CONFORMED COPY
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1997
Commission file number 0-27664
UNIDIGITAL INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 13-3856672
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
545 West 45th Street, New York, New York 10036
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(Address of Principal Executive Offices) (Zip Code)
(212) 337-0330
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(Issuer's Telephone Number,
Including Area Code)
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 Issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes: X No:
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State the number of shares outstanding of each of the Issuer's classes
of common equity, as of June 30, 1997:
Class Number of Shares
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Common Stock, $.01 par value 3,243,243
Transitional Small Business Disclosure Format (check one):
Yes: No: X
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UNIDIGITAL INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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Page
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements................................................................1
CONSOLIDATED BALANCE SHEETS
as at August 31, 1996 (audited)
and May 31, 1997 (unaudited)..............................................................2
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Nine Months Ended
May 31, 1997 and May 31, 1996 (unaudited).................................................3
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended
May 31, 1997 and May 31, 1996 (unaudited).................................................4
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (unaudited)....................................................................5
Item 2. Management's Discussion and Analysis
or Plan of Operation................................................................11
Results of Operations.....................................................................11
Liquidity, Capital Resources and Other Matters............................................14
PART II OTHER INFORMATION
Item 5. Other Information...................................................................16
Item 6. Exhibits and Reports on Form 8-K....................................................16
SIGNATURES................................................................................................17
</TABLE>
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<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
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<PAGE>
UNIDIGITAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 31, August 31,
1997 1996
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(unaudited)
ASSETS
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Current assets:
Cash and cash equivalents...................................... $ 3,475,176 $ 4,145,514
Accounts receivable (less allowance for doubtful
accounts of 389,288 and $200,814 at
May 31, 1997 and August 31, 1996, respectively).............. 7,502,190 3,207,857
Prepaid expenses and other current assets...................... 3,187,677 835,129
----------- -----------
Total current assets....................................... 14,165,043 8,188,500
Property, plant and equipment, net................................ 11,277,710 8,594,985
Intangible assets, net............................................ 5,904,563 797,213
Deferred Financing................................................ 500,000 --
Other assets...................................................... 81,723 42,628
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Total Assets............................................... $31,929,039 $17,623,326
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LIABILITIES
Current liabilities:
Due to banks................................................... $ 4,485,712 $ 1,741,973
Current portion of long-term debt.............................. 199,072 77,800
Current portion of capital lease obligations................... 1,943,835 1,476,076
Accrued payments for acquisition
of business and cancellation of options....................... -- 202,930
Accounts payable and accrued expenses.......................... 4,762,961 1,792,973
Income taxes payable........................................... 409,832 216,366
Loans and notes payable to stockholders........................ 366,513 361,039
----------- -----------
Total current liabilities.................................. 12,167,925 5,869,157
Non-current portion of long-term debt............................. 3,465,517 1,898,865
Non-current portion of capital lease obligations.................. 3,389,570 1,974,033
Deferred income taxes............................................. 481,033 516,596
Other liabilities................................................. 412,500 --
Notes payable..................................................... 2,600,000 --
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Total liabilities.......................................... $22,516,545 $10,258,651
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STOCKHOLDERS' EQUITY
Preferred stock -- authorized 5,000,000 shares,
$.01 par value each; none issued or outstanding................ -- --
Common stock -- authorized 10,000,000 shares,
$.01 par value each; 3,243,243 and 3,189,216 shares
issued and outstanding at May 31, 1997 and
August 31, 1996, respectively.................................. 32,243 31,892
Additional paid-in capital........................................ 6,207,007 5,462,153
Retained earnings................................................. 3,142,668 1,897,252
Cumulative foreign translation adjustment......................... 30,576 (26,622)
----------- -----------
Total stockholders' equity................................. 9,412,494 7,364,675
----------- -----------
Total Liabilities and Stockholders' Equity................. $31,929,039 $17,623,326
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</TABLE>
The Notes to Consolidated Financial Statements are made a part hereof.
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UNIDIGITAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended, Nine Months Ended,
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May 31, May 31, May 31, May 31,
1997 1996 1997 1996
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Net sales...................................... $7,664,033 $3,298,072 $18,157,668 $8,557,322
---------- ---------- ----------- ----------
Cost of sales.................................. 4,239,289 1,422,973 9,624,915 3,852,896
Selling, general and
administrative expenses ..................... 1,769,870 1,041,776 4,784,420 2,577,711
Corporate expenses*............................ 503,857 108,715 1,233,671 381,484
---------- ---------- ----------- ----------
Total operating expenses................ 6,513,016 2,573,464 15,643,006 6,812,091
---------- ---------- ----------- ----------
Income from operations.................. 1,151,017 724,608 2,514,662 1,745,231
Interest expense............................... 396,921 88,374 695,660 231,591
Interest and other income...................... (67,175) (30,567) (60,792) (61,399)
---------- ---------- ----------- ----------
Income before income taxes..................... 821,271 666,801 1,879,794 1,575,039
---------- ---------- ----------- ----------
Income taxes (including $367,000
nonrecurring provision relating to
termination of Subchapter S status
on February 1, 1996) ........................ 281,162 270,711 634,378 906,711
---------- ---------- ----------- ----------
NET INCOME .................................... $ 540,109 $ 396,090 $ 1,245,416 $ 668,328
========== ========== =========== ==========
Net income per common share.................... $ 0.17 $ 0.13 $ 0.39 $ 0.27
========== ========== =========== ==========
Weighted average common shares outstanding..... 3,228,083 3,150,000 3,203,121 2,472,000
========== ========== =========== ==========
</TABLE>
*For the three-month and nine-month periods ended May 31, 1996, this line item
was referred to as "Principal stockholder/officers' compensation."
The Notes to Consolidated Financial Statements are made a part hereof.
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UNIDIGITAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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<CAPTION>
Nine Months Ended,
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May 31, May 31,
1997 1996
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
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Cash flows from operating activities:
Net income.................................................... $ 1,245,416 $ 668,328
----------- ----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................... 1,346,217 651,915
Provision for deferred income taxes......................... (73,530) 362,272
Provision for doubtful accounts............................. 77,182 41,035
Loss on sale of equipment................................... -- 1,181
Net changes in assets and liabilities net of purchase
of Boris Image Group, Inc. and Libra City Corporate
Printing Ltd.:
Accounts receivable....................................... (1,376,573) (800,634)
Prepaid expenses and other current assets................. (1,841,527) (304,193)
Other assets.............................................. (6,184) (18,153)
Accounts payable and accrued expenses..................... 2,004,481 436,301
Income taxes payable...................................... 181,743 124,164
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Total adjustments......................................... 311,809 493,888
----------- ----------
Net cash provided by operating activities................. 1,557,225 1,162,216
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Cash flows from investing activities:
Additions to property and equipment............................. (959,996) (898,530)
Proceeds from sale of equipment................................. -- 9,234
Purchase of Boris Image Group, Inc. and Libra City
Corporate Printing Ltd......................................... (5,320,902) (85,000)
---------- ----------
Net cash used for investing activities.................... (6,280,898) (974,296)
---------- ----------
Cash flows from financing activities:
Net proceeds from bank borrowings............................... 5,721,404 735,037
Payments on capital lease obligations........................... (1,493,261) (682,894)
Payments of notes for cancellation of options
and acquisition of business................................... (177,893) (250,250)
Dividends paid.................................................. -- (750,000)
Net proceeds from public offering of common stock............... -- 5,353,755
IPO issuance costs.............................................. (4,214) --
Stockholder loans............................................... 687 --
Common Stock issued............................................. 460 --
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Net cash provided by financing activities................. 4,047,183 4,405,648
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Effect of foreign exchange rates on cash........................... 6,152 (14,407)
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS............... (670,338) 4,579,161
Cash and cash equivalents -- beginning of period................... 4,145,514 186,802
----------- ----------
Cash and cash equivalents -- end of period......................... $ 3,475,176 $4,765,963
=========== ==========
Supplemental disclosures:
Interest paid................................................... $ 685,467 $ 214,622
=========== ==========
Income taxes paid............................................... $ 706,879 $ 349,036
=========== ==========
Noncash transactions:
Equipment acquired under capital lease obligations.............. $ 2,025,673 $1,013,849
=========== ==========
Notes payable issued as dividends............................... $ -- $ 498,000
=========== ==========
</TABLE>
The Notes to Consolidated Financial Statements are made a part hereof.
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UNIDIGITAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note A - Basis of Presentation:
The information presented for May 31, 1997, and for the three-month and
the nine-month periods ended May 31, 1997 and May 31, 1996, is unaudited, but,
in the opinion of the Company's management, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting only of
normal recurring accruals) which the Company considers necessary for the fair
presentation of the Company's financial position as of May 31, 1997 and the
results of its operations and its cash flows for the three-month and the
nine-month periods ended May 31, 1997 and May 31, 1996.
The consolidated financial statements included herein have been
prepared by the Company in accordance with generally accepted accounting
principles for interim financial information and the instructions to Form 10-QSB
and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
These consolidated financial statements should be read in conjunction with the
Company's audited financial statements for the year ended August 31, 1996, which
were included as part of the Company's Annual Report on Form 10-KSB.
The consolidated financial statements include the accounts of
Unidigital Inc. and its direct and indirect subsidiaries. All significant
intercompany balances have been eliminated.
Interim results are not necessarily indicative of results that may be
expected for the full fiscal year.
Unless the context requires otherwise, all references herein to
"Unidigital" mean Unidigital Inc. and all references to the "Issuer" or the
"Company" mean collectively, Unidigital, its wholly-owned subsidiaries and its
and their subsidiaries, affiliated companies and predecessors.
Note B - Summary of Significant Accounting Policies:
Organization and Business:
Unidigital Inc., a Delaware corporation, is the parent holding company
of five wholly-owned operating subsidiaries, Unidigital Elements (NY), Inc.,
formerly known as LinoGraphics Corporation ("Elements (NY)"), Elements (UK)
Limited ("Elements (UK)"), Unidigital Elements (SF), Inc., formerly known as
LinoGraphics (Delaware) Corporation ("Elements (SF)"), Unidigital/Cardinal
Corporation ("Unidigital/Cardinal") and Unidigital/Boris Corporation
("Unidigital/Boris"). Elements (NY) engages in the on-demand print and prepress
business in
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UNIDIGITAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
New York City. Elements (UK) engages in the on-demand print and prepress
business and, through its wholly-owned subsidiary, Regent Communication (UK)
Limited, operates the digital print business in London. Elements (UK) also
provides printing services to the London financial community through its
wholly-owned subsidiary Libra City Corporate Printing Limited ("Libra"). Libra
was acquired on May 22, 1997 when the Company, through Elements (UK), purchased
all of the issued and outstanding capital stock of Libra. Elements (SF) owns and
operates the San Francisco on-demand prepress business and retouching studio.
Unidigital/Cardinal engages in the digital prepress and digital printing
business services to advertising agencies and corporations in the New York City
area. Unidigital/Boris engages in the business of digital imaging and
photographic processing in the Boston area.
Foreign Currency Translation:
The portion of the Company's financial statements relating to the
Company's United Kingdom operations are translated into United States Dollars
using period-end exchange rates ((pound)1.00 = $1.56 at August 31, 1996 and
$1.64 at May 31, 1997) for balance sheet accounts and average exchange rates
((pound)1.00 = $1.55 for the year ended August 31, 1996; and $1.64 and $1.53 for
the three months ended May 31, 1997 and May 31, 1996, respectively; and $1.64
and $1.54 for the nine months ended May 31, 1997 and May 31, 1996, respectively)
for the statements of operations and cash flows for the respective periods. The
translation difference is recorded as a separate component of stockholders'
equity.
Net Income Per Share:
Net income per share is computed using the weighed average number of
common and common equivalent shares outstanding during the applicable period.
Note C - Termination of S Corporation Status and Related Income Tax Matters:
Prior to the Company's initial public offering on February 1, 1996 (the
"IPO"), Elements (NY) filed its federal and state income tax returns under the
provisions of Subchapter S of the Internal Revenue Code, pursuant to which its
taxable income was reportable on the personal tax returns of its stockholders
and the applicable federal and state income taxes thereon were payable directly
by them. As a result of the IPO, the Subchapter S status was terminated
effective February 1, 1996. Accordingly, $367,000 additional federal and state
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, have been recorded and charged to operations for the
nine-month period ended May 31, 1996. Such charge results solely from the
termination of the Subchapter S status in the United States and is nonrecurring.
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UNIDIGITAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note D - Stockholders' Equity:
Common Stock:
The Company has authorized 10,000,000 shares of Common Stock, $.01 par
value per share. As at May 31, 1997, 3,243,243 shares of Common Stock were
issued and outstanding. The Company has reserved for issuance (i) 675,000 shares
of Common Stock upon exercise of options granted or to be granted under its
Stock Option Plans, see Note E, (ii) 92,000 shares of Common Stock upon exercise
of warrants issued to Burnham Securities Inc., the managing underwriter for the
IPO, exercisable at a price of $7.20 per share for a period of four years
commencing February 1, 1997, and (iii) 400,000 shares of Common Stock upon
exercise of warrants issued in connection with certain loans to be made to the
Company in an aggregate principal amount not to exceed $4,000,000. Such warrants
shall be exercisable at a price of $4.00 per share for a period of five years
commencing on the date of issuance of such warrants. As at May 31, 1997, the
Company had issued warrants to purchase up to 260,000 shares of Common Stock in
connection with such loans. As at June 30, 1997, 3,243,243 shares of Common
Stock were issued and outstanding.
Preferred Stock:
The Company has an authorized class of 5,000,000 shares of Preferred
Stock, $.01 par value per share, 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
May 31, 1997.
Note E - Stock Option Plans:
Unidigital's Board of Directors has adopted, and the stockholders of
Unidigital have approved, the 1995 Unidigital Inc. Long-Term Stock Investment
Plan (the "1995 Stock Plan"), the 1995 Directors Stock Option Plan (the "1995
Directors Plan"), the 1997 Equity Incentive Plan (the "1997 Plan"), and the 1997
Non-Employee Director Stock Option Plan (the "1997 Non-Employee Director Plan"
and, together with the 1995 Stock Plan, the 1995 Directors Plan, the 1997 Plan,
the "Stock Option Plans"). The total aggregate number of shares of Common Stock
for which options may be granted under the Stock Option Plans is 675,000,
subject to certain adjustments to reflect changes in Unidigital's capital stock.
The Company has committed to grant options to purchase 291,700 shares of Common
Stock at an exercise price ranging from $4.50 to $6.75 per share as of May 31,
1997 under the 1995 Stock Plan. In addition, as of May 31, 1997, the Company has
granted options to purchase (i) 60,000 shares of Common Stock at an exercise
price ranging from $5.25 to $5.375 per share under the 1997 Plan, and (ii)
10,000 shares
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UNIDIGITAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
of Common Stock at an exercise price of $5.125 per share under the 1997
Non-Employee Director Plan. As of May 31, 1997, no options have been granted
under the 1995 Directors Plan. The Company has also granted options to purchase
50,000 shares of Common Stock at an exercise price of $6.00 per share outside
the Plans as of May 31, 1997.
Note F - Acquisitions:
On April 4, 1997, Unidigital/Boris purchased certain assets and assumed
certain liabilities of Boris Image Group, Inc. ("Boris Image Group"), a Boston,
Massachusetts based company which principally engages in the business of digital
imaging and photographic processing (the "Boris Acquisition"). The aggregate
purchase price consisted of the following: (i) $1,725,000 in cash; (ii) an
aggregate of $300,000 in guaranteed future payments to Boris Image Group and its
management team; (iii) $250,000 in restricted Common Stock; and (iv) a potential
earn-out payment of up to $500,000 payable at the end of the Company's next
fiscal year. The Company funded the purchase price from its renegotiated credit
facility arrangements with its New York bank. See "Note G - Bank Credit
Facilities and Other Loans." 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 preliminary allocation of purchase
price, which includes goodwill of approximately $2,627,000, may change upon
final determination of the fair value of the net assets acquired. The related
goodwill will be amortized on a straight-line basis over 15 years.
On May 22, 1997, Elements (UK) acquired all of the issued and
outstanding capital stock of Libra, a London-based financial printer (the "Libra
Acquisition"). The purchase price included cash payments of (pound)1,823,750
(approximately $2,972,700) and a potential earn-out payment of up to
(pound)500,000 (approximately $815,000) payable by March 31, 1998. The Company
funded the purchase price from the proceeds of certain five-year loans and a
line of credit from its United Kingdom bank. See "Note G - Bank Credit
Facilities and Other Loans." 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 preliminary allocation of purchase
price, which includes assets of $3,618,000, liabilities of $2,199,000 and
goodwill of approximately $2,369,000, may change upon final determination of the
fair value of the net assets acquired. The related goodwill will be amortized on
a straight-line basis over 15 years.
The following supplemental pro forma information is presented as if the
Company had completed the Cardinal Acquisition, the Boris Acquisition and
the Libra Acquisition, and the related borrowings as of September 1, 1995 and
1996, respectively:
Nine Months Ended May 31,
-------------------------
1997 1996
---- ----
Net Sales $25,964,371 $25,356,664
Net income 657,352 310,952
Net income per share 0.21 0.13
Note G - Bank Credit Facilities and Other Loans:
On April 3, 1997, the Company renegotiated its credit facility
arrangements with its New York bank, and now has combined credit facilities for
its United States operations in the aggregate amount of $8,350,000, which
consist of a: (i) $4,500,000 revolving credit facility which is available for
corporate acquisition purposes; and (ii) $3,850,000 line of credit facility
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UNIDIGITAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
which is available for working capital purposes. Such credit facilities are
available to be used by each of the Company's four United States subsidiaries.
Interest under such credit facilities is at the Company's option at the
Alternate Base Rate, as defined, plus 0.25% or the Adjusted LIBO Rate, as
defined, plus 0.25%. As of May 31, 1997, the Company had an outstanding balance
of $1,725,000 under the revolving credit facility and $2,710,110 under the line
of credit.
The credit facilities contain covenants which require the Company to
maintain certain tangible net worth and debt service coverage ratios based on
the combined assets of the Company and its subsidiaries and limiting borrowings
up to specified amounts of accounts receivable aged 90 days or less. The credit
facilities are secured by a first priority lien on all of the assets of the
borrowers. The lines of credit are renewable annually each December. Unidigital
is a guarantor on all bank debts of the Company's United States operating
subsidiaries.
The Company has combined lines of credit of (pound)1,145,000
(approximately $1,877,800) for working capital for its United Kingdom
operations. These lines of credit are renewable annually and bear interest at
2.25% over the Bank's Base Rate, as defined, for borrowings up to (pound)600,000
and bear interest at 2.75% over the Bank's Base Rate for borrowings in excess of
such amount. At May 31, 1997, the Company had an outstanding balance of
(pound)1,138,798 (approximately $1,867,629) under these lines of credit which
bear interest at a rate of 8.67% per annum. These lines of credit contain
covenants limiting borrowings up to specified amounts of accounts receivable
aged 120 days or less and are guaranteed by Unidigital for the principal amount
of up to (pound)500,000.
As of May 31, 1997, the Company was in compliance with all covenants
under its credit facilities.
In May 1997, the Company borrowed an aggregate principal amount of
$2,600,000 pursuant to certain five-year loans which have a put option after one
year. In connection with such loans, the Company granted five-year warrants to
the lenders to purchase up to an aggregate amount of 260,000 shares of the
Company's Common Stock at an exercise price of $4.00 per share. In addition, the
Company granted "piggyback" registration rights, subject to certain limitations,
to such lenders. Included among the lenders were David Wachsman and Harvey
Silverman, directors of the Company. Such directors loaned an aggregate of
$300,000 of the above amount to the Company and received warrants to purchase an
aggregate of 30,000 shares of the Company's Common Stock. The warrants, which
were deemed to have a value of $500,000, have been recorded as deferred
financing fees, which are being amortized on a straight-line basis over one
year.
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<PAGE>
UNIDIGITAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note H - Subsequent Events:
Subsequent to the end of the quarter, the Company borrowed an
additional aggregate principal amount of $1,400,000 pursuant to certain
five-year loans which have a put option after one year. In connection with such
loans, the Company granted five-year warrants to the lenders to purchase up to
an aggregate amount of 140,000 shares of the Company's Common Stock at an
exercise price of $4.00 per share. In addition, the Company granted "piggyback"
registration rights, subject to certain limitations, to such lenders.
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<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
General
The Company provides a full range of digital imaging, prepress and
print services to the New York City, San Francisco, London and Boston 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 are designed to afford graphic
artists the ability to make numerous changes and enhancements in their designs
throughout the design and 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 also provides scanning, traditional photographic services, financial
printing services and short-run digital printing.
Results of Operations
The consolidated financial information includes both the Company's
United States operations and its United Kingdom operations. On August 9, 1996,
the Company, through a wholly-owned subsidiary, acquired the business and
certain assets of a competing company located in New York City (the "Cardinal
Acquisition"). As a result of such acquisition, the Company has expanded its
digital prepress and digital print operations in the New York City and
surrounding area. On April 4, 1997, the Company, through a wholly-owned
subsidiary, consummated the Boris Acquisition and, as a result, engages in the
business of digital imaging and photographic processing. On May 22, 1997, the
Company, through a wholly-owned subsidiary, consummated the Libra Acquisition
and, as a result, provides financial printing services to the London financial
community.
Three Months Ended May 31, 1997 and May 31, 1996
Net Sales. Net sales for the three months ended May 31, 1997 ("Third
Quarter of Fiscal 1997") increased by 132%, or $4,365,961, to $7,664,033 from
$3,298,072 for the three months ended May 31, 1996 ("Third Quarter of Fiscal
1996"). Net sales for the Company's United States operations increased by 218%,
or $3,322,914, from $1,521,651 in the Third Quarter of Fiscal 1996 to $4,844,565
in the Third Quarter of Fiscal 1997. This increase was attributable primarily to
an increase in net sales resulting from the Cardinal Acquisition and the Boris
Acquisition. Net sales for the Company's United Kingdom operations increased by
59%, or $1,043,047, from $1,776,421 in the Third Quarter of Fiscal 1996 to
$2,819,468 in the Third Quarter of Fiscal 1997. This increase was attributable
primarily to increases in the Company's short-run digital print operations and,
to a lesser extent, the inclusion of net sales resulting from the Libra
Acquisition.
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<PAGE>
Cost of Sales. Cost of sales for the Third Quarter of Fiscal 1997
increased by 198%, or $2,816,316, to $4,239,289 from $1,422,973 for the Third
Quarter of Fiscal 1996. As a percentage of net sales, cost of sales increased
12% from 43% for the Third Quarter of Fiscal 1996 to 55% for the Third Quarter
of Fiscal 1997. Cost of sales for the Company's United States operations
increased 19% as a percentage of net sales from 36% for the Third Quarter of
Fiscal 1996 to 55% for the Third Quarter of Fiscal 1997. Such increase was
attributable primarily to higher costs associated with increased digital print
services provided by the Company's United States operations. Costs of sales for
the Company's United Kingdom operations increased 6% as a percentage of net
sales from 50% for the Third Quarter of Fiscal 1996 to 56% for the Third Quarter
of Fiscal 1997. Such increase was attributable primarily to the change in
product mix in the Company's United Kingdom operations to include more digital
print and financial print services. Digital print and financial print services
have higher costs compared to digital prepress services.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") increased 70%, or $728,094, from $1,041,776 for
the Third Quarter of Fiscal 1996 to $1,769,870 for the Third Quarter of Fiscal
1997. Such increase was attributable primarily to the increased level of
operations which resulted from the Cardinal Acquisition, the Boris Acquisition
and, to a lesser extent, the Libra Acquisition. As a percentage of net sales,
SG&A decreased from 32% for the Third Quarter of Fiscal 1996 to 23% for the
Third Quarter of Fiscal 1997. Such decrease in SG&A as a percentage of net sales
was due primarily to the centralization of certain administrative functions.
Corporate Expenses. Corporate expenses for the Third Quarter of Fiscal
1997 increased 363%, or $395,142, to $503,857 from $108,715 for the Third
Quarter of Fiscal 1996. This increase was due to the hiring of additional
management and administrative personnel and costs associated with the Company's
acquisitions and the Company's status as a publicly held company. Corporate
expenses of Unidigital include financial and administrative personnel, investor
relations, legal and other professional fees and facilities cost.
Income from Operations. Income from operations for the Third Quarter of
Fiscal 1997 increased 59%, or $426,409, to $1,151,017 from $724,608 for the
Third Quarter of Fiscal 1996. Of this amount, $933,525 was contributed by the
Company's United States operations and $721,349 by the Company's United Kingdom
operations, offset by $503,857 in corporate expenses. This increase resulted
from higher net sales offset by higher production costs associated with the
changing product mix of the Company's operations to include more digital print
services.
Net Interest Expense. Net interest expense for the Third Quarter of
Fiscal 1997 increased by 470%, or $271,939, to $329,746 from $57,807 for the
Third Quarter of Fiscal 1996. This increase resulted from increased borrowings
under the Company's credit facilities and capital leases assumed by the Company
as part of the Cardinal Acquisition and the Boris Acquisition.
Income Taxes. Income taxes for the Third Quarter of Fiscal 1997
increased by 4%, or $10,451, to $281,162 from $270,711 for the Third Quarter of
Fiscal 1996.
-12-
<PAGE>
Net Income. As a result of the factors described above, net income for
the Third Quarter of Fiscal 1997 increased by 36%, or $144,019, to $540,109 as
compared to net income of $396,090 for the Third Quarter of Fiscal 1996.
Nine Months Ended May 31, 1997 and May 31, 1996
Net Sales. Net sales for the nine months ended May 31, 1997 increased
by 112%, or $9,600,346, to $18,157,668 from $8,557,322 for the nine months ended
May 31, 1996. Net sales for the Company's United States operations increased by
172%, or $7,007,234, from $4,082,637 in the nine months ended May 31, 1996 to
$11,089,871 in the nine months ended May 31, 1997. This increase was
attributable primarily to an increase in net sales resulting from the Cardinal
Acquisition, the Boris Acquisition and, to a lesser extent, the inclusion of net
sales from the Elements (SF) operations for the nine months ended May 31, 1997.
Net sales for the Company's United Kingdom operations increased by 58%, or
$2,593,112, from $4,474,685 in the nine months ended May 31, 1996 to $7,067,797
in the nine months ended May 31, 1997. This increase was attributable primarily
to increases in the Company's short-run digital print and prepress operations
and, to a lesser extent, the inclusion of net sales resulting from the Libra
Acquisition.
Cost of Sales. Cost of sales for the nine months ended May 31, 1997
increased by 150%, or $5,772,019, to $9,624,915 from $3,852,896 for the nine
months ended May 31, 1996. As a percentage of net sales, cost of sales increased
8% from 45% for the nine months ended May 31, 1996 to 53% for the nine months
ended May 31, 1997. Cost of sales for the Company's United States operations
increased 11% as a percentage of net sales from 40% for the nine months ended
May 31, 1996 to 51% for the nine months ended May 31, 1997. Such increase was
attributable primarily to higher costs associated with increased digital print
services provided by the Company's United States operations. Costs of sales for
the Company's United Kingdom operations increased 8% as a percentage of net
sales from 49% for the nine months ended May 31, 1996 to 57% for the nine months
ended May 31, 1997. Such increase was attributable primarily to the change in
product mix in the Company's United Kingdom operations to include more digital
print and financial print services. Digital print and financial print services
have higher costs compared to digital prepress services.
Selling, General and Administrative Expenses. SG&A increased 86%, or
$2,206,709, from $2,577,711 for the nine months ended May 31, 1996 to $4,784,420
for the nine months ended May 31, 1997. Such increase was attributable primarily
to the increased level of operations which resulted from the Cardinal
Acquisition, the Boris Acquisition and, to a lesser extent, the Libra
Acquisition and the inclusion of the Elements (SF) operations for the nine
months ended May 31, 1997. As a percentage of net sales, SG&A decreased from 30%
for the nine months ended May 31, 1996 to 26% for the nine months ended May 31,
1997. Such decrease in SG&A as a percentage of net sales was due primarily to
the centralization of certain administrative functions.
Corporate Expenses. Corporate expenses for the nine months ended May
31, 1997 increased 223%, or $852,187, to $1,233,671 from $381,484 for the nine
months ended May 31,
-13-
<PAGE>
1996. This increase was due to the hiring of additional management and
administrative personnel and costs associated with the Company's acquisitions
and the Company's status as a publicly held company. Such costs did not exist
prior to the Company's IPO. Corporate expenses of Unidigital include financial
and administrative personnel, investor relations, legal and other professional
fees and facilities cost.
Income from Operations. Income from operations for the nine months
ended May 31, 1997 increased 44%, or $769,431, to $2,514,662 from $1,745,231 for
the nine months ended May 31, 1996. Of this amount, $2,266,418 was contributed
by the Company's United States operations and $1,481,915 by the Company's United
Kingdom operations, offset by $1,233,671 in corporate expenses. This increase
resulted from higher net sales offset by higher production costs associated with
the changing product mix of the Company's operations to include more digital
print services.
Net Interest Expense. Net interest expense for the nine months ended
May 31, 1997 increased by 273%, or $464,676, to $634,868 from $170,192 for the
nine months ended May 31, 1996. This increase resulted from increased borrowings
under the Company's credit facilities and capital leases assumed by the Company
as part of the Cardinal Acquisition and the Boris Acquisition, offset, in part,
by the income earned on cash balances from the IPO proceeds.
Income Taxes. Income taxes for the nine months ended May 31, 1997
decreased by 30%, or $272,333, to $634,378 from $906,711 for the nine months
ended May 31, 1996. The Company currently pays Federal, state and local income
tax for its United States operations where Elements (NY) previously paid only
local corporate income tax on United States operations as a result of its
Subchapter S corporation status. As a result of the termination of Elements
(NY)'s Subchapter S corporation status in February 1996, the Company recorded a
nonrecurring charge to operations and liability of $367,000 for additional
deferred Federal and state income taxes on temporary differences in the
recognition of revenues and expenses for income tax and financial reporting
purposes in the nine months ended May 31, 1996.
Net Income. As a result of the factors described above, net income for
the nine months ended May 31, 1997 increased by 86%, or $577,088, to $1,245,416
from $668,328 for the nine months ended May 31, 1996.
Liquidity, Capital Resources and Other Matters
Cash Flow. Net cash provided by operations was $1,557,225 for the first
nine months of fiscal 1997 and $1,162,216 for the first nine months of fiscal
1996. Net cash used for investing activities was $6,280,898 for the first nine
months of fiscal 1997 and $974,296 for the first nine months of fiscal 1996. The
Company used $959,996 and $898,530 for the acquisition of equipment by direct
purchase during such respective periods. For the first nine months of fiscal
1997 and fiscal 1996, the Company acquired equipment under capital leases of
$2,025,673 and $1,013,849, respectively, and made payments under capital leases
of $1,493,261 and $682,894, respectively. Net short-term bank borrowings
provided funds of $5,721,404 for the first nine months of fiscal 1997 and
$735,037 for the first nine months of fiscal 1996.
-14-
<PAGE>
Bank Credit Facilities. The Company has borrowing arrangements with
commercial banks in both New York and London. During the Third Quarter of Fiscal
1997, the Company renegotiated its credit facility arrangements with its New
York bank, and now has combined credit facilities for its United States
operations in the aggregate amount of $8,350,000. See "Notes to Consolidated
Financial Statements - Note G."
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 at least 12 months. The
Company may require additional financing to consummate future acquisitions.
There can be no assurance that the Company will be able to secure such
additional financing on terms favorable to the Company.
Working Capital. The Company's working capital decreased by $322,225
from $2,319,343 at August 31, 1996 to $1,997,118 at May 31, 1997. Such decrease
was attributable primarily to increased capital lease obligations incurred in
connection with the Cardinal Acquisition, the Boris Acquisition and the Libra
Acquisition offset, in part, by increased net income.
Acquisitions. On April 4, 1997, Unidigital/Boris consummated the Boris
Acquisition. The aggregate purchase price consisted of the following: (i)
$1,725,000 in cash; (ii) an aggregate of $300,000 in guaranteed future payments
to Boris Image Group and its management team; (iii) $250,000 in restricted
Common Stock; and (iv) a potential earn-out payment of up to $500,000 payable at
the end of the Company's next fiscal year.
On May 22, 1997, Elements (UK) consummated the Libra Acquisition. The
purchase price included cash payments of (pound)1,823,750 (approximately
$2,972,700) and a potential earn-out payment of up to (pound)500,000
(approximately $815,000) payable by March 31, 1998.
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 the 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 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 practicable for it to do so at a reasonable cost.
-15-
<PAGE>
PART II
Item 5. Other Information.
On May 15, 1997, Michael Brown was elected to the offices of Vice
President, Chief Financial Officer and Secretary of the Company.
Subsequent to the end of the quarter, on June 30, 1997, the Company
changed the address of its principal executive offices to 545 West 45th Street,
New York, New York 10036.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
4.1 Form of Subordinated Promissory Note, together with
Schedule of Holders.
4.2 Form of Warrant, together with Schedule of Holders.
4.3 Form of Registration Rights Agreement, together
with Schedule of Holders.
10.1 Employment Agreement dated as of March 1, 1997 by
and between Unidigital Inc.and Peter Saad.
</TABLE>
(b) Reports on Form 8-K.
Subsequent to the end of the quarter, on June 6, 1997, the
Company filed a Current Report on Form 8-K ("Form 8-K") with the
Securities and Exchange Commission relating to the Libra Acquisition. The
Form 8-K also discloses the terms of certain loans made to the Company,
the proceeds of which the Company used to fund the purchase price of the
Libra Acquisition.
-16-
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Issuer caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNIDIGITAL INC.
DATE: July 15, 1997 By: /s/ William E. Dye
------------------
William E. Dye, President
and Chief Executive Officer
(Principal Executive Officer)
DATE: July 15, 1997 By: /s/ Michael Brown
-----------------
Michael Brown, Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
-17-
<PAGE>
SUBORDINATED PROMISSORY NOTE
$__________ ____________, 1997
FOR VALUE RECEIVED, the undersigned, Unidigital Inc., a Delaware
corporation (the "Obligor"), hereby promises to pay to the order of ____________
_____ (the "Holder"), the principal sum of ___________________ Dollars
($________) payable as set forth below. The Obligor also promises to pay to the
order of the Holder interest on the principal amount hereof at a rate per annum
equal to (i) ten percent (10%) for the six-month period commencing on the date
hereof; (ii) eleven percent (11%) for the six-month period commencing on the day
immediately following the six-month anniversary of the date hereof; and (iii)
twelve percent (12%) commencing on the day immediately following the first
anniversary of the date hereof, which interest shall be payable at such time as
the principal is due hereunder. Interest shall be calculated on the basis of a
year of 365 days and for the number of days actually elapsed. Any amounts of
interest and principal not paid when due shall bear interest at the maximum rate
of interest allowed by applicable law. The payments of principal and interest
hereunder shall be made in coin or currency of the United States of America
which at the time of payment shall be legal tender therein for the payment of
public and private debts.
This Note shall be subject to the following additional terms and
conditions:
1. Payments. Principal shall be payable on the earlier of (i) ______
__, ___ or (ii) the date on which the Obligor consummates an
underwritten public offering in an amount sufficient to pay all
amounts due and owing to the Holder under this Note. In the event
that any payment to be made hereunder shall be or become due on a
Saturday, Sunday or any other day which is a legal bank holiday
under the laws of the State of New York, such payment shall be or
become due on the next succeeding business day. The rights of the
Holder of this Note to receive payment of any principal or interest
hereon is subject and subordinate to the prior payment of the
principal of, and the interest and all other amounts (now or
hereafter accruing or due) on, all indebtedness of the Obligor
and/or its subsidiaries (whether now or hereafter existing or owed)
to The Chase Manhattan Bank, whether such indebtedness is now
outstanding or subsequently incurred, whether secured or unsecured,
and any deferrals, renewals or extensions of such indebtedness, and
to any notes or other evidences of such indebtedness and to any
guarantees of such indebtedness (in the case of guarantees by the
Obligor of indebtedness of any of its subsidiaries to said bank)
(collectively, the "Senior Indebtedness"). No payments shall be
made hereunder if the Obligor (or any of its subsidiaries) is in
default under any of the Senior Indebtedness or if a payment
hereunder would result in such a default and the Holder shall
receive any payments prohibited hereby in trust for The Chase
Manhattan Bank. Without limiting the foregoing, upon the occurrence
of a default under this Note, no amount shall be paid by the
Obligor hereon unless and until the principal of, and interest and
other amounts then owing on, all Senior Indebtedness is paid in
full.
<PAGE>
2. Prepayment. The Obligor shall have the right at any time to
prepay the principal hereof in whole or in part, without premium or
penalty, provided that interest on the principal hereof to be so
prepaid, accrued to the date of such prepayment, shall be paid
concurrently therewith.
3. Put Option. Subject to the provisions of Section 1 hereof, at any
time after the first anniversary of the date hereof, the Holder
shall have the right and option (but not the obligation) to require
that the Obligor repay the principal hereof in whole, together with
all interest accrued thereon, without premium or penalty (the "Put
Option"). In the event that the Holder exercises the Put Option,
the Obligor shall, subject to the provisions of Section 1 hereof,
pay all amounts due and owing to the Holder under this Note within
thirty (30) days of receipt of notice that the Holder has exercised
the Put Option.
4. No Waiver. No failure or delay by the Holder in exercising any
right, power or privilege under this Note shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies
provided by law. No course of dealing between the Obligor and the
Holder shall operate as a waiver of any rights by the Holder.
5. Waiver of Presentment and Notice of Dishonor. The Obligor and all
endorsers, guarantors and other parties that may be liable under
this Note hereby waive presentment, notice of dishonor, protest and
all other demands and notices in connection with the delivery,
acceptance, performance or enforcement of this Note.
6. Place of Payment. All payments of principal of this Note and the
interest due thereon shall be made at _______ or at such other
place as the Holder may from time to time designate in writing.
7. Events of Default. The entire unpaid principal amount of this
Note and the interest due thereon shall, at the option of the
Holder exercised by written notice to the Obligor, forthwith become
and be due and payable, without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived,
if any one or more of the following events (herein called "Events
of Default") shall have occurred (for any reason whatsoever and
whether such happening shall be voluntary or involuntary or come
about or be effected by operation of law or pursuant to or in
compliance with any judgment, decree or order of any court or any
order, rule or regulation of any administrative or governmental
body) and be continuing at the time of such notice, that is to say:
a) if default shall be made in the due and punctual payment of
the principal of this Note and the interest due thereon when
and as the same shall
-2-
<PAGE>
become due and payable, whether at maturity, or by
acceleration or otherwise, and such default shall have
continued for a period of five days;
b) if the Obligor shall:
(i) admit in writing its inability to pay its debts
generally as they become due;
(ii) file a petition in bankruptcy or a petition to take
advantage of any insolvency act;
(iii) make an assignment for the benefit of creditors;
(iv) consent to the appointment of a receiver of the whole
or any substantial part of his property;
(v) on a petition in bankruptcy filed against him, be
adjudicated a bankrupt; or
(vi) file a petition or answer seeking reorganization or
arrangement under the Federal bankruptcy laws or any
other applicable law or statute of the United States
of America or any State, district or territory
thereof;
c) if a court of competent jurisdiction shall enter an order,
judgment, or decree appointing, without the consent of the
Obligor, a receiver of the whole or any substantial part of
Obligor's property, and such order, judgment or decree shall
not be vacated or set aside or stayed within 90 days from the
date of entry thereof; and
d) if, under the provisions of any other law for the relief or
aid of debtors, any court of competent jurisdiction shall
assume custody or control of the whole or any substantial part
of Obligor's property and such custody or control shall not be
terminated or stayed within 90 days from the date of
assumption of such custody or control.
8. Remedies. In case any one or more of the Events of Default
specified in Section 7 hereof shall have occurred and be
continuing, the Holder may proceed to protect and enforce its
rights either by suit in equity and/or by action at law, whether
for the specific performance of any covenant or agreement contained
in this Note or in aid of the exercise of any power granted in this
Note, or the Holder may proceed to enforce the payment of all sums
due upon this Note or to enforce any other legal or equitable right
of the Holder; provided, however, that the Holder shall not proceed
to protect and enforce its rights hereunder in the event that an
event of default has occurred, and is continuing, under any of the
Senior Indebtedness.
-3-
<PAGE>
9. Severability. In the event that one or more of the provisions of
this Note shall for any reason be held invalid, illegal or
unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Note,
but this Note shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
10. Governing Law. This Note and the rights and obligations of the
Obligor and the Holder shall be governed by and construed in
accordance with the laws of the State of New York.
11. Unsecured Obligations. The Holder hereby acknowledges that the
obligations of the Obligor hereunder are unsecured.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed
and delivered on the date first written above.
UNIDIGITAL INC.
---------------------------------
By: William E. Dye
President
-4-
<PAGE>
SCHEDULE OF HOLDERS
-------------------
Principal Number of
Holder Amount of Note Warrants
------ -------------- ---------
CRM - 1997 Enterprise Fund LLC $ 200,000 20,000
CRM - Eurycleia, L.P. 200,000 20,000
CRM - U.S. Value Fund Ltd. 200,000 20,000
CRM - EFO Partners, L.P. 200,000 20,000
Ladd Equity Partners 170,000 17,000
CRM - EFO 100,000 10,000
William A. Buik 100,000 10,000
Dr. Eric Katz 100,000 10,000
Jeffrey Leiderman c/o Ashley
Leiderman UGMA 50,000 5,000
Marvin Eisenstadt 50,000 5,000
Harvey Ginsberg & Co. 30,000 3,000
---------- -------
TOTAL: $1,400,000 140,000
========== =======
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE
SECURITIES NOR ANY INTEREST THEREIN MAY BE TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT OR SUCH LAWS AND THE RULES AND REGULATIONS THEREUNDER.
WARRANT TO PURCHASE SHARES OF COMMON
STOCK OF UNIDIGITAL INC.
Warrant Certificate Number: W 00 Dated:
----
This certifies that ________________ (the "Holder"), for value received
is entitled, subject to the terms set forth below, to purchase from UNIDIGITAL
INC., a Delaware corporation (the "Company"), fully paid and nonassessable
shares of the Company's Common Stock, par value $0.01 per share (the "Stock") at
a price of $4.00 per share (the "Stock Purchase Price") at any time or from time
to time but not earlier than the Commencement Date (as defined below) or later
than 5:00 p.m. (New York Time) on the Expiration Date (as defined below), upon
surrender to the Company at its principal office at 20 West 20th Street, New
York, New York 10011, Attention: President (or at such other location as the
Company may advise Holder in writing) of this Warrant properly endorsed with the
form of Subscription Agreement attached hereto duly completed and signed and,
unless the Conversion Right (as defined below) set forth in Section 1(c) is
exercised, upon payment in cash or cashier's check of the aggregate Stock
Purchase Price for the number of shares for which this Warrant is being
exercised determined in accordance with the provisions hereof. The Stock
Purchase Price and the number of shares purchasable hereunder are subject to
adjustment as provided in Section 3 of this Warrant. This Warrant and all rights
hereunder, to the extent not exercised in the manner set forth herein shall
terminate and become null and void on the Expiration Date (as defined below).
"Commencement Date" shall mean the date of this Warrant. "Expiration Date" shall
mean the fifth anniversary of the Commencement Date.
This Warrant is subject to the following terms and conditions:
1. Exercise; Issuance of Certificates; Payment for Shares; Conversion
Right.
(a) This Warrant is exercisable in the manner set forth above at
the option of Holder at any time or from time to time but not earlier than the
Commencement Date or later than 5:00 p.m. (New York Time) on the Expiration Date
for all or a portion of the shares of Stock which may be purchased hereunder.
The Company agrees that the shares of Stock purchased under this Warrant shall
be and are deemed to be issued to Holder as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares (unless the Conversion Right is
exercised). Subject to the provisions of Section 2, certificates for the shares
of Stock so purchased shall be delivered to Holder by the
<PAGE>
Company's transfer agent at the Company's expense within a reasonable time after
the rights represented by this Warrant have been exercised. Each stock
certificate so delivered shall be in such denominations of Stock as may be
requested by Holder and shall be registered in the name of Holder or such other
name as shall be designated by Holder, subject to the limitations contained in
Sections 1(b) and 2. If, upon exercise of this Warrant, fewer than all of the
shares of Stock evidenced by this Warrant are purchased prior to the Expiration
Date of this Warrant, one or more new warrants substantially in the form of, and
on the terms in, this Warrant will be issued for the remaining number of shares
of Stock not purchased upon exercise of this Warrant.
(b) No shares of Stock will be issued pursuant to the exercise of
this Warrant unless such issuance and such exercise shall comply with all
relevant provisions of law and the requirements of any stock exchange or
automated quotation system upon which the Stock may then be listed. Assuming
such compliance, for income tax purposes the Stock shall be considered
transferred to the Holder on the date on which this Warrant is exercised with
respect to such Stock.
(c) In lieu of the payment of the Stock Purchase Price, the Holder
shall have the right (but not the obligation), to require the Company to convert
this Warrant, in whole or in part, into shares of Stock (the "Conversion Right")
as provided for in this Section 1(c). Upon exercise of the Conversion Right, the
Company shall deliver to the Holder (without payment by the Holder of any of the
Stock Purchase Price) that number of shares of Stock equal to the quotient
obtained by dividing (x) the value of the Warrant at the time the Conversion
Right is exercised (determined by subtracting the aggregate Stock Purchase Price
in effect immediately prior to the exercise of the Conversion Right from the
aggregate Market Value (as defined in Section 1(e) below), for the shares of
Stock issuable upon exercise of the Warrant immediately prior to the exercise of
the Conversion Right) by (y) the Market Value of one share of Stock immediately
prior to the exercise of the Conversion Right.
(d) The Conversion Right may be exercised by the Holder on any
business day between (i) the Commencement Date and (ii) the Expiration Date by
delivering the Warrant Certificate with a duly executed Subscription Agreement
in the form attached hereto with the conversion section completed to the
Company, exercising the Conversion Right and specifying the total number of
shares of Stock the Holder will purchase pursuant to such conversion.
(e) For the sole purpose of determining the number of shares of
the Stock which shall be delivered to the Holder by the Company pursuant to the
Conversion Right as set forth in Section 1(c) above, Market Value shall mean the
average of the daily high and low price of a share of the Stock as listed on the
Nasdaq National Market (or such other exchange or quotation system on which the
Stock may then be listed) for the ten (10) days of trading immediately preceding
the date of exercise of such Conversion Right.
2. Shares to Be Fully Paid; Reservation of Shares. The Company
covenants and agrees that all shares of Stock which may be issued upon the
exercise of this Warrant (the "Warrant Shares") and all shares of common stock
issuable upon conversion of the Warrant Shares (the
-2-
<PAGE>
"Conversion Shares") will, upon issuance, be duly authorized, validly issued,
fully paid and nonassessable and free from all preemptive rights of any
stockholder and free of all taxes (other than income taxes which may be
applicable to Holder), liens and charges with respect to the issue thereof. The
Company covenants that it will reserve and keep available a sufficient number of
shares of its authorized but unissued Stock for such exercise and sufficient
shares of common stock for such conversion. The Company will take all such
reasonable action as may be necessary to assure that such shares of Stock may be
issued as provided herein without violation of any applicable law or regulation,
or of any requirements of any domestic securities exchange or automated
quotation system upon which the Stock may be listed.
3. Adjustment of Stock Purchase Price and Number of Shares. The Stock
Purchase Price and, in some cases, the number of shares purchasable upon the
exercise of this Warrant shall be subject to adjustment from time to time upon
the occurrence of certain events described in this Section 3.
3.1 Subdivision or Combination of Stock and Stock Dividend. In case the
Company shall at any time subdivide its outstanding shares of Stock into a
greater number of shares or declare a dividend upon its Stock payable solely in
shares of Stock, the Stock Purchase Price in effect immediately prior to such
subdivision or declaration shall be proportionately reduced, and the number of
shares issuable upon exercise of the Warrant shall be proportionately increased.
Conversely, in case the outstanding shares of Stock of the Company shall be
combined into a smaller number of shares, the Stock Purchase Price in effect
immediately prior to such combination shall be proportionately increased, and
the number of shares issuable upon exercise of the Warrant shall be
proportionately reduced.
3.2 Notice of Adjustment. Promptly after adjustment of the Stock
Purchase Price or any increase or decrease in the number of shares purchasable
upon the exercise of this Warrant, the Company shall give written notice
thereof, by first class mail, postage prepaid, addressed to the Holder at the
address of such Holder as shown on the books of the Company. The notice shall be
signed by an authorized officer of the Company and shall state the effective
date of the adjustment and the Stock Purchase Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares
purchasable at such price upon the exercise of this Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
3.3 Other Notices. If at any time:
(a) the Company shall declare any cash dividend upon its Stock;
(b) the Company shall declare any dividend upon its Stock payable
in stock (other than a dividend payable solely in shares of Stock) or make any
special dividend or other distribution to the holders of its Stock;
-3-
<PAGE>
(c) there shall be any consolidation or merger of the Company
with another corporation, or a sale of all or substantially all of the Company's
assets to another corporation; or
(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in any one or more of said cases, the Company shall give, by certified or
registered mail, postage prepaid, addressed to the registered holder of this
Warrant at the address of such holder as shown on the books of the Company, (i)
at least 10 days' prior written notice of the date on which the books of the
Company shall close or a record shall be taken for such dividend, distribution
or subscription rights or for determining rights to vote in respect of any such
dissolution, liquidation or winding-up, (ii) at least 10 days' prior written
notice of the date on which the books of the Company shall close or a record
shall be taken for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger or sale, and (iii) in
the case of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up, at least 10 days' written notice
of the date when the same shall take place. Any notice given in accordance with
clause (i) above shall also specify, in the case of any such dividend,
distribution or option rights, the date on which the holders of Stock shall be
entitled thereto. Any notice given in accordance with clause (iii) above shall
also specify the date on which the holders of Stock shall be entitled to
exchange their Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, as the case may be. If the Holder of the Warrant does
not exercise this Warrant prior to the occurrence of an event described above,
except as provided in Sections 3.1 and 3.4, the Holder shall not be entitled to
receive the benefits accruing to existing holders of the Stock pursuant to such
event.
3.4 Changes in Stock. In case at any time prior to the Expiration Date,
the Company shall be a party to any transaction (including, without limitation,
a merger, consolidation, sale of all or substantially all of the Company's
assets or recapitalization of the Stock) in which the previously outstanding
Stock shall be changed into or exchanged for different securities of the Company
or common stock or other securities of another corporation or interests in a
noncorporate entity or other property (including cash) or any combination of any
of the foregoing (each such transaction being herein called the "Transaction"
and the date of consummation of the Transaction being herein called the
"Consummation Date"), then, as a condition of the consummation of the
Transaction, lawful and adequate provisions shall be made so that each Holder,
upon the exercise hereof at any time on or after the Consummation Date, shall be
entitled to receive, and this Warrant shall thereafter represent the right to
receive, in lieu of the Stock issuable upon such exercise prior to the
Consummation Date, the highest amount of securities or other property to which
such Holder would actually have been entitled as a stockholder upon the
consummation of the Transaction if such Holder had exercised such Warrant
immediately prior thereto. The provisions of this Section 3.4 shall similarly
apply to successive Transactions.
-4-
<PAGE>
4. Investment Representations.
(a) By receipt of this Warrant, by its execution and by its
exercise in whole or in part, the Holder represents to the Company the
following:
(i) the Holder understands that this Warrant and any Stock
purchased upon its exercise are securities, the issuance of which requires
compliance with federal and state securities laws;
(ii) the Holder is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire such securities;
(iii) the Holder is acquiring these securities for investment
for the Holder's own account only and not with a view to, or for resale in
connection with, any "distribution" thereof within the meaning of the Securities
Act of 1933, as amended (the "Act");
(iv) the Holder acknowledges and understands that the securities
constitute "restricted securities" under the Act and must be held indefinitely
unless they are subsequently registered under the Act or an exemption from such
registration is available. The Holder further acknowledges and understands that
the Company is under no obligation hereunder to register the securities (other
than pursuant to the Registration Rights Agreement (as defined below));
(v) the Holder has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of the
undersigned's investment in this Warrant;
(vi) the Holder has received all of the information the Holder
has requested from the Company and considers necessary or appropriate for
deciding whether to purchase this Warrant;
(vii) the Holder has the ability to bear the economic risks of
his prospective investment;
(viii) the Holder is able, without materially impairing his
financial condition, to hold this Warrant for an indefinite period of time and
to suffer complete loss on his investment;
(ix) the Holder understands and agrees that (A) he may be unable
to readily liquidate his investment in this Warrant and that the Warrant Shares
and the Conversion Shares must be held indefinitely unless a subsequent
disposition thereof is registered or qualified under the Act and applicable
state securities or Blue Sky laws or is exempt from such registration or
qualification, and that the Company is not required to register the same or to
take any action or
-5-
<PAGE>
make such an exemption available except to the extent provided pursuant to the
Registration Rights Agreement and (B) the exemption from registration under the
Act afforded by Rule 144 promulgated by the Securities and Exchange Commission
("Rule 144") depends upon the satisfaction of various conditions by the
undersigned and the Company and that, if applicable, Rule 144 affords the basis
for sales under certain circumstances in limited amounts, and that if such
exemption is utilized by the undersigned, such conditions must be fully complied
with by the undersigned and the Company, as required by Rule 144; and
(x) the Holder either (A) is familiar with the definition of and
the Holder is an "accredited investor" within the meaning of such term under
Rule 501 of Regulation D promulgated under the Act, or (B) is providing
representations and warranties reasonably satisfactory to the Company and its
counsel, to the effect that the sale and issuance of Warrant may be made without
registration under the Act or any applicable state securities and Blue Sky laws.
(b) The Holder agrees, in connection with any underwritten public
offering of the Company's securities, (1) not to sell, make short sale of, loan,
grant any options for the purchase of, or otherwise dispose of any shares of
Stock of the Company held by Holder (other than those shares included in such
registration or any other effective registration) without the prior written
consent of the Company or the underwriters managing such underwritten public
offering of the Company's securities for six months from the effective date of
such registration, and (2) further agrees to execute any agreement reflecting
the obligation of the Holder set forth in (1) above as may be requested by the
underwriters at the time of the public offering.
5. Issue Tax. The issuance of certificates for shares of Stock upon the
exercise of the Warrant shall be made without charge to the holder of the
Warrant for any issue tax in respect thereof; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then holder of the Warrant being exercised.
6. No Voting or Dividend Rights; Limitation of Liability. Nothing
contained in this Warrant shall be construed as conferring upon the holder
hereof the right to vote or to consent or to receive notice as a stockholder in
respect of meetings of stockholders for the election of directors of the Company
or any other matters or any rights whatsoever as a stockholder of the Company.
Except for the adjustment to the Stock Purchase Price pursuant to Section 3.1 in
the event of a dividend on the Stock payable in shares of Stock, no dividends or
interest shall be payable or accrued in respect of this Warrant or the interest
represented hereby or the shares purchasable hereunder until, and only to the
extent that, this Warrant shall have been exercised. No provisions hereof, in
the absence of affirmative action by the holder to purchase shares of Stock, and
no mere enumeration herein of the rights or privileges of the holder hereof,
shall give rise to any liability of such holder for the Stock Purchase Price or
as a stockholder of the Company whether such liability is asserted by the
Company or by its creditors.
-6-
<PAGE>
7. Restrictions on Transferability of Securities; Compliance With
Securities Act.
7.1 Restrictions on Transferability. The Warrant Shares and the
Conversion Shares shall not be transferable in the absence of the effectiveness
of a registration statement with respect to such securities under the Act, or an
exemption therefrom. This Warrant may not be transferred in any manner other
than by will or by the laws of descent or distribution and may be exercised
during the lifetime of the Holder only by the Holder. The terms of this Warrant
shall be binding upon the executors, administrators, heirs, successors and
assigns of the Holder.
7.2 Restrictive Legend. In the absence of the effectiveness of
registration under the Act or an exemption therefrom as contemplated by Section
7.1, each certificate representing the Warrant Shares, the Conversion Shares or
any other securities issued in respect of the Warrant Shares or the Conversion
Shares upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event, shall be stamped or otherwise imprinted with a
legend substantially in the following form (in addition to any legend required
under applicable state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR
ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR
ANY INTEREST THEREIN MAY BE TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT OR SUCH LAWS AND THE
RULES AND REGULATIONS THEREUNDER.
8. Registration Rights. The Warrant Shares and the Conversion Shares
are subject to the rights and obligations set forth in that certain Registration
Rights Agreement by and between the Company and the Holder of even date herewith
(the "Registration Rights Agreement").
9. Modification and Waiver. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
10. Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
delivered or shall be sent by certified or registered mall, postage prepaid, to
each such holder at its address as shown on the books of the Company or to the
Company at the address indicated therefor in the first paragraph of this
Warrant.
11. Descriptive Headings and Governing Law. The descriptive headings of
the several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of New York without reference to the
principles of conflicts of laws.
-7-
<PAGE>
12. Lost Warrants or Stock Certificates. The Company represents and
warrants to Holder that upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of any Warrant or stock
certificate representing the Warrant Shares or the Conversion Shares and in the
case of any such loss, theft, destruction or mutilation, upon receipt of an
indemnity and, if requested, bond reasonably satisfactory to the Company, or in
the case of any such mutilation, upon surrender and cancellation of such Warrant
or stock certificate, the Company at its expense will make and deliver a new
Warrant or stock certificate, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant or stock certificate.
13. Fractional Shares. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any fractional
share pay the holder entitled to such fraction a sum in cash equal to the fair
market value of any such fractional interest as it shall appear on the public
market, or if there is no public market for such shares, then as shall be
reasonably determined by the Company.
* * * * * * * * * *
-8-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer, thereunto duly authorized as of the date first written above.
UNIDIGITAL INC.
By:_____________________________
William E. Dye
President and Chief Executive
Officer
-9-
<PAGE>
FORM OF SUBSCRIPTION AGREEMENT
(To be signed and delivered
upon exercise of Warrant)
UNIDIGITAL INC.
20 West 20th Street
New York, New York 10011
Attention: President
The undersigned, the holder of the within Warrant (Warrant Certificate
Number __________), hereby irrevocably elects to exercise the purchase right
represented by such Warrant for, and to purchase thereunder,
_____________________ shares of Common Stock, par value $0.01 per share (the
"Stock"), of UNIDIGITAL INC. (the "Company") and subject to the following
paragraph, herewith makes payment of ___________________________ Dollars
($_______) therefor and requests that the certificates for such shares be issued
in the name of, and delivered to, ______________________ whose address is
___________________________.
The undersigned does/does not (circle one) request the exercise of the
within Warrant pursuant to the cashless exercise right set forth in Section 1(c)
of the Warrant.
If the exercise of this Warrant is not covered by a registration
statement effective under the Securities Act of 1933, as amended (the
"Securities Act"), the undersigned represents that:
(i) the undersigned is acquiring such Stock for investment for
his own account, not as nominee or agent, and not with a view to the
distribution thereof and the undersigned has not assigned or otherwise arranged
for the selling, granting any participation in, or otherwise distributing the
same;
(ii) the undersigned has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of the undersigned's investment in the Stock;
(iii) the undersigned has received all of the information the
undersigned has requested from the Company and considers necessary or
appropriate for deciding whether to purchase the shares of Stock;
(iv) the undersigned has the ability to bear the economic risks
of his prospective investment;
<PAGE>
(v) the undersigned is able, without materially impairing his
financial condition, to hold the shares of Stock for an indefinite period of
time and to suffer complete loss on his investment;
(vi) the undersigned understands and agrees that (A) he may be
unable to readily liquidate his investment in the shares of Stock and that the
shares must be held indefinitely unless a subsequent disposition thereof is
registered or qualified under the Securities Act and applicable state securities
or Blue Sky laws or is exempt from such registration or qualification, and that
the Company is not required to register the same or to take any action or make
such an exemption available except to the extent provided in the within Warrant
and (B) the exemption from registration under the Securities Act afforded by
Rule 144 promulgated by the Securities and Exchange Commission ("Rule 144")
depends upon the satisfaction of various conditions by the undersigned and the
Company and that, if applicable, Rule 144 affords the basis for sales under
certain circumstances in limited amounts, and that if such exemption is utilized
by the undersigned, such conditions must be fully complied with by the
undersigned and the Company, as required by Rule 144;
(vii) the undersigned either (A) is familiar with the definition
of and the undersigned is an "accredited investor" within the meaning of such
term under Rule 501 of Regulation D promulgated under the Securities Act, or (B)
is providing representations and warranties reasonably satisfactory to the
Company and its counsel, to the effect that the sale and issuance of Stock upon
exercise of such Warrant may be made without registration under the Securities
Act or any applicable state securities and Blue Sky laws; and
(viii) the address set forth below is the true and correct
address of the undersigned's residence.
DATED: _______________
-------------------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
-------------------------------------------
-------------------------------------------
(Address)
-2-
<PAGE>
SCHEDULE OF HOLDERS
-------------------
Principal Number of
Holder Amount of Note Warrants
------ -------------- ---------
CRM - 1997 Enterprise Fund LLC $ 200,000 20,000
CRM - Eurycleia, L.P. 200,000 20,000
CRM - U.S. Value Fund Ltd. 200,000 20,000
CRM - EFO Partners, L.P. 200,000 20,000
Ladd Equity Partners 170,000 17,000
CRM - EFO 100,000 10,000
William A. Buik 100,000 10,000
Dr. Eric Katz 100,000 10,000
Jeffrey Leiderman c/o Ashley
Leiderman UGMA 50,000 5,000
Marvin Eisenstadt 50,000 5,000
Harvey Ginsberg & Co. 30,000 3,000
---------- -------
TOTAL: $1,400,000 140,000
========== =======
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of the ____ day of ______, 1997 by and between UNIDIGITAL INC.,
a Delaware corporation (the "Company"), and ________________________ (the
"Holder").
R E C I T A L S
---------------
A. The Holder and the Company are parties to that certain Promissory
Note of even date herewith (the "Promissory Note") pursuant to which the Holder
has agreed to extend a loan to the Company.
B. In partial consideration of the extension of the loan by the Holder
to the Company pursuant to the Note, the Company has issued to the Holder a
five-year warrant to purchase shares of common stock of the Company, par value
$0.01 per share ("Common Stock") on the terms and conditions set forth in that
certain Warrant between the Company and the Holder of even date herewith (the
"Warrant").
C. The Company desires to grant to the Holder the registration rights
set forth herein with respect to the shares of Common Stock for which may be
issued to the Holder pursuant to the Warrant.
<PAGE>
1. REGISTRATION RIGHTS.
1.1 Definitions. For purposes of this Section 1:
(a) Registration. The terms "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act of 1933, as amended
(the "Securities Act"), and the declaration or ordering of effectiveness of such
registration statement.
(b) Registrable Securities. The term "Registrable
Securities" means: any shares of Common Stock of the Company issued or issuable
to the Holder pursuant to the Warrant; provided, however, that with respect to
any particular Registrable Security, such security shall cease to be a
Registrable Security when, as of the date of determination, (i) it has been
effectively registered under the Securities Act of 1933, as amended (the
"Securities Act") and disposed of pursuant thereto, (ii) registration under the
Securities Act is no longer required for the immediate public distribution of
such security or (iii) it has ceased to be outstanding. The term "Registrable
Securities" means any and/or all of the securities falling within the foregoing
definition of a "Registrable Security." In the event of any merger,
reorganization, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such adjustment shall be made in the
definition of "Registrable Security" as is appropriate in order to prevent any
dilution or enlargement of the rights granted pursuant to the Agreement.
<PAGE>
(c) SEC. The term "SEC" or "Commission" means the U.S.
Securities and Exchange Commission.
1.2 Registrations.
(a) Piggyback Registration Rights. The Company shall notify
the Holder in writing at least twenty (20) days prior to filing any registration
statement under the Securities Act for purposes of effecting a public offering
of securities of the Company (including, but not limited to, registration
statements relating to secondary offerings of securities of the Company, but
excluding registration statements relating to a merger, an acquisition or
pursuant to Form S-8 or successor form, collectively the "Excluded
Registrations") and will afford the Holder an opportunity to include in such
registration statement all or any part of the Registrable Securities then held
by the Holder. If the Holder desires to include in any such registration
statement all or any part of the Registrable Securities held by the Holder, it
shall, within twenty (20) days after receipt of the above-described notice from
the Company, so notify the Company in writing, and in such notice shall inform
the Company of the number of Registrable Securities the Holder wishes to include
in such registration statement. If the Holder decides not to include all of its
Registrable Securities in any registration statement thereafter filed by the
Company, the Holder shall nevertheless continue to have the right to include any
Registrable Securities in any subsequent registration statement or registration
statements as may be filed by the Company with respect to offerings of its
securities (other than with respect to Excluded Registrations), all upon the
terms and conditions set forth herein.
(b) Underwriting. If a registration statement under which
the Company gives notice under Section 1.2(a) is for an underwritten offering,
then the Company shall so advise the Holder in writing. In such event, the right
of the Holder to have its Registrable Securities included in a registration
pursuant to this Section 1.2(b) shall be conditioned upon the Holder's
participation in such underwriting and the inclusion of the Holder's Registrable
Securities in the underwriting to the extent provided herein. Notwithstanding
any other provision of this Agreement, if the managing underwriter or
underwriters determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter(s) may exclude shares (including Registrable Securities) from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting shall be allocated, first, to the
Company in full, and second, to the Holder and to any other security holders of
the Company whose securities are being offered for sale pursuant to such
registration statement or whose securities are required to be included in such
registration statement pursuant to registration rights granted to such security
holders by the Company (collectively, the "Other Holders") pro-rata based on the
total number of shares of Common Stock originally requested to be sold by the
Holder and the Other Holders pursuant to such registration statement. If the
Holder disapproves of the terms of any such underwriting, the Holder may elect
to withdraw therefrom by written notice to the Company and the underwriter,
delivered at least ten (10) business
2
<PAGE>
days prior to the effective date of the registration statement. Any Registrable
Securities excluded or withdrawn from such underwriting shall be excluded and
withdrawn from the registration. The Holder hereby agrees that, in connection
with any underwritten offering by the Company, if requested by the managing
underwriter, it will not sell any of its Registrable Securities pursuant to a
registration statement in which it is not included pursuant to this Section 1.2,
for a period of up to six months from the effective date of any such
registration statement, without the prior written consent of the managing
underwriter, if any, of the public offering to which such registration statement
may relate. Further, in connection with any underwritten public offering of
Common Stock by the Company, the Holder shall enter into an underwriting
agreement in customary form with the managing underwriter or underwriters
selected for such underwriting.
(c) Expenses. All expenses incurred in connection with a
registration pursuant to Section 1.2(a) (excluding underwriters' and brokers'
discounts and commissions), including, without limitation all federal and "blue
sky" registration and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company and reasonable fees and
disbursements of counsel for the Holder, shall be borne by the Company. The
Holder shall bear its proportionate share (based on the total number of shares
sold in such registration) of all discounts, commissions or other amounts
payable to underwriters or brokers in connection with such registration.
1.3 Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holder, keep such registration statement effective for up to ninety (90) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holder such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as the Holder may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by the Holder that are included in such registration.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holder, provided that the Company shall not be required in
3
<PAGE>
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering.
(f) Notify the Holder at any time when a prospectus relating
to such registration statement is required to be delivered under the Securities
Act of the happening of any event as a result of which the prospectus included
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing.
(g) Furnish, at the request of the Holder, on the date that
its Registrable Securities are delivered to the underwriters for sale, if such
securities are being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated as of
such date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering and reasonably satisfactory to the Holder,
addressed to the underwriters, if any, and to the Holder, and (ii) a "comfort"
letter dated as of such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering
and reasonably satisfactory to the Holder, addressed to the underwriters, if
any, and to the Holder requesting registration of Registrable Securities.
1.4 Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to Section 1.2 that
the Holder shall furnish to the Company such information regarding the Holder,
the Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to timely effect the registration of its
Registrable Securities.
1.5 Delay of Registration. The Holder shall not have any right
to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.6 Indemnification. In the event any Registrable Securities are
included in a registration statement under Section 1.2:
(a) By the Company. To the extent permitted by law, the
Company shall indemnify and hold harmless the Holder or any underwriter (as
defined in the Securities Act)
4
<PAGE>
for the Holder and each person, if any, who controls the Holder or underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended (the "1934 Act") (collectively, "Indemnitees"), against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the l934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively, a "Violation"):
(i) any untrue statement or alleged untrue statement of
a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto;
(ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to
make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company
of the Securities Act, the 1934 Act, any federal or state
securities law or any rule or regulation promulgated under
the Securities Act, the 1934 Act or any federal or state
securities law in connection with the offering covered by
such registration statement;
and the Company will reimburse each of the Indemnitees for any legal or other
expenses reasonably incurred by them, as incurred, in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this subsection
1.6(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with any information furnished
expressly for use in connection with such registration by any Indemnitee,
including without limitation, any information furnished by the Holder to the
Company pursuant to Section 1.4 hereof.
5
<PAGE>
(b) By the Holder. To the extent permitted by law, the
Holder will indemnify and hold harmless the Company, each of its directors, each
of its officers who have signed the registration statement, and each person, if
any, who controls the Company within the meaning of the Securities Act or the
1934 Act (collectively, "Company Indemnitees"), against any losses, claims,
damages or liabilities (joint or several) to which the Company or any such
Company Indemnitee may become subject under the Securities Act, the 1934 Act or
other federal or state law, but only, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by the Holder, and known by the Holder to be furnished, expressly for
use in connection with such registration, including without limitation any
information furnished by the Holder to the Company pursuant to Section 1.4
hereof; and the Holder will reimburse any legal or other expenses reasonably
incurred by the Company or any such Company Indemnitee as incurred in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
subsection 1.6(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Holder which consent shall not be unreasonably withheld; and
provided further, that the total amounts payable in indemnity by the Holder
under this Section 1.6(b) in respect of any Violation shall not exceed the net
proceeds received by the Holder in the registered offering out of which such
Violation arises.
(c) Notice. Promptly after receipt by an indemnified party
under this Section 1.6 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.6,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 1.6, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 1.6.
(d) Defect Eliminated in Final Prospectus. The foregoing
indemnity agreements of the Company and the Holder are subject to the condition
that, insofar as they relate to any Violation made in a preliminary prospectus
but eliminated or remedied in the amended prospectus on file with the SEC at the
time the registration statement in question becomes effective
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or the amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (the
"Final Prospectus), such indemnity agreement shall not inure to the benefit of
any person if a copy of the Final Prospectus was furnished to the indemnified
party and was not furnished to the person asserting the loss, liability, claim
or damage at or prior to the time such action is required by the Securities Act.
(e) Survival. The obligations of the Company and the Holder
under this Section 1.6 shall survive the completion of any offering of
Registrable Securities in a registration statement, and otherwise.
1.7 Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Registrable Securities to the public without
registration, the Company agrees to make and keep public information available,
as those terms are understood and defined in Rule 144 under the Securities Act,
and to use its best efforts to file with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act and
the 1934 Act.
2. ASSIGNMENT AND AMENDMENT.
2.1 Assignment. The registration rights granted to the Holder
shall not be assignable to any subsequent holder of the Registrable Securities.
2.2 Amendment of Rights. Any provision of this Agreement may be
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holder.
2.3 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed to
have been delivered when delivered personally (including by means of telex,
telecopier or telefax systems), or the day following delivery to a reputable
overnight courier service which guarantees delivery within 24 hours, charges
prepaid (or upon the date mailed, if sent certified mail, postage prepaid,
return receipt requested, and delivery is refused or returned as undeliverable)
to the parties to this Agreement as follows:
(a) If to the Company: Unidigital Inc.
20 West 20th Street
New York, New York 10011
Attn: William E. Dye, President
with a copy to: David J. Sorin, Esquire
Buchanan Ingersoll
500 College Road East
Princeton Forrestal Center
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<PAGE>
Princeton, NJ 08540
(b) If to the Holder: __________________________
__________________________
__________________________
__________________________
with a copy to: _________________________________
__________________________
__________________________
or at such other address as any party may designate by giving ten (10) days
advance written notice to the other party.
2.4 Entire Agreement. This Agreement constitutes and contains
the entire agreement and understanding of the parties with respect to the
subject matter hereof and supersedes any and all prior negotiations,
correspondence, agreements, understandings, duties or obligations between the
parties respecting the subject matter hereof.
2.5 Governing Law. This Agreement shall be governed by and
construed exclusively in accordance with the internal laws of the State of New
York without regard to any law relating to conflict of laws and choice of law.
2.6 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, then such provision(s) shall
be excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
2.7 Third Parties. Nothing in this Agreement, express or
implied, is intended to confer upon any person, other than the parties hereto
and their successors and assigns, any rights or remedies under or by reason of
this Agreement.
2.8 Captions. The captions to sections of this Agreement have
been inserted for identification and reference purposes only and shall not be
used to construe or interpret this Agreement.
2.9 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2.10 Costs And Attorneys' Fees. In the event that any action,
suit or other proceeding is instituted concerning or arising out of this
Agreement or any transaction
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<PAGE>
contemplated hereunder, the prevailing party shall recover all of such party's
costs and attorneys' fees incurred in each such action, suit or other
proceeding, including any and all appeals or petitions therefrom.
* * * * * *
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
THE COMPANY: THE HOLDER:
- ------------ -----------
UNIDIGITAL INC. [ ]
By:________________________ By:____________________________
Title:_____________________ Title:_________________________
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SCHEDULE OF HOLDERS
-------------------
Principal Number of
Holder Amount of Note Warrants
------ -------------- ---------
CRM - 1997 Enterprise Fund LLC $ 200,000 20,000
CRM - Eurycleia, L.P. 200,000 20,000
CRM - U.S. Value Fund Ltd. 200,000 20,000
CRM - EFO Partners, L.P. 200,000 20,000
Ladd Equity Partners 170,000 17,000
CRM - EFO 100,000 10,000
William A. Buik 100,000 10,000
Dr. Eric Katz 100,000 10,000
Jeffrey Leiderman c/o Ashley
Leiderman UGMA 50,000 5,000
Marvin Eisenstadt 50,000 5,000
Harvey Ginsberg & Co. 30,000 3,000
---------- -------
TOTAL: $1,400,000 140,000
========== =======
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is dated as of this 1st day
of March, 1997, is by and between Unidigital Inc., a Delaware corporation with
an office for purposes of this Agreement at 20 West 20th Street, New York, New
York 10011 (hereinafter the "Company" or "Employer") and Peter Saad with an
address at 328 Albany Street, New York, New York 10280 (hereafter the
"Employee").
W I T N E S S E T H :
WHEREAS:
(a) Company wishes to engage the services of Employee to render
services for and on its behalf in accordance with the following terms,
conditions and provisions; and
(b) Employee wishes to perform such services for and on behalf of the
Company, in accordance with the following terms conditions and provisions.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
herein contained the parties hereto intending to be legally bound hereby agree
as follows:
1. EMPLOYMENT
Company hereby employs Employee and Employee accepts such employment
and shall perform his duties and the responsibilities provided for herein in
accordance with the terms and conditions of this Agreement principally in New
York City, New York.
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2. EMPLOYMENT STATUS
Employee shall at all times be Company's employee subject to the terms
and conditions of this Agreement.
3. TERM
The term of this Agreement shall commence on March 1, 1997, and shall
terminate on March 1, 1999, for a total initial term of two (2) years (the
"Term"), and may be extended upon mutually agreed to terms and conditions.
4. POSITION
During Employee's employment hereunder, Employee shall serve as Senior
Vice President and Chief Operating Officer of the Company for United States
Operations. In such positions, Employee shall have the customary powers,
responsibilities and authorities of officers in such positions of corporations
of the size, type and nature of the Company. Employee shall perform such duties
and exercise such powers commensurate with his positions and responsibilities as
shall be reasonably determined from time to time by the William Dye, currently
the Chairman of the Board, President and Chief Executive Officer of the Company,
and shall report directly to William Dye and only to William Dye. Employee shall
be provided with an office, staff and other working facilities consistent with
his positions and as required for the performance of his duties
2
<PAGE>
and as reasonably determined by William Dye. Employee will continue to serve on
the Company's Board of Directors during the Term and so long as he is employed
by the Company hereunder. At such time as Employee's employment hereunder
ceases, for any reason whatsoever, Employee shall immediately submit his
resignation as a member of the Company's Board of Directors.
5. COMPENSATION
(a) For the performance of all of Employee's services to be rendered
pursuant to the terms of this Agreement, Company will pay and Employee will
accept the following compensation:
Base Salary. During the Term, Company shall pay the Employee an initial
base annual salary of $200,000 (the "Base Salary") payable in regular
installments in accordance with the Company's usual payment practices (which
currently is in equal biweekly installments). Employee shall be entitled to such
further increases, if any, in his Base Salary as may be determined from time to
time in the sole discretion of William Dye; but, in any event, Employee shall be
entitled to receive an annual increase equal to the increase in the CPI for the
New York Metropolitan Area over the base period, as hereinafter used, on an
annual basis. The base period for determining whether Employee shall be entitled
to any increase in the Base Salary shall be the month of February 1997. The
increase in the Base Salary, if any, will be based upon the amount the CPI
increased from February 1997 to February 1998 and if there is an increase it
shall be effective in
3
<PAGE>
March 1998. Employee's Base Salary, as in effect from time to time, is
hereinafter referred to as the "Employee's Base Salary".
(b) Company shall deduct and withhold from Employee's compensation all
required taxes, including but not limited to Social Security, withholding and
otherwise, and any other applicable amounts required by law or any taxing
authority.
6. EMPLOYMENT BENEFITS
During the Term hereof and so long as Employee is not terminated,
Employee shall receive and be provided health insurance benefits including
medical, hospitalization, stock option rights (which are limited to the option
to acquire 100,000 shares of the common stock of Company previously granted in
accordance with the procedures and provisions of the Company's 1995 Long-Term
Stock Investment Plan -- with the understanding that 50,000 of such options vest
as of the date of this Agreement and 25,000 of such options vest on the six (6)
month anniversary of this Agreement and the remaining 25,000 options vest on the
twelve (12) month anniversary of this Agreement) and other such programs
established by the Company, (collectively "Employee Benefits") on the same basis
as those other benefits are generally made available to the executives of the
Company provided Employee qualifies for them.
4
<PAGE>
In the event this Agreement is terminated:
(a) by Employer with cause, any stock option rights that are then
vested shall remain vested in Employee consistent with the terms of this
Agreement and any unvested stock option rights shall be forfeited ab initio;
(b) by Employer without cause, any stock option rights that are then
vested and any stock options rights that will be vested within three (3) months
from the date of the termination shall be and remain vested in Employee
consistent with the terms of this Agreement and any unvested stock option rights
not due to vest within three (3) months shall be forfeited ab initio;
(c) by Employee, any stock option rights that are then vested shall
remain vested in Employee consistent with the terms of this Agreement and any
unvested stock option rights shall be forfeited ab initio; and
(d) by virtue of the expiration of the Term, Employee shall retain all
vested option rights for a period of ninety (90) days if the shares underlying
the options have been registered and for a period of two (2) years for the
options on underlying shares that are unregistered. Employee shall be entitled
to receive not less than six weeks vacation for year one and four weeks vacation
for year two during the Term and Employee may accrue vacation or receive
compensation at the current level.
5
<PAGE>
7. BUSINESS EXPENSES AND PERQUISITES
(a) Employee shall be entitled to receive reimbursement from the
Company for reasonable travel (business class), entertainment and other business
expenses incurred by Employee in the performance of his duties hereunder and
such amount shall be reimbursed by the Company on a monthly basis and in
accordance with Company policies then in effect.
(b) Employee shall be entitled to an automobile allowance of $750 per
month during the Term and so long as Employee's employment hereunder is not
terminated.
8. TERMINATION
(a) For Cause by the Company
(i) Employee's employment hereunder may be terminated by the
Company for cause. For purposes of this Agreement, "cause" shall mean (u)
Employee's willful dishonesty that is serious enough to have a materially
detrimental effect upon the Company's best interests, (v) Employee's gross
negligence provided such acts relate to the Company, (w) Employee's breach of a
material term or provision of this Agreement which is not cured or ceased within
thirty (30) days after forwarding to Employee written notice setting forth the
breach, (x) Employee's misconduct of a nature that is serious enough to have a
materially detrimental effect upon the Company's best interest,
6
<PAGE>
(y) Employee's unjustified failure to perform his duties hereunder or to follow
reasonable directions of William Dye, the Company's Board of Directors, which is
not cured or ceased within thirty (30) days after forwarding to Employee written
notice setting forth the breach, and (z) Employee's conviction of, or plea of
nolo contendere to, any crime constituting a felony under the laws of the
United States or any State thereof, or any crime constituting or involving moral
turpitude.
(ii) If Employee is terminated for cause, he shall be entitled to
receive Employee's Base Salary from Company through the date of termination and
Employee shall be entitled to no other payments of Employee's Base Salary under
this Agreement. Under all circumstances Employee shall keep his options which
have vested. All other benefits, if any, due Employee following Employee's
termination of employment pursuant to this Subsection 8 (a) shall be determined
in accordance with the plans, policies and practices of the Company for
executives.
(b) Disability or Death.
(i) Employee's employment hereunder shall terminate upon his death
or if Employee becomes physically or mentally incapacitated and is therefore
unable (or will as a result thereof, be unable) for a period of four (4)
consecutive months or for an aggregate of eight (8) months in any twenty-four
(24) consecutive month period to perform his duties (such incapacity is
hereinafter referred to as "Disability"). Any question as to the existence of
the Disability of Employee as to which Employee and the
7
<PAGE>
Company cannot agree shall be determined in writing by a qualified independent
physician mutually acceptable to Employee and the Company. If Employee and the
Company cannot agree as to a qualified independent physician, each shall appoint
such a physician and those two physicians shall select a third who shall make
such determination in writing to the Company and Employee shall be final and
conclusive for all purposes of this Agreement.
(ii) Upon termination of Employee's employment hereunder
during the Term as a result of death, Employee's estate or named
beneficiary(ies) shall receive from the Company (x) Employee's Base Salary at
the rate in effect at the time of Employee's death through the end of the month
in which his death occurs and (y) the proceeds of any life insurance policy
maintained for his benefit by the Company.
(iii) All other benefits, if any, due Employee following
Employee's termination of employment pursuant to this Subsection 8(b) shall be
determined in accordance with the plans, policies and practices of the Company.
(c) Without Cause by the Company.
(i) If Employee's employment is terminated by the Company
without cause (other than by reason of Disability or death), then Employee shall
be entitled to payment from the Company, in an amount equal to six (6) months of
Employee's Base Salary to be paid to Employee during immediately succeeding next
bi-weekly intervals. All other benefits, if any, due Employee following
Employee's termination of employment pursuant to this Subsection 8(c)(i) shall
be paid for the first six (6) months
8
<PAGE>
immediately following Employee's termination hereunder. Also, any stock options
rights that are then vested and any stock option rights that will be vested
within three months from the date of the termination shall be and remain vested
in Employee consistent with the terms of this agreement. If Employer lawfully
terminates employment hereunder, Employee shall have two (2) years from the date
of termination to exercise vested options, if any, if the underlying shares are
unregistered; and if the underlying share are registered, then Employee shall
have ninety (90) days from the date of termination to exercise vested options,
if any.
(d) Termination by Employee. If Employee wishes to terminate his
employment with the Company for any reason, Employee must afford Company with at
least one full month's written notice of termination. Such termination by
Employee shall not be deemed a breach of this Agreement. If Employee lawfully
terminates his employment hereunder, Employee shall have two (2) years from the
date of termination to exercise vested options, if any, if the underlying shares
are unregistered; and if the underlying shares are registered, then Employee
shall have ninety (90) days from the date of termination to exercise vested
options, if any.
(e) Change of Control. For purpose of this Agreement "Change of
Control" shall mean (i) any transaction or series of transactions (including,
without limitation, a tender offer, merger or consolidation) the result of which
is that any "person" or "Group" (within the meaning of Sections 13(d) and 14(d)
(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
becomes the "beneficial" owners (as defined in
9
<PAGE>
Rule 13(d)(3) under the Securities Exchange Act of 1934) of more than fifty
percent (50%) of the total aggregate voting power of all classes of the voting
stock of the Company and/or warrants or options to acquire such voting stock,
calculated on a fully diluted basis, or (ii) a sale of assets constituting all
or substantially all of the assets of the Company (determined on a consolidated
basis). In the event of such a Change of Control the new entity shall be
obligated to perform the Company's obligation under the terms of this Agreement.
9. NON-DISCLOSURE OF INFORMATION
Employee acknowledges that by virtue of his position he will be privy
to the Company's trade secrets including but not limited to Company's customer
list and private processes, as they may exist or as Company may determine from
time to time, and that such secrets are valuable, special, and unique assets of
Company's business and constitute confidential information and trade secrets of
Employer (hereafter collectively "Confidential Information"). Employee shall
not, while employed hereunder and for a period of twenty four (24) months
thereafter, intentionally 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 Employee and any other person
by, through or with Employee, while employed hereunder and for a period of
twenty four months (24) thereafter, intentionally make use of any of the
Confidential Information for any purpose or for the benefit of any other person
or entity, other than Company, under
10
<PAGE>
any circumstances. Company and Employee agree that a violation of the foregoing
covenants will cause irreparable injury to the Company, and that in the event of
a breach or threatened breach by Employee of the provisions of this Section,
Company shall be entitled to an injunction restraining Employee from:
(a) Disclosing, in whole or in part, any Confidential Information to
any person, firm, corporation, association or other entity to whom any such
information, in whole or in part, has been disclosed or is threatened to be
disclosed in violation of this Agreement.
(b) Continuing such injurious actions.
Nothing herein stated shall be constructed as prohibiting the Company
from pursuing any other rights and remedies, at law or in equity, available to
the Company for such breach or threatened breach, including the recovery of
damages from the Employee.
10. RESTRICTIVE COVENANT.
Without the prior written approval of the Company's Board of Directors
first obtained:
(a) For a period of three (3) months after the termination of this
Agreement irrespective of whether Employee is desirous of extending the Term or
Employer is desirous of extending the Term, Employee covenants and agrees that,
within a radius of twenty five (25) miles from each of the then present place(s)
of Company's business or any other area in which Company is engaged in business,
he shall not own, manage,
11
<PAGE>
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
venture, officer, director or shareholder of a corporation or other entity (this
excludes ownership of less than five (5%) percent of any public company), of any
business similar to or competitive with the type of business conducted by
Company at the time of the termination or expiration of this Agreement and for
an additional three (3) months immediately thereafter Employee further covenants
and agrees he shall not, directly or indirectly, in any manner whatsoever
interfere with, solicit or disrupt or attempt to interfere with, solicit or
disrupt the relationship, contractual or otherwise, between Company and any
customer, supplier, lessee or employee of Company, its parent or subsidiaries.
Employer shall have the absolute right to extend the three (3) month
non-compete, non-solicitation period for up to an additional eighteen (18)
months upon the transmission of written notice to Employee. Employer shall
notify Employee of its intent to exercise the option at the expiration of the
initial three (3) month cumulative period. If the Employer chooses to extend the
initial three (3) month period then the Employer shall make the contemporaneous
payment to Employee of a sum equal to fifty (50%) percent of Employee's Base
Salary for the period that Employer is desirous of extending the period. Such
right may be exercised on a month-to-month basis by Employer upon 30 days
notice.
12
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(b) For the periods set forth in the immediately preceding subparagraph
(a) Employee covenants and agrees that within a radius of twenty-five (25) miles
from each of the then present place (s) of Company's business or any other area
in which Company is engaged in business, he shall not render any services to any
person, firm, corporation, association or other entity to whom any confidential
information in whole or in part, has been disclosed or is threatened to be
disclosed in violation of this Agreement.
(c) Company and Employee agree that a violation of either of the
foregoing covenants will cause irreparable injury to the Company, and that in
the event of a breach or threatened breach by Employee of the provisions of this
Section, Company shall be entitled to an injunction.
(d) Employee acknowledges that the restrictions contained in this
Paragraph 10 are reasonable. In that regard, it is the intention of the parties
to this Agreement that the provisions of this Paragraph 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
Paragraph 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
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11. BREACH OR THREATENED BREACH OF COVENANTS.
In the event of Employee's actual or threatened breach of his
obligations under either Paragraph 9 or 10, or both, of this Agreement, in
addition to any other remedies Company may have, Company shall be entitled to
obtain a temporary restraining order and a preliminary and/or permanent
injunction restraining the other from violating these provisions. Nothing in
this Agreement shall be constructed to prohibit Company from pursuing and
obtaining any other available remedies which Company may have for such breach or
threatened breach, whether at law or in equity, including the recovery of
damages from the other.
12. REPRESENTATIONS AND WARRANTIES BY EMPLOYEE.
Employee hereby warrants and represents that he is not subject to or a
party to any restrictive covenants or other agreements that in any way preclude,
restrict, restrain or limit him (a) from being an Employee of Company, (b) from
engaging in the business of Company in any capacity, directly or indirectly, and
(c) from competing with any other persons, companies, businesses or entities
engaged in the business of Company.
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13. NOTICES.
Any notice required, permitted or desired to be given under this
Agreement shall be sufficient if it is in writing and (a) personally delivered
to Employee or an authorized member of Company, (b) sent by overnight delivery,
or (c) sent by registered or certified mail, return receipt requested, to
Employer's or Employee's address as provided in this Agreement or to a different
address designated in writing by either party. In all instances of notices to be
given to Company, a copy by like means shall be delivered to Company's counsel
care of Hoffinger Friedland Dobrish Bernfeld and Stern, 110 East 59th Street,
New York, New York 10022, Attn: Stephen R. Stern, Esq. In all instance of
notices to be given to Employee, a copy by like means shall be delivered to
Employee's counsel care of Kleinberg, Kaplan, Wolff & Cohen, P.C., 551 Fifth
Avenue, New York, New York 10176, Attn: Fredric A. Kleinberg, Esq. Notice is
deemed given on the day it is delivered personally or by overnight delivery, or
five (5) business days after it is received, if transmitted by the United States
Post Office.
14. ASSIGNMENT.
Employee acknowledges that his services are unique and personal.
Accordingly, Employee may not assign his rights or delegate his duties or
obligations under this Agreement. Company's rights and obligations under this
Agreement shall inure to the
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benefit of and shall be binding upon the Company's successors and assigns.
Company has the absolute right to assign it's rights and benefits under the
terms of this Agreement.
15. WAIVER OF BREACH.
Any waiver of a breach of a provision of this Agreement, or any delay
or failure to exercise a right under a provision of this Agreement, by either
party, shall not operate or be construed as a waiver of that or any other
subsequent breach or right.
16. ENTIRE AGREEMENT.
This Agreement contains the entire agreement of the parties. It may not
be changed orally but only by an agreement in writing which is signed by the
parties. The parties hereto agree that any existing employment agreement between
them shall terminate as of the date of this Agreement. All options allocated for
the Term as a non-executive director are to be granted on a pro rata basis for
the time served by Employee in such capacity. These options vest upon the grant
and employee shall have ten (10) years from the date of this Agreement to
exercise these options irrespective of Employee's relationship with the Company.
17. GOVERNING LAW.
This Agreement shall be construed in accordance with and governed by
the internal laws of the State of New York.
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18. SEVERABILITY
The invalidity or non-enforceability of any provision of this Agreement
or application thereof shall not affect the remaining valid and enforceable
provisions of this Agreement or application thereof.
19. CAPTIONS
Captions in this Agreement are inserted only as a matter of convenience
and reference and shall not be used to interpret or construe any provisions of
this Agreement.
20. GRAMMATICAL USAGE
In construing or interpreting this Agreement, masculine usage shall be
substituted for those feminine in form and vise versa, and plural usage shall be
substituted or singular and vice versa, in any place in which the context so
requires.
21. CAPACITY.
Employee has read and is familiar with all of the terms and conditions
of this Agreement and has the capacity to understand such terms and conditions
hereof. By executing this Agreement, Employee agrees to be bound by this
Agreement and the terms and conditions hereof.
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22. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be original, but all of which together shall constitute
one and the same Agreement.
23. ARBITRATION
Notwithstanding anything herein to the contrary, but except for any
injunction provisions provided for in this Agreement, any claim, dispute or
controversy arising from, related to, involving or pertaining to the terms or
provisions of or relationship created by this Agreement shall be submitted to
binding arbitration under the rules of the American Arbitration Association then
obtaining in the County, City and State on New York and any award or
determination by the American Arbitration Association shall be final and binding
upon the parties. Any such award or determination shall be capable of being
submitted to the United States District Court Southern District of New York or
the New York State Supreme Court for the County of New York as a final judgment
- -- and the parties hereto consent to the jurisdiction of said courts as the
Courts with the sole and exclusive jurisdiction. Each party shall bear his or
its own costs, including but not limited to attorneys fees, of such arbitration
proceedings.
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24. REPRESENTATIVE BY THE COMPANY.
Company hereby represents that this Agreement is duly and validly
authorized and enforceable against the Company in accordance with its terms;
similarly all options granted herein have been duly and validly authorized.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first hereinabove written.
UNIDIGITAL INC.
-----------------------------
By:
-----------------------------
Peter Saad
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AT MAY 31, 1997 AND FOR THE NINE
MONTH PERIOD ENDED MAY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 3,475,176
<SECURITIES> 0
<RECEIVABLES> 7,891,478
<ALLOWANCES> 389,288
<INVENTORY> 0
<CURRENT-ASSETS> 14,165,043
<PP&E> 12,623,927
<DEPRECIATION> 1,346,217
<TOTAL-ASSETS> 31,929,039
<CURRENT-LIABILITIES> 12,167,925
<BONDS> 0
0
0
<COMMON> 32,243
<OTHER-SE> 9,380,251
<TOTAL-LIABILITY-AND-EQUITY> 31,929,039
<SALES> 18,157,668
<TOTAL-REVENUES> 18,157,668
<CGS> 9,624,915
<TOTAL-COSTS> 9,624,915
<OTHER-EXPENSES> 6,018,091
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 695,660
<INCOME-PRETAX> 1,879,794
<INCOME-TAX> 634,378
<INCOME-CONTINUING> 1,245,416
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,245,416
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
</TABLE>
