SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 2000
Commission File No. 1-14126
UNIDIGITAL INC.
-----------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 13-3856672
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
229 West 28th Street, New York, New York 10001
----------------------------------------------
(Address of Principal Executive Offices)
(212) 244-7820
---------------------------
(Issuer's Telephone Number,
Including Area Code)
Check whether the Issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes: X No:
----- -----
State the number of shares outstanding of each of the Issuer's classes of
common stock, as of March 31, 2000:
Class Number of Shares
- ----- ----------------
Common Stock, $.01 par value 6,127,067
Transitional Small Business Disclosure Format:
Yes: No: X
----- -----
<PAGE>
UNIDIGITAL INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements..................................... 1
CONSOLIDATED BALANCE SHEETS
as at February 29, 2000 (unaudited)
and August 31, 1999 (audited)............................... 2
CONSOLIDATED INCOME STATEMENTS
For the Three Months and Six Months Ended
February 29, 2000 and February 28, 1999
(unaudited)................................................. 3
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended
February 29, 2000 and February 28, 1999
(unaudited)................................................. 4
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (unaudited)...................................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 13
General..................................................... 13
Results of Operations....................................... 13
Liquidity, Capital Resources and Other Matters.............. 17
Item 3. Quantitative and Qualitative Disclosures
About Market Risk........................................ 18
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................ 19
Item 2. Changes in Securities and Use of Proceeds................ 19
Item 4. Submission of Matters to a Vote of Security Holders...... 20
Item 5. Other Information........................................ 21
Item 6. Exhibits and Reports on Form 8-K......................... 21
SIGNATURES.......................................................... 22
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<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-1-
<PAGE>
UNIDIGITAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
FEBRUARY 29, AUGUST 31,
2000 1999
-------- --------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................... $ 760,000 $ 734,000
Accounts receivable (net allowance of $999,000
and $744,000 at February 29, 2000 and
August 31, 1999, respectively)............................... 26,413,000 16,788,000
Building available for sale.................................... -- 1,488,000
Prepaid expenses............................................... 3,824,000 2,600,000
Deferred tax asset............................................. 1,730,000 2,000,000
Other current assets........................................... 2,548,000 2,356,000
------------ ----------
Total current assets....................................... 35,275,000 25,966,000
Property and equipment, net...................................... 16,171,000 15,920,000
Deferred tax asset............................................... 5,730,000 5,606,000
Deferred financing costs, net.................................... 4,829,000 1,550,000
Intangible assets, net........................................... 66,694,000 67,672,000
Other assets..................................................... 2,070,000 1,922,000
------------ -----------
Total assets............................................... $ 130,769,000 $118,636,000
============ ===========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses.......................... $ 12,830,000 $ 16,198,000
Current portion of capital lease obligations................... 2,619,000 3,157,000
Current portion of long-term debt.............................. 1,351,000 1,384,000
Income taxes payable........................................... 837,000 1,065,000
Loans and notes payable to stockholders........................ 100,000 619,000
Other current liabilities...................................... -- 34,000
------------ -----------
Total current liabilities.................................. 17,737,000 22,457,000
Capital lease obligations, net of current portion................ 2,247,000 2,898,000
Long-term debt, net of current portion........................... 89,473,000 76,263,000
Other non-current liabilities.................................... 645,000 707,000
------------ -----------
Total liabilities.......................................... 110,102,000 102,325,000
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STOCKHOLDERS' EQUITY
Preferred stock -- authorized 10,000,000 shares,
$.01 par value each; none issued or outstanding................ -- --
Common stock -- authorized 25,000,000 shares,
$.01 par value each; 6,087,067 and 5,926,618 shares
issued and outstanding at February 29, 2000 and
August 31, 1999, respectively.................................. 61,000 59,000
Issuable common stock............................................ 909,000 1,450,000
Additional paid-in capital....................................... 26,046,000 21,729,000
Accumulated deficit.............................................. (5,719,000) (6,585,000)
Accumulated other comprehensive loss............................. (630,000) (342,000)
------------ -----------
Total stockholders' equity................................. 20,667,000 16,311,000
------------ -----------
Total liabilities and stockholders' equity................. $ 130,769,000 $118,636,000
============ ===========
</TABLE>
The Notes to Consolidated Financial Statements are made a part hereof.
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<PAGE>
UNIDIGITAL INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED, SIX MONTHS ENDED,
-------------------------------- ---------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Net sales..................................... $ 23,009,000 $ 15,407,000 $ 47,012,000 $ 27,875,000
------------ ----------- ------------ -----------
EXPENSES
Cost of sales................................. 11,980,000 6,586,000 25,197,000 13,071,000
Selling, general and
administrative expenses.................... 7,442,000 6,104,000 14,627,000 10,452,000
Expenses incurred due to restructuring........ -- -- -- 196,000
------------ ----------- ------------ -----------
Total operating expenses...................... 19,422,000 12,690,000 39,824,000 23,719,000
------------ ----------- ------------ -----------
Income from continuing operations............ 3,587,000 2,717,000 7,188,000 4,156,000
Interest expense.............................. (2,460,000) (1,478,000) (4,818,000) (2,468,000)
Interest expense - deferred financing costs... (211,000) (135,000) (313,000) (191,000)
Other (expense) income........................ (166,000) (47,000) (424,000) 213,000
------------ ----------- ------------ -----------
Income from continuing operations before
income taxes................................ 750,000 1,057,000 1,633,000 1,710,000
Provision for income taxes.................... 468,000 492,000 767,000 774,000
------------ ----------- ------------ -----------
Net income from continuing operations........... 282,000 565,000 866,000 936,000
Loss from operations of discontinued segment
(net of tax benefit of $90,000 and $92,000,
respectively................................... -- (111,000) -- (112,000)
------------ ----------- ------------ -----------
Net income...................................... $ 282,000 $ 454,000 $ 866,000 $ 824,000
============ ============ ============ ===========
Basic earnings per common share:
Earnings from continuing operations........... $ 0.05 $ 0.11 $ 0.14 $ 0.18
Loss from discontinued operations............. -- (0.02) -- (0.02)
------------ ------------ ------------ -----------
Net income...................................... $ 0.05 $ 0.09 $ 0.14 $ 0.16
============ ============ ============ ===========
Diluted earnings per common share:
Earnings from continuing operations........... $ 0.04 $ 0.10 $ 0.14 $ 0.18
Loss from discontinued operations............. -- (0.02) -- (0.02)
------------ ------------ ------------ -----------
Net income...................................... $ 0.04 $ 0.08 $ 0.14 $ 0.16
============ ============ ============ ===========
Shares used to compute net income per share:
Basic......................................... 6,073,880 5,247,248 6,014,871 5,024,420
============ ============ ============ ===========
Diluted....................................... 6,281,628 5,381,070 6,215,484 5,124,166
============ ============ ============ ===========
</TABLE>
The Notes to Consolidated Financial Statements are made a part hereof.
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<PAGE>
UNIDIGITAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED,
---------------------------------
FEBRUARY 29, FEBRUARY 28,
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income.......................................................... $ 866,000 $ 824,000
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization.................................. 4,533,000 3,509,000
Provision for deferred income taxes............................ 8,000 57,000
Provision for bad debts........................................ 136,000 233,000
Gain (loss) on sale of property and equipment.................. 184,000 (313,000)
Changes in assets and liabilities net of effects of businesses
acquired:
Accounts receivable............................................ (9,810,000) (3,585,000)
Prepaid expenses and other current assets...................... (1,842,000) (2,199,000)
Other assets................................................... (312,000) (282,000)
Accounts payable and accrued expenses.......................... (5,339,000) (2,383,000)
Income taxes payable........................................... (222,000) 485,000
----------- -----------
Net cash used in operating activities............................... (11,798,000) (3,654,000)
----------- -----------
INVESTING ACTIVITIES
Additions to property and equipment................................. (1,830,000) (711,000)
Proceeds from sale of property and equipment........................ 1,818,000 941,000
Business acquisitions............................................... (651,000) (24,789,000)
----------- -----------
Net cash used in investing activities............................... (663,000) (24,559,000)
----------- -----------
FINANCING ACTIVITIES
Net proceeds from bank borrowings................................... 27,685,000 29,751,000
Payments of capital lease obligations............................... (1,364,000) (1,157,000)
Payments of long-term debt.......................................... (13,656,000) (208,000)
Stockholder repayments.............................................. (420,000) (50,000)
Warrants exercised.................................................. 242,000 --
Proceeds from the sale of common stock, net of issuance costs....... -- 92,000
----------- -----------
Net cash provided by financing activities........................... 12,487,000 28,428,000
----------- -----------
Effect of foreign exchange rates on cash............................ -- (49,000)
----------- -----------
Net increase in cash and cash equivalents........................... 26,000 166,000
Cash and cash equivalents at beginning of period.................... 734,000 287,000
----------- -----------
Cash and cash equivalents at end of period.......................... $ 760,000 $ 453,000
=========== ===========
SUPPLEMENTAL DISCLOSURES
Interest paid....................................................... $ 3,178,000 $ 3,385,000
=========== ===========
Income taxes paid................................................... $ 687,000 $ 192,000
=========== ===========
Noncash transactions:
Equipment acquired under capital lease obligations.................. $ 213,000 $ 2,597,000
=========== ===========
Stock issued for business acquisitions.............................. $ -- $ 7,886,000
=========== ===========
Warrants issued for business acquisitions........................... $ -- $ 931,000
=========== ===========
Warrants issued for additional financing (revised).................. $ 2,500,000 $ 308,000
=========== ===========
Business acquisitions (net of liabilities of $5,010,000)............ $ -- $ 2,466,000
=========== ===========
Warrants issued in lieu of cash interest payments................... $ 1,035,000 $ --
=========== ===========
</TABLE>
The Notes to Consolidated Financial Statements are made a part hereof.
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<PAGE>
UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
NOTE A - BASIS OF PRESENTATION:
The information presented for February 29, 2000, and for the three-month
and the six-month periods ended February 29, 2000 and February 28, 1999 is
unaudited, but, in the opinion of the management of Unidigital Inc., its
wholly-owned subsidiaries and their subsidiaries, affiliated companies and
predecessors (collectively, the "Company"), the accompanying unaudited
consolidated financial statements contain all adjustments (consisting only of
normal recurring accruals) which the Company considers necessary for the fair
presentation of the Company's financial position as of February 29, 2000 and the
results of its operations and its cash flows for the three-month and the
six-month periods ended February 29, 2000 and February 28, 1999.
The consolidated financial statements included herein have been prepared by
the Company in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. These
consolidated financial statements should be read in conjunction with the
Company's audited financial statements for the year ended August 31, 1999, which
were included as part of the Company's Annual Report on Form 10-K.
The consolidated financial statements include the accounts of Unidigital
Inc. and its direct and indirect subsidiaries. All significant intercompany
balances have been eliminated.
Interim results are not necessarily indicative of results that may be
expected for the full fiscal year.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BUSINESS:
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 and marketing and communications firms in 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.
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<PAGE>
UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
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).
EARNINGS PER SHARE:
The following table sets forth the computation of basic and dilutive
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED, SIX MONTHS ENDED,
---------------------------------- ----------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator for basic and diluted earnings per
share-net income available for common
stockholders................................... $ 282,000 $ 454,000 $ 866,000 $ 824,000
=========== =========== =========== ==========
Denominator:
Denominator for basic earnings per share-
weighted average shares...................... 6,073,880 5,247,248 6,014,871 5,024,420
Effect of dilutive securities:
Stock options................................ 172 17,180 2,536 11,534
Warrants..................................... 207,576 116,642 198,077 88,212
----------- ----------- ----------- ----------
Denominator for diluted earnings per share-
adjusted weighted-average shares and
assumed conversions.......................... 6,281,628 5,381,070 6,215,484 5,124,166
=========== =========== =========== ==========
</TABLE>
The following securities have been excluded from the dilutive per share
computation as they are antidilutive:
<TABLE>
<CAPTION>
THREE MONTHS ENDED, SIX MONTHS ENDED,
---------------------------------------------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2000 1999 2000 1999
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stock Options................................ 1,073,860 559,798 1,071,316 559,798
Warrants..................................... 1,854,813 342,000 1,864,312 342,000
</TABLE>
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<PAGE>
UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("Statement 133"). Statement 133 must first be applied
in the first quarter of fiscal years that begin after June 15, 2000. Statement
133 will require the Company to recognize all derivatives on the consolidated
balance sheets at fair value. Derivatives that are not hedges must be adjusted
to fair value through income. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of derivatives will either be
offset against the change in fair value of the hedged assets, liabilities or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivatives change in fair value will immediately be recognized in earnings.
Management has determined that Statement 133 will not have a significant effect
on the earnings and financial position of the Company.
DERIVATIVE FINANCIAL INSTRUMENTS:
The Company has an interest rate collar agreement to modify the interest
characteristics of certain of its outstanding long-term debt. The interest rate
collar agreement is designated with all or a portion of the principal balance
and a term that does not coincide with the specific debt obligation.
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<PAGE>
UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
NOTE C - LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
FACILITY
AMOUNT AMOUNT OUTSTANDING
FEBRUARY 29, FEBRUARY 29, AUGUST 31,
2000 2000 1999
-------------------------------------------------
<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%. $80,000,000 $68,240,000 $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. 237,000 162,000 241,000
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. 631,000 531,000 621,000
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. 316,000 316,000 236,000
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
Subordinated loan matures in August 2006; base interest of 14%. 20,186,000 20,186,000 --
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. -- 386,000 454,000
Notes payable for certain equipment, maturing on December 2004,
each payable in monthly installments of $9,000, including
interest at 8.66% and 9.56%, respectively. -- 833,000 --
Senior subordinated note investment fee, due May 2001. -- -- 1,500,000
Other 308,000 170,000 220,000
--------------------------------------------------
90,824,000 77,647,000
Less: current portion of long-term debt 1,351,000 1,384,000
--------------------------------------------------
Long-term debt $89,473,000 $76,263,000
==================================================
</TABLE>
BANK CREDIT FACILITIES. On September 30, 1999, the Company's revolving
line of credit facility was increased to $80,000,000. As of February 29, 2000,
the Company had an outstanding balance of $68,240,000 under the revolving credit
facility, bearing interest at rates ranging from 9.34% to 11% per annum. The
Company is in compliance with all debt covenants.
In September 1999, upon prepayment of the Company's $10,000,000
subordinated loan, the lender opted to have the interest of such loan paid in
warrants to purchase Common Stock of
-8-
<PAGE>
UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
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. Such amount approximated the fair market value of the related accrued
interest. Subject to certain limitations, the Company has granted registration
rights, including "demand" registration rights, to such lender.
In September 1999, the Company borrowed a principal amount of $20,000,000
pursuant to another subordinated unsecured loan (the "Subordinated Loan"). The
Subordinated Loan matures in August 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 in August 2005. In addition, on any prepayments
of the Subordinated Loan made prior to 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 warrants issued to the lender,
which were deemed to have a value of approximately $2,500,000, subject to an
independent appraisal, have been recorded as deferred financing costs, and are
being amortized on a straight-line basis over approximately seven years.
In October 1999, the Company entered into an interest rate collar agreement
on $35,000,000 of variable rate bank debt. Under this interest rate collar
agreement, the Company is required to pay interest at the higher of 6.12% or the
Company's current rate (6.33% at February 29, 2000), to a maximum of 7.80% per
annum, as defined. The interest rate collar agreement terminates on October 29,
2001. The Company's estimated credit exposure related to the interest rate
collar agreement is summarized as follows:
Notional Credit
Amount Exposure
------ --------
Interest rate collar agreement $35,000,000 $37,000
The notional amount of the derivative does not represent the amount
exchanged by the parties, and is not a measure of the exposure of the Company
through its use of derivatives. The amounts exchanged are calculated on the
basis of the notional amounts and the other terms of the derivatives, which
relate to interest rates.
-9-
<PAGE>
UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
The Company is exposed to credit losses in the event of nonperformance by
counterparties to financial instruments, but it does not expect any
counterparties to fail to meet their obligations given their current credit
ratings.
NOTE D - SEGMENT INFORMATION:
The Company has two reportable segments: the media solutions division and
premedia services division. The segment information for the three-month and
six-month periods ended February 28, 1999 have been restated to conform to the
2000 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.
The following summarizes the operations by geographic segment for the three
months and six months ended February 29, 2000 and February 28, 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
FEBRUARY 29, 2000 FEBRUARY 28, 1999 FEBRUARY 29, 2000 FEBRUARY 28, 1999
----------------------------------------------------------------------------------------------------------
UNITED UNITED UNITED UNITED
STATES EUROPE STATES EUROPE STATES EUROPE STATES EUROPE
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $14,832,000 $ 8,177,000 $12,100,000 $ 3,307,000 $ 30,260,000 $16,752,000 $21,083,000 $6,792,000
Income from operations 2,262,000 1,325,000 2,496,000 221,000 4,853,000 2,335,000 3,806,000 350,000
Identifiable assets 111,525,000 19,244,000 95,195,000 9,811,000 111,525,000 19,244,000 95,195,000 9,811,000
</TABLE>
The following summarizes operations by industry segment for the three
months and six months ended February 29, 2000 and February 28, 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
FEBRUARY 29, 2000 FEBRUARY 28, 1999 FEBRUARY 29, 2000 FEBRUARY 28, 1999
---------------------------------------------------------------------------------------------------------
MEDIA PREMEDIA MEDIA PREMEDIA MEDIA PREMEDIA MEDIA PREMEDIA
SOLUTIONS SERVICES SOLUTIONS SERVICES SOLUTIONS SERVICES SOLUTIONS SERVICES
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $12,245,000 $10,764,000 $ 5,151,000 $10,256,000 $25,546,000 $21,466,000 $ 8,895,000 $18,980,000
Income from operations 2,059,000 1,528,000 1,704,000 1,013,000 4,297,000 2,891,000 2,054,000 2,102,000
Identifiable assets 83,801,000 46,968,000 76,157,000 28,849,000 83,801,000 46,968,000 76,157,000 28,849,000
</TABLE>
-10-
<PAGE>
UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
NOTE E - COMPREHENSIVE INCOME:
Comprehensive income consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED, SIX MONTHS ENDED,
----------------------------------------------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2000 1999 2000 1999
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 282,000 $ 454,000 $ 866,000 $ 824,000
Net change in foreign currency
translation adjustment (224,000) (217,000) (288,000) (300,000)
-------- -------- -------- --------
Comprehensive income $ 58,000 $ 237,000 $ 578,000 $ 524,000
</TABLE>
As of February 29, 2000 and February 28, 1999, the cumulative other
comprehensive loss consisted of the Company's foreign currency translation
adjustment.
NOTE F - MODIFICATION OF X+C ACQUISITION AGREEMENT AND AGREED EARN-OUT PAYMENT:
In April 1999, the Company consummated the acquisition of 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 some combination of cash and restricted
Common Stock of the Company in the event X+C achieved certain financial
performance objectives. In January 2000, the Company and X+C agreed to amend the
purchase agreement to pay the earn-out payment in advance on a bi-weekly basis
to the sole shareholder of X+C.
NOTE G - SUBSEQUENT EVENTS:
LEGAL PROCEEDINGS:
On January 14, 2000, the Company filed a complaint against Ehud Aloni, the
former President of Mega Art and a 10% stockholder of the Company, in the United
States District Court of the Southern District of New York. By the action, the
Company sought to enforce the restrictive covenants set forth in Mr. Aloni's
employment agreement with the Company. On January 14, 2000, the court granted
the Company a temporary restraining order against Mr. Aloni. The Company was
also seeking $175 million in damages. On January 24, 2000, the Company
voluntarily dismissed the case against Mr. Aloni.
On January 20, 2000, Ehud Aloni commenced a lawsuit (the "Aloni Action")
against the Company and Mega Art in the Supreme Court of the State of New York,
County of New York (the "Court") claiming, among other things, that the Company
had breached Mr. Aloni's employment agreement for failing to timely pay certain
earn-out payments due to Mr. Aloni pursuant to the Mega Art Acquisition.
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<PAGE>
UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
On February 9, 2000, the Company and Mega Art commenced a lawsuit (the
"Company's Action") against Mr. Aloni, among others, in the Court. The Company
sought to enforce the restrictive covenants set forth in Mr. Aloni's employment
agreement with the Company.
On March 9, 2000, the Company and Mr. Aloni and certain of the defendants
in the Company's Action entered into a settlement agreement (the "Settlement
Agreement") whereby each of the parties thereto agreed to release the other
parties from all claims arising out of the Company's Action and the Aloni
Action. In connection with the Settlement Agreement, Mr. Aloni entered into a
new employment agreement with the Company and the Company agreed to pay a
portion of the earn-out payment to Mr. Aloni ($550,000). In addition, the
Company agreed to consummate the Inlarge Acquisition.
ACQUISITIONS:
In March 2000, the Company acquired a portion of the assets of Inlarge LLC,
a New York limited liability company located in Jersey City, New Jersey (the
"Inlarge Acquisition"). The initial purchase price was $125,000 plus possible
additional consideration pending a final determination of the net asset value of
the assets acquired.
In March 2000, the Company purchased all of the issued and outstanding
shares of Colour Network Limited (the "Colour Network Acquisition"), located in
Glasgow, Scotland. The purchase price was the issuance of 40,000 shares
(approximately $140,000) of restricted Common Stock of the Company.
In April 2000, the Company purchased all of the issued and outstanding
shares of Makom Media Ltd. and its wholly-owned subsidiaries Makom Media GmbH
and Makom Media Service France S.a.r.l (the "Makom Acquisition"). The initial
aggregate purchase price was $1,300,000, which included the issuance of 180,087
shares (approximately $800,000) of restricted Common Stock of the Company.
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ITEM 2. 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"
(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. During 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. The Premedia Services
division provides digital premedia, including retouching and short-run digital
printing services.
The statements contained in this Quarterly Report on Form 10-Q that are not
historical facts are forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995) that involve risks and
uncertainties. Such forward-looking statements may be identified by, among other
things, the use of forward-looking terminology such as "believes," "expects,"
"may," "will," "should" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy that
involve risks and uncertainties. From time to time, the Company or its
representatives have made or may make forward-looking statements, orally or in
writing. Such forward-looking statements may be included in various filings made
by the Company with the Securities and Exchange Commission or press releases or
oral statements made by or with the approval of an authorized executive officer
of the Company. These forward-looking statements, such as statements regarding
anticipated future revenues, capital expenditures, 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 media services
industry; (ii) the availability of equipment from the Company's vendors at
current prices and levels; (iii) the intense competition in the markets for the
Company's products and services; (iv) the Company's ability to integrate
acquired companies and businesses in a cost-effective manner; (v) the Company's
ability to effectively implement its branding strategy; and (vi) the Company's
ability to develop, market, provide, and achieve market acceptance of new
service offerings to new and existing clients.
RESULTS OF OPERATIONS
The consolidated financial information includes both the Company's United
States operations and its European operations.
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<PAGE>
THREE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
----------------------------------------------------------
NET SALES. Net sales for the three months ended February 29, 2000 ("Second
Quarter of Fiscal 2000") increased by 49%, or $7,602,000, to $23,009,000 from
$15,407,000 for the three months ended February 28, 1999 ("Second Quarter of
Fiscal 1999"). Net sales for the Company's United States operations increased by
23%, or $2,732,000, from $12,100,000 in the Second Quarter of Fiscal 1999 to
$14,832,000 in the Second Quarter of Fiscal 2000. Net sales for the Company's
European operations increased by 147%, or $4,870,000, from $3,307,000 in the
Second Quarter of Fiscal 1999 to $8,177,000 in the Second Quarter of Fiscal
2000. Net sales for the Company's Media Solutions division increased by 138%, or
$7,094,000, from $5,151,000 in the Second Quarter of Fiscal 1999 to $12,245,000
in the Second Quarter of Fiscal 2000. This increase was attributable primarily
to an increase in net sales in the Company's Mega Art operations and resulting
from the Company's European acquisitions. Net sales for the Company's Premedia
Services division increased by 5%, or $508,000, from $10,256,000 in the Second
Quarter of Fiscal 1999 to $10,764,000 in the Second Quarter of Fiscal 2000. This
increase was attributable primarily to an increase in net sales resulting from
the Company's acquisitions in the United Kingdom.
COST OF SALES. Cost of sales for the Second Quarter of Fiscal 2000
increased by 82%, or $5,394,000, to $11,980,000 from $6,586,000 for the Second
Quarter of Fiscal 1999. As a percentage of net sales, cost of sales increased
from 43% for the Second Quarter of Fiscal 1999 to 52% for the Second Quarter of
Fiscal 2000. Cost of sales for the Company's United States operations increased
as a percentage of net sales from 39% for the Second Quarter of Fiscal 1999 to
52% for the Second Quarter of Fiscal 2000. Cost of sales for the Company's
European operations decreased as a percentage of net sales from 55% for the
Second Quarter of Fiscal 1999 to 53% for the Second Quarter of Fiscal 2000. Cost
of sales for the Company's Media Solutions division decreased as a percentage of
net sales for such division from 68% in the Second Quarter of Fiscal 1999 to 55%
in the Second Quarter of Fiscal 2000. Cost of sales for the Second Quarter of
1999 were high due to the Company's preparation for expansion of its large
format business. Cost of sales for the Company's Premedia Services division
increased as a percentage of net sales for such division from 30% in the Second
Quarter of Fiscal 1999 to 49% in the Second Quarter of Fiscal 2000. Such
increase was attributable primarily to the change in product mix to include more
digital print services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses ("SG&A") increased by 22%, or $1,338,000, from
$6,104,000 for the Second Quarter of Fiscal 1999 to $7,442,000 for the Second
Quarter of Fiscal 2000. Such increase was attributable primarily to the
increased level of operations. As a percentage of net sales, SG&A decreased from
40% for the Second Quarter of Fiscal 1999 to 32% for the Second Quarter of
Fiscal 2000. SG&A decreased as a percentage of net sales as a result of
increased sales volume.
INCOME FROM CONTINUING OPERATIONS. Income from continuing operations for
the Second Quarter of Fiscal 2000 increased by 32%, or $870,000, to $3,587,000
from $2,717,000 for the Second Quarter of Fiscal 1999. Of this amount,
$2,262,000 was contributed by the Company's United States operations and
$1,325,000 by the Company's European operations. In addition, of
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<PAGE>
this amount, $2,059,000 was contributed by the Company's Media Solutions
division and $1,528,000 from the Company's Premedia Services division.
NET INTEREST EXPENSE. Net interest expense for the Second Quarter of Fiscal
2000 increased by 71%, or $1,177,000, to $2,837,000 from $1,660,000 for the
Second Quarter of Fiscal 1999. This increase resulted from increased interest
payments incurred in connection with the Subordinated Loan and borrowings under
the Company's credit facilities.
INCOME TAXES. Income taxes for the Second Quarter of Fiscal 2000 decreased
by 5%, or $24,000, to $468,000 from $492,000 for the Second Quarter of Fiscal
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 $111,000 on discontinued
operations for the Second Quarter of Fiscal 1999.
NET INCOME. As a result of the factors described above, net income for the
Second Quarter of Fiscal 2000 decreased by 38%, or $172,000, to $282,000 as
compared to net income of $454,000 for the Second Quarter of Fiscal 1999.
SIX MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
--------------------------------------------------------
NET SALES. Net sales for the six months ended February 29, 2000 increased
by 69%, or $19,137,000, to $47,012,000 from $27,875,000 for the six months ended
February 28, 1999. Net sales for the Company's United States operations
increased by 44%, or $9,177,000, from $21,083,000 in the six months ended
February 28, 1999 to $30,260,000 in the six months ended February 29, 2000. Net
sales for the Company's European operations increased by 147%, or $9,960,000,
from $6,792,000 in the six months ended February 28, 1999 to $16,752,000 in the
six months ended February 29, 2000. Net sales for the Company's Media Solutions
division increased by 187%, or $16,651,000, from $8,895,000 in the six months
ended February 28, 1999 to $25,546,000 in the six months ended February 29,
2000. This increase was attributable primarily to an increase in net sales in
the Company's Mega Art operations and resulting from the Company's European
acquisitions. Net sales for the Company's Premedia Services division increased
by 13%, or $2,486,000, from $18,980,000 in the six months ended February 28,
1999 to $21,466,000 in the six months ended February 29, 2000. This increase was
attributable primarily to an increase in net sales resulting from the Company's
acquisitions in the United Kingdom.
COST OF SALES. Cost of sales for the six months ended February 29, 2000
increased by 93%, or $12,126,000, to $25,197,000 from $13,071,000 for the six
months ended February 28, 1999. As a percentage of net sales, cost of sales
increased from 47% for the six months ended February 28, 1999 to 54% for the six
months ended February 29, 2000. Cost of sales for the Company's United States
operations increased as a percentage of net sales from 43% for the six
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<PAGE>
months ended February 28, 1999 to 52% for the six months ended February 29,
2000. Cost of sales for the Company's European operations decreased as a
percentage of net sales from 58% for the six months ended February 28, 1999 to
57% for the six months ended February 29, 2000. Cost of sales for the Company's
Media Solutions division decreased as a percentage of net sales for such
division from 61% for the six months ended February 28, 1999 to 54% for the six
months ended February 29, 2000. Cost of sales for the six months ended February
28, 1999 were high due to the Company's preparation for expansion of its large
format business. Cost of sales for the Company's Premedia Services division
increased as a percentage of net sales for such division from 40% for the six
months ended February 28, 1999 to 53% for the six months ended February 29,
2000. Such increase was attributable primarily to the change in product mix to
include more digital print services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A increased by 40%, or
$4,175,000, from $10,452,000 for the six months ended February 28, 1999 to
$14,627,000 for the six months ended February 29, 2000. Such increase was
attributable primarily to the increased level of operations. As a percentage of
net sales, SG&A decreased from 37% for the six months ended February 28, 1999 to
31% for the six months ended February 29, 2000. SG&A decreased as a percentage
of net sales as a result of increased sales volume.
RESTRUCTURING EXPENSES. During the six months ended February 28, 1999, the
Company continued to consolidate its United Kingdom financial printing
operations. As a result of such consolidation, the Company incurred
restructuring expenses of $196,000.
INCOME FROM CONTINUING OPERATIONS. Income from continuing operations for
the six months ended February 29, 2000 increased by 73%, or $3,032,000, to
$7,188,000 from $4,156,000 for the six months ended February 28, 1999. Of this
amount, $4,853,000 was contributed by the Company's United States operations and
$2,335,000 by the Company's European operations. In addition, of this amount,
$4,297,000 was contributed by the Company's Media Solutions division and
$2,891,000 by the Company's Pemedia Services division.
NET INTEREST EXPENSE. Net interest expense for the six months ended
February 29, 2000 increased by 127%, or $3,109,000, to $5,555,000 from
$2,446,000 for the six months ended February 28, 1999. This increase resulted
from increased interest payments incurred in connection with the Subordinated
Loan and borrowings under the Company's credit facilities.
INCOME TAXES. Income taxes for the six months ended February 29, 2000
decreased by 1%, or $7,000, to $767,000 from $774,000 for the six months ended
February 28, 1999.
NET INCOME. As a result of the factors described above, net income for the
six months ended February 29, 2000 increased by 5%, or $42,000, to $866,000 as
compared to net income of $824,000 for the six months ended February 28, 1999.
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<PAGE>
LIQUIDITY, CAPITAL RESOURCES AND OTHER MATTERS
CASH FLOW. Net cash used in operating activities was $11,798,000 for the
first six months of fiscal 2000 and $3,654,000 for the first six months of
fiscal 1999. Net cash used in investing activities for the acquisition of
property and equipment was $1,830,000 for the first six months of fiscal 2000
and $711,000 for the first six months of fiscal 1999. For the first six months
of fiscal 2000 and fiscal 1999, the Company acquired equipment under capital
leases of $213,000 and $2,597,000, respectively, and made payments under capital
leases of $1,364,000 and $1,157,000, respectively. Net bank borrowings provided
funds of $14,029,000 for the first six months of fiscal 2000 and $29,543,000 for
the first six months of fiscal 1999.
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 assurance that the Company will be able to secure such
additional financing on terms favorable to the Company. The Company is in
compliance with all debt covenants.
WORKING CAPITAL. The Company's working capital increased by $14,029,000
from $3,509,000 at August 31, 1999 to $17,538,000 at February 29, 2000.
SUBSEQUENT EVENTS. In March 2000, the Company consummated the Inlarge
Acquisition. The initial purchase price was $125,000 plus possible additional
consideration pending a final determination of the net asset value of the assets
acquired.
In March 2000, the Company consummated the Colour Network Acquisition. The
purchase price was the issuance of 40,000 shares (approximately $140,000) of
restricted Common Stock of the Company.
In April 2000, the Company consummated the Makom Acquisition. The initial
aggregate purchase price was $1,300,000, which included the issuance of 180,087
shares (approximately $800,000) of restricted Common Stock of the Company.
YEAR 2000 COMPLIANCE
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company is not
aware of any material problems resulting from Year 2000 issues, either with its
products, its internal systems, or the products and services of third parties.
The Company will continue to monitor its mission critical computer applications
and those of its suppliers and vendors throughout the Year 2000 to ensure that
any latent Year 2000 matters that may arise are addressed promptly.
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<PAGE>
ITEM 3. 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 Europe 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 other
European currencies and the United States Dollar, such change would adversely
affect the results of the Company's European 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.
On October 29, 1999, the Company entered into an interest rate collar
agreement on $35,000,000 of variable rate bank debt. Under this interest rate
collar agreement, the Company is required to pay interest at the higher of 6.12%
or the Company's current rate (6.33% at February 29, 2000), to a maximum of
7.80% per annum, as defined. The interest rate collar agreement terminates on
October 29, 2001. The Company's estimated credit exposure related to the
interest rate collar agreement is summarized as follows:
Notional Credit
Amount Exposure
------ --------
Interest rate collar agreement $35,000,000 37,000
The notional amount of the derivative does not represent the amount
exchanged by the parties, and is not a measure of the exposure of the Company
through its use of derivatives. The amounts exchanged are calculated on the
basis of the notional amounts and the other terms of the derivatives, which
relate to interest rates.
The Company is exposed to credit losses in the event of nonperformance by
counterparties to financial instruments, but it does not expect any
counterparties to fail to meet their obligations given their current credit
ratings.
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<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On January 14, 2000, the Company filed a complaint against Ehud Aloni, the
former President of Mega Art and a 10% stockholder of the Company, in the United
States District Court of the Southern District of New York. By the action, the
Company sought to enforce the restrictive covenants set forth in Mr. Aloni's
employment agreement with the Company. On January 14, 2000, the court granted
the Company a temporary restraining order against Mr. Aloni. The Company was
also seeking $175 million in damages. On January 24, 2000, the Company
voluntarily dismissed the case against Mr. Aloni.
On January 20, 2000, Ehud Aloni commenced the Aloni Action against the
Company and Mega Art in the Court claiming, among other things, that the Company
had breached Mr. Aloni's employment agreement for failing to timely pay certain
earn-out payments due to Mr. Aloni pursuant to the Mega Art Acquisition.
On February 9, 2000, the Company and Mega Art commenced the Company's
Action against Mr. Aloni, among others, in the Court. The Company sought to
enforce the restrictive covenants set forth in Mr. Aloni's employment agreement
with the Company.
On March 9, 2000, the Company and Mr. Aloni and certain of the defendants
in the Company's Action entered into the Settlement Agreement whereby each of
the parties thereto agreed to release the other parties from all claims arising
out of the Company's Action and the Aloni Action. In connection with the
Settlement Agreement, Mr. Aloni entered into a new employment agreement with the
Company and the Company agreed to pay a portion of the earn-out payment to Mr.
Aloni ($550,000). In addition, the Company agreed to consummate the Inlarge
Acquisition.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Subsequent to the end of the quarter, on March 8, 2000, the Company agreed
to issue 5,000 shares of restricted Common Stock of the Company to Anthony
Senatore in connection with Mr. Senatore's employment with the Company.
Subsequent to the end of the quarter, on March 9, 2000, the Company agreed
to issue 27,714 and 3,695 shares of restricted Common Stock of the Company to
Amit Primor and Jeffrey Rothman, respectively, pursuant to the Settlement
Agreement.
Subsequent to the end of the quarter, on March 22, 2000, the Company agreed
to issue 32,000 and 8,000 shares of restricted Common Stock of the Company to
Robert Gray and James Gray, respectively, as partial consideration for the
Colour Network Acquisition.
Subsequent to the end of the quarter, on April 4, 2000, the Company agreed
to issue 10,000 shares of restricted Common Stock of the Company to Nadav Chen
in connection with Mr. Chen's employment with the Company.
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<PAGE>
No underwriter was employed by the Company in connection with the issuances
and sales of the securities described above. The Company believes that the
issuances and sales of all of the foregoing securities were exempt from
registration under either (i) Section 4(2) of the Securities Act of 1933, as
amended (the "Act"), as transactions not involving a public offering, or (ii) in
the case of the shares issued to the employees, Rule 701 under the Act as a
transaction made pursuant to a written compensatory benefit plan or pursuant to
a written contract relating to compensation. No public offering was involved and
the securities were acquired for investment and not with a view to distribution.
Appropriate legends have been affixed to the stock certificates issued to all
recipients of such shares. All recipients had adequate access to information
about the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Stockholders of the Company was held on February 24,
2000.
There were 3,966,048 shares present at the meeting in person or by proxy.
The results of the vote taken at such meeting with respect to each nominee for
director were as follows:
NOMINEE FOR WITHHELD
------- --- --------
William E. Dye 3,194,379 771,669
Peter Saad 3,195,779 770,269
Anthony Manser 3,195,779 770,269
Harvey Silverman 3,331,172 634,876
David Wachsman 3,331,172 634,876
Also at the meeting, a vote was taken on the proposal to grant authority to
the Company's Board of Directors to amend the Certificate of Incorporation of
the Company to change the Company's name from Unidigital Inc., to MegaMedia Inc.
Of the 3,966,048 shares present at the meeting in person or by proxy, 3,945,662
shares were voted in favor of such proposal, 19,486 shares were voted against
such proposal and 900 shares abstained from voting.
Also at the meeting, a vote was taken on the proposal to amend the 1997
Equity Incentive Plan, as amended, to increase the number of shares of Common
Stock reserved for the issuance upon exercise of options granted under such plan
from 1,000,000 to 1,300,000. Of the 3,966,048 shares present at the meeting in
person or by proxy, 2,844,528 shares were voted in favor of such proposal,
515,330 shares were voted against such proposal and 606,190 shares abstained
from voting.
Finally, a vote was taken at the meeting on the proposal to ratify the
appointment of Ernst & Young LLP as the independent auditors of the Company for
the fiscal year ending August 31, 2000. Of the 3,966,048 shares present at the
meeting in person or by proxy, 3,343,472 shares were voted in favor of such
proposal, 16,086 shares were voted against such proposal and 606,490 shares
abstained from voting.
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<PAGE>
ITEM 5. OTHER INFORMATION.
In March 2000, the Company consummated the Inlarge Acquisition. The Inlarge
Acquisition enhances the Company's capacity to produce grand-scale outdoor
advertising display. The initial purchase price was $125,000 plus possible
further consideration pending a final determination of the net asset value of
the assets acquired.
In March 2000, the Company consummated the Colour Network Acquisition. The
Colour Network Acquisition continues the expansion of the Company's Premedia
Services in the United Kingdom. The purchase price was the issuance of 40,000
shares (approximately $140,000) of restricted Common Stock of the Company.
In April 2000, the Company consummated the Makom Acquisition. The Makom
Acquisition enhances the Company's ability to develop and promote Media
Solutions concepts of large-format indoor and outdoor advertising in Germany,
France and other European countries. The initial aggregate purchase price was
$1,300,000, which included the issuance of 180,087 shares (approximately
$800,000) of restricted Common Stock of the Company.
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
Exhibit No. Description of Exhibit
----------- ----------------------
4.1 Promissory Note dated March 9, 2000 made
by Unidigital Inc. in favor of Ehud Aloni
in the principal amount of $550,000.
10.1 Settlement Agreement dated as of March 9,
2000 among Ehud Aloni, Sigal Primor, Amit
Primor, Nadav Chen, Jeffrey E. Rothman,
Inlarge LLC (a/k/a Enlarge LLC),
Unidigital Inc. and Mega Art Corp.
27.1 Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
None.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Issuer caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
UNIDIGITAL INC.
DATE: April 19, 2000 By: /s/William E. Dye
----------------------------
William E. Dye,
Chief Executive Officer
(Principal Executive Officer)
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THIS NOTE HAS BEEN ISSUED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF FEDERAL AND STATE SECURITIES LAWS AND MAY NOT BE SOLD OR
TRANSFERRED WITHOUT COMPLIANCE WITH SUCH REQUIREMENTS OR A WRITTEN OPINION OF
COUNSEL ACCEPTABLE TO THE OBLIGOR THAT SUCH TRANSFER WILL NOT RESULT IN ANY
VIOLATION OF SUCH LAWS OR AFFECT THE LEGALITY OF ITS ISSUANCE.
PROMISSORY NOTE
$550,000.00 March 9, 2000
FOR VALUE RECEIVED, the undersigned, Unidigital, Inc., a Delaware
corporation (the "Obligor"), hereby promises to pay to the order of Ehud Aloni
(the "Holder"), the principal sum of Five Hundred Fifty Thousand Dollars
($550,000.00) payable as set forth below. The payments of principal hereunder
shall be made in coin or currency of the United States of America which at the
time of payment shall be legal tender therein for the payment of public and
private debts.
This Note shall be subject to the following additional terms and
conditions:
1. Payments. Principal shall be payable in eleven (11) equal installments
--------
of $50,000.00 commencing on March 15, 2000 and continuing on the
fifteenth (15th) day of each month thereafter until such time as the
Note is paid in full. In the event that any payment to be made
hereunder shall be or become due on a Saturday, Sunday or any other
day which is a legal bank holiday under the laws of the State of New
York, such payment shall be or become due on the immediately preceding
business day. In the event the Obligor fails to make any principal
payment within fifteen (15) days of the date upon which such principal
payment is due and payable, the Holder shall deliver written notice to
the Obligor of such failure (the "Default Notice"). If such failure
continues for a period of five (5) days after receipt of the Default
Notice by the Obligor, then the Obligor shall be obligated to pay to
the Holder a one-time lump sum penalty fee of $50,000.00 within
fifteen (15) days of the Obligor's receipt of the Default Notice.
2. Restrictions on Transferability. This Note may not be transferred in
-------------------------------
any manner other than by will or by the laws of descent or
distribution.
3. No Waiver. No failure or delay by the Holder in exercising any right,
---------
power or privilege under this Note shall operate as a waiver thereof
nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative
and not exclusive of any rights or remedies provided by law. No course
of dealing between the Obligor and the Holder shall operate as a
waiver of any rights by the Holder.
1
<PAGE>
4. Waiver of Presentment and Notice of Dishonor. The Obligor and all
-----------------------------------------------
endorsers, guarantors and other parties that may be liable under this
Note hereby waive presentment, notice of dishonor, protest and all
other demands and notices in connection with the delivery, acceptance,
performance or enforcement of this Note.
5. Place of Payment. All payments of principal of this Note shall be made
----------------
at the home of the Holder, 377 West 11th Street, Apt. 3A, New York,
New York 10014 or at such other place as the Holder may from time to
time designate in writing.
6. Events of Default. The entire unpaid principal amount of this Note,
-----------------
at the option of the Holder exercised by written notice to the
Obligor, forthwith become and be due and payable, without presentment,
demand, protest or other notice of any kind, all of which are hereby
expressly waived, if any one or more of the following events (herein
called "Events of Default") shall have occurred (for any reason
whatsoever and whether such happening shall be voluntary or
involuntary or come about or be effected by operation of law or
pursuant to or in compliance with any judgment, decree or order of any
court or any order, rule or regulation of any administrative or
governmental body) and be continuing at the time of such notice, that
is to say:
a) if default shall be made in the due and punctual payment of
the principal of this Note when and as the same shall become due
and payable, whether at maturity, or by acceleration or
otherwise, and such default shall have continued for a period of
five (5) days after receipt of the Default Notice by the Obligor;
b) if the Obligor shall:
(i) admit in writing its inability to pay its debts generally
as they become due;
(ii) file a petition in bankruptcy or a petition to take
advantage of any insolvency act;
(iii) make an assignment for the benefit of creditors;
(iv) consent to the appointment of a receiver of the whole or
any substantial part of his property;
(v) on a petition in bankruptcy filed against him, be
adjudicated a bankrupt; or
(vi) file a petition or answer seeking reorganization or
arrangement under the Federal bankruptcy laws or any
other applicable law or statute of the United States of
America or any State, district or territory thereof;
-2-
<PAGE>
c) if a court of competent jurisdiction shall enter an order,
judgment, or decree appointing, without the consent of the
Obligor, a receiver of the whole or any substantial part of
Obligor's property, and such order, judgment or decree shall not
be vacated or set aside or stayed within 90 days from the date of
entry thereof; and
d) if, under the provisions of any other law for the relief or
aid of debtors, any court of competent jurisdiction shall assume
custody or control of the whole or any substantial part of
Obligor's property and such custody or control shall not be
terminated or stayed within 90 days from the date of assumption
of such custody or control.
7. Remedies. In case any one or more of the Events of Default specified
--------
in Section 6 hereof shall have occurred and be continuing, the Holder
may proceed to protect and enforce his rights either by suit in equity
and/or by action at law, whether for the specific performance of any
covenant or agreement contained in this Note or in aid of the exercise
of any power granted in this Note, or the Holder may proceed to
enforce the payment of all sums due upon this Note or to enforce any
other legal or equitable right of the Holder.
8. Severability. In the event that one or more of the provisions of this
------------
Note shall for any reason be held invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not
affect any other provision of this Note, but this Note shall be
construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
9. Governing Law. This Note and the rights and obligations of the Obligor
-------------
and the Holder shall be governed by and construed in accordance with
the laws of the State of New York.
10. Representations of the Obligor. The execution and delivery of this
------------------------------
Note has been duly authorized by all requisite corporate action by the
Obligor. This Note constitutes the valid and legally binding
obligation of the Obligor, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization or similar laws
affecting auditors rights generally and general principles of equity.
The execution and delivery of this Note and the performance of the
obligations hereunder will not conflict with, or result in a material
breach of any of the terms, conditions or provisions of, or constitute
a material default under, any contract, agreement or instrument to
which the Obligor is a party.
* * * * * * *
-3-
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed and
delivered on the date first written above.
UNIDIGITAL INC.
By: /s/ William E. Dye
--------------------------------
Name: William E. Dye
Title: Chief Executive Officer
SETTLEMENT AGREEMENT
This SETTLEMENT AGREEMENT dated March 9, 2000 (this "Settlement Agreement")
is by and among Ehud Aloni ("Aloni"), Sigal Primor ("S. Primor"), Amit Primor
("Primor"), Nadav Chen ("Chen"), Jeffrey E. Rothman ("Rothman"), Inlarge LLC
(a/k/a Enlarge LLC), a New York limited liability company ("Inlarge") (Aloni, S.
Primor, Primor, Chen, Rothman and Inlarge being hereinafter collectively
referred to as the "Aloni Group"), on the one hand, and Unidigital Inc., a
Delaware corporation (the "Company"), and Mega Art Corp., a New York corporation
("Mega Art") (the Company and Mega Art being hereinafter collectively referred
to as the "Company Group"), on the other hand.
WHEREAS, on or about January 20, 2000, Aloni commenced a lawsuit against
the Company and Mega Art in the Supreme Court of the State of New York, County
of New York (the "Court") captioned Ehud Aloni vs. Unidigital Inc. and Mega Art
Corp., Index No. 600247/00 (the "Aloni Action"), through the filing of a
Complaint;
WHEREAS, on or about February 9, 2000, the Company and Mega Art commenced a
lawsuit in the Court captioned Unidigital Inc. and Mega Art Corp. vs. Amit
Primor, Nadav Chen, Jeffrey E. Rothman, Infinite Graphic Technology Company,
Inlarge LLC, Index No. 600560/00 (the "Company's Action"), through the filing of
a Complaint;
WHEREAS, by decision dated February 14, 2000, the Court granted the Company
Group's motion for preliminary injunctive relief in the Aloni Action; and
WHEREAS, the parties hereto have determined that the best interests of
themselves, their members, their stockholders, their employees and their other
constituencies would be served by entering into this Settlement Agreement and in
order to avoid further expenses, inconvenience
<PAGE>
and uncertainty.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
set forth herein and intending to be legally bound hereby, each of the members
of the Aloni Group, on the one hand, and each of the members of the Company
Group, on the other hand, hereby agree as follows:
1. Settlement of Litigation; Release of Claims
-------------------------------------------
(a) Upon execution of this Settlement Agreement, neither any member
of the Aloni Group nor any member of the Company Group will take or cause to be
taken any further action, by way of motion, discovery or otherwise, in either of
the Aloni Action or the Company's Action, except for the action contemplated by
this Section 1. Within fifteen (15) days of the effective date of this
Settlement Agreement (as determined in accordance with Section 24 below), the
Aloni Group and the Company Group will take all steps necessary to discontinue,
with prejudice and without costs, each of the Aloni Action and the Company's
Action pursuant to the appropriate Stipulation of Discontinuance in
substantially the forms attached hereto as Exhibits A-1 and A-2.
------------ ---
(b) Each member of the Aloni Group, on the one hand, and each
member of the Company Group, on the other hand, hereby mutually releases and
discharges any and all claims, demands, rights, actions, causes of action,
damages, costs, losses, reimbursements, liabilities and expenses, including
attorney's fees, of any and every kind, nature or description whatsoever, at law
or in equity, which any member of the Aloni Group, or the Company Group, as the
case may be, may have had, may now have or may hereafter have or assert against
the other, including, in the case of any member of the Company Group or any
member of the Aloni Group, as the case may be, against his or its present and
former Affiliates (as hereinafter
2
<PAGE>
defined), Associates (as hereinafter defined), officers, directors,
stockholders, partners, employees, agents, representative, advisors and
attorneys (in the case of the Company Group, collectively, the "Company Group's
Representatives"; and, in the case of the Aloni Group, collectively, the "Aloni
Group's Representatives") on account of any matter whatsoever arising from the
beginning of time through and including the date of this Settlement Agreement
whether such claims are known or unknown, accrued or unaccrued, knowable or
suspected or unsuspected, excepting only any claims, demands, rights, actions,
causes of action, damages, costs, losses, reimbursements, liabilities or
expenses arising by virtue of an undertaking or promise contained in this
Settlement Agreement, or any breach thereof and except for the agreements
referred to in Section 24 hereof.
(c) Each member of the Aloni Group agrees that neither he, she or
it, nor (to the best of his or its efforts) his or its Affiliates or Associates,
nor anyone claiming under, through or for his or its or on his or its behalf
will ever bring, file, institute, commence, prosecute, maintain or recover upon,
or cause or permit or encourage to be brought, filed, instituted, commenced,
prosecuted, maintained or recovered upon, either directly or indirectly, any
suit, charge, administrative proceeding, investigation or action at law or in
equity against any member of the Company Group or the Company Group's
Representatives, or any of them, in any court, agency or forum, state or
federal, within the United States or elsewhere, to recover damages, injuries,
losses, claims, expenses or liabilities of any and every kind or nature
whatsoever, whether directly or by way of subrogation, indemnification,
contribution or otherwise, which may have been suffered or sustained by any
member of the Aloni Group or their Affiliates or Associates or the Aloni Group's
Representatives, or any of them, arising out of any transaction or event which
transpired or facts which existed from the beginning of time
3
<PAGE>
through and including the date of this Settlement Agreement, excepting only any
claims, demands, rights, actions, causes of actions, damages, costs, losses,
reimbursements, liabilities or expenses arising by virtue of an undertaking or
promise contained in this Settlement Agreement or any breach thereof.
(d) Each member of the Company Group hereby agrees that no member
member of the Company Group, nor (to the best of their respective efforts) any
Affiliates or Associates of any of them, will ever bring, file, institute,
commence, prosecute, maintain or recover upon, or cause or permit to be brought,
filed, instituted, commenced, prosecuted, maintained or recovered upon, either
directly or indirectly, any suit, charge, administrative proceeding,
investigation or action at law or in equity against the Aloni Group or the Aloni
Group's Representatives, or any of them, in any court, agency or forum, state or
federal, within the United States or elsewhere, to recover damages, injuries,
losses, claims, expenses or liabilities of any and every kind or nature
whatsoever, whether directly or by way of subrogation, indemnification,
contribution or otherwise, which may have been suffered or sustained by any
member of the Company Group or their Affiliates or Associates or the Company
Group's Representatives, or any of them, arising out of any transaction or event
which transpired or facts which existed from the beginning of time through and
including the date of this Settlement Agreement, excepting only any claims,
demands, rights, actions, causes of actions, damages, costs, losses,
reimbursements, liabilities or expenses arising by virtue of an undertaking or
promise contained in this Settlement Agreement or any breach thereof.
(e) Each member of the Company Group, on the one hand, and each
member of the Aloni Group, on the other hand, agrees that he, she or it will,
and will use his or its best efforts to cause his or its Affiliates and
Associates to, execute such documents and other papers
4
<PAGE>
and take such further actions as may be reasonably required to carry out the
agreements contemplated by this Section 1.
(f) As used in this Settlement Agreement, the term "Associate", with
respect to any person, means (1) any corporation or organization, of which such
person is a director, an officer or partner or is, directly or indirectly, the
beneficial owner of 20 percent (20%) or more of any class of equity securities,
(2) any trust as to which such person serves as trustee or in a similar
fiduciary capacity or any grantor trust as to which such person is sole
beneficiary, and (3) any relative (as used herein, the relatives of any person
shall include only such person's parents, children living in the same home with
the person and siblings) or spouse of such person, or any relative of such
spouse or, if such person is a corporation or partnership, any director, officer
or partner of such corporation or partnership or any relative or spouse of the
directors, officers or partners of such corporation or partnership or its
Affiliates. With respect to any Associate or Affiliate of any person who is a
party to this Settlement Agreement, such person shall be obligated to use only
his or its best efforts to cause such Associate or Affiliate to observe the
provisions of this Settlement Agreement as if the Associate or Affiliate was a
party hereto and bound hereby and shall bear no liability for failure of the
Associate or Affiliate to comply herewith.
(g) As used in this Settlement Agreement, the term "Affiliate", with
respect to any person means any director, officer or constituent member of such
person, or any person who controls, is controlled by, or under common control
with, such person.
2. Earn-Out Payments; Release of Guarantees and Other Payments;
----------------------------------------------------------------------
Resignations.
- ------------
(a) The Company hereby agrees to pay to Aloni earn-out payments
payable pursuant to that certain Agreement of Purchase and Sale dated as of
August 3, 1998 among
5
<PAGE>
Unidigital, Mega Art and stockholders of Mega Art (the "Mega Art Purchase
Agreement") of $550,000 by delivery of a promissory note in the form attached
hereto as Exhibit C (the "Aloni Note") which note is payable in eleven (11)
---------
equal installments on the fifteenth (15th) day of each month commencing on March
15, 2000.
(b) The Company hereby agrees to pay to Primor earn-out payments
payable pursuant to the Mega Art Purchase Agreement of 27,714 shares of the
Company's common stock ($150,000) within fifteen (15) days of the date hereof.
(c) The Company hereby agrees to pay to Rothman earn-out payments
payable pursuant to the Mega Art Purchase Agreement of 3,695 shares of the
Company's common stock ($20,000) within fifteen (15) days of the date hereof.
(d) The Company hereby agrees to use its commercially reasonable
efforts to cause the release of any guarantees by Aloni of any automobiles used
by Company employees and agrees to pay any amounts outstanding under Aloni's or
S. Primor's corporate credit card. The Company hereby acknowledges and agrees
that on the date hereof, neither Aloni nor S. Primor is indebted to the Company
or its affiliates.
(e) Aloni hereby confirms his resignation as a director and
President of Mega Art and, solely as a condition of this Agreement and not in
connection with the Mega Art Purchase Agreement, he shall enter into a new
Employment Agreement with Mega Art, substantially in the form attached hereto as
Exhibit B (the "Employment Agreement"). S. Primor hereby agrees to resign her
- ---------
position as a director and all other titles and positions of Mega Art held by S.
Primor on the date hereof.
3. Distribution of Assets and Liabilities of Inlarge. The Company Group,
-------------------------------------------------
Inlarge and the members of Inlarge hereby agree that the Company Group will
acquire certain of the
6
<PAGE>
assets, and assume certain of the liabilities, of Inlarge pursuant to the terms
and conditions of an asset purchase agreement substantially in the form attached
hereto as Exhibit D which shall be executed concurrently herewith (the "Asset
---------
Purchase Agreement").
4. Arbitration. The parties hereto hereby agree that any controversy or
-----------
claim arising out of or relating to this Settlement Agreement, the performance
thereof of its breach or threatened breach shall be settled by arbitration in
the State of New York, County of New York in accordance with the then governing
rules of the American Arbitration Association. The findings of the arbitration
panel or arbitrator shall be final and binding upon the parties. Judgment upon
any arbitration award rendered may be entered and enforced in any court of
competent jurisdiction. Each party shall be responsible for their own fees and
expenses incurred in connection with any arbitration proceedings held in
accordance with this Section 4. In no event shall the arbitrator be permitted to
award fees and expenses in contravention of this Settlement Agreement.
5. Voting Agreement. In the event Aloni sells an aggregate of at least
-----------------
300,000 shares of the Company's common stock, Aloni hereby agrees to vote all
shares of capital stock of the Company then held by him in favor of William E.
Dye in each election of directors in which the Company's stockholders are
entitled to elect directors of the Company and further agrees to vote with Mr.
Dye in all change of control transactions (as defined in the Employment
Agreement) in which the Company's stockholders are entitled to vote.
6. No Admission of Liability. Nothing contained in this Settlement
----------------------------
Agreement shall constitute an admission of liability by any party hereto or his
or its respective officers, directors, employees, agents, Affiliates or
Associates.
7
<PAGE>
7. Representations and Warranties of the Aloni Group. Each member of the
-------------------------------------------------
Aloni Group, jointly and severally, represents and warrants to the Company Group
as follows:
(a) Each member of the Aloni Group has the power and authority to
execute, deliver and carry out the terms and provisions of this Settlement
Agreement and to consummate the transactions contemplated hereby, and has taken
all necessary action to authorize the execution, delivery and performance of
this Settlement Agreement and the transactions contemplated hereby.
(b) This Settlement Agreement has been duly and validly authorized,
executed and delivered by each member of the Aloni Group and constitutes the
valid and binding agreement of each member of the Aloni Group, enforceable in
accordance with its terms.
8. Representations and Warranties of the Company Group. Each member of
----------------------------------------------------
the Company Group, jointly and severally, represents and warrants to the Aloni
Group as follows:
(a) Each member of the Company Group has the power and authority to
execute, deliver and carry out the terms and provisions of this Settlement
Agreement, the Employment Agreement, the Asset Purchase Agreement and the Aloni
Note and to consummate the transactions contemplated hereby and thereby, and has
taken all necessary action to authorize the execution, delivery and performance
of this Settlement Agreement, the Employment Agreement, the Asset Purchase
Agreement and the Aloni Note and the transactions contemplated hereby and
thereby.
(b) This Settlement Agreement, the Employment Agreement, the Asset
Purchase Agreement and the Aloni Note has been duly and validly authorized,
executed and delivered by each member of the Company Group and constitutes the
valid and binding
8
<PAGE>
agreement of each member of the Company Group, enforceable in accordance with
its or their respective terms.
9. Expenses. All fees and expenses incurred by the respective parties
--------
in connection with this Settlement Agreement and related matters, including the
Aloni Action and the Company's Action, shall be borne in their entirety by the
respective party incurring such costs.
10. Specific Performance. Each of the members of the Aloni Group, on the
---------------------
one hand, and each member of the Company Group, on the other hand, acknowledges
and agrees that irreparable injury to the other party would occur in the event
any of the provisions of this Settlement Agreement were not performed in
accordance with their specific terms or were otherwise breached and that such
injury would not be compensable in damages. It is accordingly agreed that each
party hereto (the "Moving Party") shall, subject to the arbitration provisions
set forth in Section 4 hereof, be entitled to specific enforcement of, and
injunctive relief to prevent any violation of, the terms of this Settlement
Agreement and the other parties hereto will not take action, directly or
indirectly, in opposition to the Moving Party seeking such relief on the grounds
that any other remedy or relief is available at law or in equity.
11. No Waiver. Any waiver by any party of a breach of any provision of
---------
this Settlement Agreement shall not operate as or be construed to be a waiver of
any other breach of such provision or of any breach of any other provision of
this Settlement Agreement. The failure of a party to insist upon strict
adherence to any term of this Settlement Agreement on one or more occasions
shall not be considered a waiver of or deprive the party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Settlement Agreement.
9
<PAGE>
12. Certain Other Definitions. As used in this Settlement Agreement, the
-------------------------
term "person" or "entity" shall mean any individual, partnership, corporation,
group, syndicate, trust, government or agency thereof, or any other association
or entity.
13. Successor and Assigns. This Settlement Agreement shall not be
-----------------------
assignable by any party hereto other than by operation of law. All the terms and
provisions of this Settlement Agreement shall inure to the benefit of and shall
be enforceable by and against the heirs and permitted successors and assigns of
the parties hereto.
14. Survival of Representations. Except as otherwise provided herein
-----------------------------
and except as to the mutual releases set forth in Section 1 above, all
representations, warranties and agreements made by members of the Aloni Group or
the Company Group in this Settlement Agreement or pursuant hereto shall survive
until the first anniversary of the date hereof.
15. Entire Agreement; Amendments. This Settlement Agreement including
------------------------------
the exhibits hereto contains the entire understanding of the parties with
respect to the subject matter hereof. There are no restrictions, agreements,
promises, representations, warranties, covenants or undertakings other than
those expressly set forth or referenced herein. This Settlement Agreement may be
amended only by written instrument duly executed by the parties or their
respective successors or assigns.
16. Headings. The Section headings contained in this Settlement Agreement
--------
are for reference purposes only and shall not effect in any way the meaning or
interpretation of this Settlement Agreement.
17. Notices. Except as otherwise provided herein, all notices, requests,
-------
claims, demands and other communications hereunder shall be in writing and shall
be given (and shall be deemed to have been duly given if so given) by hand
delivery, by overnight mail or by mail
10
<PAGE>
(registered or certified postage prepaid, return receipt requested), to the
respective parties as follows:
If to the Company Group, then to:
William E. Dye, Chief Executive Officer
Unidigital Inc.
229 West 28th Street
New York, New York 10001
with a copy to:
David J. Sorin, Esq.
Buchanan Ingersoll Professional Corporation
650 College Road East
Princeton, New Jersey 08540
If to the Aloni Group or any member(s) thereof, then to:
Ehud Aloni
377 West 11th Street
Apartment 3A
New York, New York 10014
with a copy to:
Rubi Finkelstein, Esq.
Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue
New York, New York 10103
Kenneth A. Margolis, Esq.
Kauff, McClain & McGuire LLP
950 Third Avenue, Suite 1500
New York, New York 10022
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
11
<PAGE>
18. Governing Law; Choice of Forum. This Settlement Agreement shall be
------------------------------
governed by and construed and enforced in accordance with the laws of the State
of New York, without reference to conflict or choice of laws principles.
19. Counterparts. This Settlement Agreement may be executed in two or
------------
more counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
20. Third Party Beneficiaries. Nothing herein expressed or implied is
---------------------------
intended or shall be construed to confer upon or give to any person or
corporation other than the parties hereto and their successors or assigns, any
rights or remedies under or by reason of this Settlement Agreement.
21. Severability. If any provision of this Settlement Agreement shall be
------------
deemed or declared to be unenforceable, invalid or void, the same shall not
impair any of the other provisions of this Settlement Agreement.
22. Disclosure. The parties hereto agree that a material item of this
----------
Settlement Agreement is an agreement to keep confidential the terms and
conditions of this Settlement Agreement, except as otherwise provided in this
Settlement Agreement. No disclosure shall be made by any of the parties hereto
except to the extent that any of the parties is obligated to make disclosure to
such party's attorneys and accountants in the rendering of professional
services, or pursuant to the securities laws or any other laws of the United
States or any state thereof; provided, however, that (i) it is contemplated and
-------- -------
agreed by and between the parties hereto that the Company will issue a press
release, substantially in the form attached hereto as Exhibit E, announcing this
---------
settlement and the dismissal of the Aloni Action and the Company's Action which
press release may or may not include other information pertaining to the
Company, and
12
<PAGE>
(ii) each of the parties hereto may make statements or disclose information with
respect to this Settlement Agreement in the form of, or substantially similar
to, the statements or information set forth in Exhibit F.
---------
23. Non-Disparagement.
-----------------
(a) Each member of the Aloni Group agrees not to engage in any
conduct or make any statement, or encourage others to engage in any conduct or
make any statement, that would disparage any member of the Company Group, or any
Associates or Affiliates of any member of the Company Group, or any of the
Company's Representatives, or the respective business interests of any of them
in any way.
(b) Each member of the Company Group agrees not to engage in any
conduct or make any statement, or encourage others to engage in any conduct or
make any statement, that would disparage any member of the Aloni Group, or any
Associates or Affiliates of any member of the Aloni Group, or any of the Aloni
Group's Representatives, or the respective business interests of any of them in
any way.
24. Conditions/Effective Date. This Settlement Agreement shall not be
--------------------------
effective unless and until (i) it has been fully executed by each and every
party hereto, (ii) Mega Art and Aloni enter into and execute the Employment
Agreement and the Aloni Note, (iii) the Company has entered into employment
agreements with Primor and Chen, (iv) the Company Group, Inlarge and its members
enter into and execute the Asset Purchase Agreement, and (v) the Company has
entered into an agreement with Seligson, Rothman & Rothman ("SRR") for the
provision of legal and consulting services to the Company, it being understood
that: (x) the extent of services to be provided by SRR pursuant to such
agreement shall take account of the fact that the primary purpose of such
agreement is to serve as a vehicle for the payment of
13
<PAGE>
proceeds of settlement hereunder; and (y) in the event such agreement is, for
any reason, declared invalid or unenforceable, then it shall be null and void
and, in the place and stead of such agreement, the Company shall be obligated to
make payments hereunder to SRR in the same amounts and on the same schedule as
set forth in such agreement.
[SIGNATURE PAGES FOLLOW]
14
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound hereby, each of the
undersigned parties has executed or caused to be executed this Settlement
Agreement on the first date above.
ALONI GROUP:
/s/ Ehud Aloni
-------------------------------------
Ehud Aloni
/s/ Amit Primor
-------------------------------------
Amit Primor
/s/ Nadav Chen
-------------------------------------
Nadav Chen
/s/ Jeffrey E. Rothman
-------------------------------------
Jeffrey E. Rothman by his attorney-in-fact,
Stewart E. Rothman
/s/ Sigal Primor
-------------------------------------
Sigal Primor
INLARGE LLC (A/K/A ENLARGE LLC)
By: /s/ Stewart E. Rothman
----------------------------------
Name: Stewart E. Rothman
Title: Managing Member
15
<PAGE>
COMPANY GROUP:
UNIDIGITAL INC.
By:/s/ William E. Dye
----------------------------------
Name: William E. Dye
Title: Chief Executive Officer
MEGA ART CORP.
By: /s/ William E. Dye
----------------------------------
Name: William E. Dye
Title: Chief Executive Officer
16
<PAGE>
EXHIBIT A-1
STIPULATION OF DISCONTINUANCE
ALONI ACTION
<PAGE>
EXHIBIT A-2
STIPULATION OF DISCONTINUANCE
COMPANY'S ACTION
<PAGE>
EXHIBIT B
FORM OF EHUD ALONI
EMPLOYMENT AGREEMENT
<PAGE>
EXHIBIT C
FORM OF PROMISSORY NOTE
<PAGE>
EXHIBIT D
ASSET PURCHASE AGREEMENT
<PAGE>
EXHIBIT E
FORM OF PRESS RELEASE
<PAGE>
EXHIBIT F
1. A positive settlement was reached.
2. The settlement was positive for the Company and its stockholders as a whole.
3. An acceptable employment arrangement was reached with Aloni.
4. Mutual releases were exchanged.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated financial statements at February 29, 2000 and is
qualified in its entirety by reference to such financial statements. Earnings
per share information has been presented to conform with the requirements of
SFAS No. 128, Earnings Per Share.
</LEGEND>
<CIK> 0001003934
<NAME> Unidigital Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Aug-31-2000
<PERIOD-START> Sep-01-1999
<PERIOD-END> Feb-29-2000
<EXCHANGE-RATE> 1
<CASH> 760,000
<SECURITIES> 0
<RECEIVABLES> 27,412,000
<ALLOWANCES> (999,000)
<INVENTORY> 0
<CURRENT-ASSETS> 35,275,000
<PP&E> 28,086,000
<DEPRECIATION> (11,915,000)
<TOTAL-ASSETS> 130,769,000
<CURRENT-LIABILITIES> 17,737,000
<BONDS> 0
0
0
<COMMON> 61,000
<OTHER-SE> 26,046,000
<TOTAL-LIABILITY-AND-EQUITY> 130,769,000
<SALES> 47,012,000
<TOTAL-REVENUES> 47,036,000
<CGS> 25,197,000
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<OTHER-EXPENSES> 14,939,000
<LOSS-PROVISION> 136,000
<INTEREST-EXPENSE> 5,131,000
<INCOME-PRETAX> 1,633,000
<INCOME-TAX> 767,000
<INCOME-CONTINUING> 866,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 866,000
<EPS-BASIC> 0.14
<EPS-DILUTED> 0.14
</TABLE>