SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1997
Commission File No. 0-27664
UNIDIGITAL INC.
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(Name of Small Business Issuer 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) 397-0800
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(Issuer's Telephone Number,
Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each class on Which Registered
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
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(Title of Class)
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Check whether the Issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the Issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its fiscal year ended August 31, 1997 were:
$27,261,856.
The aggregate market value of the voting and non-voting Common Stock held
by non-affiliates of the Issuer was: $13,339,679 at October 31, 1997 based on
the last sales price on that date.
State the number of shares outstanding of each of the Issuer's classes of
Common Stock, as of October 31, 1997:
Class Number of Shares
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Common Stock, $.01 par value 3,243,243
The following documents are incorporated by reference into the Annual
Report on Form 10-KSB: Portions of the Issuer's definitive Proxy Statement for
its 1998 Annual Meeting of Stockholders are incorporated by reference into Part
III of this Report.
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TABLE OF CONTENTS
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Item Page
PART I 1. Business......................................................... 1
2. Properties.......................................................10
3. Legal Proceedings............................................... 10
4. Submission of Matters to a Vote of Security Holders............. 10
PART II 5. Market for the Company's Common Equity and Related
Stockholder Matters............................................. 11
6. Management's Discussion and Analysis or Plan of Operation....... 12
7. Financial Statements............................................ 16
8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................. 16
PART III 9. Directors, Executive Officers, Promoters and Control
Persons, Compliance with Section 16 (a) of the
Exchange Act.................................................... 18
10. Executive Compensation......................................... 18
11. Security Ownership of Certain Beneficial Owners
and Management................................................. 18
12. Certain Relationships and Related Transactions................. 18
PART IV 13. Exhibits, List and Reports on Form 8-K......................... 19
SIGNATURES ...................................................................20
EXHIBIT INDEX.................................................................22
FINANCIAL STATEMENTS.........................................................F-1
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PART I
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Item 1. Business.
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General
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Unidigital Inc., together with its wholly-owned subsidiaries (collectively,
the "Company"), provides a full range of digital prepress, four color digital
offset printing, wide format and financial printing products and services to the
New York City, San Francisco, London and Boston markets. Using advanced computer
technology, the Company provides the imaging and reproduction services required
by graphic artists and marketing professionals in connection with the creation
of printed and photographic materials for their clients. The Company's clients
include advertising agencies, publishers, corporations, government agencies,
retailers, marketing communications firms and financial institutions. The
Company's services are designed to afford graphic artists and marketing
professionals the ability to make numerous changes and enhancements in the
design and content of printed materials throughout the design and approval
process, with shorter turnaround times and at reduced costs as compared to
traditional industry methods.
The Company conducts its operations through five wholly-owned subsidiaries:
(i) Unidigital Elements (NY), Inc., formerly known as LinoGraphics Corporation
("Elements (NY)"); (ii) Elements (UK) Limited ("Elements (UK)"); (iii)
Unidigital Elements (SF), Inc., formerly known as LinoGraphics (Delaware)
Corporation ("Elements (SF)"); (iv) Unison (NY), Inc., formerly known as
Unidigital/Cardinal Corporation ("Unison (NY)"); and (v) Unison (MA), Inc.,
formerly known as Unidigital/Boris Corporation ("Unison (MA)"). Elements (NY)
engages in the digital prepress and four color digital offset printing business
in New York City. Elements (UK) engages in the digital prepress and four color
digital offset printing business in London. In addition, Elements (UK), through
its wholly-owned subsidiary Regent Communications (UK) Limited ("Regent"),
operates a 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"), which was acquired
in May 1997. Elements (SF) operates an on-demand prepress business and
retouching studio in San Francisco. Unison (NY) engages in the digital prepress,
four color digital offset printing and wide format printing businesses in the
New York City area. Unison (MA) engages in the business of four color digital
offset printing, wide format, digital imaging and photographic processing in the
Boston area.
The Company's core services include the following:
Digital Prepress. Digital prepress services involve preparing an image for
reproduction by any of several input, digital retouching, proofing and output
processes.
Four Color Digital Offset Printing. Four color digital offset printing,
also known as "on-demand" or "short-run" printing, involves translating and
integrating computer-generated graphic design and content into a four color
printed image on a digital printing press. The advantage of the four color
digital printing process is realized in time and cost savings to clients by
replacing traditional color separations, metal printing plates and graphic
processes with digital technology.
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Wide Format. Wide format output allows for large format printing produced
from graphic digital files. Inkjet, electrostatic and laser technologies are
utilized to produce wide format images on different substrates for specific
applications. Retail point of purchase displays, posters and signage are the
most common uses for these technologies. The Company also provides commercial
photographic products and services that utilize digital imaging technology for
the production of traditional photographic materials.
Financial Printing. The Company's financial printing services include the
production, formatting and printing of corporate finance and research documents
for corporate clients. The Company utilizes both traditional and digital print
technology to produce these documents. Digital printing and expertise in the
financial market are especially important for their customers, who often require
documents printed on-demand in both four color and black and white.
The Company's logos are trademarks of the Company. All other trademarks and
trade names referred to in this Form 10-KSB are the property of the respective
owners and are not the property of the Company.
The statements contained in this Annual Report on Form 10-KSB that are not
historical facts are forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995) that involve risks and
uncertainties. Such forward-looking statements may be identified by, among other
things, the use of forward-looking terminology such as "believes," "expects,"
"may," "will," "should" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy that
involve risks and uncertainties. From time to time, the Company or its
representatives have made or may make forward-looking statements, orally or in
writing. Such forward-looking statements may be included in various filings made
by the Company with the Securities and Exchange Commission (the "SEC"), or press
releases or oral statements made by or with the approval of an authorized
executive officer of the Company. These forward-looking statements, such as
statements regarding anticipated future revenues, capital expenditures, and
other statements regarding matters that are not historical facts, involve
predictions. The Company's actual results, performance or achievements could
differ materially from the results expressed in, or implied by, these
forward-looking statements. Potential risks and uncertainties that could affect
the Company's future operating results include, but are not limited to: (i)
economic conditions, including economic conditions related to the digital print
industry; (ii) the availability of equipment from the Company's vendors at
current prices and levels; (iii) the intense competition in the markets for the
Company's products and services; (iv) the Company's ability to integrate
acquired companies and businesses in a cost-effective manner; (v) the Company's
ability to effectively implement its branding strategy; and (vi) the Company's
ability to develop, market, provide, and achieve market acceptance of new
service offerings to new and existing clients.
The Company was incorporated in Delaware in 1995 when it effected a merger
of its predecessor companies into a new Delaware corporation for the sole
purpose of relocating its state of
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incorporation from New York to Delaware. The address of the Company's principal
executive offices is 545 West 45th Street, New York, New York 10036, and its
telephone number is (212) 397-0800.
Acquisition Strategy
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As part of its on-going business strategy, the Company seeks to acquire
companies and businesses in markets with concentrations of graphic artists and
marketing professionals. In furtherance of this strategy, the Company has
consummated four acquisitions since February 1996. In March 1996, the Company
acquired certain assets of TX Unlimited, Inc. ("TX"), a San Francisco,
California based graphics arts company. In August 1996, the Company acquired
substantially all of the assets of Cardinal Communications Group, Inc. and its
affiliate C-Max Graphics, Inc., a New York City based company which provided
digital prepress, digital printing and wide format services in the New York
metropolitan area (the "Cardinal Acquisition"). The Cardinal Acquisition marked
the Company's entry into short-run color digital print services in the New York
City market. In April 1997, the Company acquired substantially all of the assets
of Boris Image Group, Inc., a Boston, Massachusetts based company which
principally engaged in the business of photographic, wide format and digital
imaging (the "Boris Acquisition"). The Boris Acquisition increased the Company's
presence by entering the Boston market and enhanced its position in the
photographic, wide format, digital printing and digital imaging market. In May
1997, the Company acquired all of the capital stock of Libra, a London-based
financial printer (the "Libra Acquisition"). The Libra Acquisition has enabled
the Company to market its services to both the financial and commercial
marketplace in the London market.
Services and Markets
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Digital Prepress
The Company provides a comprehensive array of high quality digital prepress
services including the production and finishing of photographic quality or high
resolution color proofs, production of electronic color separations,
imagesetting, retouching, production of plate-ready films and digital scanning
of artwork. These services are a necessary step between the creative process and
the actual printing of a graphic design. Digital prepress services provided by
the Company fall into two broad categories: input services and output services.
-- Input Services
Scanning is an input service that utilizes digital optic technology to
digitize photographic transparencies, negatives, prints or other
artwork which is then color corrected, retouched to specifications and
stored on tape, disk or CD-ROM media.
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-- Output Services
Output services include printing images of digitized files onto a
variety of substrates such as high quality color proofs which vary in
size and resolution, prepress products required for volume printing of
a design, camera-ready art for printer's mechanicals, plate-ready film
for a high quality color work, contract or Match Prints(TM),
imagesetting and color separation.
Four Color Digital Offset Printing
The Company provides four color digital offset printing services, in the
New York City, London and Boston markets. Four color digital offset printing is
implemented by utilizing two Canon CLC 1000 digital color copiers, four Indigo
E-Print 1000 digital printing presses and one Heidelberg QuickMaster DI four
color digital printing press. These digital printing presses allow for four
color process printing that is both less expensive and quicker than traditional
production processes by eliminating the traditional production needs of color
separations, metal plates and other pre-production processes. Each press offers
different advantages to end-users in speed, production, quality and cost.
-- Canon CLC 1000
The Canon CLC 1000 is utilized for print runs of 1 to 500. The Canon
CLC 1000 produces multiple copies immediately from a digital file with
none of the pre-production processes traditional printing employs.
-- Indigo E-Print 1000
The Indigo E-Print 1000 is targeted for print runs of 1 to 1,000. The
Indigo E-Print 1000 produces high quality four color printing on a
variety of paper stocks within 24 hours.
-- Heidelberg QuickMaster DI
The Heidelberg QuickMaster DI targets print runs between 500 and
5,000. The Heidelberg QuickMaster DI also produces high quality four
color printing on a variety of paper stocks within 24 hours, but in
longer print runs.
Traditional finishing and bindery services are also provided as ancillary
services to these digital printing processes. The Company's London operations
offer finished "on-demand" documents using the Xerox Docutech(TM), a high speed
digital press. The Company's black and white digital printing services are
generally used for the production of financial documents. With the introduction
of its digital color printing service in New York, London and Boston, using the
Canon CLC 1000, the Indigo E-Print 1000 and the Heidelberg QuickMaster DI, the
Company enables its clients to take a design through the approval, production
and printing phases at one location with one vendor.
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Wide Format
The Company provides digital and traditional photographic solutions for
graphic artists and marketing professionals. Graphic applications for wide
format products and services include point of purchase displays for retailers,
trade show graphics, vehicle graphics, interior architectural signage, museum
displays, outdoor signage, outdoor banners, floor graphics, art murals and
courtroom displays. The Company utilizes the following digital wide format
devices:
-- Iris(TM)
Iris(TM) output devices produce a high quality, continuous tone color
output on a variety of paper stocks.
-- NovaJet(TM)
NovaJet(TM) inkjet devices produce full color quality graphics on
paper, vinyl, transparency or canvas substrates from digital files.
-- Cactus(TM)
Cactus(TM) output devices utilize color toner based plotter technology
that is timely, cost effective and can be finished in a variety of
ways.
-- Durst Lambda(TM)
Durst Lambda(TM) output produces laser printing on photographic
substrates from digital files. This technology utilizes three lasers
to precisely expose continuous tone full color images and designs onto
mural size photographic print or transparency substrates.
Financial Printing
The Company provides financial printing services to financial institutions
in the London market. The Company's black and white and four color digital
offset printing services provide financial printing clients a resource for
responsive, accurate corporate finance and research documents delivered in a
time sensitive manner. Financial printing services are available on a 24-hour
basis and include typesetting, formatting and remote locations for the printing
of financial documents.
Ancillary Products and Services
The Company also provides ancillary products and services associated with
its core services such as:
-- Photographic Printing and Processing
The Company, through Unison (MA), operates a commercial photographic
lab that produces traditional photographic printing and photo
processing.
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-- Mounting and Lamination
In connection with the production of digital prepress color proofs,
digital four color offset printing and wide format printing, the
Company offers mounting and laminating in a variety of substrates and
finishes, along with many finishing services.
-- Production Services
The Company also provides production services to magazine publishers
and advertising agencies involving both digital prepress services and
production work. Production services include placing scanned images
into existing layouts and image manipulation.
-- Interlinks
As a value-added service, the Company offers a remote output service
via a high speed telecommunications link between its New York City,
San Francisco, London and Boston offices whereby a client with
computer-generated files in one location can have immediate access to
output at the other location while maintaining uniform standards of
quality control and customer service at constant prices.
Customers
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The Company's customers consist of graphic design firms, marketing
communications departments, financial institutions, advertising agencies,
publishers, corporations and individual graphic artists, as well as businesses
in a variety of industries requiring large display graphics and specialized
digital offset printing services, including financial printing. The Company
receives individual orders from customers on a project-by-project basis rather
than under long-term service contracts. Continued engagements for successive
jobs are dependent primarily upon customers' satisfaction with the quality of
previous services. Many of the Company's customer relationships are
long-standing, and the Company believes that its relationships with customers
and its reputation for quality service are excellent. The Company has a
diversified client base, with the largest client accounting for less than 4% of
fiscal 1997 net sales.
Sales and Marketing
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The Company markets its services to a broad and diverse client base
encompassing various industries by direct sales methods targeted at existing and
potential customers. The Company sells its services utilizing sales persons and
a director of sales in each of its locations. In developing its on-demand
digital printing services, the Company seeks customers from its existing client
base and by specifically targeting and marketing to other end-users of printed
color media encompassing a broad base of industries. The Company uses various
marketing methods including direct mail, product samples, trade shows,
promotions and internet sites. The Company also mails out extensive collateral
material on products and services offered, testimonials of previous projects and
"how to" sheets for file preparation. The internet site is a repository for
information on products and services, press releases on the Company, up-coming
events and industry news.
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In March 1997, the Company implemented a branding strategy to better market
the Company's diverse products and services. There are three brands utilized by
the Company: Elements, with locations in New York City, San Francisco and London
(the "Elements Group"), Unison, with locations in New York City, San Francisco
and Boston (the "Unison Group"), and the "Regent Group," a consolidation of
Regent and Libra, in the London market. The Elements Group, via telemarketing
and direct mail, sells primarily to graphic artists and marketing professionals
who design and prepare files for reproduction. The New York and London
operations are open 24 hours a day, 6 days a week. Projects are priced from a
published price list. The Unison Group sells its products and services to
primarily corporate clients, marketing and communications departments in large
corporations, advertising agencies and publishers. Sales are consultative in
nature, largely project driven and are not usually subject to a published price
list. The Regent Group sells primarily to financial institutions, government
agencies and corporations. Sales are consultative in nature and project based.
To date, the Company has not yet been able to determine the impact that the
branding strategy has had on the Company's financial performance.
Competition
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The Company's businesses operate in highly competitive and fragmented
markets. Competition in the commercial printing industry, wide format
photo-imaging and financial printing industry is based on several factors,
including quality, price and speed of turnaround. The Company's competitors
include other providers of digital prepress services, digital four color offset
and commercial printers, wide format, and financial print providers.
Digital Prepress Providers
The Company competes directly with other digital prepress providers, which
generally are smaller companies and provide some, but not all of the services
provided by the Company, as well as storefront copy shops which provide some of
the Company's lower-end services such as the printing of color proofs. Other
direct competitors include traditional providers of prepress services, which may
have greater financial, marketing and other resources than the Company, and the
in-house graphics departments of large consumers of prepress services, such as
advertising agencies and large corporations. The Company believes that, at
present, only the largest consumers can economically perform these services
in-house. However, as technology improves and becomes less expensive (as it
historically has), the Company expects that it will lose a portion of its
business to existing or potential clients who purchase digital prepress
equipment and perform some portion of their prepress requirements in-house. The
Company believes it can effectively compete with in-house providers due to its
ability to provide services 24 hours a day, 6 days a week, at competitive
prices. In addition, since the Company serves hundreds of clients annually, the
Company is able to spread the capital cost of the equipment quickly, thereby
permitting the Company to make frequent upgrades and to purchase and lease
state-of-the-art equipment which in-house providers may not be able to do on a
cost-effective basis.
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The Company believes that to remain competitive it must maintain existing
customer relationships and recognize, develop and leverage new technologies and
additional services which meet the evolving needs of its client base.
Digital Four Color Offset and Commercial Printers
The Company's digital on-demand printing business faces competition from
conventional printers which have added, or plan to add, digital presses.
Further, many of the Company's prepress competitors have purchased digital
presses. The Company believes it has several competitive advantages over
conventional printers and prepress service providers. First, the Company
currently handles a large number of relatively small jobs and has the capability
to process such small jobs on a volume basis with the proper service mentality.
Second, the Company has existing clients which the Company believes are likely
to become users of digital presses. Third, because digital printing provides
another type of output from the graphic artist's computer files and because the
Company's clients are accustomed to using the Company for output services, the
Company believes its customers will begin to use the Company to provide this
value-added service. Finally, unlike certain of its competitors, the Company
presently possesses the computer hardware, software and expertise to support
digital printing.
The Company competes indirectly with commercial printers which often
provide prepress services to their clients in connection with volume printing
services. The Company believes that it has a competitive advantage over such
conventional printers for several reasons. Unlike many printers, the Company's
operations are located in large urban areas with high concentrations of
corporate clients and graphic artists, thereby facilitating rapid turnaround and
direct client contact. In addition, most printers either cannot support or do
not have broad experience supporting the hardware and software widely used by
graphic artists. In contrast, the Company believes that it has the expertise to
support the digital printing services required by graphic artists.
Wide Format
The Company competes in a wide format marketplace that is rapidly growing.
This industry is characterized by many smaller companies often servicing narrow
market channels such as law firms, local retailers and general display markets.
Such companies are often at a financial disadvantage when competing with the
Company's comprehensive array of output devices, software and inter-company high
speed network. The Company's expertise, output devices, software and network
enable the Company to output and manage large projects that are difficult for
such smaller companies to administer.
Financial Printing
The Company provides document creation services and financial printing
services in the London market only. Although competition is intense, the Company
has, through use of appropriate technology and by providing a comprehensive
range of services, increased its market share.
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There can be no assurance that the Company will be able to continue to
compete successfully with existing and new competitors in any of the Company's
markets.
Government Regulation
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The industry, while not heavily regulated, is subject to federal, state,
and local laws, regulations and ordinances governing the removal and handling of
hazardous waste. The Company believes it is in compliance in all material
respects with such laws, regulations and ordinances and maintains these
standards through internal control and disposal methods at each location.
Hazardous substances resulting from prepress, digital printing and photographic
processes are disposed of by third party vendors in each of the local markets in
which the Company conducts its operations. To date, the cost of compliance with
such laws, regulations and ordinances has not been material. In the event the
Company expands its operations, it may be subject to additional environmental
laws, regulations or ordinances, including requirements to obtain certain
environmental permits. The Company cannot predict the environmental legislation
or regulations that may be enacted in the future or how existing or future laws
or regulations will be administered or interpreted. Developments such as
additional requirements imposed by more stringent laws or regulations, as well
as vigorous enforcement policies of regulatory agencies or stricter
interpretation of existing laws may require additional expenditures by the
Company, some or all of which may be material.
Employees
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As of October 31, 1997, the Company employed 314 persons, approximately 308
of whom are full-time employees. Of such employees, 204 are employed in the
United States and 104 are employed in the United Kingdom. None of the Company's
employees is covered by a collective bargaining agreement. The Company considers
its employee relations to be satisfactory.
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Item 2. Properties.
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The Company owns its principal executive offices in New York City, totaling
approximately 34,000 square feet of commercial real estate. Such property is
subject to a first priority lien held by The Chase Manhattan Bank as security
for the Company's borrowings under its credit facilities. In addition, the
Company currently leases approximately 9,500 square feet in New York City, under
leases which expire in 1999 and that contain a one-year renewal option. The
Company also leases approximately 10,300 square feet in London, which leases
expire in 2000. In addition, in connection with the Libra Acquisition, the
Company acquired a lease for approximately 8,900 square feet in London. The
Company is currently renegotiating such lease. In connection with the Boris
Acquisition, Unison (MA) assumed a lease for approximately 37,500 square feet in
Boston, which lease expires in December 1998 and has a five-year renewal option.
Finally, the Company occupies approximately 2,900 square feet of space in San
Francisco pursuant to a month-to-month lease. The Company believes that its
current facilities are suitable and adequate for its current operations and
short-term foreseeable needs, and that it will be able to renew these leases or
obtain alternative space for such facilities upon the expiration of the current
leases. Additional facilities will be required to support growth as the Company
expands into new geographic areas.
Item 3. Legal Proceedings.
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There is no material litigation pending to which the Company is a party or
to which any of its properties is subject.
Item 4. Submission of Matters to a Vote of Security Holders.
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Not applicable.
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PART II
Item 5. Market for the Company's Common Equity and Related Stockholder
Matters.
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Prior to February 1, 1996, there was no established market for the
Company's Common Stock. Since February 1, 1996 the Common Stock has been quoted
on the Nasdaq National Market under the symbol "UNDG."
The following table sets forth the high and low sales prices for the
Company's Common Stock for the quarters indicated (since February 1, 1996) as
reported by the Nasdaq National Market. The quotes represent inter-dealer prices
without adjustments or mark-ups, mark-downs or commissions and may not represent
actual transactions.
Common Stock
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Quarter ended High Low
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February 29, 1996........................ $6 7/8 $5
May 31, 1996 ............................ $9 1/4 $4 7/16
August 31, 1996.......................... $8 5/8 $5 11/16
November 30, 1996........................ $6 3/4 $4 1/8
February 28, 1997........................ $6 1/8 $4 1/2
May 31, 1997............................. $5 7/8 $4 13/16
August 31, 1997.......................... $8 $5 3/8
As of October 31, 1997 the approximate number of holders of record of the
Common Stock was 36 and the approximate number of beneficial holders of the
Common Stock was 325.
The Company has not paid or declared cash dividends on its Common Stock
since its inception. The Company currently intends to retain any future earnings
to finance the growth of the business and, therefore, does not anticipate paying
any cash dividends in the foreseeable future. Furthermore, the Company's credit
facility contains a covenant which prohibits the Company from paying dividends
or making other distributions.
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Item 6. Management's Discussion and Analysis or Plan of Operation.
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General
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The Company provides a full range of digital prepress, four color digital
offset printing, wide format and financial printing products and services to the
New York City, San Francisco, London and Boston markets. Using advanced computer
technology, the Company provides the imaging and reproduction services required
by graphic artists and marketing professionals in connection with the creation
of printed and photographic materials for their clients. The Company's clients
include advertising agencies, publishers, corporations, government agencies,
retailers, marketing communications firms and financial institutions. The
Company's services are designed to afford graphic artists and marketing
professionals the ability to make numerous changes and enhancements in the
design and content of printed materials throughout the design and approval
process, with shorter turnaround times and at reduced costs as compared to
traditional industry methods.
Results of Operations
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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, consummated 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. Such acquisitions have been accounted for under the purchase method
of accounting and, therefore, results of operations from such acquisitions are
included in the Company's consolidated financial statements from the date of the
respective acquisition.
Comparison of Fiscal Years Ended August 31, 1997 and August 31, 1996
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Net sales. Net sales for the fiscal year ended August 31, 1997 increased by
134%, or $15,602,038, to $27,261,856 from $11,659,818 for the fiscal year ended
August 31, 1996. Net sales for the Company's United States operations increased
by 193%, or $10,731,956, from $5,560,975 in the fiscal year ended August 31,
1996 to $16,292,931 in the fiscal year ended August 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 fiscal year ended August 31,
1997. Net sales for the Company's United Kingdom operations increased by 80%, or
$4,870,082, from $6,098,843 in the fiscal year ended August 31, 1996 to
$10,968,925 in the fiscal year ended August 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.
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Cost of sales. Cost of sales for the fiscal year ended August 31, 1997
increased by 157%, or $8,827,995, to $14,449,663 from $5,621,668 for the fiscal
year ended August 31, 1996. As a percentage of net sales, cost of sales
increased from 48% for the fiscal year ended August 31,1996 to 53% for the
fiscal year ended August 31, 1997. Cost of sales for the Company's United States
operations increased as a percentage of net sales from 44% for the fiscal year
ended August 31, 1996 to 48% for the fiscal year ended August 31, 1997. Such
increase was attributable primarily to higher costs associated with increased
digital print and wide format services provided by the Company's United States
operations. Costs of sales for the Company's United Kingdom operations increased
as a percentage of net sales from 52% for the fiscal year ended August 31, 1996
to 61% for the fiscal year ended August 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. Selling, general and
administrative expenses ("SG&A") increased 139%, or $5,623,597, from $4,049,474
for the fiscal year ended August 31, 1996 to $9,673,071 for the fiscal year
ended August 31, 1997. Such increase was attributable primarily to the increased
level of operations which resulted from the Cardinal Acquisition, the Boris
Acquisition and the Libra Acquisition, the hiring of additional management and
administrative personnel, costs associated with the Company's acquisitions and
the Company's status as a publicly held company. As a percentage of net sales,
SG&A remained constant at 35% for the fiscal years ended August 31, 1996 and
1997.
Income from operations. Income from operations for the fiscal year ended
August 31, 1997 increased 58%, or $1,150,446, to $3,139,122 from $1,988,676 for
the fiscal year ended August 31, 1996. Of this amount, $1,199,585 was
contributed by the Company's United States operations and $1,939,537 by the
Company's United Kingdom operations. 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 and financial print
services.
Net interest expense. Net interest expense for the fiscal year ended August
31, 1997 increased $1,110,702, to $1,205,110 from $94,408 for the fiscal year
ended August 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, the Boris Acquisition and the Libra
Acquisition.
Income taxes. Income taxes for the fiscal year ended August 31, 1997 decreased
by 44%, or $471,047, to $593,280 from $1,064,327 for the fiscal year ended
August 31, 1996. The Company currently pays Federal, state and local income tax
for its United States operations where it previously paid only local corporate
income tax on United States operations through January 1996 as a result of its
Subchapter S corporation status. As a result of the termination of the Company'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 fiscal year ended August 31, 1996.
-13-
<PAGE>
Net income. As a result of the factors described above, net income for the
fiscal year ended August 31, 1997 increased by 62%, or $510,791, to $1,340,732
from $829,941 for the fiscal year ended August 31, 1996.
Liquidity, Capital Resources and Other Matters
- ----------------------------------------------
Cash flow. Net cash provided by operations was $488,481 for the fiscal year
ended August 31, 1997 and $1,488,318 for the fiscal year ended August 31, 1996.
Net cash used in investing activities was $6,896,171 for the fiscal year ended
August 31, 1997 and $3,056,770 for the fiscal year ended August 31, 1996. The
Company used $1,367,586 and $1,279,502 for the acquisition of property and
equipment during such respective periods. For the fiscal year ended August 31,
1997 and the fiscal year ended August 31, 1996, the Company acquired equipment
under capital leases of $1,710,767 and $1,013,849, respectively, and made
payments under capital leases of $1,761,154 and $692,311, respectively. Net bank
borrowings provided funds of $7,442,946 for the fiscal year ended August 31,
1997 and $2,457,902 for the fiscal year ended August 31, 1996.
Bank credit facilities. The Company has borrowing arrangements with
commercial banks in both New York and London. The Company has combined credit
facilities with its New York bank 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 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 or at the Adjusted LIBO
Rate, as defined, plus 0.25% in the United States and 2.25% in the United
Kingdom. As of August 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 Sterling)1,145,000
(approximately $1,855,000) 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
Sterling)600,000 and bear interest at 2.75% over the Bank's Base Rate for
borrowings in excess of such amount. At August 31, 1997, the Company had an
outstanding balance of (Pound Sterling)1,101,123 (approximately $1,784,150)
under these lines of credit which bear interest at a rate of 9.47% 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 Sterling)500,000.
-14-
<PAGE>
As of August 31, 1997, the Company was not in compliance with all covenants
under its credit facilities with its New York bank, but received a waiver from
such bank for such noncompliance.
Other loans. Between May 1997 and July 1997, the Company borrowed an
aggregate principal amount of $4,000,000 pursuant to certain unsecured five-year
loans (the "Unsecured Loans"). The holders of the Unsecured Loans have the
option to put such loans to the Company after one year. In connection with the
Unsecured Loans, the Company granted five-year warrants to the lenders to
purchase up to an aggregate amount of 400,000 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 $602,000, have been recorded as deferred financing costs, which
are being amortized on a straight-line basis over one year.
In addition, in connection with the Cardinal Acquisition, the Company
assumed a loan in the principal amount of $350,000 payable to the United States
Small Business Administration. Such loan matures on December 1, 2014. As of
August 31, 1997, the Company had an outstanding balance of $334,368 under such
loan. In connection with the Boris Acquisition and the acquisition of certain
assets of TX, the Company issued promissory notes to the respective sellers as
part of the consideration paid for such acquisitions. In the TX acquisition, the
Company issued a promissory note in the principal amount of $85,000. Such note
is payable in eight quarterly installments and matures in September 1998. As of
August 31, 1997, the Company had an outstanding balance of $42,500 under such
note. In the Boris Acquisition, the Company issued a promissory note in the
principal amount of $150,000. Such note is payable in two equal installments and
matures on January 15, 1999. As of August 31, 1997, the Company had an
outstanding balance of $150,000 under such note. Finally, the Company has a term
loan in the principal amount of $1,400,000 with its New York bank. Such term
loan matured on September 1, 1997. At September 1, 1997, such term loan was
rolled over into the Company's line of credit facility.
The Company expects that cash flow from operations will be sufficient to
fund its capital lease obligations, debt service payments, potential earn-outs,
capital expenditures and operations for at least 12 months. The Company may
require additional financing to consummate future acquisitions or to repay the
Unsecured Loans. 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 $4,508,700 from
$2,319,343 at August 31, 1996 to a working capital deficit of $2,189,357 at
August 31, 1997. Such decrease was attributable primarily to increased capital
lease and debt obligations incurred in connection with the Cardinal Acquisition,
the Boris Acquisition and the Libra Acquisition offset, in part, by increased
net income.
-15-
<PAGE>
Acquisitions. On April 4, 1997, Unison (MA) 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 (45,480 shares); (iv) a potential earn-out payment of up to
$500,000 payable 90 days after the end of the Company's 1998 fiscal year; and
(v) options to purchase 50,000 shares of the Company's Common Stock at fair
market value.
On May 22, 1997, Elements (UK) consummated the Libra Acquisition. The
purchase price included cash payments of (Pound Sterling)1,823,750
(approximately $2,972,700) and a potential earn-out payment of up to (Pound
Sterling)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.
Item 7. Financial Statements.
- ----------------------------
The financial statements required to be filed pursuant to this Item 7 are
included in this Annual Report on Form 10-KSB. A list of the financial
statements filed herewith is found at "Item 13. Exhibits, List and Reports on
Form 8-K."
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
- --------------------------------------------------------------------------------
On August 28, 1996, Unidigital selected Ernst & Young LLP to act as
independent accountants for the Company and informed the prior auditors,
Cornick, Garber & Sandler, LLP, the Company's independent accountants since
October 1995, of its decision. In connection with its audits for each of the two
years in the period ended August 31, 1995 and thereafter, there were no
disagreements with the prior auditors on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures. The
prior auditors' report on the Company's financial statements for each of the two
years in the period ended August 31, 1995 contained no adverse opinion or
disclaimer of opinion and was not modified or qualified as to uncertainty, audit
scope, or accounting principles. The decision to change accountants was approved
by the Board of Directors of the Company. The prior auditors have furnished the
Company with a letter addressed to the SEC stating their agreement with the
above statements. Such letter appeared as Exhibit 16 to the Company's Current
Report on Form 8-K filed with the SEC on September 4, 1996. Prior to retaining
Ernst & Young LLP, the Company had not
-16-
<PAGE>
consulted with Ernst & Young LLP regarding accounting principles or the type of
opinion that would be rendered on the Company's financial statements.
-17-
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons, Compliance
with Section 16(a) of the Exchange Act.
- --------------------------------------------------------------------------------
The information relating to the Company's directors, nominees for election
as directors and executive officers under the headings "Election of Directors"
and "Executive Officers" in the Company's definitive proxy statement for the
1998 Annual Meeting of Stockholders is incorporated herein by reference to such
proxy statement.
Item 10. Executive Compensation.
- ---------------------------------
The discussion under the heading "Executive Compensation" in the Company's
definitive proxy statement for the 1998 Annual Meeting of Stockholders is
incorporated herein by reference to such proxy statement.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
- -------------------------------------------------------------------------
The discussion under the heading "Security Ownership of Certain Beneficial
Owners and Management" in the Company's definitive proxy statement for the 1998
Annual Meeting of Stockholders is incorporated herein by reference to such proxy
statement.
Item 12. Certain Relationships and Related Transactions.
- ---------------------------------------------------------
The discussion under the heading "Certain Relationships and Related
Transactions" in the Company's definitive proxy statement for the 1998 Annual
Meeting of Stockholders is incorporated herein by reference to such proxy
statement.
-18-
<PAGE>
PART IV
Item 13. Exhibits, List and Reports on Form 8-K
- ------------------------------------------------
(a) (1) Financial Statements.
Reference is made to the Index to Financial Statements on Page F-1.
(a) (2) Financial Statement Schedules.
None.
(a) (3) Exhibits.
Reference is made to the Exhibit Index on Page 22.
(b) Reports on Form 8-K.
On June 6, 1997, the Company filed a Current Report on Form 8-K with
the SEC relating to the Libra Acquisition. Such Form 8-K also
disclosed 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.
On August 5, 1997, the Company filed a Current Report on Form 8-K/A
containing required financial statements and pro forma information
relating to the acquisition disclosed in its Current Report on Form
8-K filed on June 6, 1997.
-19-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized this 12th day of
December, 1997.
UNIDIGITAL INC.
By:/s/William E. Dye
-----------------------------------
William E. Dye, President and Chief
Executive Officer
-20-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/William E. Dye President, Chief Executive December 12, 1997
- ------------------- Officer and Chairman of the
William E. Dye Board of Directors (principal
executive, financial and
accounting officer)
/s/Anthony Manser Vice President and Director December 12, 1997
- ------------------
Anthony Manser
/s/Peter Saad Senior Vice President, December 12, 1997
- ------------------- Chief Operating Officer
Peter Saad and Director
/s/Harvey Silverman Director December 12, 1997
- -------------------
Harvey Silverman
/s/David Wachsman Director December 12, 1997
- -------------------
David Wachsman
-21-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
No. Description of Exhibit
- ------- ----------------------
3.1 Certificate of Incorporation. Incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement which became
effective February 1, 1996 (File number 33-99656).
3.2 By-Laws. Incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement which became effective February
1, 1996 (File number 33-99656).
3.3 Certificate of Amendment of Certificate of Incorporation.
Incorporated by reference to Exhibit 3.3 to the Company's
Registration Statement which became effective February 1, 1996
(File number 33-99656).
4.1 Form of Representative's Warrant Agreement including form of
Representative's Warrant, between the Company and the
Representative. Incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement which became effective February
1, 1996 (File number 33-99656).
4.2 Form of Warrant, together with Schedule of Holders. Incorporated
by reference to Exhibit 4.2 to the Company's Current Report on
Form 8-K dated June 6, 1997.
4.3 Form of Warrant, together with Schedule of Holders. Incorporated
by reference to Exhibit 4.2 to the Company's Quarterly Report on
Form 10-QSB for the quarter ended May 31, 1997.
4.4 Form of Promissory Note, together with Schedule of Holders.
Incorporated by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K dated June 6, 1997.
4.5 Form of Subordinated Promissory Note, together with Schedule of
Holders. Incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
May 31, 1997.
4.6 Form of Registration Rights Agreement, together with Schedule of
Holders. Incorporated by reference to Exhibit 4.3 to the
Company's Current Report on Form 8-K dated June 6, 1997.
4.7 Form of Registration Rights Agreement, together with Schedule of
Holders. Incorporated by reference to Exhibit 4.3 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
May 31, 1997.
-22-
<PAGE>
Exhibit
No. Description of Exhibit
- ------- ----------------------
9.1 Voting Trust Agreement dated as of November 3, 1995 between
William E. Dye and Jeffrey W. Leiderman. Incorporated by
reference to Exhibit 9.1 to the Company's Registration Statement
which became effective February 1, 1996 (File number 33-99656).
10.1* Employment Agreement dated as of November 2, 1995 between William
E. Dye and the Company. Incorporated by reference to Exhibit 10.1
to the Company's Registration Statement which became effective
February 1, 1996 (File number 33-99656).
l0.2* Employment Agreement dated March l, 1997 between Anthony Manser
and Elements (UK).
10.3* Employment Agreement dated as of March 1, 1997 by and between
Unidigital Inc. and Peter Saad. Incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-QSB for
the quarter ended May 31, 1997.
10.4 Separation Agreement between Unidigital Inc. and Stephen McErlain
dated July 15, 1996. Incorporated by reference to Exhibit 10.17
to the Company's Annual Report on Form 10-KSB for the fiscal year
ended August 31, 1996.
10.5 Separation Agreement between Unidigital Inc. and Michael Brown
dated September 18, 1997.
10.6 Lease Agreement dated March 1994 between Dezer Properties and
LinoGraphics for Suite 1004. Incorporated by reference to Exhibit
10.7 to the Company's Registration Statement which became
effective February 1, 1996 (File number 33-99656).
10.7 Lease Agreement dated August 1995 between Dezer Properties and
LinoGraphics for Suite 504. Incorporated by reference to Exhibit
10.8 to the Company's Registration Statement which became
effective February 1, 1996 (File number 33-99656).
10.8 Lease Agreement dated as of April 20, 1995 between The Stock
Exchange (Holdings) Limited and Lyledale Limited for 69 Wilson
Street. Incorporated by reference to Exhibit 10.9 to the
Company's Registration Statement which became effective February
1, 1996 (File number 33-99656).
10.9 Lease Agreement dated as of December 25, 1994 between Collin
Estates Limited and Lyledale Limited for 48 Margaret Street.
Incorporated by reference to Exhibit 10.10 to the Company's
Registration Statement which became effective February 1, 1996
(File number 33-99656).
10.10* 1995 Unidigital Inc. Long-Term Stock Investment Plan.
Incorporated by reference to Exhibit 10.11 to the Company's
Registration Statement which became effective February 1, 1996
(File number 33-99656).
-23-
<PAGE>
Exhibit
No. Description of Exhibit
- ------- ----------------------
10.11* 1995 Directors Stock Option Plan. Incorporated by reference to
Exhibit 10.12 to the Company's Registration Statement which
became effective February 1, 1996 (File number 33-99656).
10.12* 1997 Equity Incentive Plan. Incorporated by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 10-QSB for the
quarter ended February 28, 1997.
10.13* 1997 Non-Employee Director Stock Option Plan. Incorporated by
reference to Exhibit 10.3 to the Company's Quarterly Report on
Form 10-QSB for the quarter ended February 28, 1997.
10.14 Asset Purchase Agreement dated November 22, 1995 between
LinoGraphics and TX Unlimited, Inc. Incorporated by reference to
Exhibit 10.13 to the Company's Registration Statement which
became effective February 1, 1996 (File number 33-99656).
10.15 Stock Purchase Agreement dated as of August 9, 1995 among Jeffrey
W. Leiderman, William E. Dye and Stephen J. McErlain.
Incorporated by reference to Exhibit 10.14 to the Company's
Registration Statement which became effective February 1, 1996
(File number 33-99656).
10.16 Share Purchase Agreement By Way of Deed dated as of August 9,
1995 among Jeffrey W. Leiderman, William E. Dye, Stephen J.
McErlain and Anthony Manser. Incorporated by reference to Exhibit
10.15 to the Company's Registration Statement which became
effective February 1, 1996 (File number 33-99656).
10.17 Asset Purchase Agreement dated as of August 2, 1996 by and among
Unidigital Inc., Unidigital/Cardinal Corporation, Cardinal
Communications Group Inc., C-Max Graphics, Inc., and each of Mark
and Sheldon Darlow. Incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K dated August 19, 1996.
10.18 Asset Purchase Agreement dated as of April 4, 1997 by and among
Unidigital Inc., Unidigital/Boris Corporation, Boris Image Group,
Inc., Leslie W. Brewer, II and Michael Hartnett. Incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-QSB for the quarter ended February 28, 1997.
10.19 Share Purchase Agreement by Way of Deed dated May 22, 1997 by and
among Unidigital Inc., Elements (UK) Limited, Libra City
Corporate Printing Limited, Francis Allen, Robin Bishop, Kenneth
Dellow, Edward Tylee, Invesco English and International Trust,
and Baronsmead Investment Trust. Incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K dated
June 6, 1997.
-24-
<PAGE>
Exhibit
No. Description of Exhibit
- ------- ----------------------
10.20 Credit facilities between Elements (UK) Limited and Regent
Communication (UK) Limited and Lloyds Bank. Incorporated by
reference to Exhibit 10.22 to the Company's Annual Report on Form
10-KSB for the fiscal year ended August 31, 1996.
10.21 Credit Agreement dated as of April 3, 1997, among Unidigital
Elements (NY), Inc., Unidigital/Cardinal Corporation, Unidigital
Elements (SF), Inc., Unidigital/Boris Corporation and The Chase
Manhattan Bank. Incorporated by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
February 28, 1997.
10.22 Amended Revolving Credit Note dated April 3, 1997 in the
aggregate principal amount of $4,500,000 evidencing a revolving
credit facility with The Chase Manhattan Bank.
10.23 Amended Line Loan Note dated April 3, 1997 in the aggregate
principal amount of $3,850,000 evidencing line of credit facility
with The Chase Manhattan Bank.
10.24 Security Agreement dated as of April 3, 1997, among Unidigital
Elements (NY), Inc., Unidigital/Cardinal Corporation, Unidigital
Elements (SF), Inc., Unidigital/Boris Corporation and The Chase
Manhattan Bank. Incorporated by reference to Exhibit 10.7 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
February 28, 1997.
10.25 Pledge Agreement dated as of April 3, 1997 made by Unidigital
Inc. in favor of The Chase Manhattan Bank. Incorporated by
reference to Exhibit 10.8 to the Company's Quarterly Report on
Form 10-QSB for the quarter ended February 28, 1997.
10.26 Guarantee Agreement dated as of April 3, 1997 made by Unidigital
Inc. in favor of The Chase Manhattan Bank. Incorporated by
reference to Exhibit 10.9 to the Company's Quarterly Report on
Form 10-QSB for the quarter ended February 28, 1997.
10.27 Waiver and Amendment Agreement dated as of July 1, 1997, among
Unidigital Elements (NY), Inc., Unidigital/Cardinal Corporation,
Unidigital Elements (SF), Inc., Unidigital/Boris Corporation,
Unidigital Inc. and The Chase Manhattan Bank.
10.28 Pledge Security Agreement dated as of July 1, 1997, between
Unidigital Inc. and The Chase Manhattan Bank.
-25-
<PAGE>
Exhibit
No. Description of Exhibit
- ------- ----------------------
10.29 Second Waiver and Amendment Agreement dated as of October 1,
1997, among Unidigital Elements (NY), Inc., Unison (NY), Inc.
(formerly known as Unidigital/Cardinal Corporation), Unidigital
Elements (SF), Inc., Unison (MA), Inc. (the successor by merger
to Unidigital/Boris Corporation), Unidigital Inc. and The Chase
Manhattan Bank.
10.30 Supplement dated as of October 1, 1997 to the Security Agreement
dated as of April 3, 1997, among Unidigital Elements (NY), Inc.,
Unidigital Elements (SF), Inc., Unidigital/Cardinal Corporation,
Unidigital/Boris Corporation and The Chase Manhattan Bank.
10.31 Supplement dated as of October 1, 1997 to the Pledge and Security
Agreement dated as of April 3, 1997, between Unidigital Inc. and
The Chase Manhattan Bank.
16 Letter re: Change in Certifying Accountants. Incorporated by
reference to Exhibit 16 to the Company's Current Report on Form
8-K dated September 4, 1996.
21 Subsidiaries of the Company.
27 Financial Data Schedule.
- -------------------------------------------
* A management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 13(a) of Form 10-KSB.
-26-
<PAGE>
UNIDIGITAL INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Auditors..............................................F-2
Consolidated Balance Sheets as of
August 31, 1997 and 1996.................................................F-3
Consolidated Income Statement for the
years ended August 31, 1997 and 1996.....................................F-4
Consolidated Statement of Cash Flows for the
years ended August 31, 1997 and 1996.....................................F-5
Consolidated Statement of Stockholders' Equity
for the years ended August 31, 1996 and 1997.............................F-6
Notes to Consolidated Financial Statements..................................F-7
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Unidigital Inc.
We have audited the consolidated balance sheets of Unidigital Inc. as of August
31, 1997 and 1996 and the related consolidated statements of income, cash flows
and stockholders' equity for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Unidigital Inc. at August 31, 1997 and 1996 and the consolidated results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
Ernst & Young LLP
November 18, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
Unidigital Inc.
Consolidated Balance Sheets
August 31,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Assets
Cash and cash equivalents .......................................... $ 3,202,766 $ 4,145,514
Accounts receivable, net of allowance of $266,000
in 1997 and $201,000 in 1996 .................................... 9,752,807 3,207,857
Deferred financing costs, net ...................................... 463,931 --
Prepaid expenses ................................................... 1,529,664 758,602
Other current assets ............................................... 765,760 76,527
------------ ------------
Total current assets ............................................... 15,714,928 8,188,500
Property and equipment, net ........................................ 11,899,475 8,594,985
Intangible assets, net ............................................. 5,330,923 797,213
Other assets ....................................................... 87,964 42,628
------------ ------------
Total assets ....................................................... $ 33,033,290 $ 17,623,326
============ ============
Liabilities and stockholders' equity
Accounts payable and accrued expenses .............................. $ 5,181,684 $ 1,792,973
Current portion of capital lease obligations ....................... 1,998,443 1,476,076
Liability for cancellation of options .............................. -- 202,930
Current portion of long-term debt .................................. 10,018,332 1,819,773
Income taxes payable ............................................... 551,235 216,366
Loans and notes payable to stockholders ............................ 154,591 361,039
------------ ------------
Total current liabilities .......................................... 17,904,285 5,869,157
Capital lease obligations, net of current portion .................. 2,875,577 1,974,033
Long-term debt, net of current portion ............................. 2,127,796 1,898,865
Deferred income taxes .............................................. 445,000 516,596
Loans and notes payable to stockholders, net of current portion .... 207,496 --
------------ ------------
Total liabilities .................................................. 23,560,154 10,258,651
Stockholders' equity:
Preferred stock, par value $.01; 5,000,000 shares authorized;
none issued and outstanding ................................... -- --
Common stock, par value $.01; 10,000,000 shares
authorized; 3,243,243 shares and 3,189,216 shares
issued and outstanding in 1997 and 1996, respectively ......... 32,432 31,892
Additional paid-in capital ...................................... 6,291,613 5,462,153
Retained earnings ............................................... 3,237,984 1,897,252
Cumulative foreign translation adjustment ....................... (88,893) (26,622)
------------ ------------
Total stockholders' equity ......................................... 9,473,136 7,364,675
------------ ------------
Total liabilities and stockholders' equity ......................... $ 33,033,290 $ 17,623,326
============ ============
See notes to consolidated financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Unidigital Inc.
Consolidated Income Statements
Year ended August 31
1997 1996
------------ ------------
<S> <C> <C>
Revenues
Net sales ................................................................. $ 27,261,856 $ 11,659,818
Expenses
Cost of sales ............................................................. 14,449,663 5,621,668
Selling, general and administrative expenses .............................. 9,673,071 4,049,474
------------ ------------
Total operating expenses .................................................. 24,122,734 9,671,142
------------ ------------
Income from operations .................................................... 3,139,122 1,988,676
Interest expense .......................................................... (1,094,628) (326,805)
Interest expense-deferred financing costs ................................. (138,069) --
Interest and other income ................................................. 27,587 232,397
------------ ------------
Income before income taxes ................................................ 1,934,012 1,894,268
Provision for income taxes (including
nonrecurring provision relating to termination of
subchapter S status in 1996) ........................................... 593,280 1,064,327
------------ ------------
Net income ................................................................ $ 1,340,732 $ 829,941
============ ============
Net income per common share ............................................... $ 0.41 $ 0.31
============ ============
Weighted average common shares outstanding ................................ 3,272,809 2,643,828
============ ============
Pro forma income data (Notes 2 and 10):
Historical income before income taxes .................................. $ 1,894,268
Pro forma adjustment for principal stockholder/officers'
compensation........................................................... 72,769
------------
Pro forma income before income taxes ................................... 1,967,037
Pro forma income taxes ................................................. 794,616
------------
Pro forma net income ................................................... $ 1,172,421
============
Pro forma net income per common share .................................. $ 0.44
============
See notes to consolidated financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Unidigital Inc.
Consolidated Statement of Cash Flows
Year ended August 31
1997 1996
--------------------------------
<S> <C> <C>
Operating activities
Net income ................................................................ $ 1,340,732 $ 829,941
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ........................................ 2,193,570 1,056,845
Provision for deferred income taxes .................................. 24,432 415,060
Provision for bad debts .............................................. 102,417 103,849
Stock compensation ................................................... 50,000 --
Changes in assets and liabilities net of effects of businesses acquired:
Accounts receivable .................................................... (3,242,341) (963,734)
Prepaid expenses and other current assets .............................. (5,046,364) (565,783)
Other assets ........................................................... (170,680) (21,723)
Accounts payable and accrued expenses .................................. 5,007,655 729,598
Income taxes payable ................................................... 229,420 (95,735)
--------------------------------
Net cash provided by operating activities ................................. 488,841 1,488,318
--------------------------------
Investing activities
Additions to property and equipment ....................................... (1,367,586) (1,279,502)
Business acquisitions ..................................................... (5,528,585) (1,777,268)
--------------------------------
Net cash used in investing activities ..................................... (6,896,171) (3,056,770)
--------------------------------
Financing activities
Payments of capital lease obligations ..................................... (1,761,154) (692,311)
Payments for cancellation of options ...................................... (213,402) (356,185)
Proceeds from long-term debt .............................................. 7,520,691 2,635,656
Payments of long-term debt ................................................ (77,745) (177,754)
Stockholder repayments .................................................... -- (327,556)
Dividends paid ............................................................ -- (750,000)
Proceeds from sale of common stock, net of issuance costs ................. (36,000) 5,224,045
--------------------------------
Net cash provided by financing activities ................................. 5,432,390 5,555,895
--------------------------------
Effect of foreign exchange rates on cash .................................. 32,192 (28,731)
--------------------------------
Net (decrease)increase in cash and cash equivalents ....................... (942,748) 3,958,712
Cash and cash equivalents at beginning of year ............................ 4,145,514 186,802
--------------------------------
Cash and cash equivalents at end of year .................................. $ 3,202,766 $ 4,145,514
================================
Supplemental disclosures
Interest paid ............................................................. $ 1,260,633 $ 257,742
================================
Income taxes paid ......................................................... $ 725,946 $ 889,673
================================
Non-cash transactions
Equipment acquired under capital lease obligations ........................ $ 1,710,767 $ 1,013,849
================================
Dividends payable as note ................................................. $ -- $ 498,000
================================
Business acquisitions net of liabilities of $5,451,958 (1997)
and $2,096,909 (1996) .................................................. $ 1,436,234 $ 1,062,268
================================
See notes to consolidated financial statements
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
Unidigital Inc.
Consolidated Statement of Stockholders' Equity
Additional Foreign Total
Common Paid-In Retained Translation Stockholders'
Stock Capital Earnings Adjustment Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at August 31, 1995 (combined predecessors) .... 3,015 $ 162,803 $ 2,450,834 $ (12,017) $ 2,604,635
Cost of cancellation of options to purchase
an additional interest in Elements ................. (162,803) (118,538) (281,341)
Exchange of S corporation stock ....................... (3,015) (16,985) (20,000)
Formation (including merger of Elements (NY),
Elements (UK) and Elements (SF)) ................... 20,000 20,000
Issuance of 1,150,000 shares of common stock in
connection with the Initial Public Offering ........ 11,500 5,212,545 5,224,045
Issuance of 39,216 shares of common stock in
connection with the Unison (NY) asset acquisition .. 392 249,608 250,000
Dividends paid ........................................ (1,248,000) (1,248,000)
Net income ............................................ 829,941 829,941
Foreign currency translation adjustment ............... (14,605) (14,605)
-----------------------------------------------------------------------
Balance at August 31, 1996 ............................ 31,892 5,462,153 1,897,252 (26,622) 7,364,675
Issuance of 45,480 shares of common stock in
connection with the Unison (MA) asset acquisition .. 455 249,545 250,000
Additional Initial Public Offering costs .............. (72,000) (72,000)
Issuance of 400,000 warrants in connection with
financing .......................................... 602,000 602,000
Issuance of 8,547 shares of common stock as employee
compensation ....................................... 85 49,915 50,000
Net income ............................................ 1,340,732 1,340,732
Foreign currency translation adjustment ............... (62,271) (62,271)
------------------------------------------------------------------------
Balance at August 31, 1997 ............................ 32,432 $ 6,291,613 $ 3,237,984 $ (88,893) $ 9,473,136
========================================================================
See notes to consolidated financial statements
</TABLE>
F-6
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements
August 31, 1997
1. Organization
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 ("Unison (NY)"), and Unidigital/Boris Corporation ("Unison (MA)").
Elements (NY) engages in the on-demand print and digital prepress business in
New York City. Elements (UK) engages in the on-demand print and digital prepress
business and, through its wholly-owned subsidiary, Regent Communications (UK)
Limited ("Regent"), operates a financial 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"). Elements (SF) owns and operates the San Francisco on-demand prepress
business and retouching studio. Unison (NY) engages in the digital prepress and
digital printing business services to advertising agencies and corporations in
the New York City area. Unison (MA) engages in the business of digital imaging
and photographic processing in the Boston area.
In February 1996, Unidigital completed an Initial Public Offering (the "IPO") of
1,150,000 shares of its Common Stock at a price of $6.00 per share, realizing
aggregate net proceeds of approximately $5,200,000. The Company used a portion
of the net proceeds of the IPO to repay certain indebtedness under the Company's
credit facilities.
2. Basis of Presentation and Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company invests excess daily cash balances in commercial paper with
maturities not exceeding 30 days. The Company considers such investments to be
cash equivalents.
F-7
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements (continued)
2. Basis of Presentation and Summary of Significant Accounting Policies
(continued)
Risks and Uncertainties
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Credit is extended based on an evaluation of the customer's financial
conditions, and generally advance payment is not required. Anticipated credit
losses are provided for in the consolidated financial statements and
consistently have been within management's expectations.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided on the straight-line method over the estimated useful
lives ranging from: three years for vehicles and computer software, five to
seven years for machinery and equipment, furniture and office equipment, 40
years for real property including related improvements and leasehold
improvements over the lesser of the estimated useful life of the leasehold
improvement or the term of the related lease including exercisable renewal
options.
Intangible Assets
Intangible assets relate to the excess of purchase price over the fair value of
the net tangible assets acquired, ("goodwill"), which is being amortized over 15
years. Amortization of approximately $172,000 and approximately $33,000 was
recorded for the years ended August 31, 1997 and 1996, respectively. Accumulated
amortization at August 31, 1997 and 1996 was $239,000 and $67,000, respectively.
It is the Company's policy to account for goodwill at amortized cost. As part of
an ongoing review of the valuation and amortization of intangible assets,
management assesses the carrying value of the Company's intangible assets if
facts and circumstances suggest that it may be impaired. If this review
indicates that the intangibles will not be recoverable as determined by a
nondiscounted cash flow analysis of the Company over the remaining amortization
period, the carrying value of the Company's intangibles would be reduced to its
estimated realizable value.
F-8
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements (continued)
2. Basis of Presentation and Summary of Significant Accounting Policies
(continued)
Deferred Financing Costs
Deferred financing costs relate to costs incurred in connection with debt
financing which are amortized over the term of the related debt.
Stock Options
In accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," ("APB 25") compensation costs for stock is
recognized in income based on the excess, if any, of the quoted market price of
the stock at the grant date of the award or other measurement date over the
amount an employee must pay to acquire that stock.
In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock Based Compensation," ("FAS 123") which establishes
financial accounting and reporting standards for stock based employee
compensation plans and the issuance of warrants and similar instruments. The
Company has elected the disclosure only provisions of FAS 123 and to continue
accounting for the stock based compensation under the provisions of APB 25.
Reclassification of certain financial information
Certain amounts have been reclassified to conform with the current year
presentation.
Foreign Currency Translation
The portion of the Company's financial statements relating to the United Kingdom
operations are translated into U.S. dollars using period exchange rates
((pound)1= $1.62 and $1.56 at August 31, 1997 and 1996, respectively, for
balance sheet accounts) and average exchange rates ((pound)1= $1.64 and $1.55
for the year ended August 31, 1997 and 1996, respectively, for the income
statement accounts). The translation difference is reflected as a separate
component of stockholders' equity.
F-9
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements (continued)
2. Basis of Presentation and Summary of Significant Accounting Policies
(continued)
Fair Value of Financial Instruments
The carrying values of financial instruments approximate their estimated fair
value as a result of variable market interest rates and/or the short term
maturity of these instruments.
Income Statement--Pro Forma Information
The 1996 pro forma information on the income statement gives effect to the
historical combined results of operations adjusted for (i) the reduced level of
salaries paid to the principal stockholder/officer and the former partner and
(ii) the income tax effect of Elements (NY) changing from Subchapter S status,
as if these had occurred effective September 1, 1995 (see Note 10). Pro forma
net income per common share is based on pro forma net income and the weighted
average number of common shares outstanding.
Income Taxes
The Company accounts for income taxes under the liability method as required by
Statement of Financial Accounting Standards Board Statement No. 109 ("FAS 109"),
"Accounting for Income Taxes." FAS 109 requires an asset and liability approach
to financial accounting and reporting for income taxes. Under this approach,
differences between financial statement and tax bases of assets and liabilities
are determined, and deferred income tax assets and liabilities are recorded for
those differences that have future tax consequences. Valuation allowances are
established, if necessary, to reduce any deferred tax asset recorded to an
amount that will more likely than not be realized in future periods. Income tax
expense is composed of the current tax payable or refundable for the period plus
or minus the net change in deferred tax assets and liabilities.
Earnings Per Share
Earnings per share is based on the weighted average number of common shares
outstanding for each period presented. Common stock equivalents are included if
dilutive.
F-10
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements (continued)
2. Basis of Presentation and Summary of Significant Accounting Policies
(continued)
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share," which is required to be adopted for years ending
after December 15, 1997. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock options and warrants will be
excluded. Statement No. 128 is not expected to have a material impact on the net
income and pro forma net income per share.
3. Acquisitions
As part of the purchase of Regent in March 1995, two of its former stockholders
were each granted an option to acquire for (pound)50,000 an additional 6-1/2%
share interest in Elements exercisable upon a public floatation of its stock. In
November 1995, the options were cancelled in consideration for payments of
approximately (pound)180,000 (approximately $281,000). At August 31, 1997 such
amounts have been paid.
In March 1996, the Company purchased certain assets for $170,000 and assumed
certain liabilities aggregating $140,500 of TX Unlimited Inc., a San Francisco,
California based graphics arts company. The purchase price included an $85,000
payment at closing and a $85,000 note.
In August 1996, the Company acquired certain assets of Cardinal Communications
Group, Inc. and C-Max Graphics, Inc. The purchase price included cash payments
of $1,450,000, issuance of $250,000 of restricted Common Stock of the Company
(39,216 shares) and the assumption of certain liabilities. During 1997, the
final determination of the fair value of the net assets acquired were completed.
The final purchase price of $2,040,000, which includes costs incurred in
connection with the acquisition approximated the fair value of the net assets
acquired. The purchase agreement requires additional payments based on the
future five year performance, with a maximum earn-out of $1,500,000. The
potential earn-out will be recorded as additional purchase price when earned.
F-11
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements (continued)
3. Acquisitions (continued)
In April 1997, the Company purchased certain assets and assumed certain
liabilities of Boris Image Group, Inc. The aggregate purchase price consisted of
the following: (i) cash payments of $1,725,000; (ii) an aggregate of $300,000 in
guaranteed future payments of Boris Image Group and its management team; (iii)
$250,000 in restricted common Stock of the Company (45,480 shares); (iv) a
potential earn-out payment of up to $500,000 payable 90 days after the end of
the Company's 1998 fiscal year; and (v) options to purchase 50,000 shares of the
Company's common stock at fair market value. The Company funded the purchase
from its credit facility arrangements with its New York bank. The total purchase
price of $2,511,000, which includes costs incurred in connection with the
acquisition, exceeded the tangible net assets acquired by approximately
$2,601,000, which has been recorded as goodwill. The potential earn-out will be
recorded as additional purchase price when earned.
In May 1997, the Company acquired all of the issued and outstanding capital
stock of Libra. The aggregate purchase price consisted of cash payments of
(pound)1,823,750 (approximately $2,972,000) 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 unsecured five-year loans
and a line of credit from its United Kingdom bank. The total purchase price of
approximately (pound)2,208,000 (approximately $3,577,000), which includes costs
incurred in connection with the acquisition, exceeded the tangible net assets
acquired by approximately (pound)1,280,000 (approximately $2,074,000), which has
been recorded as goodwill.
The aforementioned acquisitions were accounted for using the purchase method of
accounting and the results of operations have been included in the accompanying
financial statements from their respective dates of acquisitions.
F-12
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements (continued)
3. Acquisitions (continued)
The following unaudited pro forma information is presented as if the Company had
completed the aforementioned acquisitions, and the related borrowings at the
beginning of the respective periods.
August 31,
1997 1996
-------------------------------
Net sales .............................. $35,284,257 $34,676,550
Net income ............................. 877,352 465,952
Net income per share ................... 0.27 0.18
4. Property and Equipment
Property and equipment consist of the following:
August 31,
1997 1996
-------------------------------
Buildings ...................................... $ 2,224,258 $ 2,057,789
Machinery and equipment ........................ 9,001,782 7,608,765
Furniture and office equipment ................. 2,855,918 297,310
Computer software .............................. 1,219,090 185,926
Leasehold improvements ......................... 667,834 380,396
Vehicles ....................................... 191,954 12,105
------------ ------------
Total .......................................... 16,160,836 10,542,291
Less accumulated depreciation and amortization (4,261,361) (1,947,306)
------------ ------------
$ 11,899,475 $ 8,594,985
============ ============
F-13
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements (continued)
5. Debt
Debt consists of the following:
<TABLE>
<CAPTION>
Facility Amount Outstanding
Amount August 31,
August 31, ---------------------------
1997 1997 1996
------------------------------------------
<S> <C> <C> <C>
Lines of credit in the United States; interest at
prime rate plus 1/2% .................................. $ -- $ -- $ 553,000
Credit facilities in the United Kingdom; interest at the
bank's overdraft rate plus 3%; facility amount is
approximately(pound)1,145,000 ($1,855,000) ............ 1,855,000 1,784,150 1,188,973
Revolving line of credit; matures April 30, 2000,
interest at Alternate Base Rate or Adjusted LIBO Rate,
as defined, plus 1/4% in the United States plus 2.25%
in the United Kingdom ................................. 4,500,000 1,725,000 --
Lines of credit; interest at Alternate Base Rate or
Adjusted LIBO Rate, as defined, plus 1/4% in the
United States plus 2.25% in the United Kingdom ........ 3,850,000 2,710,110 --
Term loan, matures March 11, 2001; monthly installments
of $2,500 plus interest at prime plus 1/2% or at a
fixed rate determined at the time of borrowing ........ -- -- 141,665
Term loan; matures September 1, 1997; monthly interest at
prime ................................................. 1,400,000 1,400,000 1,400,000
SBA loan, matures December 1, 2014; monthly payments of
$3,665; interest at prime rate plus 2.74% ............. 350,000 334,368 350,000
Installment note due seller of Elements (SF); payable in
eight (8) quarterly installments of $11,600 including
interest at 6% ........................................ 85,000 42,500 85,000
Loans from private investors, beginning May 1997,
maturing between May 2002 and August 2002; interest at
10% for first six months, 11% for second six months
and 12% thereafter .................................... 4,000,000 4,000,000 --
Installment note due seller of Unison (MA), matures
January 15, 1999, payable in two equal installments of
$75,000 plus interest at 8% ........................... 150,000 150,000 --
----------- -----------
12,146,128 3,718,638
Less current portion ..................................... 10,018,332 1,819,773
----------- -----------
$ 2,127,796 $ 1,898,865
=========== ===========
</TABLE>
F-14
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements (continued)
5. Debt (continued)
In April 1997, the Company renegotiated its credit facility arrangements with
its New York bank, resulting in a combined credit facility for its United States
operations in the aggregate amount of $8,350,000, consisting: (i) $4,500,000
revolving credit facility which is available for corporate acquisition purposes;
(ii) $3,850,000 line of credit facility 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 or at the Adjusted LIBO
Rate, as defined, plus 0.25% in the United States and 2.25% in the United
Kingdom. At September 1, 1997, the Company's $1,400,000 term loan was rolled
over into the Company's line of credit facility.
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, limit borrowings up to
specified amounts of accounts receivable, as defined and limit the payment of
dividends. Amounts outstanding are collateralized by substantially all of the
Company's assets. 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. As of August 31, 1997, the Company was not in compliance
with certain debt covenants and received a waiver from the bank for such non
compliance.
During 1997, the Company borrowed an aggregate principal amount of $4,000,000
pursuant to unsecured five-year loans. Such loans are payable on demand, one
year after the date of issuance. In connection with such loans, the Company
granted five-year warrants to the lenders to purchase up to an aggregate amount
of 400,000 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. Included among the lenders were 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 approximately $602,000 based
on an independent appraisal have been recorded as deferred financing costs, and
are being amortized on a straight-line basis over one year.
F-15
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements (continued)
5. Debt (continued)
Maturities of long term debt are as follows:
August 31, 1997
----------------------
Year ending August 31
1998 $ 10,018,332
1999 84,528
2000 1,734,400
2001 10,500
2002 11,700
Thereafter 286,668
----------------------
$ 12,146,128
======================
6. Obligations Under Capital Leases
The Company leases certain production equipment and vehicles which have been
classified as capital leases. At August 31, 1997 the cost and accumulated
depreciation and amortization of such assets was approximately $7,179,000 and
$1,080,000, respectively. Future minimum payments under these leases are as
follows:
August 31, 1997
----------------------
Year ending:
1998 $ 2,386,513
1999 1,707,022
2000 1,083,495
2001 440,119
2002 18,366
----------------------
Total 5,635,515
Less amount representing interest (761,495)
----------------------
Present value of minimum lease payments 4,874,020
Less current maturities (1,998,443)
----------------------
Noncurrent portion $ 2,875,577
======================
F-16
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements (continued)
7. Loans and Notes Payable to Stockholders
Loans payable to stockholders consist of two loans aggregating approximately
$362,000 of which approximately $155,000 is payable on demand and approximately
$207,000 is due in November 1999. The loans bear interest at 8% per annum.
8. Stock Options
Unidigital's Board of Directors has adopted, and the stockholders of Unidigital
have approved the following stock option plans: (i) the 1995 Unidigital Inc.
Long-Term Stock Investment Plan (the "1995 Stock Plan"); (ii) the 1995 Directors
Stock Option Plan (the "1995 Directors Plan"); (iii) the 1997 Equity Incentive
Plan (the "1997 Plan"); and (iv) the 1997 Non-Employee Director Stock Option
Plan (the "1997 Non-Employee Director Plan"), collectively, 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.
Under the Stock Option Plans as of August 31, 1997, the Company has committed to
grant options to purchase Common Stock as follows: (i) 179,103 shares at
exercise prices ranging from $4.50 to $6.75 per share, vest six months after the
date of grant and are exercisable under the 1995 Stock Plan; (ii) no shares have
been granted under the 1995 Directors Plan; (iii) 60,000 shares at exercise
prices ranging from $5.375 to $5.50 per share, vest on the date of grant and are
exercisable under the 1997 Plan and; (iv) 10,000 shares at an exercise price of
$5.125 per share, vest three months from the date of grant and are exercisable
under the 1997 Non-Employee Director Plan. All stock options were issued at fair
market value at the date of grant and have a ten year term. The options
terminate upon termination of employment.
In connection with the acquisition of Elements (UK), a former shareholder was
issued options, outside the plans, which expire in February 2002, to purchase
50,000 shares of Unidigital Common Stock at an exercise price of $6.00 per
share.
F-17
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements (continued)
8. Stock Options (continued)
A summary of the Company's stock option activity, and related information for
the years ended August 31, 1997 and 1996 is as follows:
Weighted Average
Options Exercise Price
----------------- -----------------
Outstanding--September 1, 1995 50,000 $6.00
Granted 103,500 6.75
----------------- -----------------
Outstanding--August 31, 1996 153,500 6.51
Granted 174,103 4.88
Forfeited (28,500) 6.75
----------------- -----------------
Outstanding and exercisable--
August 31, 1997 299,103 $5.54
================= =================
Pro forma information regarding net income and earnings per share is required by
FAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of FAS 123. The fair value
for these options was estimated at the date of grant using a Black-Scholes
options pricing model with the following weighted-average assumptions for August
31, 1997 and 1996:
August 31
Assumption 1997 1996
-----------------------------
Risk-free rate 5.9--6.9% 6.7--6.9%
Dividend yield - -
Volatility factor of the expected market price
of the Company's common stock .4--.6 .6
Average life 5 years 5 years
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options and stock appreciation rights.
F-18
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements (continued)
8. Stock Options (continued)
The Company's pro forma information follows:
August 31
Assumption 1997 1996
-----------------------------
Pro forma net income $1,014,000 $345,000
Pro forma net income per share $0.31 $0.13
The weighted average fair value of options granted during the years ended August
31, 1997 and 1996 were $2.50 and $3.16, respectively. The weighted average
remaining contractual life of the options outstanding at August 31, 1997 is 8.4
years.
9. Stockholders' Equity
Shares Reserved
The Company has reserved for issuance of 1,217,000 shares of Common Stock as
follows: (i) 675,000 shares of Common Stock upon exercise of options granted or
to be granted under its Stock Option Plans; (ii) issuance of 50,000 shares of
Common Stock upon exercise of options granted in connection with the acquisition
of Elements (UK) (see Note 8); (iii) 92,000 shares of Common Stock upon exercise
of warrants issued to the managing underwriter in connection with the IPO,
exercisable at a price of $7.20 per share for a period of four years commencing
February 1, 1997; and (iv) 400,000 shares of Common Stock upon exercise of
warrants issued in connection with loans to the Company.
F-19
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements (continued)
10. Income Taxes
The following comprises income tax expense:
Year ended August 31,
1997 1996
--------------------------------------
U.S. income taxes:
Current $ 9,000 $ 437,089
Deferred 44,000 357,575
--------------------------------------
53,000 794,664
--------------------------------------
United Kingdom income taxes:
Current 538,642 211,642
Deferred 1,638 58,021
--------------------------------------
540,280 269,663
--------------------------------------
Total $ 593,280 $ 1,064,327
======================================
The following reconciles income tax expense, computed at the statutory United
States Federal corporate rate, to income tax expense:
Year ended August 31,
1997 1996
----------------------
Income taxes at United States Federal statutory rate ... $ 644,324 $ 644,051
State and local income taxes ........................... 55,532 148,814
Nondeductible goodwill expense and difference between
United States and United Kingdom tax rates .......... (106,576) 16,462
Effect of Subchapter S status .......................... -- (112,000)
Effect of termination of Subchapter S election ......... -- 367,000
---------- ----------
Total .................................................. $ 593,280 $1,064,327
========== ==========
F-20
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements (continued)
10. Income Taxes (continued)
The liability for deferred income taxes is based on U.S. and United Kingdom
income tax rates applied to temporary differences in the recognition of income
and expenses for income tax and financial accounting purposes as follows:
Year ended August 31,
1997 1996
------------------------
Deferred tax liabilities:
Use of cash basis for United States income tax
purposes $ 175,041 $ 316,047
Difference in depreciation methods 591,399 260,573
------------------------
Total deferred tax liability 766,440 576,620
Less deferred tax asset:
Allowance for doubtful accounts (122,569) (60,024)
Primarily difference in reporting of royalty (198,871) -
------------------------
Net deferred tax liability $ 445,000 $ 516,596
========================
As part of the Company's initial public offering in February 1996, Elements (NY)
terminated its S Corporation election. Elements (NY) previously filed federal
and state income tax returns under Subchapter S of the Internal Revenue Code in
which its income was reportable by and taxed to its stockholders. Accordingly,
$367,000 of federal, state and local income taxes, applicable to temporary
differences in the recognition of income and expenses for financial accounting
and income tax reporting purposes existing at February 1, 1996, was recorded and
charged to operations for the year ended August 31, 1996. These nonrecurring
charges result solely from the termination of the Subchapter S status in the
United States. Subsequent to February 1, 1996 income taxes on U.S. earnings are
taxed at a combined effective tax rate of approximately 46.5%, whereas
previously, only local income taxes on U.S. earnings were payable at the
corporate level.
F-21
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements (continued)
11. Commitments
The Company leases their premises under operating lease agreements which expire
at various dates through March 2005.
The Company also leases certain production equipment under operating leases
which expire at various dates through August 2001.
Aggregate minimum rental payments for premises and equipment under operating
leases are approximately as follows:
Total Premises Equipment
-----------------------------------------------------
Year ending August 31:
1998 $ 1,147,000 $ 538,000 $ 609,000
1999 1,009,000 543,000 466,000
2000 978,000 543,000 435,000
2001 922,000 543,000 379,000
2002 543,000 543,000 --
Thereafter 768,000 768,000 --
-----------------------------------------------------
Total $ 5,367,000 $ 3,478,000 $ 1,889,000
=====================================================
Aggregate rental expense for the year ended August 31, 1997 approximated
$515,000. Rental expense for the year ended August 31, 1996 approximated
$378,000.
F-22
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements (continued)
12. Segment Information
The following summarizes the operations by geographic segment for the years
ended August 31, 1997 and 1996:
August 31,
1997 1996
------------------------ -----------------------
United United United United
States Kingdom States Kingdom
--------------------------------------------------
Net sales $16,292,931 $10,968,925 $ 5,560,975 $6,098,843
==================================================
Income from operations $ 1,199,585 $ 1,939,537 $ 762,491 $1,226,185
==================================================
Identifiable assets $24,309,488 $ 8,723,802 $13,333,558 $4,289,768
==================================================
Depreciation and amortization $ 1,315,269 $ 878,301 $ 588,168 $ 468,677
==================================================
Capital expenditures $ 1,982,803 $ 1,095,550 $ 856,337 $1,437,014
==================================================
The following summarizes operations by industry segment for the years ended
August 31, 1997 and 1996:
August 31,
1997 1996
------------------------- -----------------------
Digital Document Digital Document
Imaging and Creation and Imaging and Creation and
Prepress Short-Run Prepress Short-Run
Service Printing Service Printing
Segment Segment Segment Segment
---------------------------------------------------
Net sales $20,792,883 $6,468,973 $ 9,386,162 $2,273,656
===================================================
Income from operations $ 2,340,517 $ 798,605 $ 1,851,660 $ 137,016
===================================================
Identifiable assets $26,781,527 $6,251,763 $15,013,746 $2,609,580
===================================================
Depreciation and amortization $ 1,807,137 $ 386,433 $ 855,082 $ 201,763
===================================================
Capital expenditures $ 2,372,729 $ 705,624 $ 1,681,900 $ 611,451
===================================================
F-23
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements (continued)
13. Employee Benefit Plan
The Company adopted a 401(k) Plan effective January 1, 1996, in which most of
the Company's U.S. employees are eligible to participate. Although the Plan
provides for discretionary employer contributions, there were none for the years
ended August 31, 1997 and 1996.
F-24
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 Anthony Manser with an
address at The Bramleys', Old Barn Place, Upper Street, Leed, Kent ME171SL
(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
London, England.
<PAGE>
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 Vice
President and a Director of UK 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 Pound Sterling 120,000 (the "Base Salary") payable in
regular installments in accordance with the Company's usual payment practices
(which currently is in equal monthly 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 E. Dye; but, in any event
(b) Company shall deduct and withhold from Employee's compensation all
required taxes, including but not limited to withholding and otherwise, and any
other applicable amounts required by law or any taxing authority.
3
<PAGE>
6. 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 a personal travel allowance of Pound
Sterling 1200 per month during the Term and so long as Employee's employment
hereunder is not terminated.
7. 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
4
<PAGE>
nature that is serious enough to have a materially detrimental effect upon the
Company's best interest, (y) Employee's unjustified failure to perform his
duties hereunder or to follow reasonable directions of William Dye, or 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 the United Kingdom,
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. 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
5
<PAGE>
question as to the existence of the Disability of Employee as to which Employee
and the 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 if
any, 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
monthly intervals.
6
<PAGE>
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 immediately following Employee's termination hereunder.
(d) Termination by Employee. If Employee wishes to terminate his
employment with the Company for any reason, Employee must afford Company with at
least six full month's written notice of termination. Such termination by
Employee shall not be deemed a breach of this Agreement.
(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 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.
7
<PAGE>
8. 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 twelve (12) 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 twelve (12) months
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 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,
8
<PAGE>
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.
9. RESTRICTIVE COVENANT.
---------------------
(a) For a period of six (6) months after the termination of this
Agreement by Employer without cause and for a period of one (1) year after the
termination of this Agreement by Employer or Employee for any other reason, or
expiration of this Agreement, Employee covenants and agrees that, within a
radius of twenty five (25) miles from each of the then present places(s) of
Company's business or any other area in which Company is engaged in business, he
shall not own, manage, operate, control, be employed by, participate in, or be
connected in any manner with the ownership, management, operation, or control,
whether directly or indirectly, as an individual on his own account, or as a
partner, member, joint venture, officer, director or shareholder of a
corporation or other entity, 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.
(b) For a period of twelve (12) months or after the termination of this
9
<PAGE>
Agreement by Employer or Employee for any other reason, or expiration of this
Agreement, Employee further covenants and agrees he shall not 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.
(c) 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 8 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.
10. 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's 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 Comply from pursuing and
obtaining any 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.
10
<PAGE>
11. 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.
12. 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 Buchanan Ingersoll, 500 College Road East, Princeton, New Jersey
08540-6615, Attn: John Cinque, Esq.
13. 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
11
<PAGE>
inure to the 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.
14. 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.
15. 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.
16. GOVERNING LAW.
--------------
This Agreement shall be construed in accordance with and governed by
the internal laws of the State of New York.
12
<PAGE>
17. 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.
18. 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.
19. 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.
20. 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.
13
<PAGE>
21. 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.
22. 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.
14
<PAGE>
IN WITNESS WHEREOF, each of the parities hereto has executed this
Agreement as of the date first hereinabove written.
UNIDIGITAL INC.
/s/ William E. Dye
-----------------------------
By: William E. Dye
/s/ Anthony Manser
-----------------------------
Anthony Manser
15
SEPARATION AGREEMENT
--------------------
SEPARATION AGREEMENT (this "Agreement") dated as of September 18, 1997, by
and between Unidigital Inc., a Delaware corporation (the "Corporation"), and
Michael Brown ("Brown").
W I T N E S S E T H :
---------------------
WHEREAS, Brown is an executive officer and employee of the Corporation; and
WHEREAS, the Corporation and Brown desire to provide for the amicable
severance of the employment relationship between the Corporation and Brown.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Resignation.
-----------
(a) In connection with Brown's termination of employment by the Corporation
and, at the Company's request, Brown hereby resigns as an executive officer and
employee of the Corporation, including all affiliates of the Corporation,
controlling corporations, divisions and subsidiaries of the Corporation (the
"Affiliates"), effective as of the date hereof. Unless otherwise specified
herein, all references herein to the Corporation shall include each of the
Affiliates.
(b) Upon the execution hereof and except as otherwise provided herein,
Brown shall not be entitled to any further salary, reimbursement for expenses,
additional stock options or other compensation (other than applicable COBRA
benefits) from the Corporation.
2. Consideration. The Corporation hereby agrees to provide Brown with the
-------------
following separation benefits:
(a) Upon the execution hereof, a one-time lump sum payment in the net
amount of $20,000, such payment to be made by certified check, wire transfer or
Unidigital check;
(b) For ninety (90) days, commencing as of the date hereof, Brown shall
continue to receive his salary (at the same amount payable immediately prior to
Brown's last date of employment), payable in equal installments in accordance
with the Corporation's general salary payment policies (it being understood that
payments are made to employees one week after services have been rendered to the
Corporation); and
(c) Health insurance benefits (in the same manner and amount which exists
at the time of signing this Agreement) for four (4) months, commencing as of the
date hereof.
3. Release by Brown. Except for the obligations expressly arising hereunder
----------------
for the transactions contemplated hereby, Brown hereby fully, irrevocably and
unconditionally releases and discharges the Corporation, its agents, officers,
employees, shareholders, directors, successors and assigns from any and all
manner of claims, complaints, demands, causes of action, obligations,
<PAGE>
liabilities, costs, expenses (including attorneys' fees and costs) and damages,
of every kind, either at law or in equity, arising from his employment with or
separation of employment from the Corporation, including without limitation, any
claim relating to (i) health benefit claims (other than applicable COBRA
benefits), (ii) any federal, state, or local employment discrimination or fair
employment law, such as the federal Age Discrimination in Employment Act and the
Civil Rights Acts of 1964 and 1991, (iii) any and all unused vacation time with
the Corporation, (iv) any taxes incurred because of or in connection with the
provisions of this Agreement, (v) any amounts now or hereafter claimed by Brown
as owed by the Corporation to Brown for the reimbursement of business expenses,
and (vi) any options or shares of capital stock now or hereafter claimed by
Brown as owed by the Corporation to Brown; provided, however, that this release
shall not extend to fraudulent or criminal conduct. In addition, and not in
limitation of the foregoing, Brown hereby forever releases and discharges the
Corporation from any liability or obligation to reinstate or employ him in any
employment capacity. The Corporation acknowledges that Brown was and will
continue to be indemnified for his actions as an officer and employee of the
Corporation and the Affiliates through the date of this Agreement and is covered
in such capacities during such time. The parties hereto understand and agree
that the foregoing release shall not adversely impact any indemnification rights
(including attorneys' fees and costs) Brown may have against the Corporation for
all acts taken by him as an officer or employee of the Corporation, prior to his
resignation of such positions, to the fullest extent permitted by Delaware law
and as provided in the Corporation's Certificate of Incorporation and By-Laws
and by any private insurance maintained by the Corporation for such purpose.
4. Release by the Corporation. The Corporation hereby fully, irrevocably
--------------------------
and unconditionally releases and discharges Brown from any and all manner of
claims, complaints, demands, causes of action, obligations, liabilities, costs,
expenses (including attorneys' fees and costs) and damages, of every kind,
either at law or in equity, arising from Brown's employment with or separation
of employment from the Corporation, including without limitation Brown's
services as an executive officer of the Corporation; provided, however, that
this release shall not extend to fraudulent or criminal conduct.
5. Covenants Not to Sue.
--------------------
(a) Brown represents and warrants that he has not filed, nor has he
assigned to any third person, any complaints, charges or claims for relief
against the Corporation with any local, state or federal court or administrative
agency. Brown further agrees and covenants not to sue or to bring, or assign to
any third person, any claims or charges against the Corporation or its agents,
officers, employees, shareholders, directors, successors and assigns with
respect to any matter arising before the date hereof or covered by the release
set forth in Section 3, and not to assert against the Corporation in any suit,
action, litigation or proceeding any matter arising before the date hereof or
covered by the release set forth in Section 3.
2
<PAGE>
(b) The Corporation represents and warrants that it has not filed, nor has
it assigned to any third person, any complaints, charges or claims for relief
against Brown with any local, state or federal court or administrative agency.
The Corporation further agrees and covenants not to sue or to bring, or assign
to any third person, any claims or charges against Brown with respect to any
matter arising before the date hereof or covered by the release set forth in
Section 4, and not to assert against Brown in any suit, action, litigation or
proceeding any matter arising before the date hereof or covered by the release
set forth in Section 4.
6. Property. Brown agrees promptly to return to the Corporation any item
--------
that is the property of the Corporation, including without limitation any and
all automobiles, telephones, telecopiers, computers and related equipment,
documents, books, records, memoranda, plans, computer disks, software,
addresses, telephone numbers, agreements, files and any other papers and written
data relating to or in any way connected to the business and affairs of the
Corporation which are in the possession or control of Brown or in the possession
or control of a member of Brown's family or an entity controlled by or
affiliated with Brown. Brown hereby agrees to make available to the Corporation
any such material in either of their possession or control for review of such
item by the Corporation.
7. Ownership of Rights. Any and all writings, inventions, improvements,
-------------------
processes, procedures and/or techniques which Brown has made, conceived,
discovered or developed, either solely or jointly with any other person or
persons, at any time during the term of his employment with the Corporation,
whether during working hours or at any other time and whether at the request or
upon the suggestion of the Corporation or otherwise, which relate to any
business carried on by the Corporation, are the sole and exclusive property of
the Corporation. Brown shall promptly make full disclosure to the Corporation of
all such writings, inventions, improvements, processes, procedures and
techniques, and shall do everything necessary or desirable to vest the absolute
title thereto in the Corporation.
8. Non-Disclosure of Information. Brown acknowledges that by virtue of his
-----------------------------
position he has been privy to the Corporation's and the Affiliates' trade
secrets including but not limited to the Corporation's and the Affiliates'
customers list and private processes, as they may exist or as the Corporation
and the Affiliates may determine from time to time, and that such secrets are
valuable, special, and unique assets of the Corporation's and the Affiliates'
business and constitute confidential information and trade secrets of the
Corporation and the Affiliates (hereafter collectively "Confidential
Information"). Brown shall not, for a period of two (2) years after the
execution of this Agreement, 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 Brown and any other person by,
through or with Brown, and for a period of two (2) years after the execution of
this Agreement, make use of any of the Confidential Information for any purpose
or for the benefit of any other person or entity, other than the Corporation or
the Affiliates, as the case may be, under any circumstances. Additionally, Brown
shall not take any action which in any manner shall be intended to be or
reasonably be calculated to be injurious to the Corporation or the
3
<PAGE>
Affiliates. The Corporation and Brown agree that a violation of the foregoing
covenants will cause irreparable injury to the Corporation, and that in the
event of a breach or threatened breach by Brown of the provisions of this
Section 8, the Corporation shall be entitled to an injunction restraining Brown
from:
(a) Disclosing, in whole or in part, any Confidential Information, or from
rendering any services to any person, firm, corporation, association or other
entity to whom any such information, in whole or in part, has been disclosed by
Brown or is threatened by Brown to be disclosed in violation of this Agreement.
(b) Continuing such injurious actions. Nothing herein stated shall be
construed as prohibiting the Corporation from pursuing any other rights and
remedies, at law or in equity, available to the Corporation for such breach or
threatened breach, including the recovery of damages from Brown.
9. Restrictive Covenant.
--------------------
(a) For a period of one (1) year after the execution of this Agreement,
Brown covenants and agrees that, within a radius of twenty-five (25) miles from
each of the present places of the Corporation's and the Affiliates' business, he
shall not own, manage, operate, control, be employed by, participate in, or be
connected in any manner with the ownership, management, operation, or control,
whether directly or indirectly, as an individual on his own account, or as a
partner, member, joint venturer, officer, director or shareholder of a
corporation or other entity, of any business of the same kind as the business
currently conducted by the Corporation or the Affiliates at the time of the
execution of this Agreement (a "Competitive Business"), except that Brown may
own not more than two percent (2%) of the outstanding shares of any publicly
held corporation which is a Competitive Business which has shares listed for
trading on a securities exchange registered with the Securities and Exchange
Commission or through the automatic quotation system of a registered securities
association.
(b) For a period of one (1) year after the execution of this Agreement,
Brown further covenants he shall not interfere with, solicit or disrupt or
attempt to interfere with, solicit or disrupt the relationship, contractual or
otherwise, between the Corporation or the Affiliates and any customer, supplier,
lessee or employee of the Corporation or the Affiliates.
(c) Brown acknowledges that the restrictions contained in this Section 9
are reasonable. In that regard, it is the intention of the parties to this
Agreement that the provisions of this Section 9 shall be enforced to the fullest
extent permissible under the law and public policy applied in each jurisdiction
in which enforcement is sought. Accordingly, if any portion of this Section 9
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.
4
<PAGE>
10. Specific Performance. Brown acknowledges that any breach by him of
---------------------
Sections 7, 8 or 9 of this Agreement would substantially and materially impair
and irreparably harm the Corporation's business and goodwill; that such
impairment and harm would be difficult to measure and, therefore, total
compensation in solely monetary terms would be inadequate. Brown therefore
agrees that in the event of any breach or threatened breach by him of Sections
7, 8 or 9 of this Agreement, the Corporation shall be entitled, in addition to
monetary damages or other remedies, to equitable relief, including injunctive
relief, and payment by Brown of all costs and expenses incurred by the
Corporation in enforcing said Section against him, including attorneys' fees
incurred by the Corporation; provided, however, that in the event the
Corporation is unsuccessful in obtaining the judicial relief requested
hereunder, Brown shall be entitled to payment by the Corporation of all costs
and expenses incurred by Brown in defending the Corporation's claims hereunder,
including reasonable attorney's fees incurred by Brown.
11. Confidentiality. The parties hereto agree that a material item of this
---------------
Agreement is an agreement to keep confidential the terms and conditions of this
Agreement. No disclosure shall be made by any of the parties hereto except to
the extent that any of the parties is obligated to make disclosure to such
party's attorneys and accountants in the rendering of professional services, or
pursuant to the securities laws or any other laws of the United States or any
other state.
12. Non-Disparagement. Each of the parties agree not to engage in any
-----------------
conduct or make any statement that would disparage the other party or their
respective business interests in any way.
13. Further Assurances; Cooperation.
-------------------------------
(a) The parties hereto agree to execute and deliver such other documents,
instruments and agreements and to take such other action as may be necessary,
proper or appropriate to carry out the terms of this Agreement.
(b) Brown agrees to use his reasonable efforts to cooperate and assist the
Corporation at its cost and expense (including any reasonable out-of-pocket
expenses incurred by Brown in furtherance of this Section 13(b)), but without
remuneration to Brown, upon the request of the Corporation, in defending any
claims, suits, actions, litigation, demands, losses or controversies whatsoever
against the Corporation that arise from the activities of the Corporation prior
to the date of the effectiveness of Brown's resignation as an officer and
employee of the Corporation, provided that the Corporation provides reasonably
sufficient notice to Brown and that Brown's efforts will only be required during
normal business hours.
14. Breach. The parties agree that in the event one party breaches any part
------
of this Agreement, legal proceedings may be instituted against that party for
breach of contract. The non-prevailing party in such legal proceedings shall
reimburse the prevailing party for the reasonable
5
<PAGE>
costs and expenses, including reasonable attorneys' fees, incurred. The parties
further agree that the "prevailing party" shall be determined by the judge
rendering the decision in such proceeding and that the parties will be bound by
such judge's decision.
15. Notices. All notices required or permitted under this Agreement shall
-------
be in writing and delivered by any method providing for proof of delivery. Any
notice shall be deemed to have been given on the date of delivery to a location
specified by the other party, or by attempted delivery with proof thereof.
Notices shall be delivered to the parties at the following addresses until a
different address has been designated by notice to the other party:
If to the Corporation:
Unidigital Inc.
545 West 45th Street
New York, New York 10036
Attention: William E. Dye, President and
Chief Executive Officer
With a copy to:
Buchanan Ingersoll
500 College Road East
Princeton, New Jersey 08540
Attention: David J. Sorin, Esq.
If to Brown:
450 West 24th Street
Apt. 10E
New York, New York 10011
With a copy to:
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
Attention: David Hoffner, Esq.
16. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
6
<PAGE>
17. Entire Agreement. This Agreement contains the entire agreement among
-----------------
the parties hereto with respect to the subject matter hereof, and no
modification hereof shall be effective unless in writing and signed by the party
against which it is sought to be enforced. Except as set forth above, this
Agreement supersedes all prior understandings, negotiations and agreements
relating to the subject matter hereof. Brown and the Corporation affirm that the
only consideration for executing this Agreement are the terms stated herein, and
that no other promises or agreements of any kind have been made to or with
either of them by any person or entity whatsoever to cause them to sign this
Agreement. The Corporation represents that it has the corporate power, authority
and legal right to deliver this Agreement and that the execution, delivery and
performance of this Agreement by the Corporation has been duly authorized by all
necessary corporate action. Brown represents that he has had an opportunity to
discuss and review the terms of this Agreement fully with his attorney. Brown
further represents that he has carefully read this Agreement, understands the
contents hereof, and executes the same as his own free act.
18. Expenses. Each of the parties hereto shall bear such party's own
--------
expenses in connection with this Agreement and the transaction contemplated
hereby.
19. Governing Law; Jurisdiction. This Agreement shall be governed by and
----------------------------
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State. Any action
arising out of or relating to any of the provisions of this Agreement shall be
brought and prosecuted only in the courts of, or located in, the State of New
York, and the parties hereto consent to the jurisdiction and venue of said
courts.
20. Headings. The headings in this Agreement are solely for convenience of
--------
reference and shall not affect the interpretation of any of the provisions
hereof.
21. Severability. If any provision herein contained shall be held to be
------------
illegal or unenforceable, such holding shall not affect the validity or
enforceability of the other provisions of this Agreement.
22. Binding Effect. This Agreement shall be binding upon and inure to the
---------------
benefit of the Corporation and the Affiliates, and their respective successors
and assigns, and upon Brown and his executors, administrators, legal
representatives, heirs and assigns.
* * * * *
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Separation
Agreement to be executed as of the date first above written.
UNIDIGITAL INC.
By/s/ Peter Saad
-------------------------------------
Peter Saad, Senior Vice President and
Chief Operating Officer
/s/ Michael Brown
-------------------------------------
Michael Brown
8
AMENDED REVOLVING CREDIT NOTE
$4,500,000 New York, New York
As of April 3, 1997
FOR VALUE RECEIVED, the undersigned, UNIDIGITAL ELEMENTS (NY), INC., a New
York corporation, UNISON (NY), INC. (formerly known as Unidigital/Cardinal
Corporation), a Delaware corporation, UNIDIGITAL ELEMENTS (SF), INC., a Delaware
corporation, and UNISON (MA), INC. (the successor by merger to Unidigital/Boris
Corporation), a Delaware corporation (collectively, the "Borrowers"), hereby
jointly and severally, unconditionally promise to pay to the order of THE CHASE
MANHATTAN BANK (the "Lender"), at its office at 600 Fifth Avenue, New York, New
York 10020 on the Maturity Date in lawful money of the United States of America
and in immediately available funds, the principal amount of (a) FOUR MILLION
FIVE HUNDRED THOUSAND DOLLARS ($4,500,000), or, if less, (b) the aggregate
unpaid principal amount of all Revolving Loans made by the Lender pursuant to
the Credit Agreement (referred to below). The Borrowers further agree, jointly
and severally, to pay interest on the unpaid principal amount outstanding
hereunder from time to time from the date hereof in like money at such office at
the rates and on the dates specified in the Credit Agreement.
The holder of this Note is authorized to record on the schedule annexed
hereto or on a continuation thereof the date, Type and amount of each Revolving
Loan made pursuant to the Credit Agreement, each continuation thereof, each
conversion of all or a portion thereof to another Type, the date and amount of
each payment or repayment of principal thereof and, in the case of Eurodollar
Loans, the length of each Interest Period with respect thereto (which
recordation shall, in accordance with Section 2.08(c) of the Credit Agreement,
constitute prima facie evidence of the accuracy of the information recorded);
provided, however, that the failure to make any such recordation shall not
affect the obligations of the Borrowers in respect of such Revolving Loans.
This Note is the Revolving Credit Note referred to in the Credit Agreement
dated as of April 3, 1997 (the "Credit Agreement"), among the Borrowers and the
Lender, as amended, and is secured as provided therein and in the Security
Documents and is subject to optional mandatory prepayment as set forth in the
Credit Agreement.
Upon the occurrence of any one or more of the Events of Default specified
in the Credit Agreement, all amounts then remaining unpaid on this Note
<PAGE>
shall become, or may be declared to be, immediately due and payable, all as
provided in the Credit Agreement.
All parties now and hereafter liable with respect to this Note, whether
maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
Terms defined in the Credit Agreement are used herein with their defined
meanings unless otherwise defined herein. This Note shall be governed by, and
construed and interpreted in accordance with, the laws of the State of New York.
UNIDIGITAL ELEMENTS (NY), INC.
By:/s/ William E. Dye
------------------------
Name: William E. Dye
Title: President
UNISON (NY), INC.
By:/s/ William E. Dye
------------------------
Name: William E. Dye
Title: Chairman
UNIDIGITAL ELEMENTS (SF), INC.
By:/s/ William E. Dye
------------------------
Name: William E. Dye
Title: President
UNISON (MA), INC.
By:/s/ William E. Dye
------------------------
Name: William E. Dye
Title: Chairman
-2-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1
TO REVOLVING CREDIT NOTE
LOANS, CONVERSIONS AND PAYMENTS OF ABR LOANS
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
Amount of Amount of
ABR Loans Eurodollar Unpaid
Amount of Converted to Loans Principal
Amount of Principal Eurodollar Converted to Balance of Notation
Date ABR Loans Repaid Loans ABR Loans ABR Loans Made By
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 2
TO REVOLVING CREDIT NOTE
LOANS, CONVERSIONS AND PAYMENTS OF EURODOLLAR LOANS
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
Amount of Amount of Unpaid
Eurodollar ABR Loans Principal
Amount of Amount of Loans Converted to Balance of
Eurodollar Principal Converted to Eurodollar Eurodollar Notation
Date Loans Repaid ABR Loans Loans Loans Made By
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
</TABLE>
-4-
AMENDED LINE LOAN NOTE
$3,850,000 New York, New York
As of April 3, 1997
FOR VALUE RECEIVED, the undersigned, UNIDIGITAL ELEMENTS (NY), INC., a New
York corporation, UNISON (NY), INC. (formerly known as Undigital/Cardinal
Corporation), a Delaware corporation, UNIDIGITAL ELEMENTS (SF), INC., a Delaware
corporation, and UNISON (MA), INC. (the successor by merger to Unidigital/Boris
Corporation), a Delaware corporation (collectively, the "Borrowers"), hereby
jointly and severally, unconditionally promise to pay to the order of THE CHASE
MANHATTAN BANK (the "Lender"), at its office at 600 Fifth Avenue, New York, New
York 10020 on January 31, 1998 in lawful money of the United States of America
and in immediately available funds, the principal amount of (a) THREE MILLION
EIGHT HUNDRED FIFTY THOUSAND DOLLARS ($3,850,000), or, if less, (b) the
aggregate unpaid principal amount of all Line Loans made by the Lender pursuant
to the Credit Agreement (referred to below). The Borrowers further agree,
jointly and severally, to pay interest on the unpaid principal amount
outstanding hereunder from time to time from the date hereof in like money at
such office at the rates and on the dates specified in the Credit Agreement.
The holder of this Note is authorized to record on the schedule annexed
hereto or on a continuation thereto the date, Type and amount of each Line Loan
made pursuant to the Credit Agreement, each continuation thereof, each
conversion of all or a portion thereof to another Type, the date and amount of
each payment or repayment of principal thereof and, in the case of Eurodollar
Loans, the length of each Interest Period with respect thereto (which
recordation shall, in accordance with Section 2.08(c) of the Credit Agreement,
constitute prima facie evidence of the accuracy of the information recorded);
provided, however, that the failure to make any such recordation shall not
affect the obligations of the Borrowers in respect of such Line Loans.
This Note is the Line Loan Note referred to in the Credit Agreement dated
as of April 3, 1997 (the "Credit Agreement"), among the Borrowers and the
Lender, as amended, and is secured as provided therein and in the Security
Documents and is subject to optional and mandatory prepayment as set forth in
the Credit Agreement.
<PAGE>
Upon the occurrence of any one or more of the Events of Default specified
in the Credit Agreement, all amounts then remaining unpaid on this Note shall
become, or may be declared to be, immediately due and payable, all as provided
in the Credit Agreement.
All parties now and hereafter liable with respect to this Note, whether
maker, principal, surety, guarantor. endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
Terms defined in the Credit Agreement are used herein with their defined
meanings unless otherwise defined herein. This Note shall be governed by, and
construed and interpreted in accordance with, the laws of the State of New York.
UNIDIGITAL ELEMENTS (NY), INC.
By:/s/ William E. Dye
------------------------
Name: William E. Dye
Title: President
UNISON (NY), INC.
By:/s/ William E. Dye
------------------------
Name: William E. Dye
Title: Chairman
UNIDIGITAL ELEMENTS (SF), INC.
By:/s/ William E. Dye
------------------------
Name: William E. Dye
Title: President
UNISON (MA), INC.
By:/s/ William E. Dye
------------------------
Name: William E. Dye
Title: Chairman
-2-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1
TO LINE LOAN NOTE
LOANS, CONVERSIONS AND PAYMENTS OF ABR LOANS
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
Amount of Amount of Unpaid
ABR Loans Eurodollar Principal
Amount of Converted to Loans Balance of
Amount of Principal Eurodollar Converted to ABR Notation
Date ABR Loans Repaid Loans ABR Loans Loans Made By
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 2
TO LINE LOAN NOTE
LOANS, CONVERSIONS AND PAYMENTS OF EURODOLLAR LOANS
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
Amount of Amount of Unpaid
Eurodollar ABR Loans Principal
Amount of Amount of Loans Converted to Balance of
Eurodollar Principal Converted to Eurodollar Eurodollar Notation
Date Loans Repaid ABR Loans Loans Loans Made By
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
</TABLE>
WAIVER AND AMENDMENT AGREEMENT (this "Waiver Agreement") dated as of July
1, 1997 by and among Unidigital Elements (NY), Inc., Unidigital/Cardinal
Corporation, Unidigital Elements (SF), Inc. and Unidigital/Boris Corporation
(collectively, the "Borrowers"), Unidigital Inc. (the "Company"), and The Chase
Manhattan Bank (the "Lender"). Terms used herein as defined terms and not
otherwise defined herein shall have the meanings given thereto in that certain
Credit Agreement dated as of April 3, 1997 by and between the Borrowers and the
Lender.
WHEREAS, Unidigital/Boris Corporation ("UBC") heretofore incurred
Indebtedness in the principal amount of $1,725,000 in connection with an
Acquisition Transaction involving Boris Image Group, Inc. ("Boris") and such
Indebtedness (the "Boris Acquisition Indebtedness") is currently outstanding;
WHEREAS, the Company proposes to acquire through a wholly-owned United
Kingdom subsidiary (the "New U.K. Subsidiary"), the assets of Libra City
Corporate Printing LTC, a United Kingdom corporation, for a purchase price of
approximately $2,600,000 (the "1997 U.K. Acquisition Transaction");
WHEREAS, in connection with the 1997 U.K. Acquisition Transaction, the
Company proposes to borrow up to $4,000,000 ("the Bridge Loan") from a group of
investors to be evidenced by its promissory notes in the aggregate principal
amount of the Bridge Loan and to issue to such investors warrants for shares of
the Company;
WHEREAS, the incurrence by the Company of Indebtedness represented by the
Bridge Loan in the form as currently proposed would constitute a violation or
violations of Section 6.01 of the Credit Agreement; and
WHEREAS, the Lender is willing to waive such violation or violations and to
enable the Transactions to be consummated, subject to the terms and conditions
hereof;
NOW, THEREFORE, WITNESSETH, that for good and valuable consideration, the
receipt of which the parties hereby acknowledge, the parties hereto agree as
follows:
1. (a) Solely to the extent necessary to permit the effectuation of the
Transactions and subject to the terms and conditions hereof, the Lender hereby
waives the application of those provisions of Section 6.01 that would otherwise
prohibit the Company from incurring (and the Borrowers from suffering the
Company to incur) Indebtedness in the form of the Bridge Loan.
(b)(l) The Borrowers and the Company agree that $1,400,000 principal amount
of the Bridge Loan shall, by its express terms (as set forth in the form of
promissory note of the Company annexed hereto as Exhibit A), be subordinated to
the claims of the Lender against the Borrowers and the Company. The Lender and
the Borrowers agree that such $1,400,000 of principal amount of the Bridge Loan
shall to the extent so evidenced by notes in the form of Exhibit A hereto be
characterized as Approved Subordinated Debt for purposes of the
<PAGE>
Credit Agreement. The Borrowers and the Company covenant and agree that, so long
as any of the Loans are outstanding and the Commitment has not yet terminated,
any replacements or substitution for any of such promissory notes shall be
issued by the Company in the same form as Exhibit A and, failing issuance
(whether in replacement, substitution or otherwise) in such form, the principal
so evidenced by a note not in such form shall thereupon no longer constitute
Approved Subordinated Indebtedness and the existence of the Indebtedness
represented by such principal shall constitute a violation of Section 6.01 of
the Credit Agreement and, accordingly, an Event of Default thereunder.
(2) The Borrowers, the Company and the Lender agree that the portion in the
principal amount $2,600,000 of the Indebtedness represented by the Bridge Loan
which the Company shall not evidence by promissory notes in the form of Exhibit
A hereto shall, accordingly, not be Approved Subordinated Debt, but shall,
however, be treated for purposes of the Credit Agreement as Indebtedness of the
Company which is subject to Section 6.01(c) of the Credit Agreement. With
respect to said Section 6.01(c), the Borrowers, the Company and the Lender agree
that such $2,600,000 of Bridge Loan and the Boris Acquisition Indebtedness shall
be treated as fully exhausting the Indebtedness ceiling of $3,000,000 of the
Borrowers thereunder for the current fiscal year of the Company and no further
Indebtedness may be incurred under Section 6.01(c) during such current fiscal
year.
(c) The Lender waives the requirement that the New U.K. Subsidiary shall on
the date hereof be required to comply with Section 5.09 of the Credit Agreement;
provided, however, that the Borrowers shall cause it to comply with such Section
promptly upon notice from the Lender, which Lender may give in its sole
discretion.
2. The waivers herein granted by the Lender shall be conditioned upon and
shall not become effective unless and until:
(i) The Company shall have delivered to the Lender a certificate of
the Chief Financial Officer of the Company certifying that the form of
promissory note annexed hereto as Exhibit A is the form of note issued by
the Company to purchasers of promissory notes representing $1,400,000
principal amount of the Bridge Loan;
(ii) The Company shall have executed and delivered to the Lender: (x)
a Pledge Security Agreement in the form of Exhibit B-1 hereto, (y)
financing statements on Form UCC-1 in the form of Exhibit B-2 hereto, and
(z) shall have pledged, hypothecated and delivered to the Lender (under the
Pledge Security Agreement), free and clear of any Liens (other than any
Permitted Encumbrances), investment grade commercial paper owned by the
Company (with any required endorsements) having a fair market value on the
date hereof not less than $350,000; and
(iii) The Borrowers shall have delivered a certificate of the Chief
Financial Officer of the Company required by Section 6.04(c) of the Credit
Agreement with respect to the 1997 U.K. Acquisition Transaction.
- 2 -
<PAGE>
3. Section 1.01 of the Credit Agreement is hereby amended as follows:
(i) A definition of "Pledge Security Agreement" is added to such
Section 1.01, which shall read as follows:
"Pledge Security Agreement" means that certain Pledge
Security Agreement dated as of July 1, 1997 made by the Company
to the Lender, as it may be supplemented, amended or modified
from time to time."
(ii) The definition of "Security Documents" as set forth in such
Section 1.01 is amended so that it shall read as follows:
"'Security Documents' means (x) each of the agreements,
instruments, and documents referred to in clauses (i) through
(iii) of Section 4.01(a) (including, without limitation, any
guarantee or security agreement hereafter made and given to the
Lender as provided in Section 5.09), and (y) the Pledge Security
Agreement."
4. This Waiver Agreement and the rights and obligations of the parties
hereunder shall be construed in accordance with and shall be governed by the
laws of the State of New York applicable to contracts made and to be performed
entirely within such State, without reference to conflict of laws principles.
5. This Waiver Agreement may be executed in counterparts, each of which
when so executed and delivered (including by facsimile transmission of a signed
counterpart) shall be deemed to be an original and all of which taken together
shall constitute but one and the same instrument.
6. Except as expressly set forth herein, the Credit Agreement as heretofore
amended shall remain in full force and effect, and the Credit Agreement is
hereby ratified and confirmed by the Borrowers.
7. This Waiver Agreement shall constitute an additional Loan Document.
8. Each Borrower hereby represents and warrants to the Lender that, after
giving effect to this Waiver, no Default or Event of Default has occurred and is
continuing as of the date hereof under the Credit Agreement or will result by
reason of the consummation of any of the Transactions.
9. Each of the Borrowers and the Company hereby warrants and represents to
the Lender that this Waiver Agreement and the other documents contemplated
hereby and all of the actions to be taken in connection herewith or therewith
have been authorized by all necessary corporate and shareholder action and will
not conflict with, violate or constitute a default under their charters, by-laws
or any agreements, instruments or other documents to which they or any
- 3 -
<PAGE>
one of them is a party or by which any of their assets are bound (including,
without limitation, any agreements, instruments or other documents executed or
to be executed in connection with the Transactions) and that the same do not and
will not violate any applicable laws or regulations.
10. Without limiting or being limited by Section 8.03(b) of the Credit
Agreement, the Borrowers, jointly and severally, indemnify the Lender and each
Related Party of the Lender (each such person being called an "Indemnitee")
against, and hold each Indemnitee harmless from, any and all losses, claims,
damages, liabilities and related expenses, including the fees, charges and
disbursements of counsel for any Indemnitee, arising out of, in connection with,
or as a result of (i) the execution or delivery of this Waiver Agreement or any
other Loan Document or any agreement or instrument contemplated hereby or
thereby, or the performance by the parties hereto or thereto of their respective
obligations hereunder or thereunder, or the consummation of the transactions
contemplated hereby or thereby, or (ii) any actual or prospective claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether based on contract, tort or any other theory and regardless of whether
any Indemnitee is a party thereto; provided, that such indemnity shall not, as
to any Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of competent
jurisdiction by any final and nonappealable judgment to have resulted from the
gross negligence or willful misconduct of such Indemnitee.
- 4 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Waiver
Agreement to be executed and delivered in the City of New York as of the date
first hereinabove written.
THE CHASE MANHATTAN BANK
By:/s/ Donald Furrer
--------------------------
Name: Donald Furrer
Title: Vice President
UNIDIGITAL ELEMENTS (NY), INC.
By:/s/ William E. Dye
--------------------------
Name: William E. Dye
Title: Chairman
UNIDIGITAL/CARDINAL CORPORATION
By:/s/ William E. Dye
--------------------------
Name: William E. Dye
Title: Chairman
UNIDIGITAL ELEMENTS (SF), INC.
By:/s/ William E. Dye
--------------------------
Name: William E. Dye
Title: Chairman
UNIDIGITAL/BORIS CORPORATION
By:/s/ William E. Dye
--------------------------
Name: William E. Dye
Title: Chairman
UNIDIGITAL INC.
By:/s/ William E. Dye
--------------------------
Name: William E. Dye
Title: President & CEO
- 5 -
PLEDGE SECURITY AGREEMENT
-------------------------
(Investment Account)
The undersigned, Unidigital Inc., a Delaware corporation, executes and
delivers this Pledge Security Agreement (the "Agreement") to THE CHASE MANHATTAN
BANK ("Chase"), having an office at 600 Fifth Avenue, New York, New York 10020,
further to induce Chase to enter into that certain Waiver And Amendment
Agreement of even date herewith by and among Chase, the undersigned and certain
subsidiaries of the undersigned and for other good and valuable consideration.
Unless otherwise defined herein capitalized terms shall have the meaning
ascribed to them in that certain Guarantee Agreement dated as of April 3, 1997
(the "Guarantee Agreement") made by the undersigned to Chase.
1. Certain Definitions. The term "Liabilities" shall mean: (i) the
Obligations, and (ii) any and all other indebtedness, obligations and
liabilities of any kind of the undersigned to Chase and also to others to the
extent of their participations granted to or interests therein created or
acquired for them by Chase, now or hereafter existing, arising directly between
the undersigned and Chase or acquired outright, conditionally, as a
participation or as collateral security from another by Chase, absolute or
contingent, joint and/or several, secured or unsecured, due or not due,
contractual or tortuous, liquidated or unliquidated, arising by operation of law
or otherwise, direct or indirect.
The term "Collateral" means all property in which the undersigned grants a
security interest pursuant to the "Grant of Security Interest" paragraph set
forth below.
The term "Obligor" means the undersigned or any maker, drawer, acceptor,
indorser, guarantor, surety, accommodation party or other person liable upon or
for any of the Liabilities or the Collateral.
2. Grant of Security Interest. As security for the payment of the
Liabilities, the undersigned hereby grants to Chase a security interest in, a
general lien upon and/or right of setoff against (as applicable) and pledges to
Chase the following Collateral and in all increases, profits or rights received
from it, in all substitutions and additions together with any proceeds:
All commercial paper and any other investment or other property now or hereafter
held in or credited to Money Center Account #01107317 maintained by the
undersigned with Chase (the "Collateral Account"), all present and future
entitlements of the undersigned with respect to such property and Collateral
Account, all income, dividends and other disbursements in respect of the
foregoing, and all proceeds of any of the foregoing.
The undersigned agrees that Chase's records will be the accurate record of
any substitutions in and additions to the Collateral.
Chase shall release its security interest in the Collateral upon the
repayment by the undersigned of that certain indebtedness in the aggregate
original principal amount of $2,600,000 evidenced by its unsubordinated
promissory notes dated May 21, 1997 as certified to the Lender to the
<PAGE>
Chief Financial Officer of the undersigned; provided, however, that the Lender
shall not release its security interest if an Event of Default has occurred.
3. Covenants. As long as any part of the Liabilities remains unpaid, the
undersigned shall:
(a) defend the Collateral against all claims, keep the Collateral free
from other security interests and not dispose of any portion of the
Collateral without Chase's written consent;
(b) notify Chase promptly of any changes in the undersigned's name or
address;
(c) notify Chase of any change in legal entity structure, if applicable;
(d) execute and deliver any financing statements or other documents, pay
any costs of title searches and filing fees, and take any other action
Chase requests in relation to the security interest;
(e) pay all taxes and other charges, which may be levied against the
Collateral; and
(f) at all times maintain Collateral in the Collateral Account (including
for the purpose of this covenant, only readily marketable investment
grade debt securities of Persons other than the Credit Parties) having
a fair market value as determined by Chase of not less than $350,000.
4. Warranties. As long as any part of the Liabilities remains unpaid the
undersigned warrants to Chase that:
(a) each document representing the Collateral is genuine;
(b) the undersigned owns the Collateral;
(c) the undersigned (and its officer executing this Agreement on behalf of
the undersigned) is fully authorized and has taken all necessary
corporate and shareholder action to enter into and perform this
Agreement; and
(d) the undersigned shall not grant or suffer to exist any Lien in the
Collateral to or in favor of any Person other than Lender.
5. Voting Rights. If the Collateral is investment securities, the
undersigned authorizes Chase to transfer them into Chase's name or the name of
any nominee. So long as no Event of Default (as hereinafter defined) occurs, the
undersigned shall have all voting rights with respect investment securities
which constitute Collateral and Chase will mail the undersigned all
communications and proxies addressed to Chase, within a reasonable time so that
the undersigned may exercise such rights; provided, however, that the failure of
Lender so to do shall not entitle the undersigned to any damages by way of
separate action, offset or otherwise. After an Event of Default, Chase shall not
be required to send the undersigned further communications and any proxies
issued by the undersigned will be invalid. Chase shall then have the right to
vote in person or by proxy without any direction from the undersigned.
- 2 -
<PAGE>
6. Default. Any of the following will constitute an Event of Default
hereunder:
(a) an "Event of Default" under the Credit Agreement; or
(b) the fair market value of the Collateral (including, for the purpose of
this provision, only readily marketable investment grade debt
securities) in the Account shall be less than $350,000 for a period of
3 consecutive Business Days (as defined in the Credit Agreement) after
notice from Chase that the fair market value of the Collateral
Account, as determined by it in its sole discretion, is less than such
amount;
(c) any Obligor shall default in the performance of any of its agreements
herein or in any instrument or document delivered pursuant to this
Agreement or any of the Liabilities or in connection herewith, and
such default shall continue for 30 days after notice thereof by the
Lender to the Obligor (except that there shall be no grace period for
any default under paragraphs 3(f) or(d) hereof);
Upon the occurrence of an Event of Default, unless and to the extent that
Chase shall otherwise elect, all of the Liabilities shall become and be due and
payable forthwith. THE RIGHTS OF CHASE SET FORTH IMMEDIATELY ABOVE ARE WITHOUT
LIMITATION OF, AND IN ADDITION TO, ANY OTHER RIGHT OF CHASE UNDER ANY OTHER
DOCUMENT EVIDENCING OR EXECUTED IN CONNECTION WITH THE LIABILITIES (INCLUDING
BUT NOT LIMITED TO ANY RIGHT OF ACCELERATION OF PAYMENT PURSUANT TO THE
PROVISIONS THEREOF OR ANY RIGHT OF CHASE TO MAKE DEMAND FOR PAYMENT THEREUNDER
WITHOUT REFERENCE TO ANY PARTICULAR CONDITION OR EVENT).
7. Dividends/Income. So long as no Event of Default occurs, the undersigned
shall have the right to receive all cash income from the Collateral. If Chase
receives any cash income before the occurrence of an Event of Default, Chase
agrees to turn it over to the undersigned. Once an Event of Default occurs, the
undersigned will no longer be entitled to receive any cash income and if the
undersigned receives any, the undersigned agrees to turn it over to Chase. If an
event of Default exists, Chase may apply such receipts to the Liabilities in any
order in which it may determine in its sole discretion, but Chase will account
for such receipts and pay over to the undersigned any cash which remains on hand
after the Liabilities are satisfied.
8. General Waivers. Without affecting the liability of the undersigned to
Chase, any of the following may be done without notice to the undersigned:
(a) change, renew or extend the time for repayment of any part of the
Liabilities;
(b) change the rate of interest or any other provisions with respect to
any part of the Liabilities;
(c) surrender, sell or otherwise dispose of any money or property which is
in Chase's possession as collateral security for the Liabilities;
(d) release or discharge any party liable to Chase in whole or in part for
the Liabilities or accept any additional parties or guarantors;
- 3 -
<PAGE>
(e) delay or refrain from exercising any of Chase's rights;
(f) settle or compromise any and all claims; and/or
(g) apply any money or property of the undersigned or that of any other
party liable to Chase for any part of the Liabilities, to the
Liabilities in any order Chases chooses in its sole discretion.
9. Custody of Collateral. Chase agrees to use reasonable care to protect
any Collateral in its possession. However, Chase shall not be required to:
(a) vote any stock;
(b) collect any debt;
(c) exercise any conversion rights; and/or
(d) take any steps necessary to preserve rights against prior parties;
(e) notify the undersigned of any maturities, calls, conversions, or other
similar matters concerning the Collateral, except for forwarding to
the undersigned those communications which are addressed to the
undersigned.
10. Changes in Collateral. Whether or not an Event of Default has occurred,
the undersigned authorizes Chase to:
(a) receive and hold as additional collateral any non-cash increases in or
profits on the Collateral; and/or
(b) surrender the Collateral and receive any payment or distribution upon
redemption, dissolution or liquidation of the issuer of the
Collateral.
If the undersigned receive any of the payments or distributions described above
the undersigned agrees promptly to turn them over to Chase.
11. Further Assurances. The undersigned appoints Chase as its
attorney-in-fact to take any necessary steps, including the filing of financing
statements, to perfect Chase's security interest in the Collateral without first
obtaining the undersigned's signature. Upon Chase's request, the undersigned
will execute any amendments, including UCC-3 forms, which are necessary or
appropriate as determined by Chase in its sole discretion to perfect and
continue Chase's security interest in the Collateral.
12. Fees and Expenses. The undersigned agrees to pay all Chase's costs,
including reasonable attorneys' fees for necessary court process, in enforcing
this Agreement or realizing upon the Collateral.
13. Modification. This Agreement cannot be modified except by a written
agreement between the parties.
14. Notices. The undersigned waives any right to notice of any action Chase
may take with respect to the Collateral. If Chase shall provide such notice, the
undersigned agrees that notice will be sufficiently given if sent to the
undersigned's address shown in this Agreement or to a
- 4 -
<PAGE>
new address which the undersigned shall have notified Chase of in writing. The
undersigned agrees that notice of foreclosure sale sent at least five days
before the sale provides the undersigned with a reasonable opportunity to
exercise any right of redemption of the Collateral and any other legal rights.
15. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York. The undersigned
consents to the nonexclusive jurisdiction and venue of the state or federal
courts located in such state. In the event of a dispute hereunder, suit may be
brought against the undersigned in such courts or in any jurisdiction where the
undersigned or any of its assets may be located. Service of process by Chase in
connection with any dispute shall be binding on the undersigned if sent to the
undersigned by registered mail at the address specified below or to such other
address as the undersigned may specify to Chase in writing.
16. Miscellaneous. This Agreement shall constitute an additional Loan
Document and Security Document within the meaning of the Credit Agreement and
shall not supersede any other Loan Document or Security Document, and the
Collateral herein pledged to the Chase is in addition to all other collateral
heretofore pledged by the undersigned or any of the Borrowers to Chase under any
of the Security Documents.
- 5 -
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this instrument to be duly
executed and delivered by its duly authorized officer as of this 1st day of
July, 1997.
UNIDIGITAL INC.
By:/s/ William E. Dye
----------------------------
Name: William E. Dye
Title: President and CEO
Address for Notices:
545 West 45th Street
New York, New York 10036
Attention: William E. Dye, President
Telecopy: (212) 262-1830
THE CHASE MANHATTAN BANK
By:/s/ Donald Furrer
----------------------------
Name: Donald Furrer
Title: Vice President
Address for Notices:
600 Fifth Avenue
New York, New York 10020
Attention: Donald Furrer, Vice President
Telecopy: (212) 332-4369
- 6 -
SECOND WAIVER AND AMENDMENT AGREEMENT (this "Waiver Agreement") dated as of
October 1, 1997 by and among Unidigital Elements (NY), Inc., Unison (NY), Inc.
(formerly known as Unidigital/Cardinal Corporation), Unidigital Elements (SF),
Inc. and Unison (MA), Inc. (the successor by merger to Unidigital/Boris
Corporation), (collectively, the "Borrowers"), Unidigital Inc. (the "Company"),
and The Chase Manhattan Bank (the "Lender"). Terms used herein as defined terms
and not otherwise defined herein shall have the meanings given thereto in that
certain Credit Agreement dated as of April 3, 1997 by and between the Borrowers
and the Lender, as amended by that Waiver And Amendment Agreement dated as of
July 1, 1997 by and between such parties.
WHEREAS, without the prior written consent of the Lender, Unidigital/Boris
Corporation, a Massachusetts corporation ("UBC"), has been merged (the "Boris
Merger") into Unison (MA), Inc., a Delaware corporation ("UMA"), with UMA as the
surviving corporation and transferee of all of the assets and as successor to
all of the obligations of UBC;
WHEREAS, without the prior written consent of the Lender,
Unidigital/Cardinal Corporation, a Delaware corporation ("Cardinal"), has
changed its name to Unison (NY), Inc. (the "Cardinal Name Change") (the Boris
Merger and the Cardinal Name Change are hereinafter collectively referred to as
the "Transactions");
WHEREAS, the Transactions may constitute violations inter alia of Section
6.03 and 6.10 of the Credit Agreement, Section 2.02(d) of the Security Agreement
and/or Section 2.03(b) of the Pledge Agreement; and
WHEREAS, the Lender is willing to waive such violation or violations
subject to the terms and conditions hereof;
NOW, THEREFORE, WITNESSETH, that for good and valuable consideration, the
receipt of which the parties hereby acknowledge, the parties hereto agree as
follows:
1. The Lender hereby waives the application of those provisions of the
Credit Agreement, the Security Agreement and the Pledge Agreement that would
otherwise prohibit the Transactions.
2. The waivers herein granted by the Lender shall be conditioned upon and
shall not become effective unless and until the Borrowers and the Company shall
have delivered the following to the Lender:
(i) Amended $4,500,000 Revolving Credit Note of the Borrowers,
substantially in the form of Exhibit A hereto;
<PAGE>
(ii) Amended $3,850,000 Line Loan Note of the Borrowers, substantially
in the form of Exhibit B hereto;
(iii) Supplement to Security Agreement, made by UMA, substantially in
the form of Exhibit C hereto;
(iv) (a) Financing statements on Forms UCC-l naming UMA as debtor, and
the Lender as creditor, substantially in the form of Exhibit D-l hereto;
and
(b) Financing statements on Form UCC-3 naming Boris as debtor,
and the Lender as creditor, and describing the Boris Merger,
substantially in the form of Exhibit D-2 hereto;
(v) Supplement to Pledge Agreement, made by the Company, substantially
in the form of Exhibit E hereto;
(vi) Certificate(s), with endorsed stock power(s) in blank,
representing all of the outstanding shares of UMA as issued by UMA to the
Company;
(vii) Financing statements on Form UCC-3 naming Cardinal as debtor,
and the Lender as creditor, and describing the Name Change, in
substantially the form of Exhibit F hereto;
(viii) Property insurance certificate(s) naming UMA as the insured and
the Lender as loss payee as its interest may appear and general liability
insurance certificate(s) naming the Lender as an additional insured;
(ix) Certificate(s) of the Secretary or Assistant Secretary of each of
Unison (NY), Inc. and UMA certifying the relevant charter documents
pursuant to which the Transactions were effected; and
(x) Opinion of Buchanan Ingersoll, substantially in the form of
Exhibit G hereto.
3. (a) The Credit Agreement is hereby amended so that each reference
therein to Boris shall be deemed to be a reference to UMA and each reference to
Cardinal shall be deemed to be a reference to Unison (NY), Inc.
(b) UMA hereby confirms that as successor by merger to Boris it is bound
by, and hereby confirms that it is a party to (and a "Borrower") under, the
Credit Agreement for all purposes as if it were an original "Borrower"
thereunder, including, without limitation, its joint and several liability as a
"Borrower" under the Credit Agreement and
-2-
<PAGE>
under the promissory notes referred to in Section 2(i) and (ii) hereof for any
Loans outstanding (and accrued interest thereon) as of the date hereof to any of
the Borrowers.
(c) The Company hereby agrees and confirms that its undertakings under the
Guarantee Agreement apply to all of the obligations of the Borrowers as such
term is amended hereby.
(d) The Schedules to the outstanding Revolving Credit Note and Line Loan
Note may be attached by the Lender to the amendments thereof referred to in
Sections 2(i) and (ii).
4. This Waiver Agreement and the rights and obligations of the parties
hereunder shall be construed in accordance with and shall be governed by the
laws of the State of New York applicable to contracts made and to be performed
entirely within such State, without reference to conflict of laws principles.
5. This Waiver Agreement may be executed in counterparts, each of which
when so executed and delivered (including by facsimile transmission of a signed
counterpart) shall be deemed to be an original and all of which taken together
shall constitute but one and the same instrument.
6. Except as expressly set forth herein, the Credit Agreement as heretofore
amended shall remain in full force and effect, and the Credit Agreement as
amended hereby is hereby ratified and confirmed by the Borrowers.
7. This Waiver Agreement shall constitute an additional Loan Document.
8. Each Borrower hereby represents and warrants to the Lender that, after
giving effect to this Waiver no Default or Event of Default has occurred and is
continuing as of the date hereof under the Credit Agreement.
9. Each of the Borrowers and the Company hereby warrants and represents to
the Lender that this Waiver Agreement and the other documents contemplated
hereby and all of the actions to be taken in connection herewith or therewith
have been authorized by all necessary corporate and shareholder action and will
not conflict with, violate or constitute a default under their charters, by-laws
or any agreements, instruments or other documents to which they or any one of
them is a party or by which any of their assets are bound and that the same do
not and will not violate any applicable laws or regulations.
10. Without limiting or being limited by Section 8.03(b) of the Credit
Agreement,. the Borrowers jointly and severally, indemnify the Lender andeach
Related Party of the Lender (each such person being called an "Indemnitee")
against, and hold each Indemnitee harmless from, any and all losses, claims,
damages, liabilities and related expenses, including the fees, charges and
disbursements of counsel for any Indemnitee, arising out of, in connection with,
or as a result of (i) the execution or delivery of this Waiver
-3-
<PAGE>
Agreement or any other Loan Document or any agreement or instrument contemplated
hereby or thereby, or the performance by the parties hereto or thereto of their
respective obligations hereunder or thereunder, or the consummation of the
transactions contemplated hereby or thereby, or (ii) any actual or prospective
claim, litigation, investigation or proceeding relating to any of the foregoing,
whether based on contract, tort or any other theory and regardless of whether
any Indemnitee is a party thereto; provided, that such indemnity shall not, as
to any Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of competent
jurisdiction by any final and nonappealable judgment to have resulted from the
gross negligence or willful misconduct of such Indemnitee.
IN WITNESS WHEREOF, the parties hereto have caused this Waiver Agreement to
be executed and delivered in the City of New York as of the date first
hereinabove written.
THE CHASE MANHATTAN BANK
By:/s/ Eugene J. Ward
-----------------------------------
Name: Eugene J. Ward
Title: V P
UNIDIGITAL ELEMENTS (NY), INC.
By:/s/ William E. Dye
-----------------------------------
Name: William E. Dye
Title: President
UNISON (NY), INC.
By:/s/ William E. Dye
-----------------------------------
Name: William E. Dye
Title: Chairman
-4-
<PAGE>
UNIDIGITAL ELEMENTS (SF), INC.
By:/s/ William E. Dye
-----------------------------------
Name: William E. Dye
Title: President
UNISON (MA), INC.
By:/s/ William E. Dye
-----------------------------------
Name: William E. Dye
Title: Chairman
UNIDIGITAL INC.
By:/s/ William E. Dye
-----------------------------------
Name: William E. Dye
Title: President
-5-
SUPPLEMENT dated as of October 1, 1997 to the Security Agreement (as
amended, supplemented, or modified from time to time, the "Security Agreement")
dated as of April 3, 1997 among UNIDIGITAL ELEMENTS (NY) INC., a New York
corporation, UNIDIGITAL ELEMENTS (SF), INC., a Delaware corporation,
UNIDIGITAL/CARDINAL CORPORATION, a Delaware corporation (now known as UNISON
(NY), INC.), and UNIDIGITAL/BORIS CORPORATION, a Massachusetts corporation
("UBC") (collectively, the "Debtors"), and THE CHASE MANHATTAN BANK (the "Bank")
Reference is hereby made to the Credit Agreement dated as of April 3, 1997
(as amended, supplemented, or modified from time to time, the "Credit
Agreement") among the Debtors and the Bank.
Terms used herein as defined terms and not otherwise defined herein shall
have the meanings given thereto in the Credit Agreement.
The Debtors have entered into the Security Agreement to induce the Bank to
make the Loans. Pursuant to Section 5.09 of the Credit Agreement, the
undersigned Subsidiary of the Company (a "New Debtor") as the successor by
merger to UBC is required to confirm that it has become a party to the Security
Documents pursuant to one or more instruments or agreements satisfactory in form
and substance to the Bank.
Accordingly, and for other good and lawful consideration the receipt and
sufficiency of which are hereby acknowledged, the Bank and the New Debtor agree
as follows:
Section 1. (a) The New Debtor hereby acknowledges that it is the successor
by merger to UBC, an original party to the Security Agreement, and further
acknowledges that as such successor by merger it is bound by all of the
obligations of, and grants of security interests by, UBC as an original party
thereto, and the New Debtor hereby expressly further assumes and confirms all of
such obligations and grants of security interests.
(b) Without limiting Section 1(a), the New Debtor hereby agrees and
confirms that pursuant hereto it has become a Debtor under the Security
Agreement with the same force and effect as if originally named therein as a
Debtor, and the New Debtor hereby agrees (i) to all the terms and provisions of
the Security Agreement applicable to it as a Debtor under such Security
Agreement, and (ii) represents and warrants that the representations and
warranties made by it as a Debtor under the Security Agreement are true and
correct on and as of the date hereof. In furtherance of the foregoing and as
further security for the payment and performance in full of its "Obligations" as
an additional "Debtor" within the meaning of the Security Agreement and for all
purposes of the Security Agreement, the New Debtor does hereby further create
and grant to the Bank and its successors and assigns, a security interest in the
Collateral (as such term is defined in the Security Agreement) of the New
Debtor. Each
<PAGE>
reference to a "Debtor" in the Security Agreement shall be deemed to include the
New Debtor. The Security Agreement is hereby incorporated herein by reference.
Section 2. The New Debtor represents and warrants to the Bank that this
Supplement has been duly authorized, executed and delivered by it and
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights generally
and subject to general principles of equity (regardless of whether considered in
a proceeding at law or in equity).
Section 3. This Supplement may be executed in two or more counterparts,
each of which shall constitute an original. but all of which, when taken
together, shall constitute but one instrument. This Supplement shall become
effective when the Bank shall have received counterparts of this Supplement
that, when taken together, bear the signature of the New Debtor and the Bank.
Section 4. The New Debtor hereby represents and warrants that (i) set forth
on Schedule I attached hereto is a true and correct schedule of the locations of
any and all Collateral of the New Debtor, and (ii) set forth under its signature
hereto is the true and correct location of the principal place of business and
chief executive office of the New Debtor and its Federal Taxpayer Identification
Number. The New Debtor agrees to furnish (including herewith) to the Bank (i)
such other information as the Bank shall reasonably request in connection with
such New Debtor or its Collateral, and (ii) all instruments, documents, or
agreements that the Bank shall request in connection with the establishment or
perfection of the Liens arising under the Security Agreement, including, without
limitation, all Uniform Commercial Code financing statements, duly executed and
in proper form for filing as the Bank shall request in respect of the Liens
arising under the Security Agreement (whether originally granted by UBC or by
the New Debtor hereto) and in respect of the termination of any other Liens
previously encumbering any Collateral of the New Debtor.
Section 5. Except as expressly supplemented hereby, the Security Agreement
shall remain in full force and effect.
SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
Section 7. In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and in any other Loan Document shall not in any way be affected or
impaired. The parties hereto shall endeavor in good faith negotiations to
replace the invalid. illegal or unenforceable provisions with valid provisions
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
-2-
<PAGE>
Section 8. All communications and notices hereunder shall be in writing and
given as provided in Section 8.01 of the Credit Agreement. All communications
and notices hereunder to the New Debtor shall be given to it at the address set
forth under its signature hereto.
Section 9. The New Debtor agrees to reimburse the Bank for its expenses
incurred in connection with this Supplement. including the reasonable fees,
other charges and disbursements of counsel.
IN WITNESS WHEREOF, the New Debtor and the Bank have duly executed this
Supplement as of the day and year first above written.
UNISON (MA), INC. a Delaware corporation
By:/s/ William E. Dye
-----------------------------------
Name: William E. Dye
Title: Chairman
Address of principal place
of business and chief
executive office:
451 "D" Street
Boston, MA 02210
Federal Taxpayer
Identification Number 04-3393578
THE CHASE MANHATTAN BANK
By:/s/ Eugene J. Ward
-----------------------------------
Name: Eugene J. Ward
Title: V P
-3-
<PAGE>
Schedule I
Location(s) of Collateral
-------------------------
451 "D" Street
Boston, MA 02210
-4-
SUPPLEMENT dated as of October 1, 1997 to the Pledge and Security Agreement
(as amended, supplemented, or modified from time to time, the "Pledge
Agreement") dated as of April 3, 1997 between UNIDIGITAL INC., a Delaware
corporation (the "Pledgor"), and THE CHASE MANHATTAN BANK (the "Bank").
Reference is hereby made to the Credit Agreement dated as of April 3, 1997
(as amended, supplemented, or modified from time to time, the "Credit
Agreement") among Unidigital Elements (NY), INC., Unidigital Elements (SF),
Inc., Unidigital/Cardinal Corporation (now known as Unison NY), Inc.) and
Unidigital/Boris Corporation (the "Borrowers"), and The Chase Manhattan Bank
(the "Bank").
Terms used herein as defined terms and not otherwise defined herein shall
have the meanings given thereto in the Credit Agreement.
The Pledgor has entered into the Pledge Agreement to induce the Bank to
make the Loans to the Borrowers (the term "Borrowers" as used herein and as used
in the Pledge Agreement hereinafter referring to Unidigital Elements (NY), Inc.,
Unison (NY), Inc. (formerly known as Unidigital (NY), Inc.), and Unison (MA),
Inc., (a Delaware corporation and the successor by merger to Unidigital/Boris
Corporation ("UBC")). Pursuant to (and as more particularly set forth in)
Sections 1 and 5 of the Pledge Agreement, the Pledgor is required to pledge to
and grant to the Bank a security interest in the stock or other equity interests
representing ownership of any new Subsidiary obtained in the future by the Bank.
Accordingly, and for other good and lawful consideration the receipt and
sufficiency of which are hereby acknowledged, the Bank and the Pledgor agree as
follows:
Section 1. (a) In accordance with Sections 1 and 5 of the Pledge Agreement,
the Pledgor by its signature below (i) represents and warrants that the
representations and warranties made by it as a Pledgor thereunder are true and
correct on and as of the date hereof and, (ii) the Pledgor, as further security
for the payment and performance in full of its Obligations (as such term is
defined in the Pledge Agreement), hereby transfers, grants, bargains, sells,
conveys, hypothecates, pledges, sets over and delivers unto the Bank and its
successors and assigns, and grants to the Bank, and its successors and assigns,
a first priority security interest in (i) the shares of capital stock listed on
Schedule I (ii) all other property that may be delivered to and held by the Bank
pursuant to the terms of the Pledge Agreement, (iii) subject to Section 6(a)(i)
of the Pledge Agreement, all payments of dividends and distributions, including,
without limitation, all cash, instruments and other property, from time to time
received, receivable or otherwise paid or distributed, in respect of, or in
<PAGE>
exchange for or upon the conversion of the securities and other property
referred to in clauses (i) or (ii) above, (iv) subject to Section 6(a)(i) of the
Pledge Agreement, all rights and privileges of the Pledgor with respect to the
securities and other property referred to in clauses (i), (ii), or (iii) above,
(v) any and all custodial accounts in which any of the foregoing property (and
any property described in the following clause (vi)) may be deposited, and any
securities entitlements relating thereto, and (vi) all proceeds of any of the
foregoing. Schedule I hereto shall supplement Schedule I to the Pledge
Agreement, and shall be deemed a part thereof for all purposes of the Pledge
Agreement.
(b) Without limiting Section 1(a), the Pledgor hereby agrees, acknowledges
and confirms that as pledgee of all of the outstanding shares of UBC under the
Pledge Agreement the Bank obtained and has retained a continuing security
interest in the shares of the capital stock described on Schedule I upon the
merger of UBC into the issuer of such capital stock.
Section 2. The Pledgor represents and warrants to the Bank that this
Supplement has been duly authorized. executed and delivered by it and
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights generally
and subject to general principles of equity (regardless of whether considered in
a proceeding at law or in equity).
Section 3. This Supplement may be executed in two or more counterparts,
each of which shall constitute an original, but all of which, when taken
together, shall constitute but one instrument. This Supplement shall become
effective when the Bank shall have received counterparts of this Supplement
that, when taken together, bear the signatures of the Pledgor and the Bank.
Section 4. The Pledgor has delivered herewith (i) in respect of the
additional Pledged Shares undated stock powers duly executed in blank or other
instruments of transfer satisfactory to the Bank and that the Bank shall
reasonably request in connection with the Pledgor as a pledgor or its
Collateral, and (ii) all instruments, documents, or agreements that the Bank
shall request in connection with the establishment or perfection of the pledge
or the Liens arising under the Pledge Agreement, including, without limitation,
all Uniform Commercial Code financing statements duly executed and in proper
form for filing as the Bank shall request in respect of the Liens arising under
the Pledge Agreement and in respect of the termination of any other Liens
previously encumbering any Collateral of the Pledgor.
Section 5. Except as expressly supplemented hereby, the Pledge Agreement
shall remain in full force and effect.
-2-
<PAGE>
SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEV YORK.
Section 7. In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and in any other Loan Document shall not in any way be affected or
impaired. The parties hereto shall endeavor in good faith negotiations to
replace the invalid illegal or unenforceable provisions with valid provisions
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
Section 8. The Pledgor agrees to reimburse the Bank for its expenses
incurred in connection with this Supplement, including the reasonable fees,
other charges and disbursements of counsel.
IN WITNESS WHEREOF, the Pledgor and the Bank have duly executed this
Supplement as of the day and year first above written.
UNIDIGITAL INC.
By /s/ William E. Dye
-------------------------------
Name: William E. Dye
Title: President
THE CHASE MANHATTAN BANK
By:/s/ Eugene J. Ward
-------------------------------
Name: Eugene J. Ward
Title: V P
-3-
<PAGE>
Schedule I
to Supplement
PLEDGED STOCK
Issuer Number of Shares Percentage
- ------ ---------------- ----------
1. Unison (MA), Inc., a
Delaware corporation 100 100%
Subsidiaries of the Registrant
------------------------------
Unidigital Elements (NY), Inc., a New York corporation
Unidigital Elements (SF), Inc., a Delaware corporation, doing business as TX and
Unidigital California, Inc. in California
Unison (NY), Inc., a Delaware corporation
Unison (MA), Inc., a Delaware corporation
Elements (UK) Limited, a United Kingdom corporation
Regent Communications (UK) Limited, a United Kingdom corporation, and
wholly-owned subsidiary of Elements (UK) Limited
Libra City Corporate Printing Limited, a United Kingdom corporation, and
wholly-owned subsidiary of Elements (UK) Limited
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
consolidated financial statements at August 31, 1997 and for the twelve month
period ended August 31, 1997 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<CASH> 3,202,766
<SECURITIES> 0
<RECEIVABLES> 10,018,807
<ALLOWANCES> (266,000)
<INVENTORY> 0
<CURRENT-ASSETS> 15,714,928
<PP&E> 16,160,836
<DEPRECIATION> (4,261,361)
<TOTAL-ASSETS> 33,033,290
<CURRENT-LIABILITIES> 17,904,285
<BONDS> 0
0
0
<COMMON> 32,432
<OTHER-SE> 9,440,704
<TOTAL-LIABILITY-AND-EQUITY> 33,033,290
<SALES> 27,261,856
<TOTAL-REVENUES> 27,289,443
<CGS> 14,449,663
<TOTAL-COSTS> 14,449,663
<OTHER-EXPENSES> 9,570,659
<LOSS-PROVISION> 102,412
<INTEREST-EXPENSE> 1,094,625
<INCOME-PRETAX> 1,934,012
<INCOME-TAX> 593,280
<INCOME-CONTINUING> 1,340,732
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,340,732
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.41
</TABLE>
