SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1999
Commission File No. 1-14126
UNIDIGITAL INC.
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(Name of Small Business Issuer in Its Charter)
Delaware 13-3856672
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
229 West 28th Street, New York, New York 10001
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(Address of Principal Executive Offices) (Zip Code)
(212) 244-7820
------------------------------------
(Issuer's Telephone Number,
Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each class on Which Registered
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Common Stock, $.01 par value American Stock Exchange
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- ---------------------------- ----------------------------------------
Securities registered under Section 12(g) of the Exchange Act:
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(Title of Class)
<PAGE>
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes: X No:
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant: $10,975,743 at November 30, 1999 based on the last sales
price on that date.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of November 30, 1999:
Class Number of Shares
- ----- ----------------
Common Stock, $.01 par value 5,987,067
The following documents are incorporated by reference into the Annual
Report on Form 10-K: Portions of the Registrant's definitive Proxy Statement for
its 2000 Annual Meeting of Stockholders are incorporated by reference into Part
III of this Report.
<PAGE>
TABLE OF CONTENTS
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Item Page
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PART I 1. Business.................................................. 1
2. Properties................................................ 12
3. Legal Proceedings......................................... 12
4. Submission of Matters to a Vote of Security Holders....... 13
PART II 5. Market for the Company's Common Equity and Related
Stockholder Matters....................................... 14
6. Selected Financial Data................................... 15
7. Management's Discussion and Analysis of Financial
Condition and Results of Operation........................ 16
7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 25
8. Financial Statements and Supplementary Data............... 25
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................... 25
PART III 10. Directors and Executive Officers of the Company........... 26
11. Executive Compensation.................................... 26
12. Security Ownership of Certain Beneficial Owners
and Management............................................ 26
13. Certain Relationships and Related Transactions............ 26
PART IV 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K............................................... 27
SIGNATURES............................................................... 28
EXHIBIT INDEX............................................................ 30
FINANCIAL STATEMENTS..................................................... F-1
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PART I
ITEM 1. BUSINESS.
GENERAL
Unidigital Inc., together with its subsidiaries (collectively, "Unidigital"
or the "Company") is a media services company that provides large and grand
format digital image solutions combined with a full suite of digital "premedia"
(previously referred to as prepress) services to advertising agencies,
retailers, publishers, graphic design firms, consumer product companies,
government agencies, individual graphic artists and marketing and communications
firms in both the United States and Europe. In the third quarter of fiscal 1999,
the Company began delivering its services through two principal business
divisions. The Media Solutions division creates and produces large and grand
format images for out-of-home advertising and develops new media concepts and
program solutions. The Premedia Services division provides digital premedia,
including retouching and short-run digital printing services.
The Media Solutions division uses new digital technologies and processes to
fulfill a customer's advertising and outdoor display requirements. The Company
has participated in the development of new methods and concepts for high impact
advertising such as wallscapes, vehicular graphics, construction barricades and
"station domination." The Media Solutions division is comprised of five
operating units: (i) MegaArt, which produces grand scale displays as large as
30,000 square feet; (ii) SuperGraphics, which produces printed vinyl wraps for
buses and other vehicles; (iii) Unison, which provides a wide range of large
scale photographic displays; (iv) M. Nur, which produces grand scale displays
for the European market; and (v) Big Bills, which provides a wide range of large
scale displays for the European market.
The Premedia Services division creates and manipulates digital images for a
wide range of marketing and advertising clients. The digital images are prepared
for use in specific media applications such as printed materials, the Internet,
video clips and CD-ROM files. Premedia services do not include the actual
printing of images for mass distribution. Prior to the use of computers in the
design of printed materials, prepress (now referred to as premedia) services
were labor-intensive mechanical processes. Technological advances make it
possible to replace largely manual and photography-based production methods with
computer-based, electronic means for producing four color masters faster and at
lower cost.
The Premedia Services division consists of five operating units: KWIK,
KWIK/Zazula and KWIK/X(+C) provide high-end digital premedia and retouching
services to advertising agencies and commercial clients in the metropolitan New
York area; KWIK/Progress, which provides similar premedia services to the music
industry; and Elements, which provides premedia services, short-run digital
printing and financial printing services in the United Kingdom.
<PAGE>
BUSINESS AND GROWTH STRATEGY
Management's strategy is to continue to develop Unidigital into a premier
digital media services company serving media, advertising and commercial clients
with a complete suite of large and grand format solutions and premedia services.
Key elements to this growth strategy include:
o INCREASE FOCUS ON MEDIA SOLUTIONS: The Company believes it has
established a reputation as an industry leader and innovator in the
grand format industry segment with developments such as the world's
first wallscapes, the first computer generated bus wraps and the
"station domination" concept. Due to the significant growth potential
of the Media Solutions business segment, the Company is increasing its
focus on developing new digital technologies, processes and media to
create exciting new concepts for high impact advertising.
o INCREASE SALES THROUGH INTERNAL LEVERAGING: The Company believes that
its positive relationship with its existing customer base creates an
opportunity for additional sales and marketing opportunities. Further,
the Company believes that the expansion of its international
operations allows the Company to service new and existing customers in
new locations. The broad range of products and services offered by the
Company enables the Company to provide full-service integrated graphic
and media solutions to its customers.
o TRANSITION TO PREMEDIA SERVICES: The Company intends to continue to
shift the prepress paradigm to a "premedia" model that encompasses
image creation for electronic distribution through the Internet,
CD-ROM files and other delivery methods.
o CONTINUE INTERNATIONAL EXPANSION: During the fourth quarter of fiscal
1999, the Company consummated three acquisitions in the European
market. The Company anticipates that additional expansion
opportunities will continue to become available as the European
marketplace continues to evolve.
o CONTINUE SELECTIVE ACQUISITIONS: The Company continues to focus on
growth through selective acquisitions. As part of this on-going
strategy, the Company continues to review opportunities to expand its
business and markets primarily in the large and grand format markets,
and, to a lesser extent, the digital premedia and digital printing
markets. Through its acquisitions, the Company expects to accomplish
several objectives, including adding new technologies and
capabilities, acquiring market leadership positions and long-term
customer relationships, enhancing profitability and expanding
geographically, both domestically and internationally.
Since September 1994, the Company has consummated 17 acquisitions. Each
acquisition has added significantly to the capabilities of the Company and
importantly,
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has added customers with long standing relationships. Unidigital has capitalized
on the opportunity to build a family of leading media solutions and premedia
services companies and has incorporated them under its two divisions. The
following table summarizes the Company's acquisition history, highlighting the
strategic acquisitions, which have accelerated the creation of the current
operating platform:
<TABLE>
<CAPTION>
ACQUISITION DATE LOCATION DESCRIPTION
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lyledale Limited Sep-94 London Financial printing
Regent Limited Mar-95 London Financial printing
TX Unlimited, Inc. Mar-96 San Francisco Digital printing
Cardinal Communications Group, Aug-96 New York Digital prepress, digital
Inc./C-Max Graphics, Inc. printing and large
format
Boris Image Group, Inc. Apr-97 Boston Commercial
photographic and digital
imaging
Libra City Corporate Printing Limited May-97 London Financial printing
Kwik International Color, Ltd. Mar-98 New York High-end digital
prepress and wide
format
Five Star Finishers, Ltd. Jul-98 London Premedia services
MegaArt Corp. Sep-98 New York Large/wide format
printing
Hy Zazula Associates, Inc. Oct-98 New York High-end digital
prepress and retouching
SuperGraphics Corporation Nov-98 San Francisco Large/wide format
printing
Peter X(+C) Limited Apr-99 New York Premedia services
Progress Graphics, Inc. Apr-99 New York Premedia services
Interface Graphics Limited Apr-99 Edinburgh, UK Premedia services
Pre-Press Services Limited Aug-99 Leeds, UK Premedia services
M. Nur Marketing & Kommunikation Aug-99 Kassel, Germany Large/wide format
GmbH printing
Big Bills Limited Aug-99 London Large/wide format
printing
</TABLE>
In furtherance of its strategy to focus on its Media Solutions division, in
August 1999, the Company sold (the "Elements Sale") substantially all the assets
of its wholly-owned subsidiary, Unidigital Elements (NY), Inc. ("Elements (NY)")
to a group comprised of that unit's management. Elements (NY) provided short-run
digital printing products and services primarily to graphic artists and
marketing professionals. The services previously provided by the Company through
Elements (NY) no longer constitute the core of the Premedia Services division's
services.
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SERVICE DESCRIPTION AND DELIVERY
The Company has implemented a divisional branding strategy to better market
the Company's diverse product and service offerings. This branding strategy
allows for the marketing of the Media Solutions and the Premedia Services
divisions to the respective business segments that each of the divisions
primarily serves, thus building brand identity and loyalty for each division.
Each division has at its disposal, and is encouraged to sell, any product or
service offered within the Company. The broad range of products and services
offered by the Company enables the Media Solutions and Premedia Services
divisions to provide integrated graphic and media solutions for their customers
while still keeping each division's core capabilities at the forefront. The
following table delineates the capabilities of each division:
<TABLE>
<CAPTION>
DIVISION/
OPERATING UNIT LOCATIONS SERVICES OFFERED TYPES OF CLIENTS
- -------------- --------- ---------------- ----------------
MEDIA SOLUTIONS:
<S> <C> <C> <C>
MegaArt New York Grand format graphics Media companies,
corporations and
advertising agencies
SuperGraphics San Francisco Vehicle wraps and other graphics Media companies,
corporations and
advertising agencies
Unison Boston Large and grand format printing Corporations, retailers and
sports arenas and stadiums
M. Nur Kassel, Germany Grand format graphics Media companies,
corporations and
advertising agencies
Big Bills London Large and grand format printing Media companies and
corporations
PREMEDIA SERVICES:
KWIK New York High-end digital premedia and Advertising agencies and
retouching corporations
Elements London Digital premedia and financial Advertising
Edinburgh, UK printing agencies and
Leeds, UK UK financial
institutions and
corporations
</TABLE>
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MEDIA SOLUTIONS
The Media Solutions division provides a wide range of media and
photographic solutions focused on rapidly growing segments of the out-of-home
advertising market. The Company solves some of the most challenging large and
grand format graphic display demands by combining the latest digital
technologies with management expertise and creativity. This division, using
digital files and photographic films, produces large and grand format graphics
that are printed to various substrates for specific applications utilizing the
latest in inkjet, electrostatic, dye sublimation and laser technologies.
Large format graphics are produced for great advertising impact. They are
used for retail point of purchase displays, posters, signage, back-lit displays,
environmental graphics, vehicular graphics and grand wallscapes that hang on the
sides of buildings. Very large graphics are sometimes referred to as grand
format and can cover over 30,000 square feet in size by sewing or welding
together pieces of the image that are output in sections. The Company has
invested significantly in the necessary hardware devices and software programs
to solve the most demanding large and grand format graphic display requirements.
The Company believes that the MegaArt Acquisition (as defined below) has
provided Unidigital with an opportunity to capture the leadership position in
the custom wallscape segment of the industry. In addition, MegaArt provides
cross-selling opportunities and access of new clients through existing
relationships. MegaArt operates out of a production facility in Manhattan.
SuperGraphics, which created and commercialized the first computer
generated vinyl bus wraps, presently operates as a stand-alone unit within the
Media Solutions division. The operations of SuperGraphics are based in
Sunnyvale, California.
Unison provides premium quality, customized photographic and digital
graphic solutions to corporations, retailers and sports arenas and stadiums.
Unison produces full-color graphics on an extensive array of innovative and
traditional substrates. Unison is a leader in the large format industry with
years of experience in complicated digital imaging.
In August 1999, the Company consummated the M. Nur Acquisition and the Big
Bills Acquisition (each, as defined below). These acquisitions launched the
expansion of the Company's Media Solutions division into Europe. M. Nur is a
leading European producer of wide format digital print graphics and has
pioneered many of the innovative and unique applications that have transformed
the large format outdoor advertising industry in Europe. Big Bills, based in
London, is a large and grand format graphics provider serving large British and
international clients with innovative indoor and outdoor media solutions.
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PREMEDIA SERVICES
The Premedia Services divisions consists of five operating units, three of
which, KWIK, KWIK/Zazula and KWIK/X(+C) provide high-end digital premedia and
retouching services to advertising agencies and commercial clients in the
metropolitan New York area and KWIK/Progress, which provides similar premedia
services to the music industry. The other unit is Elements, which provides
premedia services, short-run digital printing and financial printing services in
the United Kingdom.
Elements, acquired in 1994, provided the initial platform for the Premedia
Services division while the KWIK Acquisition (as defined below) extended the
Company's services into the high-end premedia and retouching services. Since
October 1998, Unidigital has consummated the Zazula Acquisition, the X+C
Acquisition, the Progress Acquisition, the Interface Acquisition and the
Pre-Press Acquisition (each, as defined below). The businesses acquired in the
Zazula Acquisition, the X+C Acquisition and the Progress Acquisition have been
folded into the KWIK operating unit while the Interface Acquisition has been
integrated under Elements. These acquisitions have further enhanced the
Company's creative and technical capabilities, broadened its client base within
the high-end digital premedia market and expanded the Company's premedia
services into the music industry and into new United Kingdom markets.
The premedia work performed by the operating units within this division is
comprised of two stages: (i) creative and retouching stage; and (ii) media
preparation stage. During the initial creative and retouching stage, images are
created and digitally optimized to accurately convey the impressions desired by
the client for the intended use of the image. In the media preparation stage,
the image is then prepared for the specific media application using certain
technical specifications such as resizing, color optimization, etc. The image is
finally transmitted through digital file or film to the client or relevant
production or transmission facility. Premedia services do not include the actual
printing of images for mass distribution. Some of the services provided by this
division are defined as follows:
o DIGITAL IMAGE SCANNING: The Company scans and color corrects
transparencies, photo prints or illustrations and produces a digital
image that can then be used in the creative and retouching stage.
o RETOUCHING: The Company provides its high-end customers with
electronic re-creation and retouching of visual images. In this stage,
the Company's artists implement the creative vision of their clients.
o PROOFING: For each digital image file produced, the Company offers a
variety of color proofing methods. These methods include direct
digital methods in which the digital file is output to a color proof
prior to final media output as well as conventional analog proofs in
which lithographic films are exposed onto color proofing materials.
These proofs visualize the actual retouching changes for the clients.
o PAGE ASSEMBLY: The Company places digital image files into customer
page layouts to form finished printable advertising materials. These
same digital files can also be re-formatted for output to a variety of
digital
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media. The Company utilizes a broad range of desktop publishing
platforms to ensure compatibility with its clients' software systems.
o ELECTRONIC OUTPUT: The Company outputs completed digital images files
to a variety of media, including regular and oversize lithographic
films, color transparencies, CD-ROM files and on-line images.
Additionally, this division provides digital printing services in the
United Kingdom. Digital printing, also known as "short-run" printing, involves
translating computer-generated graphic design and content into a printed image
on a digital printing press. The advantage of the four-color digital printing
process is realized in time and cost savings to clients by replacing traditional
color separations, metal printing plates and graphic processes with digital
technology. This division also provides financial printing services in the
United Kingdom including the production, formatting and printing of corporate
finance and research documents for corporate clients.
SALES, MARKETING AND OPERATIONS
MEDIA SOLUTIONS
The Media Solutions division performs primarily large and grand format
project work. Each project is very unique and customized with respect to the
work involved. Currently, each operating unit within the division services its
clients through a team of knowledgeable salespersons led by a director of sales.
This division uses various methods to market its services, including direct
mail, product samples, trade shows, promotions and Internet sites. Extensive
collateral material on products and services offered, testimonials of previous
projects and "how to" sheets for file preparation are readily available for
distribution to customers. Once a customer completes a purchase order form,
execution within each unit generally involves the following steps:
o ASSIGNMENT: A production meeting is held at least once per day in
each unit within the division. A new project is typically assigned to
a production coordinator who schedules and tracks the order through
completion.
o PRODUCTION: Work throughout the division typically results in
finished, printed materials of one form or another. Customers
frequently review proofs. In many cases, a grand format work will be
produced on a smaller scale, on the actual mesh, to display the print
characteristics of the final work. Upon customer approval, the final
print is produced and the project is shipped to the installation
company and is subsequently installed in coordination with Unidigital.
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PREMEDIA SERVICES
Within the Premedia Services division, KWIK's business is typically
project-oriented with high invoice value while Elements' business is high volume
and transactional in nature with low invoice value. The Premedia Services
division actively markets its services to its existing and potential client base
by direct marketing methods including direct mail, product samples, trade shows,
promotions and Internet sites. Extensive collateral material on products and
services and "how to" sheets for file preparation are also distributed through
direct mail. Once a project is awarded, an order form is completed which then
leads to the following production steps:
o ASSIGNMENT: A production meeting is held at the beginning of each day
(the start of the 8 a.m. shift). Production managers review each job
and the skills required and match the job with the appropriate
craftsman/operator. All revisionary work is assigned to the original
craftsman/operator.
o PRODUCTION: The Premedia Services division handles a large volume of
jobs per day encompassing both new projects and revisions and
typically works three shifts to accommodate the high volume and
turn-around requirements. Each production manager is responsible for
the assigned project from start through to completion and communicates
directly with customers regarding any particular specifications or
instructions. Each completed job may be in any medium including disk,
film, electronic transmission or final printed form.
CUSTOMERS
The Media Solutions division's customers consist of media companies,
corporate clients, retailers, advertising agencies and businesses in a variety
of industries requiring large display graphics. Customers may be local,
regional, national or international. Each of the units within this division
receives individual orders from customers on a project-by-project basis. Many
client relationships within this division extend back over many years and are
the result of timely delivery of creative high quality services. Continued
engagements for successive jobs are dependent primarily upon a customer's
satisfaction with the quality of previous services provided by this division.
Revenues from The Gap accounted for 11% of the Company's revenues for the Media
Solutions division for fiscal 1999.
The Premedia Services divisions customers include advertising agencies,
graphic design firms, corporations in the health care and beauty industries and
financial institutions and corporations in the United Kingdom. Customers are
attracted to the Premedia Services division's creative digital retouching
capabilities, an industry reputation for quality digital premedia services and
personalized customer service that
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caters to each customer's individual needs. Pricing is determined on a
project-by-project basis.
COMPETITION
The Media Solutions division competes in a large and grand format
marketplace that is rapidly growing. This industry segment is characterized by
many smaller companies often servicing narrow market channels such as small
design firms, local retailers and general display markets. The Company enjoys a
competitive advantage in the marketplace through its ability to invest in output
devices, software and intercompany high speed networks resulting in cost
efficiencies to its customers. This division's expertise, output devices,
software and network enable the Company to produce and manage large projects
that are difficult for smaller companies to administer. Customers seek out the
Company's services and products offered by its Media Solutions division because
of its vast array of technologically advanced equipment, technical expertise,
service orientation and capability to solve unique challenges associated with
large and grand format graphics.
The Premedia Services division and its competitors that provide retouching
services are consultative in their sales methodologies, supply a high level of
technical expertise and provide many value-added services such as premium
retouching, color correction and creative input. Competitors vie for many of the
same high profile clients and projects. When determining a suitable digital
premedia provider to suit their needs, customers that the Premedia Services
division may service generally tend to weigh the following criteria: reputation,
capacity, creative expertise, turn-around time and budget considerations.
The Premedia Services division also confronts competition from conventional
printers which have added, or plan to add, digital presses. The Company believes
this division has several competitive advantages over conventional printers and
digital premedia service providers. First, the Premedia Services division
currently handles a large number of relatively small jobs and has the capability
to process such small jobs on a volume basis with the proper service approach.
Second, the Premedia Services division has existing customers which it believes
are likely to become users of digital presses. Lastly, unlike certain of its
competitors, the Premedia Services division presently possesses the computer
hardware, software and expertise to support digital printing.
Some of the Company's competitors are larger, have greater financial
resources and offer more comprehensive services than those currently offered by
the Company. The Company, however, believes that its smaller size allows it to
more effectively react to customer needs to provide better service to these
markets than its competitors.
SUPPLIERS
Each of the Company's divisions utilize their own key suppliers for their
various materials and services needs. The Company believes a decentralized
purchasing system is more appropriate for the Company's business due to the
different operating models as well as geographical and industry segments served
by the two divisions. Additionally, the different regional or geographic focus
of the divisions allows each operating unit to develop strong relationships with
its respective suppliers. However, the Company occasionally negotiates
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with certain major suppliers on a centralized basis or in cases where
centralized purchasing is more economically feasible.
The Company views several equipment and materials supply relations within
the Media Solutions division as strategic in nature and has developed and
perfected its processes in conjunction with these suppliers.
SYSTEMS AND TECHNOLOGY
The Company aggressively implements technological advances in order to
improve and expand its premedia and large and grand format printing services.
This commitment is demonstrated by the Company's development and use of unique
technology, equipment and software applications to produce unlimited size prints
for out-of-home advertising.
Additionally, each of the Company's facilities is connected by a data
network system that allows a client with computer-generated files in one
location to have immediate access to output at other locations within the United
States and Europe.
GOVERNMENT REGULATION
The industry, while not heavily regulated, is subject to federal, state,
and local laws, regulations and ordinances governing the removal and handling of
hazardous waste. The Company believes it is in compliance in all material
respects with such laws, regulations and ordinances and maintains these
standards through internal control and disposal methods at each location.
Hazardous substances resulting from digital premedia, digital printing and
photographic processes are disposed of by third party vendors in each of the
local markets in which the Company conducts its operations. To date, the cost of
compliance with such laws, regulations and ordinances has not been material. In
the event the Company expands its operations, it may be subject to additional
environmental laws, regulations or ordinances, including requirements to obtain
certain environmental permits. The Company cannot predict the environmental
legislation or regulations that may be enacted in the future or how existing or
future laws or regulations will be administered or interpreted. Developments
such as additional requirements imposed by more stringent laws or regulations,
as well as vigorous enforcement policies of regulatory agencies or stricter
interpretation of existing laws may require additional expenditures by the
Company, some or all of which may be material.
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EMPLOYEES
As of November 30, 1999, the Company employed 507 persons, approximately
486 of whom are full-time employees. Of the total, 295 are employed in the
United States, 193 are employed in the United Kingdom and 19 are employed in
Germany. The Company is subject to a collective bargaining agreement with 38
employees at KWIK. The Company considers its employee relations to be
satisfactory. The following table provides an employee breakdown by the various
divisions:
EMPLOYEE BREAKDOWN
DIVISION/OPERATING UNIT # OF EMPLOYEES
-------------------------------------------------------
MEDIA SOLUTIONS
MegaArt 76
SuperGraphics 31
Unison 90
M. Nur 19
Big Bills 19
--------------
SUB-TOTAL 235
PREMEDIA SERVICES
KWIK 89
Elements 174
--------------
SUB-TOTAL 263
Corporate 9
--------------
TOTAL 507
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ITEM 2. PROPERTIES.
At August 31, 1999, the Company leased the office space set forth in the
following table:
<TABLE>
<CAPTION>
SQUARE TERMINATION
LOCATION FOOTAGE DATE DIVISION
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
229 West 28th Street - New York 46,000 2/28/09 Premedia
Services
Pier 40/West Side Highway - 35,000 8/31/02 Media
New York Solutions
155 L-2 Moffet Park Drive - Sunnyvale 13,600 7/31/04 Media
Solutions
451 D Street - Boston 32,000 12/31/03 Media
Solutions
48 Margaret Street - London UK 10,300 12/31/04 Premedia
Services
Truscott House 32-42 East Road - London UK 8,900 3/31/08 Premedia
Services
71A Leonard Street 1,350 12/31/00 Media
London UK Solutions
6 Leodis Court 7,825 11/09/03 Premedia
David Street Services
Leeds UK
4 Castle Road 4,640 1/10/03 Premedia
Edinburgh UK Services
Herwigsmuhlenweg 3C - 1,500 9/01/06 Media
Kassel, Germany Solutions
</TABLE>
Additionally, at August 31, 1999, the Company owned approximately 24,000
square feet of office space in New York City. In September and November 1999,
the Company sold such property for an aggregate purchase price of $2,435,000.
The Company believes that its current facilities are suitable and adequate for
its current operations and short-term foreseeable needs, and that it will be
able to renew these leases or obtain alternative space for such facilities upon
the expiration of the current leases. Additional facilities will be required to
support growth as the Company expands into new geographic areas.
ITEM 3. LEGAL PROCEEDINGS.
A dispute has arisen out of the Company's acquisition of Libra City
Corporate Printing Limited ("Libra") in the United Kingdom. The Company has
withheld a portion of the earn-out payment (approximately (pound)400,000 or
$640,000) because of a potential breach of a non-competition clause. The parties
attempted to resolve the dispute outside of litigation. However, certain of the
shareholders of Libra have filed suit against the
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Company seeking the balance of the earn-out payment. The Company has made a
counterclaim against the parties filing suit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Prior to February 1, 1996, there was no established market for the
Company's Common Stock. From February 1, 1996 to February 7, 1999, the Common
Stock was quoted on the Nasdaq National Market under the symbol "UNDG." In the
fourth quarter of fiscal 1998, the Company received notice from The Nasdaq Stock
Market, Inc. ("Nasdaq"), that the Company did not meet the net tangible asset
requirement under Maintenance Standard 1 or the market value of public float
requirement under Maintenance Standard 2 for continued listing on the Nasdaq
National Market. Thereafter the Company immediately made application to the
American Stock Exchange ("AMEX") for listing of the Common Stock on AMEX. On
February 4, 1999, the Company's application for listing of the Company's Common
Stock on AMEX was approved. The Company's Common Stock began trading on AMEX on
February 8, 1999.
The following table sets forth the high and low sales prices for the
Company's Common Stock for the quarters indicated from August 31, 1997 as
reported by the Nasdaq National Market until February 7, 1999 and thereafter as
reported by AMEX. The quotes represent inter-dealer prices without adjustments
or mark-ups, mark-downs or commissions and may not represent actual
transactions.
COMMON STOCK
QUARTER ENDED HIGH LOW
- ------------- ---- ---
November 30, 1997......................... $10 1/8 $7
February 28, 1998......................... $8 1/2 $4 1/2
May 31, 1998.............................. $10 3/8 $5 1/2
August 31, 1998........................... $9 $5 3/4
November 30, 1998......................... $6 1/8 $3 7/8
February 28, 1999......................... $5 9/16 $4
May 31, 1999.............................. $6 7/8 $4
August 31, 1999........................... $6 1/8 $4 1/8
As of November 30, 1999 the approximate number of holders of record of the
Common Stock was 81 and the approximate number of beneficial holders of the
Common Stock was 400.
The Company has not paid or declared cash dividends on its Common Stock
since its inception. The Company currently intends to retain any future earnings
to finance the growth of the business and, therefore, does not anticipate paying
any cash dividends in the foreseeable future. Furthermore, the Company's credit
facility contains a covenant which prohibits the Company from paying dividends
or making other distributions.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected consolidated historical financial
data of the Company as of the dates and for the periods indicated. The selected
financial data set forth below for the Company as of August 31, 1997, 1998 and
1999 and for each of the three years ended August 31, 1999 are derived from the
audited financial statements included elsewhere herein. The Company has restated
its consolidated statements of operations for the years ended August 31, 1997,
1998 and 1999 to reflect the results of the on-demand print and prepress
business as a discontinued operation. The selected financial data set forth
below for the Company as of August 31, 1995 and 1996 and for the years ended
August 31, 1995 and 1996 are derived from the financial statements not included
elsewhere herein. The selected financial information should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto
appearing elsewhere herein. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations," which are included elsewhere
herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
REVENUE:
Net Sales $ 8,542 $ 11,660 $12,569 $29,506 $ 62,774
EXPENSES:
Cost of sales 3,901 5,622 6,773 14,892 30,003
Selling, general and administrative
expenses 2,946 4,049 3,581 9,773 21,022
Expenses incurred due to restructuring -- -- -- 413 611
-------- -------- ------- ------- --------
Total operating expenses 6,847 9,671 10,354 25,078 51,636
-------- -------- ------- ------- --------
Income from operations 1,695 1,989 2,215 4,428 11,138
Interest expense (195) (327) (573) (1,353) (5,893)
Interest expense-deferred financing costs -- -- (138) (1,143) (491)
Interest and other (expenses) income -- 232 149 14 56
-------- -------- ------- ------- --------
Income from continuing operations before
income taxes and extraordinary item 1,500 1,894 1,653 1,946 4,810
-------- -------- ------- ------- --------
Provision for income taxes 356 1,064 486 854 2,349
-------- -------- ------- ------- --------
Net income from continuing operations
before extraordinary item 1,144 830 1,167 1,092 2,461
Discontinued operations:
Income (loss) from operations of
discontinued segment (net of tax
benefit of $107 (1997), $124 (1998)
and $1,038 (1999)) -- -- 174 187 (1,275)
Loss on disposal of segment (net of
tax benefit of $8,403) -- -- -- -- (10,317)
-------- -------- ------- ------- --------
Net income (loss) before extraordinary
item 1,144 830 1,341 1,279 (9,131)
Extraordinary item-loss on early
retirement of debt (net of income tax
benefit of $137 (1998) and $1,114
(1999)) -- -- -- (143) (1,828)
-------- -------- ------- ------- --------
Net income (loss) $ 1,144 $ 830 $ 1,341 $ 1,136 $(10,959)
======== ======== ======= ======= ========
Basic earnings (loss) per common share(1):
Earnings from continuing operations
before extraordinary item $ 0.54 $ 0.31 $ 0.36 $ 0.31 $ 0.47
Income (loss) from discontinued operations -- -- 0.05 0.05 (2.22)
Extraordinary item -- -- -- (0.04) (0.35)
-------- -------- ------- ------- --------
Net income (loss) $ 0.54 $ 0.31 $ 0.41 $ 0.32 $ (2.10)
======== ======== ======= ======= ========
<PAGE>
Diluted earnings (loss) per common
share(1):
Earnings from continuing operations
before extraordinary item $ 0.54 $ 0.31 $ 0.36 $ 0.29 $ 0.47
Income (loss) from discontinued
operations -- -- 0.05 0.05 (2.22)
Extraordinary item -- -- -- (0.04) (0.35)
-------- -------- ------- ------- --------
Net income (loss) $ 0.54 $ 0.31 $ 0.41 $ 0.30 $ (2.10)
======== ======== ======= ======= ========
Shares used to compute net income per
share:
Basic 2,000 2,644 3,212 3,531 5,225
======== ======== ======= ======= ========
Diluted 2,000 2,663 3,283 3,779 5,225
======== ======== ======= ======= ========
15
<PAGE>
BALANCE SHEET DATA (AT PERIOD END):
Working capital (deficit) $ 22 $ 2,319 $(2,189) $ 7,884 $ 3,509
Total assets 6,550 17,623 33,033 67,315 118,636
Stockholders' equity 2,605 7,365 9,473 14,393 16,311
</TABLE>
(1) The 1995 and 1996 net income per share are pro forma amounts that give
effect to the historical combined results of operations adjusted for (i) the
reduced level of salaries paid to the principal stockholder/officer and the
former partner ($319,000 (1995) and $73,000 (1996)) and (ii) the income tax
effect of Elements (NY) changing from Subchapter S status, as if these had
occurred effective September 1, 1995 ($741,000 (1995) and $795,000 (1996)).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
GENERAL
The Company is a media services company that provides large and grand
format digital image solutions combined with a full suite of digital premedia
services to advertising agencies, retailers, publishers, graphic design firms,
consumer product companies, government agencies and marketing communications
firms in both the United States and United Kingdom. The Company delivers its
services through two principal divisions. The Media Solutions division creates
and produces large and grand format images for out-of-home advertising and
develops new media concepts. The Premedia Services division provides digital
premedia, including retouching and short-run digital printing services.
The statements contained in this Annual Report on Form 10-K that are not
historical facts are forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995) that involve risks and
uncertainties. Such forward-looking statements may be identified by, among other
things, the use of forward-looking terminology such as "believes," "expects,"
"may," "will," "should" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy that
involve risks and uncertainties. From time to time, the Company or its
representatives have made or may make forward-looking statements, orally or in
writing. Such forward-looking statements may be included in various filings made
by the Company with the Securities and Exchange Commission (the "SEC"), or press
releases or oral statements made by or with the approval of an authorized
executive officer of the Company. These forward-looking statements, such as
statements regarding anticipated future revenues, capital expenditures, Year
2000 compliance and other statements regarding matters that are not historical
facts, involve predictions. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Potential risks and uncertainties that
could affect the Company's future operating results include, but are not limited
to: (i) economic conditions, including economic conditions related to the
digital print industry; (ii) the availability of equipment from the Company's
vendors at current prices and levels; (iii) the intense competition in the
markets for the Company's products and services; (iv) the Company's ability to
integrate acquired companies and businesses in a cost-effective manner; (v) the
Company's ability to effectively implement its branding strategy; and (vi) the
Company's ability to develop, market, provide, and achieve market acceptance of
new service offerings to new and existing clients.
16
<PAGE>
RESULTS OF OPERATIONS
The consolidated financial information includes both the Company's United
States operations and its United Kingdom operations.
On April 4, 1997, the Company acquired substantially all of the assets of
Boris Image Group, Inc., a Boston, Massachusetts based company which principally
engaged in the business of photographic, large format and digital imaging (the
"Boris Acquisition"). On May 22, 1997, the Company acquired all of the capital
stock of Libra, a London-based financial printer (the "Libra Acquisition") and,
as a result, currently provides financial printing services to the London
financial community through its Premedia Services division.
On March 25, 1998, the Company acquired substantially all of the assets of
Kwik International Color, Ltd. (the "Kwik Acquisition"). As a result of such
acquisition the Company expanded its color separation and large format printing
services in the New York City and surrounding area. In July 1998, the Company
acquired substantially all the assets of Five Star Finishers, Ltd. for a cash
payment of (pound)325,000 (approximately $543,000). On September 2, 1998, the
Company consummated the acquisition of all of the issued and outstanding capital
stock of MegaArt Corp. located in New York City (the "MegaArt Acquisition")
resulting in the expansion of its wide format, digital premedia and printing
services. On October 30, 1998, the Company, consummated the acquisition of Hy
Zazula Associates, Inc. located in New York City (the "Zazula Acquisition")
resulting in the expansion of its retouching and premedia services, primarily to
advertising agencies. On November 30, 1998, the Company consummated the
acquisition (the "SuperGraphics Acquisition") of all of the issued and
outstanding capital stock of SuperGraphics Holding Company, Inc. and its
wholly-owned subsidiary, SuperGraphics Corporation, located in San Francisco,
resulting in the expansion of its large format printing services.
In April 1999, the Company consummated the acquisition of (i) substantially
all of the assets of Peter X(+C) Limited (the "X+C Acquisition"), located in New
York City, (ii) substantially all of the assets of Progress Graphics, Inc. (the
"Progress Acquisition"), located in Jersey City, New Jersey, and (iii) all the
issued and outstanding shares of capital stock of Interface Graphics Limited
(the "Interface Acquisition"), a company located in Edinburgh, Scotland. Such
acquisitions have further enhanced the Company's creative and technical
capabilities, broadened its client base within the high-end digital premedia
market and expanded the Company's premedia services into the music industry and
into the United Kingdom market.
In August 1999, the Company consummated the acquisitions of (i) all the
issued and outstanding capital stock of Pre-Press Services Limited (the
"Pre-Press Acquisition"), M. Nur Marketing & Kommunikation GmbH (the "M. Nur
Acquisition") and Big Bills Limited (the "Big Bills Acquisition"). The Pre-Press
Acquisition continued the expansion of the Company's premedia services in the
United Kingdom. The M. Nur Acquisition and Big Bills Acquisition launched the
expansion of the Company's Media Solutions division into Europe.
17
<PAGE>
All of the foregoing acquisitions have been accounted for under the
purchase method of accounting and, therefore, results of operations from such
acquisitions are included in the Company's consolidated financial statements
from the date of the respective acquisition.
In furtherance of its strategy to focus on its Media Solutions division, in
August 1999, the Company consummated the Elements Sale. Due to such sale, the
Company incurred a loss on the disposal of a business segment of $10,317,000,
net of a tax benefit of $8,403,000, and restated its consolidated statements of
operations for the years ended August 31, 1998 and 1997.
For a discussion of the operating performance of the Company by segments,
see Note 16 of the Notes to the Consolidated Financial Statements included
elsewhere in this Form 10-K.
COMPARISON OF FISCAL YEARS ENDED AUGUST 31, 1999 AND AUGUST 31, 1998
NET SALES. Net sales increased by 113%, or $33,268,000, from $29,506,000
for the fiscal year ended August 31, 1998 to $62,774,000 for the fiscal year
ended August 31, 1999. Net sales for the Company's United States operations
increased by 229%, or $34,272,000, from $14,979,000 in the fiscal year ended
August 31, 1998 to $49,251,000 in the fiscal year ended August 31, 1999. Net
sales for the Company's United Kingdom operations decreased by 7%, or
$1,004,000, from $14,527,000 in the fiscal year ended August 31, 1998 to
$13,523,000 in the fiscal year ended August 31, 1999. Net sales for the
Company's Media Solutions division increased by 211%, or $19,606,000, from
$9,275,000 in the fiscal year ended August 31, 1998 to $28,881,000 in the fiscal
year ended August 31, 1999. This increase was attributable primarily to an
increase in net sales resulting from the MegaArt Acquisition and the
SuperGraphics Acquisition. Net sales for the Company's Premedia Services
division increased by 68%, or $13,662,000, from $20,231,000 in the fiscal year
ended August 31, 1998 to $33,893,000 in the fiscal year ended August 31, 1999.
This increase was attributable primarily to a full twelve months of net sales
resulting from the Kwik Acquisition and, to a lesser extent, an increase in net
sales resulting from the Zazula Acquisition and the X+C Acquisition.
COST OF SALES. Cost of sales increased by 101%, or $15,111,000, from
$14,892,000 for the fiscal year ended August 31, 1998 to $30,003,000 for the
fiscal year ended August 31, 1999. Cost of sales decreased as a percentage of
net sales from 50% for the year ended August 31, 1998 to 48% for the year ended
August 31, 1999. Cost of sales for the Company's United States operations
increased as a percentage of net sales from 37% for the fiscal year ended August
31, 1998 to 45% for the fiscal year ended August 31, 1999. Costs of sales for
the Company's United Kingdom operations decreased as a percentage of net sales
from 63% for the fiscal year ended August 31, 1998 to 58% for the fiscal year
ended August 31, 1999. Cost of sales for the Company's Media Solutions division
increased as a percentage of net sales for such division from 48% in the fiscal
year ended August 31, 1998 to 51% August 31, 1999. Such increase was
attributable primarily to the change in product mix in the Company's United
States operations to include more large format services. Cost of sales for the
Company's Premedia Services division decreased as a percentage of net sales for
such division from 50% in the fiscal year ended August 31, 1998 to 45% in the
fiscal year ended August 31, 1999.
18
<PAGE>
Such decrease was attributable primarily to the change in product mix in the
Company's United Kingdom operations to include less financial print and
traditional services as well as the re-negotiation of certain of the Company's
vendor contracts resulting in reduced supply costs to the Company.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses ("SG&A") increased 115%, or $11,249,000, from $9,773,000
for the fiscal year ended August 31, 1998 to $21,022,000 for the fiscal year
ended August 31, 1999. Such increase was attributable primarily to the increased
level of operations and costs associated with the Company's acquisitions and
hiring of additional management and administrative personnel. As a percentage of
net sales, SG&A remained constant at 33% for the fiscal years ended August 31,
1998 and 1999.
RESTRUCTURING EXPENSES. In connection with the consolidation of the
Company's United Kingdom operations, the Company incurred restructuring expenses
of $611,000 in the fiscal year ended August 31, 1999. In connection with the
consolidation of its New York operations, the Company incurred restructuring
expenses of $413,000 in the fiscal year ended August 31, 1998.
INCOME FROM CONTINUING OPERATIONS. Income from continuing operations
increased by 152%, or $6,710,000, from $4,428,000 for the fiscal year ended
August 31, 1998 to $11,138,000 for the fiscal year ended August 31, 1999. Of
this amount, $9,812,000 was contributed by the Company's United States
operations and $1,326,000 by the Company's United Kingdom operations. In
addition, of this amount, $5,140,000 was contributed by the Company's Media
Solutions division and $5,998,000 from the Company's Premedia Services division.
This increase resulted from higher net sales offset, in part, by higher
production costs associated with such net sales.
NET INTEREST EXPENSE. Net interest expense increased by 155%, or
$3,846,000, from $2,482,000 for the fiscal year ended August 31, 1998 to
$6,328,000 for the fiscal year ended August 31, 1999. This increase resulted
from increased borrowings under the Company's credit facilities and capital
leases assumed by the Company as part of the Company's acquisitions.
INCOME TAXES. Income taxes increased by 175%, or $1,495,000, from $854,000
for the fiscal year ended August 31, 1998 to $2,349,000 for the fiscal year
ended August 31, 1999.
DISCONTINUED OPERATIONS. In August 1999, the Company sold its New York
operations for on-demand print and prepress services. In addition, the San
Francisco and London on-demand print and prepress business ceased operations and
closed or reallocated their facilities to other segments, respectively, prior to
August 31, 1999. There were no remaining assets or liabilities related to the
discontinuance of the on-demand print and prepress business as of August 31,
1999. As a result, the Company incurred a loss of $11,592,000 on discontinued
operations for the fiscal year ended August 31, 1999.
EXTRAORDINARY ITEM. During fiscal 1999, in connection with the prepayment
of a subordinated loan, the Company recorded an extraordinary loss of
$1,828,000, net of
19
<PAGE>
income tax benefit of $1,114,000 related to the write-off of the unamortized
balance of deferred financing costs associated with such subordinated loan.
During fiscal 1998, in connection with the prepayment of $4,000,000 of loans
from private investors, the Company recorded an extraordinary loss of $143,000,
net of income tax benefit of $137,000 related to the write-off of deferred
financing costs.
NET INCOME. As a result of the factors described above, net income
decreased from $1,136,000 for the fiscal year ended August 31, 1998 to a net
loss of $10,959,000 for the fiscal year ended August 31, 1999.
COMPARISON OF FISCAL YEARS ENDED AUGUST 31, 1998 AND AUGUST 31, 1997
NET SALES. Net sales increased by 135%, or $16,937,000, from $12,569,000
for the fiscal year ended August 31, 1997 to $29,506,000 for the fiscal year
ended August 31, 1998. Net sales for the Company's United States operations
increased by 481%, or $12,403,000, from $2,576,000 in the fiscal year ended
August 31, 1997 to $14,979,000 in the fiscal year ended August 31, 1998. This
increase was attributable primarily to an increase in net sales resulting from
the Kwik Acquisition and, to a lesser extent, an increase in net sales in the
Company's other United States subsidiaries and the inclusion of net sales
resulting from the Boris Acquisition for a full year. Net sales for the
Company's United Kingdom operations increased by 45%, or $4,534,000, from
$9,993,000 in the fiscal year ended August 31, 1997 to $14,527,000 in the fiscal
year ended August 31, 1998. This increase was attributable primarily to
inclusion of net sales resulting from the Libra Acquisition for a full year and
internal growth in the Company's United Kingdom operations.
COST OF SALES. Cost of sales increased by 120%, or $8,119,000, from
$6,773,000 for the fiscal year ended August 31, 1997 to $14,892,000 for the
fiscal year ended August 31, 1998. As a percentage of net sales, cost of sales
decreased from 54% for the fiscal year ended August 31, 1997 to 50% for the
fiscal year ended August 31, 1998. Cost of sales for the Company's United States
operations decreased slightly as a percentage of net sales from 38% for the
fiscal year ended August 31, 1997 to 37% for the fiscal year ended August 31,
1998. Such decrease was attributable primarily to the change in product mix in
the Company's United States operations to include more digital prepress
services. Cost of sales for the Company's United Kingdom operations increased as
a percentage of net sales from 58% for the fiscal year ended August 31, 1997 to
63% for the fiscal year ended August 31, 1998. Such increase was attributable
primarily to the change in product mix in the Company's United Kingdom
operations to include more digital print and financial print services. Digital
print and financial print services have higher costs of sales compared to
digital prepress services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A increased by 173%, or
$6,192,000, from $3,581,000 for the fiscal year ended August 31, 1997 to
$9,773,000 for the fiscal year ended August 31, 1998. Such increase was
attributable primarily to the increased level of operations resulting from the
Kwik Acquisition, the Boris Acquisition and the Libra Acquisition and, to a
lesser extent, the hiring of additional management and administrative personnel
and costs associated with the Company acquisitions. As a percentage of net
sales, SG&A increased from 28% for the fiscal year ended August 31, 1997 to 33%
for the fiscal year ended August 31, 1998.
20
<PAGE>
RESTRUCTURING EXPENSES. In connection with the consolidation of its New
York operations, the Company incurred restructuring expenses of $413,000 in the
fiscal year ended August 31, 1998.
INCOME FROM CONTINUING OPERATIONS. Income from continuing operations
increased by 100%, or $2,213,000, from $2,215,000 for the fiscal year ended
August 31, 1997 to $4,428,000 for the fiscal year ended August 31, 1998. Of this
amount, $3,112,000 was contributed by the Company's United States operations and
$1,316,000 by the Company's United Kingdom operations. This increase resulted
from higher net sales offset, in part, by higher production costs associated
with the changing product mix of the Company's operations to include more
digital print and financial print services.
NET INTEREST EXPENSE. Net interest expense increased by $1,920,000 from
$562,000 for the fiscal year ended August 31, 1997 to $2,482,000 for the fiscal
year ended August 31, 1998. This increase resulted from increased borrowings
under the Company's credit facilities primarily relating to its acquisitions.
INCOME TAXES. Income taxes increased by 76%, or $368,000, from $486,000 for
the fiscal year ended August 31, 1997 to $854,000 for the fiscal year ended
August 31, 1998.
EXTRAORDINARY ITEM. In connection with the prepayment of $4,000,000 of
loans from private investors, the Company recorded an extraordinary loss of
$143,000, net of income tax benefit of $137,000 related to the write-off of
deferred financing costs.
NET INCOME. As a result of the factors described above, net income
decreased by 15%, or $205,000, from $1,341,000 for the fiscal year ended August
31, 1997 to $1,136,000 for the fiscal year ended August 31, 1998.
LIQUIDITY, CAPITAL RESOURCES AND OTHER MATTERS
CASH FLOW. Net cash used in operations was $838,000 and $1,498,000 for the
fiscal years ended August 31, 1999 and 1998, respectively. Net cash provided by
operations was $489,000 for the fiscal year ended August 31, 1997. Net cash used
in investing activities was $29,943,000, $23,363,000 and $6,897,000 for the
fiscal years ended August 31, 1999, 1998 and 1997, respectively. The Company
used $2,002,000, $1,571,000 and $1,368,000 for the acquisition of property and
equipment during such respective periods. For the fiscal years ended August 31,
1999, 1998 and 1997, the Company acquired equipment under capital leases of
$4,848,000, $1,797,000 and $1,711,000, respectively, and made payments under
capital leases of $3,271,000, $2,691,000 and $1,761,000, respectively. Net bank
borrowings provided funds of $38,916,000, $24,620,000 and $7,443,000 for the
fiscal years ended August 31, 1999, 1998 and 1997, respectively.
BANK CREDIT FACILITIES. On May 12, 1999, the Company terminated its
existing financing facilities and entered into a new borrowing arrangement
consisting of a $65,000,000 revolving line of credit facility with Fleet Bank,
N.A. Subsequent to the end of the fiscal year, on September 30, 1999, the
revolving line of credit facility was increased to $80,000,000. The borrowings
are guaranteed by the Company's subsidiaries and the Company pledged all of its
equity interests in its United States subsidiaries and 65% of its equity
interests in its United Kingdom subsidiaries as collateral for such credit
facility. Interest under such credit facility is, at the Company's option, at
the Prime Rate
21
<PAGE>
or at the Eurodollar Rate, as defined, plus an Applicable Margin, as defined,
ranging from 1.0% to 3.25% depending on the Company's consolidated debt to
earnings ratio and the type of loan. As of August 31, 1999, the Company had an
outstanding balance of $64,375,000 under the revolving credit facility.
The credit facility contains covenants that require the Company to maintain
certain earnings and debt to earnings ratio requirements based on the combined
operations of the Company and its subsidiaries. The Company was in violation of
certain covenants and has obtained a waiver for such violations. The credit
facility is secured by a first priority lien on all of the assets of the Company
and its subsidiaries and restricts the Company's ability to pay certain
dividends without the bank's prior written consent.
In November 1998, the Company borrowed a principal amount of $10,000,000
pursuant to a subordinated unsecured loan. In connection with such subordinated
loan, the Company issued ten-year warrants to the lender to purchase 440,000
shares of the Company's Common Stock at an exercise price of $4.50 per share. In
September 1999, upon prepayment of such loan, the lender opted to have the
interest of such loan paid in warrants to purchase Common Stock of the Company.
As a result, the Company issued warrants to purchase 208,150 shares of the
Company's Common Stock at an exercise price of $0.01 per share to such lender.
Subject to certain limitations, the Company has granted registration rights,
including "demand" registration rights, to such lender.
The warrants issued in connection with such subordinated loan, which were
deemed to have a value of approximately $308,000, have been recorded as deferred
financing costs, and are being amortized on a straight-line basis over
approximately five years.
Subsequent to the end of the fiscal year, on September 14, 1999, the
Company borrowed a principal amount of $20,000,000 pursuant to another
subordinated unsecured loan (the "Subordinated Loan"). A portion of the proceeds
of such subordinated loan was used to prepay the Company's $10,000,000
subordinated loan. The Subordinated Loan matures on August 31, 2006 and bears
interest at 14% per annum. The Company is permitted to defer the payment of up
to 2/14ths of the amount of interest due on any regularly scheduled interest
payment date. Any such deferred interest shall be deemed to be included in the
principal amount of the Subordinated Loan. The Company is obligated to prepay
without premium the greater of (i) $10,000,000 or (ii) one-half of the then
outstanding principal amount of the Subordinated Loan on August 31, 2005. In
addition, on any prepayments of the Subordinated Loan made prior September 1,
2002, the Company will incur an additional premium equal to the Make Whole
Amount, as defined. For prepayments made after September 1, 2002, such
additional premium shall be 3.0%. Such additional premium shall be reduced by
100 basis points on each September 1 thereafter until September 1, 2005. In
connection with the Subordinated Loan, the Company issued seven-year warrants to
the lender to purchase 690,134 shares of the Company's Common Stock at an
exercise price of $5.425 per share. Subject to certain limitations, the Company
granted registration rights, including "demand" registration rights, to such
lender.
The Company expects that cash flow from operations and available borrowings
will be sufficient to fund its capital lease obligations, debt service payments,
potential earn-outs, capital expenditures and operations for at least 12 months.
The Company may require additional financing to consummate future acquisitions.
There can be no
22
<PAGE>
assurance that the Company will be able to secure such additional financing on
terms favorable to the Company.
WORKING CAPITAL. The Company's working capital at August 31, 1999 decreased
by $4,375,000 from $7,884,000 at August 31, 1998 to $3,509,000 at August 31,
1999.
ACQUISITIONS AND DISPOSITIONS. In August 1999, the Company consummated
three acquisitions in Europe. On August 27, 1999, the Company consummated the
acquisition of all the issued and outstanding shares of capital stock of
Pre-Press Services Limited (the "Pre-Press Acquisition"). The initial aggregate
purchase price was approximately (pound)750,000 (approximately $1,200,000) which
included the issuance of 80,000 shares (approximately (pound)240,000 or
$384,000) of restricted Common Stock of the Company. In addition, the purchase
price includes deferred cash payments of (pound)169,000, (pound)124,000,
(pound)186,000 (approximately $270,000, $198,000 and $298,000, respectively)
payable August 31, 2000, 2001 and 2002, respectively.
On August 31, 1999, the Company consummated the acquisition of all the
issued and outstanding shares of capital stock of M. Nur Marketing and
Kommunikation GmbH (the "M. Nur Acquisition"). The initial aggregate purchase
price was $1,200,000 which included the issuance of 40,850 shares (approximately
$200,000) of restricted Common Stock of the Company.
On August 31, 1999, the Company consummated the acquisition of all the
issued and outstanding shares of capital stock of Big Bills Limited (the "Big
Bills Acquisition"). The initial aggregate purchase price was (pound)250,000
(approximately $455,000) which included the issuance of 55,790 shares
(approximately (pound)150,000 or $273,000) of restricted Common Stock of the
Company. In addition, the purchase price includes deferred cash payments of
(pound)50,000 (approximately $80,000) payable on each of August 31, 2000 and
August 31, 2001.
In addition, in August 1999, the Company consummated the Elements Sale.
Elements (NY) was principally engaged in the digital printing business. Such
sale is consistent with the Company's commitment to focus on its higher-margin
businesses. The purchase price for such assets was (i) $500,000 in cash, (ii)
$1,500,000 payable pursuant to a 5% promissory note that matures on June 30,
2004, and (iii) $250,000 payable in digital print and premedia services.
23
<PAGE>
YEAR 2000 COMPLIANCE
The Company believes that it has sufficiently assessed its state of
readiness with respect to its Year 2000 compliance. The Company has developed or
is developing a program to address on a timely basis the risk that computer
applications developed, marketed, sold and delivered or used by the Company 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
Company does not believe that Year 2000 compliance will result in material
investments by the Company, nor does the Company anticipate that the Year 2000
Problem will have any adverse effects on the business operations or financial
performance of the Company. The Company does not believe that it has any
material exposure to the Year 2000 Problem with respect to its own information
systems. There can be no assurance, however, that the Year 2000 Problem will not
adversely affect the Company's business, operating results and financial
condition.
The Company believes that each of its products is Year 2000 compliant,
however, it has no control over whether software modification made by third
parties or the combination of its products with the software developed by third
parties and combined with the Company's products will be Year 2000 compliant.
Additionally, there can be no assurance that such potential instances of
non-compliance will not adversely affect the Company's business, operating
results and financial condition. The Company has established no reserve for
auditing its software products or for correcting Year 2000 compliance issues
with such products.
Although the Company believes its products are Year 2000 compliant, the
purchasing patterns of customers and potential customers may be affected by
issues associated with the Year 2000 Problem. As companies expend significant
resources to correct their current data storage solutions, these expenditures
may result in reduced funds to purchase products as those offered by the
Company. There can be no assurance that the Year 2000 Problem will not adversely
affect the Company's business, operating results and financial condition.
Conversely, the Year 2000 Problem may cause other companies to accelerate
purchases, thereby causing an increase in short-term demand and a consequent
decrease in long-term demand for the Company's products.
The Company currently uses a commercially available general ledger and
internal accounting system. The modular nature of the system results in a
user-friendly system with complete functionality and flexibility to provide in
depth analytics regarding accounting, job cost control, project variance
control, items and materials tracking, payroll and labor cost control,
purchasing and inventory control. The Company has received compliance
certification from its vendors that its systems in the United States and the
United Kingdom are Year 2000 compliant.
24
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Although the Company cannot accurately determine the precise effect thereof
on its operations, it does not believe inflation, currency fluctuations or
interest rate changes have historically had a material effect on revenues, sales
or results of operations. Inflation, currency fluctuations and changes in
interest rates have, however, at various times, had significant effects on the
economies of the United States and the United Kingdom and could adversely impact
the Company's revenues, sales and results of operations in the future. If there
is a material adverse change in the relationship between the Pound Sterling and
the United States Dollar, such change could adversely affect the results of the
Company's United Kingdom operations as reflected in the Company's financial
statements. The Company has not hedged its exposure with respect to this
currency risk, and does not expect to do so in the future, since it does not
believe that it is practicable for it to do so at a reasonable cost.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements required to be filed pursuant to this Item 8 are
included in this Annual Report on Form 10-K. A list of the financial statements
filed herewith is found at "Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
25
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The information relating to the Company's directors, nominees for election
as directors and executive officers under the headings "Election of Directors"
and "Executive Officers" in the Company's definitive proxy statement for the
2000 Annual Meeting of Stockholders is incorporated herein by reference to such
proxy statement.
ITEM 11. EXECUTIVE COMPENSATION.
The discussion under the heading "Executive Compensation" in the Company's
definitive proxy statement for the 2000 Annual Meeting of Stockholders is
incorporated herein by reference to such proxy statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The discussion under the heading "Security Ownership of Certain Beneficial
Owners and Management" in the Company's definitive proxy statement for the 2000
Annual Meeting of Stockholders is incorporated herein by reference to such proxy
statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The discussion under the heading "Certain Relationships and Related
Transactions" in the Company's definitive proxy statement for the 2000 Annual
Meeting of Stockholders is incorporated herein by reference to such proxy
statement.
26
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements.
Reference is made to the Index to Financial Statements on Page F-1.
(a) (2) Financial Statement Schedules.
Valuation And Qualifying Accounts.
(a) (3) Exhibits.
Reference is made to the Exhibit Index on Page 30.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the Company's fourth fiscal
quarter.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized this 14th day of
December, 1999.
UNIDIGITAL INC.
By: /s/ William E. Dye
-------------------------------
William E. Dye, Chief Executive
Officer
28
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ William E. Dye
- -----------------------
William E. Dye Chief Executive December 14, 1999
Officer and Chairman of the
Board of Directors (principal
executive, financial and
accounting officer)
/s/ Peter Saad
- ------------------------
Peter Saad President and Director December 14, 1999
/s/ Anthony Manser
- ------------------------
Anthony Manser Vice President and Director December 14, 1999
/s/ Harvey Silverman
- ------------------------
Harvey Silverman Director December 14, 1999
/s/ David Wachsman
- ------------------------
David Wachsman Director December 14, 1999
29
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description of Exhibit
- --------- ----------------------
3.1 Certificate of Incorporation. Incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement which became
effective February 1, 1996 (File number 33-99656).
3.2 By-Laws. Incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement which became effective February
1, 1996 (File number 33-99656).
3.3 Certificate of Amendment of Certificate of Incorporation.
Incorporated by reference to Exhibit 3.3 to the Company's
Registration Statement which became effective February 1, 1996
(File number 33-99656).
4.1 Form of Representative's Warrant Agreement including form of
Representative's Warrant, between the Company and the
Representative. Incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement which became effective February
1, 1996 (File number 33-99656).
4.2 Form of Warrant, together with Schedule of Holders. Incorporated
by reference to Exhibit 4.2 to the Company's Current Report on
Form 8-K dated June 6, 1997.
4.3 Form of Warrant, together with Schedule of Holders. Incorporated
by reference to Exhibit 4.2 to the Company's Quarterly Report on
Form 10-QSB for the quarter ended May 31, 1997.
4.4 Form of Registration Rights Agreement, together with Schedule of
Holders. Incorporated by reference to Exhibit 4.3 to the
Company's Current Report on Form 8-K dated June 6, 1997.
4.5 Form of Registration Rights Agreement, together with Schedule
of Holders. Incorporated by reference to Exhibit 4.3 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
May 31, 1997.
4.6 Warrant dated November 26, 1997 issued by the Company to CIBC
Oppenheimer. Incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
February 28, 1998.
4.7 Stockholders' Agreement dated as of September 2, 1998 by and
between Unidigital Inc. and Ehud Aloni. Incorporated by reference
to Exhibit 4.1 the Current Report on Form 8-K dated September 14,
1998.
4.8 Form of Warrant Agreement issued to the stockholders of
SuperGraphics Holding Company, Inc. Incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated on
December 14, 1998.
30
<PAGE>
Exhibit
No. Description of Exhibit
- --------- ----------------------
4.9 Warrant Agreement issued to CIBC Wood Gundy Capital Corp.
Incorporated by reference to Exhibit 4.2 to the Company's Current
Report on Form 8-K dated on December 14, 1998.
4.10 Registration and Equity Rights Agreement dated as of
November 25, 1998 by and between Unidigital Inc. and CIBC Wood
Gundy Capital Corp. Incorporated by reference to Exhibit 4.3 to
the Company's Current Report on Form 8-K dated on December 14,
1998.
4.11+ Form of Warrant issued to Massachusetts Mutual Life Insurance
Company and certain of its affiliates.
4.12+ Registration Rights Agreement dated September 14, 1999 by among
Unidigital Inc. and Massachusetts Mutual Life Insurance Company
and certain of its affiliates.
4.13+ Form of $20,000,000 14% Senior Subordinated Notes due August 31,
2006 issued by Unidigital Inc. and its subsidiaries in favor of
Massachusetts Mutual Life Insurance Company and certain of its
affiliates.
4.14 Revolving Credit Promissory Note dated May 12, 1999 made by
Unidigital Inc. in favor of Fleet Bank, N.A. in the principal
amount of $40,000,000, together with Swing Line Promissory Note
dated May 12, 1999 made by Unidigital Inc. in favor of Fleet
Bank, N.A. in the principal amount of $3,000,000. Incorporated by
reference to Exhibit 10.5 to the Company's Quarterly Report on
Form 10-Q for the quarter ended May 31, 1999.
4.15 Revolving Credit Promissory Note dated May 12, 1999 made by
Unidigital Inc. in favor of Bank Austria Creditanstalt Corporate
Finance, Inc. in the principal amount of $15,000,000.
Incorporated by reference to Exhibit 10.6 to the Company's
Quarterly Report on Form 10-Q for the quarter ended May 31, 1999.
4.16 Revolving Credit Promissory Note dated May 12, 1999 made by
Unidigital Inc. in favor of Merrill Lynch Business Financial
Services Inc. in the principal amount of $10,000,000.
Incorporated by reference to Exhibit 10.7 to the Company's
Quarterly Report on Form 10-Q for the quarter ended May 31, 1999.
4.17+ Revolving Credit Promissory Note dated September 29, 1999 made by
Unidigital Inc. in favor of Fleet Bank, N.A. in the principal
amount of $5,000,000.
4.18+ Revolving Credit Promissory Note dated September 29, 1999 made by
Unidigital Inc. in favor of People's Bank of California in the
principal amount of $5,000,000.
4.19+ Revolving Credit Promissory Note dated September 29, 1999 made
by Unidigital Inc. in favor of Sovereign Bank in the principal
amount of $5,000,000.
9.1 Voting Trust Agreement dated as of November 3, 1995 between
William E. Dye and Jeffrey W. Leiderman. Incorporated by
reference to Exhibit 9.1 to the Company's Registration Statement
which became effective February 1, 1996 (File number 33-99656).
31
<PAGE>
Exhibit
No. Description of Exhibit
- --------- ----------------------
10.1* Employment Agreement dated as of November 2, 1995 between
William E. Dye and the Company. Incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement which became
effective February 1, 1996 (File number 33-99656).
l0.2* Employment Agreement dated March l, 1997 between Anthony Manser
and Elements (UK).
10.3* Employment Agreement dated as of March 1, 1997 by and between
Unidigital Inc. and Peter Saad. Incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-QSB for
the quarter ended May 31, 1997.
10.5* Employment Agreement dated as of September 2, 1998 by and between
Mega Art Corp. and Ehud Aloni. Incorporated by reference to
Exhibit 10.3 to the Company's Current Report on Form 8-K dated
September 14, 1998.
10.6 Lease Agreement dated as of December 25, 1994 between Collin
Estates Limited and Lyledale Limited for 48 Margaret Street.
Incorporated by reference to Exhibit 10.10 to the Company's
Registration Statement which became effective February 1, 1996
(File number 33-99656).
10.7 Loft Lease dated March 1, 1997 between S.N.Y., Inc. and Kwik
International Color, Ltd. for the property located at 229 W. 28th
Street, New York, New York, on the fourth floor, known as Room
401-405. Incorporated by reference to Exhibit 10.4 to the
Company's Current Report on Form 8-K dated April 8, 1998.
10.8 Loft Lease dated March 1, 1997 between S.N.Y., Inc. and Kwik
International Color, Ltd. for the property located at 229 W. 28th
Street, New York, New York, on the seventh floor, known as Room
706-714 and 707-713. Incorporated by reference to Exhibit 10.5 to
the Company's Current Report on Form 8-K dated April 8, 1998.
10.9 Loft Lease dated March 1, 1997 between S.N.Y., Inc. and Kwik
International Color, Ltd. for the property located at 229 W. 28th
Street, New York, New York, on the eighth floor. Incorporated by
reference to Exhibit 10.6 to the Company's Current Report on Form
8-K dated April 8, 1998.
10.10 Loft Lease dated March 1, 1997 between S.N.Y., Inc. and Kwik
International Color, Ltd. for the property located at 229 W. 28th
Street, New York, New York, on the ninth floor. Incorporated by
reference to Exhibit 10.7 to the Company's Current Report on Form
8-K dated April 8, 1998.
10.11* 1995 Unidigital Inc. Long-Term Stock Investment Plan.
Incorporated by reference to Exhibit 10.11 to the Company's
Registration Statement which became effective February 1, 1996
(File number 33-99656).
10.12* 1995 Directors Stock Option Plan. Incorporated by reference to
Exhibit 10.12 to the Company's Registration Statement which
became effective February 1, 1996 (File number 33-99656).
32
<PAGE>
Exhibit
No. Description of Exhibit
- --------- ----------------------
10.13* 1997 Equity Incentive Plan. Incorporated by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 10-QSB for the
quarter ended February 28, 1997.
10.14* 1997 Non-Employee Director Stock Option Plan. Incorporated by
reference to Exhibit 10.3 to the Company's Quarterly Report on
Form 10-QSB for the quarter ended February 28, 1997.
10.15 Stock Purchase Agreement dated as of August 9, 1995 among Jeffrey
W. Leiderman, William E. Dye and Stephen J. McErlain.
Incorporated by reference to Exhibit 10.14 to the Company's
Registration Statement which became effective February 1, 1996
(File number 33-99656).
10.16 Share Purchase Agreement By Way of Deed dated as of August 9,
1995 among Jeffrey W. Leiderman, William E. Dye, Stephen J.
McErlain and Anthony Manser. Incorporated by reference to Exhibit
10.15 to the Company's Registration Statement which became
effective February 1, 1996 (File number 33-99656).
10.17 Share Purchase Agreement by Way of Deed dated May 22, 1997 by and
among Unidigital Inc., Elements (UK) Limited, Libra City
Corporate Printing Limited, Francis Allen, Robin Bishop, Kenneth
Dellow, Edward Tylee, Invesco English and International Trust,
and Baronsmead Investment Trust. Incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K dated
June 6, 1997.
10.18 Agreement of Purchase and Sale dated as of August 3, 1998 by and
among Unidigital Inc., Mega Art Corp., Ehud Aloni, Amit Primor,
Jeffrey E. Rothman and Seligson, Rothman & Rothman. Incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K
dated September 14, 1998.
10.19 Agreement of and Plan of Merger dated as of October 30, 1998 by
and among Unidigital Inc., Unison (NY), Inc., Hy Zazula
Associates, Inc., Hyman Zazula, Steven Zazula, David Zazula and
Gary Feigenbaum. Incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K dated November 16, 1998.
10.20 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. Incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K dated on December 14, 1998.
10.21 Asset Purchase Agreement dated as of March 26, 1999 by and
among Unidigital Inc., Unison (NY), Inc., Peter X(+C) Limited and
Peter Ksiezopolski. Incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
February 28, 1999.
33
<PAGE>
Exhibit
No. Description of Exhibit
- --------- ----------------------
10.22 Share Purchase Agreement By Way of Deed dated December 21, 1998
by and among the Shareholders of Interface Graphics Limited,
Elements (UK) Limited and Interface Graphics Limited.
Incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended May 31, 1999.
10.23 Asset Purchase Agreement dated as of April 8, 1999 by and among
Unidigital Inc., Unison (NY), Inc., Progress Graphics Inc. and
Mario DeVita. Incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended May
31, 1999.
10.24 Credit Agreement dated as of May 12, 1999 among Unidigital Inc.,
Fleet Bank, N.A., Bank Austria Creditanstalt Corporate Finance,
Inc. and the Banks, Financial Institutions and Other
Institutional Lenders Named Therein. Incorporated by reference to
Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for
the quarter ended May 31, 1999.
10.25+ Amendment No. 1 to Credit Agreement dated as of July 23, 1999
among Unidigital Inc., Fleet Bank, N.A., Bank Austria
Creditanstalt Corporate Finance, Inc. and the Banks, Financial
Institutions and other Institutional Lenders named therein.
10.26+ Amendment No. 2 to Credit Agreement dated as of September 29,
1999 among Unidigital Inc., Fleet Bank, N.A., Bank Austria
Creditanstalt Corporate Finance, Inc. and the Banks, Financial
Institutions and other Institutional Lenders named therein.
10.27 General Security Agreement (Borrower) dated May 12, 1999 by
Unidigital Inc. in favor of Fleet Bank, N.A. Incorporated by
reference to Exhibit 10.8 to the Company's Quarterly Report on
Form 10-Q for the quarter ended May 31, 1999.
10.28 General Security Agreement (Guarantors) dated May 12, 1999 by
Unidigital Elements (NY), Inc., Unison (NY), Inc., Unison (MA),
Inc., Unidigital Elements (SF), Inc., Mega Art Corp.,
SuperGraphics Holding Company, Inc. and SuperGraphics Corporation
in favor of Fleet Bank, N.A. Incorporated by reference to Exhibit
10.9 to the Company's Quarterly Report on Form 10-Q for the
quarter ended May 31, 1999.
10.29 Pledge and Security Agreement dated May 12, 1999 by Unidigital
Inc. in favor of Fleet Bank, N.A. Incorporated by reference to
Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q for
the quarter ended May 31, 1999.
10.30 Pledge and Security Agreement (Subsidiary) dated May 12, 1999 by
SuperGraphics Holding Company, Inc. in favor of Fleet Bank, N.A.
Incorporated by reference to Exhibit 10.11 to the Company's
Quarterly Report on Form 10-Q for the quarter ended May 31, 1999.
10.31 Guaranty dated May 12, 1999 made by Unidigital Inc., Unidigital
Elements (NY), Inc., Unison (NY), Inc., Unison (MA), Inc.,
Unidigital Elements (SF), Inc., Mega Art Corp., SuperGraphics
Holding Company, Inc. and SuperGraphics Corporation in favor of
Fleet Bank, N.A. Incorporated by reference to Exhibit 10.12 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
May 31, 1999.
34
<PAGE>
Exhibit
No. Description of Exhibit
- --------- ----------------------
10.32 Foreign Guaranty dated May 12, 1999 made by Elements (UK)
Limited in favor of Fleet Bank, N.A. Incorporated by reference to
Exhibit 10.13 to the Company's Quarterly Report on Form 10-Q for
the quarter ended May 31, 1999.
10.33 Trademark Collateral Assignment and Security Agreement dated as
of May 12, 1999 by and between Unidigital Inc. and Fleet Bank,
N.A. Incorporated by reference to Exhibit 10.14 to the Company's
Quarterly Report on Form 10-Q for the quarter ended May 31, 1999.
10.34 Subsidiary Trademark Collateral Assignment and Security Agreement
dated as of May 12, 1999 by and between Unison (NY), Inc. and
Fleet Bank, N.A. Incorporated by reference to Exhibit 10.15 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
May 31, 1999.
10.35 Subsidiary Trademark Collateral Assignment and Security Agreement
dated as of May 12, 1999 by and between SuperGraphics Corporation
and Fleet Bank, N.A. Incorporated by reference to Exhibit 10.16
to the Company's Quarterly Report on Form 10-Q for the quarter
ended May 31, 1999.
10.36+ Asset Purchase Agreement dated as June 15, 1999 among I.A.T.,
LLC, Unidigital Elements (NY), Inc., Unison (NY), Inc. and
Unidigital Inc.
10.37+ Securities Purchase Agreement among Unidigital Inc. and its
subsidiaries and Massachusetts Mutual Life Insurance Company and
certain of its affiliates.
21+ Subsidiaries of the Company.
23+ Consent of Ernst & Young LLP.
27+ Financial Data Schedule.
- ----------------------------------------
* A management contract or compensatory plan or arrangement required to be
filed as an exhibit and filed herewith, pursuant to Item 4(a) of Form 10-K.
+ Filed herewith.
35
<PAGE>
Unidigital Inc.
Financial Statements
August 31, 1999
CONTENTS
Report of Independent Auditors........................................... F-2
Consolidated Balance Sheets as of
August 31, 1999 and 1998................................................. F-3
Consolidated Statements of Operations for the
years ended August 31, 1999, 1998 and 1997............................... F-4
Consolidated Statement of Cash Flows for the
years ended August 31, 1999, 1998 and 1997............................... F-5
Consolidated Statement of Stockholders' Equity
for the years ended August 31, 1999, 1998 and 1997....................... F-6
Notes to Consolidated Financial Statements............................... F-7
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Unidigital Inc.
We have audited the consolidated balance sheets of Unidigital Inc. as of August
31, 1999 and 1998 and the consolidated statements of operations, cash flows and
stockholders' equity for each of the three years in the period ended August 31,
1999. Our audits also included the financial statement schedule listed in the
Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Unidigital Inc. at August 31, 1999 and 1998 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended August 31, 1999 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ Ernst & Young LLP
December 3, 1999
New York, New York
F-2
<PAGE>
Unidigital Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
AUGUST 31
--------------------------------------
1999 1998
--------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 734,000 $ 287,000
Accounts receivable, net of allowance
of $744,000 in 1999 and $581,000 in 1998 16,788,000 16,917,000
Building available for sale 1,488,000 -
Prepaid expenses 2,600,000 2,727,000
Other current assets 2,356,000 3,360,000
Deferred tax asset 2,000,000 -
--------------------------------------
Total current assets 25,966,000 23,291,000
Property and equipment, net 15,920,000 14,591,000
Deferred tax asset 5,606,000
Deferred financing costs, net 1,550,000 1,013,000
Intangible assets, net 67,672,000 28,107,000
Other assets 1,922,000 313,000
======================================
Total assets $ 118,636,000 $ 67,315,000
======================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 16,198,000 $ 8,571,000
Current portion of capital lease obligations 3,157,000 1,935,000
Current portion of long-term debt 1,384,000 3,610,000
Income taxes payable 1,065,000 887,000
Deferred income taxes - 249,000
Loans and notes payable to stockholders 619,000 155,000
Other current liabilities 34,000 -
--------------------------------------
Total current liabilities 22,457,000 15,407,000
Capital lease obligations, net of current portion 2,898,000 2,830,000
Long-term debt, net of current portion 76,263,000 33,978,000
Deferred income taxes - 500,000
Loans and notes payable to stockholders, net of current portion - 207,000
Other non-current liabilities 707,000 -
--------------------------------------
Total liabilities 102,325,000 52,922,000
Stockholders' equity:
Preferred stock, par value $.01; 10,000,000 shares and 5,000,000 shares
authorized in 1999 and 1998, respectively; none issued and outstanding - -
Common stock, par value $.01; 25,000,000 shares and 10,000,000 shares
authorized in 1999 and 1998, respectively; 5,926,618 shares and
3,902,634 shares issued and outstanding in 1999 and 1998, respectively 59,000 39,000
Issuable common stock 1,450,000
Additional paid-in capital 21,729,000 9,865,000
Retained earnings (deficit) (6,585,000) 4,374,000
Accumulated other comprehensive (loss) income (342,000) 115,000
--------------------------------------
Total stockholders' equity 16,311,000 14,393,000
--------------------------------------
Total liabilities and stockholders' equity $ 118,636,000 $ 67,315,000
======================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
F-3
<PAGE>
Unidigital Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
---------------------------------------------------------
1999 1998 1997
---------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Net sales $ 62,774,000 $ 29,506,000 $ 12,569,000
EXPENSES
Cost of sales 30,003,000 14,892,000 6,773,000
Selling, general and administrative expenses 21,022,000 9,773,000 3,581,000
Expenses incurred due to restructuring 611,000 413,000 -
--------------------------------------------------------
Total operating expenses 51,636,000 25,078,000 10,354,000
--------------------------------------------------------
Income from continuing operations 11,138,000 4,428,000 2,215,000
Interest expense (5,893,000) (1,353,000) (573,000)
Interest expense-deferred financing costs (491,000) (1,143,000) (138,000)
Interest and other income 56,000 14,000 149,000
--------------------------------------------------------
Income from continuing operations before income
taxes and extraordinary item 4,810,000 1,946,000 1,653,000
Provision for income taxes 2,349,000 854,000 486,000
--------------------------------------------------------
Net income from continuing operations
Before extraordinary item $ 2,461,000 $ 1,092,000 $ 1,167,000
Discontinued operations (Note 9):
(Loss) income from operations of discontinued
segment (net of tax benefit of $1,038,000 (1999),
$124,000 (1998) and $107,000 (1997)) (1,275,000) 187,000 174,000
Loss on disposal of segment (net of tax benefit of
$8,403,000) (10,317,000) - -
--------------------------------------------------------
Net (loss) income before extraordinary item (9,131,000) 1,279,000 1,341,000
Extraordinary item--loss on early retirement of debt
(net of income tax benefit of $1,114,000 (1999)
and $137,000 (1998)) (1,828,000) (143,000) -
--------------------------------------------------------
Net (loss) income $ (10,959,000) $ 1,136,000 $ 1,341,000
Basic earnings (loss) per common share:
Earnings from continuing operations before
extraordinary item $ 0.47 $ 0.31 $ 0.36
(Loss) income from discontinued operations (2.22) 0.05 0.05
Extraordinary item (0.35) (0.04) -
--------------------------------------------------------
Net (loss) income $ (2.10) 0.32 0.41
========================================================
Diluted earnings (loss) per common share:
Earnings from continuing operations
Before extraordinary item $ 0.47 0.29 0.36
(Loss) income from discontinued operations (2.22) 0.05 0.05
Extraordinary item (0.35) (0.04) -
========================================================
Net income $ (2.10) 0.30 0.41
========================================================
Shares used to compute net (loss) income per share:
Basic 5,225,294 3,530,836 3,212,098
========================================================
Diluted 5,225,294 3,779,438 3,283,279
========================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
F-4
<PAGE>
Unidigital Inc.
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Year ended August 31
--------------------------------------------------
1999 1998 1997
--------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $ (10,959,000) $ 1,136,000 $ 1,341,000
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:
Depreciation and amortization 5,921,000 3,954,000 2,194,000
(Gain) loss on sale of property and equipment (146,000) 11,000 -
Provision for deferred income taxes (8,355,000) 300,000 24,000
Provision for bad debts 321,000 115,000 102,000
Loss on disposal of segment 15,676,000 - -
Stock compensation 160,000 50,000 50,000
Changes in assets and liabilities net of effects of businesses acquired:
Accounts receivable (4,889,000) (5,680,000) (3,242,000)
Prepaid expenses and other current assets 824,000 (2,393,000) (5,046,000)
Other assets (1,128,000) (1,354,000) (171,000)
Accounts payable and accrued expenses 1,375,000 2,053,000 5,008,000
Income taxes payable 362,000 310,000 229,000
--------------------------------------------------
Net cash (used in) provided by operating activities (838,000) (1,498,000) 489,000
--------------------------------------------------
INVESTING ACTIVITIES
Additions to property and equipment (2,002,000) (1,571,000) (1,368,000)
Proceeds from sale of property and equipment 976,000 10,000 -
Proceeds from disposal of segment 500,000 - -
Business acquisitions (29,417,000) (21,802,000) (5,529,000)
--------------------------------------------------
Net cash used in investing activities (29,943,000) (23,363,000) (6,897,000)
--------------------------------------------------
FINANCING ACTIVITIES
Payments of capital lease obligations (3,271,000) (2,691,000) (1,761,000)
Payments for cancellation of options - - (213,000)
Proceeds from long-term debt 94,875,000 37,186,000 7,521,000
Payments of long-term debt (55,959,000) (12,566,000) (78,000)
Stockholder repayments (418,000) - -
Payment of deferred financing costs (4,071,000) - -
Proceeds from sale of common stock, net of issuance costs 72,000 20,000 (36,000)
--------------------------------------------------
Net cash provided by financing activities 31,228,000 21,949,000 5,433,000
--------------------------------------------------
Effect of foreign exchange rates on cash - (4,000) 32,000
--------------------------------------------------
Net increase(decrease) in cash and cash equivalents 447,000 (2,916,000) (943,000)
Cash and cash equivalents at beginning of year 287,000 3,203,000 4,146,000
--------------------------------------------------
Cash and cash equivalents at end of year $ 734,000 $ 287,000 $ 3,203,000
==================================================
SUPPLEMENTAL DISCLOSURES
Interest paid $ 5,897,000 $ 1,614,000 $ 1,261,000
==================================================
Income taxes paid $ 436,000 $ 232,000 $ 726,000
==================================================
Non-cash transactions:
Equipment acquired under capital lease obligations $ 4,848,000 $ 1,797,000 $ 1,711,000
==================================================
Stock issued for business acquisitions $ 9,895,000 $ - $ -
==================================================
Warrants issued for business acquisition $ 281,000 $ - $ -
==================================================
Warrants issued for additional financing $ 308,000 $ - $ -
==================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
F-5
<PAGE>
UNIDIGITAL INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL RETAINED OTHER TOTAL
COMMON STOCK ISSUABLE PAID-IN EARNINGS COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT COMMON STOCK CAPITAL (DEFICIT) (LOSS) INCOME EQUITY
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at August 31, 1996 3,189,216 $ 32,000 $ - $ 5,463,000 $ 1,897,000 $ (27,000) $ 7,365,000
Issuance of common stock in
connection with the Boris Image
Group, Inc. asset acquisition 45,480 249,000 249,000
Additional Initial Public Offering
costs (72,000) (72,000)
Issuance of 440,000 warrants in
Connection with financing 602,000 602,000
Issuance of common stock as
employee compensation 8,547 50,000 50,000
Comprehensive income:
Net income 1,341,000 1,341,000
Foreign currency translation
adjustment (62,000) (62,000)
----------
Comprehensive income 1,279,000
--------------------------------------------------------------------------------------------------
Balance at August 31, 1997 3,243,243 32,000 - 6,292,000 3,238,000 (89,000) 9,473,000
Issuance of common stock in
connection with the Kwik
International Color Ltd. Asset
acquisition 649,841 7,000 3,403,000 3,410,000
Issuance of common stock as
employee compensation 6,051 50,000 50,000
Issuance of 25,000 warrants in
connection with investment
banking services 100,000 100,000
Issuance of common stock in
connection with exercise of
stock options 3,499 20,000 20,000
Comprehensive income:
Net income 1,136,000 1,136,000
Foreign currency translation
adjustment 204,000 204,000
----------
Comprehensive income 1,340,000
--------------------------------------------------------------------------------------------------
Balance at August 31, 1998 3,902,634 39,000 - 9,865,000 4,374,000 115,000 14,393,000
Issuance of common stock in
connection with the Mega Art
Corp. asset acquisition 804,148 8,000 1,450,000 5,217,000 8,675,000
Issuance of common stock in
connection with the
Hy Zazula Associates asset
acquisition 433,076 4,000 2,271,000 2,275,000
Issuance of common stock and
225,000 warrants issued in
connection with the SuperGraphics
acquisition 135,393 1,000 891,000 892,000
F-6
<PAGE>
ACCUMULATED
ADDITIONAL RETAINED OTHER TOTAL
COMMON STOCK ISSUABLE PAID-IN EARNINGS COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT COMMON STOCK CAPITAL (DEFICIT) (LOSS) INCOME EQUITY
--------------------------------------------------------------------------------------------------
Issuance of common stock in
connection with the Peter
X+C asset acquisition 40,000 200,000 200,000
Issuance of common stock in
connection with the Progess
Graphics, Inc. asset acquisition 86,059 1,000 499,000 500,000
Issuance of common stock in
connection with the Interface
Graphics Limited asset acquisition 49,695 1,000 218,000 219,000
Issuance of common stock in
connection with the exercise of
stock options 211,592 2,000 993,000 995,000
Issuance of common stock in
connection with the Prepress
Services asset acquisition 80,000 1,000 391,000 392,000
Issuance of common stock in
settlement of a liability 35,584 - 173,000 173,000
Issuance of common stock in
connection with the M. Nur
Marketing & Kommunication GmbH
asset acquisition 40,850 1,000 200,000 201,000
Issuance of common stock in
connection with the Big Bills
Ltd. asset acquisition 55,790 1,000 273,000 274,000
Issuance of 440,000 warrants
in connection with financing 308,000 308,000
Issuance of common stock as
employee compensation 34,102 160,000 160,000
Issuance of common stock in
connection with exercise of
warrants 17,895 70,000 70,000
Comprehensive income:
Net loss (10,959,000) (10,959,000)
Foreign currency translation
adjustment (457,000) (457,000)
-------------
Comprehensive loss (11,416,000)
--------------------------------------------------------------------------------------------------
Balance at August 31, 1999 5,926,618 $59,000 $1,450,000 $21,729,000 $(6,585,000) (342,000) $ 16,311,000
==================================================================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
F-7
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements
August 31, 1999
1. ORGANIZATION
Unidigital Inc. ("Unidigital" or the "Company") a Delaware corporation, is a
media services company that provides large and grand format digital image
solutions combined with a full suite of digital "premedia" (previously referred
to as high-end prepress) services to advertising agencies, retailers,
publishers, graphic design firms, consumer product companies, government
agencies, and marketing and communications firms in both the United States, the
United Kingdom and Germany. During 1999 the Company began delivering its
services through two principal business divisions: (i) the Media Solutions
division creates and produces large and grand format images for out-of-home
advertising and develops new media concepts and (ii) the Premedia Services
division provides digital premedia, including retouching and short-run digital
printing services. During 1999 the various operating subsidiaries of the Company
were grouped into the aforementioned business divisions and the Company
discontinued its on-demand print and prepress business segment (See Note 9).
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Highly liquid investments with a maturity of three months or less when purchased
are considered to be cash equivalents.
RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
F-8
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements
August 31, 1999
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Credit is extended based on an evaluation of the customer's financial
conditions, and generally advance payment is not required. Anticipated credit
losses are provided for in the consolidated financial statements and
consistently have been within management's expectations.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided on the straight-line method over the estimated useful
lives ranging from: three years for vehicles and computer software, five to
seven years for machinery and equipment, furniture and office equipment, 40
years for real property including related improvements and leasehold
improvements over the lesser of the estimated useful life of the leasehold
improvement or the term of the related lease.
INTANGIBLE ASSETS
Intangible assets relate to the excess of purchase price over the fair value of
the net tangible assets acquired, ("goodwill"), which is being amortized over 15
to 25 years. Amortization of approximately $2,614,000, $797,000 and $269,000 was
recorded for the years ended August 31, 1999, 1998 and 1997, respectively.
Accumulated amortization at August 31, 1999 and 1998 was approximately
$3,747,000 and $1,133,000, respectively.
It is the Company's policy to account for goodwill at amortized cost. As part of
an ongoing review of the valuation and amortization of intangible assets,
management assesses the carrying value of the Company's intangible assets if
facts and circumstances suggest that it may be impaired. If this review
indicates that the intangibles will not be recoverable as determined by a
non-discounted cash flow analysis of the Company over the remaining amortization
period, the carrying value of the Company's intangibles would be reduced to its
estimated realizable value.
DEFERRED FINANCING COSTS
Deferred financing costs relate to costs incurred in connection with debt
financing which are amortized over the term of the related debt.
F-9
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements
August 31, 1999
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
STOCK OPTIONS
In accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," ("APB 25") compensation costs for stock is
recognized based on the excess, if any, of the quoted market price of the stock
at the grant date of the award or other measurement date over the amount an
employee must pay to acquire that stock. The Company has elected the disclosure
only provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation," ("FAS 123") and continue accounting
for the stock based compensation under the provisions of APB 25.
FOREIGN CURRENCY TRANSLATION
Balance sheet accounts of the Company's United Kingdom and Germany subsidiaries
are translated using year-end exchange rates. Statements of operations accounts
are translated at monthly average exchange rates. The resulting translation
adjustment is recorded in a separate component of stockholders equity called
"Accumulated other comprehensive income (loss)" and is included in determining
comprehensive income (loss).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of financial instruments approximate their estimated fair
value as a result of variable market interest rates and/or the short term
maturity of these instruments.
F-10
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements
August 31, 1999
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INCOME TAXES
The Company accounts for income taxes under the liability method as required by
Statement of Financial Accounting Standards Board Statement No. 109 ("FAS 109"),
"Accounting for Income Taxes." FAS 109 requires an asset and liability approach
to financial accounting and reporting for income taxes. Under this approach,
differences between financial statement and tax bases of assets and liabilities
are determined, and deferred income tax assets and liabilities are recorded for
those differences that have future tax consequences. Valuation allowances are
established, if necessary, to reduce any deferred tax asset recorded to an
amount that will more likely than not be realized in future periods. Income tax
expense is composed of the current tax payable or refundable for the period plus
or minus the net change in deferred tax assets and liabilities.
EARNINGS PER SHARE
The Company accounts for earnings per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("Statement 128").
Basic earnings per share is calculated by dividing income available to common
stockholders by the weighted-average number of common shares outstanding.
Diluted earnings per share includes the dilutive effect of all potentially
dilutive securities.
SEGMENT INFORMATION
The Company accounts for segment information in accordance with Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("Statement 131"). Statement 131 superseded FASB Statement 14, "Financial
Reporting for Segments of a Business Enterprise." Statement 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that these
enterprises report selected information about operating segments in interim
financial reports. Statement 131 also establishes standards for related
disclosures about product and services, geographic areas, and major customers.
F-11
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements
August 31, 1999
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
COMPREHENSIVE INCOME
As of September 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("Statement 130"). Statement
130 established new rules for the reporting and display of comprehensive income
and its components; however, the adoption of Statement 130 has had no effect on
the Company's net income or stockholder's equity. Statement 130 requires the
Company's foreign currency translation adjustment which, prior to adoption, was
recorded separately in stockholders' equity, to be included in other
comprehensive income or loss. Amounts reported in prior year financial
statements have been reclassified to conform to the requirements of Statement
130. As of August 31, 1999, the cumulative other comprehensive loss consisted
solely of the Company's foreign currency translation adjustment.
3. ACQUISITIONS
In 1996 the Company purchased certain assets of Cardinal Communications Group,
Inc. and C-Max Graphics, Inc. The purchase price included a potential earn-out
of a maximum of $600,000. During 1999 the Company settled this earn-out and paid
the owners $150,000.
In April 1997, the Company purchased certain assets and assumed certain
liabilities of Boris Image Group, Inc. The aggregate purchase price consisted of
the following: (i) cash payments of $1,725,000; (ii) an aggregate of $300,000 in
guaranteed future payments to Boris Image Group and its management team; (iii)
$250,000 in restricted common stock of the Company (45,480 shares); (iv) a
potential earn-out payment of up to $500,000 payable 90 days after the end of
the Company's 1998 fiscal year; and (v) options to purchase 50,000 shares of the
Company's common stock at fair market value. The total purchase price of
$2,511,000, which includes costs incurred in connection with the acquisition,
exceeded the tangible net assets acquired by approximately $2,601,000, and has
been recorded as goodwill. An earn-out of $414,000 was paid for the year ended
August 31, 1998.
F-12
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements
August 31, 1999
3. ACQUISITIONS (CONTINUED)
In May 1997, the Company acquired all of the issued and outstanding capital
stock of Libra City Corporate Printing Limited ("Libra"). The aggregate purchase
price consisted of cash payments of (pound)1,823,750 (approximately $2,972,000)
and an earn-out payment of up to (pound)500,000 (approximately $815,000). The
total purchase price of approximately (pound)2,208,000 (approximately
$3,577,000), which includes costs incurred in connection with the acquisition,
exceeded the tangible net assets acquired by approximately (pound)1,280,000
(approximately $2,074,000), and has been recorded as goodwill. An earn-out of
$825,000 was paid for the year ended August 31, 1998,
In March 1998, the Company purchased certain assets and assumed certain
liabilities of Kwik International Color, Ltd ("Kwik"). The aggregate purchase
price consisted of the following: (i) cash payments of $20,590,000; (ii) note
payable in the principal amount of $750,000; and (iii) $3,410,000 in restricted
common stock of the Company (649,841 shares). The total purchase price of
$25,458,000, which includes costs incurred in connection with the acquisition,
exceeded the net assets acquired by approximately $22,107,000, which has been
recorded as goodwill. Of the purchase price, $1,000,000 of restricted Common
stock of the Company (190,589 shares) is being held in escrow for a period of
two years to satisfy any indemnification claims.
In July 1998, the Company purchased certain assets of Five Star Finishers, Ltd.
The total purchase price consisted of a cash payment of (pound)325,000
(approximately $543,000). The purchase price approximated the fair value of
tangible assets acquired.
In September 1998, the Company purchased all of the issued and outstanding
capital stock of Mega Art Corp. ("Mega Art"). The purchase price included an
initial cash payment of $6,050,000 and the issuance of 804,148 shares of
restricted Common stock of the Company ($5,225,000). In addition, the purchase
price included a deferred cash payment of $1,300,000 (including a $100,000 late
fee) which was paid in fiscal 1999; a cash earn-out payment of $1,300,000
(including a $100,000 late fee) which was paid in fiscal 1999; and $1,450,000 in
restricted Common stock of the Company (the "Earn-Out Payment") which was earned
and is included in stockholders' equity on the accompanying balance sheet at
August 31, 1999.
F-13
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements
August 31, 1999
3. ACQUISITIONS (CONTINUED)
In October 1998, the Company purchased all of the issued and outstanding common
stock of Hy Zazula Associates, Inc. ("Zazula"). The purchase price included an
aggregate cash payment of $2,275,000 and the issuance of 433,076 shares of
restricted Common stock of the Company ($2,275,000). Of the purchase price,
$150,000 in cash and 28,552 shares of restricted Common stock of the Company
($150,000) is being held in escrow for a period of two years to satisfy any
indemnification claims.
In November 1998, the Company purchased all of the issued and outstanding common
stock of SuperGraphics. The purchase price included a cash payment of
approximately $15,989,000, the issuance of 135,393 shares of restricted Common
stock of the Company (approximately $611,000) 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 of $100,000 was paid in
June 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. The warrants were deemed to have a value of
approximately $281,000 based on an independent appraisal.
In April 1999, the Company acquired substantially all of the assets of Peter
X(+C) Limited ("X+C). The purchase price included an initial cash payment of
$70,000 and the issuance of 40,000 shares ($200,000) of restricted Common stock
of the Company. In addition, the purchase price included a deferred cash payment
of $100,000 payable on April 1, 2000, and an earn-out payment of up to
$1,000,000 in cash or in some combination of cash and restricted Common stock of
the Company in the event X+C achieves certain financial performance objectives.
In April 1999, the Company, acquired substantially all of the assets of Progress
Graphics, Inc. ("Progress"). The purchase price included the issuance of 86,059
shares ($500,000) of restricted Common stock of the Company. In addition, the
purchase price includes earn-out payments in cash, restricted Common stock of
the Company or some combination thereof in the event Progress attains revenues
in excess of $3,000,000 in any of the first three years following the closing.
F-14
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements
August 31, 1999
3. ACQUISITIONS (CONTINUED)
In April 1999, the Company acquired all the issued and outstanding shares of
capital stock of Interface Graphics Limited ("Interface"). The initial aggregate
purchase price was (pound)425,000 (approximately $700,000) which included the
issuance of 49,695 shares (approximately (pound)132,000 or $219,000) of
restricted Common stock of the Company. In addition, the purchase price includes
deferred cash payments of (pound)20,000 payable on each of January 31, 2000 and
January 31, 2001, and earn-out payments of up to (pound)55,000 per year in the
event Interface achieves certain financial performance objectives in either of
the first two years following the closing.
In August 1999, the Company acquired all the issued and outstanding shares of
capital stock of Pre-Press Services Limited ("Pre-Press"). The initial aggregate
purchase price was approximately (pound)750,000 (approximately $1,200,000) which
included the issuance of 80,000 shares (approximately (pound)240,000 or
$392,000) of restricted Common stock of the Company. In addition, the purchase
price includes deferred cash payments of (pound)169,000, (pound)124,000,
(pound)186,000 payable during the years ended August 31, 2000, 2001 and 2002,
respectively.
In August 1999, the Company acquired all the issued and outstanding shares of
capital stock of M. Nur Marketing and Kommunikation GmbH ("M. Nur"). The initial
aggregate purchase price was $1,200,000 which included the issuance of 40,850
shares (approximately or $201,000) of restricted Common stock of the Company.
In August 1999, the Company acquired all the issued and outstanding shares of
capital stock of Big Bills Limited ("Big Bills"). The initial aggregate purchase
price was (pound)250,000 (approximately $455,000) which included the issuance of
55,790 shares (approximately (pound)150,000 or approximately $274,000) of
restricted Common stock of the Company. In addition, the purchase price includes
deferred cash payments of (pound)50,000 payable on each of August 31, 2000 and
August 31, 2001.
The aforementioned acquisitions were accounted for using the purchase method of
accounting and the results of operations have been included in the accompanying
financial statements from their respective dates of acquisitions. During 1999
the preliminary allocation of purchase price may change upon final determination
of the fair value of the net assets acquired.
F-15
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements
August 31, 1999
3. ACQUISITIONS (CONTINUED)
The following unaudited pro forma information is presented as if the Company had
completed the aforementioned acquisitions, and the related borrowings at the
beginning of the respective periods.
<TABLE>
<CAPTION>
1999 1998
-----------------------------------------
<S> <C> <C>
Net sales $ 79,738,000 $ 55,324,000
Net income from continuing operations before
extraordinary item 1,090,000 1,389,000
Net (loss) income (9,488,000) 1,433,000
Net (loss) income per share from continuing
operations before extraordinary item:
Basic $ 0.19 $ 0.39
Diluted $ 0.19 $ 0.37
Net (loss) income per share:
Basic $ (1.67) $ 0.41
Diluted $ (1.67) $ 0.38
</TABLE>
4. RESTRUCTURING CHARGES
During the first and second quarter of fiscal 1999, management authorized and
committed the Company to: (i) consolidate their premedia operation in the UK,
which was later discontinued in the fourth quarter of fiscal 1999 (see Note 9)
and (ii) continue to reduce the staff providing financial printing services. In
connection with the consolidation and continued reduction of staff the Company
incurred approximately $376,000 of termination benefits relating to the
termination of 28 employees providing similar services and incurred other
related costs of approximately $235,000. All such costs were paid during fiscal
1999.
During the third and fourth quarter of fiscal 1998, management authorized and
committed the Company to: (i) consolidate their premedia services in connection
with the acquisition of Kwik and (ii) reduce the staff providing financial
printing services in the UK, respectively. In connection with the consolidation
and reduction of a service line the Company incurred approximately $305,000 of
termination benefits relating to the termination of 35 employees providing
similar services and incurred other related costs of approximately $466,000,
including $90,000 related to write-downs of leasehold improvements. Included in
accounts payable at August 31, 1998 was approximately $78,000 of facility exit
costs. Of this amount, approximately $358,000 was reclassified to discontinued
operations.
F-16
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements
August 31, 1999
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
August 31
-------------------------------------
1999 1998
-------------------------------------
<S> <C> <C>
Buildings $ - $ 2,252,000
Machinery and equipment 19,747,000 15,133,000
Furniture and office equipment 1,506,000 1,187,000
Computer software 1,651,000 1,438,000
Leasehold improvements 2,713,000 1,565,000
Vehicles 259,000 163,000
-------------------------------------
Total 25,876,000 21,738,000
Less accumulated depreciation and amortization (9,956,000) (7,147,000)
-------------------------------------
$15,920,000 $ 14,591,000
=====================================
</TABLE>
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
Facility
Amount Amount Outstanding
-------------------------------
August 31, August 31,
1999 1999 1998
----------------------------------------------------
<S> <C> <C> <C>
Revolving line of credit, interest at the prime rate or at
the eurodollar rate, as defined, plus an applicable
margin, all as defined, ranging from 1.0% to 3.25%. $ 65,000,000 $ 64,375,000 $ -
Credit facility in the United Kingdom interest at the bank's
overdraft rate plus 2.75%. Facility is secured by the
assets of Interface Graphics. 241,000 241,000 -
Credit facilities in the United Kingdom, interest at either
the bank's overdraft rate plus 2% or 2.5%. - - 2,135,000
Credit facilities in the United Kingdom; interest at the
bank's overdraft rate plus 1.85%. Facility is secured by
the accounts receivable of Pre-Press. 642,000 621,000 -
</TABLE>
F-17
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements
August 31, 1999
6. LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
Facility Amount Amount Outstanding
-------------------------------
August 31, August 31,
1999 1999 1998
------------------------------------------------------
<S> <C> <C> <C>
Credit facilities in the United Kingdom; interest at the
bank's overdraft rate plus 2.00%. Facility is secured
by the accounts receivable of Big Bills. 321,000 236,000 -
Term loan, matures March 2003; payable in sixteen
quarterly installments of ranging from $960,000 to
$1,920,000 in March 2003, plus interest at the Base
Rate or the Eurodollar Rate, as defined, plus an
Applicable Margin, as defined, ranging from 0.75% to 3.0%. - - 25,000,000
Revolving line of credit; matures in March 2003, interest
at the Base Rate or at the dollar rate as defined. - - 8,435,000
Subordinated loan matures in March 2004; base interest of
12 1/2%; plus 0.25% the first day after the first
anniversary of the Note; plus 0.25% following the last
day of each 90 day period until payment in full. 10,000,000 10,000,000 -
Notes payable for certain equipment, maturing on
dates between October 1998 and September 2003,
payable in monthly installments of $22,000 until
October 1998 and $14,000 thereafter, including
interest at 8.54% and 8.4%, respectively. - 454,000 618,000
Loan facility in United Kingdom; matures in July 2001,
payable in monthly installment of $19,000 plus interest
of LIBOR, as defined, plus the Banks Margin of 2.4%. - - 651,000
Senior subordinated note investment fee, due May 2001. - 1,500,000 -
Installment note due to seller of Kwik; matures in
April 2001, payable in thirty-six monthly installments
of approximately $21,000 including interest at 5.7%. - - 646,000
Other. 312,000 220,000 103,000
------------------------------------------------------
77,647,000 37,588,000
Less: current portion of long-term debt 1,384,000 3,610,000
======================================================
Long-term debt $ $ 76,263,000 $ 33,978,000
======================================================
</TABLE>
F-18
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements
August 31, 1999
6. LONG-TERM DEBT (CONTINUED)
On May 12, 1999, the Company terminated its existing $25,000,000 term loan,
$10,000,000 revolving line of credit facility and $5,000,000 credit facility,
and entered into a new borrowing arrangement consisting of a $65,000,000
revolving line of credit facility. The revolving line of credit facility may be
increased to $80,000,000 in the event the Company raises subordinated debt net
proceeds of a least $20,000,000 (see note 19). The borrowings are guaranteed by
the Company's subsidiaries and the Company pledged all of its equity interests
in is United States subsidiaries and 65% of its equity interests in its United
Kingdom subsidiaries as collateral for such credit facility. Interest under such
credit facility is payable, at the Company's option, at the prime rate or at the
eurodollar rate, as defined, plus an Applicable Margin, as defined, ranging from
1.0% to 3.25% depending on the Company's consolidated debt to earnings ratio and
the type of loan.
The credit facility contains covenants that require the Company to maintain
certain earnings and debt to earnings ratio requirements based on the combined
operations of the Company and its subsidiaries. The Company was in violation of
certain covenants and has obtained a waiver for such violations. The credit
facility is secured by a first priority lien on all of the assets of the Company
and its subsidiaries and restricts the Company's ability to pay certain
dividends without the bank's prior written consent.
In November 1998, the Company borrowed $10,000,000 pursuant to a subordinated
unsecured loan (the "Subordinated Loan"). The Subordinated Loan originally
matured 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. In connection with the Subordinated Loan, the
Company issued ten-year warrants to the lender to purchase 440,000 shares of the
Company's Common stock at an exercise price not to exceed $5.00 per share. The
warrants were deemed to have a value of approximately $308,000, based on an
independent appraisal. In addition, subject to certain limitations, the Company
granted registration rights to such lender. In September 1999 the Company repaid
this debt with the proceeds of the $20 million senior subordinated notes (see
note 19).
F-19
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements
August 31, 1999
6. LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt are as follows:
AUGUST 31,
1999
-----------------
Year ending August 31
2000 $ 1,384,000
2001 1,437,000
2002 6,437,000
2003 11,264,000
2004 57,125,000
-----------------
$ 77,647,000
=================
7. OBLIGATIONS UNDER CAPITAL LEASES
The Company leases certain property and equipment which have been classified as
capital leases. At August 31, 1999, the cost and accumulated depreciation and
amortization of such assets was approximately $14,406,000 and $5,476,000,
respectively. At August 31, 1998 the cost and accumulated depreciation and
amortization of such assets was approximately $9,746,000 and $3,023,000,
respectively. Future minimum payments under these leases are as follows:
AUGUST 31,
1999
----------------
Year ending August 31,
2000 $ 3,256,000
2001 1,969,000
2002 1,096,000
2003 703,000
2004 127,000
----------------
Total 7,151,000
Less amount representing interest (1,096,000)
----------------
Present value of minimum lease payments 6,055,000
Less current maturities 3,157,000
----------------
$ 2,898,000
================
F-20
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements
August 31, 1999
8. LOANS AND NOTES PAYABLE TO STOCKHOLDERS
Loans payable to stockholders consist of four loans aggregating approximately
$619,000 on August 31, 1999, are payable on demand and bear interest at
approximately 8% per annum. Subsequent to August 31, 1999 $519,000 was repaid.
9. DISCONTINUED OPERATIONS
On July 15,1999, the Company adopted a plan to discontinue it's on demand print
and prepress business segment that had primarily served the independent graphic
artists in the New York, San Francisco and London markets. The Company has
restated the consolidated statements of operations for the years ended August
31, 1999, 1998 and 1997 to reflect the results of the on demand print and
prepress business as a discontinued operation.
The revenues of the on demand print and prepress business were approximately $
10,436,000, $19,124,000 and $17,575,000 for the years ended August 31, 1999,
1998 and 1997.
On August 18, 1999, the Company sold their New York operations for on demand
print and prepress for $2,250,000 in exchange for $500,000 in cash, a $1,500,000
note receivable and $250,000 in services. The San Francisco and London on demand
print and prepress business ceased operations and the closed or reallocated
their facilities to other segments, respectively, prior to August 31, 1999.
There were no remaining assets or liabilities related to the discontinuance of
the on demand print and prepress business as of August 31, 1999.
10. OTHER ASSETS
Included in other assets is a $1,500,000 note receivable related to the sale of
the New York on demand and prepress business. The note receivable requires
quarterly payments of principal and interest of $62,500 through June 2004 and a
balloon payment of $500,000 in June 2004.
F-21
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements
August 31, 1999
11. STOCK OPTIONS
Unidigital's Board of Directors has adopted, and the stockholders of Unidigital
have approved the following stock option plans: (i) the 1995 Unidigital Inc.
Long-Term Stock Investment Plan (the "1995 Stock Plan"); (ii) the 1995 Directors
Stock Option Plan (the "1995 Directors Plan"); (iii) the 1997 Equity Incentive
Plan (the "1997 Plan"); and (iv) the 1997 Non-Employee Director Stock Option
Plan (the "1997 Non-Employee Director Plan"), collectively, the ("Stock Option
Plans"). The total aggregate number of shares of Common stock for which options
may be granted under the Stock Option Plans is 1,375,000.
Under the Stock Option Plans as of August 31, 1999 the Company granted options
to purchase Common stock as follows: (i) 106,667 shares at exercise prices
ranging from $4.50 to $7.75 per share, vesting six months after the date of
grant and are exercisable under the 1995 Stock Plan; (ii) no shares have been
granted under the 1995 Directors Plan; (iii) 756,857 shares at exercise prices
ranging from $4.00 to $9.63 per share, vesting, in part, on the date of grant
exercisable under the 1997 Plan and; (iv) 60,000 shares at an exercise prices
ranging from $4.31 to $5.53 per share, vesting on the date of grant and are
exercisable under the 1997 Non-Employee Director Plan. All stock options were
issued at fair market value at the date of grant and have a ten-year term. The
options terminate upon termination of employment.
In connection with the acquisition of Elements (UK), a former shareholder was
issued options, outside the Stock Option Plans, which expire in February 2002,
to purchase 50,000 shares of common stock at $6.00 per share.
F-22
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements
August 31, 1999
11. STOCK OPTIONS (CONTINUED)
A summary of the Company's stock option activity, and related information for
the years ended August 31, 1999, 1998 and 1997 is as follows:
Weighted Average
Options Exercise Price
-----------------------------------------
Outstanding--August 31, 1996 210,167 $6.57
Granted 174,103 $4.88
Forfeited (28,500) $6.75
----------------------------------------
Outstanding--August 31, 1997 355,770 $5.73
Granted 384,999 $6.89
Exercised (3,499) $5.82
Forfeited (74,204) $6.62
----------------------------------------
Outstanding--August 31, 1998 663,066 $6.31
Granted 606,667 $4.51
Exercised (211,592) $4.70
Forfeited (84,617) $6.74
========================================
Outstanding--August 31, 1999 973,524 $5.49
========================================
Exercisable--August 31, 1997 299,103 $5.54
========================================
Exercisable--August 31, 1998 409,733 $5.93
========================================
Exercisable--August 31, 1999 602,586 $5.72
========================================
Pro forma information regarding net income (loss) and earnings (loss) per share
is required by FAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of FAS 123. The fair
value for these options was estimated at the date of grant using a Black-Scholes
options pricing model with the following weighted-average assumptions for August
31, 1999, 1998 and 1997:
ASSUMPTION 1999 1998 1997
---------------------------------------------------
Risk-free rate 4.5 - 5.9% 5.5 - 6.9% 5.9 - 6.9%
Dividend yield - - -
Volatility factor of the
expected market price of
the Company's common stock .6 - .8 .4 - 1.1 .4 - .6
Average life 5 years 5 years 5 years
F-23
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements
August 31, 1999
11. STOCK OPTIONS (CONTINUED)
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
The Company's pro forma information is as follows:
<TABLE>
<CAPTION>
AUGUST 31,
-----------------------------------------------------
1999 1998 1997
-----------------------------------------------------
<S> <C> <C> <C>
Pro forma net (loss) income $(11,565,000) $954,000 $1,142,000
Pro forma net (loss) income per share:
Basic $(2.21) $0.27 $0.36
Diluted $(2.21) $0.25 $0.35
</TABLE>
The weighted average fair value of options granted during the years ended August
31, 1999, 1998 and 1997 were $2.85, $4.46 and $2.50, respectively. The weighted
average remaining contractual life of the options outstanding at August 31, 1999
is 8.6 years.
F-24
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements
August 31, 1999
12. INCOME TAXES
The following comprises income tax expense related to continuing operations:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1999 1998 1997
-----------------------------------------------------------
<S> <C> <C> <C>
U.S. income taxes:
Current $1,302,000 $ 252,000 $ 9,000
Deferred 851,000 249,000 44,000
-----------------------------------------------------------
2,153,000 501,000 53,000
-----------------------------------------------------------
United Kingdom income taxes:
Current 65,000 302,000 538,000
Deferred 131,000 51,000 2,000
-----------------------------------------------------------
196,000 353,000 540,000
-----------------------------------------------------------
Total $2,349,000 $ 854,000 $ 593,000
===========================================================
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
consist of the following:
<TABLE>
<CAPTION>
Year ended August 31,
1999 1998 1997
-------------------------------------------------
<S> <C> <C> <C>
Deferred tax liabilities:
Use of cash basis for United States income tax
purposes $ - $ 88,000 $ 175,000
Difference in depreciation and amortization methods 1,925,000 905,000 591,000
-------------------------------------------------
Total deferred tax liability 1,925,000 993,000 766,000
Less deferred tax asset:
Allowance for doubtful accounts (249,000) (143,000) (122,000)
Net operating loss (9,246,000)
Primarily difference in reporting of royalty - (101,000) (199,000)
Other (36,000) - -
-------------------------------------------------
Net deferred tax liability $ (7,606,000) $ 749,000 $ 445,000
=================================================
</TABLE>
F-25
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements
August 31, 1999
12. INCOME TAXES (CONTINUED)
At August 31, 1999 the Company has net operating loss carryforwards of
approximately $20,152,000 which expires in 2019.
The following reconciles income tax expense, computed in the United States
Federal statutory rate to income tax expense.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
Income taxes at United States Federal statutory rate $ 1,635,000 $ 623,000 $ 644,000
State and local income taxes 671,000 95,000 56,000
Nondeductible expenses and differences between
United States and United Kingdom tax rates 43,000 123,000 (107,000)
------------------------------------------------------
Total $ 2,349,000 $ 841,000 $ 593,000
======================================================
</TABLE>
13. STOCKHOLDERS' EQUITY
AMENDMENT TO CERTIFICATE OF INCORPORATION
In May, 1999, the Company filed an amendment to its Certificate of Incorporation
increasing the Company's authorized shares of Common stock from 10,000,000 to
25,000,000 and the Company's authorized shares of Preferred Stock from 5,000,000
to 10,000,000
SHARES RESERVED
As of August 31, 1999, the Company has reserved for issuance of 2,607,000 shares
of common stock as follows: (i) 1,375,000 shares of common stock issuable upon
exercise of options granted or allowed to be granted under its Stock Option
Plans; (ii) 50,000 shares of common stock upon exercise of options granted in
connection with an acquisition in the UK; (iii) 92,000 shares of common stock
issuable upon exercise of warrants issued to the managing underwriter in
connection with the initial public offering, exercisable at a price of $7.20 per
share in February 2001; (iv) 400,000 shares of common stock issuable upon
exercise of warrants issued in connection with loans to the Company; (v) 25,000
shares of common stock upon exercise of warrants (vi) 225,000 shares of common
stock issuable upon exercise of warrants issued to the stockholder of
SuperGraphics and (vii) 440,000 shares of common stock upon exercise of the
warrants issue in connection with the November 1998 financing.
F-26
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements
August 31, 1999
14. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share pursuant to FASB Statement No. 128, "Earnings per Share":
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------------------------
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
Numerator for basic and diluted
earnings per share-net (loss) income
available for common stockholders $(10,959,000) $1,136,000 $1,341,000
======================================================
Denominator:
Denominator for basic earnings per
share weighted average shares 5,225,294 3,530,836 3,212,098
Effect of dilutive securities:
Stock options -- 74,971 34,760
Warrants -- 173,631 36,421
------------------------------------------------------
Denominator for diluted earnings
per share-adjusted weighted
average shares and assumed
conversions 5,225,294 3,779,438 3,283,279
======================================================
</TABLE>
The following securities have been excluded from the dilutive per share
computation, as they are antidilutive:
YEAR ENDED AUGUST 31,
----------------------------------------------------
1999 1998 1997
----------------------------------------------------
Stock options 974,000 41,000 125,000
Warrants 1,182,000 117,000 92,000
F-27
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements
August 31, 1999
15. COMMITMENTS
The Company leases their premises under operating lease agreements which expire
at various dates through February 2009. The Company also leases certain
production equipment under operating leases which expire at various dates
through August 2001.
Aggregate minimum rental payments for premises and equipment under operating
leases are approximately as follows:
TOTAL PREMISES EQUIPMENT
-------------------------------------------------
Year ending August 31,
2000 $ 3,037,000 $ 2,189,000 $ 848,000
2001 2,858,000 2,162,000 696,000
2002 2,653,000 2,170,000 483,000
2003 1,843,000 1,399,000 444,000
2004 1,366,000 1,057,000 309,000
Thereafter 3,483,000 3,435,000 48,000
---------------------------------------------------
Total $ 15,240,000 $ 12,412,000 $ 2,828,000
===================================================
Aggregate rental expense for the years ended August 31, 1999, 1998 and 1997
approximated $2,198,000, $1,077,000 and $515,000, respectively.
16. SEGMENT INFORMATION
The Company's reportable segments are divisions that offer different products
and services. The reportable segments are each managed separately because they
produce and distribute distinct products with different production processes.
The Company has two reportable segments: the media solutions division and
premedia services division. The segment information for 1998 and 1997 has been
restated to conform to the 1999 segment reporting format.
The Company evaluates performance and allocates resources based on profit or
loss from operations before income taxes. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies. Intersegment sales and transfers are recorded
at the Company's cost; there is no intercompany profit or loss on intersegment
sales or transfers.
F-28
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements
August 31, 1999
16. SEGMENT INFORMATION (CONTINUED)
The following summarizes the operations by geographic segment for the years
ended August 31, 1998, 1998 and 1997:
<TABLE>
<CAPTION>
AUGUST 31,
--------------------------------------------------------------------------------------------
1999 1998 1997
--------------------------------------------------------------------------------------------
UNITED UNITED UNITED UNITED UNITED UNITED
STATES KINGDOM STATES KINGDOM STATES KINGDOM
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 49,251,000 $ 13,523,000 $ 14,979,000 $ 14,527,000 $ 2,576,000 $ 9,993,000
Income from operations 9,812,000 1,326,000 3,650,000 778,000 538,000 1,677,000
Identifiable assets 99,432,000 19,204,000 56,528,000 10,787,000 24,309,000 8,724,000
Depreciation and
amortization 4,493,000 1,428,000 1,457,000 1,212,000 1,376,000 818,000
Capital expenditures 1,410,000 592,000 1,095,000 476,000 904,000 464,000
</TABLE>
The following summarizes operations by industry segment for the years ended
August 31, 1999, 1998 and 1997:
AUGUST 31, 1999
-------------------------------------------------
Media Premedia
Solutions Services Total
-------------------------------------------------
Net sales $ 28,881,000 $ 33,893,000 $ 62,774,000
Income from
operations 5,140,000 5,998,000 11,138,000
Identifiable assets 69,650,000 48,986,000 118,636,000
Depreciation and
amortization 2,333,000 3,588,000 5,921,000
Capital expenditures $ 1,038,000 $ 964,000 $ 2,002,000
F-29
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements
August 31, 1999
16. Segment Information (continued)
AUGUST 31, 1998
------------------------------------------------------
MEDIA PREMEDIA
SOLUTIONS SERVICES TOTAL
------------------------------------------------------
Net sales $ 9,275,000 $ 20,231,000 $ 29,506,000
Income from
operations 951,000 3,477,000 4,428,000
Identifiable assets 18,763,000 48,552,000 67,315,000
Depreciation and
amortization 940,000 3,014,000 3,954,000
Capital expenditures 237,000 1,334,000 1,571,000
AUGUST 31, 1997
------------------------------------------------------
MEDIA PREMEDIA
SOLUTIONS SERVICES TOTAL
------------------------------------------------------
Net sales $ 3,227,000 $ 9,342,000 $ 12,569,000
Income from
operations 655,000 1,560,000 2,215,000
Identifiable assets 6,651,000 26,382,000 33,033,000
Depreciation and
amortization 319,000 1,875,000 2,194,000
Capital expenditures 147,000 1,221,000 1,368,000
17. EMPLOYEE BENEFIT PLAN
The Company adopted a 401(k) Plan effective January 1, 1996, in which
substantially all of the Company's U.S. employees are eligible to participate.
Although the Plan provides for discretionary employer contributions, there were
none for the years ended August 31, 1999, 1998 and 1997.
F-30
<PAGE>
Unidigital Inc.
Notes to Consolidated Financial Statements
August 31, 1999
18. EXTRAORDINARY ITEM
In connection with the termination of its existing credit facility (see Note 6),
the Company recorded an extraordinary loss of $1,828,000, net of an income tax
benefit of $1,114,000, related to the write-off of the unamortized balance of
deferred financing costs associated with its existing credit facility.
19. LITIGATION
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business and have not been adjudicated. In the opinion of
management, settlement of these actions, when ultimately concluded, will not
have a material adverse effect on the results of operations, cash flows or
financial condition of the Company.
20. SUBSEQUENT EVENTS
In September 1999, the Company issued $20 million of senior subordinated notes
of which $10 million matures in 2005 and 2006. The notes bear interest at 14%
per annum, comprised of a 12% payable semiannually and a 2% payment-in-kind
coupon. The Company used $11.5 million of the proceeds from such notes to repay
the existing subordinated loan ($10,000,000) plus the related investment fee
($1,500,000).
In September and November 1999, the Company sold its remaining two floors in a
building for $2,435,000.
F-31
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
UNIDIGITAL INC.
<TABLE>
<CAPTION>
Additions - Additions - Deductions
Balance at Charged to Charged to -Write-off Balance at
Beginning Costs and Other of Accounts end of
Description of Period Expenses Accounts Receivable Period
----------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED AUGUST 31, 1999
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible accounts 581,000 321,000 370,000 1 528,000 744,000
YEAR ENDED AUGUST 31, 1998
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible accounts 266,000 115,000 250,000 2 50,000 581,000
YEAR ENDED AUGUST 31, 1997
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible accounts 201,000 102,000 - 37,000 266,000
</TABLE>
1) Part of Net Assets acquired from SuperGraphics, Interface Graphics,
PrePress Services, and Big Bills
2) Part of Net Assets acquired from Kwik
Exhibit 1(b)
------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WARRANT
To Purchase Shares of Common Stock of
---------
UNIDIGITAL INC.
, 19
------------ -- --
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Exhibit 1(b)
------------
<PAGE>
TABLE OF CONTENTS
Page
----
1. Definitions..............................................................2
1.1. Definitions of Terms..............................................2
1.2. Other Definitions.................................................5
2. Exercise of Warrant......................................................5
2.1. Right to Exercise; Notice.........................................5
2.2. Manner of Exercise; Issuance of Common Stock......................5
2.3. Effectiveness of Exercise.........................................7
2.4. Continued Validity................................................7
2.5. Automatic Exercise on Last Day of Exercise Period.................7
3. Registration, Transfer, Exchange and Replacement of Securities;
Legends..................................................................8
3.1. Registration, Transfer, Exchange and Replacement of Securities....8
3.2. Transfers and Legends.............................................8
4. Anti-Dilution Provisions.................................................9
4.1. Adjustment of Number of Shares Purchasable........................9
4.2. Adjustment of Exercise Price......................................9
4.3. Rights Offering..................................................18
4.4. Certificates and Notices.........................................18
4.5. Adjustments for Changes in Certain Data..........................19
5. Repurchase; Registration; Transfer Restrictions, etc....................19
6. Reservation of Common Stock.............................................20
7. Various Covenants of the Holding Company................................20
7.1. No Impairment or Amendment; No Further Issuances or Sales;
Continued Validity...............................................20
7.2. Listing on Securities Exchanges, etc.............................21
7.3. Anti-Dilution Provisions.........................................21
7.4 Indemnification..................................................21
7.5. Certain Expenses.................................................21
Exhibit 1(b)
------------
<PAGE>
8. Miscellaneous...........................................................21
8.1. Nonwaiver........................................................21
8.2. Amendment........................................................21
8.3. Communications...................................................22
8.4. Like Tenor.......................................................22
8.5. Remedies.........................................................22
8.6. Successors and Assigns...........................................22
8.7. Governing Law....................................................22
8.8. Headings; Entire Agreement; Partial Invalidity, etc..............22
Exhibit 2.2(a) Form of Notice of Exercise
Exhibit 3.1 Form of Assignment
Exhibit 1(b)
------------
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY OTHER APPLICABLE SECURITIES LAW AND MAY NOT BE TRANSFERRED IN
THE ABSENCE OF REGISTRATION THEREUNDER OR AN EXEMPTION THEREFROM.
THIS WARRANT IS SUBJECT TO THE TERMS OF THE STOCKHOLDERS AGREEMENT (AS DEFINED
IN THE SECURITIES PURCHASE AGREEMENTS REFERRED TO BELOW). COPIES OF SUCH
AGREEMENT ARE ON FILE AT THE ISSUER'S PRINCIPAL OFFICES AND, UPON WRITTEN
REQUEST, COPIES THEREOF WILL BE MAILED WITHOUT CHARGE WITHIN FIVE DAYS OF
RECEIPT OF SUCH REQUEST TO APPROPRIATELY INTERESTED PERSONS.
WARRANT
To Purchase Shares of Common Stock of
-----
UNIDIGITAL INC.
No. RW- , 19
--- -------------- -- ---
THIS IS TO CERTIFY that, for value received,
------------------------------,
or registered assigns, is entitled upon the due exercise hereof at any time
during the Exercise Period (as hereinafter defined) to purchase in the aggregate
shares of Common Stock, par value $.01 per share, of UNIDIGITAL INC., a
- --------
Delaware corporation (the "Holding Company"), at an Exercise Price of $5.425 per
share (such Exercise Price and the number of shares of Common Stock purchasable
hereunder being subject to adjustment as provided herein), and to exercise the
other rights, powers and privileges hereinafter provided, all on the terms and
subject to the conditions hereinafter set forth.
This Warrant is one of the Holding Company's Warrants to Purchase Shares of
Common Stock (herein, together with any warrants issued in exchange therefor or
replacement thereof, all as amended or supplemented from time to time, called
the "Warrants") initially exercisable in the aggregate for 690,134 (subject to
adjustment) shares of Common Stock and issued pursuant to those certain
Securities Purchase Agreements, dated the Closing Date, by and among the Holding
Company, its Subsidiaries and the institutional investors named therein (as
amended, modified and supplemented from time to time, the "Securities Purchase
Agreements"). Reference is hereby made to the Securities Purchase Agreements and
the other Operative Documents (as defined therein) for a description of, among
other things, certain terms relating to the Warrants and the Warrant Shares and
certain rights of the holders thereof, including,
Exhibit 1(b)
------------
<PAGE>
without limitation, the right to require the registration under the Securities
Act of the Warrant Shares under certain circumstances. Holders of Warrants
and/or Warrant Shares are entitled to the applicable benefits of the Securities
Purchase Agreements and the other Operative Documents and may enforce the
applicable agreements contained therein, all in accordance with the terms
thereof, notwithstanding any payment or prepayment or redemption or acquisition
of any of the other Securities issued pursuant to the Securities Purchase
Agreements.
1. Definitions.
-----------
1.1. Definitions of Terms. Terms used herein without definition which are
--------------------
defined in the Securities Purchase Agreements have the meanings ascribed to them
therein, unless the context clearly requires otherwise, including, without
limitation, the following terms: "Business Day", "corporation", "Common Stock",
-------- --- ----------- ------------
"Consolidated Total Assets", "Notes", "Officer's Certificate", "Operative
------------ ----- ------ ----- --------- ----------- ---------
Documents", "Organizational Documents", "Person", "Preferred Shares", "Principal
- --------- -------------- --------- ------ --------- ------ ---------
Stockholder", "Pro Forma Consolidated Cash Flow", "Required Holders",
- ----------- --- ----- ------------ ---- ---- -------- -------
"Securities", "Securities Act", "Shares" and "Subsidiary". In addition, the
---------- ---------- --- ------ ----------
terms defined in this section 1, whenever used and capitalized in this Warrant,
shall, unless the context otherwise requires, have the following respective
meanings:
"Assignment" shall mean the form of Assignment appearing at the end of this
----------
Warrant.
"Closing Date" shall mean September 14, 1999.
------- ----
"Convertible Securities" shall mean evidences of indebtedness, Shares
----------- ----------
(including, without limitation, Preferred Shares) or other securities which are
convertible into or exchangeable or exercisable for, with or without payment of
additional consideration, shares of Common Stock, either immediately or upon the
arrival of a specified date or the happening of a specified event.
"Current Market Price" of any security (including, without limitation, any
------- ------ -----
share of Common Stock) as of any date herein specified shall mean the average of
the daily closing prices for the 30 consecutive trading days commencing 45
trading days before the day in question (or in the event that a security has
been traded for less than 45 days, each of the trading days on which such
security has been traded). The closing price for each day shall be (a) if such
-
security is listed or admitted for trading on any national securities exchange,
the last sale price of such security, regular way, or the average of the closing
bid and asked prices thereof if no such sale occurred, in each case as
officially reported on the principal securities exchange on which such security
is listed, or (b) if not reported as described in clause (a), the average of the
-
closing bid and asked prices of such security in the over-the-counter market as
shown by the National Association of Securities
Exhibit 1(b)
------------
-2-
<PAGE>
Dealers, Inc. Automated Quotation System, or any similar system of automated
dissemination of quotations of securities prices then in common use, if so
quoted, as reported by any member firm of the New York Stock Exchange selected
by the Holding Company, or (c) if not quoted as described in clause (b), the
-
average of the closing bid and asked prices for such security as reported by the
National Quotation Bureau Incorporated or any similar successor organization, as
reported by any member firm of the New York Stock Exchange selected by the
Holding Company. If such security is quoted on a national securities or central
market system in lieu of a market or quotation system described above, the
closing price shall be determined in the manner set forth in clause (a) of the
preceding sentence if actual transactions are reported and in the manner set
forth in clause (b) of the preceding sentence if bid and asked prices are
reported but actual transactions are not.
"Distribution" shall have the meaning specified in section 4.2(g).
------------
"Exercise Period" shall mean the period
-------- ------
(a) commencing on the earliest to occur of:
(i) September 14, 2002;
(ii) the first date following the Closing Date on which the
Holding Company shall file a registration statement with the
Commission for any public offering of the Common Stock (other than for
a registration of shares issuable upon the conversion, exercise or
exchange of the Convertible Securities and/or Purchase Rights referred
to in section 4.2(n)(ii) or 4.2(n)(iii) which were issued pursuant to
an employee stock option plan or an employee stock purchase plan of
the Holding Company);
(iii) the first date following the Closing Date on which the
Holding Company or any of its Subsidiaries sells any properties and
assets (A) representing more than 10% of Consolidated Total Assets as
-
of the then most recently ended fiscal quarter or (B) to which is
-
properly attributed more than 10% of Pro Forma Consolidated Cash Flow
for the most recently completed period of four consecutive fiscal
quarters; and
(iv) the occurrence of any Event of Default or other material
default by the Holding Company or any of its Subsidiaries under any
Debt of the Holding Company or any of its Subsidiaries; and
(b) terminating at 5:00 p.m. Boston time on September 14, 2006.
Exhibit 1(b)
------------
-3-
<PAGE>
"Exercise Price" shall mean the price per share of Common Stock set forth
-------- -----
in the preamble to this Warrant, as such price may be adjusted pursuant to
section 4.
"Fair Value" shall mean the fair value of the appropriate security,
---- -----
property, asset, business or entity as determined by the board of directors of
the Holding Company, provided that if, within 15 days following receipt of the
--------
writing setting forth any such determination of Fair Value by the board of
directors of the Holding Company, the Required Holders of the Warrants shall
notify the Holding Company of their disagreement with such determination, then
Fair Value shall be determined by an independent appraiser of recognized
national standing (selected by the Holding Company and reasonably satisfactory
to the Required Holders of the Warrants). Each determination of Fair Value shall
be made in accordance with generally accepted financial practice and shall be
set forth in writing, and the Holding Company shall, immediately following such
determination, deliver a copy thereof to each holder or holders of the
Securities then outstanding. The determination of any such independent appraiser
so made shall be conclusive and binding on the Holding Company and on all
holders of the Warrants for purposes of the event giving rise to the need for
such determination. The Holding Company shall pay all of the expenses incurred
in connection with any such determination, including, without limitation, the
expenses of the independent appraiser, if any, engaged to make such
determination. If the Holding Company shall not have engaged such appraiser
within 20 days after the occurrence of the event giving rise to the need
therefor, then such appraiser may be engaged by the Required Holders of the
Warrants. Notwithstanding the foregoing, in the case of any security (including,
without limitation, any share of Common Stock), if clauses (a), (b) or (c) of
the definition of Current Market Price are applicable to such security, then the
Fair Value of such security shall be the Current Market Price of such security.
"Holding Company" shall mean Unidigital Inc., a Delaware corporation, and
------- -------
any successor thereto.
"Notice of Exercise" shall mean the Notice of Exercise substantially in the
------ -- --------
form of Exhibit 2.2(a) attached hereto.
--------------
"Other Securities" shall mean with reference to the exercise privilege of
----- ----------
the holders of the Warrants, any Shares (other than shares of Common Stock) and
any other securities of the Holding Company (including, without limitation,
Preferred Shares) or of any other Person which the holders of the Warrants at
any time shall be entitled to receive, or shall have received, upon the exercise
or partial exercise of the Warrants, in lieu of or in addition to Common Stock,
or which at any time shall be issuable or shall have been issued in exchange for
or in replacement of Common Stock (or Other Securities) pursuant to the terms of
the Warrants or otherwise.
Exhibit 1(b)
------------
-4-
<PAGE>
"Purchase Rights" shall mean any warrants, options or other rights to
-------- ------
subscribe for, purchase or otherwise acquire any shares of Common Stock or any
Convertible Securities, either immediately or upon the arrival of a specified
date or the happening of a specified event.
"Securities Purchase Agreements" shall have the meaning specified in the
---------- -------- ----------
preamble to this Warrant.
"Warrant Shares" shall mean the shares of Common Stock (and/or Other
------- ------
Securities) issued or issuable, as the case may be, from time to time upon
exercise of the Warrants, including, without limitation, any shares of Common
Stock (and/or Other Securities) issued or issuable with respect thereto by way
of dividend or distribution or in connection with a combination of Shares,
recapitalization, merger, consolidation, other reorganization or otherwise.
"Warrants" shall have the meaning specified in the preamble to this
--------
Warrant.
1.2. Other Definitions. The terms defined in this section 1.2, whenever
------------------
used in this Warrant, shall, unless the context otherwise requires, have the
following respective meanings:
"this Warrant" (and similar references to any of the other Operative
---- -------
Documents) shall mean, and the words "herein" (and "therein"), "hereof" (and
------ ------- ------
"thereof"), "hereunder" (and "thereunder") and words of similar import shall,
------- --------- ----------
unless the context clearly requires otherwise, refer to, such instruments as
they may from time to time be amended, modified or supplemented.
2. Exercise of Warrant.
-------------------
2.1. Right to Exercise; Notice. On the terms and subject to the conditions
--------------------------
of this section 2, the holder hereof shall have the right, at its option, to
exercise this Warrant in whole or in part at any time or from time to time
during the Exercise Period, all as more fully specified below.
2.2. Manner of Exercise; Issuance of Common Stock. To exercise this
------------------------------------------------
Warrant, the holder hereof shall deliver to the Holding Company (a) a Notice of
-
Exercise (substantially in the form of Exhibit 2.2(a) attached hereto) duly
---------------
executed by a duly authorized officer of the holder hereof (or its
attorney-in-fact) specifying the Warrant Shares to be purchased, (b) an amount
-
equal to the aggregate Exercise Price for all Warrant Shares as to which this
Warrant is then being exercised and (c) this Warrant. At the option of the
-
holder hereof, payment of the Exercise Price shall be made (w) by wire transfer
-
of funds to an account in a bank located in the United States designated by the
Holding Company for such purpose, (x) by check payable to the order of the
-
Holding
Exhibit 1(b)
------------
-5-
<PAGE>
Company, (y) by application of any Notes or any Warrant Shares, as provided
-
below, or (z) by any combination of such methods.
-
Upon the exercise of this Warrant in whole or in part, the holder
hereof may, at its option, submit to the Holding Company written instructions
from such holder to apply any specified portion of the Warrant Shares issuable
upon such exercise in payment of the Exercise Price required upon such exercise,
in which case the Holding Company will accept such specified portion of the
Warrant Shares (at a value per share equal to the then Fair Value thereof less,
----
in each case, the Exercise Price then in effect), in lieu of a like amount of
such cash payment.
Upon the exercise of this Warrant in whole or in part by the holder of
any Notes, such holder may, at its option, surrender such Notes to the Holding
Company together with written instructions from such holder to apply all or any
specified principal amount of such Notes against the payment of some or all of
the Exercise Price required upon such exercise, in which case the Holding
Company will accept such specified principal amount in lieu of a like amount of
cash. In lieu of or in addition to the aforesaid application, such holder may,
without surrendering such Notes, furnish the Holding Company with written
instructions to apply all or any specified amount of accrued interest on such
Notes against the payment of some or all of the Exercise Price required upon
such exercise, in which case the Holding Company will accept such specified
accrued interest in lieu of a like amount of cash. Upon any such partial
application of the principal of any such Note, the Companies will promptly issue
and deliver to or upon the order of the holder thereof a new Note or Notes equal
in aggregate principal amount to the unpaid principal amount of such surrendered
Note not so applied and dated so as to result in no loss of interest. At the
time of surrender of any such Note pursuant to this section 2.2, the Companies
will pay to the holder surrendering such Note all interest on the principal
amount thereof so applied (but no premium shall be due in connection therewith)
accrued to and including the date of such surrender and not applied to the
Exercise Price.
Upon receipt of the items referred to in section 2.3, the Holding
Company shall, as promptly as practicable, and in any event within five Business
Days thereafter, cause to be issued and delivered to the holder hereof (or its
nominee) or the transferee designated in the Notice of Exercise, a certificate
or certificates representing the Warrant Shares specified in the Notice of
Exercise (but not exceeding the maximum number thereof issuable upon exercise of
this Warrant) minus the Warrant Shares, if any, applied in payment of the
-----
Exercise Price. Such certificates shall be registered in the name of the holder
hereof (or its nominee) or in the name of such transferee, as the case may be.
If this Warrant is exercised in part, the Holding Company shall, at the
time of delivery of such certificate or certificates, issue and deliver to the
holder hereof or the transferee so designated in the Notice of Exercise, a new
Warrant evidencing the right of
Exhibit 1(b)
------------
-6-
<PAGE>
the holder hereof or such transferee to purchase at the Exercise Price then in
effect the Warrant Shares for which this Warrant shall not have been exercised
and this Warrant shall be cancelled.
2.3. Effectiveness of Exercise. Unless otherwise requested by the holder
-------------------------
hereof, this Warrant shall be deemed to have been exercised and such certificate
or certificates representing Warrant Shares shall be deemed to have been issued,
and the holder or transferee so designated in the Notice of Exercise shall be
deemed to have become the holder of record of such Warrant Shares for all
purposes, as of the close of business on the date on which the Notice of
Exercise, the Exercise Price and this Warrant shall have been received by the
Holding Company.
2.4. Continued Validity. A holder of Warrant Shares issued upon the
-------------------
exercise of this Warrant, in whole or in part, shall continue to be entitled to
all rights to which a holder of this Warrant is entitled pursuant to the
provisions of this Warrant except such rights as by their terms apply solely (a)
-
to the holder of a Warrant or (b) to the period prior to the exercise of this
-
Warrant in whole or in part, notwithstanding that this Warrant is cancelled
following such exercise. The Holding Company will, at the time of any exercise
of this Warrant, upon the request of the holder of the Warrant Shares issued
upon the exercise hereof, acknowledge in writing, in form reasonably
satisfactory to such holder, its continuing obligation to afford to such holder
all rights to which such holder shall continue to be entitled after such
exercise in accordance with the provisions of this Warrant, including, without
limitation, those set forth in sections 7.1, 7.2, 7.3 and 7.4 of this Warrant;
provided that if such holder shall fail to make any such request, such failure
- --------
shall not affect the continuing obligation of the Holding Company to afford to
such holder all such rights.
2.5. Automatic Exercise on Last Day of Exercise Period. If this Warrant
---------------------------------------------------
shall not have been exercised in full on or before the last day of the Exercise
Period, then this Warrant shall be automatically exercised, without further
action on the part of the holder hereof, in full (and the holder hereof shall be
deemed to be a holder of the Warrant Shares issued upon such automatic exercise)
on and as of the last day of the Exercise Period, unless at any time on or
before such last day of the Exercise Period the holder of this Warrant shall
notify the Holding Company in writing that no such automatic exercise is to
occur. Payment of the Exercise Price due in connection with any such automatic
exercise pursuant to this section 2.5 shall be made by application of that
portion of the Warrant Shares issuable upon such exercise (at a value per share
equal to the then Fair Value thereof less, in each case, the Exercise Price then
----
in effect) equal to the aggregate Exercise Price which is due upon such
exercise, unless at any time on or before such last day of the Exercise Period
the holder of this Warrant shall notify the Holding Company that such holder
elects one of the other payment options set forth in section 2.2 or unless the
Fair Value of the Warrant Shares is less than the Exercise Price then in effect.
As promptly as practicable following any such automatic exercise, and in any
event within
Exhibit 1(b)
------------
-7-
<PAGE>
ten Business Days after the day that the holder of this Warrant surrenders this
Warrant to the Holding Company for cancellation, the Holding Company shall cause
to be issued and delivered to the holder hereof a certificate registered in the
name of the holder hereof (unless the holder shall specifically instruct the
Holding Company otherwise) representing the Warrant Shares issued in connection
with such automatic exercise of this Warrant minus the number of Warrant Shares,
-----
if any, applied in payment of the Exercise Price.
3. Registration, Transfer, Exchange and Replacement of Securities; Legends.
-----------------------------------------------------------------------
3.1. Registration, Transfer, Exchange and Replacement of Securities.
--------------------------------------------------------------------
Reference is hereby made to the Securities Purchase Agreements and the
Registration Rights Agreement for certain provisions relating to the
registration, transfer, exchange and replacement of the Warrants and Warrant
Shares. To transfer this Warrant, the holder shall deliver to the Holding
Company a Notice of Assignment (substantially in the form of Exhibit 3.1
------------
attached hereto) duly executed by the holder hereof (or its attorney) specifying
that this Warrant (or any portion hereof) is to be transferred to the Person(s)
named therein.
3.2. Transfers and Legends. Neither this Warrant nor any Warrant Shares may
---------------------
be transferred or assigned unless registered under the Securities Act or unless
an exemption from such registration is available, and any transfer or assignment
not made in accordance with the foregoing shall be void. Until the date on which
a registration statement covering the Warrants becomes effective under the
Securities Act, each Warrant shall bear a legend in substantially the following
form:
"THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY OTHER APPLICABLE SECURITIES
LAW AND MAY NOT BE TRANSFERRED IN THE ABSENCE OF
REGISTRATION THEREUNDER OR AN EXEMPTION THEREFROM."
Until the date on which a registration statement covering the Warrant Shares
becomes effective under the Securities Act, each certificate evidencing Warrant
Shares 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, OR ANY OTHER APPLICABLE SECURITIES LAW AND MAY NOT
BE TRANSFERRED IN THE ABSENCE OF REGISTRATION THEREUNDER OR
AN EXEMPTION THEREFROM."
Exhibit 1(b)
------------
-8-
<PAGE>
Upon receipt from any holder of Warrants or Warrant Shares by the Holding
Company of a notice to the effect that any of the foregoing legends are no
longer required or applicable, the Holding Company shall reissue the
certificates evidencing the applicable Securities without such legends unless
the Holding Company shall promptly deliver to such holder an opinion of counsel
reasonably satisfactory to such holder that such legends are still required or
applicable.
4. Anti-Dilution Provisions.
------------------------
4.1. Adjustment of Number of Shares Purchasable. Upon any adjustment of the
Exercise Price as provided in section 4.2, the holder hereof shall thereafter be
entitled to purchase, at the Exercise Price resulting from such adjustment, the
number of shares of Common Stock (calculated to the nearest 1/100th of a share)
obtained by multiplying the Exercise Price in effect immediately prior to such
adjustment by the number of shares of Common Stock purchasable hereunder
immediately prior to such adjustment and dividing the product thereof by the
Exercise Price resulting from such adjustment.
4.2. Adjustment of Exercise Price. In addition to any adjustment required
under the provisions of section 4.5 below, and except as otherwise provided in
section 4.2(n) below, the Exercise Price shall be subject to adjustment from
time to time as set forth in this section 4.2.
(a) Dividends, Distributions, Subdivisions and Combinations. If and
whenever the Holding Company subsequent to the date hereof:
(i) declares a dividend upon, or makes any distribution in
respect of, any of its Shares payable in shares of Common Stock,
Convertible Securities or Purchase Rights, or
(ii) subdivides its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(iii) combines its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then the Exercise Price shall be adjusted to that price determined by
multiplying the Exercise Price in effect immediately prior to such event by
a fraction (A) the numerator of which shall be the total number of
-
outstanding shares of Common Stock immediately prior to such event, and (B)
-
the denominator of which shall be the total number of outstanding shares of
Common Stock immediately after such event, treating as outstanding all
shares of Common Stock issuable upon conversions or exchanges of any such
Convertible Securities issued in such
Exhibit 1(b)
------------
-9-
<PAGE>
dividend or distribution and exercises of any such Purchase Rights issued
in such dividend or distribution.
(b) Issuance of Additional Shares of Common Stock. If and whenever the
---------------------------------------------
Holding Company subsequent to the date hereof shall issue or sell any
shares of Common Stock (except as otherwise provided in the last paragraph
of this section 4.2(b)), for a consideration per share less than the Fair
Value per share (determined, in each case, as of the date specified in the
next succeeding paragraph), the Exercise Price upon each such issuance or
sale shall be adjusted as of the date specified in the next succeeding
paragraph to the price determined by multiplying the Exercise Price in
-----------
effect as of the date specified in the next succeeding paragraph by a
fraction (x) the numerator of which is (A) the sum of (1) the number of
- - -
shares of Common Stock outstanding immediately prior to such issue or sale
multiplied by the Fair Value per share of Common Stock immediately prior to
such issue or sale plus (2) the aggregate consideration, if any, received
-
by the Holding Company upon such issue or sale, divided by (B) the total
-
number of shares of Common Stock outstanding immediately after such issue
or sale, and (y) the denominator of which is the Fair Value per share of
-
Common Stock immediately prior to such issue or sale.
For the purposes of this section 4.2(b), the date as of which the
Exercise Price shall be adjusted and the date as of which the Fair Value
shall be determined shall be the earlier of (A) the date on which the
-
Holding Company shall enter into a firm contract for the issuance of such
shares of Common Stock and (B) immediately prior to the date of actual
-
issuance of such shares of Common Stock.
No adjustment of the Exercise Price shall be made under this section
4.2(b) upon the issuance of any shares of Common Stock which are (i)
-
distributed to holders of Common Stock pursuant to a dividend, distribution
or subdivision for which an adjustment shall previously have been made
under section 4.2(a) or (ii) issued pursuant to the exercise of any
--
Purchase Rights or pursuant to the conversion or exchange of any
Convertible Securities to the extent that an adjustment shall previously
have been made upon the issuance of such Purchase Rights or Convertible
Securities pursuant to sections 4.2(a), (c) or (d).
(c) Issuance of Purchase Rights. If and whenever the Holding Company
----------------------------
subsequent to the date hereof shall issue or sell any Purchase Rights
(except as otherwise provided in the last paragraph of this section 4.2(c))
and the consideration per share for which shares of Common Stock may at any
time thereafter be issuable upon exercise thereof (or, in the case of
Purchase Rights exercisable for the purchase of Convertible Securities,
upon the subsequent conversion or exchange of such Convertible Securities)
shall be less than the Fair Value per share (determined, in each case, as
of the date specified in the next
Exhibit 1(b)
------------
-10-
<PAGE>
succeeding paragraph), the Exercise Price upon each such issuance or sale
shall be adjusted as provided in section 4.2(b) as of the date specified in
the next succeeding paragraph on the basis that the maximum number of
shares of Common Stock ever issuable upon exercise of such Purchase Rights
(or upon conversion, exercise or exchange of such Convertible Securities
following such exercise) shall be deemed to have been issued as of the date
of the determination of the Fair Value specified in the next succeeding
paragraph.
For the purposes of this section 4.2(c), the date as of which the
Exercise Price shall be adjusted and the date as of which the Fair Value
shall be determined shall be the earlier of (A) the date on which the
-
Holding Company shall enter into a firm contract for the issuance of such
Purchase Rights and (B) immediately prior to the date of actual issuance of
-
such Purchase Rights.
No adjustment of the Exercise Price shall be made under this section
4.2(c) upon the issuance of any Purchase Rights to the extent that an
adjustment shall previously have been made upon the issuance of such
Purchase Rights pursuant to section 4.2(a).
(d) Issuance of Convertible Securities. If and whenever the Holding
------------------------------------
Company subsequent to the date hereof shall issue or sell any Convertible
Securities (except as otherwise provided in the last paragraph of this
section 4.2(d)) and the consideration per share for which shares of Common
Stock may at any time thereafter be issuable pursuant to the terms of such
Convertible Securities shall be less than the Fair Value per share
(determined, in each case, as of the date specified in the next succeeding
paragraph), the Exercise Price upon each such issuance or sale shall be
adjusted as provided in section 4.2(b) as of the date specified in the next
succeeding paragraph on the basis that the maximum number of shares of
Common Stock ever necessary to effect the conversion, exercise or exchange
of all such Convertible Securities shall be deemed to have been issued as
of the date of the determination of the Fair Value specified in the next
succeeding paragraph.
For the purposes of this section 4.2(d), the date as of which the
Exercise Price shall be adjusted and the date as of which the Fair Value
shall be determined shall be the earlier of (A) the date on which the
-
Holding Company shall enter into a firm contract for the issuance of such
Convertible Securities and (B) immediately prior to the date of actual
-
issuance of such Convertible Securities.
No adjustment of the Exercise Price shall be made under this section
4.2(d) upon the issuance of any Convertible Securities which are (i)
-
distributed to holders of Common Stock pursuant to a dividend or
distribution to the extent that an adjustment shall previously have been
made pursuant to section 4.2(a) or
Exhibit 1(b)
------------
-11-
<PAGE>
(ii) issued pursuant to the exercise of any Purchase Rights to the extent
--
that an adjustment shall previously have been made upon the issuance of
such Purchase Rights pursuant to section 4.2(a) or (c).
(e) Minimum Adjustment. If any adjustment of the Exercise Price
-------------------
pursuant to this section 4.2 shall result in an adjustment of less than
$0.05425, no such adjustment shall be made, but any such lesser adjustment
shall be carried forward and shall be made at the time and together with
the next subsequent adjustment which, together with any adjustments so
carried forward, shall amount to $0.05425; provided that upon any
--------
adjustment of the Exercise Price resulting from (i) the declaration of a
-
dividend upon, or the making of any distribution in respect of, any Shares
of the Holding Company payable in Common Stock, Purchase Rights or
Convertible Securities or (ii) the reclassification by subdivision,
--
combination or otherwise, of the Common Stock into a greater or smaller
number of shares, the foregoing figure of $0.05425 (or such figure as last
adjusted) shall be proportionately adjusted, and provided, further, that
-------- -------
upon the exercise of this Warrant, the Holding Company shall make all
necessary adjustments (to the nearest .0001 of a cent) not theretofore made
to the Exercise Price up to and including the date upon which this Warrant
is exercised.
(f) Readjustment of Exercise Price. Upon each change in (i) the
--------------------------------- -
consideration, if any, payable for any Purchase Rights or Convertible
Securities referred to in section 4.2(a), (c) or (d), (ii) the
--
consideration, if any, payable upon exercise of such Purchase Rights or
upon the conversion, exercise or exchange of such Convertible Securities or
(iii) the number of shares of Common Stock issuable upon the exercise o
---
such Purchase Rights or the rate at which such Convertible Securities are
convertible into or exchangeable for shares of Common Stock, the Exercise
Price in effect at the time of such event shall forthwith be readjusted to
the Exercise Price which would have been in effect at such time had such
Purchase Rights or Convertible Securities provided for such changed
consideration, number of shares of Common Stock so issuable or conversion
rate, as the case may be, at the time initially granted, issued or sold. On
the expiration or termination of any Purchase Rights not exercised or of
any right to convert, exercise or exchange under any Convertible Securities
terminated or not exercised, the Exercise Price then in effect shall
forthwith be increased to the Exercise Price which would have been in
effect at the time of such expiration had such Purchase Rights or
Convertible Securities never been issued. No readjustment of the Exercise
Price pursuant to this section 4.2(f) shall (i) increase the Exercise Price
-
by an amount in excess of the adjustment originally made to the Exercise
Price in respect of the issue, sale or grant of the applicable Purchase
Rights or Convertible Securities or (ii) require any adjustment to the
--
amount paid or number of Warrant Shares received by any Person upon any
exercise of this Warrant prior to the date upon which such readjustment to
the Exercise Price shall occur.
Exhibit 1(b)
------------
-12-
<PAGE>
(g) Reorganization, Reclassification or Recapitalization of the
-----------------------------------------------------------------
Holding Company; Dividends, etc. If and whenever subsequent to the dat
----------------------------------
hereof the Holding Company shall (i) effect any reorganization,
-
reclassification or recapitalization of any shares of Common Stock (or any
other Shares of the Holding Company) (other than in the cases referred to
in section 4.2(a)), (ii) effect any consolidation or merger of the Holding
--
Company with or into another Person, (iii) effect the sale, transfer or
---
other disposition of the property, assets or business of the Holding
Company as an entirety or substantially as an entirety, (iv) effect any
--
other transaction (or any other event shall occur) (other than as
explicitly provided elsewhere in this section 4.2) or (v) declare a
-
dividend or make any other distribution as a result of which holders of
shares of Common Stock receive any Shares or other securities and/or
property (including, without limitation, cash and/or Shares of any
Subsidiary of the Holding Company (and including, without limitation, any
dividend payable out of earnings or any surplus legally available for
distribution under the laws of the jurisdiction of the Holding Company's
organization)) with respect to or in exchange for the shares of Common
Stock (the transactions referred to in the foregoing clauses (i), (ii),
(iii), (iv) and (v) being each hereinafter referred to as a
"Distribution"), then at the same time the holder of this Warrant shall
receive (in addition to or in lieu of, as applicable, the Warrant Shares
deliverable upon exercise hereof) the same number of Shares or other
securities and/or the same property (including, without limitation, cash
and/or Shares of any Subsidiary of the Holding Company) which such holder
would have received if this Warrant had been exercised immediately prior to
such Distribution (or the applicable record date therefor).
Prior to and as a condition of the consummation of any Distribution,
the Holding Company shall make equitable, written adjustments satisfactory
to the Required Holders of the Warrants in the application of the
provisions set forth herein and in the other Operative Documents so that
such provisions shall thereafter be applicable, as nearly as possible, in
relation to any Shares or other securities or other property delivered to
the holders of the Warrants pursuant to this section 4.2(g). Any such
adjustment shall be made by and set forth in a supplemental agreement of
the Holding Company and/or the successor entity, as applicable, in form and
substance acceptable to the Required Holders of the Warrants, which
agreement shall bind and shall be enforceable against the Holding Company
and/or the successor entity, as applicable, and all holders of Warrants
then outstanding and shall be accompanied by a favorable opinion of the
regular outside counsel to the Holding Company or the successor entity, as
applicable (or such other firm as is reasonably acceptable to the Required
Holders of the Warrants), as to the enforceability of such agreement and as
to such other matters as the Required Holders of the Warrants may
reasonably request, such opinion to be in form and substance reasonably
acceptable to the Required Holders of the Warrants.
Exhibit 1(b)
------------
-13-
<PAGE>
(h) Other Dilutive Events. If any other transaction or event shall
----------------------
occur (excluding any transaction or event explicitly referred to in this
section 4.2, but including, without limitation, any issuance, repurchase,
redemption, or other distribution in respect of any Shares or other
securities of the Holding Company or of any other Person, including any
Person referred to in section 4.2(g)), as to which the other provisions of
this section 4 are not strictly applicable but the failure to make any
adjustment to the Exercise Price or to any of the other terms of this
Warrant would not fairly protect the purchase rights and other rights
represented by this Warrant in accordance with the essential intent and
principles hereof, then, and as a condition to the consummation of any such
transaction or event, and in each such case, the Holding Company shall
appoint a firm of independent certified public accountants of recognized
national standing (which may be the regular auditors of the Holding
Company), which shall give its opinion as to the adjustment, if any, on a
basis consistent with the essential intent and principles established in
this section 4, necessary to preserve, without dilution, the rights
represented by this Warrant. The certificate of any such firm of
accountants shall be conclusive evidence of the correctness of any
computation made under this section 4. The Holding Company shall pay the
fees and expenses of such firm of accountants in connection with any such
opinion. Upon receipt of such opinion, the Holding Company will promptly
deliver a copy thereof to the holder of this Warrant and shall make the
adjustments, if any, described therein.
(i) Determination of Consideration. For the purposes of this section
------------------------------
4, the consideration received or receivable by the Holding Company for the
issuance, sale or grant of shares of Common Stock, Purchase Rights or
Convertible Securities, irrespective of the accounting treatment of such
consideration, shall be valued and determined as follows:
(i) Cash Payment. In the case of cash, the gross amount paid
------------
by the purchasers without deduction of any accrued interest or
dividends, any reasonable expenses paid or incurred and any reasonable
underwriting commissions or concessions paid or allowed by the Holding
Company in connection with such issue or sale.
(ii) Non-Cash Payment. In the case of consideration other than
----------------
cash, the Fair Value thereof (in any case as of the date immediately
preceding the issuance, sale or grant in question).
(iii) Certain Allocations. If shares of Common Stock, Purchase
--------------------
Rights and/or Convertible Securities are issued or sold together with
other securities or other assets of the Holding Company for a
consideration which covers more than one of the foregoing categories
of securities and assets, the consideration received or receivable
(computed as provided in
Exhibit 1(b)
------------
-14-
<PAGE>
clauses (i) and (ii) of this section 4.2 (i)) shall be allocable to
such shares of Common Stock, Purchase Rights and/or Convertible
Securities as reasonably determined in good faith by the board of
directors of the Holding Company (provided such allocation is set
--------
forth in a written resolution and a certified copy thereof is
furnished to the holder of this Warrant promptly (but in any event
within 10 days) following its adoption).
(iv) Dividends in Securities. If the Holding Company shall
-------------------------
declare a dividend or make any other distribution upon any Shares of
the Holding Company payable in shares of Common Stock, Convertible
Securities or Purchase Rights, such shares of Common Stock,
Convertible Securities or Purchase Rights, as the case may be,
issuable in payment of such dividend or distribution shall be deemed
to have been issued or sold without consideration.
(v) Purchase Rights and Convertible Securities. The consideration
------------------------------------------
for which each share of Common Stock shall be deemed to be issued upon
the issuance or sale of any Purchase Rights or Convertible Securities
shall be determined by dividing (A) the total consideration, if any,
-
received by the Holding Company as consideration for the Purchase
Rights or the Convertible Securities, as the case may be, plus the
minimum aggregate amount of additional consideration, if any, ever
payable to the Holding Company upon the exercise of such Purchase
Rights and/or upon the conversion or exchange of such Convertible
Securities, as the case may be, but without deduction of any accrued
interest or dividends, any reasonable expenses paid or incurred and
any reasonable underwriting commissions or concessions paid or allowed
by the Holding Company in connection with such issue or sale; by (B)
-
the maximum number of shares of Common Stock ever issuable upon the
exercise of such Purchase Rights or upon the conversion or exchange of
such Convertible Securities.
(vi) Merger, Consolidation or Sale of Assets. If any shares of
-----------------------------------------
Common Stock, Convertible Securities or Purchase Rights are issued in
connection with any merger or consolidation of which the Holding
Company is the surviving corporation, the amount of consideration
therefor shall be deemed to be the Fair Value of such portion of the
assets and business of the non-surviving corporation as shall be
attributable to such Common Stock, Convertible Securities or Purchase
Rights, as the case may be. In the event of (A) any merger or
-
consolidation of which the Holding Company is not the surviving
corporation or (B) the sale, transfer or other disposition of the
-
property, assets or business of the Holding Company as an entirety or
substantially as an entirety for Shares or other securities of
Exhibit 1(b)
------------
-15-
<PAGE>
any other Person, the Holding Company shall be deemed to have issued
the number of shares of Common Stock for Shares or other securities of
the surviving corporation or such other Person computed on the basis
of the actual exchange ratio on which the transaction was predicated
and for a consideration equal to the Fair Value on the date of such
transaction of such Shares or other securities of the surviving
corporation or such other Person, and if any such calculation results
in adjustment of the Exercise Price, the determination of the number
of Warrant Shares issuable upon exercise of this Warrant immediately
prior to such merger, consolidation or sale, for the purposes of
section 4.2(g), shall be made after giving effect to such adjustment
of the Exercise Price.
(j) Record Date. If the Holding Company shall take a record of the
------------
holders of the Common Stock for the purpose of entitling them (i) to
-
receive a dividend or other distribution payable in Common Stock,
Convertible Securities or Purchase Rights or (ii) to subscribe for or
--
purchase Common Stock, Convertible Securities or Purchase Rights, then all
references in this section 4 to the date of the issue or sale of the shares
of Common Stock deemed to have been issued or sold upon the declaration of
such dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may be,
shall be deemed to be references to such record date.
(k) Shares Outstanding. The number of shares of Common Stock deemed to
------------------
be outstanding at any given time shall not include shares of Common Stock
held by the Holding Company or any Subsidiary of the Holding Company.
(l) Maximum Exercise Price. At no time shall the Exercise Price exceed
----------------------
the amount set forth in the first paragraph of the Preamble of this Warrant
except as a result of an adjustment thereto pursuant to section 4.2(a)(iii)
or 4.2(g).
(m) Application. All subdivisions of this section 4.2 are intended to
-----------
operate independently of one another. If a transaction or an event occurs
that requires the application of more than one subdivision, all applicable
subdivisions shall be given independent effect (but without duplication of
adjustment).
(n) No Adjustments Under Certain Circumstances. Anything herein to the
------------------------------------------
contrary notwithstanding, no adjustment to the Exercise Price shall be made
in the case of:
(i) any issuance of shares of Common Stock (or Other Securities)
upon the exercise in whole or in part of any of the Warrants;
Exhibit 1(b)
------------
-16-
<PAGE>
(ii) any issuance of shares of Common Stock upon the conversion,
exercise or exchange of any Convertible Securities and/or Purchase
Rights outstanding on the Closing Date and specified on Exhibit 5.5(b)
--------------
attached to the Securities Purchase Agreements, provided that the
--------
aggregate number of shares of Common Stock so issued shall not exceed
2,585,031 (subject to appropriate adjustment for any stock dividend,
subdivision or combination) at any time;
(iii) any grant by the Holding Company to any employees of the
Holding Company or any of its Subsidiaries (other than the Principal
Stockholder (or any members of his Family)) of any shares of Common
Stock and/or options to purchase shares of Common Stock pursuant to a
stock option plan adopted by the board of directors of the Holding
Company, and the issuance of shares of Common Stock upon the exercise
of such options, provided that the aggregate number of shares of
--------
Common Stock so granted, issued and issuable shall not exceed 920,178
(subject to appropriate adjustment for any stock dividend, subdivision
or combination) at any time; and
(iv) any issuance of shares of Common Stock (or Convertible
Securities or Purchase Rights) to any Person (who prior to such
issuance was not affiliated with the Holding Company or any of its
Subsidiaries) as consideration paid in connection with any acquisition
of any Person or business effected in compliance with the terms of the
Operative Documents so long as the per share consideration received or
receivable by the Holding Company for such issuance is not less than
the average market price of the Common Stock during a period of not
less than 10 consecutive trading days ended not more than 5 days prior
to the date of such issuance of such Common Stock (or Convertible
Securities or Purchase Rights).
4.3. Rights Offering. If the Holding Company shall effect an offering of
----------------
securities pro rata among its stockholders, the holder hereof shall be entitled,
--- ----
at its option, to elect to participate in each and every such offering as if
this Warrant had been exercised and such holder were, at the time of any such
rights offering, then a holder of that number of Warrant Shares to which such
holder is then entitled on the exercise hereof.
4.4. Certificates and Notices.
------------------------
(a) Adjustments to Exercise Price. As promptly as practicable (but in
-----------------------------
any event not later than five days) after the occurrence of any event
requiring any adjustment under this section 4 to the Exercise Price (or to
the number or kind of securities or other property deliverable upon the
exercise of this Warrant), the
Exhibit 1(b)
------------
-17-
<PAGE>
Holding Company shall, at its expense, deliver to the holder of this
Warrant either (i) an Officer's Certificate or (ii) a certificate signed by
- --
a firm of independent public accountants of recognized national standing
(which may be the regular auditors of the Holding Company), setting forth
in reasonable detail the events requiring the adjustment and the method by
which such adjustment was calculated and specifying the adjusted Exercise
Price and the number of shares of Common Stock (or Other Securities)
purchasable upon exercise of this Warrant after giving effect to such
adjustment. The certificate of any such firm of accountants shall be
conclusive evidence of the correctness of any computation made under this
section 4.
(b) Extraordinary Events. If and whenever the Holding Company
----------------------
subsequent to the date hereof shall propose to (i) pay any dividend to the
-
holders of shares of Common Stock or to make any other distribution to the
holders of shares of Common Stock (including, without limitation, any cash
dividend), (ii) offer to the holders of shares of Common Stock rights to
--
subscribe for or purchase any additional Shares of the Holding Company or
any other rights or options, (iii) effect any reclassification of the
---
Shares of the Holding Company (other than a reclassification involving
merely the subdivision or combination of outstanding shares of Common Stock
referred to in section 4.2(a)), (iv) engage in any reorganization or
--
recapitalization or any consolidation or merger, (v) consummate any sale,
-
transfer or other disposition of its property, assets and business as an
entirety or substantially as an entirety, (vi) effect any other transaction
--
which might require an adjustment to the Exercise Price (or to the number
or kind of shares of Common Stock, securities or other property deliverable
upon the exercise of this Warrant), including, without limitation, any
transaction of the kind described in section 4.2(g) or (vii) commence or
---
effect the liquidation, dissolution or winding up of the Holding Company,
then, in each such case, the Holding Company shall deliver to the holder of
this Warrant an Officer's Certificate giving notice of such proposed
action, specifying (A) the date on which the books of the Holding Company
-
shall close, or a record shall be taken, for determining the holders of
Common Stock entitled to receive such dividend or other distribution or
such rights or options, or the date on which such reclassification,
reorganization, recapitalization, consolidation, merger, sale, transfer,
other disposition, transaction, liquidation, dissolution or winding up
shall take place or commence, as the case may be, and (B) the date as of
-
which it is expected that holders of shares of Common Stock shall be
entitled to receive shares of Common Stock, securities or other property
deliverable upon such action, if any such date is to be fixed. Such
Officer's Certificate shall be delivered in the case of any action covered
by clause (i) or (ii) above, at least 30 days prior to the record date for
determining holders of Common Stock for purposes of receiving such payment
or offer, and, in any other case, at least 30 days prior to the date upon
which such action takes place and 20 days prior to any record date to
determine holders of Common Stock entitled to receive such securities or
other property.
Exhibit 1(b)
------------
-18-
<PAGE>
(c) Effect of Failure. Failure to give any certificate or notice, or
-----------------
any defect in any certificate or notice required under this section 4.4
shall not affect the legality or validity of the adjustment of the Exercise
Price or the number of Warrant Shares purchasable upon exercise of this
Warrant.
4.5. Adjustments for Changes in Certain Data. The Holding Company hereby
----------------------------------------
agrees that the initial aggregate number of shares of Common Stock issuable upon
the exercise in full of the Warrants issued on the Closing Date to the initial
holders thereof was 690,134, which was intended to constitute at least 7.5% of
the Common Stock outstanding immediately following the Closing (calculated on a
fully-diluted basis and assuming the conversion, exercise and/or exchange of all
securities convertible into or exercisable or exchangeable for Common Stock,
including, without limitation, the Warrants). If for any reason the shares of
Common Stock purchasable upon the exercise in full of the Warrants issued on the
Closing Date constituted less than 7.5% of the Common Stock outstanding as of
such time (and as so calculated), the Holding Company shall forthwith reissue
each Warrant then outstanding with appropriate adjustments in the Exercise Price
and in the number of shares of Common Stock issuable upon exercise thereof
(together with an Officer's Certificate setting forth in reasonable detail the
computation of such adjustments) and all such adjustments shall be satisfactory
to each holder thereof.
5. Repurchase; Registration; Transfer Restrictions, etc. Reference is hereby
----------------------------------------------------
made to (a) the Securities Purchase Agreements for certain provisions relating
-
to the repurchase of the Warrants and/or Warrant Shares under certain
circumstances and (b) the Registration Rights Agreement for certain provisions
-
relating to the registration rights of the holders of the Registrable Securities
(as defined therein) for certain provisions relating to transfer of the Warrants
and/or the Warrant Shares.
6. Reservation of Common Stock. The Holding Company has reserved and after the
---------------------------
date hereof will at all times reserve and keep available, solely for issuance,
sale and delivery upon the exercise of this Warrant, such number of shares of
Common Stock (and/or Other Securities) equal to the number of shares of Common
Stock (and/or Other Securities) issuable upon the exercise of this Warrant. All
such shares of Common Stock (and/or Other Securities) shall be duly authorized
and, when issued upon exercise of this Warrant in accordance with the terms
hereof, will be validly issued and fully paid and nonassessable and not subject
to preemptive rights on the part of any other Person and not subject to any
Lien, charge or other security interest.
Exhibit 1(b)
------------
-19-
<PAGE>
7. Various Covenants of the Holding Company.
----------------------------------------
7.1. No Impairment or Amendment; No Further Issuances or Sales; Continued
----------------------------------------------------------------------
Validity. The Holding Company shall not by any action, including, without
- --------
limitation, amending its Organizational Documents, any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of Shares or other securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
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 to
protect the rights of the holder hereof against impairment. Without limiting the
generality of the foregoing, the Holding Company (a) will take all such action
-
as may be necessary or appropriate in order that the Holding Company may validly
issue fully paid and nonassessable Warrant Shares, (b) will obtain and maintain
-
all such authorizations, exemptions or consents from any public regulatory body
having jurisdiction as may be necessary to enable the Holding Company to perform
its obligations under this Warrant, (c) will not enter into any agreement or
-
transaction, the terms of which would have the effect, directly or indirectly,
of preventing the Holding Company from honoring its obligations hereunder or
under any of the other Operative Documents for the benefit of the holders of the
Warrants and/or Warrant Shares, (d) will not amend or modify any term, condition
-
or provision of its Organizational Documents in a manner which is, or could
reasonably be expected to be, adverse in any material respect to the interests
of any holder of Warrants and/or Warrant Shares and (e) will not permit the par
-
value of any Warrant Shares issuable upon exercise of this Warrant to be greater
than the amount payable therefor upon such exercise.
So long as any Warrants or Warrant Shares are outstanding, the Holding
Company will acknowledge in writing, in form satisfactory to any holder of any
such security, the continued validity of the Holding Company's obligations
hereunder.
7.2. Listing on Securities Exchanges, etc. At all times following the
---------------------------------------
exercise of this Warrant, the Holding Company will use its commercially
reasonable efforts to maintain the listing of all issued and outstanding Warrant
Shares on each securities exchange or market or trading system on which such
securities are then or at any time thereafter listed or traded.
7.3. Indemnification. Without limiting the generality of any provision of
---------------
the Securities Purchase Agreements or any of the other Operative Documents, the
Holding Company shall indemnify, save and hold harmless the holder of this
Warrant and the holder of any Warrant Shares from and against any and all
liability, loss, cost, damage, reasonable attorneys' and accountants' fees and
expenses, court costs and all other out-of-pocket expenses reasonably incurred
by such holder in connection with preserving, exercising and/or enforcing any of
the terms hereof.
Exhibit 1(b)
------------
-20-
<PAGE>
7.4. Certain Expenses. The Holding Company shall pay all taxes (other than
----------------
transfer taxes and income taxes, if any, incurred by the holder hereof or any
transferee) and other governmental charges that may be imposed in respect of,
the issue, sale and delivery of this Warrant and any Warrant Shares.
8. Miscellaneous.
-------------
8.1. Nonwaiver. No course of dealing or any delay or failure to exercise
---------
any right, power or remedy hereunder on the part of the holder of this Warrant
or of any Warrant Shares shall operate as a waiver of or otherwise prejudice
such holder's rights, powers or remedies.
8.2. Amendment. Any term, covenant, agreement or condition of the Warrants
---------
may, with the consent of the Holding Company, be amended, or compliance
therewith may be waived (either generally or in a particular instance and either
retroactively or prospectively), by one or more substantially concurrent written
instruments signed by the Required Holders of the Warrants and the Holding
Company, provided that (a) no such amendment or waiver shall change the number
-------- -
of Warrant Shares issuable upon the exercise of any Warrant or the manner of
exercise or the amount of any payment due upon exercise or the duration of the
Exercise Period, in each case without the prior written consent of the holder of
such Warrant and (b) no such amendment or waiver shall extend to or affect any
-
obligation not expressly amended or waived or impair any right consequent
thereon.
8.3. Communications. All communications provided for herein shall be
--------------
delivered, mailed or sent by facsimile transmission addressed in the manner and
shall be effective as of the time specified in the Securities Purchase
Agreements.
8.4. Like Tenor. All Warrants shall at all times be identical, except as
----------
to the preamble to each Warrant.
8.5. Remedies. No remedy conferred in this Warrant on the holder of any
--------
Warrant or Warrant Shares is intended to be exclusive of any other remedy, and
each and every such remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or under any other agreement, document or
instrument or now or hereafter existing at law or in equity or by statute or
otherwise.
8.6. Successors and Assigns. This Warrant and the rights evidenced hereby
----------------------
shall inure to the benefit of and be binding upon the successors and assigns of
the Holding Company, the holder or holders of this Warrant and, as applicable,
of any Warrant Shares, to the extent provided herein and in the other Operative
Documents, and shall be enforceable by such holder or holders.
Exhibit 1(b)
------------
-21-
<PAGE>
8.7. Governing Law. This Warrant, including the validity hereof and the
-------------
rights and obligations of the Holding Company and of the holder hereof and all
amendments and supplements hereof and all waivers and consents hereunder, shall
be construed in accordance with and governed by the domestic substantive laws of
the State of New York without giving effect to any choice of law or conflicts of
law provision or rule that would cause the application of the domestic
substantive laws of any other jurisdiction.
8.8. Headings; Entire Agreement; Partial Invalidity, etc. The table of
------------------------------------------------------
contents to and headings in this Warrant are for purposes of reference only and
shall not limit or otherwise affect the meaning hereof. This Warrant, together
with the other Operative Documents, embodies the entire agreement and
understanding between the holder hereof and the Holding Company and supersedes
all prior agreements and understandings relating to the subject matter hereof.
In case any provision in this Warrant or any of the other Operative Documents
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
[The remainder of this page is left blank intentionally.]
Exhibit 1(b)
------------
-22-
<PAGE>
IN WITNESS WHEREOF, the Holding Company has caused this Warrant to be
executed as an instrument under seal by its duly authorized officer as of the
date first above written.
UNIDIGITAL INC.
By:
-----------------------------------
(Title)
Exhibit 1(b)
------------
-23-
<PAGE>
Exhibit 2.2(a)
--------------
FORM OF NOTICE OF EXERCISE
(To be executed only upon partial or full exercise
of the within Warrant)
The undersigned registered holder of the within Warrant irrevocably
exercises the within Warrant for and purchases shares of Common Stock
------------
(or Other Securities) [Specify applicable class and/or kind of securities] of
----------------------------------------------------
UNIDIGITAL INC. and herewith makes payment therefor in the amount of $ ,
--------
all at the price, in the manner and on the terms and conditions specified in the
within Warrant, and requests that a certificate (or certificates in
------------
denominations of shares) for such shares hereby purchased be issued in
---------
the name of and delivered to (choose one) (a) the undersigned or (b) ,
- - -----------
whose address is and, if such shares shall
------------------------------------
not include all the Warrant Shares issuable as provided in the within Warrant,
that a new Warrant of like tenor for the number of Warrant Shares not being
purchased hereunder be issued in the name of and delivered to (choose one) (a)
-
the undersigned or (b) , whose address is .
- ------------------ ----------------------
Dated: , .
------------- -- -----
[ ]
By
------------------------------------
(Signature of Registered Holder)
NOTICE: The signature on this Notice of Exercise must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatever.
Exhibit 1(b)
------------
-24-
<PAGE>
Exhibit 3
---------
FORM OF ASSIGNMENT
(To be executed only upon the assignment
of the within Warrant)
FOR VALUE RECEIVED, the undersigned registered holder of the within
Warrant hereby sells, assigns and transfers unto ,
-------------------------------
whose address is ,
---------------------------------------------------------------
all of the rights of the undersigned under the within Warrant, with respect to
shares of Common Stock (or Other Securities) [Specify applicable class
- ---------- ------------------------
and/or kind of securities] of UNIDIGITAL INC. and, if such shares shall not
- --------------------------
include all the Warrant Shares issuable as provided in the within Warrant, that
a new Warrant of like tenor for the number of Warrant Shares not being
transferred hereunder be issued in the name of and delivered to [choose one] (a)
---------- -
the undersigned or (b) , whose address is
- --------------------------- -------------
, and does hereby
- ---------------------------------------------------------------
irrevocably constitute and appoint Attorney to
-----------------------------------
register such transfer on the books of UNIDIGITAL INC. maintained for the
purpose, with full power of substitution in the premises.
Dated: , .
------------- -- -----
[ ]
By
------------------------------------
(Signature of Registered Holder)
NOTICE: The signature on this Assignment must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatever.
Exhibit 1(b)
------------
-25-
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT, dated the 14th day of September 1999,
is by and among UNIDIGITAL INC., a Delaware corporation (the "Holding Company"),
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY ("MMLIC"), C.M. LIFE INSURANCE
COMPANY ("CMLIC"), MASSMUTUAL CORPORATE INVESTORS ("MMCI"), MASSMUTUAL
PARTICIPATION INVESTORS ("MMPI"), and MASSMUTUAL CORPORATE VALUE PARTNERS
LIMITED ("MMCVP") (MMLIC, CMLIC, MMCI, MMPI and MMCVP are collectively referred
to herein as the "MassMutual Investors" and each as a "MassMutual Investor").
Certain other terms are defined in section 1.
The MassMutual Investors have agreed to acquire certain securities from the
Holding Company and its Subsidiaries pursuant to the Securities Purchase
Agreements. In consideration of the premises and other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged by the
parties hereto, and in order to induce the MassMutual Investors to purchase such
securities, the parties hereby agree as follows:
1. Certain Definitions. Capitalized terms used in this Agreement without
-------------------
definition have the respective meanings ascribed hereto in the Securities
Purchase Agreements. In addition, the following terms have the following
respective meanings:
"Indemnified Person" shall have the meaning specified in section 2.5.
----------- ------
"qualification" or "compliance" shall mean the qualification or
------------- ----------
compliance of all Registrable Shares included in any registration pursuant
to section 2 under all applicable blue sky or other applicable securities
laws.
"register", "registered" and "registration" as used in section 2 refer
-------- ---------- ------------
to a registration effected by filing a registration statement in compliance
with the Securities Act to permit the sale and disposition of the
Registrable Shares and any amendment filed or required to be filed to
permit any such disposition.
"Registrable Shares" shall mean any Warrant Shares, except that, as to
----------- ------
any particular Registrable Shares, such securities, once issued, will cease
to be Registrable Shares when (a) a registration statement covering such
-
securities has been declared effective and such securities have been
disposed of pursuant to an effective registration statement or (b) such
-
securities have been sold to the public
Exhibit 4.3(c)
--------------
<PAGE>
without registration in accordance with Rule 144 (or any similar
provisions then in force) under the Securities Act. A Person shall be
deemed a "holder" of Registrable Shares for purposes of this Agreement
if such Person is the holder of a Warrant or Warrant Shares.
"Registration Expenses" shall mean all fees, expenses and
------------ --------
disbursements related to any registration, qualification or compliance
pursuant to section 2, including, without limitation, all
registration, filing, rating and listing fees, blue sky fees and
expenses, printing expenses, fees and disbursements of counsel
(including, without limitation, the reasonable fees, expenses and
disbursements of one counsel for the holder or holders of the
Registrable Shares), and expenses of any special audits incidental to
or required by any registration, qualification or compliance, except
that Registration Expenses shall not include any underwriters'
discounts or commissions attributable to any Registrable Shares
registered and sold pursuant to any such registration.
"Required Institutional Investors" shall mean, at any date, the
-------- ------------- ---------
holder or holders of at least 66-2/3% in interest of the Registrable
Shares then outstanding.
"Securities Purchase Agreements" shall mean the Securities
---------- -------- ----------
Purchase Agreements dated the date hereof by and among the Holding
Company, its Subsidiaries and the institutional investors named
therein, as amended, modified or supplemented from time to time.
2. Registration, etc.
------------------
2.1. Registration on Request.
-----------------------
(a) If the Holding Company shall receive from one or more holders of
Registrable Shares a written request or requests that the Holding Company
effect any registration, qualification and/or compliance of any Registrable
Shares held by (or issuable to) such holder or holders, specifying the
intended method of offering, sale and distribution, the Holding Company
will:
(i) promptly give written notice of the proposed registration,
qualification and/or compliance to each other holder of any
Registrable Shares; and
(ii) as soon as practicable, effect such registration,
qualification and/or compliance (including, without limitation, the
execution of an undertaking for post-effective amendments, appropriate
qualification under applicable blue sky or other applicable securities
laws and appropriate compliance with exemptive regulations issued
under all applicable
Exhibit 4.3(c)
--------------
-2-
<PAGE>
securities laws and any other governmental requirements or
regulations) as may be so requested and as would permit or facilitate
the sale and distribution of such amount of Registrable Shares as is
specified in a written request or requests, made within 30 days after
receipt of such written notice from the Holding Company, by any holder
or holders of any Registrable Shares.
(b) The obligations of the Holding Company under this section 2.1 to
effect any such registration, qualification and/or compliance are subject
to the following qualifications:
(i) the Holding Company shall only be obligated to effect one
registration pursuant to this section 2.1, provided that if for any
--------
reason less than all of the Registrable Shares for which registration
has been requested may then be registered, then the holders of the
Registrable Shares shall be entitled to an additional registration of
Registrable Shares pursuant to this section 2.1;
(ii) the Holding Company shall not be obligated to effect any
registration, qualification or compliance requested pursuant to this
section 2.1 prior to August 31, 2000;
(iii) the Holding Company shall not be obligated to effect any
registration or qualification requested pursuant to this section 2.1
unless it shall have been requested to do so by the holder or holders
of at least 66-2/3% of the Registrable Shares at the time outstanding;
(iv) the Holding Company shall not include in any registration,
qualification or compliance requested pursuant to this section 2.1 any
securities other than Registrable Shares (including, without
limitation, those to be issued and sold by the Holding Company),
without the prior written consent of holders of a majority of the
Registrable Shares to be included in such registration, qualification
or compliance;
(v) the Holding Company shall pay all Registration Expenses
related to any registration, qualification and compliance contemplated
by this section 2.1; and
(vi) notwithstanding the foregoing provisions of this section 2,
if the Holding Company shall furnish to holders requesting a
registration statement pursuant to this section 2, a certificate
signed by the President or Chief Executive Officer of the Holding
Company stating that, in the good faith judgment of the Board of
Directors of the Holding Company, it would
Exhibit 4.3(c)
--------------
-3-
<PAGE>
be detrimental to the Holding Company and its stockholders for such
registration statement to be filed by reason of a material pending
announcement or transaction or series of pending transactions and it
is therefore necessary to defer the filing of such registration
statement, the Holding Company shall have the right to defer such
filing for a period of not more than one hundred twenty (120) days
after receipt of the request of such holders; provided that the
Holding Company may not utilize this right (A) more than once in any
twelve (12) month period or (B) more than twice.
2.2. Incidental Registration.
-----------------------
(a) If the Holding Company at any time or from time to time shall
determine to effect the registration, qualification and/or compliance of
any of its equity securities (whether in connection with an offering by the
Holding Company or others) (otherwise than pursuant to a registration on a
form inappropriate for an underwritten public offering or relating solely
to securities to be issued in a merger, acquisition of the stock or assets
of another entity or in a similar transaction), then, in each such case,
the Holding Company will:
(i) promptly give written notice of the proposed registration,
qualification and/or compliance (which shall include a list of the
jurisdictions in which the Holding Company intends to register or
qualify such securities under the applicable blue sky or other
securities laws) to each holder of any Registrable Shares; and
(ii) include among the securities which it then registers or
qualifies all Registrable Shares specified by any holder thereof in a
written request or requests, made within 30 days after receipt of such
written notice from the Holding Company.
(b) The obligations of the Holding Company under this section 2.2 are
subject to the following qualifications:
(i) the Holding Company shall pay all Registration Expenses
related to any registration, qualification and/or compliance
contemplated by this section 2.2; and
(ii) if, in connection with any underwritten offering pursuant to
this section 2.2, the managing underwriter shall impose a limitation
on the number or kind of securities which may be included in any such
registration for sale by any Person other than the Holding Company
because, in its reasonable judgment, such limitation is necessary to
effect an orderly public distribution, then the Holding Company shall
be
Exhibit 4.3(c)
--------------
-4-
<PAGE>
obligated to include in such registration statement, only such limited
portion of the Registrable Shares (which may be none) as is determined
in good faith by such managing underwriter, provided that if any
--------
securities are being offered for the account of any Person other than
the Holding Company and the holders of the Registrable Shares, the
reduction in the number of Registrable Shares included in such
registration or qualification shall not represent a greater percentage
of the amount of Registrable Shares originally requested to be
registered and sold in such registration than the lowest such
percentage reduction imposed upon any other Person.
2.3. Rule 144 Reporting; S-3 Registration.
------------------------------------
(a) With a view to making available the benefits of certain rules and
regulations of the Commission which may at any time permit the sale of the
Holding Company's capital stock to the public without registration, at all
times the Holding Company agrees to (i) make and keep public information
-
available, as those terms are understood and defined in Rule 144 of the
Commission under the Securities Act; (ii) use its best efforts to file with
--
the Commission in a timely manner all reports and other documents required
of the Holding Company under the Securities Act and the Exchange Act; and
(iii) furnish to each holder of any Warrants and/or Warrant Shares
---
forthwith upon request a written statement by the Holding Company as to its
compliance with the reporting requirements of such Rule 144 and of the
Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of the Holding Company and such other reports and
documents so filed by the Holding Company as any such holder may reasonably
request in availing itself of any rule or regulation of the Commission
allowing such holder to sell any securities without registration.
(b) In addition to the rights under sections 2.1 and 2.2, so long as
the Holding Company is then eligible to file a registration statement on
Form S-3 (or any successor form) under the Securities Act, then, upon the
written request by any holder or holders of any Registrable Shares, the
Holding Company shall use its best efforts to effect the registration (on
such Form S-3 (or any successor form)), qualification and compliance of all
of the Registrable Shares of the holder making such request. If so
requested by any holder or holders of Registrable Shares, the Holding
Company shall take such steps as are required to register such Registrable
Shares for sale on a delayed or continuous basis under Rule 415 under the
Securities Act and to keep such registration effective for such period as
is necessary to permit the sale and distribution of the Registrable Shares
pursuant thereto. The Holding Company shall not be obligated to effect more
than one registration pursuant to this section 2.3 during any period of
twelve consecutive months, nor shall it be obligated to effect any
registration requested pursuant to this section 2.3 within 180 days after
the effective date of any registration in
Exhibit 4.3(c)
--------------
-5-
<PAGE>
which the holders of Registrable Shares shall have been permitted to
fully participate under section 2.2. The Holding Company shall pay all
Registration Expenses related to each such registration, qualification
and compliance contemplated by this section 2.3.
2.4. Registration Procedures. In the case of each registration,
------------------------
qualification and/or compliance contemplated by this section 2, the Holding
Company will keep the holder or holders of Registrable Shares advised in
writing as to the initiation of proceedings for such registration,
qualification and compliance and as to the completion thereof, and will
advise each such holder, upon request, of the progress of such proceedings.
In addition, the Holding Company will follow procedures customarily
observed by issuers in public offerings, and accord to the holder or
holders of Registrable Shares all rights (including, without limitation,
the right to perform appropriate "due diligence") customarily accorded to
selling stockholders in secondary distributions and to managing
underwriters if the transaction in question is or was an underwritten
public offering. At the expense of the Holding Company or of the party or
parties bearing the expenses of such registration, qualification and
compliance, the Holding Company will (a) keep such registration,
-
qualification and compliance current and effective by such action as may be
necessary or appropriate, including, without limitation, the filing of
post-effective amendments and supplements to any registration statement or
prospectus, for such period (not to exceed 180 days) as is necessary to
permit the sale and distribution of the Registrable Shares pursuant
thereto, (b) take all necessary action under any applicable blue sky or
-
other applicable securities law to permit such sale and/or distribution,
all as requested by the holder or holders of Registrable Shares included
therein, and comply with applicable requirements of all regulatory
entities, provided that the Holding Company shall not be required to so
register or qualify the Registrable Shares in any jurisdiction if, solely
as a result thereof, the Holding Company must qualify generally to do
business therein or consent to general service of process therein, (c)
-
furnish each holder of Registrable Shares included therein such number of
registration statements, prospectuses, supplements, amendments, offering
circulars and other documents incidental thereto as such holder from time
to time may reasonably request, (d) list all Registrable Shares on each
-
securities exchange on which securities of the same class are then listed
and (e) furnish (or cause to be furnished) to each holder of Registrable
-
Shares, all undertakings, agreements, certificates, opinions, financial
statements and "comfort letters" of the sort customarily provided to
selling stockholders in secondary distributions and to the managing
underwriters, if the transaction in question is or were an underwritten
public offering. In connection with each registration, qualification and/or
compliance contemplated by this section 2, the sellers of Registrable
Shares shall furnish to the Holding Company such information with respect
to themselves and the proposed distribution by them as is necessary to
assure compliance with federal and applicable state securities laws.
2.5. Indemnification.
---------------
Exhibit 4.3(c)
--------------
-6-
<PAGE>
(a) The Holding Company will indemnify, defend and hold harmless
each holder of Registrable Shares included in any registration,
qualification and/or compliance contemplated by this section 2 and
each underwriter of such securities, and each Person, if any, who
controls each such holder and underwriter within the meaning of
applicable securities laws, and their respective directors, officers,
employees, agents, advisors and Affiliates (each, an "Indemnified
Person"), to the fullest extent enforceable under applicable law
against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any
registration statement, prospectus, supplement, amendment, offering
circular or other document related to any registration, qualification
or compliance 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, or any violation (or alleged
violation) of applicable securities laws in connection with any such
registration, qualification or compliance, and will reimburse each
such Indemnified Person for any legal or any other expenses reasonably
incurred in connection with investigating and/or defending (and/or
preparing for any investigation or defense of) any such claim, loss,
damage, liability, action or violation; provided that the Holding
--------
Company will not be liable in any such case to any such Indemnified
Person if, but only to the extent that, any such claim, loss, damage,
liability, action, violation or expense is finally determined to arise
out of or result from any untrue statement in or omission from written
information furnished to the Holding Company by an instrument duly
executed by such Indemnified Person and stated to be specifically for
use therein.
(b) Each holder of Registrable Shares will, if securities held by
such holder are included in a registration, qualification or
compliance effected pursuant to this section 2, indemnify, defend and
hold harmless the Holding Company, each of its directors and officers
who signs the related registration statement, each underwriter of such
securities and each Person, if any, who controls the Holding Company
or such underwriter within the meaning of applicable securities laws,
and their respective directors, officers, employees, agents, advisors
and Affiliates, to the fullest extent enforceable under applicable law
against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, supplement, amendment, offering
circular or other document related to any such registration,
qualification or compliance 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, and will
reimburse the Holding Company and such directors, officers or Persons
for any legal or any other expenses reasonably incurred in connection
with investigating or defending (and/or preparing for any
investigation or defense of) any such claim, loss, damage, liability
or action, in each case to the extent, but
Exhibit 4.3(c)
--------------
-7-
<PAGE>
only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) was made in (or omitted
from) such registration statement, prospectus, supplement, amendment,
offering circular or other document in reliance upon and in conformity
with written information furnished to the Holding Company by an
instrument duly executed by such holder and stated to be specifically
for use therein; provided that the aggregate liability of any such
--------
holder under this section 2.5 (and otherwise in connection with
indemnification and/or contribution obligations related to such
registration, qualification or compliance) shall be limited to the net
sales proceeds actually received by such holder as a result of the
sale by it of securities in such registration, qualification or
compliance.
(c) Promptly after receipt by an indemnified party under this
section 2.5 of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under this section 2.5, notify the
indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve the indemnifying party from
any liability which it may have to such indemnified party except to
the extent the indemnifying party is actually prejudiced by such
omission. In case any such action shall be brought against any
indemnified party and such indemnified party shall notify the
indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate in and, to the extent it shall wish,
to assume and undertake the defense thereof with counsel reasonably
satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to
assume and undertake the defense thereof, the indemnifying party shall
not be liable to such indemnified party under this section 2.5 for any
legal expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation and of liaison with counsel so selected by the
indemnifying party; provided that, if the defendants in any such
--------
action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there
may be reasonable defenses available to it that are different from or
additional to those available to the indemnifying party or if the
interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, then the
indemnified party shall have the right to select separate counsel and
to assume such legal defenses and otherwise to participate in the
defense of such action, with the reasonable expenses and fees of such
separate counsel and other expenses related to such participation to
be reimbursed by the indemnifying party as incurred.
(d) To provide for just and equitable contribution to joint
liability under the Securities Act in any case in which (i) an
-
indemnified party makes a claim for indemnification pursuant to this
section 2.5 but it is judicially determined (by the
Exhibit 4.3(c)
--------------
-8-
<PAGE>
entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in
such case notwithstanding the fact that this section 2.5 provides for
indemnification in such case, or (ii) contribution under the
--
Securities Act may be required on the part of the Holding Company, any
selling holder of Registrable Shares, any director and officer of the
Holding Company who signs any related registration statement or any
controlling person (within the meaning of applicable securities laws)
of any of the foregoing Persons in circumstances for which
indemnification is provided under this section 2.5; then, and in each
such case, the Holding Company and such selling holder of Registrable
Shares will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from
others) as is appropriate to reflect the relative fault of the Holding
Company and such holder of Registrable Shares in connection with the
statements or omissions which resulted in such losses, claims, damages
or liabilities, as well as the relative benefit received by the
Holding Company and such holder of Registrable Shares as a result of
the offering in question, it being understood that the parties
acknowledge that the overriding equitable consideration to be given
effect in connection with this provision is the ability of one party
or the other to correct the statement or omission which resulted in
such losses, claims, damages or liabilities, and that it would not be
just and equitable if contribution pursuant thereto were to be
determined by any method of allocation which does not take into
consideration the foregoing equitable considerations; provided that
--------
(x) in any such case no Person guilty of fraudulent misrepresentation
-
(within the meaning of Section 11(f) of the Securities Act) will be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation, and (y) in no event shall any holder of
-
Registrable Shares be obligated to make any contribution in excess of
the amount specified in section 2.5(b).
2.6. Restrictions on Other Agreements. The Holding Company will not
---------------------------------
grant any right relating to the registration, qualification or compliance
of its securities if the exercise thereof interferes with or is
inconsistent with or will delay (or could reasonably be expected to
interfere with or be inconsistent with or delay) the exercise and enjoyment
of any of the rights granted under this section 2, without the written
consent of the Required Institutional Investors, which consent may be given
or withheld in the sole discretion of such holders, and the Holding Company
has not heretofore granted any such right. The Holding Company will not
permit any of its Subsidiaries to effect, or to grant any right relating
to, the registration of its securities.
3. Notices. All communications provided for herein shall be in writing and
-------
sent (a) by telecopy if the sender on the same day sends a confirming copy of
-
such communication by a recognized overnight delivery service (charges prepaid),
(b) by a recognized overnight delivery service (charges prepaid), or (c) by
- -
messenger. The
Exhibit 4.3(c)
--------------
-9-
<PAGE>
respective addresses of the parties hereto for the purposes of this Agreement
are set forth on the signature pages or Exhibit A attached hereto. Any party may
---------
change its address (or telecopy number) by notice to each of the other parties
in accordance with this section 3. Communications under this Agreement shall be
deemed given only when actually received.
4. Binding Agreement. This Agreement shall be binding on and shall inure to
-----------------
the benefit of each of the parties hereto and their respective successors and
assigns.
5. Amendments and Waivers. This Agreement may not be amended, nor may
------------------------
compliance with the terms hereof be waived, except by a written instrument
signed by the Holding Company and the Required Institutional Investors. No
course of dealing between any parties hereto and no delay by any party in
exercising its rights hereunder shall operate as a waiver of any rights of any
party. No waiver shall be deemed to be made by any party of its rights hereunder
unless the same shall be in writing signed on behalf of such party, and each
waiver, if any, shall be a waiver only with respect to the specific instance
involved and shall in no way impair the rights or obligations of any other party
in any other respect at any other time.
6. Specific Performance. The parties hereto stipulate that the remedies at law
--------------------
of any party hereto in the event of any default or threatened default by any
other party hereto in the performance of or compliance with the terms hereof are
not and will not be adequate and that, to the fullest extent permitted by law,
such terms may be specifically enforced by a decree for the specific performance
thereof, whether by an injunction against violation thereof or otherwise.
7. Governing Law; Jurisdiction; Waiver of Jury Trial. This Agreement,
--------------------------------------------------------
including the validity hereof and the rights and obligations of the parties
hereunder, and all amendments and supplements hereof and all waivers and
consents hereunder, shall be construed in accordance with and governed by the
domestic substantive laws of the State of New York without giving effect to any
choice of law or conflicts of law provision or rule that would cause the
application of the domestic substantive laws of any other jurisdiction. Each of
the parties hereto, to the extent that it may lawfully do so, hereby consents to
service of process, and to be sued, in the State of New York and consents to the
jurisdiction of the courts of the State of New York and the United States
District Court for the Southern District of New York, as well as to the
jurisdiction of all courts to which an appeal may be taken from such courts, for
the purpose of any suit, action or other proceeding arising out of any of its
obligations hereunder or with respect to the transactions contemplated hereby,
and expressly waives any and all objections it may have as to venue in any such
courts. Each of the parties hereto further agrees that a summons and complaint
commencing an action or proceeding in any of such courts shall be properly
served and shall confer personal jurisdiction if served personally or by
certified mail to it at its address referred to in section 3 or as otherwise
provided under
Exhibit 4.3(c)
--------------
-10-
<PAGE>
the laws of the State of New York. Notwithstanding the foregoing, each of the
parties hereto agrees that nothing contained in this section 7 shall preclude
the institution of any such suit, action or other proceeding in any jurisdiction
other than the State of New York. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES
ALL RIGHT TO A TRIAL BY JURY IN ANY SUIT, ACTION OR OTHER PROCEEDING INSTITUTED
BY OR AGAINST IT IN RESPECT OF ITS OBLIGATIONS HEREUNDER OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
8. Miscellaneous. The headings in this Agreement are for purposes of reference
-------------
only and shall not limit or otherwise affect the meaning hereof. This Agreement
embodies the entire agreement and understanding among the parties hereto
relating to the subject matter hereof and supersedes all prior agreements and
understandings relating to the subject matter hereof. Each covenant contained
herein shall be construed (absent an express provision to the contrary) as being
independent of each other covenant contained herein, so that compliance with any
one covenant shall not (absent such an express contrary provision) be deemed to
excuse compliance with any other covenant. If any provision in this Agreement
refers to any action taken or to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable, whether such action
is taken directly or indirectly by such Person. In case any provision in this
Agreement shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby. This Agreement may be executed in any number of counterparts
and by the parties hereto or thereto, as the case may be, on separate
counterparts but all such counterparts shall together constitute but one and the
same instrument.
[The remainder of this page is intentionally left blank.]
-------------------------------------------------------
Exhibit 4.3(c)
--------------
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date first above written.
UNIDIGITAL INC.
By: /s/ William E. Dye
------------------------------------
Chief Executive Officer (Title)
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By: /s/ Richard C. Morrison
------------------------------------
Managing Director (Title)
C.M. LIFE INSURANCE COMPANY
By: /s/ Richard C. Morrison
------------------------------------
Investment Officer (Title)
MASSMUTUAL CORPORATE
INVESTORS
By: /s/ Richard C. Morrison
------------------------------------
Vice President (Title)
The foregoing is executed on behalf of
MassMutual Corporate Investors,
organized under a Declaration of Trust,
dated September 13, 1985, as amended
from time to time. The obligations of
such Trust are not personally binding
upon, nor shall resort be had to the
property of, any of the Trustees,
Exhibit 4.3(c)
--------------
-12-
<PAGE>
shareholders, officers, employees or
agents of such Trust, but the Trust's
property only shall be bound.
MASSMUTUAL PARTICIPATION
INVESTORS
By: /s/ Richard C. Morrison
------------------------------------
Vice President (Title)
The foregoing is executed on behalf of
MassMutual Participation Investors,
organized under a Declaration of Trust,
dated April 7, 1988, as amended from
time to time. The obligations of such
Trust are not personally binding upon,
nor shall resort be had to the property
of, any of the Trustees, shareholders,
officers, employees or agents of such
Trust, but the Trust's property only
shall be bound.
MASSMUTUAL CORPORATE VALUE
PARTNERS LIMITED
By Massachusetts Mutual Life Insurance
Company, as Investment Manager
By: /s/ Richard C. Morrison
---------------------------------
Managing Director (Title)
Exhibit 4.3(c)
--------------
-13-
<PAGE>
Exhibit A
---------
Addresses for Notices
---------------------
To any of the MassMutual Investors: In accordance with the notice provisions
set forth in the Securities Purchase
Agreements
To the Holding Company: In accordance with the notice provisions
set forth in the Securities Purchase
Agreements
Exhibit 4.3(c)
--------------
-14-
Exhibit 1(a)
------------
THE PAYMENT OF THIS NOTE AND THE RIGHTS OF THE HOLDER OF THIS NOTE ARE
SUBORDINATED TO THE PAYMENT OF SUPERIOR INDEBTEDNESS (AS DEFINED HEREIN) AND THE
RIGHTS OF THE HOLDERS OF SUPERIOR INDEBTEDNESS UPON THE TERMS OF SUBORDINATION
SET FORTH HEREIN.
UNIDIGITAL INC.
LINOGRAPHICS CORPORATION
ELEMENTS (UK) LIMITED
UNIDIGITAL ELEMENTS (SF), INC.
UNISON (NY), INC.
UNISON (MA), INC.
MEGA ART CORP.
SUPERGRAPHICS HOLDING COMPANY, INC.
SUPERGRAPHICS CORPORATION
REGENT GROUP LIMITED
INTERFACE GRAPHICS LIMITED
14% Senior Subordinated Note due September 14, 2006
No. R-
$
-------------- -------- --, ----
UNIDIGITAL INC., LINOGRAPHICS CORPORATION, ELEMENTS (UK) LIMITED,
UNIDIGITAL ELEMENTS (SF), INC., UNISON (NY), INC., UNISON (MA), INC., MEGA ART
CORP., SUPERGRAPHICS HOLDING COMPANY, INC., SUPERGRAPHICS CORPORATION, REGENT
GROUP LIMITED, and INTERFACE GRAPHICS LIMITED (collectively, the "Companies";
each, a "Company"), for value received, hereby jointly and severally promise to
pay to, or registered assigns, the principal amount
-----------------------
of DOLLARS ($ ) on September 14, 2006, with interest (computed on the
----------
basis of a 360-day year of twelve 30-day months) on the unpaid balance of such
principal amount at the rate of 14% per annum, from the date hereof, payable
semi-annually on the last day of each February and August after the date hereof,
commencing on [February 29, 2000/ the first such date next succeeding the date
-----------------------------------------------------------------
hereof], until the principal hereof shall have become due and payable (whether
- ------
at maturity or at a date fixed for prepayment or by declaration or otherwise),
and with interest on any overdue principal (including any overdue prepayment of
principal) and (to the extent permitted by applicable law) premium, if any, and
(to the
Exhibit 1(a)
------------
<PAGE>
extent permitted by applicable law) on any overdue installment of interest, at
the rate of 16% per annum until paid, payable semi-annually as aforesaid or, at
the option of the holder hereof, on demand and, upon acceleration of this Note,
together with the premium, if any, specified in the Securities Purchase
Agreements hereinafter referred to, as liquidated damages and not as a penalty;
provided that in no event shall the amount payable by any Company as interest on
- --------
this Note exceed the highest lawful rate permissible under any law applicable
hereto. Payments of principal, premium, if any, and interest hereon shall be
made in lawful money of the United States of America by the method and at the
address for such purpose specified in the Securities Purchase Agreements
hereinafter referred to, and such payments shall be overdue for purposes hereof
if not made on the originally scheduled date of payment therefor, without giving
effect to any applicable grace period and notwithstanding that such payment may
be prohibited under the terms of subordination applicable hereto.
As further provided herein, the Companies may, at their option, defer the
payment of a portion of the interest due on this Note on any regularly scheduled
interest payment date until maturity (whether by declaration, acceleration, or
otherwise) and such amount shall be deemed to be added to the principal amount
of this Note, and all references herein (or in any of the other Operative
Documents (as defined in the Securities Purchase Agreements)) to the principal
amount of this Note shall be deemed, unless the context clearly requires
otherwise, to include the amount of such interest.
This Note is one of the Companies' 14% Senior Subordinated Notes due
September 14, 2006, limited to $20,000,000 (subject to adjustment) aggregate
principal amount, issued pursuant to those certain Securities Purchase
Agreements dated September 14, 1999 (such agreements, as amended, modified and
supplemented from time to time, the "Securities Purchase Agreements") among the
Companies and the institutional investors named therein, and the holder hereof
is entitled to the benefits of the Securities Purchase Agreements and the other
Operative Documents referred to in the Securities Purchase Agreements and may
enforce the agreement contained therein and exercise the remedies provided for
thereby or otherwise available in respect thereof, all in accordance with the
terms thereof.
This Note is subject to prepayment only as specified in the Securities
Purchase Agreements (subject to the provisions of Section 2 hereof).
Capitalized terms used herein without definition have the meanings ascribed
to them in the Securities Purchase Agreements.
Exhibit 1(a)
------------
-2-
<PAGE>
1. Provisions Concerning Deferred Interest.
----------------------------------------
1.1. Option of the Companies to Capitalize a Portion of Interest. The
----------------------------------------------------------------
Companies may, at their option (upon notice as provided in section 1.2), in lieu
of paying cash, defer the payment of up to 2/14th (or 14.28571%) of the amount
of interest which is due and payable on this Note on any regularly scheduled
interest payment date (the portion of interest that is not so paid in cash on
any regularly scheduled interest payment date being hereinafter referred to as
the "Deferred Interest") until maturity (whether by declaration, acceleration or
otherwise). Such Deferred Interest shall be deemed to be included in the
principal amount of this Note, as of such regularly scheduled interest payment
date (any such date on and as of which the interest is deferred shall be
referred to as an "Adjustment Date"), provided that (a) the Companies exercise
-------- -
such option proportionately with respect to all of the Notes then outstanding
and (b) on such regularly scheduled interest payment date, the Companies pay in
-
cash in full all interest (other than interest that is deferred pursuant to this
section 1) which is due and payable on such date on all of the Notes then
outstanding. If the Companies shall, in accordance with the terms of this
section 1, exercise such option, then, from and after each Adjustment Date, the
Deferred Interest shall be treated as if it were part of the principal amount of
each Note.
1.2. Notice from the Companies. To exercise the option under section 1.1,
--------------------------
the Companies shall deliver to each holder of any Note not less than 10 or more
than 30 days prior to an Adjustment Date, an Officer's Certificate which shall
specify:
(a) the applicable Adjustment Date;
(b) (i) the portion of the interest which is due and payable on such
-
Adjustment Date on the Notes to be treated as Deferred Interest, (ii) the
--
aggregate amount of Deferred Interest to be treated as of such Adjustment
Date as part of the principal amount of the Notes then outstanding and
(iii) the amount of Deferred Interest to be treated as of such Adjustment
---
Date as if it were part of the principal amount of each Note then held by
such holder;
(c) the aggregate amount of interest to be paid in cash on such
Adjustment Date on all of the Notes then outstanding and the amount of
interest to be paid in cash on such Adjustment Date with respect to each
Note then held by such holder;
(d) the aggregate principal amount and deferred interest of the Notes
then outstanding and the principal amount and deferred interest of each
Note then held by such holder, in each case both before and after giving
effect to the adjustments to be made as of such Adjustment Date;
Exhibit 1(a)
------------
-3-
<PAGE>
(e) the aggregate amount of each interest payment to be made on and
after such Adjustment Date on all of the Notes then outstanding (if paid
entirely in cash) and the amount of each such interest payment on each Note
then held by such holder; and
(f) in reasonable detail, all computations made in determining the
foregoing.
In the absence of manifest error, the computations set forth in such Officer's
Certificate shall be deemed final binding and conclusive upon the Companies and
the holders of the Notes, unless, in any case, the Required Holders of the Notes
shall notify the Companies in writing of their objection (in reasonable detail)
to any portion of such Officer's Certificate within 30 days of the date upon
which such Officer's Certificate was furnished to the holders of the Notes. In
such event, the Companies shall, at their expense, within 15 Business Days
following the receipt of any such notice from the Required Holders of the Notes,
deliver to the holders of the Notes a certificate signed by a firm of
independent certified public accountants of recognized national standing (which
may be the regular auditors of the Companies), setting forth in reasonable
detail any adjustments which, in the opinion of such accountants, should be made
to the amounts set forth in such Officer's Certificate in order for such amounts
to be correct and consistent with the terms hereof and of the other Operative
Documents and, in reasonable detail, all computations made in determining any
such adjustments. The certificate of any such firm of accountants shall be
conclusive evidence of the correctness of such amounts under this section 1.2.
1.3 Limitations on the Option of the Companies to Capitalize Interest.
----------------------------------------------------------------------
Notwithstanding anything to the contrary contained in this section 1, the
Companies may not defer any interest pursuant to the provisions of this section
1 on any Adjustment Date if on such Adjustment Date any Default or Event of
Default shall have occurred and be continuing.
2. Subordination of Subordinated Indebtedness. The payment of the Subordinated
------------------------------------------
Indebtedness and the rights of the holders thereof are subordinated to the
payment of the Superior Indebtedness and the rights of the holders thereof to
the extent specified in this section 2.
2.1. Certain Definitions. As used in this section 2, the following terms
--------------------
have the following respective meanings:
"Bankruptcy Code" shall mean 11 U.S.C. ss. 101 et seq., as from time
---------- ---- -- ---
to time hereafter amended, and any successor or similar statute.
Exhibit 1(a)
------------
-4-
<PAGE>
"Blockage Period" shall mean a Payment Default Blockage Period and/or
-------- ------
a Covenant Default Blockage Period.
"Covenant Default" and "Covenant Default Blockage Period" shall have
-------- ------- -------- ------- -------- ------
the respective meanings specified in section 2.4.
"Enforcement Notice" shall have the meaning specified in section 2.11.
----------- ------
"Liquidation Payment" shall have the meaning specified in section 2.3.
----------- -------
"Payment Blockage Notice" shall have the meaning specified in section
------- -------- ------
2.4.
"Payment Default" and "Payment Default Blockage Period" shall have the
------- ------- ------- ------- -------- ------
respective meanings specified in section 2.4.
"Permissible Securities" shall mean (a) any debt securities the
----------- ---------- -
payment of which is subordinated, at least to the extent provided in this
section 2 with respect to the Subordinated Indebtedness, to the payment of
all Superior Indebtedness at the time outstanding and all securities issued
in exchange therefor and (b) any Shares of any Company.
-
"Subordinated Indebtedness" shall mean the principal amount of the
------------ ------------
Debt for borrowed money evidenced by the Subordinated Notes, together with
any interest (including any interest accruing after the commencement of any
action or proceeding under any bankruptcy, insolvency or other similar law,
and any interest that would have accrued but for the commencement of any
such proceeding, whether or not any such interest is allowed as an
enforceable claim in such proceeding), premium, if any, fee, collection
expense or other amount due thereon or payable with respect thereto or due
or payable in connection with any of the other Operative Documents,
including, without limitation, as further provided in the Securities
Purchase Agreements, any amount payable by any Company in respect of any
Warrants or Warrant Shares pursuant to Section 12 of the Securities
Purchase Agreements or otherwise.
"Subordinated Notes" shall mean the Companies' 14% Senior Subordinated
------------ -----
Notes due September 14, 2006, as amended or modified from time to time,
together with any notes issued in exchange therefor or replacement thereof,
of which this Note is one.
"Superior Indebtedness" shall mean the principal amount of any Debt of
-------- ------------
the Companies for borrowed money now outstanding or hereafter created,
incurred, assumed or guaranteed, together with any interest (including any
interest
Exhibit 1(a)
------------
-5-
<PAGE>
accruing after the commencement of any action or proceeding under any
bankruptcy, insolvency or other similar law, and any interest that would
have accrued but for the commencement of any such proceeding, whether or
not any such interest is allowed as an enforceable claim in such
proceeding), premium, if any, fee and collection expense due thereon or
payable with respect thereto, provided that (a) such indebtedness (i) was
-------- - -
incurred in compliance with sections 14.5(b), (c) and (d) of the Securities
Purchase Agreements (other than any indebtedness expressly subordinated to
the Subordinated Indebtedness on terms and conditions acceptable to the
Required Holders of the Subordinated Indebtedness) or (ii) was incurred
--
under the Fleet Documents (or any agreement executed in connection with any
extension, refinancing, refunding or renewal thereof) and the outstanding
principal amount thereof does not exceed $80,000,000 and (b) in no event
-
shall Debt arising under any Capital Lease or Debt constituting the
deferred purchase price of property constitute Superior Indebtedness.
"Unscheduled Payment" shall have the meaning specified in section 2.4.
----------- -------
2.2. Subordinated Indebtedness Subordinated to Superior Indebtedness; No
----------------------------------------------------------------------
Amendments.
- ----------
(a) Each Company, for itself and its successors and assigns, covenants
and agrees, and each holder of any Subordinated Indebtedness, by its
acceptance thereof, shall be deemed to have agreed, notwithstanding
anything to the contrary in any of the Subordinated Notes or any other
agreement, document or instrument related thereto, that the payment of the
Subordinated Indebtedness shall be subordinated to the extent and in the
manner set forth in this section 2, to the prior payment in full in cash or
cash equivalents of all Superior Indebtedness, and that each holder of
Superior Indebtedness, whether now outstanding or hereafter created,
incurred, assumed or guaranteed, shall be deemed to have acquired Superior
Indebtedness in reliance upon the provisions contained in this section 2.
No present or future holder of Superior Indebtedness shall be prejudiced in
the right to enforce the subordination of the Subordinated Indebtedness
effected pursuant to this section 2 by (i) any act or failure to act on the
-
part of any Company or (ii) any merger or consolidation of, or any sale,
--
lease or other transfer of any or all of the properties and assets by, any
Company.
(b) Neither this section 2, nor any other terms in any of the
Operative Documents expressly providing for the subordination of the
Subordinated Indebtedness, nor any of the terms of the Subordinated
Indebtedness relating to the timing or amount of any redemption, payment
(or prepayment) of the principal of or premium, if any, or interest on the
Subordinated Indebtedness, shall be amended without the written consent of
the holder or holders of at least 66-2/3%
Exhibit 1(a)
------------
-6-
<PAGE>
in aggregate principal amount of the Superior Indebtedness at the time
outstanding.
2.3. Dissolution, Liquidation, Reorganization, etc. Upon any payment or
-------------------------------------------------
distribution of the assets of any Company of any kind or character, whether in
cash, property or securities, to creditors upon any dissolution, winding-up,
total or partial liquidation, reorganization, composition, arrangement,
adjustment or readjustment of any Company or its securities, whether voluntary
or involuntary, or in bankruptcy, insolvency, reorganization, liquidation or
receivership proceedings, or upon a general assignment for the benefit of
creditors, or any other marshalling of the assets and liabilities of any
Company, or otherwise (hereinafter a "Liquidation Payment"), then and in any
such event:
(a) the holders of the Superior Indebtedness shall be entitled to
receive payment in full in cash or cash equivalents (or to have such
payment duly provided for in cash or cash equivalents in a manner
reasonably satisfactory to the holders of Superior Indebtedness) of all
amounts due or to become due on or in respect of all Superior Indebtedness,
before any Liquidation Payment, whether in cash, property or securities
(other than Permissible Securities), is made on account of or applied to
any of the Subordinated Indebtedness;
(b) the Subordinated Indebtedness shall forthwith become due and
payable, and any Liquidation Payment, whether in cash, property or
securities (other than Permissible Securities), to which any holder of the
Subordinated Indebtedness would be entitled except for the provisions of
this section 2, shall be paid or delivered by any debtor, custodian,
liquidating trustee, agent or other Person making such Liquidation Payment,
directly to the holders of the Superior Indebtedness, or their
representative or representatives, ratably according to the aggregate
amounts remaining unpaid on account of the Superior Indebtedness, for
application to the payment thereof, to the extent necessary to pay the
Superior Indebtedness in full in cash or cash equivalents after giving
effect to any concurrent payment or distribution in cash or cash
equivalents, or provision therefor, to the holders of such Superior
Indebtedness; and
(c) each holder of the Subordinated Indebtedness at the time
outstanding (i) hereby irrevocably authorizes and empowers the holders of
-
the Superior Indebtedness or such holders' representative to collect and
receive such holder's ratable share of any Liquidation Payment and to
receipt therefor, and, if any holder of Subordinated Indebtedness fails to
file a claim therefor at least ten (10) calendar days prior to the date
established by rule of law or order of court for such filing, to file and
prove (but not to vote) such claim therefor, provided that the holders of
--------
Superior Indebtedness shall concurrently send written notice thereof to
each holder of Subordinated Indebtedness together with a copy of the proof
of
Exhibit 1(a)
------------
-7-
<PAGE>
claim so filed, (ii) agrees to execute and deliver to the holders of
--
Superior Indebtedness at the time outstanding, or their representative or
representatives, all such further instruments as are necessary to confirm
the foregoing authorization and (iii) agrees not to initiate or prosecute
---
or encourage any other Person to initiate or prosecute any claim, action or
other proceeding challenging the enforceability of the Superior
Indebtedness or any Liens securing the same.
Upon any payment or distribution of assets referred to in this section 2,
the holders of the Subordinated Indebtedness shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction in which such
bankruptcy, insolvency, reorganization, liquidation, receivership or other
proceeding is pending, or a certificate of the debtor, custodian, liquidating
trustee, agent or other Person making any such payment or distribution to such
holders, for the purpose of ascertaining the Persons entitled to participate
therein, the holders of the Superior Indebtedness, the then outstanding
principal amount of the Superior Indebtedness and any and all amounts payable
thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this section 2.
2.4. No Payments With Respect to Subordinated Indebtedness in Certain
----------------------------------------------------------------------
Circumstances.
- -------------
(a) The Companies will not, directly or indirectly, make or agree to
make, and neither the holder nor any assignee or successor holder of any
Subordinated Indebtedness will accept or receive any payment (in cash,
property or securities (other than Permissible Securities)) on the
Subordinated Indebtedness if, at the time of such payment or distribution
or immediately after giving effect thereto:
(i) all of the following four conditions shall exist:
(A) a default in the payment when due of all or any portion
of the principal of or interest on any Superior Indebtedness
shall have occurred (a "Payment Default"); and
(B) the Companies and the holder or holders of Subordinated
Indebtedness shall have received written notice prohibiting
payment on the Subordinated Indebtedness (each a "Payment
Blockage Notice") from the requisite holder or holders of such
Superior Indebtedness, or their representative or
representatives, of such Payment Default (which notice to be
effective must state that it is a Payment Blockage Notice or
contain other language to that effect); and
Exhibit 1(a)
------------
-8-
<PAGE>
(C) such Payment Default shall not have been cured by the
Companies or waived in writing by the requisite holder or holders
of the Superior Indebtedness with respect to which such Payment
Default shall have occurred; and
(D) less than 360 days shall have elapsed after the date of
receipt by the Companies and the holders of Subordinated
Indebtedness of such Payment Blockage Notice (any period during
which the restrictions imposed by this section 2.4(a)(i) are in
effect being hereinafter referred to as a "Payment Default
Blockage Period"); or
(ii) all of the following four conditions shall exist:
(A) a material default (other than a Payment Default) shall
have occurred with respect to any Superior Indebtedness which
permits the holder or holders thereof to immediately accelerate
the maturity thereof (a "Covenant Default"); and
(B) the Companies and the holder or holders of Subordinated
Indebtedness shall have received a Payment Blockage Notice from
the requisite holder or holders of the Superior Indebtedness, or
their representative or representatives, of such Covenant Default
(which notice to be effective must state that it is a "Payment
Blockage Notice" or contain other language to that effect); and
(C) such Covenant Default shall not have been cured by the
Companies or waived in writing by the requisite holder or holders
of the Superior Indebtedness with respect to which such Covenant
Default shall have occurred; and
(D) less than 180 days shall have elapsed after the date of
receipt by the Companies and the holders of the Subordinated
Indebtedness of such Payment Blockage Notice (any period during
which the restrictions imposed by this section 2.4(a)(ii) are in
effect being hereinafter referred to as a "Covenant Default
Blockage Period");
provided that, for the purpose of this section 2.4, (1) Payment Default Blockage
- -------- -
Periods shall not be in effect for more than an aggregate of 360 days during any
period of 540 consecutive days, (2) Covenant Default Blockage Periods shall not
-
be in effect for more than an aggregate of 180 days during any period of 360
Exhibit 1(a)
------------
-9-
<PAGE>
consecutive days, (3) Blockage Periods shall not be in effect for more than an
-
aggregate of 360 days during any period of 540 consecutive days, (4) not more
-
than four Payment Blockage Notices may be given and (5) no Payment Default or
-
Covenant Default known to the holders of Superior Indebtedness giving any
Payment Blockage Notice on the date any Payment Blockage Notice is given may be
used or shall be effective as a basis for any subsequent Payment Blockage
Notice.
(b) The restrictions imposed by section 2.4(a) shall cease to apply
and the Companies may resume payments in respect of the Subordinated
Indebtedness (including any payments which shall not have been made on
account of the provisions of this section 2, but excluding any payments
which may have become due upon any acceleration of the maturity of the
Subordinated Indebtedness) or any judgment with respect thereto upon the
earliest to occur of (i) the cure of the Payment Default or Covenant
-
Default by the Companies, (ii) the written waiver thereof by the requisite
--
holder or holders of the Superior Indebtedness with respect to which such
Payment Default or Covenant Default shall have occurred, (iii) the
---
expiration of the applicable Blockage Period or (iv) the termination of
--
such Blockage Period by such requisite holder or holders of such Superior
Indebtedness.
(c) If (i) the holder or holders of any Superior Indebtedness shall
-
accelerate Superior Indebtedness in accordance with the terms thereof
(which acceleration has not been rescinded or annulled) and (ii) the
--
Companies and the holder or holders of Subordinated Indebtedness shall have
received a Payment Blockage Notice from the requisite holder or holders of
such Superior Indebtedness, or their representative or representatives, of
such acceleration (which notice to be effective must state that it is a
"Payment Blockage Notice" or contain other language to that effect), then
from and after the date such Payment Blockage Notice is given, the
Companies will not, directly or indirectly, make or agree to make, and
neither the holder nor any assignee or successor holder of any Subordinated
Indebtedness will accept or receive any payment (in cash, property or
securities (other than Permissible Securities)) on the Subordinated
Indebtedness until such Superior Indebtedness is paid in full in cash or
cash equivalents (or provision for such payment in cash or cash equivalents
shall be made in a manner reasonably satisfactory to the holder or holders
of such Superior Indebtedness).
(d) The holders of Subordinated Indebtedness shall not be entitled to
accept and retain any payment from any Company on the Subordinated
Indebtedness other than a regularly scheduled payment of interest
(hereinafter, an "Unscheduled Payment") if (i) the making of such
-
Unscheduled Payment shall have caused an event of default under the Fleet
Agreement and (ii) the holders of Subordinated Indebtedness shall have
--
received written notice from the holders of
Exhibit 1(a)
------------
-10-
<PAGE>
Superior Indebtedness under the Fleet Agreement, or their representative or
representatives, of such event of default caused by the making of such
Unscheduled Payment and demanding that such Unscheduled Payment be held in
trust and paid over as provided in section 2.5, provided that such notice
--------
is given not later than the earlier of (A) 90 days after the holders of
-
Subordinated Indebtedness shall have received such Unscheduled Payment and
(B) 20 days after such holders of Superior Indebtedness under the Fleet
-
Agreement, or their representative or representatives, shall have received
written notice that such Unscheduled Payment is to be (or has been) made,
if any, from any Company or any holder of Subordinated Indebtedness (it
being agreed that no such notice of the kind referred to in this clause (B)
is required to be given).
2.5. Payments and Distributions Received. If any payment or distribution of
-----------------------------------
any kind or character, whether in cash, property or securities (other than
Permissible Securities), shall be received by any holder of any of the
Subordinated Indebtedness in contravention of this section 2, such payment or
distribution shall be held in trust for the benefit of, and shall be paid over
or delivered and transferred to, the holders of the Superior Indebtedness, or
their representative or representatives, ratably according to the aggregate
amount remaining unpaid on account of such Superior Indebtedness, for
application to the payment of the Superior Indebtedness, to the extent necessary
to pay all such Superior Indebtedness in full in cash or cash equivalents, after
giving effect to any concurrent payment or distribution in cash or cash
equivalents, or provision therefor, to the holders of such Superior
Indebtedness. In the event of the failure of any holder of any of the
Subordinated Indebtedness to endorse or assign any such payment or distribution,
the holders of the Superior Indebtedness (or such holders' representative) are
(is) hereby irrevocably authorized to endorse or assign the same.
2.6. Subrogation. Subject to the payment in full of all Superior
-----------
Indebtedness in cash or cash equivalents and the termination of all commitments
to fund Superior Indebtedness, in case cash, property or securities otherwise
payable or deliverable to the holders of the Subordinated Indebtedness shall
have been applied pursuant to this section 2 to the payment of Superior
Indebtedness, then and in each such case, the holders of the Subordinated
Indebtedness shall be subrogated to the rights of each holder of Superior
Indebtedness to receive any further payment or distribution in respect of or
applicable to the Superior Indebtedness; and, for the purposes of such
subrogation, no payment or distribution to the holders of Superior Indebtedness
of any cash, property or securities to which any holder of Subordinated
Indebtedness would be entitled except for the provisions of this section 2
shall, and no payment over pursuant to the provisions of this section 2 to the
holders of Superior Indebtedness by the holders of the Subordinated Indebtedness
shall as between the Companies, their respective creditors other than the
holders of Superior Indebtedness and the holders of Subordinated Indebtedness,
be deemed to be a payment by the Companies to or on account of Superior
Indebtedness.
Exhibit 1(a)
------------
-11-
<PAGE>
The holders of Subordinated Indebtedness waive, to the fullest extent permitted
by law, any right to require any marshalling of assets of any Company.
2.7. Certain Notices. In the event that (a) any Superior Indebtedness or
--------------- -
Subordinated Indebtedness shall be transferred and/or shall become due and
payable before the expressed maturity thereof as the result of the occurrence of
a default or any event of default, (b) any notice of any default or event of
-
default shall be given under any Superior Indebtedness or Subordinated
Indebtedness or (c) any term or provision of any agreement, document or
-
instrument related to the Superior Indebtedness or Subordinated Indebtedness
shall be amended, modified or supplemented, or compliance therewith waived, the
Companies will give immediate written notice in writing of such event to each
holder of Subordinated Indebtedness and Superior Indebtedness (together with
copies of all related agreements, documents and instruments). Each notice of any
transfer of any Superior Indebtedness or Subordinated Indebtedness shall include
the name and address of the applicable transferee for purposes of this section
2. The holder or holders of Superior Indebtedness shall be obligated to give a
Payment Blockage Notice (as defined in section 2.4) to a holder of Subordinated
Indebtedness other than the initial holders thereof only if the holder or
holders of Superior Indebtedness shall have been furnished written notice of
such other holder's address for purposes of this section 2. No holder of
Subordinated Indebtedness shall be obligated to give any notice under section
2.11 to any holder of Superior Indebtedness unless such holder of Subordinated
Indebtedness shall have been furnished written notice of the address of such
holder of Superior Indebtedness for purposes of this section 2. The addresses of
the initial holders of the Subordinated Indebtedness for purposes of this
section 2 (until changed by notice to such effect given in accordance with this
section 2.7) are as set forth on Schedule I to the Securities Purchase
-----------
Agreements. The address of the holders of Superior Indebtedness under the Fleet
Agreement for purposes of this section 2 (until changed by notice to such effect
given in accordance with this section 2.7) is: Fleet Bank, N.A., Administrative
Agent, 1185 Avenue of the Americas, New York, New York 10036, Attention: Ms.
Beth Goodman, Telecopy No.: (212) 819-4120. Any notice given pursuant to this
section 2 shall be deemed given and effective only upon and at the time of
receipt, unless such notice is mailed by certified mail (return receipt
requested), in which case it shall be deemed to have been received on (x) the
third Business Day following the mailing thereof or (y) the day of its
acknowledged receipt, if a Business Day or the next succeeding Business Day,
whichever of (x) and (y) is earlier.
2.8. Subordination Not Affected, etc. The terms of this section 2, the
-----------------------------------
subordination effected hereby and the rights created hereby of the holders of
the Superior Indebtedness shall not be affected by (a) any amendment or
-
modification of or supplement to any Superior Indebtedness (or any renewal,
extension, refinancing or refunding thereof) or any agreement, document or
instrument relating thereto (i) to the extent permitted by the Securities
-
Purchase Agreement or (ii) in the case of any Superior Indebtedness arising
--
under any of the Fleet Documents (or any documents executed in
Exhibit 1(a)
------------
-12-
<PAGE>
connection with any renewal, extension, refinancing or refunding thereof) so
long as such amendment, modification or supplement does not (1) increase the
-
principal amount of the Superior Indebtedness to an amount in excess of the
amount permitted under the definition of Superior Indebtedness as set forth
herein, (2) increase the interest rate with respect to such Superior
-
Indebtedness by more than fifty (50) basis points in excess of the highest rate
specified under the Fleet Agreement (as in effect on the Closing Date), (3)
-
extend the final maturity of such Superior Indebtedness to a date later than May
12, 2005 or (4) shorten the time of payment with respect to any principal amount
-
of such Superior Indebtedness, (b) any exercise or non-exercise of any right,
-
power or remedy under or in respect of any Superior Indebtedness (or any
security or collateral therefor) or pursuant to any agreement, document or
instrument relating thereto, (c) any waiver, consent, release, indulgence, delay
-
or other action, inaction or omission, in respect of any Superior Indebtedness
(or any security or collateral therefor) or pursuant to any agreement, document
or instrument relating thereto, (d) the failure of any holder of Superior
-
Indebtedness (i) to give any notice (other than one expressly required herein)
-
which may be required, whether by law, statute, rule, regulation or otherwise,
to preserve intact any rights of any holder of any Superior Indebtedness,
including, without limitation, any demand, presentment and protest, proof of
notice of nonpayment under any Superior Indebtedness or notice of any failure on
the part of any Company to perform and comply with any covenant, agreement, term
or condition of any Superior Indebtedness or (ii) to comply with the
--
requirements of any law, statute, rule or regulation, to mitigate damages
resulting from any default under any Superior Indebtedness or for diligence, in
each case whether or not any holder of any Subordinated Indebtedness shall have
had notice or knowledge of any of the foregoing. Each Company and the holders of
the Subordinated Indebtedness agrees that the holders of Superior Indebtedness
may enforce any and all of their rights arising under this section 2 by suit,
either in equity or law, for specific performance of any agreement contained in
this section 2 or for judgment at law and any other relief whatsoever
appropriate to such action or procedure.
2.9. Obligations Unimpaired. The provisions of this section 2 are solely
-----------------------
for the purpose of defining the relative rights of the holders of Superior
Indebtedness on the one hand and the holders of Subordinated Indebtedness on the
other hand, and (a) subject to the rights, if any, under this section 2 of the
-
holders of Superior Indebtedness, nothing in this section 2 shall (i) impair as
-
between the Companies and any holder of any Subordinated Indebtedness, the
obligations of the Companies, which are unconditional and absolute, to pay to
the holder thereof all amounts due thereon in accordance with the terms thereof
or (ii) except as otherwise provided in section 2.11, prevent the holder of any
--
Subordinated Indebtedness from exercising all remedies available to such holder,
whether arising under any agreement, document or instrument related thereto,
applicable law or otherwise, and (b) no Person is entitled to any third party
-
beneficiary rights or other similar rights on account of or under this section 2
other than the holders of the Superior Indebtedness. The failure to make any
payment due in respect of any of the
Exhibit 1(a)
------------
-13-
<PAGE>
Subordinated Indebtedness or to comply with any of the terms and conditions of
any of the agreements, documents and instruments related to any of the
Subordinated Indebtedness by reason of any provision of this section 2 shall not
be construed as preventing the occurrence of any default or event of default
with respect to the Subordinated Indebtedness.
2.10. Holders of Subordinated Indebtedness Entitled to Assume Payments Not
---------------------------------------------------------------------
Prohibited in Absence of Notice. No holder of Subordinated Indebtedness shall at
- -------------------------------
any time be charged with knowledge of the existence of any facts which would
prohibit the making of any payment to it, unless and until such holder shall
have received written notice thereof from the Companies or from any holder of
Superior Indebtedness or any agent or representative thereof. Prior to the
receipt of any such notice, each holder of Subordinated Indebtedness shall be
entitled to assume conclusively that no such facts exist, without, however,
limiting any right of any holder of Superior Indebtedness under this section 2
to recover from any holder of the Subordinated Indebtedness any payment made in
contravention of this section 2. Each payment on the Subordinated Indebtedness
by the Companies shall be deemed to constitute a representation of the Companies
that such payment is permitted to be paid by the Companies under this section 2.
Each holder of Subordinated Indebtedness shall be entitled to rely on the
delivery to it of a written notice by a Person representing himself to be a
holder of Superior Indebtedness or to be the agent or representative of any
holder of Superior Indebtedness to establish that such notice has been given by
any such Person.
2.11. Limitation on Right of Action. Notwithstanding anything to the
--------------------------------
contrary contained in any of the Subordinated Notes or any other agreement,
document or instrument related thereto, each of the holders of the Subordinated
Indebtedness agrees that:
(a) if any Superior Indebtedness (or any commitment to fund Superior
Indebtedness) is outstanding, such holder of the Subordinated Indebtedness
will not accelerate any of the Subordinated Indebtedness or take any other
enforcement action with respect to the Subordinated Indebtedness on account
of any Default or Event of Default, unless:
(i) the holder or holders of any Superior Indebtedness shall have
accelerated any Superior Indebtedness or shall have foreclosed upon
any significant or material portion of collateral securing the same;
(ii) a proceeding under the Bankruptcy Code or any similar state
statute or law (including any law providing for the appointment of a
receiver or other similar official) shall have been commenced by or
against
Exhibit 1(a)
------------
-14-
<PAGE>
any Company by Persons other than the holders of the Subordinated
Indebtedness; or
(iii) both (A) an Event of Default under (and as defined in) the
-
Securities Purchase Agreements shall have occurred and (B) not less
-
than 20 days prior to accelerating any of the Subordinated
Indebtedness or taking any other enforcement action with respect to
the Subordinated Indebtedness, such holder of Subordinated
Indebtedness shall have given the Companies and the holders of the
Superior Indebtedness written notice of the same (an "Enforcement
Notice"), which Enforcement Notice shall specify in reasonable detail
the Event of Default on the basis of which such holder of the
Subordinated Indebtedness then intends to accelerate the Subordinated
Indebtedness and/or take any other enforcement action, provided that
--------
for purposes of this clause (iii) if, at the time of giving such
Enforcement Notice (or during the 20 days immediately following the
giving of such Enforcement Notice) a Blockage Period shall have been
commenced and shall be continuing, then such holder of Subordinated
Indebtedness shall not accelerate any of the Subordinated Indebtedness
or take enforcement action with respect to the Subordinated
Indebtedness until the earliest of (1) in the case of a Payment
-
Default Blockage Period, the cure of the Payment Default on the basis
of which such Blockage Period was commenced (provided no other
--------
Blockage Period is then in effect), (2) the written waiver of such
-
Payment Default or Covenant Default by the requisite holder or holders
of the Superior Indebtedness with respect to which such Payment
Default or Covenant Default shall have occurred (provided no other
--------
Blockage Period is then in effect), (3) the expiration of such
-
Blockage Period, (4) the termination of such Blockage Period by such
-
requisite holder or holders of such Superior Indebtedness or (5) the
-
expiration of 180 days from the date upon which such Enforcement
Notice shall have been so given; and
(b) if (i) such holder of Subordinated Indebtedness shall accelerate
-
any of the Subordinated Indebtedness or take any other enforcement action
with respect to the Subordinated Indebtedness, in each case solely on
account of the Event of Default arising as a result of the acceleration of
any Superior Indebtedness, and (ii) the requisite holder or holders of such
--
Superior Indebtedness shall rescind such acceleration of such Superior
Indebtedness, then such holder of Subordinated Indebtedness shall rescind
such acceleration of such Subordinated Indebtedness and shall cease any
such other enforcement action with respect to such Subordinated
Indebtedness.
Exhibit 1(a)
------------
-15-
<PAGE>
2.12. Legends, etc. The Companies covenant to cause each Subordinated Note
--------------
(or other instrument evidencing any of the Subordinated Indebtedness) now or
hereafter issued to contain a provision or legend in substantially the following
form:
THE PAYMENT OF THIS NOTE AND THE RIGHTS OF THE HOLDER OF THIS NOTE ARE
SUBORDINATED TO THE PAYMENT OF SUPERIOR INDEBTEDNESS (AS HEREINAFTER
DEFINED) AND THE RIGHTS OF THE HOLDERS OF SUPERIOR INDEBTEDNESS UPON
THE TERMS OF SUBORDINATION SET FORTH HEREIN.
2.13. Reinstatement. The obligations of the holder or holders of
-------------
Subordinated Indebtedness under the terms of subordination set forth in this
section 2 shall continue to be effective, or be reinstated, as the case may be,
if at any time any payment in respect of any Superior Indebtedness is rescinded
or must otherwise be restored or returned by any holder of Superior Indebtedness
upon the occurrence of any proceeding of the kind referred to in section 2.3,
including, without limitation, upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, any
Company or any substantial part of its property, or otherwise, all as though
such payment in respect of the Superior Indebtedness had not been made, provided
--------
that in no event shall any holder or holders of Subordinated Indebtedness be
obligated pursuant to this section 2.13 to disgorge or repay any payment in
respect of any Subordinated Indebtedness received by it more than 90 days prior
to the time such payment of Senior Indebtedness is so rescinded, restored or
returned by any holder of Superior Indebtedness.
2.14. Successors and Assigns. The terms of subordination set forth in this
----------------------
section 2 shall inure to the benefit of each holder from time to time of any
Superior Indebtedness and shall be binding upon each holder from time to time of
any Subordinated Indebtedness.
3. General.
-------
3.1. Registered Notes, etc. This Note is in registered form and is
------------------------
transferable only by surrender hereof at the principal executive office of the
Companies as provided in the Securities Purchase Agreements. The Companies may
treat the person in whose name this Note is registered on the Note register
maintained at such office pursuant to the Securities Purchase Agreements as the
owner hereof for all purposes, and the Companies shall not be affected by any
notice to the contrary.
3.2. Events of Default. In case an Event of Default, as defined in the
------------------
Securities Purchase Agreements, shall occur and be continuing, the unpaid
balance of the principal of this Note may be declared and become due and payable
in the manner and with the effect provided in the Securities Purchase
Agreements.
Exhibit 1(a)
------------
-16-
<PAGE>
3.3. Certain Waivers. The parties hereto, including the makers and all
----------------
guarantors and endorsers of this Note, hereby waive presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance or enforcement of this Note.
3.4. Governing Law; Jurisdiction; Waiver of Jury Trial. This Note shall be
--------------------------------------------------
construed in accordance with and governed by the domestic substantive laws of
the State of New York without giving effect to any choice of law or conflicts of
law provision or rule that would cause the application of domestic substantive
laws of any other jurisdiction. Each Company and each holder of this Note, to
the extent that it may lawfully do so, hereby consents to service of process,
and to be sued, in the State of New York and consents to the jurisdiction of the
courts of the State of New York and the United States District Court for the
Southern District of New York, as well as to the jurisdiction of all courts to
which an appeal may be taken from such courts, for the purpose of any suit,
action or other proceeding arising out of any of its obligations hereunder, and
expressly waives any and all objections it may have as to venue in any such
courts. Each Company and each holder of this Note further agrees that a summons
and complaint commencing an action or proceeding in any of such courts shall be
properly served and shall confer personal jurisdiction if served personally or
by certified mail to it at its address set forth in section 23 of the Securities
Purchase Agreements or as otherwise provided under the laws of the State of New
York. Notwithstanding the foregoing, each Company and each holder of this Note
agrees that nothing contained in this section 3.4 shall preclude the institution
of any such suit, action or other proceeding in any jurisdiction other than the
State of New York. EACH COMPANY AND EACH HOLDER OF THIS NOTE IRREVOCABLY WAIVES
ALL RIGHT TO A TRIAL BY JURY IN ANY SUIT, ACTION OR OTHER PROCEEDING INSTITUTED
BY OR AGAINST IT IN RESPECT OF ITS OBLIGATIONS HEREUNDER.
3.5. Severability. In case any provision in this Note shall be invalid,
------------
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be effected and impaired thereby.
[The remainder of this page is intentionally left blank.]
Exhibit 1(a)
------------
-17-
<PAGE>
IN WITNESS WHEREOF, the Companies have executed this Note as an instrument
under seal as of the date first above written.
UNIDIGITAL INC.
By:
------------------------------------
(Title)
LINOGRAPHICS CORPORATION
By:
------------------------------------
(Title)
ELEMENTS (UK) LIMITED
By:
------------------------------------
(Title)
UNIDIGITAL ELEMENTS (SF), INC.
By:
------------------------------------
(Title)
UNISON (NY), INC.
By:
------------------------------------
(Title)
Exhibit 1(a)
------------
-18-
<PAGE>
UNISON (MA), INC.
By:
-------------------------------------
(Title)
MEGA ART CORP.
By:
-------------------------------------
(Title)
SUPERGRAPHICS HOLDING
COMPANY, INC.
By:
-------------------------------------
(Title)
SUPERGRAPHICS CORPORATION
By:
-------------------------------------
(Title)
REGENT GROUP LIMITED
By:
-------------------------------------
(Title)
Exhibit 1(a)
------------
-19-
<PAGE>
INTERFACE GRAPHICS LIMITED
By:
-------------------------------------
(Title)
Exhibit 1(a)
------------
-20-
<PAGE>
FORM OF ASSIGNMENT
[To be signed only upon transfer of Note]
For value received, the undersigned hereby sells, assigns and transfers
unto the within Note, and appoints
Attorney to transfer such Note on the books of UNIDIGITAL INC., LINOGRAPHICS
CORPORATION, ELEMENTS (UK) LIMITED, UNIDIGITAL ELEMENTS (SF), INC., UNISON (NY),
INC., UNISON (MA), INC., MEGA ART CORP., SUPERGRAPHICS HOLDING COMPANY, INC.,
SUPERGRAPHICS CORPORATION, REGENT GROUP LIMITED and INTERFACE GRAPHICS LIMITED
with full power of substitution in the premises.
Date: , .
----------------------------------------------
(Signature must conform in all respects to name
of Holder as specified on the face of the Note)
Signed in the presence of
- -------------------------------
Exhibit 1(a)
------------
-21-
REVOLVING CREDIT PROMISSORY NOTE
--------------------------------
$5,000,000 Dated: September 29, 1999
FOR VALUE RECEIVED, the undersigned, Unidigital Inc., a Delaware
corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of Fleet Bank,
N.A. (the "Lender") for the account of its Applicable Lending Office (as defined
in the Credit Agreement referred to below) the principal sum of FIVE MILLION
DOLLARS AND NO CENTS ($ 5,000,000) or, if less, the aggregate unpaid principal
amount of the Revolving Credit Advances owing to the Lender by the Borrower
pursuant to the Credit Agreement, dated as of May 12, 1999 (as amended,
supplemented, restated or otherwise modified, the "Credit Agreement"; terms
defined therein being used herein as therein defined), among the Borrower, the
Lender and certain other Lender Parties thereto, Fleet Bank, N.A., as Initial
Issuing Bank, Fleet Bank, N.A., as Swing Line Bank, and Fleet Bank, N.A., as
Administrative Agent for the Lender and the other Lender Parties, on the
Revolving Credit Termination Date.
The Borrower further promises to pay interest on the unpaid principal
amount of each Revolving Credit Advance from the date of such Revolving Credit
Advance until such principal amount is paid in full, at such interest rates and
at such times as are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Fleet Bank, N. A., as Administrative Agent for the Lender
Parties, at 1185 Avenue of the Americas, New York, NY 10036, Account No.
1510352-03102, Attention: Loan Administration, in same day funds. Each Revolving
Credit Advance owing to the Lender by the Borrower and the maturity thereof, and
all payments made on account of principal thereof, shall be recorded by the
Lender and, prior to any transfer hereof, endorsed on the grid attached hereto
or any continuation thereof, which is part of this Promissory Note; provided,
--------
however, that the failure of such Lender to so record any such information or
- -------
any error in so recording any such information shall not limit or otherwise
affect the obligations of the Borrower hereunder or under any other Loan
Document.
This Promissory Note is one of the Notes referred to in, and is
entitled to the benefits of, the Credit Agreement. The Credit Agreement, among
other things, (i) provides for the making of Revolving Credit Advances by the
Lender to the Borrower from time to time in an aggregate amount not to exceed at
any time outstanding the U.S. dollar amount first above mentioned, the
indebtedness of the Borrower resulting from each such Revolving Credit Advance
being evidenced by this Promissory Note, and (ii) contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
and also for prepayments on account of principal hereof prior to the maturity
hereof upon the terms and conditions therein specified. The
<PAGE>
obligations of the Borrower under this Promissory Note, and the obligations of
the other Loan Parties under the Loan Documents, are secured by the Collateral
as provided in the Loan Documents.
This Promissory Note shall be governed by and construed in accordance
with the laws of the State of New York.
UNIDIGITAL INC.
By: /s/ William E. Dye
-----------------------
Name: William E. Dye
Title: Chief Executive Officer
2
<PAGE>
REVOLVING CREDIT ADVANCES AND PAYMENTS OF PRINCIPAL
---------------------------------------------------
Date Amount of Amount of Unpaid Notation
---- --------- --------- ------ --------
Revolving Principal Paid Principal Made by
--------- -------------- --------- -------
Credit Advance or Prepaid Balance
-------------- ---------- -------
3
<PAGE>
REVOLVING CREDIT PROMISSORY NOTE
--------------------------------
$5,000,000 Dated: September 29, 1999
FOR VALUE RECEIVED, the undersigned, Unidigital Inc., a Delaware
corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of People's
Bank of California (the "Lender") for the account of its Applicable Lending
Office (as defined in the Credit Agreement referred to below) the principal sum
of FIVE MILLION DOLLARS AND NO CENTS ($ 5,000,000) or, if less, the aggregate
unpaid principal amount of the Revolving Credit Advances owing to the Lender by
the Borrower pursuant to the Credit Agreement, dated as of May 12, 1999 (as
amended, supplemented, restated or otherwise modified, the "Credit Agreement";
terms defined therein being used herein as therein defined), among the Borrower,
the Lender and certain other Lender Parties thereto, Fleet Bank, N.A., as
Initial Issuing Bank, Fleet Bank, N.A., as Swing Line Bank, and Fleet Bank,
N.A., as Administrative Agent for the Lender and the other Lender Parties, on
the Revolving Credit Termination Date.
The Borrower further promises to pay interest on the unpaid principal
amount of each Revolving Credit Advance from the date of such Revolving Credit
Advance until such principal amount is paid in full, at such interest rates and
at such times as are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Fleet Bank, N. A., as Administrative Agent for the Lender
Parties, at 1185 Avenue of the Americas, New York, NY 10036, Account No.
1510352-03102, Attention: Loan Administration, in same day funds. Each Revolving
Credit Advance owing to the Lender by the Borrower and the maturity thereof, and
all payments made on account of principal thereof, shall be recorded by the
Lender and, prior to any transfer hereof, endorsed on the grid attached hereto
or any continuation thereof, which is part of this Promissory Note; provided,
--------
however, that the failure of such Lender to so record any such information or
- -------
any error in so recording any such information shall not limit or otherwise
affect the obligations of the Borrower hereunder or under any other Loan
Document.
This Promissory Note is one of the Notes referred to in, and is
entitled to the benefits of, the Credit Agreement. The Credit Agreement, among
other things, (i) provides for the making of Revolving Credit Advances by the
Lender to the Borrower from time to time in an aggregate amount not to exceed at
any time outstanding the U.S. dollar amount first above mentioned, the
indebtedness of the Borrower resulting from each such Revolving Credit Advance
being evidenced by this Promissory Note, and (ii) contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
and also for prepayments on account of principal hereof prior to the maturity
hereof upon the terms and conditions therein specified. The obligations of the
Borrower under this Promissory Note, and the obligations of the other Loan
1
<PAGE>
Parties under the Loan Documents, are secured by the Collateral as provided in
the Loan Documents.
This Promissory Note shall be governed by and construed in accordance
with the laws of the State of New York.
UNIDIGITAL INC.
By: /s/ William E. Dye
-----------------------
Name: William E. Dye
Title: Chief Executive Officer
2
<PAGE>
REVOLVING CREDIT ADVANCES AND PAYMENTS OF PRINCIPAL
---------------------------------------------------
Date Amount of Amount of Unpaid Notation
---- --------- --------- ------ --------
Revolving Principal Paid Principal Made by
--------- -------------- --------- -------
Credit Advance or Prepaid Balance
-------------- ---------- -------
3
REVOLVING CREDIT PROMISSORY NOTE
--------------------------------
$5,000,000 Dated: September 29, 1999
FOR VALUE RECEIVED, the undersigned, Unidigital Inc., a Delaware
corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of Sovereign
Bank (the "Lender") for the account of its Applicable Lending Office (as defined
in the Credit Agreement referred to below) the principal sum of FIVE MILLION
DOLLARS AND NO CENTS ($ 5,000,000) or, if less, the aggregate unpaid principal
amount of the Revolving Credit Advances owing to the Lender by the Borrower
pursuant to the Credit Agreement, dated as of May 12, 1999 (as amended,
supplemented, restated or otherwise modified, the "Credit Agreement"; terms
defined therein being used herein as therein defined), among the Borrower, the
Lender and certain other Lender Parties thereto, Fleet Bank, N.A., as Initial
Issuing Bank, Fleet Bank, N.A., as Swing Line Bank, and Fleet Bank, N.A., as
Administrative Agent for the Lender and the other Lender Parties, on the
Revolving Credit Termination Date.
The Borrower further promises to pay interest on the unpaid principal
amount of each Revolving Credit Advance from the date of such Revolving Credit
Advance until such principal amount is paid in full, at such interest rates and
at such times as are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Fleet Bank, N. A., as Administrative Agent for the Lender
Parties, at 1185 Avenue of the Americas, New York, NY 10036, Account No.
1510352-03102, Attention: Loan Administration, in same day funds. Each Revolving
Credit Advance owing to the Lender by the Borrower and the maturity thereof, and
all payments made on account of principal thereof, shall be recorded by the
Lender and, prior to any transfer hereof, endorsed on the grid attached hereto
or any continuation thereof, which is part of this Promissory Note; provided,
--------
however, that the failure of such Lender to so record any such information or
- -------
any error in so recording any such information shall not limit or otherwise
affect the obligations of the Borrower hereunder or under any other Loan
Document.
This Promissory Note is one of the Notes referred to in, and is entitled to
the benefits of, the Credit Agreement. The Credit Agreement, among other things,
(i) provides for the making of Revolving Credit Advances by the Lender to the
Borrower from time to time in an aggregate amount not to exceed at any time
outstanding the U.S. dollar amount first above mentioned, the indebtedness of
the Borrower resulting from each such Revolving Credit Advance being evidenced
by this Promissory Note, and (ii) contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified. The obligations of the Borrower under
this Promissory Note, and the obligations of the other Loan Parties under the
Loan Documents, are secured by the Collateral as provided in the Loan Documents.
<PAGE>
This Promissory Note shall be governed by and construed in accordance with
the laws of the State of New York.
UNIDIGITAL INC.
By: /s/ William E. Dye
-----------------------------
Name: William E. Dye
Title: Chief Executive Officer
2
<PAGE>
REVOLVING CREDIT ADVANCES AND PAYMENTS OF PRINCIPAL
---------------------------------------------------
AMOUNT OF AMOUNT OF UNPAID
DATE REVOLVING PRINCIPAL PAID PRINCIPAL NOTATION
---- CREDIT ADVANCE OR PREPAID BALANCE MADE BY
-------------- ---------- ------- -------
3
AMENDMENT NO. 1
TO CREDIT AGREEMENT
AMENDMENT, dated as of this July 23, 1999, by and among Unidigital Inc., a
Delaware corporation (together with its successors or assigns, the "Borrower"),
the banks, financial institutions and other institutional lenders listed on the
signature pages hereof, as Lenders, Fleet Bank, N.A., as the Initial Issuing
Bank, Fleet Bank, N.A., a Swing Line Bank, Bank Austria Creditanstalt Corporate
Finance, Inc., as Documentation Agent, and Fleet Bank, N.A., as Administrative
Agent for the Lender Parties and the Hedge Banks.
W I T N E S S E T H:
WHEREAS, Borrower has heretofore entered into certain financial
arrangements pursuant to the Credit Agreement, dated as of May 12, 1999, among
the parties hereto [to be altered if adding new lenders prior to execution] (as
amended, supplemented, restated or otherwise modified, the "Credit Agreement");
and
WHEREAS, the parties hereto wish to amend certain provisions of the Credit
Agreement, subject to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereby mutually covenant, warrant and agree as follows:
<PAGE>
1. Definitions.
-----------
(a) Amendment to Definitions. All references to the term "Revolving
------------------------
Credit Termination Date" in any of the Loan Documents shall be deemed, and each
reference is hereby amended, to mean "the earlier of (x) March 1, 2004 and (y)
the Termination Date."
(b) Interpretation. For purposes of this Amendment, unless otherwise
--------------
defined herein, all terms used herein, including, but not limited to, those used
and/or defined in the recitals and the first paragraph hereto, shall have the
respective meanings assigned to such terms in the Credit Agreement.
2. Amendments to the Credit Agreement.
-----------------------------------
(a) Section 2.08(a) of the Credit Agreement is hereby amended by
deleting the Unused Commitment Fee Table therefrom in its entirety and
substituting the following therefor:
"UNUSED COMMITMENT FEE TABLE
Consolidated Total Funded
Debt to Pro Forma EBITDA Percentage
------------------------- ----------
Equal to or greater than 3.50 to 1.00 .500%
Equal to or greater than 3.00 to 1.00
but less than 3.50 to 1.00 .500%
Equal to or greater than 2.50 to 1 .00,
but less than 3.00 to 1.00 .500%
Equal to or greater than 2.00 to 1 .00,
but less than 2.50 to 1.00 .500%
Less than 2.00 to 1.00 .375%"
2
<PAGE>
(b) Section 5.04 of the Credit Agreement is hereby amended by
deleting Section 5.04(a) thereof in its entirety and substituting the following
therefor:
"Consolidated Total Funded Debt to Pro Forma EBITDA Ratio.
---------------------------------------------------------
Maintain as of the last day of each fiscal quarter of the
Borrower commencing with the first complete fiscal
quarter after the Initial Funding Date a ratio of (i)
Consolidated Total Funded Debt to (ii) Pro Forma EBITDA
for the most recently completed four fiscal quarters of
the Borrower of not more than the ratio set forth below:
FOUR FISCAL-QUARTERS ENDING ON: RATIO
------------------------------ -----
First and Second Year (First Quarter-
Eighth Quarter) 4:25:1.00
Third Year (Ninth Quarter -
Twelfth Quarter) 4:00:1..00
Fourth Year (Thirteenth Quarter -
Sixteenth Quarter) 3:75:1.00
Fifth Year (Seventeenth Quarter -
Twentieth Quarter) and Each
Fiscal Quarter Thereafter 3.75:1.00"
(c) Section 5.04 of the Credit Agreement is hereby amended by
deleting Section 5.04(b) in its entirety and substituting the following
therefor:
"(b) Consolidated Senior Debt to Pro Forma EBITDA Ratio.
----------------------------------------------------
Maintain as of the last day of each fiscal quarter of the
Borrower commencing with the first complete fiscal quarter
after the Initial Funding Date a ratio of (i) Consolidated
Senior Debt to (ii) Pro
3
<PAGE>
Forma EBITDA for the most recently completed four fiscal
quarters of the Borrower of not more than the ratio set
forth below:
FOUR FISCAL-QUARTERS ENDING ON: RATIO
------------------------------ -----
First and Second Year (First
Quarter - Eighth Quarter) 3.50:1.00
Third Year (Ninth Quarter -
Twelfth Quarter) 3.25:1.00
Fourth Year (Thirteenth
Quarter - Sixteenth Quarter) 3:00:1.00
Fifth Year (Seventeenth Quarter -
Twentieth Quarter) and Each
Fiscal Quarter Thereafter 3:00:1.00
3. Conditions Precedent. The effectiveness of the other terms and
---------------------
conditions contained herein shall be subject to the receipt by the
Administrative Agent of an original of this Amendment, duly authorized, executed
and delivered by Borrower and its Affiliates which are guarantors under (a) a
Foreign Guaranty or a Subsidiary Guaranty (collectively, the "Guarantors"), in
form and substance satisfactory to the Administrative Agent and its counsel.
4. Effect of this Amendment. Except as modified pursuant hereto, no
-------------------------
other changes or modifications to the Loan Documents are intended or implied and
in all other respects the Loan Documents are hereby specifically ratified,
restated and confirmed by all parties hereto as of the effective date hereof. To
the extent of conflict between the terms of this Amendment and the other Loan
Documents, the terms of this Amendment shall control. The Credit Agreement and
this Amendment shall be read and construed as one agreement.
4
<PAGE>
5. Representations, Warranties and Covenants. Borrower and the Guarantors
-----------------------------------------
hereby jointly and severally represent, warrant and covenant as follows:
(a) No Default or Event of Default exists on the date of this
Amendment (after giving effect to the amendments made by this Amendment) other
than the Events of Default set forth on Exhibit A attached hereto and made a
part hereof.
(b) This Amendment has been duly executed and delivered by Borrower
and the Guarantors and is in full force and effect as of the date hereof and the
agreements and obligations of Borrower and the Guarantors contained herein
constitute the legal, valid and binding obligations of Borrower and the
Guarantors enforceable against Borrower and the Guarantors in accordance with
its terms.
(c) The representations and warranties contained in each Loan
Document are correct in all material respects on and as of the date hereof as
though made on and as of the date hereof.
6. Defaults and Events of Default. The parties hereto acknowledge,
---------------------------------
confirm and agree that the execution and delivery of this Amendment by the
parties hereto other than Borrower and the Guarantors (the "Financial Parties")
shall not be construed to constitute a waiver or release by the Financial
Parties of any Default or Event of Default which has occurred prior to the date
hereof, or which exists as of the date hereof or may exist or occur at any time
after the date hereof, or of any rights or remedies of the Financial Parties as
a result thereof, whether under the Loan Documents, applicable law or otherwise.
5
<PAGE>
7. Further Assurances. The parties hereto shall execute and deliver such
------------------
additional documents and take such additional action as may be necessary or
desirable to effectuate the provisions and purposes of this Agreement.
8. Governing Law. The rights and obligations hereunder of each of the
--------------
parties hereto shall be governed by and interpreted and determined in accordance
with the internal substantive laws of the State of New York.
9. Binding Effect. The Amendment shall be binding upon and inure to the
---------------
benefit of each of the parties hereto and their respective successors and
assigns.
10. Counterparts. This Amendment may be executed in any number of
------------
counterparts, but all of such counterparts shall together constitute but one and
the same agreement. In making proof of this Amendment, it shall not be necessary
to produce or account for more than one counterpart thereof signed by each of
the parties hereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the
duly executed and delivered by their duly authorized officers as of the date
first above written.
UNIDIGITAL INC.
By: /s/ William E. Dye
---------------------------------
Name: William E. Dye
---------------------------------
Title: Chief Executive Officer
---------------------------------
FLEET BANK, N.A., as Administrative Agent,
Initial Issuing Bank, and Swing Line Bank
By: /s/ Beth Goodman
---------------------------------
Name: Beth Goodman
---------------------------------
Title: Vice President
---------------------------------
BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE,
INC., as Documentation Agent
By: /s/ David E. Yewer
---------------------------------
Name: David E. Yewer
---------------------------------
Title: Vice President
---------------------------------
By: /s/ Clifford L. Wells
---------------------------------
Name: Clifford L. Wells
---------------------------------
Title: Vice President
---------------------------------
BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE,
INC., as a Lender
By: /s/ David E. Yewer
---------------------------------
Name: David E. Yewer
---------------------------------
Title: Vice President
---------------------------------
By: /s/ Clifford L. Wells
---------------------------------
Name: Clifford L. Wells
---------------------------------
Title: Vice President
---------------------------------
FLEET BANK, N.A., as a Lender
By: /s/ Beth Goodman
---------------------------------
Name: Beth Goodman
---------------------------------
Title: Vice President
---------------------------------
MERRILL LYNCH BUSINESS FINANCE
SERVICES INC., as a Lender
By: /s/ Jeremy M. Dhein
---------------------------------
Name: Jeremy M. Dhein
---------------------------------
Title: Assistant Vice President
---------------------------------
<PAGE>
READ AND AGREED TO: MEGA ART CORP.
GUARANTORS: By: /s/ William E. Dye
----------------------------
Name: William E. Dye
----------------------------
Title: Chief Executive Officer
UNIDIGITAL ELEMENTS (NY), INC. ----------------------------
By: /s/ William E. Dye SUPERGRAPHICS HOLDING COMPANY, INC.
----------------------------------
Name: William E. Dye By: /s/ William E. Dye
---------------------------------- ----------------------------
Title: Chief Executive Officer Name: William E. Dye
---------------------------------- ----------------------------
Title: Chief Executive Officer
UNISON (NY), INC. ----------------------------
By: /s/ William E. Dye SUPERGRAPHICS CORPORATION
----------------------------------
Name: William E. Dye By: /s/ William E. Dye
---------------------------------- ----------------------------
Title: Chief Executive Officer Name: William E. Dye
---------------------------------- ----------------------------
Title: Chief Executive Officer
UNISON (MA), INC.
By: /s/ William E. Dye Executed as a Deed by
----------------------------------
Name: William E. Dye ELEMENTS (U.K.) LIMITED
----------------------------------
Title: Chief Executive Officer Acting By: /s/ William E. Dye
---------------------------------- -------------------------
Duly Authorized
UNIDIGITAL ELEMENTS (SF), INC.
Executed as a Deed By
By: /s/ William E. Dye
----------------------------------- REGENT GROUP LIMITED
Name: William E. Dye
----------------------------------- Acting By: /s/ William E. Dye
Title: Chief Executive Officer ------------------------
----------------------------------- Duly Authorized
MEGA ART CORP.
By: /s/ William E. Dye
-----------------------------------
Name: William E. Dye
-----------------------------------
Title: Chief Executive Officer
-----------------------------------
SUPERGRAPHICS HOLDING COMPANY, INC.
By: /s/ William E. Dye
-----------------------------------
Name: William E. Dye
-----------------------------------
Title: Chief Executive Officer
-----------------------------------
SUPERGRAPHICS CORPORATION
By: /s/ William E. Dye
-----------------------------------
Name: William E. Dye
-----------------------------------
Title: Chief Executive Officer
-----------------------------------
AMENDMENT NO. 2
TO CREDIT AGREEMENT
AMENDMENT, dated as of September 29, 1999, by and among Unidigital Inc., a
Delaware corporation (together with its successors or assigns, the "Borrower"),
the banks, financial institutions and other institutional lenders listed on this
signature pages hereof, as Lenders, Fleet Bank, N.A., as the Initial Issuing
Bank, Fleet Bank, N.A., the Swing Line Bank, Bank Austria Creditanstalt
Corporate Finance, Inc., as Documentation Agent, and Fleet Bank, N.A., as
Administrative Agent for the Lender parties and the Hedge Banks.
W I T N E S S E T H:
WHEREAS, Borrower has heretofore entered into certain financial
arrangements pursuant to the Credit Agreement, dated as of May 12, 1999, among
Borrower, Fleet Bank, N.A., as the initial Issuing Bank, the Swing Line Bank,
and as Administrative Agent, Bank Austria Creditanstalt Corporate Finance, Inc.,
as a Lender and as the Documentation Agent and Merrill Lynch Business Financial
Services Inc., as a Lender (as amended, supplemented, restated or otherwise
modified, the "Credit Agreement"); and
WHEREAS, the parties hereto wish to amend certain provisions of the Credit
Agreement, subject to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements contained herein and other good and valuable
consideration, the receipt and
<PAGE>
sufficiency of which is hereby acknowledged, the parties hereby mutually
covenant, warrant and agree as follows:
1. Definitions. The following definitions are added to Section 1.01 of
the Credit Agreement in their appropriate alphabetical order: 2.
" "Fixed Charges" means, as to any Person, for any period, the sum
(without duplication of amounts) of (a) all cash Interest Charges of such Person
for such period and (b) all Rental Obligations of such Person for such period in
respect of leases other than Capitalized Leases, in each case determined in
accordance with GAAP."
" "Interest Charges" means, as to any Person, for any period, the
aggregate amount of all interest paid, payable or guaranteed during such period
by such Person, including, without limitation, the "imputed interest" portion of
Rental Obligations on Capitalized Leases and all interest capitalized and/or
deferred during such period on any Debt, determined in accordance with GAAP."
" "Pro Forma Consolidated Fixed Charges" shall mean for any period
Consolidated Fixed Charges for such period adjusted in a manner satisafactory to
the Requested Lenders to include the Fixed Charges for such period of any Person
or business acquired by the Borrower or any of its Subsidiaries during such
period (including any adjustment on account of any identifiable savings
acceptable to the Required Lenders), and otherwise determined in accordance with
GAAP."
" "Rental Obligations" means, a s to any Person, for any period, all
rents and other amounts (including as such, all payments which such Person is
obligated to make to the lessor on termination of any lease and/or on surrender
of the leased property other than payments for which such Person is contingently
liable on account of early termination or breach of such lease) paid,
2
<PAGE>
payable or guaranteed during such period by such Person, as lessee or sublessee
under any lease, including, without limitation, any amount required to be paid
by such Person (whether or not designated as rents or additional rents) on
account of maintenance, repairs, insurance, taxes, utilities and similar
charges, determined in accordance with GAAP. Whenever it is necessary to
determine the amount of Rental Obligations for any period, to the extent that
such Rental Obligations are not definitely determinable by the terms of the
lease, the Rental Obligations not so definitely determinable shall be estimated
in good faith and in such reasonable manner as the board of directors of the
Borrower may determine."
2. Interpretation. For purposes of this Amendment, unless otherwise
--------------
defined herein, all terms used herein, including, but not limited to, those used
and/or defined in the recitals and the first paragraph hereto, shall have the
respective meanings assigned to such terms in the Credit Agreement.
3. Increase in the Commitment. Notwithstanding anything to the contrary
--------------------------
contained in Section 2.05(c) of the Credit Agreement, it is acknowledged that
each of the conditions set forth therein has been satisfied, that the sixty (60)
day period set forth in Section 2.05(c)(vii) has been waived by the Lenders and,
therefore, the Revolving Credit Increase will become effective upon the
execution of this Amendment by all of the parties hereto. In connection
herewith, Schedule I to the Credit Agreement is hereby deleted and Schedule I
attached hereto, which sets forth the Revolving Credit Commitments and Letter of
Credit Commitments of each of the Lenders, to take into account the Revolving
Credit Increase, is substituted therefor.
3
<PAGE>
4. Amendments to the Credit Agreement.
----------------------------------
(a) Section 5.02(h) of the Credit Agreement is hereby amended by
adding the following sentence to the end thereof:
"In addition, the Borrower will, and cause each of its
Subsidiaries to, keep a majority of Borrower's assets in the
United States of America."
(b) Section 5.04 of the Credit Agreement is hereby amended by adding
a new Section 5.04(e) thereto, which shall read as follows:
"(e) Fixed Coverage Ratio. The Borrower will not permit the
----------------------
ratio of Pro Forma EBITDA (after restoring thereto any amount
deducted therefrom for Rental Obligations paid under leases
other than Capitalized Leases) to Pro Forma Consolidated Fixed
Charges for any period of four consecutive fiscal quarters
ended during any period specified below to be less than the
applicable ratio set forth below:
Period Ratio
------ -----
Initial Funding Date through August 31, 2001 2.00 to 1.00
September 1, 2001 through August 31, 2002 2.25 to 1.00
From and after September 1, 2002 2.50 to 1.00
(c) Section 6.01(c) of the Credit Agreement is amended by adding
sections "5.01(e), 5.01(f)," after the reference to "Section 2.14" therein.
5. Conditions Precedent. The effectiveness of the other terms and
---------------------
conditions contained herein shall be subject to the receipt by the
Administrative Agent of an original of this Amendment, duly authorized, executed
and delivered by Borrower and its Affiliates which are guarantors under a
Foreign Guaranty or a Subsidiary Guaranty (collectively, the "Guarantors"), in
form and substance satisfactory to the Administrative Agent and its counsel.
6. Effect of this Amendment. Except as modified pursuant hereto, no
--------------------------
other changes or modifications to the Loan Documents are intended or implied and
in all other respects the Loan
4
<PAGE>
Documents are hereby specifically ratified, restated and confirmed by all
parties hereto as of the effective date hereof. To the extent of conflict
between the terms of this Amendment and the other Loan Documents, the terms of
this Amendment shall control. The Credit Agreement and this Amendment shall be
read and construed as one agreement.
7. Representations, Warranties and Covenants. Borrower and the Guarantors
-----------------------------------------
hereby jointly and severally represent, warrant and covenant as follows:
(a) No Default or Event of Default exists on the date of this
Amendment (after giving effect to the amendments made by this Amendment) other
than the Events of Default set forth on Exhibit A attached hereto and made a
part hereof.
(b) This Amendment has been duly executed and delivered by Borrower
and the Guarantors and is in full force and effect as of the date hereof and the
agreements and obligations of Borrower and the Guarantors contained herein
constitute the legal, valid and binding obligations of Borrower and the
Guarantors enforceable against Borrower and the Guarantors in accordance with
its terms.
(c) The representations and warranties contained in each Loan
Document are correct in all material respects on and as of the date hereof as
though made on and as of the date hereof.
8. Defaults and Events of Default. The parties hereto acknowledge,
----------------------------------
confirm and agree that the execution and delivery of this Amendment by the
parties hereto other than Borrower and the Guarantors (the "Financial Parties")
shall not be construed to constitute a waiver or release by the Financial
Parties of any Default or Event of Default which has occurred prior to the date
hereof, or which exists as of the date hereof or may exist or occur at any time
after the date hereof, or of any
5
<PAGE>
rights or remedies of the Financial Parties as a result thereof, whether under
the Loan Documents, applicable law or otherwise.
9. Further Assurances. The parties hereto shall execute and deliver such
------------------
additional documents and take such additional action as may be necessary or
desirable to effectuate the provisions and purposes of this Agreement.
10. Governing Law. The rights and obligations hereunder of each of the
-------------
parties hereto shall be governed by and interpreted and determined in accordance
with the internal substantive laws of the State of New York.
11. Binding Effect. The Amendment shall be binding upon and inure to the
--------------
benefit of each of the parties hereto and their respective successors and
assigns.
12. Counterparts. This Amendment may be executed in any number of
------------
counterparts, but all of such counterparts shall together constitute but one and
the same agreement. In making proof of this Amendment, it shall not be necessary
to produce or account for more than one counterpart thereof signed by each of
the parties hereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the
duly executed and delivered by their duly authorized officers as of the date
first above written.
MERRILL LYNCH BUSINESS UNIDIGITAL INC.
FINANCIAL SERVICES INC., as a Lender
By: /s/ William E. Dye
By: /s/ Jeremy M. Dhein ---------------------------
-------------------------------- Name: William E. Dye
Name: Jeremy M. Dhein ---------------------------
-------------------------------- Title: Executive Vice Officer
Title: Assistant Vice President ---------------------------
--------------------------------
FLEET BANK, N.A., as Administrative
UNION BANK OF CALIFORNIA, N.A., as a Agent, Initial Issuing Bank, and
Lender Swing Line Bank
By: /s/ Hagop V. Jazmadarian By: /s/ Paul Chau
-------------------------------- ---------------------------
Name: Hagop V. Jazmadarian Name: Paul Chau
-------------------------------- ---------------------------
Title: Vice President Title: Senior Vice President
-------------------------------- ---------------------------
SOVEREIGN BANK, as a Lender BANK AUSTRIA CREDITANSTALT CORPORATE
FINANCE, INC., as Documentation
By: /s/ Joseph Becker Agent
--------------------------------
Name: Joseph Becker By: /s/ Christina T. Schoen
-------------------------------- ---------------------------
Title: Vice President Name: Christina T. Schoen
-------------------------------- ---------------------------
Title: Executive Vice President
---------------------------
PEOPLE'S BANK OF CALIFORNIA
By: /s/ Christina T. Schoen
By: /s/ V. Subramanian ---------------------------
-------------------------------- Name: Christina T. Schoen
Name: V. Subramanian ---------------------------
-------------------------------- Title: Executive Vice President
Title: Vice President ---------------------------
--------------------------------
BANK AUSTRIA CREDITANSTALT
FLEET BANK, N.A. CORPORATE FINANCE, INC., as a
Lender
By: /s/ Paul Chau
-------------------------------- By: /s/ Christina T. Schoen
Name: Paul Chau ---------------------------
-------------------------------- Name: Christina T. Schoen
Title: Senior Vice President ---------------------------
-------------------------------- Title: Executive Vice President
---------------------------
By: /s/ Christina T. Schoen
---------------------------
Name: Christina T. Schoen
---------------------------
Title: Executive Vice President
---------------------------
7
<PAGE>
READ AND AGREED TO:
GUARANTORS:
LINOGRAPHICS CORPORATION MEGA ART CORP.
By: /s/ William E. Dye By: /s/ William E. Dye
-------------------------------- ----------------------------
Name: William E. Dye Name: William E. Dye
-------------------------------- ----------------------------
Title: Chief Executive Officer Title: Chief Executive Officer
-------------------------------- ----------------------------
UNISON (NY), INC. SUPERGRAPHICS HOLDING COMPANY, INC.
By: /s/ William E. Dye By: /s/ William E. Dye
-------------------------------- ----------------------------
Name: William E. Dye Name: William E. Dye
-------------------------------- ----------------------------
Title: Chief Executive Officer Title: Chief Executive Officer
-------------------------------- ----------------------------
UNISON (MA), INC. SUPERGRAPHICS CORPORATION
By: /s/ William E. Dye By: /s/ William E. Dye
-------------------------------- ----------------------------
Name: William E. Dye Name: William E. Dye
-------------------------------- ----------------------------
Title: Chief Executive Officer Title: Chief Executive Officer
-------------------------------- ----------------------------
UNIDIGITAL ELEMENTS (SF), INC. Executed as a Deed By
By: /s/ William E. Dye ELEMENTS (U.K.) LIMITED
--------------------------------
Name: William E. Dye Acting By: /s/ William E. Dye
-------------------------------- -----------------------
Title: Chief Executive Officer Duly Authorized
--------------------------------
-----------------------
MEGA ART CORP. Duly Authorized
By: /s/ William E. Dye Executed as a Deed By
--------------------------------
Name: William E. Dye REGENT GROUP LIMITED
--------------------------------
Title: Chief Executive Officer Acting By: /s/ William E. Dye
-------------------------------- -----------------------
Duly Authorized
-----------------------
Duly Authorized
8
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT dated as of June 15, 1999 (this "Agreement"),
among I.A.T., LLC, a New York limited liability company (the "Buyer"),
Unidigital Elements (NY), Inc., a New York corporation ("Elements"), Unison
(NY), Inc., a Delaware corporation ("Unison"), and Unidigital Inc., a Delaware
corporation and parent of each of Elements and Unison (the "Parent"). Elements,
Unison and the Parent are sometimes collectively referred to herein as the
"Unidigital Parties" and Elements and Unison are sometimes collectively referred
to as the "Selling Parties".
Preliminary Statement
---------------------
Parent is engaged, principally through Elements and Unison, in the
business, among other businesses, of providing digital prepress and printing
products and services, including service bureau, printing brokerage and related
marketing and marketing support primarily to graphic artists and marketing
professionals, currently based out of the facilities located at 20 West 20th
Street, New York City (the "Business"). The Buyer desires to purchase, and the
Unidigital Parties desire to sell, certain of the assets of the Unidigital
Parties for the consideration set forth below, subject to the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. Sale and Delivery of the Assets
-------------------------------
1.1 Delivery of the Assets.
----------------------
(a) Subject to and upon the terms and conditions of this Agreement,
at the closing of the transactions contemplated by this Agreement (the
"Closing"), the Unidigital Parties shall sell, transfer, convey, assign and
deliver to the Buyer, and the Buyer shall purchase from the Unidigital Parties,
free and clear of all liens, liabilities, security interests, leasehold
interests and encumbrances of any nature whatsoever (except as otherwise
expressly provided herein), the properties, assets and other claims, rights and
interests of the Unidigital Parties relating to the Business set forth below
(but excluding in all events the Excluded Assets (as defined below))
(collectively, the "Assets"):
With respect to the Selling Parties:
(i) all inventories of raw materials, work in process, goods
in transit (i.e., inventories purchased by, but not delivered to, the Selling
Parties), finished goods, office supplies, maintenance supplies, packaging
materials, spare parts and similar items (collectively, the "Inventory");
<PAGE>
(ii) all accounts receivable and notes receivable (including
any security held by the Selling Parties for the payment thereof) (collectively,
the "Accounts Receivable");
(iii) those prepaid expenses set forth in Schedule 1.1(a)(iii);
--------------------
(iv) all rights under the contracts, agreements, leases,
licenses, purchase orders, customer sales agreements and other instruments set
forth on Schedule 1.1(a)(iv) attached hereto (collectively, the "Contract
--------------------
Rights");
(v) all customer lists; production records; technical,
manufacturing and procedural manuals; engineering data; development and design
data; plans, blueprints, specifications and drawings; and other useful business
records, including electronic media, and any confidential or other information
which has been reduced to writing, relating to the Assets;
(vi) all rights of the Selling Parties under express or
implied warranties from the suppliers of the Assets to the extent transferable
(but excluding such rights insofar as the same pertain to liabilities retained
by the Selling Parties hereunder);
(vii) all of the machinery, equipment, tools, dies, tooling,
production fixtures, maintenance machinery and equipment, computers,
telecommunication systems, fittings and other office equipment, furniture,
leasehold improvements and construction in progress on the date of Closing which
are owned by the Selling Parties and are set forth on Schedule 1.1(a)(vii)
---------------------
(collectively, the "Fixed Assets");
(viii) subject to Section 8.6 hereof, for a period of five years
following the Closing, all right, title and interest of the Selling Parties in
and to all intangible property rights relating to the Business, including all of
the Selling Parties' rights to use the name "Elements," "Elements (NY)," or any
derivation thereof in the United States of America, and all goodwill associated
thereto (collectively, the "Intangible Property");
(ix) all transferable approvals, authorizations,
certifications, consents, variances, permissions, licenses and permits to or
from, or filings, notices or recordings to or with, federal, state, foreign, and
local governmental authorities as held or effected by the Selling Parties in
connection with the Assets;
(x) all office supplies, production supplies, spare parts,
other miscellaneous supplies, and other tangible property of any kind wherever
located;
(xi) all prepayments and prepaid expenses of the Selling
Parties;
(xii) all claims, causes of action, rights of recovery and
rights of set-off of any kind of the Selling Parties;
(xiii) the right to receive and retain mail, accounts receivable
payments and other communications relating to the Business;
2
<PAGE>
(xiv) the right to bill and receive payment for products
shipped or delivered by either of the Selling Parties and services performed by
either of the Selling Parties but unbilled or unpaid as of the Closing;
(xv) all telephone numbers (e.g., "800" numbers) used by
either of the Selling Parties;
(xvi) (A) the right to use the four floors at 20 West 20th
Street, New York City, currently used by the Selling Parties and further
described on Schedule 1.1(a)(xvi) attached hereto (the "Premises") for the
---------------------
period of time and at the rental rates described on Schedule 1.1(a)(xvi), as
---------------------
though Buyer were the lessee thereof under a lease having terms no less
favorable to the lessee than those contained in the real property lease attached
hereto as Exhibit 1.1(a)(xvi) (the "Existing Premises Lease"), as such terms
--------------------
would apply to a lessee who is not in default under the Existing Premises Lease
and (B) the right to apply the proceeds of the security deposit of the Selling
Parties held by the landlord of the Premises to the lease to be entered into
between such landlord and the Buyer as of the Closing; and
(xvii) the right to use the machinery and equipment described
on Schedule 1.1(a)(xvii) attached hereto (the "Special Leased Equipment") for
----------------------
the period of time and at the rental rates described on Schedule 1.1(a)(xvii)
----------------------
(the "Special Equipment Lease Terms"), as though Buyer were the lessee of the
Special Leased Equipment covered thereby on terms no less favorable to Buyer
than those contained in the equipment leases covering such Special Leased
Equipment attached hereto as Exhibit 1.1(a)(xvii) (the "Existing Special Leased
---------------------
Equipment Leases"), as such terms would apply to a lessee who is not in default
under the Existing Special Leased Equipment Leases, including all rights, if
any, contained in the Existing Special Leased Equipment Leases to purchase
Equipment from the lessor.
With respect to the Parent, all assets of the Parent or any of its
subsidiaries other than the Selling Parties which are used solely or primarily
in the Business and which would be included in items (i) through (xvii) above if
the Parent and such subsidiaries were included in the definition of "Selling
Parties" (the "Other Included Assets").
(b) The assets to be transferred to the Buyer under this Agreement shall
be limited solely to those Assets set forth in Section 1.1(a) and shall not
include any other assets of the Unidigital Parties, including without
limitation, (i) any of the Unidigital Parties' rights or consideration under
this Agreement, or (ii) any refunds of federal, state, foreign or local income
or other tax paid by the Unidigital Parties, or (iii) any insurance policies
currently held by the Unidigital Parties and related premium agreements for
general liability, product liability and workers compensation insurance, or (iv)
the financial books and records of the Unidigital Parties (it being understood
that the Unidigital Parties shall make such financial books and records related
to the Assets available at the reasonable request of the Buyer), or (v) cash or
cash equivalents of the Unidigital Parties, or (vi) those assets listed on
Schedule 1.1(b) attached hereto (collectively, the "Excluded Assets").
- ---------------
1.2 Further Assurances. At the Closing, the Unidigital Parties shall
------------------
execute and deliver General Assignments and Bills of Sale (the "Bill of Sale"),
substantially in the form
3
<PAGE>
attached hereto as Exhibit A, and the assignments described in Section 6.6(b)
---------
hereof. At any time and from time to time after the Closing, at the Buyer's
request and without further consideration, the Unidigital Parties shall execute
and deliver such assignments of leases and other instruments of sale, transfer,
conveyance, assignment and confirmation, and take such other action, as the
Buyer may reasonably request to more effectively transfer, convey and assign to
the Buyer, and to confirm the Buyer's title to, all of the Assets, to put the
Buyer in actual possession and operating control thereof, to assist Buyer in
exercising all rights with respect thereto and to carry out the purpose and
intent of this Agreement.
1.3 Assumption of Liabilities.
-------------------------
(a) At the Closing, the Buyer shall execute and deliver an assumption
agreement (the "Assumption Agreement"), substantially in the form attached
hereto as Exhibit B, pursuant to which it shall assume and agree to (i) perform,
---------
pay and discharge, in accordance with their respective terms, all those
liabilities and obligations set forth on Schedule 1.3(a) attached hereto which
---------------
were incurred in the ordinary course of business of the Business and are
outstanding on the date of Closing; (ii) perform in accordance with their terms
those obligations outstanding on the date of Closing under the Contract Rights;
and (iii) perform in accordance with their terms those liabilities arising after
the date of Closing from any agreement, contract, commitment or other contract
documents which the Buyer has requested be transferred to it pursuant to Section
1.1(a) but which has not been so transferred due to the failure of the
Unidigital Parties to obtain the consent or approval required for such transfer,
provided that the Buyer has received substantially the same economic benefit of
such contract as if such consent or approval had been obtained (the obligations
set forth in (i), (ii) and (iii) are, collectively, the "Assumed Liabilities").
(b) The Buyer shall not assume any of the liabilities of the
Unidigital Parties, including, without limitation, any environmental or tax
liabilities arising out of the conduct of the Business prior to the Closing,
and, except as otherwise provided herein, shall purchase the Assets free and
clear of all liens, mortgages, security interests, encumbrances and claims and
the Unidigital Parties represent, warrant and agree that the Buyer shall not be
or become liable for any claims, demands, liabilities or obligations not
expressly assumed in this Agreement.
1.4 Purchase Price.
--------------
(a) In consideration of the transfer of the Assets to the Buyer
hereunder, the Buyer will assume the Assumed Liabilities and will pay an
aggregate purchase price (the "Purchase Price") equal to (i) $500,000 in cash
payable to the Selling Parties (the "Cash Consideration"), (ii) $1,500,000
payable to the Selling Parties, such amount to be paid by the issuance of a 5%
promissory note (the "Note"), substantially in the form attached hereto as
Exhibit C, and (iii) $250,000 payable to the Selling Parties or their designees
- ---------
in digital print and prepress services valued at retail prices customarily
charged by the Business (the "Print Services"). In addition, Unidigital hereby
agrees to amend the Stock Option Agreements for each of the persons set forth on
Schedule 1.4(a) attached hereto such that each such person shall have two years
- ----------------
from the date of Closing to exercise all vested options to purchase shares of
Common Stock of Unidigital previously granted to each such person.
4
<PAGE>
(b) In the event the value of the Accounts Receivable (aged 120 days
or less) ("Qualified Accounts Receivable") acquired by the Buyer hereunder do
not exceed the accounts payable assumed by the Buyer hereunder ("Accounts
Payable") by at least $1,000,000 (all as determined in a manner consistent with
past practice), the Cash Consideration shall be reduced, on a dollar-for-dollar
basis, by the amount determined as follows: $1,000,000 minus (Qualified Accounts
-----
Receivable minus Accounts Payable).
-----
(c) The right of the Selling Parties to utilize the Print Services
shall terminate on the third anniversary of the date of the Closing. In
addition, the Print Services may be redeemed by the Selling Parties at a rate
not to exceed $85,000 per year, commencing on the day immediately following each
of the date of the Closing, the first anniversary of the date of the Closing and
the second anniversary of the date of the Closing, as the case may be.
1.5 The Closing. The Closing will take place at the offices of Unidigital
-----------
Inc., 229 West 28th Street, New York, New York 10001 concurrent with the
execution hereof. The transfer of the Assets by the Unidigital Parties to the
Buyer shall be deemed to occur concurrent with the execution hereof. At the
Closing, the Buyer is paying the Cash Consideration by wire transfer to an
account or accounts specified by the Selling Parties in immediately available
funds.
1.6 Allocation of Purchase Price. Within 20 days of the Closing, the
-------------------------------
parties shall determine, in good faith, the allocation of the aggregate amount
of the Purchase Price, for tax purposes only, among the Assets. The parties
agree that they will not take any position which is materially inconsistent with
the allocations determined in accordance with this Agreement in preparing
income, capital or franchise tax returns.
2. Representations of the Unidigital Parties
-----------------------------------------
The representations and warranties made by the Unidigital Parties
herein or in any instrument or document furnished in connection herewith shall
survive the Closing until the first anniversary of the Closing. The Unidigital
Parties, jointly and severally, represent and warrant to the Buyer as follows:
2.1 Organization. Each of the Unidigital Parties is a corporation duly
------------
organized, validly existing and in good standing under the laws of the state of
its incorporation, and has all requisite corporate power and authority to own
their respective properties, to carry on their respective businesses as now
being conducted, to execute and deliver this Agreement and the agreements
contemplated herein, and to consummate the transactions contemplated hereby.
Each of the Unidigital Parties is duly qualified to do business and in good
standing in all jurisdictions in which its ownership of property or the
character of its business requires such qualification, except where the failure
to qualify will not have a material adverse effect upon such Unidigital Party.
2.2 Authorization. The execution and delivery of this Agreement (and all
-------------
other agreements provided for herein) by the Unidigital Parties, and the
consummation by the Unidigital Parties of all transactions contemplated hereby,
have been duly authorized by all requisite corporate action. This Agreement and
all such other agreements and obligations entered
5
<PAGE>
into and undertaken in connection with the transactions contemplated hereby to
which each Unidigital Party is a party constitutes the valid and legally binding
obligations of such Unidigital Party, enforceable against it, in accordance with
their respective terms except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally and by general principles of equity. The execution, delivery
and performance by each of the Unidigital Parties of this Agreement and the
agreements provided for herein, and the consummation of the transactions
contemplated hereby and thereby, will not, with or without the giving of notice
or the passage of time or both, (a) violate the provisions of any law, rule or
regulation applicable to such Unidigital Party; (b) violate the provisions of
the Certificate of Incorporation of such Unidigital Party; (c) violate any
judgment, decree, order or award of any court, governmental body or arbitrator;
or (d) conflict with or result in the breach or termination of any term or
provision of, or constitute a default under, or cause any acceleration under, or
cause the creation of any lien, charge or encumbrance upon the Assets pursuant
to, any indenture, mortgage, deed of trust or other instrument or agreement to
which any of the Unidigital Parties is a party or by which any of the Unidigital
Parties or any of their respective properties is or may be bound.
2.3 Ownership of the Assets. Except as set forth on Schedule 2.3 attached
----------------------- ------------
hereto, the Unidigital Parties are the true and lawful owners of the Assets, and
have the right to sell and transfer to the Buyer good and marketable title to
all Assets, which are free and clear of all claims, liabilities, liens, pledges,
charges, encumbrances and equities of any kind affecting the Assets
(collectively, the "Encumbrances").
2.4 Litigation. None of the Unidigital Parties is a party to, nor to the
----------
best knowledge of each of the Unidigital Parties, threatened with, and none of
the Assets are subject to, any material litigation, suit, action, investigation
(to the best knowledge of each of the Unidigital Parties), grievance,
arbitration, proceeding, or controversy or claim before any court,
administrative agency or other governmental authority relating to or affecting
the Assets or the business, properties, condition (financial or otherwise) of
the Business. None of the Unidigital Parties is in violation of or in default
with respect to any judgment, order, award, writ, injunction, decree or rule of
any court, governmental department, commission, agency, instrumentality,
arbitrator, administrative agency or governmental authority or any regulation of
any administrative agency or governmental authority, where such violation or
default would have a material adverse effect upon the Assets, the business,
properties, condition (financial or otherwise) of the Business or the
consummation of the transactions contemplated hereby. None of the Unidigital
Parties has received notice of any product liability claim, warranty claim or
other claim whatsoever which, if decided adversely, would have a material
adverse effect on the Assets.
2.5 Compliance with Laws. The Unidigital Parties have all requisite
----------------------
licenses, permits and certificates from federal, state, local and foreign
authorities necessary to conduct the Business and own and operate the Assets
(collectively, the "Permits"). None of the Unidigital Parties has engaged in any
activity which would cause or, to the knowledge of each of the Unidigital
Parties, permit revocation or suspension of any such Permit and no action or
proceeding looking to or contemplating the revocation or suspension of any such
Permit is pending or threatened. There are no existing material defaults by the
Unidigital Parties under any
6
<PAGE>
Permit. None of the Unidigital Parties is in violation of any federal, state,
local or foreign law, regulation or ordinance relating to its properties, the
violation of which could have a material adverse effect on the Assets. None of
the Unidigital Parties has received any notice or communication from any
federal, state, foreign, or local governmental or regulatory authority or
otherwise of any such violation or noncompliance and has not received any notice
prior to such time of any violation that has not been cured.
2.6 Contracts and Commitments.
-------------------------
(a) Schedule 2.6(a) attached hereto sets forth a true, correct and
----------------
complete list of the contracts and agreements which are to be assigned from the
Unidigital Parties to the Buyer at the Closing (collectively, the "Contracts").
(b) Except as set forth on Schedule 2.6(b), the continuation,
----------------
validity and effectiveness of each Contract would not be affected by the
transfer thereof to the Buyer under this Agreement and all such Contracts are
assignable to the Buyer without a consent and:
(i) each Contract is a valid and binding agreement of the
Unidigital Party party to each such Contract, enforceable against such
Unidigital Party in accordance with its terms, and the Unidigital Parties have
no knowledge that any Contract is not a valid and binding agreement of the other
parties thereto:
(ii) each of the Unidigital Parties has fulfilled all
material obligations required pursuant to the Contracts to have been performed
by it prior to the date of Closing;
(iii) none of the Unidigital Parties is in material breach
of or material default under any Contract, and no event has occurred which with
the passage of time or giving of notice or both would constitute such a default,
result in a loss of rights or result in the creation of any lien, charge or
encumbrance, thereunder or pursuant thereto (an "Inchoate Default"); and
(iv) to the best knowledge of the Unidigital Parties, there is
no existing breach or default by any other party to any Contract, and no
Inchoate Default.
(c) True, correct and complete copies of all of the Contracts have
been delivered by the Unidigital Parties to the Buyer prior to the date of
Closing.
2.7 Brokers. All negotiations relative to this Agreement and the
-------
transactions contemplated hereby have been carried on by the Unidigital Parties
without the intervention of any other person in such manner as to give rise to
any valid claim against the Buyer for a finder's fee, brokerage commission or
other like payment.
3. Representations of the Buyer
----------------------------
The representations and warranties made by the Buyer herein or in any
instrument or document furnished in connection herewith shall survive the
Closing until the first anniversary of the date of Closing. The Buyer represents
and warrants to the Unidigital Parties as follows:
7
<PAGE>
3.1 Organization and Authority. The Buyer is duly organized and validly
----------------------------
existing and in good standing under the laws of the state of its organization,
and has requisite power and authority to own its properties and to carry on its
business as now being conducted. The Buyer has full power to execute and deliver
this Agreement and to consummate the transactions contemplated hereby.
3.2 Authorization. The execution and delivery of this Agreement by the
-------------
Buyer and the agreements provided for herein to which it is a party, and the
consummation by the Buyer of all transactions contemplated hereby, have been
duly authorized by all requisite action. This Agreement and all such other
agreements and written obligations entered into and undertaken in connection
with the transactions contemplated hereby constitute the valid and legally
binding obligations of the Buyer, enforceable against it in accordance with
their respective terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors
rights generally and general principles of equity. The execution, delivery and
performance of this Agreement and the agreements provided for herein, and the
consummation by the Buyer of the transactions contemplated hereby and thereby,
will not, with or without the giving of notice or the passage of time or both,
(a) violate the provisions of any law, rule or regulation applicable to the
Buyer; (b) violate the provisions of the organizational documents of the Buyer;
(c) violate any judgment, decree, order or award of any court, governmental body
or arbitrator applicable to the Buyer; or (d) conflict with or result in the
breach or termination of any term or provision of, or constitute a default
under, or cause any acceleration under, or cause the creation of any lien,
charge or encumbrance upon the properties or assets of the Buyer pursuant to,
any indenture, mortgage, deed of trust or other agreement or instrument to which
it or its properties is a party or by which the Buyer is or may be bound.
3.3 Regulatory Approvals. All consents, approvals, authorizations and
---------------------
other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by the Buyer and which are necessary for its consummation
by the Buyer of the transactions contemplated by this Agreement have been
obtained and satisfied.
3.4 Brokers. All negotiations relative to this Agreement and the
-------
transactions contemplated hereby have been carried on by the Buyer without the
intervention of any other person in such manner as to give rise to any valid
claim for a finder's fee, brokerage commission or other like payment.
4. Public Announcements
--------------------
Except as otherwise required by law or government regulation or
otherwise reasonably necessary for either of the parties to conduct any
litigation, arbitration or other proceeding, any public announcement, press
release or release of information with respect to this Agreement or the
transactions contemplated hereby shall be issued, if at all, at such time and in
such manner as the Buyer and the Selling Parties mutually determine. The Selling
Parties and the Buyer shall consult with each other concerning the means by
which the employees, customers, suppliers and others having a business
relationship with the Selling Parties will be informed of the transactions
contemplated hereby.
8
<PAGE>
5. Employee Matters
----------------
5.1 Employees. The Buyer is making offers of employment to each of the
---------
employees listed on Schedule 5.1 at salaries and bonuses no less favorable to
------------
the applicable employee than such employee currently receives from the Selling
Parties, as applicable.
5.2 Future Changes. Except as set forth in Section 5.1, nothing in
---------------
this Agreement shall require the Buyer to hire or retain any of employees of the
Selling Parties for any period of time after the date of Closing. Subject to
requirements of applicable law, the Buyer reserves the right at any time after
the date of Closing to terminate such employment and amend, modify or terminate
any term or condition of employment, including without limitation, any employee
benefit plan, program, policy, practice or arrangement.
5.3 Reporting of Data. The Buyer and the Unidigital Parties shall compile
-----------------
and furnish to each other such actuarial and employee data as shall be required
from time to time for each party to perform and fulfill its obligations under
this Section 5.
6. Conditions to Obligations of the Buyer
--------------------------------------
The obligations of the Buyer under this Agreement are subject to the
fulfillment, on or prior to the Closing, of the following conditions precedent,
each of which may be waived in writing in the sole discretion of the Buyer:
6.1 Continued Truth of Representations and Warranties of the Unidigital
----------------------------------------------------------------------
Parties; Compliance with Covenants and Obligations. The representations and
- ----------------------------------------------------
warranties of the Unidigital Parties shall be true on and as of the date of
Closing. The Unidigital Parties shall have performed and complied in all
material respects with all covenants required by this Agreement to be performed
or complied with by it prior to or at the date of Closing. The Unidigital
Parties shall have delivered to the Buyer each of the Schedules to this
Agreement and such Schedules shall be reasonably satisfactory to the Buyer and
its lender.
6.2 Corporate Proceedings. All corporate and other proceedings required
----------------------
to be taken on the part of the Unidigital Parties to authorize or carry out this
Agreement and to convey, assign, transfer and deliver the Assets shall have been
taken.
6.3 Other Governmental Approvals. All courts of law, governmental
------------------------------
agencies, departments, bureaus, commissions and similar bodies, the consent,
authorization or approval of which is necessary under any applicable law, rule,
order or regulation for the consummation by the Unidigital Parties of the
transactions contemplated by this Agreement and the operation of the Business by
the Buyer, shall have consented to, authorized, permitted or approved such
transactions.
6.4 Consents of Lenders, Lessors and Other Third Parties. The Unidigital
------------------------------------------------------
Parties shall have received the consents and approvals of all lenders, lessors
and other third parties whose consent or approval is required in order for the
Unidigital Parties to consummate the
9
<PAGE>
transactions contemplated by this Agreement, including, without limitation, the
landlord at the Premises.
6.5 Board of Directors and Shareholder Approval. The Board of Directors of
-------------------------------------------
each of the Unidigital Parties and the sole shareholder of each of the Selling
Parties shall have duly authorized the transactions contemplated by this
Agreement.
6.6 Closing Deliveries of the Unidigital Parties.
--------------------------------------------
The Buyer will receive at the Closing each of the following documents
or items:
(a) the Bill of Sale, executed by the Unidigital Parties;
(b) such instruments of conveyance, assignment and transfer, in form
and substance reasonably satisfactory to the Buyer, as shall be appropriate to
convey, transfer and assign to, and to vest in, the Buyer, good and marketable
title to the Assets;
(c) all technical data, formulations, product literature and other
documentation relating to the Assets;
(d) such files and other data and documents pertaining to the Assets
as the Buyer may reasonably request related to the Assets;
(e) such certificates of each Unidigital Parties' officers and such
other documents evidencing satisfaction of the conditions specified in this
Section 6 as the Buyer shall reasonably request;
(f) certificate of the Secretary or Assistant Secretary of each of
the Unidigital Parties attesting to the incumbency of such Unidigital Parties'
officers, and the authenticity of the resolutions authorizing the transactions
contemplated by the Agreement and the organizational documents of such Selling
Party; and
(g) such other documents, instruments or certificates as the Buyer
may reasonably request.
6.7 Lease Obligations. The Unidigital Parties shall be current on all
------------------
lease obligations owing to its lessors through the date of Closing.
6.8 Lock Box Arrangements. The Unidigital Parties shall have terminated
---------------------
all lock box arrangements relating to the Business on or prior to the date of
Closing.
7. Conditions to Obligations of the Unidigital Parties
---------------------------------------------------
The obligations of the Unidigital Parties under this Agreement are
subject to the fulfillment, on or prior to the Closing, of the following
conditions precedent, each of which may be waived in writing at the sole
discretion of the Unidigital Parties:
10
<PAGE>
7.1 Continued Truth of Representations and Warranties of the Buyer
----------------------------------------------------------------------
Compliance with Covenants and Obligations. The representations and warranties of
- -----------------------------------------
the Buyer in this Agreement shall be true on and as of the date of Closing. The
Buyer shall have performed and complied in all material respects with all
covenants required by this Agreement to be performed or complied with by it
prior to or at the date of Closing.
7.2 Corporate Proceedings. All legal and other proceedings required to be
---------------------
taken on the part of the Buyer to authorize or carry out this Agreement shall
have been taken.
7.3 Approvals. All other governmental agencies, departments, bureaus,
---------
commissions and similar bodies, the consent, authorization or approval of which
is necessary under any applicable law, rule, order or regulation for the
consummation by the Buyer of the transactions contemplated by this Agreement
shall have consented to, authorized, permitted or approved such transactions.
7.4 Consents of Lenders, Lessors and Other Third Parties. The Buyer shall
----------------------------------------------------
have received all requisite and material consents and approvals of all lenders,
lessors and other third parties whose consent or approval is required in order
for the Buyer to consummate the transactions contemplated by this Agreement.
7.5 Closing Deliveries of the Buyer.
-------------------------------
The Unidigital Parties will receive at the Closing each of the
following documents or items:
(a) the Cash Consideration due at the Closing;
(b) the Note;
(c) the Assumption Agreement;
(d) such certificates of the Buyer's officers and such other
documents evidencing satisfaction of the conditions specified in this Section 7
as the Unidigital Parties shall reasonably request;
(e) a certificate of the Secretary or Assistant Secretary of the
Buyer attesting to the incumbency of the Buyer's officers, and the authenticity
of the resolutions authorizing the transactions contemplated by this Agreement
and the organizational documents of the Buyer; and
(f) such other documents, instruments or certificates as the
Unidigital Parties may reasonably request.
11
<PAGE>
8. Post-Closing Agreements
-----------------------
8.1 Proprietary Information.
-----------------------
(a) Each party hereto shall hold in confidence, and use its best
efforts to have all officers, shareholders, directors and personnel hold in
confidence, all knowledge and information of any other party hereto of a secret
or confidential nature, and shall not disclose, publish or make use of the same
without the consent of such other party, except to the extent that such
information shall have become public knowledge other than by breach of this
Agreement by the disclosing party or by any other persons who have agreed with
the parties hereto not to disclose, publish or make use of such information.
(b) The parties hereto agree that the remedy at law for any breach
of this Section 8.1 would be inadequate and that each of the parties hereto
shall be entitled to injunctive relief in addition to any other remedy it may
have upon breach of any provision of this Section 8.1.
(c) The foregoing to the contrary notwithstanding, no information,
written or oral, shall be construed or considered confidential information and
thereby subject to the restrictions of this Section 8.1 if such information was
(i) generally available to the public other than as a result of a disclosure by
any party hereto or anyone to whom the parties hereto transmit the information
in violation hereof, (ii) in the possession of the disclosing party or known to
the such party on a non-confidential basis prior to its disclosure to such
party, or (iii) available to the disclosing party on a non-confidential basis
from a source other than any other party hereto who is not bound by a
confidentiality agreement with the parties hereto.
8.2 Solicitation or Hiring of Former Employees.
------------------------------------------
(a) Except as required by law or with the written consent of the
Buyer, for a period of one year after the date of Closing, the Unidigital
Parties and any persons or entities that are not natural persons, that directly
or indirectly, through one or more intermediaries, control, are controlled by,
or are under common control with, any of the Unidigital Parties (the "Corporate
Affiliates"), shall not solicit any person who is an employee listed on Schedule
--------
5.1, and has been employed, and not terminated without cause, by the Buyer, to
- ---
terminate his or her employment with the Buyer or to become an employee of the
Unidigital Parties or their respective Corporate Affiliates or hire any person
who was such an employee on the date of Closing.
(b) Except as required by law or with the written consent of Elements,
Unison, or the Parent, as the case may be, for a period of one year after the
date of Closing, the Buyer shall not and shall cause all of its Corporate
Affiliates not to solicit any person who is an employee of Elements, Unison, the
Parent or their respective Corporate Affiliates, as the case may be (except for
those employees listed on Schedule 5.1), and has been employed, and not
-------------
terminated without cause, by Elements, Unison, the Parent or their respective
Corporate Affiliates, as the case may be, to terminate his or her employment
with Elements, Unison, the Parent or their respective Corporate Affiliates, as
the case may be, or to become an employee of
12
<PAGE>
the Buyer or its Corporate Affiliates or hire any person who was such an
employee on the date of the Closing.
8.3 Sharing of Data. The Unidigital Parties shall have the right for a
-----------------
period of seven years following the date of Closing to have reasonable access to
such books, records and accounts, including financial and tax information,
correspondence, production records, employment records and other similar
information as are transferred to the Buyer pursuant to the terms of this
Agreement for the limited purposes of complying with its obligations under
applicable securities, tax, environmental, employment or other laws and
regulations. The Buyer and shall have the right for a period of seven years
following the date of Closing to have reasonable access to those books, records
and accounts, including financial and tax information, correspondence,
production records, employment records and other records which are retained by
the Unidigital Parties pursuant to the terms of this Agreement to the extent
that any of the foregoing relates to the Assets transferred to the Buyer
hereunder or is otherwise needed by the Buyer and in order to comply with its
obligations under applicable securities, tax, environmental, employment or other
laws and regulations. In addition to the foregoing, the Unidigital Parties
hereby agree to make available to the Buyer, without charge, the accounting
services of Mitchell Gerstenbluth for a period not to exceed six (6) months
following the Closing; provided, however, that in no event shall Mitchell
-------- -------
Gerstenbluth be required to provide such services if it unreasonably interferes
with the performance of his duties for the Unidigital Parties or any of their
respective affiliates.
8.4 Cooperation in Litigation. Each party hereto will reasonably cooperate
-------------------------
with the other in the defense or prosecution of any litigation or proceeding
already instituted or which may be instituted hereafter against or by such party
relating to or arising out of the conduct of the Business prior to or after the
date of Closing (other than litigation arising out of the transactions
contemplated by this Agreement and except as otherwise expressly provided
herein). The party requesting such cooperation shall pay the out-of-pocket
expenses (including legal fees and disbursements) of the party providing such
cooperation and of its officers, directors, employees and agents reasonably
incurred in connection with providing such cooperation, but shall not be
responsible to reimburse the party providing such cooperation for such party's
time spent in such cooperation or the salaries or costs of fringe benefits or
similar expenses paid by the party providing such cooperation to its officers,
directors, employees and agents while assisting in the defense or prosecution of
any such litigation or proceeding.
8.5 Additional Payments; Right of Setoff. Pursuant to this Agreement,
---------------------------------------
Buyer shall acquire the right to use the Special Leased Equipment on the Special
Equipment Lease Terms. Buyer shall make its payments directly to the equipment
lessor. The Unidigital Parties jointly and severally agree to make additional
payments to the equipment lessor, if any ("Additional Equipment Payments"), as
needed to secure Buyer's right to use the Special Leased Equipment without
additional costs to Buyer. If the Unidigital Parties do not make the Additional
Equipment Payments, if any, on a timely basis, Buyer may (but shall not be
required to) make any or all such payments itself and, at Buyer's option, either
demand repayment of such amounts from the Unidigital Parties or, upon reasonable
notice to the Unidigital Parties, setoff the amount of such payments against
amounts which would otherwise be or become due from Buyer pursuant to the Note.
13
<PAGE>
8.6 Termination of Use of Elements Name. Until the fifth anniversary of
------------------------------------
the date of the Closing, the Unidigital Parties shall, and shall cause their
Corporate Affiliates to, cease all use of the name "Elements" or any variation
thereof in connection with its business operation in the United States,
effective immediately, provided that the Unidigital Parties and their Corporate
Affiliates shall have a period of three months from the date of Closing to cease
using the name "Elements" in connection with their San Francisco-based
operations. The Buyer shall be entitled to renew its use of the name "Elements"
or any variation thereof in connection with its business operation in the United
States beyond such five-year period for three (3) additional one-year terms,
provided that the Buyer pays to the Unidigital Parties a royalty fee equal to
$20,000 per year (the "Royalty Fee") payable in a lump sum on the date upon
which such renewal is to be effected. In the event the Buyer pays the Royalty
Fee to the Unidigital Parties for three (3) consecutive years, the Buyer shall
acquire all right, title and interest in the Selling Parties' rights to use the
name "Elements" or any variation thereof in connection with its business
operation in the United States at no further additional cost.
9. Indemnification and Reimbursement
---------------------------------
9.1 Indemnification by the Unidigital Parties. The Unidigital Parties
-------------------------------------------
shall indemnify, defend and hold harmless the Buyer and any parent, subsidiary
or affiliate thereof and all directors, officers, employees, agents and
consultants of the foregoing (collectively, the "Buyer Group") from and against
all demands, claims, actions or causes of action, assessments, losses, damages,
liabilities (whether absolute, accrued, contingent or otherwise), costs and
expenses, including but not limited to, interest, penalties and reasonable
attorneys' fees and expenses (collectively, "Damages"), asserted against,
imposed upon or incurred by the Buyer Group or any member thereof, directly or
indirectly, by reason of or resulting from or relating to the breach of any
representation, warranty or covenant set forth herein (but in any event
excluding the Assumed Liabilities) at such time as the Damages, whether actual
or alleged, exceed $50,000, in which case all amounts (including amounts used to
calculate this minimum), but limited to $2,225,000, except in the case of
Damages arising out of environmental or tax liabilities in which case the
limitation on indemnification set forth in this Section 9.1 shall not apply.
Notwithstanding anything herein to the contrary, the limitation on
indemnification set forth above in this Section 9.1 shall not apply if and to
the extent that any member of the Seller Group (as defined below) shall have
been determined (whether by a court of competent jurisdiction, arbitration,
mediation, or settlement) to have committed fraud against the Buyer Group with
respect to any of the transactions contemplated herein.
9.2 Indemnification by the Buyer. The Buyer shall indemnify, defend and
-----------------------------
hold harmless the Unidigital Parties and any parent, subsidiary or affiliate
thereof and all directors, officers, employees, agents and consultants of the
foregoing (collectively, the "Seller Group") from and against all Damages
asserted against, imposed upon or incurred by the Seller Group or any member
thereof, directly or indirectly, by reason of or resulting from or relating to
the breach of any representation, warranty or covenant set forth herein, or the
operation of the Business post-closing, or the Assumed Liabilities, at such time
as the Damages, whether actual or alleged, exceed $50,000, in which case all
amounts (including amounts used to calculate this minimum), but limited to
$2,225,000, except in the case of Damages arising out of environmental or tax
14
<PAGE>
liabilities in which case the limitation on indemnification set forth in this
Section 9.2 shall not apply.
Notwithstanding anything herein to the contrary, the limitation on
indemnification set forth above in this Section 9.2 shall not apply if and to
the extent that any member of the Buyer Group shall have been determined
(whether by a court of competent jurisdiction, arbitration, mediation, or
settlement) to have committed fraud against the Seller Group with respect to any
of the transactions contemplated herein.
9.3 Cooperation. The parties hereto agree to render to each other
-----------
such assistance as they may reasonably require of each other and to cooperate in
good faith with each other in order to provide for the proper and adequate
defense of any claim, action, suit or proceeding brought by any third party;
provided, however, that this Section 9.3 shall not require the Unidigital
- -------- -------
Parties to retain any personnel or resources solely to comply with this Section
9.3 and the Unidigital Parties disclaim any warranty that it will have resources
available to comply with this Section 9.3.
9.4 Confidentiality. The parties agree to cooperate in such a reasonable
---------------
manner as to preserve in full the confidentiality of all confidential business
records and the attorney-client and work-product privileges. In connection
therewith, each party agrees that (a) it will use its reasonable efforts, in any
action, suit or proceeding in which it has assumed or participated in the
defense, to avoid production of confidential business records and (b) all
communications between any party hereto and counsel responsible for or
participating in the defense of any action, suit or proceeding shall, to the
extent possible, be made so as to preserve any applicable attorney-client or
work-product privilege.
10. Transfer and Sales Tax. The Buyer shall be responsible for and pay all
----------------------
filing and recording taxes and fees, and all sales, use and transfer taxes and
fees, if any, upon the sale and transfer of the Assets hereunder.
11. Notices. Any notices or other communications required or permitted
-------
hereunder shall be sufficiently given if in writing (including
telecommunications) and delivered personally or sent by telex, telecopy or other
wire transmission (with request for assurance in a manner typical with respect
to communications of that type), federal express or other overnight air courier
(postage prepaid), registered or certified mail (postage prepaid with return
receipt requested), addressed as follows or to such other address of which the
parties may have given notice:
To the Unidigital Parties: c/o Unidigital Inc.
229 West 28th Street
New York, New York 10001
Attn.: William E. Dye, Chief Executive Officer
Tel. No: (212) 244-7820
Fax No.: (212) 244-7815
15
<PAGE>
With a copy to: Buchanan Ingersoll Professional Corporation
500 College Road East
Princeton, New Jersey 08540
Attn.: David J. Sorin, Esq.
Tel. No.: (609) 987-6800
Fax No.: (609) 520-0360
To the Buyer: I.A.T., LLC
20 West 20th Street
New York, New York 10011
Attn.: Steven Amiel, President
Tel. No.: (212) 727-3070
Fax No.: (212) 691-5404
With a copy to: Pitney Hardin Kipp & Szuch
P.O. Box 1945
Morristown, New Jersey 07962-1945
Attn.: Michael W. Zelenty, Esq.
Tel. No.: (973) 966-6300
Fax No.: (973) 966-1550
If by hand to: Pitney Hardin Kipp & Szuch
200 Campus Drive
Florham Park, New Jersey 07932
Attn: Michael W. Zelenty, Esq.
Unless otherwise specified herein, such notices or other communications
shall be deemed received (a) on the date delivered, if delivered personally or
by wire transmission; (b) on the next business day after mailing or deposit with
an overnight air courier; or (c) five business days after being sent, if sent by
registered or certified mail.
12. Successors and Assigns. This Agreement shall be binding upon and
------------------------
inure to the benefit of the parties hereto and their respective successors and
assigns. No party may assign all or a portion of its rights and obligations
hereunder without the prior written consent of the other party. Any assignment
in contravention of this provision shall be void.
13. Entire Agreement; Amendments; Attachments.
-----------------------------------------
(a) This Agreement, all Schedules and Exhibits hereto, and all
agreements and instruments to be delivered by the parties pursuant hereto
represent the entire understanding and agreement between the parties hereto with
respect to the subject matter hereof and supersede all prior oral and written
and all contemporaneous oral negotiations, commitments and understandings
between such parties except as expressly provided herein. The parties, by the
consent of their respective Board of Directors, or officers authorized by such
Boards, may amend
16
<PAGE>
or modify this Agreement, in such manner as may be agreed upon, by a written
instrument executed by the parties.
(b) If the provisions of any Schedule or Exhibit to this Agreement are
inconsistent with the provisions of this Agreement, the provisions of the
Agreement shall prevail. The Exhibits and Schedules attached hereto or to be
attached hereafter are hereby incorporated as integral parts of this Agreement.
14. Expenses. Except as otherwise expressly provided herein, the Buyer and
--------
the Unidigital Parties shall each pay their own expenses in connection with this
Agreement and the transactions contemplated hereby.
15. Governing Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of New York, without reference to
conflicts of laws rules or principles.
16. Section Headings. The section headings are for the convenience of
-----------------
the parties and in no way alter, modify, amend, limit, or restrict the
contractual obligations of the parties.
17. Severability. The invalidity or unenforceability of any provision of
------------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
18. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
19. Waiver. The rights and remedies of the parties to this Agreement
------
are cumulative and not alternative. Neither the failure nor any delay by any
party in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party, (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given, and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
20. Ambiguity in Drafting. Each party shall have been deemed to have
---------------------
participated equally in the drafting of this Agreement and the agreements
contemplated hereby and any ambiguity in any such contracts shall not be
construed against any purported author thereof.
[SIGNATURE PAGE FOLLOWS]
17
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of and on the date first above written.
SELLING PARTIES:
UNIDIGITAL ELEMENTS (NY), 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
BUYER:
I.A.T., LLC
By: /s/ Steven Amiel
-------------------------------
Name: Steven Amiel
Title: President
PARENT:
UNIDIGITAL INC.
By: /s/ William E. Dye
-------------------------------
Name: William E. Dye
Title: Chief Executive Officer
18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNIDIGITAL INC.
and its Subsidiaries
$20,000,000 14% Senior Subordinated Notes due August 31, 2006
of Unidigital Inc. and its Subsidiaries
Warrants for 690,134 shares (subject to adjustment) of
Common Stock, $.01 par value, of Unidigital Inc.
--------------
SECURITIES PURCHASE AGREEMENT
--------------
September 14, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
1. Authorization of Securities; etc..........................................1
2. Sale and Purchase of Securities...........................................2
3. Closing...................................................................2
4. Conditions to Closing.....................................................3
4.1. Representations and Warranties Correct.............................3
4.2. Performance; No Default............................................3
4.3. Related Transactions...............................................3
4.4. Compliance Certificate.............................................3
4.5. Sale of Securities to Other Purchasers.............................4
4.6. Opinion of Counsel for the Companies...............................4
4.7. Opinion of Choate, Hall & Stewart..................................4
4.8. Certain Additional Documents to be Delivered at or Prior to the
Closing............................................................4
4.9. Payment of Transactions Costs......................................4
4.10. Legal Investment; Certificate......................................4
4.11. Sale and Purchase Not Forbidden by Law.............................4
4.12. Proceedings and Documents..........................................4
4.13. Joint and Several Obligations, etc.................................5
5. Representations and Warranties............................................5
5.1. Organization, Standing, etc. of the Holding Company................5
5.2. Names; Jurisdictions of Incorporation; Subsidiaries................5
5.3. Qualification......................................................5
5.4. Business, etc......................................................6
5.5. Shares; Shareholders...............................................6
5.6. Financial Statements...............................................7
5.7. Changes; Solvency, etc.............................................8
5.8. Tax Returns and Payments...........................................8
5.9. Debt, Liens, Investments and Transactions with Affiliates;
Derivative Transactions; Material Agreements.......................9
5.10. Title to Properties; Liens; Leases.................................9
5.11. Litigation, etc...................................................10
5.12. Valid and Binding Obligations; Compliance with Other
Instruments, Borrowing Restrictions, etc..........................10
5.13. ERISA and Other Employee Benefit Matters..........................11
5.14. Consents, etc.....................................................13
5.15. Proprietary Rights; Licenses......................................13
(i)
<PAGE>
5.16. Offer of Securities; Investment Bankers...........................14
5.17. Government Regulation.............................................14
5.18. Labor Relations; Suppliers, Distributors and Customers............14
5.19. Year 2000 Compliance..............................................14
5.20. Disclosure........................................................14
6. Use of Proceeds..........................................................15
7. Financial Statements and Information.....................................15
8. Inspection; Confidentiality..............................................20
9. Prepayment of Notes......................................................21
9.1. Required Prepayment Without Premium of Notes......................21
9.2. Optional Prepayment Without Premium of Notes From Proceeds of
Public Offering...................................................21
9.3. Optional Prepayment With Premium of Notes.........................21
9.4. Prepayment Without Premium of the Notes at the Option of
Holders of the Notes upon a Change of Control.....................22
9.5. Allocation of Partial Prepayments of Notes........................22
9.6. Notice of Optional Prepayments of Notes...........................22
9.7. Maturity; Accrued Interest; Surrender, etc. of Notes..............23
9.8. Purchase of Notes.................................................23
9.9. Payment on Non-Business Days......................................23
9.10. Application of Notes in Satisfaction of Exercise Price of
Warrants..........................................................23
10. Subordination of Notes...................................................23
11. Registration and Co-Sale Rights, Drag-Along Obligations, etc.............23
12. Put and Call Rights......................................................24
12.1. Put Rights with Respect to Warrants and Warrant Shares............24
12.2. Call Rights with Respect to the Warrants..........................25
12.3. Closing...........................................................26
12.4. No Waivers, etc...................................................27
13. Board Visitation Rights..................................................27
14. Covenants of the Holding Company.........................................27
14.1. Books of Record and Account; Reserves.............................28
14.2. Payment of Taxes; Existence; Maintenance of Properties;
Compliance with Laws; Lines of Business; Proprietary Rights.......28
14.3. Insurance.........................................................28
(ii)
<PAGE>
14.5. Limitation on Debt................................................29
14.6. Limitation on Restricted Payments and Restricted Investments......30
14.7. Fixed Coverage Ratio..............................................31
14.8. Limitation on Tax Consolidation...................................32
14.9. Limitation on Liens...............................................32
14.10. Limitation on Transactions with Affiliates........................32
14.11. Joinder of Additional Subsidiaries................................32
14.12. Limitation on Issuance and Sale of Shares of Subsidiaries;
No Preferred Shares...............................................33
14.13. Limitation on Subsidiary's Consolidation or Merger................33
14.14 Limitation on the Holding Company's Consolidation and Merger......33
14.15. Limitation on Disposition of Property.............................34
14.16. Modification of Certain Documents, Agreements and Instruments;
Fiscal Year End...................................................35
14.17. Further Assurances................................................35
15. Definitions..............................................................36
15.1. Definitions of Capitalized Terms..................................36
15.2. Other Definitions.................................................51
15.3. Accounting Terms and Principles; Laws.............................52
16. Remedies.................................................................52
16.1. Events of Default Defined; Acceleration of Maturity...............52
16.2. Suits for Enforcement, etc........................................57
16.3. Remedies Cumulative...............................................57
16.4. Remedies Not Waived...............................................57
16.5. Application of Payments...........................................58
17. Registration, Transfer and Exchange of Securities........................58
18. Replacement of Securities................................................58
19. Amendment and Waiver.....................................................58
20. Method of Payment of Securities..........................................59
21. Expenses; Indemnity......................................................60
22. Charges; Foreign Currency; Taxes.........................................60
23. Communications...........................................................61
24. Survival of Agreements, Representations and Warranties, etc..............62
(iii)
<PAGE>
25. Successors and Assigns; Rights of Other Holders..........................63
26. Purchase for Investment; Source of Funds.................................63
27. Governing Law; Jurisdiction; Waiver of Jury Trial........................65
28. Rules 144 and 144A.......................................................65
29. Miscellaneous............................................................65
Schedule I Purchaser Information
Exhibit 1(a) Form of Note
Exhibit 1(b) Form of Warrant
Exhibit 4.3(c) Form of Registration Rights Agreement
Exhibit 4.6 Opinion of Buchanan Ingersoll Professional Corporation
Exhibit 4.7 Opinion of Choate, Hall & Stewart
Exhibit 4.8 Additional Documents to be Delivered at or Prior to the
Closing
Exhibit 5.2 Names; Jurisdictions of Incorporation; Subsidiaries
Exhibit 5.5(a) Shares; Shareholders
Exhibit 5.5(b) Other Securities; Commitments; Preemptive and Registration
Rights
Exhibit 5.7 Restricted Payments and Restricted Investments
Exhibit 5.8 Tax Returns and Payments
Exhibit 5.9 Debt, Liens, Investments, Transactions with Affiliates,
Derivative Transactions and Material Agreements
Exhibit 5.10 Title to Properties; Liens; Leases
Exhibit 5.11 Litigation, etc.
Exhibit 5.14 Consents
Exhibit 6 Use of Proceeds
Exhibit 7(c)(v) Information as to New Subsidiaries
(iv)
<PAGE>
UNIDIGITAL INC.
229 West 28th Street
New York, New York 10001
September 14, 1999
To the Purchasers named
on Schedule I attached hereto
----------
Ladies and Gentlemen:
UNIDIGITAL INC., a Delaware corporation (the "Holding Company"),
LINOGRAPHICS CORPORATION, a New York corporation ("Linographics"), ELEMENTS (UK)
LIMITED, a United Kingdom corporation ("Elements (UK)"), UNIDIGITAL ELEMENTS
(SF), INC., a Delaware corporation ("Elements (SF)"), UNISON (NY), INC., a
Delaware corporation ("Unison (NY)"), UNISON (MA), INC., a Delaware corporation
("Unison (MA)"), MEGA ART CORP., a New York corporation ("Mega Art"),
SUPERGRAPHICS HOLDING COMPANY, INC., a Delaware corporation ("SuperGraphics
Holding"), SUPERGRAPHICS CORPORATION, a California corporation
("SuperGraphics"), REGENT GROUP LIMITED, a United Kingdom corporation
("Regent"), and INTERFACE GRAPHICS LIMITED, a corporation organized under the
laws of Scotland ("Interface"), each a Wholly-Owned Subsidiary of the Holding
Company (the Holding Company, Linographics, Elements (UK), Elements (SF), Unison
(NY), Unison (MA), Mega Art, SuperGraphics Holding, SuperGraphics, Regent and
Interface are collectively referred to as the "Companies" and each as a
"Company"), jointly and severally agree with you as follows. Certain capitalized
terms used herein are defined in section 15.
1. Authorization of Securities; etc.
---------------------------------
(a) The Companies have authorized the issue and sale of their Senior
14% Subordinated Notes due August 31, 2006 (herein, together with any notes
issued in exchange therefor or replacement thereof, called the "Notes") in
the aggregate principal amount of $20,000,000. The Notes are to be
substantially in the form of Exhibit 1(a) attached hereto; and
------------
(b) The Holding Company has authorized the issue and sale of its
warrants (herein, together with any warrants issued in exchange therefor or
replacement thereof, called the "Warrants") evidencing rights to purchase
in the aggregate 690,134 shares (subject to adjustment) of Common Stock.
The Warrants shall be exercisable during the Exercise Period (as defined in
the
-1-
<PAGE>
Warrants) for $5.425 per share (subject to adjustment), shall expire on August
31, 2006 and shall be substantially in the form of Exhibit 1(b) attached hereto.
------------
(c) Interest is payable on the Notes semi-annually in arrears on the
last day of each February and August, commencing February 29, 2000, and at
maturity. In no event shall the amount paid or agreed to be paid by the
Companies as interest and premium on any Note exceed the highest lawful
rate permissible under any law applicable thereto. As further provided in
the Notes, in lieu of paying cash, the Companies may elect from time to
time to defer payment of a portion of the interest accrued thereon until
maturity (whether by acceleration, declaration or otherwise) and to pay it
together with interest accrued thereon at that time.
(d) The Securities are to be issued under this Agreement and separate
Securities Purchase Agreements (the "Other Securities Purchase Agreements")
identical herewith (except as to the name and address of each of the other
purchasers) being entered into concurrently by the Companies with each of
the other purchasers (the "Other Purchasers") named in Schedule I attached
----------
hereto. The issue of Securities to you and the issues of Securities to each
of the Other Purchasers are separate transactions and you shall not be
liable or responsible for the acts or defaults of the Other Purchasers.
2. Sale and Purchase of Securities. Subject to the terms and conditions
----------------------------------
hereof, the Companies will issue and sell to you and you will purchase from the
Companies, at the Closing specified in section 3, the Securities specified on
that portion of Schedule I attached hereto as is applicable to you. The
-----------
aggregate purchase price of the Notes and the Warrants shall be $20,000,000, of
which $19,000,000 shall be allocated to the Notes and $1,000,000 shall be
allocated to the Warrants. The Companies and you agree that the values ascribed
to the Securities (which values shall be used by the Companies and you, as well
as any subsequent holder of any of the Securities, for all purposes, including
the preparation of tax returns) shall be determined in accordance with the
foregoing.
3. Closing. The closing of the sale and purchase of the Securities hereunder
-------
(the "Closing") shall take place at the office of Messrs. Choate, Hall &
Stewart, Exchange Place, 53 State Street, Boston, Massachusetts 02109, on
September 14, 1999 or such other date (not later than September 30, 1999) to
which you and the Companies may agree (the "Closing Date"). The Closing shall
occur not later than 11:00 A.M. Boston time (your reinvestment deadline) on the
Closing Date. At the Closing, the Companies will deliver to you the Securities
to be purchased by you at the Closing against payment of the purchase price
thereof to (or for the benefit of) the Companies in immediately available funds
in accordance with the following instructions: Chase Manhattan Bank, f/b/o
Unidigital Inc., ABA No. 021 000 021, Account No. 910 4049 128. Delivery of the
Securities to be purchased by you at the Closing shall be made in the form of
one or more Notes and Warrants, in such denominations and registered in such
names as are
-2-
<PAGE>
specified on Schedule I attached hereto, and in each case dated and, in the case
----------
of the Notes, bearing interest, from the Closing Date. If at the Closing the
Companies shall fail to tender the Securities to be delivered to you as provided
herein, or if at the Closing any of the conditions specified in section 4 shall
not have been fulfilled to your satisfaction, you shall, at your election, be
relieved of all further obligations under this Agreement, without thereby
waiving any other rights you may have by reason of such failure or such
non-fulfillment.
4. Conditions to Closing. Your obligation to purchase and pay for the
-----------------------
Securities to be purchased by you at the Closing is subject to the fulfillment
to your reasonable satisfaction, prior to or at the Closing, of the following
conditions:
4.1. Representations and Warranties Correct. The representations and
-----------------------------------------
warranties made by the Companies herein and in the other Operative Documents
shall have been correct when made and shall be correct at and as of the time of
the Closing (after giving effect to the transactions consummated at the
Closing).
4.2. Performance; No Default. The Companies shall have performed all
------------------------
agreements and complied with all conditions contained herein and in the other
Operative Documents required to be performed or complied with by them prior to
or at the Closing and at the time of the Closing, no Default or Event of Default
shall exist and no condition shall exist which has resulted in, or could
reasonably be expected to result in, a Material Adverse Change.
4.3. Related Transactions.
--------------------
(a) The Fleet Documents shall be in full force and effect and in form
and substance satisfactory to you. After giving effect to the Closing, the
Companies shall have at least $3,000,000 of undrawn availability under the
revolving credit facility established under the Fleet Agreement.
(b) The Organizational Documents of the Holding Company (including,
without limitation, the terms of the Preferred Stock) and each of its
Subsidiaries shall be in form and substance satisfactory to you.
(c) You and the Holding Company shall have entered into a Registration
Rights Agreement substantially in the form of Exhibit 4.3(c) attached
---------------
hereto (the "Registration Rights Agreement").
4.4. Compliance Certificate. At the Closing, you shall have received an
-----------------------
Officer's Certificate, dated the Closing Date, certifying that the conditions
specified in sections 4.1 and 4.2 have been fulfilled.
-3-
<PAGE>
4.5. Sale of Securities to Other Purchasers. At the Closing, the Companies
--------------------------------------
shall issue to the Other Purchasers the Securities to be issued at the Closing
to the Other Purchasers pursuant to the Other Securities Purchase Agreements and
shall receive payment in full of the purchase price thereof.
4.6. Opinion of Counsel for the Companies. At the Closing, you shall have
------------------------------------
received an opinion, dated the Closing Date, from Buchanan Ingersoll
Professional Corporation, counsel for the Companies, substantially in the form
of Exhibit 4.6 attached hereto.
-----------
4.7. Opinion of Choate, Hall & Stewart. At the Closing, you shall have
----------------------------------
received an opinion, dated the Closing Date, from Choate, Hall & Stewart,
substantially in the form of Exhibit 4.7 attached hereto.
4.8. Certain Additional Documents to be Delivered at or Prior to the
---------------------------------------------------------------------
Closing. You shall have received the items specified on Exhibit 4.8 attached
- ------- -----------
hereto, each of which shall be satisfactory in form and substance to you.
4.9. Payment of Transactions Costs. The Companies shall have paid in
--------------------------------
immediately available funds all fees, expenses and disbursements incurred by you
at or prior to the time of the Closing in connection with the transactions
contemplated by the Operative Documents, including, without limitation, the
reasonable fees, expenses and disbursements of your special counsel.
4.10. Legal Investment; Certificate. At the time of the Closing, your
-------------------------------
purchase of the Securities to be issued pursuant hereto at the Closing shall be
permitted under the laws and regulations of any jurisdiction to which you are
subject (without resort to any provision of any such law permitting limited
investments by you without restriction as to the character of the particular
investment), and you shall, if requested by you, have received an Officer's
Certificate, dated the Closing Date, certifying as to such matters as you may
request to enable you to determine whether your purchase is so permitted.
4.11. Sale and Purchase Not Forbidden by Law. The offer, issue, sale and
--------------------------------------
delivery by the Companies of the Securities to be issued pursuant hereto and
your purchase of such Securities at the Closing shall not be prohibited by and
shall not subject you to any tax, penalty, liability or other encumbrance under
or pursuant to any law, statute, rule or regulation (other than those of general
applicability under applicable securities laws).
4.12. Proceedings and Documents. All proceedings in connection with the
--------------------------
transactions contemplated by the Operative Documents and all agreements,
documents and instruments incident to such transactions shall be reasonably
satisfactory in form and substance to you and your special counsel, and you and
your special counsel shall have
-4-
<PAGE>
received all such counterpart originals or copies of such agreements, documents
and instruments as you or they may reasonably request.
4.13. Joint and Several Obligations, etc. All representations contained
-------------------------------------
herein shall be deemed to be separately made by each of the Companies, and each
of the covenants, agreements and obligations set forth herein shall be deemed to
be the joint and several covenants, agreements and obligations of each of the
Companies. Any notice, request, consent, report or other information or
agreement delivered by any of the Companies shall be deemed to be ratified by,
consented to and also delivered by each of the other Companies. Each of the
Companies recognizes and agrees that each covenant and agreement of the
"Companies" under this Agreement and the other Operative Documents shall create
a joint and several obligation of each of them, which may be enforced against
any of them, jointly, or against each of them separately, provided, however,
-------- -------
that in no event shall the liability of any Company under this Agreement and the
other Operative Documents exceed the maximum amount that, after giving effect to
the incurring of the obligations hereunder and under such other Operative
Documents and to any rights to contribution of such Company from Affiliates of
such Company, would not render the rights of the holders of the Securities to
payment hereunder and under such other Operative Documents void, voidable or
avoidable under any applicable fraudulent transfer law.
5. Representations and Warranties. The Holding Company represents and warrants
------------------------------
that (after giving effect to the transactions consummated at the Closing):
5.1. Organization, Standing, etc. of the Holding Company. Each of the
-------------------------------------------------------
Holding Company and its Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite power and authority to own, lease and
operate its properties, to carry on its business as now conducted, and now
proposed to be conducted, to execute, deliver and perform each of the Operative
Documents to which it is (or is to be) a party and to consummate the
transactions contemplated by the Operative Documents. No approval of the
shareholders of the Holding Company or any of its Subsidiaries or any class
thereof is required in connection therewith which has not previously been
obtained.
5.2. Names; Jurisdictions of Incorporation; Subsidiaries. Exhibit 5.2
------------------------------------------------------- -----------
attached hereto correctly specifies as to the Holding Company and each of its
Subsidiaries: (a) its legal name, (b) the jurisdiction of its incorporation, and
- -
(c) each jurisdiction (other than its jurisdiction of incorporation) in which it
-
is qualified to do business. The Holding Company does not have any Subsidiary
that is not listed on Exhibit 5.2. Exhibit 5.2 also correctly indicates each
------------ -----------
Subsidiary of the Holding Company that is a Significant Subsidiary.
5.3. Qualification. Each of the Holding Company and its Subsidiaries is
-------------
duly qualified or licensed to do business and is in good standing in each
jurisdiction in which
-5-
<PAGE>
the character of the properties owned or leased or the nature of the activities
conducted makes such qualification or licensing necessary, except for those
jurisdictions in which the failure to be so qualified or licensed or to be in
good standing has not resulted in, and would not reasonably be expected to
result in, a Material Adverse Change.
5.4. Business, etc. The Holding Company and its Subsidiaries are engaged
--------------
in the media services business providing large and grand format digital image
solutions and digital "premedia" services (the "Business"), as further described
in the Disclosure Document.
5.5. Shares; Shareholders.
--------------------
(a) Exhibit 5.5(a) attached hereto correctly specifies as to each of
--------------
the Holding Company and its Subsidiaries (immediately after giving effect
to the transactions consummated at the Closing) (i) the number of its
-
authorized, issued and outstanding Shares (of each class and series) and
(ii) to the knowledge of the Holding Company, the name of each record owner
--
of more than 5% of such Shares, together with the number (and percentage,
calculated on a fully-diluted basis) of Shares (of each class and series)
held by each such record owner. All of the outstanding Shares of the
Holding Company and its Subsidiaries are, and all Shares issued upon
exercise of the Warrants in accordance with the terms thereof, will be,
duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights on the part of any other Person, and all of
such Shares have been (or will have been) offered, issued and sold by the
Holding Company and its Subsidiaries in compliance with all applicable
laws. Except as set forth on Exhibit 5.5(a), the Shares of each of the
---------------
Subsidiaries are owned beneficially and free of any Lien, proxy,
shareholders agreement, voting agreement, voting trust or similar agreement
or restriction, by the Persons (and in the amounts) set forth on Exhibit
-------
5.5(a) attached hereto.
-----
(b) Except as set forth on Exhibit 5.5(b) attached hereto, except as
--------------
provided in section 12, and except for the Registration Rights Agreement
and the Warrants: (i) there are no outstanding rights, options, warrants or
-
agreements for the purchase from, or sale or issuance by, the Holding
Company or any of its Subsidiaries of any of its Shares or any other
securities convertible into or exercisable or exchangeable for such Shares;
(ii) there are no agreements on the part of the Holding Company or any of
--
its Subsidiaries to issue, sell or distribute any of its Shares or any of
its properties and assets; (iii) neither the Holding Company nor any of its
---
Subsidiaries has any obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its Shares or any interest therein or to
pay any dividend or make any distribution in respect thereof; and (iv) no
--
Person is entitled to (A) any preemptive or similar right with respect to
-
the issuance of any Shares of the Holding Company or any of its
Subsidiaries or (B)
-
-6-
<PAGE>
any rights with respect to the registration of any Shares of the Holding
Company or any of its Subsidiaries under the Securities Act.
(c) The aggregate number of shares of Common Stock issuable upon
exercise of the Warrants immediately after the Closing is 690,134 which, if
then issued, would constitute at least 7.5% of the Common Stock (calculated
on a fully-diluted basis).
(d) The Holding Company has reserved 690,134 shares of Common Stock
solely for issuance upon exercise of the Warrants.
(e) Neither the Organizational Documents of the Holding Company nor
any other agreement, document or instrument binding on or applicable to the
Holding Company or its shareholders contains any provision requiring a
higher voting requirement with respect to action taken (and/or to be taken)
by the shareholders or directors of the Holding Company than that which
would apply in the absence of such provision.
5.6. Financial Statements. You have been furnished with:
--------------------
(a) the financial statements contained in Section VI and Appendices A
and B of the Disclosure Document and in the Holding Company's Form 10-Q
(for the fiscal quarter ended May 31, 1999), which financial statements
have been prepared in accordance with GAAP and present fairly in all
material respects the financial position and the results of operations and
cash flows of the Person(s) purported to be covered thereby as at the
respective dates and for the respective periods indicated in conformity
with GAAP (subject, in the case of any unaudited financial statements, to
normal year-end and audit adjustments and the omission of footnote
disclosure);
(b) the projections contained in Section VI and Appendix C of the
Disclosure Document, which projections were prepared in good faith, are
based upon assumptions that the Holding Company believes are reasonable and
take into account all material information regarding the matters set forth
therein; and
(c) the pro forma unaudited balance sheet of the Holding Company
contained in Section VI and Appendix C of the Disclosure Document, which
balance sheet fairly presents the financial position of the Holding Company
and its Subsidiaries as at the Closing Date, adjusted on a pro forma basis
to give effect to the consummation of the transactions contemplated by the
Operative Documents, and reflects all known material liabilities of the
Holding Company, contingent or other, as at the Closing Date, required by
GAAP to be reflected therein, other than liabilities incurred since such
date in the ordinary course of business.
-7-
<PAGE>
5.7. Changes; Solvency, etc. Since August 31, 1998: (a) except as set
------------------------ -
forth on Exhibit 5.7 attached hereto, there has been no change in the assets,
-----------
liabilities or financial condition of the Holding Company and its Subsidiaries
from that set forth in the balance sheet as at such date referred to in section
5.6(a), other than changes in the ordinary course of business which have not
been, either in any case or in the aggregate, materially adverse; (b) no
-
condition or event has occurred which has resulted in, or could reasonably be
expected to result in, a Material Adverse Change; and (c) except as set forth on
-
Exhibit 5.7 attached hereto, neither the Holding Company nor any of its
- ------------
Subsidiaries has, directly or indirectly, declared, ordered, paid or made any
Restricted Payment or Restricted Investment. The Holding Company and its
Subsidiaries are Solvent.
5.8. Tax Returns and Payments.
------------------------
(a) The Holding Company and its Subsidiaries have filed all tax
returns required by law to be filed and have paid all taxes, assessments
and other governmental charges levied upon their respective properties,
assets, income, receipts, franchises or sales, other than those not yet
delinquent and those, not substantial in aggregate amount, being or about
to be contested as provided in section 14.2(a). The income tax liability of
the Holding Company and its Subsidiaries has never been audited. The
Holding Company and its Subsidiaries have not executed any waiver or
waivers that would have the effect of extending the applicable statute of
limitations in respect of income tax liabilities. The charges, accruals and
reserves in the financial statements of the Holding Company and its
Subsidiaries in respect of taxes for all fiscal periods are adequate in the
opinion of the Holding Company, and the Holding Company knows of no unpaid
assessments for additional taxes for any fiscal period or of any basis
therefor.
(b) Except as set forth on Exhibit 5.8 attached hereto, no liability
-----------
for any tax (whether income, documentary, sales, stamp, registration,
issue, capital, property, excise or otherwise), duty, levy, impost, fee,
charge or withholding, directly or indirectly, imposed, assessed, levied or
collected by or for the account of any governmental authority of or in any
jurisdiction, including, without limitation, England, will be incurred by
the Holding Company or any of its Subsidiaries or any holder of any of the
Securities as a result of the execution or delivery of any of the Operative
Documents, and no such liability will be imposed on the Holding Company or
any of its Subsidiaries or any holders of any of the Securities with
respect to or on account of any payment (or other performance) by the
Holding Company or any of its Subsidiaries under any of the Operative
Documents, provided that payments due under the Operative Documents shall
--------
not be reduced as a result of any such liability, whether or not the same
is specified on Exhibit 5.8 attached hereto, as further provided in
------------
sections 21 and 22 hereof. Under applicable laws, regulations and rulings
currently in effect in the jurisdictions in which the Holding Company or
any of its Subsidiaries is incorporated or does business, there is no limit
on the conversion of any currency
-8-
<PAGE>
owned by the Holding Company or any of its Subsidiaries into U.S. dollars,
or the export or use of such U.S. dollars and any other U.S. dollars owned
by the Holding Company or any of its Subsidiaries, at the times and in the
amounts necessary to permit the Holding Company and its Subsidiaries to
discharge their obligations under the Operative Documents. If any exchange
control or similar limitations are instituted, the Holding Company will,
and will cause each of its Subsidiaries to, take all requisite action to
obtain any consent, approval or other governmental action necessary to
permit timely discharge of such obligations in U.S. dollars.
5.9. Debt, Liens, Investments and Transactions with Affiliates; Derivative
---------------------------------------------------------------------
Transactions; Material Agreements. Exhibit 5.9 attached hereto correctly
- ------------------------------------ ------------
describes as to the Holding Company and each of its Subsidiaries:
(a) all of its Debt to be outstanding immediately following the
Closing (other than that evidenced by the Notes);
(b) all Liens to which any of its properties and assets will be
subject immediately following the Closing (other than those of the
character described in section 14.9(b));
(c) all Investments (and all agreements and commitments to make
Investments) to be owned or held (or in effect) by it immediately following
the Closing (other than Investments of the character described in clauses
(b) through (i), inclusive, of the definition of Permitted Investments);
(d) all of its Affiliates and all transactions with Affiliates which
were consummated during the 12-month period ended on the Closing Date or
which it is now obligated or now intends to consummate at any time in the
future;
(e) all Derivative Transactions applicable to it and/or any of its
properties and assets; and
(f) all other agreements to or by which it is a party or is bound and
under which its obligations (or the fair value thereof) exceed or will
exceed $2,000,000 during any period of 12 consecutive months.
5.10. Title to Properties; Liens; Leases. The Holding Company and its
-------------------------------------
Subsidiaries have good and marketable title to all of their respective
properties and assets, including, without limitation, the properties and assets
reflected in the balance sheet, dated August 31, 1998, referred to in section
5.6(a), except properties and assets disposed of since such date in the ordinary
course of business or otherwise disclosed on Exhibit 5.10 attached hereto, free
------------
of all Liens (other than the Liens permitted under section 14.9). The Holding
Company and its Subsidiaries enjoy peaceful and undisturbed possession
-9-
<PAGE>
under all leases under which they operate, and all of such leases are valid,
subsisting and in full force and effect.
5.11. Litigation, etc. There is no action, proceeding or investigation
-----------------
pending or, to the best of the Holding Company's knowledge, threatened,
including, without limitation, those referred to on Exhibit 5.11 attached
-------------
hereto, or any basis therefor known to the Holding Company, which questions the
validity of any of the Operative Documents or any action taken or to be taken
pursuant thereto or which has resulted in, or could reasonably be expected to
result in, a Material Adverse Change. There is no outstanding judgment, decree
or order which has resulted in, or could reasonably be expected to result in, a
Material Adverse Change. Exhibit 5.11 attached hereto sets forth a true and
------------
complete list of all actions, proceedings and investigations (pending or, to the
knowledge of the Holding Company, threatened) and all judgments, decrees and
orders applicable to the Holding Company and/or any of its Subsidiaries or any
of their respective properties and assets.
5.12. Valid and Binding Obligations; Compliance with Other Instruments,
---------------------------------------------------------------------
Borrowing Restrictions, etc.
- ----------------------------
(a) This Agreement has been duly authorized, executed and delivered by
each of the Companies and constitutes the valid and legally binding
obligation of each of the Companies enforceable against it in accordance
with its terms. Each of the other Operative Documents to which the Holding
Company and/or any of its Subsidiaries is a party has been duly authorized
by such Person and, when executed and delivered, will constitute the valid
and legally binding obligation of such Person, enforceable against it in
accordance with its terms. Without limiting the generality of the
foregoing, no action by any governmental authority is necessary to ensure
the validity, legality, enforceability or admissibility in evidence of any
of the Operative Documents in any such jurisdiction.
(b) Neither the Holding Company nor any of its Subsidiaries is in
violation of or in default under any term of its Organizational Documents,
or of any agreement, document, instrument, judgment, decree, order, law,
statute, rule or regulation applicable to it or any of its properties and
assets, in any way which has resulted in, or could reasonably be expected
to result in, a Material Adverse Change. Without limiting the generality of
the foregoing, the Holding Company and each of its Subsidiaries is in
compliance with (and neither it nor any of its predecessors in interest has
received any notice to the contrary) and there is no reasonable possibility
of any liability of or any judgment, decree or order binding upon or
applicable to the Holding Company and/or any of its Subsidiaries or any of
their respective properties and assets under or on account of any
Environmental Laws, except where the same has not resulted in, and would
not reasonably be expected to result in, a Material Adverse Change.
-10-
<PAGE>
(c) Except for the repayment in full of the CIBC Notes (which will
occur on the Closing Date), the execution, delivery and performance of and
the consummation of the transactions contemplated by the Operative
Documents will not violate or constitute a default under, or permit any
Person to accelerate or to require the prepayment of any Indebtedness of
the Holding Company or any of its Subsidiaries or to terminate any lease or
agreement of the Holding Company or any of its Subsidiaries pursuant to, or
result in the creation of any Lien (other than the Liens created by the
Fleet Documents) upon any of the properties or assets of the Holding
Company or any of its Subsidiaries pursuant to, any term of its
Organizational Documents or of any agreement, document, instrument,
judgment, decree, order, law, statute, rule or regulation applicable to any
of them or any of their respective properties and assets.
(d) Neither the Holding Company nor any of its Subsidiaries is a party
to or bound by or subject to any agreement, document, instrument, judgment,
decree, order, law, statute, rule or regulation (other than the Operative
Documents, the Fleet Documents and laws, statutes, rules or regulations
affecting creditors or businesses generally) (i) which restricts
-
(absolutely, contingently or otherwise) its right or ability to incur
Indebtedness, to issue securities or to consummate the transactions
contemplated hereby; (ii) under the terms of or pursuant to which its
--
obligation to pay all amounts due from it and/or to perform all obligations
imposed on it and/or to comply with the terms applicable to it under any of
the Operative Documents or otherwise in respect of any of the Securities is
in any way restricted (absolutely, contingently or otherwise); (iii) which
---
restricts (absolutely, contingently or otherwise) its right or ability to
make any distributions to its shareholders or in respect of any of its
Shares, to mortgage or dispose of or grant Liens on any of its properties,
to consummate any merger, consolidation or acquisition, to make Investments
or capital expenditures, to enter into and perform leases, to pay executive
compensation and/or to conduct its business as now conducted and now
proposed to be conducted, or (iv) which has resulted in, or could
--
reasonably be expected to result in, a Material Adverse Change.
5.13. ERISA and Other Employee Benefit Matters.
----------------------------------------
(a) The Holding Company and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws except for
such instances of noncompliance which have not resulted in, and would not
reasonably be expected to result in, a Material Adverse Change. Neither the
Holding Company nor any ERISA Affiliate has incurred any liability pursuant
to Title I or IV of ERISA or the penalty or excise tax provisions of the
Code relating to employee benefit plans (as defined in section 3 of ERISA),
and no event, transaction or condition has occurred or exists that could
reasonably be expected to result in the incurrence of any such liability by
the Holding Company or any ERISA Affiliate, or in the imposition of any
Lien on any of the rights, properties
-11-
<PAGE>
or assets of the Holding Company or any ERISA Affiliate, in either case
pursuant to Title I or IV of ERISA or to such penalty or excise tax
provisions or to section 401(a)(29) or 412 of the Code, other than such
liabilities or Liens as would not individually or in the aggregate result
in a Material Adverse Change.
(b) The present value of the aggregate benefit liabilities under each
of the Plans (other than Multiemployer Plans), determined as of the end of
such Plan's most recently ended plan year on the basis of the actuarial
assumptions specified for funding purposes in such Plan's most recent
actuarial valuation report, did not exceed the aggregate current value of
the assets of such Plan allocable to such benefit liabilities. The term
"benefit liabilities" has the meaning specified in section 4001 of ERISA
and the terms "current value" and "present value" have the meaning
specified in section 3 of ERISA.
(c) Neither the Holding Company nor any ERISA Affiliate participates
or has ever participated in a Multiemployer Plan or any multiemployer
pension plan as defined under any other applicable law, statute, rule or
regulation.
(d) Neither the Holding Company nor any of its Subsidiaries has any
post retirement welfare benefit obligation (without regard to liabilities
attributable to continuation coverage mandated by section 4980B of the Code
or any analogous provisions of any law, statute, rule or regulation of any
jurisdiction other than the United States or any state thereof).
(e) The consummation of the transactions contemplated by the Operative
Documents will not involve any transaction that is subject to the
prohibitions of section 406(a) of ERISA or in connection with which a tax
could be imposed pursuant to section 4975(c)(1)(A)-(D) of the Code or any
analogous provisions of any law, statute, rule or regulation of any
jurisdiction other than the United States or any state thereof. The
representation in the first sentence of this section 5.13(e) is made in
reliance upon and subject to the accuracy of your representation in section
26(b) as to the sources of the funds used to pay the purchase price of the
Securities to be purchased by you.
(f) Each plan, fund or similar program established or maintained
outside of the United States of America by the Holding Company and/or any
of its Subsidiaries or to which contributions are, or within the preceding
five years have been made or required to be made by the Holding Company
and/or any of its Subsidiaries for the benefit of its employees or former
employees residing outside of the United States of America which provides
for pension, retirement income, health or medical insurance, disability or
other employee benefits and which is not subject to ERISA or the Code
(collectively, the "Overseas Employee Plans") has been operated or
administered in compliance with its terms and the requirements of all
applicable laws, statutes, rules and regulations, except for instances of
-12-
<PAGE>
noncompliance which have not resulted in, and could not reasonably be
expected to result in, a Material Adverse Change, has been registered where
required by applicable law and maintained in good standing with all
applicable regulatory authorities, and, with respect to each such plan,
fund or similar program, each of the Holding Company and its Subsidiaries
has satisfied its funding or contribution obligations in accordance with
the terms thereof and applicable laws, except in each case where the
failure to do the same has not resulted in, and could not reasonably be
expected to result in, a Material Adverse Change. No event, transaction or
condition has occurred or exists with respect to any Overseas Employee Plan
that could reasonably be expected to result in the imposition of any Lien
on the Holding Company or a Subsidiary or the incurrence by the Holding
Company or any Subsidiary of any penalty, penalty tax or fine under any
applicable law, other than such Liens, penalties, penalty taxes or fines as
would not individually or in the aggregate result in, and could not
reasonably be expected to result in, a Material Adverse Change. The present
value of the aggregate benefit liabilities under each of the Overseas
Employee Plans (for which funding is required pursuant to applicable law or
the terms thereof), determined as of the end of such Overseas Employee
Plan's most recently ended year on the basis of both the going concern and
solvency actuarial valuation assumptions and methodologies contained in
such Overseas Employee Plan's most recent actuarial valuation report did
not exceed the aggregate current value of the assets of such Overseas
Employee Plan allocable to such benefit liabilities.
5.14. Consents, etc. No consent, approval or authorization of, or
---------------
declaration or filing with, or other action by, any Person (including, without
limitation, any creditor of or lender to the Holding Company or any of its
Subsidiaries and any governmental authority) is required as a condition
precedent to the valid execution, delivery and performance of and the
consummation of the transactions contemplated by the Operative Documents, other
than those specified on Exhibit 5.14 attached hereto, all of which shall be
-------------
unconditional, in full force and effect and not subject to appeal, review or
revocation on and as of the Closing Date.
5.15. Proprietary Rights; Licenses. The Holding Company and its
--------------------------------
Subsidiaries have all Proprietary Rights and Licenses as are adequate for the
conduct of their respective businesses as now conducted and now proposed to be
conducted, without any known conflict with the rights of others. Each such
Proprietary Right and License is in full force and effect, all material
obligations of the Holding Company and its Subsidiaries, as the case may be,
with respect thereto have been fulfilled and performed, and, to the best of the
Holding Company's knowledge, there is no infringement thereon by any other
Person. No default in the performance or observance by the Holding Company
and/or any of its Subsidiaries (or any of their respective predecessors in
interest) of its obligations thereunder has occurred which permits, or after
notice of lapse of time or both would permit, the revocation or termination of
any material Proprietary
-13-
<PAGE>
Right or License or which has resulted in, or could reasonably be expected to
result in, a Material Adverse Change.
5.16. Offer of Securities; Investment Bankers. Neither the Holding Company
----------------------------------------
nor any of its Subsidiaries nor any Person acting on their behalf (a) has
-
directly or indirectly offered the Securities or any part thereof or any similar
securities for issue or sale to, or solicited any offer to buy any of the same
from, anyone other than you and not more than 51 other institutional investors,
(b) has taken or will take any action which would bring the issuance and sale of
the Securities within the provisions of Section 5 of the Securities Act or the
registration or qualification provisions of any applicable blue sky or other
securities laws, (c) has dealt with any broker, finder, commission agent or
-
other similar Person in connection with the sale of the Securities and the other
transactions contemplated by the Operative Documents, other than Fleet Corporate
Finance, or (d) is under any obligation to pay any broker's fee, finder's fee or
-
commission in connection with such transactions, other than a fee to Fleet
Corporate Finance, which is solely the obligation of the Holding Company.
5.17. Government Regulation. Neither the Holding Company nor any of its
----------------------
Subsidiaries is subject to regulation under the Public Utility Holding Company
Act of 1935, the Federal Power Act or the Investment Company Act of 1940, each
as amended.
5.18. Labor Relations; Suppliers, Distributors and Customers. No dispute
--------------------------------------------------------
involving employees of the Holding Company or any of its Subsidiaries or the
relationship of the Holding Company or any of its Subsidiaries with its
employees has resulted in, or could reasonably be expected to result in, any
Material Adverse Change. The relationships with the suppliers to and
distributors for and customers of the Holding Company and its Subsidiaries are
satisfactory commercial working relationships and, during the 12-month period
ended on the Closing Date, no such supplier, distributor or customer has
canceled or otherwise terminated its relationship with or decreased its
services, supplies or materials to or its usage or purchase of the services or
products of the Holding Company or any of its Subsidiaries in a manner which has
resulted in, or could reasonably be expected to result in, a Material Adverse
Change. The Holding Company is not aware of any intention of any such supplier,
distributor or customer to take any such action.
5.19. Year 2000 Compliance. The operating systems for the Holding Company's
--------------------
and its Subsidiaries' computers and all software applications that run on such
computers are Year 2000 Compliant, except where a failure to be Year 2000
Compliant will not and could not reasonably be expected to result in a Material
Adverse Change.
5.20. Disclosure. Neither this Agreement nor any of the other Operative
----------
Documents nor any other document, certificate or written statement furnished to
you by or on behalf of the Holding Company or any of its Subsidiaries in
connection with the transactions contemplated by the Operative Documents
(including, without limitation, the
-14-
<PAGE>
Disclosure Document), contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
herein and therein not misleading in the light of the circumstances under which
such statements were made, it being understood that, except as set forth in
section 5.6, no representation or warranty is made with respect to any
projections or other prospective financial information. There is no fact known
to the Holding Company (other than information concerning general economic
conditions known to the public generally) which has resulted in, or could
reasonably be expected to result in, a Material Adverse Change which has not
been set forth in this Agreement, the other Operative Documents and the other
documents, certificates and written statements referred to above in this section
5.20.
6. Use of Proceeds.
---------------
(a) The proceeds of the sale of the Securities received by the
Companies at the Closing will be used on the Closing Date, together with
other funds available to the Companies, to repay in full all amounts owing
in respect of the Holding Company's 12-1/2% Senior Subordinated Notes due
March 2004 (the "CIBC Notes") and to make the other payments to the other
Persons specified on Exhibit 6 attached hereto, and any remaining balance
of such proceeds will be used for general corporate purposes.
(b) Neither the Holding Company nor any of its Subsidiaries owns, and
the Holding Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, use any part of the proceeds of the sale of the
Securities for the purpose of purchasing or carrying any "margin stock" or
"margin security" within the meaning of any regulation of the Board of
Governors of the Federal Reserve System (herein called a "margin security")
or for the purpose of reducing or retiring any Indebtedness which was
originally incurred to purchase or carry any margin security or for any
other purpose which might constitute the transactions contemplated by the
Operative Documents a "purpose credit" within the meaning of said
regulations or cause this Agreement or any of the other Operative Documents
to violate any regulation of the Board of Governors of the Federal Reserve
System, or the Exchange Act or any other applicable law, statute,
regulation, rule, order or restriction.
7. Financial Statements and Information. The Holding Company will furnish to
-------------------------------------
you, so long as you shall hold any of the Securities, and to each other
institutional holder from time to time of any of the Securities:
(a) as soon as available and in any event within 45 days after the end
of each of the first three fiscal quarters in each fiscal year of the
Holding Company, the consolidated and consolidating balance sheets of the
Holding Company and its Subsidiaries as at the end of such period and the
related consolidated and consolidating statements of income, retained
earnings and cash
-15-
<PAGE>
flows for such period and for the portion of such fiscal year ended on the
last day of such period, in each case setting forth in comparative form the
corresponding figures for the same period and portion of the next preceding
fiscal year; provided that (i) so long as the Holding Company is subject to
-------- -
the periodic reporting requirements imposed by the Exchange Act, the
reporting requirements of this section 7(a) shall be satisfied by delivery
by the Holding Company of its quarterly report on Form 10-Q (as in effect
on the date hereof) upon filing thereof with the Commission, together with
the Holding Company's quarterly report to stockholders and (ii) any
--
extension granted to the Company for the filing of a Form 10-Q shall
automatically extend the time period in which the financial information
required to be delivered under this section 7(a) shall be delivered to you,
but in any event the financial statements required under this section 7(a)
shall be delivered not later than 60 days after the end of each of the
first three fiscal quarters in each fiscal year of the Holding Company;
(b) as soon as available and in any event within 90 days after the end
of each fiscal year of the Holding Company, the consolidated and
consolidating balance sheets of the Holding Company and its Subsidiaries as
at the end of such year and the related consolidated and consolidating
statements of income, retained earnings and cash flows for such year, in
each case setting forth in comparative form the corresponding figures for
the next preceding fiscal year, all in reasonable detail and accompanied by
the standard unqualified report on such consolidated financial statements
of the Holding Company and its Subsidiaries of Ernst & Young LLP (or other
accountants of recognized national standing selected by the Holding Company
or such other accountants reasonably satisfactory to the Required Holders
of each class of Securities), which report shall (i) state that the audit
-
of such accountants in connection with such consolidated financial
statements has been conducted in accordance with generally accepted
auditing standards and that such accountants believe that such audit
provides a reasonable basis for their opinion, (ii) contain the other
--
statements required from time to time by the American Institute of
Certified Public Accountants for an auditor's standard unqualified opinion
(and shall not contain any additional explanatory paragraph concerning
uncertainties or other matters), and (iii) include the opinion of such
---
accountants that such consolidated financial statements present fairly in
all material respects the consolidated financial position of the Holding
Company and its Subsidiaries as at the end of such fiscal year and the
consolidated results of operations and cash flows for such fiscal year, in
conformity with GAAP; provided that (i) so long as the Holding Company is
-------- -
subject to the periodic reporting requirements imposed by the Exchange Act,
the reporting requirements of this section 7(b) shall be satisfied by
delivery by the Holding Company of its annual report on Form 10-K (as in
effect on the date hereof) upon filing thereof with the Commission,
together with the Holding Company's annual report to stockholders and (ii)
--
any extension granted to the Company for the filing of a Form 10-K shall
automatically extend the time period in which the financial
-16-
<PAGE>
information required to be delivered in this section 7(b) shall be
delivered to you, but in any event the financial statements required under
this section 7(b) shall be delivered not later than 120 days after the end
of each fiscal year of the Holding Company;
(c) together with each delivery of financial statements pursuant to
sections 7(a) and 7(b), an Officer's Certificate which shall:
(i) certify that such financial statements have been prepared in
accordance with GAAP applied on a consistent basis throughout the
periods covered thereby and present fairly in all material respects
the consolidated financial position and the consolidated results of
operations and cash flows of the Holding Company and its Subsidiaries
as at the end of and for the periods covered thereby in conformity
with GAAP (subject, in the case of any unaudited financial statements,
to normal year-end and audit adjustments and the omission of
footnotes);
(ii) state that, after due inquiry, the signer does not have
knowledge of the existence, during the fiscal period covered by such
financial statements or as at the date of such Officer's Certificate,
of (A) any "reportable condition" in the internal control structure of
-
the Holding Company or any of its Subsidiaries, (B) any Default or
-
Event of Default, (C) any Change of Control, or, if such is not the
-
case, specifying in reasonable detail the nature and period of
existence thereof and what action the Holding Company or the
applicable Subsidiary has taken, is taking and proposes to take with
respect thereto or (D) any event or condition that requires any
-
adjustment to the "Exercise Price" (as defined in the Warrants) or the
number or kind of Warrant Shares issuable upon exercise of the
Warrants;
(iii) show in reasonable detail all computations required to
demonstrate compliance, during and at the end of the fiscal period
covered by such financial statements, with the provisions of sections
14.5, 14.6, 14.7 and 14.15;
(iv) include in reasonable detail management's discussion and
analysis of the results of operations and the financial condition of
Holding Company and its Subsidiaries as at the end of and for the
fiscal period covered by such financial statements, including a
discussion of any significant variation from the budgets for such
period delivered pursuant to section 7(h);
(v) if there shall exist any Subsidiary of the Holding Company as
of the date of such Officer's Certificate which did not exist as of
the
-17-
<PAGE>
date of the last Officer's Certificate delivered pursuant to this
section 7(c), specify with respect to each such Subsidiary the
information called for by Exhibit 7(c)(v), contain a brief description
---------------
of the nature of each such Subsidiary's business and certify that each
such new Subsidiary has complied with the provisions of section 14.11;
and
(vi) in the case of an Officer's Certificate delivered together
with the financial statements required pursuant to section 7(b), be
accompanied by a certificate of the accountants reporting on such
financial statements stating that in making the examination necessary
therefor no knowledge was obtained of any Default or Event of Default
by such accountants except as specified in such certificate;
(d) as promptly as practicable (but in any event not later than five
Business Days) after receipt thereof, copies of all final reports or final
written comments (including, without limitation, audit reports and
so-called management letters) submitted by independent accountants;
(e) as promptly as practicable (but in any event not later than five
days) after the same are available, copies of (i) all material press
-
releases issued by the Holding Company or any Subsidiary of the Holding
Company, and all notices, proxy statements, financial statements, reports
and documents as the Holding Company shall send or make available generally
to its shareholders or as any Subsidiary of the Holding Company shall send
or make available generally to its shareholders other than the Holding
Company and (ii) all periodic and special reports, documents and
--
registration statements (other than on Form S-8 or a successor form
thereto) which the Holding Company or any Subsidiary of the Holding Company
furnishes or files, or any officer or director or shareholder of the
Holding Company or any of its Subsidiaries furnishes or files with respect
to the Holding Company or any of its Subsidiaries, with the Commission (or
any analogous foreign governmental authority) or any securities exchange;
(f) as promptly as practicable (but in any event not later than ten
Business Days) after any executive officer of the Holding Company or any of
its Subsidiaries becomes aware of the occurrence of any of the following
conditions or events, an Officer's Certificate specifying in reasonable
detail the nature and period of existence thereof, what action the Holding
Company or any of its Subsidiaries has taken, is taking and proposes to
take with respect thereto: (i) with respect to any Plan, any reportable
-
event, as defined in section 4043(b) of ERISA and the regulations
thereunder, for which notice thereof has not been waived pursuant to such
regulations as in effect on the date hereof; (ii) the taking by the PBGC of
--
steps to institute, or the threatening by the PBGC of the institution of,
proceedings under section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the receipt by the
Holding
-18-
<PAGE>
Company or any ERISA Affiliate of a notice from a Multiemployer Plan that
such action has been taken by the PBGC with respect to such Multiemployer
Plan; (iii) any event, transaction or condition that would result in the
---
incurrence of any liability by the Holding Company or any ERISA Affiliate
pursuant to Title I or IV of ERISA or the penalty or excise tax provisions
of the Code relating to employee benefit plans, or in the imposition of any
Lien on any of the rights, properties or assets of the Holding Company or
any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or
excise tax provisions, if such liability or Lien, taken together with any
other such liabilities or Liens then existing, has resulted in, or could
reasonably be expected to result in, a Material Adverse Change or (iv) the
--
occurrence of any analogous condition or event with respect to any pension
plan or other arrangement not subject to ERISA;
(g) as promptly as practicable (but in any event not later than three
Business Days) after the Holding Company obtains knowledge of the
occurrence of any Default or Event of Default, or of any condition or event
which has resulted in, or could reasonably be expected to result in, a
Material Adverse Change, an Officer's Certificate specifying in reasonable
detail the nature and period of existence thereof, what action the Holding
Company or any of its Subsidiaries has taken, is taking and proposes to
take with respect thereto and the date, if any, on which it is estimated
the same will be remedied;
(h) as promptly as practicable (but in any event not later than 30
days) prior to the end of each fiscal year of the Holding Company, an
annual budget prepared on a quarterly basis for the Holding Company and its
Subsidiaries for the succeeding fiscal year (displaying anticipated
consolidated and consolidating balance sheets and statements of income,
retained earnings and cash flows) and, as promptly as practicable after
preparation thereof, any other significant budgets which the Holding
Company or any of its Subsidiaries prepares and any revisions of such
annual or other budgets;
(i) such other material information and notices relating to the
Holding Company and/or any of its Subsidiaries as shall be given to or
received from any bank, financial institution or other Person to which the
Holding Company or any of its Subsidiaries is indebted for borrowed money
(other than that relating solely to collateral for such Indebtedness),
including, without limitation, any notice of default or event of default
under any of the Fleet Documents, such information and notices to be
furnished to the holders of the Securities at the same time as it is given,
or immediately after it is received, by the Holding Company and/or any of
its Subsidiaries; and
(j) such other information as from time to time may reasonably be
requested.
-19-
<PAGE>
8. Inspection; Confidentiality.
---------------------------
(a) The Companies will permit any Person designated by any
institutional holder on reasonable notice, during normal business hours,
and at such holder's expense (unless a Default or Event of Default shall
have occurred and be continuing, in which case, at the Companies' expense),
to visit and inspect any of the properties of the Companies and their
Subsidiaries, to examine their books and records (and to make copies
thereof and take extracts therefrom) and to discuss their affairs, finances
and accounts with and to be advised as to the same by, their officers,
consultants, counsel and accountants, all at such reasonable times and
intervals as such holder may desire.
(b) Each holder of any Securities agrees by its acceptance thereof
that any non-public information concerning the Companies which is furnished
by the Holding Company to such holder pursuant to this Agreement or any of
the other Operative Documents (collectively, "Confidential Information")
shall be kept confidential by such holder in accordance with procedures
adopted by such holder in good faith to protect confidential information of
third parties. The term "Confidential Information" shall not include,
however, any information which (x) was publicly known or otherwise known to
-
any holder at the time of disclosure by any Company to any holder; (y)
-
subsequently becomes publicly known through no act or omission of any
holder or any agent of any holder or (z) becomes known to any holder
-
otherwise than through disclosure by any Company. Notwithstanding the
foregoing, each holder of any Securities may disclose Confidential
Information: (i) with the consent of the Holding Company (which shall not
-
be unreasonably withheld or delayed); (ii) when required by law or
--
regulation; (iii) in any report, statement or testimony submitted by such
---
holder to any regulatory body having or claiming to have jurisdiction over
such holder; (iv) to the National Association of Insurance Commissioners or
--
any similar organization or to any rating agency; (v) to the officers,
-
directors, employees, agents, representatives and professional consultants
of such holder and of such holder's Affiliates who have a need to know such
information; (vi) in connection with the preservation, exercise and/or
--
enforcement of any of such holder's rights or remedies under this Agreement
and the other Operative Documents; (vii) in connection with any
---
contemplated transfer of any of the Securities held by such holder to any
institutional investor or financial institution (so long as the recipient
of such information agrees to keep such information confidential on terms
substantially similar to those set forth in this section 8(b)); (viii) in a
----
response to any summons, subpoena or other legal process or in connection
with any judicial or administrative proceeding or inquiry; or (ix) to
--
correct any false or misleading information which may become public
concerning the relationship of such holder to the Holding Company or any of
its Subsidiaries and/or the transactions contemplated hereby.
-20-
<PAGE>
(c) Notwithstanding anything to the contrary contained herein, upon
the request of any holder of any Securities to such effect, the Companies
shall immediately cease furnishing to such holder any non-public
information concerning the Companies.
9. Prepayment of Notes.
-------------------
9.1. Required Prepayment Without Premium of Notes. In addition to paying
----------------------------------------------
the entire outstanding principal amount of and the interest due on the Notes on
the maturity date thereof, on August 31, 2005 the Companies will prepay without
premium the greater of (a) $10,000,000 aggregate principal amount of the Notes
-
and (b) one-half of the then outstanding aggregate principal amount of the
-
Notes. No partial prepayment of the Notes pursuant to section 9.2 or 9.3 or any
other provision of this Agreement shall alter the obligation of the Companies to
make the required prepayment provided for in this section 9.1.
9.2. Optional Prepayment Without Premium of Notes From Proceeds of Public
---------------------------------------------------------------------
Offering. At any time, the Companies may, at their option, upon notice as set
- --------
forth in section 9.6, prepay without premium up to $5,000,000 aggregate
principal amount of the Notes, provided that such prepayment is made at the time
--------
of the closing of an underwritten public offering of Common Stock registered
under the Securities Act in which the aggregate net proceeds to the Holding
Company is at least $10,000,000.
9.3. Optional Prepayment With Premium of Notes. At any time and from time
------------------------------------------
to time, the Companies may at their option, upon notice as set forth in section
9.6, prepay all or any part of the Notes (in an integral multiple of $500,000
and a minimum of $500,000 or such lesser principal amount thereof as shall then
be outstanding); provided that the Companies concurrently pay a premium (the
--------
"Applicable Premium") equal to (a) in the case of any prepayment made on or
-
before August 31, 2002, the Make Whole Amount and (b) in the case of any
-
prepayment made after August 31, 2002, a percentage of the principal amount to
be prepaid, such percentage to be that set forth in the following table opposite
the period in which the date fixed for such prepayment occurs:
Period Percentage
------ ----------
September 1, 2002 through August 31, 2003 3.00%
September 1, 2003 through August 31, 2004 2.00%
September 1, 2004 through August 31, 2005 1.00%
September 1, 2005 and thereafter 0.00%
-21-
<PAGE>
9.4. Prepayment Without Premium of the Notes at the Option of Holders of
---------------------------------------------------------------------
the Notes upon a Change of Control.
- ----------------------------------
(a) If any Change of Control is to occur, then not less than 30 days
nor more than 60 days prior to the occurrence of such Change of Control,
the Companies will notify each holder of any Notes of such pending Change
of Control and the date upon which it is scheduled to occur. Each notice
from the Companies pursuant to this section 9.4 to each holder of any Notes
shall make explicit reference to this section 9.4 and shall state that the
right of any holder of the Notes then outstanding to require prepayment
thereof must be exercised within 30 days of the receipt of such notice.
(b) If any holder of the Notes furnishes a written request for
prepayment to the Companies not more than 30 days after receipt by such
holder of such notice of such Change of Control from the Companies, the
Companies will prepay without premium all (but not less than all) of the
Notes then held by such holder outstanding. Each such prepayment shall
occur on the date upon which such Change of Control occurs, unless the
Companies and such holder of the Notes agree to a different date or such
holder revokes such request, and no prepayment requested pursuant to this
section 9.4 shall be due unless such Change of Control shall occur.
Immediately following receipt of any such written request for prepayment
from any holder of Notes, the Companies shall send a copy of such notice to
each other holder of any Notes at the time outstanding.
9.5. Allocation of Partial Prepayments of Notes. In the case of each
-----------------------------------------------
partial prepayment of the Notes under this section 9, the principal amount to be
prepaid shall be allocated among all of the Notes at the time outstanding
(excluding any Notes at the time owned by the Companies or any Affiliate of the
Companies) in proportion, as nearly as practicable, to the respective unpaid
principal amounts thereof, with adjustments, to the extent practicable, to
compensate for any prior prepayments not made exactly in such proportion.
9.6. Notice of Optional Prepayments of Notes. In the case of each
--------------------------------------------
prepayment under sections 9.2, 9.3 and 9.4, the Companies shall give written
notice thereof to each holder of any Notes not less than 30 (10, in the case of
any prepayment under section 9.4) nor more than 60 days prior to the date fixed
for such prepayment. Each such notice shall set forth: (a) the date fixed for
-
prepayment; (b) the aggregate principal amount of Notes to be prepaid on such
-
date; and (c) the aggregate principal amount of Notes held by such holder to be
-
prepaid on such date and the amount of accrued interest and an estimation of the
premium, if any, to be paid to such holder on such date (together with the
calculation of such premium, if any, which calculation must be satisfactory to
each holder of Notes).
-22-
<PAGE>
9.7. Maturity; Accrued Interest; Surrender, etc. of Notes. In the case of
-----------------------------------------------------
each prepayment of all or any part of any Note, the principal amount to be
prepaid shall mature and become due and payable on the date fixed for such
prepayment, together with interest on such principal amount accrued to such date
and the premium, if any, due thereon. Any Note prepaid in full shall be
surrendered to the Companies at the Companies' principal place of business
promptly following prepayment and canceled and shall not be reissued, and no
Note shall be issued in lieu of any prepaid principal amount of any Note.
9.8. Purchase of Notes. The Companies will not, and will not permit any
-----------------
Affiliate of the Companies to, directly or indirectly, prepay, purchase or
otherwise acquire, or offer to prepay, purchase or otherwise acquire, any
outstanding Notes except by way of payment or prepayment in accordance with the
provisions of the Notes and this Agreement.
9.9. Payment on Non-Business Days. If any amount hereunder or under the
------------------------------
Notes shall become due on a day which is not a Business Day, such payment shall
be due on the next succeeding Business Day.
9.10. Application of Notes in Satisfaction of Exercise Price of Warrants.
--------------------------------------------------------------------
In the event that any holder of any Note shall apply all or any portion of the
principal amount of such Notes in satisfaction (in whole or in part) of the
payment of the Exercise Price (as defined in the Warrants), any partial
application of the principal amount of any such Note shall be applied to the
payment of installments of principal due thereunder in the inverse order of
maturity.
10. Subordination of Notes. Notwithstanding anything to the contrary in this
-----------------------
Agreement or any of the other Operative Documents, payments on the Notes and the
rights of the holders of the Notes, are subordinate, to the extent specified in
the Notes, to Superior Indebtedness (as such term is defined in the Notes) and
to the rights of the holders of Superior Indebtedness, notwithstanding that none
of the holders of the Notes have executed the Notes. In addition, with respect
to this section 10 and each of the other provisions of this Agreement, if any,
which relate to the subordination of the Notes to Superior Indebtedness, the
holders of the Superior Indebtedness, including, without limitation, Fleet and
its successors and assigns under and with respect to the Fleet Documents, are
third-party beneficiaries.
11. Registration and Co-Sale Rights, Drag-Along Obligations, etc. Reference is
--------------------------------------------------------------
hereby made to the Registration Rights Agreement for certain provisions relating
to, among other things, the registration and co-sale rights and drag-along
obligations of the holders of the Warrants and Warrant Shares.
-23-
<PAGE>
12. Put and Call Rights.
-------------------
12.1. Put Rights with Respect to Warrants and Warrant Shares.
------------------------------------------------------
(a) The Required Holders of the Warrants and Warrant Shares (the "Put
Securities") shall have the right to require the Companies to purchase all
(but not less than all) of the Put Securities at the time outstanding (i)
-
at any time when the Common Stock is not "actively traded" (determined as
provided below) on the New York Stock Exchange, the American Stock Exchange
or the Nasdaq National Market System or (ii) concurrently with or at any
--
time after the acceleration of the Notes or the occurrence of an Event of
Default of the kind referred to in section 16.1(m), in each case at a
purchase price equal to the Put Price for the Put Securities. The Required
Holders shall exercise such right by delivering to the Companies a notice
(a "Put Notice") specifying that the Put Securities are to be purchased by
the Companies. Upon receipt of such Put Notice, the Companies shall be
obligated to purchase the Put Securities on the later of (i) the first date
-
upon which the Common Stock is not so "actively traded" on any such
aforementioned exchange or market system or the date upon which such
acceleration or Event of Default shall occur, as applicable, and (ii) the
--
15th day following the date of receipt by the Companies of such Put Notice
(each, the "Put Closing Date"), unless in any case the Companies and the
Required Holders agree to a different date. Promptly after receipt by the
Companies of a Put Notice, the Companies will notify each other holder of
any Securities of receipt of such Put Notice and thereafter shall furnish
to each holder of any Securities such information relating to the same as
any holder of Securities may reasonably request from time to time. The
Companies will notify each holder of any Securities of the occurrence of
any event which will, or could reasonably be expected to, result in the
Common Stock no longer being "actively traded" on any such aforementioned
exchange or market system at least 30 days (but not more than 60 days)
prior to the occurrence of such event. For purposes of this section 12.1,
the Common Stock shall be deemed to not be "actively traded" if on any date
of determination there shall have been a period of 25 consecutive trading
days ended not more than 50 days prior to such date of determination in
which the average daily trading volume of the Common Stock was less than
3,000 shares (adjusted appropriately for any stock splits, dividends,
combinations and the like).
(b) Notwithstanding anything to the contrary contained in this section
12.1, if the Companies are unable to pay in full in cash on any Put Closing
Date the full amount then due to each holder of Put Securities pursuant to
this section 12 without violating applicable law, then (i) the Companies
-
shall use their commercially reasonable efforts to obtain financing for
such payment and to obtain all necessary consents and waivers to permit
such payment; (ii) until such payment shall have been paid in full in cash,
--
the Holding Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, make any
-24-
<PAGE>
Restricted Payment or Restricted Investment; (iii) the Companies shall
---
furnish to each holder of Put Securities an Officer's Certificate
specifying (A) the nature of the event or condition on account of which the
-
Companies are so precluded from making such payment and (B) the action that
-
the Companies are taking to remedy such failure; and (iv) on the Put
--
Closing Date and on the last day of each month following the Put Closing
Date, each Company shall pay the largest portion of the unpaid balance of
such payment (including all accrued interest thereon) that it may then pay
without causing any such violation, such payment to be allocated among the
holders of the Put Securities in proportion to the aggregate amounts then
due to each such holder pursuant to this section 12.
(c) The obligation of the Companies to pay the Put Price is hereby
subordinated to the payment of the Superior Indebtedness (as defined in the
Notes) upon the terms of subordination set forth in the Notes as in effect
on the Closing Date (which terms are incorporated herein by this
reference), and, for such purposes, all references in such terms of
subordination (i) to "Subordinated Indebtedness" shall mean the payment of
-
the Put Price due pursuant to this section, and (ii) to "holders of the
--
Subordinated Indebtedness" shall mean the holders of the Put Securities.
12.2. Call Rights with Respect to the Warrants.
----------------------------------------
(a) The Companies shall have the right to reduce the aggregate number
of Warrant Shares issuable upon exercise of the Warrants from 690,134 to
598,116 (adjusted appropriately for any stock splits, dividends,
combinations or the like) (or a proportionate reduction if, at the time,
the MassMutual Investors shall not hold all of the Warrants initially
issued to them) (the Warrant Shares of such reduction being hereinafter
called the "First Call Shares") upon payment (in immediately available
funds) of an amount (the "First Call Price") equal to (x) the Exercise
-
Price (as defined in the Warrants) multiplied by (y) the aggregate number
------------- -
of First Call Shares; provided that on the date of such payment, for a
--------
period of not less than 20 consecutive trading days ended not more than 10
days prior to the date of such payment, the daily closing price of the
Common Stock (determined as provided in the definition of Current Market
Price in the Warrants) on each day of such 20-day period shall have
exceeded $25.00 per share (adjusted appropriately for any stock splits,
dividends, combinations or the like).
(b) In addition to the right under section 12.2(a), the Companies
shall have the right to reduce the aggregate number of Warrant Shares
issuable upon exercise of the Warrants from 598,116 to 506,098 (adjusted
appropriately for any stock splits, dividends, combinations or the like)
(or a proportionate reduction if, at the time, the MassMutual Investors
shall not hold all of the Warrants initially issued to them) (the Warrant
Shares of such reduction being hereinafter called the "Second Call Shares")
upon payment (in immediately available funds) of an
-25-
<PAGE>
amount (the "Second Call Price") equal to equal to (x) the Exercise Price
-
(as defined in the Warrants) multiplied by (y) the aggregate number of
-------------- -
Second Call Shares; provided that on the date of such payment, for a period
--------
of not less than 20 consecutive trading days ended not more than 10 days
prior to the date of such payment, the daily closing price of the Common
Stock (determined as provided above) on each day of such 20-day period
shall have exceeded $30.00 per share (adjusted appropriately for any stock
splits, dividends, combinations or the like).
(c) Notwithstanding anything to the contrary in this section 12.2, the
Companies shall not have any right to reduce the number of Warrant Shares
issuable upon exercise of the Warrants, unless (i) the payment of the First
-
Call Price or the Second Call Price, as applicable, is paid in full on or
before August 31, 2004, (ii) the Warrants shall have been fully exercisable
--
by the MassMutual Investors on each day of the applicable 20-day period
referred to in section 12.2(a) or 12.2(b), (iii) the Warrant Shares
---
issuable upon exercise of the Warrants shall have been freely tradable by
the MassMutual Investors during such 20-day period, (iv) after giving
--
effect to such purchase, no Default or Event of Default shall exist, (v)
-
the First Call Price or the Second Call Price, as applicable, may be paid
in full in cash without violating any agreement, document, instrument, law,
statute, rule or regulation to which any Company is subject and (vi) the
--
average daily trading volume of the Common Stock during such 20-day period
was at least 50,000 shares (adjusted appropriately for any stock splits,
dividends, combinations or the like). In addition, the Companies shall not
have any right to reduce the number of Warrant Shares issuable upon
exercise of any Warrants held by any Person other than the MassMutual
Investors or to purchase or otherwise acquire any Warrant Shares held by
any Person (including, without limitation, any MassMutual Investor).
(d) The Companies shall exercise their rights under this section 12.2
by delivering to the MassMutual Investors a notice (the "Call Notice") (i)
-
specifying the applicable reduction in the aggregate number of Warrant
Shares as a result thereof and the aggregate amount to be paid pursuant to
section 12.2(a) or 12.2(b), as the case may be, in connection therewith,
(ii) setting forth in reasonable detail all calculations necessary to
--
demonstrate the accuracy of such figures and (iii) certifying as to
---
compliance with all conditions of this section 12.2. The reduction in the
aggregate number of Warrant Shares on account of any such exercise of
rights under this section 12.2 by the Companies shall be allocated among
the Warrants then held by each MassMutual Investor in proportion to the
respective numbers of Warrant Shares issuable upon exercise of such
Warrants and the aggregate amount to be paid in connection therewith shall
be paid to the MassMutual Investors in the same proportions. Upon giving a
Call Notice, the Companies shall be obligated to pay in full in cash the
First Call Price or the Second Call Price, as applicable, not later than
the tenth day after such Call
-26-
<PAGE>
Notice is so given by the Companies, unless the Companies and the
MassMutual Investors agree to a different date.
12.3. Closing. The closing for any payment due to any holder of Securities
-------
to be purchased under this section 12 shall occur at the principal office of
such holder, unless the Companies and such holder agree to a different location.
Such payment shall be paid in immediately available funds against delivery of
the certificates evidencing such Securities as are to be purchased from such
holder at such closing.
12.4. No Waivers, etc. No failure on the part of any holder of any Warrants
----------------
or Warrant Shares to exercise any right under this section 12 shall affect or
impair any other right of such holder, in respect of the Securities or
otherwise, or any right of any other holder of any Securities, under any of the
Operative Documents. The covenants contained in this section 12 shall continue
in effect so long as any Warrants and/or Warrant Shares are outstanding or any
amount may be payable pursuant hereto and, without limiting the generality of
the foregoing, shall survive the payment, prepayment and/or replacement of any
other Securities and any merger, consolidation, recapitalization, sale of assets
or other similar transaction or event involving any of the Companies and/or any
of their respective Subsidiaries.
13. Board Visitation Rights. The Required Holders of each class of Securities
------------------------
shall have the right, as a group, to appoint one representative who shall: (a)
-
receive notice of all meetings (both regular and special) of the board of
directors (or other governing body) of the Holding Company and each committee
thereof (such notice to be delivered or mailed at the same time as notice is
given to the members of any such board and/or committee); (b) be entitled to
-
attend (or, at the option of such representative, monitor by telephone) all such
meetings; (c) receive all notices, information, reports and written consents in
-
lieu of meetings which are furnished to the members of any such board and/or
committee at the same time and in the same manner as the same is furnished to
such members and (d) receive as soon as available copies of the minutes of all
-
such meetings. Such representative shall not constitute a member of any such
board and/or committee and shall not be entitled to vote on any matters
presented at meetings of any such board and/or committee or to consent to any
matter as to which the consent of the members of any such board and/or committee
shall have been requested.
14. Covenants of the Holding Company. From and after the date of this
Agreement, and thereafter so long as any of the Notes shall remain outstanding,
the Holding Company will duly perform and observe, for the benefit of the
holders of the Notes, each and all of the covenants and agreements hereinafter
set forth, provided that, so long as any of the Warrants and/or Warrant Shares
--------
are outstanding, the Holding Company will also duly perform and observe, for the
benefit of the holders of the Warrants and Warrant Shares (as well as for the
benefit of the holders of the Notes), the covenants and agreements set forth in
section 14.10:
-27-
<PAGE>
14.1. Books of Record and Account; Reserves. The Holding Company will, and
--------------------------------------
will cause each of its Subsidiaries to (a) at all times keep proper books of
-
record and account in which full, true and correct entries shall be made of its
transactions in accordance with GAAP and (b) set aside on its books from its
-
earnings for each fiscal year all such proper reserves as shall be required in
accordance with GAAP in connection with its business.
14.2. Payment of Taxes; Existence; Maintenance of Properties; Compliance
---------------------------------------------------------------------
with Laws; Lines of Business; Proprietary Rights. The Holding Company will, and
- -------------------------------------------------
will cause each of its Subsidiaries to:
(a) timely pay and discharge (i) all income and other material taxes,
-
assessments and governmental charges or levies imposed upon its property
and (ii) all lawful claims that, if unpaid, might by law become a Lien upon
--
its property; provided that the Holding Company and its Subsidiaries shall
--------
not be required pursuant to this section 14.2 (a) to pay or discharge any
such tax, assessment, charge or claim that is being contested in good faith
and by appropriate proceedings diligently conducted and as to which
reserves or other appropriate provisions therefor have been established in
accordance with GAAP;
(b) preserve and maintain, its existence, legal structure, legal name,
rights (charter and statutory), permits, licenses, approvals, privileges
and franchises, except to the extent that the failure to do so could not
reasonably be expected to result in Material Adverse Change;
(c) maintain and preserve, all of its properties that are reasonably
necessary in the conduct of its business in good working order and
condition, ordinary wear and tear excepted;
(d) comply, in all respects, with all applicable laws, statutes,
rules, regulations and orders, except to the extent that the failure to do
so could not reasonably be expected to result in Material Adverse Change;
(e) engage only in the Business (and in other lines of business
related to the Business) substantially in the manner heretofore conducted
and keep a majority of its assets in the United States of America; and
(f) own or have a valid license for all material Proprietary Rights
and Licenses used by it in the conduct of its business.
14.3. Insurance. The Holding Company will, and will cause each of its
---------
Subsidiaries to, maintain with financially sound and reputable insurers,
insurance with respect to its properties and businesses against loss or damage
of the kinds customarily insured against by Persons of established reputation
engaged in the same or a similar
-28-
<PAGE>
business and similarly situated, in such amounts and by such methods as shall be
customary for such Persons and reasonably deemed adequate by the Holding
Company.
14.4. Limitation on Discount or Sale of Receivables. The Holding Company
-----------------------------------------------
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, discount or sell any of their accounts receivable, except (a) to
-
settle, collect or compromise doubtful accounts or to grant discounts (such as
quantity or prompt payment discounts) in the ordinary course of business and (b)
-
to engage in factoring activities of accounts receivable arising in European
operations in a manner consistent with their past practices and upon terms and
conditions in all material respects substantially similar to those heretofore in
effect, provided that (i) all Debt incurred in connection with such factoring
-------- -
activities is permitted under section 14.5, (ii) any disposition of properties
--
in connection therewith is permitted under section 14.15, (iii) both at the time
---
of and immediately after giving effect to the consummation of any such
factoring, no Default or Event of Default shall exist and (iv) the aggregate
outstanding obligations (direct, contingent or otherwise) of the Companies in
connection with such factoring activities shall not exceed $2,000,000 at any
time.
14.5. Limitation on Debt. The Holding Company will not, and will not permit
------------------
any of its Subsidiaries to, be liable or create, assume, incur, guarantee, or in
any manner become liable, contingently or otherwise, in respect of any Debt
other than:
(a) Debt evidenced by the Notes;
(b) Debt outstanding on the date hereof and referred to in Exhibit 5.9
-----------
attached hereto;
(c) Debt in addition to that permitted under section 14.5(a) and (b),
including, without limitation, any Debt incurred under the Fleet Agreement,
provided that, both at the time of and immediately after giving effect to
--------
the incurrence thereof and the repayment of any Debt that is concurrently
repaid:
(i) the ratio of Consolidated Debt on such date to Pro Forma
Consolidated Cash Flow for the period of four consecutive fiscal
quarters ended on or most recently prior to such date does not exceed
the applicable ratio set forth below for the period in which such
incurrence shall occur:
Period Ratio
------ -----
Closing Date through August 31, 2001 4.75 to 1.00
September 1, 2001 through August 31, 2002 4.50 to 1.00
From and after September 1, 2002 4.25 to 1.00;
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<PAGE>
(ii) the ratio of Consolidated Senior Debt on such date to Pro
Forma Consolidated Cash Flow for the period of four consecutive fiscal
quarters ended on or most recently prior to such date does not exceed
the applicable ratio set forth below for the period in which such
incurrence shall occur:
Period Ratio
------ -----
Closing Date through August 31, 2001 4.00 to 1.00
September 1, 2001 through August 31, 2002 3.75 to 1.00
From and after September 1, 2002 3.50 to 1.00; and
(iii) in the case of any Debt other than Debt incurred under the
Fleet Agreement, no Default or Event of Default shall exist; and
(d) Debt incurred for the extension, refinancing, refunding or renewal
of any Debt permitted under sections 14.5(a), (b) or (c), provided that (i)
-------- -
the aggregate principal amount of such replacement Debt does not exceed at
any time that of the Debt then being extended, refinanced, refunded or
renewed, (ii) the terms of such replacement Debt are not in any material
--
respect more restrictive upon the Holding Company or any of its
Subsidiaries than those of the Debt then being extended, refinanced,
refunded or renewed and (iii) both at the time of such extension,
---
refinancing, refunding or renewal and immediately after giving effect
thereto, no Default or Event of Default shall exist.
For purposes of this section 14.5, any Person becoming a Subsidiary of the
Holding Company after the date hereof shall be deemed, at the time it becomes a
Subsidiary, to have incurred all of its then outstanding Indebtedness, and any
Person extending, refinancing, refunding or renewing any Indebtedness shall be
deemed to have incurred such Indebtedness at the time of such extension,
refinancing, refunding or renewal.
14.6. Limitation on Restricted Payments and Restricted Investments. The
---------------------------------------------------------------
Holding Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, make or commit to make any Restricted Payment or any
Restricted Investment, unless:
(a) both at the time of and immediately after giving effect to the
proposed Restricted Payment and/or Restricted Investment: (i) no Default or
Event of Default shall have occurred and be continuing and (ii) the
Companies could incur at least $1 of additional Debt under section 14.5(c);
and
(b) on the date of declaration, in the case of any proposed Restricted
Payment consisting of a dividend, or on the date of payment or distribution
or of commitment therefor, whichever comes first, in the case of any other
proposed
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<PAGE>
Restricted Payment and/or any proposed Restricted Investment (each such
date, as the case may be, being herein called the "Computation Date"), and
immediately after giving effect thereto, the aggregate amount involved in
all Restricted Payments declared, in the case of dividends, and paid or
distributed or committed for, in the case of all other Restricted Payments
and all Restricted Investments, during the period from and after September
1, 1999 to and including the Computation Date does not exceed the sum
(without duplication of amounts) of:
(i) 15% (or, in the case of a loss, minus 100%) of cumulative
Consolidated Net Income for the period from and after September 1,
1999 to and including the last day of the fiscal quarter of the
Holding Company ended on or most recently prior to the Computation
Date (the "Computation Period");
(ii) 25% of the net cash proceeds received by the Holding Company
during the Computation Period from (1) permanent contributions to the
-
capital of the Holding Company and (2) the sale by the Holding Company
-
of its Shares or of any securities convertible into or exchangeable or
exercisable for such Shares (if such securities have, in fact, been
converted into or exchanged or exercised for such Shares), other than
any Shares of the Holding Company or any other such securities which
are subject to retirement in whole or in part prior to one year
following the payment in full in cash of the Notes by either mandatory
or optional redemption or through the operation of either a mandatory
or optional sinking or purchase fund; and
(iii) the aggregate net cash proceeds received by the Holding
Company or any of its Subsidiaries during the Computation Period from
the maturation, sale or disposition of any Investments (other than
Permitted Investments) in excess of the aggregate amount paid by the
Holding Company after September 1, 1999 in respect of any Investments
(other than Permitted Investments).
Notwithstanding the foregoing, the Holding Company will not, and will not permit
any of its Subsidiaries to, become liable (contingently or otherwise) in
connection with any Derivative Transaction or make any Investments in connection
with any Derivative Transaction, other than Derivative Transactions entered into
in the ordinary course of business solely for the purposes of hedging against
(as distinct from speculating in) fluctuations in interest rates and currency
exchange rates, in each case upon terms and conditions reasonably acceptable to
the Required Holders of the Notes.
14.7. Fixed Coverage Ratio. The Holding Company will not permit the ratio
--------------------
of Pro Forma Consolidated Cash Flow (after restoring thereto any amount deducted
therefrom for Rental Obligations paid under leases other than Capital Leases) to
Pro
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<PAGE>
Forma Consolidated Fixed Charges for any period of four consecutive fiscal
quarters ended during any period specified below to be less than the applicable
ratio set forth below:
Period Ratio
------ -----
Closing Date through August 31, 2001 2.00 to 1.00
September 1, 2001 through August 31, 2002 2.25 to 1.00
From and after September 1, 2002 2.50 to 1.00.
14.8. Limitation on Tax Consolidation. The Holding Company will not, and
--------------------------------
will not permit any of its Subsidiaries to, become a party to a consolidated or
combined income tax return with any Person other than the Holding Company and
its Subsidiaries.
14.9. Limitation on Liens. The Holding Company will not, and will not
--------------------
permit any of its Subsidiaries to, create or suffer to exist any Lien in respect
of any property of any character (whether owned on the date hereof or hereafter
acquired) other than:
(a) Liens securing Indebtedness of any Subsidiary owing to the Holding
Company;
(b) Liens (other than any Lien created by any Environmental Law or by
Section 4068 of ERISA), charges and encumbrances which (i) are incurred in
-
the ordinary course of business and which are incidental to the conduct of
the business of the Holding Company and its Subsidiaries and the ownership
of its and their property, (ii) are not incurred in connection with the
--
borrowing of money or the obtaining of advances or credit, (iii) do not in
---
the aggregate materially detract from the value of the property of the
Holding Company or its Subsidiaries or materially impair the use thereof in
the operation of its or their business and (iv) do not (and would not
--
reasonably be expected to) materially adversely affect the rights of the
holders of the Notes;
(c) any Lien existing on the date hereof and referred to on Exhibit
-------
5.9 attached hereto; and
---
(d) any Lien securing Debt which is permitted under section 14.5.
14.10. Limitation on Transactions with Affiliates. The Holding Company will
------------------------------------------
not, and will not permit any of its Subsidiaries to, engage in any transaction
(including, without limitation, the purchase, sale or exchange of any properties
and assets or the rendering of any services) with an Affiliate of the Holding
Company or of any of its Subsidiaries on terms less favorable to the Holding
Company or any such Subsidiary in any material respect than would be obtainable
at the time in comparable transactions with a Person not such an Affiliate.
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<PAGE>
14.11. Joinder of Additional Subsidiaries. Notwithstanding anything to the
----------------------------------
contrary contained in this Agreement or any of the other Operative Documents,
neither the Holding Company nor any of its Subsidiaries will acquire, form or
organize any Subsidiary, unless (a) such additional Subsidiary shall have joined
-
in this Agreement and each of the other applicable Operative Documents to become
a "Company" and to become jointly and severally liable for the Notes and all
other obligations of the Companies under any of the Operative Documents,
pursuant to a joinder agreement in form and substance satisfactory to the
Required Holders of each class of Securities and (b) at the time of the
-
execution of such joinder agreement and/or guarantee, the Holding Company shall
have delivered to the holders of the Securities an opinion of counsel to the
Holding Company in form and substance reasonably acceptable to the Required
Holders of each class of Securities as to the enforceability of such joinder
agreement and addressing such other related matters as the Required Holders of
each class of Securities may reasonably request, provided that no such
--------
additional Subsidiary shall be obligated to execute any such joinder and/or
guarantee until (x) it shall have become obligated in respect of any Debt under
-
the Fleet Documents (or any agreements, documents or instruments executed in
connection with any extension, refinancing, refunding or renewal of the Debt
arising thereunder), (y) it (and its Subsidiaries) shall own properties and
-
assets constituting 5% or more of Consolidated Total Assets or (z) it (and its
-
Subsidiaries) generate 5% or more of Consolidated Net Income for any fiscal
quarter (any Subsidiary of the kind described in any of clause (x), (y) or (z)
being herein referred to as a "Significant Subsidiary").
14.12. Limitation on Issuance and Sale of Shares of Subsidiaries; No
--------------------------------------------------------------------
Preferred Shares. The Holding Company will not permit any of its Subsidiaries to
- ----------------
issue, sell, transfer or otherwise dispose of any Shares (or any securities
convertible into or exercisable or exchangeable for Shares) of such Subsidiary
or of any other Subsidiary of the Holding Company except to the Holding Company
or to a Wholly-Owned Subsidiary, except in connection with the pending
liquidation of Elements (NY) and Elements (SF).
(b) The Holding Company will not, and will not permit any of its
Subsidiaries to, authorize, issue or have outstanding any Preferred Shares.
14.13. Limitation on Subsidiary's Consolidation or Merger. The Holding
-----------------------------------------------------
Company will not permit any of its Subsidiaries to consummate any merger or
consolidation with any other Person, provided that, if, both at the time of and
--------
immediately after giving effect thereto, no Default or Event of Default shall
have occurred and be continuing, then, any Subsidiary of the Holding Company may
(a) merge into the Holding Company, so long as the Holding Company is the
-
surviving corporation, and (b) consummate any merger or consolidation with any
-
other Person, so long as the surviving or resulting corporation shall be a
Wholly-Owned Subsidiary of the Holding Company and, in the event any new
Subsidiary shall result therefrom, such new Subsidiary shall have complied with
section 14.11. No consolidation or merger permitted
-33-
<PAGE>
by this section 14.13 shall have the effect of releasing any Person from any
liability or obligation under this Agreement or any of the other Operative
Documents.
14.14. Limitation on the Holding Company's Consolidation and Merger. The
--------------------------------------------------------------
Holding Company will not consolidate with or merge into any other Person,
provided that the foregoing restriction does not apply to the consolidation or
- --------
merger of the Holding Company with or into any other Person so long as:
(a) the successor formed by such consolidation or the survivor of such
merger, as the case may be (the "Successor Corporation"), shall be a
Solvent corporation organized and existing under the laws of the United
States of America, any state thereof or the District of Columbia, shall
conduct substantially all of its business and shall keep substantially all
of its assets in the United States of America and whose lines of business
are related to or not materially different from the Business;
(b) if the Holding Company is not the Successor Corporation, the
Successor Corporation shall have executed and delivered to each holder of
Notes its assumption of the due and punctual performance and observance of
each covenant and condition of this Agreement and each of the other
Operative Documents (pursuant to such agreements and instruments as shall
be reasonably satisfactory to the Required Holders of the Notes), and the
Holding Company shall have caused to be delivered to each holder of Notes
an opinion of independent counsel reasonably satisfactory to the Required
Holders of the Notes, to the effect that all agreements or instruments
effecting such assumption are legal, valid and binding obligations of such
Successor Corporation enforceable against it in accordance with their
respective terms and covering such other matters as the Required Holders of
the Notes may reasonably request; and
(c) immediately after giving effect to such transaction (i) no Default
-
or Event of Default (calculated on a pro forma basis, to the reasonable
satisfaction of the Required Holders of the Notes, to give effect to such
transaction) shall have occurred and be continuing and (ii) the Holding
--
Company or the Successor Corporation, as the case may be, could incur at
least $1 of additional Debt under section 14.5(c).
No such consolidation or merger shall have the effect of releasing the Holding
Company or any Successor Corporation that shall theretofore have become such in
the manner prescribed in this section 14.14 from its liability under this
Agreement or any of the other Operative Documents.
14.15. Limitation on Disposition of Property. The Holding Company will not,
-------------------------------------
and will not permit any of its Subsidiaries to, directly or indirectly, sell,
lease or otherwise dispose of (including by way of any merger, consolidation or
other business
-34-
<PAGE>
combination or any sale-leaseback transaction) any of their respective
properties and assets (or any right, title or interest therein), whether real,
personal or mixed, tangible or intangible, including, without limitation,
Shares, securities or Indebtedness of any Subsidiaries of the Holding Company,
except for:
(a) sales of inventory in the ordinary course of business;
(b) any merger or consolidation permitted under section 14.13 or
14.14;
(c) other sales by the Holding Company and its Subsidiaries of their
respective properties and assets if, in the case of this clause (c), on the
date of such sale and immediately after giving effect thereto:
(i) no Default or Event of Default shall have occurred and be
continuing; and
(ii) the book value of all properties and assets sold pursuant to
this clause (c) (A) during the 365-day period ended on the date of
-
such sale is not more than 10% and (B) during the period commencing on
-
the Closing Date and ended on the date of such sale is not more than
25%, of Consolidated Total Assets as at the end of the then most
recently completed fiscal quarter of the Holding Company for which
financial statements have been delivered pursuant to section 7;
(d) sales, leases, transfers or other dispositions of obsolete or
redundant equipment in the ordinary course of business; and
(e) the sale or discount of accounts receivable arising in the
ordinary course of business in connection with the settlement, collection
or compromise thereof as provided in section 14.4.
If the net proceeds of any sale of properties and assets are applied within one
year of the date of such sale to (x) the purchase of other properties and assets
-
having a fair market value and remaining useful life at least equal to that of
the properties and assets so disposed of and/or (y) the prepayment and permanent
-
reduction of the outstanding principal amount of any Debt under the Fleet
Agreement (or any agreement executed in connection with any extension,
refinancing, refunding or renewal of the Debt under the Fleet Agreement), then
such sale for the purpose of determining compliance with section 14.15(c) as of
any date on or after the proceeds of such sale are so applied, shall be
disregarded. In addition, any sale of properties and assets by any Subsidiary to
the Holding Company or to any Wholly-Owned Subsidiary shall be disregarded.
14.16. Modification of Certain Documents, Agreements and Instruments;
--------------------------------------------------------------------
Fiscal Year End. The Holding Company will not, and will not permit any of its
- ---------------
Subsidiaries to
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<PAGE>
(a) amend, modify or waive any material term, condition or provision of its
-
Organizational Documents or any of the other agreements, documents or
instruments referred to in section 4.3 or (b) have a fiscal year which ends on
-
any date other than August 31 in each year.
14.17. Further Assurances. From time to time hereafter, the Holding Company
------------------
will execute and deliver, or will cause to be executed and delivered, such
additional agreements, documents and instruments and will take all such other
actions as any holder or holders of the Notes may reasonably request for the
purpose of implementing or effectuating the provisions of the Operative
Documents.
15. Definitions.
-----------
15.1. Definitions of Capitalized Terms. The terms defined in this section
---------------------------------
15.1, whenever used in this Agreement, shall, unless the context otherwise
requires, have the following respective meanings:
"Affiliate" of any Person shall mean any other Person which, directly or
---------
indirectly, controls or is controlled by or is under common control with such
first-mentioned Person, or any individual, in the case of a Person who is an
individual, who has a relationship by blood, marriage or adoption to such
first-mentioned Person not more remote than first cousin, and, without limiting
the generality of the foregoing, shall include (a) any Person beneficially
-
owning or holding 5% or more of any class of Voting Stock or other Shares of
such first-mentioned Person, (b) any Person of which such first-mentioned Person
-
owns or holds 5% or more of any class of Voting Stock or other Shares and (c)
-
any director or officer of such first-mentioned Person; provided that, for
--------
purposes hereof, in no event shall you or any other institutional holder of
Securities be deemed to be an Affiliate of the Holding Company or any of its
Subsidiaries. For the purposes of this definition, "control" (including, with
-------
correlative meanings, the terms "controlled by" and "under common control
---------- -- ----- ------ -------
with"), as used with respect to any Person, shall mean the possession, directly
- ----
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of Voting Stock or by
contract or otherwise.
"Applicable Premium" shall have the meaning specified in section 9.3.
---------- -------
"Business" shall have the meaning specified in section 5.4.
--------
"Business Day" shall mean any day other than a Saturday, Sunday or other
-------- ---
day which shall be in Boston, Massachusetts or New York, New York a legal
holiday or a day on which banking institutions therein are authorized by law to
close.
"Call Notice" shall have the meaning specified in section 12.2.
-----------
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<PAGE>
"Capital Lease" shall mean any lease or similar arrangement which is of
--------------
such a nature that payment obligations of the lessee or obligor thereunder are
required to be capitalized and shown as liabilities upon a balance sheet of such
lessee or obligor prepared in accordance with GAAP or for which the amount of
the asset and liability thereunder as if so capitalized should be disclosed in a
note to such balance sheet.
"Change of Control" shall mean any event or transaction or series of events
-----------------
or transactions (occurring for whatever reason) following which any Person
(other than William E. Dye and/or Peter Saad), together with "affiliates" and
"associates" of such Person within the meaning of Rule 12b-2 of the Commission
under the Exchange Act, shall own beneficially or control, directly or
indirectly (including beneficial ownership resulting from the formation of a
"group" within the meaning of Rule 13d-5 of the Commission under the Exchange
Act), more than 50% of the Common Stock or more than 50% of any other Voting
Stock of the Holding Company.
"CIBC Notes" shall have the meaning specified in section 6.
----------
"Closing" and "Closing Date" shall have the respective meanings specified
------- ------------
in section 3.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
----
to time.
"Commission" shall mean the Securities and Exchange Commission or any other
----------
federal agency from time to time administering the Securities Act and/or the
Exchange Act.
"Common Stock" shall mean the Common Stock, $.01 par value, of the Holding
------------
Company as constituted on the Closing Date and any Shares into which such Common
Stock shall have been changed or any Shares resulting from any reclassification
of the Common Stock.
"Company" and "Companies" shall have the respective meanings specified at
------- ---------
the beginning of this Agreement.
"Computation Date" and "Computation Period" shall have the respective
----------------- -------------------
meanings specified in section 14.6.
"Consolidated" shall mean consolidated for the Holding Company and its
------------
Subsidiaries in accordance with GAAP, and after giving appropriate effect to
outside minority interests, if any, in Subsidiaries.
"Debt" of any Person shall mean, without duplication, (a) all indebtedness
---- -
of such Person for borrowed money, (b) all obligations of such Person for the
-
deferred purchase
-37-
<PAGE>
price of property or services (including, without limitation, deferred payment
and "earn-out" obligations arising in connection with acquisitions of other
Persons and businesses), (c) all obligations of such Person evidenced by notes,
-
bonds, debentures or other similar instruments, (d) all obligations of such
-
Person created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even though the
rights and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), (e) all
-
obligations of such Person as lessee under Capital Leases, (f) all obligations,
-
contingent or otherwise, of such Person in respect of Derivative Transactions,
letters of credit or similar facilities, (g) all obligations of such Person to
-
purchase, redeem, retire, defease or otherwise make any payment in respect of
any capital stock of or other ownership or profit interest in such Person or any
other Person or any warrants, rights or options to acquire such capital stock,
(h) all Debt of others referred to in clauses (a) through (g) above or clause
-
(i) below guaranteed directly or indirectly in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person through an agreement (A)
-
to pay or purchase such Debt or to advance or supply funds for the payment or
purchase of such Debt, (B) to purchase, sell or lease (as lessee or lessor)
-
property, or to purchase or sell services, primarily for the purpose of enabling
the debtor to make payment of such Debt or to assure the holder of such Debt
against loss, (C) to supply funds to or in any other manner invest in the debtor
-
(including any agreement to pay for property or services irrespective of whether
such property is received or such services are rendered) or (D) otherwise to
-
assure a creditor against loss and (i) all Debt referred to in clauses (a)
-
through (h) above of another Person secured by (or for which the holder of such
Debt has an existing right, contingent or otherwise, to be secured by) any Lien
on property (including, without limitation, accounts, contract rights or
inventory) owned by such Person, even though such Person has not assumed or
become liable for the payment of such Debt.
"Default" shall mean any condition or event which constitutes or, after
-------
notice or lapse of time or both, would constitute an Event of Default.
"Derivative Transactions" shall mean (a) any rate, basis, commodity,
---------- ------------ -
currency, debt or equity swap, (b) any cap, collar or floor agreement, (c) any
` - -
rate, basis, commodity, currency, debt or equity exchange or forward agreement,
(d) any rate, basis, commodity, currency, debt or equity option, (e) any other
- -
similar agreement, (f) any option to enter into any of the foregoing, (g) any
- -
master agreement or other agreement providing for any of the foregoing and (h)
-
any combination of any of the foregoing. For the purposes of this Agreement, the
amount of the obligation outstanding (and deemed incurred) under any Derivative
Transaction, as of any date, shall be the amount determined in respect thereof
as of the end of the then most recently ended fiscal quarter of such Person,
based on the assumption that such Derivative Transaction had terminated at the
end of such fiscal quarter, and in making such determination, if any agreement
relating to such Derivative Transaction provides for the netting of amounts
payable by and to such Person thereunder or if any such agreement provides for
the simultaneous
-38-
<PAGE>
payment of amounts by and to such Person, then in each such case, the amount of
such obligation shall be the net amount so determined.
"Disclosure Document" shall mean the Confidential Private Placement
---------- --------
Memorandum dated June 1999 prepared by the Holding Company with the assistance
of Fleet Corporate Finance.
"EBITDA" of any Person, shall mean, for any period, the sum, determined on
------
a Consolidated basis without duplication, of (a) net income (or net loss), (b)
- -
interest expense, (c) income tax expense, (d) depreciation expense, (e)
- - -
amortization expense, (f) non-cash charges, (g) the legal and accounting costs
- -
and other reasonable expenses incurred in connection with any acquisition of any
Person or business completed after the date of this Agreement and in compliance
with the provisions of this Agreement, in each case determined in accordance
with GAAP for such period and (h) other non-recurring, non-operating expenses,
-
including, without limitation, restructuring expenses; provided, however, that
--------
net income (or net loss) shall be computed without giving effect to
extraordinary losses or gains; provided, further, that EBITDA shall in any event
-------- -------
exclude the amount of any non-cash income recognized during any period for which
EBITDA is determined.
"Elements (SF)" shall mean Unidigital Elements (SF), Inc., a Delaware
-------- --
corporation, and any successor thereto.
"Elements (UK)" shall mean Elements (UK) Limited, a United Kingdom
-------- --
corporation, and any successor thereto.
"Environmental Laws" shall mean any law, statute, rule, regulation or other
------------- ----
governmental standard or requirement relating or pertaining to (a) the
-
generation, manufacture, management, handling, use, sale, transportation,
treatment, storage, disposal, delivery, discharge, release or emission of any
waste, pollutant or toxic, hazardous or other substance, or (b) any other act,
-
omission or condition affecting or involving the environment or air or water
pollution or soil or groundwater contamination.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and the regulations and rulings thereunder.
"ERISA Affiliate" shall mean each trade or business (whether or not
----- ---------
incorporated) that, together with the Holding Company, would be treated as a
single employer under section 4001(b) of ERISA, or that is a member of a group
of which the Holding Company is a member and that is a controlled group within
the meaning of section 4971(e)(2)(B) of the Code.
"Event of Default" shall have the meaning specified in section 16.1.
----- -- -------
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<PAGE>
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
-------- ---
or any successor federal statute, and the rules and regulations of the
Commission promulgated thereunder, all as the same shall be in effect from time
to time.
"Family", as applied to any individual, shall mean (a) the children of such
-
first-mentioned individual (by birth or adoption), (b) the parents, spouse and
-
siblings of such first-mentioned individual, (c) any trust solely for the
-
benefit of or any partnership, limited liability company or other entity owned
solely by any one or more of such aforementioned individuals (so long as such
first-mentioned individual has the exclusive right to control such trust or
other entity) and (d) the estate of such first-mentioned individual.
-
"First Call Price" and "First Call Shares" shall have the respective
----- ---- -----
meanings specified in section 12.2.
"Fixed Charges" of any Person shall mean, for any period, the sum (without
----- -------
duplication of amounts) of (a) all cash Interest Charges of such Person for such
-
period and (b) all Rental Obligations of such Person for such period in respect
-
of leases other than Capital Leases, in each case determined in accordance with
GAAP.
"Fleet" shall mean Fleet Bank, N.A.
-----
"Fleet Agreement" shall mean the Credit Agreement dated as of May 12, 1999,
----- ---------
as amended by Amendment No. 1 dated July 23, 1999, by and between the Holding
Company and the banks, financial institutions and other institutional lenders
named therein, as further amended, modified and supplemented from time to time.
"Fleet Documents" shall mean the Fleet Agreement and the other agreements,
----- ---------
documents and instruments related thereto, as amended, modified and supplemented
from time to time.
"GAAP" shall mean generally accepted accounting principles as in effect in
----
the United States from time to time, consistently applied.
"Guarantee" of any Person shall mean, at any date, any obligation of such
---------
Person at such date guaranteeing, directly or indirectly, any Indebtedness,
liability or other obligation of any other Person in any manner, but in any
event including all endorsements (other than for collection or deposit in the
ordinary course of business), all discounts with recourse and all obligations
incurred through an agreement, contingent or otherwise, (a) to purchase the
-
obligations of any other Person or any security therefor or to advance or supply
funds for the payment or purchase of such obligations, or (b) to purchase, sell
-
or lease (as lessee or lessor) property, products, materials or supplies or to
purchase or sell transportation or services, primarily for the purpose of
enabling the obligor to make payment of such obligations or to assure the owner
of such obligations
-40-
<PAGE>
against loss, regardless of the delivery or non-delivery of the property,
products, materials or supplies or the furnishing or nonfurnishing of the
transportation or services, or (c) to provide funds for the payment of, or
-
obligating such Person to make, any loan, advance, capital contribution or other
investment in the obligor for the purpose of assuring a minimum equity, asset
base, working capital or other balance sheet condition for any date or to
provide funds for the payment of any obligation, dividend or stock liquidation
payment, or otherwise to supply funds to or in any manner invest in the obligor.
The amount of any Guarantee shall be equal to the amount of all Indebtedness,
liabilities and other obligations directly or indirectly guaranteed thereby.
"Holding Company" shall mean Unidigital Inc., a Delaware corporation, and
------- -------
any successor thereto.
"Indebtedness" of any Person shall mean, at any date, all indebtedness,
------------
liabilities and other obligations of such Person at such date (other than items
of shareholders' equity) which would, in accordance with GAAP, be classified as
liabilities of such Person, but in any event including (without duplication):
(a) all Guarantees of such Person;
(b) all indebtedness, liabilities and other obligations secured by any
Lien in respect of property owned by such Person, whether or not such
Person has assumed or become liable for the payment of such obligations;
(c) all indebtedness, liabilities and other obligations of such Person
arising under any conditional sale or other title retention agreement,
whether or not the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of
such property;
(d) the amount of the obligation required to be recorded by the lessee
in respect of any Capital Lease under which such Person is lessee; and
(e) all indebtedness, liabilities and other obligations arising in
connection with letters of credit, bankers acceptances or other credit
enhancement facilities or Derivative Transactions.
"Indemnified Costs" and "Indemnitee" shall have the respective
----------- ----- ----------
meanings specified in section 21.
"Interface" shall mean Interface Graphics Limited, a corporation
---------
organized under the laws of Scotland, and any successor thereto.
"Interest Charges" of any Person shall mean, for any period, the
-------- -------
aggregate amount of all interest paid, payable or guaranteed during such
period by such Person, including,
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<PAGE>
without limitation, the "imputed interest" portion of Rental Obligations on
Capital Leases and all interest capitalized and/or deferred during such period
on any Debt, determined in accordance with GAAP.
"Investment" of any Person shall mean any investment made by such Person in
----------
any other Person by stock purchase, capital contribution, loan, advance,
acquisition of Indebtedness, Guarantee or otherwise.
"Licenses" shall mean certificates of public convenience and necessity,
--------
franchises, licenses and other permits and authorizations from governmental
authorities.
"Lien" shall mean any lien, security interest or other charge or
----
encumbrance of any kind, or any other type of preferential arrangement,
including, without limitation, the lien or retained security title of a
conditional vendor and any easement, right of way or other encumbrance on title
to real property.
"Linographics" shall mean Linographics Corporation, a New York corporation,
------------
and any successor thereto.
"Make Whole Amount" shall mean, at any date, with respect to any prepayment
---- ----- ------
or payment (whether on account of acceleration or otherwise) of any Notes, if
the Treasury Rate plus 200 basis points at such date is lower than 14.00% per
annum, the excess of (a) the present value of the principal and interest
-
payments on and in respect of the Notes being prepaid or paid, as the case may
be, that would otherwise become due and payable (without giving effect to such
prepayment or payment and assuming that no such payments are, have been or will
be deferred pursuant to the "pik" provisions of the Notes) (including the final
payment on the maturity date of the Notes), discounted at a rate which is equal
to the Treasury Rate plus 200 basis points over (b) the principal amount of the
-
Notes being prepaid or paid, as the case may be, at par. If the Treasury Rate
plus 200 basis points at the date of such prepayment or payment is equal to or
higher than 14.00% per annum, the Make Whole Amount for purposes of such
prepayment or payment at such date, is zero.
"MassMutual Investors" shall mean Massachusetts Mutual Life Insurance
---------- ---------
Company, C.M. Life Insurance Company, MassMutual Corporate Investors, MassMutual
Participation Investors, MassMutual Corporate Value Partners Limited and any of
their respective Affiliates.
"Material Adverse Change" shall mean a material adverse change in or effect
-------- ------- ------
upon any of (a) the condition (financial or otherwise), business, performance,
-
operations, properties or profits of the Holding Company or any of its
Subsidiaries taken as a whole, (b) the legality, validity or enforceability of
-
this Agreement, the Securities or any of the other Operative Documents, (c) the
-
rights and remedies of any holder of Securities with respect to the Securities
or (d) the ability of the Holding Company or any of its
-
-42-
<PAGE>
Subsidiaries to perform its obligations under any of the Operative Documents
and/or to comply with any of the terms thereof applicable to it.
"Mega Art" shall mean Mega Art Corp., a New York corporation, and any
---------
successor thereto.
"Multiemployer Plan" shall mean any Plan that is a "multiemployer plan" as
------------- ----
defined in section 4001(a)(3) of ERISA.
"Net Income" of any Person shall mean, for any period, the net income (or
--- ------
net loss) of such Person for such period, determined in accordance with GAAP;
provided that in determining Net Income there shall be excluded (a) the Net
- -------- -
Income of any Person (other than a Subsidiary of the Holding Company) in which
the Holding Company or any Subsidiary of the Holding Company has an ownership
interest, except to the extent that any such Net Income has been actually
received by the Holding Company or such Subsidiary in the form of cash dividends
or similar cash distributions, (b) any undistributed Net Income of a Subsidiary
-
of the Holding Company which for any reason is unavailable for distribution to
the Holding Company or any other Subsidiary of the Holding Company, (c) the Net
-
Income of any Person accrued prior to the date it becomes a Subsidiary of the
Holding Company or is merged into or consolidated with the Holding Company or a
Subsidiary of the Holding Company, (d) in the case of a successor to the Holding
-
Company by consolidation, merger or transfer of assets, the Net Income of such
successor accrued prior to such consolidation, merger or transfer, (e) any
-
deferred or other credit representing the excess of the equity in any Subsidiary
of the Holding Company at the date of acquisition thereof over the cost of the
investment in such Subsidiary, (f) any restoration to income of any contingency
-
reserve, except to the extent that provision for such reserve was made out of
income accrued during the same period, (g) any aggregate net gain (but not any
-
aggregate net loss) arising from the sale, conversion, exchange or other
disposition of capital assets, including, without limitation, (i) all
-
non-current assets and, without duplication, (ii) the following, whether or not
--
current: (A) fixed assets, whether tangible or intangible, (B) all inventory
- -
sold in conjunction with the disposition of fixed assets and (C) all Shares or
-
other securities, (h) any gains resulting from any write-up of any assets (but
-
not any loss resulting from any write-down), (i) any net gain from the
-
collection of any proceeds of life insurance policies, (j) any gain arising from
-
the acquisition of any Shares or other securities or the extinguishment, under
GAAP, of any Indebtedness, of the Holding Company or any Subsidiary of the
Holding Company, (k) any net income or gain (but not any net loss) from (i) any
- -
change in accounting principles in accordance with GAAP, (ii) any prior period
--
adjustments resulting from any change in accounting principles in accordance
with GAAP and (iii) any discontinued operations or the disposition thereof, (l)
--- -
any portion of net income that cannot be freely converted into United States
Dollars and (m) any other extraordinary, unusual, nonrecurring or nonoperating
-
net income or gain (but not any net loss).
-43-
<PAGE>
"Notes" shall have the meaning specified in section 1.
-----
"Officer's Certificate" shall mean a certificate signed on behalf of the
--------- -----------
Companies by the chief executive officer or chief financial officer of the
Holding Company.
"Operative Documents" shall mean this Agreement, the Securities, the
--------- ---------
Registration Rights Agreement and each of the other agreements, documents and
instruments executed in connection herewith and therewith, each as it may from
time to time be amended, modified or supplemented.
"Organizational Documents" of any Person shall mean such Person's charter
-------------- ---------
and by-laws, partnership agreement, operating agreement, trust agreement, as
applicable, and/or any other similar agreement, document or instrument.
"Other Purchasers" and "Other Securities Purchase Agreements" shall have
----- ---------- ----- ---------- -------- ----------
the respective meanings specified in section 1.
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and
----
defined in ERISA or any successor thereto.
"Permitted Investment" shall mean any of the following Investments:
--------- ----------
(a) Investments existing on the date hereof and referred to in Exhibit
-------
5.9 attached hereto;
---
(b) Investments by the Holding Company or any of its Wholly-Owned
Subsidiaries in any Wholly-Owned Subsidiary (or in any Person which
simultaneously therewith becomes a Wholly-Owned Subsidiary), made by stock
purchase, capital contribution, loan or advance, provided that (i) both at
-------- -
the time of and immediately after giving effect to any such Investment, no
Default or Event of Default shall have occurred and be continuing and (ii)
--
all such Investments are made only in Solvent entities which are organized
under the laws of and conduct substantially all of their respective
businesses in the United States of America or a state thereof or the
District of Columbia or any country in Western Europe;
(c) Investments by any Subsidiary of the Holding Company in the
Holding Company;
(d) readily marketable obligations (having a maturity not in excess of
12 months from the date of acquisition thereof) of, or fully and
unconditionally guaranteed (as to both principal and interest) by, the
United States of America;
-44-
<PAGE>
(e) negotiable certificates of deposit (having a maturity not in
excess of 12 months from the date of acquisition thereof), evidencing
direct obligations of any federally insured commercial bank or trust
company organized and operating in the United States of America having
capital and surplus and undivided profits of at least $1,000,000,000;
(f) commercial paper (having a maturity not in excess of 270 days from
the date of acquisition thereof) issued by any corporation organized and
operating in the United States of America having the highest rating
available from Moody's Investors Services, Inc., or Standard & Poor's
Corporation;
(g) money market funds or mutual funds registered under the Investment
Company Act of 1940, as amended, organized and operating in the United
States of America, having total net assets of $1,000,000,000 or more and
the assets of which constitute Investments described in clauses (d), (e)
and/or (f) of this definition;
(h) accounts receivable arising from transactions in the ordinary
course of business; contingent liabilities represented by endorsements of
negotiable instruments for collection or deposit in the ordinary course of
business; advances, deposits, down payments and prepayments on account of
firm purchase orders made in the ordinary course of business;
(i) advances to employees for business related expenses to be incurred
in the ordinary course of business and consistent with past practices in an
amount not to exceed $50,000 in the aggregate outstanding at any time,
provided that no such advances to any single employee shall exceed $10,000
--------
in the aggregate outstanding at any time;
(j) short-term tax-exempt securities including municipal notes,
commercial paper, option rate floaters and floating rate notes rated at
least "P-1" (or the then equivalent grade) by Moody's Investors Service,
Inc. or "A-1" (or the then equivalent grade) by Standard & Poor's Ratings
Group, and bonds rated at least "AA" (or the then equivalent grade) by
Standard & Poor's Ratings Group;
(k) pre-refunded municipal bonds escrowed to maturity and backed by
U.S. Treasury securities;
(l) repurchase agreements covering U.S. Treasury or U.S. government
agency securities valued at not less favorably than 102% of market value
with a term of not more than seven days with major banks and dealers that
are recognized as "primary dealers" by the Federal Reserve Bank of New
York;
-45-
<PAGE>
(m) tax-exempt preferred stock or bonds issued with a rate-reset
mechanism and a maximum term of 180 days and rated at least "AAA" (or the
then equivalent grade) by Moody's Investors Service, Inc.;
(n) with respect to any Subsidiary organized in any jurisdiction other
than the United States or any state thereof (hereinafter, a "Foreign
Subsidiary"), government obligations of (1) the United Kingdom, (2) the
- -
country in which such Foreign Subsidiary maintains its chief executive
office, (3) any other country approved by the Required Holders of the
-
Notes, or (4) any other country whose debt securities are rated by Standard
-
& Poor's Ratings Group and Moody's Investors Service, Inc. "A-1" or "P-1",
respectively, or the equivalent thereof (if a short-term debt rating is
provided by either) or at least "AA" or "AA2", respectively, or the
equivalent thereof, if a long-term unsecured debt rating is provided by
either (each such country, an "Approved Country"), in each case with
maturities of less than 12 months; and
(o) insured certificates of deposit, bankers acceptances or time
deposits having a maturity of not greater than 12 months from the date of
issuance thereof with any commercial bank or financial institution having
combined capital and surplus of at least $1,000,000,000 and organized under
the laws of an Approved Country and having a rating that is the equivalent
of at least "P-1" (or the then equivalent grade) by Moody's Investors
Service, Inc. or "A-1" (or the then equivalent grade) by Standard & Poor's
Rating Group.
"Person" shall mean an individual, a corporation, an association, a
------
joint-stock company, a business trust or other similar organization, a
partnership, a limited liability company, a joint venture, a trust, an
unincorporated organization or a government or any agency, instrumentality or
political subdivision thereof.
"Plan" shall mean an "employee benefit plan" (as defined in section 3(3) of
----
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Holding Company or any ERISA
Affiliate or with respect to which the Holding Company or any ERISA Affiliate
may have any liability.
"Preferred Shares", as applied to any Person, shall mean Shares of such
--------- ------
Person which shall be entitled to preference or priority over any other Shares
of such Person in respect of either the payment of dividends or the distribution
of assets upon liquidation, and in the case of the Holding Company shall include
the Preferred Stock.
"Preferred Stock" shall mean the Preferred Stock, $.01 par value, of the
--------- -----
Holding Company as constituted on the Closing Date.
"Principal Stockholder" shall mean William E. Dye.
--------- -----------
-46-
<PAGE>
"Pro Forma Consolidated Cash Flow" shall mean, for any period, the sum,
--- ----- ------------ ---- ----
determined on a Consolidated basis without duplication, of (A)(i) net income (or
- -
net loss), (ii) interest expense, (iii) income tax expense, (iv) depreciation
-- --- --
expense, (v) amortization expense, (vi) non-cash charges, (vii) the legal and
- -- ---
accounting costs and other reasonable expenses incurred in connction with any
acquisition of any Person or business completed after the date of this Agreement
and in compliance with the provisions of this Agreement, in each case determined
in accordance with GAAP for such period and (viii) other non-recurring,
non-operating expenses, including, without limitation, restructuring expenses;
provided, however, that net income (or net loss) shall be computed without
- --------
giving effect to extraordinary losses or gains; provided, further, that Pro
-------- -------
Forma Consolidated Cash Flow shall in any event exclude the amount of any
non-cash income recognized during any period for which Pro Forma Consolidated
Cash Flow is determined, (B) the pro forma effect on EBITDA for such period of
-
any such acquisition consummated by the Holding Company or any of its
Subsidiaries during the most recent twelve month period preceding the date of
determination, but solely for the number of months immediately preceding the
consummation of the applicable acquisition, which number equals twelve (12) less
the number of months following the consummation of the applicable acquisition to
such date of determination, plus (C) the amount by which compensation to owners,
---- -
employees or agents of the Person or business acquired pursuant to such
acquisition will be reduced following such acquisition, as set forth in an
Officer's Certificate which is reasonably acceptable to the Required Holders.
"Pro Forma Consolidated Fixed Charges" shall mean for any period
--- ----- ------------ ----- -------
Consolidated Fixed Charges for such period adjusted in a manner satisfactory to
the Required Holders of the Notes to include the Fixed Charges for such period
of any Person or business acquired by the Holding Company or any of its
Subsidiaries during such period (including any adjustment on account of any
identifiable savings acceptable to the Required Holders of the Notes), and
otherwise determined in accordance with GAAP.
"Proprietary Rights" shall mean any patents, registered and common law
----------- ------
trademarks, service marks, trade names, copyrights, licenses and other similar
rights (including, without limitation, know-how, trade secrets and other
confidential information) and applications for each of the foregoing, if any.
"Put Closing Date", "Put Notice" and "Put Securities" shall have the
--- ------- ---- --- ------ --- ----------
respective meanings specified in section 12.1.
"Put Price" shall mean, at any date, (a) as applied to any Warrant Share,
--- ----- -
the greater of the Exercise Price (as defined in the Warrants) per share in
effect on such date and the Fair Value (as defined in the Warrants) per share as
of such date and (b) as applied to any Warrant, (i) the amount specified in
- -
clause (a) less the Exercise Price per share in effect on such date and payable
- ----
upon exercise thereof times (ii) the number of Warrant Shares issuable upon
----- --
exercise of such Warrant.
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<PAGE>
"Regent" shall mean Regent Group Limited, a United Kingdom corporation, and
------
any successor thereto.
"Registration Rights Agreement" shall have the meaning specified in section
------------ ------ ---------
4.3.
"Rental Obligations" of any Person shall mean, for any period, all rents
------ -----------
and other amounts (including as such, all payments which such Person is
obligated to make to the lessor on termination of any lease and/or on surrender
of the leased property other than payments for which such Person is contingently
liable on account of early termination or breach of such lease) paid, payable or
guaranteed during such period by such Person, as lessee or sublessee under any
lease, including, without limitation, any amount required to be paid by such
Person (whether or not designated as rents or additional rents) on account of
maintenance, repairs, insurance, taxes, utilities and similar charges,
determined in accordance with GAAP. Whenever it is necessary to determine the
amount of Rental Obligations for any period, to the extent that such Rental
Obligations are not definitely determinable by the terms of the lease, the
Rental Obligations not so definitely determinable shall be estimated in good
faith and in such reasonable manner as the board of directors of the Holding
Company may determine.
"Required Holders" as applied to describe the requisite holder or holders
-------- -------
of any class of the Securities, shall mean, at any date, the holder or holders
of 66-2/3% or more in interest of such class of Securities at the time
outstanding (excluding all Securities at the time owned by the Holding Company
or any Affiliate of the Holding Company).
"Restricted Investment" shall mean any Investment other than a Permitted
---------- ----------
Investment.
"Restricted Payment" as applied to any Person shall mean:
---------- -------
(a) any dividend or other distribution, direct or indirect, on account
of any Shares of such Person now or hereafter outstanding (including,
without limitation, Preferred Shares) or any securities convertible into or
exercisable or exchangeable for such Shares or any rights, options or
warrants to acquire any such Shares (including, without limitation,
dividends pursuant to "poison pill" arrangements), except (i) any such
-
dividend or distribution payable to the Holding Company and/or any
Wholly-Owned Subsidiary and (ii) a pro rata distribution payable to all of
-- --- ----
the shareholders of the Holding Company solely in shares of Common Stock of
the Holding Company and as a result of which there is no change in the
relative ownership interest of any shareholder in the Holding Company or
any of such shareholder's rights; and
(b) any redemption, retirement, purchase or other acquisition, direct
or indirect, of any Shares of such Person now or hereafter outstanding
(including, without limitation, Preferred Shares) or any securities
convertible into or
-48-
<PAGE>
exercisable or exchangeable for such Shares or any rights, options or
warrants to acquire any such Shares; and
(c) any payment, direct or indirect, of any compensation,
remuneration, management or consulting fee or any other amount to the
Principal Stockholder (other than ordinary and reasonable compensation for
services) or any of his Affiliates;
provided that, notwithstanding the foregoing, the term "Restricted Payment"
- -------- ---------- -------
shall not include any dividend or other distribution paid on, or any redemption,
retirement, purchase or other acquisition of, or other payment in respect of,
any of the Securities.
"Second Call Price" and "Second Call Shares" shall have the respective
------ ---- ----- ------ ---- ------
meanings specified in section 12.2.
"Securities" shall mean each of the Notes, the Warrants and, unless the
----------
context clearly requires otherwise, the Warrant Shares, each of which is a
"Security".
--------
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
---------- ---
successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"Senior Debt" of any Person on any date shall mean all Debt of such Person
------ ----
on such date other than (a) Debt evidenced by the Notes and (b) Debt expressly
- -
subordinated to the Notes on terms and conditions acceptable to the Required
Holders of the Notes.
"Shares" of any Person shall include any and all shares of capital stock,
------
partnership interests, membership interests, or other shares, interests,
participations or other equivalents (however designated and of any class) in the
capital of, or other ownership interests in, such Person.
"Significant Subsidiary" shall have the meaning specified in section 14.11.
----------- ----------
"Solvent" as applied to any Person at any date shall mean that on and as of
-------
such date (a) the fair value of the property of such Person is greater than the
-
total amount of liabilities, including, without limitation, contingent
liabilities, of such Person, (b) the present fair salable value of the assets of
-
such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person does not intend to, and does not believe that it will,
-
incur debts or liabilities beyond such Person's ability to pay as such debts and
liabilities mature and (d) such Person is not engaged in business or a
-
transaction, and is not about to engage in business or a transaction, for which
such Person's property would constitute an unreasonably small capital. The
amount of contingent liabilities on and as of any date shall be computed as the
amount that, in the light of all the facts and
-49-
<PAGE>
circumstances existing on and as of such date, represents the amount that can
reasonably be expected to become an actual or matured liability. For purposes of
this definition, "Person" shall mean, where so required by the context in which
the term "Solvent" appears, such Person and its Subsidiaries taken as a whole.
"Subsidiary" of any Person at any date shall mean (a) any other Person at
---------- -
least 66-2/3% (by number of votes) of the Voting Stock of which is owned by such
first-mentioned Person and/or by one or more other Subsidiaries of such
first-mentioned Person and (b) any other Person with respect to which such
-
first-mentioned Person and/or any one or more other Subsidiaries of such
first-mentioned Person (i) is entitled to at least 66-2/3% of such Person's
-
profits or losses or at least 66-2/3% of such Person's assets on liquidation or
(ii) holds an equity interest in such Person of at least 66-2/3%. As used
--
herein, unless the context clearly required otherwise, the term "Subsidiary"
refers to a Subsidiary of the Holding Company.
"Successor Corporation" shall have the meaning specified in section 14.14.
--------- -----------
"SuperGraphics" shall mean SuperGraphics Corporation, a California
-------------
corporation, and any successor thereto.
"SuperGraphics Holding" shall mean SuperGraphics Holding Company, Inc., a
------------- -------
Delaware corporation, and any successor thereto.
"Total Assets" of any Person at any date shall mean all of the properties
----- ------
and assets (whether real, personal or mixed, tangible or intangible) of such
Person at such date determined in accordance with GAAP.
"Treasury Rate" at any time with respect to any Notes being prepaid or paid
-------- ----
(whether on account of acceleration or otherwise), as the case may be, shall
mean and shall be determined by reference to the display designated as "page 5"
on the Telerate Service as of 10:00 A.M., Boston time, on the second Business
Day prior to the date fixed for such prepayment or payment (or, if such display
is no longer available, any other publicly available source of similar market
data, as selected by the Required Holders of the Notes), and shall be the yield
on actively traded United States Treasury securities adjusted to a maturity
equal to the then remaining Weighted Average Life to Maturity of the Notes then
being prepaid or paid (whether on account of acceleration or otherwise) (the
"Remaining Life"). If the Remaining Life is not equal to the maturity of a
--------- ----
United States Treasury security for which a yield is given, the Treasury Rate
shall be obtained by linear interpolation (calculated to the nearest one-twelfth
of a year) from the weekly average yields of the two closest United States
Treasury securities for which such yields are given, except that if the
Remaining Life is less than one year, the average yield on actively traded
United States Treasury securities adjusted to a constant maturity of one year
shall be used. The Treasury Rate shall be computed to the fifth decimal place
-50-
<PAGE>
(one-thousandth of a percentage point) and then rounded to the fourth decimal
place (one-hundredth of a percentage point).
"Unison (MA)" shall mean Unison (MA), Inc. a Delaware corporation, and any
------ --
successor thereto.
"Unison (NY)" shall mean Unison (NY), Inc. a Delaware corporation, and any
------ --
successor thereto.
"Voting Stock", when used with reference to any Person, shall mean Shares
------ -----
(however designated) of such Person having ordinary voting power for the
election of a majority of the members of the board of directors (or other
governing body) of such Person, other than Shares having such power only by
reason of the happening of a contingency.
"Warrant Shares" shall have the meaning specified in the Warrants.
------- ------
"Weighted Average Life to Maturity" of any Indebtedness or obligation shall
-------- ------- ---- -- --------
mean, at any date, the number of years obtained by dividing the then Remaining
Dollar-years of such Indebtedness or obligation by the then outstanding
principal amount of such Indebtedness or obligation. For purposes of this
definition, the "Remaining Dollar-years" of any Indebtedness or obligation shall
--------- ------------
mean, at any date, the total of the products obtained by multiplying (a) the
-
amount of each then remaining installment, sinking fund, serial maturity or
other required payment, including payment at final maturity, in respect thereof,
by (b) the number of years (calculated to the nearest one-twelfth) which will
-
elapse between such date and the making of such payment.
"Wholly-Owned Subsidiary" shall mean any Subsidiary all of the outstanding
------ ----- ----------
Shares of which, other than directors' qualifying Shares, shall at the time be
owned by the Holding Company and/or by one or more other Wholly-Owned
Subsidiaries and the accounts of which are consolidated with those of the
Holding Company in accordance with GAAP.
"Withdrawal Liability" shall have the meaning given such term under Part 1
---------- ---------
of Subtitle E of Title IV of ERISA.
"Year 2000 Compliant" shall mean that neither the performance nor
---- ---- ---------
functionality of the operating systems for the Holding Company's and its
Subsidiaries' computers and all software applications that run on such computers
is affected by dates prior to, during, spanning or after January 1, 2000, and
shall include, but not be limited to (a) accurately processing (including, but
-
not limited to calculating, comparing and sequencing) date and time data from,
into, and between the years 1999 and 2000 and leap year calculations, (b)
-
functioning without error, interruption or decreased performance relating to
such date and time data, (c) accurately processing such date and time data when
-
used in combination
-51-
<PAGE>
with other technology, if the other technology properly exchanges date and time
data, (d) accurate date and time data century recognition, (e) calculations that
- -
accurately use same century and multi-century formulas and date and time values,
(f) date and time data interface values which reflect the correct century, and
-
(g) processing, storing, receiving and outputting all date and time data in a
-
format that accurately indicates the century of the date and time data.
15.2. Other Definitions. The terms defined in this section 15.2, whenever
----- -----------
used in this Agreement, shall, unless the context otherwise requires, have the
respective meanings hereinafter specified.
"this Agreement" (and similar references to any of the other Operative
---- ---------
Documents) shall mean, and the words "herein" (and "therein"), "hereof" (and
------ ------- ------
"thereof"), "hereunder" (and "thereunder") and words of similar import shall
------- --------- ----------
refer to, such instruments as they may from time to time be amended, modified or
supplemented.
"beneficial ownership" shall be determined in the manner set forth in Rule
---------- ---------
13d-3 of the Commission under the Exchange Act.
a "class" of Securities shall refer to the Notes, the Warrants and the
-----
Warrant Shares, each of which is a separate class.
"premium" when used in conjunction with references to principal of and
-------
interest on the Notes, shall mean any amount due upon any payment or prepayment
of any of the Notes, other than principal and interest, and shall include the
Applicable Premium.
15.3. Accounting Terms and Principles; Laws.
-------------------------------------
(a) All accounting terms used herein which are not expressly defined
in this Agreement shall have the respective meanings given to them in
accordance with GAAP, all computations made pursuant to this Agreement
shall be made in accordance with GAAP and all financial statements shall be
prepared in accordance with GAAP.
(b) All references herein to laws, statutes, rules and regulations
shall, unless the context clearly requires otherwise, be deemed to refer to
any law, statute, rule, regulation and any other governmental restriction,
standard and/or requirement promulgated, issued and/or enforced by any
domestic or foreign federal, state or local government, governmental
agency, authority, court, instrumentality or regulatory body, including,
without limitation, those of the United States of America or any state
thereof or the District of Columbia.
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16. Remedies.
--------
16.1. Events of Default Defined; Acceleration of Maturity. If any one or
----------------------------------------------------
more of the following events ("Events of Default") shall occur and be continuing
(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), that is to say:
(a) if default shall be made in the due and punctual payment of all or
any part of the principal of, or premium (if any) on, any Note when and as
the same shall become due and payable, whether at the stated maturity
thereof, by notice of or demand for prepayment, or otherwise;
(b) if default shall be made in the due and punctual payment of any
interest on any Note when and as such interest shall become due and payable
and such default shall have continued for a period of five days;
(c) if default shall be made in the performance or observance of any
covenant, agreement or condition contained in sections 7(g), 8(a), 9.8,
12.1, 13, 14.2(b) or 14.4 to 14.17, inclusive;
(d) if default shall be made in the performance or observance of any
other of the covenants, agreements or conditions contained in this
Agreement or any of the other Operative Documents and such default shall
have continued for a period of 30 days after the earlier to occur of (i)
the Holding Company's obtaining actual knowledge of such default or (ii)
the Holding Company's receipt of written notice of such default;
(e) if the Holding Company or any Subsidiary of the Holding Company
shall make a general assignment for the benefit of creditors, or shall not
pay its debts as they become due, or shall admit in writing its inability
to pay its debts as they become due, or shall file a voluntary petition in
bankruptcy, or shall be adjudicated bankrupt or insolvent, or shall file
any petition or answer seeking for itself any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under
any present or future statute, law or regulation, or shall file any answer
admitting or not contesting the material allegations of a petition filed
against it in any such proceeding, or shall seek or consent to or acquiesce
in the appointment of any trustee, custodian, receiver, liquidator or
fiscal agent for it or for all or any substantial part of its properties,
or shall (or its directors or shareholders shall) take any action looking
to its dissolution or liquidation;
(f) if, within 60 days after the commencement of an action against the
Holding Company or any Subsidiary of the Holding Company seeking any
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<PAGE>
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, such action shall not have been dismissed or all orders or
proceedings thereunder affecting the operations or the business of the
Holding Company or such Subsidiary stayed, or if the stay of any such order
or proceeding shall thereafter be set aside, or if, within 60 days after
the appointment without the consent or acquiescence of the Holding Company
or such Subsidiary of any trustee, custodian, receiver, liquidator or
fiscal agent for the Holding Company or any Subsidiary of the Holding
Company or for all or any substantial part of their respective properties,
such appointment shall not have been vacated;
(g) if, under the provisions of any law for the relief or aid of
debtors, any court or governmental agency of competent jurisdiction shall
assume custody or control of the Holding Company or of any Subsidiary of
the Holding Company or of all or any substantial part of their respective
properties and such custody or control shall not be terminated or stayed
within 60 days from the date of assumption of such custody or control;
(h) the Holding Company or any Subsidiary of the Holding Company shall
fail to (i) make any payment due on any Indebtedness (other than the Notes)
-
or other obligation (including any in respect of any lease or any Shares
upon the exercise by any Person of any put or call option or other similar
right of redemption or repurchase with regard to such Shares in accordance
with the terms of such option or right), if the aggregate outstanding
amount thereof (and of any other Indebtedness or other obligation as to
which the Holding Company or any Subsidiary is in default) exceeds
$4,000,000 (or the equivalent thereof, as of any date of determination, in
any other currency) or (ii) perform, observe or discharge any covenant,
--
condition or obligation in any agreement, document or instrument
evidencing, securing or relating to such Indebtedness or other obligation,
if the effect of any such failure of the character described in this clause
(h) is to cause (without further action by any Person), or any Person shall
cause, any payment in respect thereof in an aggregate amount of $4,000,000
(or the equivalent thereof, as of any date of determination, in any other
currency) or more to become due and payable, or if any such Indebtedness or
other obligation in aggregate amount of $4,000,000 (or the equivalent
thereof, as of any date of determination, in any other currency) or more
shall become due and payable by its terms and shall not be paid or
extended;
(i) if a final judgment for the payment of money which, together with
all other outstanding final judgments for the payment of money against the
Holding Company and/or any of its Subsidiaries (excluding any judgment or
judgments as to which an insurance company has accepted full liability in
writing), exceeds an aggregate of $4,000,000 (or the equivalent thereof, as
of any date of determination, in any other currency) shall be rendered by a
court of
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<PAGE>
record against the Holding Company or any Subsidiary, and the Holding
Company or such Subsidiary shall not discharge the same or provide for its
discharge in accordance with its terms, or procure a stay of execution
thereof within 45 days from the date of entry thereof and within such
period of 45 days, or such longer period during which execution of such
judgment shall have been stayed, move to vacate such judgment or appeal
therefrom and cause the execution thereof to be stayed pending
determination of such motion or during such appeal;
(j) if any representation or warranty made by or on behalf of the
Holding Company or any Subsidiary of the Holding Company in this Agreement
or in any of the other Operative Documents or in any agreement, document or
instrument delivered under or pursuant to any provision hereof or thereof
shall prove to have been false or incorrect in any material respect on the
date as of which made;
(k) if, at any time, this Agreement or any of the other Operative
Documents shall for any reason (other than the scheduled termination
thereof in accordance with its terms), expire, fail to be in full force and
effect or be disaffirmed, repudiated, canceled, terminated or declared to
be unenforceable, null and void; or
(l) if (i) any Plan shall fail to satisfy the minimum funding
-
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is sought
or granted under section 412 of the Code, (ii) a notice of intent to
--
terminate any Plan shall have been or is reasonably expected to be filed
with the PBGC or the PBGC shall have instituted proceedings under section
4042 of ERISA to terminate or appoint a trustee to administer any Plan or
the PBGC shall have notified the Holding Company or any ERISA Affiliate
that a Plan may become a subject of any such proceedings, (iii) the
---
aggregate "amount of unfunded benefit liabilities" (within the meaning of
section 4001(a)(18) of ERISA) under all Plans, determined in accordance
with Title IV of ERISA, shall exceed $200,000 (or the equivalent thereof,
as of any date of determination, in any other currency), (iv) the Holding
--
Company or any ERISA Affiliate shall have incurred or is reasonably
expected to incur any liability pursuant to Title I or IV of ERISA or the
penalty or excise tax provisions of the Code relating to employee benefit
plans, (v) the Holding Company or any ERISA Affiliate withdraws from any
-
Multiemployer Plan, or (vi) the Holding Company or any Subsidiary of the
--
Holding Company establishes or amends any employee welfare benefit plan
that provides post-employment welfare benefits in a manner that would
increase the liability of the Holding Company or any Subsidiary of the
Holding Company thereunder; and any such event or events described in
clauses (i) through (vi) above, either individually or together with any
other such event or events, has resulted in, or could reasonably be
expected to result in a Material Adverse Change; or
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<PAGE>
(m) William E. Dye shall cease to maintain beneficial ownership of 5%
or more of the outstanding Voting Stock of the Holding Company, unless such
cessation is the result of a testamentary disposition upon his death;
then, subject to the terms of subordination set forth in the Notes, in the case
of any Event of Default (other than one of the character described in
subdivisions (e), (f) or (g) of this section 16.1) and at the option of the
Required Holders of the Notes at the time outstanding, exercised by written
notice to the Companies, the principal of all Notes shall forthwith become due
and payable, together with interest accrued thereon, without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived, and the Companies shall forthwith upon any such acceleration pay to the
holder or holders of all the Notes then outstanding (i) the entire principal of
-
and interest accrued on the Notes and (ii) to the extent permitted by applicable
--
law, an amount equal to the Applicable Premium, as liquidated damages and not as
a penalty, that would be payable if the Companies prepaid the Notes pursuant to
section 9.3 on the date of such acceleration; provided that, in the case of an
--------
Event of Default of the character described in subdivisions (a) or (b) of this
section 16.1 and irrespective of whether all of the Notes have been declared due
and payable by the Required Holders of the Notes at the time outstanding, any
holder of Notes who or which has not consented to any waiver with respect to
such Event of Default may, at the option of such holder, by written notice to
the Companies, declare all Notes then held by such holder to be, and such Notes
shall thereupon become, forthwith due and payable, together with interest
accrued thereon, without presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived, and the Companies shall
forthwith upon any such acceleration pay to such holder (i) the entire principal
-
of and interest accrued on such Notes and (ii) to the extent permitted by
--
applicable law, an amount equal to the Applicable Premium, as liquidated damages
and not as a penalty, that would be payable if the Companies prepaid such Notes
pursuant to section 9.3 on the date of such acceleration; provided, further,
-------- -------
that, in the case of an Event of Default of the character described in
subdivisions (e), (f) or (g) of this section 16.1, the principal of all Notes
shall forthwith become due and payable, together with interest accrued thereon
(including any interest accruing after the commencement of any action or
proceeding under the federal bankruptcy laws, as now or hereafter constituted,
or any other applicable domestic or foreign federal or state bankruptcy,
insolvency or other similar law, and any other interest that would have accrued
but for the commencement of such proceeding, whether or not any such interest is
allowed as an enforceable claim in such proceeding), without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived, and the Companies shall forthwith upon any such acceleration pay to the
holder or holders of all the Notes then outstanding (i) the entire principal of
-
and interest accrued on the Notes and (ii) to the extent permitted by applicable
--
law, an amount equal to the Applicable Premium, as liquidated damages and not as
a penalty, that would be payable if the Companies prepaid the Notes pursuant to
section 9.3 on the date of such acceleration.
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<PAGE>
Notwithstanding the foregoing provisions, at any time after the occurrence
of any Event of Default and of notice thereof, if any, by any holder or holders
of Notes and before any judgment, decree or order for payment of the money due
has been obtained by or on behalf of any holder or holders of the Notes, the
Required Holders of the Notes by written notice to the Companies, may rescind
and annul such Event of Default and/or notice of such Event of Default and the
consequences thereof with respect to all of the Notes (including any Notes which
were accelerated pursuant to the first proviso in the preceding paragraph by any
holder or holders on account of an Event of Default of the character described
in clause (a) or (b) of this section 16.1) if:
(1) the Companies have paid a sum sufficient to pay
(A) all overdue interest on the Notes at the rate specified in
the Notes;
(B) the principal of (and premium, if any, on) any Notes which
have become due otherwise than by such Event of Default or notice
thereof and interest thereon at the rate specified in the Notes; and
(C) interest on such overdue principal (and premium, if any) and,
to the extent that payment of such interest is lawful, interest upon
overdue interest, all at the rate for overdue amounts specified in
such Notes; and
(2) all Defaults and Events of Default, other than the non-payment of
amounts which have become due solely by such acceleration, have been cured
or waived as provided in section 19.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
16.2. Suits for Enforcement, etc. In case any one or more of the Events of
---------------------------
Default specified in section 16.1 shall have occurred, and irrespective of
whether any Notes have become or have been declared immediately due and payable
under section 16.1, the holder of any Note may proceed to protect and enforce
its rights either by suit in equity or by action at law, or both. The Companies
stipulate that the remedies at law of the holder or holders of the Securities in
the event of any default or threatened default by the Companies in the
performance of or compliance with any covenant or agreement in this Agreement or
any of the other Operative Documents are not and will not be adequate and that,
to the fullest extent permitted by law, such terms may be specifically enforced
by a decree for the specific performance thereof, whether by an injunction
against a violation thereof or otherwise.
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<PAGE>
16.3. Remedies Cumulative. No remedy conferred in this Agreement or in any
-------------------
of the other Operative Documents upon the holder of any Security is intended to
be exclusive of any other remedy, and each and every such remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or
thereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
16.4. Remedies Not Waived. No course of dealing between the Holding Company
-------------------
and any of its Subsidiaries, on the one hand, and any holder of any Security, on
the other hand, and no delay by any such holder in exercising any rights
hereunder or under any of the other Operative Documents shall operate as a
waiver of any rights of any such holder.
16.5. Application of Payments. In case any one or more of the Events of
-------------------------
Default specified in section 16.1 shall have occurred, all amounts to be applied
to the prepayment or payment of any Notes, shall be applied, after the payment
of all related costs and expenses incurred by the holders of the Notes
(including, without limitation, compensation to any and all trustees,
liquidators, receivers or similar officials and reasonable fees, expenses and
disbursements of counsel) in such order of priority as is determined by the
Required Holders of the Notes.
17. Registration, Transfer and Exchange of Securities. Securities issued
------------------------------------------------------
hereunder shall be issued in registered form. The Holding Company shall keep at
its principal executive office (which is now located at the address set forth at
the beginning of this Agreement), registers in which it shall provide for the
registration and transfer of the Securities. The name and address of each holder
of the Securities shall be registered in such registers. The Holding Company (or
its transfer agent) shall give to any institutional holder of any Security
promptly (but in any event within 10 days) following request therefor, a
complete and correct copy of the names and addresses of all registered holders
of the Securities and the amount and kind of Securities held by each. Whenever
any Security or Securities shall be surrendered for transfer or exchange, the
Company(ies) that issued such Security or Securities (or its (their) transfer
agent) at its (their) expense will execute and deliver in exchange therefor a
new Security or Securities (in such denominations and registered in such name or
names as may be requested by the holder of the surrendered Security or
Securities), in the same aggregate unpaid principal amount or in the same
aggregate number of Shares, as applicable, as that of the Security or Securities
so surrendered and, in the case of any Note, dated so as not to result in any
loss of interest. The Companies may treat the Person in whose name any Security
is registered as the owner of such Security for all purposes.
18. Replacement of Securities. Upon receipt by the Company(ies) that issued any
-------------------------
Security (or its (their) transfer agent) of reasonably satisfactory evidence of
the loss, theft, destruction or mutilation of any such Security and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnity, and (in the
case of mutilation) upon surrender of such Security, the Company(ies) that
issued any Security at its (their)
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<PAGE>
expense will execute and deliver in lieu of such Security a new Security of like
tenor and, in the case of any Note, dated so as not to result in any loss of
interest. The unsecured agreement to indemnify and/or affidavit of any
institutional holder shall constitute satisfactory indemnity and/or satisfactory
evidence of loss, theft or destruction for the purpose of this section.
19. Amendment and Waiver.
--------------------
(a) Any term of this Agreement and, unless explicitly provided
otherwise therein, of any of the other Operative Documents may, with the
consent of the Companies, be amended, or compliance therewith may be
waived, in writing only, by the Required Holders of each class of
Securities entitled to the benefits of such term, provided that (i) without
-------- -
the consent of the holders of all of the Notes at the time outstanding, no
such amendment or waiver shall (A) change the amount of the principal of or
-
any rate of interest on or the amount of any premium payable with respect
to any of the Notes or change the payment terms of any of the Notes, or,
except as provided in the Notes, subordinate the obligation of the
Companies to pay any amount due on the Notes to any other obligation, or
(B) change the percentage of holders of Notes required to approve any such
-
amendment, effectuate any such waiver or accelerate payment of the Notes,
(ii) without the consent of the holders of all of the Warrants and Warrant
--
Shares at the time outstanding, no such amendment or waiver shall (A)
change any of the terms of section 12 or (B) change the percentage of
holders of Warrants and Warrant Shares required to approve any such
amendment or effectuate any such waiver and (iii) no such amendment or
---
waiver shall extend to or affect any obligation not expressly amended or
waived or impair any right consequent thereon. Executed or true and correct
copies of any amendment, waiver or consent effected pursuant to this
section 19 shall be delivered by the Companies to each holder of Securities
forthwith (but in any event not later than ten Business Days) following the
effective date thereof.
(b) The Companies will not, directly or indirectly, request or
negotiate for, or offer or pay any remuneration or grant any security as an
inducement for, any proposed amendment or waiver of any of the provisions
of this Agreement or any of the other Operative Documents unless each
holder of the Securities (irrespective of the kind and amount of Securities
then owned by it) shall be informed thereof by the Companies and, if such
holder is entitled to the benefit of any such provision proposed to be
amended or waived, shall be afforded the opportunity of considering the
same, shall be supplied by the Companies with sufficient information to
enable it to make an informed decision with respect thereto and shall be
offered and paid such remuneration and granted such security on the same
terms.
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<PAGE>
(c) In determining whether the requisite holders of Securities have
given any authorization, consent or waiver under this section 19, any
Securities owned by the Companies or any of their Affiliates shall be
disregarded and deemed not to be outstanding.
20. Method of Payment of Securities. Irrespective of any provision hereof or of
-------------------------------
the other Operative Documents to the contrary, so long as you or any other
institutional holder shall hold any Security, the Companies will make all
payments on such Security in U.S. dollars to you or such other institutional
holder by the method and at the address for such purpose specified in Schedule I
----------
attached hereto or by such other method or at such other address as you or such
institutional holder may designate in writing (given as provided in section 23),
without requiring any presentation or surrender of such Security, except that if
any Security shall be paid, prepaid and/or repurchased in full, such Security
shall be surrendered to the Company(ies) that issued the same promptly following
such payment, prepayment or repurchase and canceled.
21. Expenses; Indemnity. Whether or not the transactions contemplated by any of
-------------------
the Operative Documents shall be consummated, the Companies, jointly and
severally, will pay or cause to be paid (or reimbursed, as the case may be) and
will defend, indemnify and hold you (and each other holder of any of the
Securities) and each of your (and such other holder's) directors, officers,
employees, agents, advisors and Affiliates (each, an "Indemnitee") harmless (on
an after tax basis) in respect of all costs, losses, expenses (including,
without limitation, the reasonable fees, costs, expenses and disbursements of
counsel) and damages (collectively, "Indemnified Costs") incurred by or asserted
against any Indemnitee in connection with the negotiation, execution, delivery,
performance and/or enforcement of this Agreement or any of the other Operative
Documents (including, without limitation, so-called work-outs and/or
restructurings and all amendments, waivers and consents hereunder and
thereunder, whether or not effected) and/or the consummation of the transactions
contemplated hereby and thereby or which may otherwise be related in any way to
this Agreement or any other Operative Documents or such transactions or such
Indemnitee's relationship to either Company or any of its Affiliates or any of
their respective properties and assets, including, without limitation, any and
all Indemnified Costs related in any way to the requirements of any
Environmental Laws (as the same may be amended, modified or supplemented from
time to time) or to any environmental investigation, assessment, site
monitoring, containment, clean up, remediation, removal, restoration, reporting
and sampling, whether or not consented to, or requested or approved by, any
Indemnitee, and whether or not such Indemnified Cost is attributable to an event
or condition originating from any properties or assets of any Company or any of
its Subsidiaries or any other properties previously or hereafter owned, leased,
occupied or operated by either Company or any of its Subsidiaries.
Notwithstanding the foregoing, the Companies shall not have any obligation to an
Indemnitee under this section 21 with respect to any Indemnified Cost which is
finally determined by a court of competent jurisdiction to have arisen solely
and directly as a result of the gross negligence, willful misconduct or bad
faith of such Indemnitee.
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22. Charges; Foreign Currency; Taxes.
--------------------------------
(a) Each payment, whether in respect of principal, interest, premium,
expenses or otherwise, by any Company to any holders of the Securities
under any Operative Document shall be made under all circumstances without
set off, counterclaim or reduction for and free from and clear of and
without deduction for or because of any and all present or future taxes,
levies, imposts, duties, fees, assessments, charges, deductions,
withholding or any other restrictions or conditions of any nature
whatsoever imposed, levied, collected, assessed, deducted or withheld by or
within any jurisdiction (or any governmental authority therein or thereof),
including without limitation, England and/or the United States of America
or any political subdivision thereof (collectively, "Charges") and, if any
such payment is or shall be, under applicable law, subject to any Charge,
then the Companies shall forthwith pay to each holder of any Securities
such additional amounts as may be necessary in order that the net amount of
every payment made to each holder of Securities, after provision for
payment of all Charges, shall be equal to the amount which such holder
would have received had there been no such Charges. In addition, the
Companies will indemnify and hold harmless and reimburse each such holder
for the amount of (i) any Charges so levied or imposed and paid by such
-
holder as a result of payments made under or with respect to the Securities
(together with any other Charges imposed with respect to such reimbursement
under this section 22) and (ii) any liability (including penalties,
--
interest and expenses) arising therefrom or with respect thereto. If any
Company is required by law to make any deduction for any Charges with
respect to any payment made hereunder or under any other Operative
Document, such Company shall (subject to the foregoing) deduct such amount
and shall pay the amount required to the relevant taxing jurisdiction
within the time required and within 30 days of payment of such Charges
shall furnish to the holders an original or certified copy of receipt
evidencing payment thereof.
(b) All payments under the Operative Documents due to any holder of
the Securities shall be paid in lawful money of the United States of
America and any payment which is made in any foreign currency, whether
pursuant to any judgment or order of any court, or otherwise, shall
constitute payment only to the extent of the amount of the lawful money of
the United States of America which may be purchased with such foreign
currency on the date of payment. The Companies covenant and agree that each
shall, as a separate and independent obligation, which shall not be merged
in any judgment or order, pay or cause to be paid the amount payable under
the Operative Documents in lawful money of the United States of America and
no payment in any other currency shall discharge the obligations of the
Companies except to the extent provided above.
(c) The Companies will pay, and will indemnify each holder of the
Securities against, all taxes and fees (including interest and penalties),
including,
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without limitation, all issuance and documentary stamp and similar taxes,
which may be payable in respect of the execution and delivery of this
Agreement and each of the other Operative Documents.
23. Communications. All communications provided for herein and, unless
--------------
explicitly provided otherwise therein, in any of the other Operative Documents
shall be in writing and sent (a) by telecopy if the sender on the same day sends
-
a confirming copy of such communication by a recognized overnight delivery
service (charges prepaid), (b) by a recognized overnight delivery service
-
(charges prepaid), or (c) by messenger. Any such communication must be sent (i)
- -
if to the Holding Company (or any Subsidiary of the Holding Company), to the
Holding Company (or such Subsidiary) at:
Unidigital Inc.
229 West 28th Street
New York, New York 10001
Attention: Chief Executive Officer
Telecopy No.: (212) 244-7815
with a copy (which shall not constitute notice) to:
Buchanan Ingersoll Professional Corporation
College Centre
500 College Road East
Princeton, New Jersey 08540
Attention: David J. Sorin, Esq.
Telecopy No.: (609) 520-0360
or at such other address (or telecopy number) as may be furnished in writing by
the Holding Company to each holder of any Security and (ii) if to you, at your
--
address for such purpose set forth in Schedule I attached hereto, with a copy
----------
(which shall not constitute notice) to:
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, Massachusetts 02109
Attention: W. Brewster Lee, Esq.
Telecopy No.: (617) 248-4000
and if to any other holder of any Security, at the address of such holder as it
appears on the applicable register maintained pursuant to section 17, or at such
other address as may be furnished in writing by you or by any other holder to
the Holding Company. Communications under this section 23 shall be deemed given
only when actually received.
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24. Survival of Agreements, Representations and Warranties, etc. All
----------------------------------------------------------------------
agreements, representations and warranties contained herein and in the other
Operative Documents shall be deemed to have been relied upon by you and shall
survive the execution and delivery of this Agreement and each of the other
Operative Documents, the issue, sale and delivery of the Securities and payment
therefor and any disposition of the Securities by you, whether or not any
investigation at any time is made by you or on your behalf. All indemnification
provisions, including, without limitation, those contained in sections 21 and
22, shall survive the date upon which none of the Securities shall be
outstanding and the termination of this Agreement and each of the other
Operative Documents.
25. Successors and Assigns; Rights of Other Holders. This Agreement and, unless
-----------------------------------------------
explicitly provided otherwise therein, each of the other Operative Documents
shall bind and inure to the benefit of and be enforceable by the Companies and
you, successors to the Companies and your successors and assigns, and, in
addition, shall inure to the benefit of and be enforceable by each holder from
time to time of any Securities who, upon acceptance thereof, shall, without
further action, be entitled to enforce the applicable provisions and enjoy the
applicable benefits hereof and thereof. No Company may assign any of its rights
or obligations hereunder or under any of the other Operative Documents without
the written consent of the Required Holders of each class of Securities then
outstanding.
26. Purchase for Investment; Source of Funds.
----------------------------------------
(a) You represent and warrant that (i) you are an "accredited
-
investor" as defined in Regulation D of the Commission under the Securities
Act and (ii) you will acquire such Securities for your own account for
--
investment and not for distribution in any manner that would violate
applicable securities laws, but without prejudice to your rights to dispose
of such Securities or a portion thereof to a transferee or transferees, in
accordance with such laws if at some future time you deem it advisable to
do so. The acquisition of such Securities by you at the Closing shall
constitute your confirmation of the foregoing representations and
warranties. You understand that such Securities are being sold to you in a
transaction which is exempt from the registration requirements of the
Securities Act, and that, in making the representations and warranties
contained in section 5.16, the Holding Company is relying, to the extent
applicable, upon your representations and warranties contained herein.
(b) You represent that at least one of the following statements is an
accurate representation as to each source of funds (a "Source") to be used
by you to pay the purchase price of the Securities to be purchased by you
hereunder:
(i) the Source is an "insurance company general account" as
defined in Section V(e) of Prohibited Transaction Exemption ("PTE")
95-60 (issued July 12, 1995) and, except as you have disclosed to the
Holding
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<PAGE>
Company in writing pursuant to this section (i), the amount of
reserves and liabilities for the general account contract(s) held by
or on behalf of any employee benefit plan or group of plans maintained
by the same employer or employee organization do not exceed 10% of the
total reserves and liabilities of the general account (exclusive of
separate account liabilities) plus surplus as set forth in the NAIC
Annual Statement filed with the state of domicile of the insurer; or
(ii) the Source is a separate account of an insurance company
maintained by you in which an employee benefit plan (or its related
trust) has an interest, which separate account is maintained solely in
connection with your fixed contractual obligations under which the
amounts payable, or credited, to such plan and to any participant or
beneficiary of such plan (including any annuitant) are not affected in
any manner by the investment performance of the separate account; or
(iii) the Source is either (A) an insurance company pooled
-
separate account, within the meaning of PTE 90-1 (issued January 29,
1990), or (B) a bank collective investment fund, within the meaning of
-
the PTE 91-38 (issued July 12, 1991) and, except as you have disclosed
to the Holding Company in writing pursuant to this section (iii), no
---
employee benefit plan or group of plans maintained by the same
employer or employee organization beneficially owns more than 10% of
all assets allocated to such pooled separate account or collective
investment fund; or
(iv) the Source constitutes assets of an "investment fund"
(within the meaning of Part V of the QPAM Exemption) managed by a
"qualified professional asset manager" or "QPAM" (within the meaning
of Part V of the QPAM Exemption), no employee benefit plan's assets
that are included in such investment fund, when combined with the
assets of all other employee benefit plans established or maintained
by the same employer or by an affiliate (within the meaning of Section
V(c)(1) of the QPAM Exemption) of such employer or by the same
employee organization and managed by such QPAM, exceed 20% of the
total client assets managed by such QPAM, the conditions of Part I(c)
and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a
person controlling or controlled by the QPAM (applying the definition
of "control" in Section V(e) of the QPAM Exemption) owns a 5% or more
interest in the Holding Company and (A) the identity of such QPAM and
-
(B) the names of all employee benefit plans whose assets are included
-
in such investment fund have been disclosed to the Holding Company in
writing pursuant to this section (iv); or
(v) the Source is a governmental plan; or
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<PAGE>
(vi) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee
benefit plans, each of which has been identified to the Holding
Company in writing pursuant to this section (vi); or
(vii) the Source does not include assets of any employee benefit
plan, other than a plan exempt from the coverage of ERISA.
As used in this section 26(b), the terms "employee benefit plan",
"governmental plan", "party in interest" and "separate account" shall have
the respective meanings assigned to such terms in Section 3 of ERISA, and
the term "QPAM Exemption" means PTE 84-14 (issued March 13, 1984).
27. Governing Law; Jurisdiction; Waiver of Jury Trial. This Agreement and,
----------------------------------------------------
unless explicitly provided otherwise therein, each of the other Operative
Documents, including the validity hereof and thereof and the rights and
obligations of the parties hereunder and thereunder, and all amendments and
supplements hereof and thereof and all waivers and consents hereunder and
thereunder, shall be construed in accordance with and governed by the domestic
substantive laws of the State of New York without giving effect to any choice of
law or conflicts of law provision or rule that would cause the application of
the domestic substantive laws of any other jurisdiction. Each Company and each
holder of any Securities, to the extent that it may lawfully do so, hereby
consents to service of process, and to be sued, in the State of New York and
consents to the jurisdiction of the courts of the State of New York and the
United States District Court for the Southern District of New York, as well as
to the jurisdiction of all courts to which an appeal may be taken from such
courts, for the purpose of any suit, action or other proceeding arising out of
any of its obligations hereunder or thereunder or with respect to the
transactions contemplated hereby or thereby, and expressly waives any and all
objections it may have as to venue in any such courts. Each Company and each
holder of any Securities further agrees that a summons and complaint commencing
an action or proceeding in any of such courts shall be properly served and shall
confer personal jurisdiction if served personally or by certified mail to it at
its address set forth in section 23 or as otherwise provided under the laws of
the State of New York. Notwithstanding the foregoing, each Company and each
holder of any Securities agrees that nothing contained in this section 27 shall
preclude the institution of any such suit, action or other proceeding in any
jurisdiction other than The State of New York. EACH COMPANY AND EACH HOLDER OF
ANY SECURITIES IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY SUIT,
ACTION OR OTHER PROCEEDING INSTITUTED BY OR AGAINST IT IN RESPECT OF ITS
OBLIGATIONS HEREUNDER OR THEREUNDER OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY.
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<PAGE>
28. Rules 144 and 144A. The Companies will take, or will cause to be taken,
------------------
such action as any holder of Securities may reasonably request from time to time
to facilitate any sale or disposition by any such holder of any Securities
without registration under the Securities Act and/or any applicable securities
laws within the limitation of the exemptions provided by any rule or regulation
thereunder, including, without limitation, Rules 144 and 144A under the
Securities Act.
29. Miscellaneous. The headings in this Agreement and in each of the other
-------------
Operative Documents are for purposes of reference only and shall not limit or
otherwise affect the meaning hereof or thereof. This Agreement (together with
the other Operative Documents) embodies the entire agreement and understanding
among you and the Companies and supersedes all prior agreements and
understandings relating to the subject matter hereof. Each covenant contained
herein and in each of the other Operative Documents shall be construed (absent
an express provision to the contrary) as being independent of each other
covenant contained herein and therein, so that compliance with any one covenant
shall not (absent such an express contrary provision) be deemed to excuse
compliance with any other covenant. If any provision in this Agreement or in any
of the other Operative Documents refers to any action taken or to be taken by
any Person, or which such Person is prohibited from taking, such provision shall
be applicable, whether such action is taken directly or indirectly by such
Person, whether or not expressly specified in such provision. In case any
provision in this Agreement or any of the other Operative Documents shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
This Agreement and, unless explicitly provided otherwise therein, each of the
other Operative Documents, may be executed in any number of counterparts and by
the parties hereto or thereto, as the case may be, on separate counterparts but
all such counterparts shall together constitute but one and the same instrument.
[The remainder of this page is intentionally left blank.]
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<PAGE>
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterparts of this letter, whereupon this letter
shall become a binding agreement under seal among you and the Companies. Please
then return one of such counterparts to the Companies.
Very truly yours,
UNIDIGITAL INC.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
LINOGRAPHICS CORPORATION
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
ELEMENTS (UK) LIMITED
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
UNIDIGITAL ELEMENTS (SF), INC.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
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<PAGE>
UNISON (NY), INC.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
UNISON (MA), INC.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
MEGA ART CORP.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
SUPERGRAPHICS HOLDING
COMPANY, INC.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
SUPERGRAPHICS CORPORATION
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
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<PAGE>
REGENT GROUP LIMITED
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
INTERFACE GRAPHICS LIMITED
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
The foregoing Agreement is hereby
agreed to as of the date thereof.
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By /s/ Richard C. Morrison
----------------------------------
Managing Director (Title)
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<PAGE>
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterparts of this letter, whereupon this letter
shall become a binding agreement under seal among you and the Companies. Please
then return one of such counterparts to the Companies.
Very truly yours,
UNIDIGITAL INC.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
LINOGRAPHICS CORPORATION
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
ELEMENTS (UK) LIMITED
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
UNIDIGITAL ELEMENTS (SF), INC.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
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<PAGE>
UNISON (NY), INC.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
UNISON (MA), INC.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
MEGA ART CORP.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
SUPERGRAPHICS HOLDING
COMPANY, INC.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
SUPERGRAPHICS CORPORATION
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
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<PAGE>
REGENT GROUP LIMITED
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
INTERFACE GRAPHICS LIMITED
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
The foregoing Agreement is hereby
agreed to as of the date thereof.
C.M. LIFE INSURANCE COMPANY
By /s/ Richard C. Morrison
------------------------------------
Investment Officer (Title)
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<PAGE>
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterparts of this letter, whereupon this letter
shall become a binding agreement under seal among you and the Companies. Please
then return one of such counterparts to the Companies.
Very truly yours,
UNIDIGITAL INC.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
LINOGRAPHICS CORPORATION
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
ELEMENTS (UK) LIMITED
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
UNIDIGITAL ELEMENTS (SF), INC.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
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<PAGE>
UNISON (NY), INC.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
UNISON (MA), INC.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
MEGA ART CORP.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
SUPERGRAPHICS HOLDING
COMPANY, INC.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
SUPERGRAPHICS CORPORATION
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
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<PAGE>
REGENT GROUP LIMITED
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
INTERFACE GRAPHICS LIMITED
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
The foregoing Agreement is hereby
agreed to as of the date thereof.
MASSMUTUAL CORPORATE INVESTORS
By /s/ Richard C. Morrison
--------------------------------
Vice President (Title)
The foregoing is executed on behalf of
MassMutual Corporate Investors, organized under
a Declaration of Trust, dated September 13, 1985, as
amended from time to time. The obligations of such
Trust are not personally binding upon, nor shall resort
be had to the property of, any of the Trustees,
shareholders, officers, employees or agents of such
Trust, but the Trust's property only shall be bound.
-69-
<PAGE>
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterparts of this letter, whereupon this letter
shall become a binding agreement under seal among you and the Companies. Please
then return one of such counterparts to the Companies.
Very truly yours,
UNIDIGITAL INC.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
LINOGRAPHICS CORPORATION
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
ELEMENTS (UK) LIMITED
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
UNIDIGITAL ELEMENTS (SF), INC.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
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<PAGE>
UNISON (NY), INC.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
UNISON (MA), INC.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
MEGA ART CORP.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
SUPERGRAPHICS HOLDING
COMPANY, INC.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
SUPERGRAPHICS CORPORATION
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
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<PAGE>
REGENT GROUP LIMITED
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
INTERFACE GRAPHICS LIMITED
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
The foregoing Agreement is hereby
agreed to as of the date thereof.
MASSMUTUAL PARTICIPATION INVESTORS
By /s/ Richard C. Morrison
----------------------------------
Vice President (Title)
The foregoing is executed on behalf of MassMutual
Participation Investors, organized under a Declaration
of Trust, dated April 7, 1988, as amended from time
to time. The obligations of such Trust are not
personally binding upon, nor shall resort be had to the
property of, any of the Trustees, shareholders,
officers, employees or agents of such Trust, but the
Trust's property only shall be bound.
-69-
<PAGE>
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterparts of this letter, whereupon this letter
shall become a binding agreement under seal among you and the Companies. Please
then return one of such counterparts to the Companies.
Very truly yours,
UNIDIGITAL INC.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
LINOGRAPHICS CORPORATION
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
ELEMENTS (UK) LIMITED
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
UNIDIGITAL ELEMENTS (SF), INC.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
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<PAGE>
UNISON (NY), INC.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
UNISON (MA), INC.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
MEGA ART CORP.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
SUPERGRAPHICS HOLDING
COMPANY, INC.
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
SUPERGRAPHICS CORPORATION
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
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<PAGE>
REGENT GROUP LIMITED
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
INTERFACE GRAPHICS LIMITED
By: /s/ William E. Dye
-------------------------------------
Chief Executive Officer (Title)
The foregoing Agreement is hereby
agreed to as of the date thereof.
MASSMUTUAL CORPORATE VALUE
PARTNERS LIMITED
By Massachusetts Mutual Life Insurance
Company, as Investment Manager
By /s/ Richard C. Morrison
--------------------------------
Managing Director (Title)
SUBSIDIARIES OF THE REGISTRANT
------------------------------
Linographics Corporation, a New York corporation
Unidigital Elements (SF), Inc., a Delaware corporation, doing business as TX,
Unidigital California, Inc. and Unison (SF) in California
Unison (NY), Inc., a Delaware corporation
Unison (MA), Inc., a Delaware corporation
Mega Art Corp., a New York corporation
SuperGraphics Holding Company, Inc., a Delaware corporation
SuperGraphics Corporation, a California corporation, and wholly-owned subsidiary
of SuperGraphics Holding Company, Inc.
Elements (UK) Limited, a United Kingdom corporation
Regent Group Limited, a United Kingdom corporation, and wholly-owned subsidiary
of Elements (UK) Limited
Big Bills Limited, a United Kingdom corporation, and wholly-owned subsidiary of
Elements (UK) Limited
M. Nur Marketing & Kommunikation GmbH, a corporation organized under the laws of
Germany
Consent of Independent Auditor
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No: 333-25657) of Unidigital, Inc. and in the related Prospectus of our
report dated December 3, 1999, with respect to the consolidated financial
statements and schedule of Unidigital, Inc. included in this Annual Report (Form
10-K) for the year ended August 31, 1999.
Ernst & Young LLP
December 13, 1999
New York, New York
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
consolidated financial statements at August 31, 1999 and for the twelve month
period ended August 31, 1999 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0001003934
<NAME> Unidigital Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1999
<PERIOD-START> Sep-01-1998
<PERIOD-END> Aug-31-1999
<EXCHANGE-RATE> 1
<CASH> 734,000
<SECURITIES> 0
<RECEIVABLES> 17,532,000
<ALLOWANCES> (744,000)
<INVENTORY> 0
<CURRENT-ASSETS> 25,966,000
<PP&E> 25,876,000
<DEPRECIATION> (9,956,000)
<TOTAL-ASSETS> 118,636,000
<CURRENT-LIABILITIES> 22,457,000
<BONDS> 0
0
0
<COMMON> 59,000
<OTHER-SE> 21,729,000
<TOTAL-LIABILITY-AND-EQUITY> 118,636,000
<SALES> 62,774,000
<TOTAL-REVENUES> 62,830,000
<CGS> 30,003,000
<TOTAL-COSTS> 30,003,000
<OTHER-EXPENSES> 21,312,000
<LOSS-PROVISION> 321,000
<INTEREST-EXPENSE> 6,384,000
<INCOME-PRETAX> 4,810,000
<INCOME-TAX> 2,349,000
<INCOME-CONTINUING> 2,461,000
<DISCONTINUED> (11,592,000)
<EXTRAORDINARY> (1,828,000)
<CHANGES> 0
<NET-INCOME> (10,959,000)
<EPS-BASIC> (2.10)
<EPS-DILUTED> (2.10)
</TABLE>
