SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1998
Commission File No. 0-27664
UNIDIGITAL INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 13-3856672
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
545 West 45th Street, New York, New York 10036
(Address of Principal Executive Offices)
(212) 397-0800
(Issuer's Telephone Number,
Including Area Code)
Check whether the Issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes: X No:
-------- --------
State the number of shares outstanding of each of the Issuer's classes
of common stock, as of March 31, 1998:
Class Number of Shares
- ----- ----------------
Common Stock, $.01 par value 3,899,302
Transitional Small Business Disclosure Format:
Yes: No: X
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UNIDIGITAL INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements....................................1
CONSOLIDATED BALANCE SHEETS
as at February 28, 1998 (unaudited)
and August 31, 1997 (audited).................................2
CONSOLIDATED INCOME STATEMENTS For the Three Months and Six
Months Ended February 28, 1998 and February 28, 1997
(unaudited)...................................................3
CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended
February 28, 1998 and February 28, 1997
(unaudited)...................................................4
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (unaudited)........................................5
Item 2. Management's Discussion and Analysis or
Plan of Operation.......................................11
General.......................................................11
Results of Operations.........................................11
Liquidity, Capital Resources and Other Matters................14
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds...............17
Item 4. Submission of Matters to a Vote of Security Holders.....17
Item 5. Other Information.......................................19
Item 6. Exhibits and Reports on Form 8-K........................20
SIGNATURES....................................................................21
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
- 1 -
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<TABLE>
<CAPTION>
UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
February 28, August 31,
1998 1997
-------- ------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents .......................................... $ 1,945,436 $ 3,202,766
Accounts receivable (less allowance for doubtful
accounts of $264,337 and $266,000 at
February 28, 1998 and August 31, 1997, respectively) ............. 11,092,840 9,752,807
Deferred financing costs, net ...................................... 287,793 463,931
Prepaid expenses ................................................... 2,729,212 1,529,664
Other current assets ............................................... 1,805,843 765,760
----------- -----------
Total current assets ........................................... 17,861,124 15,714,928
Property and equipment, net ........................................... 11,463,726 11,899,475
Intangible assets, net ................................................ 5,307,950 5,330,923
Other assets .......................................................... 214,249 87,964
----------- -----------
Total assets ................................................... $34,847,049 $33,033,290
=========== ===========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses ..................................... $ 5,437,277 $ 5,181,684
Current portion of capital lease obligations .............................. 2,042,579 1,998,443
Current portion of long-term debt ......................................... 11,264,459 10,018,332
Income taxes payable ...................................................... 900,836 551,235
Loans and notes payable to stockholders ................................... 164,364 154,591
------------ ------------
Total current liabilities ............................................. 19,809,515 17,904,285
Capital lease obligations, net of current portion ............................ 2,338,283 2,875,577
Long-term debt, net of current portion ....................................... 2,044,202 2,127,796
Deferred income taxes ........................................................ 399,036 445,000
Loans and notes payable to stockholders, net of current portion .............. 207,496 207,496
------------ ------------
Total liabilities ..................................................... 24,798,532 23,560,154
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock -- authorized 5,000,000 shares,
$.01 par value each; none issued or outstanding ........................... -- --
Common stock -- authorized 10,000,000 shares,
$.01 par value each; 3,249,461 and 3,243,243 shares
issued and outstanding at February 28, 1998 and
August 31, 1997, respectively ............................................. 32,495 32,432
Additional paid-in capital ................................................... 6,392,427 6,291,613
Retained earnings ............................................................ 3,936,409 3,237,984
Cumulative foreign translation adjustment .................................... (312,814) (88,893)
------------ ------------
Total stockholders' equity ............................................ 10,048,517 9,473,136
------------ ------------
Total liabilities and stockholders' equity ............................ $ 34,847,049 $ 33,033,290
============ ============
The Notes to Consolidated Financial Statements are made a part hereof.
</TABLE>
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<CAPTION>
UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
CONSOLIDATED INCOME STATEMENTS
------------------------------
(unaudited)
Three Months Ended, Six Months Ended,
February 28, February 28, February 28, February 28,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Net sales ......................................... $9,556,272 $5,265,916 $19,255,448 $10,493,635
---------- ---------- ----------- -----------
Expenses
Cost of sales ..................................... 5,275,296 2,735,523 10,300,273 5,385,626
Selling, general and
administrative expenses ........................ 3,333,384 1,934,626 6,746,376 3,744,364
---------- ---------- ----------- -----------
Total operating expenses .......................... 8,608,680 4,670,149 17,046,649 9,129,990
---------- ---------- ----------- -----------
Income from operations ............................ 947,592 595,767 2,208,799 1,363,645
Interest expense................................... 366,074 164,462 748,607 298,739
Interest expense - deferred financing costs ....... 138,069 -- 276,138 --
Interest and other expenses ....................... 124,765 47,077 86,071 6,383
---------- ---------- ----------- -----------
Income before income taxes ........................ 318,684 384,228 1,097,983 1,058,523
Provision for income taxes ........................ 126,448 140,741 399,558 353,216
---------- ---------- ----------- -----------
Net income ........................................... $ 192,236 $ 243,487 $ 698,425 $ 705,307
========== ========== =========== ===========
Net income per share available to common stockholders:
Basic ............................................. $ 0.06 $ 0.08 $ 0.22 $ 0.22
========== ========== =========== ===========
Diluted ........................................... $ 0.06 $ 0.08 $ 0.20 $ 0.22
========== ========== =========== ===========
Shares used to compute net income per share:
Basic ............................................. 3,246,301 3,192,065 3,244,797 3,190,641
========== ========== =========== ===========
Diluted ........................................... 3,380,891 3,196,694 3,436,008 3,194,273
========== ========== =========== ===========
The Notes to Consolidated Financial Statements are made a part hereof.
</TABLE>
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<TABLE>
<CAPTION>
UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(unaudited)
Six Months Ended,
February 28, February 28,
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income ..................................................................... $ 698,425 $ 705,307
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization ........................................... 1,632,293 884,584
Provision for deferred income taxes ..................................... 19,400 (42,861)
Provision for bad debts ................................................. (8,748) 59,325
Changes in assets and liabilities:
Accounts receivable ..................................................... (2,338,573) (2,124,397)
Prepaid expenses and other current assets ............................... (959,542) (953,865)
Other assets ............................................................ 71,025 (209,013)
Accounts payable and accrued expenses ................................... (49,368) 1,831,800
Income taxes payable .................................................... 339,658 (51,269)
----------- -----------
Net cash (used in) provided by operating activities ............................ (595,430) 99,611
----------- -----------
Investing activities
Additions to property and equipment ............................................ (599,031) (464,125)
----------- -----------
Net cash used in investing activities .......................................... (599,031) (464,125)
----------- -----------
Financing activities
Net proceeds from bank borrowings .............................................. 856,723 (295,241)
Payments of capital lease obligations .......................................... (932,556) (903,654)
Payments of notes for cancellation of options
and acquisition of business ................................................. -- (178,383)
IPO issuance costs ............................................................. -- (4,214)
Stockholder loans .............................................................. -- 4,008
Common stock issued ............................................................ 877 430
----------- -----------
Net cash used in financing activities .......................................... (74,956) (1,377,054)
----------- -----------
Effect of foreign exchange rates on cash ....................................... 12,087 54,758
----------- -----------
Net decrease in cash and cash equivalents ...................................... (1,257,330) (1,686,810)
Cash and cash equivalents at beginning of period ............................... 3,202,766 4,145,514
----------- -----------
Cash and cash equivalents at end of period ..................................... $ 1,945,436 $ 2,458,704
=========== ===========
Supplemental disclosures
Interest paid .................................................................. $ 369,648 $ 225,102
=========== ===========
Income taxes paid .............................................................. $ 115,267 $ 563,746
=========== ===========
Noncash transactions:
Equipment acquired under capital lease obligations ............................. $ 407,309 $ 1,570,875
=========== ===========
Value of warrants issued ....................................................... $ 100,000 $ --
=========== ===========
The Notes to Consolidated Financial Statements are made a part hereof.
</TABLE>
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UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
NOTE A - BASIS OF PRESENTATION:
The information presented for February 28, 1998, and for the
three-month and the six-month periods ended February 28, 1998 and February 28,
1997, is unaudited, but, in the opinion of the Company's management, the
accompanying unaudited consolidated financial statements contain all adjustments
(consisting only of normal recurring accruals) which the Company considers
necessary for the fair presentation of the Company's financial position as of
February 28, 1998 and the results of its operations and its cash flows for the
three-month and the six-month periods ended February 28, 1998 and February 28,
1997.
The consolidated financial statements included herein have been
prepared by the Company in accordance with generally accepted accounting
principles for interim financial information and the instructions to Form 10-QSB
and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
These consolidated financial statements should be read in conjunction with the
Company's audited financial statements for the year ended August 31, 1997, which
were included as part of the Company's Annual Report on Form 10-KSB.
The consolidated financial statements include the accounts of
Unidigital Inc. and its direct and indirect subsidiaries. All significant
intercompany balances have been eliminated.
Interim results are not necessarily indicative of results that may be
expected for the full fiscal year.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Business:
Unidigital Inc., a Delaware corporation, is the parent holding company
of five wholly-owned operating subsidiaries, Unidigital Elements (NY), Inc.,
formerly known as LinoGraphics Corporation ("Elements (NY)"), Elements (UK)
Limited ("Elements (UK)"), Unidigital Elements (SF), Inc., formerly known as
LinoGraphics (Delaware) Corporation ("Elements (SF)"),Unison (NY), Inc.,
formerly known as Unidigital/Cardinal Corporation ("Unison (NY)"), and Unison
(MA), Inc., formerly known as 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 in London. In addition, Elements (UK), through its wholly-owned
subsidiary, Regent Group Limited, operates a financial digital print business in
London. 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.
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UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
Foreign Currency Translation:
The portion of the Company's financial statements relating to the
Company's United Kingdom operations are translated into United States Dollars
using period-end exchange rates ((pound)1.00 = $1.62 at August 31, 1997 and
$1.65 at February 28, 1998, respectively, for balance sheets accounts) and
average exchange rates ((pound)1.00 = $1.64 for the year ended August 31, 1997;
and $1.69 and $1.64 for the three months ended February 28, 1998 and February
28, 1997, respectively; and $1.69 and $1.64 for the six months ended February
28, 1998 and February 28, 1997, respectively for income statement accounts). The
translation difference is reflected as a separate component of stockholders'
equity.
Earnings Per Share:
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share,"
which is required to be adopted for years ending after December 15, 1997.
Accordingly, the Company has adopted the provisions of the new statement.
The following table sets forth the computation of basic and dilutive
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended, Six Months Ended,
--------------------------------- -----------------------------
February 28, February 28,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator for basic and diluted earnings per
share-net income available for common
stockholders ................................ $ 192,236 $ 243,487 $ 698,425 $ 705,307
============= ============= ============= ==========
Denominator:
Denominator for basic earnings per share-
weighted average shares ..................... 3,246,301 3,192,065 3,244,797 3,190,641
Effect of dilutive securities:
Stock options................................ 15,909 4,629 32,674 3,632
Warrants..................................... 118,681 -- 158,537 --
--------- --------- --------- ---------
Denominator for basic and diluted earnings
per share-adjusted weighted-average shares
and assumed conversions ..................... 3,380,891 3,196,694 3,436,008 3,194,273
========= ========= ========= =========
</TABLE>
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UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
The following securities have been excluded from the dilutive per
share computation as they are antidilutive:
Three Months Ended Six Months Ended
------------------- ------------------
February 28, February 28,
1998 1997 1998 1997
------------------- ------------------
Stock Options.................. 178,917 41,166 132,918 67,833
Warrants....................... 117,000 92,000 117,000 92,000
NOTE C - STOCKHOLDERS' EQUITY:
Common Stock:
As at March 31, 1998, 3,899,302 shares of Common Stock were issued and
outstanding.
Preferred Stock:
As at March 31, 1998, there were no shares of Preferred Stock issued or
approved for issuance.
NOTE D - STOCK OPTION PLANS AND WARRANTS:
Pursuant to the 1997 Equity Incentive Plan (the "1997 Plan") the
Company granted options to purchase an aggregate of 208,599 shares if its Common
Stock during the six months ended February 28, 1998. All options were granted at
their fair market value. On January 2, 1998, the Company granted options to
purchase 2,500 shares of its Common Stock to each of David Wachsman and Harvey
Silverman, at an exercise price of $5.53 per share, under the 1997 Non-Employee
Director Stock Option Plan.
In connection with its engagement of CIBC Oppenheimer ("Oppenheimer")
as its investment banker, on November 26, 1997, the Company granted a five-year
warrant to Oppenheimer to purchase up to 25,000 shares of the Company's Common
Stock at an exercise price of $8.25 per share. The warrants, which were deemed
to have a value of approximately $100,000 based on an independent appraisal,
have been recorded as deferred financing costs and are being amortized on a
straight line basis over five years.
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UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
NOTE E - BANK CREDIT FACILITIES:
At February 28, 1998, the Company's debt consisted of the following:
<TABLE>
<CAPTION>
Facility Amount Outstanding
Amount --------------------------------
August 31, February 28, August 31,
1997 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
Credit facilities in the United Kingdom; interest at
the bank's overdraft rate plus 3%; facility amount is
approximately(pound)1,145,000 ($1,969,400) $ 1,969,400 -- $ 1,784,150
Credit facilities in the United Kingdom; interest at the
bank's overdraft rate plus 2%; facility amount is
approximately(pound)1,400,000 ($2,310,000) -- 2,465,028 --
Revolving interest at Alternate Base Rate or Adjusted LIBO Rate,
line of credit;matures April 30, 2000, as defined, plus
1/4% in the United States plus 2.25% in the United Kingdom
in the United Kingdom 4,500,000 1,725,000 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 .. 5,250,000 4,634,110 4,110,110
SBA loan, matures December 1, 2014; monthly payments of
$3,665; interest at prime rate plus 2.74%
350,000 325,773 334,368
Installment note due seller of Elements (SF); payable in eight (8) quarterly
installments of $11,600 including interest at 6% 85,000 21,250 42,500
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 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% 150,000 137,500 150,000
------------------------------
13,308,661 12,146,128
Less current portion 11,264,459 10,018,332
------------------------------
$ 2,044,202 $ 2,127,796
==============================
</TABLE>
The Company has borrowing arrangements with commercial banks in both
New York and London. During the first six months of fiscal 1998, the Company had
combined credit facilities with its former New York bank for its United States
operations in the aggregate amount of $9,750,000, which consisted of a: (i)
$4,500,000 revolving credit facility which was available for corporate
acquisition purposes; (ii) $3,850,000 line of credit facility which was
available for working capital purposes; and (iii) $1,400,000 term loan which was
rolled over into the Company's line of credit facility. Such credit facilities
were available to be used by each of the
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UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
Company's four United States subsidiaries. Interest under such credit facilities
was 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 February 28, 1998, the Company had an outstanding balance of
$1,725,000 under the revolving credit facility and $4,634,110 under the line of
credit.
On March 24, 1998, the Company terminated its financing facilities
with its former New York bank and entered into borrowing arrangements with its
current New York Bank (the "Bank") in the aggregate amount of $40,000,000, which
consist of a: (i) $25,000,000 term loan; (ii) $10,000,000 revolving line of
credit facility which is available for working capital purposes; and (iii)
$5,000,000 credit facility which is available for corporate acquisition
purposes. Such borrowings are guaranteed by the Company's United States
subsidiaries. In addition, the Company pledged all of its equity interests in
its United States subsidiaries and two-thirds of its equity interests in its
wholly-owned United Kingdom subsidiary as collateral for such credit facilities.
Interest under such credit facilities is, at the Company's option, at the Base
Rate or at the Eurodollar Rate, as defined, plus an Applicable Margin, as
defined, ranging from 0.75% to 3% depending on the Company's consolidated debt
to earnings ratio and the type of loan. As of March 31, 1998, the Company had an
outstanding balance of $8,350,000 under the revolving credit facility and
$25,000,000 under the term loan. A portion of the proceeds of such loans was
used to repay in full promissory notes previously issued by the Company in 1997
to certain private investors in the aggregate principal amount of $4,000,000.
The credit facilities contain covenants which require the Company to
maintain certain earnings and debt to earnings ratio requirements based on the
combined operations of the Company and its subsidiaries. The credit facilities
are secured by a first priority lien on all of the assets of the Company and its
subsidiaries, a mortgage on the Company's facilities located at 545 West 45th
Street, New York, New York and a leasehold mortgage on the Company's facilities
acquired as part of the March 1998 Kwik Acquisition (as defined below) located
at 229 West 28th Street, New York, New York. The Company, the Bank and Richard
J. Sirota ("Sirota"), the sole shareholder of Kwik (as defined below), entered
into an intercreditor subordination agreement with respect to the Bank's and
Sirota's relative interests in the Company.
The Company's agreement with the Bank restricts the Company's ability
to pay certain dividends without the Bank's prior written consent.
On December 4, 1997, the Company terminated its credit facilities with
its prior United Kingdom bank and entered into a new credit facility with
another United Kingdom bank. The Company's new credit facility provides for
combined lines of credit of (pound)1,400,000 (approximately $2,310,000) for
working capital for its United Kingdom operations. These lines of credit renew
annually and bear interest at 2.0% over the Bank's Base Rate, as defined. In
addition, the Company is required to pay a service charge equal to 0.2% of
invoice value. These lines of credit contain covenants which require the
Company's United Kingdom subsidiaries to maintain a minimum net worth of
(pound)500,000, limit borrowings up to specified amounts of
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UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
accounts receivable aged 120 days or less and are guaranteed by Unidigital for
the principal amount of up to (pound)500,000. Amounts outstanding are
collateralized by substantially all of the Company's United Kingdom assets. As
of February 28, 1998, the Company had an outstanding balance of $2,465,028 under
its United Kingdom credit facility.
NOTE F - SUBSEQUENT EVENTS:
On March 25, 1998, the Company, through its wholly-owned subsidiary,
Unison (NY), consummated the acquisition of substantially all of the assets of
Kwik International Color, Ltd. ("Kwik") located in New York City (the "Kwik
Acquisition"). Kwik provided general printing, color separation and large format
printing services. The Company intends to continue such line of business. The
assets purchased included Kwik's entire customer list, inventory, equipment,
cash, accounts receivable and trade name. The purchase price included cash
payments of $20,590,349, issuance of a 5.7% subordinated promissory note in the
principal amount of $750,000 (payable in 36 monthly installments commencing
April 15, 1998), issuance of 649,841 shares of restricted Common Stock of the
Company and the assumption of certain trade obligations of Kwik.
The purchase price is subject to adjustment in the event Kwik does not
achieve a certain net asset value as of the date of the acquisition. Such
determination shall be made within sixty (60) days of the date of closing. Of
the purchase price, $1,000,000 in cash and $1,000,000 of restricted Common Stock
of the Company (190,589 shares) is being held in escrow for a period of two
years to satisfy any purchase price adjustments or indemnification claims.
The Company funded the cash portion of the purchase price from
proceeds of a $25,000,000 term loan and a $10,000,000 revolving credit loan from
the Bank. See "Note E - Bank Credit Facilities."
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2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
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 statements contained in this Quarterly Report on Form 10-QSB 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, 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.
RESULTS OF OPERATIONS
The consolidated financial information includes both the Company's
United States operations and its United Kingdom operations. On April 4, 1997,
the Company consummated the acquisition of Boris Image Group, Inc. (the "Boris
Acquisition") and, on May 22, 1997, the
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<PAGE>
Company consummated the acquisition of Libra City Corporate Printing Limited
(the "Libra Acquisition").
THREE MONTHS ENDED FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
----------------------------------------------------------
Net Sales. Net sales for the three months ended February 28, 1998
("Second Quarter of Fiscal 1998") increased by 81%, or $4,290,356, to $9,556,272
from $5,265,916 for the three months ended February 28, 1997 ("Second Quarter of
Fiscal 1997"). Net sales for the Company's United States operations increased by
65%, or $2,113,984 from $3,232,524 in the Second Quarter of Fiscal 1997 to
$5,346,508 in the Second Quarter of Fiscal 1998. This increase was attributable
primarily to an increase in net sales resulting from the Boris Acquisition and,
to a lesser extent, an increase in net sales in each of the Company's three
other United States subsidiaries. Net sales for the Company's United Kingdom
operations increased by 107%, or $2,176,372, from $2,033,392 in the Second
Quarter of Fiscal 1997 to $4,209,764 in the Second Quarter of Fiscal 1998. This
increase was attributable primarily to the inclusion of net sales resulting from
the Libra Acquisition, and to a lesser extent, increases in the Company's
prepress operations.
Cost of Sales. Cost of sales for the Second Quarter of Fiscal 1998
increased by 93%, or $2,539,773, to $5,275,296 from $2,735,523 for the Second
Quarter of Fiscal 1997. As a percentage of net sales, cost of sales increased
from 52% for the Second Quarter of Fiscal 1997 to 55% for the Second Quarter of
Fiscal 1998. Cost of sales for the Company's United States operations increased
as a percentage of net sales from 46% for the Second Quarter of Fiscal 1997 to
49% for the Second Quarter of Fiscal 1998. 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. Cost of
sales for the Company's United Kingdom operations increased slightly as a
percentage of net sales from 62% for the Second Quarter of Fiscal 1997 to 63%
for the Second Quarter of Fiscal 1998. 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 by 72%, or $1,398,758, from
$1,934,626 for the Second Quarter of Fiscal 1997 to $3,333,384 for the Second
Quarter of Fiscal 1998. Such increase was attributable primarily to the
increased level of operations which resulted from the Boris Acquisition and the
Libra Acquisition, the hiring of additional management and administrative
personnel and costs associated with the Company's acquisitions. As a percentage
of net sales, SG&A decreased from 37% for the Second Quarter of Fiscal 1997 to
35% for the Second Quarter of Fiscal 1998. Such decrease in SG&A as a percentage
of net sales was due primarily to increased sales volume and the Company's
ability to contain certain corporate expenses.
Income from Operations. Income from operations for the Second Quarter
of Fiscal 1998 increased by 59%, or $351,825, to $947,592 from $595,767 for the
Second Quarter of Fiscal 1997. Of this amount, $490,568 was contributed by the
Company's United States operations and
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<PAGE>
$457,024 by the Company's United Kingdom operations. This increase resulted from
higher net sales offset in part 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 Second Quarter of
Fiscal 1998 increased by 197%, or $417,369, to $628,908 from $211,539 for the
Second Quarter of Fiscal 1997. This increase resulted from increased borrowings
under the Company's credit facilities and capital leases assumed by the Company
as part of the Boris Acquisition and the Libra Acquisition. In addition, the
Company incurred deferred financing costs of $138,069 in connection with
the issuance of warrants relating to the unsecured loans. Such deferred
financing costs are non-cash, non-recurring expenses.
Income Taxes. Income taxes for the Second Quarter of Fiscal 1998
decreased by 10%, or $14,293, to $126,448 from $140,741 for the Second Quarter
of Fiscal 1997.
Net Income. As a result of the factors described above, net income for
the Second Quarter of Fiscal 1998 decreased by 21%, or $51,251, to $192,236 as
compared to a net income of $243,487 for the Second Quarter of Fiscal 1997.
SIX MONTHS ENDED FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
--------------------------------------------------------
Net Sales. Net sales for the six months ended February 28, 1998
increased by 83%, or $8,761,813, to 19,255,448 from $10,493,635 for the six
months ended February 28, 1997. Net sales for the Company's United States
operations increased by 62%, or $3,850,103, from $6,259,699 in the six months
ended February 28, 1997 to $10,109,802 in the six months ended February 28,
1998. This increase was attributable primarily to an increase in net sales
resulting from the Boris Acquisition and, to a lesser extent, an increase in net
sales in each of the Company's three other United States subsidiaries. Net sales
for the Company's United Kingdom operations increased by 116%, or $4,911,710,
from $4,233,936 in the six months ended February 28, 1997 to $9,145,646 in the
six months ended February 28, 1998. This increase was attributable primarily to
the inclusion of net sales resulting from the Libra Acquisition and, to a lesser
extent, increases in the Company's prepress operations.
Cost of Sales. Cost of sales for the six months ended February 28, 1998
increased by 91%, or $4,914,647, to $10,300,273 from $5,385,626 for the six
months ended February 28, 1997. As a percentage of net sales, cost of sales
increased from 51% for the six months ended February 28, 1997 to 53% for the six
months ended February 28, 1998. Cost of sales for the Company's United States
operations decreased slightly as a percentage of net sales from 47% for the six
months ended February 28, 1997 to 46% for the six months ended February 28,
1998. Such decrease was attributable primarily to the Company's renegotiation of
its vendor contracts resulting in reduced supply costs to the Company, offset in
part by higher costs associated with increased digital print and wide format
services provided by the Company's United States operations. Cost of sales for
the Company's United Kingdom operations increased as a percentage of net sales
from 58% for the six months ended February 28, 1997 to 61% for the six months
ended February 28, 1998. Such increase was attributable primarily to the change
in product mix in the Company's United Kingdom operations to include more
digital print and
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financial print services. Digital print and financial print services have higher
costs compared to digital prepress services.
Selling, General and Administrative Expenses. SG&A increased by 80%, or
$3,002,012, from $3,744,364 for the six months ended February 28, 1997 to
$6,746,376 for the six months ended February 28, 1998. Such increase was
attributable primarily to the increased level of operations which resulted from
the Boris Acquisition and the Libra Acquisition, the hiring of additional
management and administrative personnel and costs associated with the Company's
acquisitions. As a percentage of net sales, SG&A decreased slightly from 36% for
the six months ended February 28, 1997 to 35% for the six months ended February
28, 1998. Such decrease in SG&A as a percentage of net sales was due primarily
to increased sales volume.
Income from Operations. Income from operations for the six months ended
February 28, 1998 increased by 62%, or $845,154, to $2,208,799 from $1,363,645
for the six months ended February 28, 1997. Of this amount, $1,006,231 was
contributed by the Company's United States operations and $1,202,568 by the
Company's United Kingdom operations. This increase resulted from higher net
sales offset in part 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 six months ended
February 28, 1998 increased by 264%, or $805,694, to $1,110,816 from $305,122
for the six months ended February 28, 1997. This increase resulted from
increased borrowings under the Company's credit facilities and capital leases
assumed by the Company as part of the Boris Acquisition and the Libra
Acquisition. In addition, the Company incurred deferred financing costs of
$276,138 in connection with the issuance of warrants relating to unsecured
loans. Such deferred financing costs are non-cash, non-recurring expenses.
Income Taxes. Income taxes for the six months ended February 28, 1998
increased by 13%, or $46,342, to $399,558 from $353,216 for the six months ended
February 28, 1997.
Net Income. As a result of the factors described above, net income for
the six months ended February 28, 1998 decreased slightly by 1%, or $6,882, to
$698,425 as compared to a net income of $705,307 for the six months ended
February 28, 1997.
LIQUIDITY, CAPITAL RESOURCES AND OTHER MATTERS
Cash Flow. Net cash used in operations was $595,430 for the first six
months of fiscal 1998. Net cash provided by operations was $99,611 for the first
six months of fiscal 1997. Net cash used in investing activities for the
acquisition of property and equipment was $599,031 for the first six months of
fiscal 1998 and $464,125 for the first six months of fiscal 1997. For the first
six months of fiscal 1998 and fiscal 1997, the Company acquired equipment under
capital leases of $407,309 and $1,570,875, respectively, and made payments under
capital leases of $932,556 and $903,654, respectively. Net bank borrowings
provided funds of $856,723 for the first six months of fiscal 1998 and used
funds of $295,241 for the first six months of fiscal 1997.
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<PAGE>
Bank Credit Facilities. The Company has borrowing arrangements with
commercial banks in both New York and London. During the first six months of
fiscal 1998, the Company had combined credit facilities with its former New York
bank for its United States operations in the aggregate amount of $9,750,000,
which consisted of a: (i) $4,500,000 revolving credit facility which was
available for corporate acquisition purposes; (ii) $3,850,000 line of credit
facility which was available for working capital purposes; and (iii) $1,400,000
term loan which was rolled over into the Company's line of credit facility. Such
credit facilities were available to be used by each of the Company's four United
States subsidiaries.
Subsequent to the end of the quarter, on March 24, 1998, the Company
terminated its financing facilities with its former New York bank and entered
into borrowing arrangements with the Bank in the aggregate amount of
$40,000,000, which consist of a: (i) $25,000,000 term loan; (ii) $10,000,000
revolving line of credit facility which is available for working capital
purposes; and (iii) $5,000,000 credit facility which is available for corporate
acquisition purposes. Such borrowings are guaranteed by the Company's United
States subsidiaries. In addition, the Company pledged all of its equity
interests in its United States subsidiaries and two-thirds of its equity
interests in its wholly-owned United Kingdom subsidiary as collateral for such
credit facilities. Interest under such credit facilities is, at the Company's
option, at the Base Rate or at the Eurodollar Rate, as defined, plus an
Applicable Margin, as defined, ranging from 0.75% to 3% depending on the
Company's consolidated debt to earnings ratio and the type of loan. As of March
31, 1998, the Company had an outstanding balance of $8,350,000 under the
revolving credit facility and $25,000,000 under the term loan. A portion of the
proceeds of such loans was used to repay in full promissory notes previously
issued by the Company in 1997 to certain private investors in the aggregate
principal amount of $4,000,000.
The credit facilities contain covenants which require the Company to
maintain certain earnings and debt to earnings ratio requirements based on the
combined operations of the Company and its subsidiaries. The credit facilities
are secured by a first priority lien on all of the assets of the Company and its
subsidiaries, a mortgage on the Company's facilities located at 545 West 45th
Street, New York, New York and a leasehold mortgage on the Company's facilities
acquired as part of the Kwik Acquisition located at 229 West 28th Street, New
York, New York. The Company, the Bank and Sirota entered into an intercreditor
subordination agreement with respect to the Bank's and Sirota's relative
interests in the Company.
The Company's agreement with the Bank restricts the Company's ability
to pay certain dividends without the Bank's prior written consent.
On December 4, 1997, the Company terminated its credit facilities with
its prior United Kingdom bank and entered into a new credit facility with
another United Kingdom bank. The Company's new credit facility provides for
combined lines of credit of (pound)1,400,000 (approximately $2,310,000) for
working capital for its United Kingdom operations. These lines of credit renew
annually and bear interest at 2.0% over the Bank's Base Rate, as defined. These
lines of credit contain covenants which require the Company's United Kingdom
subsidiaries to maintain a minimum net worth of (pound)500,000, limit borrowings
up to specified amounts of
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accounts receivable aged 120 days or less and are guaranteed by Unidigital for
the principal amount of up to (pound)500,000. Amounts outstanding are
collateralized by substantially all of the Company's United Kingdom assets. As
of February 28, 1998, the Company had an outstanding balance of $2,465,028 under
its United Kingdom credit facility.
The Company expects that anticipated cash flow from operations and
available borrowings 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. 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 deficit decreased by
$240,966 from $2,189,357 at August 31, 1997 to $1,948,391 at February 28, 1998.
Acquisitions. Subsequent to the end of the quarter, on March 25, 1998,
the Company, through its wholly-owned subsidiary, Unison (NY), consummated the
Kwik Acquisition. The purchase price included cash payments of $20,590,349,
issuance of a 5.7% subordinated promissory note in the principal amount of
$750,000 (payable in 36 monthly installments commencing April 15, 1998),
issuance of 649,841 shares of restricted Common Stock of the Company and the
assumption of certain trade obligations of Kwik.
The purchase price is subject to adjustment in the event Kwik does not
achieve a certain net asset value as of the date of the acquisition. Such
determination shall be made within sixty (60) days of the date of closing. Of
the purchase price, $1,000,000 in cash and $1,000,000 of restricted Common Stock
of the Company (190,589 shares) is being held in escrow for a period of two
years to satisfy any purchase price adjustments or indemnification claims.
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.
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<PAGE>
PART II
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In connection with its engagement of Oppenheimer as its
investment banker, on November 26, 1997, the Company granted a five-year warrant
to Oppenheimer to purchase up to 25,000 shares of the Company's Common Stock at
an exercise price of $8.25 per share. In addition, in January 1998, the Company
issued 6,051 shares of restricted Common Stock of the Company (with an aggregate
value of $50,000) to an employee of the Company pursuant to the terms of his
employment agreement with the Company dated November 1, 1996.
Subsequent to the end of the quarter, on March 25, 1998, the
Company issued 649,841 shares of restricted Common Stock of the Company (with an
aggregate value of $3,409,651) to Sirota as partial consideration for the Kwik
Acquisition.
No underwriter was employed by the Company in connection with
the issuances and sales of the securities described above. The Company believes
that the issuances and sales of all of the foregoing securities were exempt from
registration under either (i) Section 4(2) of the Securities Act of 1933, as
amended (the "Act"), as transactions not involving a public offering, or (ii) in
the case of the shares issued to the employee, Rule 701 under the Act as a
transaction made pursuant to a written compensatory benefit plan or pursuant to
a written contract relating to compensation. No public offering was involved and
the securities were acquired for investment and not with a view to distribution.
Appropriate legends have been affixed to the stock certificates issued to the
employee and Sirota. In addition, appropriate legends will be affixed to the
stock certificates issued upon Oppenheimer's exercise of the warrants. All
recipients had adequate access to information about the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Stockholders of the Company was held on January
29, 1998.
There were 2,934,202 shares present at the meeting in person or by
proxy. The results of the vote taken at such meeting with respect to each
nominee for director were as follows:
Nominee For Withheld
------- --- --------
William E. Dye 2,919,852 14,350
Peter Saad 2,919,852 14,350
Anthony Manser 2,919,852 14,350
Harvey Silverman 2,919,852 14,350
David Wachsman 2,919,852 14,350
Also at the meeting, a vote was taken on the proposal to amend the 1997
Plan to increase the number of shares of Common Stock reserved for issuance upon
exercise of options granted
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<PAGE>
under such plan from 300,000 to 500,000 shares. Of the 2,934,202 shares present
at the meeting in person or by proxy, 2,259,956 shares were voted in favor of
such proposal, 348,482 shares were voted against such proposal, and 6,350 shares
abstained from voting. There were also 319,414 broker non-votes with respect to
such proposal.
Finally, a vote was taken at the meeting on the proposal to ratify the
appointment of Ernst & Young LLP as the independent certified public accountants
of the Company for the fiscal year ending August 31, 1998. Of the 2,934,202
shares present at the meeting in person or by proxy, 2,926,677 shares were voted
in favor of such proposal, 2,725 shares were voted against such proposal, and
4,800 shares abstained from voting.
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<PAGE>
ITEM 5. OTHER INFORMATION.
Subsequent to the end of the quarter, on March 24, 1998, the Company
terminated its financing facilities with its former New York Bank and entered
into borrowing arrangements with the Bank in the aggregate amount of
$40,000,000, which consist of a: (i) $25,000,000 term loan; (ii) $10,000,000
revolving line of credit facility which is available for working capital
purposes; and (iii) $5,000,000 credit facility which is available for corporate
acquisition purposes. Such borrowings are guaranteed by the Company's United
States subsidiaries. In addition, the Company pledged all of its equity
interests in its United States subsidiaries and two-thirds of its equity
interests in its wholly-owned United Kingdom subsidiary as collateral for such
credit facilities. Interest under such credit facilities is, at the Company's
option, at the Base Rate or at the Eurodollar Rate, as defined, plus an
Applicable Margin, as defined, ranging from 0.75% to 3% depending on the
Company's consolidated debt to earnings ratio and the type of loan. As of March
31, 1998, the Company had an outstanding balance of $8,350,000 under the
revolving credit facility and $25,000,000 under the term loan. A portion of the
proceeds of such loans was used to repay in full promissory notes previously
issued by the Company in 1997 to certain private investors in the aggregate
principal amount of $4,000,000.
The credit facilities contain covenants which require the Company to
maintain certain earnings and debt to earnings ratio requirements based on the
combined operations of the Company and its subsidiaries. The credit facilities
are secured by a first priority lien on all of the assets of the Company and its
subsidiaries, a mortgage on the Company's facilities located at 545 West 45th
Street, New York, New York and a leasehold mortgage on the Company's facilities
acquired as part of the Kwik Acquisition located at 229 West 28th Street, New
York, New York. The Company, the Bank and Sirota entered into an intercreditor
subordination agreement with respect to the Bank's and Sirota's relative
interests in the Company.
The Company's agreement with the Bank restricts the Company's ability
to pay certain dividends without the Bank's prior written consent.
Subsequent to the end of the quarter, on March 25, 1998, the Company,
through its wholly-owned subsidiary, Unison (NY), consummated the Kwik
Acquisition. Kwik provided general printing, color separation and large format
printing services. The Company intends to continue such line of business. The
assets purchased included Kwik's entire customer list, inventory, equipment,
cash, accounts receivable and trade name. The purchase price included cash
payments of $20,590,349, issuance of a 5.7% subordinated promissory note in the
principal amount of $750,000 (payable in 36 monthly installments commencing
April 15, 1998), issuance of 649,841 shares of restricted Common Stock of the
Company and the assumption of certain trade obligations of Kwik.
The purchase price is subject to adjustment in the event Kwik does not
achieve a certain net asset value as of the date of the acquisition. Such
determination shall be made within sixty (60) days of the date of closing. Of
the purchase price, $1,000,000 in cash and $1,000,000 of restricted Common Stock
of the Company (190,589 shares) is being held in escrow for a period of two
years to satisfy any purchase price adjustments or indemnification claims.
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<PAGE>
The Company funded the cash portion of the purchase price from proceeds
of a $25,000,000 term loan and a $10,000,000 revolving credit loan from the
Bank.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
4.1 Warrant dated November 26, 1997 issued
by Unidigital Inc. to CIBC Oppenheimer.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
Subsequent to the end of the quarter, on April 8,
1998, the Company filed a Current Report on Form 8-K with the
Securities and Exchange Commission relating to the Kwik
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 Kwik Acquisition.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Issuer caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNIDIGITAL INC.
DATE: April 14, 1998 By: /s/William E. Dye
-------------------
William E. Dye,
Chief Executive Officer
(Principal Executive, Financial
and Accounting Officer)
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR SALE, SOLD
OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
FILED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT.
VOID AFTER 5:00 P.M., NEW YORK TIME, ON NOVEMBER 26, 2002 OR IF NOT A BUSINESS
DAY, AS DEFINED HEREIN, AT 5:00 P.M., NEW YORK TIME, ON THE NEXT FOLLOWING
BUSINESS DAY.
WARRANT TO PURCHASE
25,000 SHARES OF COMMON STOCK
NO. 1
WARRANT TO PURCHASE
COMMON STOCK
OF
UNIDIGITAL INC.
TRANSFER RESTRICTED -- SEE SECTION 5.02
This certifies that, for good and valuable consideration of
$250, CIBC Oppenheimer Corp. and its registered, permitted assigns
(collectively, the "Warrantholder"), is entitled to purchase from Unidigital
Inc., a Delaware corporation (the "Company"), subject to the terms and
conditions hereof, at any time on or after 9:00 A.M., New York time, on November
26, 1998, and before 5:00 P.M., New York time, on November 26, 2002 (or, if such
day is not a Business Day, at or before 5:00 P.M., New York time, on the next
following Business Day), the number of fully paid and non-assessable shares of
Common Stock stated above at the Exercise Price. The Exercise Price and the
number of shares purchasable hereunder are subject to adjustment from time to
time as provided in Article III hereof.
ARTICLE I
Section 1.01: Definition of Terms: As used in this Warrant, the
following capitalized terms shall have the following respective meanings:
(a) Business Day: A day other than a Saturday, Sunday or
other day on which banks in the State of New York are authorized by law to
remain closed.
(b) Common Stock: ommon Stock, $.01 par value per share, of
the Company.
(c) Common Stock Equivalents: Securities that are
convertible into or exercisable for shares of Common Stock.
(d) Demand Registration: See Section 6.02.
(e) Exchange Act: The Securities Exchange Act of 1934, as
amended.
<PAGE>
(f) Exercise Price: $8.25 per Warrant Share, as such price
may be adjusted from time to time pursuant to Article III hereof.
(g) Expiration Date: 5:00 P.M., New York time, on November
26, 2002 or if such day is not a Business Day, the next succeeding day which is
a Business Day.
(h) 25% Holders: At any time as to which a Demand
Registration is requested, the Holder and/or the holders of any other Warrants
and/or the holders of Warrant Shares who have the right to acquire or hold, as
the case may be, not less than 25% of the combined total of Warrant Shares
issuable and Warrant Shares outstanding at the time such Demand Registration is
requested.
(i) Holder: A Holder of Registrable Securities.
(j) NASD: National Association of Securities Dealers, Inc.,
and NASDAQ: NASD Automatic Quotation System.
(k) Person: An individual, partnership, joint venture,
corporation, trust, unincorporated organization or government or any department
or agency thereof.
(l) Piggyback Registration: See Section 6.01.
(m) Prospectus: Any prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement, with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and all other amendments and supplements
to the Prospectus, including post-effective amendments and all material
incorporated by reference in such Prospectus.
(n) Public Offerings: A public offering of any of the
Company's equity or debt securities pursuant to a registration statement under
the Securities Act.
(o) Registration Expenses: Any and all expenses incurred in
connection with any registration or action incident to performance of or
compliance by the Company with Article VI, including, without limitation, (i)
all SEC, national securities exchange and NASD registration and filing fees; all
listing fees and all transfer agent fees; (ii) all fees and expenses of
complying with state securities or blue sky laws (including the fees and
disbursements of counsel for the underwriters in connection with blue sky
qualifications of the Registrable Securities; (iii) all printing, mailing,
messenger and delivery expenses and (iv) all fees and disbursements of counsel
for the Company and of its accountants, including the expenses of any special
audits and/or "cold comfort" letters required by or incident to such performance
and compliance, but excluding underwriting discounts and commissions, brokerage
fees and transfer taxes, if any, and fees of counsel or accountants retained by
the holders of Registrable Securities to advise them in their capacity as
Holders of Registrable Securities.
(p) Registrable Securities: Any Warrant Shares issued to
CIBC Oppenheimer Corp. and/or its designees or transferees as permitted under
Section 5.02 and/or other securities that may be or are issued by the Company
upon exercise of this Warrant, including those which may thereafter be issued by
the Company in respect of any such securities by means of any stock splits,
stock dividends, recapitalizations, reclassifications or the like, and as
adjusted pursuant to Article III hereof.
2
<PAGE>
(q) Registration Statement: Any registration statement of
the Company filed or to be filed with the SEC which covers any of the
Registrable Securities pursuant to the provisions of this Agreement, including
all amendments (including post-effective amendments) and supplements thereto,
all exhibits thereto and all material incorporated therein by reference.
(r) SEC: The Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act or the
Exchange Act.
(s) Securities Act: The Securities Act of 1933, as amended.
(t) Transfer: See Section 5.02.
(u) Warrants: This Warrant, all other warrants issued on
the date hereof and all other warrants that may be issued in its or their place
(together evidencing the right to purchase an aggregate of 25,000 shares of
Common Stock), originally issued as set forth in the definition of Registrable
Securities.
(v) Warrantholder: The person(s) or entity(ies) to whom
this Warrant is originally issued, or any successor in interest thereto, or any
assignee or transferee thereof, in whose name this Warrant is registered upon
the books to be maintained by the Company for that purpose.
(w) Warrant Shares: Common Stock, Common Stock Equivalents
and other securities purchased or purchasable upon exercise of the Warrants.
ARTICLE II
Duration and Exercise of Warrant
Section 2.01: Duration of Warrant. Subject to the limitations specified
in ss.2.02.(a)(ii) regarding a Cashless Exercise, the Warrantholder may exercise
this Warrant at any time and from time to time after 9:00 A.M., New York time,
on November 26, 1998, and before 5:00 P.M., New York time, on the Expiration
Date. If this Warrant is not exercised on or prior to the Expiration Date, it
shall become void, and all rights hereunder shall thereupon cease.
Section 2.02.: Exercise of Warrant.
(a) The Warrantholder may exercise this Warrant, in whole
or in part, as follows:
(i) By presentation and surrender of this Warrant
to the Company at its principal executive offices or at the office of its
stock transfer agent, if any, with the Subscription Form annexed hereto
duly executed and accompanied by payment of the full Exercise Price for
each Warrant Share to be purchased; or
(ii) By presentation and surrender of this Warrant to
the Company at its principal executive offices with a Cashless Exercise
Form annexed hereto duly executed (a "Cashless Exercise"). In the event of
a Cashless Exercise, the Warrantholder shall
3
<PAGE>
exchange its warrant for that number of shares of Common Stock determined
by multiplying the number of Warrant Shares by a fraction, the numerator of
which shall be the amount by which the then current market price per share
of Common Stock exceeds the Exercise Price, and the denominator of which
shall be the then current market price per share of Common Stock. For
purposes of any computation under this Section 2.02(a)(ii), the then
current market price per share of Common Stock at any date shall be deemed
to be the average closing price of the Common Stock for the five business
days prior to the date of the Cashless Exercise or, in case no such
reported sales take place on such day, the average of the last reported bid
and asked prices of the Common Stock on such day, in either case on the
principal national securities exchange on which the Common Stock is
admitted to trading or listed, or if not listed or admitted to trading on
any such exchange, the representative closing bid price of the Common Stock
as reported by NASDAQ, or other similar organization if NASDAQ is no longer
reporting such information, or if not so available, the fair market price
of the Common Stock as determined by the Board of Directors.
(b) Upon receipt of this Warrant, in the case of Section
2.02 (a) (i), with the Subscription Form duly executed and accompanied by
payment of the aggregate Exercise Price for the Warrant Shares for which this
Warrant is then being exercised, or, in the case of Section 2.02 (a) (ii), with
the Cashless Exercise Form duly executed, the Company shall cause to be issued
certificates for the total number of whole shares of Common Stock for which this
Warrant is being exercised (adjusted to reflect the effect of the anti-dilution
provisions contained in Article III hereof, if any, and as provided in Section
2.04 hereof) in such denominations as are requested for delivery to the
Warrantholder, and the Company shall thereupon deliver such certificates to the
Warrantholder. The Warrantholder shall be deemed to be the holder of record of
the shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of the Company shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
the Warrantholder. If at the time this Warrant is exercised, a Registration
Statement is not in effect to register under the Securities Act the Warrant
Shares issuable upon exercise of this Warrant, the Company may require the
Warrantholder to make such representations, and may place such legends on
certificates representing the Warrant Shares, as may be reasonably required in
the opinion of counsel to the Company to permit the Warrant Shares to be issued
without such registration.
(c) In case the Warrantholder shall exercise this Warrant
with respect to less than all of the Warrant Shares that may be purchased under
this Warrant, the Company shall execute a new warrant in the form of this
Warrant for the balance of such Warrant Shares and deliver such new warrant to
the Warrantholder.
(d) The Company shall pay any and all stock transfer and
similar taxes which may be payable in respect of the issue of this Warrant or in
respect of the issue of any Warrant Shares.
Section 2.03: Reservation of Shares. The Company hereby agrees that at
all times there shall be reserved for issuance and delivery upon exercise of
this Warrant such number of shares of Common Stock or other shares of capital
stock of the Company from time to time issuable upon exercise of this Warrant.
All such shares shall be duly authorized, and when issued upon such exercise,
shall be validly issued, fully paid and nonassessable, free and clear of all
liens, security interests, charges and other encumbrances or
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restrictions on sale and free and clear of all preemptive rights (except the
restrictions imposed by the legend appearing at the top of Page 1 of this
Warrant).
Section 2.04: Fractional Shares. The Company shall not be required to
issue any fraction of a share of its capital stock in connection with the
exercise of this Warrant, and in any case where the Warrantholder would, except
for the provisions of this Section 2.04, be entitled under the terms of this
Warrant to receive a fraction of a share upon the exercise of this Warrant, the
Company shall, upon the exercise of this Warrant and tender of the Exercise
Price (as adjusted to cover the balance of the share), issue the larger number
of whole shares purchasable upon exercise of this Warrant. The Company shall not
be required to make any cash or other adjustment in respect of such fraction of
a share to which the Warrantholder would otherwise be entitled.
Section 2.05: Listing. Prior to the issuance of any shares of Common
Stock upon exercise of this Warrant, the Company shall secure the listing of
such shares of Common Stock upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance upon exercise of this Warrant) and shall
maintain, so long as any other shares of Common Stock shall so be listed, such
listing of all shares of Common Stock from time to time issuable upon the
exercise of this Warrant; and the Company shall so list on each national
securities exchange or automated quotation system, and shall maintain such
listing of, any other shares of capital stock of the Company issuable upon the
exercise of this Warrant if and so long as any shares of the same class shall be
listed on such national securities exchange or automated quotation system.
ARTICLE III
Adjustment of Shares of Common Stock
Purchasable and of Exercise Price
The Exercise Price and the number and kind of Warrant Shares
shall be subject to adjustment from time to time upon the happening of certain
events as provided in this Article III.
Section 3.01: Mechanical Adjustments. (a) If at any time prior to the
exercise of this Warrant in full, the Company shall (i) declare a dividend or
make a distribution on the Common Stock payable in shares of its capital stock
(whether shares of Common Stock or of capital stock of any other class); (ii)
subdivide, reclassify or recapitalize outstanding Common Stock into a greater
number of shares; (iii) combine, reclassify or recapitalize its outstanding
Common Stock into a smaller number of shares; or (iv) issue any shares of its
capital stock by reclassification of its Common Stock (including any such
reclassification in connection with a consolidation or a merger in which the
Company is the continuing corporation), the Exercise Price in effect at the time
of the record date of such dividend, distribution, subdivision, combination,
reclassification or recapitalization shall be adjusted so that the Warrantholder
shall be entitled to receive the aggregate number and kind of shares which, if
this Warrant had been exercised in full immediately prior to such event, he
would have owned upon such exercise and been entitled to receive by virtue of
such dividend, distribution, subdivision, combination, reclassification or
recapitalization. Any adjustment required by this paragraph 3.01(a) shall be
made successively immediately after the record date, in the case of a dividend
or distribution, or the effective date, in the case of a subdivision,
combination, reclassification or recapitalization to allow the purchase of such
aggregate number and kind of shares.
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(b) If at any time after November 26, 1997 and prior to the
exercise of this Warrant in full, the Company shall (i) issue or sell any Common
Stock or Common Stock Equivalents without consideration or for consideration per
share (in cash, property or other assets) less than the current market price per
share on the date of such issuance or sale as defined in Section 3.01 (f) (other
than the issuance of any Common Stock or Common Stock Equivalents pursuant to
the acquisition of Kwik International Color, Ltd., any options, warrants, rights
or other agreements in effect prior to November 26, 1997, or any options,
warrants or rights issued pursuant to any employee benefit plans approved by the
Board or shareholders) (ii) fix a record date for the issuance of subscription
rights, options or warrants to all holders of Common Stock entitling them to
subscribe for or purchase Common Stock (or Common Stock Equivalents) at a price
(or having an exercise or conversion price per share) less than the current
market price of the Common Stock (as determined pursuant to Section 3.01 (f)) on
the record date described below, the Exercise Price shall be adjusted so that
the Exercise Price shall equal the price determined by multiplying the Exercise
Price in effect immediately prior to the date of such sale or issuance (which
date in the event of distribution to shareholders shall be deemed to be the
record date set by the Company to determine shareholders entitled to participate
in such distribution) by a fraction, the numerator of which shall be (i) the
number of shares of Common Stock outstanding on the date of such sale or
issuance, plus (ii) the number of additional shares of Common Stock which the
aggregate consideration received by the Company upon such issuance or sale (plus
the aggregate of any additional amount to be received by the Company upon the
exercise of such subscription rights, options or warrants) would purchase at
such current market price per share of the Common Stock; and the denominator of
which shall be (i) the number of shares of Common Stock outstanding on the date
of such issuance or sale, plus (ii) the number of additional shares of Common
Stock offered for subscription or purchase (or into which the Common Stock
Equivalents so offered are exercisable or convertible). Any adjustments required
by this paragraph 3.01 (b) shall be made immediately after such issuance or sale
or record date, as the case may be. Such adjustments shall be made successively
whenever such event shall occur. To the extent that shares of Common Stock (or
Common Stock Equivalents) are not delivered in connection with such subscription
rights, options or warrants, the Exercise Price shall be readjusted to the
Exercise Price which would then be in effect had the adjustments made upon the
issuance of such rights, options or warrants been made upon the basis of
delivery of only the number of shares of Common Stock (or Common Stock
Equivalents) actually delivered.
(c) If at any time prior to the exercise of this Warrant in
full, the Company shall fix a record date for the issuance or making a
distribution to all holders of Common Stock (including any such distribution to
be made in connection with a consolidation or merger in which the Company is to
be the continuing corporation) of evidences of its indebtedness, any other
securities of the Company or any cash, property or other assets (excluding a
combination, reclassification or recapitalization referred to in Section 3.01
(a), regular cash dividends or cash distributions paid out of net profits
legally available therefor and in the ordinary course of business and
subscription rights, options or warrants for Common Stock or Common Stock
Equivalents (excluding those referred to in Section 3.01 (b)) (any such
nonexcluded event being herein called a "Special Dividend"), (i) the Exercise
Price shall be decreased immediately after the record date for such Special
Dividend to a price determined by multiplying the Exercise Price then in effect
by a fraction, the numerator of which shall be the then current market price of
the Common Stock (as defined in Section 3.01 (f)) on such record date less the
fair market value (as determined by the Company's Board of Directors) of the
evidences of indebtedness, securities or property, or other assets issued or
distributed in such Special Dividend applicable to one share of Common Stock or
of such subscription rights, options or warrants applicable to one share of
Common Stock and the denominator of which shall be such then current market
price per share of Common Stock (as so determined) and (ii) the number of
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shares of Common Stock subject to purchase upon exercise of this Warrant shall
be increased to a number determined by multiplying the number of shares of
Common Stock subject to purchase immediately before such Special Dividend by a
fraction, the numerator of which shall be the Exercise Price in effect
immediately before such Special Dividend and the denominator of which shall be
the Exercise Price in effect immediately after such Special Dividend. Any
adjustment required by this paragraph 3.01 (c) shall be made successively
whenever such a record date is fixed and in the event that such distribution is
not so made, the Exercise Price shall again be adjusted to be the Exercise Price
that was in effect immediately prior to such record date.
(d) If at any time prior to the exercise of this Warrant in
full, the Company shall make a distribution to all holders of the Common Stock
of stock of a subsidiary or securities convertible into or exercisable for such
stock, then in lieu of an adjustment in the Exercise Price or the number of
Warrant Shares purchasable upon the exercise of this warrant, each
Warrantholder, upon the exercise hereof at any time after such distribution,
shall be entitled to receive from the Company, such subsidiary or both, as the
Company shall determine, the stock or other securities to which such
Warrantholder would have been entitled if such Warrantholder had exercised this
Warrant immediately prior thereto, all subject to further adjustment as provided
in this Article III, and the Company shall reserve, for the life of the Warrant,
such securities of such subsidiary or other corporation; provided, however, that
no adjustment in respect of dividends or interest on such stock or other
securities shall be made during the term of this Warrant or upon its exercise.
(e) Whenever the Exercise Price payable upon exercise of
each Warrant is adjusted pursuant to one or more of paragraphs (a), (b) and (c)
of this Section 3.01, the Warrant Shares shall simultaneously be adjusted by
multiplying the number of Warrant Shares initially issuable upon exercise of
each Warrant by the Exercise Price in effect on the date of such adjustment and
dividing the product so obtained by the Exercise Price, as adjusted.
(f) For the purpose of any computation under this Section
3.01, the current market price per share of Common Stock at any date shall be
deemed to be the average of the daily closing prices for 20 consecutive trading
days commencing 30 trading days before such date. The closing price for each day
shall be the last sale price regular way or, in case no such reported sales take
place on such day, the average of the last reported bid and asked prices regular
way, in either case on the principal national securities exchange on which the
Common Stock is admitted to trading or listed, or if not listed or admitted to
trading on any such exchange, the representative closing bid price as reported
by NASDAQ, or other similar organization if NASDAQ is no longer reporting such
information, or if not so available, the fair market price as determined by the
Board of Directors of the Company.
(g) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at least ten
cents ($.10) in such price; provided, however, that any adjustments which by
reason of this paragraph (g) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 3.01 shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be. Notwithstanding anything in this
Section 3.01 to the contrary, the Exercise Price shall not be reduced to less
than the then existing par value of the Common Stock as a result of any
adjustment made hereunder.
(h) In the event that at any time, as a result of any
adjustment made pursuant to Section 3.01(a), the Warrantholder thereafter shall
become entitled to receive any shares of the Company other
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than Common Stock, thereafter the number of such other shares so receivable upon
exercise of any Warrant shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in Section 3.01(a).
(i) In the case of an issue of additional Common Stock or
Common Stock Equivalents for cash, the consideration received by the Company
therefor, after deducting therefrom any discount or commission or other expenses
paid by the Company for any underwriting of, or otherwise in connection with,
the issuance thereof, shall be deemed to be the amount received by the Company
therefor. The term "issue" shall include the sale or other disposition of shares
held by or on account of the Company or in the treasury of the Company but until
so sold or otherwise disposed of such shares shall not be deemed outstanding.
Section 3.02: Notice of Adjustment. Whenever the number of Warrant
Shares or the Exercise Price is adjusted as herein provided, the Company shall
prepare and deliver forthwith to the Warrantholder a certificate signed by its
President, and by any Vice President, Treasurer or Secretary, setting forth the
adjusted number of shares purchasable upon the exercise of this Warrant and the
Exercise Price of such shares after such adjustment, a brief statement of the
facts requiring such adjustment and the computation by which adjustment was
made.
Section 3.03: No Adjustment for Dividends. Except as provided in
Section 3.01 of this Agreement, no adjustment in respect of any cash dividends
paid by the Company shall be made during the term of this Warrant or upon the
exercise of this Warrant.
Section 3.04: Preservation of Purchase Rights in Certain Transactions.
In case of any reclassification, capital reorganization or other change of
outstanding shares of Common Stock (other than a subdivision or a combination of
the outstanding Common Stock and other than a change in the par value of the
Common Stock or in case of any consolidation or merger of the Company with or
into another corporation (other than a merger with a subsidiary in which the
Company is the continuing corporation and said merger does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the class issuable upon exercise of this Warrant)) or in case
of any sale, lease, transfer or conveyance to another corporation of the
property and assets of the Company as an entirety or substantially as an
entirety, the Company shall, as a condition precedent to such transaction, cause
such successor or purchasing corporation, as the case may be, to execute with
the Warrantholder an agreement granting the Warrantholder the right thereafter,
upon payment of the Exercise Price in effect immediately prior to such action,
to receive upon exercise of this Warrant the kind and amount of shares and other
securities and property which he would have owned or have been entitled to
receive after the happening of such reclassification, change, consolidation,
merger, sale or conveyance had this Warrant been exercised immediately prior to
such action. Such agreement shall provide for adjustments in respect of such
shares of stock and other securities and property, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Article
III. In the event that in connection with any such reclassification, capital
reorganization, change, consolidation, merger, sale or conveyance, additional
shares of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for, or of, a security of the Company other than
Common Stock, any such issue shall be treated as an issue of Common Stock
covered by the provisions of Article III. The provisions of this Section 3.04
shall similarly apply to successive reclassification, capital reorganizations,
consolidations, mergers, sales or conveyances.
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Section 3.05: Form of Warrant After Adjustments. The form of this
Warrant need not be changed because of any adjustments in the Exercise Price or
the number or kind of the Warrant Shares, and Warrants theretofore or thereafter
issued may continue to express the same price and number and kind of shares as
are stated in this Warrant, as initially issued.
Section 3.06: Treatment of Warrantholder. Prior to due presentment for
registration of transfer of this Warrant, the Company may deem and treat the
Warrantholder as the absolute owner of this Warrant (notwithstanding any
notation of ownership or other writing hereon) for all purposes and shall not be
affected by any notice to the contrary.
ARTICLE IV
Other Provisions Relating
to Rights of Warrantholder
Section 4.01: No Rights as Shareholders; Notice to Warrantholders.
Nothing contained in this Warrant shall be construed as conferring upon the
Warrantholder or his or its transferees the right to vote or to receive
dividends or to consent to or receive notice as a shareholder in respect of any
meeting of shareholders for the election of directors of the Company or any
other matter, or any other rights whatsoever as shareholders of the Company. The
Company shall give notice to the Warrantholder by registered mail if at any time
prior to the expiration or exercise in full of the Warrants, any of the
following events shall occur:
(a) the Company shall authorize the payment of any dividend
upon shares of Common Stock payable in any securities or authorize the making of
any distribution (other than a cash dividend subject to the parenthetical set
forth in Section 3.01(c)) to all holders of Common Stock;
(b) the Company shall authorize the issuance to all holders
of Common Stock of any additional shares of Common Stock or Common Stock
Equivalents or of rights, options or warrants to subscribe for or purchase
Common Stock or Common Stock Equivalents or of any other subscription rights,
options or warrants;
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger, or sale or conveyance of
the property of the Company as an entirety or substantially as an entirety); or
(d) a capital reorganization or reclassification of the
Common Stock (other than a subdivision or combination of the outstanding Common
Stock and other than a change in the par value of the Common Stock) or any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and that does not result in any reclassification or change of Common
Stock outstanding) or in the case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety.
Such giving of notice shall be initiated (i) at least 10 Business Days prior to
the date fixed as a record date or effective date or the date of closing of the
Company's stock transfer books for the determination of the shareholders
entitled to such dividend, distribution or subscription rights, or for the
determination of the shareholders entitled to vote on such proposed merger,
consolidation, sale, conveyance, dissolution,
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liquidation or winding up. Such notice shall specify such record date or the
date of closing the stock transfer books, as the case may be. Failure to provide
such notice shall not affect the validity of any action taken in connection with
such dividend, distribution or subscription rights, or proposed merger,
consolidation, sale, conveyance, dissolution, liquidation or winding up.
Section 4.02: Lost, Stolen, Mutilated or Destroyed Warrants. If this
Warrant is lost, stolen, mutilated or destroyed, the Company may, on such terms
as to indemnity or otherwise as it may in its discretion impose (which shall, in
the case of a mutilated Warrant, include the surrender thereof), issue a new
Warrant of like denomination and tenor as and in substitution for this Warrant.
ARTICLE V
Split-Up, Combination
Exchange and Transfer of Warrants
Section 5.01: Split-Up, Combination, Exchange and Transfer of Warrants.
Subject to the provisions of Section 5.02 hereof, this Warrant may be split up,
combined or exchanged for another Warrant or Warrants containing the same terms
to purchase a like aggregate number of Warrant Shares. If the Warrantholder
desires to split up, combine or exchange Warrants, he or it shall make such
request in writing delivered to the Company and shall surrender to the Company
any Warrants to be so split up, combined or exchanged. Upon any such surrender
for a split up, combination or exchange, the Company shall execute and deliver
to the person entitled thereto a Warrant or Warrants, as the case may be, as so
requested. The Company shall not be required to effect any split up, combination
or exchange which will result in the issuance of a Warrant entitling the
Warrantholder to purchase upon exercise a fraction of a share of Common Stock or
a fractional Warrant. The Company may require such Warrantholder to pay a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any split up, combination or exchange of Warrants.
Section 5.02: Restrictions on Transfer. Neither this Warrant nor the
Warrant Shares may be disposed of or encumbered (any such action, a "Transfer"),
except (i) to CIBC Oppenheimer Corp., any successor to the business of such
company, or any officer of such company, or (ii) to any underwriter in
connection with a Public Offering of the Common Stock, provided (as to (ii))
that this Warrant is exercised upon such Transfer and the shares of Common Stock
issued upon such exercise are sold by such underwriter as part of such Public
Offering and, as to both (i) and (ii), only in accordance with and subject to
the provisions of the Securities Act and the rules and regulations promulgated
thereunder. If at the time of a Transfer, a Registration Statement is not in
effect to register this Warrant or the Warrant Shares, the Company may require
the Warrantholder to make such representations, and may place such legends on
certificates representing this Warrant, as may be reasonably required in the
opinion of counsel to the Company to permit a Transfer without such
registration.
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ARTICLE VI
Registration Under the Securities Act of 1933
Section 6.01: Piggyback Registration.
(a) Right to Include Registrable Securities. If at any time
or from time to time after November 26, 1998 and prior to the Expiration Date,
the Company proposes to register any of its securities under the Securities Act
on any form for the registration of securities under such Act, whether or not
for its own account (other than by a registration statement on Form S-8 or other
form which does not include substantially the same information as would be
required in a form for the general registration of securities or would not be
available for the Registrable Securities) (a "Piggyback Registration"), it shall
as expeditiously as possible give written notice to all Holders of its intention
to do so and of such Holders' rights under this Section 6.01. Such rights are
referred to hereinafter as "Piggyback Registration Rights." Upon the written
request of any such Holder made within 20 days after receipt of any such notice
(which request shall specify the Registrable Securities intended to be disposed
of by such Holder), the Company shall include in the Registration Statement the
Registrable Securities which the Company has been so requested to register by
the Holders thereof and the Company shall keep such registration statement in
effect and maintain compliance with each Federal and state law or regulation for
the period necessary for such Holder to effect the proposed sale or other
disposition (but in no event for a period greater than 120 days).
(b) Withdrawal of Piggyback Registration by Company. If, at
any time after giving written notice of its intention to register any securities
in a Piggyback Registration but prior to the effective date of the related
Registration Statement, the Company shall determine for any reason not to
register such securities, the Company shall give written notice of such
determination to each Holder and, thereupon, shall be relieved of its obligation
to register any Registrable Securities in connection with such Piggyback
Registration. All best efforts obligations of the Company pursuant to Section
6.04 shall cease if the Company determines to terminate prior to such effective
date any registration where Registrable Securities are being registered pursuant
to this Section 6.01.
(c) Piggyback Registration of Underwritten Public
Offerings. If a Piggyback Registration involves an offering by or through
underwriters, then, (i) all Holders requesting to have their Registrable
Securities included in the Company's Registration Statement must sell their
Registrable Securities to the underwriters selected by the Company on the same
terms and conditions as apply to other selling shareholders and (ii) any Holder
requesting to have his or its Registrable Securities included in such
Registration Statement may elect in writing, not later than five Business Days
prior to the effectiveness of the Registration Statement filed in connection
with such registration, not to have his or its Registrable Securities so
included in connection with such registration.
(d) Payment of Registration Expenses for Piggyback
Registration. The Company shall pay all Registration Expenses in connection with
each registration of Registrable Securities requested pursuant to a Piggyback
Registration Right contained in this Section 6.01.
(e) Priority in Piggyback Registration. If a Piggyback
Registration involves an offering by or through underwriters, the Company shall
not be required to include Registrable Shares therein if and to the extent the
underwriter managing the offering reasonably believes in good faith and advises
each
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Holder requesting to have Registrable Securities included in the Company's
Registration Statement that such inclusion would materially adversely affect
such offering; provided that (i) if other selling shareholders who are
employees, officers, directors or other affiliates of the Company have requested
registration of securities in the proposed offering, the Company will reduce or
eliminate such other selling shareholders' securities before any reduction or
elimination of Registrable Securities; (ii) any such reduction of elimination
(after taking into account the effect of clause (i)) shall be pro rata to all
other holders of the securities of the Company exercising "piggyback
registration rights" similar to those set forth herein in proportion to the
respective number of shares they have requested to be registered, and (iii) in
such event, such Holders may delay any offering by them of all Registrable
Shares requested to be included (or that portion of such Registrable Shares
eliminated for such period, not to exceed 60 days, as the managing underwriter
shall request) and the Company shall file such supplements and post-effective
amendments and take such other action necessary under Federal and state law or
regulation as may be necessary to permit such Holders to make their proposed
offering for a period of 90 days following such period of delay.
Section 6.02: Demand Registration.
(a) Request for Registration. If, at any time subsequent to
November 26, 1997 and prior to the Expiration Date, any 51% Holders request that
the Company file a registration statement under the Securities Act, the Company
as soon as practicable shall use its best efforts to file a registration
statement with respect to all Warrant Shares that it has been so requested to
include and obtain the effectiveness thereof, and to take all other action
necessary under any Federal or state law or regulation to permit the Warrant
Shares that are then held and/or that may be acquired upon the exercise of the
Warrants specified in the notices of the Holders or holders thereof to be sold
or otherwise disposed of, and the Company shall maintain such compliance with
each such Federal and state law and regulation for the period necessary for such
Holders or holders to effect the proposed sale or other disposition (but in no
event for more than 120 days); provided, however, the Company shall be entitled
to defer such registration for a period of up to 60 days if and to the extent
that its Board of Directors shall determine that such registration would
interfere with a pending corporate transaction. The Company shall also promptly
give written notice to the Holder and the holders of any other Warrants and/or
the holders of any Warrant Shares who or that have not made a request to the
Company pursuant to the provisions of this subsection (a) of its intention to
effect any required registration or qualification and shall use its best efforts
to effect as expeditiously as possible such registration or qualification of all
other such Warrant Shares that are then held and/or that may be acquired upon
the exercise of the Warrants, the Holder or holders of which have requested such
registration or qualification, within 15 days after such notice has been given
by the Company, as provided in the preceding sentence. The Company shall be
required to effect a registration or qualification pursuant to this subsection
(a) on one occasion only.
(b) Payment of Registration Expenses for Demand
Registration. The Company shall pay all Registration Expenses in connection with
the Demand Registration.
(c) Selection of Underwriters. If any Demand Registration
is requested to be in the form of an underwritten offering, CIBC Oppenheimer
Corp. shall be a managing underwriter and the other managing underwriters (if
any) and the independent pricer required under the rules of the NASD (if any)
shall be selected and obtained by the Holders of a majority of the Warrant
Shares to be registered. Such selection shall be subject to the Company's
consent, which consent shall not be unreasonably withheld. All fees and expenses
(other than Registration Expenses otherwise required to be paid) of any managing
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underwriter, any co-manager or any independent underwriter or other independent
pricer required under the rules of the NASD shall be paid for by such
underwriters or by the Holders or holders whose shares are being registered. If
CIBC Oppenheimer Corp. should decline to serve as managing underwriter, the
Holders of a majority of the Warrant Shares to be registered may select and
obtain one or more managing underwriters. Such selection shall be subject to the
Company's consent, which consent shall not be unreasonably withheld.
Section 6.03: Buy-outs of Registration Demand. In lieu of carrying out
its obligations to effect a Piggyback Registration or Demand Registration of any
Registrable Securities pursuant to this Article VI, the Company may carry out
such obligation by offering to purchase and purchasing such Registrable
Securities requested to be registered at an amount in cash equal to 95% of the
difference between (a) the last sale price of the Common Stock on the day the
request for registration is made and (b) the Exercise Price in effect on such
day.
Section 6.04: Registration Procedures. If and whenever the Company is
required to use its best efforts to take action pursuant to any Federal or state
law or regulation to permit the sale or other disposition of any Warrant Shares
that are then held or that may be acquired upon exercise of the Warrants, in
order to effect or cause the registration of any Registrable Securities under
the Securities Act as provided in this Article VI, the Company shall, as
expeditiously as practicable:
(a) furnish to each selling Holder of Registrable
Securities and the underwriters, if any, without charge, as many copies of the
Registration Statement, the Prospectus or the Prospectuses (including each
preliminary prospectus) and any amendment or supplement thereto as they may
reasonably request;
(b) enter into such agreements (including an underwriting
agreement) and take all such other actions reasonably required in connection
therewith in order to expedite or facilitate the disposition of such Registrable
Securities and in such connection, if the registration is in connection with an
underwritten offering (i) make such representations and warranties to the
underwriters in such form, substance and scope as are customarily made by
issuers to underwriters in underwritten offerings and confirm the same if and
when requested; (ii) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions in form, scope and substance shall be
reasonably satisfactory to the underwriters) addressed to the underwriters and
the Holders covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably requested by
such underwriters; (iii) obtain "cold comfort" letters and updates thereof from
the Company's accountants addressed to the underwriters such letters to be in
customary form and to cover matters of the type customarily covered in "cold
comfort" letters to underwriters and the Holders in connection with underwritten
offerings; (iv) set forth in full, in any underwriting agreement entered into,
the indemnification provisions and procedures of Section 6.05 hereof with
respect to all parties to be indemnified pursuant to said Section; and (v)
deliver such documents and certificates as may be reasonably requested by the
underwriters to evidence compliance with clause (i) above and with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company; the above shall be done at each closing under such
underwriting or similar agreement or as and to the extent required thereunder;
(c) make available for inspection by one or more
representatives of the Holders of Registrable Securities being sold, any
underwriter participating in any disposition pursuant to such
13
<PAGE>
registration, and any attorney or accountant retained by such Holders or
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such
representatives in connection with such;
(d) otherwise use its best efforts to comply with all
applicable Federal and state regulations; and take such other action as may be
reasonably necessary or advisable to enable each such Holder and each such
underwriter to consummate the sale or disposition in such jurisdiction or
jurisdiction, in which any such Holder or underwriter shall have requested that
the Registrable Securities be sold.
Except as otherwise provided in this Agreement, the Company shall have sole
control in connection with the preparation, filing, withdrawal, amendment or
supplementing of each Registration Statement, the selection of underwriters, and
the distribution of any preliminary prospectus included in the Registration
Statement, and may include within the coverage thereof additional shares of
Common Stock or other securities for its own account or for the account of one
or more of its other security holders;
Each seller of Registrable Securities as to which any
registration is being effected shall furnish to the Company such information
regarding the distribution of such securities and such other information as may
otherwise be required by the Securities Act to be included in such Registration
Statement.
Section 6.05: Indemnification.
(a) Indemnification by Company. In connection with each
Registration Statement relating to disposition of Registrable Securities, the
Company shall indemnify and hold harmless each Holder and each underwriter of
Registrable Securities and each Person, if any, who controls such Holder or
underwriter (within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act) against any and all losses, claims, damages and
liabilities, joint or several (including any reasonable investigation, legal and
other expenses incurred in connection with, and any amount paid in settlement of
any action, suit or proceeding or any claim asserted), to which they, or any of
them, may become subject under the Securities Act, the Exchange Act or other
Federal or state law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or preliminary prospectus or any amendment
thereof or supplement thereto, or arise out of or are based upon any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; provided, however,
that such indemnity shall not inure to the benefit of any Holder or underwriter
(or any Person controlling such Holder or underwriter within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) on account
of any losses, claims, damages or liabilities arising from the sale of
Registrable Securities if such untrue statement or omission or alleged untrue
statement or omission was made in such Registration Statement, Prospectus or
preliminary prospectus, or such amendment or supplement, in reliance upon and in
conformity with information furnished in writing to the Company by the Holder or
underwriter specifically for use therein. The Company shall also indemnify
selling brokers, dealer managers and similar securities industry professionals
participating in the distribution, their officers and directors and each Person
who controls such Persons (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) to the same extent as provided above with
respect to the indemnification of the Holders of Registrable
14
<PAGE>
Securities, if requested. This indemnity agreement shall be in addition to any
liability which the Company may otherwise have.
(b) Indemnification by Holder. In connection with each
Registration Statement, each Holder shall indemnify, to the same extent as the
indemnification provided by the Company in Section 6.05(a), the Company, its
directors and each officer who signs the Registration Statement and each Person
who controls the Company (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act) but only insofar as such losses, claims,
damages and liabilities arise out of or are based upon any untrue statement or
omission or alleged untrue statement or omission which was made in the
Registration Statement, the Prospectus or preliminary prospectus or any
amendment thereof or supplement thereto, in reliance upon and in conformity with
information furnished in writing by such Holder to the Company specifically for
use therein. In no event shall the liability of any selling Holder of
Registrable Securities hereunder be greater in amount than the dollar amount of
the gross proceeds received by such Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation. The Company shall be
entitled to receive indemnities from underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution, to the same extent as provided above, with respect to information
so furnished in writing by such Persons specifically for inclusion in any
Prospectus, Registration Statement or preliminary prospectus or any amendment
thereof or supplement thereto.
(c) Conduct of Indemnification Procedure. Any party that
proposes to assert the right to be indemnified hereunder will, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect of which a claim is to be made against an indemnifying party or
parties under this Section, notify each such indemnifying party of the
commencement of such action, suit or proceeding, enclosing a copy of all papers
served. No indemnification provided for in Section 6.05(a) or 6.05(b) shall be
available to any party who shall fail to give notice as provided in this Section
6.05(c) if the party to whom notice was not given was unaware of the proceeding
to which such notice would have related and was prejudiced by the failure to
give such notice, but the omission so to notify such indemnifying party of any
such action, suit or proceeding shall not relieve it from any liability that it
may have to any indemnified party for contribution or otherwise than under this
Section. In case any such action, suit or proceeding shall be brought against
any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
in, and, to the extent that it shall wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense thereof
and the approval by the indemnifying party to such indemnified party of its
election so to assume the defense thereof and the approval by the indemnified
party of such counsel, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses, except as provided below and
except for the reasonable costs of investigation subsequently incurred by such
indemnified party in connection with the defense thereof. The indemnified party
shall have the right to employ its counsel in any such action, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the employment of counsel by such indemnified party has been
authorized in writing by the indemnifying parties, (ii) the indemnified party
shall have reasonably concluded that there may be a conflict of interest between
the indemnifying parties and the indemnified party in the conduct of the defense
of such action (in which case the indemnifying parties shall not have the right
to direct the defense of such action on behalf of the indemnified party) or
(iii) the indemnifying parties shall not have employed counsel to assume the
defense of such action within a reasonable time after notice of the commencement
thereof, in each of
15
<PAGE>
which cases the fees and expenses of counsel shall be at the expense of the
indemnifying parties. An indemnifying party shall not be liable for any
settlement of any action, suit, proceeding or claim effected without its written
consent.
(d) Contribution. In connection with each Registration
Statement relating to the disposition of Registrable Securities, if the
indemnification provided for in subsection (a) hereof is unavailable to an
indemnified party thereunder in respect of any losses, claims, damages or
liabilities referred to therein, then the Company shall, in lieu of indemnifying
such indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities.
The amount to be contributed by the Company hereunder shall be an amount which
is in the same proportionate relationship to the total amount of such losses,
claims, damages or liabilities as the total net proceeds from the offering
(before deducting expenses) of the Registrable Securities bears to the total
price to the public (including underwriters' discounts) for the offering of the
Registrable Securities covered by such registration.
(e) Specific Performance. The Company and the Holder
acknowledge that remedies at law for the enforcement of this Section 6.05 may be
inadequate and intend that this Section 6.05 shall be specifically enforceable.
ARTICLE VII
Other Matters
Section 7.01: Amendments and Waivers. The provisions of this Warrant,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waiver or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of holders
of at least a majority of the outstanding Registrable Securities. Holders shall
be bound by any consent authorized by this Section whether or not certificates
representing such Registrable Securities have been marked to indicate such
consent.
Section 7.02: Counterparts. This Warrant may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
Section 7.03: Governing Law. This Warrant shall be governed by and
construed in accordance with the laws of the State of New York.
Section 7.04: Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provisions in every other respect and of the
remaining provisions contained herein shall not be affected or impaired thereby.
Section 7.05: Attorneys' Fees. In any action or proceeding brought to
enforce any provisions of this Warrant, or where any provisions hereof or
thereof is validly asserted as a defense, the successful party
16
<PAGE>
shall be entitled to recover reasonable attorneys' fees and disbursements in
addition to its costs and expenses and any other available remedy.
Section 7.06: Computations of Consent. Whenever the consent or approval
of Holders of a specified percentage of Registrable Securities is required
hereunder, Registrable Securities held by the Company or its affiliates (other
than the Warrantholder or subsequent Holders if they are deemed to be such
affiliates solely by reason of their holdings of such Registrable Securities)
shall not be counted in determining whether such consent or approval was given
by the Holders of such required percentage.
Section 7.07: Notice. Any notices or certificates by the Company to the
Holder and by the Holder to the Company shall be deemed delivered if in writing
and delivered in person or by registered mail (return receipt requested) to the
Holder addressed to him or her in care of CIBC Oppenheimer Corp., CIBC
Oppenheimer Tower, World Financial Center, New York, New York 10281 or, if the
Holder has designated, by notice in writing to the Company, any other address,
to such other address, and if to the Company, addressed to it at 545 West 45th
Street, New York, NY 10036. The Company may change its address by written notice
to the Holder and the Holder may change his or its address by written notice to
the Company.
IN WITNESS WHEREOF, this Warrant has been duly executed by the
Company under its corporate seal as of the 26th day of November, 1997.
UNIDIGITAL INC.
By:/s/ William E. Dye
-------------------------------------
William E. Dye
President and Chief Executive Officer
Attest:
-------------------------------------
Secretary
<PAGE>
ASSIGNMENT
(To be executed only upon assignment of Warrant Certificate)
For value received, hereby sells, assigns
and transfers unto the within Warrant Certificate, together
with all right, title and interest therein, and does hereby irrevocably
constitute and appoint attorney, to transfer said Warrant
Certificate on the books of the within-named Company with respect to the number
of Warrants set forth below, with full power of substitution in the premises:
Name (s) of
Assignees (s) Address No. of Warrants
------------- ------- ---------------
And if said number of Warrants shall not be all the Warrants represented by the
Warrant Certificate, a new Warrant Certificate is to be issued in the name of
said undersigned for the balance remaining of the Warrants represented by said
Warrant Certificate
Dated: , 19
--------------------- ---
----------------------------------------
Note: The above signature should
correspond exactly with the name on
the face of this Warrant Certificate.
<PAGE>
SUBSCRIPTION FORM
(To be executed upon exercise of Warrant
pursuant to Section 2.02 (a) (i))
The undersigned hereby irrevocably elects to exercise the
right of purchase represented by the within Warrant Certificate for, and to
purchase thereunder shares of Common Stock, as provided for therein, and
tenders herewith payment of the purchase price in full in the form of cash or a
certified or official bank check in the amount of $ .
Please issue a certificate or certificates for such Common
Stock in the name of:
Name
-----------------------------------------------------
(Please Print Name, Address and Social Security
Number)
Signature
NOTE: The above signature should respond exactly with the name on the first
page of this Warrant Certificate or with the name of the assignee
appearing in the assignment form below.
And if said number of shares shall not be all the shares purchasable
under the within Warrant Certificate, a new Warrant Certificate is to be issued
in the name of said undersigned for the balance remaining of the shares
purchasable thereunder rounded up to the next higher number of shares.
<PAGE>
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 2.02 (a) (ii))
The undersigned hereby irrevocably elects to Exchange its
Warrant for such shares of Common Stock pursuant to the Cashless Exercise
provisions of the within Warrant Certificate, as provided for in Section 2.02
(a) (ii) of such Warrant Certificate.
Please issue a certificate or certificates for such Common
Stock in the name of:
Name
-----------------------------------------------------
(Please Print Name, Address and Social Security
Number)
Signature
------------------------------------------------
NOTE: The above signature should correspond exactly with the name on the
first page of this Warrant Certificate or with the name of the
assignee appearing in the assignment form below.
And if said number of shares shall not be all the shares exchangeable
or purchasable under the within Warrant Certificate, a new Warrant Certificate
is to be issued in the name of the undersigned for the balance remaining of the
shares purchasable rounded up to the next higher number of shares.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated financial statements at February 28, 1998 and is
qualified in its entirety by refrence to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 1,945,436
<SECURITIES> 0
<RECEIVABLES> 11,357,177
<ALLOWANCES> (264,337)
<INVENTORY> 0
<CURRENT-ASSETS> 17,861,124
<PP&E> 17,065,328
<DEPRECIATION> (5,601,602)
<TOTAL-ASSETS> 34,847,049
<CURRENT-LIABILITIES> 19,809,515
<BONDS> 0
0
0
<COMMON> 32,495
<OTHER-SE> 10,016,022
<TOTAL-LIABILITY-AND-EQUITY> 34,847,049
<SALES> 19,255,448
<TOTAL-REVENUES> 19,255,448
<CGS> 10,300,273
<TOTAL-COSTS> 10,300,273
<OTHER-EXPENSES> 6,746,376
<LOSS-PROVISION> 55,450
<INTEREST-EXPENSE> 1,092,675
<INCOME-PRETAX> 1,097,983
<INCOME-TAX> 399,558
<INCOME-CONTINUING> 698,425
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 698,425
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
