SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) November 30, 1998
--------------------------------
Unidigital Inc.
(Exact Name of Registrant as Specified in Charter)
Delaware 0-27664 13-3856672
- -------------------------------------------------------------------------------
(State or Other (Commission (IRS Employer
Jurisdiction File Number) Identification No.)
of Incorporation)
229 West 28th Street, New York, New York 10001
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 244-7820
------------------------------
- -------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
ITEM 2. ACQUISITION OF ASSETS.
On November 30, 1998, Unidigital Inc., a Delaware corporation (the
"Company"), consummated the acquisition (the "Acquisition") of all of the issued
and outstanding capital stock of SuperGraphics Holding Company, Inc., a Delaware
corporation ("SuperGraphics"). As a result of the Acquisition, SuperGraphics
became a wholly-owned subsidiary of the Company. SuperGraphics provides grand
format, digitally printed vehicle graphics. The Company intends to continue such
line of business. The purchase price included a cash payment of approximately
$15,900,000, the issuance of 135,393 shares of restricted Common Stock of the
Company (approximately $600,000) and the issuance of five-year warrants to
purchase 225,000 shares of the Company's Common Stock at an exercise price of
$5.64 per share. The purchase price also includes a deferred cash payment equal
to the difference between (i) EBITDA, as defined, multiplied by six and (ii)
$16,500,000. Such deferred cash payment, if any, is payable no later than March
15, 1999. In addition, subject to certain limitations, the Company granted
"piggyback" registration rights to the sellers of SuperGraphics. Of the purchase
price, approximately $233,000 in cash and 135,393 shares of restricted Common
Stock of the Company is being held in escrow for a period of one year to satisfy
any indemnification claims.
In determining the purchase price, the Company considered, among other
factors: (i) the composition of the assets of SuperGraphics, in particular, the
strength of its balance sheet; (ii) the business, operations and prospects of
SuperGraphics; (iii) the financial statements and other relevant financial and
operating data of SuperGraphics; (iv) the historical and projected financial
information prepared by the management of SuperGraphics; and (v) the past and
projected revenues generated from the customers of SuperGraphics.
The Company funded the cash portion of the purchase price from proceeds of
a term loan from Canadian Imperial Bank of Commerce ("CIBC") and a subordinated
loan from CIBC Wood Gundy Capital Corp. ("CWGCC"). See "Item 5. Other Events."
below.
-2-
<PAGE>
ITEM 5. OTHER EVENTS.
In order to consummate the Acquisition, the Company amended its credit
facility with CIBC to increase its term loan from $25,000,000 to $32,000,000. As
a result, the Company's aggregate credit facilities with CIBC increased from
$45,000,000 to $52,000,000. Upon consummation of the Acquisition, SuperGraphics
became a wholly-owned subsidiary of the Company. As such, CIBC required
SuperGraphics and its wholly-owned subsidiary, SuperGraphics Corporation, a
California corporation ("Sub"), to guarantee the Company's credit facilities
with CIBC. In addition, the Company supplemented its security agreement and
pledge agreement with CIBC such that the assets and common stock of
SuperGraphics acquired in the Acquisition will be included as collateral for
such credit facilities. SuperGraphics also pledged all of its equity interests
in Sub as collateral for such credit facilities.
In addition to the foregoing, the Company borrowed a principal amount of
$10,000,000 pursuant to a subordinated unsecured loan (the "Subordinated Loan")
from CWGCC. The Subordinated Loan matures on March 31, 2004 and bears interest
at a rate per annum equal to the sum of (i) 12.50% plus (ii) an additional
percentage amount equal to 0.25% commencing on November 30, 1999 and increasing
by 0.25% following the last day of each 90-day period thereafter. Until November
30, 1999, at the option of CWGCC, interest is payable in additional notes,
Common Stock of the Company or warrants to purchase Common Stock of the Company.
Thereafter, interest is payable in either additional notes or cash, depending on
certain coverage ratios and, in the case of cash interest payments, the approval
of CIBC. The Company will incur an additional premium of 5.0% on any prepayments
of the Subordinated Loan made prior to November 30, 1999. Such additional
premium will be reduced by 100 basis points on December 1, 1999 and shall be
reduced by such amount on each December 1st thereafter until December 1, 2003.
In connection with the Subordinated Loan, the Company issued ten-year warrants
to CWGCC to purchase 440,000 shares of the Company's Common Stock at an exercise
price not to exceed $5.00 per share. In the event the Company has not paid the
loan in full by November 30, 1999 (subject to extension in certain instances),
the Company will issue ten-year warrants to CWGCC to purchase an additional
200,000 shares of the Company's Common Stock at an exercise price not to exceed
$5.00 per share. In the event the Subordinated Loan has not been paid in full by
May 31, 2001, the exercise price of such warrants shall be reduced by $1.00 per
share and, on each anniversary of such date, such exercise price shall be
reduced by an additional $1.00 per share. In addition, subject to certain
limitations, the Company granted registration rights, including "demand"
registration rights, to CWGCC.
-3-
<PAGE>
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Information of Business Acquired.
To be filed by amendment. The Company believes that it is impracticable to
provide such financial information as of the date hereof. Such information shall
be filed with the Commission no later than February 13, 1999.
(b) Pro Forma Financial Information (unaudited).
To be filed by amendment. The Company believes that it is impracticable to
provide such financial information as of the date hereof. Such information shall
be filed with the Commission no later than February 13, 1999.
(c) Exhibits.
Exhibit No. Description of Exhibit
4.1 Form of Warrant Agreement issued to
the stockholders of SuperGraphics
Holding Company, Inc.
4.2 Warrant Agreement dated as of November
25, 1998 by and between Unidigital
Inc. and CIBC Wood Gundy Capital Corp.
4.3 Registration and Equity Rights
Agreement by and between Unidigital
Inc. and CIBC Wood Gundy Capital
Corp.
10.1 Agreement for Purchase and Sale of
Stock dated as of November 16, 1998 by
and among Unidigital Inc.,
SuperGraphics Holding Company, Inc.
("Holding"), SuperGraphics Corporation
and the stockholders of Holding.
10.2 Amendment No. 3 to Credit Agreement
dated as of November 30, 1998 by and
among Unidigital Inc., the several
lenders from time to time parties
thereto and Canadian Imperial Bank of
Commerce.
-4-
<PAGE>
10.3 Securities Purchase Agreement dated as
of November 25, 1998 by and among
Unidigital Inc., Unison (NY), Inc.,
Unison (MA), Inc., Unidigital Elements
(NY), Inc., Unidigital Elements (SF),
Inc. and Mega Art Corp.
10.4 Senior Subordinated Increasing Rate
Note dated November 30, 1998 of
Unidigital Inc. payable to CIBC
Wood Gundy Capital Corp. in the
principal amount of $10,000,000.
-5-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
Unidigital Inc.
By: /s/William E. Dye
-------------------------------------
William E. Dye, Chairman of
the Board and Chief Executive
Officer (Principal Executive,
Financial and Accounting Officer)
Date: December 14, 1998
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of ___________, 1998 between UNIDIGITAL INC., a
Delaware corporation (the "Company"), and _______________________ (together with
its transferees that become registered holders of the Warrants (as hereinafter
defined), the "Holder").
W I T N E S S E T H:
--------------------
WHEREAS, pursuant to that certain Agreement for Purchase and Sale of Stock
dated as of November 16, 1998 (the "Stock Purchase Agreement") by and among the
Holder and all other stockholders of Supergraphics Holding Company, Inc.
("Supergraphics") and the Company, the Holder is selling to the Company all of
the common stock of Supergraphics held by it.
WHEREAS, pursuant to the terms of the Stock Purchase Agreement, and as a
portion of the consideration to be paid to the Holder for the purchase by the
Company of the Holder's stock in Supergraphics, the Company has agreed to enter
into this Warrant Agreement (this "Agreement").
WHEREAS, the Company proposes to issue to the Holder warrants ("Warrants")
to purchase up to ________ shares of the Company's common stock, par value $.01
per share (the "Common Stock"), (one share of Common Stock issuable upon
exercise of this Warrant being hereinafter referred to as a "Security" and more
than one share of Common Stock issuable upon exercise of this Warrant being
hereinafter referred to, collectively, as the "Securities"), as part of the
aggregate of 225,000 Warrants referred to in Section 1.2 of the Stock Purchase
Agreement.
NOW, THEREFORE, in consideration of the transfer of shares referred to
above and the agreements herein set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Grant. The Company hereby grants to the Holder the right to purchase at
-----
any time from the date hereof until 5:30 P.M., New York time, on November ____,
2003, up to __________ fully paid, validly issued and non-assessable Securities
as specified on the Warrant Certificates (as hereinafter defined) to be issued
to the Holder, at the Exercise Price (as hereinafter defined), subject to the
terms and conditions of this Agreement.
2. Warrant Certificates. The warrant certificates (the "Warrant
----------------------
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth as Exhibit A attached hereto and made a part hereof, with
such appropriate insertions,
<PAGE>
omissions, substitutions and other variations as required or permitted by this
Agreement.
3. Exercise of Warrants. The Warrants shall be exercised by surrender of
--------------------
Warrant Certificates for at least the number of Securities to be purchased,
together with an Election to Purchase in the form annexed hereto duly executed
and completed specifying the number of shares of Common Stock to be purchased
and payment of the Exercise Price (as hereinafter defined) for the Securities to
be purchased, at the Company's principal offices (presently located at 229 West
28th street, New York, New York 10001) during regular business hours on a
Business Day (as hereinafter defined). Upon such exercises the registered holder
of a Warrant Certificate shall be entitled to receive a certificate for the
Securities so purchased. The purchase rights represented by each Warrant
Certificate are exercisable at the option of the Holder thereof, in whole or in
part (but not as to fractional shares of Common Stock). In case of the purchase
of less than all the Securities purchasable under any Warrant Certificate, the
Company shall cancel said Warrant Certificate upon the surrender thereof and
shall execute and deliver a new Warrant Certificate of like tenor for the
balance of the Securities purchasable thereunder.
4. Issuance of Certificates. Upon exercise of the Warrants, the Company
-------------------------
shall issue certificates for the appropriate number of shares of Common Stock
forthwith (and in any event within three (3) Business Days thereafter) without
charge to the Holder including, without limitation, any tax which may be payable
in respect of the issuance thereof, and such certificates shall (subject to the
provisions of Articles 6 and 8 hereof) be issued in the name of, or in such
names as may be directed by, the Holder. For purposes of this Agreement,
"Business Day" shall mean any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized by law to close.
All Warrant Certificates and certificates representing the shares of Common
Stock underlying the Warrants, or other securities, property or rights shall be
executed on behalf of the Company by the manual or facsimile signature of the
authorized officers of the Company under its corporate seal. Warrant
Certificates shall be dated the date of execution by the Company upon initial
issuance, division, exchange, substitution or transfer.
5. Restriction on Transfer of Warrants. The Holder of a Warrant
---------------------------------------
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired for investment purposes only and not with a view to the
distribution thereof and that the Warrants may not be sold, transferred,
assigned, hypothecated or otherwise disposed of, in whole or in part, except in
compliance with the Securities Act of 1933, as amended (the "Securities Act").
-2-
<PAGE>
6. Exercise Price.
--------------
6.1 Initial and Adjusted Exercise Price. The initial exercise price of each
-----------------------------------
Warrant shall be $______ per Security (being 125% of the average closing bid and
ask prices of the Common Stock during the 20 trading days ending two days prior
to the date hereof). The exercise price shall be adjusted from time to time in
accordance with the provisions of Article 8 hereof.
6.2 Exercise Price. The term "Exercise Price" as used herein shall mean the
--------------
initial exercise price or the adjusted exercise price, depending upon the
context.
6.3 Payment of Exercise Price. The Exercise Price may be paid either by
--------------------------
check payable to the order of the Company or by wire transfer or by delivery of
a duly executed Election to Purchase marked to reflect "Net Issue Exercise,"
together with surrender of Warrant Certificates in accordance with Section 3
hereof. Upon a Net Issue Exercise, the Company shall issue to Holder a number of
shares of the Company's Common Stock computed as of the date of surrender of the
Warrant Certificates to the Company using the following formula:
X = Y x (A-B)
---------
A
Where: X = the number of shares of Common Stock to be issued to the Holder
Y = the number of shares of Common Stock with respect to which the
Warrant is being exercised
A = the Current Market Price of one share of the Common Stock (at
the date of such calculation)
B = the Exercise Price (as adjusted to the date of such
calculation).
The "Current Market Price" for a specified date shall mean the average
daily Market Price during the period of the most recent 20 days, ending on such
date, on which the national securities exchanges were open for trading, except
that if no Common Stock is then listed or admitted to trading on any national
securities exchange or quoted in the over-the-counter market, the Current Market
Price shall be the Market Price on such date.
The "Market Price" for a specified date shall mean the amount per share of
the Common Stock, equal to (i) the last reported sale price of such Common Stock
on such date or, in case no such sale takes place on such date, the average of
the closing bid and asked prices thereof, on such date, in either case as
officially reported on the principal national securities exchange on which such
Common Stock is then listed or admitted for trading,
-3-
<PAGE>
or (ii) if such Common Stock is not then listed or admitted for trading on any
national securities exchange but is designated as a national market system
security the National Association of Securities Dealers, Inc. (the "NASD"), the
last reported trading price of the Common Stock on such date, or (iii) if there
shall have been no trading on such date or if the Common Stock is not so
designated, the average of the closing bid and asked prices of the Common Stock
on such date as shown by the NASD automated quotation system, or (iv) if such
Common Stock is not then listed or admitted for trading on any national exchange
or quoted in the over-the-counter market, the fair value thereof (as of a date
which is within 20 days of the date as of which the determination is to be made)
determined in good faith by the Board of Directors of the Company.
7. Registration Rights.
-------------------
7.1 Registration Under the Securities Act. The Warrants and the Securities
--------------------------------------
have not been registered under the Securities Act. Certificates representing the
Securities issued upon the exercise, in part or in whole, of the Warrants shall
bear a legend in substantially the following form:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended ("Act"), and may
not be offered or sold except pursuant to (i) an effective registration
statement under the Act or (ii) an opinion of counsel, if such opinion
shall be reasonably satisfactory to counsel to the issuer, that an
exemption from registration under such Act is available.
Section 7.2 Piggyback Registration. If, at any time commencing after the
-----------------------
date hereof, the Company proposes to register any of its securities under the
Act (other than pursuant to Form S-8, S-4 or a comparable registration
statement) it will give written notice by registered mail, at least thirty (30)
days prior to the filing of each such registration statement, to the Holder of
the Warrants and/or the Securities of its intention to do so. If the Holder of
the Warrants and/or the Securities notifies the Company within twenty (20) days
after receipt of any such notice of its desire to include any Securities in such
proposed registration statement, the Company shall afford the Holder of the
Warrants and/or Securities the opportunity to have any such Securities
registered under such registration statement.
Notwithstanding the provisions of this Section 7.2, the Company shall have
the right at any time after it shall have given written notice pursuant to this
Section 7.2 (irrespective of whether a written request for inclusion of any
Securities shall have been made) to elect not to file any such proposed
registration
-4-
<PAGE>
statement, or to withdraw the same after the filing but prior to the effective
date thereof.
Section 7.3 Covenants of the Company With Respect to Registration. In
---------------------------------------------------------
connection with any registration under Section 7.2 hereof, the Company covenants
and agrees as follows:
(a) The Company (i) shall use its best efforts to market the Securities
included in any such registration statement and (ii) shall furnish the Holder
such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding any underwriting or selling
commissions or other charges of any broker-dealer acting on behalf of Holder),
fees and expenses in connection with all registration statements filed pursuant
to Section 7.2 hereof including, without limitation, the Company's legal and
accounting fees, printing expenses, blue sky fees and expenses and expenses of
counsel to the Holder. If the Company shall fail to comply with the provisions
of Section 7.3(a), the Company shall, in addition to any other equitable or
other relief available to the Holder, be liable for any or all incidental or
special damages sustained by the Holder requesting registration of Securities.
(c) The Company shall take all necessary action which may be required in
qualifying or registering the Securities included in a registration statement
for offering and sale under the securities or blue sky laws of such states as
reasonably are requested by the Holder, provided that the Company shall not be
obligated to (i) execute or file any general consent to service of process, (ii)
qualify as a foreign corporation to do business under the laws of any such
jurisdiction or (iii) subject itself to taxation in such jurisdiction.
(d) The Company shall indemnify the Holder of the Securities to be sold
pursuant to any registration statement and each person, if any, who controls the
Holder within the meaning of Section 15 of the Act or Section 20(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), against all
loss, claim, damage, expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim whatsoever)
to which any of them may become subject under the Act, the Exchange Act or
otherwise, arising from such registration statement (excluding any loss, claim,
damage, expense or liability arising from information furnished in writing by or
on behalf of the Holder, or its successors or assigns, for specific inclusion in
such registration statement).
(e) The Holder of the Securities to be sold pursuant to a registration
statement, and its successors and assigns, shall indemnify the Company, its
officers and directors
-5-
<PAGE>
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
solely from the inclusion in such registration statement of information
furnished in writing by or on behalf of such Holder, or its successors or
assigns, specifically for use in such registration statement.
(f) Nothing contained in this Agreement shall be construed as requiring the
Holder to exercise its Warrants prior to the initial filing of any registration
statement or the effectiveness thereof.
(g) In the case of an underwritten offering pursuant to Section 7.2, if the
managing underwriter with respect to such offering requests in writing that the
number of the Company's securities to be offered by selling security holders in
the registration be reduced because, in the judgment of the managing
underwriter, the proposed offering would be materially and adversely affected,
then such securities shall be reduced by such amount as the managing underwriter
may determine in writing so as to not materially and adversely affect the
proposed offering, which reduced number of securities shall be included in the
offering, selected as nearly as possible pro rata from among all selling
security holders.
(h) The Company shall furnish to the Holder and to each underwriter, if
any, a signed counterpart, addressed to the Holder or underwriter, of (i) an
opinion of counsel to the Company, dated the effective date of such registration
statement (and, if such registration includes an underwritten public offering,
an opinion dated the date of the closing under the underwriting agreement), and
(ii) a "cold comfort" letter dated the effective date of such registration
statement (and, if such registration includes an underwritten public offering, a
letter dated the date of the closing under the underwriting agreement) signed by
the independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(i) The Company shall as soon as practicable after the effective date of
the registration statement, and in any event within 15 months thereafter, make
"generally available to its
-6-
<PAGE>
security holders" (within the meaning of Rule 158 under the Act) an earnings
statement (which need not be audited) complying with Section 11(a) of the Act
and covering a period of at least 12 consecutive months beginning after the
effective date of the registration statement.
(j) The Company shall deliver promptly to the Holder, if it so requests,
the correspondence and memoranda described below, copies of all correspondence
between the Securities and Exchange Commission (the "Commission") and the
Company, its counsel or auditors and all memoranda relating to discussions with
the Commission or its staff with respect to the registration statement and
permit the Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the NASD. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as the Holder shall
reasonably request.
(k) Holder, if, as and when its Securities are covered by a registration
statement filed pursuant to Section 7 hereof, agrees if and to the extent
requested by the managing underwriter, in the case of an underwritten sale of
its Securities (to the extent timely notified in writing by the Company or the
managing underwriter), not to effect any public sale or distribution of its
Securities included in such registration statement, including a sale pursuant to
Rule 144 (or any similar rule then in force) under the Act, except as part of
such underwritten registration, during the 30-day period prior to, and a period
of up to 90 days (as determined by the managing underwriter) beginning on, the
effective date of any underwritten sale of its Securities made pursuant to such
registration statement.
8. Adjustments to Exercise Price and Number of Securities.
------------------------------------------------------
8.1 Computation of Adjusted Exercise Price. The Exercise Price shall be
----------------------------------------
subject to adjustment from time to time as follows:
(a) Except to the limited extent provided for in Section 8.2 hereof, no
adjustment of the Exercise Price pursuant to this Article 8 shall have the
effect of increasing the Exercise Price above the Exercise Price in effect
immediately prior to such adjustment.
-7-
<PAGE>
(b) In the case of the issuance of Common Stock for a consideration in
whole or in part other than cash, the consideration other than cash shall be
deemed to be the fair value thereof as determined in good faith by the Board of
Directors of the Company.
8.2 Subdivision and Combination. In the event of a split of Common Stock,
----------------------------
dividend of Common Stock, subdivision of Common Stock, combination or
reclassification of Common Stock (including where the Common Stock is exchanged
for common stock of another entity) (each, an "Action"), prior to the exercise
of the Warrants, the Exercise Price shall be adjusted to equal the Exercise
Price immediately prior to such Action, multiplied by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately prior
to such Action, and the denominator of which is the number of shares of Common
Stock outstanding immediately after such Action.
8.3 Adjustment in Number of Securities. Upon each adjustment of the
-------------------------------------
Exercise Price pursuant to the provisions of this Article 8, the number of
Securities issuable upon the exercise of the Warrant shall be adjusted to the
nearest full amount by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of Securities issuable
upon exercise of this Warrant immediately prior to such adjustment and dividing
the product so obtained by the adjusted Exercise Price. Upon the occurrence of
each adjustment of the Exercise Price pursuant to this Article 8, the Company,
at its expense, shall promptly (but no later than 20 days after such occurrence)
compute such adjustment in accordance with the terms hereof and prepare and
furnish to Holder a statement, signed by its chief financial officer, setting
forth such adjustment and showing in detail the facts upon which such adjustment
is based.
8.4 Definition of Common Stock. For the purpose of this Agreement, the term
--------------------------
"Common Stock" shall mean (i) the Class of stock designated as Common Stock in
the certificate of incorporation of the Company as it may be amended as of the
date hereof or (ii) any other class of stock resulting from successive changes
or reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value.
8.5 Merger or Consolidation. In case of any consolidation or merger of the
-----------------------
Company with, or merger of the Company into, another corporation (other than a
consolidation or merger which does not result in any reclassification or change
of the outstanding Common Stock), the corporation formed by such consolidation
or merger shall execute and deliver to the Holder a supplemental warrant
agreement providing that the holder of each Warrant then outstanding or to be
outstanding shall have the right thereafter (until the expiration of such
Warrant) to receive, upon
-8-
<PAGE>
exercise of such Warrant, the kind and amount of shares of stock and other
securities and property receivable upon such consolidation or merger, by a
holder of the number of shares of Common Stock for which such Warrant might have
been exercised immediately prior to such consolidation, merger, sale or
transfer. Such supplemental warrant agreement shall provide for adjustments
which shall be identical to the adjustments provided in this Article 8. The
provisions of this Section 8.5 shall similarly apply to successive
consolidations or mergers.
8.6 Dividends and Other Distributions With Respect to Outstanding
----------------------------------------------------------------------
Securities. In the event that the Company shall at any time prior to the
- ----------
exercise of all Warrants declare a dividend (other than a dividend consisting
solely of shares of Common Stock) or otherwise distribute to its stockholders
any assets, property, rights, evidences of indebtedness, securities (other than
shares of Common Stock), whether issued by the Company or by another, or any
other thing of value, the Holder of the unexercised Warrants shall thereafter be
entitled, in addition to the shares of Common Stock or other securities and
property receivable upon the exercise thereof, to receive, upon the exercise of
such Warrants, the same property, assets, rights, evidences of indebtedness,
securities or any other thing of value that they would have been entitled to
receive at the time of such dividend or distribution as if the Warrants had been
exercised immediately prior to such dividend or distribution. At the time of any
such dividend or distribution, the Company shall make appropriate reserves to
ensure the timely performance of the provisions of this Section 8.6.
9. Exchange and Replacement of Warrant Certificates. Each Warrant
------------------------------------------------------
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Securities in such denominations as shall
be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
the case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrant
Certificates, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not be required
-----------------------------------
to issue certificates representing fractions of shares of Common Stock upon the
exercise of the Warrants, and shall not be required to issue scrip or pay cash
in lieu of fractional interests, it being the intent of the parties that all
-9-
<PAGE>
fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of shares of Common Stock or other securities, properties
or rights.
11. Reservation of Securities. The Company shall at all times reserve and
-------------------------
keep available out of its authorized shares of Common Stock, solely for the
purpose of issuance upon the exercise of the Warrants such number of shares of
Common Stock as shall be issuable upon the exercise thereof. The Company
covenants and agrees that, upon exercise of the Warrants and payment of the
Exercise Price therefor, all shares of Common Stock and other securities
issuable upon such exercise shall be duly and validly issued, fully paid,
non-assessable and not subject to the preemptive rights of any stockholder.
12. Notices.
-------
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been duly made when delivered, or mailed
by registered or certified mail, return receipt requested:
(a) If to the Holder of the Warrant, to the address of the Holder as shown
on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 hereof or to
such other address as the Company may designate by notice to the Holder.
13. Supplements and Amendments. This Agreement may not be amended except in
--------------------------
writing signed by the Company and the Holder.
14. Successors. All the covenants and provisions of this Agreement shall be
----------
binding upon and inure to the benefit of the Company, the Holder and their
respective successors and assigns hereunder.
15. Termination. This Agreement, except for the provisions of Section 7,
-----------
shall terminate at the close of business on November ____, 2003.
16. Governing Law. This Agreement and each Warrant Certificate issued
--------------
hereunder shall be deemed to be a contract made under the laws of the State of
New York and for all purposes shall be construed in accordance with the laws of
said State without giving effect to the rules of said State governing conflicts
of laws.
17. Benefits of This Agreement. Nothing in this Agreement shall be
----------------------------
construed to give to any person or corporation other than the Company and the
Holder and its transferees of the Warrant Certificates or Securities any legal
or equitable right,
-10-
<PAGE>
remedy or claim under this Agreement; and this Agreement shall be for the sole
and exclusive benefit of the Company and the Holder and its transferees of the
Warrant Certificates or Securities.
18. Valuation. The parties hereto agree that, for income tax purposes, the
---------
purchase price to be attributed to the Warrants issued to the Holder hereunder
on the date hereof shall be determined by the Holder, at its reasonable
discretion.
19. Counterparts. This Agreement may be executed in any number of
------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
UNIDIGITAL INC.
By: _____________________________
Name:
Title:
Attest:_____________________
HOLDER:
_________________________________
Name:
Title:
-11-
<PAGE>
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT")
OR (ii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY
TO COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK CITY TIME, NOVEMBER ___, 2003
No. W-__ ________ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that ____________ or registered assigns,
is the registered holder of _________ (____) Warrants to purchase initially, at
any time from November ___, 1998 until 5:30 P.M. New York time on November ___,
2003 ("Expiration Date"), up to _________ Securities, each Security consisting
of one fully-paid and non-assessable share of common stock, par value $.01 per
share (the "Common Stock"), of Unidigital Inc., a Delaware corporation (the
"Company"), at a purchase price subject to adjustment in certain events (the
"Exercise Price"), of $______ per Security (being 125% of the average closing
bid and ask prices of the Common Stock during the 20 trading days ending two
days prior to the date of the Warrant Agreement (as herein after defined)), upon
surrender of this Warrant Certificate and payment of the Exercise Price at an
office or agency of the Company, subject to the conditions set forth herein and
in that certain Warrant Agreement dated as of November ___, 1998 between the
Company and the Holder (the "Warrant Agreement"). Payment of the Exercise Price
shall be made by check payable to the order of the Company, wire transfer or as
provided in Section 6.3 of the Warrant Agreement.
No Warrant may be exercised after 5:30 P.M., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
registered holder or holders of the Warrants (the "Holder").
<PAGE>
The Warrant Agreement provides that upon the occurrence of certain events,
the Exercise Price and the type and/or number of the Company's securities
issuable pursuant to the Warrant Agreement may, subject to certain conditions,
be adjusted. In such event, the Company will, at the request of the Holder,
issue a new Warrant Certificate evidencing the adjustment in the Exercise Price
and the number and/or type of securities issuable upon the exercise of Warrants;
provided, however, that the failure of the Company to issue such new Warrant
- -------- -------
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership of other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to such terms therein.
-2-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of November ___, 1998
UNIDIGITAL INC.
By:______________________________
Name:
Title:
Attest:_____________________
-3-
<PAGE>
WARRANT
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _____________ Securities
and herewith tenders in payment for such shares a check payable to the order of
Unidigital Inc. (the "Company"), wire transfer or Notes or a written notice of
application of the "Net Issue Exercise" provision of Section 6.3 of the Warrant
Agreement in the amount of $__________________, all in accordance with the terms
hereof and the terms of the Warrant Agreement dated as of November ___, 1998
between the undersigned and the Company. The undersigned requests that a
certificate for such Securities be registered in the name of
___________________________ whose address is ____________________ and that such
Certificate be delivered to ______________________ whose address is
____________________________________________.
Dated:
Signature__________________________
Name:
(Signature must conform in
all respects to name of
holder as specified on the
face of the Warrant
Certificate.)
------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
-4-
<PAGE>
ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Warrant
Certificate.)
FOR VALUE RECEIVED ____________________________ hereby sells, assigns and
transfers unto _____________________
- --------------------------------------------------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _________________________
Attorney-in-Fact, to transfer the within Warrant Certificate on the books of the
within-named Company, will full power or substitution.
Dated:
Signature__________________________
Name:
(Signature must conform in
all respects to name of
holder as specified on the
face of the Warrant
Certificate.)
-------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of November 25, 1998 (this "Agreement"),
between UNIDIGITAL INC., a Delaware corporation ( the "Company"), and the
purchaser set forth on the signature pages hereto (the "Purchaser"). Capitalized
terms used herein and not otherwise defined shall have the meanings specified in
the Securities Purchase Agreement described below.
RECITALS
WHEREAS, the Company and the Purchaser have entered into a Securities
Purchase Agreement, dated as of November 25, 1998 (as amended, supplemented or
otherwise modified, the "Securities Purchase Agreement"), pursuant to which the
Purchaser will purchase, at par value, $10 million of the Company's Senior
Subordinated Increasing Rate Notes (the "Notes");
WHEREAS, as a condition precedent to the purchase of the Notes by the
Purchaser, the Company has agreed to issue, and the Purchaser is entitled to
receive (on the terms and conditions set forth herein), Warrants to purchase
440,000 shares of Common Stock of the Company;
WHEREAS, the number of shares of Common Stock into which the Warrants are
exercisable shall be subject to increase (in respect of PIK Warrants, as defined
in the Securities Purchase Agreement, and Contingent Warrants, as defined below)
pursuant to the terms and conditions hereof;
WHEREAS, the exercise price of the Warrants (as it may be adjusted pursuant
hereto, the "Exercise Price") shall be equal to the lesser of (a) $5.00 per
Warrant Share (or such different number of Warrant Shares as may result from any
adjustments required pursuant to Sections 10 or 11) and (b) if the Company's
Common Stock into which such Warrants are exercisable is publicly traded on a
national securities exchange or the NASDAQ Stock Market, Inc. (the "NASDAQ"), at
a price per Warrant Share (or such different number of Warrant Shares as may
result from any adjustments required pursuant to Sections 10 or 11) equal to the
average closing price for such Common Stock for the 20 trading day period
comprised of the 10 trading day period ending on the Issuance Date and the 10
trading day period immediately following the Issuance Date; provided that, (i)
the Exercise Price for PIK Warrants (as defined in the Securities Purchase
Agreement) shall be $.01 per share and (ii) on May 31, 2001, in the event any
principal, premium or accrued interest in respect of any Notes remains
outstanding, the Exercise Price for all other Warrants shall be reduced by $1.00
per share (as adjusted) and, on each anniversary of such date, such Exercise
Price shall be reduced by an additional $1.00 per share (as adjusted); and
<PAGE>
WHEREAS, subject to payment of the applicable Exercise Price for any
Warrant, the number of Warrant Shares issuable upon the exercise of such Warrant
shall be subject to adjustment from time to time upon the occurrence of certain
events or circumstances described in Sections 10 and 11 below;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
AGREEMENT
SECTION 1. Warrant Certificates. The certificates evidencing the Warrants
--------------------
(the "Warrant Certificates") to be delivered pursuant to this Agreement shall be
in registered form only and shall be substantially in the form of Exhibit A
attached hereto.
SECTION 2. Execution of Warrant Certificates. Warrant Certificates shall be
---------------------------------
signed on behalf of the Company by its chief executive officer, president, any
vice-president or its chief financial officer (each an "Officer"). Each such
signature upon the Warrant Certificates may be in the form of a facsimile
signature of the present or any future Officer and may be imprinted or otherwise
reproduced on the Warrant Certificates and for that purpose the Company may
adopt and use the facsimile signature of any Person who shall have been an
Officer, notwithstanding the fact that at the time the Warrant Certificates
shall be delivered or disposed of he shall have ceased to hold such office.
In case any Officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be such Officer before the Warrant Certificates so
signed shall have been delivered or disposed of by the Company, such Warrant
Certificates nevertheless shall be delivered or disposed of as though such
Person had not ceased to be such Officer of the Company.
SECTION 3. Registration. The Company shall number and register each Warrant
------------
Certificate in a register (the "Warrant Register") as such Warrant Certificate
is issued and the Company may deem and treat the registered holder(s) of the
Warrant Certificates as the absolute owners thereof (notwithstanding any
notation of ownership or other writing thereon made by anyone), for all
purposes, and shall not be affected by any notice to the contrary.
SECTION 4. Registration of Transfers and Exchanges. The Company shall from
---------------------------------------
time to time register the transfer of any outstanding Warrant Certificates in
the Warrant Register to be maintained by the Company upon surrender thereof
accompanied by a written instrument or instruments of transfer in form
satisfactory to the Company, duly executed by the registered holder or holders
thereof or by the duly appointed legal representative thereof or by a duly
authorized attorney. Upon any such registration of transfer, a new Warrant
Certificate shall be issued to the transferee(s) and the surrendered Warrant
Certificate shall be canceled and disposed of by the Company.
-2-
<PAGE>
The Warrant holders agree that no proposed transfer of the Warrant or of
the Warrant Shares will be made unless pursuant to an effective Registration
Statement (as defined in the Registration Rights Agreement) under the Securities
Act or upon the receipt by the Company of an opinion of counsel, reasonably
satisfactory in form and substance to the Company, that such transfer is exempt
from registration requirements under the Securities Act.
The Warrant holders agree that each certificate representing Warrant Shares
will bear the following legend:
"THE SECURITIES EVIDENCED OR CONSTITUTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS THE REGISTRATION PROVISIONS OF SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS HAVE BEEN COMPLIED WITH OR UNLESS THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
Warrant Certificates may be exchanged at the option of the holder(s)
thereof when surrendered to the Company at its office for another Warrant
Certificate or other Warrant Certificates of like tenor and representing in the
aggregate a like number of Warrants. Warrant Certificates surrendered for
exchange shall be canceled and disposed of by the Company.
SECTION 5. Terms of Warrants: Exercise of Warrants. Subject to the terms of
---------------------------------------
this Agreement, each Warrant holder shall have the right, which may be exercised
commencing at the opening of business on the Exercise Date (as defined below)
for such Warrant and until 5:00 p.m., New York City time, on the tenth
anniversary of the Issuance Date, to receive from the Company the number of
fully paid and nonassessable Warrant Shares which the holder may at the time be
entitled to receive on exercise of such Warrant and payment of the Exercise
Price for such Warrant Shares. For purposes hereof, "Exercise Date" means, (i)
for any Warrant other than any PIK Warrant or Contingent Warrant, the Issuance
Date, (ii) for any PIK Warrant, the date that the new Warrant Certificate(s)
evidencing such PIK Warrants or notice of increase of Warrants evidenced by such
holder's then existing Warrant Certificate(s), as applicable, are required to be
delivered in accordance with Section 10(o), (iii) for any Contingent Warrants,
the date that the new Warrant Certificate(s) for such Warrants are required to
be delivered pursuant to Section 10(p) and (iv) for any Warrant, the Mandatory
Exercise Date (as defined below).
At any time after May 31, 2001 but prior to the tenth anniversary thereof,
upon the occurrence of a Mandatory Exercise Event the Company may, by delivery
of written notice in substantially the form of Exhibit B hereto (a "Mandatory
Exercise Notice") to each registered holder of outstanding Warrants (as such
holders may appear in the Warrant Register), declare the Exercise Date to have
occurred for all (but not less than all) outstanding Warrants (a "Mandatory
Exercise Date"); provided that such Mandatory Exercise Date shall not occur
--------
earlier than the
-3-
<PAGE>
fifth Business Day following delivery of any such Mandatory Exercise Notice or
later than the tenth Business Day following any such notice. On such Mandatory
Exercise Date, all outstanding Warrants shall be deemed to have been exercised
(a "Mandatory Exercise") as if the holders thereof had voluntarily exercised
their exercise rights as otherwise provided herein unless, prior to such
Mandatory Exercise Date, any such holder has notified the Company that it is a
Regulated Entity (as defined below) and such Mandatory Exercise would cause such
holder to violate the BHC Act (as defined below) or any other applicable banking
regulation. After receiving a Mandatory Exercise Notice from the Company, each
registered holder may, by written notice to the Company, elect the method of
payment of the Exercise Price as provided below; provided that, if any holder
--------
fails to make such election within five Business Days following the Mandatory
Exercise Date, such holder shall be deemed to have elected to pay such Exercise
Price by tendering Warrants having a fair market value (as defined below) equal
to such Exercise Price, as provided below. "Mandatory Exercise Event" means,
with respect to any Mandatory Exercise, a period of 30 consecutive trading days
(exclusive, however, of any trading days which include the date of any
registered public offering or private placement by the Company of any capital
stock or securities exercisable, convertible or exchangeable into capital stock,
as well as the three trading days immediately prior to and immediately following
such offering or placement date) shall have occurred (i) during which the
closing price for the Company's Common Stock as quoted on a national securities
exchange or the NASDAQ for each day during such period equaled or exceeded $12
per share, (ii) during which such period the average trading volume for the
Company's Common Stock on such exchange or the NASDAQ shall have been at least
25,000 shares per trading day, and (iii) such period shall have ended not later
than five Business Days prior to the date such Mandatory Exercise Notice was
delivered for such Mandatory Exercise.
Commencing on its Exercise Date, a Warrant may be exercised upon surrender
to the Company at its office designated for such purpose (the address of which
is set forth below its name on the signature pages hereto) of the certificate or
certificates evidencing the Warrants to be exercised with the form of election
to purchase on the reverse thereof duly filled in and signed, which signature
shall be guaranteed by a bank or trust company having an office or correspondent
in the United States or a broker or dealer which is a member of a registered
securities exchange or the National Association of Securities Dealers, Inc. (the
"NASD"), and upon payment to the Company of the Exercise Price. Payment of the
Exercise Price shall be made (i) in cash or by certified or official bank check
payable to the order of the Company, (ii) through the surrender of debt of the
Company (including, without limitation, the Notes outstanding under the
Securities Purchase Agreement) having a principal amount equal to the aggregate
Exercise Price to be paid (the Company shall pay the accrued interest or
dividends on such surrendered debt in cash at the time of surrender
notwithstanding the stated terms thereof), (iii) through cancellation of accrued
or any unpaid fees (including any interest thereon) owing by the Company to such
holder, (iv) by tendering Warrants having a fair market value equal to the
Exercise Price or (v) with any combination of (i), (ii), (iii) or (iv). For
purpose of clause (iv) above, the "fair market value" of the Warrants shall be
determined as follows: (A) to the extent the Common Stock into which such
Warrants are exercisable is publicly traded and listed on a national securities
exchange or the NASDAQ, the fair market value shall be equal to the
-4-
<PAGE>
difference between (1) the Current Market Price (as defined below) and (2) the
Exercise Price; or (B) to the extent the Common Stock into which such Warrants
are exercisable is not publicly traded, or otherwise is not listed on a national
securities exchange, the fair market value shall be equal to the value per share
as determined in good faith by the Board of Directors of the Company pursuant to
Section 10(n).
Subject to the provisions of Section 6 hereof, upon such surrender of
Warrants and payment of the Exercise Price, the Company shall issue and cause to
be delivered with all reasonable dispatch, but in no event later than three
Business Days after such surrender and payment, to or upon the written order of
the holder and in such name or names as the Warrant holder may designate, a
certificate or certificates for the number of full Warrant Shares issuable upon
the exercise of such Warrants as provided in Section 10; provided, that if any
--------
consolidation, merger or lease or sale of assets is proposed to be effected by
the Company as described in Section 10(m) hereof, or a tender offer or an
exchange offer for shares of Common Stock of the Company shall be made, upon
such surrender of Warrants and payment of the Exercise Price as aforesaid, the
Company shall, as soon as possible, but in any event not later than three
Business Days thereafter, issue and cause to be delivered the full number of
Warrant Shares issuable upon the exercise of such Warrants in the manner
described in this sentence as provided in Section 10. Together with the delivery
of such Warrant Shares, the Company shall deliver a certificate of its chief
accounting or chief financial officer setting forth and certifying the
calculations made by the Company pursuant to Section 10 hereof to determine the
number of Warrant Shares issuable upon the exercise of the surrendered Warrant
or Warrants. Such certificate or certificates representing Warrant Shares shall
be deemed to have been issued and any Person so designated to be named therein
shall be deemed to have become a holder of record of such Warrant Shares as of
the date of the surrender of such Warrants and payment of the Exercise Price.
The Warrants shall be exercisable, at the election of the holders thereof,
either in full or from time to time in part and, in the event that a certificate
evidencing Warrants is exercised in respect of fewer than all of the Warrant
Shares issuable on such exercise at any time prior to the date of expiration of
the Warrants, a new certificate evidencing the remaining Warrant or Warrants
shall be issued and delivered pursuant to the provisions of this Section and of
Section 2 hereof.
All Warrant Certificates surrendered upon exercise of Warrants shall be
canceled and disposed of by the Company.
The Company shall keep copies of this Agreement and any notices given or
received hereunder available for inspection by the holders during normal
business hours at its office.
SECTION 6. Payment of Taxes. The Company shall pay all documentary stamp
----------------
taxes attributable to the initial issuance of Warrant Shares upon the exercise
of Warrants; provided that the Company shall not be required to pay any tax or
taxes which may be payable in respect of any transfer involved in the issue of
any Warrant Certificates or any certificates for Warrant
-5-
<PAGE>
Shares in a name other than that of the registered holder of a Warrant
Certificate surrendered upon the exercise of a Warrant, and the Company shall
not be required to issue or deliver such Warrant Certificates unless or until
the Person or Persons requesting the issuance thereof shall have paid to the
Company the amount of such tax or shall have established to the satisfaction of
the Company that such tax has been paid.
SECTION 7. Mutilated or Missing Warrant Certificates. In case any of the
-------------------------------------------
Warrant Certificates shall be mutilated, lost, stolen or destroyed, the Company
may in its discretion issue, in exchange and substitution for and upon
cancellation of the mutilated Warrant Certificate, or in lieu of and
substitution for the Warrant Certificate lost, stolen or destroyed, a new
Warrant Certificate of like tenor and representing an equivalent number of
Warrants, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction of such Warrant Certificate and
indemnity, if requested, also reasonably satisfactory to it. Applicants for such
substitute Warrant Certificates shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company may prescribe.
SECTION 8. Reservation of Warrant Shares. The Company shall at all times
------------------------------
reserve and keep available, free from preemptive rights, out of the aggregate of
its authorized but unissued Common Stock or its authorized and issued Common
Stock held in its treasury for the purpose of enabling it to satisfy any
obligation to issue Warrant Shares upon exercise of Warrants, the maximum number
of shares of Common Stock which may then be deliverable upon the exercise of all
outstanding Warrants.
The Company or, if appointed, the transfer agent for the Common Stock (the
"Transfer Agent") and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be irrevocably authorized and directed at all times to
reserve such number of authorized shares as shall be required for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Company will furnish such Transfer Agent with a copy of all
notices of adjustments and certificates related thereto, transmitted to each
holder pursuant to Section 13 hereof.
Before taking any action which would cause an adjustment pursuant to
Section 10 or 11 hereof in the Exercise Rate (as defined below), the Company
will take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable Warrant Shares at the Exercise Rate as so adjusted
The Company covenants that all Warrant Shares which may be issued upon
exercise of Warrants will, upon issue, be fully paid, nonassessable, free of
preemptive rights and free from all taxes, liens, charges and security interests
with respect to the issue thereof.
SECTION 9. Obtaining Stock Exchange Listings. Without limiting any term or
---------------------------------
provision of the Registration Rights Agreement, the Company will from time to
time take all
-6-
<PAGE>
action which may be necessary so that the Warrant Shares, immediately upon their
issuance following the exercise of Warrants, will be listed on the principal
securities exchanges and markets within the United States of America, if any, on
which other shares of Common Stock are then listed.
SECTION 10. Adjustment of Number of Warrant Shares Issuable; Dividends,
-------------------------------------------------------------
etc. Subject to payment of the applicable Exercise Price for any Warrant, the
- ---
number of Warrant Shares issuable upon the exercise of such Warrant (such
correlation between any Warrant and the number of shares issuable upon exercise
of such Warrant, being the "Exercise Rate"), including any PIK Warrant, is
subject to adjustment from time to time upon the occurrence of the events
enumerated in this Section 10 and under the circumstances described in Section
11. Unless otherwise expressly provided herein, adjustments pursuant to this
Section 10 and Section 11 are to be made to the Exercise Rate and not the
Exercise Price. For purposes of this Section 10, "Common Stock" means Common
Stock of the Company (as defined in the Securities Purchase Agreement) and any
other capital stock of the Company, however designated, that has the right
(subject to any prior rights of any class or series of preferred stock) to
participate in any distribution of the assets or earnings of the Company without
limit as to per share amount. Any term or provision of this Agreement to the
contrary notwithstanding, with respect to all Contingent Warrants, if any of the
events or circumstances provided for in this Section 10 or in Section 11 shall
occur prior to the Contingent Warrant Issuance Date (as defined below), the
Exercise Rate for such Contingent Warrants shall nonetheless be deemed to have
been made so that, if (but only if) any such Contingent Warrants are actually
issued, the Exercise Rate in respect thereof shall have been adjusted as if such
Contingent Warrants were issued on the Issuance Date.
(a) Adjustment for Change in Capital Stock. If the Company:
(1) pays a dividend or makes a distribution on its Common Stock in
shares of its Common Stock;
(2) subdivides its outstanding shares of Common Stock into a greater
number of shares;
(3) combines its outstanding shares of Common Stock into a smaller
number of shares;
(4) makes a distribution on its Common Stock in shares of its capital
stock other than Common Stock; or
(5) issues by reclassification of its Common Stock any shares of its
capital stock,
then the Exercise Rate in effect immediately prior to such action shall be
proportionately adjusted so that the holder of any Warrant thereafter exercised
may receive the aggregate number
-7-
<PAGE>
and kind of shares of capital stock of the Company which he would have owned
immediately following such action if such Warrant had been exercised immediately
prior to such action.
The adjustment shall become effective immediately after the record date in
the case of a dividend or distribution and immediately after the effective date
in the case of a subdivision, combination or reclassification.
If after an adjustment a holder of a Warrant upon exercise of such Warrant
may receive shares of two or more classes of capital stock of the Company, the
Company shall determine in good faith (subject to Section 10(n)) the allocation
of the adjusted Exercise Rate between the classes of capital stock. After such
allocation, the exercise privilege and the Exercise Rate of each class of
capital stock shall thereafter be subject to adjustment on terms comparable to
those applicable to Common Stock in this Section.
Such adjustment shall be made successively whenever any event listed above
shall occur.
(b) Adjustment for Rights Issue. If the Company issues any rights, options
or warrants entitling any Person to subscribe for Common Stock or securities
convertible into, or exchangeable or exercisable for, Common Stock (all of the
foregoing, "Rights") at an offering price (or with an initial conversion,
exchange or exercise price plus such offering price) that is less than (i) $4.50
per share of Common Stock or (ii) the Current Market Price (as defined below)
per share of Common Stock on the record date for such issuance the Exercise Rate
shall be adjusted in accordance with the formula:
E' = E x O + N
---------
N x P
-----
O + M
where:
E' = the adjusted Exercise Rate.
E = the current Exercise Rate.
O = the number of shares of Common Stock outstanding on the record
date (assuming the conversion, exercise or exchange of all Rights
and convertible securities into shares of Common Stock).
N = the number of additional shares of Common Stock issuable pursuant
to the Rights offered.
-8-
<PAGE>
P = the offering price plus initial conversion, exchange or exercise
price per share of the additional shares of Common Stock issuable
pursuant to the Rights.
M = the greater of (i) $4.50 per share of Common Stock or (ii) the
Current Market Price per share of Common Stock on the record
date.
The adjustment shall be made successively whenever any such Rights are
issued and shall become effective immediately after the record date for the
determination of stockholders entitled to receive the Rights in the case of
Rights to be issued to the holders of Common Stock. To the extent that shares of
Common Stock are not delivered after the expiration of such Rights, the Exercise
Rate shall be readjusted to the Exercise Rate which would otherwise be in effect
had the adjustment made upon the issuance of such rights or warrants been made
on the basis of delivery of only the number of shares of Common Stock actually
delivered. In the event that such rights or warrants are not so issued, the
Exercise Rate shall again be adjusted to be the Exercise Rate which would then
be in effect if such date fixed for determination of stockholders entitled to
receive such rights or warrants had not been so fixed.
This subsection (b) does not apply to Rights issued to the Company's
employees under bona fide, qualified employee benefit plans adopted by the Board
of Directors and approved by the holders of Common Stock (when required by law),
if such Rights would otherwise be covered by this subsection (b) (but only to
the extent that the aggregate number of Rights excluded hereby and issued after
the date of this Agreement, together with all similarly excluded Common Stock
pursuant to Section 10(c), shall not exceed the right to subscribe for more than
5% of the Common Stock then outstanding, assuming the conversion, exercise or
exchange of all Rights and convertible securities then outstanding into shares
of Common Stock).
(c) Adjustment for Common Stock Issue. If the Company issues shares of
----------------------------------
Common Stock for a consideration per share less than (i) $4.50 per share of
Common Stock or (ii) the Current Market Price per share on the date the Company
fixes the offering price of such additional shares, the Exercise Rate shall be
adjusted in accordance with the formula:
E' = E x O + N
---------
N x P
-----
O + M
where:
E' = the adjusted Exercise Rate.
E = the then current Exercise Rate.
-9-
<PAGE>
O = the number of shares of Common Stock outstanding immediately
prior to the issuance of such additional shares (assuming the
conversion, exercise or exchange of all Rights and convertible
securities into shares of Common Stock).
N = the number of additional shares of Common Stock issued.
P = the aggregate consideration received per share for the issuance
of such additional shares of Common Stock.
M = the greater of (i) $4.50 per share of Common Stock or (ii) the
Current Market Price per share of Common Stock on the date of
issuance of such additional shares of Common Stock.
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance.
This subsection (c) does not apply to:
(1) any of the transactions described in clause (a), (b) or (d) of
this Section 10,
(2) the exercise of Warrants,
(3) Common Stock issued upon the exercise of rights or warrants issued
to the holders of Common Stock,
(4) Common Stock issued to stockholders of any Person that is not
affiliated with the Company and that merges into the Company in proportion
to their stock holdings of such Person immediately prior to such merger,
upon such merger, or
(5) Common Stock issued to the Company's employees under bona fide,
qualified employee benefit plans adopted by the Board of Directors and
approved by the holders of Common Stock (when required by law), if such
Common Stock would otherwise be covered by this subsection (c) (but only to
the extent that the aggregate amount of Common Stock excluded hereby and
issued after the date of this Agreement, together with all similarly
excluded Rights pursuant to Section 10(b) shall not exceed more than 5% of
the Common Stock then outstanding, assuming the conversion, exercise or
exchange of all Rights and convertible securities then outstanding into the
shares of Common Stock.).
(d) Adjustment for Convertible Securities Issue. If the Company issues any
--------------------------------------------
securities convertible into or exchangeable for Common Stock for a consideration
per share of Common Stock initially deliverable upon conversion or exchange of
such securities less than (x) $4.50 per
-10-
<PAGE>
share of Common Stock or (y) the Current Market Price per share on the date of
issuance of such securities, the Exercise Rate shall be adjusted in accordance
with the formula:
E' = E x O + N
---------
N x P
-----
O + M
where:
E' = the Adjusted Exercise Rate.
E = the then current Exercise Rate.
O = the number of shares of Common Stock outstanding immediately
prior to the issuance of such securities (assuming the
conversion, exercise or exchange of all Rights and convertible
securities into shares of Common Stock).
N = the maximum number of shares of Common Stock deliverable upon
conversion of or in exchange for such securities at the initial
conversion or exchange rate.
P = the aggregate consideration received for the issuance of each
such security, plus any additional consideration received upon
the exchange or conversion of such security.
M = the greater of (i) $4.50 per share of Common Stock or (ii) the
Current Market Price per share on the date of issuance of such
securities.
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance.
If all of the Common Stock deliverable upon conversion or exchange of such
securities has not been issued when such securities are no longer outstanding,
then the Exercise Rate shall promptly be readjusted to the Exercise Rate which
would then be in effect had the adjustment upon the issuance of such securities
been made on the basis of the actual number of shares of Common Stock issued
upon conversion or exchange of such securities.
This subsection (d) does not apply to:
(1) convertible securities issued to stockholders of any Person that is not
affiliated with the Company and that merges into the Company, or with a
subsidiary of the Company, in proportion to their stock holdings of such Person
immediately prior to such merger, upon such merger,
-11-
<PAGE>
(2) convertible securities that are otherwise provided for by subsections
(a), (b), (c) or (d) of this Section 10.
(e) Adjustment for Other Distributions. If the Company dividends or
-------------------------------------
otherwise distributes to any or all holders of its Common Stock any of its
assets (including but not limited to cash), debt securities, preferred stock or
any rights or warrants to purchase any such securities (collectively,
"Distributed Assets"), such Distributed Assets shall be proportionately
distributed to all holders of Warrants on an "as-if-exercised" basis, such that
each holder of a Warrant shall receive a portion of such Distributed Assets
equal to what such holder would have received immediately following such
dividend or distribution if such Warrant had been exercised for Common Stock
immediately prior to such action.
The distribution shall be made successively whenever any such dividend or
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive any such dividend
or other distribution.
This subsection does not apply to any of the transactions described in
clause (a), (b), (c) or (d) of this Section 10.
(f) Current Market Price. For purposes hereof, "Current Market Price" per
--------------------
share of Common Stock shall mean, as of any date of determination, the average
of the Quoted Prices of the Common Stock for a period of 10 consecutive trading
days commencing on the 15th day before such date of determination and ending the
fifth trading day before such date of determination. The "Quoted Price" of the
Common Stock for any trading day shall be the last reported sales price of the
Common Stock as reported by Nasdaq Stock Market, or if the Common Stock is
listed on a securities exchange or the NASDAQ, the last reported sales price of
the (Common Stock on such exchange, which shall be for consolidated trading if
applicable to such exchange, or if neither so reported or listed, the last
reported bid price for the Common Stock. In the absence of one or more such
quotations, the Board of Directors of the Company shall determine, in good
faith, the Current Market Price, subject in all respects to Section 10(n).
(g) Consideration Received. For purposes of any computation respecting
-----------------------
consideration received pursuant to clauses (d) and (e) of this Section 10, the
following shall apply:
(1) in the case of the issuance of shares of Common Stock for cash,
the consideration shall be the amount of such cash; provided that in no
case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(2) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as determined
in good faith by the Board of Directors pursuant to Section 10(n), based
upon the trading prices of publicly traded securities
-12-
<PAGE>
where appropriate (irrespective of the accounting treatment thereof), and
described in a resolution of the Board of Directors of the Company; and
(3) in the case of the issuance of securities convertible into or
exchangeable for shares, the aggregate consideration received therefor
shall be deemed to be the consideration received by the Company for the
issuance of such securities plus the additional minimum consideration, if
any, to be received by the Company upon the conversion or exchange thereof
(the consideration in each case to be determined in the same manner as
provided in clauses (1) and (2) of this subsection).
(h) When De Minimis Adjustment May Be Deferred. No adjustment in the
----------------------------------------------
Exercise Rate need be made unless the adjustment would require an increase or
decrease of at least 1% in the Exercise Rate. Any adjustments that are not made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section shall be made to the nearest 1/100th of
a share.
(i) When No Adjustment Required. No adjustment need be made for rights to
----------------------------
purchase Common Stock pursuant to a Company plan for reinvestment of dividends
or interest.
No adjustment need be made for a change in the par value or no par value of
the Common Stock.
To the extent the Warrants become convertible into cash, no adjustment need
be made thereafter as to the cash. Interest will not accrue on the cash.
(j) Notice of Adjustment. Whenever the Exercise Rate is adjusted, the
---------------------
Company shall provide the notices required by Section 13 hereof.
(k) Voluntary Increase. The Company from time to time may increase the
-------------------
Exercise Rate by any amount for any period of time if the period is at least 20
days and if the increase is irrevocable during the period.
Whenever the Exercise Rate is increased, the Company shall mail to Warrant
holders a notice of the increase. The Company shall mail the notice at least 15
days before the date the increased Exercise Rate takes effect. The notice shall
state the increased Exercise Rate and the period it will be in effect.
An increase of the Exercise Rate does not change or adjust the Exercise
Rate otherwise in effect for purposes of clause (a), (b), (c) or (d) of this
Section 10.
-13-
<PAGE>
(l) Notice of Certain Transactions. If:
------------------------------
(1) the Company takes any action that would require an adjustment,
dividend or other distribution, as the case may be, pursuant to clause (a),
(b), (c), (d) or (e) of this Section 10;
(2) the Company takes any action that would require a supplemental
Warrant Agreement pursuant to this Section 10(m); or
(3) there is a liquidation or dissolution of the Company,
then the Company shall mail to Warrant holders a notice stating the proposed
record date for a dividend or distribution or the proposed effective date of a
subdivision, combination, reclassification, consolidation, merger, transfer,
lease, liquidation or dissolution. The Company shall mail the notice at least 15
days before such date. Failure to mail the notice or any defect in it shall not
affect the validity of the transaction.
(m) Reorganization of Company. If the Company consolidates or merges with
-------------------------
or into, or transfers or leases all or substantially all its assets to, any
Person, upon consummation of such transaction the Warrants shall automatically
become exercisable for the kind and amount of securities, cash or other assets
which the holder of a Warrant would have owned immediately after the
consolidation, merger, transfer or lease if the holder had exercised the Warrant
immediately before the effective date of the transaction. Concurrently with the
consummation of such transaction, the corporation formed by or surviving any
such consolidation or merger if other than the Company, or the Person to which
such sale or conveyance shall have been made, shall enter into a supplemental
Warrant Agreement so providing and further providing for adjustments which shall
be as nearly equivalent as may be practical to the adjustments provided for in
this Section. The successor company shall mail to Warrant holders a notice
describing the supplemental Warrant Agreement.
If the issuer of securities deliverable upon exercise of Warrants under the
supplemental Warrant Agreement is an affiliate of the formed, surviving,
transferee or lessee corporation, that issuer shall join in the supplemental
Warrant Agreement.
If this subsection (m) applies, clauses (a), (b), (c), (d) and (e) of this
Section 10 do not apply.
(n) Company Determination Not Final. Any determination that the Company or
--------------------------------
its Board of Directors must make pursuant to this Agreement shall be made in
good faith and shall be binding on the holders of Warrants, except as set forth
herein. The Company shall give each holder of Warrants written notice of any
such determination by the Company or its Board of Directors. If the holders of a
majority of the Warrants do not agree with any such determination by the Company
or its Board of Directors, such holders may request, in a notice delivered to
the Company not later than 30 days after the date on which the holders received
notice of such
-14-
<PAGE>
determination from the Company, that such determination be made by an
independent investment banking firm (or, if an investment banking firm is
generally not qualified to render such a determination, an independent appraisal
firm) of recognized national standing chosen by such holders of a majority of
the Warrants, which determination shall be final and binding on the Company and
the holders of Warrants, absent manifest error. All fees and expenses incurred
in connection with any determination made by an independent investment banking
firm or appraisal firm, as the case might be, shall be borne by the Company.
(o) Increase for PIK Warrants. In the event that, pursuant to Section 2.05
-------------------------
of the Securities Purchase Agreement, any holder of Notes (which is also a
holder of Warrants) elects to receive interest on any such Notes in the form of
PIK Warrants, such holder shall deliver written notice of such election to the
Company, and the Company shall deliver to such holder a new Warrant Certificate
substantially in the form of Exhibit A hereto evidencing such PIK Warrants,
together with a notice setting forth the following:
(1) the dollar amount of interest which would have been payable on
such Note if such interest were to be paid in cash,
(2) the Interest Payment Date for such interest, and
(3) the amount of Common Stock receivable by such holder in lieu of
cash, with the calculation of such amount of Common Stock to be made by
such holder in reasonable detail and in accordance with the terms and
provisions of the Securities Purchase Agreement, including Section 2.05
thereto.
(p) In the event that all principal, premiums and accrued and unpaid
interest (if any), and all other fees, costs and expenses due and payable by the
Company in respect of the Notes has not been paid in full in cash prior to the
Contingent Warrant Issuance Date (defined below), the Holders (as defined in the
Securities Purchase Agreement) of such Notes shall be entitled to receive, and
the Company hereby agrees to issue to all such Holders, on a pro rata basis
(based on the relation of the outstanding principal amount of all Notes held by
any such Holder to the outstanding principal amount of all Notes held by all
such Holders), additional Warrants ("Contingent Warrants") to purchase (in the
aggregate) 200,000 shares of Common Stock of the Company. New Warrant
Certificates evidencing such pro rata share of the Contingent Warrants shall be
issued to each Holder of Notes, as each such Holder may appear in the records of
the Company maintained for such purpose, on or within two Business Days
following the Contingent Warrant Issuance Date. "Contingent Warrant Issuance
Date" means the first anniversary of the Issuance Date; provided, that, the
Contingent Warrant Issuance Date shall be April 1, 2000 if (but only if) one or
more of the following conditions have been satisfied: (x) on or before the first
anniversary of the Issuance Date, a Qualified Offering (as defined below) has
occurred, (y) a registration statement, on an appropriate form, has been
submitted to the Commission in furtherance of a Qualified Offering or, if such
Qualified Offering is in the form of a sale without registration under the
Securities Act pursuant to Rule 144A thereunder (any sale pursuant to such Rule,
as it may be amended from time to time or replaced by any similar
-15-
<PAGE>
rule or regulation hereafter adopted by the Commission, a "Rule 144A Sale"), a
customary offering circular meeting the requirements of Rule 144A shall have
been prepared and circulated to potential qualified institutional buyers in
compliance with such Rule, or (z) a definitive purchase and sale agreement
between the Company and a third party shall have been executed and delivered by
the parties thereto, providing for the sale of assets or businesses by the
Company for cash in an amount sufficient to repay in full in cash all principal,
premiums and accrued and unpaid interest (if any), and all other fees, costs and
expenses due and payable by the Company, in respect of the Notes, and, as of
such sale, the Company shall have received all necessary governmental and third
party consents and approvals (including as may be required from the lenders
under the Senior Credit Facilities) necessary to approve such sale and to permit
such repayment (a sale meeting the foregoing requirements, including the receipt
of necessary consents and approvals being herein referred to as a "Qualified
Sale"). "Qualified Offering" means the sale of debt or equity securities of the
Company in an underwritten public offering registered under the Securities Act
or pursuant to a Rule 144A Sale resulting in gross proceeds (before deducting
underwriting commissions and discounts) of at least $15,000,000, the net
proceeds of which shall be used, in appropriate amount, for the purpose of
repaying in full in cash all principal, premiums and accrued and unpaid interest
(if any), and all other fees, costs and expenses due and payable by the Company
in respect of the Notes and as to which all third party consents and approvals
(including as may be required from the lenders under the Senior Credit
Facilities) shall have been received by the Company to permit such repayment.
(q) Form of Warrants. Irrespective of any adjustments in the Exercise Rate
----------------
or in the kind of shares purchasable upon the exercise of the Warrants, Warrants
theretofore or thereafter issued may continue to express the same price and kind
of shares as are stated in the Warrants initially issuable pursuant to this
Agreement.
SECTION 11. No Dilution or Impairment: Capital and Ownership Structure. If
-----------------------------------------------------------
any event shall occur as to which the provisions of Section 10 are not strictly
applicable but the failure to make any adjustment would adversely affect the
rights (including all purchase rights) represented by the Warrants in accordance
with the essential intent and principles of such Section, then, in each such
case, the Company shall appoint, at its own expense, an investment banking firm
of recognized national standing that does not have a direct or material indirect
financial interest in the Company or any of its subsidiaries, who has not been,
and, at the time it is called upon to give independent financial advice to the
Company, is not (and none of its directors, officers, employees, affiliates or
stockholders are) a promoter, director or officer of the Company or any of its
subsidiaries, which shall give their opinion upon the adjustment, if any, on a
basis consistent with the essential intent and principles established in Section
10, necessary to preserve, without dilution, the purchase rights, represented by
this Agreement and the Warrants. Upon receipt of such opinion, the Company will
promptly mail a copy thereof to the holders of the Warrants and shall make the
adjustments described therein.
The Company will not, by amendment of its certificate of incorporation or
through any consolidation, merger, reorganization, transfer of assets,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the
-16-
<PAGE>
terms of the Warrants, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the holders of the
Warrants against dilution or other impairment. Without limiting the generality
of the foregoing, the Company (1) will take all such action as may be necessary
or appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of Common Stock on the exercise of the Warrants
from time to time outstanding and (2) will not take any action which results in
any adjustment of the Exercise Rate if the total number of Warrant Shares
issuable after such action upon the exercise of all of the Warrants would exceed
the total number of shares of Common Stock then authorized by the Company's
certificate of incorporation and available for the purposes of issue upon such
exercise. A consolidation, merger, reorganization or transfer of assets
involving the Company covered by Section 10(m) shall not be prohibited by or
require any adjustment under this Section 11.
SECTION 12. Fractional Interests. The Company shall not be required to
---------------------
issue fractional Warrant Shares on the exercise of Warrants. If more than one
Warrant shall be presented for exercise in full at the same time by the same
holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 12,
be issuable on the exercise of any Warrants (or specified portion thereof), the
number of Warrant Shares which shall be issued by the Company on exercise of
such Warrants shall be rounded (i) to the last previous whole number if the
fraction is less than 0.5 of a Warrant Share or (ii) to the next higher whole
number if the fraction is greater than or equal to 0.5 of a Warrant Share.
SECTION 13. Notices to Warrant Holders. Upon any adjustment of the Exercise
--------------------------
Rate pursuant to Section 10, the Company shall promptly thereafter cause to be
delivered, by first-class mail, postage prepaid, to each of the registered
holders of the Warrant Certificates at such holder's address appearing on the
Warrant Register a certificate of an Officer of the Company setting forth the
Exercise Rate after such adjustment and setting forth in reasonable detail the
method of calculation and the facts upon which such calculations are based and
setting forth the number of Warrant Shares (or portion thereof) issuable after
such adjustment in the Exercise Rate, upon exercise of a Warrant and payment of
the Exercise Price. Where appropriate, such notice shall be given in advance and
included as a part of the notice required to be mailed under the other
provisions of this Section 13.
In case:
(a) the Company shall authorize the issuance to all holders of shares
of Common Stock of rights, options or warrants to subscribe for or purchase
shares of Common Stock or of any other subscription rights or warrants;
(b) the Company shall authorize the distribution to all holders of
shares of Common Stock or evidences of its indebtedness or assets
(including cash dividends or cash distributions payable out of consolidated
earnings or earned surplus or dividends
-17-
<PAGE>
payable in shares of Common Stock or distributions referred to in
subsection (a) of Section 10 hereof);
(c) of any consolidation or merger to which the Company is a party and
for which approval of any stockholders of the Company is required, or of
the conveyance or transfer of the properties and assets of the Company
substantially as an entirety, or of any reclassification or change of
Common Stock issuable upon exercise of the Warrants (other than a change in
par value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), or a tender offer
or exchange offer for shares of Common Stock;
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company proposes to take any action which would require an
adjustment of the Exercise Rate pursuant to Section 10, or a dividend or
other distribution to holders of Warrants pursuant to Section 10(e),
then the Company shall cause to be given to each of the registered holders of
the Warrant Certificates at such holder's address appearing on the Warrant
Register, at least 20 days (or 10 days in any case specified in clause (a) or
(b) above) prior to the applicable record date hereinafter specified, or
promptly in the case of events for which there is no record date, by first-class
mail, postage prepaid, a written notice stating of such event or occurrence (in
reasonable detail), together with detailed information such as (i) the date as
of which any such subdivision, combination or reclassification is to be made, or
(ii) the date as of which the holders of record of shares of Common Stock to be
entitled to receive any such dividends, rights, options, warrants or
distribution are to be determined, or (iii) the initial expiration date set
forth in any tender offer or exchange offer for shares of Common Stock, or (iv)
the date on which any such consolidation, merger, conveyance, transfer
dissolution, liquidation or winding up is expected to become effective or
consummated, and the date as of which it is expected that holders of record of
shares of Common Stock shall be entitled to exchange such shares for securities
or other property, if any, deliverable upon such reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up. The failure to give the notice required by this Section 13 or any delay
therein shall not affect the legality or validity of any distribution, right,
option, warrant, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up, or the vote upon any action.
Nothing contained in this Agreement or in any of the Warrant Certificates
shall be construed as conferring upon the holders thereof the right to vote for,
or to consent to, the election of Directors of the Company or any other matter,
or any rights whatsoever as stockholders of the Company; provided that each
registered holder of Warrants shall be entitled to receive all notices sent
generally to stockholders, such notices to be delivered pursuant to Section 15
hereof at the address of such holder appearing on the Warrant Register.
-18-
<PAGE>
SECTION 14. BHC Act Transfer Restrictions. If a Registered Holder is a
-------------------------------
Regulated Entity (as defined below), such Registered Holder may transfer
Warrants only under the following circumstances: (i) in a widely distributed
public offering; (ii) in an open market transfer pursuant to Rule 144A under the
Securities Act of 1933, as amended, or any similar rule then in force; (iii) in
a transfer constituting two percent or less (or such greater amount determined
in accordance with clause (vii) below) of the outstanding shares of the Common
Stock (assuming that all outstanding Warrants were exercised for Common Stock);
(iv) in a transfer to a Person if such Person already owns or has negotiated to
purchase at least a majority of the outstanding shares of Common Stock (assuming
all outstanding Warrants were exercised for Common Stock); (v) in a transfer to
the Company; (vi) in a transfer to an affiliate of such Registered Holder or to
any other Regulated Entity; or (vii) in any method of transfer determined by the
Regulated Entity to be permissible under the Bank Holding Company Act of 1956,
as amended (the "BHC Act") and any other applicable banking regulations.
--------
"Regulated Entity" means (i) any entity that is a "bank holding company" (as
-----------------
defined in Section 2(a) of the BHC Act) or any non-bank subsidiary of such an
entity and (ii) any entity, that pursuant to Section 8(a) of the International
Banking Act of 1978, as amended, is subject to the provisions of the BHC Act or
any non-bank subsidiary of such an entity.
SECTION 15. Supplements and Amendments. Except as otherwise expressly
----------------------------
provided herein, the provisions of this Agreement, including the provisions of
this sentence, may not be amended, modified or supplemented, and waivers or
consents to departures from the provisions of this Agreement may not be given
unless the Company has obtained the written consent of holders of at least 51.0%
of the outstanding Warrant Certificates (excluding Warrant Certificates held by
the Company or any of its affiliates).
SECTION 16. Notices. Any notice or demand authorized by this Agreement to
-------
be given or made by the registered holder of any Warrant Certificate to or on
the Company shall be delivered or sent by registered, certified or express mail,
postage prepaid, return receipt requested, or given or made by facsimile, in
each case, at the "Address for Notices" specified below the Company's name on
the signature pages hereof, or at such other address as shall be designated by
the Company in a written notice to the Warrant holders. Except as otherwise
provided in this Agreement, all such communications shall be deemed to have been
duly given when transmitted by facsimile and electronic confirmation thereof has
been received or personally delivered or, in the case of a mailed notice, upon
receipt, in each case given or addressed as aforesaid.
Any notice pursuant to this Agreement to be given by the Company to the
registered holder(s) of any Warrant Certificate shall be delivered or sent by
registered, certified or express mail, postage prepaid, return receipt
requested, or given or made by facsimile, in each case, at the address of such
holder appearing on the Warrant Register of the Company, or at such other
address as shall be designated by such holder in a written notice to the
Company. Except as otherwise provided in this Agreement, all such communications
shall be deemed to have been duly given when transmitted by facsimile and
electronic confirmation thereof has been received
-19-
<PAGE>
or personally delivered or in the case of a mailed notice, upon receipt, in each
case given or addressed as aforesaid.
SECTION 17. Successors. All the covenants and provisions of this Agreement
----------
by or for the benefit of the Company shall bind and inure to the benefit of its
respective successors and assigns hereunder.
SECTION 18. Termination. This Agreement shall terminate on the earlier of
-----------
(x) the Business Day following the tenth anniversary of the Issuance Date and
(y) the date when all Warrants have been exercised.
SECTION 19. New York Law, Submission to Jurisdiction, Waiver of Jury Trial.
--------------------------------------------------------------
THIS AGREEMENT AND EACH WARRANT CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HERETO HEREBY
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW
YORK CITY FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS WARRANT AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY
HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY
HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS WARRANT AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 20. Benefits of This Agreement. Except as expressly set forth
---------------------------
herein, nothing in this Agreement shall be construed to give to any Person or
corporation other than the Company and the registered holders of the Warrant
Certificates any legal or equitable right, remedy or claim under this Agreement;
but, except as so set forth, this Agreement shall be for the sole and exclusive
benefit of the Company and the registered holders of the Warrant Certificates.
SECTION 21. Counterparts. This Agreement may be executed in any number of
------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
SECTION 22. Remedies. Each Warrant holder, in addition to being entitled to
--------
exercise all rights provided herein or granted by law, including recovery of
damages, in connection with the breach by the Company of its obligations
hereunder will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this
-20-
<PAGE>
Agreement (including those provisions requiring the issuance of PIK Warrants or
Contingent Warrants or any Warrant Certificates in respect thereof) and agrees,
to the extent permitted under applicable law, to waive the defense in any action
for specific performance that a remedy at law would be adequate.
SECTION 23. Expenses. The Company agrees to pay all reasonable
--------
out-of-pocket costs, expenses and other payments in connection with the issuance
of the Warrants and the Warrant Shares as contemplated by this Agreement,
including, without limitation, reasonable fees and disbursements of counsel for
the Purchaser incurred in connection with the preparation and performance of
this Agreement.
[Signature Page Follows]
-21-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Common Stock
Warrant Agreement to be duly executed, as of the day and year first above
written.
UNIDIGITAL INC.
By: /s/William E. Dye
--------------------------
Name: William E. Dye
Title: Chief Executive Officer
Address for Notices:
Unidigital Inc.
229 West 28th Street
New York, NY 10001
Telecopier No.: (212) 244-7815
Attention: William E. Dye,
Chief Executive Officer
<PAGE>
CIBC WOOD GUNDY CAPITAL CORP.
By: /s/Richard White
--------------------
Name: Richard White
Title: Managing Director
Address for Notices:
CIBC Wood Gundy Capital Corp.
425 Lexington Avenue, 9th Floor
New York, NY 10017
Telecopier No.: 212-697-1544
Attention: Richard White
<PAGE>
EXHIBIT A
[Form of Warrant Certificate]
[Face]
THE SECURITIES EVIDENCED OR CONSTITUTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS THE REGISTRATION PROVISIONS OF SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS HAVE BEEN COMPLIED WITH OR UNLESS THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
No. ____
Warrant Certificate
UNIDIGITAL INC.
This Warrant Certificate certifies that __________________, or its
registered assigns, is the registered holder of Warrants (as defined below) to
purchase 440,000 shares of common stock, $.01 par value per share (the "Common
Stock"), of Unidigital Inc., a Delaware corporation ("the Company"), as such
amount may be increased or otherwise adjusted pursuant to the Warrant Agreement,
dated November 25, 1998 between the Company and the purchaser party thereto (the
"Warrant Agreement"). (The term "Warrant" and all other capitalized terms not
otherwise defined herein shall have the meaning provided in the Warrant
Agreement.) This Warrant Certificate entitles the holder of the Warrants
evidenced hereby, upon exercise thereof, to receive from the Company, fully paid
and nonassessable shares of Common Stock (each, a "Warrant Share") at an
exercise price per share (the "Exercise Price") determined pursuant to the
Warrant Agreement, payable in lawful money of the United States of America (or
as otherwise provided in the Warrant Agreement) upon surrender of this Warrant
Certificate at the office or agency of the Company designated for such purpose,
but only subject to the conditions set forth herein and in the Warrant
Agreement. The number of Warrant Shares issuable upon exercise of the Warrants
are subject to increase or other adjustment upon the occurrence of certain
events set forth in the Warrant Agreement.
No Warrant may be exercised after 5:00 p.m., New York City time, on the
tenth anniversary of the Issuance Date (as defined in the Warrant Agreement).
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
<PAGE>
THIS WARRANT CERTIFICATE SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPALS OF
CONFLICTS OF LAWS.
IN WITNESS WHEREOF, Unidigital Inc. has caused this Warrant Certificate to
be signed by its duly authorized officer.
Dated: _____________
UNIDIGITAL INC.
By:
--------------------------
Name: William E. Dye
Title: Chief Executive Officer
A-2
<PAGE>
[Form of Warrant Certificate]
[Reverse]
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring on the tenth anniversary of Issuance Date
entitling the holder on exercise to receive shares of common stock, $0.01 par
value per share, of the Company (the "Common Stock"). Such Warrant are or will
be issued or to be issued pursuant to a Warrant Agreement, dated as of November
25, 1998 (as amended, supplemented or otherwise modified, the "Warrant
Agreement"), between the Company and the purchaser party thereto, which Warrant
Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants. A copy of the Warrant Agreement may be
obtained by the holder hereof upon written request to the Company.
A Warrant will not be exercisable until its respective Exercise Date (as
defined in the Warrant Agreement). The holder of Warrants evidenced by this
Warrant Certificate may exercise them by surrendering this Warrant Certificate,
with the form of election to purchase set forth hereon properly completed and
executed, together with payment of the Exercise Price in cash (or as otherwise
provided in the Warrant Agreement) at the office of the Company designated for
such purpose. In the event that upon any exercise of Warrants evidenced hereby
the number of Warrants exercised shall be less than the total number of Warrants
evidenced hereby, there shall be issued to the holder hereof or his assignee a
new Warrant Certificate evidencing the number of Warrants not exercised.
The Warrant Agreement provides that upon the occurrence of certain events
the number of Warrant Shares issuable upon the exercise of each Warrant (the
"Exercise Rate") may, subject to certain conditions, be adjusted. If the
Exercise Rate is adjusted, the Warrant Agreement provides that the number of
shares of Common Stock issuable upon the exercise of each Warrant shall be
adjusted. No fractions of a share of Common Stock will be issued upon the
exercise of any Warrant. The Warrant Agreement further provides that the number
of shares of Common Stock into which the Warrants are exercisable may be
increased (in the event any PIK Warrants or Contingent Warrants (each as defined
in the Warrant Agreement) are issued.
The holders of the Warrants are entitled to certain tag-along rights with
respect to the Common Stock purchasable upon exercise thereof. Said tag-along
rights are set forth in full in a Registration and Equity Rights Agreement,
dated as of November 25, 1998, among the Company, CIBC Wood Gundy Capital Corp.,
and certain stockholders of the Company party thereto. A copy of the
Registration and Equity Rights may be obtained by the holder hereof upon written
request to the Company.
Warrant Certificates, when surrendered at the office of the Company by the
registered holder thereof in person or by legal representative or attorney duly
authorized in writing, may be
<PAGE>
exchanged, in the manner and subject to the limitations provided in the Warrant
Agreement, but without payment of any service charge, for another Warrant
Certificate or Warrant Certificates of like tenor evidencing in the aggregate a
like number of Warrants.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Company, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company may deem and treat the registered holder(s) thereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof of any distribution to the holder(s) hereof, and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
Except as expressly provided in the Warrant Agreement, neither the Warrants nor
this Warrant Certificate entitles any holder hereof to any rights of a
stockholder of the Company.
A-4
<PAGE>
[Form of Election to Purchase]
(To Be Executed Upon Exercise Of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive ____________ shares of
Common Stock and herewith tenders payment for such shares to the order of
UNIDIGITAL INC. in the amount of $_____ in accordance with the terms hereof and
the Warrant Agreement, dated November 25, 1998, between Unidigital Inc. and the
purchaser party thereto. The undersigned requests that a certificate for such
shares be registered in the name of ____________________, whose address is
____________________________________ and that such shares be delivered to
________________ whose address is ___________________________________. If said
number of shares is less than all of the shares of Common Stock purchasable
hereunder, the undersigned requests that a new Warrant Certificate representing
the remaining balance of such shares be registered in the name of
____________________, whose address is _________________________________, and
that such Warrant Certificate be delivered to ___________________, whose address
is _____________________________________.
Signature:
-----------------------------
Date:
--------------------
Signature Guaranteed:
-------------------
A-5
<PAGE>
EXHIBIT B
[Form of Mandatory Exercise Notice]
(To Be Executed Upon Mandatory Exercise Of All Warrants
Pursuant to Section 5 of the Warrant Agreement)
To: [Insert Name of Registered Holder]
Re: [Insert Registration No(s). of Warrant Certificate(s) Registered in
Name of Above-Mentioned Registered Holder]
Reference is made to the Warrant Agreement, dated November 25, 1998, ( as
amended or otherwise modified, "Warrant Agreement"), between the undersigned and
the purchaser party thereto. Unless otherwise defined, capitalized terms used
herein have the meanings provided therefor in the Warrant Agreement.
Pursuant to Section 5 of the Warrant Agreement, the undersigned hereby
elects to cause a Mandatory Exercise of all (but not less than all) Warrants
outstanding as of the date hereof and issued pursuant to or in connection with
the Warrant Agreement or the Securities Purchase Agreement. Accordingly, upon
tender of all Warrant Certificates held by you and payment in the amount of
$_____________, you shall be entitled to receive ______ shares of Common Stock,
all in accordance with the terms hereof and the Warrant Agreement. Certificates
for such shares of Common Stock to be issued as a result of the Mandatory
Exercise contemplated hereby shall be issued upon tender of the Warrant
Certificate(s) and Exercise Price, as set forth above, and such certificates for
Common Stock shall be registered in the name of such Person(s) at such
address(es), and shall be delivered by us to such Person(s) at such address(es),
as you shall instruct us in writing.
You are hereby notified that, pursuant to Section 5 of the Warrant
Agreement, you are entitled to elect the form of payment of the Exercise Price
for your Warrants being exercised as a result of the Mandatory Exercise
hereunder; provided that, if no such election is made by you within five
Business Days following the Mandatory Exercise Date, you shall be deemed to have
elected to pay such Exercise Price by tendering Warrants having a fair market
value (as defined in the Warrant Agreement) equal to such Exercise Price. You
shall also have the right to object
<PAGE>
to join any calculation set forth above in respect of the Exercise Price or the
number of shares of Common Stock issuable upon exercise of your Warrants, and no
such calculation shall be binding on you until you and the undersigned shall
have mutually agreed thereto.
UNIDIGITAL INC.
--------------------------------------
By:
Title:
Date:
-------------------------
B-2
REGISTRATION AND EQUITY RIGHTS AGREEMENT
----------------------------------------
This REGISTRATION AND EQUITY RIGHTS AGREEMENT (this ("Agreement") is made
and entered into as of November 25, 1998, among UNIDIGITAL INC., a Delaware
corporation (the "Company"), CIBC WOOD GUNDY CAPITAL CORP. (together with its
successors and assigns, the "Purchaser") and certain stockholders of the Company
identified as "Substantial Holders" on the signature pages hereto (collectively,
the "Substantial Holders").
RECITALS
This Agreement is made pursuant to (i) the Securities Purchase Agreement,
dated as of November 25, 1998 (as amended, supplemented or otherwise modified,
the "Securities Purchase Agreement"), by and among the Company, the Purchaser
and certain guarantors parties thereto, and (ii) the Warrant Agreement, dated as
of November 25, 1998 (as amended, supplemented or otherwise modified, the
"Warrant Agreement"), between the Company and the Purchaser. In order to induce
the Purchaser to enter into the Securities Purchase Agreement and purchase the
Notes thereunder, the Company has agreed to provide the registration and other
rights set forth in this Agreement. The execution of this Agreement is a
condition precedent to the purchase of the Notes under the Securities Purchase
Agreement.
AGREEMENT
The parties agree as follows:
1. Definitions. To the extent capitalized terms are not otherwise defined
-----------
herein, such terms shall have the meanings provided in the Securities Purchase
Agreement. As used in this Agreement, the following capitalized terms shall have
the following meanings:
"Demand Registration" has the meaning provided in Section 3(c).
"Indemnified Parties" has the meaning provided in Section 6(a) hereof.
"NASD" means the National Association of Securities Dealers, Inc.
"Piggyback Registration" has the meaning provided in Section 3(a) hereof.
"Proposed Purchaser" has the meaning provided in Section 6 hereof.
"Prospectus" means the prospectus included in any Registration Statement,
as such prospectus may be amended or supplemented by any supplement thereto, for
any Underwritten Offering of any securities covered by such Registration
Statement and by all other amendments
<PAGE>
and supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such prospectus.
"Registered Holder" means any holder of Registrable Securities (other than
the Company or any of its affiliates) designated as the registered holder
thereof on the books of the Company maintained for such purpose. For purposes of
this Agreement, the Company may treat such Registered Owner as the absolute
owner of such Registrable Securities for all purposes and may treat such holder
as the Person entitled exercise all rights with respect to such Registrable
Securities, including rights created hereby.
"Registrable Securities" means the Registrable Warrant Shares; provided
that a security ceases to be a Registrable Security when it is no longer a
Transfer Restricted Security.
"Registrable Warrant Shares" means the Warrant Shares issuable to the
holders of Warrants upon exercise of such Warrants.
"Registration Expenses" has the meaning provided in Section 5 hereof.
"Registration Statement" means any registration statement of the Company
which covers any of the Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus, all amendments (including
post-effective amendments) and supplements to such Registration Statement, all
exhibits and all material incorporated by reference in such Registration
Statement.
"Tag-Along Purchase Offer" has the meaning provided in Section 6 hereof.
"Tag-Along Sale" has the meaning provided in Section 6 hereof.
"Tag-Along Securities" has the meaning provided in Section 6 hereof.
"Tag-Along Seller" has the meaning provided in Section 6 hereof.
"Transfer Restricted Securities" means the Registrable Securities upon
original issuance thereof; provided that a Registrable Security shall no longer
--------
be a Transfer Restricted Security when such Registrable Security is sold to the
public pursuant to an effective Registration Statement or pursuant to Rule 144
under the Securities Act.
"Underwritten Offering" means a registration of an offering of securities
with the Commission pursuant to which such securities of the Company are sold to
an underwriter for reoffering to the public pursuant to the Securities Act.
-2-
<PAGE>
2. Securities Subject to this Agreement.
------------------------------------
(a) Registrable Securities. The securities entitled to the benefits of this
----------------------
Agreement are the Registrable Securities.
(b) Registered Holders of Registrable Securities. A Person shall be deemed
--------------------------------------------
to be a Registered Holder whenever such Person owns Registrable Securities of
record (as registered on the books of the Company maintained for such purpose)
or has provided evidence reasonably satisfactory to the Company that such Person
has the right to acquire such Registrable Securities, whether or not such
acquisition has actually been effected and disregarding any legal restrictions
upon the exercise of such right.
3. Registration Rights.
-------------------
(a) Right to Piggyback Registration. Subject to the last sentence of this
--------------------------------
clause (a), whenever the Company proposes to consummate any Underwritten
Offering pursuant to which any securities of the Company are to be sold, whether
in connection with a sale of such securities by the Company, by any other Person
or both, and the registration form to be used may be used for the registration
of the Registrable Securities (a "Piggyback Registration"), the Company shall
(i) give written notice to each Registered Holder at least 30 days prior to the
anticipated effective date for such Underwritten Offering, of the Company's
intention to effect such offering, which notice will specify the proposed
offering price range, the kind and number of securities proposed to be
registered, the distribution arrangements and such other information that at the
time would be appropriate to include in such notice, and (ii) subject to clause
(b) below, include in such Piggyback Registration all Registrable Securities
with respect to which the Company has received written requests from such
Registered Holders for inclusion therein within 20 days after delivery of the
Company's notice. Except as may otherwise be provided in this Agreement,
Registrable Securities with respect to which such request for inclusion in such
Piggyback Registration has been received will be included by the Company in such
Underwritten Offering and offered to the public in a Piggyback Registration
pursuant to this Section 3 on the terms and conditions at least as favorable as
those applicable to the other securities to be sold by the Company or by any
other Person as part of such Underwritten Offering.
(b) Priority on Piggyback Registration. The Company shall use its best
------------------------------------
efforts to cause the managing underwriter or underwriters of a proposed
Underwritten Offering described in clause (a) above to permit the Registrable
Securities requested to be included in such Underwritten Offering on the same
terms and conditions as the securities being sold by the Company or any other
Person included therein. Notwithstanding the foregoing, if the managing
underwriter of such offering delivers a written opinion to the Company that
either because of (x) the kind or combination of securities which the Registered
Holders, the Company and any other Persons or entities intend to include in such
offering or (y) the size of the offering which such Registered Holders, the
Company and such other Persons intend to make, are such that the success of the
offering would be materially and adversely affected by inclusion of the
Registrable Securities requested to be included, then (i) in the event that the
size of the offering
-3-
<PAGE>
is the basis of such managing underwriter's opinion, the amount of securities to
be offered for the accounts of such Registered Holders shall be reduced pro rata
(according to the securities proposed to be included in such offering by all
Persons other than the Company) to the extent necessary to reduce the total
amount of securities to be included in such offering to the amount recommended
by such managing underwriter; provided that if securities are being offered for
the account of other Persons as well as the Company, then with respect to the
Registrable Securities intended to be offered by such Registered Holders, the
proportion by which the amount of Registrable Securities intended to be offered
by such Registered Holders is reduced shall not exceed the proportion by which
the amount of such class of securities intended to be offered by such other
Persons is reduced; and (ii) in the event that the kind (or combination) of
securities to be offered is the basis of such managing underwriter's opinion,
(1) the Registrable Securities to be included in such offering shall be reduced
as described in clause (i) above (subject to the proviso thereof) or, (2) if the
actions described in clause (1) would, in the judgment of the managing
underwriter, be insufficient to substantially eliminate the adverse effect that
inclusion of the Registrable Securities requested to be included would have on
such offering, such Registrable Securities will be excluded from such offering
altogether.
(c) Right to Demand Registration. If at any time after six months after the
----------------------------
date hereof the Purchaser or Registered Holders owning at least 25% of
Registrable Securities then outstanding notify the Company in writing that they
intend to offer or cause to be offered for public sale all or any portion of
their Registrable Securities pursuant to an Underwritten Offering (a "Demand
Registration"), the Company will notify all Persons (including all Registered
Holders) who would be entitled to notice of a proposed registration under
Section 3(a) above of its receipt of such notification from the Purchaser or
such Registered Holders, as the case may be. Upon the written request of any
such Person delivered to the Company within 21 days after delivery by the
Company of such notification, the Company will either (i) elect to make a
primary Underwritten Offering in which case the rights of such Persons
(including all Registered Holders) shall be as set forth in Section 3(a) above
or (ii) elect to make a secondary Underwritten Offering pursuant to which all
Registrable Securities as may be requested by any Registered Holders to be
registered or included in such offering shall be included in such offering in
accordance with the terms of this clause (c); provided that the rights of the
Registered Holders to have all of their shares of Registrable Securities
included in any such offering pursuant to this clause (c) shall be subject to
(but only to) the limitation on offering size described in clause (y) of Section
3(b) above (an "Offering Size Cutback"). Any term or provision hereof to the
contrary notwithstanding, (i) the Company shall in no event be obligated to
effect more than two Demand Registrations; provided that, each time a Demand
Registration is subject to an Offering Size Cutback resulting in the reduction
by 25% or more of the total amount of Registrable Securities initially requested
for inclusion in such Demand Registration by Registered Holders, an additional
Demand Registration shall be available to the Registered Holders, (ii) prior to
any Offering Size Cutback becoming effective as to any Registrable Securities in
respect of any Demand Registration, the Company shall withdraw any securities it
had intended to sell as part of such registration and (iii) the Company shall
not be required to effect more than one registration in any twelve-month period.
The Company shall use its best
-4-
<PAGE>
efforts to ensure the Company's eligibility for registration on Form S-3,
including the filing of any reports with the Commission.
(d) Selection of Underwriters. With respect to each Demand Registration or
-------------------------
Piggyback Registration, the Company will use its best efforts to select a
managing underwriter or underwriters of nationally recognized standing to
administer the offering; provided that the Company shall not be required to use
an underwriter if such Demand Registration or Piggyback Registration, as the
case may be, could be effected on Form S-3.
(e) Furnish Information. It shall be a condition precedent to the
--------------------
obligations of the Company to take any action pursuant to this Agreement with
respect to the Registrable Securities of any Registered Holder that such
Registered Holder shall furnish to the Company such information regarding
itself, the Registrable Securities held by it, and the intended method of
disposition of such securities as shall be reasonably required to effect the
registration of such Registered Holder's Registrable Securities.
(f) Underwriting Requirements. In connection with any offering involving an
-------------------------
underwriting of shares being issued by the Company, the Company shall not be
required to include any Registered Holder's securities in such underwriting
unless such Registered Holder accepts the terms of the underwriting as agreed
upon between the Company and the underwriters selected by the Company; provided,
--------
however, that (i) such terms of the underwriting shall be reasonable and
- -------
customary for underwritings of similar type and size and (ii) no Registered
Holder participating in such underwriting shall be required to make any
representations or warranties or provide indemnification except as may
reasonably relate to such Registered Holder's ownership of shares and authority
to enter into the underwriting agreement and to such underwriter's intended
method of distribution.
4. Hold-Back Agreements. Each Registered Holder whose Registrable
----------------------
Securities are covered by a Registration Statement filed pursuant to Section 3
hereof agrees, if requested by the managing underwriters in an Underwritten
Offering, not to effect any public sale or distribution of securities of the
Company of the same class as the securities included in such Registration
Statement, including a sale pursuant to Rule 144 under the Securities Act
(except as part of such Underwritten Registration), during the 30-day period
prior to, and during the 180-day period beginning on, the closing date of each
Underwritten Offering made pursuant to such Registration Statement, to the
extent timely notified in writing by the Company or the managing underwriters;
provided, however, that each such Registered Holder shall be subject to the
- -------- -------
hold-back restrictions of this Section 4 only once during any 365-day period.
The foregoing provisions shall not apply to any such Registered Holder if
such Registered Holder is prevented by applicable statute or regulation from
entering any such agreement; provided, however, that any such Registered Holder
-------- -------
shall undertake, in its request to participate in any such Underwritten
Offering, not to effect any public sale or distribution of any Registrable
Securities held by such Registered Holder and covered by a Registration
Statement
-5-
<PAGE>
commencing on the date of sale of the Registrable Securities unless it has
provided 45 days prior written notice of such sale or distribution to the
underwriter or underwriters.
5. Registration Expenses. All reasonable expenses incident to the Company's
---------------------
performance of or compliance with this Agreement, including without limitation
all (i) registration and filing fees, fees and expenses associated with filings
required to be made with the NASD (including, if applicable, the fees and
expenses of any "qualified independent underwriter" and its counsel as may be
required by the rules and regulations of the NASD), (ii) fees and expenses of
compliance with securities or blue sky laws (including fees and disbursements of
counsel for the underwriters in connection with blue sky qualifications of the
Registrable Securities and determination of their eligibility for investment
under the laws of such jurisdictions as the managing underwriters may request or
determine), (iii) printing expenses (including expenses of printing certificates
for the Registrable Securities in a form eligible for deposit with The
Depository Trust Company and of printing prospectuses), (iv) fees and
disbursements of counsel for the Company and for the sellers of the Registrable
Securities, and customary out of pocket expenses and fees paid by issuers to the
extent provided for in an underwriting agreement (excluding discounts,
commissions or fees of underwriters, selling brokers, dealer managers or similar
securities industry professionals relating to the distribution of the
Registrable Securities, transfer taxes or legal expenses of any Person other
than the Company and the selling holders), (v) the cost of Securities Act
liability insurance if the Company so desires and (vi) fees and expenses of
other Persons retained by the Company (all such expenses being herein called
"Registration Expenses") will be borne by the Company, regardless whether the
Registration Statement becomes effective. Each Registered Holder will pay any
fees or disbursements of counsel to such holder and all underwriting discounts
and commissions and transfer taxes, if any, and provide other fees, costs and
expenses of such holder (other than Registration Expenses) relating to the sale
or disposition of such Registered Holder's Registrable Securities. The Company,
in any event, will pay the Company's own internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expense of any annual audit, the fees and
expenses incurred in connection with the listing of the securities to be
registered on each securities exchange on which similar securities issued by the
Company are then listed, rating agency fees and the fees and expenses of any
Person, including special experts, retained by the Company.
6. Tag-Along Rights. If at any time after the Issuance Date, any of the
-----------------
Substantial Holders (each, a "Tag-Along Seller") desires to sell, transfer or
otherwise dispose of any Common Stock (or other securities convertible,
exchangeable or exercisable into Common Stock) beneficially owned by such
Person, other than in respect of a Permitted Transfer (defined below) to any
transferee (the "Proposed Purchaser"), in a single transaction or a series of
related transactions (such transaction or series of related transactions being a
"Tag-Along Sale"), such Tag-Along Seller shall, prior to consummating any such
Tag-Along Sale, require the Proposed Purchaser to provide not less than 30 days
prior written notice of such proposed Tag-Along Sale and to offer in such notice
(the "Tag-Along Purchase Offer") to purchase from each Registered Holder a "pro
---
rata portion" of the amount of Registrable Securities which such Registered
- ----
Holder desires to include in such proposed Tag-Along Sale (all such Registrable
Securities
-6-
<PAGE>
subject to a proposed Tag-Along Purchase Offer are herein collectively referred
to as "Tag-Along Securities"). Within 20 days of receiving such Tag-Along
Purchase Offer, each Registered Holder electing to participate in such proposed
Tag-Along Sale shall provide written notice of such election to the Proposed
Purchaser and the Tag-Along Seller, together with the number and type of
Tag-Along Securities such Registered Holder desires to include in such proposed
Tag-Along Sale (which number of securities may be in excess of the amount of
securities initially proposed to be sold or otherwise disposed of in such
proposed Tag-Along Sale). To the extent one or more Registered Holders elect to
participate in a proposed Tag-Along Sale pursuant to this Section, the number of
shares of Common Stock, as the case may be, that the Tag-Along Seller may sell
in such transaction shall be proportionately reduced.
For purposes of this Section, "pro rata portion" (or words of similar
imports) shall mean a fraction the numerator of which is the total number of
shares of Common Stock initially proposed to be sold in such Tag-Along Sale by
the Tag-Along Seller (without regard to any reduction resulting from the
operation of this Section) and the denominator of which is the sum of (x) the
total number of shares of Registrable Securities (determined on a fully-diluted,
as-if-converted basis) owned by each Registered Holder and (y) the total number
of shares of Common Stock (determined on a fully-diluted, as-if- converted
basis) owned by each Substantial Holder immediately prior to such Tag-Along
Sale. Also for purposes of this Section, "Permitted Transfer" shall mean any
transfer or sale by a Tag-Along Seller of any securities subject to this Section
6 (i) upon the death or disability of such Tag-Along Seller, or (ii) to a
testamentary trust (or similar entity) for the sole benefit of such seller's
spouse, parents, siblings or children; provided that the voting rights for such
securities shall remain with such seller until his death or disability.
No holder of Tag-Along Securities exercising its rights hereunder shall be
required to make any representations or warranties except as to (x) its title to
the securities to be sold by it, (y) such holder's power and authority to effect
such transfer and (z) such matters pertaining to compliance with securities laws
as the Proposed Purchaser may reasonably require; provided, however, that, in
-------- -------
the event the Proposed Purchaser require.
Any term or provision of this Section to the contrary notwithstanding:
(a) The provisions of this Section shall not apply to (i) any sale
pursuant to a bona fide Underwritten Offering sold pursuant to an effective
registration statement under the Securities Act or (ii) any sale of shares
of Common Stock effected pursuant to and in accordance with an open-market
sale under Rule 144 of the Securities Act.
(b) Any sale or transfer of Registrable Securities by a Registered
Holder pursuant to this Section shall be on the same terms and conditions
as the proposed Tag-Along Sale by the Tag-Along Seller.
(c) The provisions of this Section shall be null and void and of no
further force or effect after any period of 20 consecutive trading days
during which (i) the aggregate
-7-
<PAGE>
market value of all shares of the Company's Common Stock (exclusive of
Common Stock held by executive officers and directors of the Company and
Persons having direct or indirect beneficial ownership of 10% or more of
the Common Stock) which is publicly traded on such national securities
exchange or the NASDAQ equals or exceeds $35,000,000 and (ii) the average
number of shares of the Company's Common Stock listed for trading on such
national securities exchange or the NASDAQ, as the case may be, during such
period equals or exceeds 3,000,000 shares per day.
7. Indemnification.
---------------
(a) Indemnification by the Company. The Company agrees to indemnify and
-------------------------------
hold harmless, to the full extent permitted by law, each Registered Holder its
officers, directors and employees and each Person who controls such Registered
Holder (within the meaning of the Securities Act) (the "Indemnified Parties")
against all losses, claims, damages, liabilities and expenses incurred by such
party in connection with any actual or threatened action arising out of or based
upon any untrue or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or preliminary Prospectus or 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, except insofar as
the same arise out of or are based upon any such untrue statement or omission
made in reliance on and in conformity with any information furnished in writing
to the Company by such Registered Holder or its counsel expressly for use
therein. The Company shall also indemnify underwriters, their officers and
directors and each Person who controls such Persons (within the meaning of the
Securities Act) to the same extent as provided above with respect to the
indemnification of such Registered Holder, if requested.
(b) Indemnification by Selling Registered Holders. Each seller of
--------------------------------------------------
Registrable Securities under an Underwritten Offering, severally and not
jointly, agrees to indemnify and hold harmless, to the full extent permitted by
law, the Company, its officers that sign any applicable Registration Statement
and its directors and each other Person who controls the Company (within the
meaning of the Securities Act) against all losses, claims, damages, liabilities
and expenses incurred by such party in connection with any actual or threatened
action arising out of or based upon any untrue or alleged untrue statement of a
material fact contained in such Registration Statement or any Prospectus or
preliminary Prospectus distributed in connection therewith or 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 seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage, liability or expense arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with information
pertaining to such seller, as such, furnished in writing to the Company by such
seller specifically for use in such Registration Statement, Prospectus or
preliminary Prospectus; provided, further, however, that the liability of each
-------- ------- -------
seller hereunder shall be limited to the proportion of any such loss, claim,
damage, liability or expense which is equal to the proportion that the public
offering price of Registrable Securities sold by such seller under such
Registration Statement bears to the total public offering price of all
securities sold
-8-
<PAGE>
thereunder, but not to exceed the proceeds received by such seller from the sale
of Registrable Securities covered by such Registration Statement. Such sellers
shall also, severally and not jointly, indemnify underwriters, their officers
and directors and each Person who controls such Persons (within the meaning of
the Securities Act) to the same extent as provided above with respect to the
indemnification of the Company, if requested.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
------------------------------------------
indemnification hereunder will (i) give prompt notice to the indemnifying Person
of any claim with respect to which it seeks indemnification and (ii) permit the
indemnifying Person to assume the defense of such claim with counsel reasonably
satisfactory to such indemnified Person; provided, however, that any Person
-------- -------
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in the defense of such claim, but the fees and
expenses of such counsel shall be at the expense of such indemnified Person
unless (a) the indemnifying Person has agreed to pay such fees or expenses, or
(b) the indemnifying Person has failed to assume the defense of such claim or
(c) in the reasonable judgment of any such indemnified Person, based upon advice
of its counsel, a conflict of interest may exist between such indemnified Person
and the indemnifying Person with respect to such claims (in which case, if such
indemnified Person notifies indemnifying Person in writing that such Person
elects to employ separate counsel at the expense of indemnifying Person, the
indemnifying Person shall not have the right to assume the defense of such claim
on behalf of such indemnified Person). If such defense is not assumed by the
indemnifying Person, the indemnifying Person will not be subject to any
liability for any settlement made without its consent (but such consent will not
be unreasonably withheld). The indemnifying Person will not be required to
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified Person a release from all liability in respect to such claim
or litigation. If the indemnifying Person is not entitled to, or elects not to,
assume the defense of a claim, the indemnifying Person will not be obligated to
pay the fees and expenses of more than one counsel for all indemnified Persons
by the indemnifying Person with respect to such claim, unless in the reasonable
judgment of any such indemnified Person a conflict of interest may exist between
such indemnified Person and any other indemnified Person with respect to such
claim, in which event the indemnifying Person shall be obligated to pay the fees
and expenses of such additional counsel or counsels, but only of one such
additional counsel for each group of similarly situated indemnified Persons in
any one jurisdiction.
(d) Contribution. If for any reason the indemnification provided for in
------------
clause (a) or (b) is unavailable to a Person entitled to indemnification or is
insufficient to hold it harmless as contemplated by such clause (a) or (b), as
the case may be, then the indemnifying Person shall contribute to the amount
paid or payable by such indemnified Person as a result of such loss, claim,
damage, liability or expense in such proportion as is appropriate to reflect not
only the relative benefits received by such indemnified Person and the
indemnifying Person, but also the relative fault of such indemnified Person and
the indemnifying Person, as well as any other relevant equitable considerations;
provided that no Registered Holder shall be required to contribute an amount
- --------
greater than the dollar amount of the proceeds received by such Registered
Holder with respect to the sale of any Registrable Securities. No Person guilty
of fraudulent
-9-
<PAGE>
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
8. Rule 144. The Company covenants that it will file the reports required
--------
to be filed by them under the Securities Act and the Exchange Act and the rules
and regulations adopted by the Commission thereunder, and it will take such
further action as any Registered Holder may reasonably request, all to the
extent required from time to time to enable such Registered Holder to sell
Registrable Securities without registration under the Securities Act within the
limitation of the exemptions provided by (x) Rule 144 under the Securities Act,
as such Rule may be amended from time to time, or (y) any similar rule or
regulation hereafter adopted by the Commission. Upon the request of any
Registered Holder, the Company will deliver to such Registered Holder a written
statement as to whether it has complied with such information and filing
requirements.
9. Miscellaneous.
-------------
(a) Remedies. Each Registered Holder, in addition to being entitled to
--------
exercise all rights provided herein or granted by law, including recovery of
damages, in connection with the breach by the Company of its obligations to
register the Registrable Securities will be entitled to specific performance of
its rights under this Agreement. The Company agrees that monetary damages would
not be adequate compensation for any loss incurred by reason of a breach by it
of the provisions of this Agreement and agrees, to the extent permitted under
applicable law, to waive the defense in any action for specific performance that
a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not on or after the date
---------------------------
of this Agreement enter into any agreement with respect to its securities which
is inconsistent with the rights granted to the Registered Holders pursuant to
this Agreement or otherwise conflicts with the provisions hereof. The rights
granted to the Registered Holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Company's
securities under any other agreements. The Company has not previously entered
into any inconsistent agreement with respect to its securities granting any
registration rights to any Person.
(c) Amendments and Waivers. The provisions of this Agreement, including the
----------------------
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions of this Agreement may not
be given unless the Company has obtained the written consent of holders of at
least 51.0% of the outstanding Registrable Securities (excluding Registrable
Securities held by the Company or any of its affiliates).
(d) Notices. All notices and other communications provided for or permitted
-------
hereunder shall be made in writing by hand-delivery, registered first-class
mail, facsimile or air courier guaranteeing overnight delivery:
-10-
<PAGE>
(i) if to a Registered Holder, at the most current address given by
such holder to the Company and recorded by the Company in its books
maintained for such purpose (including the Warrant Register, as defined in
the Warrant Agreement) which address initially is, with respect to the
Purchaser, the address set forth next to the Purchaser's name on the
signature pages of the Securities Purchase Agreement; and
(ii) if to the Company, initially at the address set forth next to the
Company's name on the signature pages of the Securities Purchase Agreement,
and thereafter at such other address, notice of which is given in
accordance with the provisions of Section 11.01 of the Securities Purchase
Agreement.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid if mailed; when
electronic confirmation thereof is received, if delivered by facsimile; and on
the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
(e) Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon the successors and assigns of each of the parties hereto,
including without limitation, and without the need for an express assignment,
subsequent Registered Holders.
(f) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(h) New York Law, Submission to Jurisdiction, Waiver of Jury Trial. THIS
----------------------------------------------------------------
AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK. EACH PARTY HERETO HEREBY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR PURPOSES
OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT
AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM. EACH PARTY HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
-11-
<PAGE>
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(i) Severability. In the event that any one or more of the provisions
------------
contained herein. or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of any such provision in such jurisdiction in every other
respect and of the remaining provisions contained herein shall not be affected
or impaired thereby.
(j) Entire Agreement. This Agreement is intended by the parties as a final
----------------
expression of their agreement with respect to the subject matter contained
herein and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein with respect to
the registration rights granted by the Company with respect to the securities
sold pursuant to the Securities Purchase Agreement. This Agreement supersedes
all prior agreements and understandings between the parties with respect to such
subject matter.
[Signature Page Follows]
-12-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Equity Registration
Rights Agreement as of the date first written above.
COMPANY:
--------
UNIDIGITAL INC.
By:/s/ William E. Dye
-----------------------------------------
Name:
Title:
PURCHASER:
----------
CIBC WOOD GUNDY CAPITAL CORP.
By:/s/ Richard White
-----------------------------------------
Name: Richard White
Title: Managing Director
SUBSTANTIAL HOLDERS:
--------------------
/s/ William E. Dye
--------------------------------------------
William E. Dye
-13-
AGREEMENT FOR PURCHASE AND SALE OF STOCK
of
SUPERGRAPHICS HOLDING COMPANY, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I
PURCHASE AND SALE; PRICE...........................1
1.1 Purchase and Sale of the Shares...................................1
1.2 Purchase Price....................................................1
1.3 Deferred Purchase Price Payment...................................2
(a) Amount of Deferred Purchase Price Payment...............2
(b) Settlement of Deferred Purchase Price Payment............3
1.4 Financial Requirement Regarding Net Working Capital...............5
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND HOFFMAN.........6
2.1 Corporate Organization, etc.......................................6
2.2 Capital Stock; Options............................................6
2.3 Subsidiaries and Affiliates.......................................7
2.4 Authorization, etc................................................7
2.5 No Violation......................................................7
2.6 Governmental Authorities..........................................7
2.7 Financial Statements..............................................7
2.8 No Undisclosed Liabilities, Claims, etc...........................8
2.9 Absence of Certain Changes........................................8
2.10 Contracts........................................................9
2.11 True and Complete Copies.........................................9
2.12 Title and Related Matters........................................9
(a) Real Property............................................9
(b) Personal Property.......................................10
(c) No Disposition of Assets................................10
2.13 Litigation......................................................10
2.14 Tax Matters.....................................................11
2.15 Government Contracts............................................13
2.16 Compliance with Law.............................................13
2.17 Absence of Certain Business Practices...........................14
2.18 ERISA and Related Employee Benefit Matters......................14
(a) Welfare Benefit Plans...................................14
(b) Pension Benefit Plans...................................14
(c) Compliance with Applicable Law..........................15
(d) Administration of Plans.................................15
(e) Title IV Plans..........................................15
(f) Other Employee Benefit Plans and Agreements.............16
(g) Copies of Plans.........................................16
(h) Continuation Coverage Requirements for Health Plans.....16
(i) Valid Obligations.......................................17
i
<PAGE>
Page
----
2.19 Intellectual Property...........................................17
2.20 Warranties......................................................17
2.21 Labor Relations.................................................17
2.22 Insurance.......................................................18
2.23 Liability for Services..........................................18
2.24 Environmental...................................................18
2.25 Capital Expenditures............................................20
2.26 Suppliers.......................................................20
2.27 Dealings with Affiliates........................................20
2.28 Bank Accounts...................................................21
2.29 Compensation....................................................21
2.30 Credit Facility.................................................21
2.31 Accounts Receivable.............................................21
2.32 Customers.......................................................21
2.33 Powers of Attorney..............................................21
2.34 Complete Disclosure.............................................21
2.35 Year 2000 Compliance............................................22
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER..................22
3.1 Corporate Organization, etc......................................22
3.2 Authorization, etc...............................................22
3.3 No Violation.....................................................22
3.4 Governmental Authorities.........................................22
3.5 Capitalization...................................................22
3.6 SEC Reports and Financial Statements.............................23
ARTICLE IV
COVENANTS OF THE SELLERS..........................23
4.1 Regular Course of Business.......................................23
4.2 Amendments.......................................................24
4.3 Capital Changes..................................................24
4.4 Capital and Other Expenditures...................................24
4.5 Borrowing........................................................24
4.6 Other Commitments................................................24
4.7 Interim Financial Information....................................24
4.8 Full Access and Disclosure.......................................25
4.9 Consents.........................................................25
4.10 Breach of Agreement.............................................25
4.11 Further Assurances..............................................25
4.12 Fulfillment of Conditions.......................................25
ii
<PAGE>
Page
----
ARTICLE V
CONVENANTS OF BUYER............................25
5.1 Post-Closing Course of Business..................................25
5.2 Books and Records................................................26
5.3 Further Assurances...............................................26
5.4 Fulfillment of Conditions........................................26
ARTICLE VI
OTHER AGREEMENTS..............................26
6.1 Agreement to Defend..............................................26
6.2 Consultants, Brokers and Finders.................................26
6.3 Noncompetition Agreement.........................................26
6.4 Taxes............................................................26
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF BUYER...................28
7.1 Representations and Warranties; Performance......................28
7.2 Consents and Approvals...........................................28
7.3 Opinion of the Sellers' Counsel..................................28
7.4 No Proceeding or Litigation......................................28
7.5 Credit Facility..................................................28
7.6 Other Agreements.................................................28
7.7 Escrow Agreement.................................................29
7.9 Prior Owner Earn-Out.............................................29
7.10 Credit Facility Balance.........................................29
7.11 Options.........................................................29
7.12 Financial Statements............................................29
7.13 Financing.......................................................29
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF THE SELLERS................29
8.1 Representations and Warranties; Performance......................29
8.2 No Proceeding or Litigation......................................29
8.3 Opinion of Counsel...............................................30
8.4 Payment..........................................................30
8.5 Other Documents..................................................30
8.6 Other Agreements.................................................30
8.7 Employment Agreement.............................................30
iii
<PAGE>
Page
----
ARTICLE IX
CLOSING..................................30
9.1 Closing..........................................................30
9.2 Deliveries at Closing............................................30
9.3 Specific Performance.............................................31
ARTICLE X
TERMINATION AND ABANDONMENT........................31
10.1 Methods of Termination..........................................31
10.2 Procedure Upon Termination......................................31
ARTICLE XI
INDEMNIFICATION...............................31
11.1 Indemnification by the Sellers..................................31
11.2 Tender of Defense for Damages...................................32
ARTILCE XII
MISCELLANEOUS PROVISIONS..........................33
12.1 Amendment and Modification......................................33
12.2 Waiver of Compliance; Consents..................................33
12.3 Expenses........................................................33
12.4 Investigations; Survival of Warranties..........................33
12.5 Notices.........................................................33
12.6 Assignment......................................................34
12.7 Governing Law; Dispute Resolution...............................34
12.8 Counterparts....................................................35
12.9 Neutral Interpretation..........................................35
12.10 Headings.......................................................35
12.11 Entire Agreement...............................................35
12.12 Waiver; Alteration.............................................36
(a) Waiver..................................................36
(b) Alteration..............................................36
iv
<PAGE>
SCHEDULE OF EXHIBITS TO
AGREEMENT FOR PURCHASE AND SALE OF STOCK
----------------------------------------
Exhibits Title
-------- -----
Exhibit 1.2(a) Stockholders
Exhibit 1.2(b) Warrant Agreement
Exhibit 1.3(c) EBITDA Calculation
Exhibit 1.4 Calculation of Net Working Capital
Exhibit 2.1.1 Foreign Qualifications
Exhibit 2.2 Schedule of Authorized, Issued and Outstanding
Capital Stock
Exhibit 2.3 Schedule of Subsidiaries
Exhibit 2.5 Restrictions on Ability to Perform
Exhibit 2.8 Undisclosed Liabilities
Exhibit 2.9 Certain Changes
Exhibit 2.10 Schedule of Contracts
Exhibit 2.12 Title and Related Matters
Exhibit 2.13 Litigation
Exhibit 2.14.1 Tax Matters
Exhibit 2.18.1 Welfare Benefit Plans; Retiree Health Benefits
Exhibit 2.18.2 Pension Benefit Plans
Exhibit 2.18.3 Other Benefit Plans; Accrued Vacations
Exhibit 2.18.5 Consents and Agreements
Exhibit 2.19 Schedule of Intellectual Property Rights
Exhibit 2.20 Warranties and Claims Under Warranties
Exhibit 2.21 Labor Relations
Exhibit 2.22 Schedule of Insurance
Exhibit 2.24 Environmental Matters
Exhibit 2.25 Schedule of Capital Expenditures
Exhibit 2.27 Schedule of Contracts with Affiliates
Exhibit 2.28 Bank Accounts
Exhibit 2.29 Compensation Schedule
Exhibit 2.30 Credit Facility
Exhibit 3.5 Schedule of Authorized, Issued and Outstanding
Capital Stock
Exhibit 6.3 Noncompetition Agreement
Exhibit 7.1 Certificate of Fulfillment of Conditions by
Sellers
Exhibit 7.3 Opinion of the Sellers' Counsel
Exhibit 8.1 Certificate of Fulfillment of Conditions of
Buyer
Exhibit 8.3 Opinion of Buyer's Counsel
Exhibit 11.1 Indemnity Percentages
v
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF STOCK
----------------------------------------
THIS AGREEMENT (this "Agreement"), dated as of the 16th day of November
1998, is made among SUPERGRAPHICS HOLDING COMPANY, INC., a Delaware corporation
("Holding", and together with Supergraphics Corporation, a California
corporation and wholly-owned subsidiary of Holding (the "Subsidiary"),
collectively the "Companies"), the Subsidiary, all the stockholders of Holding
identified in Exhibit 1.2(a) (each a "Seller" and collectively, the "Sellers")
--------------
and Unidigital Inc., a Delaware corporation ("Buyer").
ARTICLE I
---------
PURCHASE AND SALE; PRICE
------------------------
1.1 Purchase and Sale of the Shares. At the Closing (as defined herein) and
-------------------------------
in the manner herein provided, the Sellers shall sell and deliver all of the
shares of capital stock of Holding (collectively, the "Shares") to Buyer, and
Buyer shall purchase the Shares from the Sellers on the terms and conditions set
forth herein.
1.2 Purchase Price. Subject to the terms and conditions of this Agreement
---------------
and in reliance on the representations and warranties of the Sellers contained
herein, and in consideration of the sale, conveyance, transfer and delivery of
the Shares provided for in this Agreement, Buyer agrees to pay an aggregate
purchase price (the "Purchase Price") of
(a) in respect of the preferred stock of Holding included in the
Shares (the "Preferred Stock"), an aggregate amount equal to the aggregate
redemption price of the preferred stock plus the aggregate of all dividends
accrued and unpaid on the preferred stock to the Closing Date (the
"Preferred Stock Payment"), to be paid at the Closing by Buyer's delivery
to each Seller of a certified or cashier's check or funds by wire transfer
in the respective amount for such Seller determined as provided in Exhibit
-------
1.2(a),
------
(b) on behalf of Holding, the aggregate of all amounts outstanding on
the Closing Date under those certain Promissory Notes (the "Junior Notes")
dated as of January 3, 1997 from Holding to the Sellers (the "Junior Notes
Payment"), to be paid at the Closing by Buyer's delivery to each Seller of
a certified or cashier's check or funds by wire transfer in the respective
amount for such Seller determined as provided in Exhibit 1.2(a),
--------------
(c) on behalf of Holding, an aggregate of $1,076,999 (the aggregate
amount of the earn-out payments Holding is required to make pursuant to
Section 2.13 of the Agreement and Plan of Reorganization dated as of
November 26, 1996 by and among Holding, Subsidiary, SG Acquisition (DE)
Corporation and certain formershareholders of Subsidiary) (the "Earn-Out
Payment"), to be paid at the
<PAGE>
Closing by Buyer's delivery to a representative of the former shareholders
of Subsidiary of a certified or cashier's check or funds by wire transfer
in the aggregate amount of the Earn-Out Payment,
(d) on behalf of Holding, the aggregate of all amounts outstanding on
the Closing Date under the Credit Facility (as defined herein) (the "Credit
Facility Payment"), to be paid at the Closing by Buyer's delivery to First
Source Financial LLP of funds by wire transfer in the amount of the Credit
Facility Payment,
(e) on behalf of Holding, an amount equal to certain fees and expenses
of Holding (the "Expense Payment"), to be paid at the Closing by Buyer's
delivery to the payees thereof as identified to Buyer at or before the
Closing of certified or cashier's checks or funds by wire transfer in the
aggregate amount of the Expense Payment,
(f) on behalf of Holding, an aggregate of $240,000 (the "Employee
Payment"), to be paid at the Closing by Buyer's delivery to employees
identified to Buyer at or before the Closing of certified or cashier's
checks or funds by wire transfer in the aggregate amount of the Employee
Payment, and
(g) in respect of the common stock of Holding included in the Shares:
(i) an aggregate of (x) $16,500,000 less (y) the sum of the Preferred Stock
Payment, Junior Notes Payment, Earn-Out Payment, Credit Facility Payment,
Expense Payment and Employee Payment (the "Common Stock Payment"), to be
paid at the Closing by Buyer's delivery to each Seller and to each option
holder identified on Exhibit 1.2(a) (each an "Option Holder") of a
---------------
certified or cashier's check or funds by wire transfer in the respective
amount for such Seller or Option Holder determined as provided in Exhibit
-------
1.2(a); (ii) the Deferred Purchase Price Payment (as defined below), which
------
shall be paid in accordance with Section 1.3 hereof by delivery to each
Seller and Option Holder of a certified or cashier's check or funds by wire
transfer in the respective amount for such Seller or Option Holder
determined as provided in Exhibit 1.2(a); and (iii) warrants (the
---------------
"Warrants") to purchase an aggregate of 225,000 shares of Buyer Common
Stock (as defined herein), which Warrants shall be exercisable beginning on
the Closing Date and for a period of five years thereafter and shall have
an exercise price equal to 125% of the average closing bid and ask prices
of Buyer Common Stock during the 20 trading days ending two days prior to
the Closing and which shall be issued pursuant to the terms of a Warrant
Agreement substantially in the form of Exhibit 1.2(b) attached hereto,
---------------
which Warrants shall be delivered at the Closing to each Seller and Option
Holder in the respective amount set forth opposite such Seller's or Option
Holder's name on Exhibit 1.2(a).
--------------
1.3 Deferred Purchase Price. (a) Amount of Deferred Purchase Price Payment.
----------------------- -----------------------------------------
The Sellers and Option Holders will receive an additional Purchase Price payment
(the
2
<PAGE>
"Deferred Purchase Price Payment") equal to the difference between (i) EBITDA
(as defined herein) multiplied by 6 less (ii) $16,500,000.
(b) Settlement of Deferred Purchase Price Payment.
---------------------------------------------
(i) Buyer, at no cost to the Sellers, will issue, and cause either BDO
Seidman LLP or Ernst & Young ("Buyer's Accountants") to conduct an audit
of, the consolidated balance sheet and the related consolidated statements
of income, retained earnings and cash flows of the Companies for the year
ended December 31, 1998 on a basis consistent with past practice (the "Y/E
Financials and Computations"). Sellers shall cause their accountants (to
the extent different from Buyer's Accountants) to cooperate fully with
Buyer and Buyer's Accountants, including providing access to their work
papers as necessary.
(ii) The Y/E Financials and Computations shall be delivered to the
Sellers for review, together with the Deferred Purchase Price Payment which
is earned pursuant to the Y/E Financials and Computations and this
Agreement, no later than March 15, 1999. If the Sellers within fifteen (15)
calendar days of receipt of the Y/E Financials and Computations (the
"Notice Period") do not object thereto in writing, the calculation of
EBITDA for the twelve months ending December 31, 1998 shall become final
and binding on the parties.
(iii) If Sellers do not agree with the Y/E Financials and Computations
or the amount of the Deferred Purchase Price Payment, Sellers shall, during
the Notice Period, deliver to Buyer a written statement (the "Dispute
Notice") of the matters with respect to which there is disagreement
specifying the particulars of the disagreement, including, but not limited
to, the disputed amount of the calculated Deferred Purchase Price Payment.
(iv) If the parties fail to resolve the disagreements outlined in the
dispute Notice within fifteen (15) calendar days following receipt of the
Dispute Notice, Sellers (at Seller's expense, if Buyer's Accountants are
BDO Seidman LLP or at Buyer's expense if Buyer's Accountants are Ernst &
Young) shall cause their independent certified public accountants
("Sellers' Accountants") to conduct an examination of the portion of the
Y/E Financials and Computations in dispute, which examination shall be
completed within 45 days of the date of the Dispute Notice. Buyer shall
cause Buyer's Accountants to cooperate fully with Sellers' Accountants,
including providing access to their work papers as necessary.
(v) If Buyer's Accountants and Sellers' Accountants are in
disagreement with respect to the Y/E Financials and Computations and
resulting Deferred Purchase Price Payment, Buyer shall cause Buyer's
Accountants and Sellers' shall cause Sellers' Accountants to mutually
select a firm of independent certified public accountants of recognized
standing for its determination with
3
<PAGE>
respect to such items of disagreement. The parties will use their best
efforts to cause such firm to resolve all items of disagreement within
thirty (30) calendar days after submission and such firm's determination
("Final Determination") will be final and binding on the parties, notice of
such Final Determination to be delivered to the parties within five (5)
days of such Final Determination. The cost of such determination shall be
borne by the party who proposed the Deferred Purchase Price Payment
furthest from the Deferred Purchase Price Payment due as a result of the
Final Determination of the independent certified public accounts chosen
hereunder.
(vi) To the extent the Final Determination of the Deferred Purchase
Price Payment exceeds the Deferred Purchase Price Payment paid by Buyer to
Sellers pursuant to Section 1.3(b)(ii), such excess of the Deferred
Purchase Price Payment shall be paid by Buyer to Sellers within three days
of the submission of the Final Determination.
(vii) Any portion of the Final Determination of the Deferred Purchase
Price Payment not paid pursuant to Section 1.3(ii) (including any excess
payment to be paid pursuant to Section 1.3(b)(vi)) shall accrue interest
equal to fifteen percent (15%) per annum (increasing by one percent (1%)
during each subsequent 30 day period up to a maximum of 18%) on such unpaid
portion for the time period beginning on March 15, 1999 and ending on the
date of payment of such amounts.
(c) For the purposes of this Agreement, EBITDA shall mean consolidated net
income or net deficit, calculated on a basis consistent with Exhibit 1.3(c), as
--------------
reflected in audited consolidated financial statements with the following
adjustments:
(i) less interest income;
----
(ii) plus interest (including deferred financing fees and expense) and
----
other expense in respect of indebtedness charged or accrued against such
net income;
(iii) plus expenses for income taxes (whether paid, accrued or
----
deferred) charged or accrued against such net income;
(iv) plus expenses for depreciation and amortization charged or
----
accrued against such net income;
(v) plus expenses incurred in connection with the transactions
----
contemplated by this Agreement charged or accrued against such net income;
4
<PAGE>
(vi) plus non-recurring expenses (including without limitation,
----
non-recurring accounting expenses, expenses related to the property tax
audit and management fees paid to Regent Capital Management Corp., each as
listed on Exhibit 1.3(c)) charged or accrued against such net income;
--------------
(vii) plus bonus payments made in lieu of options on or prior to
----
Closing.
EBITDA shall be determined by the Board of Directors of Buyer from the
consolidated financial statements of Holding for the year ended December 31,
1998, which shall be prepared in accordance with GAAP on an historically
consistent basis.
1.4 Financial Requirement Regarding Net Working Capital.
---------------------------------------------------
(a) Net Working Capital. Notwithstanding anything herein to the
---------------------
contrary, Net Working Capital (as hereinafter defined) of the Companies at
Closing shall be $975,000.
(b) Closing Date Balance Sheet. Buyer, at no cost to Sellers, will
---------------------------
prepare a consolidated balance sheet of Holdings as of the Closing Date,
together with a calculation of net working capital (the "Closing
Computations"). The Closing Computations shall be completed within 60
calendar days after the Closing Date and shall be delivered to Sellers for
review. If the Sellers, within 15 calendar days of receipt of the Closing
Computations, do not object thereto in writing, the calculation of Net
Working Capital shall become final and binding upon the parties. If Sellers
do not agree with the Closing Computations, the Sellers shall, prior to the
expiration of such 15 calendar day period, deliver to the Buyer a written
statement of the matters with respect to which there is disagreement
specifying the particulars of the disagreement. If the parties fail to
resolve the disagreements within 15 calendar days thereafter, Buyer and
Sellers shall mutually choose a firm of nationally recognized independent
certified accountants (other than BDO Seidman LLP or Ernst & Young) to
resolve all items of disagreement within 30 days of submission thereto and
the determination of such firm will be final and binding on the parties.
The cost of such referral and determination shall be borne 50% by Sellers
and 50% by Buyer.
(c) For purposes of this Section 1.4, Net Working Capital shall mean the
excess of current assets (excluding cash) of the Companies over the
current liabilities of the Companies, in each case as determined in
accordance with generally accepted accounting principles and
consistent with Exhibit 1.4 attached hereto.
(d) In the event that Net Working Capital, as determined in accordance
with Section 1.4(b) hereof, is less than $975,000 (the amount of such
deficit hereinafter referred to as the "Net Working Capital Deficit"),
then the
5
<PAGE>
Deferred Purchase Price Payment shall be reduced on a
dollar-for-dollar basis by the amount that Net Working Capital is less
than $975,000, provided, however, that if the Deferred Purchase Price
Payment has already been made pursuant to Section 1.3 hereof, then the
Sellers shall, on a pro rata basis, pay to Buyer the Net Working
Capital Deficit.
(e) At Closing, all liabilities of the Companies, including without
limitation taxes, accounts payable and other regular and usual
liabilities and obligations of the Companies incurred in the ordinary
course of business, other than any amounts due and owing under the
Credit Facility (as defined in Section 2.30) or any other funded debt
(including but not limited to any capital lease obligation), which
shall be repaid at or prior to Closing by the Companies or Sellers,
shall be the obligation of Buyer.
ARTICLE II
----------
REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND HOFFMAN
-----------------------------------------------------------
The Companies and Louis Hoffman hereby represent and warrant to Buyer as
follows:
2.1 Corporate Organization, etc. Each of Holding and the Subsidiary are
-----------------------------
corporations duly organized, validly existing and in good standing under the
laws of the state of Delaware, with respect to the Holding, and California, with
respect to the Subsidiary, with all requisite corporate power and authority to
carry on its business as it is now being conducted and to own, operate and lease
its properties and assets. Exhibit 2.1.1 lists each of the states where the
--------------
Companies, respectively, are qualified as a foreign corporation. The conduct of
its business and its ownership or use of property do not require the Companies,
respectively, to be qualified or licensed to do business as a foreign
corporation in any state except those listed in Exhibit 2.1.1, or except where
--------------
the failure to be so qualified or licensed would not cause a material adverse
change in the Companies' business operations (as now conducted), assets,
properties or rights, prospects or condition (financial or otherwise), or
combination thereof which reasonably could be expected to result in any such
material adverse change (a "Material Adverse Effect"). Complete and correct
copies have been delivered to representatives of Buyer of each of the Companies'
(i) articles or certificate of incorporation, (ii) bylaws, (iii) good standing
certificates from the secretary of state of (A) the states of Delaware and
California, as applicable, and (B) each of the states listed on Exhibit 2.1.1,
-------------
as applicable, and (iv) certificates of authority for the states listed in
Exhibit 2.1.1, each as amended to date. The Companies have all federal, state,
- -------------
local and foreign licenses, permits or other approvals required for the
operation of their businesses as now being conducted except for such licenses,
permits or other approvals which would not cause a Material Adverse Effect.
2.2 Capital Stock; Options. The authorized capital stock of the Companies
-----------------------
and the shares of capital stock of the Companies issued and outstanding, of all
classes, and the related ownership thereof, are as set forth in Exhibit 2.2. The
-----------
Shares represent 100% of the issued and outstanding capital stock of Holding and
neither of the Companies has any treasury stock. All
6
<PAGE>
of the issued and outstanding capital stock of the Subsidiary (the "Subsidiary
Shares") is owned by Holding. All of the Shares and the Subsidiary Shares are
validly issued, fully paid and nonassessable and, are owned by the Sellers and
Holding, respectively, free and clear of all encumbrances or claims. Except as
set forth in Exhibit 2.2, there are no issued and outstanding options, warrants,
-----------
rights, securities, contracts, commitments, understandings or arrangements by
which the Companies are bound to issue any additional shares of their capital
stock or options to purchase shares of their capital stock.
2.3 Subsidiaries and Affiliates. Except as set forth in Exhibit 2.3, the
---------------------------- -----------
Companies have no subsidiaries, Affiliates (defined herein) or investments in
any other entity or business operation. The term "Affiliates" includes any
corporation, partnership or other entity in which the Companies, any of the
Sellers, any family member of any of the Sellers or director or officer of the
Companies has any financial interest or is a controlling person, as that term is
used in connection with the federal securities laws, if such person or entity
has, or in the past had, a contractual relationship with or is transacting, or
has in the past transacted, business with the Companies.
2.4 Authorization, etc. The Sellers have full power and authority to enter
-------------------
into this Agreement and to carry out the transactions contemplated hereby. This
Agreement and all other related agreements constitute legal, valid and binding
obligations of each of the Sellers, enforceable against each Seller in
accordance with their respective terms.
2.5 No Violation. Except as set forth in Exhibit 2.5, neither of the
------------- ------------
Companies is subject to or obligated under any article or certificate of
incorporation, bylaw, Law or any agreement or instrument, or any license,
franchise or permit, which would be breached or violated by the Sellers'
execution, delivery and performance of this Agreement. As used herein, "Law"
shall mean all laws, rules, regulations, orders, decrees and injunctions
applicable to or binding upon the Companies. The Sellers will comply with all
applicable Laws in connection with their execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby. The
execution of this Agreement and the consummation of the transactions
contemplated hereby will not cause the creation of any liens, claims or
encumbrances upon any of the assets of the Companies.
2.6 Governmental Authorities. Assuming that the ultimate parent entity (as
------------------------
such term is defined in Rule 801.1(a), 16 C.F.R. ss. 801.1(a)(3)) ("Ultimate
Parent Entity") of Buyer has less than $100 million of annual net sales or total
assets (as determined in accordance with Rule 801.11, 16 C.F.R. ss. 801.11) as
stated on its last regularly prepared income statement and balance sheet ("HSR
Assets and Revenues"), the Sellers are not required to submit any notice, report
or other filing with, and no consent, approval or authorization is required, by
any governmental or regulatory authority or third party in connection with the
execution, delivery, consummation or performance of this Agreement or the
transactions contemplated hereby.
2.7 Financial Statements. Copies have been provided to representatives of
---------------------
Buyer of (i) unaudited monthly adjusted consolidated statements of income of the
Companies for the nine
7
<PAGE>
months ended September 30, 1998 and 1997, and (ii) audited consolidated
statements of financial position as of December 31 for each of the years 1995
through 1997 and audited consolidated statements of income and retained earnings
of the Companies for the fiscal years then ended (the "Audited Statements"),
each such audited statement being audited by BDO Seidman LLP. All such
statements of financial position and the notes thereto fairly present the
financial position of the Companies as of the respective dates thereof, and such
statements of income and retained earnings and the notes thereto fairly present
the results of operations for the periods therein referred to, in accordance
with generally accepted accounting principles consistently applied throughout
the periods indicated (except as stated therein or in the notes thereto). The
consolidated statement of financial position as of December 31, 1997 and the
notes thereto are referred to as the "Balance Sheet." December 31, 1997 is
referred to as the "Financial Statement Date."
2.8 No Undisclosed Liabilities, Claims, etc. Other than as set forth on
-------------------------------------------
Exhibit 2.8, except for (a) liabilities fully reflected or reserved against in
- -----------
the Balance Sheet and (b) regular and usual liabilities and obligations incurred
in the ordinary course of business consistent with past practices after the
Financial Statement Date, the Companies do not have any liabilities, obligations
or claims (absolute, accrued, fixed or contingent, matured or unmatured, or
otherwise), including liabilities, obligations or claims which may become known
or which arise only after the Closing and which result from actions, omissions
or occurrences of the Sellers prior to the Closing.
2.9 Absence of Certain Changes. Since the Financial Statement Date, except
--------------------------
for Permitted Distributions (as defined in Section 4.1) or as set forth in
Exhibit 2.9 there has not been: (a) any material adverse change in the business,
- -----------
prospects, financial condition, earnings or operations of the Companies; (b) any
damage, destruction or loss, whether covered by insurance or not, materially
adversely affecting the Companies' properties and business; (c) any declaration,
setting aside or payment of any dividend whether in cash, stock or property with
respect to the Shares, or any redemption or other acquisition of such Shares;
(d) any increase in the compensation payable or to become payable by the
Companies to their respective directors, officers, key employees, Affiliates or
any of the Sellers or any adoption of or increase in any bonus, insurance,
pension or other employee benefit plan, payment or arrangement made to, for or
with any such party; (e) any entry by the Companies into any commitment or
transaction, including without limitation, any borrowing or capital expenditure
other than in accordance with the schedule of capital expenditures (Exhibit
-------
2.25); (f) any change by the Companies in accounting methods, practices or
- ----
principles; (g) any adoption of any statute, rule, regulation or order which
adversely affects the Companies; (h) any termination or waiver of any rights of
value to the business of the Companies; (i) any other transaction or event
affecting the Companies other than in the ordinary course of business of the
Companies, respectively; (j) any transaction or conduct inconsistent with past
business practices; (k) any adoption or amendment of any collective bargaining,
bonus profit sharing, compensation, stock option, pension, retirement, deferred
compensation, or other plan, agreement, trust, fund or arrangement for the
benefit of employees; or (l) any agreement or understanding made or entered into
to do any of the foregoing.
8
<PAGE>
2.10 Contracts. Exhibit 2.10 contains a schedule of all Contracts (defined
--------- ------------
herein) to which the Companies are a party, copies of which having been provided
to representatives of Buyer. The term "Contracts" shall include, but shall not
be limited to, all oral (which shall be summarized in Exhibit 2.10) and written
------------
contracts, agreements, agency agreements, loan agreements, mortgages,
indentures, deeds of trust, guarantees, commitments, joint venture agreements,
purchase and/or sale agreements, collective bargaining, union, consulting and/or
employment contracts, leases of real or personal property, easements,
distribution or dealer agreements, service agreements, license agreements, and
advertising agreements (except there shall not be included agreements which do
not exceed, in the case of any one agreement, an obligation of $10,000 and in
the case of a series of related agreements, an aggregate obligation of $20,000,
so long as such agreements are not material to the business of the Companies).
Neither of the Companies is in default or alleged to be in default under any
Contract nor is Louis Hoffman or to the knowledge of the Companies and Louis
Hoffman, any of the other Sellers, aware of any default by any other party to
any Contract, and there exists no event, condition or occurrence which, after
notice or lapse of time, or both, would constitute a default under any Contract.
All of the Contracts are in full force and effect and constitute legal, valid
and binding obligations of the parties thereto in accordance with their terms,
and will remain in full force and effect after the Closing without any notice to
or consent by any other party.
2.11 True and Complete Copies. Copies of all agreements, contracts and
-------------------------
documents delivered and to be delivered hereunder by the Sellers or the
Companies, are, and will be, true and complete copies of such agreements,
contracts and documents. All written summaries of oral agreements will be true
and complete.
2.12 Title and Related Matters. Except as set forth in Exhibit 2.12, the
-------------------------- ------------
Companies have good and marketable title to all of the properties and assets
reflected in the Balance Sheet or acquired after the date thereof (except
properties sold or otherwise disposed of since the date thereof in the ordinary
course of business and consistent with past practices), including, without
limitation, the specific assets referred to in paragraphs (a), (b) and (c)
below, free and clear of all mortgages, security interests, liens, pledges,
claims, escrows, options, rights of first refusal, indentures, easements,
licenses, security agreements or other agreements, arrangements, contracts,
commitments, understandings, obligations, charges or encumbrances of any kind or
character, except as reflected on the Balance Sheet. The Companies own or lease,
directly or indirectly, all of the assets and properties, and are a party to all
licenses and other agreements, presently used or necessary to carry on the
business or operations of such company as presently conducted.
(a) Real Property.
-------------
(i) Neither of the Companies has an ownership interest in any
real property.
(ii) Neither of the Companies is a tenant under any lease(s) of
real property used by such company except as described on Exhibit
-------
2.10. With respect to the leased real property described on Exhibit
---- -------
2.10 and except as set forth on
----
9
<PAGE>
Exhibit 2.12; (A) all such leases are
------------
in full force and effect and constitute valid and binding obligations
of the respective parties thereto; (B) there have not been and there
currently are not any defaults thereunder by any party thereto; (C) no
event has occurred which (whether with or without notice, lapse of
time or the happening or occurrence of any other event) would
constitute a default thereunder entitling the lessor to terminate the
lease; and (D) the continuation, validity and effectiveness of all
such leases under the current rentals and other current terms thereof
will in no way be affected by the transactions contemplated by this
Agreement or, if any would be affected, the Sellers shall use all
necessary means at its disposal to cause an appropriate consent to
such transactions to be delivered to Buyer prior to the Closing Date
at no cost or other adverse consequences to the Companies ((B) through
(D) are hereinafter collectively referred to as "Lease Restrictions").
(iii) Neither of the Companies currently has, nor to the
knowledge of the Companies and Louis Hoffman in the past has had, any
interest (as owner, tenant or otherwise) in any real property except
as disclosed on Exhibit 2.12.
------------
(b) Personal Property. The Companies respectively have good and
------------------
marketable title to all the personal property and assets, tangible or
intangible, shown on the Balance Sheet, except to the extent sold or
disposed of in transactions entered into in the ordinary course of business
consistent with past practices since the Financial Statement Date. The
personal property in the aggregate is in good condition and working order.
None of such assets are subject to any (i) contracts of sale or lease,
except contracts for the sale of inventory in the ordinary and regular
course of business or (ii) security interests, encumbrances, liens or
charges of any kind or character, except as set forth in Exhibit 2.12.
-------------
Except as set forth in Exhibit 2.12, there are no Lease Restrictions with
------------
respect to the personal property leased by the Companies.
(c) No Disposition of Assets. Except for Permitted Distributions,
--------------------------
there has not been since the Financial Statement Date any sale, lease or
any other disposition or distribution by the Companies of any of their
assets or properties and any other assets now or hereafter owned by them
except transactions in the ordinary and regular course of business
consistent with past practices or as otherwise consented to by Buyer.
2.13 Litigation. Except as set forth in Exhibit 2.13, there is no suit,
---------- -------------
action, investigation or proceeding pending or, to the knowledge of the
Companies and Louis Hoffman, threatened against the Companies or any of the
Sellers which, if adversely determined, would cause a Material Adverse Effect,
nor is there any judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding against the Companies or which the Companies are in violation of
having, or which, insofar as can be reasonably foreseen, in the future may have,
any such effect.
10
<PAGE>
2.14 Tax Matters. The term "Taxes" means all net income, capital gains,
-----------
gross income, gross receipts, sales, use, transfer, ad valorem, franchise,
profits, license, capital, withholding, payroll, employment, excise, goods and
services, severance, stamp, occupation, premium, property, windfall profits,
customs, duties or other taxes, fees or assessments, or other governmental
charges of any kind whatsoever, together with any interest, fines and any
penalties, additions to tax or additional amounts incurred or accrued under
applicable Law or assessed, charged or imposed by any governmental authority,
domestic or foreign, provided that any interest, penalties, additions to tax or
additional amounts that relate to Taxes for any taxable period (including any
portion of any taxable period ending on or before the Closing Date) shall be
deemed to be Taxes for such period, regardless of when such items are incurred,
accrued, assessed or imposed. For the purposes of this Section 2.14 and Section
6.5, the Companies shall be deemed to include any predecessor of the Companies,
respectively, or any person or entity from which the Companies, respectively,
incur a liability for Taxes as a result of any transferee liability. Except as
stated in Exhibit 2.14.1:
--------------
(a) The Companies have duly and timely filed (and prior to the Closing
Date will duly and timely file) true, correct and complete tax returns in
all material respects, reports or estimates, all prepared in accordance
with applicable Laws, for all years and periods (and portions thereof) and
for all jurisdictions (whether federal, state, local or foreign) in which
any such returns, reports or estimates were due. All Taxes shown as due and
payable on such returns, reports and estimates have been paid, and there is
no current liability for any Taxes due and payable in connection with any
such returns. All material Taxes not yet due and payable have been fully
accrued on the books of the Companies and adequate reserves have been
established therefor; the charges, accruals and reserves for Taxes provided
for on the consolidated financial statements delivered or to be delivered
pursuant to Section 2.7 and Section 4.7 are adequate in all material
respects; and there are no unpaid assessments for additional Taxes for any
period nor is there any basis therefor. Copies of all federal, state and
foreign tax returns filed by the Companies for the past three years have
been provided to representatives of Buyer.
(b) Neither of the Companies, respectively, has been a member of any
consolidated, combined or unitary group for federal, state, local or
foreign tax purposes. Neither of the Companies, respectively, have been
party to any joint venture, partnership or other arrangement that could be
treated as a partnership for federal income tax purposes.
(c) Each of the Companies has (i) withheld all required amounts from
its employees, agents, contractors and nonresidents and remitted such
amounts to the proper agencies; (ii) paid all employer contributions and
premiums; and (iii) filed all federal, state, local and foreign returns and
reports with respect to employee income tax withholding, and social
security and unemployment taxes and premiums, all in compliance with the
withholding tax provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), as in effect for the applicable year or any prior provision
thereof and other applicable Laws.
11
<PAGE>
(d) The federal income tax returns of the Companies have been examined
by the Internal Revenue Service (the "IRS"), or have been closed by the
applicable statute of limitations, for all periods through December 31,
1997, the state tax returns of the Companies have been examined by the
relevant state agencies or such returns have been closed by the applicable
statute of limitations for all periods through December 31, 1997, no
deficiencies or reassessments for any Taxes have been proposed, asserted or
assessed against the Companies by any federal, state, local or foreign
taxing authority. Exhibit 2.14.1 describes the status of any federal,
---------------
state, local or foreign tax audits or other administrative proceedings,
discussions or court proceedings that are presently pending with regard to
any Taxes or tax returns of the Companies (including a description of all
issues raised by the taxing authorities in connection with any such audits
or proceedings), and to the knowledge of the Companies and Louis Hoffman,
no additional issues are being asserted against the Companies in connection
with any existing audits or proceedings.
(e) The Companies have not executed or filed any agreement or other
document extending the period for assessment, reassessment or collection of
any Taxes, and no power of attorney granted by the Companies with respect
to any Taxes is currently in force.
(f) The Companies have not entered into any closing or other agreement
with any taxing authority which affects any taxable year of the Companies
ending after the Closing Date. The Companies are not a party to any tax
sharing agreement or similar arrangement for the sharing of tax liabilities
or benefits.
(g) The Companies have not agreed to nor are they required to make any
adjustment by reason of a change in accounting methods that affects any
taxable year ending after the Closing Date. The IRS has not proposed to the
Companies any such adjustment or change in accounting methods that affects
any taxable year ending after the Closing Date. The Companies do not have
an application pending with any taxing authority requesting permission for
any changes in accounting methods that relate to its business or operations
and that affects any taxable year ending after the Closing Date.
(h) The Companies have not consented to the application of Code
Section 341(f).
(i) There is no contract, agreement, plan or arrangement covering any
employee or former employee of the Companies that, individually or
collectively, could give rise to the payment by the Companies of any amount
that would not be deductible by reason of Code Section 280G.
(j) No asset of the Companies is tax exempt use property under Code
Section 168(h). No portion of the cost of any asset of the Companies has
been financed directly
12
<PAGE>
or indirectly from the proceeds of any tax exempt state or local government
obligation described in Code Section 103(a).
(k) The Companies do not have nor have they had a permanent
establishment in any foreign country and do not engage, nor have they
engaged, in a trade or business in any foreign country. None of the Sellers
nor the Companies is a foreign person or entity within the meaning of Code
Section 1445.
(l) To the knowledge of the Companies and Louis Hoffman, none of the
Buyer nor the Companies will be liable for any federal, state, local,
foreign and other sales, use, documentary, recording, stamp, transfer or
similar Taxes applicable to, imposed upon or arising out of the transfer of
the Shares to Buyer and the transactions contemplated by this Agreement.
2.15 Government Contracts. No Contract or other aspect of the business of
---------------------
the Companies is subject to the Armed Services Procurement Regulations or other
regulations of any governmental agency. Neither of the Companies has bid on or
been awarded any "small business set aside contract", any other "set aside
contract" or other order or contract requiring small business or other special
status at any time during the last three years. Neither of the Companies' sales
or orders will be lost, nor the Companies' customer relations damaged, as a
result of such Company continuing its operations as an entity that does not
qualify as a small business.
2.16 Compliance with Law.
-------------------
(a) Neither of the Companies has previously failed, and is currently
failing, to comply with any applicable Laws relating to its business or the
operation of its assets where such failure or failures would individually
or in the aggregate have a Material Adverse Effect. In particular, but
without limiting the generality of the foregoing, the Companies are in
material compliance with all applicable Laws relating to (i)
anti-competitive practices, (ii) price fixing, (iii) health and safety, and
(iv) the environment. There are no proceedings of record and no proceedings
are pending or threatened, nor have the Companies or any of the Sellers
received any written notice regarding any violation of any Law, including,
without limitation, any requirement of the United States Federal Trade
Commission, any state or foreign franchise agency or regulatory authority,
OSHA or any pollution or environmental control agency (including air and
water).
(b) Copies have been provided to representatives of Buyer of all
reports which are known to the Companies of inspections by representatives
of any federal, state or local governmental entity or agency of the
business and properties of the Companies from January 1, 1994 through the
date hereof under OSHA and under all other applicable health and safety
Laws. The deficiencies, if any, noted on such reports or any deficiencies
noted by such inspections through the Closing Date shall be corrected by
the Closing Date. Neither of the Companies, nor, to the knowledge of the
Companies and Louis Hoffman, any of the Sellers, know, of any other
registration, safety, health,
13
<PAGE>
environmental, anti-competitive or discrimination problems relating to the
financial condition, business, assets, operations, prospects, earnings or
employment practices of the Companies.
2.17 Absence of Certain Business Practices. None of the Sellers, any person
-------------------------------------
or entity related to or affiliated with any of the Sellers, any officer,
employee or agent of the Companies or any of the Sellers, any other person or
entity acting on behalf of or associated with the Companies or any of the
Sellers, nor any other entity directly or indirectly owned or controlled by any
of the Sellers or the Companies, acting alone or together, has (a) received,
directly or indirectly, any rebates, payments, commissions, promotional
allowances or any other economic benefit, regardless of its nature or type, from
any customer, supplier, trading company, shipping company, governmental employee
or other entity or individual with whom the Companies have done business
directly or indirectly or (b) directly or indirectly, given or agreed to give
any gift or similar benefit to any customer, supplier, trading company, shipping
company, governmental employee or other person or entity who is or may be in a
position to help or hinder the business of the Companies (or assist the
Companies in connection with any actual or proposed transaction) which (i) would
be reasonably likely to subject the Companies to any damage or penalty in any
civil, criminal or governmental litigation or proceeding, (ii) if not given in
the past, might have a Material Adverse Effect or (iii), if not continued in the
future, might have had a Material Adverse Effect or which might subject the
Companies to suit or penalty in any private or governmental litigation or
proceeding.
2.18 ERISA and Related Employee Benefit Matters.
------------------------------------------
(a) Welfare Benefit Plans. Exhibit 2.18.1 lists each "employee welfare
--------------------- --------------
benefit plan" (within the meaning of Section 3(l) of the Employee
Retirement Income Security Act of 1974 ("ERISA")) maintained by the
Companies or to which the Companies contribute or are required to
contribute, including any multiemployer plan ("Welfare Benefit Plan") and
sets forth as of the most recent valuation date (i) the amount of any
liability of the Companies for payments due with respect to any Welfare
Benefit Plan, (ii) the amount of any payment made and to be made, stated
separately, by the Companies with respect to any Welfare Benefit Plan for
the plan year during which the Closing is to occur, and (iii) with respect
to any Welfare Benefit Plan to which Section 505 of the Code applies, a
statement of assets and liabilities for such Welfare Benefit Plan as of the
most recent valuation date. Without limiting the foregoing, Exhibit 2.18.1
--------------
discloses any obligations of the Companies to provide retiree health
benefits to current or former employees of the Companies, respectively.
(b) Pension Benefit Plans. Exhibit 2.18.2 lists each "employee pension
--------------------- --------------
benefit plan" (within the meaning of Section 3(2) of ERISA) maintained by
the Companies or to which the Companies contribute or are required to
contribute, including any multiemployer plan ("Pension Benefit Plan"). All
costs of the Pension Benefit Plans have been provided for on the basis of
consistent methods and, if applicable, in accordance with sound actuarial
assumptions and practices that are acceptable under ERISA. With
14
<PAGE>
resect to each Pension Benefit Plan that is subject to Title I, Part 3 of
ERISA (concerning "funding"), Exhibit 2.18.2 sets forth as of the valuation
--------------
date (i) the unfunded liability for all accrued benefits, (ii) the funding
method, (iii) the actuarially computed value of vested benefits, (iv) the
fair market value of the assets held for funding purposes, (v) the amount
and plan year of any "accumulated funding deficiency," as defined in
Section 302(a)(2) of ERISA (arising for any reason whatever) that exists
with respect to any plan year, and (vi) the amount of any contribution by
the Companies paid and to be paid, stated separately, for the plan year
during which the Closing is to occur. With respect to each Pension Benefit
Plan that is not subject to Title I, Part 3 of ERISA, Exhibit 2.18.2 sets
---------------
forth as of the valuation date (i) the amount of any liability of the
Companies for any contributions due with respect to such Pension Benefit
Plan and (ii) the amount of any contribution paid and to be paid, stated
separately, by the Companies with respect to such Pension Benefit Plan for
the plan year during which the Closing is to occur.
(c) Compliance with Applicable Law. Each of the Pension Benefit Plans,
------------------------------
Welfare Benefit Plans, any related trust agreements, annuity contracts, and
other fundinginstruments, comply with the provisions of ERISA and the Code
and all other statutes, orders, governmental rules and regulations
applicable to such Welfare Benefit Plans and Pension Benefit Plans. The
Companies have performed all of their respective obligations currently
required to have been performed under all Welfare Benefit Plans and Pension
Benefit Plans. There are no actions, suits or claims (other than routine
claims for benefits) pending or threatened against or with respect to any
Welfare Benefit Plans, Pension Benefit Plans or the assets of such plans,
and no facts exist that could give rise to any actions, suits or claims
(other than routine claims for benefits) against such plans or the assets
of such plans. Each Pension Benefit Plan is qualified in form and operation
under Section 401(a) of the Code, the Internal Revenue Service has issued a
favorable determination letter with respect to each Pension Benefit Plan,
and no event has occurred that will or could give rise to a
disqualification of any Pension Benefit Plan under Code Section 401(a). No
event has occurred that will or could subject any Welfare Benefit Plan or
Pension Benefit Plan to tax under Section 511 of the Code.
(d) Administration of Plans. Each Welfare Benefit Plan and each
-------------------------
Pension Benefit Plan has been administered to date in compliance with the
requirements of ERISA and the Code. No plan fiduciary of any Welfare
Benefit Plan or Pension Benefit Plan has engaged in (i) any transaction in
violation of Section 406(a) or (b) of ERISA, or (ii) any "prohibited
transaction" (within the meaning of Section 4975(c)(1) of the Code) for
which no exemption exists under Section 408 of ERISA or Section 4975(d) of
the Code.
(e) Title IV Plans. With respect to each Pension Benefit Plan which is
--------------
subject to the provisions of Title IV of ERISA in which the Companies (for
purposes of this subsection the Companies shall include each trade or
business, whether or not incorporated, which is a member of a group of
which the Companies are a member and which is under common control within
the meaning of Section 414 of the Code and the regulations thereunder)
participate or have participated, (i) neither of the Companies has
15
<PAGE>
withdrawn from such Pension Benefit Plan during a plan year in which it was
a "substantial employer" (as defined in Section 4001(a)(2) of ERISA), (ii)
neither of the Companies has completely or partially withdrawn from a
Pension Benefit Plan that is a multiemployer plan, and the liability to
which it would become subject under ERISA if it were to withdraw completely
from all multiemployer plans in which it currently participates is not in
excess of $5,000 as of the most recent valuation date applicable thereto,
(iii) neither of the Companies has filed a notice of intent to terminate
any such Pension Benefit Plan or adopted any amendment to treat such
Pension Benefit Plan as terminated, (iv) the Pension Benefit Guaranty
Corporation has not instituted proceedings to terminate any such Pension
Benefit Plan, (v) no other event or condition has occurred that might
constitute grounds under Section 4042 of ERISA for the termination of, or
the appointment of a Trustee to administer, any such Pension Benefit Plan,
(vi) all required premium payments to the Pension Benefit Guaranty
Corporation have been paid when due, and (vii) no "reportable event" (as
described in Section 4043 of ERISA and the regulations thereunder) has
occurred with respect to said Pension Benefit Plan.
(f) Other Employee Benefit Plans and Agreements. Exhibit 2.18.3 lists
------------------------------------------- --------------
each fringe benefit, profit sharing, deferred compensation, bonus, stock
option, stock purchase, pension, retainer, consulting, retirement, welfare,
or other incentive plan or agreement, employment agreement not terminable
on 30 days or less written notice, and any other employee benefit plan,
agreement, arrangement, or commitment not previously listed on the Exhibits
to this Section that is maintained by the Companies, respectively, or to
which they contribute or are required to contribute. Exhibit 2.18.3 also
--------------
contains a complete list of all employees of the Companies, respectively,
and the amount of vacation pay currently accrued to each such employee.
(g) Copies of Plans. True and complete copies have been provided to
---------------
representatives of Buyer of the Companies': Welfare Benefit Plans; Pension
Benefit Plans; related trust agreements, annuity contracts and other
funding instruments; each plan, agreement, arrangement, and commitment
referred to in subsection(f) of this Section; favorable determination
letters; annual reports (Form 5500 series) required to be filed with any
governmental agency for each Welfare Benefit Plan, Pension Benefit Plan,
and fringe benefit plan for the three most recent plan years, including,
without limitation, all schedules thereto and all consolidated financial
statements with attached opinions of independent accountants; current
summary plan descriptions; and actuarial reports as of the last valuation
date for each Pension Benefit Plan that is subject to Title IV of ERISA.
(h) Continuation Coverage Requirements for Health Plans. All group
------------------------------------------------------
health plans of the Companies (including any plans of affiliates of them
that must be taken into account under Section 4980B of the Code) have been
operated in compliance with the group health plan continuation coverage
requirements of Section 4980B of the Code and Title I, Part 6 of ERISA.
16
<PAGE>
(i) Valid Obligations. All Welfare Benefit Plans, Pension Benefit
------------------
Plans, related trust agreements, annuity contracts or other funding
instruments, and all plans, agreements, arrangements and commitments
referred to in subsection (f) of this Section are legal, valid and binding
and in full force and effect, and there are no defaults thereunder. Except
as specified in Exhibit 2.18.5, none of the rights of the Companies
---------------
thereunder will be impaired by the consummation of the transactions
contemplated by this Agreement, and all of the rights of the Companies
thereunder will be enforceable by Buyer at and after the Closing without
the consent or agreement of any other party other than consents and
agreements specifically listed in Exhibit 2.18.5.
--------------
2.19 Intellectual Property. The Companies, respectively, have good and
----------------------
marketable title to, own all worldwide right, title, and interest in, to, and
under, and Exhibit 2.19 contains a detailed listing of, each copyright,
-------------
trademark, trade name, service mark, trade dress, patent, franchise, trade
secret, product designation, formula, process, know-how, right of publicity,
design, registration of any of the foregoing, and application for any patent or
registration, and other similar rights (collectively "Intellectual Property
Rights") used in, or necessary for, the operation of its business as currently
conducted. Except as otherwise set forth on Exhibit 2.19, all of said
-------------
Intellectual Property Rights, the right to use them and the right to convey them
are free and clear of all royalty and other obligations, security interests,
liens and encumbrances. The Companies, respectively, have the right to use all
Intellectual Property Rights used in, or necessary for, the operation of its
business as currently conducted. The Companies have taken all action necessary
to protect against and defend against, and have no knowledge of, any conflicting
use of any such Intellectual Property Rights. Except as set forth in Exhibit
-------
2.19, (i) the Companies are not a party in any capacity to any franchise,
- ----
license, royalty or other agreement respecting or restricting any Intellectual
Property Rights and (ii) the Intellectual Property Rights used by the Companies
in the operation of their respective businesses as currently conducted do not
conflict with the Intellectual Property Rights or other rights of any third
party. No product, including final and intermediate products, made, imported,
offered for sale, sold or distributed by the Companies, service provided by the
Companies or process used by the Companies violates any license or infringes any
Intellectual Property Rights or other rights of any third party, and, except as
set forth on Exhibit 2.19, there are no pending claims or demands by any third
------------
party to the contrary. None of the Companies, Louis Hoffman, and, to the
knowledge of the Companies and Louis Hoffman, the other Sellers, are aware that
any such claim or demand will be, or is likely to be, made or of any fact or
circumstance that could reasonably give rise to such claim or demand. To the
knowledge of the Companies and Louis Hoffman, the Intellectual Property Rights
are valid and enforceable.
2.20 Warranties. Except as set forth in Exhibit 2.20, there are no claims
---------- ------------
existing or threatened under or pursuant to any warranty, whether expressed or
implied, on products or services sold by the Companies, and the Balance Sheet
reserves, if any, for anticipated claims are adequate to cover any such claims.
2.21 Labor Relations. Except as set forth in Exhibit 2.21, there have been
--------------- ------------
no strikes, work stoppages or any demands for collective bargaining by any union
or labor organization since
17
<PAGE>
January 1, 1994; there is no collective bargaining relationship between either
of the Companies and any union; there is no dispute or controversy with any
union or other organization of the Companies' employees; there are no
arbitration proceedings pending or to the knowledge of the Companies threatened
involving a dispute or controversy and the Companies have not received any
notice from any labor union or group that it represents or intends to represent
the Companies' employees. The Companies are in full compliance in all material
respects with all Laws respecting employment and employment practices, terms and
conditions of employment and wages and hours including, without limitation, the
Fair Labor Standards Act, the Family and Medical Leave Act of 1993, the
Americans with Disabilities Act of 1990, the Veterans Reemployment Rights Act,
the Equal Employment Opportunities Act, as amended by the Civil Rights Act of
1991, the Occupational Safety and Health Act, the Employment Retirement Income
Security Act of 1974, the Immigration Reform and Control Act of 1986, the Age
Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the
Older Workers Benefit Protection Act, and all other Laws, each as amended to
date, relating to employer/employee rights and obligations. The Companies
currently have satisfactory relationships with their respective employees.
2.22 Insurance. Exhibit 2.22 lists coverage regarding all of the Companies'
--------- ------------
existing insurance policies, the premiums therefor and the coverage of each
policy. Such policies and the amount of coverage and the risks insured are, in
the aggregate, commercially reasonable to insure the Companies against perils
which good business practice demands be insured against. Each such policy is in
full force and effect, the premiums are paid to the extent due thereunder and
there are no defaults under any such policies which could, in the aggregate,
cause a Material Adverse Effect.
2.23 Liability for Services. There exist no known claims against the
------------------------
Companies for injury to person or property of their employees or any third
parties suffered as a result of the performance of any service by the Companies,
respectively, including, but not limited to, claims arising out of the defective
or unsafe nature of its products or services.
2.24 Environmental.
-------------
(a) For purposes of this Section:
(i) "Hazardous Materials" means any hazardous, infectious or
toxic substance, chemical, pollutant, contaminant, emission or waste
which is or becomes regulated by any local, state, federal or foreign
authority. Hazardous Materials include, without limitation, anything
which is: (i) defined as a "pollutant" pursuant to 33 U.S.C. ss.
1362(6); (ii) defined as a "hazardous waste" pursuant to 42 U.S.C. ss.
6921; (iii) defined as a "regulated substance" pursuant to 42 U.S.C.
ss. 6991; (iv) defined as a "hazardous substance" pursuant to 42
U.S.C. ss. 9601(14); (v) defined as a "pollutant or contaminant"
pursuant to 42 U.S.C. ss. 9601(33); (vi) petroleum; (vii) asbestos;
and (viii) polychlorinated biphenyl.
18
<PAGE>
(ii) "Environmental Laws and Regulations" means all limitations,
restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in any Laws relating
to pollution, nuisance, or the environment including, without
limitation, (i) the Federal Clean Air Act, 42 U.S.C. ss.ss. 7401 et
--
seq.; (ii) the Comprehensive Environmental Response, Compensation, and
---
Liability Act, 42 U.S.C. ss.ss. 9601 et seq.; (iii) the Federal
-- ---
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. ss.ss.
1101 et seq.; (iv) the Federal Insecticide, Fungicide and Rodenticide
-- ---
Act, 7 U.S.C. ss.ss. 136 et seq.; (v) the Federal
-- ---
Water Pollution Control Act, 33 U.S.C. ss.ss. 1251 et seq.; (vi) the
-- ---
Solid Waste Disposal Act, 42 U.S.C. ss.ss. 6901 et seq.; (vii) the
-- ---
Toxic Substances Control Act, 15 U.S.C. ss.ss. 2601 et seq.; (viii)
-- ---
Laws relating in whole or part to emissions, discharges, releases, or
threatened releases of any Hazardous Material; and (ix) Laws relating
in whole or part to the manufacture, processing, distribution, use
coverage, disposal, transportation, storage or handling of any
Hazardous Material.
(b) The operations and activities of the Companies comply in all
material respects with all Environmental Laws and Regulations.
(c) The Companies have obtained all material permits, licenses
and other authorizations which are required with respect to its
respective operations, as well as the transactions contemplated hereby
under all Environmental Laws and Regulations. Exhibit 2.24 lists each
------------
such permit, license or other authorization.
(d) There is no civil, criminal, administrative or other action,
suit, demand, claim, hearing, notice of violation, notice or demand
pending, received, or, to the best knowledge of the Companies and
Louis Hoffman, threatened against the Companies relating in any way to
any Environmental Laws and Regulations, which if determined adversely
to the Companies could cause a Material Adverse Effect.
(e) Neither of the Companies has caused or experienced any past
or present events, conditions, circumstances, plans or other matters
which: (i) are not in material compliance with all Environmental Laws
and Regulations; or (ii) may give rise to any claim, action, demand,
suit, proceeding, hearing, notice of violation or investigation of or
against the Companies based on or relating to Hazardous Materials
including, without limitation, such matters relating to any property
owned or leased by the Companies.
(f) No asbestos, polychlorinated biphenyls, lead-based paints, or
radon are on any real property or in any building now or previously
owned, operated, leased or utilized by the Companies.
(g) No employee or former employee of the Companies has been
exposed to any Hazardous Material owned, produced or utilized by the
Companies or any former subsidiary.
19
<PAGE>
(h) Neither of the Companies has received any written notice or
indication from any governmental agency or private or public entity
advising it that it is, or may be, responsible for any investigation
or response costs with respect to a release, threatened release or
cleanup of chemicals or materials produced by or resulting from any
business, commercial or industrial activities, operations or
processes, including, without limitation, any Hazardous Materials.
None of the Companies, nor, to the knowledge of the Companies and
Louis Hoffman, the other Sellers, are aware of any facts which might
give rise to such notices.
(i) No underground tanks, piping or subsurface structures of any
type exist or have existed on any real property now or previously
owned, operated, leased or utilized by the Companies.
(j) Exhibit 2.24 contains complete copies of all environmental
------------
investigations, assessments, audits, studies, tests and related
materials in possession of the Companies, or known to them to exist,
which relate to the current or prior operations of the Companies or
any real property now or previously owned, operated, leased or
utilized by the Companies.
(k) Except in compliance with Environmental Laws and Regulations,
the Company has not used, generated or stored any Hazardous Materials.
2.25 Capital Expenditures. The Companies have outstanding commitments for
--------------------
capital expenditures as set forth in Exhibit 2.25, which includes a schedule of
------------
substantially all moneys disbursed on account of capital expenditures made by
the Companies between the Financial Statement Date and the date hereof. After
the date hereof, no capital expenditures or commitments in excess of $25,000 in
the aggregate will be made by the Companies, except as set forth in Exhibit 2.25
------------
or with Buyer's prior written consent.
2.26 Suppliers. No suppliers of goods or services to the Companies that has
---------
made sales or provided services representing, individually or in the aggregate,
more than $10,000 in payments or commitments by the Companies within the last 12
months has (i) ceased, or indicated any intention to cease, doing business with
the Companies, respectively, or (ii) changed or indicated any intention to
change any terms or conditions for future supply or sale of products or services
from the terms or conditions that existed with respect to the supply or sale of
such products or services during the 12 month period ending on the date hereof,
and which changes are not within such suppliers ordinary course of business.
2.27 Dealings with Affiliates. Exhibit 2.27 sets forth a complete list
-------------------------- ------------
(including the parties) and copies (or a detailed summary in the case of an oral
agreement) of all oral or written contracts, arrangements or other agreements to
which the Companies are, will be or have been a party at any time from January
1, 1997, to the Closing Date, and to which any other Affiliate or the Companies
was or is also a party.
20
<PAGE>
2.28 Bank Accounts. Exhibit 2.28 is a list of all bank accounts, lock
-------------- -------------
boxes, post office boxes and safe deposit boxes maintained in the name of or
controlled by the Companies and the names of the persons having access thereto.
2.29 Compensation. Exhibit 2.29 lists the current job title and total
------------ -------------
remuneration (including, without limitation, salary, commissions and bonuses)
for each officer, director, employee or consultant of the Companies who received
total remuneration in excess of $50,000 from either of the Companies during any
of the past two fiscal years and who is expected to receive total remuneration
in excess of such amount during the current fiscal year. Except as disclosed on
Exhibit 2.29, neither of the Companies has since the Financial Statement Date
- ------------
nor will prior to the Closing Date, increase or commit to increase the base
compensation, commission, bonus or the rate (or any other component) of total
compensation payable or to become payable by the Companies, respectively, to any
employee (including any director or officer), whether such person is listed on
Exhibit 2.29 or not, and no extraordinary compensation or bonus will be paid by
- ------------
the Companies.
2.30 Credit Facility. Listed in Exhibit 2.30 is a complete and accurate
---------------- -------------
description of all outstanding advances to the Companies as of the date of this
Agreement, and the date five (5) days prior to the Closing (to be delivered by
Sellers to Buyer three days prior to the Closing), under that certain Credit
Agreement referenced in the Balance Sheet and consisting of the following: (i)
Step-down Revolving Term Loan, (ii) $1,500,000 Working Capital Commitment, and
(iii) Term Loan (collectively, the "Credit Facility").
2.31 Accounts Receivable. All accounts receivable of the Companies have
--------------------
been incurred in the ordinary course of business and are accurately reflected in
all material respects in the books and records of the Companies consistent with
past practice and represent bona fide transactions.
2.32 Customers. There are no pending or, to the knowledge of Louis Hoffman
---------
and the Companies, threatened disputes between the Companies and any of its
customers which could reasonably be expected to have a Material Adverse Effect.
Since December 31, 1997, (i) there has been no material adverse change in the
business relationship between the Companies and any material customer, and (ii)
the Companies have not received any communications from a material customer to
terminate the relationship or materially reduce purchases.
2.33 Powers of Attorney. The Companies have not granted a power of attorney
------------------
to any person, which is outstanding as of the date hereof, to commit or bind the
Companies.
2.34 Complete Disclosure. No representation or warranty made by Sellers or
-------------------
the Companies in this Agreement, and no exhibit, schedule, certificate or other
writing furnished to Buyer by or on behalf of Sellers, pursuant to this
Agreement or in connection with the transactions contemplated hereby, contains
any untrue statement of a material fact or omits to state a material fact
necessary to make the statements contained herein and therein not misleading.
21
<PAGE>
2.35 Year 2000 Compliance. The Companies have reviewed their products,
---------------------
businesses and operations which could be adversely affected by the Year 2000
problem (as defined below). The Companies have developed, or are developing, a
program to address, on a timely basis, the risk that computer applications
developed, marketed, sold or used by the Companies may be unable to recognize
and properly perform date-sensitive functions involving dates prior to and after
December 31, 1999 (the "Year 2000 Problem"). The Companies' applications
delivered to their customers and their internal information and business systems
are Year 2000 compliant. The Year 2000 Problem has not resulted in, and, to the
knowledge of the Companies and Louis Hoffman, is not reasonably expected to
have, a Material Adverse Effect on the Companies.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby represents and warrants to the Sellers, as follows:
3.1 Corporate Organization, etc. Buyer is a corporation duly organized,
-----------------------------
validly existing and in good standing under the laws of the state of Delaware
and will be qualified to do business in Delaware on the Closing Date.
3.2 Authorization, etc. Buyer has full corporate power and authority to
-------------------
enter into this Agreement and to carry out the transactions contemplated hereby.
The Board of Directors and stockholders of Buyer have duly authorized the
execution and delivery of this Agreement and the transactions contemplated
hereby, and no other corporate proceedings on its part are necessary to
authorize this Agreement and the transactions contemplated hereby. This
Agreement and all other related agreements constitute legal, valid and binding
obligations of Buyer, enforceable against Buyer in accordance with their
respective terms.
3.3 No Violation. Buyer is not subject to or obligated under any
-------------
certificate of incorporation, bylaw, Law, or any agreement or instrument, or any
license, franchise or permit, which would be breached or violated by its
execution, delivery or performance of this Agreement. Buyer will comply with all
Laws in connection with its execution, delivery and performance of this
Agreement and the transactions contemplated hereby.
3.4 Governmental Authorities. Assuming that the Ultimate Parent Entity of
-------------------------
the Companies has less than $100 million of HSR Assets and Revenues, Buyer is
not required to submit any notice, report or other filing with and no consent,
approval or authorization is required by any governmental or regulatory
authority or third party in connection with Buyer's execution or delivery of
this Agreement or the consummation of the transactions contemplated hereby.
3.5 Capitalization. The authorized capital stock of Buyer consists of (i)
--------------
10,000,000 shares of common stock, par value $.01 per share ("Buyer Common
Stock") and (ii) 5,000,000 shares of preferred stock, par value $.01 per share,
none of which are issued and outstanding. As of November 12, 1998, 5,089,858
shares of Buyer Common Stock were issued and outstanding. Except as set forth on
Schedule 3.5, there are no outstanding options, warrants or
- ------------
22
<PAGE>
contracts, commitments, understandings, or arrangements by which the Buyer is or
may become bound to issue additional shares of Buyer Common Stock, or securities
or rights convertible or exchangeable into shares of Buyer Common Stock. The
capital stock of the Buyer is duly authorized and all issued capital stock has
been duly and validly issued and is fully paid and nonassessable and free of
preemptive rights.
3.6 SEC Reports and Financial Statements. Buyer has filed with the
----------------------------------------
Securities and Exchange Commission (the "SEC"), and has heretofore made
available to the Sellers true and complete copies of all forms, reports,
schedules, statements and other documents required to be filed by it under the
Securities Act of 1933, as amended (the "Securities Act") and the Securities and
Exchange Act of 1934, as amended (the "Exchange Act") (as such documents have
been amended or supplemented since the time of their filing, collectively, the
"SEC Reports"). As of their respective dates, the SEC Reports (including without
limitation, any financial statements or schedules included therein) (a) did not
contain any untrue statement of a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, and (b) complied in all material
respects with the applicable requirements of the Securities Act and Exchange Act
(as the case may be) and all applicable rules and regulations of the SEC
promulgated thereunder. Each of the consolidated financial statements included
in the SEC Reports have been prepared from, and are in accordance with, the
books and records of the Buyer, comply in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with U.S. GAAP applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present in all material respects the consolidated
results of operations and cash flows (and changes in financial position, if any)
of the Buyer as at the dates thereof or for the periods presented therein.
ARTICLE IV
COVENANTS OF THE SELLERS
Except as otherwise consented to or approved by Buyer in writing, until the
Closing, the Sellers covenant and agree (and will cause the Companies to act or
refrain from acting where required hereinafter) as follows:
4.1 Regular Course of Business. The Companies will: (i) operate their
---------------------------
respective businesses in the ordinary course, diligently and in good faith,
consistent with past management practices; (ii) maintain all of its respective
properties in customary repair, order and condition, reasonable wear and tear
excepted; (iii) maintain (except for expiration due to lapse of time) all leases
and contracts described herein in effect without change except as expressly
provided herein; (iv) comply with the provisions of all Laws applicable to the
conduct of its business; (v) not engage in any significant or unusual
transaction; (vi) not cancel, release, waive or compromise any debt, claim or
right in its favor having a value in excess of $25,000 other than in connection
with returns for credit or replacement in the ordinary course of business; (vii)
23
<PAGE>
maintain insurance coverage up to the Closing Date in amounts adequate to
protect and insure the Companies against perils which good business practice
demands be insured against or which are normally insured against by other
industry members similarly situated. Notwithstanding the foregoing, the
Companies shall be permitted, on or prior to the Closing Date, to pay cash
dividends to the Sellers, to make payments to the Sellers, including without
limitation to pay the Sellers' expenses incurred in connection with this
transaction, to pay management fees to Regent Capital Management Corp. or to
repay borrowings under the Credit Facility or otherwise ("Permitted
Distributions").
4.2 Amendments. Except as required for the transactions contemplated in
----------
this Agreement, no change or amendment shall be made in either Companies'
articles or certificate of incorporation or bylaws. Neither of the Companies
will merge into or consolidate with any other corporation or person, or change
the character of its business.
4.3 Capital Changes. Neither of the Companies will (i) issue or sell any
----------------
shares of its capital stock of any class or issue or sell any securities
convertible into, or options, warrants to purchase or rights to subscribe to,
any shares of its capital stock of any class or (ii) directly or indirectly,
redeem, purchase or otherwise acquire any shares of its capital stock.
4.4 Capital and Other Expenditures. Until the Closing, neither of the
--------------------------------
Companies will make any capital expenditures, or commitments with respect
thereto, except as set forth in Exhibit 2.25. Other than those agreed upon
-------------
amounts set forth in Exhibit 2.25, and repayment of amounts advanced under the
------------
Credit Facility during such period, neither of the Companies will repay or
prepay any principal or interest on any indebtedness or obligation (except for
prepaying trade accounts payable in the normal course of business to take
advantage of cash discounts).
4.5 Borrowing. Except with respect to permitted advances under the Credit
---------
Facility, neither of the Companies will (i) incur, assume or guarantee any
indebtedness or capital leases or (ii) create or permit to become effective any
mortgage, pledge, lien, encumbrance or charge of any kind upon its assets other
than in the ordinary course of business.
4.6 Other Commitments. Except in the ordinary course of business consistent
-----------------
with past practices or with the written consent of Buyer, neither of the
Companies will enter into any transaction, make any commitment or incur any
obligation.
4.7 Interim Financial Information. The Sellers will supply Buyer with
--------------------------------
unaudited monthly adjusted consolidated financial statements of Holding within
fifteen (15) business days of the end of each month ending between the Financial
Statement Date and the Closing Date. All such financial statements shall be
accompanied by a certificate of the President and the financial officer of
Holding certifying that such financial statements were prepared in accordance
with generally accepted accounting principles applied on a basis consistent with
the unaudited consolidated financial statements for the preceding months.
24
<PAGE>
4.8 Full Access and Disclosure.
--------------------------
(a) The Companies shall afford to Buyer and its counsel, accountants
and other authorized representatives access during business hours to the
Companies' plants, properties, books and records in order that Buyer may
have full opportunity to make such reasonable investigations as it shall
desire to make of the affairs of the Companies, and the Companies will
cause their officers and employees to furnish such additional financial and
operating data and other information as Buyer shall from time to time
reasonably request.
(b) From time to time prior to the Closing Date, the Companies will
promptly supplement or amend in writing information previously delivered to
Buyer with respect to any matter hereafter arising which, if existing or
occurring at the date of this Agreement, would have been required to be set
forth or disclosed.
4.9 Consents. The Companies will use all commercially reasonable efforts to
--------
obtain on or prior to the Closing Date all consents necessary to the
consummation of the transactions contemplated hereby.
4.10 Breach of Agreement. None of the Sellers or the Companies will take
-------------------
any action which, if taken prior to the Closing Date, would constitute a breach
of this Agreement.
4.11 Further Assurances. The Companies and the Sellers will furnish Buyer
-------------------
with such other and further documents, certificates, opinions, consents and
information as (a) Buyer shall reasonably request to enable Buyer to borrow
funds from a bank or other lending entity or individual(s) for the purchase of
the Shares, and (b) to evidence compliance with the terms and conditions of any
credit agreement to be entered into between Buyer and a bank and/or other
lending entities or individuals.
4.12 Fulfillment of Conditions. The Sellers and the Companies will take all
-------------------------
commercially reasonable steps necessary or desirable, and proceed diligently and
in good faith, to satisfy each condition to the obligations of Buyer contained
in this Agreement and will not take or fail to take any action that could
reasonably be expected to result in the nonfulfillment of any such condition.
ARTICLE V
---------
COVENANTS OF BUYER
------------------
Buyer hereby covenants and agrees with the Sellers that:
5.1 Post-Closing Course of Business. From and after the Closing through
--------------------------------
December 31, 1998, the Buyer, with the cooperation of Louis Hoffman, will
operate the
25
<PAGE>
Companies in the ordinary course, diligently and in good faith, consistent with
past management practices.
5.2 Books and Records. Buyer shall preserve and keep the Companies' books
-----------------
and records delivered hereunder for a period of five (5) years from the date
hereof and shall, during such period, make such books and records available to
former officers and directors of each such company for any reasonable purpose.
5.3 Further Assurances. The Buyer will furnish the Companies and the
-------------------
Sellers with such other and further documents, certificates, opinions, consents
and information reasonably required by the Companies and Sellers in connection
with the performance of this Agreement.
5.4 Fulfillment of Conditions. The Buyer will take all commercially
---------------------------
reasonable steps necessary or desirable, and proceed diligently and in good
faith, to satisfy each condition to the obligations of Sellers and the Companies
contained in this Agreement and will not take or fail to take any action that
could reasonably be expected to result in the nonfulfillment of any such
condition.
ARTICLE VI
----------
OTHER AGREEMENTS
----------------
Buyer and the Sellers covenant and agree that:
6.1 Agreement to Defend. In the event any action, suit, proceeding or
--------------------
investigation of the nature specified in Section 7.4 or Section 8.2 hereof is
----------- -----------
commenced, whether before or after the Closing Date, all the parties hereto
agree to cooperate and use their best efforts to defend against and respond
thereto.
6.2 Consultants, Brokers and Finders. The Sellers and Buyer each represent
---------------------------------
and warrant that they have not retained any consultant, broker or finder in
connection with the transactions contemplated by this Agreement, except for CIBC
Oppenheimer Corp. retained by Buyer and Regent Capital Management Corp. retained
by Sellers. The Sellers and Buyer each hereby agree to indemnify, defend and
hold the other party and its offices, directors, employees and Affiliates,
harmless from and against any and all claims, liabilities or expenses for any
brokerage fees, commissions or finders' fees due to any consultant, broker or
finder retained by the indemnifying party.
6.3 Noncompetition Agreement. At the Closing, Buyer and each of Regent
-------------------------
Capital Equity Partners, L.P., Nantucket SuperGraphics II, L.L.C., Nantucket
SuperGraphics, L.L.C., the directors and officers of Holding and Richard Hochman
shall enter into a Noncompetition Agreement in substantially the form set forth
in Exhibit 6.3.
-----------
6.4 Taxes.
-----
26
<PAGE>
(a) The Sellers shall cause the Companies to prepare and file all tax
returns and reports of the Companies due on or prior to the Closing Date,
which returns and reports shall be prepared and filed timely and on a basis
consistent with existing procedures for preparing such returns and reports
and in a manner consistent with prior practice with respect to the
treatment of specific items on the returns or reports; provided, however,
-------- -------
that if the treatment of any item on any such return or report has not been
provided by prior practice, the Sellers shall cause the Companies to report
such items in a manner that would result in the least amount of tax
liability to the Companies and Buyer for periods ending after the Closing
Date. Buyer shall cause the Companies to prepare and file all tax returns
and reports of the Companies due after the Closing Date, which returns and
reports, to the extent they relate to taxable periods beginning prior to,
but including the Closing Date, shall be prepared and filed timely and on a
basis consistent with existing procedures for preparing such returns and in
a manner consistent with prior practice with respect to the treatment of
specific items on the returns and reports, unless such treatment does not
have sufficient legal support to avoid the imposition of penalties.
(b) Buyer, the Companies and the Sellers shall provide each other with
such assistance as may reasonably be requested by the others in connection
with the preparation of any return or report of Taxes, any audit or other
examination by any taxing authority, or any judicial or administrative
proceedings relating to liabilities for Taxes. Buyer, the Companies and the
Sellers will retain for the full period of any statute of limitations and
provide the others with any records or information which may be relevant to
such preparation, audit, examination, proceeding or determination.
(c) If in connection with any examination, investigation, audit or
other proceeding in respect of any tax return covering the operations of
the Companies during a taxable period on or before the Closing Date, any
governmental body or authority issues to the Companies a written notice of
deficiency, a notice of reassessment, a proposed adjustment, an assertion
of claim or demand concerning the taxable period covered by such return,
Buyer or the Companies shall notify the Sellers of its receipt of such
communication from the governmental body or authority within 30 business
days after receiving such notice of deficiency, reassessment, adjustment or
assertion of claim or demand. No failure or delay of Buyer or the Companies
in the performance of the foregoing shall reduce or otherwise affect the
obligations or liabilities of the Sellers pursuant to this Agreement,
except to the extent that such failure or delay shall have adversely
affected the Sellers' ability to defend against any liability or claim for
Taxes that the Sellers are obligated to pay hereunder. Except as provided
below, the Sellers shall, at their expense, have the nonexclusive right to
participate in the contest of any such assessment, proposal, claim,
reassessment, demand or other proceedings in connection with any tax return
covering taxable periods of the Companies ending on or before the Closing
Date. Buyer and the Companies will not be obligated to settle or resolve
any issue related to Taxes for such a period, which, if so settled or
resolved, could have an adverse effect on the Companies or Buyer for
periods after the Closing Date, unless the Sellers agree in writing with
Buyer and the Companies, in terms reasonably satisfactory
27
<PAGE>
to Buyer and the Companies, to indemnify Buyer and the Companies from any
cost, damage, loss or expense relating to such settlement or resolution.
ARTICLE VII
-----------
CONDITIONS TO THE OBLIGATIONS OF BUYER
--------------------------------------
Each and every obligation of Buyer under this Agreement shall be subject to
the satisfaction, on or before the Closing Date, of each of the following
conditions unless waived in writing by Buyer.
7.1 Representations and Warranties; Performance. The representations and
--------------------------------------------
warranties made by the Companies and the Sellers herein shall be true and
correct in all material respects on the date of this Agreement and on the
Closing Date with the same effect as though made on such date; the Sellers shall
have performed and complied in all material respects with all agreements,
covenants and conditions required by this Agreement to be performed and complied
with by them prior to the Closing Date; the Sellers shall have, and shall have
caused the President of Holding to have delivered to Buyer a certificate, dated
the Closing Date, in the form designated Exhibit 7.1 hereto, certifying to such
-----------
matters and the other conditions contained in this Article VII.
-----------
7.2 Consents and Approvals. All consents from and filings with third
------------------------
parties, regulators and governmental agencies required to consummate the
transactions contemplated hereby, or which, either individually or in the
aggregate, if not obtained, would cause an adverse effect on the financial
condition or business of the Companies shall have been obtained and delivered to
Buyer.
7.3 Opinion of the Sellers' Counsel. Buyer shall have received an opinion
--------------------------------
of the Sellers' counsel, dated the Closing Date, substantially in the form
attached hereto as Exhibit 7.3.
-----------
7.4 No Proceeding or Litigation. No action, suit or proceeding before any
---------------------------
court or any governmental or regulatory authority shall have been commenced or
threatened, and no investigation by any governmental or regulatory authority
shall have been commenced or threatened against the Sellers, the Companies,
Buyer or any of their respective principals, officers or directors seeking to
restrain, prevent or change the transactions contemplated hereby or questioning
the validity or legality of any of such transactions or seeking damages in
connection with any of such transactions.
7.5 Credit Facility. The Companies shall have no borrowings under the
----------------
Credit Facility and the Credit Facility shall have been terminated.
7.6 Other Agreements. The Agreements described in Section 6.3 shall have
----------------- -----------
been entered into and delivered.
28
<PAGE>
7.7 Escrow Agreement. Buyer shall have entered into an Escrow Agreement
-----------------
with Louis Hoffman on terms reasonably satisfactory to Buyer.
7.8 Employment Agreement. Buyer shall have entered into an Employment
---------------------
Agreement with Louis Hoffman on terms reasonably satisfactory to Buyer.
7.9 Prior Owner Earn-Out. The Sellers shall have satisfied all payment
---------------------
obligations relating to earn-out payments due in connection with their original
acquisition of the Companies.
7.10 Credit Facility Balance. Buyer shall have received, pursuant to
-------------------------
Section 2.30 hereto, a description of all outstanding advances to the Companies
as of a date five (5) days prior to the Closing.
7.11 Options. All outstanding options to purchase common stock of Holding
-------
set forth on Exhibit 2.2 hereto shall have been terminated.
-----------
7.12 Financial Statements. Buyer shall have received unaudited monthly
---------------------
adjusted consolidated statements of income of the Companies for the tenth months
ended October 31, 1998 and 1997.
7.13 Financing. Buyer shall have consummated on or before the Closing Date
---------
a financing in an amount sufficient to enable Buyer to pay the Purchase Price at
the Closing.
ARTICLE VIII
------------
CONDITIONS TO THE OBLIGATIONS OF THE SELLERS
--------------------------------------------
Each and every obligation of the Sellers under this Agreement shall be
subject to the satisfaction, on or before the Closing Date, of each of the
following conditions unless waived in writing by the Sellers:
8.1 Representations and Warranties; Performance. The representations and
--------------------------------------------
warranties made by Buyer herein shall be true and correct in all material
respects on the date of this Agreement and on the Closing Date with the same
effect as though made on such date; Buyer shall have performed and complied in
all material respects with all agreements, covenants and conditions required by
this Agreement to be performed and complied with by it prior to the Closing
Date; Buyer shall have delivered to Sellers a certificate of its President,
dated the Closing Date, certifying to the fulfillment of the conditions set
forth herein, in the form designated as Exhibit 8.1 and the other conditions
-----------
contained in this Article VIII.
------------
8.2 No Proceeding or Litigation. No action, suit or proceeding before any
---------------------------
court or any governmental or regulatory authority shall have been commenced, or
threatened, and no investigation by any governmental or regulatory authority
shall have been commenced, or threatened, against the Companies, Buyer, the
Sellers, or any of their respective principals, officers or directors, seeking
to restrain, prevent or change the transactions contemplated hereby
29
<PAGE>
or questioning the validity or legality of any of such transactions or seeking
damages in connection with any of such transactions.
8.3 Opinion of Counsel. The Sellers shall have received an opinion of
-------------------
counsel to Buyer dated the Closing Date substantially in the form of Exhibit
-------
8.3.
- ----
8.4 Payment. The payment(s) and deliveries described in Section 1.2 shall
------- -----------
have been made, to the extent required.
8.5 Other Documents. Buyer will furnish the Sellers with such other
----------------
documents and certificates to evidence compliance with the conditions set forth
in this Article as may be reasonably requested by the Sellers.
8.6 Other Agreements. The agreements described in Section 6.3 shall have
----------------- -----------
been entered into and delivered.
8.7 Employment Agreement. Buyer shall have entered into an Employment
---------------------
Agreement with Louis Hoffman on terms reasonably satisfactory to Mr. Hoffman.
ARTICLE IX
----------
CLOSING
-------
9.1 Closing. Unless this Agreement shall have been terminated or abandoned
-------
pursuant to the provisions of Article X hereof, a closing (the "Closing") shall
---------
be held on November 25, 1998, or at such other time as Buyer and the Sellers may
agree, and shall occur at such place or places as Buyer and the Sellers shall
agree. The date on which the Closing occurs is referred to herein as the
"Closing Date."
9.2 Deliveries at Closing.
---------------------
(a) At the Closing, the Sellers shall transfer and assign to Buyer all
of the Shares by delivering certificates representing each of the Shares,
duly endorsed for transfer to Buyer and the other agreements,
certifications and other documents required to be executed and delivered
hereunder at the Closing shall be duly and validly executed and delivered.
(b) From time to time after the Closing, at Buyer's request and
without further consideration from Buyer, the Sellers shall execute and
deliver such other instruments of conveyance and transfer and take such
other action as Buyer reasonably may require to convey, transfer to and
vest in Buyer and to put Buyer in possession of the Shares to be sold,
conveyed, transferred and delivered hereunder.
(c) Buyer shall pay the Purchase Price as provided in Section 1.2
-----------
hereof.
30
<PAGE>
9.3 Specific Performance. The parties agree that if any party hereto is
---------------------
obligated to, but nevertheless does not, consummate this transaction, then any
other party, in addition to all other rights or remedies, shall be entitled to
the remedy of specific performance mandating that the other party or parties
consummate this transaction. In an action for specific performance by any party
hereto against any other party, the other party shall not plead adequacy of
damages at law.
ARTICLE X
---------
TERMINATION AND ABANDONMENT
---------------------------
10.1 Methods of Termination. This Agreement may be terminated and the
-----------------------
transactions herein contemplated may be abandoned at any time (notwithstanding
approval by the Board of directors of Buyer):
(a) by mutual consent of Buyer and the Sellers; or
(b) by either Buyer or the Sellers, if (i) such party is not in breach
hereunder and the other party is in breach hereunder and (ii) this
Agreement is not consummated on or before December 2, 1998 or such other
date as the Sellers and Buyer may agree.
10.2 Procedure Upon Termination. In the event of termination and
-----------------------------
abandonment pursuant to Section 10.1 hereof, this Agreement shall terminate and
------------
shall be abandoned, without further action by any of the parties hereto. If this
Agreement is terminated as provided herein:
(a) each party will upon request redeliver all documents and other
materials of any other party relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to the
party furnishing the same;
(b) no party hereto shall have any liability or further obligation to
any other party to this Agreement; and
(c) each party shall bear its own expenses.
ARTICLE XI
----------
INDEMNIFICATION
---------------
11.1 Indemnification by the Sellers. Each Seller hereby agrees to indemnify
------------------------------
and hold harmless Buyer and each of its shareholders, officers and directors
from and against any loss, damage, or expense (including, but not limited, to
reasonable attorneys' fees) ("Damages"), incurred or sustained by Buyer or any
of its shareholders, officers or directors as a result of (a) any breach or
nonfulfillment of any term, provision, covenant or agreement contained in this
Agreement by the Sellers; (b) any inaccuracy in any of the representations or
warranties made
31
<PAGE>
by Louis Hoffman or the Companies in Article II of this Agreement; or (c) any
----------
inaccuracy or misrepresentation in any certificate or other document or
instrument delivered by the Sellers or the Companies in accordance with any
provision of this Agreement. The obligations of the Sellers as set forth in this
Section 11.1 shall be subject to and limited by the following:
(i) (A) No claim for Damages shall be paid until the cumulative
amount of such Damages shall equal or exceed $180,000, and then only
such claims for Damages shall be paid in excess of $180,000, (B) all
claims for Damages shall be paid severally by the Sellers pro rata
based on the percentages set forth opposite each Seller's name on
Exhibit 11.1, and (C) with respect to each Seller, the aggregate of
-------------
all claims for Damages paid by such Seller shall not exceed an amount
equal to such Seller's pro rata share of $3,500,000, determined in
accordance with Exhibit 11.1; and
------------
(ii) Buyer shall give written notice to the Sellers stating
specifically the basis for the claim for Damages, the amount thereof
and shall tender defense thereof to the Sellers as provided in Section
-------
11.2.
----
In addition to any other remedy, Buyer shall, subject to the provisions of this
Section 11.1, be entitled, but shall not be obligated, to offset all such claims
- ------------
for Damages against the Deferred Purchase Price Payment pursuant to Section 1.3.
-----------
11.2 Tender of Defense for Damages. Promptly upon receipt by Buyer of a
------------------------------
notice of an action, lawsuit, proceeding, investigation or other claim against
it (if by a third party) or upon discovering the liability, obligation or facts
giving rise to such claim for indemnification which may give rise to a claim for
Damages, Buyer shall give written notice thereof to the Sellers. No failure or
delay of Buyer in the performance of the foregoing shall relieve, reduce or
otherwise affect the Sellers' obligations and liability to indemnify Buyer
pursuant to this Agreement, except to the extent that such failure or delay
shall have adversely affected the Sellers' ability to defend against such claim
for Damages. If the Sellers give to Buyer an agreement in writing, in a form
reasonably satisfactory to Buyer's counsel, to defend such action, lawsuit,
proceeding, investigation or other claim for Damages, the Sellers may, at their
sole expense, undertake the defense against such claim and may contest or settle
such claim on such terms, at such time and in such manner as the Sellers, in
their sole discretion, shall elect and Buyer shall execute such documents and
take such steps as may be reasonably necessary in the opinion of counsel for the
Sellers to enable the Sellers to conduct the defense of such claim for Damages.
In the event Buyer notifies Sellers in writing that it will undertake the
defense against any such claim, at its sole expense, which Buyer may do in its
sole discretion, Sellers shall have no liability for Damages as relates to such
claim in excess of any amount which Sellers had previously offered in writing to
settle any such claim. If the Sellers fail or refuse to defend any claim for
Damages, the Sellers may nevertheless, at their own expense, participate in the
defense of such claim by Buyer and in any and all settlement negotiations
relating thereto. In any and all events, the Sellers shall have such access to
the records and files of Buyer relating to any claim for Damages as may be
reasonably necessary to effectively defend or participate in the defense
thereof.
32
<PAGE>
ARTICLE XII
-----------
MISCELLANEOUS PROVISIONS
------------------------
12.1 Amendment and Modification. Subject to applicable law, this Agreement
--------------------------
may be amended, modified and supplemented only by written agreement of the
Sellers and Buyer.
12.2 Waiver of Compliance; Consents. Any failure of the Sellers on the one
-------------------------------
hand, or Buyer on the other hand, to comply with any obligation, covenant,
agreement or condition herein may be waived in writing by Buyer or the Sellers,
respectively, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure. Whenever this
Agreement requires or permits consent by or on behalf of any party hereto, such
consent shall be given in writing in a manner consistent with the requirements
for a waiver of compliance as set forth in this Section 12.2.
------------
12.3 Expenses. Each party will pay its own legal, accounting and other
--------
expenses incurred by such party or on its behalf in connection with this
Agreement and the transactions contemplated herein.
12.4 Investigations; Survival of Warranties. The respective representations
--------------------------------------
and warranties of the Sellers and Buyer contained herein or in any certificates
or other documents delivered prior to or at the Closing shall not be deemed
waived or otherwise affected by any investigation made by any party hereto or by
the occurrence of the Closing. Each and every such representation and warranty
shall survive until March 15, 2000, provided, however, all representations and
warranties made pursuant to (i) Section 2.14 shall remain in full force and
effect until the expiration of the applicable statute of limitations and (ii)
Section 2.24 shall survive until the fifth anniversary of the Closing.
12.5 Notices. Any notice, request, consent or communication (collectively,
-------
a "Notice") under this Agreement shall be effective only if it is in writing and
(i) personally delivered, (ii) sent by certified or registered mail, return
receipt requested, postage prepaid, (iii) sent by a nationally recognized
overnight delivery service, with delivery confirmed, or (iv) telecopied, with
receipt confirmed, addressed as follows:
(a) If to the Sellers, to their addresses appearing on the signature
pages hereto.
in each case with a copy to:
33
<PAGE>
Robert H. Friedman
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Telephone: (212) 753-7200
Telecopier: (212) 755-1467
(b) If to Buyer, to:
William E. Dye, Chief Executive Officer
Unidigital Inc.
229 West 28th Street
New York, New York 10001
Telephone: (212) 244-7820
Telecopier: (212) 244-7815
with a copy to:
David J. Sorin, Esq.
Buchanan Ingersoll Professional Corporation
500 College Road East
Princeton, New Jersey 08540
Telephone: (609) 987-6800
Telecopier: (609) 520-0360
or such other place or address as shall be furnished in writing by any party to
the other parties. A Notice shall be deemed to have been given as of the date
when (i) personally delivered, (ii) five (5) days after the date when deposited
with the United States mail properly addressed, (iii) when receipt of a Notice
sent by an overnight delivery service is confirmed by such overnight delivery
service, or (iv) when receipt of the telecopy is confirmed, as the case may be,
unless the sending party has actual knowledge that a Notice was not received by
the intended recipient.
12.6 Assignment. This Agreement and all of the provisions hereof shall be
----------
binding upon and inure to the benefit of the parties hereto and their respective
heirs, successors and permitted assigns, but neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by the Sellers
without the prior written consent of Buyer.
12.7 Governing Law; Dispute Resolution.
---------------------------------
(a) This Agreement shall be governed by the laws of the state of New
York (regardless of the laws that might otherwise govern under applicable
principles of conflicts
34
<PAGE>
of law of the state of New York) as to all matters including, but not
limited to, matters of validity, construction, effect, performance and
remedies.
(b) Other than as provided in Section 9.3, any dispute between
any of the parties hereto or any claim by a party against another party
arising out of or relating to this Agreement or relating to any alleged
breach thereof shall be determined by arbitration in accordance with
the rules then in force of the American Arbitration Association. The
arbitration proceedings shall take place in New York, New York or such
other location as the parties in dispute may agree upon. The
arbitration proceedings shall be subject to the substantive laws of the
state of New York. There shall be one arbitrator, as shall be agreed
upon by the parties in dispute, who shall be an individual skilled in
the legal and business aspects of the subject matter of this Agreement
and of the dispute. In the absence of such an agreement, each party in
dispute shall select one arbitrator and the arbitrators so selected
shall select a third arbitrator. In the event the arbitrators cannot
agree upon the selection of a third arbitrator, such third arbitrator
shall be appointed by the American Arbitration Association at the
request of any of the parties in dispute. The arbitrator shall be an
individual skilled in the legal and the business aspects of the subject
matter of this Agreement and of the dispute. The decision rendered by
the arbitrator shall be accompanied by a written opinion in support
thereof. Such decision shall be final and binding upon the parties in
dispute without right of appeal. Judgment upon any such decision may be
entered into in any court having jurisdiction thereof, or application
may be made to such court for a judicial acceptance of the decision in
an order of enforcement. Costs of the arbitration shall be assessed by
the arbitrator against all or any of the parties in dispute and shall
be paid promptly by the party or parties so assessed.
12.8 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.9 Neutral Interpretation. This Agreement constitutes the product of the
----------------------
negotiation of the parties hereto and the enforcement hereof shall be
interpreted in a neutral manner, and not more strongly for or against any party
based upon the source of the draftsmanship hereof.
12.10 Headings. The article and section headings contained in this
--------
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
12.11 Entire Agreement. This Agreement, which term as used throughout
-----------------
includes the Exhibits hereto, embodies the entire agreement and understanding of
the parties hereto in respect of the subject matter contained herein. There are
no restrictions, promises, representations, warranties, covenants or
undertakings other than those expressly set forth or referred to herein. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to such subject matter.
35
<PAGE>
12.12 Waiver; Alteration.
-------------------------
(a) Waiver. The waiver of a breach hereunder may be affected only by a
------
writing signed by the waiving party and shall not constitute, or be held to
be, a waiver of any other or subsequent breach, or to affect in any way the
effectiveness of such provision. Failure by any party to object to a breach
by any other party shall not constitute or be held to be a waiver of the
party's right to later object to, or to terminate this Agreement, due to
any other breach or subsequent breach.
(b) Alteration. Any modification or amendment to this Agreement shall
----------
be effective only if made in writing and signed by all parties hereto.
(The remainder of this page has been left blank intentionally.)
36
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as
of the date first hereinabove set forth.
UNIDIGITAL INC.
By: /s/William E. Dye
--------------------------------
Name: William E. Dye
Title: Chief Executive Officer
37
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as
of the date first hereinabove set forth.
SUPERGRAPHICS HOLDING COMPANY, INC.
By:/s/J. Oliver Maggard
--------------------------------
Name: J. Oliver Maggard
Title: Vice President
SUPERGRAPHICS CORPORATION
By:/s/ Louis Hoffman
--------------------------------
Name: Louis Hoffman
Title: President
38
<PAGE>
[AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE]
REGENT CAPITAL EQUITY PARTNERS, L.P.
By: Regent Capital Holdings, L.P., as
General Partner
By: Regent Capital Holdings, Inc., as
General Partner
By: /s/J. Oliver Maggard
---------------------------------
Name: J. Oliver Maggard
Title: Managing Director
Address: 505 Park Avenue
New York, New York 10022
39
<PAGE>
[AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE]
NANTUCKET SUPERGRAPHICS, L.L.C.
By: /s/Joan Y. McCabe
---------------------------------
Name: Joan Y. McCabe
Title:General Partner
Address:Two Sound View Drive
Greenwich, CT 06830
<PAGE>
[AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE]
NANTUCKET SUPERGRAPHICS II, L.L.C.
By: /s/ Joan Y. McCabe
---------------------------------
Name: Joan Y. McCabe
Title:General Partner
Address:Two Sound View Drive
Greenwich, CT 06830
<PAGE>
[AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE]
/s/Louis Hoffman
-------------------------------
LOUIS HOFFMAN
Address:
<PAGE>
[AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE]
/s/Brian Labadie
------------------------------
BRIAN LABADIE
Address:
<PAGE>
[AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE]
/s/Tommy Greer
------------------------------
TOMMY GREER
Address: 2323 Feather South Drive
Apt. F207
Clearwater, FL 33762
<PAGE>
[AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE]
GORDON G. COHEN AND VICTORIA A. OLIVER
AS JOINT TENANTS
/s/Gordon G. Cohen
-----------------------------
GORDON G. COHEN
/s/Victoria A. Oliver
-----------------------------
VICTORIA A. OLIVER
Address:
<PAGE>
[AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE]
/s/John Howard
-----------------------------
JOHN HOWARD
Address:
/s/Lauren R. Howard
------------------------------
LAUREN R. HOWARD
Address:
<PAGE>
[AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE]
/s/Mark Leeds
------------------------------
MARK LEEDS
Address: 178 East 80th Street
Apt. 21A
New York, NY 10021
<PAGE>
[AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE]
/s/James Johnson
-------------------------------
JAMES JOHNSON
Address: 54 Riverside Drive 9D
New York, NY 10024
<PAGE>
[AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE]
/s/Richard G. Spears
--------------------------------
RICHARD G. SPEARS
Address:
<PAGE>
[AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE]
LS PARTNERS G.P.
By: /s/Sanford Shapiro
--------------------------
Name: Sanford Shapiro
Title: General Patner
Address: 107 Pine Tree Drive
Stamford, CT 06906
<PAGE>
[AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE]
GS HOLDINGS LLC
By: /s/Greg Smith
----------------------------
Name: Greg Smith
Title: President
Address: 420 Lexington Avenue
Suite 2501
New York, NY 10170
<PAGE>
[AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE]
/s/Eugene Matalene, Jr.
---------------------------------
EUGENE MATALENE, JR.
Address: 19 North Drive
Plandome, NY 11030
<PAGE>
[AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE]
/s/Paul Higbee
-------------------------------
PAUL HIGBEE
Address: 175 Elmsley Ct.
Ridgewood, NJ 07450
<PAGE>
[AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE]
/s/Jack Langer
-------------------------------
JACK LANGER
Address:
<PAGE>
[AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE]
/s/Scott Howard
-------------------------------
SCOTT HOWARD
Address: 50 East 42nd, #2106
New York, NY 10017
<PAGE>
[AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE]
/s/Robert Pangia
-------------------------------
ROBERT PANGIA
Address: 31 Hyde Circle
Watchung, NJ 07060
<PAGE>
[AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE]
/s/Alan Gottesman
-------------------------------
ALAN GOTTESMAN
Address: 160 West End Avenue
New York, NY 10023
AMENDMENT NO. 3 AND WAIVER
AMENDMENT NO. 3 AND WAIVER, dated as of November 30, 1998 (this
"Amendment"), to the Credit Agreement, dated as of March 24, 1998 (as amended,
---------
supplemented or otherwise modified prior to the date hereof, the "Credit
------
Agreement"), among UNIDIGITAL INC., a Delaware corporation (the "Borrower"), the
- --------- --------
various lenders from time to time a party thereto (the "Lenders"), CANADIAN
-------
IMPERIAL BANK OF COMMERCE, as administrative agent (in such capacity, the
"Administrative Agent") for the Lenders and CANADIAN IMPERIAL BANK OF COMMERCE
---------------------
(in such capacity, the "Issuing Lender.").
--------------
RECITALS
The Borrower has advised the Administrative Agent and the Lenders that it
will acquire (the "SuperGraphics Acquisition") all of the issued and outstanding
-------------------------
shares of SuperGraphics Holding Company, Inc., a Delaware corporation
("SuperGraphics"), pursuant to the Agreement for Purchase and Sale of Stock,
-------------
dated as of November 16, 1998 (as amended, supplemented or otherwise modified as
permitted by the Credit Agreement as amended hereby, the "SuperGraphics
-------------
Acquisition Agreement"), among the Borrower, SuperGraphics, SuperGraphics OpCo
- ---------------------
(as defined below), and all the stockholders of SuperGraphics parties thereto.
The Borrower has further advised the Administrative Agent that SuperGraphics
Corporation, a California corporation ("SuperGraphics OpCo") is the wholly-owned
------------------
subsidiary of SuperGraphics and the operating entity of the business conducted
thereby. The Borrower has further advised the Administrative Agent that it
intends to use borrowings under the Term Loan Commitments (as increased hereby)
to finance the SuperGraphics Acquisition and the payment of fees and expenses
incurred in connection therewith. In connection with the SuperGraphics
Acquisition and the borrowings referenced above, the Borrower has requested the
Administrative Agent and the Lenders to agree to amend and waive certain
provisions of the Credit Agreement as set forth in this Amendment. The
Administrative Agent and the Lenders parties hereto are willing to agree to such
amendments and waivers, but only on the terms and subject to the conditions set
forth in this Amendment.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrower and the Administrative Agent and the Lenders parties
hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms defined in the
-------------
Credit Agreement are used herein as therein defined including, in Section 3, as
defined in the Credit Agreement as amended by this Amendment.
<PAGE>
2. Amendments.
----------
(a) Section 1.1 of the Credit Agreement is hereby amended by adding the
following new definitions thereto in the appropriate alphabetical order:
"Amendment No. 3 and Waiver": Amendment No. 3 and Waiver, dated as of
--------------------------
November 30, 1998, to the Credit Agreement.
"Consolidated Funded Debt": as of any date, the sum of all aggregate
-------------------------
indebtedness of the Borrower and its Subsidiaries of the types set forth in
clauses (a), other than, to the extent included therein, the Senior
Subordinated Obligations, (b), (c), (d), (e) and (g) of Indebtedness,
determined on a consolidated basis in accordance with GAAP, including, in
any event, the Term Loans, the Acquisition Loans, Revolving Credit Loans
and any purchase money Indebtedness.
"Initial Term Loan": as to any Lender, the term loan made by such
-------------------
Lender on the Closing Date pursuant to the Initial Term Loan Commitment of
such Lender.
"Initial Term Loan Commitment": as to any Lender, its obligation to
-----------------------------
make a Term Loan to the Borrower on the Closing Date pursuant to Section
2.1(a) in the amount set forth opposite such Lender's name on Schedule 1.0
under the caption "Initial Term Loan".
"Second Supplemental Closing Date": the date on which the conditions
----------------------------------
precedent to the effectiveness of Amendment No. 3 set forth in Section 4 of
Amendment No. 3 shall have been satisfied.
"Second Supplemental Fee Letter": that certain Fee Letter, dated
---------------------------------
November 30, 1998, among CIBC, and the Borrower, as amended, supplemented
or otherwise modified from time to time.
"Securities Purchase Agreement": the Securities Purchase Agreement,
-------------------------------
dated as of November 30, 1998, among the Borrower, the guarantors parties
thereto and CIBC Wood Gundy Capital Corp., as purchaser, as the same may be
amended, supplemented or otherwise modified from time to time as permitted
under Section 10.11.
"Senior Subordinated Obligation": the Indebtedness evidenced by the
-------------------------------
Senior Subordinated Increasing Rate Notes.
"Senior Subordinated Obligation Documents": collectively, the
---------------------------------------------
Securities Purchase Agreement, the Senior Subordinated Increasing Rate
Notes, the other documents listed in Schedule 1.1 to this Amendment No. 3
and Waiver, and any other documents executed in connection with the
SuperGraphics Acquisition.
"Senior Subordinated Increasing Rate Notes": the Borrower's 12.5%
--------------------------------------------
Senior Subordinated Increasing Rate Notes issued pursuant to the Securities
Purchase
2
<PAGE>
Agreement in an original aggregate amount of $10,000,000.00, with interest
to be paid in cash except in the cases provided for in Section 2.05(c)(i)
of the Securities Purchase Agreement.
"SuperGraphics": SuperGraphics Holding Company, Inc.
-------------
"SuperGraphics Acquisition": the purchase by the Borrower of all of
--------------------------
the issued and outstanding Capital Stock of SuperGraphics pursuant to the
SuperGraphics Acquisition Documents.
"Supplemental Fee Letter": that certain Fee Letter, dated October 30,
-----------------------
1998, among CIBC, and the Borrower, as amended, supplemented or otherwise
modified from time to time.
"Supplemental Term Loan": as to any Lender, the term loan made by such
----------------------
Lender on the Second Closing Date pursuant to the Supplemental Term Loan
Commitment of such Lender.
"Supplemental Term Loan Commitment": as to any Lender, its obligation
---------------------------------
to make a Supplemental Term Loan to the Borrower pursuant to Section 2.1(b)
in the amount set forth opposite such Lender's name on Schedule 1.0 under
the caption "Supplemental Term Loan".
"Supplemental Term Note Endorsement": with respect to the Term Note of
----------------------------------
each Lender, the promissory note endorsement made by the Borrower,
substantially in the form of Exhibit A to Amendment No. 3, modifying the
Term Note of such Lender (as in effect prior to the Second Supplemental
Closing Date) to take account of the Supplemental Term Loan of such Lender.
(b) Section 1.1 of the Credit Agreement is hereby amended by amending the
following definitions in their entirety to read as follows:
"Consolidated EBITDA": for any period, the sum, for the Borrower and
--------------------
its Subsidiaries (determined on a consolidated basis without duplication in
accordance with GAAP), for such period of (a) Consolidated Net Income for
such period, (b) the sum of provisions for such period for income taxes,
interest expense, and depreciation and amortization expense used in
determining such Consolidated Net Income, (c) amounts deducted in such
period in respect of non-cash expenses in accordance with GAAP, (d)
non-capitalized transaction costs deducted in such period in connection
with the Kwik Acquisition, the Mega Art Acquisition, the Zazula
Acquisition, the SuperGraphics Acquisition and any Permitted Acquisitions
and the financings relating thereto, (e) the amount of any aggregate net
loss (or minus the amount of any gain) during such period arising from the
sale, exchange or other disposition of capital assets, (f) non-cash
expenses deducted in such period in connection with any earn-out
agreements, stock appreciation rights, "phantom" stock plans, employment
agreements, non-competition agreements, subscription and stockholders
agreements and other
3
<PAGE>
incentive and bonus plans and similar arrangements made in connection with
acquisitions of Persons or businesses by the Borrower or its Subsidiaries
or the retention of executives, officers or employees by the Borrower or
its Subsidiaries, including (but without duplication) any Person that has
become a Subsidiary during such specified period, on a pro forma basis as
--- -----
if such acquisition had occurred on the first day of such period plus other
non-recurring, non-operating expenses as shall have been approved by the
Administrative Agent as exclusions from the determination of Consolidated
EBITDA; provided, that Consolidated EBITDA shall in any event exclude, from
--------
and after the Closing Date, (x) the effect of any write-up of the assets of
Kwik, Mega Art, Zazula, SuperGraphics or any of its Subsidiaries or any
other assets acquired in any Permitted Acquisitions and (y) the amount of
any non-cash income recognized during any period for which Consolidated
EBITDA is determined.
"Term Loans": collectively, the Initial Term Loans and the
------------
Supplemental Term Loans.
"Term Loan Commitment": as to any Lender, collectively, such Lender's
--------------------
Initial Term Loan Commitment and Supplemental Term Loan Commitment.
(c) Section 1.1 of the Credit Agreement is hereby amended by inserting, at
the end of the definition of "Consolidated Fixed Charges" immediately before the
period, the following new proviso:
"; provided, that, in calculating the amounts set forth in clauses (i)
--------
and (ii) of this definition the Senior Subordinated Obligation shall
be disregarded, unless the Borrower has exceeded the covenant level
stated therein."
(d) Section 2.1 of the Credit Agreement as heretofore amended is hereby
amended by deleting such Section in its entirety and substituting in lieu
thereof a new Section 2.1 to read as follows:
"2.1 Term Loan Commitments. (a) Each Lender made a term loan (an
-----------------------
"Initial Term Loan") to the Borrower on the Closing Date in an amount equal
-----------------
to the amount of the Initial Term Loan Commitment of such Lender.
(b) Subject to the terms and conditions hereof, each Lender
severally agrees to make a term loan (a "Supplemental Term Loan") to the
-----------------------
Borrower on the Second Supplemental Closing Date in an amount not to
exceed the amount of the Supplemental Term Loan Commitment of such Lender
then in effect; provided, that the Supplemental Term Loan Commitments
--------
shall terminate at 3:00 p.m., New York City time, on November 25, 1998, if
the Supplemental Term Loans have not been made prior to that time.
(c) The Term Loans may from time to time be (i) Eurodollar Loans, (ii)
Base Rate Loans or (ii) a combination thereof, as determined by the
Borrower and notified to the Administrative Agent in accordance with
Sections 2.5 and 5.2."
4
<PAGE>
(e) Section 2.2 of the Credit Agreement as heretofore amended is
hereby amended by deleting the parenthetical phrase "(a "Term Note")" and
substituting in lieu thereof the phrase "(as supplemented by a Supplemental
Term Note Endorsement, a "Term Note")".
(f) Section 2.3 of the Credit Agreement as heretofore amended is
hereby amended by deleting such Section in its entirety and substituting in
lieu thereof a new Section 2.3 to read as follows:
"2.3 Procedure for Borrowing. The Borrower shall give the
-------------------------
Administrative Agent irrevocable written notice substantially in the
form attached hereto as Exhibit A-4 (which notice must be received by
the Administrative Agent prior to 10:00 a.m., New York City time) (a)
three Business Days prior to the Closing Date or the Supplemental
Closing Date, as applicable, if all or any part of the Term Loans to
be made on such date are to be initially Eurodollar Loans or (b) one
Business Day prior to the Closing Date or the Supplemental Closing
Date, as applicable, otherwise requesting that the Lenders make
Initial Term Loans on the Closing Date or Supplemental Term Loans on
the Supplemental Closing Date, as applicable, and specifying (i) the
Closing Date or the Supplemental Closing Date, as applicable, (ii) the
amount to be borrowed, (iii) whether the Term Loans to be made on such
date are to be initially Eurodollar Loans, Base Rate Loans or a
combination thereof and (iv) if the Term Loans to be made on such date
are to be entirely or partly Eurodollar Loans, the respective amounts
of each such Type of Loan and the respective lengths of the initial
Interest Periods therefor. Upon receipt of such notice the
Administrative Agent shall promptly notify each Lender thereof. Not
later than 11:00 a.m. on the Closing Date or the Supplemental Closing
Date, as applicable, each Lender shall make available to the
Administrative Agent at its office specified in Section 13.2 the
amount of such Lender's pro rata share of such borrowing in
immediately available funds. The Administrative Agent shall on such
date credit the account of the Borrower on the books of such office of
the Administrative Agent with the aggregate of the amounts made
available to the Administrative Agent by the Lenders and in like funds
as received by the Administrative Agent."
(g) Section 6.5 of the Credit Agreement is hereby amended by adding,
at the end of clause (d) thereof, the following new sentence:
"Any portion of such Net Proceeds not so applied to the repair,
rebuilding or replacement of such property within such time shall
immediately be applied to the prepayment of the Loans and the
reduction of the Commitments as provided in Section 6.5(b)."
(h) Section 10.2(i) of the Credit Agreement is hereby amended by
amending such section in its entirety to read as follows:
"(i) (A) the Senior Subordinated Debt, and (B) other Indebtedness
in an amount and having terms approved by the Required Lenders which
is subordinated on terms approved by the Required Lenders in each case
in their sole discretion; and".
5
<PAGE>
(i) Section 10 of the Credit Agreement is hereby amended by adding at
the end thereof the following new Section 10.21:
"10.21 Certain Fees. Pay any portion of the fee payable pursuant
------------
to the "Fee Letter", as defined in the Securities Purchase Agreement,
unless, at the time of such payment (and after giving effect thereto),
the Borrower would not be required pursuant to Section 2.05(c)(ii) of
the Securities Purchase Agreement to pay interest on the Senior
Subordinated Increasing Rate Notes in "PIK Notes", as defined in the
Securities Purchase Agreement; provided, however, that if payment of
--------
such fee on the scheduled payment date therefor under such Fee Letter
was prohibited pursuant to this Section 10.21, and if on any
subsequent Cash Interest Payment Date, as defined in the Securities
Purchase Agreement, the Borrower would not be so required pursuant to
Section 2.05(c)(ii) of the Securities Purchase Agreement to pay
interest on the Senior Subordinated Increasing Rate Notes in such PIK
Notes, then such fee (together with interest thereon pursuant to such
Fee Letter) may be paid on such subsequent Cash Interest Payment
Date."
(j) Section 11 of the Credit Agreement is hereby amended by (i) adding
at the end of subsection (l) thereof the word "or", and (ii) adding
immediately following subsection (l) thereof the following new subsection
(m):
"(m) Any "Change of Control", as defined in the Securities
Purchase Agreement, shall have occurred;".
(k) The Credit Agreement is hereby amended by (i) deleting Schedules
1.0 and 2.2 to the Credit Agreement and substituting in lieu thereof
Schedules 1.0 and 2.2 to this Amendment, and (ii) supplementing Schedules
7.2, 7.6, 7.15, 7.16, 7.18, 7.19, 7.22, 10.2(b), 10.3 and 10.4 by adding to
such Schedules the material set forth on Schedules 7.2, 7.6, 7.15, 7.16,
7.18, 7.19, 7.22, 10.2(b), 10.3 and 10.4 to this Amendment.
3. Waiver. Each of the Administrative Agent and the Lenders hereby waives,
------
solely for the purposes of making Supplemental Term Loans on the date hereof for
the financing the SuperGraphics Acquisition during the 1998 Fiscal Year, any
failure of the capital expenditures made by the Borrower during the fiscal year
of the Borrower ended August 31, 1998 to be less than or equal to the amount set
forth for such fiscal year in Section 10.9 of the Credit Agreement; provided
--------
that this waiver is granted on the condition that the actual amount of such
- ----
capital expenditures for such fiscal year do not exceed $3,400,000.
6
<PAGE>
4. Effectiveness. The effectiveness of this Amendment and Waiver, and the
obligation of the Lenders to make their Supplemental Term Loans, is subject to
the satisfaction of the following conditions precedent (the date of such
satisfaction being herein referred to as the "Supplemental Closing Date"):
-------------------------
(a) Amendment Documents. The Administrative Agent shall have received:
-------------------
(i) this Amendment, executed and delivered by a duly authorized
officer of the Borrower and each Subsidiary of the Borrower party to
the Subsidiaries Guarantee, with a counterpart for each Lender,
(ii) for the account of each Lender having a Term Loan Commitment
to be increased hereunder, a Supplemental Term Note Endorsement of the
Borrower conforming to the requirements hereof and executed by a duly
authorized officer of the Borrower,
(iii) a supplement to the Borrower Pledge Agreement,
substantially in the form of Exhibit B to this Amendment (the "Pledge
------
Agreement Supplement"), executed and delivered by a duly authorized
---------------------
officer of the Borrower, with a counterpart or a conformed copy for
each Lender,
(iv) a Pledge Agreement, substantially in the form of Exhibit G
to this Amendment (the "SuperGraphics Pledge Agreement") executed and
delivered by a duly authorized officer of SuperGraphics, with a
counterpart or conformed copy for each Lender,
(v) a Supplement to the Subsidiaries Guarantee, substantially in
the form of Exhibit C to this Amendment, executed and delivered by a
duly authorized officer of SuperGraphics, with a counterpart or a
conformed copy for each Lender, and
(vi) a Supplement to the Security Agreement, substantially in the
form of Exhibit D to this Amendment, executed and delivered by a duly
authorized officer of SuperGraphics, with a counterpart or a conformed
copy for each Lender.
Collectively, the documents referenced in clauses (i) through (vi) of
this Section 4(a) are referred to herein as the "Amendment Documents".
(b) Related Agreements. The Administrative Agent shall have received,
------------------
with a copy for each Lender, true and correct copies, certified as to
authenticity by the Borrower, of each SuperGraphics Acquisition Document,
each Senior Subordinated Obligation Document and such other documents or
instruments as may be reasonably requested by the Administrative Agent,
including, without limitation, a copy of any debt instrument, security
agreement or other material contract to which SuperGraphics may be a party.
Each of the parties to the SuperGraphics Acquisition Documents (other
7
<PAGE>
than the Loan Parties) shall have consented to the grant of a security
interest in, and the assignment of, Loan Parties' interests in the
SuperGraphics Acquisition Documents pursuant to the Security Agreements, in
a manner in form and substance satisfactory to the Administrative Agent.
(c) Concurrent Transaction. (i) The Senior Subordinated Increasing
-----------------------
Rate Notes shall have been issued and sold in accordance with the
requirements of the Securities Purchase Agreement and the other Senior
Subordinated Debt Documents (without any amendment, waiver of other
modification thereof without the consent of the Required Lenders), and the
Borrower shall have received not less than $10,000,000 aggregate cash
proceeds from such issuance and sale of the Senior Subordinated Increasing
Rate Notes.
(ii) The SuperGraphics Acquisition shall have been or, concurrently
with the making of the Supplemental Term Loans shall be, consummated in
accordance with the terms of the SuperGraphics Acquisition Documents, for
such total consideration (including fees) as set forth in the SuperGraphics
Acquisition Documents, in each case without any amendment, modification or
waiver thereof except with the consent of the Required Lenders, and the
Administrative Agent shall have received evidence satisfactory to it to
that effect. The Administrative Agent shall have received evidence
satisfactory to it that the aggregate amount of fees and expenses incurred
by the Borrower and the other Loan Parties in connection with the
SuperGraphics Acquisition shall not exceed $2,000,000.
(d) Borrowing Certificates. The Administrative Agent shall have
-----------------------
received, with a counterpart for each Lender, (i) a certificate, signed by
a responsible officer of each of the Borrower and SuperGraphics
substantially in the form of Exhibit E to this Amendment, with appropriate
insertions and attachments, satisfactory in form and substance to the
Administrative Agent, and (ii) a certificate, signed by a responsible
officer of each of the Borrower and SuperGraphics, certifying to the
Administrative Agent and the Lenders that each of the representations and
warranties contained in the Senior Subordinated Obligation Documents are
true and correct in all material respects as of such date.
(e) Proceedings of the Borrower. The Administrative Agent shall have
---------------------------
received, with a counterpart for each Lender, a copy of the resolutions, in
form and substance satisfactory to the Administrative Agent, of the
Borrower authorizing (i) the execution, delivery and performance of this
Amendment and the other Amendment Documents to which it is a party, (ii)
the borrowings contemplated hereunder and thereunder, and under the Loan
Documents as amended thereby, and (iii) the granting by it of the Liens
created pursuant to the Pledge Agreement Supplement, certified by the
Secretary or an Assistant Secretary of the Borrower as of the Supplemental
Closing Date, which certificate shall be in form and substance satisfactory
to the Administrative Agent and shall state that the resolutions thereby
certified have not been amended, modified, revoked or rescinded. Such
resolutions may be included as attachments to the
8
<PAGE>
Borrowing Certificate delivered by the Borrower pursuant to Section 4(d) of
this Amendment.
(f) Borrower Incumbency Certificate. The Administrative Agent shall
--------------------------------
have received, with a counterpart for each Lender, a certificate of the
Borrower, dated the Supplemental Closing Date, as to the incumbency and
signature of the officers of the Borrower executing this Amendment or the
other Amendment Documents to which the Borrower is a party, satisfactory in
form and substance to the Administrative Agent, executed by the President
or any Vice President and the Secretary or any Assistant Secretary of the
Borrower. Such incumbency certificate may be included in the Borrowing
Certificate delivered by the Borrower pursuant to Section 4(d) of this
Amendment.
(g) Proceedings of SuperGraphics. The Administrative Agent shall have
----------------------------
received, with a counterpart for each Lender, a copy of the resolutions, in
form and substance satisfactory to the Administrative Agent, of the Board
of Directors of SuperGraphics authorizing (i) the execution, delivery and
performance of the Amendment Documents to which it is or will become a
party pursuant to this Amendment, and (ii) the granting by it of the Liens
created pursuant to the Subsidiaries Security Agreement, certified by the
Secretary or an Assistant Secretary of SuperGraphics as of the Supplemental
Closing Date, which certificate shall be in form and substance satisfactory
to the Administrative Agent and shall state that the resolutions thereby
certified have not been amended, modified, revoked or rescinded. Such
resolutions may be included as attachments to the Borrowing Certificate
delivered by SuperGraphics pursuant to Section 4(d) of this Amendment.
(h) SuperGraphics Incumbency Certificate. The Administrative Agent
--------------------------------------
shall have received, with a counterpart for each Lender, a certificate of
SuperGraphics, dated the Supplemental Closing Date, as to the incumbency
and signature of the officers of SuperGraphics executing the Amendment
Documents to which it is a party, satisfactory in form and substance to the
Administrative Agent, executed by the President or any Vice President and
the Secretary or any Assistant Secretary of SuperGraphics. Such incumbency
certificate may be included in the Borrowing Certificate delivered by
SuperGraphics pursuant to Section 4(d) of this Amendment.
(i) Governing Documents of SuperGraphics. The Administrative Agent
-------------------------------------
shall have received, with a counterpart for each Lender, true and complete
copies of the certificate of incorporation, by-laws or other constituent
documents of SuperGraphics, certified as of the Supplemental Closing Date
as complete and correct copies thereof by the Secretary or an Assistant
Secretary of SuperGraphics.
(j) Good Standing Certificates. The Administrative Agent shall have
---------------------------
received, with a copy for each Lender, certificates dated as of a recent
date from the Secretary of State or other appropriate authority, evidencing
the good standing of SuperGraphics (i) in the jurisdiction of its
organization and (ii) in each other
9
<PAGE>
jurisdiction where its ownership, lease or operation of property or the
conduct of its business requires it to qualify as a foreign Person except,
as to this subclause (ii), where the failure to so qualify could not
reasonably be expected to have a Material Adverse Effect.
(k) Consents, Licenses and Approvals. The Administrative Agent shall
---------------------------------
have received, with a counterpart for each Lender, a certificate of a
Responsible Officer of SuperGraphics (i) attaching copies of any consents,
authorizations and filings referred to in Section 7.4 of the Credit
Agreement (as amended hereby) relative to SuperGraphics, and (ii) stating
that such consents, licenses and filings are in full force and effect, and
each such consent, authorization and filing shall be in form and substance
satisfactory to the Administrative Agent.
(l) Fees. The Administrative Agent shall have received the fees to be
----
received on the Supplemental Closing Date referred to in the Second
Supplemental Fee Letter.
(m) Legal Opinions. The Administrative Agent shall have received, with
--------------
a counterpart for each Lender, the following executed legal opinions:
(i) the executed legal opinion of Buchanan Ingersoll Professional
Corporation, counsel to the Borrower and the other Loan Parties,
substantially in the form of Exhibit F-1 to this Amendment;
(ii) the executed legal opinion of Kelley, Drye & Warren, counsel
to the Borrower and the Loan Parties in the State of California,
substantially in the form of Exhibit F-2 to this Amendment.
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Amendment as the Administrative Agent may
reasonably require.
(n) Pledged Stock. The Administrative Agent shall have received all
-------------
certificates, if any, representing the Capital Stock pledged pursuant to
Pledge Agreement Supplement, together with an undated stock power for each
such certificate executed in blank by a duly authorized officer of the
Borrower. SuperGraphics shall have delivered an acknowledgment of and
consent to such Pledge Agreement Supplement, executed by a duly authorized
officer of SuperGraphics, in substantially the form appended to such Pledge
Agreement Supplement.
(o) Actions to Perfect Liens. The Administrative Agent shall have
-------------------------
received evidence in form and substance satisfactory to it that all
filings, recordings, registrations and other actions, including, without
limitation, the filing of duly executed financing statements on form UCC-1,
necessary or, in the opinion of the Administrative Agent, desirable to
perfect the Liens created by the Security Documents shall have been
completed.
10
<PAGE>
(p) Lien Searches. The Administrative Agent shall have received the
-------------
results of a recent search by a Person satisfactory to the Administrative
Agent, of the Uniform Commercial Code, judgment and tax lien filings which
may have been filed with respect to personal property of SuperGraphics, and
the results of such search shall be satisfactory to the Administrative
Agent.
(q) Insurance. The Administrative Agent shall have received evidence
---------
in form and substance satisfactory to it that all of the requirements of
Section 9.5 of the Credit Agreement shall have been satisfied with respect
to SuperGraphics.
(r) Representations and Warranties. Each of the representations and
-------------------------------
warranties made by the Borrower and the other Loan Parties in or pursuant
to the Loan Documents shall be true and correct in all material respects on
and as of the Supplemental Closing Date as if made on and as of
Supplemental Closing Date (and after giving effect to the amendments
provided for in this Amendment) (or, if any such representation or warranty
is expressly stated to have been made as of a specific date, as of such
specific date).
(s) No Default. No Default or Event of Default shall have occurred and
----------
be continuing on the Supplemental Closing Date or after giving effect to
the amendments provided for in this Amendment or the Loans to be made on
such date.
(t) Additional Matters. All corporate and other proceedings, and all
------------------
documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement, the other Loan Documents and
the Acquisition Documents shall be satisfactory in form and substance to
the Administrative Agent, and the Administrative Agent shall have received
such other documents and legal opinions in respect of any aspect or
consequence of the transactions contemplated hereby or thereby as it shall
reasonably request.
5. Representations and Warranties. To induce the Administrative Agent and
------------------------------
the Lenders to enter into this Amendment, the Borrower hereby represents and
warrants to the Administrative Agent and the Lenders that, after giving effect
to the amendments provided for herein and the additional Loans contemplated
hereby, the representations and warranties contained in the Credit Agreement and
the other Loan Documents will be true and correct in all material respects as if
made on and as of the date hereof and that no Default or Event of Default will
have occurred and be continuing (or, if any such representation or warranty is
expressly stated to have been made as of a specific date, as of such specific
date).
6. No Other Amendments. Except as expressly amended hereby, the Credit
--------------------
Agreement, the Notes and the other Loan Documents shall remain in full force and
effect in accordance with their respective terms, without any waiver, amendment
or modification of any provision thereof.
11
<PAGE>
7. Counterparts. This Amendment may be executed by one or more of the
------------
parties hereto on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
8. Expenses. The Borrower agrees to pay and reimburse the Administrative
--------
Agent for all of the out-of-pocket costs and expenses incurred by the
Administrative Agent in connection with the preparation, execution and delivery
of this Amendment, including, without limitation, the reasonable fees and
disbursements of Cadwalader, Wickersham & Taft, counsel to the Administrative
Agent.
9. Applicable Law. THIS AMENDMENT AND WAIVER SHALL BE GOVERNED BY, AND
---------------
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
[SIGNATURE PAGES FOLLOW]
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first above written.
UNIDIGITAL INC.
By:/s/ William E. Dye
-----------------------------------------
Name: William E. Dye
Title: Chief Executive Officer
CANADIAN IMPERIAL BANK
OF COMMERCE
as Administrative Agent and a Lender
By:/s/ Stephanie E. Devane
-----------------------------------------
Name: Stephanie E. Devane
Title: Executive Director
CIBC Oppenheimer Corp., as agent
<PAGE>
MARINE MIDLAND BANK
By:/s/ Martin F. Brown
-----------------------------------------
Name: Martin F. Brown
Title: Authorized Signatory
By:
-----------------------------------------
Name:
Title:
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC.
By:
-----------------------------------------
Name:
Title:
By:
-----------------------------------------
Name:
Title:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES, INC.
By:/s/ Ted G. Kopczynski
-----------------------------------------
Name: Ted G. Kopczynski
Title: Vice President
By:/s/ Daniel J. McHugh
-----------------------------------------
Name: Daniel J. McHugh
Title: Vice President
<PAGE>
The undersigned guarantors hereby consent and agree to the foregoing
Amendment:
UNIDIGITAL ELEMENTS (NY), INC.
By:/s/ William E. Dye
-----------------------------------------
Name: William E. Dye
Title: Chief Executive Officer
UNIDIGITAL ELEMENTS (SF), INC.
By:/s/ William E. Dye
-----------------------------------------
Name: William E. Dye
Title: Chief Executive Officer
UNISON (NY), INC.
By:/s/ William E. Dye
-----------------------------------------
Name: William E. Dye
Title: Chief Executive Officer
UNISON (MA), INC.
By:/s/ William E. Dye
-----------------------------------------
Name: William E. Dye
Title: Chief Executive Officer
MEGA ART CORP.
By:/s/ William E. Dye
-----------------------------------------
Name: William E. Dye
Title: Chief Executive Officer
================================================================================
SECURITIES PURCHASE AGREEMENT,
dated as of
November 25, 1998,
among
UNIDIGITAL INC.,
THE GUARANTORS PARTY HERETO
and
THE PURCHASER PARTY HERETO.
================================================================================
<PAGE>
SECURITIES PURCHASE AGREEMENT
TABLE OF CONTENTS
Page
----
ARTICLE 1.
DEFINITIONS
Section 1.01. Definitions.....................................................1
Section 1.02. Accounting Terms and Determinations............................14
ARTICLE 2.
PURCHASE AND SALE OF SECURITIES; TERMS OF SECURITIES
Section 2.01. Commitment to Purchase.........................................14
Section 2.02. Takedown Procedures............................................15
Section 2.03. Fees...........................................................15
Section 2.04. Mandatory Termination of Commitment............................15
Section 2.05. Interest.......................................................16
Section 2.06. Maturity of Notes; Prepayment of Notes; Change of Control......17
Section 2.07. Taxes..........................................................19
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
Section 3.01. Corporate Existence and Power..................................21
Section 3.02. Authorization, Execution and Enforceability....................21
Section 3.03. Governmental Authorization.....................................22
Section 3.04. Contravention..................................................22
Section 3.05. Financial Information..........................................23
Section 3.06. Litigation.....................................................23
Section 3.07. Environmental Matters..........................................24
Section 3.08. Taxes..........................................................25
Section 3.09. Subsidiaries...................................................25
Section 3.10. Governmental Regulations.......................................25
Section 3.11. Full Disclosure................................................25
Section 3.12. Capitalization.................................................25
Section 3.13. Solicitation...................................................26
Section 3.14. Non-fungibility................................................26
Section 3.15. Permits........................................................26
<PAGE>
Section 3.16. Representations in Other Financing Documents and in Acquisition
Agreement and Related Documents..............................26
Section 3.17. No Undisclosed Liabilities.....................................27
Section 3.18. ERISA Matters..................................................27
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Section 4.01. Purchase for Investment; Authority; Binding Agreement..........27
ARTICLE 5.
CONDITIONS PRECEDENT TO PURCHASE
Section 5.01. Conditions to Purchaser's Obligation to Purchase the Notes.....28
ARTICLE 6.
COVENANTS
Section 6.01. Information....................................................31
Section 6.02. Payment of Obligations.........................................32
Section 6.03. Insurance......................................................32
Section 6.04. Conduct of Business and Maintenance of Existence...............32
Section 6.05. Compliance with Laws...........................................33
Section 6.06. Inspection of Property, Books and Records......................33
Section 6.07. Investment Company Act.........................................34
Section 6.08. Limitation on Debt.............................................34
Section 6.10. Investments....................................................36
Section 6.11. Negative Pledge................................................36
Section 6.12. Transactions with Affiliates...................................37
Section 6.13. Use of Proceeds................................................37
Section 6.14. Restrictions on Certain Amendments.............................37
Section 6.15. Permanent Financing............................................37
Section 6.16. Additional Subsidiary Guarantees...............................38
Section 6.17. Limitation on Sales of Assets and Subsidiary Stock.............38
Section 6.18. Sale and Leaseback Transactions................................39
Section 6.19. Business Activities............................................39
-ii-
<PAGE>
ARTICLE 7.
EVENTS OF DEFAULT
Section 7.01. Events of Default Defined; Acceleration of Maturity; Waiver of
Default.......................................................39
ARTICLE 8.
LIMITATION ON TRANSFERS
Section 8.01. Restrictions on Transfer.......................................41
Section 8.02. Restrictive Legends............................................41
Section 8.03. Notice of Proposed Transfers...................................42
ARTICLE 9.
SUBORDINATION
Section 9.01. Notes Subordinated to Senior Debt..............................43
Section 9.02. No Payment on Notes in Certain Circumstances...................43
Section 9.03. Notes Subordinated to Prior Payment of all Senior Debt on
Dissolution, Liquidation or Reorganization....................44
Section 9.04. Holders to be Subrogated to Rights of Holders of Senior Debt...45
Section 9.05. Obligations of the Company Unconditional.......................46
Section 9.06. Subordination Rights not Impaired by Acts or Omissions of the
Company or Holders of Senior Debt.............................46
Section 9.07. Not to Prevent Events of Default...............................46
Section 9.08. Miscellaneous..................................................46
ARTICLE 10.
GUARANTEES
Section 10.01. Guarantees....................................................47
Section 10.02. Subordination of Guarantees...................................49
Section 10.03. Limitation on Guarantor Liability.............................49
Section 10.04. Consolidation or Merger of Guarantors.........................49
ARTICLE 11.
MISCELLANEOUS
Section 11.01 Notices........................................................49
Section 11.02. No Waivers; Amendments........................................50
Section 11.03. Indemnification...............................................50
Section 11.04. Expenses......................................................52
Section 11.05. Payment.......................................................53
Section 11.06. Confidentiality...............................................53
-iii-
<PAGE>
Section 11.07. Successors and Assigns........................................53
Section 11.08. Brokers.......................................................53
Section 11.09. New York Law; Submission to Jurisdiction; Waiver of Jury
Trial........................................................53
Section 11.10. Severability..................................................54
Section 11.11. Counterparts..................................................54
Section 11.12. Survival......................................................54
SCHEDULES
---------
Schedule 3.05(c) Material Adverse Change
Schedule 3.06 Litigation
Schedule 3.07 Environmental Matters
Schedule 3.09 Subsidiaries
Schedule 3.12 Capitalization of the Company
Schedule 6.08(a) Ongoing Debt
Schedule 6.08(i) Long-Term Debt of Foreign Subsidiaries
Schedule 6.08(j) Short-Term Debt of Foreign Subsidiaries
Schedule 6.10 Investments
Schedule 6.11 Liens
EXHIBITS
--------
Exhibit A Form of Note
Exhibit B Form of Warrant Agreement
Exhibit C Form of Registration Rights Agreement
-iv-
<PAGE>
SECURITIES PURCHASE AGREEMENT
AGREEMENT dated as of November 25, 1998 among Unidigital Inc., the
Guarantors listed on the signature pages hereto and the Purchaser.
The parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS
Section 1.01. DEFINITIONS. The following terms, as used herein, have the
following meanings:
"Acquired Business" means, with respect to any Permitted Acquisition, the
Person, the common stock or other ownership interest which is acquired in such
Permitted Acquisition, or the business unit, division or subdivision the assets
of which are acquired in such Permitted Acquisition, as the case may be.
"Acquisition Agreement" means the Agreement for Purchase and Sale of Stock
of SuperGraphics Holding Company, Inc., dated as of November 16, 1998, among
SuperGraphics, SuperGraphics Corporation, the stockholders of SuperGraphics
identified as the sellers therein and the Company, as amended, supplemented or
otherwise modified from time to time in accordance with the terms hereof.
"Adjusted EBITDA" means, for any period, the Consolidated EBITDA of the
Company for such period plus, for each Permitted Acquisition consummated (or
proposed to be consummated during such period), the Consolidated EBITDA of the
Acquired Business in respect of such Permitted Acquisition for such period,
calculated on a pro forma basis without duplication, as if such Permitted
Acquisition had occurred on the first day of such period (and for purposes of
this definition, "Consolidated EBITDA of the Acquired Business" shall mean the
sum of (a) Consolidated Net Income for such period (substituting such Acquired
Business for the Company), (b) the sum of provisions for such period for income
taxes, interest expense, and depreciation and amortization expense used in
determining such Consolidated Net Income, (c) other amounts deducted in such
period in respect of non-cash expenses in accordance with U.S. GAAP, (d)
non-capitalized transaction costs deducted in such period in connection with
such Permitted Acquisition, (e) the amount of any aggregate net loss (or minus
the amount of any gain) during such periods arising from the sale, exchange or
other disposition of capital assets, (f) non-cash expenses deducted in such
period in connection with any earn-out agreements, stock appreciation rights,
"phantom" stock plans, employment agreements, non-competition agreements,
subscription and stockholders agreements and other incentive and bonus plans and
similar arrangements made in connection with acquisitions of Persons or
businesses by such Acquired Business or the retention of executives, officers or
employees by such Acquired Business and (g) other non-recurring, non-operating
expenses as shall have been approved by the Majority Holders as exclusions from
the determination of Adjusted EBITDA;
<PAGE>
provided that Adjusted EBITDA shall in any event exclude the amount of any
- --------
non-cash income recognized during any period for which Consolidated EBITDA is
determined; provided further that for purposes of computing Consolidated EBITDA
-------- -------
of the Acquired Business, there shall be added thereto the amount by which the
compensation (whether in the form of salary, bonus, dividend or other
distribution) paid to the principal owner(s) and/or manager(s) of the Acquired
Business prior to such Permitted Acquisition will be reduced, following such
Permitted Acquisition, as set forth in a certificate of the Company reasonably
acceptable to the Majority Holders.
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such Person. For purposes of this definition, "control" of a
Person (including, with its correlative meanings, "controlled by" and "under
common control with") means the power, directly or indirectly, either to (a)
vote 10% or more of the securities having ordinary voting power for the election
of directors of such Person or (b) direct or cause the direction of the
management and policies of such Person, whether by contract or otherwise.
"Agreement" means this Agreement, as amended from time to time in
accordance with its terms.
"Annual Budget" has the meaning set forth in Section 6.01(d).
"Applicable Premium" means, with respect to the principal amount of any
Note (other than any PIK Note) on any date of prepayment with respect thereto
pursuant to Section 2.06(b), an amount equal to the applicable percentage of
such principal amount so prepaid, as in effect for the applicable period set
forth below opposite such applicable percentage:
Applicable
Percentage Applicable Period
---------- -----------------
5.00% At all times on or prior to November 30, 1999
4.00% At all times on or prior to November 30, 2000
but after November 30, 1999
3.00% At all times on or prior to November 30, 2001
but after November 30, 2000
2.00% At all times on or prior to November 30, 2002
but after November 30, 2001
1.00% At all times on or prior to November 30, 2003
but after November 30, 2002
0.00% At all times after November 30, 2003.
-2-
<PAGE>
"Base Financial Statements" has the meaning set forth in Section 3.05(a).
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in The City of New York are authorized or required by law
to close.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a Financing Lease.
"Capital Stock" means (a) in the case of a corporation, corporate stock,
(b) in the case of any association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) in
the nature of corporate stock, (c) in the case of a partnership or limited
liability company, any and all partnership or membership interests (whether
general or limited) and (d) any other interest or participation that confers on
a Person the right to receive a share of the profits and losses of, or
distributions of assets of the issuing Person.
"Cash Equivalents" means (a) securities with maturities of six months or
less from the date of acquisition issued or fully guaranteed or insured by the
United States Government or any agency thereof, (b) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition and overnight bank deposits of any commercial bank having capital
and surplus in excess of $500,000,000, (c) repurchase obligations of any
commercial bank satisfying the requirements of clause (b) of this definition,
having a term of not more than seven days with respect to securities issued or
fully guaranteed or insured by the United States Government, (d) commercial
paper of a domestic issuer rated at least A-1 or the equivalent thereof by
Standard and Poor's Ratings Group ("S&P") or P-1 or the equivalent thereof by
Moody's Investors Service, Inc. ("Moody's") and in either case maturing within
six months after the day of acquisition, (e) securities with maturities of six
months or less from the date of acquisition issued or fully guaranteed by any
state, commonwealth or territory of the United States, by any political
subdivision or taxing authority of any such state, commonwealth or territory or
by any foreign government, the securities of which state, commonwealth,
territory, political subdivision, taxing authority or foreign government (as the
case may be) are rated at least A by S&P or A by Moody's, (f) securities with
maturities of six months or less from the date of acquisition backed by standby
letters of credit issued by any commercial bank satisfying the requirements of
clause (b) of this definition or (g) shares of money market mutual or similar
funds registered pursuant to the Investment Company Act of 1940, as amended,
which invest exclusively in assets satisfying the requirements of clauses (a)
through (f) of this definition.
"Change of Control" means the occurrence of any of the following: (a) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act), (b) the adoption of a plan relating to the liquidation or dissolution of
the Company, (c) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above) becomes the
-3-
<PAGE>
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under
the Exchange Act), directly or indirectly, of more than 25% of the Voting Stock
of the Company (measured by voting power rather than number of shares), (d) the
first day on which a majority of the members of the Board of Directors of the
Company are not Continuing Directors or (e) the failure of William E. Dye to
own, at any time prior to the date that is 180 days following the Issuance Date,
free and clear of all Liens or other encumbrances, at least 991,721 shares of
Common Stock of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, and any
regulation promulgated thereunder.
"Commission" means the Securities and Exchange Commission.
"Commitment" means the obligation of the Purchaser to purchase Notes
hereunder in an aggregate principal amount of $10,000,000.
"Common Stock" means the authorized common stock, par value $.01 per share,
of the Company.
"Company" means Unidigital Inc., a Delaware corporation.
"Competitor" means another Person having as its principal business the
Permitted Business as engaged in by the Company and its Subsidiaries as of the
date hereof.
"Consolidated EBITDA" means, for any period, the sum, for the Company and
its Subsidiaries (determined on a consolidated basis without duplication in
accordance with U.S. GAAP), for such period of (a) Consolidated Net Income for
such period, (b) the sum of provisions for such period for income taxes,
interest expense, and depreciation and amortization expense used in determining
such Consolidated Net Income, (c) amounts deducted in such period in respect of
non-cash expenses in accordance with U.S. GAAP, (d) non-capitalized transaction
costs deducted in such period in connection with the Kwik Acquisition, the Mega
Art Acquisition, the Hy Zazula Acquisition and the SuperGraphics Acquisition and
any Permitted Acquisitions and the financings relating thereto, (e) the amount
of any aggregate net loss (or minus the amount of any gain) during such period
arising from the sale, exchange or other disposition of capital assets, and (f)
non-cash expenses deducted in such period in connection with any earn-out
agreements, stock appreciation rights, "phantom" stock plans, employment
agreements, non-competition agreements, subscription and stockholders agreements
and other incentive and bonus plans and similar arrangements made in connection
with acquisitions of Persons or businesses by the Company or its Subsidiaries or
the retention of executives, officers or employees by the Company or its
Subsidiaries, including (but without duplication) any Person that has become a
Subsidiary during such specified period, on a pro forma basis as if such
--- -----
acquisition had occurred on the first day of such period plus other
non-recurring, non-operating expenses as shall have been approved by the
Majority Holders as exclusions from the determination of Consolidated EBITDA;
provided, that Consolidated EBITDA shall in any event
- --------
-4-
<PAGE>
exclude, from and after the Issuance Date, (x) the effect of any write-up of the
assets of Kwik, Mega Art, Hy Zazula, SuperGraphics or SuperGraphics Corporation
or any other assets acquired in any Permitted Acquisitions and (y) the amount of
any non-cash income recognized during any period for which Consolidated EBITDA
is determined.
"Consolidated Fixed Charges" means, for any period, the sum of (a) the
amounts deducted for the cash portion of Consolidated Interest Expense in
determining Consolidated Net Income for such period, (b) the amount of scheduled
payments of principal of Debt during such period, (c) all amounts of capital
expenditures made during such period (other than capital expenditures in respect
of Financing Leases to the extent the same are included in clause (a) or (b) of
this definition), and (d) the amount of cash income taxes paid during such
period.
"Consolidated Funded Debt" means, as of any date, the sum of all aggregate
indebtedness of the Company and its Subsidiaries of the types set forth in
clauses (a), (b), (c), (d), (e) and (g) of Debt, determined on a consolidated
basis in accordance with U.S. GAAP, including, in any event, the Term Loans, the
Acquisition Loans, Revolving Credit Loans (as each such term is defined in the
Senior Credit Agreement) and any purchase money Debt.
"Consolidated Interest Expense" means, for any period, the amount which, in
conformity with U.S. GAAP, would be set forth opposite the caption "interest
expense" or any like caption (including, without limitation, imputed interest
included in payments under Financing Leases) on a consolidated income statement
of the Company and the Subsidiaries for such period excluding the amortization
of any original issue discount.
"Consolidated Net Income" means, for any period, the consolidated net
income (or deficit) of the Company and the Subsidiaries for such period (taken
as a cumulative whole), determined in accordance with U.S. GAAP; provided that
--------
there shall be excluded (a) the income (or deficit) of any Person accrued prior
to the date it becomes a Subsidiary or is merged into or consolidated with the
Company or any Subsidiary, (b) the income (or deficit) of any Person (other than
a Subsidiary) in which the Company or any Subsidiary has an ownership interest,
except to the extent that any such income has been actually received by the
Company or such Subsidiary in the form of dividends or similar distributions,
(c) the undistributed earnings of any Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such Subsidiary
is not at the time permitted by the terms of any Contractual Obligation or any
provision of (i) any applicable law or regulation, (ii) any of its Corporate
Documents or (iii) any judgment, injunction, order, decree or other instrument
binding upon it or any of its assets applicable to such Subsidiary, (d) any
restoration to income of any contingency reserve, except to the extent that
provision for such reserve was made out of income accrued during such period,
(e) any aggregate net gain (but not any aggregate net loss) during such period
arising from the sale, exchange or other disposition of capital assets (such
term to include all fixed assets, whether tangible or intangible, all inventory
sold in conjunction with the disposition of fixed assets and all securities),
(f) any write-up of any asset, (g) any net gain from the collection of the
proceeds of life insurance policies, (h) any gain arising from the acquisition
of any securities, or the extinguishment, under U.S. GAAP, of any Debt, of the
Company or any Subsidiary, (i) in the
-5-
<PAGE>
case of a successor to the Company by consolidation or merger or as a transferee
of its assets, any earnings of the successor corporation prior to such
consolidation, merger or transfer of assets, and (j) any deferred credit
representing the excess of equity in any Subsidiary at the date of acquisition
over the cost of the investment in such Subsidiary.
"Contingent Warrants" has the meaning provided in the Warrant Agreement.
"Continuing Directors" means as of any date of determination, any member of
the Board of Directors of the Company who (a) was a member of such Board of
Directors on the date of hereof or (b) was nominated for election or elected to
such Board of Directors with the approval of a majority of the Continuing
Directors who were members of such Board at the time of such nomination or
election.
"Contractual Obligation" means, with respect to any Person, any provision
of any security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Corporate Documents" means, with respect to any Person, its articles or
certificate of incorporation and by-laws, its partnership agreement, its
certificate of formation and operating agreement, and/or the other
organizational or governing documents of such Person.
"Debt" of any Person means, with respect to any Person at any date, without
duplication, (a) all indebtedness of such Person for borrowed money (whether by
loan or the issuance and sale of debt securities) or for the deferred purchase
price of property or services (other than current trade liabilities incurred in
the ordinary course of business and payable in accordance with customary
practices), (b) any other indebtedness of such Person which is evidenced by a
note, bond, debenture or similar instrument, (c) all obligations of such Person
under Financing Leases, (d) all obligations of such Person in respect of letters
of credit, acceptances or similar instruments issued or created for the account
of such Person, (e) all liabilities secured by any Lien on any property owned by
such Person even though such Person has not assumed or otherwise become liable
for the payment thereof, (f) all other items which, in accordance with U.S.
GAAP, would be included as liabilities on the liability side of the balance
sheet of such Person as of the date at which Debt is to be determined and (g)
all Guarantee Obligations of such Person in respect of any of the foregoing. The
amount of any Debt outstanding as of any date shall be (a) the accreted value
thereof, in the case of any Debt that does not require current payments of
interest, and (b) the principal amount thereof, together with any interest
thereon that is more than 30 days past due, in the case of any other Debt.
"Debt Incurrence" means any incurrence by the Company or any of its
Subsidiaries of any Debt, other than Debt permitted under Section 6.08.
"Default" means any Event of Default or any event or condition which, with
the giving of notice or lapse of time or both, would, unless cured or waived,
become an Event of Default.
-6-
<PAGE>
"Designated Senior Debt" means any Senior Debt outstanding under the Senior
Credit Facilities or otherwise described in clause (a) of the definition of
Senior Debt.
"dollars" or "$" mean lawful currency of the United States of America.
"Domestic Person" means any individual resident of the United States or any
other Person organized under the laws of a jurisdiction in the United States of
America, any State thereof or the District of Columbia.
"Domestic Subsidiary" means any Subsidiary of the Company organized under
or incorporated pursuant to the laws of any State or Commonwealth of the United
States of America or the District of Columbia.
"Environmental Laws" means any and all statutes, laws, judicial decisions,
regulations, ordinances, rules, judgments, orders, decrees, codes, injunctions,
permits, governmental grants, licenses and governmental restrictions relating to
the effect of the environment or Hazardous Materials on human health, the
environment or to emissions, discharges or releases of pollutants, contaminants,
Hazardous Materials or wastes into the environment, including ambient air,
surface water, ground water or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, Hazardous Materials or wastes or the
clean-up or other remediation thereof.
"Equity Issuance" means the issuance of any equity securities by the
Company (including without limitation any equity securities issued pursuant to
the exercise of stock options or warrants), but excluding (a) any subscription
agreement incentive plan or similar arrangement with any officer, employee or
director of the Company, or (b) the issuance of any Capital Stock of the Company
to any officer, director or employee of the Company.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any regulation promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
that, together with the Company or any Subsidiary of the Company is treated as a
single employer under Title IV of ERISA, or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"Event of Default" has the meaning set forth in Section 7.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expiration Date" has the meaning set forth in Section 2.01(b).
"Fee Letter" means the confidential fee letter, dated November 25, 1998,
between the Company and the Purchaser.
-7-
<PAGE>
"Financing Documents" means this Agreement, the Notes, the Guarantees, the
Registration Rights Agreement, the Warrant Agreement and the Warrants.
"Financing Lease" means any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance with
U.S. GAAP to be capitalized on a balance sheet of the lessee.
"Fixed Charge Coverage Ratio" means, at any time, the ratio of Consolidated
EBITDA for the immediately preceding period of four consecutive fiscal quarters
to Consolidated Fixed Charges for such period.
"Guarantee" means the guarantee by the Guarantors of the Notes pursuant to
Article 10.
"Guarantee Obligation" means as to any Person (the "guaranteeing person"),
any obligation of (a) the guaranteeing person or (b) another Person (including,
without limitation, any bank under any letter of credit) to induce the creation
of which the guaranteeing person has issued a reimbursement, counterindemnity or
similar obligation, in either case guaranteeing or in effect guaranteeing any
Debt, leases, dividends or other obligations (the "primary obligations") of any
other third Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of the guaranteeing
person, whether or not contingent, (i) to purchase any such primary obligation
or any property constituting direct or indirect security therefor, (ii) to
advance or supply funds (A) for the purchase or payment of any such primary
obligation or (B) to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency of the primary
obligor, (iii) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation or (iv) otherwise
to assure or hold harmless the owner of any such primary obligation against loss
in respect thereof; provided, however, that the term Guarantee Obligation shall
-------- -------
not include endorsements of instruments for deposit or collection in the
ordinary course of business. The amount of any Guarantee Obligation of any
guaranteeing person shall be deemed to be the lower of (a) an amount equal to
the stated or determinable amount of the primary obligation in respect of which
such Guarantee Obligation is made and (b) the maximum amount for which such
guaranteeing person may be liable pursuant to the terms of the instrument
embodying such Guarantee Obligation, unless such primary obligation and the
maximum amount for which such guaranteeing person may be liable are not stated
or determinable, in which case the amount of such Guarantee Obligation shall be
such guaranteeing person's maximum reasonably anticipated liability in respect
thereof as determined in good faith by the Person to whom such Guarantee
Obligation is payable.
"Guarantors" means the parties listed as such on the signature pages to
this Agreement and any other Subsidiary of the Company that becomes a party to
this Agreement in accordance with the provisions of Section 6.16, and their
respective successors and assigns.
-8-
<PAGE>
"Hazardous Materials" means (a) asbestos; (b) polychlorinated biphenyls;
(c) petroleum, its hazardous derivatives, by-products and other hydrocarbons;
and (d) any other toxic, radioactive, caustic or otherwise hazardous substance
regulated under Environmental Laws.
"Hazardous Materials Contamination" means contamination of the buildings,
facilities, soil or groundwater on or of the property of the Company by
Hazardous Materials, or any derivatives thereof, or on or of any other property
as a result of Hazardous Materials, or any derivatives thereof, generated on,
emanating from or disposed of in connection with the property of the Company.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (a) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (b) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or currency exchange rates.
"Holder" means any holder of any Note.
"Hy Zazula" means Hy Zazula Associates, Inc., a New York corporation.
"Hy Zazula Acquisition" means the acquisition by the Company of Hy Zazula
through a merger of Hy Zazula with and into the Company's wholly-owned
Subsidiary, Unison (NY), Inc., consummated on October 30,1998.
"Intellectual Property Rights" means any patent, trade mark, service mark,
registered design, trade name or copyright required to carry on the business of
the Company and such other business as may be permitted by the terms of this
Agreement and which is carried on at the relevant time.
"Interest Coverage Ratio" means, for the Company and its Subsidiaries, the
ratio of Consolidated EBITDA for the immediately preceding period of four
consecutive fiscal quarters to Consolidated Interest Expense for such period.
"Interest Expense" means, for any applicable period, the aggregate
consolidated interest expense of the Company and its Subsidiaries for such
applicable period, as determined in accordance with U.S. GAAP.
"Interest Payment Date" means each February 28 (or February 29, in the case
of a leap year), May 31, August 31 and November 30 (or, if any such date is not
a Business Day, the next succeeding Business Day).
"Investment" means any investment in any Person, whether by means of share
purchase, capital contribution, loan, time deposit, Guarantee Obligation or
otherwise.
-9-
<PAGE>
"Issuance Date" means the date the Notes are initially issued by the
Company and purchased by the Purchaser.
"Kwik" means Kwik International Color, Ltd., a New York corporation.
"Kwik Acquisition" means the acquisition by the Company of substantially
all of the assets of Kwik consummated on March 25, 1998.
"Leverage Ratio" means, at any time, the ratio of Consolidated Funded Debt
to Adjusted EBITDA for the immediately preceding period of four consecutive
fiscal quarters; provided that, in calculating the Leverage Ratio for any period
--------
during which a Permitted Acquisition was consummated, Adjusted EBITDA shall be
substituted for Consolidated EBITDA.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Majority Holders" means (a) at any time prior to the issuance of the
Notes, the Purchaser and (b) at any time thereafter, the holders of voting
rights with respect to waivers, amendments and other actions permitted or
required to be taken by Holders under the terms of the Notes constituting a
majority of such voting rights attributable to the aggregate outstanding amount
of Notes at such time.
"Material Adverse Effect" means a material adverse affect on the
properties, condition (financial or otherwise), operations, performances,
projections, prospects or business of the Company and its Subsidiaries, taken as
a whole.
"Maturity Date" means March 31, 2004.
"Mega Art" means Mega Art Corp., a New York corporation.
"Mega Art Acquisition" means the acquisition by the Company of all of the
issued and outstanding capital stock of Mega Art consummated on September 2,
1998.
"Multiemployer Plan" means any Plan that is a multiemployer plan as defined
in Section 3(37) or 4001 (a)(3) of ERISA.
"Net Cash Proceeds" means (a) the aggregate cash consideration received by
the Company or a Subsidiary in connection with any transaction referred to in
Section 2.06(c) less (b) the expenses (including out-of-pocket expenses)
----
incurred by the Company or such Subsidiary in connection with such transaction
(including, in the case of any issuance of debt or equity
-10-
<PAGE>
securities, underwriters' commissions and fees) and the amount of any federal
and state taxes incurred in connection with such transaction, in each case as
certified by the chief financial or accounting officer of the Company (or its
chief executive officer if the Company does not have a chief financial or
accounting officer at such time) to the Holders at the time of such transaction.
"Notes" means the Company's Senior Subordinated Increasing Rate Notes
substantially in the form set forth as Exhibit A hereto, and shall include any
PIK Notes issued pursuant to Section 2.05(c).
"Other Taxes" has the meaning set forth in Section 2.07(a).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any of its functions under ERISA.
"Permanent Financing" means any Debt Incurrence or Equity Issuance
following the date hereof for the purpose of refinancing the Notes that is
approved and consented to by the holders of the Designated Senior Debt in
accordance with the Senior Credit Agreement.
"Permits" means all domestic and foreign licenses, permits and approvals
required for the full operation of the Company and its Subsidiaries, including
provincial, state, federal, city and county permits and approvals.
"Permitted Acquisition" means an acquisition of (a) 100% of the common
stock or other ownership interests of a Domestic Person or (b) a substantial
amount of the assets of a Domestic Person, or of a business unit, division or
subdivision of a Domestic Person, in each case engaged in or relating to a line
of business substantially similar to the Permitted Business; provided that (i)
--------
both immediately before and after giving effect to such acquisition no Default
shall have occurred and then be continuing and (ii) no later than five Business
Days prior to the consummation of such acquisition, the Holders shall have
received a certificate of the chief financial or accounting officer of the
Company (or its chief executive officer if the Company does not have a chief
financial or accounting officer at such time) with detailed calculations
establishing to the reasonable satisfaction of the Majority Holders that the
foregoing requirement has been satisfied.
"Permitted Business" means any business in which the Company and its
Subsidiaries are engaged on the Issuance Date or any business reasonably
related, incidental or ancillary thereto (including, without limitation, media
services).
"Permitted Liens" means Liens expressly permitted to exist by the terms of
Section 6.11 hereof.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
government (or any agency or political subdivision thereof) or other entity of
any kind.
-11-
<PAGE>
"PIK Warrants" has the meaning set forth in Section 2.05(c)(i).
"PIK Notes" has the meaning set forth in Section 2.05(c)(i).
"Plan" means any employee benefit plan as defined in Section 3(3) of ERISA
to which the Company, any Subsidiary or any ERISA Affiliate has, or, within the
six years preceding the date of this Agreement, had, any liability or in respect
of which the Company or any Subsidiary of the Company or any ERISA Affiliate is
(or, if such plan were terminated, would under Section 4069 of ERISA be deemed
to be) an "employee' as defined in Section 3(5) of ERISA.
"Pro Forma Financial Statement" has the meaning provided in Section
3.05(b).
"Purchaser" means CIBC Wood Gundy Capital Corp. or any of its Affiliates.
"Qualified Plan" means a Plan (other than a Multiemployer Plan) which is "a
pension plan" (as defined in Section 3(2) of ERISA) intended to be tax-qualified
under Section 401 (a) of the Code.
"Regulatory Problem" has the meaning set forth in Section 6.21(b).
"Regulatory Violation" has the meaning set forth in Section 6.20(d).
"Registration Rights Agreement" means the Registration and Equity Rights
Agreement, dated as of November 25, 1998, between the Company and the Purchaser,
in the form attached as Exhibit C to this Agreement, as amended, supplemented or
otherwise modified from time to time.
"Restricted Payment" means (a) any dividend or other distribution on any
shares of the Capital Stock of the Company (except dividends payable solely in
shares of its Capital Stock) or (b) any payment on account of the purchase,
redemption, retirement or acquisition of (i) any shares of the Capital Stock of
the Company or (ii) any option, warrant or other right to acquire shares of the
Capital Stock of the Company.
"Rule 144A" has the meaning set forth in Section 8.03(a).
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Credit Agreement" means the Credit Agreement, dated as of March 24,
1998, among the Company, the lenders from time to time parties thereto, and
Canadian Imperial Bank of Commerce, as Administrative Agent, as amended
(including any amendment and restatement), modified, renewed, refunded,
replaced, increased or refinanced from time to time, whether with the same or
different lenders and agents and whether in the same or a different structure.
-12-
<PAGE>
"Senior Credit Facilities" means all Debt and other obligations from time
to time owing pursuant to the Senior Credit Agreement and the other "Loan
Documents" as defined therein, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended (including any amendment and
restatement), modified, renewed, refunded, replaced, increased or refinanced
from time to time, provided that the principal amount of all such Debt under all
such Senior Credit Facilities does not exceed $75,000,000 at any time
outstanding, plus the amount of any additional Debt incurred thereunder pursuant
to Section 6.08(f).
"Senior Debt" means (a) all Debt outstanding under the Senior Credit
Facilities with respect to which a lender under the Senior Credit Facilities or
any of its Affiliates is a counterparty, including, without limitation, in each
case, principal, premium, interest (including interest accruing subsequent to
the filing of, or which would have accrued but for the filing of, a petition for
bankruptcy, whether or not such interest is an allowable claim in such
bankruptcy proceeding), fees and expenses relating thereto, (b) all Debt
incurred by the Company and its Subsidiaries that consists of Capital Lease
Obligations, (c) any other Debt permitted to be incurred by the Company pursuant
to clauses (a), (c), (e), (f), (g), (h)(x), (h)(y), (k) and (m) of Section 6.08
unless such Debt expressly provides that it is not senior in right of payment to
the Notes and (d) all obligations with respect to the foregoing. Notwithstanding
anything to the contrary in the foregoing, Senior Debt will not include (i) any
liability for federal, state, local or other taxes owed or owing by the Company,
(ii) any Debt of the Company owing to any of its Subsidiaries or other
Affiliates, (iii) any trade payables or (iv) any Debt that is incurred in
violation of this Agreement.
"Small Concern" has the meaning set forth in Section 3.19.
"Subordinated Obligations" has the meaning set forth in Section 9.01.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of the capital stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person.
"SuperGraphics" means SuperGraphics Holding Company, Inc., a Delaware
corporation.
"SuperGraphics Corporation" means SuperGraphics Corporation, a California
corporation, a wholly-owned Subsidiary of SuperGraphics.
"SuperGraphics Acquisition" means the proposed acquisition by the Company
of SuperGraphics and SuperGraphics Corporation pursuant to the Acquisition
Agreement.
"Taxee" has the meaning set forth in Section 2.07(a).
-13-
<PAGE>
"Transfer" means any disposition of Notes that would constitute a sale
thereof under the Securities Act.
"U.S. GAAP" means generally accepted accounting principles as in effect
from time to time in the United States of America.
"Voting Stock" means, in respect of any Person, any class or classes of
Capital Stock of such Person pursuant to which the holders thereof have the
general voting power under ordinary circumstances to elect at least a majority
of the board of directors, managers or trustees of such Person (irrespective of
whether or not, at the time, stock of any other class or classes shall have, or
might have, voting power by reason of the happening of any contingency).
"Warrants" means the warrants to purchase common stock of the Company to be
issued pursuant to the Warrant Agreement, including any PIK Warrants or
Contingent Warrants.
"Warrant Agreement" means the warrant agreement, dated as of November 25,
1998, between the Company and the Purchaser in the form attached as Exhibit B to
this Agreement, as amended, supplemented or otherwise modified from time to
time.
"Warrant Shares" has the meaning set forth in Section 5.01(n).
Section 1.02. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with U.S.
GAAP applied on a consistent basis.
ARTICLE 2.
PURCHASE AND SALE OF SECURITIES; TERMS OF SECURITIES
Section 2.01. COMMITMENT TO PURCHASE.
(a) Subject to the terms and conditions set forth herein and in reliance on
the representations and warranties of the Company contained herein and in the
other Financing Documents, the Company may at its option issue and sell to the
Purchaser on the Issuance Date, and the Purchaser agrees to purchase on the
Issuance Date, Notes in an aggregate outstanding principal amount equaling the
Purchaser's Commitment. The purchase price for the Notes shall be 100% of the
principal amount thereof.
The Company and the Purchaser hereby acknowledge and agree that the Notes
and the Warrants are part of an investment unit within the meaning of Section
1273(c)(2) of the Code. Any other provision of this Agreement to the contrary
notwithstanding, the Company and the Purchaser hereby further acknowledge and
agree that the total issue price of the investment unit consisting of the Notes
(other than the PIK Notes) and Warrants (other than the PIK Warrants) for all
federal, state and local income tax purposes is $1,000 per investment unit
comprised of
-14-
<PAGE>
$995 per $1,000 principal amount of each such Note and $5 per each such Warrant.
All federal, state and local income tax returns shall be filed by the Company
and the Purchaser in a manner consistent in all material respects with the
provisions of this clause (a) of Section 2.01.
---------- ------------
(b) The Commitment will terminate (the "Expiration Date") at 5:00 P.M. (New
York City time) on December 7, 1998 (if such date occurs prior to the Issuance
Date); provided, that if at any time on or after the date hereof an Event of
--------
Default shall have occurred and be continuing, the Purchaser may at its option
terminate its Commitment by notice to the Company, such termination to be
effective upon the giving of such notice; and provided, further that the
-------- -------
Commitment shall automatically terminate, without notice to the Company or any
other action on the part of the Purchaser, upon the occurrence of any of the
events specified in Sections 7.01(e) and 7.01(f) with respect to the Company.
(c) The Commitment is not revolving in nature, and principal amounts of
Notes prepaid in accordance with Section 2.06 may not be resold hereunder to the
Purchaser or any other Person.
Section 2.02. TAKEDOWN PROCEDURES.
(a) The Company shall give the Purchaser notice not later than 11:00 A.M.
(New York City time) at least one (but not more than five) Business Days prior
to the proposed purchase and sale of Notes, which notice shall specify
$10,000,000 as the principal amount of Notes to be purchased and sold and the
proposed Issuance Date (which shall be a Business Day).
(b) On the Issuance Date, the Purchaser shall deliver by wire transfer, to
the account number of the Company specified by the Company in writing no later
than 2:00 P.M. (New York City time) one Business Day prior to the Issuance Date,
immediately available funds in an amount equal to the aggregate purchase price
of the Notes to be purchased by the Purchaser hereunder on such Issuance Date,
less the aggregate amount of fees (if any) payable by the Company to the
Purchaser on such date pursuant to Section 2.03 and expenses (if any) payable to
the Purchaser on such date pursuant to Section 11.04.
(c) On the Issuance Date, against payment as set forth in subsection (b) of
this Section 2.02, the Company shall deliver to the Purchaser a single Note
representing the aggregate principal amount of Notes to be purchased by the
Purchaser registered in the name of the Purchaser, or, if requested by the
Purchaser, separate Notes in such other denominations and registered in such
name or names as shall be designated by the Purchaser by notice to the Company
at least one Business Day prior to the Issuance Date.
Section 2.03. FEES. The Company shall pay the Purchaser such fees at such
times as is set forth in the Fee Letter.
Section 2.04. MANDATORY TERMINATION OF COMMITMENT. Subject to Section
2.01(b), the Commitment shall terminate at 5:00 P.M. (New York City time) on the
Expiration Date.
-15-
<PAGE>
Section 2.05. INTEREST.
(a) Interest on each Note shall be payable quarterly in arrears, on each
Interest Payment Date of each year in which such Note remains outstanding,
commencing with the first Interest Payment Date after the date of issuance
thereof, on the principal sum of such Note outstanding. Interest on each Note
shall be calculated at the rates per annum set forth below, and shall accrue
from and including the most recent Interest Payment Date to which interest has
been paid on such Note (or if no interest has been paid on such Note, from the
date of issuance thereof) to but excluding the date on which payment in full of
the principal sum of such Note has been made.
(b) The interest rate applicable to each Note shall be a rate per annum
equal to the sum of (i) 12.50% plus (ii) an additional percentage amount equal
to 0.25% from and including the first day following the first anniversary of the
Issuance Date and increasing by 0.25% effective on the first day following the
last day of each 90-day period occurring thereafter until the date the principal
amount of, all premiums, if any, and all accrued and unpaid interest, if any, on
such Note is paid in full. Interest on each Note will be calculated on the basis
of a 360-day year and paid for the actual number of days elapsed.
(c) Interest on each Note shall be payable in cash, except as follows:
(i) Until and including the Interest Payment Date occurring on
November 30, 1999 (each Interest Payment Date occurring after such date
being a "Cash Interest Payment Date"), interest on each outstanding Note
shall be paid, at the sole option of the Holder, (x) in the form of
additional Notes, substantially in the form of Exhibit A hereto (any such
additional Notes issued pursuant to this clause (c) being "PIK Notes"), in
a principal amount equal to the amount of interest due on such outstanding
Note, or (y) in the form of Common Stock, which, for purposes hereof, shall
be valued at the greater of $5.00 per share or, so long as such stock is
publicly traded on a national securities exchange, 80% of the average
closing price of such Common Stock for the 10-day period ended as of the
Interest Payment Date for such interest. Also at the sole option of the
Holder, in lieu of shares of Common Stock pursuant to clause (y) above,
such Holder may elect to receive additional Warrants ("PIK Warrants")
pursuant to the Warrant Agreement, which PIK Warrants shall be exercisable
into the number of shares of Common Stock which would have been received by
such Holder pursuant to clause (y) above. Each Holder shall give written
notice of its election to receive PIK Notes, PIK Warrants or Common Stock,
as the case may be, not more than 5 days prior to the relevant Interest
Payment Date.
(ii) Beginning with the first Cash Interest Payment Date and for each
Interest Payment Date thereafter, interest payable on any such Interest
Payment Date shall be paid in PIK Notes if:
-16-
<PAGE>
(x) (1) the Leverage Ratio is greater than or equal to 2.0 to 1
and (2) the Fixed Charge Coverage Ratio (including interest payable on
such Interest Payment Date) is less than 1.25 to 1; or
(y) (1) the Leverage Ratio is less than 2.0 to 1 and (2) the
Fixed Charge Coverage Ratio (including interest payable on such
Interest Payment Date) is less than 1.20 to 1.
In the event that interest on the Notes is required to be paid in PIK Notes
pursuant to this clause (ii), such PIK Notes shall be in a principal amount
equal to the amount of interest due on such outstanding Notes.
(iii) If, in accordance with clause (ii) above, the Company determines
to pay interest in cash on a Cash Interest Payment Date, the Company shall,
at least 10 Business Days prior to such Cash Interest Payment Date, deliver
to the Administrative Agent (as defined in the Senior Credit Agreement) a
Cash Payment Notice (as defined below). If, at least two Business Days
prior to such Cash Interest Payment Date, the Administrative Agent (in its
sole discretion) notifies the Company in writing that the Administrative
Agent opposes the payment of such interest by the Company in cash, then
such cash interest shall not be paid in cash but shall instead be paid in
the form of PIK Notes as provided in clause (ii) above; provided that, if
upon delivery of the audited financial statements (relating to the
financial calculations set forth in such Cash Payment Notice) of the
Company pursuant to Section 6.01(a), the computation of such financial
calculations are shown to be correct, such PIK Notes (together with all
accrued and unpaid interest thereon) delivered as a result of the operation
of this clause (iii) shall be payable in cash on the next occurring
Interest Payment Date. For purposes of this clause, "Cash Payment Notice"
means a written notice delivered by the Company to the Administrative Agent
at least 10 Business Days prior to any Cash Interest Payment Date and
certified by the chief financial or accounting officer of the Company (or
its chief executive officer if the Company does not have a chief financial
or accounting officer at such time) certifying compliance with the
financial calculations set forth in Section 2.05(b)(ii) for the purpose of
permitting interest on the Notes to be paid in cash on such Cash Interest
Payment Date.
Section 2.06. MATURITY OF NOTES; PREPAYMENT OF NOTES; CHANGE OF CONTROL.
(a) The Notes shall mature on the Maturity Date.
(b) The Company at its option may, upon two Business Days' written notice
to the Holders, at any time, prepay all or any part of principal amount of the
Notes at a redemption price equal to the sum of (x) 100% of the principal amount
of the Notes so prepaid, (y) accrued interest on the principal amount of all
such Notes to the date of prepayment and (z) the Applicable Premium then in
effect on the principal amount of all such Notes other than PIK Notes.
-17-
<PAGE>
(c) The Company shall (i) within five days of receipt by the Company or any
of its Subsidiaries of the Net Cash Proceeds of any Debt Incurrence or any
Equity Issuance (that does not result in a Change of Control) and (ii) within
thirty days of receipt by the Company or any of its Subsidiaries of the Net Cash
Proceeds of any conveyance, sale, lease, assignment, exchange or other
disposition for cash of any asset or group of assets not made in the ordinary
course of business (including, without limitation, insurance proceeds paid as a
result of any destruction, casualty or taking of any property of the Company or
any Subsidiary), by the Company or any of its Subsidiaries, in each case, to the
extent not required to be used to repay Designated Senior Debt and not subject
to any period during which the Company or any of its Subsidiaries may reinvest
such proceeds prior to a requirement to repay Designated Senior Debt, redeem a
principal amount of the Notes equal to the amount of such Net Cash Proceeds
(less any amounts not required to be paid as a result of the requirement in
subsection (d) of this Section 2.06), at a redemption price equal to the sum of
(x) 100% of the principal amount of the Notes so prepaid, (y) accrued interest
on the principal amount of all such Notes to the date of prepayment and (z) the
Applicable Premium then in effect on the principal amount of all such Notes
other than PIK Notes; provided that Net Cash Proceeds need not be applied as
--------
required pursuant to clause (c)(ii) to the extent that such Net Cash Proceeds
are applied to replace, repair or rebuild the property that was the source of
such Net Cash Proceeds within 180 days after the receipt of such Net Cash
Proceeds.
(d) The Company shall (i) upon the occurrence of a Change of Control, offer
to redeem from each Holder all (and not less than all) of the then outstanding
Notes of such Holder at a redemption price equal to 101% of the aggregate
principal amount thereof then outstanding plus all accrued and unpaid interest,
within 30 days of the occurrence of such Change of Control and (ii) on
presentation and surrender of any Notes by any Holder (including any portion of
the Notes held by such Holder) in connection therewith on or prior to such
thirtieth day, such Notes shall be paid and redeemed by the Company at such
redemption price no later than such thirtieth day.
(e) Any prepayment of the Notes pursuant to Section 2.06(b) shall be in a
minimum amount of at least $100,000, unless less than $100,000 of the Notes
remain outstanding, in which case all of the Notes must be prepaid. Any
prepayment of the Notes pursuant to Section 2.06(c) shall be in a minimum amount
which is a multiple of $1,000 times the number of Holders at the time of such
prepayment.
(f) Other than pursuant to Section 2.06(d), any partial prepayment shall be
made so that the Notes then held by each Holder shall be prepaid in a principal
amount which shall bear the same ratio, as nearly as may be, to the total
principal amount being prepaid as the principal amount of such Notes held by
such Holder shall bear to the aggregate principal amount of all Notes then
outstanding. In the event of any partial prepayment (including pursuant to
Section 2.06(d)), upon presentation of any Note the Company shall execute and
deliver to or on the order of the Holder, at the expense of the Company, a new
Note in principal amount equal to the remaining outstanding portion of such
Note.
-18-
<PAGE>
(g) All payments made pursuant to this Section 2.06 shall be made in cash.
Section 2.07. TAXES.
(a) For the purposes of this Section, the following terms have the
following meanings:
"Taxes" means any and all present or future taxes, duties, levies, imposts,
deductions, charges or withholdings with respect to any payment by the Company
pursuant to this Agreement or under any Note or any other Financing Document,
and all liabilities with respect thereto, excluding, in the case of the
Purchaser or any other Holder, taxes imposed on the net income of the Purchaser
or such Holder and franchise or similar taxes imposed on the net income of the
Purchaser or such Holder, by a jurisdiction under the laws of which the
Purchaser or such Holder is organized or in which its principal executive office
or the office holding any Notes or any Financing Document is located.
"Other Taxes" means any present or future stamp or documentary taxes and
any other excise or property taxes, or similar charges or levies, which arise
from any payment made pursuant to this Agreement or under any Note or any other
Financing Document or from the execution, delivery, registration, recordation or
enforcement of, or otherwise with respect to, this Agreement or any Note or any
other Financing Document.
(b) All payments by the Company to or for the account of the Purchaser or
any other Holder under any Financing Document shall be made without deduction
for any Taxes or Other Taxes; provided that, if the Company shall be required by
--------
law to deduct any Taxes or Other Taxes from any such payment, the sum payable
shall be increased as necessary so that after making all required deductions
(including deductions applicable to additional amounts payable under this
Section), the Purchaser or such Holder (as the case may be) receives an amount
equal to the sum it would have received had no such deductions been made, the
Company shall make such deductions, the Company shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable law and the Company shall promptly furnish to the Purchaser or
such Holder (as the case may be) the original or a certified copy of a receipt
or other documentation available to the Company evidencing payment thereof
(c) The Company agrees to indemnify the Purchaser and each other Holder for
the full amount of Taxes and Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed or asserted (whether or not correctly) by any
jurisdiction on amounts payable under this Section) paid by the Purchaser or
such Holder (as the case may be) and any liability (including penalties,
interest and expenses) arising therefrom or with respect thereto.
(d) The Company shall have no obligation for Taxes under Section 2.07(b) or
Section 2.07(c) for or on account of:
-19-
<PAGE>
(i) any Taxes (other than Other Taxes) that would not have been
so imposed but for the existence of any present or former connection
between the Purchaser or Holder or other than sole beneficial owner
(or between a fiduciary, settlor, beneficiary, member, or shareholder
of, or possessor of a power over, the Purchaser, Holder or beneficial
owner, if the Purchaser, Holder or beneficial owner is an estate, a
trust, a partnership or corporation) and the jurisdiction imposing the
Tax other than merely holding such Note or any Financing Document, or
the receipt of payments in respect thereof, including, without
limitation, the Purchaser, Holder or beneficial owner (or such
fiduciary, settlor, beneficiary, member, shareholder, or possessor)
being or having been a citizen or resident thereof, or being or having
been engaged in a trade or business or having a permanent
establishment or other fixed base therein, or making or having made an
election the effect of which is to subject the Purchaser, Holder or
beneficial owner (or such fiduciary, settler, beneficiary, member,
shareholder, or possessor) to such Tax;
(ii) any Taxes in the nature of estate, inheritance or gift
taxes;
(iii) any Tax that is imposed or withheld by reason of the
failure of the Holder or beneficial owner of a Note to comply with a
written request by the Company, addressed to such Holder or beneficial
owner, to provide information concerning the nationality, residence or
identity of such Holder or beneficial owner, if providing such
information under a statute, treaty, regulation or administrative
practice of the jurisdiction imposing such Tax would result in a
complete exemption from such Tax;
(iv) any Taxes imposed on any payment on a Note to a Holder that
is a fiduciary or partnership or other beneficial owner of such
payment to the extent a beneficiary or settlor with respect to such
fiduciary or a member of such partnership or a beneficial owner would
not have been entitled to the payment of taxes had such beneficiary,
settlers member or beneficial owner directly received its beneficial
or distributive share of such payment; and
(v) any combination of items (i) through (iv) above.
(e) If the Company determines in good faith that a reasonable basis exists
for contesting the imposition of a Tax or Other Tax with respect to the
Purchaser or a Holder, the Purchaser or Holder shall cooperate with the Company
in challenging such Tax or Other Tax at the Company's expense (including,
without limitation, any additional costs, expenses or Taxes incurred by the
Purchaser or Holder, as the case may be, as a result of such contesting of such
Taxes) if requested by the Company; provided, however, that nothing in this
-------- -------
Section 2.07(e) shall require the Purchaser or Holder to submit to the Company
any tax returns or any part thereof, or to prepare or file any tax returns other
than as the Purchaser or Holder in it sole discretion shall determine.
-20-
<PAGE>
(f) The Purchaser and each Holder agrees, to the extent reasonable and
without material cost to it, to cooperate with the Company to minimize any
amounts payable by the Company under this Section 2.07.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
Each of the Company and, as regards itself only, each of the Guarantors
represents and warrants to the Purchaser (both before and after giving effect to
the issuance of the Notes) as set forth below:
Section 3.01. CORPORATE EXISTENCE AND POWER.
(a) The Company (i) is a corporation duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of incorporation, and
(ii) has (A) all corporate powers and (B) all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted and as proposed to be conducted after the Issuance Date, except in the
case of clause (a)(ii)(B), where the failure to do so would not have a Material
Adverse Effect.
(b) Each Guarantor (i) is a corporation duly incorporated, and validly
existing and in good standing under the laws of its respective jurisdiction of
organization, and (ii) has (A) all corporate powers and (B) all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted and as proposed to be conducted after the
Issuance Date, except in the case of clause (b)(ii)(B), where the failure to do
so would not have a Material Adverse Effect.
Section 3.02. AUTHORIZATION, EXECUTION AND ENFORCEABILITY.
(a) The execution, delivery and performance by the Company of the Financing
Documents and the issuance of the Notes by the Company have been duly and
validly authorized and are within its corporate powers. Each of the Financing
Documents (other than the Notes) to which it is a party has been duly
authorized, executed and delivered by the Company and constitutes its valid and
binding agreement enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency and other similar laws affecting creditors'
rights generally and equitable principles of general applicability. When
executed and delivered by the Company against payment therefor in accordance
with the terms hereof, the Notes will constitute valid and binding obligations
of the Company, enforceable in accordance with their terms, subject to
applicable bankruptcy, insolvency and other similar laws affecting creditors'
rights generally and equitable principles of general applicability.
(b) The execution, delivery and performance by each of the Guarantors of
the Financing Documents to which it is a party have been duly and validly
authorized and are within the corporate powers of each of the Guarantors. Each
of the Financing Documents to which each
-21-
<PAGE>
of the Guarantors is a party has been duly authorized, executed and delivered by
it and constitutes its valid and binding agreement, enforceable in accordance
with its terms, subject to applicable bankruptcy, insolvency and other similar
laws affecting creditors' rights generally and equitable principles of general
applicability.
(c) The Warrants have been duly authorized by the Company and, when
executed and authenticated pursuant to the terms of the Warrant Agreement and
delivered to the Purchaser pursuant to the provisions of this Agreement, will be
valid and binding obligations of the Company, enforceable against it in
accordance with their terms, subject to applicable bankruptcy, insolvency and
other similar laws affecting creditors' rights generally and equitable
principles of general applicability.
(d) The Warrant Shares to be issued upon exercise of the Warrants have been
duly authorized and reserved for issuance by the Company and will be issued at
the times and in the manner required by the Warrant Agreement and, upon due
exercise of a Warrant, the Warrant Shares issued will be validly issued, fully
paid and nonassessable.
Section 3.03. GOVERNMENTAL AUTHORIZATION.
(a) No action by or in respect of, or filing with, any governmental body,
agency or governmental official is required for (i) the due execution, delivery
or performance by the Company of any of the Financing Documents to which it is a
party, (ii) the issuance and sale of the Notes by the Company, (iii) the
issuance and delivery of the Warrants or the Warrant Shares by the Company, or
(iv) the consummation of the transactions contemplated hereby or thereby, except
for such actions and filings which (x) have been taken or made and remain in
full force and effect, or (y) if not taken or made, will not have a material
adverse effect on the validity or enforceability of the Financing Documents.
(b) No action by or in respect of, or filing with, any governmental body,
agency or governmental official is required for (i) the execution, delivery or
performance by any of the Guarantors of any of the Financing Documents to which
it is a party or (ii) the consummation of the transactions contemplated hereby
or thereby, except such actions and filings which (i) have been taken or made
and remain in full force and effect, or (ii), if not taken or made, will not
have a material adverse effect on the validity or enforceability of the
Financing Documents.
Section 3.04. CONTRAVENTION.
(a) The execution and delivery by the Company of the Financing Documents to
which it is a party did not and will not, the issuance and sale of the Notes by
the Company will not, the issuance and delivery of the Warrants and the Warrant
Shares by the Company will not, and the consummation of the transactions
contemplated hereby and thereby will not, (A) contravene or constitute a default
under or violation of any provision of (i) any applicable law or regulation,
(ii) any of its Corporate Documents or (iii) any agreement, judgment,
injunction, order, decree or other instrument binding upon it or any of its
assets, except in the
-22-
<PAGE>
case of clauses (i) and (iii), for such contraventions, defaults or violations
that would not reasonably be expected to result in a Material Adverse Effect, or
(B) result in the creation or imposition of any Lien on any asset of the Company
or any of its Subsidiaries other than Liens created or imposed pursuant to the
Senior Credit Facilities.
(b) The execution and delivery by each of the Guarantors of the Financing
Documents to which it is a party did not and will not, and the consummation of
the transactions contemplated hereby and thereby will not, (A) contravene or
constitute a default under or violation of any provision of (i) any applicable
law or regulation, (ii) any of its Corporate Documents of any Guarantor, or
(iii) any agreement, judgment, injunction, order, decree or other instrument
binding upon it or any of its assets, except, in the case of clauses (i) and
(iii), for such contraventions, defaults or violations that would not reasonably
be expected to result in a Material Adverse Effect, or (B) result in the
creation or imposition of any Lien on any asset of any Guarantor, the Company or
any of its Subsidiaries other than Liens created or imposed pursuant to the
Senior Credit Facilities.
Section 3.05. FINANCIAL INFORMATION.
(a) The combined balance sheets of the Company and its Subsidiaries as of
August 31, 1996, August 31, 1997 and August 31, 1998 and the related combined
statements of profit and loss and cash flows for the fiscal years ended August
31, 1996, August 31, 1997 and August 31, 1998 (collectively, the "Base Financial
Statements"), audited by Ernst & Young LLP, which financial statements shall
have been prepared in conformity with U.S. GAAP, and shall fairly present the
combined financial position of such entities as of each such date and their
combined results of operations, changes in stockholders' equity and cash flows
for each such period.
(b) The pro forma combined balance sheet as of August 31, 1998 and the
related pro forma combined statement of profit and loss for the period ended as
of such date have been prepared on a basis consistent with the Base Financial
Statements of the Company and its Subsidiaries and give effect to assumptions
used in the preparation thereof on a reasonable basis and in good faith and
present fairly the historical transactions (including the Kwik Acquisition, the
Mega Art Acquisition, and the Hy Zazula Acquisition) and proposed transactions
contemplated hereby and by the SuperGraphics Acquisition (the "Pro Forma
Financial Statements").
(c) Except as set forth on Schedule 3.05(c), there has occurred no material
adverse change in the business, condition (financial or otherwise), operations,
properties or prospects of the Company and its Subsidiaries, taken as a whole,
since August 31, 1998.
Section 3.06. LITIGATION. Except as set forth on Schedule 3.06, there is no
action, suit or proceeding pending or, to the knowledge of the Company or the
Guarantors, threatened against the Company, any of its Subsidiaries, any Plan or
any fiduciary of any Plan or any Guarantor before any court or arbitrator or any
governmental body, agency or official which is reasonably likely to result in
(x) an adverse decision which could have a material adverse effect on any such
-23-
<PAGE>
Person, any of the Financing Documents or the SuperGraphics Acquisition or (y) a
Material Adverse Effect.
Section 3.07. ENVIRONMENTAL MATTERS. Except to the extent that the
following would not reasonably be expected to result in a Material Adverse
Effect and except as set forth on Schedule 3.07:
(a) No property owned, leased or operated by the Company or any of its
Subsidiaries is affected by any Hazardous Materials Contamination.
(b) No asbestos or asbestos-containing materials are present on any of the
properties now or previously owned, leased or operated by the Company or any of
its Subsidiaries.
(c) No polychlorinated biphenyls in regulated concentrations are located on
or in any properties now or previously owned, leased or operated by the Company
or any of its Subsidiaries, in the form of electrical transformers, fluorescent
light fixtures with ballasts, cooling oils or any other device.
(d) No underground storage tanks are located on any properties now or
previously owned, leased or operated by the Company or any of its Subsidiaries,
or were located on any such property and subsequently removed or filled.
(e) No written notice, notification, demand, CERCLA-related request for
information, complaint, citation, summons, investigation, administrative order,
consent order or consent agreement, litigation or settlement with respect to
Hazardous Materials or Hazardous Materials Contamination has been issued to the
Company or is pending, as the case may be, or, to the Company's knowledge,
proposed, threatened or anticipated, in each case, with respect to or in
connection with the operation of any properties now or previously owned, leased
or operated by the Company or any of its Subsidiaries. Except to the extent the
following would not result in a Material Adverse Effect, all such properties and
their existing and prior uses by the Company, and, to the Company's knowledge,
the uses of the properties prior to the Company's ownership, lease or operation
comply and at all times have complied with any applicable governmental
requirements relating to environmental matters or Hazardous Materials and there
is no condition on any of such properties which is in violation of any
applicable governmental requirements relating to Hazardous Materials, and
neither the Company nor any of its Subsidiaries has received any communication
from or on behalf of any governmental authority that any such condition exists.
(f) For purposes of this Section 3.07, the terms "Company" and "Subsidiary"
shall include any business or business entity (including a corporation) which
is, in whole or in part, a predecessor of the Company or any Subsidiary to the
extent the Company would be liable for the liabilities of such predecessor under
any applicable Environmental Laws.
-24-
<PAGE>
Section 3.08. TAXES.
(a) All income tax returns and all other tax returns which are required to
be filed by or on behalf of the Company and its Subsidiaries have been filed and
all taxes shown as due on such returns have been paid or adequate reserves have
been established on the books of the Company, except to the extent that the
failure to file any such returns or pay any such taxes would not reasonably be
expected to result in a Material Adverse Effect and except for any such taxes
that are being contested in good faith by appropriate proceedings and for which
appropriate reserves have been established in accordance with U.S. GAAP. The
charges, accruals and reserves on the books of the Company in respect of taxes
or other governmental charges have been established in accordance with U.S.
GAAP.
(b) There is no tax, levy, impost, deduction, charge or withholding imposed
by any governmental instrumentality either (i) on or by virtue of the execution,
delivery, performance, enforcement or admissibility into evidence of any
Financing Document or (ii) on any payment to be made by the Company or any
Guarantor pursuant to any Financing Document. The Company is permitted under
applicable laws to pay any additional amounts payable by it under Section 2.07.
Section 3.09. SUBSIDIARIES. Other than those listed on Schedule 3.09, the
Company has no Subsidiaries.
Section 3.10. GOVERNMENTAL REGULATIONS. None of the Company, any of its
Subsidiaries or any of the Guarantors is or will be subject to regulation under
the Investment Company Act of 1940, as amended, the Public Utility Holding
Company Act of 1935, as amended, the Federal Power Act, the Interstate Commerce
Act or to any other statute, rule or regulation limiting its ability to incur
Debt for borrowed money.
Section 3.11. FULL DISCLOSURE. The information heretofore furnished by or
on behalf of the Company to the Purchaser in writing for purposes of or in
connection with the Financing Documents or any transaction contemplated hereby
does not, and all such information hereafter furnished by or on behalf of the
Company to any Holder will not, contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained therein, in the light of the circumstances under which they are made,
not misleading. The Company has disclosed to the Purchaser any and all facts
which materially and adversely affect or may materially and adversely affect (to
the extent the Company can now reasonably foresee), the business, assets or
financial position of the Company or the ability of the Company to perform its
obligations under the Financing Documents or to complete the SuperGraphics
Acquisition.
Section 3.12. CAPITALIZATION. At the Issuance Date, after giving effect to
the SuperGraphics Acquisition, the capitalization of the Company will be as set
forth on Schedule 3.12. All of the issued and outstanding shares of Common Stock
are, and, as of the time of the issuance of the Notes and the closing of the
SuperGraphics Acquisition, will be,
-25-
<PAGE>
validly issued, fully paid and nonassessable and free and clear of any Lien or
other right or claim (other than Liens created under the Senior Credit
Facilities) and the holders thereof are not entitled to any preemptive or other
similar rights. Other than options to acquire shares of Common Stock granted to
the Company's employees, and as set forth on Schedule 3.12, there are no
subscriptions, options, warrants, rights, convertible securities, exchangeable
securities or other agreements or commitments of any character pursuant to which
the Company is required to issue any shares of its capital stock.
Section 3.13. SOLICITATION. No form of general solicitation or general
advertising was used by the Company or, to the best of its knowledge, any other
Person acting on behalf of the Company, in connection with the offer and sale of
the Notes. Neither the Company nor any Person acting on behalf of the Company
has, either directly or indirectly, sold or offered for sale to any Person any
of the Notes or any other similar security of the Company except as contemplated
by this Agreement, and the Company represents that neither the Company nor any
Person acting on its behalf other than the Purchaser and its Affiliates will
sell or offer for sale to any Person any such security, to, or solicit any
offers to buy any such security from, or otherwise approach or negotiate in
respect thereof with, any Person or Persons so as thereby to bring the issuance
or sale of any of the Notes within the provisions of Section 5 of the Securities
Act.
Section 3.14. NON-FUNGIBILITY. When the Notes and Guarantees are issued and
delivered pursuant to this Agreement, the Notes and Guarantees will not be of
the same class (within the meaning of Rule 144A under the Securities Act) as
securities which are (i) listed on a national securities exchange registered
under Section 6 of the Exchange Act or (ii) quoted in a U.S. automated
inter-dealer quotation system.
Section 3.15. PERMITS. Except to the extent any of the following would not
result in a Material Adverse Effect: (a) the Company and its Subsidiaries have
all Permits as are necessary for the conduct of their respective businesses as
it has been carried on; (b) all such Permits are in full force and effect, and
each of the Company and its Subsidiaries has fulfilled and performed all
obligations with respect to such Permits; (c) no event has occurred which
allows, or after notice or lapse of time would allow, revocation or termination
by the issuer thereof or which results in any other impairment of the rights of
the holder of any such Permit; and (d) each of the Company and its Subsidiaries
has no reason to believe that any governmental body or agency is considering
limiting, suspending or revoking any such Permit.
Section 3.16. REPRESENTATIONS IN OTHER FINANCING DOCUMENTS AND IN
ACQUISITION AGREEMENT AND RELATED DOCUMENTS.
(a) Each of the representations and warranties of the Company and the
Guarantors set forth in any of the other Financing Documents is true and correct
in all material respects.
(b) Each of the representations and warranties set forth in any of the
Acquisition Agreement and each other document related thereto is true and
correct in all material respects.
-26-
<PAGE>
Section 3.17. NO UNDISCLOSED LIABILITIES. The Company has no material
liability (absolute or contingent) except (a) those shown on the audited
financial statements for the fiscal year ended August 31, 1998 and (b) those
incurred under the Financing Documents.
Section 3.18. ERISA MATTERS. During the twelve consecutive months ending on
the date of the execution and delivery of this Agreement, no steps have been
taken to terminate any Qualified Plan, and no contribution failure has occurred
with respect to any Qualified Plan sufficient to give rise to a Lien under
section 302(f) of ERISA, which, in the aggregate, is reasonably expected to lead
to liability on the part of the Company or any ERISA Affiliate in excess of
$1,000,000. No condition exists or event or transaction has occurred with
respect to any Qualified Plan which could reasonably be expected to result in
the incurrence by the Company of any material liability, fine or penalty other
than as could not reasonably be expected to have a Material Adverse Effect.
Since the date of the last period covered by the Base Financial Statements, none
of the Company, any Subsidiary or any ERISA Affiliate has taken any action that
could be expected to increase (i) any contingent liability with respect to any
post-retirement benefit under a Welfare Plan, other than liability for
continuation coverage described in part 6 of Subtitle B of Title I of ERISA or
(ii) any contingent liability with respect to any Qualified Plan or
Multiemployer Plan, except as would not have a Material Adverse Effect.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Section 4.01. PURCHASE FOR INVESTMENT; AUTHORITY; BINDING AGREEMENT. The
Purchaser represents and warrants to the Company that:
(a) the Purchaser is an Accredited Investor within the meaning of Rule
501(a) under the Securities Act and the Notes to be acquired by it pursuant to
this Agreement are being acquired for its own account without a view toward
public distribution and the Purchaser will not offer, sell, transfer, pledge,
hypothecate or otherwise dispose of the Notes unless pursuant to a transaction
either registered under, or exempt from registration under, the Securities Act;
(b) the execution, delivery and performance of this Agreement and the
purchase of the Notes pursuant hereto are within the Purchaser's corporate
powers and have been duly and validly authorized by all requisite corporate
action;
(c) this Agreement has been duly executed and delivered by the Purchaser;
(d) this Agreement constitutes a valid and binding agreement of the
Purchaser enforceable in accordance with its terms; and
(e) the Purchaser has such knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of its
investment in the Notes and the Purchaser is capable of bearing the economic
risks of such investment.
-27-
<PAGE>
ARTICLE 5.
CONDITIONS PRECEDENT TO PURCHASE
Section 5.01. CONDITIONS TO PURCHASER'S OBLIGATION TO PURCHASE THE NOTES.
The obligation of the Purchaser to purchase the Notes to be issued and sold by
the Company on the Issuance Date is subject to the satisfaction of the following
conditions contemporaneously with such purchase:
(a) (i) Each of the conditions to the parties' obligations under the
Acquisition Agreement shall have been satisfied or, with the prior written
consent of the Purchaser, waived, (ii) the SuperGraphics Acquisition shall have
been completed on the terms set forth in the Acquisition Agreement (as such
terms may have been amended or waived with the consent of the Purchaser) and
(iii) the aggregate amount of funds required by the Company with respect to the
SuperGraphics Acquisition (including without limitation for the payment of fees,
commissions and expenses) shall not exceed the sum of (x) $18,000,000 and (y)
the Deferred Purchase Price (as defined in the Acquisition Agreement).
(b) The Purchaser shall have received executed copies of each of the
Acquisition Agreement and the Financing Documents, each of which shall be in
full force and effect and no term or condition thereof shall have been amended,
waived or otherwise modified without the prior written consent of the Purchaser.
(c) The Senior Credit Facilities shall be in full force and effect and
contain covenants and other terms and conditions customary for such transactions
and satisfactory to the Purchaser. Except as disclosed in the audited financial
statements for the fiscal year ended August 31, 1998, the Company and its
Subsidiaries shall have no indebtedness for borrowed money other than the Senior
Credit Facilities and the Notes.
(d) The Purchaser shall have received the Base Financial Statements
described in Section 3.05(a), as well as the Pro Forma Financial Statements
described in Section 3.05(b), which Pro Forma Financial Statements shall have
been certified by the chief financial or accounting officer of the Company (or
its chief executive officer if the Company does not have a chief financial or
accounting officer at such time) and shall have been prepared in conformity with
U.S. GAAP, adjusted to give effect to (i) the SuperGraphics Acquisition, (ii)
the historical transactions (including the Kwik Acquisition, the Mega Art
Acquisition, and the Hy Zazula Acquisition) and proposed transactions
contemplated by the Acquisition Agreement, (iii) the borrowings made under the
Senior Credit Facilities as of the Issuance Date, (iv) the purchase of the Notes
and Warrants on the Issuance Date and (v) the application of the proceeds from
such Purchase as contemplated by the Acquisition Agreement and the Financing
Documents.
(e) The Purchaser shall have received evidence satisfactory to it that all
material governmental, shareholder and third party consents and approvals
necessary or desirable in connection with the issuance of the Notes and the
SuperGraphics Acquisition and the other
-28-
<PAGE>
transactions contemplated by the Financing Documents and which are required by
the Acquisition Agreement have been received.
(f) There shall exist no action, suit, investigation, litigation or
proceeding pending or, to the Company's knowledge, threatened in any court or
before any arbitrator or any governmental instrumentality that could reasonably
be expected to (i) have a material adverse effect on any Financing Document, the
Acquisition Agreement, the Notes or the SuperGraphics Acquisition or any of the
other transactions contemplated thereby or hereby or (ii) result in a Material
Adverse Effect.
(g) The Purchaser shall have received opinions, dated on or prior to the
Issuance Date, of Buchanan Ingersoll Professional Corporation, special counsel
for the Company and each of the Guarantors, in the form and substance
satisfactory to the Purchaser.
(h) All fees and expenses payable to the Purchaser on or before the
Issuance Date hereunder, under the Fee Letter or otherwise in connection with
the transactions contemplated hereby, shall have been paid in full.
(i) The representations and warranties of the Company and the Guarantors
contained in the Financing Documents shall be true and correct in all material
respects on and as of the Issuance Date as if made on and as of such date and
each of the Company and the Guarantors shall have performed and complied with
all covenants and agreements required by the Financing Documents to be performed
by it or complied with by it at or prior to the Issuance Date.
(j) There shall not exist any Default.
(k) The Purchaser shall have received the Notes to be issued on the
Issuance Date, duly executed by the Company in the denominations and registered
in the names specified in or pursuant to Section 2.02.
(l) The capitalization, tax and corporate and ownership structure
(including the Corporate Documents) of the Company and its Subsidiaries before
and after the consummation of the SuperGraphics Acquisition and the issuance of
the Notes shall be consistent with that set forth in documents provided to the
Purchaser prior to the date hereof or shall otherwise be satisfactory to the
Purchaser in all material respects.
(m) The Purchaser shall have received a certificate of the Secretary or
Assistant Secretary of the Company and each Guarantor, dated as of a date
reasonably satisfactory to the Purchaser, certifying (A) (i) that attached
thereto is a true, complete and correct copy of resolutions duly adopted by the
Board of Directors of the Company or such Guarantor, as the case may be,
authorizing (1) the execution, delivery and performance of the Financing
Documents to which it is a party, and (2) the transactions contemplated hereby
(including the SuperGraphics Acquisition), and (ii) that such resolutions have
not been amended, modified, revoked or rescinded, (B) as to the incumbency and
specimen signature of each officer executing
-29-
<PAGE>
any Financing Documents on its behalf, and (C) true and complete copies of its
constituent documents, and such certificates and the resolutions attached
thereto shall be in form and substance satisfactory to the Purchaser.
(n) The Company shall have executed and delivered the Warrant Agreement and
shall have executed and delivered to the Purchaser fully authenticated Warrants,
registered, unregistered or registered in blank (as the Holder may request),
representing the right to purchase, upon the terms and conditions of the Warrant
Agreement, up to an aggregate of 640,000 shares of Common Stock (excluding PIK
Warrants) of the Company, calculated after giving effect to the transactions
(including the SuperGraphics Acquisition), occurring on or prior to the Issuance
Date (the "Warrant Shares"), exercisable for a period of ten years at an
exercise price per share provided in the Warrant Agreement.
(o) No additional information shall have been disclosed to or discovered by
the Purchaser that is inconsistent with the information provided to the
Purchaser during the course of their due diligence investigations of the Company
and that the Purchaser reasonably deem materially adverse in respect of the
condition (financial or otherwise), business, assets, liabilities, properties,
results of operations or prospects of the Company and its Subsidiaries.
(p) All documentation and matters relating to the transactions contemplated
by this Agreement, the Financing Documents, the Acquisition Agreement, the
Senior Credit Facilities, the Warrant Agreement and the transactions
contemplated hereby and thereby shall be satisfactory to the Purchaser in its
discretion, and the Purchaser shall have received such additional certificates,
legal and other opinions and documentation as they shall reasonably request.
(q) The Purchaser shall have received the consent of the lenders under the
Senior Credit Facilities, if required, concerning the anticipated terms and
conditions of the Notes, including the application of the proceeds therefrom.
(r) The Purchaser shall have received a certificate from the Company and
each Guarantor, dated as of a date reasonably satisfactory to the Purchaser,
signed by the chief executive officer of the Company and each Guarantor,
confirming all matters set forth in Sections 5.01(a), (f), (i) and (j) hereof.
ARTICLE 6.
COVENANTS
The Company agrees that, from and after the Issuance Date and so long as
any Notes remain outstanding and unpaid, and for the benefit of the Purchaser
and the Holders:
-30-
<PAGE>
Section 6.01. INFORMATION. The Company will deliver to the Purchaser:
(a) as soon as available, but in any event within 90 days after the end of
each fiscal year of the Company, a copy of the consolidated balance sheet of the
Company and its consolidated Subsidiaries as at the end of such fiscal year and
the related consolidated statements of income and retained earnings and of cash
flows for such fiscal year, setting forth in each case in comparative form the
figures for the previous fiscal year, reported on without a "going concern" or
like qualification or exception, or qualification arising out of the scope of
the audit, by Ernst & Young, LLP or other independent certified public
accountants of nationally recognized standing;
(b) as soon as available, but in any event within 45 days after the end of
each of the first three quarterly periods of each fiscal year of the Company,
the unaudited consolidated balance sheet of the Company and its consolidated
Subsidiaries as at the end of such quarter and the related unaudited
consolidated statements of income and retained earnings and of cash flows of the
Company and its consolidated Subsidiaries for such quarter and the portion of
the fiscal year through the end of such quarter, setting forth in each case in
comparative form the figures for the previous year, certified by the chief
financial or accounting officer of the Company (or its chief executive officer
if the Company does not have a chief financial or accounting officer at such
time) as being fairly stated in all material respects (subject to normal
year-end audit adjustments);
(c) concurrently with the delivery of the financial statements referred to
in clauses (a) and (b) above and, in the case of clause (c)(i) below, within 20
days after the end of each calendar month, a certificate of the chief financial
or accounting officer of the Company (or its chief executive officer if the
Company does not have a chief financial or accounting officer at such time) (i)
stating that, to the best of such officer's knowledge, the Company during such
period has observed or performed all of its covenants and other agreements, and
satisfied every condition, contained in this Agreement and the other Loan
Documents to be observed, performed or satisfied by it, and that such officer
has obtained no knowledge of any Default or Event of Default except as specified
in such certificate and (ii) showing in detail the calculations supporting such
officer's certification of the Company's compliance with the requirements of
Sections 6.08 through 6.11, inclusive, on the date of such financial statements;
(d) within five days after any executive officer of the Company obtains
knowledge of a Default if such Default is then continuing, a certificate of the
chief financial or accounting officer of the Company (or its chief executive
officer if the Company does not have a chief financial or accounting officer at
such time) setting forth the details thereof and the action which the Company is
taking or proposes to take with respect thereto;
(e) promptly upon the filing thereof, copies of all applications,
registration statements or reports which the Company or any of its Subsidiaries
shall have filed with the Commission or any other national or international
stock exchange or any U.S. automated inter-dealer quotation system;
-31-
<PAGE>
(f) promptly following the commencement thereof, notice and a description
in reasonable detail of any litigation or proceeding to which the Company or any
of its Subsidiaries is a party in which the amount involved is $1,000,000 or
more;
(g) promptly following the occurrence thereof, notice and a description in
reasonable detail of any material adverse change in the business, assets or
financial position of the Company and its Subsidiaries taken as a whole;
(h) promptly following the occurrence thereof, notice and a copy of any
amendment, modification or similar item entered into with respect to, or any
matured or unmatured event of default under, the Senior Credit Facilities; and
(i) from time to time such additional information regarding the financial
position or business of the Company and its Subsidiaries as the Purchaser may
reasonably request.
All financial statements delivered pursuant to clauses (a) and (b) above shall
be complete and correct in all material respects and shall be prepared in
reasonable detail and in accordance with U.S. GAAP applied consistently
throughout the periods reflected therein and with prior periods (except as
approved by such accountants or such officer, as the case may be, and disclosed
therein).
Section 6.02. PAYMENT OF OBLIGATIONS. The Company will pay and discharge,
and will cause each Subsidiary to pay and discharge, material obligations and
liabilities, including, without limitation, tax liabilities, at or before such
obligations and liabilities become due, except where the same may be contested
in good faith by appropriate proceedings, and will maintain, and will cause each
Subsidiary to maintain, in accordance with U.S. GAAP, appropriate reserves for
the accrual of any of the same.
Section 6.03. INSURANCE. The Company shall, and shall cause each of its
Subsidiaries to, keep its insurable properties adequately insured at all times
by financially sound and reputable insurers; maintain such other insurance, to
such extent and against such risks, including fire and other risks insured
against by extended coverage, as is customary with companies in the same or
similar businesses operating in the same or similar locations, including (i)
public liability insurance against claims for personal injury or death or
property damage occurring upon, in, about in connection with the use of any
properties owned, occupied or controlled by it and (ii) business interruption
insurance; and maintain such other insurance as may be required by law.
Section 6.04. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The Company
will continue, and will cause each Subsidiary to continue, to engage in business
of the same general type as now conducted by the Company and its Subsidiaries or
any business reasonably related, incidental or ancillary thereto (including,
without limitation, media services), and will preserve, renew and keep in full
force and effect, and will cause each Subsidiary to preserve, renew and keep in
full force and effect their respective corporate existence and their respective
rights, privileges and franchises necessary or desirable in the normal conduct
of business, except that (i)
-32-
<PAGE>
the Company may discontinue any immaterial line of business of the Company and
its Subsidiaries if the Board of Directors of the Company determines that such
discontinuation is in the best interests of the Company and not disadvantageous
to the holder of any Note and (ii) nothing in this Section 6.04 shall prohibit
the merger or consolidation of any wholly-owned Subsidiary of the Company with
or into any other wholly-owned Subsidiary of the Company.
Section 6.05. COMPLIANCE WITH LAWS.
(a) The Company will comply, and cause each Subsidiary to comply, in all
material respects with all applicable laws, ordinances, rules, regulations, and
requirements of governmental authorities (including, without limitation,
Environmental Laws and ERISA and the rules and regulations thereunder where
noncompliance could reasonably be expected to have a Material Adverse Effect).
(b) The Company will take all actions to ensure that (i) the obligations of
the Company under the Financing Documents are at all times valid, binding and
enforceable against the Company in accordance with their terms under all
applicable laws, and (ii) the Financing Documents may be admitted into evidence
in any relevant jurisdiction.
Section 6.06. INSPECTION OF PROPERTY, BOOKS AND RECORDS; ATTENDANCE AT
BOARD MEETINGS.
(a) The Company will keep, and will cause each Subsidiary to keep, proper
books of record and account in which full, true and correct entries shall be
made of all dealings and transactions in relation to its business and
activities; and will permit, and will cause each Subsidiary to permit,
representatives of the Purchaser at reasonable times and intervals, and upon
reasonable notice, to visit its corporate offices, to discuss its financial
matters with its officers and its independent public accountants (and the
Company hereby authorizes such independent public accountants to discuss the
Company's financial matters with the Purchaser or its representatives) and to
examine any of its books or other financial records.
(b) So long as the Purchaser holds (x) Warrant Shares equal to at least 3%
of all outstanding Common Stock (on a fully diluted basis) of the Company (or
Warrants exercisable into Warrant Shares equal to at least 3% of all outstanding
Common Stock (on a fully diluted basis) of the Company) or (y) any Notes, the
Company shall give the Purchaser written notice of each meeting of the Board of
Directors (or any committee thereof) of the Company or any of its Subsidiaries
at the same time and in the same manner as notice is given to the members of
such Board (or such committee) (which notice shall be confirmed in writing to
the Purchaser), and the Company and each of its Subsidiaries shall permit a
representative of the Purchaser to attend as an observer all meetings of its
Board of Directors (or any such committee thereof). Such representative shall be
entitled to receive all written materials and other information (including,
without limitation, copies of meeting minutes) given to directors in connection
with such meetings at the same time such materials and information are given to
the members of any such Board of Directors (or such committee). If the Company
or any of its Subsidiaries proposes to
-33-
<PAGE>
take any action by written consent in lieu of a meeting of its Board of
Directors (or such committee), the Company and each such Subsidiary shall give
written notice thereof to such representative prior to the effective date of
such consent describing the nature and substance of such action and in any event
shall give prompt written notice thereof to such representative after the
effective date of such consent.
Section 6.07. INVESTMENT COMPANY ACT. The Company will not be or become an
open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under the Investment Company Act
of 1940, as amended.
Section 6.08. LIMITATION ON DEBT. Neither the Company nor any Subsidiary
will create, incur, assume or suffer to exist any Debt, except:
(a) Debt outstanding on the date of this Agreement (other than Debt
incurred under the Senior Credit Facilities) and identified in Schedule
6.08(a) and refinancings and replacements thereof in a principal amount not
exceeding the principal amount of the Debt so refinanced or replaced on
terms no less favorable to the Holders of the Notes than those in place on
the date of this Agreement and with a weighted average life to maturity of
not less than the then weighted average life to maturity of the Debt so
refinanced or replaced;
(b) Debt of the Company evidenced by the Notes;
(c) Debt incurred under the Senior Credit Facilities, not to exceed
$75,000,000, and refinancings and replacements thereof (whether with the
same or different lenders and agents and whether on the same or different
terms or in the same or different structure) in a principal amount not
exceeding the principal amount of the Debt so refinanced or replaced;
(d) Debt owing to the Company or a Subsidiary;
(e) Debt incurred by the Company or any of its Subsidiaries that is
represented by Capital Lease Obligations, mortgage financings or purchase
money obligations or otherwise to finance the acquisition of fixed or
capital assets; provided, that the amount of such Debt does not exceed the
--------
fair market value of the asset so financed;
(f) Debt that when issued will not result, on a pro forma basis, in an
--- -----
Interest Coverage Ratio less than 2.00 to 1 for the most recent fully ended
fiscal quarter of the Company preceding the date of such issuance, which
pro forma compliance shall be evidenced by a certificate delivered by the
--- -----
chief financial or accounting officer of the Company (or its chief
executive officer if the Company does not have a chief financial or
accounting officer at such time) to the Holders setting forth in reasonable
detail the
-34-
<PAGE>
calculations required to establish whether the Company was in pro forma
compliance with such requirement;
(g) other Debt the Net Cash Proceeds of which are applied in
accordance with Section 2.06 to prepay all amounts owing under the Notes;
(h) the incurrence by the Company or any of its Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging:
(x) interest rate risk with respect to any floating rate Debt that is
permitted by the terms of this Agreement to be outstanding; (y) exchange
rate risk with respect to any agreement or Debt of such Person payable in a
currency other than U.S. dollars; or (z) commodities risk relating to
commodities agreements, entered into in the ordinary course of business,
for the purchase of raw material used by the Company and its Subsidiaries;
(i) long-term Debt for borrowed money of any Subsidiary that is not a
Domestic Subsidiary, together with similar such Debt listed on Schedule
6.08(i), not to exceed $3,000,000 at any one time outstanding;
(j) short-term Debt of Subsidiaries that are not Domestic Subsidiaries
incurred for working capital purposes, together with similar such Debt
listed on Schedule 6.08(j), not to exceed $5,000,000 at any one time
outstanding;
(k) Debt of a corporation which becomes a Subsidiary after the date
hereof, provided that (i) such Debt existed at the time such corporation
--------
became a Subsidiary and was not created in anticipation thereof and (ii)
immediately after giving effect to the acquisition of such corporation by
the Company no Default or Event of Default shall have occurred and be
continuing (including pursuant to clause (f) of this Section);
(l) other unsecured Debt of the Company and it Subsidiaries that (i)
has terms and provisions (including as to subordination, pricing,
covenants, defaults, average life to maturity, etc.) which are no more
favorable or advantageous to the holders thereof than the comparable terms
and provisions of this Agreement and the Notes, (ii) is in an aggregate
principal amount at any time outstanding not to exceed $5,000,000 and (iii)
is incurred within 90 days of the Issuance Date; and
(m) other unsecured Debt of the Company and it Subsidiaries in an
aggregate amount at any time outstanding not to exceed $5,000,000.
Section 6.09. RESTRICTED PAYMENTS; VOLUNTARY PREPAYMENTS.
(a) Neither the Company nor any Subsidiary of the Company will declare or
make any Restricted Payment.
-35-
<PAGE>
(b) The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, optionally redeem, retire, purchase, acquire, defease or
otherwise make any payment, other than required interest payments, in respect of
any Debt which is subordinated to or pari passu with the Notes, other than
payments in respect of Debt owing to the Company or a Subsidiary.
Section 6.10. INVESTMENTS. The Company will not, and will not permit any of
its Subsidiaries to, make or acquire any Investment in any Person other than (i)
Investments in existence on the date hereof and identified on Schedule 6.10;
(ii) Investments in Cash Equivalents; (iii) Investments made after the date
hereof in Persons which are direct or indirect Subsidiaries that are also
Guarantors immediately after such Investment is made; (iv) Investments in the
form of loans to officers, directors and employees of the Company and its
Subsidiaries for the sole purpose of purchasing common stock of the Company (or
purchases of such loans made by others) in an aggregate amount at any time
outstanding not to exceed $500,000; (v) any Investment made as a result of the
receipt of non-cash consideration from any conveyance, sale, lease, assignment,
exchange or other disposition for cash of any asset or group of assets not made
in the ordinary course of business that was made pursuant to and in compliance
with Section 6.17 hereof; (vi) any acquisition of assets solely in exchange for
the issuance of Common Stock of the Company; (vii) extensions of trade credit in
the ordinary course of business and (viii) any Permitted Acquisition if
immediately prior to or following the consummation of such Permitted Acquisition
(including the incurrence or assumption of all Debt and the consummation of all
transactions related thereto) no Default shall have occurred and then be
continuing.
Section 6.11. NEGATIVE PLEDGE. The Company will not create, assume or
suffer to exist any Lien on any asset now owned or hereafter acquired by it,
except:
(a) the Liens identified on Schedule 6.11;
(b) Liens securing the Senior Credit Facilities and any other
permitted Senior Debt;
(c) Liens on assets of any Subsidiary that is not a Domestic
Subsidiary securing Debt of such Subsidiary permitted by Sections 6.08(i)
and (j);
(d) Liens on the property or assets of a corporation which becomes a
Subsidiary after the date hereof securing Debt permitted by Section
6.08(k), provided that (i) such Liens existed at the time such corporation
--------
became a Subsidiary and were not created in anticipation thereof, (ii) any
such Lien is not spread to cover any property or assets of such corporation
after the time such corporation becomes a Subsidiary, and (iii) the amount
of Debt secured thereby is not increased; and
(e) Liens arising in the ordinary course of its business which (i) do
not secure Debt, (ii) do not secure any obligation in an amount exceeding
$1,000,000 and (iii) do
-36-
<PAGE>
not in the aggregate materially detract from the value of the assets of the
Company and its Subsidiaries, taken as a whole, or materially impair the
use thereof in the operation of its business.
Section 6.12. TRANSACTIONS WITH AFFILIATES. The Company will not, and will
not permit any Subsidiary to, directly or indirectly, pay any funds to or for
the account of, make any investment (whether by acquisition of stock or
indebtedness, by loan, advance, transfer of property, guarantee or other
agreement to pay, purchase or service, directly or indirectly, any Debt, or
otherwise) in, lease, sell transfer or otherwise dispose of any assets, tangible
or intangible, to, or participate in, or effect any transaction in connection
with any joint enterprise or other joint arrangement with, any Affiliate, except
on terms to the Company or such Subsidiary no less favorable than terms that
could be obtained by the Company or such Subsidiary from a Person that is not an
Affiliate, as determined, in the case of any transaction with a value of
$500,000 or more, in good faith by the Board of Directors of the Company;
provided, that no determination of the Board of Directors shall be required with
respect to any of the following: (i) transactions entered into in the ordinary
course of business and (ii) any transaction among the Purchaser or any of its
Affiliates on the one hand and the Company and any Guarantors on the other hand.
Section 6.13. USE OF PROCEEDS. The proceeds from the issuance and sale of
the Notes by the Company pursuant to this Agreement shall be used to fund the
SuperGraphics Acquisition, to pay related fees and expenses and for working
capital purposes of the Company and its Subsidiaries.
Section 6.14. RESTRICTIONS ON CERTAIN AMENDMENTS. The Company shall not
amend or waive, or suffer to be amended or waived, any Corporate Document or
Acquisition Agreement from the respective forms thereof delivered to the
Purchaser pursuant to Section 5.01 in a way which has a material adverse effect
on the Holders or the Purchaser without the prior written consent of the
Purchaser.
Section 6.15. PERMANENT FINANCING.
(a) The Company will, and will cause its Subsidiaries to, use its best
efforts to take all actions which, in the reasonable judgment of the Purchaser,
are necessary or desirable to obtain Permanent Financing (having terms and
conditions that have been approved as required pursuant to the Senior Credit
Facilities) as soon as practicable through (x) bank financing on terms usual and
customary for similar financings and/or (y) through issuance of securities at
such interest rates and other terms as are, in the reasonable opinion of the
Purchaser, prevailing for new issues of securities of comparable size and credit
rating in the capital markets at the time such Permanent Financing is
consummated and obtained in comparable transactions made on an arm's-length
basis between unaffiliated parties. The respective amounts to be financed
through bank financing or through the issuance of securities shall be as
determined by the Company, but shall be in an amount at least sufficient to
repay or redeem the Notes in full in accordance with their terms. The Company
hereby covenants and agrees that the proceeds from such Permanent
-37-
<PAGE>
Financing shall be used to the extent required to redeem in full the Notes in
accordance with their terms.
(b) The Company covenants that it will, and will cause its Subsidiaries to,
use its best efforts to enter into such agreements as in the judgment of the
Purchaser are customary in connection with the Permanent Financing (having terms
and conditions that have been approved as required pursuant to the Senior Credit
Facilities), make such filings under the Securities Act, the Exchange Act, the
Trust Indenture Act of 1939, as amended, and state securities laws as in the
reasonable judgment of the Purchaser shall be required to permit consummation of
such Permanent Financing and take such steps as in the judgment of the Purchaser
are necessary or desirable to cause such filings to become effective or in the
judgment of the Purchaser are otherwise required to consummate such Permanent
Financing.
Section 6.16. ADDITIONAL SUBSIDIARY GUARANTEES. If the Company or any of
its Subsidiaries shall acquire or create a Domestic Subsidiary after the date of
this Agreement, then such newly acquired or created Domestic Subsidiary shall
become a party to this Agreement as a Guarantor by executing a joinder to this
Agreement and shall deliver to each of the Holders an Opinion of Counsel, in a
form reasonably satisfactory to the Holders. Upon execution of such joinder,
such Domestic Subsidiary shall be bound by, and become a party to, this
Agreement as a Guarantor and shall agree to perform each and every obligation
and covenant of a Guarantor hereunder.
Section 6.17. LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. The
Company shall not, and shall not permit any of its Subsidiaries to, enter into
any agreement with respect to or consummate any conveyance, sale, lease,
assignment, transfer or other disposition of any of its property, business or
assets (including, without limitation, receivables and leasehold interests),
whether now owned or hereafter acquired, unless the consideration received by
the Company or such Subsidiary, as the case may be, is at least equal to the
fair market value of the assets or property sold, transferred or otherwise
disposed of (as determined in good faith by the Board of Directors of the
Company), except:
(a) the sale or other disposition of obsolete or worn out property in
the ordinary course of business; provided that the Net Cash Proceeds of
each such transaction are applied in accordance with Section 2.06(c);
(b) the sale or other disposition of any property in the ordinary
course of business;
(c) the sale of inventory in the ordinary course of business;
(d) the sale or discount without recourse of accounts receivable
arising in the ordinary course of business in connection with the
compromise or collection thereof;
-38-
<PAGE>
(e) the sale, lease, transfer or other disposition by any wholly owned
Subsidiary of any or all of its assets (upon voluntary liquidation or
otherwise) to the Company or any other wholly owned Domestic Subsidiary of
the Company; and
(f) the sale or disposition of any other property (not including
accounts receivable arising in the ordinary course of business) not in the
ordinary course of business provided that all such sales shall not exceed,
in the aggregate, $500,000 and that the proceeds of such sales shall be
applied in accordance with Section 2.06(c).
Section 6.18. SALE AND LEASEBACK TRANSACTIONS. The Company shall not, and
shall not permit any of its Subsidiaries to, enter into any sale and leaseback
transaction.
Section 6.19. BUSINESS ACTIVITIES. The Company will not, and will not
permit any Subsidiary to, engage in any business other than a Permitted
Business, except to such extent as would not be material to the Company and its
Subsidiaries taken as a whole.
ARTICLE 7.
EVENTS OF DEFAULT
Section 7.01. EVENTS OF DEFAULT DEFINED; ACCELERATION OF MATURITY; WAIVER
OF DEFAULT. In case one or more of the following (each, an "Event of Default"),
whatever the reason for such Event of Default and whether it shall be voluntary
or involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body, shall have occurred and be continuing:
(a) default in the payment of all or any part of the principal or premium,
if any, on any of the Notes as and when the same shall become due and payable
either at maturity, upon any redemption, by declaration or otherwise; or
(b) default in the payment of any installment of interest upon any of the
Notes or any fees payable under this Agreement or any amount payable under
Section 2.07 as and when the same shall become due and payable and continuance
of such default for a period of 10 days; or
(c) failure on the part of the Company to observe or perform any of the
covenants contained in Sections 6.07 through 6.19 (other than Sections 6.13 and
6.15) of this Agreement; or
(d) failure on the part of the Company or any Guarantor to observe or
perform any other of the covenants or agreements contained in the Financing
Documents, if such failure shall continue for a period of 45 days after the date
on which written notice thereof shall have been given to the Company by a
Holder; or
(e) the Company or any of its Subsidiaries shall commence a voluntary case
or other proceeding seeking liquidation, reorganization or other relief with
respect to itself or is debts
-39-
<PAGE>
under any bankruptcy, insolvency or other similar law now or hereafter in effect
in any jurisdiction or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, or shall consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for the
benefit of creditors, or shall fail generally to pay As debts as they become
due, or shall take any corporate action to authorize any of the foregoing; or
(f) an involuntary case or other proceeding shall be commenced against the
Company or any of its Subsidiaries seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 90 days; or an order for
relief shall be entered against the Company or any of its Subsidiaries under the
bankruptcy laws as now or hereafter in effect in any jurisdiction; or
(g) there shall be a default in respect of any Debt of the Company or any
of its Subsidiaries in an aggregate principal amount in excess of $5,000,000
whether such Debt now exists or shall hereafter be created (excluding the Notes)
if such default results in acceleration of the maturity of such Debt; or the
Company or any of its Subsidiaries shall fail to pay at maturity any such Debt
whether such Debt now exists or shall hereafter be created; or
(h) a final judgment for the payment of money which exceeds $5,000,000
shall be rendered against the Company or any of its Subsidiaries by a court of
competent jurisdiction and shall remain undischarged for a period (during which
execution shall not be effectively stayed) of 60 days after such judgment
becomes final; or
(i) any of the Financing Documents shall for any reason fail to constitute
the legal, valid and binding agreement of the Company or any Guarantor, as the
case may be, or any such Person shall, directly or indirectly, contest in any
manner the effectiveness, validity, binding nature or enforceability thereof; or
(j) any of the following events, to the extent that such events, singly or
in the aggregate, could reasonably be expected to give rise to a liability of
the Company, any Subsidiary or any ERISA Affiliate in excess of $1,000,000: (i)
the Company, any Subsidiary or any ERISA Affiliate shall fail to pay when due
any amount or amounts, which such entity shall have become liable to pay under
Title IV of ERISA; (ii) notice of intent to terminate a Qualified Plan shall be
filed under Title IV of ERISA by the administrator of any Plan, the Company, any
Subsidiary, any ERISA Affiliate or any combination of the foregoing; (iii) the
PBGC shall institute proceedings under Title IV of ERISA to terminate, impose
liability (other than for premiums due under Section 4007 of ERISA and not in
default) in respect of or cause a trustee to be appointed to administer, any
Plan; (iv) a condition shall exist by reason of which the PBGC would be entitled
to obtain a decree adjudicating that any Qualified Plan be terminated; or (v)
the
-40-
<PAGE>
Company, any Subsidiary or any ERISA Affiliate shall incur a partial or complete
withdrawal from a Multiemployer Plan;
then, and in each and every such case (other than under clauses (e) and (f) with
respect to the Company), unless the principal of all the Notes shall have
already become due and payable, the Majority Holders (or, if at such time the
Purchaser no longer holds at least 50% of the aggregate outstanding principal
amount of the Notes, Holders of at least 33 1/3% of the aggregate outstanding
principal amount of the Notes), by notice in writing to the Company and the
agent bank under the Senior Credit Facilities, may declare the entire principal
amount of the Notes together with accrued interest thereon to be immediately due
and payable; provided that for so long as the Senior Credit Facilities are in
--------
effect, such acceleration shall not become effective until the earlier of (i)
five Business Days after the notice of acceleration is given to the
Administrative Agent (as defined in the Senior Credit Agreement) or (ii) the
date on which the Designated Senior Debt is accelerated. If an Event of Default
specified in clauses (e) or (f) occurs, the principal of and accrued interest on
the Notes will be immediately due and payable without any notice, declaration or
other act on the part of the Holders. The Majority Holders may annul any such
notice of acceleration or past Defaults (other than monetary Defaults not yet
cured) by delivering a notice of annulment to the Company and the Administrative
Agent (as defined in the Senior Credit Agreement).
ARTICLE 8.
LIMITATION ON TRANSFERS
Section 8.01. RESTRICTIONS ON TRANSFER. From and after the Issuance Date,
none of the Notes shall be transferable except upon the conditions specified in
Sections 8.02 and 8.03, which conditions are intended to ensure compliance with
the provisions of the Securities Act in respect of the Transfer of any of such
Notes or any interest therein. The Purchaser will cause any proposed transferee
of any Notes (or any interest therein) held by it to agree to take and hold such
Notes (or any interest therein) subject to the provisions and upon the
conditions specified in this Section 8.01 and in Sections 8.02 and 8.03.
Section 8.02. RESTRICTIVE LEGENDS.
(a) Each Note issued to the Purchaser or to a subsequent transferee shall
(unless otherwise permitted by the provisions of Section 8.02(b) or Section
8.03) include a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD,
UNLESS IT HAS BEEN REGISTERED UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR UNLESS AN
EXEMPTION FROM REGISTRATION IS AVAILABLE AND THEN
ONLY IN COMPLIANCE WITH THE RESTRICTIONS ON
-41-
<PAGE>
TRANSFER SET FORTH IN THE SECURITIES PURCHASE
AGREEMENT DATED AS OF NOVEMBER 25, 1998, A COPY OF
WHICH MAY BE OBTAINED FROM THE ISSUER OF THIS
SECURITY AT ITS PRINCIPAL EXECUTIVE OFFICE.
(b) Any Holders of Notes registered pursuant to the Securities Act and
qualified under applicable state securities laws may exchange such Notes on
transfer for new securities that shall not bear the legend set forth in
paragraph (a) of this Section 8.02.
Section 8.03. NOTICE OF PROPOSED TRANSFERS.
(a) Five Business Days prior to any proposed Transfer (other than Transfers
of Notes (i) registered under the Securities Act, (ii) to an Affiliate of the
Purchaser or a general partnership in which the Purchaser or any of its
Affiliates is one of the general partners or (iii) to be made in reliance on
Rule 144A under the Securities Act ("Rule 144A")) of any Notes, the holder
thereof shall give written notice to the Company of such holder's intention to
effect such Transfer, setting forth the manner and circumstances of the proposed
Transfer, and shall be accompanied by (i) an opinion of counsel reasonably
satisfactory to the Company addressed to the Company to the effect that the
proposed Transfer of such Notes may be effected without registration under the
Securities Act, (ii) such representation letters in form and substance
reasonably satisfactory to the Company to ensure compliance with the provisions
of the Securities Act and (iii) such letters in form and substance reasonably
satisfactory to the Company from each such transferee stating such transferee's
agreement to be bound by the terms of this Agreement. Such proposed Transfer may
be effected only if the Company shall have received such notice of transfer,
opinion of counsel, representation letters and other letters referred to in the
immediately preceding sentence, whereupon the holder of such Notes shall be
entitled to Transfer such Notes in accordance with the terms of the notice
delivered by the holder to the Company. Each Note transferred as above provided
shall bear the legend set forth in Section 8.02(a) except that such Note shall
not bear such legend if the opinion of counsel referred to above is to the
further effect that neither such legend nor the restrictions on Transfer in
Sections 8.01 through 8.03 are required in order to ensure compliance with the
provisions of the Securities Act.
(b) Five Business Days prior to any proposed Transfer of any Notes to be
made in reliance on Rule 144A, the holder thereof shall give written notice to
the Company of such holder's intention to effect such Transfer, setting forth
the manner and circumstances of the proposed Transfer and certifying that such
Transfer will be made (i) in full compliance with Rule 144A and (ii) to a
transferee that (A) such holder reasonably believes to be a "qualified
institutional buyer" within the meaning of Rule 144A and (B) is aware that such
Transfer will be made in reliance on Rule 144A. Such proposed Transfer may be
made only if the Company shall have received such notice of transfer, whereupon
the holder of such Notes shall be entitled to Transfer such Notes in accordance
with the terms of the notice delivered by the holder to the Company. Each Note
transferred as above provided shall bear the legend set forth in Section
8.02(a).
-42-
<PAGE>
(c) Any term or provision hereof to the contrary notwithstanding, in no
event may any Note be transferred to a Competitor, unless such Note has been
registered pursuant to the Securities Act, has been transferred in reliance on
Rule 144A under the Securities Act or the transferor thereof has received the
prior written approval of the Company.
ARTICLE 9.
SUBORDINATION
Section 9.01. NOTES SUBORDINATED TO SENIOR DEBT. The Company for itself and
its successors, and each Holder, by its acceptance of the Notes, agrees that the
payment of the principal amount of the Notes, premium (if any) and interest
thereon, any obligation to redeem or repurchase Notes, Warrants or Warrant
Shares pursuant to any Financing Documents, and any claim for rescission or
damages in respect thereof under any applicable law (the "Subordinated
Obligations") by the Company is subordinated, to the extent and in the manner
provided in this Article 9, to the prior payment in full in cash or cash
equivalents of all Senior Debt (whether outstanding on the date hereof or
hereafter created, incurred, assumed or guaranteed); provided, that the
--------
provisions of this Article 9 do not apply to, and the Notes are not subordinated
in respect of, the proceeds of the Permanent Financing. This Article 9 will
constitute a continuing offer to all Persons who, in reliance upon its
provisions, become holders of, or continue to hold, Senior Debt, and such
provisions are made for the benefit of the holders from time to time of Senior
Debt, and such holders are made obligees under this Article 9 and they and/or
each of them may enforce its provisions.
Section 9.02. NO PAYMENT ON NOTES IN CERTAIN CIRCUMSTANCES.
(a) No payment will be made on account of the Subordinated Obligations, or
to acquire any of the Notes, Warrants or Warrant Shares for cash, property or
securities, or on account of the redemption provisions of the Notes, Warrants or
Warrant Shares or upon the occurrence of a Change of Control, (x) upon the
maturity of any Senior Debt by lapse of time, acceleration or otherwise, unless
and until all such Senior Debt shall first be paid in full in cash or cash
equivalents or provided for in cash or cash equivalents or provision for the
payment in full in cash or cash equivalents have been made with respect thereto,
in each case, in a manner satisfactory to the holders of Senior Debt or (y) in
the event that the Company defaults in the payment of any principal of or
interest on or any other amounts payable on or due in connection with any Senior
Debt when it becomes due and payable, whether at maturity or at a date fixed for
prepayment or by declaration or otherwise, unless and until such default has
been cured or waived in writing.
(b) Upon the occurrence of any event of default (or if an event of default
would result upon any payment with respect to the Subordinated Obligations) with
respect to any Designated Senior Debt, as such event of default is defined in
the instruments evidencing such Designated Senior Debt or under which it is
outstanding, permitting the holders to accelerate its maturity (if the default
is other than default in payment of the principal of or interest on or any other
amount due in connection with such Designated Senior Debt), upon written notice
of the event of default
-43-
<PAGE>
given to the Company by the holders of such Designated Senior Debt (or their
agent or representative), then, unless and until such event of default has been
cured or waived in writing, no payment will be made by the Company with respect
to the Subordinated Obligations or to acquire any of the Notes, Warrants or
Warrant Shares for cash, property or securities or on account of the redemption
provisions of the Notes, Warrants or Warrant Shares; provided, that the
foregoing will not prevent the making of any payment for a period of more than
179 days after the date the written notice of the default is given unless such
Designated Senior Debt in respect of which such event of default exists has been
declared due and payable in its entirety within that period, and that
declaration has not been rescinded. If such Designated Senior Debt is not
declared due and payable within 179 days after the written notice of the default
is given, promptly after the end of the 179-day period the Company will pay all
sums not paid during the 179-day period because of this paragraph (b) unless
paragraph (a) above is then applicable. During any period of 360 consecutive
days only one such period during which payment of principal of, or interest on,
the Notes may not be made may commence and the duration of such period may not
exceed 179 days.
(c) If any payment or distribution of assets of the Company is received by
any Holder in respect of the Subordinated Obligations at a time when that
payment or distribution should not have been made because of subsection (a) or
(b) above, such payment or distribution will be received and held in trust for
and will be paid over to the holders of Senior Debt which is due and payable and
remains unpaid or unprovided for (pro rata as to each of such holders on the
basis of the respective amounts of such Senior Debt which is due and payable)
until all such Senior Debt has been paid in full in cash or cash equivalents or
provided for in cash or cash equivalents, in each case, in a manner satisfactory
to the holders of Senior Debt, after giving effect to any concurrent cash
payment or distribution or provision therefor to the holders of such Senior
Debt.
Section 9.03. NOTES SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR DEBT ON
DISSOLUTION, LIQUIDATION OR REORGANIZATION.
(a) Upon any distribution of assets of the Company upon any dissolution,
winding up, liquidation or reorganization of the Company (whether in bankruptcy,
insolvency, receivership or similar proceeding related to the Company or its
property or upon an assignment for the benefit of creditors, any marshaling of
the Company's assets or liabilities, or otherwise):
(i) the holders of all Senior Debt will first be entitled to receive
payment in full in cash or cash equivalents or provision for payment in
full in cash or cash equivalents in a manner satisfactory to the holders of
Senior Debt of the principal of and interest on Senior Debt and other
amounts due in connection with Senior Debt (including interest accruing
subsequent to an event specified in Sections 7.01(e) and (f) (or which
would have accrued but for the occurrence of such event) at the rate
provided for in the documents governing such Senior Debt, whether or not
such interest is an allowed claim enforceable against the debtor in a
bankruptcy case under Title 11 of the United States
-44-
<PAGE>
Code), before the Holders are entitled to receive any payment on account of
the principal of, premium (if any) or interest on the Notes;
(ii) any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities, to which the Holders
would be entitled except for the provisions of this Section 9.03 will be
paid by the liquidating trustee or agent or other person making such a
payment or distribution directly to the holders of Senior Debt or their
representatives to the extent necessary to make payment in full in cash or
cash equivalents or provision for payment in full in cash or cash
equivalents in a manner satisfactory to the holders of Senior Debt of all
Senior Debt remaining unpaid, after giving effect to any concurrent cash
payment or distribution or provision therefor to the holders of such Senior
Debt; and
(iii) if, notwithstanding the foregoing, any payment or distribution
of assets of the Company of any kind or character, whether in cash,
property or securities is received by the Holders on account of the
Subordinated Obligations before all Senior Debt is paid in full in cash or
cash equivalents or provided for in cash or cash equivalents in a manner
satisfactory to the holders of Senior Debt, such payment or distribution
will be received and held in trust for and will be paid over to the holders
of the Senior Debt remaining so unpaid or unprovided for or their
representatives for application to the payment of such Senior Debt until
all such Senior Debt has been paid in full in cash or cash equivalents or
provided for in cash or cash equivalents in a manner satisfactory to the
holders of Senior Debt, after giving effect to any concurrent cash payment
or distribution or provision therefor to the holders of such Senior Debt.
(b) The Company will give prompt written notice to the Holders of any
dissolution, winding up, liquidation or reorganization of it or any assignment
for the benefit of its creditors and of any event of default in respect of any
Senior Debt.
(c) For purposes of this Section 9.03, (i) "distribution" and "payment"
with respect to the Company or its assets include payments, distributions and
other transfers of assets by or on behalf of the Company from any source, of any
kind or character, whether direct or indirect, by set-off or otherwise, whether
in cash, property or securities, (ii) "payment on the account of the
Subordinated Obligations" shall not include the Warrants, any shares issued upon
exercise of the Warrants or any sale or transfer of any of the foregoing (other
than a repurchase or redemption of any such Warrants or shares by the Company)
or any payment made with the proceeds of the Permanent Financing and (iii) "cash
equivalents" means Cash Equivalents described in clause (a) of the definition
thereof.
Section 9.04. HOLDERS TO BE SUBROGATED TO RIGHTS OF HOLDERS OF SENIOR DEBT.
Following the payment in full in cash or cash equivalents or provision for
payment in full in cash or cash equivalents in a manner satisfactory to the
holders of Senior Debt of all Senior Debt, the Holders will be subrogated to the
rights of the holders of Senior Debt to receive payments or distributions of
assets of the Company applicable to the Senior Debt until all amounts owing on
the Notes
-45-
<PAGE>
have been paid in full, and for the purpose of such subrogation no such payments
or distributions to the holders of Senior Debt by or on behalf of the Company or
by or on behalf of the Holders by virtue of this Article 9 which otherwise would
have been made to the Holders will, as between the Company and the Holders, be
deemed to be payment by the Company to or on account of the Senior Debt, it
being understood that the provisions of this Article 9 are and are intended
solely for the purpose of defining the relative rights of the Holders, on the
one hand, and the holders of Senior Debt, on the other hand.
Section 9.05. OBLIGATIONS OF THE COMPANY UNCONDITIONAL. Nothing contained
in this Article 9 or elsewhere in the Notes is intended to or will impair, as
between the Company and the Holders, the obligations of the Company, which are
absolute and unconditional, to pay to the Holders the Subordinated Obligations
as and when they become due and payable in accordance with their terms, or is
intended to or will affect the relative rights of the Holders and creditors of
the Company other than the holders of the Senior Debt, nor will anything herein
or therein prevent any Holder from exercising all remedies otherwise permitted
by applicable law upon default under the Notes, subject to the rights if any,
under this Article 9 of the holders of Senior Debt.
Section 9.06. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF THE
COMPANY OR HOLDERS OF SENIOR DEBT. No right of any present or future holders of
any Senior Debt to enforce subordination as provided herein will at any time or
in any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act by any such holder, or by any
noncompliance by the Company with the terms of this Article 9, regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.
The holders of Senior Debt may extend, renew, modify or amend the terms of the
Senior Debt or any security or guaranty therefor or thereof, and release, sell
or exchange such security, exercise or refrain from exercising any rights
against the Company, any of its Subsidiaries or any other Person, and otherwise
deal freely with the Company, all without affecting the liabilities and
obligations of the parties to the document or the Holders. No amendment to these
provisions will be effective against the holders of the Senior Debt who have not
consented thereto in writing.
Section 9.07. NOT TO PREVENT EVENTS OF DEFAULT. The failure to make a
payment on account of the Subordinated Obligations by reason of any provision of
this Article 9 will not be construed as preventing the occurrence of an Event of
Default.
Section 9.08. MISCELLANEOUS. Each Holder hereby authorizes and expressly
directs the Purchaser on its behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Section and
appoints the Purchaser its attorney-in-fact for such purpose, including, without
limitation, in the event of any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency, receivership,
reorganization or similar proceedings or upon an assignment for the benefit of
creditors or any similar remedy or otherwise) tending towards liquidation of the
business and assets of the Company, the immediate filing of a claim for the
unpaid balance of the Subordinated Obligations in the form required in said
proceedings and causing said claim to be approved. If the Purchaser does not
file proper claim or proof of debt in the form required in such proceeding prior
to the 30th day before
-46-
<PAGE>
expiration of the time to file such claim or claims, then the holders of the
Senior Debt are hereby authorized to have the right to file and are hereby
authorized to file an appropriate claim for and on behalf of the Holders. In the
event of such proceeding, until the Senior Debt is paid in full in cash or cash
equivalents, without the consent of the holders of a majority in principal
amount of the Senior Debt, no Holder shall waive, settle or compromise any such
claim or claims relating to the Subordinated Obligations that such Holder may
now or hereafter have against the Company.
ARTICLE 10.
GUARANTEES
Section 10.01. GUARANTEES.
(a) Subject to Section 10.03, each of the Guarantors jointly and severally
unconditionally guarantees to each Holder, irrespective of the validity and
enforceability of the other provisions of this Agreement, or of the Financing
Documents, the Notes and the obligations of the Company hereunder or thereunder,
that: (i) the principal of, premium (if any) and interest on the Notes shall be
promptly paid in full when due, whether at maturity, by acceleration, redemption
or otherwise, and (to the extent permitted by law) interest on the overdue
principal of, premium (if any) and interest on the Notes (including all
reasonable costs of collection and enforcement thereof and interest thereon
which would be owing by the Company but for the effect of any bankruptcy law, if
any), and all other obligations of the Company to the Holders under this
Agreement, the Financing Documents and the Notes shall be promptly paid in full
when due or performed, all in accordance with the terms of this Agreement, the
Financing Documents and the Notes; and (ii) in case of any extension of time of
payment or renewal of any Notes, or the issuance of any of such other
obligations, that the same shall be promptly paid in full when due or performed
in accordance with their terms whether at stated maturity, by acceleration,
redemption or otherwise. Failing payment when due of any amount so guaranteed
for whatever reason, the Guarantors shall be jointly and severally and
unconditionally obligated to pay the same immediately whether or not such
failure to pay has become an Event of Default which could cause acceleration
pursuant to Section 7.01. Each Guarantor agrees that this is a continuing
guarantee of payment and not merely a guarantee of collection.
(b) The Guarantors hereby agree that, subject to Section 10.03, their
obligations hereunder shall be unconditional and absolute and, without limiting
the generality of the foregoing, shall not be released, discharged or otherwise
affected by:
(i) any extension, renewal, settlement, compromise, waiver or release
in respect of any obligation of the Company under this Agreement, the
Financing Documents or the Notes, by operation of law or otherwise;
(ii) any modification or amendment of or supplement to any other
provisions of this Agreement, or to the Financing Documents or the Notes
without the consent of the Guarantors;
-47-
<PAGE>
(iii) any release, non-perfection or invalidity of any direct or
indirect security for, or any other guarantee of, any of the obligations
guaranteed by this Article 10;
(iv) any change in the corporate existence, structure or ownership of
the Company, or any insolvency, bankruptcy, reorganization or other similar
proceeding affecting the Company or its assets or any resulting release or
discharge of any obligation of the Company contained in this Agreement, the
Financing Documents or the Notes;
(v) the existence of any claim, set-off or other rights which any
Guarantor may have at any time against the Company or any other Person,
whether in connection herewith or with any unrelated transactions, provided
that nothing herein shall prevent the assertion of any such claim by
separate suit or compulsory counterclaim;
(vi) any invalidity or unenforceability relating to or against the
Company for any reason of this Agreement, the Financing Documents or the
Notes, or any provision of applicable law or regulation purporting to
prohibit the payment by the Company of the principal of or interest on the
Notes or any other amount payable by it under this Agreement, the Financing
Documents or the Notes;
(vii) any other act or omission to act or delay of any kind by the
Company or any other Person or any other circumstance whatsoever which
might, but for the provisions of this paragraph, constitute a legal or
equitable discharge of any Guarantor's obligations hereunder; or
(viii) any issuance of PIK Notes pursuant to Section 2.05(c).
(c) Each Guarantor hereby waives diligence, presentment, demand of payment,
filing of claims with a court in the event of insolvency or bankruptcy of the
Company, any right to require a proceeding first against the Company, protest,
notice and all demands whatsoever and covenant that, subject to this Article 10,
this Guarantee shall not be discharged except by complete performance of all
obligations on and with respect to the Notes, this Agreement and the Financing
Documents.
(d) If any Holder is required by any court or otherwise to return to the
Company or any of the Guarantors, or any custodian, trustee, liquidator or other
similar official acting in relation to either the Company or any of the
Guarantors, any amount paid to such Holder, this Guarantee, to the extent of the
amount so returned, shall be reinstated in full force and effect.
(e) Each Guarantor agrees that it shall not be entitled to any right of
subrogation in relation to the Holders in respect of any obligations guaranteed
hereby until payment in full of all obligations guaranteed hereby. Each
Guarantor further agrees that, as between the Guarantors, on the one hand, and
the Holders, on the other hand, (x) the maturity of the obligations guaranteed
hereby may be accelerated as provided in Section 7.01 notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
obligations guaranteed hereby and
-48-
<PAGE>
(y) in the event of any declaration of acceleration of such obligations as
provided in Section 7.01, such obligations (whether or not due and payable)
shall forthwith become due and payable by the Guarantors for the purpose of this
Guarantee. The Guarantors shall have the right to seek contribution from any
non-paying Guarantor so long as the exercise of such right does not impair the
rights of the Holders under this Guarantee.
Section 10.02. SUBORDINATION OF GUARANTEES. The obligations of each
Guarantor under its Guarantee pursuant to this Article 10 are junior and
subordinated to any Senior Debt owed by such Guarantor (including all guarantees
by such Guarantor of any Senior Debt) on the same basis as the Notes are junior
and subordinate to such Senior Debt under Article 9 (it being understood that
delivery of any notice to the Company pursuant to Section 9.02(b) shall
constitute notice to each Guarantor hereunder),
Section 10.03. LIMITATION ON GUARANTOR LIABILITY. Each Guarantor, and by
its acceptance of Notes, each Holder, hereby confirms that it is the intention
of all such parties that this Guarantee not constitute a fraudulent transfer or
conveyance for purposes of any bankruptcy law, the Uniform Fraudulent Conveyance
Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to
the extent applicable to this Guarantee. To effectuate the foregoing intention,
the Holders and the Guarantors hereby irrevocably agree that the obligations of
each Guarantor under this Guarantee shall be limited to the maximum amount as
will, after giving effect to such maximum amount and all other contingent and
fixed liabilities of such Guarantor that are relevant under such laws, and after
giving effect to any collections from, rights to receive contribution from or
payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under this Guarantee, result in the
obligations of such Guarantor under the Guarantee not constituting a fraudulent
transfer or conveyance.
Section 10.04. CONSOLIDATION OR MERGER OF GUARANTORS. No Guarantor may
consolidate with or merge with or into (whether or not such Guarantor is the
surviving Person) another corporation, Person or entity whether or not
affiliated with such Guarantor unless such corporation, person or entity is the
Company or a Guarantor.
ARTICLE 11.
MISCELLANEOUS
Section 11.01. NOTICES. All notices, demands and other communications to
any party hereunder shall be in writing (including facsimile or similar writing)
and shall be given to such party at its address set forth on the signature pages
hereof, or such other address as such party may hereinafter specify for the
purpose. Each such notice, demand or other communication shall be effective (i)
if given by facsimile, when such facsimile is transmitted to the facsimile
number specified on the signature page hereof and electronic confirmation
thereof is received, or (ii) if given by overnight courier, addressed as
aforesaid or by any other means, when delivered at the address specified in this
Section.
-49-
<PAGE>
Section 11.02. NO WAIVERS; AMENDMENTS.
(a) No failure or delay on the part of any party in exercising any right,
power or remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power or remedy preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
The remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to any party at law or in equity or otherwise.
(b) Any provision of this Agreement may be amended, supplemented or waived
if, but only if, such amendment, supplement or waiver is in writing and is
signed by the Company and the Majority Holders; provided, that without the
--------
consent of each Holder of any Note affected thereby, an amendment, supplement or
waiver may not (a) reduce the aggregate principal amount of Notes whose Holders
must consent to an amendment, supplement or waiver, (b) reduce the rate or
extend the time for payment of interest on any Note, (c) reduce the principal
amount of or extend the stated maturity of any Note or (d) make any Note payable
in money or property other than as stated in the Notes. In determining whether
the Holders of the requisite principal amount of Notes have concurred in any
direction, consent or waiver as provided in this Agreement or in the Notes,
Notes which are owned by the Company or any other obligor on or guarantor of the
Notes, or by any Person controlling, controlled by, or under common control with
any of the foregoing, shall be disregarded and deemed not to be outstanding for
the purpose of any such determination; and provided, further, that no such
-------- -------
amendment, supplement or waiver which affects the rights of the Purchaser and
its Affiliates otherwise than solely in their capacities as Holders of Notes
shall be effective with respect to them without their prior written consent.
Section 11.03. INDEMNIFICATION.
(a) The Company (the "Indemnifying Party") agrees to indemnify and hold
harmless the Purchaser, its Affiliates, and each Person, if any, who controls
the Purchaser, or any of its Affiliates, within the meaning of the Securities
Act or the Exchange Act (a "Controlling Person"), and the respective partners,
agents, employees, officers and directors of the Purchaser, its Affiliates and
any such Controlling Person (each an "Indemnified Party," and collectively, the
"Indemnified Parties"), from and against any and all losses, claims, damages,
liabilities and expenses (including, without limitation and as incurred,
reasonable costs of investigating, preparing or defending any such claim or
action, whether or not such Indemnified Party is a party thereto) arising out
of, or in connection with any activities contemplated by this Agreement or any
other services rendered in connection herewith, including, but not limited to,
losses, claims, damages, liabilities or expenses arising out of or based upon
any untrue statement or any alleged untrue statement of a material fact or any
omission or any alleged omission to state a material fact in any of the
disclosure or offering or confidential information documents (the "Disclosure
Documents") pertaining to any of the transactions or proposed transactions
contemplated herein, including any eventual refinancing or resale of the Notes;
provided, that the Indemnifying Party will not be responsible for any claims,
- --------
liabilities, losses, damages or expenses that are determined by final judgment
of a court of competent jurisdiction to result solely from such Indemnified
Party's gross negligence, willful misconduct or bad faith. The Indemnifying
Party also agrees that
-50-
<PAGE>
(i) no Purchaser shall have liability (except for breach of provisions of this
Agreement) for claims, liabilities, damages, losses or expenses, including legal
fees, incurred by the Indemnifying Party in connection with this Agreement,
unless they are determined by final judgment of a court of competent
jurisdiction to result from the Purchaser's gross negligence, willful misconduct
or bad faith and (ii) no Purchaser shall in any event have any liability to the
Company on any theory of liability for special, indirect, consequential or
punitive damages (as opposed to direct or actual damages) arising out of or in
connection with, or as a result of this Agreement.
(b) If any action shall be brought against an Indemnified Party with
respect to which indemnity may be sought against the Indemnifying Party under
this Agreement, such Indemnified Party shall promptly notify the Indemnifying
Party in writing and the Indemnifying Party shall, if requested by such
Indemnified Party or if the Indemnifying Party desires to do so, assume the
defense thereof, including the employment of counsel reasonably satisfactory to
such Indemnified Party and payment of all reasonable fees and expenses. The
failure to so notify the Indemnifying Party shall not affect any obligations the
Indemnifying Party may have to such Indemnified Party under this Agreement or
otherwise unless the Indemnifying Party is materially adversely affected by such
failure. Such Indemnified Party shall have the right to employ separate counsel
in such action and participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party, unless: (i)
the Indemnifying Party has failed to assume the defense and employ counsel
reasonably satisfactory to such Indemnified Party or (ii) the named parties to
any such action (including any impleaded parties) include such Indemnified Party
and the Indemnifying Party, and such Indemnified Party shall have been advised
by counsel that there may be one or more legal defenses available to it which
are different from or additional to those available to the Indemnifying Party,
in which case, if such Indemnified Party notifies the Indemnifying Party in
writing that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to assume
the defense of such action or proceeding on behalf of such Indemnified Party,
provided, however, that the Indemnifying Party shall not, in connection with any
- -------- -------
one such action or proceeding or separate but substantially similar or related
actions or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be responsible hereunder for the reasonable fees
and expenses of more than one such firm of separate counsel, in addition to any
local counsel, which counsel shall be designated by the Purchaser. The
Indemnifying Party shall not be liable for any settlement of any such action
effected without the written consent of the Indemnifying Party (which consent
shall not be unreasonably withheld) and the Indemnifying Party agrees to
indemnify and hold harmless each Indemnified Party from and against any loss or
liability by reasons of settlement of any action effected with the consent of
the Indemnifying Party. In addition, the Indemnifying Party will not, without
the prior written consent of the Purchaser, settle or compromise or consent to
the entry of any judgment in or otherwise seek to terminate any pending or
threatened action, claim, suit or proceeding in respect of which indemnification
or contribution may be sought hereunder (whether or not any Indemnified Party is
a party thereto) unless such settlement, compromise, consent or termination
includes an express unconditional release of the Purchaser and the other
Indemnified Parties, reasonably satisfactory in form and substance to the
Purchaser, from all liability arising out of such action, claim, suit or
proceeding.
-51-
<PAGE>
(c) If for any reason the foregoing indemnity is unavailable to an
Indemnified Party or insufficient to hold an Indemnified Party harmless, then in
lieu of indemnifying the Indemnified Party, the Indemnifying Party shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such claims, liabilities, losses, damages, or expenses (i) in such proportion
as is appropriate to reflect the relative benefits received by the Indemnifying
Party on the one hand and by the Purchaser on the other from the transactions
contemplated by this Agreement or (ii) if the allocation provided by clause (i)
is not permitted under applicable law, in such proportion as is appropriate to
reflect not only the relative benefits received by the Indemnifying Party on the
one hand and the Purchaser on the other, but also the relative fault of the
Indemnifying Party and the Purchaser as well as any other relevant equitable
considerations. Notwithstanding the provisions of this Section 11.03, the
aggregate contribution of all Indemnified Parties shall not exceed the amount of
fees actually received by the Purchaser pursuant to this Agreement. It is hereby
further agreed that the relative benefits to the Indemnifying Party on the one
hand and the Purchaser on the other with respect to the transactions
contemplated hereby shall be deemed to be in the same proportion as (i) the
aggregate principal amount of Notes issued by the Company bears to (ii) the fees
actually received by the Purchaser pursuant to this Agreement. The relative
fault of the Indemnifying Party on the one hand and the Purchaser on the other
with respect to the transactions contemplated hereby shall be determined by
reference to, among other things, whether any untrue or alleged untrue statement
of material fact or the omission or alleged omission to state a material fact
related to information supplied by the Indemnifying Party or by the Purchaser
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. No Indemnified
Party shall have any liability to the Indemnifying Party or any other Person in
connection with the services rendered pursuant to the Commitment except for the
liability for claims, liabilities, losses or damages finally determined by a
court of competent jurisdiction to be due to such Indemnified Party's willful
misconduct, or gross negligence. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
(d) The indemnification, contribution and expense reimbursement obligations
set forth in this Section 11.03 (i) shall be in addition to any liability the
Indemnifying Party may have to any Indemnified Party at common law or otherwise,
(ii) shall survive the termination of this Agreement and the payment in full of
the Notes and (iii) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Purchaser or any
other Indemnified Party.
Section 11.04. EXPENSES. The Company agrees to pay all reasonable
out-of-pocket costs, expenses and other payments in connection with the purchase
and sale of the Notes, the Warrants and the Warrant Shares as contemplated by
this Agreement and the other Financing Documents, including without limitation
(i) reasonable fees and disbursements of special counsel and any local counsel
for the Purchaser incurred in connection with the preparation of this Agreement
and the other Financing Documents, (ii) all reasonable out-of-pocket expenses of
the Purchaser, including reasonable fees and disbursements of counsel, in
connection with any waiver or consent hereunder or any amendment hereof or
thereof or any Default or alleged Default hereunder and (iii) if an
-52-
<PAGE>
Event of Default occurs, all reasonable out-of-pocket expenses incurred by the
Purchaser and each Holder of Notes, including reasonable fees and disbursements
of a single counsel (which counsel shall be selected by the Purchaser if the
Purchaser is a Holder of Notes when such Event of Default occurs), in connection
with such Event of Default and collection, bankruptcy, insolvency and other
enforcement proceedings resulting therefrom.
Section 11.05. PAYMENT. The Company agrees that, so long as the Purchaser
shall own any Notes purchased by it from the Company hereunder, the Company will
make payments to the Purchaser of all amounts due thereon by wire transfer by
1:00 P.M. (New York City time) on the date of payment to such account as is
specified beneath the Purchaser's name on the signature page hereof or to such
other account or in such other similar manner as the Purchaser may designate to
the Company in writing.
Section 11.06. CONFIDENTIALITY. The Purchaser shall not use confidential
information obtained from the Company by virtue of the transactions contemplated
by this Agreement or their other relationships with the Company in connection
with the performance by the Purchaser of services for other companies, and the
Purchaser shall not furnish any such information to other companies. The
Purchaser has no obligation to use in connection with the transactions
contemplated by this Agreement, or to furnish to the Company, confidential
information obtained from other companies.
Section 11.07. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall inure to the benefit of the Company, the Purchaser, the holders of the
Senior Debt and their respective successors and assigns; provided that the
--------
Company may not assign or otherwise transfer its rights or obligations under
this Agreement to any other Person without the prior written consent of the
Majority Holders. All provisions hereunder purporting to give rights to the
Purchaser and its Affiliates, or to Holders are for the express benefit of such
Persons.
Section 11.08. BROKERS. The Company represents and warrants that, except
for CIBC Oppenheimer Corp., it has not employed any broker, finder, financial
advisor or investment banker who might be entitled to any brokerage, finder's or
other fee or commission in connection with the SuperGraphics Acquisition or the
sale of the Notes.
Section 11.09. NEW YORK LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY
TRIAL. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF NEW YORK. EACH PARTY HERETO HEREBY SUBMITS TO THE
NON-EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN THE CITY OF NEW
YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN
SUCH A
-53-
<PAGE>
COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 11.10. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
Section 11.11. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be an original with the same effect as if
the signatures thereto and hereto were upon the same instrument.
Section 11.12. SURVIVAL. Any term or provision hereof to the contrary
notwithstanding, Sections 6.01 and 6.06 shall survive the termination of this
Agreement and the payment in full of the Notes until the sale by the Purchaser
(or its Affiliates) of all of its (or their) Warrants and Warrant Shares.
[Signature Pages Follow]
-54-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executedby their respective authorized officers, as of the date first above
written.
COMPANY:
--------
UNIDIGITAL INC.
By: /s/ William E. Dye
------------------------------------
Name: William E. Dye
Title: Chief Executive Officer
Address for Notices:
Unidigital Inc.
229 West 28th Street
New York, NY 10001
Telecopier: (212) 244-7815
Attention: William E. Dye
Chief Executive Officer
GUARANTORS:
----------
UNIDIGITAL ELEMENTS (NY), INC.
By: /s/ William E. Dye
------------------------------------
Name: William E. Dye
Title: Chief Executive Officer
Address for Notices:
Unidigital Inc.
229 West 28th Street
New York, NY 10001
Telecopier: (212) 244-7815
Attention: William E. Dye
Chief Executive Officer
<PAGE>
UNIDIGITAL ELEMENTS (SF), INC.
By: /s/ William E. Dye
------------------------------------
Name: William E. Dye
Title: Chief Executive Officer
Address for Notices:
Unidigital Inc.
229 West 28th Street
New York, NY 10001
Telecopier: (212) 244-7815
Attention: William E. Dye
Chief Executive Officer
UNISON (NY), INC.
By: /s/ William E. Dye
------------------------------------
Name: William E. Dye
Title: Chief Executive Officer
Address for Notices:
Unidigital Inc.
229 West 28th Street
New York, NY 10001
Telecopier: (212) 244-7815
Attention: William E. Dye
Chief Executive Officer
<PAGE>
UNISON (MA), INC.
By: /s/ William E. Dye
------------------------------------
Name: William E. Dye
Title: Chief Executive Officer
Address for Notices:
Unidigital Inc.
229 West 28th Street
New York, NY 10001
Telecopier: (212) 244-7815
Attention: William E. Dye
Chief Executive Officer
MEGA ART CORP.
By: /s/ William E. Dye
------------------------------------
Name: William E. Dye
Title: Chief Executive Officer
Address for Notices:
Unidigital Inc.
229 West 28th Street
New York, NY 10001
Telecopier: (212) 244-7815
Attention: William E. Dye
Chief Executive Officer
<PAGE>
PURCHASER:
CIBC WOOD GUNDY CAPITAL CORP.
By: /s/ Richard White
------------------------------------
Name: Richard White
Title: Managing Director
Address for Notices:
CIBC Wood Gundy Capital Corp.
425 Lexington Avenue, 9th Floor
New York, NY 10017
Telecopier: 212-697-1544
Attention: Richard White
Wiring Instructions:
CIBC Wood Gundy Capital Corp.
ABA# 021-000-018
The Bank of New York
A/C# 890-0331-046
FCT# 550-00-000-01
NOTE
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD,
UNLESS IT HAS BEEN REGISTERED UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE AND
THEN ONLY IN COMPLIANCE WITH THE RESTRICTIONS ON TRANSFER SET FORTH IN THE
SECURITIES PURCHASE AGREEMENT DATED AS OF NOVEMBER 25, 1998, A COPY OF
WHICH MAY BE OBTAINED FROM THE ISSUER OF THIS SECURITY AT ITS PRINCIPAL
EXECUTIVE OFFICE.
No. 1 $10,000,000.00
UNIDIGITAL INC.
Senior Subordinated Increasing Rate Note
----------------------------------------
UNIDIGITAL INC., a Delaware corporation (together with its successors, the
"Company"), for value received hereby promises to pay to CIBC WOOD GUNDY CAPITAL
CORP. and registered assigns (the "Holder") the principal sum of TEN MILLION
DOLLARS by wire transfer of immediately available funds to the Holder's account
at such bank in the United States as may be specified in writing by the Holder
to the Company, on the Maturity Date in such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts, and to pay interest on the unpaid principal
amount hereof on the dates and at the rate or rates provided for in the
Securities Purchase Agreement. Reference is made to the Securities Purchase
Agreement for provisions for the prepayment hereof and the acceleration of the
maturity hereof.
This Note is one of a duly authorized issue of Senior Subordinated
Increasing Rate Notes of the Company (the "Notes") referred to in the Securities
Purchase Agreement, dated as of November 25, 1998, among the Company, the
Guarantors named therein and the Purchaser named therein (as the same may be
amended, supplemented or otherwise modified from time to time in accordance with
its terms, the "Securities Purchase Agreement"). The Notes are transferable and
assignable to one or more purchasers, in accordance with the limitations set
forth in the Securities Purchase Asgreement. The Company agrees to issue from
time to time replacement Notes in the form hereof to facilitate such transfers
and assignments.
The payment of the principal amount of the Notes, premium (if any) and
interest thereon, and any claim for rescission or damages in respect thereof
under any applicable law by the
<PAGE>
Company is subordinated to the prior payment of Senior Debt to the extent and in
the manner provided in Article 9 of the Securities Purchase Agreement, and each
Holder of Notes, by his acceptance hereof, accepts and agrees to be bound by
such provisions.
The Company shall keep at its principal office a register (the "Register")
in which shall be entered the names and addresses of the registered holders of
the Notes and particulars of the respective Notes held by them and of all
transfers of such Notes. References to the "Holder" or "Holders" shall mean the
Person listed in the Register as the payee of any Note. The ownership of the
Notes shall be proven by the Register.
This Note shall be deemed to be a contract under the laws of the State of
New York, and for all purposes shall be construed in accordance with the laws of
said State. The parties hereto, including all guarantors or endorsers, hereby
waive presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance and enforcement of this
Note, except as specifically provided herein, and assent to extensions of the
time of payment, or forbearance or other indulgence without notice.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: November 30, 1998
UNIDIGITAL INC.
By:/s/ William E. Dye
---------------------
Name: William E. Dye
Title: Chief Executive Officer
2
