SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Unidigital Inc.
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(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4)Date Filed:
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<PAGE>
UNIDIGITAL INC.
229 West 28th Street
New York, New York 10001
January 8, 1999
To Our Stockholders:
You are most cordially invited to attend the 1999 Annual Meeting of
Stockholders of Unidigital Inc. at 9:30 A.M., local time, on Thursday, February
4, 1999, at the offices of the Company, 229 West 28th Street, New York, New
York.
The Notice of Meeting and Proxy Statement on the following pages describe
the matters to be presented to the meeting.
It is important that your shares be represented at this meeting to assure
the presence of a quorum. Whether or not you plan to attend the meeting, we hope
that you will have your stock represented by signing, dating and returning your
proxy in the enclosed envelope, which requires no postage if mailed in the
United States, as soon as possible. Your stock will be voted in accordance with
-- ---- -- --------
the instructions you have given in your proxy.
Thank you for your continued support.
Sincerely,
William E. Dye
Chairman of the Board
and Chief Executive Officer
<PAGE>
UNIDIGITAL INC.
229 West 28th Street
New York, New York 10001
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held February 4, 1999
The Annual Meeting of Stockholders (the "Meeting") of Unidigital Inc., a
Delaware corporation (the "Company"), will be held at the offices of the
Company, 229 West 28th Street, New York, New York, on Thursday, February 4,
1999, at 9:30 A.M., local time, for the following purposes:
(1) To elect six directors to serve until the next Annual Meeting of
Stockholders and until their respective successors shall have been duly
elected and qualified;
(2) To amend the Certificate of Incorporation of the Company to increase the
Company's authorized shares of Common Stock from 10,000,000 to 25,000,000
and the Company's authorized Preferred Stock from 5,000,000 to 10,000,000;
(3) To amend the Company's 1997 Equity Incentive Plan, as amended (the "1997
Plan"), to increase the maximum number of shares of Common Stock available
for issuance under the 1997 Plan from 500,000 to 1,000,000 shares and to
reserve an additional 500,000 shares of Common Stock of the Company for
issuance upon the exercise of stock options granted under the 1997 Plan;
(4) To ratify the appointment of Ernst & Young LLP as independent auditors for
the year ending August 31, 1999; and
(5) To transact such other business as may properly come before the Meeting or
any adjournment or adjournments thereof.
Holders of Common Stock of record at the close of business on December 17,
1998 are entitled to notice of and to vote at the Meeting, or any adjournment or
adjournments thereof. A complete list of such stockholders will be open to the
examination of any stockholder at the Company's principal executive offices at
229 West 28th Street, New York, New York 10001 for a period of 10 days prior to
the Meeting and at any time during the Meeting. The Meeting may be adjourned
from time to time without notice other than by announcement at the Meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER OF
SHARES YOU MAY HOLD. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN
THE ENCLOSED RETURN ENVELOPE. THE PROMPT RETURN OF PROXIES WILL ENSURE A QUORUM
AND SAVE THE COMPANY THE EXPENSE OF FURTHER SOLICITATION. EACH PROXY GRANTED MAY
BE REVOKED BY THE STOCKHOLDER APPOINTING SUCH PROXY AT ANY TIME BEFORE IT IS
VOTED.
<PAGE>
IF YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOUR SHARES ARE REGISTERED
IN DIFFERENT NAMES OR ADDRESSES, EACH SUCH PROXY CARD SHOULD BE SIGNED AND
RETURNED TO ASSURE THAT ALL OF YOUR SHARES WILL BE VOTED.
By Order of the Board of Directors
Peter Saad
Assistant Secretary
New York, New York
January 8, 1999
THE COMPANY'S 1998 ANNUAL REPORT ACCOMPANIES THE PROXY STATEMENT.
<PAGE>
UNIDIGITAL INC.
229 West 28th Street
New York, New York 10001
--------------------------------------------
P R O X Y S T A T E M E N T
--------------------------------------------
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Unidigital Inc. (the "Company") of proxies to be voted
at the Annual Meeting of Stockholders of the Company to be held on Thursday,
February 4, 1999 (the "Meeting") at the offices of the Company, 229 West 28th
Street, New York, New York at 9:30 A.M., local time, and at any adjournment or
adjournments thereof. Holders of record of common stock, $0.01 par value
("Common Stock"), as of the close of business on December 17, 1998, will be
entitled to notice of and to vote at the Meeting and any adjournment or
adjournments thereof. As of that date, there were 5,243,146 shares of Common
Stock issued and outstanding and entitled to vote. Each share of Common Stock is
entitled to one vote on any matter presented at the Meeting.
If proxies in the accompanying form are properly executed and returned, the
Common Stock represented thereby will be voted in the manner specified therein.
If not otherwise specified, the Common Stock represented by the proxies will be
voted (i) FOR the election of the six nominees named below as Directors, (ii)
FOR a proposal to amend the Certificate of Incorporation of the Company to
increase the Company's authorized shares of Common Stock from 10,000,000 to
25,000,000 and the Company's authorized shares of Preferred Stock from 5,000,000
to 10,000,000, (iii) FOR a proposal to amend the Company's 1997 Equity Incentive
Plan, as amended (the "1997 Plan"), to increase the maximum number of shares of
Common Stock available for issuance under the 1997 Plan from 500,000 to
1,000,000 shares and to reserve an additional 500,000 shares of Common Stock of
the Company for issuance upon the exercise of stock options granted under the
1997 Plan, (iv) FOR the ratification of the appointment of Ernst & Young LLP as
independent auditors for the year ending August 31, 1999, and (v) in the
discretion of the person named in the enclosed form of proxy, on any other
proposals which may properly come before the Meeting or any adjournment or
adjournments thereof. Any Stockholder who has submitted a proxy may revoke it at
any time before it is voted, by written notice addressed to and received by the
Assistant Secretary of the Company, by submitting a duly executed proxy bearing
a later date or by electing to vote in person at the Meeting. The mere presence
at the Meeting of the person appointing a proxy does not, however, revoke the
appointment.
The presence, in person or by proxy, of holders of Common Stock having a
majority of the votes entitled to be cast at the Meeting shall constitute a
quorum. The affirmative vote of holders of a plurality of the shares of Common
Stock represented at the Meeting is required for the election of Directors,
provided a quorum is present in person or by proxy. All actions proposed herein
other than the election of Directors may be taken upon the affirmative vote of
Stockholders possessing a majority of the voting power represented at the
Meeting, provided a quorum is present in person or by proxy.
Abstentions are included in the shares present at the Meeting for purposes
of determining whether a quorum is present, and are counted as a vote against
for purposes of determining whether a proposal is approved. Broker non-votes
(when shares are represented at the Meeting by a proxy specifically conferring
only limited authority to vote on certain matters and no authority to vote on
other matters) are included in the determination of the number of shares
represented at the Meeting for purposes of determining whether a quorum is
present but are not counted for purposes of determining whether a proposal has
been approved and thus have no effect on the outcome.
This Proxy Statement, together with the related proxy card, is being mailed
to the Stockholders of the Company on or about January 8, 1999. The Annual
Report to Stockholders of the Company for the year ended August 31, 1998,
including financial statements (the "Annual Report"), is being mailed together
with this Proxy Statement to all Stockholders of record as of December 17, 1998.
In addition, the Company has provided brokers, dealers, banks, voting trustees
and their nominees, at the Company's expense, with additional copies of the
Annual Report so that such record holders could supply such materials to
beneficial owners as of December 17, 1998.
-1-
<PAGE>
ELECTION OF DIRECTORS
At the Meeting, six Directors are to be elected (which number shall
constitute the entire Board of Directors of the Company) to hold office until
the next Annual Meeting of Stockholders and until their successors shall have
been duly elected and qualified.
It is the intention of the persons named in the enclosed form of proxy to
vote the Common Stock represented thereby, unless otherwise specified in the
proxy, for the election as Directors of the persons whose names and biographies
appear below. All of the persons whose names and biographies appear below are at
present Directors of the Company. In the event any of the nominees should become
unavailable or unable to serve as a Director, it is intended that votes will be
cast for a substitute nominee designated by the Board of Directors. The Board of
Directors has no reason to believe that the nominees named will be unable to
serve if elected. Each of the nominees has consented to being named in this
Proxy Statement and to serve if elected.
The current members of the Board of Directors and nominees for election to
the Board are as follows:
SERVED AS A POSITIONS WITH
NAME AGE DIRECTOR SINCE THE COMPANY
- ---- --- -------------- --------------
William E. Dye................... 36 1989 Chairman of the
Board, Chief
Executive Officer
and Director
Peter Saad....................... 51 1996 President, Assistant
Secretary and
Director
Richard J. Sirota................ 46 1998 Senior Vice
President, Chief
Operating Officer
and Director
Anthony Manser................... 41 1995 Vice President and
Director
Harvey Silverman................. 57 1996 Director
David Wachsman................... 55 1996 Director
There are no family relationships between any of the Directors and
executive officers of the Company.
The principal occupations and business experience, for at least the past
five years, of each Director and nominee is as follows:
WILLIAM E. DYE has been a Director of the Company since its inception. In
addition, Mr. Dye has been Chief Executive Officer and Chairman of the Board of
Directors of the Company since its inception and also served as President from
that time until March 1998. Mr. Dye also served as the Company's Chief Financial
Officer from approximately July 1995 until July 1996. He has been President and
Chairman of the Board of Directors of LinoGraphics Corporation, a predecessor
company to the Company, since he co-founded it in 1989. From 1987 to 1989, he
was Executive Vice President of Micro Enhancement Systems, a computer firm
located in New York City providing consulting services to the graphic arts and
other industries. From 1986 to 1987, Mr. Dye served as Vice President and
General Manager of Tripledge Wiper Corp., an automobile parts manufacturer. From
1985 to 1986, Mr. Dye taught economics at the International School of Geneva,
Switzerland.
PETER SAAD has been a Director of the Company since February 1996 and has
served as President of the Company since March 1998. Mr. Saad has also served as
the Company's Assistant Secretary since April 1997. In addition, Mr. Saad served
as the Senior Vice President and Chief Operating Officer of the Company from
-2-
<PAGE>
November 1996 to March 1998. Mr. Saad previously served as the Managing Director
of Martin Bierbaum Money Markets, Inc., a money management firm, from March 1993
to June 1997, and was a Director of Martin Brokers, Inc., a subsidiary of Trio
Holdings Plc, from March 1993 to June 1997. He is also the President of
Independence Group Inc., a New York-based owner of indoor sports facilities, a
position he has held since 1988.
RICHARD J. SIROTA has been Senior Vice President, Chief Operating Officer
and Director of the Company since March 1998. Prior to joining the Company, Mr.
Sirota was the President of Kwik International Color, Ltd., a New York based
provider of digital prepress services to firms in the advertising, health care
and beauty industries.
ANTHONY MANSER has been Vice President and Director of the Company since
its inception. He has been the Managing Director of Elements (UK) Limited, a
wholly-owned U.K. subsidiary of the Company, since its inception in 1994 and was
a Director of Lyledale Limited ("Lyledale") since 1991 and a Managing Director
of Lyledale from 1993 to 1994. From 1985 to 1991, he was Production Director of
Fingerprint Graphics, a United Kingdom graphics company.
HARVEY SILVERMAN has been a Director of the Company since February 1996. He
has held various positions at Spear, Leeds & Kellogg, since 1963, and is
currently its Senior Managing Director. Spear, Leeds & Kellogg is a
broker-dealer engaged in the specialist and clearing businesses on major United
States stock exchanges. Mr. Silverman also serves as a Director of World Wide
Entertainment & Sports and as Vice Chairman, Director and member of the
Performance Committee of the Options Clearing Corporation.
DAVID WACHSMAN has been a Director of the Company since February 1996. He
is Chairman of the Board, President and Chief Executive Officer of Protex
International Corp., a New York-based manufacturer of security devices for
retail stores. He has been with Protex International Corp. since 1984. Mr.
Wachsman is a certified public accountant.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF THE
NOMINEES FOR THE BOARD OF DIRECTORS.
COMMITTEES AND MEETINGS OF THE BOARD
The Board of Directors has established an Audit Committee, a Compensation
Committee and an Option Committee. The Audit Committee, which consists of
Messrs. Dye, Silverman and Wachsman, reviews the results and scope of the audit
and other services provided by the Company's independent auditors. The
Compensation Committee, which also consists of Messrs. Dye, Silverman and
Wachsman, makes recommendations concerning salaries and certain incentive
compensation for management-level employees of the Company. The Option
Committee, which consists of Messrs. Silverman and Wachsman, administers the
Company's stock option plans.
There were 4 meetings of the Board of Directors during the fiscal year
ended August 31, 1998. In addition, the Board of Directors acted by unanimous
written consent four times. The Audit Committee and the Compensation Committee
each held 1 meeting during the fiscal year ended August 31, 1998. The Option
Committee also acted by unanimous written consent seven times during the fiscal
year ended August 31, 1998. Each incumbent Director attended all of the meetings
of the Board of Directors held during the period in which he served as a
Director and all of the meetings held by all committees of the Board of
Directors on which he served during such period, if applicable.
COMPENSATION OF DIRECTORS
Non-Employee Directors receive $250 per meeting attended and are eligible
to receive options pursuant to the 1997 Non-Employee Director Stock Option Plan
(the "Non-Employee Plan") as compensation for serving on the Company's Board of
Directors. All Directors are entitled to reimbursement for reasonable expenses
incurred in connection with attendance at meetings of the Board of Directors or
its Committees.
-3-
<PAGE>
On October 28, 1996 the Board of Directors adopted, and on January 30, 1997
the Stockholders approved, the Non-Employee Plan. The Non-Employee Plan provides
for the grant of options to purchase a maximum of 75,000 shares of Common Stock
of the Company to Non-Employee Directors of the Company. The Non-Employee Plan
is administered by the Board of Directors. The following Directors have been
granted options under the Non-Employee Plan during fiscal 1998:
NUMBER OF SHARES
UNDERLYING OPTIONS EXERCISE PRICE
DIRECTOR GRANTED GRANT DATE PER SHARE
- -------- ------------------ --------------- --------------
Harvey Silverman.......... 2,500 January 2, 1998 $5.25
David Wachsman............ 2,500 January 2, 1998 $5.25
Under the terms of the Non-Employee Plan, each Non-Employee Director who
was a member of the Board of Directors on the effective date of the Company's
initial public offering and remained a member of the Board of Directors after
the approval of the Non-Employee Plan by the Company's Stockholders on January
30, 1997 (the "Approval Date") was automatically granted, as of the Approval
Date, an option to purchase 5,000 shares of Common Stock, at an exercise price
per share equal to the then fair market value of the shares. In addition, each
Non-Employee Director who first becomes a member of the Board of Directors after
the Approval Date, shall automatically be granted, on the date such person
becomes a member of the Board of Directors, an option to purchase 2,500 shares
of Common Stock, at an exercise price per share equal to the then fair market
value of the shares. Each Non-Employee Director who is a member of the Board of
Directors on the first trading day of each year, commencing in January 1998,
shall also automatically be granted on such date, without further action by the
Board of Directors, an option to purchase 2,500 shares of Common Stock, at an
exercise price per share equal to the then fair market value of the shares.
Unless a shorter period is provided by the Board of Directors, all options
become exercisable three months after the date of grant, provided that the
optionee remains a Director at such time. The right to exercise annual
installments of options will be reduced proportionately based on the optionee's
actual attendance at Directors' meetings if the optionee fails to attend at
least 80% of the Board of Directors' meetings held in any fiscal year. The term
of each option will be for a period of ten years from the date of grant, unless
sooner terminated in accordance with the Non-Employee Plan. Options may not be
transferred except by will or by the laws of descent and distribution or
pursuant to a domestic relations order and are exercisable to the extent vested
at any time prior to the scheduled expiration date of the option. The
Non-Employee Plan terminates on the earlier of January 30, 2007 or at such time
as all shares of Common Stock currently or hereafter reserved for issuance shall
have been issued.
EXECUTIVE OFFICERS
The following table identifies the current executive officers of the Company:
CAPACITIES IN IN CURRENT
NAME AGE WHICH SERVED POSITION SINCE
- ---- --- ------------- --------------
William E. Dye............... 36 Chairman of the 1989
Board, Chief
Executive Officer
and Director
Peter Saad................... 51 President, Assistant 1998 (Member
Secretary and Director of the Board
since 1996)
Richard J. Sirota............ 46 Senior Vice 1998
President, Chief
Operating Officer
and Director
Anthony Manser .............. 41 Vice President and 1994 (Member
Director of the Board
since 1995)
-4-
<PAGE>
There are no family relationships between any of the Directors and
executive officers of the Company. Executive officers of the Company are elected
annually by the Board of Directors and serve until their successors are duly
elected and qualified.
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION
The following Summary Compensation Table sets forth information concerning
compensation for services in all capacities awarded to, earned by or paid to (i)
the Company's Chief Executive Officer and (ii) the three most highly compensated
executive officers of the Company each of whose aggregate cash compensation
exceeded $100,000 and who were serving as executive officers at the end of
fiscal 1998 (collectively, the "Named Executives") during the fiscal years ended
August 31, 1996, 1997 and 1998.
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SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------
Long-Term
Compensation
------------
Annual Compensation Awards
------------------- ------
Securities
Other Annual Underlying
Name and Principal Position Year Salary Bonus Compensation Options
(a) (b) ($)(c) ($)(d) ($)(e)(1) (#)(g)
- --------------------------- ---- ------ ------ ------------ -----------
William E. Dye.......... 1998 300,000 -- -- 50,000
Chairman of the Board 1997 270,577 --(3) -- --
and Chief Executive 1996 295,000 -- 40,800 --
Officer(2)
Peter Saad,............. 1998 231,154 -- -- 25,000
President and 1997 216,154 -- -- 100,000
Assistant Secretary(4) 1996 -- -- -- --
Richard J. Sirota....... 1998 110,769 -- -- --
Senior Vice President 1997 -- -- -- --
and Chief Operating 1996 -- -- -- --
Officer(5)
Anthony Manser.......... 1998 200,400 -- -- 25,000
Vice President(6) 1997 177,120 -- -- --
1996 148,445 -- -- 20,000
- --------------------------------------------------------------------------------
(1) The costs of certain benefits are not included because they did not exceed
the lesser of $50,000 or 10% of the total annual salary and bonus as
reported above.
(2) William E. Dye entered into an Employment Agreement with the Company
effective January 1, 1996. See -- "Employment Contracts and Termination of
Employment, and Change-in-Control Arrangements."
(3) The $25,000 bonus granted to Mr. Dye by the Company's Board of Directors
was forgone by Mr. Dye.
(4) Peter Saad entered into an Employment Agreement with the Company effective
March 1, 1997. See -- "Employment Contracts and Termination of Employment,
and Change-in-Control Arrangements."
(5) Richard J. Sirota entered into an Employment Agreement with the Company
effective March 25, 1998. See -- "Employment Contracts and Termination of
Employment, and Change-in-Control Arrangements."
-5-
<PAGE>
(6) Anthony Manser entered into Employment Agreement with the Company effective
March 1, 1997. See --"Employment Contracts and Termination of Employment,
and Change-in-Control Arrangements."
OPTION GRANTS IN FISCAL 1998
The following table sets forth information concerning individual grants of
stock options made pursuant to the Company's 1997 Plan during fiscal 1998 to
each of the Named Executives. The Company has never granted any stock
appreciation rights.
- --------------------------------------------------------------------------------
OPTION GRANTS IN LAST FISCAL YEAR
- --------------------------------------------------------------------------------
Individual Grants
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of
Total
Options
Number of Granted Potential Realizable Value
Securities To At Assumed Annual Rates of
Underlying Employees Exercise or Stock Price Appreciation for
Options In Fiscal Base Price Expiration Option Term
Name Granted (#) Year (%) (%/Sh) Date
5%($)(3) 10%($)(3)
(a) (b) (c)(1) (d)(2) (e) (f) (g)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
William E. Dye.... 50,000 13.2 6.875 7/12/08 216,184 547,834
Peter Saad........ 25,000 6.6 6.875 7/12/08 108,092 273,917
Richard J. Sirota. -- -- -- -- -- --
Anthony Manser.... 25,000 6.6 6.875 7/12/08 108,092 273,917
- -------------------------------------------------------------------------------------------------------
- ------------------
<FN>
(1) Based on an aggregate of 379,999 options granted to employees in 1998,
including options granted to the Named Executives.
(2) All options were granted pursuant to the Company's 1997 Equity Incentive
Plan at the fair market value of the underlying securities on the date of
grant as determined by the Option Committee.
(3) The 5% and 10% assumed annual rates of compounded stock price appreciation
are prescribed by SEC rules and are calculated on the basis of the fair
market value of the underlying securities on the date of grant as
determined by the Option Committee. Actual gains, if any, on stock option
exercises and Common Stock holdings are dependent on the timing of such
exercise and the future performance of the Common Stock. There can be no
assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciations over the
option term will be at the assumed 5% and 10% levels or at any other
defined level.
(4) Each of the foregoing options shall become exercisable and vested based
upon a two-year vesting schedule with one-third of each option grant
vesting immediately and one-third of each option grant vesting on the
first two anniversaries of the date of grant. The underlying shares are
subject to cancellation by the Company, to the extent unvested, should the
optionee cease employment. Each option has a maximum term of ten years.
</FN>
</TABLE>
-6-
<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning each exercise of
options during fiscal 1998 by each of the Named Executives and the fiscal
year-end number and value of unexercised in-the-money options held by each of
the Named Executives.
- --------------------------------------------------------------------------------
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying In-The Money Options
Unexercised Options at Fiscal
at Fiscal Year-End Year-End
(#) ($)(1)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized($) Unexercisable Unexercisable
(a) (#)(b) (c) (d) (e)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
William E. Dye.... -- -- 16,667/33,333 $0/$0
Peter Saad........ -- -- 108,334/16,666 $150,000/$0
Richard J. Sirota. -- -- -- --/--
Anthony Manser.... -- -- 28,334/16,666 $0/$0
- ------------------------------------------------------------------------------------------------
<FN>
(1) Based on a closing price of $6.00 per share of Common Stock as listed on
the Nasdaq National Market at August 31, 1998.
</FN>
</TABLE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT, AND CHANGE-IN-CONTROL
ARRANGEMENTS
Effective January 1, 1996 the Company entered into an employment agreement
with William E. Dye, pursuant to which he currently serves as Chief Executive
Officer of the Company for a period of five years. Mr. Dye's agreement provides
for a base annual salary of $250,000 and an annual bonus at the discretion of
the Compensation Committee. In fiscal 1997, the Board of Directors adjusted Mr.
Dye's annual base salary to $300,000 and awarded Mr. Dye a bonus of $25,000.
Such $25,000 bonus was forgone by Mr. Dye. In fiscal 1998, the Compensation
increased Mr. Dye's annual base salary to $400,000 for fiscal 1999. In addition,
Mr. Dye will be entitled to severance compensation in an amount equal to his
annual base salary for the remainder of the term or 2.49 times his annual base
salary whichever is greater in the event his employment is terminated by the
Company without cause or if the Company materially breaches the agreement or if
Mr. Dye is not elected a Director. In the event Mr. Dye is terminated by the
Company coincident with a "change of control," he will be entitled to severance
compensation equal to 2.99 times his annual base salary. The agreement contains
confidentiality provisions and a non-compete provision which prohibits Mr. Dye
from competing with the Company for a period of two years subsequent to
termination of employment. The Company may terminate the agreement for cause
upon material breach of the employment agreement, willful misconduct or felony
conviction.
Effective March 1, 1997, the Company entered into a two-year employment
agreement with Peter Saad, pursuant to which he currently serves as the
President of the Company. The agreement provides for a base annual salary of
$275,000 and contains non-competition, non-solicitation and confidentiality
provisions.
Effective March 25, 1998, the Company entered into a three-year employment
agreement with Richard J. Sirota, pursuant to which he serves as Senior Vice
President and Chief Operating Officer of the Company. The agreement provides for
a base annual salary of $250,000 and contains non-competition, non-solicitation
and confidentiality provisions.
-7-
<PAGE>
Effective March 1, 1997, the Company entered into a two-year employment
agreement with Anthony Manser, pursuant to which he serves on a full-time basis
as Vice President and a Director of U.K. operations. The agreement provides for
a base annual salary of (pound)156,000, utilizing the 12-month average exchange
rate in place at August 31, 1998, $259,000, and contains non-competition,
non-solicitation and confidentiality provisions.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's Directors, officers and Stockholders who
beneficially own more than 10% of any class of equity securities of the Company
registered pursuant to Section 12 of the Exchange Act (collectively, the
"Reporting Persons") to file initial statements of beneficial ownership of
securities and statements of changes in beneficial ownership of securities with
respect to the Company's equity securities with the Securities and Exchange
Commission (the "SEC"). All Reporting Persons are required by SEC regulation to
furnish the Company with copies of all reports that such Reporting Persons file
with the SEC pursuant to Section 16(a).
Based solely on the Company's review of the copies of such forms received
by the Company and upon written representations of the Company's Reporting
Persons received by the Company, Stephen J. McErlain, a beneficial owner of more
than 10% of the Company's Common Stock, did not report on a timely basis certain
1998 transactions.
In particular, Mr. McErlain failed to report on a Form 4 "Statement of
Changes in Beneficial Ownership" ("Form 4") the sale on November 18, 1997 of (i)
5,000 shares directly held by him, at a price per share of $8.00 and (ii) 1,000
shares directly held by him, at a price per share of $8.125. Mr. McErlain also
failed to report on a Form 4 the sale on December 4, 1997 of 16,430 shares
directly held by him, at a price per share of $6.875. Such transactions were
reported late on a Form 4 which was filed with the SEC on January 27, 1998. In
addition, Mr. McErlain failed to report on a Form 4 the sale on March 27, 1998
of 7,070 shares directly held by him, at a price per share of $9.125. Such
transaction was reported late on a Form 4 which was filed with the SEC on July
10, 1998.
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<PAGE>
Performance Graph
The following graph compares the cumulative total shareholder return on the
Company's Common Stock with the cumulative total return on the Nasdaq Composite
Index and a Peer Group Index (capitalization weighted) for the period beginning
on the date on which the SEC declared effective the Company's Form 8-A
Registration Statement pursuant to Section 12 of the Exchange Act and ending on
the last day of the Company's last completed fiscal year. The stock performance
shown on the graph below is not indicative of future price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN (1) (2) (3)
Among the Company, the Nasdaq Composite Index and the Peer Group Index
2/1/96 8/31/96 8/31/97 08/31/98
------ ------- ------- --------
Unidigital Inc........... $ 100.00 $ 106.25 $ 129.17 $ 100.00
Nasdaq Composite Index... $ 100.00 $ 106.74 $ 148.42 $ 147.96
Peer Group Index......... $ 100.00 $ 90.49 $ 140.19 $ 127.15
(1) Graph assumes $100.00 invested on February 1, 1996 in the Company's Common
Stock, the Nasdaq Composite Index and the Peer Group Index (capitalization
weighted).
(2) Cumulative total return assumes reinvestment of dividends.
(3) The Company has constructed a Peer Group Index of independent prepress
companies and commercial printers with digital imaging capabilities
consisting of Applied Graphic Technologies, Inc., Schawk, Inc., Banta
Corporation, Katz Digital Technologies, Inc., and Big Flower Press
Holdings, Inc. The Company believes that these companies most closely
resemble the Company's business mix and that their performance is
representative of the Company.
-9-
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee has furnished the following report:
The Company's executive compensation policy is designed to attract and
retain highly qualified individuals for its executive positions and to provide
incentives for such executives to achieve maximum Company performance by
aligning the executives' interest with that of shareholders by basing a portion
of compensation on corporate performance.
The Compensation Committee generally determines base salary levels for
executive officers of the Company, at or about the start of the fiscal year and
determines actual bonuses after the end of the fiscal year based upon Company
and individual performance. Each of Messrs. Dye, Saad, Sirota and Manser
executed employment agreements with the Company as described in this Proxy under
"Employment Contracts and Termination of Employment, and Change in
Change-in-Control Arrangements.
The Company's executive officer compensation program is comprised of base
salary, conditional cash bonuses, stock options granted at the discretion of the
Option Committee and various other benefits, including medical insurance and a
401(k) Plan which are generally available to all employees of the Company.
Salaries, whether established pursuant to contract or otherwise, are
established in accordance with industry standards through review of publicly
available information concerning the compensation of officers of comparable
companies. Consideration is also given to relative responsibility, seniority,
individual experience and performance. Salaries for each of Messrs. Dye, Saad,
Sirota and Manser and are determined by the Compensation Committee. Salary
increases for other executives are generally made based on increases in the
industry for similar companies with similar performance profiles and/or
attainment of certain division or Company goals.
The stock option programs are designed to relate executives' long-term
interests to stockholders' long-term interests. Stock options will be awarded on
the basis of individual performance and/or the achievement of internal strategic
objectives.
Based on review of available information, the Committee believes that the
Chief Executive Officer's total annual compensation is reasonable and
appropriate given the size, complexity and historical performance of the
Company's business, the Company's position as compared to its peers in the
industry, and the specific challenges faced by the Company during the year, such
as changes in the market for digital print, digital prepress and large format
services, as well as the marketplace affecting mergers and acquisitions and the
financing thereof, and other industry factors. No specific weight was assigned
to any of the criteria relative to the Chief Executive Officer's compensation.
Compensation Committee Members
William E. Dye
Harvey Silverman
David Wachsman
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There are, as of December 4, 1998, approximately 42 holders of record and
400 beneficial holders of the Company's Common Stock. The following table sets
forth certain information, as of December 4, 1998, regarding the beneficial
ownership of the Company's Common Stock by (i) each person known by the Company
to beneficially own more than 5% of the total number of shares of Common Stock
outstanding as of such date, (ii) each of the Company's Directors (which
includes all nominees) and Named Executives, and (iii) all Directors and current
executive officers as a group. Unless indicated otherwise, the address of each
of these persons is c/o Unidigital Inc., 229 West 28th Street, New York, New
York 10001.
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNER (1) OF BENEFICIAL OWNERSHIP(1) OF CLASS(2)
- ----------------------- -------------------------- -----------
(i) Certain Beneficial Owners:
Ehud Aloni ....................... 663,650 (3) 12.7
Stephen J. McErlain............... 650,530 (4) 12.4
31 West 10th Street
New York, New York 10011
Putnam Investment Management...... 264,000 5.0
One Post Office Square
Boston, Massachusetts 02109
(ii) Directors (which includes all
nominees) and Named Executives
William E. Dye..................... 1,067,588 (5) 20.3
Richard J. Sirota.................. 649,841 (6) 12.4
Peter Saad......................... 108,334 (7) 2.0
Anthony Manser..................... 182,061 (8) 3.5
Harvey Silverman................... 22,500 (9) *
120 Broadway
New York, New York 10271
David Wachsman..................... 22,500 (9) *
180 Keyland Court
Bohemia, New York 11716
iii) All Directors and current
executive officers as a
group (6 persons)............. 2,052,824 (5)(6)(7)(8)(9) 37.7
- --------------------------
* Less than one percent.
(1) Except as set forth in the footnotes to this table and subject to
applicable community property law, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by such Stockholder.
(2) Applicable percentage of ownership is based on 5,243,146 shares of Common
Stock outstanding on December 4, 1998, plus any presently exercisable
stock options or warrants held by each such holder and options or warrants
which will become exercisable within 60 days after such date.
(3) Such shares of Common Stock were paid to Mr. Aloni as partial
consideration for Unidigital's acquisition of Mega Art Corp., of which Mr.
Aloni was the majority shareholder.
(4) Includes 6,000 shares of Common Stock subject to options which are
exercisable at December 4, 1998 or which will become exercisable within 60
days of such date.
(5) Includes 59,200 shares of Common Stock owned by Jeffrey Leiderman, and
transferees of Mr. Leiderman, over which Mr. Dye exercises voting control.
For a description of this voting trust arrangement, see -- "Certain
Relationships and
-11-
<PAGE>
Related Transactions". Also includes 16,667 shares of Common Stock subject
to options which are exercisable at December 4, 1998 or which will become
exercisable within 60 days of such date.
(6) Such shares of Common Stock were paid to Mr. Sirota as partial
consideration of the Company's acquisition of Kwik International Color,
Ltd., of which Mr. Sirota was President and the sole shareholder. Of such
shares, 190,589 are held in escrow pursuant to an escrow agreement for the
indemnification of certain claims by the Company that may arise in
connection with such acquisition.
(7) Represents 108,334 shares of Common Stock subject to options which are
exercisable at December 4, 1998 or which will become exercisable within 60
days of such date.
(8) Includes 28,334 shares of Common Stock subject to options which are
exercisable at December 4, 1998 or which will become exercisable within 60
days of such date.
(9) Represents 22,500 shares of Common Stock subject to warrants or options
which are exercisable at December 4, 1998 or which will become exercisable
within 60 days of such date.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain transactions involving Messrs. Dye, Saad, Sirota and Manser are
reported in "Executive Compensation -- Employment Contracts and Termination of
Employment, and Change-in-Control Arrangements."
The Company is indebted to Mr. Dye in an aggregate principal amount of
approximately $362,000, of which approximately $155,000 is payable on demand and
approximately $207,000 is due in November 1999. The loans bear interest at 8%
per annum.
In addition, the Company is indebted to Kwik International Color, Ltd., of
which Mr. Sirota was the President and the sole shareholder, in a principal
amount of $750,000. Such loan bears interest at 5.7% per annum. During fiscal
1998, the Company paid approximately $100,000 in principal payments to Mr.
Sirota.
The Company leases certain of its real property from S.N.Y., Inc. of which
Mr. Sirota is the holder of approximately one-third of the outstanding equity
securities. The Company pays approximately $665,000 to S.N.Y., Inc. in annual
rent under such leases. The Company believes that the terms of such leases are
at least as favorable to the Company as the terms that may have been available
from unrelated third parties.
Pursuant to a Voting Trust Agreement dated August 9, 1995, between Mr. Dye
and Jeffrey Leiderman, a holder of the Company's Common Stock, Mr. Dye has the
right to vote shares of Common Stock owned by Mr. Leiderman or any transferee of
Mr. Leiderman. The voting trust will expire in 2005 unless terminated sooner by
its terms.
Pursuant to a Separation Agreement between the Company and Stephen J.
McErlain dated as of July 15, 1996, if Mr. McErlain proposes to transfer all or
any part of his shares of Common Stock, the Company may elect to purchase all,
but not less than all, of the shares of Common Stock to be transferred by Mr.
McErlain for the price and upon the terms of the proposed transfer. If the
Company does not elect to purchase the shares of Common Stock proposed to be
transferred by Mr. McErlain, Mr. Dye may elect to purchase such shares of Common
Stock for the price and upon the terms of the proposed transfer.
AMENDMENT TO CERTIFICATE OF INCORPORATION
Stockholders are being asked to consider and vote upon a proposal to amend
the Certificate of Incorporation of the Company to increase the number of
authorized shares from fifteen million (15,000,000) shares to thirty-five
million (35,000,000) shares, of which twenty-five million (25,000,000) shares
shall be Common Stock, and ten million (10,000,000) shares shall be preferred
stock, par value $0.01 per share ("Preferred Stock") to (i) provide the Company
with flexibility to undertake future financings or negotiate potential future
acquisitions approved by the Board of Directors of the Company; (ii) reserve
additional shares of Common Stock for issuance upon the exercise of stock
options granted under the Company's 1997 Equity Incentive Plan and; and (iii)
increase the number of shares of capital stock available for issuance by the
Company.
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<PAGE>
Shares of Preferred Stock may be issued in one or more series. The number
of shares included in any series of Preferred Stock and the full or limited
voting rights, if any, the cumulative or non-cumulative dividend rights, if any,
the conversion, redemption or sinking fund rights, if any, and the priorities,
preferences and relative, participating, optional and other special rights, if
any, in respect of the Preferred Stock, any series of Preferred Stock or any
rights pertaining thereto, and the qualification, limitations or restrictions on
the Preferred Stock, any series of Preferred Stock or any rights pertaining
thereto, shall be those set forth in the resolution or resolutions providing for
the issuance of the Preferred Stock or such series of Preferred Stock adopted at
any time and from time to time by the affirmative vote of a majority of the
total number of directors which the Company would have if there were no
vacancies on the Board of Directors at the time of the vote on such resolution
or resolutions and filed with the Secretary of State of the State of Delaware.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT
TO THE CERTIFICATE OF INCORPORATION OF THE COMPANY.
PROPOSED AMENDMENT TO THE 1997 EQUITY INCENTIVE PLAN
GENERAL
The 1997 Plan was adopted by the Board of Directors on October 28, 1996 and
approved by the Stockholders of the Company on January 30, 1997. Those eligible
to receive stock option grants, stock purchase rights or stock appreciation
rights under the 1997 Plan include employees, non-employee directors and
consultants. The 1997 Plan was adopted to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentive to employees, non-employee directors and consultants and to promote
the success of the Company's business. Currently, there are 500,000 shares of
Common Stock reserved for issuance upon the exercise of options and/or stock
purchase rights granted under the 1997 Plan.
The 1997 Plan is administered by the Option Committee, which is comprised
solely of outside directors. The Option Committee determines, among other
things, the nature of the options to be granted, the persons who are to receive
options (each a "Grantee"), the number of shares to be subject to each option,
the exercise price of the options and the vesting schedule of the options. The
1997 Plan provides for the granting of options intended to qualify as incentive
stock options ("ISOs"), as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), to employees of the Company as well as
non-qualified stock options ("NQSOs") to employees, non-employee Directors and
consultants who perform services for the Company or its subsidiaries. The
exercise price of all ISOs granted under the 1997 Plan may not be less than the
fair market value of the shares at the time the option is granted. In addition,
no ISO may be granted to an employee who owns more than 10% of the total
combined voting power of all classes of stock of the Company unless the exercise
price as to that employee is at least 110% of the fair market value of the stock
at the time of the grant. No employee may be granted ISOs which are exercisable
for the first time in any calendar year to the extent that the aggregate fair
market value of such option shares exceeds $100,000 as of the date of grant.
Options may be for a period of not more than ten years from the date of grant,
provided, however that the term of an ISO granted to an employee who owns more
that 10% of the total combined voting power of all classes of stock of the
Company may not exceed five years. The exercise price of NQSOs granted under the
1997 Plan may not be less than 85% of the fair market value per share of the
Common Stock on the date of grant. No NQSO may be granted to a person who owns
more than 10% of the total combined voting power of all classes of stock of the
Company unless the exercise price to that person is at least 110% of the fair
market value of the stock at the time of the grant. The exercise price must be
paid in full at the time an option is exercised, and at the Option Committee's
discretion, all or part of the exercise price may be paid with previously owned
shares or other approved methods of payment. An option is exercisable as
determined by the Option Committee. The 1997 Plan will terminate on October 28,
2006.
Subject to the terms as specified in any option agreement, if a Grantee's
employment or consulting relationship terminates on account of disability, the
Grantee may exercise any outstanding option for one year following the
termination. If a Grantee dies while in the employ of the Company or during the
period of the consulting arrangement, the Grantee's estate may exercise any
outstanding option for one year following the Grantee's death. If termination is
for any other reason, the Grantee may exercise any outstanding option for ninety
days following such termination. Options are not assignable or otherwise
transferable except by will or the laws of descent and distribution and shall be
exercisable during the Grantee's lifetime only by the Grantee.
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<PAGE>
The 1997 Plan also permits the awarding of stock purchase rights at not
less than 50% of the fair market value of the shares as of the date offered. The
1997 Plan requires the execution of a restricted stock purchase agreement in a
form determined by the Option Committee. Once a stock purchase right is
exercised, the purchaser will have the rights of a Stockholder and will be a
Stockholder when the purchase is entered on the Company's records.
The 1997 Plan provides that, in the event of a reorganization,
recapitalization, stock split, stock dividend, combination of or
reclassification of shares, or any other change in the corporate structure or
shares of the Company, the Board of Directors shall make adjustments with
respect to the shares that may be issued under the 1997 Plan or that are covered
by outstanding options or stock appreciation rights, or in the option price per
share.
In the event of a dissolution or liquidation of the Company, the Board of
Directors shall notify the Grantee at least fifteen days prior to such proposed
action. To the extent not previously exercised, the outstanding options or stock
appreciation rights will terminate immediately prior to the consummation of such
proposed action. In the event of a merger or consolidation of the Company with
or into another corporation or the sale of all or substantially all of the
Company's assets (hereinafter, a "merger"), the outstanding options or stock
appreciation rights will be assumed or an equivalent option or stock
appreciation right will be substituted by such successor corporation or a parent
or subsidiary of such successor corporation. In the event that such successor
corporation does not agree to assume the outstanding options or stock
appreciation rights or to substitute equivalent options or stock appreciation
rights, the Board of Directors will, in lieu of such assumption or substitution,
provide for the Grantee to have the right to exercise all of his outstanding
options or stock appreciation rights. If the Board of Directors makes an option
or stock appreciation right fully exercisable in lieu of assumption or
substitution in the event of a merger, the Board of Directors shall notify the
Grantee that the option or stock appreciation right will be fully exercisable
for a period of fifteen days from the date of such notice, and the option or
stock appreciation right will terminate upon the expiration of such period. The
option or stock appreciation right will be considered assumed if, following the
merger, the option or stock appreciation right confers the right to purchase,
for each share of Common Stock subject to the option or stock appreciation right
immediately prior to the merger, the consideration (whether stock, cash, or
other securities or property) received in the merger by holders of Common Stock
for each share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding shares). If such consideration received
in the merger was not solely common stock of the successor corporation or its
parent, the Board of Directors may, with the consent of the successor
corporation and the participant, provide for the consideration to be received
upon the exercise of an option or stock appreciation right, for each share of
stock subject to the option or stock appreciation right, to be solely common
stock of the successor corporation or its parent equal in fair market value to
the per share consideration received by holders of Common Stock in the merger or
sale of assets.
The Board may at any time amend, alter, suspend or discontinue the 1997
Plan, but no amendment, alteration, suspension or discontinuation will be made
which would impair the rights of any Grantee under any grant theretofore made,
without such Grantee's consent. In addition, to the extent necessary and
desirable to comply with Rule 16b-3 under the Exchange Act, or with Section 422
of the Code (or any other applicable law or regulation, including the
requirements of the National Association of Securities Dealers or an established
stock exchange), the Company shall obtain stockholder approval of any 1997 Plan
amendment in such a manner and to such a degree as required. Any such amendment
or termination of the 1997 Plan is not permitted to affect options or stock
appreciation rights already granted and such options or stock appreciation
rights will remain in full force and effect as if the 1997 Plan had not been
amended or terminated, unless mutually agreed otherwise between the Grantee and
the Board of Directors, which agreement must be in writing and signed by the
Grantee and the Company.
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<PAGE>
FEDERAL INCOME TAX ASPECTS
(A) ISOS
Some options to be issued under the 1997 Plan will be designated as ISOs
and are intended to qualify under Section 422 of the Code. Under the provisions
of that Section and the related regulations, an optionee will not be required to
recognize any income for federal income tax purposes at the time of grant of an
ISO, nor is the Company entitled to any deduction. The exercise of an ISO also
is not a taxable event, although the difference between the option price and the
fair market value on the date of exercise is an item of tax preference for
purposes of the alternative minimum tax. The taxation of gain or loss upon the
sale of stock acquired upon exercise of an ISO depends in part on whether the
stock is disposed of at least two years from the date the option was granted and
at least one year from the date the stock was transferred to the optionee (the
"ISO Holding Period").
If the ISO Holding Period is not met, then, upon disposition of such shares
(a "disqualifying disposition"), the optionee will realize compensation, taxable
as ordinary income in an amount equal to the excess of the fair market value of
the shares at the time of exercise over the option price, limited, however to
the gain on sale. Any additional gain would be taxable as capital gain (see
below). If the optionee disposes of the shares in a disqualifying disposition at
a price that is below the fair market value of the shares at the time the ISO
was exercised and such disposition is a sale or exchange to an unrelated party,
the amount includible as compensation income to the optionee will be limited to
the excess of the amount received on the sale or exchange over the exercise
price. If the optionee recognizes ordinary income upon a disqualifying
disposition, the Company generally will be entitled to a tax deduction in the
same amount.
Effective as of January 1, 1998, the holding period for long-term capital
gains treatment is reduced to one year. Accordingly, if the ISO Holding Period
is met, any disposition on or after January 1, 1998 would be taxable as a
long-term capital gain or loss. Any such gains are taxable at a maximum rate of
20%.
A maximum capital gains rate of 18% will apply to certain sales after
December 31, 2000 of shares acquired upon the exercise of an ISO if such shares
have been held for at least five years.
If the ISO is exercised by delivery of previously owned shares of Common
Stock in partial or full payment of the option price, no gain or loss will
ordinarily be recognized by the optionee on the transfer of such previously
owned shares. However, if the previously owned transferred shares were acquired
through the exercise of an ISO, the optionee may realize ordinary income with
respect to the shares used to exercise an ISO if such transferred shares have
not been held for the ISO Holding Period. If an ISO is exercised through the
payment of the exercise price by the delivery of Common Stock, to the extent
that the number of shares received exceeds the number of shares surrendered,
such excess shares will possibly be considered ISO stock with a zero basis.
(B) NQSOS
Some options to be issued under the 1997 Plan will be designated as NQSOs.
If (as in the case of NQSOs granted under the 1997 Plan at this time) the NQSO
does not have a readily ascertainable fair market value at the time of the
grant, the NQSO is not included as compensation income at the time of grant.
Rather, the optionee realizes compensation income only when the NQSO is
exercised and the optionee has become substantially vested in the shares
transferred. The shares are considered to be substantially vested when they are
either transferable or not subject to a substantial risk of forfeiture. The
amount of income realized is equal to the excess of the fair market value of the
shares at the time the shares become substantially vested over the sum of the
exercise price plus the amount, if any, paid by the optionee for the NQSO.
If a NQSO is exercised through payment of the exercise price by the
delivery of Common Stock, to the extent that the number of shares received by
the optionee exceeds the number of shares surrendered, ordinary income will be
realized by the optionee at that time only in the amount of the fair market
value of such excess shares, and the tax basis of such excess shares will be
such fair market value.
Generally, the optionee's basis in the shares will be the exercise price
plus the compensation income realized at the time of grant or exercise,
whichever is applicable, and the amount, if any, paid by the optionee for the
NQSO. Under tax legislation that became effective as of January 1, 1998, the
capital gain or loss will be short-term (with gains generally subject to tax as
ordinary income) if the shares are disposed of within one year after the option
is exercised and long-term (with gains generally subject to tax at a maximum
rate of 20%) if the shares are disposed of more than one year after the option
is exercised.
A maximum capital gains rate of 18% will apply to certain sales, after
December 31, 2000, of shares acquired upon the exercise of an NQSO if such
shares have been held for at least five years.
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<PAGE>
The Company is generally entitled to a deductible compensation expense in
an amount equivalent to the amount included as compensation income to the
optionee. This deduction is allowed in the Company's taxable year in which the
income is included as compensation to the optionee.
The preceding discussion is based upon Federal tax laws and regulations in
effect on the date of this Proxy Statement, which are subject to change, and
upon an interpretation of the relevant sections of the Code, their legislative
histories and the income tax regulations which interpret similar provisions of
the Code. Furthermore, the forgoing is only a general discussion of the federal
income tax aspects of the 1997 Plan and does not purport to be a complete
description of all federal income tax aspects of the 1997 Plan. Optionees may
also be subject to state and local taxes in connection with the grant or
exercise of options or stock appreciation rights granted under the 1997 Plan and
the sale or other disposition of shares acquired upon exercise of the options or
stock appreciation rights. Each employee receiving a grant of options or stock
appreciation rights should consult with his or her personal tax advisor
regarding the Federal, state and local tax consequences of participating in the
1997 Plan.
PREVIOUSLY GRANTED OPTIONS UNDER THE 1997 PLAN
As of December 4, 1998, the Company had granted options to purchase an
aggregate of 439,999 shares of Common Stock under the 1997 Plan at exercise
prices ranging from $5.25 to $9.625 per share to 143 of its employees. The
weighted average exercise price of such options is $6.693. As of December 4,
1998, approximately 166,511 options to purchase shares were vested and 2,166
options to purchase shares had been exercised under the 1997 Plan. The following
table sets forth the options granted to (i) the Named Executives; (ii) all
current executive officers as a group; (iii) all current Directors who are not
executive officers as group; (iv) each nominee for election as a Director; (v)
each associate of any such Directors, executive officers or nominees; or (vi)
each other person who received or is to receive 5% of such options or rights;
and (viii) all employees, including all current officers who are not executive
officers, as a group.
Options Granted Weighted Average
Name Through December 4, 1998 Exercise Price
- ---- ------------------------ ---------------
William E. Dye.................... 50,000 $ 6.875
Peter Saad........................ 25,000 6.875
Richard J. Sirota................. -- --
Anthony Manser.................... 25,000 6.875
Harvey Silverman.................. -- --
David Wachsman.................... -- --
All current executive officers as
a group(4 persons)............... 100,000 6.875
All current directors who are not
executive officers as a group (2
persons)....................... -- --
All employees, including all
current officers who are not
executive officers, as a group
(143 persons).................. 439,999 6.69
As of December 4, 1998, the market value of the Common Stock underlying the
1997 Plan was $4.75 per share.
PROPOSED AMENDMENT
Stockholders are being asked to consider and vote upon a proposed amendment
(the "Amendment") to the 1997 Plan
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<PAGE>
to increase the maximum number of shares of Common Stock available for issuance
under the 1997 Plan from 500,000 to 1,000,000 shares and to reserve an
additional 500,000 shares of Common Stock of the Company for issuance upon the
exercise of stock options granted under the 1997 Plan.
The Board of Directors believes that the Amendment provides an important
inducement to recruit and retain the best available personnel. The Board of
Directors believes that providing employees, non-employee directors and
consultants with an opportunity to invest in the Company rewards them
appropriately for their efforts on behalf of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of the Company has, subject to Stockholder approval,
retained Ernst & Young LLP as independent auditors of the Company for the year
ending August 31, 1999. Ernst & Young LLP also served as independent auditors of
the Company for fiscal 1998. Neither the accounting firm nor any of its members
has any direct or indirect financial interest in or any connection with the
Company in any capacity other than as independent auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY FOR
THE YEAR ENDING AUGUST 31, 1999.
One or more representatives of Ernst & Young LLP is expected to attend the
Meeting and to have an opportunity to make a statement and/or respond to
appropriate questions from Stockholders.
STOCKHOLDERS' PROPOSALS
Stockholders who wish to submit proposals for inclusion in the Company's
proxy statement and form of proxy relating to the 2000 Annual Meeting of
Stockholders must advise the Assistant Secretary of the Company of such
proposals in writing by August 31, 1999.
OTHER MATTERS
The Board of Directors is not aware of any matter to be presented for
action at the Meeting other than the matters referred to above and does not
intend to bring any other matters before the Meeting. However, if other matters
should come before the Meeting, it is intended that holders of the proxies will
vote thereon in their discretion.
GENERAL
The accompanying proxy is solicited by and on behalf of the Board of
Directors of the Company, whose notice of meeting is attached to this Proxy
Statement, and the entire cost of such solicitation will be borne by the
Company.
In addition to the use of the mails, proxies may be solicited by personal
interview, telephone and telegram by Directors, officers and other employees of
the Company who will not be specially compensated for these services. The
Company will also request that brokers, nominees, custodians and other
fiduciaries forward soliciting materials to the beneficial owners of shares held
of record by such brokers, nominees, custodians and other fiduciaries. The
Company will reimburse such persons for their reasonable expenses in connection
therewith.
Certain information contained in this Proxy Statement relating to the
occupations and security holdings of Directors and officers of the Company is
based upon information received from the individual Directors and officers.
-17-
<PAGE>
UNIDIGITAL INC. WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS REPORT ON FORM
10-KSB FOR THE FISCAL YEAR ENDED AUGUST 31, 1998, INCLUDING FINANCIAL STATEMENTS
AND SCHEDULES THERETO BUT NOT INCLUDING EXHIBITS, TO EACH OF ITS STOCKHOLDERS OF
RECORD ON DECEMBER 17, 1998, AND TO EACH BENEFICIAL STOCKHOLDER ON THAT DATE
UPON WRITTEN REQUEST MADE TO PETER SAAD, ASSISTANT SECRETARY, UNIDIGITAL INC.,
229 WEST 28TH STREET, NEW YORK, NEW YORK 10001. A REASONABLE FEE WILL BE CHARGED
FOR COPIES OF REQUESTED EXHIBITS.
PLEASE DATE, SIGN AND RETURN THE PROXY CARD AT YOUR EARLIEST CONVENIENCE IN
THE ENCLOSED RETURN ENVELOPE. A PROMPT RETURN OF YOUR PROXY CARD WILL BE
APPRECIATED AS IT WILL SAVE THE EXPENSE OF FURTHER MAILINGS.
By Order of the Board of Directors
Peter Saad
Assistant Secretary
New York, New York
January 8, 1999
-18-
<PAGE>
UNIDIGITAL INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY FOR THE ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby constitutes and appoints William E. Dye his or her
true and lawful agent and proxy with full power of substitution to represent and
to vote on behalf of the undersigned all of the shares of Common Stock of
Unidigital Inc. (the "Company") which the undersigned is entitled to vote at the
Annual Meeting of Stockholders of the Company to be held at the offices of the
Company, 229 West 28th Street, New York, New York at 9:30 A.M., local time, on
Thursday, February 4, 1999 and at any adjournment or adjournments thereof, upon
the following proposals more fully described in the Notice of Annual Meeting of
Stockholders and Proxy Statement for the Meeting (receipt of which is hereby
acknowledged).
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy will
be voted FOR proposals 1, 2, 3 and 4.
1. ELECTION OF DIRECTORS.
Nominees: William E. Dye, Anthony Manser, Peter Saad, Richard J. Sirota,
Harvey Silverman and David Wachsman.
(Mark one only)
VOTE FOR all the nominees listed above; except vote withheld from the following
nominees (if any). [ ]
- --------------------------------------------------------------------------------
VOTE WITHHELD from all nominees. [ ]
2. APPROVAL OF PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION OF THE
COMPANY TO INCREASE THE COMPANY'S AUTHORIZED SHARES OF COMMON STOCK FROM
10,000,000 TO 25,000,000 AND THE COMPANY'S AUTHORIZED SHARES OF PREFERRED STOCK
FROM 5,000,000 TO 10,000,000.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. APPROVAL OF PROPOSAL TO AMEND THE COMPANY'S 1997 EQUITY INCENTIVE PLAN, AS
AMENDED, TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE
UPON THE EXERCISE OF OPTIONS GRANTED UNDER SUCH PLAN FROM 500,000 TO 1,000,000
SHARES.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. APPROVAL OF PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE
INDEPENDENT AUDITORS OF THE COMPANY FOR THE YEAR ENDING AUGUST 31, 1999.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(continued and to be signed on reverse side)
<PAGE>
5. In his discretion, the proxy is authorized to vote upon other matters as
may properly come before the Meeting.
Dated:__________________________ This proxy must be signed
exactly as the name appears
________________________________ hereon. When shares are held
Signature of Stockholder by joint tenants, both should
sign. If the signer is a
________________________________ corporation, please sign full
Signature of Stockholder if held jointly corporate name by duly
authorized officer, giving full
title as such. If a
partnership, please sign in
partnership name by authorized
person.
I will [ ] will not [ ] attend the Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
