaware, represents that it owns
directly or indirectly a substantial amount of the stock of the Borrower and/or
is financially interested in its affairs and expects to derive advantage from
each and every such accommodation;
1. NOW, THEREFORE, for valuable consideration, the receipt whereof by
the Guarantor is hereby acknowledged, and to induce the Bank, at its option, at
any time or from time to time, to extend financial accommodation, with or
without security, to or for the account of the Borrower, or in respect of which
the Borrower may be liable in any capacity (the term "financial accommodation"
including, without limitation, extension of loans, credit or accommodation,
issuance or confirmation of letters of credit or creation of acceptances, or
discount or purchase of, or loans on, accounts, leases, instruments, securities,
documents, chattel paper and other security arrangements, or other property, or
entering into any foreign exchange, precious metals or other contract or
agreement between Borrower and the Bank), the Guarantor hereby unconditionally
guarantees to the Bank, irrespective of the validity, regularity or
enforceability of any instrument, writing or arrangement relating to or the
subject of any such financial accommodation (each such instrument, writing or
arrangement being hereinafter referred to as, and included in the term, "Credit
Arrangement") or of the obligations thereunder and irrespective of any present
or future law or order of any government (whether of right or in fact and
whether the Bank shall have consented thereto) or of any agency thereof
purporting to reduce, amend, restructure or otherwise affect any obligation of
the Borrower or other obligor or to vary the terms of payment, that the Borrower
will promptly perform and observe every agreement and condition in any Credit
Arrangement to be performed or observed by the Borrower, that all sums stated to
be payable in, or which become payable under, any Credit Arrangement, and all
other sums which may be owing by the Borrower to the Bank now or hereafter, will
be promptly paid in full when due, whether at maturity or earlier by reason of
acceleration or otherwise, or, if now due, when payment thereof shall be
demanded by the Bank, together with interest and any and all legal and other
costs and expenses paid or incurred in connection therewith by the Bank, and, in
case of one or more extensions of time of payment or renewals, in whole or in
part, of any Credit Arrangement or obligation, that the same will be promptly
paid or performed when due, according to each such extension or renewal, whether
at maturity or earlier by reason of acceleration or otherwise. The Guarantor
agrees that, as between the Guarantor and the Bank, the obligations of the
Borrower guaranteed hereunder may be declared to be due and payable for purposes
of this guaranty notwithstanding any stay, injunction or other prohibition which
may prevent, delay or vitiate any such declaration as against the Borrower and
that, in the event of any such declaration (or attempted declaration), such
obligations (whether or not due and payable by the Borrower) shall forthwith
become due and payable by the Guarantor for purposes of this guaranty. The
Guarantor further guarantees that all payments made by the Borrower to the Bank
on any obligation hereby guaranteed will, when made, be final and agrees that if
any such payment is recovered from, or repaid by, the Bank in whole or in part
in any bankruptcy, insolvency or similar proceeding instituted by or against
the Borrower, this guaranty shall continue to be fully applicable to such
obligation to the same extent as though the payment so recovered or repaid had
never been originally made on such obligation.
2. The Guarantor hereby consents that from time to time, without notice
to or further consent of the Guarantor, the performance or observance by the
Borrower of any Credit Arrangement or obligation may be waived or the time of
performance thereof extended by the Bank, and payment of any obligation hereby
guaranteed may be accelerated in accordance with any agreement between the Bank
and any party liable with respect thereto, or may be extended, or any Credit
Arrangement may be renewed in whole or in part, or the terms of any Credit
Arrangement or any part thereof may be changed, including increase or decrease
in the rate of interest thereon, or any collateral therefor may be exchanged,
surrendered or otherwise dealt with as the Bank may determine, and any of the
acts mentioned in any Credit Arrangement may be done, all without affecting the
liability of the Guarantor hereunder. The Guarantor hereby waives presentment of
any instrument, demand of payment, protest and notice of non-payment or protest
thereof or of any exchange, sale, surrender or other handling or disposition of
any such collateral, and any requirement that the Bank exhaust any right, power
or remedy or proceed against the Borrower under any Credit Arrangement or
against any other person under any other guaranty of, or security for, any of
the obligations guaranteed hereunder. No payment by the Guarantor pursuant to
any provision hereunder shall entitle the Guarantor, by subrogation to the
rights of the Bank or otherwise, to any payment by the Borrower (or out of the
property of the Borrower) except after payment in full of all sums (including
interest, costs and expenses) which may be or become payable by the Borrower to
the Bank at any time or from time to time.
3. This guaranty shall be a continuing guaranty, and the co-guarantor
or co-guarantors, if any, or any other party liable upon or in respect of any
obligation hereby guaranteed may be released without affecting the liability of
the Guarantor, and the Bank may continue to act in reliance hereon until the
receipt by the Bank, at its principal office at 1 Chase Manhattan Plaza, New
York, New York 10081, and by the departments and offices of the Bank extending
financial accommodation to the Borrower, of written notice from the Guarantor
not to give further financial accommodation in reliance hereon, provided that
such notice shall not affect the obligations of the Guarantor hereunder with
respect to any such accommodation given prior to such notice.
<PAGE> 12
4. The Bank may assign this guaranty or any of its rights and powers
hereunder, with all or any of the obligations hereby guaranteed, and may assign
and/or deliver to any such assignee any of the Security herefor and, in the
event of such assignment, the assignee hereof or of such rights and powers and
of such Security, if any such Security be so assigned and/or delivered, shall
have the same rights and remedies as if originally named herein in place of the
Bank, and the Bank shall be thereafter fully discharged from all responsibility
with respect to any such Security so assigned and/or delivered.
5. Notice of acceptance of this guaranty and of the incurring of any
and all of the obligations of the Borrower hereinbefore mentioned is hereby
waived. This guaranty and all rights, obligations and liabilities arising
hereunder shall be governed by and construed according to the laws of the State
of New York. Unless the context otherwise requires, all terms used herein which
are defined in the Uniform Commercial Code shall have the meanings therein
stated.
6. As security for its obligations hereunder, the Guarantor hereby
grants to the Bank a security interest in, a general lien upon and/or right of
set-off of, the following (herein referred to as the Security): All personal
property and fixtures of the Guarantor, whether now or hereafter existing or now
owned or hereafter acquired and wherever located, of every kind and description,
tangible or intangible, including, but not limited to, the balance of every
deposit account, now or hereafter existing, of the Guarantor with the Bank and
any other claim of the Guarantor against the Bank, now or hereafter existing,
and all money, goods (including equipment, farm products and inventory),
instruments, securities, documents, chattel paper, accounts, contract rights,
general intangibles, credits, claims, demands, precious metals and any other
property, rights and interests of the Guarantor, and shall include the proceeds,
products and accessions of and to any thereof. With respect to the Security, or
any part thereof, which at any time shall come into the possession or custody or
under the control of the Bank or any of its agents, associates or
correspondents, for any purpose, the right is expressly granted to the Bank,
at its discretion, to transfer to or register in the name of itself or its
nominee any of the Security; to exchange any of the Security for other property
upon any reorganization, recapitalization or other readjustment and in
connection therewith to deposit any of the Security with any committee or
depositary upon such terms as it may determine; to notify any account debtor or
obligor on an instrument to make payment to the Bank; and to exercise or cause
its nominee to exercise all or any powers with respect to the Security with the
same force and effect as an absolute owner thereof; all without notice (except
such notice as may be required by applicable law and cannot be waived) and
without liability except to account for property actually received by it.
Without limiting the generality of the foregoing, payments, distributions and/or
dividends, in securities, property or cash, including without limitation
dividends representing stock or liquidating dividends or a distribution or
return of capital upon or in respect of the Security or any part thereof or
resulting from any split-up, revision or reclassification of the Security or any
part thereof or received in exchange for the Security or any part thereof as a
result of a merger, consolidation or otherwise, shall be paid directly to and
retained by the Bank and held by it until applied as herein provided, as
additional collateral security pledged under and subject to the terms hereof. To
the extent permitted by applicable law, the Bank shall have the right, with or
without legal process and with or without prior notice or demand, to take
possession of the Security or any thereof and to enter any premises for the
purpose of taking possession thereof. The Bank shall be deemed to have
possession of any of the Security in transit to or set apart for it or any of
its agents, associates or correspondents. The right is expressly granted to the
Bank, at its discretion, to file one or more financing statements under the
Uniform Commercial Code naming the Guarantor as debtor and the Bank as secured
party and indicating therein the types or describing the items of Security
herein specified. Without prior written consent of the Bank the Guarantor will
not file or authorize or permit to be filed in any jurisdiction any such
financing or like statement in which the Bank is not named as the sole secured
party. The Bank shall not be required to take any steps necessary to preserve
any rights against prior parties to any of the Security. The Bank may use or
operate any of the Security for the purpose of preserving the Security or its
value in the manner and to the extent the Bank deems appropriate, but the Bank
shall be under no obligation to do so.
7. In the event of default under this guaranty, the Guarantor shall, at
the request of the Bank, assemble the Security at such place or places as the
Bank designates in its request. The Bank shall have the rights and remedies with
respect to the Security of a secured party under the Uniform Commercial Code
(whether or not the Code is in effect in the jurisdiction where the rights and
remedies are asserted). In addition, with respect to the Security, or any part
thereof, which shall then be or shall thereafter come into the possession or
custody of the Bank or any of its agents, associates or correspondents, the Bank
may sell or cause to be sold in the Borough of Manhattan, New York City, or
elsewhere, for cash or on credit or for future delivery, without assumption of
any credit risk, all or any of the Security at any broker's board or at public
or private sale, in any reasonable manner permissible under the Uniform
Commercial Code (except that, to the extent permitted thereunder, the Guarantor
hereby waives the requirements of said Code), free from any claim or right of
whatsoever kind, including any equity of redemption, of the Guarantor, any such
demand, notice or right and equity being hereby expressly waived and released.
The Guarantor will pay to the Bank all expenses (including reasonable attorneys'
fees and legal expenses incurred by the Bank) of, or incidental to, any actual
or attempted sale or any exchange, enforcement, collection, compromise or
settlement of any of the Security or receipt of the proceeds thereof, and for
the care of the Security and defending or asserting the claims of the Bank in
respect thereof, by litigation or otherwise; and all such expenses shall be
obligations of the Guarantor hereunder.
8. FOREIGN CURRENCY 0BLIGATIONS. With respect to each obligation (or
portion thereof)hereby guaranteed that is payable in a foreign currency, the
following provisions shall apply: the Guarantor shall be obligated to pay the
Bank the unpaid amount of such guaranteed obligation in the same foreign
currency and place in which such guaranteed obligation is payable by its terms;
provided, however, that the Guarantor may, at its option (or, if for any reason
whatsoever the Guarantor is unable to effect payment of such unpaid amount as
aforesaid, the Guarantor shall be obligated to) pay to the Bank at its principal
office in New York City the
<PAGE> 13
equivalent of such unpaid amount in United States currency computed at the
Bank's selling-rate, most recently in effect on or prior to the date such
guaranteed obligation becomes due, for cable transfers of such foreign currency
to the place where such guaranteed obligation is payable. In any case in which
the Guarantor shall make or shall be obligated to make such payment in United
States currency, the Guarantor shall hold the Bank harmless from any loss
incurred by the Bank arising from any change in the value of United States
currency in relation to such foreign currency between the date such guaranteed
obligation becomes due and the date the Bank is actually able, following the
conversion of the United States currency paid by the Guarantor into such foreign
currency and remittance of such foreign currency to the place where such
guaranteed obligation is payable, to apply such foreign currency to such
obligation. The term "foreign currency" as used herein shall be deemed to refer
to that type of such currency which under applicable laws and regulations may be
used to pay and discharge such guaranteed obligation.
9. No provision of this guaranty may be modified or waived without the
prior written consent of the Bank.
IN WITNESS WHEREOF, the Guarantor has caused this instrument to be duly
executed by its proper officers this 8th day of March, 1996.
Unidigital, Inc.
Attest By: /s/ William E. Dye
------------------------
Title: President
/s/ Stephen McErlain
- --------------------------------
Secretary
[Seal]
<PAGE> 14
STATE OF __________________
ss.:
COUNTY OF _________________
8th March 96
On the ___________________ day of _______________, 19 ____, before me
William Dye
came _____________________________________________________ , to me known, who,
305 Second
being by me duly sworn, did depose and say that he resides at ________________
Avenue, New York, N.Y. President
_______________________________________ ; that he is _________________________
Unidigital, Inc.
of ________________________________, the corporation described in and which
executed the foregoing instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the Board of Directors of said corporation; and that he
signed his name thereto by like order.
/s/ William E. Dye
-----------------------------------
Stephen McErlain
I, ___________________________________________________________________
Unidigital, Inc.
as Secretary of ________________________________________________ , a corporation
Delaware
duly organized and existing under the laws of ________________________________ ,
hereby certify that a meeting of the Board of Directors of said Corporation was
8th March 96
duly called and held on the _______________ day of _____________________, 19___
and that at said meeting, at which a quorum was present and voting throughout,
the following preambles and resolution, upon motion duly made and seconded,
were duly and unanimously adopted:
Linographics Corporation
"WHEREAS, _______________________________________________ (hereinafter
referred to as the 'Borrower'), a corporation organized and existing
New York
under the laws of __________________________________ has obtained or
desires or may desire at some time and/or from time to time obtain
loans or other financial accommodation from or conduct transactions with
The Chase Manhattan Bank, N.A. and/or any of its subsidiaries and/or
affiliates (hereinafter referred to as the 'Bank'); and
WHEREAS, this Corporation owns directly or indirectly a substantial
amount of the stock of the Borrower and/or is financially interested in
its affairs and expects to derive advantage from each and every such
loan, accommodation and/or transaction,
NOW, THEREFORE, BE IT
RESOLVED, that this Corporation guarantee the liabilities and
obligations of the Borrower and of others to the Bank in the manner set
forth in the agreement of guaranty presented to this meeting, which said
agreement of guaranty and all of the terms and provisions thereof are in
all respects approved and adopted, and that any of the officers of this
Corporation be and hereby are, and each of them hereby is, authorized
and directed to execute in the name and on behalf of this Corporation
and to deliver to the Bank an agreement of guaranty in said form with
such changes, if any, as the officer or officers of this Corporation
executing the same may approve, and to do such other acts and things as
may be necessary or advisable in order to carry out and perform on the
part of this Corporation the covenants, conditions and agreements on its
part to be carried out and performed as provided in said agreement of
guaranty and in order to carry out and effect the full intent and
purposes of this resolution."
As said Secretary, I further certify that the foregoing preambles and
resolution have not been repealed, annulled, altered or amended in any respect
but remain in full force and effect and that the annexed instrument is the form
of the agreement of guaranty presented to said meeting and referred to in and
approved by the aforesaid resolution.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of
8th March 96
the said Corporation this ____ day of ___________________, 19 _____
/s/ Stephen McErlain
---------------------------------------
As Secretary of Said Corporation
<PAGE> 1
GRID TIME PROMISSORY NOTE
(Prime Rate - 360-Day Basis)
$150,000 New York, New York
March 8, 1996
For value received, the undersigned unconditionally (and if more than
one, jointly and severally) promises to pay to the order of THE CHASE
MANHATTAN BANK (NATIONAL ASSOCIATION) (the "Bank"), at its principal office
located at 1 Chase Manhattan Plaza, New York, New York 10081, the principal
amount of One Hundred Fifty Thousand DOLLARS ($150,000) or, if less, the unpaid
principal amount of each loan made to the undersigned by the Bank and
outstanding under this Note, on the maturity date(s) as shown on the attached
schedule or any continuation of the schedule.
The undersigned promise(s) to pay interest on the unpaid balance of the
principal amount of each such loan from and including the date of each such loan
to but excluding the due date of such loan at a variable rate per annum equal
to: (a) that rate of interest from time to time announced by the Bank at said
principal office as its prime commercial lending rate (the "Prime Rate") plus
(b) 1/2% (the "Margin"). Interest shall be payable on the first day of each
calendar month (commencing on the first such date occurring after the date of
the first such loan) and on any payment of such principal. Any principal not
paid when due (whether at stated maturity, by acceleration or otherwise) shall
bear interest from and including the date due to but excluding the date paid in
full at a variable rate per annum equal to: (x) 2% plus (y) the Prime Rate plus
(z) the Margin; such interest to be payable on demand and on any payment of such
principal. The interest rate on this Note shall change in accordance with, and
changes in such interest rate shall be effective as of the effective date of,
announcements by the Bank of changes in the Prime Rate. Interest shall be
calculated on the basis of a year of 360 days for the actual number of days
elapsed.
All payments under this Note shall be made in lawful money of the
United States of America and in immediately available funds at the Bank's
principal office specified above. If any loan evidenced by this Note becomes
due and payable on a Saturday, Sunday or a day that is not a banking day in
New York City, the maturity of such loan shall be extended to the next
succeeding banking day, and interest shall be payable for such extension on
such loan at the rate of interest specified in this Note. The Bank may (but
shall not be obligated to) debit the amount of any payment under this Note that
is not made when due to any deposit account of (any of) the undersigned with
the Bank. If the undersigned are more than one, all obligations of each of the
undersigned under this Note shall be joint and several. This Note may be
prepaid without penalty.
The date, amount and maturity date of each loan under this Note and
each payment of principal, loan(s) to which such principal is applied (which
shall be at the discretion of the Bank) and the outstanding principal balance
of loans, shall be recorded by the Bank on its books and prior to any transfer
of this Note (or, at the discretion of the Bank at any other time) endorsed by
the Bank on the schedule attached or any continuation of the schedule. Any such
endorsement shall be conclusive in the absence of manifest error.
If any of the following events of default shall occur with respect to
(any of) the undersigned: (a) the undersigned shall fail to pay the principal
of, or interest on, this Note, or any other amount payable under this Note, as
and when due and payable; (b) any representation or warranty made or deemed made
by the undersigned in this Note or in any document granting security or support
for (or otherwise executed in connection with) this Note or by any third party
supporting or liable with respect to this Note (whether by guaranty,
subordination, grant of security or any other credit support, a "Third Party")
in any document evidencing the obligations of a Third Party (this Note and all
of the foregoing documents of the undersigned or a Third Party being the
"Facility Documents") or which is contained in any certificate, document,
opinion, financial or other statement furnished at any time under or in
connection with any Facility Document, shall prove to have been incorrect in any
material respect on or as of the date made or deemed made; (c) the undersigned
or any Third Party shall fail to perform or observe any term, convenant or
agreement contained in any Facility Document on its part to be performed or
observed; (d) the undersigned or any Third Party shall fail to pay when due any
indebtedness (including but not limited to indebtedness for borrowed money) or
if any such indebtedness shall become due and payable, or shall be capable of
becoming due and payable at the option of any holder thereof, by acceleration of
its maturity, or if there shall be any default by the undersigned or any Third
Party under any agreement relating to such indebtedness; (e) the undersigned or
any Third Party: (i) shall generally not, or be unable to, or shall admit in
writing its inability to, pay its debts as such debts become due; (ii) shall
make an assignment for the benefit of creditors; (iii) shall file a petition in
bankruptcy or for any relief under any law of any jurisdiction relating to
reorganization, arrangement, readjustment of debt, dissolution or liquidation;
(iv) shall have any such petition filed against it and the same shall remain
undismissed for a period of 30 days or shall consent or acquiesce thereto; or
(v) shall have had a receiver, custodian or trustee appointed for all or a
substantial part of its property; (f) the undersigned or any Third Party shall
die, dissolve or for any reason cease to be in existence or if the undersigned
or any Third Party is a partnership, any general partner shall die, dissolve or
for any reason cease to be in existence or cease to be a partner; (g) any Third
Party Facility Document shall at any time and for any reason cease to be in full
force and effect or shall be declared null and void, or its validity or
enforceability shall be con-
<PAGE> 2
tested by the relevant Third Party of such Third Party shall deny it has any
further liability or obligation under any Facility Document or shall fail to
perform its obligation under any Facility Document; (h) any security agreement
or other agreement (whether by the undersigned or any Third Party) granting a
security interest, lien, mortgage or other encumbrance securing obligations
under any Facility Document shall at any time and for any reason cease to
create a valid and perfected first priority security interest, lien, mortgage
or other encumbrance in or on the property purported to be subject to such
agreement or shall cease to be in full force and effect or shall be declared
null and void, or the validity or enforceability of any such agreement shall
be contested by any party to such agreement, or such party shall deny it has
any further liability or obligation under such agreement or any such party
shall fail to perform any of its obligations under such agreement. THEN, in
any such case, if the Bank shall elect by notice to the undersigned, the
unpaid principal amount of this Note, together with accrued interest shall
become forthwith due and payable; provided that in the case of an event of
default under (e) above, the unpaid principal amount of this Note, together
with accrued interest, shall immediately become due and payable without any
notice or other action by the Bank.
The undersigned waive(s) presentment, notice of dishonor, protest and
any other notice or formality with respect to this Note.
The undersigned agree(s) to reimburse the Bank on demand for all costs,
expenses and charges (including, without limitation, fees and charges of
external legal counsel for the Bank and costs allocated by its internal legal
department) in connection with the interpretation performance or enforcement of
this Note.
This Note shall be binding on (each of) the undersigned and its
successors and assigns and shall inure to the benefit of the Bank and its
successors and assigns, except that the undersigned may not delegate any
obligations hereunder without the prior written consent of the Bank. Without
limiting any provision of this Note, the obligations under this Note shall
continue in full force and effect and shall be binding on: (a) the estate of
the undersigned if (any of) the undersigned is an individual, and (b) any
successor partnership and on previous partners and their respective estates if
(any of) the undersigned is a partnership, regardless of any change in the
partnership as a result of death, retirement or otherwise.
The undersigned consent(s) to the nonexclusive jurisdiction and venue
of the state or federal courts located in the City of New York, Service of
process by the Bank in connection with any dispute shall be binding on the
undersigned if sent to the undersigned by registered mail at the address(es)
specified below. The undersigned waive(s) any right the undersigned may have to
jury trial.
This Note shall be governed by, and interpreted and construed in
accordance with, the law of the State of New York; provided that the foregoing
is not intended to limit the maximum rate of interest which may be charged or
collected by the Bank on this Note if, under the law applicable to it, the Bank
may charge or collect such interest at a higher rate than is permissible under
the law of said State. In no case shall the interest on this Note exceed the
maximum amount which the Bank may charge or collect under such law applicable
to it.
Address for notices:
20 West 20th Street Linographics (Delaware) Corporation
New York, NY 10011 By:
Title: President
By:
Title:
Address for notices:
By:
Title:
By:
Title:
<PAGE> 3
GUARANTY BY CORPORATION
WHEREAS, Linographics (Delaware) Corporation (hereinafter referred to
as the "Borrower"), a corporation organized under the laws of Delaware,
(has obtained or desires or may desire at some time and/or from time to time to
obtain financial accommodation from THE CHASE MANHATTAN BANK, N.A. and/or any of
its subsidiaries and/or affiliates (hereinafter, with their respective
successors and assigns, collectively or individually, as the context may
require, referred to as the "Bank"); and
WHEREAS, the undersigned (hereinafter referred to as the "Guarantor"),
a corporation organized under the laws of Delaware, represents that it owns
directly or indirectly a substantial amount of the stock of the Borrower and/or
is financially interested in its affairs and expects to derive advantage from
each and every such accommodation;
1. NOW, THEREFORE, for valuable consideration, the receipt whereof by
the Guarantor is hereby acknowledged, and to induce the Bank, at its option, at
any time or from time to time, to extend financial accommodation, with or
without security, to or for the account of the Borrower, or in respect of which
the Borrower may be liable in any capacity (the term "financial accommodation"
including, without limitation, extension of loans, credit or accommodation,
issuance or confirmation of letters of credit or creation of acceptances, or
discount or purchase of, or loans on, accounts, leases, instruments, securities,
documents, chattel paper and other security arrangements, or other property, or
entering into any foreign exchange, precious metals or other contract or
agreement between Borrower and the Bank), the Guarantor hereby unconditionally
guarantees to the Bank, irrespective of the validity, regularity or
enforceability of any instrument, writing or arrangement relating to or the
subject of any such financial accommodation (each such instrument, writing or
arrangement being hereinafter referred to as, and included in the term, "Credit
Arrangement") or of the obligations thereunder and irrespective of any present
or future law or order of any government (whether of right or in fact and
whether the Bank shall have consented thereto) or of any agency thereof
purporting to reduce, amend, restructure or otherwise affect any obligation of
the Borrower or other obligor or to vary the terms of payment, that the Borrower
will promptly perform and observe every agreement and condition in any Credit
Arrangement to be performed or observed by the Borrower, that all sums stated to
be payable in, or which become payable under, any Credit Arrangement, and all
other sums which may be owing by the Borrower to the Bank now or hereafter, will
be promptly paid in full when due, whether at maturity or earlier by reason of
acceleration or otherwise, or, if now due, when payment thereof shall be
demanded by the Bank, together with interest and any and all legal and other
costs and expenses paid or incurred in connection therewith by the Bank, and, in
case of one or more extensions of time of payment or renewals, in whole or in
part, of any Credit Arrangement or obligation, that the same will be promptly
paid or performed when due, according to each such extension or renewal, whether
at maturity or earlier by reason of acceleration or otherwise. The Guarantor
agrees that, as between the Guarantor and the Bank, the obligations of the
Borrower guaranteed hereunder may be declared to be due and payable for purposes
of this guaranty notwithstanding any stay, injunction or other prohibition which
may prevent, delay or vitiate any such declaration as against the Borrower and
that, in the event of any such declaration (or attempted declaration), such
obligations (whether or not due and payable by the Borrower) shall forthwith
become due and payable by the Guarantor for purposes of this guaranty. The
Guarantor further guarantees that all payments made by the Borrower to the Bank
on any obligation hereby guaranteed will, when made, be final and agrees that
if any such payment is recovered from, or repaid by, the Bank in whole or in
part in any bankruptcy, insolvency or similar proceeding instituted by or
against the Borrower, this guaranty shall continue to be fully applicable to
such obligation to the same extent as though the payment so recovered or repaid
had never been originally made on such obligation.
2. The Guarantor hereby consents that from time to time, without notice
to or further consent of the Guarantor, the performance or observance by the
Borrower of any Credit Arrangement or obligation may be waived or the time of
performance thereof extended by the Bank, and payment of any obligation hereby
guaranteed may be accelerated in accordance with any agreement between the Bank
and any party liable with respect thereto, or may be extended, or any Credit
Arrangement may be renewed in whole or in part, or the terms of any Credit
Arrangement or any part thereof may be changed, including increase or decrease
in the rate of interest thereon, or any collateral therefor may be exchanged,
surrendered or otherwise dealt with as the Bank may determine, and any of the
acts mentioned in any Credit Arrangement may be done, all without affecting the
liability of the Guarantor hereunder. The Guarantor hereby waives presentment of
any instrument, demand of payment, protest and notice of non-payment or protest
thereof or of any exchange, sale, surrender or other handling or disposition of
any such collateral, and any requirement that the Bank exhaust any right, power
or remedy or proceed against the Borrower under any Credit Arrangement or
against any other person under any other guaranty of, or security for, any of
the obligations guaranteed hereunder. No payment by the Guarantor pursuant to
any provision hereunder shall entitle the Guarantor, by subrogation to the
rights of the Bank or otherwise, to any payment by the Borrower (or out of the
property of the Borrower) except after payment in full of all sums (including
interest, costs and expenses) which may be or become payable by the Borrower to
the Bank at any time or from time to time.
3. This guaranty shall be a continuing guaranty,and the co-guarantor or
co-guarantors,if any or any other party liable upon or in respect of any
obligation hereby guaranteed may be released without affecting the liability of
the Guarantor, and the Bank may continue to act in reliance hereon until the
receipt by the Bank, at its principal office at 1 Chase Manhattan Plaza, New
York, New York 10081, and by the departments and offices of the Bank extending
financial accommodation to the Borrower, of written notice from the Guarantor
not to give further financial accommodation in reliance hereon, provided that
such notice shall not affect the obligations of the Guarantor hereunder with
respect to any such accommodation given prior to such notice.
LEGAL 7A 12-84 PTG. 10-86
<PAGE> 4
4. The Bank may assign this guaranty or any of its rights and powers
hereunder, with all or any of the obligations hereby guaranteed, and may assign
and/or deliver to any such assignee any of the Security herefor and, in the
event of such assignment, the assignee hereof or of such rights and powers and
of such Security, if any such Security be so assigned and/or delivered, shall
have the same rights and remedies as if originally named herein in place of the
Bank, and the Bank shall be thereafter fully discharged from all responsibility
with respect to any such Security so assigned and/or delivered.
5. Notice of acceptance of this guaranty and of the incurring of any
and all of the obligations of the Borrower hereinbefore mentioned is hereby
waived. This guaranty and all rights, obligations and liabilities arising
hereunder shall be governed by and construed according to the laws of the State
of New York. Unless the context otherwise requires, all terms used herein which
are defined in the Uniform Commercial Code shall have the meanings therein
stated.
6. As security for its obligations hereunder, the Guarantor hereby
grants to the Bank a security interest in, a general lien upon and/or right of
set-off of, the following (herein referred to as the Security): All personal
property and fixtures of the Guarantor, whether now or hereafter existing or
now owned or hereafter acquired and wherever located, of every kind and
description, tangible or intangible, including, but not limited to, the balance
of every deposit account, now or hereafter existing, of the Guarantor with the
Bank and any other claim of the Guarantor against the Bank, now or hereafter
existing, and all money, goods (including equipment, farm products and
inventory), instruments, securities, documents, chattel paper, accounts,
contract rights, general intangibles, credits, claims, demands, precious metals
and any other property, rights and interests of the Guarantor, and shall include
the proceeds, products and accessions of and to any thereof. With respect to
the Security, or any part thereof, which at any time shall come into the
possession or custody or under the control of the Bank or any of its agents,
associates or correspondents, for any purpose, the right is expressly granted
to the Bank, at its discretion, to transfer to or register in the name of
itself or its nominee any of the Security; to exchange any of the Security for
other property upon any reorganization, recapitalization or other readjustment
and in connection therewith to deposit any of the Security with any committee
or depositary upon such terms as it may determine; to notify any account debtor
or obligor on an instrument to make payment to the Bank; and to exercise or
cause its nominee to exercise all or any powers with respect to the Security
with the same force and effect as an absolute owner thereof; all without notice
(except such notice as may be required by applicable law and cannot be waived)
and without liability except to account for property actually received by it.
Without limiting the generality of the foregoing, payments, distributions
and/or dividends, in securities, property or cash, including without limitation
dividends representing stock or liquidating dividends or a distribution or
return of capital upon or in respect of the Security or any part thereof or
resulting from any split-up, revision or reclassification of the Security or
any part thereof or received in exchange for the Security or any part thereof
as a result of a merger, consolidation or otherwise, shall be paid directly to
and retained by the Bank and held by it until applied as herein provided, as
additional collateral security pledged under and subject to the terms hereof.
To the extent permitted by applicable law, the Bank shall have the right, with
or without legal process and with or without prior notice or demand, to take
possession of the Security or any thereof and to enter any premises for the
purpose of taking possession thereof. The Bank shall be deemed to have
possession of any of the Security in transit to or set apart for it or any of
its agents, associates or correspondents. The right is expressly granted to the
Bank, at its discretion, to file one or more financing statements under the
Uniform Commercial Code naming the Guarantor as debtor and the Bank as secured
party and indicating therein the types or describing the items of Security
herein specified. Without prior written consent of the Bank the Guarantor will
not file or authorize or permit to be filed in any jurisdiction any such
financing or like statement in which the Bank is not named as the sole secured
party. The Bank shall not be required to take any steps necessary to preserve
any rights against prior parties to any of the Security. The Bank may use or
operate any of the Security for the purpose of preserving the Security or its
value in the manner and to the extent the Bank deems appropriate, but the Bank
shall be under no obligation to do so.
7. In the event of default under this guaranty, the Guarantor shall, at
the request of the Bank, assemble the Security at such place or places as the
Bank designates in its request. The Bank shall have the rights and remedies
with respect to the Security of a secured party under the Uniform Commercial
Code (whether or not the Code is in effect in the jurisdiction where the rights
and remedies are asserted). In addition, with respect to the Security, or any
part thereof, which shall then be or shall thereafter come into the possession
or custody of the Bank or any of its agents, associates or correspondents, the
Bank may sell or cause to be sold in the Borough of Manhattan, New York City,
or elsewhere, for cash or on credit or for future delivery, without assumption
of any credit risk, all or any of the Security at any broker's board or at
public or private sale, in any reasonable manner permissible under the Uniform
Commercial Code (except that, to the extent permitted thereunder, the Guarantor
hereby waives the requirements of said Code), free from any claim or right of
whatsoever kind, including any equity of redemption, of the Guarantor, any such
demand, notice or right and equity being hereby expressly waived and released.
The Guarantor will pay to the Bank all expenses (including reasonable
attorneys' fees and legal expenses incurred by the Bank) of, or incidental to,
any actual or attempted sale or any exchange, enforcement, collection,
compromise or settlement of any of the Security or receipt of the proceeds
thereof, and for the care of the Security and defending or asserting the claims
of the Bank in respect thereof, by litigation or otherwise; and all such
expenses shall be obligations of the Guarantor hereunder.
8. FOREIGN CURRENCY OBLIGATIONS. With respect to each obligation (or
portion thereof) hereby guaranteed that is payable in a foreign currency, the
following provisions shall apply: the Guarantor shall be obligated to pay the
Bank the unpaid amount of such guaranteed obligation in the same foreign
currency and place in which such guaranteed obligation is payable by its terms;
provided, however, that the Guarantor may, at its option (or, if for any reason
whatsoever the Guarantor is unable to effect payment of such unpaid amount as
aforesaid the Guarantor shall be obligated to pay to the Bank at its principal
office in New York City the
<PAGE> 5
equivalent of such unpaid amount in United States currency computed at the
Bank's selling rate, most recently in effect on or prior to the date such
guaranteed obligation becomes due, for cable transfers of such foreign currency
to the place where such guaranteed obligation is payable. In any case in which
the Guarantor shall make or shall be obligated to make such payment in United
States currency, the Guarantor shall hold the Bank harmless from any loss
incurred by the Bank arising from any change in the value of United States
currency in relation to such foreign currency between the date such guaranteed
obligation becomes due and the date the Bank is actually able, following the
conversion of the United States currency paid by the Guarantor into such foreign
currency and remittance of such foreign currency to the place where such
guaranteed obligation is payable, to apply such foreign currency to such
obligation. The term "foreign currency" as used herein shall be deemed to refer
to that type of such currency which under applicable laws and regulations may be
used to pay and discharge such guaranteed obligation.
9. No provision of this guaranty may be modified or waived without the
prior written consent of the Bank.
8th day of March, 1996,
Unidigital Inc.
Attest: By /s/ William E. Dye
-------------------------------
/s/ Stephen McErlain Title: President
- ------------------------------
Secretary
[Seal]
<PAGE> 6
)
STATE OF _______________________ )
) ss.:
COUNTY OF ______________________ )
)
On the 8th day of March, 1996, before me came William Dye, to me known,
who, being by me duly sworn, did depose and say that he resides at 305 Second
Avenue, New York, N.Y.; that he is President of Unidigital Inc., the
corporation described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the Board of Directors
of said corporation; and that he signed his name thereto by like order.
[initial DF] /s/ William E. Dye
-----------------------------
I, Stephen McErlain as Secretary of Unidigital Inc., a corporation duly
organized and existing under the laws of Delaware, hereby certify that a
meeting of the Board of Directors of said Corporation was duly called and held
on the 8th day of March, 1996, and that at said meeting, at which a quorum was
present and voting throughout, the following preambles and resolution, upon
motion duly made and seconded, were duly and unanimously adopted:
"WHEREAS, Linographics (Delaware) Corporation (hereinafter referred to
as the 'Borrower'), a corporation organized and existing under the laws
of Delaware has obtained or desires or may desire at some time and/or
from time to time to obtain loans or other financial accommodation from
or conduct transactions with The Chase Manhattan Bank, N.A. and/or any
of its subsidiaries and/or affiliates (hereinafter referred to as the
'Bank'); and
WHEREAS, this Corporation owns directly or indirectly a substantial
amount of the stock of the Borrower and/or is financially interested
in its affairs and expects to derive advantage from each and every
such loan, accommodation and/or transaction,
NOW, THEREFORE, BE IT
RESOLVED, that this Corporation guarantee the liabilities and
obligations of the Borrower and of others to the Bank in the manner set
forth in the agreement of guaranty presented to this meeting, which said
agreement of guaranty and all of the terms and provisions thereof are in
all respects approved and adopted, and that any of the officers of this
Corporation be and hereby are, and each of them hereby is, authorized
and directed to execute in the name and on behalf of this Corporation
and to deliver to the Bank an agreement of guaranty in said form with
such changes, if any, as the officer or officers of this Corporation
executing the same may approve, and to do such other acts and things as
may be necessary or advisable in order to carry out and perform on the
part of this Corporation the covenants, conditions and agreements on its
part to be carried out and performed as provided in said agreement of
guaranty and in order to carry out and effect the full intent and
purposes of this resolution."
As said Secretary, I further certify that the foregoing preambles and
resolution have not been repealed, annulled, altered or amended in any respect
but remain in full force and effect and that the annexed instrument is the form
of the agreement of guaranty presented to said meeting and referred to in and
approved by the aforesaid resolution.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of
the said Corporation this 8th day of March, 1996
[initial DF] /s/ Stephen McErlain
----------------------
As Secretary of Said
Corporation
[Seal]
<PAGE> 1
BUSINESS TERM LOAN AGREEMENT
Loan Agreement dated March 8, 1996, among Linographics (Delaware) Corporation, a
Corporation [having its principal place of business]********577 Second Street,
San Francisco, CA ("Borrower") and guarantor(s) identified by their execution
below ("Borrower" and "Guarantor(s)" collectively referred to hereafter as the
"Obligors") and THE CHASE MANHATTAN BANK, N.A. (the "Bank"). The Borrower has
requested and the Bank has agreed to make a loan to the Borrower in the
principal amount of $150,000 (the "Loan"). The Bank and the Obligors agree as
follows:
(1) THE NOTE AND OTHER LOAN DOCUMENTS:
a. The frequency, time, place, mode and number of payments and the
interest rate and method of computing interest are described in
the Promissory Note evidencing the Loan, made substantially in
the form of Exhibit A hereof; and
b. Borrower shall have the right, upon three days written notice, to
prepay the Loan without penalty in an amount equal to an
installment (or multiples thereof) to be applied to installments
in inverse order of maturity.
c. As used in this Agreement "Loan Documents" means the Application,
this Agreement, the Note, and any Guaranty, Security Agreement,
Pledge Subordination Agreement or other document executed in
connection with the Loan.
(2) REPRESENTATIONS AND WARRANTIES: In order to induce the Bank to enter
into this Agreement and to make the Loan, each Obligor represents
and warrants to the Bank that:
a. All the information and statements contained in the Application
for the Loan, attached thereto or delivered to the Bank in
connection therewith (the "Application"), is complete and
accurate as of the date hereof.
b. (As to each Obligor that is not an individual) it:
(i) is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or
formation;
(ii) is duly qualified and in good standing in every
jurisdiction in which it presently engages in business and
in which such qualification is required;
(iii) has the power, authority and legal right to own, or lease
and enjoy undisturbed, the assets of the business and
engage in business as now conducted;
(iv) has the power, authority and legal right to enter into and
execute this Agreement, the Note, and any other Loan
Document to which it is a party and
(v) the execution and performance of the Loan Documents to
which it is a party have been duly authorized and each Loan
Document is, or where delivered will be, a legal, valid and
binding obligation of the Obligor enforceable such Obligor
in accordance with its terms;
(vi) such Obligor has no subsidiaries except those listed on the
Application and in each instance it owns the stated
percentage of the outstanding stock of such subsidiaries.
FINANCIAL STATEMENTS, ACCURATE NO CHANGE
c. All financial statements of such Obligor previously delivered to
the Bank, whether or not in connection with this Loan, are
complete, correct present fairly the financial condition of such
Obligor, reflect every liability (whether direct or contingent)
and there has been no material adverse change in the condition
(financial or otherwise), business, operations or prospects of
such Obligor since latest financial statements delivered in
connection with the Application.
OTHER AGREEMENTS
d. This Agreement will not violate any other indenture or other
agreement nor any law, order, rule or regulation of any
government instrumentality applicable to such Obligor or by
which its property is bound nor will it result in the creation
or imposition of any other lien, except for those being created
by any Loan Document;
LITIGATION
e. There are no suits or proceedings pending or threatened against
such Obligor or affecting any of its properties (of which such
Obligor has any knowledge) except those previously disclosed and
explained in writing to the Bank;
TEXAS
f. Federal Income Tax returns of such Obligor have been audited
through the date shown on the application and deficiencies (if
any) resulting from such examinations have been reserved against
or discharged. Additionally, such Obligor has filed all required
Federal, state and local returns including those for corporate
franchise taxes, and has paid all taxes or assessments due
thereon;
ERISA
g. Such Obligor, if required, is in compliance in every material
respect with the applicable provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA") and regulations or
published interpretations thereof and has not had a Reportable
Event occur with respect to any Plan as defined in ERISA; and
REGULATIONS; PURPOSE; USE OF PROCEEDS
h. Such Obligor is not engaged in the business of extending credit
for the purpose of purchasing or carrying "margin stock" (as
defined in Regulation U of the Board of Governors of the Federal
Reserve System). The proceeds of the Loan will be used for the
purpose described in the Application and no part of the proceeds
of this Loan will be used to purchase or carry such stock or
extend such credit or violate in any way Regulations G, T, U, or
X of such Board of Governors,
AFFIRMATIVE COVENANTS: Each Obligor (that is not an individual)
covenants and agrees that, from the date hereof until the full
satisfaction of the obligations under this Agreement, the Note and the
other Loan Documents, it shall:
<PAGE> 2
EXISTENCE AND PROPERTIES
a. Preserve, protect, renew and keep in full force and effect its
existence, rights, licenses, permits, patents, trademarks, trade
names and franchises; comply with all laws and regulations
applicable to it; not materially alter the nature or scope of
business as presently conducted by it and preserve, repair and
maintain all property utilized in the conduct of its business;
INSURANCE
b. Maintain insurance with financially sound insurers on its
properties against such risks as fire, public liability, lack
of fidelity by its employees all as is customary with
companies in similar businesses or as reasonably required by
the Bank;
FINANCIAL STATEMENTS
c. Furnish to the Bank the following financial information:
(i) not later than 120 days after the end of its fiscal year
its balance sheet prepared (audited) in the same manner as
those referred to in Section 2(c) all in accordance with
generally accepted accounting principles consistently
applied ("GAAP") and in the case of audited financial
statements, certified in a manner satisfactory to the Bank
by independent certified public accountants acceptable to
the Bank;
(ii) not later than 45 days after the end of each interim
three month period, balance sheets and statements of
income similar to those above; their accuracy certified
in a manner satisfactory to the Bank by the chief
financial officer.
(iii) with each set of statements described above certified by
the chief financial officer that no Event of Default has
occurred; and
(iv) within 45 days after the end of each quarterly period,
accounts receivable aging schedules in form satisfactory
to the Bank.
ACCESS TO PREMISES AND RECORDS
d. Upon written request, permit the Bank's representatives access
to any or all of such Obligor's properties and financial
records, to make extracts from such records and to discuss the
business, finances and affairs with its officers;
ADDITIONAL COLLATERAL
e. Upon the happening of any Event of Default, upon demand of the
Bank, furnish such further security as will be satisfactory to
the Bank;
NOTICES
f. It shall promptly give written notice to the Bank of:
(i) the details of any Reportable Event as defined in ERISA
which has occurred;
(ii) the occurrence of any event which alone or with notice,
the passage of time or both, would constitute an Event
of Default;
(iii) the commencement of any proceeding or litigation which,
if determined adversely, could have a material adverse
effect on the financial condition, properties, or
operations of such Obligor or its ability to conduct
business;
(iv) the formation of any subsidiary of Borrower after the
date of this Agreement which notice shall be accompanied
by the Resolution of the Board of Directors of such
subsidiary authorizing such subsidiary to executive this
Agreement as an additional Guarantor, together with such
execution by Amendment and such Guaranty.
Each individual Obligor covenants and agrees from the date
hereof until the full satisfaction of the obligations under this
Agreement and the Note:
(v) To give written notice to the Bank promptly of any
event referred to in Section 3(f) (ii) or (iii); and
(vi) To furnish to the Bank at the time the Borrower delivers
the annual financial statements referred to in 3(c).(i)
above, personal financial statements and/or income tax
returns of the type and in the equivalent detail of
those furnished to the Bank on or prior to the date
hereof, in a form acceptable to the Bank.
(vii) Upon the happening of any Event of Default, upon demand
of the Bank, furnish such further security as will be
satisfactory to the Bank.
(4) NEGATIVE COVENANTS: Each Obligor that is not an individual covenants and
agrees that, from the date hereof until the full satisfaction of obligations
under this Agreement and the Note, it will not without the Bank's prior written
consent:
INDEBTEDNESS
LIENS
b. Create, incur or permit to exist against any of its properties
or assets, real or personal, tangible or intangible, now owned
or hereafter acquired, any mortgage or other lien or
encumbrance, except:
(i) deposits or pledges relating to the payment of Workman's
Compensation, Unemployment Insurance, old age pension or
other Social Security or relating to the performance of
bids, tenders, contracts or leases or to statutory
obligations and surety or appeal bonds necessary to the
continuance of the business in the ordinary course;
(iii) liens shown on the Application, but not the extension of
such lien to support any other obligation.
CONTINGENT OBLIGATIONS
c. Assume, guarantee, endorse or otherwise become directly or
contingently liable for the obligations of any other Person
except for the Guaranty in connection with this Agreement and
the endorsement of negotiable instruments for deposit or
collection in the ordinary course of business;
LEASES
CAPITAL EXPENDITURES
<PAGE> 3
SALE OF ASSETS, NOTES OR ACCOUNTS
g. Sell, transfer, lease, sell and thereafter enter into an
arrangement with the buyer to rent or lease back, all or any
substantial part of its properties or assets; or sell, assign,
discount or otherwise dispose of any of its notes or accounts
receivable except for collection in the ordinary course of
business;
MERGER
h. Consolidate with or merge into any other corporation, or permit
another corporation to merge into it, or acquire all or
substantially all of the properties or assets of any other
Person ("Person" is defined as natural persons, corporations,
business trust associations, companies and partnerships);
LOANS OR INVESTMENTS
DIVIDENDS
WORKING CAPITAL
CURRENT RATIO
NET WORTH
DEBT WORTH
DEBT SERVICE COVERAGE
o. Permit the ratio of earnings before interest and taxes to Debt
Service for any fiscal year to be less than 1 to 1. ("Debt
Service" is defined as all mandatory payments of principal
required to be made for money borrowed plus interest expense.)
(5) EACH GUARANTOR AGREES:
a. To execute in favor of and in form satisfactory to the Bank, a
Subordination of any present or future indebtedness of Borrower
to such Guarantor;
b. To execute a guaranty of payment of Borrower's obligations
hereunder to the Bank; and
c. To notify the Bank of any material adverse change in the
financial condition of any Obligor as and when Guarantor shall
acquire knowledge thereof.
(6) EVENTS OF DEFAULT: In the case of the happening of any of the following
events ("Events of Default"):
a. the Borrower shall fail to pay the principal or interest on the
Note or any fee or other amount due hereunder as and when due
and payable;
b. any representation or warranty made herein, in any Loan
Document or in any other instrument, agreement or certificate
furnished in connection with any of the foregoing shall prove
false or misleading in any material respect;
c. any change shall occur which in the opinion of the Bank may
have a material adverse effect on the financial condition,
business, or prospects of any Obligor;
d. any occurrence delineated in any Loan Document as an Event of
Default;
e. any party shall default in the due observance or performance of
any negative covenant contained in this Agreement or any Loan
Document;
f. any Obligor shall fail to pay any indebtedness or any interest
thereon when due or shall fail to observe or perform any
covenant, condition or agreement on its part relating to such
indebtedness, if the effect of such failure to perform or
observe is to accelerate or permit the acceleration of, after
giving of notice or the passage of time, the maturity of such
indebtedness, whether such failure to perform or observe shall
have been waived;
g. A Reportable Event shall have occurred with respect to any Plan
as defined in ERISA and (i) the Bank has notified the affected
Obligor in writing that it has determined that such Reportable
Event constitutes reasonable grounds for termination of such
Plan by the Pension Benefit Guaranty Corporation or the
appointment of a trustee, to administer the Plan, by an
appropriate U.S. District Court or (ii) such termination
proceedings are commenced or such appointment occurs;
<PAGE> 4
h. any Loan Document shall at any time after its execution and
delivery and for any reason cease to be in full force and
effect, or the validity or enforceability thereof shall be
contested by any Person, or any Guarantor or Subordinator
shall deny it has any further liability or obligation
thereunder or fail to perform its obligations thereunder.
i. the loss of employment or death of any individual Obligor; or
the death of a partner in or dissolution or suspension of
business of any Obligor not an individual;
j. one or more judgments for the payment of money shall be
rendered against the Obligors and shall continue unsatisfied
and in effect for a period of 30 consecutive days without being
vacated, discharged, satisfied or stayed or bonded pending
appeal;
k. any Obligor shall be unable to pay its debts as they become
due; make an assignment for the benefit of creditors; petition
for the appointment of a custodian, receiver or trustee for it
or its assets; commence any proceeding under any bankruptcy, or
liquidation law of any jurisdiction; or have any such petition
or proceeding commenced, against it, which petition or
proceeding remains undismissed for a period of 30 days or more;
or (vi) shall suffer any custodianship, receivership or
trusteeship to continue undischarged for a period of 30 days or
more;
then, the Note shall be immediately due and payable in full,
both as to principal and interest, without presentment, demand,
protest or notice of any kind, all of which are hereby
expressly waived by the Borrower, anything contained herein, in
the Note, in the Security Agreement or elsewhere to the
contrary notwithstanding.
(7) MISCELLANEOUS:
EXPENSES
a. The Obligors will pay all costs and expenses incurred by the
Bank in connection with the Loan hereunder, the enforcement of
any provision of this Agreement, the Note, any other Loan
Document or the collection of any amount due hereunder or
thereunder, including but not limited to, the reasonable fees
and disbursements of outside counsel to the Bank and the
allocated costs of internal Bank counsel, incurred in the
course of the preparation or enforcement of the Loan Documents.
The obligations of the Obligors under this Section shall
survive the repayment of the Loan and the surrender of any
Loan Documents.
GAAP
b. All accounting terms used herein shall have the meaning
assigned to them by generally accepted accounting principles,
unless otherwise defined.
ADDITIONAL PROVISIONS
c.
AMENDMENTS; NO WAIVER OR DISCHARGE
d. No failure or delay by the Bank in exercising any right, power
or remedy hereunder upon a breach hereof shall constitute a
waiver of any such term, condition, covenant, agreement, right,
power of Bank from exercising any such rights, power or remedy
at any later time or times. This Agreement nor any other Loan
Document may be changed, modified or discharged or waived in
whole or in part and no right or remedy of Bank hereunder or
under any other Loan Document may be waived except upon written
agreement signed by Bank and any waiver shall be effective only
in the specific instance for which given. If any Obligor is a
partnership, this Agreement shall remain in force and
applicable, notwithstanding any changes in the individuals
composing the partnership, and the term Obligor shall include
any alternate or successor partnerships, but any predecessor
partnership and their partners shall not thereby be released
from any liability.
LAW GOVERNING
e. This Agreement and all rights hereunder, shall be governed by
the laws of the State of New York and applicable laws of the
United States and shall be binding upon the Obligors, their
heirs, executors, administrators, successors and assigns and
shall inure to the benefit of the Bank, its successors and
assigns. The obligations and conditions of this Agreement shall
continue until all indebtedness and liability of the Obligors to
the Bank hereunder has been paid and satisfied in full.
JURISDICTION; VENUE; IMMUNITIES
f. Borrower waives the right to trial by jury and agrees that the
venue of any litigation arising under this note shall be in New
York County and waives the right to interpose any counterclaim
or offset of any nature in any such litigation.
UNENFORCEABILITY OF PROVISION
g. Any provision hereunder which may prove unenforceable under any
law shall not affect the validity of any other provision
hereof.
By: /s/ William E. Dye THE CHASE MANHATTAN BANK, N.A.
--------------------------------------
Title President
By: By: /s/ Donald Furrer
-------------------------------------- ---------------------------------
Title Title Vice President
--------------------------------------
Guarantor:
--------------------------------------
Guarantor:
<PAGE> 5
TERM NOTE
$100,000 New York, New York March 11, 1996
FOR VALUE RECEIVED, LINOGRAPHICS (DELAWARE) CORPORATION (the "Borrower"),
hereby promises to pay to the order of THE CHASE MANHATTAN BANK, N.A. (the
"Bank"), at its office at 1 Chase Manhattan Plaza, New York, New York 10081 in
lawful money of the United States and immediately available funds $100,000,
repayable in 60 consecutive installments of principal plus interest.
PAYMENT OPTIONS.
(A) EQUAL PAYMENT OPTION: If the Borrower has elected to make payments under
the equal payment option, a monthly payment of principal and interest must be
made on the ____ day of each month, commencing __________, ____ and ending
__________, ____. Each installment will be in the amount of $______, except as
provided herein.
After ____ monthly payments have been made, the Bank will send a notice of the
outstanding balance due and the Borrower shall pay such amount in no more than
the remaining (3) monthly payments.
(B) FLUCTUATING PAYMENT OPTION: If the Borrower has elected this option, a
monthly payment of principal in the amount of $1,667 plus interest on the
unpaid principal in the amount specified in the monthly notice which will be
sent by the Bank. Each payment will be due on the date specified in the notice.
Under either payment option the final installment will be in the amount
necessary to repay the remaining unpaid balance plus any accrued and unpaid
interest.
PAYMENTS IN GENERAL.
If any installment of this Note becomes due and payable on a Saturday, Sunday,
or other day when banks in New York are permitted or required to close, the
maturity thereof shall be extended to the next succeeding business day, and
interest shall be payable thereon at the rate herein specified during such
extension.
All payments will be applied first to interest and then to principal. This Note
may be prepaid in whole or in part and such payment applied to installments in
the inverse order of their maturities.
INTEREST. The Borrower promises to pay interest from the date of this Note to
but excluding the day the date of repayment in full (computed on the basis of
360 days) on the unpaid principal amount of the Note, at a rate per annum equal
to:
(BORROWER INITIAL ONE)
(A) Variable Rate (____) the rate as announced from time to time by the
Bank as its principal office in New York as its prime commercial lending
rate ("Prime Rate") plus one-half percent (1/2%); or
(B) Fixed Rate (____) a rate of _____ percent per annum (____%).
Any amount of principal hereof which is not paid when due, whether at stated
maturity, by acceleration or otherwise, shall bear interest from the date when
due until said principal amount is paid in full, payable on demand, at a rate
per annum equal at all times to four percent (4%) above the rate otherwise in
effect.
In no event shall this note bear interest at a rate higher than permitted by
applicable law.
If this note bears interest at a Variable Rate the amount of interest payable
hereunder may increase or decrease starting on _______, and on the _____ day of
each month thereafter if the Prime Rate in effect on such day is higher or
lower than the Prime Rate in effect on the ____ day of the previous month.
ADDITIONAL TERMS OF CREDIT AGREEMENT. This is the Note referred to in, and is
entitled to the benefits of, the Business Term Loan Agreement dated March 8,
1996 between the Borrower and the Bank (the "Credit Agreement"). The Credit
Agreement, among other things, contains provisions for acceleration of the
maturity of this Note upon the happening of certain stated events upon the
terms and conditions specified in the Credit Agreement.
SECURITY. Without limiting the Bank's rights under any other agreement, the
Borrower pledges and grants to the Bank a continuing lien upon assignment of
all right, title and interest of the Borrower in and to the balance of every
deposit account, now or at any time hereafter existing, of the Borrower with
any office of the Bank, want any other claims of the Applicant against the Bank
and in and to all money, instruments, securities, documents, claims and demands
and other property of the Borrower which may at any time come into the
possession, custody or control of any office of the Bank or any affiliate or
subsidiary thereof, for any purpose. The Borrower agrees that the receipt of
other security of whatever nature, including cash, shall not be deemed a waiver
of any of the Bank's rights or powers hereunder.
GOVERNING LAW. This Note shall be governed by the laws of the State of New
York, provided that, as to the maximum rate of interest which may be charged or
collected, if the laws applicable to the Bank permit it to charge or collect a
higher rate than the laws of New York, then such law shall be applied to
determine the maximum rate of interest which may lawfully be charged by the
Bank.
[Name of Borrower]
LINOGRAPHICS (DELAWARE) CORPORATION
By: William E. Dye
--------------------------------
Title: President
<PAGE> 6
TERM NOTE
$50,000 New York, New York July 26, 1996
FOR VALUE RECEIVED, Linographics (Delaware) Corporation (the "Borrower"),
hereby promises to pay to the order of THE CHASE MANHATTAN BANK, (the "Bank"),
at its office at 1 Chase Manhattan Plaza, New York, New York 10081 in lawful
money of the United States and immediately available funds $50,000, repayable
in 60 consecutive installments of principal plus interest.
PAYMENT OPTIONS.
(A) Equal Payment Option: If the Borrower has elected to make payments
under the equal payment option, a monthly payment of principal and interest
must be made on the ______ day of each month, commencing
__________________, ___________________ and ending _______________________,
_________. Each installment will be in the amount of $___________________,
except as provided herein.
After _____ monthly payments have been made, the Bank will send a notice of
the outstanding balance due and the Borrower shall pay such amount in no
more than the remaining three (3) monthly payments.
(B) Fluctuating Payment Option: If the Borrower has elected this option, a
monthly payment of principal in the amount of $834.00 plus interest on the
unpaid principal in the amount specified in the monthly notice which will
be sent by the Bank. Each payment will be due on the date specified in the
notice.
Under either payment option the final installment will be in the amount
necessary to repay the remaining unpaid balance plus any accrued and unpaid
interest.
PAYMENTS IN GENERAL.
If any installment of this Note becomes due and payable on a Saturday, Sunday,
or other day when banks in New York are permitted or required to close, the
maturity thereof shall be extended to the next succeeding business day, and
interest shall be payable thereon at the rate herein specified during such
extension.
All payments will be applied first to interest and then to principal. This Note
may be prepaid in whole or in part and such payment applied to installments in
the inverse order of their maturities.
INTEREST. The Borrower promises to pay interest from the date of this Note to
but excluding the day the date of repayment in full (computed on the basis of
360 days) on the unpaid principal amount of the Note, at a rate per annum equal
to:
(BORROWER INITIAL ONE)
(A) Variable Rate (________) the rate as announced from time to time by the
Bank as its principal office in New York as its prime commercial lending
rate ("Prime Rate") plus one half percent (1/2%); or
(B) Fixed Rate (________) a rate of ________ percent per annum (_______%).
Any amount of principal hereof which is not paid when due, whether at stated
maturity, by acceleration or otherwise, shall bear interest from the date when
due until said principal amount is paid in full, payable on demand, at a rate
per annum equal at all times to four percent (4%) above the rate otherwise in
effect.
In no event shall this note bear interest at a rate higher than permitted by
applicable law.
If this note bears interest at a Variable Rate the amount of interest payable
hereunder may increase or decrease starting on July 26, 1996 and on the first
day of each month thereafter if the Prime Rate in effect on such day is higher
or lower than the Prime Rate in effect on the first day of the previous month.
ADDITIONAL TERMS OF CREDIT AGREEMENTS. This is the Note referred to in, and is
entitled to the benefits of, the Business Term Loan Agreement dated July 26,
1996 between the Borrower and the Bank (the "Credit Agreement"). The Credit
Agreement, among other things, contains provisions for acceleration of the
maturity of this Note upon the happening of certain stated events upon the terms
and conditions specified in the Credit Agreement.
SECURITY. Without limiting the Bank's rights under any other agreement, the
Borrower pledges and grants to the Bank a continuing lien upon and assignment
of all right, title and interest of the Borrower in and to the balance of every
deposit account, now or at any time hereafter existing, of the Borrower with
any office of the Bank, want any other claims of the Applicant against the Bank
and in and to all money, instruments, securities, documents, claims and demands
and other property of the Borrower which may at any time come into the
possession, custody or control of any office of the Bank or any affiliate or
subsidiary thereof, for any purpose. The Borrower agrees that the receipt of
other security of whatever nature, including cash, shall not be deemed a waiver
of any of the Bank's rights or powers hereunder.
GOVERNING LAW. This Note shall be governed by the laws of the State of New
York, provided that, as to the maximum rate of interest which may be charged or
collected, if the laws applicable to the Bank permit it to charge or collect a
higher rate than the laws of New York, then such law shall be applied to
determine the maximum rate of interest which may lawfully be charged by the
Bank.
[Name of Borrower]
Linographics (Delaware) Corporation
By: /s/ William E. Dye
---------------------------------
Title: President
------------------------------
<PAGE> 1
LLOYDS BANK PLC
LONDON & SOUTH EAST
5TH FLOOR
4/6 COPTHALL AVENUE
LONDON
EC2R 7DA
Telephone: (0171) 797 2279
Fax: (0171) 797 2282
The Directors
Elements (UK) Ltd and
Regent Communications (UK) Ltd
48 Margaret Street
LONDON
W1N 7FD
Your Ref: Our Ref: SAM 24 October, 1996
Dear Sirs
OVERDRAFT & OTHER FACILITIES
We Lloyds Bank Plc (the "Bank") are pleased to offer to Elements (UK) Ltd &
Regent Communications (UK) Ltd an overdraft facility on account numbers 0749660
& 1856096 on the following terms and conditions.
Amount The maximum aggregate amount outstanding on the two
accounts shown above under the facility at any one time
shall not exceed pound sterling 900,000.
Availability Any amounts from time to time owing under the facility
are repayable on demand but it is the Bank's present
intention to make the facility available until 30
September 1997 or such later date as may from time to
time be advised in writing by the Bank. All moneys from
time to time owing to the bank under this facility shall
be repaid no later than the agreed expiry date. The
amounts owing at any time may include interest, costs or
charges debited to one or more of the accounts in
accordance with the terms of this letter.
Interest Interest will be payable on the total amount owing up to
pound sterling 600,000 at 2.25% per annum over the
Bank's Base Rate from time to time, (currently 8.0% per
annum in total) and 2.75% per annum over the Bank's Base
Rate (currently 8.5% per annum in total) on the total
amount of the balance up to pound sterling 900,000.
Interest will be payable on amounts owing in excess of
the agreed limit at Lloyds Bank Unauthorised Overdraft
Rate (presently 2% per month, Equivalent Annual Rate
24%).
<PAGE> 2
- 2 -
Interest will be debited to each company's account
monthly in arrears (normally on the 21st of each month
or on the next working day) and additionally on the date
upon which the facility ceases to be available.
The interest rates may be varied (either up or down) by
the Bank at any time. Notices of changes will be
displayed in all UK Branches of the Bank and in the
Press.
Costs and Charges Charges will be payable by each company on their own
account monthly as recently agreed as follows:
7.1p % on turnover.
These charges will be debited to the relevant company's
account and may be varied by the Bank at any time and
notice of changes will be advised to you.
An Arrangement fee of pound sterling 4,500 is payable.
This will be divided equally between the two accounts
upon return of the facility letter.
All costs and expenses incurred by the Bank in creating
the security referred to below shall be debited to the
account under advice to you.
Additional Facilities
In addition to the Overdraft Facility, we are pleased to
offer the companies the additional facilities on the
attached Schedule:
These additional facilities will be available upon such
terms and conditions as shall from time to time be
required by the Bank and may be cancelled by the Bank at
any time, but it is the Bank's present intention to keep
these facilities in place for the period of availability
of the overdraft facility. Your liability in respect of
any utilisation of these facilities may, however, extend
beyond such period of availability.
Security It is a condition of the overdraft facility and of the
other facilities that amounts owing shall be secured by
the following. Any security which is not already in
place is to be provided to the Bank in a form acceptable
to the Bank:-
A guarantee in the Bank's standard form from Unidigital
Inc for the principal amount of pound sterling 500,000
plus interest and other costs as detailed in the
guarantee in respect of Elements (UK) Ltd debts and
liabilities to the Bank.
<PAGE> 3
- 3 -
An unlimited all moneys guarantee in the Bank's standard
form from Elements (UK) Ltd in respect of Regent
Communications (UK) Ltd debts and liabilities to the
Bank.
Keyman insurance policies on the lives of William Dye
and Anthony Manser in the sum of pound sterling 200,000
to be assigned to the Bank.
An unlimited debenture in the Bank's standard form from
Elements (UK) Ltd.
An unlimited debenture in the Bank's standard form from
Regent Communications (UK) Ltd.
An unlimited all moneys guarantee in the Bank's standard
form from Regent Communications (UK) Ltd in respect of
Elements (UK) Ltd debts and liabilities to the Bank.
Subordination agreements in the Bank's standard form
signed covering all loans to the company from any of the
directors or from Unidigital Inc.
Financial Information
Whilst any of the overdraft facility and of the Other
facilities remain you should provide to the Bank copies
of :
(a) your monthly management accounts, within four
weeks of period end;
(b) Your audited annual accounts to be provided
within three months, of the year end.
(c) The 10Qs filed by Unidigital Inc to be
provided within 60 days of the relevant quarter end.
(d) A quarterly review of the debtor book by
International Factors Limited.
(e) An aged summary of the debtor books of both
companies to be provided every two weeks.
Other Conditions
The figures so provided should demonstrate:
(i) Utilisation of the facility to be in line with
projections previously provided to the Bank.
(ii) The total utilisation under the overdraft facility
to be less than 70% of the joint good book debts of both
companies under 120 days - tested fortnightly.
(iii) A minimum of 70% of the good book debts should be
less than 60 days old.
<PAGE> 4
- 4 -
Period of Offer Please confirm your acceptance of the overdraft facility
and of the other facilities offered by returning the
attached duplicate of this letter with the
acknowledgement signed in accordance with the Bank
Mandate currently held by the Bank. If such
confirmation is not received by this office by 30
November 1996 the offer will lapse.
Yours faithfully,
For and on behalf of Lloyds Bank Plc.
MARTIN COOK
MANAGER.
We hereby acknowledge and accept the terms of your offer dated 24 October, 1996
of which this is a duplicate and agree all the terms and conditions therein
contained.
For and on behalf of Elements (UK) Ltd
Signed by ................................ (Name)
................................ (Signature)#
................................ (Date)
For and on behalf of Regent Communications (UK) Ltd
Signed by ................................ (Name)
................................ (Signature)#
................................ (Date)
# TO BE SIGNED IN ACCORDANCE WITH THE ACCOUNT MANDATE HELD BY THE BANK.
<PAGE> 5
- 5 -
SCHEDULE 1
The following additional facilities are available:
Elements (UK) Ltd
1. An open credit facility of pound sterling 2,000 to cover
arrangements to cash Elements (UK) Ltd cheques at
branches of the Bank other than 32 Oxford Street branch.
The limit detailed above is the maximum value of cheques
that may at any one time have been cashed but not yet
forwarded to the Bank's 32 Oxford Street branch for
payment.
2. A Pay Service facility of pound sterling 70,000 to cover
sterling payment instructions that may be delivered by
the Bank to BACS Limited on the basis of data provided
to the Bank by Elements (UK) Ltd from time to time
relating to wages and salaries due to Elements (UK) Ltd
employees. The limit detailed above is the maximum total
value of such payment instructions which the Bank is
obliged to deliver to BACS Limited during any one month.
Regent Communications (UK) Ltd
1. A Pay Service facility of pound sterling 70,000 to cover
sterling payment instructions that may be delivered by
the Bank to BACS Limited on the basis of data provided
to the Bank by Regent Communications (UK) Ltd from time
to time relating to wages and salaries due to Regent
Communications (UK) Ltd employees. The limit detailed
above is the maximum total value of such payment
instructions which the Bank is obliged to deliver to
BACS Limited during any one month.
<PAGE> 6
LLOYDS BANK PLC
LONDON & SOUTH EAST
5TH FLOOR
4/6 COPTHALL AVENUE
LONDON
EC2R 7DA
Telephone: (0171) 797 2279
Fax: (0171) 797 2282
The Directors
Regent Communications (UK) Ltd
48 Margaret Street
LONDON
W1N 7FD
Your Ref: Our Ref: SAM 23 April 1996
Dear Sirs,
OVERDRAFT FACILITY
We Lloyds Bank Plc (the "Bank") are pleased to offer to Regent Communications
(UK) Ltd an overdraft facility on your Account Number 1856096 on the following
terms and conditions.
Amount The maximum aggregate amount outstanding under the
facility at any one time shall not exceed pound sterling
50,000.
Availability Any amounts from time to time owing under the facility
are repayable on demand but it is the Bank's present
intention to make the facility available until 30th
September, 1996 or such later date as may from time to
time be advised in writing by the Bank. All moneys from
time to time owing to the Bank under this facility shall
be repaid no later than the agreed expiry date. The
amounts owing at any time may include interest, costs or
charges debited to the account in accordance with the
terms of this letter.
Interest Interest will be payable on amounts owing up to the
aforesaid limit at 2.5% per annum over the Bank's Base
Rate from time to time, (currently 8.5% per annum in
total). If the account remains continually overdrawn
during any charging period the lowest cleared debit
balance will be treated as hardcore borrowing and
interest will be charged at 0.5% per annum above the
rate detailed above.
Interest will be payable on amounts owing in excess of
the agreed limit at Lloyds Bank Unauthorised Overdraft
Rate (presently 2.0% per month, Equivalent Annual Rate
24.0%).
<PAGE> 7
- 2 -
Interest will be debited to the account monthly in
arrears (normally on the 21st of each month or on the
next working day) and additionally on the date upon
which the facility ceases to be available.
The interest rates may be varied (either up or down) by
the Bank at any time. Notices of changes will be
displayed in all UK branches of the Bank and in the
Press.
Costs and Charges Charges will be payable monthly on the account as
recently agreed, as follows:
55p per entry.
These charges will be debited to the account and may be
varied by the Bank at any time and notice of changes
will be advised to you.
An Arrangement fee of pound sterling 500 is payable.
This will be debited to the account in the next few
days.
Additional Facilities In addition to the Overdraft Facility, we are pleased to
offer to the Borrower:
A Pay Service facility of pound sterling 30,000 to cover
sterling payment instructions that may be delivered by
the Bank to BACS Limited on the basis of data provided
to the Bank by the Company from time to time relating to
wages and salaries due to the Company's employees. The
limit detailed above is the maximum total value of such
payment instructions which the Bank is obliged to
deliver to BACS Limited during any one month.
These additional facilities will be available upon such
terms and conditions as shall from time to time be
required by the Bank and may be cancelled by the Bank at
any time, but it is the Bank's present intention to keep
these facilities in place for the period of availability
of the overdraft facility. Your liability in respect of
any utilisation of these facilities may, however, extend
beyond such period of availability.
Security It is a condition of the facility that amounts owing
shall be secured by the following:-
An unlimited debenture in the Bank's standard form from
Regent Communications (UK) Ltd.
An unlimited guarantee in the Bank's standard form from
Elements (UK) Ltd.
<PAGE> 8
- 3 -
Accounts It is a further condition of the facility that you
provide to the Bank copies of :
(a) your monthly management accounts, within four
weeks of period end;
(b) Your audited annual accounts to be provided
in draft form within four months, and in final form
within 10 months of year end.
(c) An aged debtor list to be provided each
month.
Other conditions We would expect utilisation of the facility to be in
line with the projections provided by the Company to the
Bank.
Period of Offer Please confirm your acceptance of the facility offered
by returning the attached duplicate of this letter with
the acknowledgement signed in accordance with the Bank
Mandate currently held by the Bank. If such
confirmation is not received by this office by 24th May
1996 the offer will lapse.
Yours faithfully,
For and on behalf of Lloyds Bank Plc.
MARTIN COOK
MANAGER.
<PAGE> 9
- 4 -
We hereby acknowledge and accept the terms of your offer dated 23 April, 1996
of which this is a duplicate and agree all the terms and conditions therein
contained.
For and on behalf of Regent Communications (UK) Ltd
Signed by ................................ (Name)
................................ (Signature)#
................................ (Date)
# TO BE SIGNED IN ACCORDANCE WITH THE ACCOUNT MANDATE HELD BY THE BANK.
<PAGE> 10
LLOYDS BANK PLC
LONDON & SOUTH EAST
5TH FLOOR
4/6 COPTHALL AVENUE
LONDON
EC2R 7DA
Telephone:(0171) 797 2279
Fax: (0171) 797 2282/2342
The Directors
Elements (UK) Ltd
48 Margaret Street
LONDON
W1N 7FD
Your Ref: Our Ref: SAM 23 April 1996
Dear Sirs,
OVERDRAFT FACILITY
We Lloyds Bank Plc (the "Bank") are pleased to offer to Elements (UK) Ltd an
overdraft facility on your Account Number 0749660 on the following terms and
conditions.
Amount The maximum aggregate amount outstanding under the
facility at any one time shall not exceed pound sterling
400,000.
Availability Any amounts from time to time owing under the facility
are repayable on demand but it is the Bank's present
intention to make the facility available until 31st
March, 1997 or such later date as may from time to time
be advised in writing by the Bank. All moneys from time
to time owing to the Bank under this facility shall be
repaid no later than the agreed expiry date. The
amounts owing at any time may include interest, costs or
charges debited to the account in accordance with the
terms of this letter.
Interest Interest will be payable on amounts owing up to the
aforesaid limit at 2.5% per annum over the Bank's Base
Rate from time to time, (currently 8.5% per annum in
total). If the account remains continually overdrawn
during any charging period the lowest cleared debit
balance will be treated as hardcore borrowing and
interest will be charged at 0.5% per annum above the
rate detailed above.
Interest will be payable on amounts owing in excess of
the agreed limit at Lloyds Bank Unauthorised Overdraft
Rate (presently 2.0% per month, Equivalent Annual Rate
24.0%).
<PAGE> 11
Interest will be debited to the account monthly in
arrears (normally on the 21st of each month or on the
next working day) and additionally on the date upon
which the facility ceases to be available.
The interest rates may be varied (either up or down) by
the Bank at any time. Notices of changes will be
displayed in all UK branches of the Bank and in the
Press.
Costs and Charges Charges will be payable monthly on the account as
recently agreed, as follows:
7.1p % on Turnover.
These charges will be debited to the account and may be
varied by the Bank at any time and notice of changes
will be advised to you.
An Arrangement fee of pound sterling 2,750 is payable.
This will be debited to the account upon return of the
facility letter.
All costs and expenses incurred by the Bank in creating
the security referred to below shall be debited to the
account under advice you.
Additional Facilities In addition to the Overdraft Facility, we are pleased to
offer to the Borrower:
1. An open credit facility of pound sterling
2,000 to cover arrangements to cash the Company's
cheques at branches of the Bank other than 32 Oxford
Street branch. The limit detailed above is the maximum
value of cheques that may at any one time have been
cashed but not yet forwarded to the Bank's 32 Oxford
Street Branch for payment.
2. A Pay Service facility of pound sterling
50,000 to cover sterling payment instructions that may
be delivered by the Bank to BACS Limited on the basis of
data provided to the Bank by the Company from time to
time relating to wages and salaries due to the Company's
employees. The limit detailed above is the maximum total
value of such payment instructions which the Bank is
obliged to deliver to BACS Limited during any one month.
These additional facilities will be available upon such
terms and conditions as shall from time to time be
required by the Bank and may be cancelled by the Bank at
any time, but it is the Bank's
<PAGE> 12
present intention to keep these facilities in place for
the period of availability of the overdraft facility.
Your liability in respect of any utilisation of these
facilities may, however, extend beyond such period of
availability.
Security It is a condition of the facility that amounts owing
shall be secured by the following:-
A guarantee in the Bank's standard form from Unidigital
Inc for the principal amount of pound sterling 500,000
plus interest and other costs as detailed in the
guarantee.
An unlimited debenture in the Bank's standard form from
Elements (UK) Ltd. The company to maintain the aggregate
value of its good book debts, net of any inter-company
debt with Regent Communications (UK) Ltd, equal to the
Bank debt with a margin of 100%.
Keyman insurance policies on the lives of William Dye
and Anthony Manser in the sum of pound sterling 200,000
to be assigned to the Bank.
Subordination agreements in the Bank's standard form
signed covering all loans to the company from any of the
directors or from Unidigital Inc.
Accounts It is a further condition of the facility that you
provide to the Bank copies of :
(a) your monthly management accounts, within
four weeks of period end;
(b) Your audited annual accounts to be provided
in draft form within four months, and in final form
within 10 months of year end.
(c) An aged debtor summary detailing the total
debtor size less any inter company debt, together with a
breakdown of the ten largest debtors to be provided each
month.
(d) The 10Qs filed by Unidigital Inc to be
provided within 60 days of the relevant quarter end.
Other conditions (i) We would expect utilisation of the facility to be in
line with the projections provided by the Company to the
Bank.
(ii) Fresh projections to be satisfactory to the Bank,
to be provided to the bank prior to 31 August 1996.
(iii) We require independent confirmation that the
floatation of Unidigital Inc has been successful.
<PAGE> 13
Period of Offer Please confirm your acceptance of the facility offered
by returning the attached duplicate of this letter with
the acknowledgement signed in accordance with the Bank
Mandate currently held by the Bank. If such
confirmation is not received by this office by 24th May
1996 the offer will lapse.
Yours faithfully,
For and on behalf of Lloyds Bank Plc.
MARTIN COOK
MANAGER.
<PAGE> 14
We hereby acknowledge and accept the terms of your offer dated 23 April, 1996
of which this is a duplicate and agree all the terms and conditions therein
contained.
For and on behalf of Elements (UK) Ltd
Signed by ................... (Name)
.................... (Signature)#
.................... (Date)
# TO BE SIGNED IN ACCORDANCE WITH THE ACCOUNT MANDATE HELD BY THE BANK.
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of the Registrant
Linographics Corporation, a New York corporation
Elements (UK) Limited, a United Kingdom corporation
Linographics (Delaware) Corporation, a Delaware corporation
Unidigital/Cardinal Corporation, a Delaware corporation
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
consolidated financial statements at August 31, 1996 and for the twelve month
period ended August 31, 1996 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 4,145,514
<SECURITIES> 0
<RECEIVABLES> 3,408,671
<ALLOWANCES> (200,814)
<INVENTORY> 0
<CURRENT-ASSETS> 8,188,500
<PP&E> 10,542,291
<DEPRECIATION> (1,947,306)
<TOTAL-ASSETS> 17,623,326
<CURRENT-LIABILITIES> 5,869,157
<BONDS> 0
0
0
<COMMON> 31,892
<OTHER-SE> 7,332,783
<TOTAL-LIABILITY-AND-EQUITY> 17,623,326
<SALES> 11,659,818
<TOTAL-REVENUES> 11,892,215
<CGS> 5,621,668
<TOTAL-COSTS> 5,621,668
<OTHER-EXPENSES> 3,945,625
<LOSS-PROVISION> 103,849
<INTEREST-EXPENSE> 326,805
<INCOME-PRETAX> 1,894,268
<INCOME-TAX> 1,064,327
<INCOME-CONTINUING> 829,941
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 829,941
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
</TABLE>
