-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DBhhZ5aUQXkQFaZrqpr8mPUND2ZAdWerXLk5eLWtVWLyuVt5idQwx6QjbdJSlLba wDUoDWgxT+F8a1sC2TCpZg== 0001015357-98-000082.txt : 19980915 0001015357-98-000082.hdr.sgml : 19980915 ACCESSION NUMBER: 0001015357-98-000082 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980902 ITEM INFORMATION: FILED AS OF DATE: 19980914 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIDIGITAL INC CENTRAL INDEX KEY: 0001003934 STANDARD INDUSTRIAL CLASSIFICATION: SERVICE INDUSTRIES FOR THE PRINTING TRADE [2790] IRS NUMBER: 133856672 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-27664 FILM NUMBER: 98708813 BUSINESS ADDRESS: STREET 1: 545 WEST 45TH STREET CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 2123970800 MAIL ADDRESS: STREET 1: 545 WEST 45TH ST CITY: NEW YORK STATE: NY ZIP: 10016 8-K 1 UNIDIGITAL INC. FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ------------------------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported) September 2, 1998 ------------------------------ Unidigital Inc. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Charter) Delaware 0-27664 13-3856672 - -------------------------------------------------------------------------------- (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) 229 West 28th Street, New York, New York 10001 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (212) 244-7820 --------------------------- 545 West 45th Street, New York, New York 10036 - -------------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) ITEM 2. ACQUISITION OF ASSETS. On September 2, 1998, Unidigital Inc. (the "Company") consummated the acquisition of all of the issued and outstanding capital stock of Mega Art Corp. ("Mega Art") located in New York City (the "Acquisition"). As a result of the Acquisition, Mega Art became a wholly-owned subsidiary of the Company. Mega Art provides wide format, digital prepress and printing services. The Company intends to continue such line of business. The purchase price included an initial cash payment of $5,800,000 and the issuance of $5,000,000 in restricted Common Stock of the Company (754,148 shares). In addition, the purchase price includes a deferred cash payment of $1,200,000 (the "Deferred Payment"), payable 180 calendar days after the closing date, and an earn-out payment of up to $1,200,000 in cash and $1,200,000 in restricted Common Stock of the Company (the "Earn-Out Payment"), payable on or before November 29, 1999. The Deferred Payment is subject to adjustment in the event Mega Art achieves, as of August 31, 1998, (i) a tangible net asset value of (A) less than $800,000 or (B) greater than $1,000,000, or (ii) adjusted EBITDA of less than $2,150,000 for the twelve months ended August 31, 1998. The Earn-Out Payment is subject to adjustment in the event Mega Art fails to achieve adjusted EBITDA of at least $2,250,000 for the fiscal year ending August 31, 1999. In addition, in the event Mega Art achieves adjusted EBITDA of greater than $2,750,000 for the fiscal year ending August 31, 1999, the Company shall grant options to purchase shares of Common Stock of the Company to employees of Mega Art having an aggregate fair market value equal to the amount of such excess, but in no event greater than $250,000. The Deferred Payment and the Earn-Out Payment may also be used to satisfy any indemnification claims. In determining the purchase price, the Company considered, among other factors: (i) the composition of Mega Art's assets, in particular, the strength of Mega Art's balance sheet; (ii) the business, operations and prospects of Mega Art; (iii) the financial statements and other relevant financial and operating data of Mega Art; (iv) the historical and projected financial information prepared by the management of Mega Art; and (v) the past and projected revenues generated from the customers of Mega Art. The Company funded the cash portion of the purchase price from proceeds of an acquisition loan and a revolving credit loan from Canadian Imperial Bank of Commerce ("CIBC"). See "Item 5. Other Events." below. Ehud Aloni, the principal shareholder of Mega Art ("Aloni"), and the Company entered into a three-year Employment Agreement pursuant to which Aloni shall serve as the President of Mega Art at an initial annual salary of $200,000. In addition, Aloni and the Company entered into a Stockholders' Agreement pursuant to which (i) Aloni granted the Company a right of first refusal with respect to sales by Aloni of the Company's Common Stock and (ii) Aloni agreed not to acquire more than 1,000,000 shares of the Company's Common Stock without the prior written consent of the Company. -2- ITEM 5. OTHER EVENTS. Upon consummation of the Acquisition, Mega Art became a wholly-owned subsidiary of the Company. As such, CIBC required Mega Art to guarantee the Company's credit facilities with CIBC. In addition, the Company pledged all of its equity interests in Mega Art as collateral for such credit facilities. The credit facilities contain covenants which require the Company to maintain certain earnings and debt to earnings ratio requirements based on the combined operations of the Company and its subsidiaries. CIBC waived certain of these covenants to permit the Company to consummate the Acquisition. Mega Art has granted CIBC a first priority lien on all of its assets as security for the credit facilities. -3- ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Financial Information of Business Acquired. To be filed by amendment. The Company believes that it is impracticable to provide such financial information as of the date hereof. Such information shall be filed with the Commission no later than November 16, 1998. (b) Pro Forma Financial Information (unaudited). To be filed by amendment. The Company believes that it is impracticable to provide such financial information as of the date hereof. Such information shall be filed with the Commission no later than November 16, 1998. (c) Exhibits. Exhibit No. Description of Exhibit ----------- ---------------------- 4.1 Stockholders' Agreement dated as of September 2, 1998 by and between Unidigital Inc. and Ehud Aloni. 10.1 Agreement of Purchase and Sale dated as of August 3, 1998 by and among Unidigital Inc., Mega Art Corp., Ehud Aloni, Amit Primor, Jeffrey E. Rothman and Seligson, Rothman & Rothman. 10.2 Employment Agreement dated as of September 2, 1998 by and between Mega Art Corp. and Ehud Aloni. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. Unidigital Inc. By: /s/William E. Dye ----------------------------- William E. Dye, Chairman of the Board and Chief Executive Officer (Principal Executive, Financial and Accounting Officer) Date: September 14, 1998 EX-4.1 2 STOCKHOLDERS' AGREEMENT EXH TO 8-K STOCKHOLDERS' AGREEMENT STOCKHOLDERS' AGREEMENT dated as of September 2, 1998 (this "Agreement"), by and between Unidigital Inc., a Delaware corporation (the "Company") and Ehud Aloni (the "Stockholder"). W I T N E S S E T H : --------------------- WHEREAS, the Company is authorized to issue 10,000,000 shares of common stock, $0.01 par value (the "Common Stock"); and WHEREAS, the Company and the Stockholder are parties to that certain Agreement of Purchase and Sale (the "Purchase Agreement") dated as of August 3, 1998, and as amended by that certain letter agreement dated August 28, 1998, by and among the Company, Mega Art Corp., a New York corporation ("Mega Art"), and the Stockholder, Amit Primor and Jeffrey E. Rothman, as record owner, and Seligson, Rothman & Rothman, as beneficial owner, the holders of all of the issued and outstanding capital stock of Mega Art, pursuant to which the Stockholder has been issued 663,650 shares of the Common Stock (the "Aloni Shares"); and WHEREAS, the parties deem it in the best interests of each of the parties to restrict the transfer of the Restricted Shares (as defined below) as herein provided. NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein, the parties hereto hereby agree as follows: SECTION 1. General Restrictions on Transfer of the Restricted Shares. -------------------------------------------------- (a) During the term of this Agreement, none of the shares of Common Stock owned on the date hereof or thereafter acquired by the Stockholder (the "Restricted Shares") may be transferred, assigned, pledged, encumbered or otherwise hypothecated except in accordance with the provisions of this Agreement. (b) Any attempted transfer of the Restricted Shares other than in accordance with this Agreement (other than an involuntary transfer by operation of law) shall be null and void and the Company shall refuse to recognize any such transfer and shall not reflect on its records any change in record ownership of the Restricted Shares pursuant to any such transfer. (c) Notwithstanding anything contained herein to the contrary, but subject to Section 4 hereof, it is understood and agreed that the Stockholder may transfer any or all of the Restricted Shares beneficially owned by him to his immediate family (as defined below), or to trusts established for his own benefit or for the benefit of such immediate family, provided that in connection with such transfer, the transferee grants to such transferor an irrevocable proxy coupled with an interest to vote all of the Restricted Shares so transferred. Such transferees shall be referred to herein as "Permitted Transferees." For purposes of this Section 1(c), "immediate family" shall mean any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in- 1 law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include adoptive relationships. SECTION 2. Right of First Refusal. ---------------------- (a) Whenever and as often as the Stockholder shall desire to sell any of the Restricted Shares pursuant to a bona fide offer for the purchase thereof in a private transaction, the Stockholder shall give notice (the "Notice") to the Company in writing to such effect, enclosing a copy of such bona fide offer (it being agreed that the Stockholder shall cause any such offer to be reduced to writing) and specifying the number of shares of the Stockholder's Restricted Shares which the Stockholder desires to sell (the "Shares"), the name of the person or persons to whom the Stockholder desires to make such sale and the dollar value of the consideration which has been offered in connection therewith. Upon receipt of the Notice, the Company shall have the first right and option to purchase all, but not less than all, of the Shares, for cash at a purchase price equal to the dollar value of such consideration (in the event such consideration includes noncash consideration for which the fair market value is undetermined, subject to Section 2(h) hereof, the dollar value of such noncash consideration shall be determined in good faith by the Company's Board of Directors, provided that if the Stockholder is a member of the Board of Directors, he shall not participate in such determination), exercisable for a period of ten (10) calendar days from the date of receipt of the Notice. Failure of the Company to respond to the Notice within the ten (10) calendar day period shall be deemed to constitute a notification to the Stockholder of the Company's decision not to exercise the first right and option to purchase the Shares under this Section 2(a). (b) The Company may exercise the right and option provided in Section 2(a) above by giving written notice to the Stockholder not later than the close of business on the date of expiration of such right and option (or if such date is not a business day, then on or before the close of business on the next succeeding business day), advising of the election to exercise the same and the date (not later than ten (10) calendar days from the date of expiration of such first right and option to purchase the Shares under Section 2(a)) upon which payment of the purchase price for the Shares shall be made. The Stockholder shall cause to be delivered to the Company at the Company's principal office, on the payment date specified in such written notice, the certificate or certificates representing the Shares, properly endorsed for transfer, against payment of the purchase price therefor by the Company in immediately available funds. (c) If the Shares are not purchased by the Company in accordance with this Section 2, the Stockholder may, during the ninety (90) day period commencing on the expiration of the right and option provided for in Section 2(a), sell all, or subject to Section 2(d) hereof, less than all, of the Shares to the transferee named in the Notice for consideration, the dollar value of which is equal to or greater than the dollar value of the consideration specified in the Notice, free of the restrictions contained in Section 2 of this Agreement. (d) In the event that the Stockholder desires to sell less than all of the Shares set forth in the Notice (after the Company has exercised its right and option under Section 2(a)), the Stockholder shall give another notice (the "Second Notice") to the Company, by which the Stockholder shall then offer to the Company the right and option to purchase all, but not less than 2 all, of the number of Shares set forth in the Second Notice for cash at the same purchase price and on the same terms as offered to the Company as set forth in the Notice. Pursuant to such offer, the Company shall have the right and option to purchase all but not less than all of the number of Shares set forth in the Second Notice, for cash at a purchase price equal to the dollar value of such consideration (in the event such consideration includes noncash consideration for which the fair market value is undetermined, subject to Section 2(h) hereof, the dollar value of such noncash consideration shall be determined in good faith by the Company's Board of Directors, provided that if the Stockholder is a member of the Board of Directors, he shall not participate in such determination), exercisable for a period of ten (10) calendar days from the date of receipt of the Second Notice. Failure of the Company to respond to the Second Notice within the ten (10) calendar day period shall be deemed to constitute a notification to the Stockholder of the Company's decision not to exercise the right and option to purchase the Shares under this Section 2(d). (e) The Company may exercise the rights and options provided in Section 2(d) by giving written notice to the Stockholder not later than the close of business on the date of expiration of such right and option (or if such date is not a business day, then on or before the close of business on the next succeeding business day), advising of the election to exercise the same and the date (not later than ten (10) calendar days from the date of expiration of the notice upon which the Company is acting) upon which payment of the purchase price for the Shares shall be made. The Stockholder shall cause to be delivered to the Company at the Company's principal office, on the payment date specified in such written notice, the certificate or certificates representing the Shares being purchased by the Company, properly endorsed for transfer, against payment of the purchase price therefor by the Company in immediately available funds. (f) If the Shares set forth in the Second Notice are not purchased by the Company in accordance with this Section 2, the Stockholder may, during the ninety (90) day period commencing on the expiration of the rights and options provided for in Section 2(d), sell all, but not less than all, of the Shares set forth in the Second Notice to the transferee named in the Second Notice for consideration, the dollar value of which is equal to or greater than the dollar value of the consideration specified in the Second Notice, free of the restrictions contained in Section 2 of this Agreement. (g) Notwithstanding the foregoing, any of the Restricted Shares distributed to the Company in satisfaction of an indemnification claim made by the Company under the Purchase Agreement shall be free of the restrictions contained in Section 2 of this Agreement. In addition, in the event the Stockholder desires to sell any of the Restricted Shares pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended (the "1933 Act"), such sale shall be free of the restrictions contained in Section 2 of this Agreement, provided such sale does not result in such Stockholder selling in excess of 10,000 shares of Common Stock in the immediately preceding three-month period. After the third anniversary of the date of this Agreement, for each successive one-year term, the Stockholder shall be permitted to sell an additional 5,000 shares of Common Stock pursuant to this Section 2(g). 3 (h) In the event the Stockholder disputes the Board of Directors' determination of the dollar value of noncash consideration to be paid for the Shares, the Stockholder shall notify the Company in writing within five (5) calendar days after such determination by the Board of Directors setting forth the amount, nature and basis of the dispute. Within the following five (5) calendar days, the parties shall use their best efforts to resolve such dispute. Upon their failure to do so, the dispute shall be submitted for arbitration as follows: (i) The arbitrator shall be a "Big Five" public accounting firm located in the City of New York, State of New York mutually acceptable to the Company and the Stockholder. In the event the selected arbitrator declines or is unable to serve for any reason, the parties shall select another arbitrator. Upon their failure to agree on another arbitrator, the jurisdiction of the Supreme Court of the State of New York shall be invoked to make such selection. (ii) The arbitrator shall follow the Commercial Arbitration Rules of the American Arbitration Association, except as otherwise provided herein. The arbitrator shall substantially comply with the rules of evidence; shall grant essential but limited discovery; shall provide for the exchange of witness lists and exhibit copies; shall conduct a pretrial and consider dispositive motions. Each party shall have the right to request the arbitrator to make findings of specific factual issues. The arbitrator shall complete its proceedings and render its decision within forty (40) calendar days after submission of the dispute to it, unless both parties agree to an extension. Each party shall cooperate with the arbitrator to comply with the procedural time requirements and the failure of either to do so shall entitle the arbitrator to extend the arbitration proceedings accordingly and to impose sanctions on the party responsible for the delay, payable to the other party. In the event the arbitrator does not fulfill its responsibilities on a timely basis, as described above, either party shall have the right to require a replacement and the appointment of a new arbitrator. (iii) The decision of the arbitrator shall be final and binding upon the parties and accordingly a judgment by a court of competent jurisdiction may be entered in accordance therewith. The non-prevailing party shall be solely responsible for the fees and expenses of the arbitrator. SECTION 3. Standstill Agreement. The Stockholder hereby agrees that, -------------------- without the prior written consent of the Company, he shall not take any action to cause him to be the beneficial owner of more than 1,000,000 shares of the Company's Common Stock. SECTION 4. Purchasers or Transferees of Restricted Shares. Except as ---------------------------------------------- otherwise specifically provided herein, any person who shall acquire (either voluntarily or involuntarily, by operation of law or otherwise) any Restricted Shares from the Stockholder or any Permitted Transferee, shall be bound by the rights and restrictions of this Agreement relating 4 to the transfer and sale of such Restricted Shares to the same extent as the parties hereto and, prior to the registration of the transfer of any such Restricted Shares on the books of the Company, any purchaser or other transferee shall execute a counterpart to this Agreement agreeing to be bound by such provisions. SECTION 5. Legend on Stock Certificates. During the term of this ----------------------------- Agreement, each certificate issued after the date hereof representing Restricted Shares held by the Stockholder shall conspicuously bear the following legend until such time as the shares represented thereby are no longer subject to the provisions hereof: "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A STOCKHOLDERS' AGREEMENT, DATED AS OF SEPTEMBER 2, 1998, BETWEEN UNIDIGITAL INC. (THE "COMPANY"), AND EHUD ALONI. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF THIS CERTIFICATE TO THE COMPANY." The Company covenants that it shall keep a copy of this Agreement on file at its principal executive offices for the purpose of furnishing copies to the holders of record of the Restricted Shares. SECTION 6. Duration of Agreement. This Agreement shall terminate on --------------------- the third anniversary of the date of this Agreement, unless earlier terminated by the parties hereto; provided, however, that this Agreement shall --------- ------- automatically be renewed for successive one (1) year terms in the event that each of the Stockholder and William E. Dye are employed by the Company (or any of its affiliates) at the end of each such term. Additionally, this Agreement shall terminate immediately upon (i) the transfer of all the Restricted Shares (or any portion thereof pursuant to a transfer made under Rule 144 or a registration statement under the 1933 Act) owned by the Stockholder, (ii) a Change of Control (as such term is defined under the Stockholder's Employment Agreement with Mega Art); or (iii) the Company's (A) admission in writing of its inability to pay its debts generally as they become due, (B) filing of a petition in bankruptcy or a petition to take advantage of any insolvency act, on either a voluntary or involuntary basis, or (C) being adjudicated bankrupt on a petition in bankruptcy filed against it. SECTION 7. Representations and Warranties. ------------------------------ (a) Each of the Company and the Stockholder (in the case of clause (ii) below) represents and warrants, severally and not jointly, to the other party hereto as follows: (i) The execution, delivery and performance of this Agreement by the Company will not violate any provision of law, any order of any court or other agency of government, or any provision of any material indenture, agreement or other instrument to which the Company or any of its properties or assets is bound, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any 5 lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Company (other than those arising hereunder). (ii) This Agreement has been duly executed and delivered by the Company or the Stockholder, as the case may be, and constitutes the legal, valid and binding obligation of the Company or the Stockholder, enforceable against the Company or the Stockholder in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting the enforcement of creditors' rights, and except that the availability of the equitable remedies of specific performance and injunctive relief may be subject to the discretion of the court before which any proceeding may be brought. (b) The Stockholder represents and warrants to the other parties hereto that the Aloni Shares constitute the entire ownership interest of the Stockholder in the Common Stock of the Company as of the date hereof. (c) The Company hereby acknowledges that the Stockholder, subject to underwriter approval and the limitations set forth in the Purchase Agreement, may be entitled to participate in a public offering of the Company's equity securities. SECTION 8. Governing Law. This Agreement shall be governed by, and -------------- construed in accordance with, the laws of the State of New York without giving regard to conflicts of law principles. SECTION 9. Benefits of Agreement. This Agreement shall be binding --------------------- upon and inure to the benefit of the parties hereto and their respective successors and assigns, legal representatives and heirs. SECTION 10. Notices. Any notice, demand or request required or ------- permitted to be given under the provisions of this Agreement (a) shall be in writing; (b) shall be delivered personally, including by means of telecopy or courier, or mailed by registered or certified mail, postage prepaid and return receipt requested; (c) shall be deemed given on the date of personal delivery or on the date set forth on the return receipt; and (d) shall be delivered or mailed as follows or to such other address as any party may from time to time direct: (i) if to the Company, 229 West 28th Street, New York, New York, 10001-5996, Attention: Chief Executive Officer, with a copy to Buchanan Ingersoll Professional Corporation, 500 College Road East, Princeton, New Jersey, 08540, Attention: David J. Sorin, Esq.; (ii) if to the Stockholder, c/o Mega Art Corporation, Pier 40, 2nd Floor, Westside Highway and West Houston Street, New York, New York 10014, Attention: President, with a copy to Orrick, Herrington & Sutcliffe LLP, 30 Rockefeller Plaza, New York, New York 10112, Attention: Rubi Finkelstein, Esq. SECTION 11. Modification. Except as otherwise provided herein, ------------ neither this Agreement nor any provision hereof may be modified, changed, discharged or terminated except 6 by an instrument in writing signed by the party against whom the enforcement of any modification, change, discharge or termination is sought. SECTION 12. Severability. In the event that any one or more of the ------------ provisions contained in this Agreement or in any other instrument referred to herein shall, for any reason, be held to be invalid, illegal or unenforceable, such illegality, invalidity or unenforceability shall not affect any other provisions of this Agreement. SECTION 13. Counterparts. This Agreement may be executed in ------------ one or more counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same instrument. SECTION 14. Entire Agreement. This Agreement constitutes the entire ---------------- agreement of the parties with respect to the subject matter hereof, and supersedes all previous agreements. In the event of any conflict between this Agreement and any other agreement or instrument with respect to the subject matter hereof, the provisions of this Agreement shall control. SECTION 15. Reorganization, Etc. The provisions of this Agreement -------------------- shall apply mutatis mutandis to any shares or other securities resulting from any stock split or reverse split, stock dividend, reclassification, subdivision, consolidation or reorganization of any shares or other securities of the Company and to any shares or other securities of the Company or of any successor company which may be received by each Stockholder by virtue of his ownership of the Restricted Shares. SECTION 16. Survival of Representations. Each representation, ----------------------------- warranty, covenant and agreement of the parties hereto herein contained shall survive the date hereof, notwithstanding any investigation at any time made by or on behalf of any of the parties. SECTION 17. Headings. The headings of this Agreement are for -------- convenience of reference only and are not part of the substance of this Agreement. * * * * * * * * 7 IN WITNESS WHEREOF, the parties hereto have executed this Stockholders' Agreement as of the day and year first above written. UNIDIGITAL INC. By: /s/ William E. Dye ------------------------------- Name: William E. Dye Title: Chief Executive Officer STOCKHOLDER /s/ Ehud Aloni ----------------------------- Ehud Aloni EX-10.1TOFORM8-K 3 AGREEMENT OF PURCHASE AND SALE EXECUTION COPY -------------- ================================================================================ AGREEMENT OF PURCHASE AND SALE by and among UNIDIGITAL INC., MEGA ART CORP., and THE STOCKHOLDERS OF MEGA ART CORP. Dated as of August 3, 1998 ================================================================================ TABLE OF CONTENTS Page ARTICLE 1. DEFINITIONS......................................................1 1.1. Defined Terms........................................................1 1.2. Interpretation Provisions............................................7 ARTICLE 2. THE ACQUISITION..................................................8 2.1. The Acquisition......................................................8 2.2. Directors and Officers...............................................8 2.3. Purchase Price.......................................................8 2.4. Delivery of Certificates............................................11 2.5. No Further Ownership Rights in Shares of Mega Art Stock.............11 2.6. Lost, Stolen or Destroyed Certificates..............................11 ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF MEGA ART AND THE PRINCIPAL STOCKHOLDER..........................................11 3.1. Organization of Mega Art............................................11 3.2. Capitalization of Mega Art..........................................11 3.3. Stockholders' Agreements, Etc.......................................12 3.4. Authorization.......................................................12 3.5. Officers and Directors..............................................12 3.6. Bank Accounts.......................................................12 3.7. Subsidiaries, Etc...................................................13 3.8. Real Property.......................................................13 3.9. Personal Property...................................................13 3.10. Environmental Matters..............................................14 3.11. Contracts..........................................................15 3.12. No Conflict or Violation; Consents ................................15 i TABLE OF CONTENTS Page (cont'd) 3.13. Permits............................................................16 3.14. Financial Statements; Books and Records............................16 3.15. Absence of Certain Changes or Events...............................16 3.16. Liabilities........................................................18 3.17. Litigation.........................................................18 3.18. Labor Matters......................................................19 3.19. Employee Benefit Plans.............................................19 3.20. Transactions with Related Parties..................................20 3.21. Compliance with Law................................................20 3.22. Intellectual Property..............................................20 3.23. Tax Matters........................................................21 3.24. Insurance..........................................................22 3.25. Accounts Receivable................................................22 3.26. Supplies...........................................................23 3.27. Customers and Suppliers............................................23 3.28. Brokers; Transaction Costs.........................................23 3.29. No Other Agreements to Sell Mega Art or the Assets.................23 3.30. Material Misstatements or Omissions................................23 3.31. Purchase for Investment............................................24 3.32. Ownership of Mega Art Stock; Title.................................24 ARTICLE 3A. REPRESENTATIONS AND WARRANTIES OF THE MINORITY STOCKHOLDERS...................................................24 3A.1. Authorization......................................................25 3A.2. No Conflict or Violation; Consents.................................25 ii TABLE OF CONTENTS Page (cont'd) 3A.3. Ownership of Mega Art Stock; Title.................................25 3A.4. Investment Representations.........................................25 ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF UNIDIGITAL....................26 4.1. Organization........................................................26 4.2. Authorization.......................................................27 4.3. No Conflict or Violation; Consents..................................27 4.4. Disclosure..........................................................27 4.5. Absence of Certain Changes or Events................................27 4.6. Litigation..........................................................28 4.7. Brokers; Transaction Costs..........................................28 4.8. Capitalization of Unidigital........................................28 4.9. Rule 144 Reporting..................................................28 4.10. Compliance with Law................................................28 ARTICLE 5. ACTIONS BY MEGA ART, THE STOCKHOLDERS AND UNIDIGITAL PRIOR TO THE CLOSING............................................29 5.1. Conduct of Business.................................................29 5.2. Investigation by Unidigital.........................................30 5.3. Notification of Certain Matters.....................................30 5.4. No Mergers, Consolidations, Sale of Stock, Etc......................31 5.5. Further Assurances..................................................31 ARTICLE 6. CONDITIONS TO MEGA ART'S AND THE STOCKHOLDERS' OBLIGATIONS......31 6.1. Representations, Warranties and Covenants...........................32 6.2. Consents............................................................32 6.3. No Actions or Court Orders..........................................32 iii TABLE OF CONTENTS Page (cont'd) 6.4. Closing Documents...................................................32 6.5. Board of Directors Approval.........................................32 6.6. Material Adverse Change.............................................32 ARTICLE 7. CONDITIONS TO UNIDIGITAL'S OBLIGATIONS..........................32 7.1. Representations, Warranties and Covenants...........................33 7.2. Consents............................................................33 7.3. No Actions or Court Orders..........................................33 7.4. Closing Documents...................................................33 7.5. Exemption under Federal and State Securities Laws...................33 7.6. Mega Art Balance Sheets.............................................34 7.7. Completion of Unidigital Due Diligence..............................34 7.8. Delivery of Certificates............................................34 7.9. Board of Directors Approval.........................................34 7.10. Tax Matters........................................................34 7.11. Material Adverse Change............................................34 ARTICLE 8. CLOSING.........................................................34 8.1. Deliveries by Mega Art and the Stockholders to Unidigital...........34 8.2. Deliveries by Unidigital............................................35 ARTICLE 9. INDEMNIFICATION.................................................35 9.1. Survival of Representations, Etc....................................35 9.2. Indemnification.....................................................36 9.3. No Right of Contribution............................................37 9.4. Right of Offset.....................................................37 iv TABLE OF CONTENTS Page (cont'd) 9.5. Limitation on Liability.............................................37 9.6. Option to Pay in Stock..............................................38 ARTICLE 10. POST-CLOSING AGREEMENTS........................................38 10.1. Non-Competition....................................................38 10.2. Non-Solicitation of Employees of Unidigital........................38 10.3. Non-Solicitation or Interference with Customers and Suppliers of Unidigital.........................................................38 10.4. Non-Solicitation or Interference with Customers and Suppliers of Mega Art...........................................................39 10.5. Non-Solicitation of Employees of Mega Art..........................39 10.6. Acknowledgments....................................................39 10.7. Delivery of Financial Statements...................................39 ARTICLE 11. MISCELLANEOUS..................................................39 11.1. Termination........................................................39 11.2. Assignment.........................................................40 11.3. Notices............................................................40 11.4. Choice of Law......................................................41 11.5. Descriptive Headings...............................................41 11.6. Entire Agreement; Amendments and Waivers...........................41 11.7. Counterparts.......................................................42 11.8. Invalidity.........................................................42 11.9. Expenses...........................................................42 11.10. Publicity.........................................................42 11.11. No Third Party Beneficiaries......................................42 v TABLE OF EXHIBITS Exhibit A Calculation of 1998 Adjusted EBITDA Exhibit A-1 Calculation of 1999 Adjusted EBITDA Exhibit B Form of Employment Agreement Exhibit C Form of Stockholders' Agreement Exhibit D Purchase Price AGREEMENT OF PURCHASE AND SALE dated as of August 3, 1998 (the "Agreement"), among Unidigital Inc., a Delaware corporation ("Unidigital"), Mega Art Corp., a New York corporation ("Mega Art"), Ehud Aloni, the majority stockholder of Mega Art (the "Principal Stockholder"), and Amit Primor and Jeffrey E. Rothman, as record owner, and Seligson, Rothman & Rothman, as beneficial owner, each a minority stockholder of Mega Art (collectively, the "Minority Stockholders" and, together with the Principal Stockholder, the "Stockholders"). WITNESSETH: WHEREAS, the Boards of Directors of Unidigital and Mega Art have determined that it is advisable and in the best interests of their respective stockholders for Unidigital to acquire all of the issued and outstanding capital stock of Mega Art upon the terms and subject to the conditions set forth herein; WHEREAS, in furtherance of such acquisition, the Boards of Directors of Unidigital and Mega Art have each approved the acquisition of all of the issued and outstanding capital stock of Mega Art (the "Acquisition"), upon the terms and subject to the conditions set forth herein; and WHEREAS, the Stockholders are the holders of all of the issued and outstanding capital stock of Mega Art. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Unidigital, Mega Art and the Stockholders hereby agree as follows: ARTICLE 1. DEFINITIONS 1.1. Defined Terms As used herein, the terms below shall have the following meanings: "1998 Adjusted EBITDA" means, with respect to Mega Art, earnings before interest, taxes, depreciation and amortization for the twelve months ending August 31, 1998, applied consistently with past practices of Mega Art adjusted for certain non-recurring or non-operating expenses more fully described on Exhibit A attached hereto. "1999 Adjusted EBITDA" means, with respect to Mega Art, earnings before interest, taxes, depreciation and amortization for the fiscal year ending August 31, 1999, applied consistently with past practices of Mega Art as adjusted and as described on Exhibit A-1 attached hereto. "Action" means any action, order writ, injunction, judgment or decree outstanding or claim, suit, litigation, proceeding, investigation or dispute arising out of any breach of Contract, breach of warranty, tort, infringement or violation of law. "Affiliate" of a Person means any other Person which, directly or indirectly, controls, is controlled by, or is under common control with, such Person. The term "control" (including, with correlative meaning, the terms "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Ancillary Agreements" means the Employment Agreement, the Stockholders Agreement, and all other agreements, if any, required hereunder to consummate the Acquisition. "Assets" means the right, title and interest of Mega Art in and to its properties, assets and rights of any kind, whether tangible or intangible, real or personal, including without limitation the right, title and interest in the following that relate exclusively to the Business: (a) all Contracts and Contract Rights; (b) all Fixtures and Equipment; (c) all Supplies; (d) all Books and Records; (e) all Proprietary Rights; (f) all Permits; (g) all return and other rights under or pursuant to all warranties, representations and guarantees made by suppliers and other third parties in connection with the Assets or services furnished to such Person; (h) all cash, accounts receivable, deposits and prepaid expenses; and (i) all goodwill. "Average Share Price" means, as of any date of determination, the average of the closing prices of Unidigital Stock on the Nasdaq National Market as reported by the Nasdaq Stock Market on the twenty (20) consecutive trading days immediately preceding the date of determination. "Balance Sheet" means the balance sheet as of the Balance Sheet Date. "Balance Sheet Date" means July 31, 1998. "Books and Records" means (a) all product, business and marketing plans, sales and promotional literature and artwork relating to the Assets or the Business, (b) all books, records, lists, ledgers, financial data, files, reports, product and design manuals, plans, drawings, technical manuals and operating records of every kind relating to the Assets or the Business (including records and lists of customers, distributors, suppliers and personnel) and (c) all telephone and fax numbers used in the Business, in each case whether maintained as hard copy or stored in computer memory and whether owned by Mega Art or its Affiliates. "Business" means the business and operations of Mega Art on the date hereof, consisting of providing wide format, digital prepress and printing services. "Closing" has the meaning set forth in Section 2.1(b). "Closing Date" means the date of the Closing. 2 "Confidentiality Agreement" means that certain Mutual Confidentiality and Non-Use Agreement dated as of June 2, 1998 between Unidigital and Mega Art. "Consents" means any and all Permits and any and all consents, approvals or waivers from third parties that are required for the consummation of the transactions contemplated by this Agreement. "Contract Rights" means all rights and obligations under the Contracts. "Contracts" means all agreements, contracts, leases (whether for real or personal property), purchase orders, undertakings, covenants not to compete, employment agreements, confidentiality agreements, licenses, instruments, obligations and commitments to which Mega Art is a party or by which Mega Art or any of the Assets are bound or affected, whether written or oral, relating exclusively to the Business. "Court Order" means any judgment, decision, consent decree, injunction, ruling or order of any foreign, federal, state or local court or governmental agency, department or authority that is binding on any Person or its property under applicable law. "Default" means (a) a breach of or default under any Contract, (b) the occurrence of an event that with the passage of time or the giving of notice or both would constitute a breach of or default under any Contract or (c) the occurrence of an event that with or without the passage of time or the giving of notice or both would give rise to a right of termination, renegotiation or acceleration under any Contract. "Deferred Payment Date" means the date that is 180 calendar days after the Closing Date. "Earn-Out Payment Date" means November 29, 1999. "Employees" means all officers and directors of Mega Art and all other non-clerical Persons employed by Mega Art on a full or part-time basis as of the relevant date together with all persons retained as "independent contractors" on or after the date hereof through the Closing Date. "Employment Agreement" means the Agreement to be entered into at the Closing between Mega Art and the Principal Stockholder substantially in the form of Exhibit B attached hereto. "Encumbrance" means any claim, lien, pledge, option, charge, easement, security interest, deed of trust, mortgage, right-of-way, encroachment, building or use restriction, conditional sales agreement, encumbrance or other right of third parties, whether voluntarily incurred or arising by operation of law, and includes any agreement to give any of the foregoing in the future, and any contingent sale or other title retention agreement or lease in the nature thereof. "Environmental Claims" means all notices of violation, liens, claims, demands, suits, or causes of action for any damage (including, without limitation, all matters related to on-site or off-site properties), including, without limitation, personal injury, property damage (including, without limitation, any depreciation or diminution of property values), lost use of property or consequential damages, arising directly or indirectly out of Environmental Conditions or violations or alleged violations of Environmental Laws. "Environmental Conditions" means the state of the environment, including natural resources (e.g., flora and fauna), soil, surface water, ground water, any drinking water supply, subsurface strata or ambient air, relating to or arising out of the use, handling, storage, treatment, recycling, generation, 3 transportation, release, spilling, leaking, pumping, pouring, emptying, discharging, injecting, escaping, leaching, disposal, dumping or threatened release of Hazardous Substances by Mega Art or any of its predecessors in interest, or by its agents, representatives, employees or independent contractors when acting in such capacity on behalf of Mega Art. "Environmental Laws" means all applicable federal, state, district and local laws, all rules or regulations promulgated thereunder, and all orders, consent orders, judgments, notices, permits or demand letters issued, promulgated or entered pursuant thereto, relating to pollution or protection of the environment (including, without limitation, ambient air, surface water, ground water, land surface, or subsurface strata), including, without limitation, (i) laws relating to emissions, discharges, releases or threatened releases of Hazardous Substances into the environment and (ii) laws relating to the identification, generation, manufacture, processing, distribution, use, treatment, storage, disposal, recovery, transport or other handling of Hazardous Substances. Environmental Laws shall include, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), the Toxic Substances Control Act, as amended, the Hazardous Materials Transportation Act, as amended, the Resource Conservation and Recovery Act, as amended, the Clean Water Act, as amended, the Safe Drinking Water Act, as amended, the Clean Air Act, as amended, the Occupational Safety and Health Act, as amended, and all analogous laws promulgated or issued by any state or other governmental authority. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Financial Statements" means the audited balance sheets of Mega Art as of the Balance Sheet Date and August 31, 1998 and the related statements of income, changes in stockholders' equity and cash flows, of Mega Art for the twelve month periods then ended, together with the reports of Robbins, Spielman, Koenigsberg & Parker LLP thereon. "Facilities" means all plants, offices, manufacturing facilities, stores, warehouses, administration buildings and all real property and related facilities owned or leased by Mega Art, all as identified or listed on Schedule 3.8. "Fixtures and Equipment" means all of the furniture, fixtures, furnishings, machinery, computer hardware, and other tangible personal property owned by Mega Art, wherever located and including any such Fixtures and Equipment owned by Mega Art that is in the possession of any of Mega Art's suppliers or other vendors. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the accounting profession), or in such other statements by such entity as may be in general use by significant segments of the U.S. accounting profession, which are applicable to the facts and circumstances on the date of determination. "Hazardous Substances" means all pollutants, contaminants, chemicals, wastes, and any other carcinogenic, ignitable, corrosive, reactive, toxic or otherwise hazardous substances or materials (whether solids, liquids or gases) subject to regulation, control or remediation under Environmental 4 Laws. By way of example only, the term Hazardous Substances includes, without limitation, petroleum, urea formaldehyde, flammable, explosive and radioactive materials, PCBs, pesticides, herbicides, asbestos and solvents. "HSR Act" means the Hart Scott Rodino Antitrust Improvements Act of 1976, as amended. "knowledge" or "to the knowledge" of a party (or similar phrases) means to the extent of matters (i) which are actually known by such party or (ii) which, based on facts of which such party is aware, would be known to a reasonable Person in similar circumstances. "Liability" means any direct or indirect liability, indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or endorsement of or by any Person of any type, whether accrued, absolute, contingent, matured, unmatured, liquidated or unliquidated. "Material Adverse Effect" or "Material Adverse Change" or a similar phrase means, with respect to any Person, (a) any material adverse effect on or change with respect to (i) the business, operations, assets (taken as a whole), liabilities (taken as a whole), condition (financial or otherwise) or results of operations, of such Person and its Subsidiaries, taken as a whole, or (ii) the right or ability of such Person or any of its Subsidiaries to consummate any of the transactions contemplated hereby or (b) any event or condition which, with the passage of time or the giving or receipt of notice would reasonably be expected to constitute a "Material Adverse Effect" on or "Material Adverse Change" with respect to such Person. "Mega Art Stock" means the common stock, par value $1.00 per share of Mega Art. "Permitted Encumbrances" means (a) liens for Taxes or governmental charges or claims (i) not yet due and payable, or (ii) being contested in good faith, if a reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made therefor, (b) statutory liens of landlords, liens of carriers, warehousepersons, mechanics and materialpersons and other liens imposed by law incurred in the ordinary course of business for sums (i) not yet due and payable, or (ii) being contested in good faith, if a reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made therefor, (c) liens incurred or deposits made in connection with workers' compensation, unemployment insurance and other similar types of social security programs or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return of money bonds and similar obligations, in each case in the ordinary course of business, consistent with past practice, and (d) easements, rights-of-way, use or other restrictions and other similar charges or encumbrances, in each case, which do not materially interfere with the ordinary conduct of business of Mega Art. "Permits" means all licenses, permits, franchises, approvals, authorizations, consents or orders of, or filings with, any governmental authority, whether foreign, federal, state or local necessary for the operation of the Business. "Person" means any person or entity, whether an individual, trustee, corporation, limited liability company, general partnership, limited partnership, trust, unincorporated organization, business association, firm, joint venture, governmental agency or authority or any similar entity. "Proprietary Rights" means all (a) U.S. and foreign patents, patent applications, patent disclosures and improvements thereto, including petty patents and utility models and applications therefor, (b) U.S. and foreign trademarks, service marks, trade dress, logos, trade names and corporate 5 names and the goodwill associated therewith and registrations and applications for registration thereof, (c) U.S. and foreign copyrights and registrations and applications for registration thereof, (d) U.S. and foreign mask work rights and registrations and applications for registration thereof, (e) Trade Secrets, (f) other proprietary rights, (g) copies and tangible embodiments thereof (in whatever form or medium) and (h) licenses granting any rights with respect to any of the foregoing. "Regulations" means any laws, statutes, ordinances, regulations, rules, notice requirements, court decisions, agency guidelines, principles of law and orders of any foreign, federal, state or local government and any other governmental department or agency, including without limitation energy, motor vehicle safety, public utility, zoning, building and health codes, Environmental Laws, occupational safety and health and laws respecting employment practices, employee documentation, terms and conditions of employment and wages and hours. "Related Party" means (i) any of Mega Art's officers, directors and stockholders, and any officers, directors or immediate family of such officers, directors and stockholders, and (ii) any Person in which Mega Art or any stockholder or any Affiliate or immediate family of any such Person has any direct or indirect controlling interest. "Representative" of any Person means any officer, director, principal, attorney, agent, employee or other representative of such Person. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Stockholders Agreement" means the Stockholders' Agreement to be entered into between Unidigital and the Principal Stockholder substantially in the form of Exhibit C attached hereto. "Subsidiary" means, with respect to any Person, (a) any corporation of which at least 50% of the securities or interests having, by their terms, ordinary voting power to elect members to the board of directors, or other persons performing similar functions with respect to such corporation, is held, directly or indirectly, by such Person, (b) any partnership or limited liability company of which (i) such Person is a general partner or managing member or (ii) such person possesses a 50% or greater interest in the total capital or total income of such partnership or limited liability company. "Supplies" means all merchandise owned and intended for resale and all raw materials, work in process, finished goods, wrapping, supply and packaging items and similar items, whether or not located on the premises, on consignment to a third party, or in transit or storage. "Tangible Net Assets" means, with respect to Mega Art, the sum of (i) cash and cash equivalents plus (ii) accounts receivable minus (iii) accounts payable and debt (other than capital leases) as of August 31, 1998. "Tax Return" means any report, return, document, declaration or other information or filing required to be supplied to any taxing authority or jurisdiction (foreign or domestic) with respect to Taxes, including information returns, any documents with respect to or accompanying requests for the extension of time in which to file any such report, return, document, declaration or other information. 6 "Taxes" mean any and all taxes, charges, fees, levies or other assessments, including income, gross receipts, excise, real or personal property, sales, withholding, social security, retirement, unemployment, occupation, use, service, license, net worth, payroll, franchise and transfer and recording, imposed by the Internal Revenue Service or any taxing authority (whether domestic or foreign, including any federal, state, county, local or foreign government or any subdivision or taxing agency thereof (including a U.S. possession)), whether computed on a separate, consolidated, unitary, combined or any other basis; and such term shall include any interest whether paid or received, fines, penalties or additional amounts attributable to, or imposed upon, or with respect to, any such taxes, charges, fees, levies or other assessments. "Trade Secrets" means all trade secrets and confidential business information (including ideas, formulas, compositions, inventions (whether patentable or unpatentable and whether or not reduced to practice), know-how, research and development information, software, drawings, specifications, designs, plans, proposals, technical data, copyrightable works, financial, marketing and business data, pricing and cost information, business and marketing plans and customer and supplier lists and information). "Unidigital Stock" means the common stock, par value $.01 per share, of Unidigital. 1.2. Interpretation Provisions. (a) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement, and article, section, schedule and exhibit references are to this Agreement unless otherwise specified. The meaning of defined terms shall be equally applicable to the singular and plural forms of the defined terms. The term "or" is disjunctive but not necessarily exclusive. The terms "include" and "including" are not limiting and mean "including without limitation." (b) References to agreements and other documents shall be deemed to include all subsequent amendments and other modifications thereto prior to the date hereof. (c) References to statutes shall include all regulations promulgated thereunder and references to statutes or regulations shall be construed as including all statutory and regulatory provisions consolidating, amending or replacing the statute or regulation prior to the date hereof. (d) The captions and headings of this Agreement are for convenience of reference only and shall not affect the construction of this Agreement. (e) The language used in this Agreement shall be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction shall be applied against either party. (f) The schedules and exhibits, including any amendments or additions to such schedules or exhibits, to this Agreement are a material part hereof and shall be treated as if fully incorporated into the body of the Agreement. 7 ARTICLE 2. THE ACQUISITION 2.1. The Acquisition. (a) At the Closing (as defined in Section 2.1(b) hereof), and subject to and upon the terms and conditions of this Agreement, each of the Stockholders agrees to sell to Unidigital, and Unidigital agrees to purchase from the Stockholders, the Mega Art Stock. Upon consummation of the Acquisition, the Business will continue to operate as an independent subsidiary of Unidigital under the full authority and control of the Principal Stockholder under the "Mega Art" tradename. (b) Unless this Agreement shall have been terminated pursuant to Section 11.1, and subject to the satisfaction or waiver, if permissible, of the conditions set forth in Articles 6 and 7, the closing of the transactions contemplated by this Agreement (the "Closing") shall take place by August 31, 1998 (i) at the offices of Orrick, Herrington & Sutcliffe LLP, 30 Rockefeller Plaza, New York, New York, as promptly as practicable (and in any event within five business days) after satisfaction or waiver, if permissible, of the conditions set forth in Articles 6 and 7 or (ii) at such other time, date or place as Unidigital and Mega Art may mutually agree. 2.2. Directors and Officers. Upon consummation of the Acquisition, the Principal Stockholder shall be elected as a director and officer of Mega Art and a member of the Executive Committee of Senior Management (or such other similar committee) of Unidigital. 2.3. Purchase Price. (a) In consideration of the Acquisition, on the Closing Date, pursuant to Exhibit D, Unidigital shall pay to the Stockholders an initial aggregate purchase price (the "Initial Purchase Price") equal to (i) $5,800,000 in cash and (ii) $5,000,000 in restricted Unidigital Stock, such amount to be paid by the issuance of such number of shares of restricted Unidigital Stock, which when multiplied by the average closing price of Unidigital Stock on the Nasdaq National Market as reported by the Nasdaq Stock Market for the fifteen (15) trading days immediately prior to the five (5) trading days immediately prior to the Closing Date, shall have an aggregate market value of $5,000,000. The cash portion of the Initial Purchase Price shall be made by Unidigital in immediately available funds by wire transfer to an account or accounts to be specified by the Principal Stockholder. (b) Subject to the adjustments set forth in this Section 2.3(b) and Unidigital's right of offset set forth in Section 9.4, on the Deferred Payment Date, Unidigital shall pay to the Stockholders an additional $1,200,000 in cash (the "Deferred Payment") pursuant to Exhibit D. The Deferred Payment shall be subject to the following adjustments: (i) in the event that Tangible Net Assets are less than $800,000, the Deferred Payment shall be reduced by the amount of such deficiency; (ii) in the event that Tangible Net Assets exceed $1,000,000, the Deferred Payment shall be increased by the amount of such overage; and 8 (iii) in the event that 1998 Adjusted EBITDA is less than $2,150,000, the Deferred Payment shall be reduced by six (6) times the amount of such deficiency. If the Deferred Payment is not made within seven (7) calendar days of the Deferred Payment Date, Unidigital shall be obligated to pay to the Principal Stockholder, in the form of an addition to his salary, a penalty payment of $50,000 for each month (or any portion thereof) in which any part of the Deferred Payment is outstanding. Such penalty payment shall not be credited against the Deferred Payment and shall not constitute a portion of the Purchase Price. (c) Subject to the adjustments set forth in Section 2.3(d) and Unidigital's right of offset set forth in Section 9.4, in the event that 1999 Adjusted EBITDA is at least equal to $2,250,000, Unidigital shall make an additional purchase price payment (the "Earn-Out Payment") to the Stockholders pursuant to Exhibit D equal to (i) $1,200,000 in cash and (ii) $1,200,000 of Unidigital Stock. The number of shares of Unidigital Stock to be delivered to the Principal Stockholder pursuant to this Section 2.3(c) shall be determined by dividing $1,200,000 by the Average Share Price as of August 31, 1999, rounded up to the nearest whole number. (d) The Earn-Out Payment shall be subject to the following adjustments: (i) in the event that 1999 Adjusted EBITDA is less than $2,250,000 (but in no event less than $1,850,000), the Earn-Out Payment shall be reduced by six (6) times the amount of such deficiency, which reduction shall be made equally with respect to the cash portion and the stock portion of the Earn-Out Payment; provided, however, that in such an event the Principal Stockholder may reimburse Unidigital for any costs and expenses relating to his art studio, which costs and expenses shall be excluded from the calculation of 1999 Adjusted EBITDA. (ii) in the event that 1999 Adjusted EBITDA is greater than $2,750,000, Unidigital shall grant to those Employees selected by the Principal Stockholder (other than the Principal Stockholder) options to purchase Unidigital Stock having an aggregate fair market value (as determined by Unidigital's Board of Directors) equal to the amount of such excess; provided, however, that in no event shall the aggregate fair market value of such options exceed $250,000; (iii) in no event shall the Stockholders be entitled to receive more than twenty percent (20%) of the issued and outstanding shares of Unidigital Stock as of the Closing Date. If the distribution of the stock portion of the Earn-Out Payment would cause such a result, the Stockholders hereby agrees to accept cash in lieu of shares of Unidigital Stock to which they are entitled such that their ownership of Unidigital Stock does not exceed 19.99% of the issued and outstanding shares of Unidigital Stock as of the Closing Date; and (iv) in the event that the Principal Stockholder is terminated without cause or for good reason (each as defined in the Employment Agreement), the Earn-Out Payment shall be payable to the Principal Stockholder without regard to 1999 Adjusted EBITDA. If the Earn-Out Payment is not made by the Earn-Out Payment Date, Unidigital shall be obligated to pay to the Principal Stockholder, in the form of an addition to his salary, a penalty payment of $50,000 for each month (or any portion thereof) in which any part of the Earn-Out Payment is outstanding. Such penalty payment shall not be credited against the Earn-Out Payment and shall not constitute a portion of the Purchase Price. 9 (e) In the event the Principal Stockholder disputes Unidigital's determination of Tangible Net Assets, 1998 Adjusted EBITDA or 1999 Adjusted EBITDA, the Principal Stockholder shall notify Unidigital in writing within twenty (20) calendar days after the date of such determination setting forth the amount, nature and basis of the dispute. Within the following thirty (30) calendar days, the parties shall use their best efforts to resolve such dispute. Upon their failure to do so, the dispute shall be submitted for arbitration as follows: (i) The arbitrator shall be a "Big Five" public accounting firm located in the City of New York, State of New York mutually acceptable to the Principal Stockholder and Unidigital. In the event the selected arbitrator declines or is unable to serve for any reason, the parties shall select another arbitrator. Upon their failure to agree on another arbitrator, the Commercial Arbitration Rules of the American Arbitration Association shall be invoked to make such selection. (ii) The arbitrator shall follow the Commercial Arbitration Rules of the American Arbitration Association, except as otherwise provided herein. The arbitrator shall substantially comply with the rules of evidence; shall grant essential but limited discovery; shall provide for the exchange of witness lists and exhibit copies; shall conduct a pretrial and consider dispositive motions. Each party shall have the right to request the arbitrator to make findings of specific factual issues. The arbitrator shall complete its proceedings and render its decision within forty (40) calendar days after submission of the dispute to it, unless both parties agree to an extension. Each party shall cooperate with the arbitrator to comply with procedural time requirements and the failure of either to do so shall entitle the arbitrator to extend the arbitration proceedings accordingly and to impose sanctions on the party responsible for the delay, payable to the other party. In the event the arbitrator does not fulfill its responsibilities on a timely basis, either party shall have the right to require a replacement and the appointment of a new arbitrator. (iii) The decision of the arbitrator shall be final and binding upon the parties and accordingly a judgment by a court of competent jurisdiction may be entered in accordance therewith. The non-prevailing party shall be solely responsible for the fees and expenses of the arbitrator. (f) The Principal Stockholder hereby agrees that Unidigital shall not be subject to any penalty payments provided for herein for failure to pay the Deferred Payment or the Earn-Out Payment, if any, on a timely basis during such time as a good faith dispute among the parties hereto is being resolved in accordance with the procedures set forth in Section 2.3(e). In the event the arbitrator determines that Unidigital must pay all or a portion of the Deferred Payment or the Earn-Out Payment, as the case may be, Unidigital hereby agrees to make any such payments within five (5) business days of the arbitrator's decision. If Unidigital fails to make such payments on a timely basis or the arbitrator determines that Unidigital did not act in good faith, the penalty payments provided for herein shall be reinstated, retroactive to the first date of non-payment. (g) The consideration to be paid to and among the Stockholders under this Agreement was negotiated at arms length. 10 2.4. Delivery of Certificates. At the Closing, Unidigital shall deliver, and the Stockholders shall be entitled to receive, upon delivery to Unidigital or its representatives of any certificate or certificates evidencing the Mega Art Stock (the "Certificates"), the Initial Purchase Price. 2.5. No Further Ownership Rights in Shares of Mega Art Stock. The Initial Purchase Price delivered upon the delivery for exchange of the Mega Art Stock in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Mega Art Stock, and there shall be no further registration of transfers of Mega Art Stock which were outstanding immediately prior to the Closing Date on the records of Mega Art. 2.6. Lost, Stolen or Destroyed Certificates. In the event any Certificates shall have been lost, stolen or destroyed, Unidigital shall issue in exchange for such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact by the holder thereof, the Initial Purchase Price, as may be required pursuant to Section 2.3. ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF MEGA ART AND THE PRINCIPAL STOCKHOLDER As an inducement to Unidigital to enter into this Agreement, Mega Art and the Principal Stockholder hereby make, jointly and severally, as of the date hereof and as of the Closing Date, the following representations and warranties to Unidigital, except as otherwise set forth in written disclosure schedules (the "Schedules") delivered to Unidigital prior to the Closing Date, a copy of which is attached hereto. The Schedules are numbered to correspond to the various sections of this Article 3 setting forth certain exceptions to the representations and warranties contained in this Article 3 and certain other information called for by this Agreement. 3.1. Organization of Mega Art. Except as set forth on Schedule 3.1, Mega Art is a corporation duly incorporated, validly existing and in good standing under the laws of the State of New York. Mega Art has full corporate power and authority to conduct the Business as it is presently being conducted and to own or lease, as applicable, the Assets owned or leased by it. Mega Art is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which such qualification is necessary under applicable law as a result of the conduct of the Business or the ownership of its properties and where the failure to be so qualified would have a Material Adverse Effect. Each jurisdiction in which Mega Art is qualified to do business as a foreign corporation is set forth in Schedule 3.1. 3.2. Capitalization of Mega Art. (a) As of the date of this Agreement, there are 100 shares of Mega Art Stock authorized under its Certificate of Incorporation, 100 of which are issued and outstanding. Mega Art has no other capital stock authorized, issued or outstanding. Schedule 3.2 sets forth the name of each holder 11 of shares of Mega Art Stock, as well as the number of shares of Mega Art Stock held by each such holder. (b) There are no outstanding options, warrants, convertible securities or rights of any kind to purchase or otherwise acquire any shares of capital stock or other securities of Mega Art and no shares of capital stock of Mega Art are reserved for issuance. (c) All outstanding shares of Mega Art Stock are validly issued, fully paid and non-assessable and not subject to any preemptive rights created by statute, Mega Art's Certificate of Incorporation or Bylaws or any Contract. The shares of Mega Art Stock have been issued in material compliance with all federal and state securities laws. (d) Other than the transactions contemplated by this Agreement, there is no outstanding vote, plan, pending proposal or right of any Person to cause any redemption of Mega Art Stock or the merger or consolidation of Mega Art with or into any other entity. 3.3. Stockholders' Agreements, Etc. Except as set forth on Schedule 3.3, there are no stockholder agreements, voting trusts, proxies or other agreements or understandings with respect to or concerning the purchase, sale or voting of the capital stock of Mega Art. 3.4. Authorization. Mega Art has all necessary corporate power and authority and the Principal Stockholder has the capacity to enter into this Agreement and the Ancillary Agreements to which it is a party and Mega Art has taken all corporate actions necessary to consummate the transactions contemplated hereby and thereby and to perform their respective obligations hereunder and thereunder. This Agreement has been duly executed and delivered by Mega Art and the Principal Stockholder, and this Agreement is, and upon execution and delivery each of the Ancillary Agreements to which each of Mega Art and the Principal Stockholder is a party will be, a valid and binding obligation of Mega Art and the Principal Stockholder, enforceable against Mega Art in accordance with its terms, except that enforceability may be limited by the effect of (a) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws relating to or affecting the rights of creditors, (b) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity), or (c) the exercise of judicial discretion with respect to any covenants not to compete or other restrictive covenants contained herein or therein. 3.5. Officers and Directors. Schedule 3.5 contains a true, correct and complete list of all the officers and directors of Mega Art. 3.6. Bank Accounts. Schedule 3.6 contains a list of all of Mega Art's bank accounts, safe deposit boxes, and persons authorized to draw thereon or have access thereto. 12 3.7. Subsidiaries, Etc. Mega Art has no Subsidiaries. 3.8. Real Property. Schedule 3.8 sets forth all Leases pursuant to which Facilities are leased by Mega Art, true and correct copies of which have been delivered to Unidigital. Such Leases constitute all Leases, subleases or other occupancy agreements pursuant to which Mega Art occupies or uses and, to the knowledge of Mega Art, are in full force and effect (the "Leased Property"). Except as set forth on Schedule 3.8, (i) there are no pending or, to the knowledge of Mega Art, threatened condemnation proceedings relating to, or any pending or, to the knowledge of Mega Art, threatened Actions relating to, such Leased Property or any portion thereof, (ii) neither Mega Art or, to the knowledge of Mega Art, any third party has entered into any sublease, license, option, right, concession or other agreement or arrangement, written or oral, granting to any person the right to use or occupy such Leased Property or any portion thereof or interest therein and (iii) neither Mega Art nor the Principal Stockholder has received notice of any pending or threatened special assessment relating to such Leased Property or otherwise has any knowledge of any pending or threatened special assessment relating thereto. Mega Art does not own any real property. Except as set forth on Schedule 3.8, (i) there has been no material default under any such Lease by Mega Art or, to the knowledge of Mega Art, by any other party, (ii) the execution, delivery and performance of this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby will not cause a material default under any such Lease, (iii) such Lease is a valid and binding obligation of Mega Art, is in full force and effect with respect to Mega Art and is enforceable against Mega Art in accordance with its terms, except as the enforceability thereof may be limited by (1) applicable bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance or similar laws in effect which affect the enforcement of creditors' rights generally or (2) general principles of equity, whether considered in a proceeding at law or in equity, (iv) no action has been taken by Mega Art, and no event has occurred which, with notice or lapse of time or both, would permit termination, modification or acceleration by a party thereto other than Mega Art without the consent of Mega Art under any such Lease that is material to Mega Art, (v) no party has repudiated in writing any term thereof or threatened in writing to terminate, cancel or not renew any such Lease that is material to Mega Art and (vi) Mega Art has not assigned, transferred, conveyed, mortgaged or encumbered any interest therein or in any leased property subject thereto (or any portion thereof). 3.9. Personal Property. (a) Mega Art owns or leases all personal property Assets necessary for the conduct of its business as presently conducted, and the personal property Assets (taken as a whole) are in such operating condition and repair (subject to normal wear and tear) as is necessary for the conduct of its business as presently conducted. (b) Except as set forth on Schedule 3.9, Mega Art has good and marketable title to all such personal property, free and clear of any and all material Encumbrances other than Permitted Encumbrances. With respect to each such item of personal property (i) there are no Leases, subleases, licenses, options, rights, concessions or other agreements, written or oral, granting to any party or parties the right of use of any portion of such item of personal property (except licenses of Proprietary Rights in the ordinary course of business), (ii) there are no outstanding options or rights of first refusal in favor of 13 any other party to purchase any such item of personal property or any portion thereof or interest therein and (iii) there are no parties (other than Mega Art) who are in possession of or who are using any such item of personal property. (c) Except as set forth on Schedule 3.9, Mega Art has good and valid leasehold title to all of such Fixtures and Equipment, vehicles and other tangible personal property Assets leased by it from third parties, free and clear of any and all material Encumbrances other than Permitted Encumbrances. With respect to each Lease listed on Schedule 3.9, (i) there has been no material default under any such Lease by Mega Art or, to the knowledge of Mega Art, by any other party, (ii) the execution, delivery and performance of this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby will not cause a material default under any such Lease, (iii) such Lease is a valid and binding obligation of Mega Art, is in full force and effect with respect to Mega Art and is enforceable against Mega Art in accordance with its terms, except as the enforceability thereof may be limited by (1) applicable bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance or similar laws in effect which affect the enforcement of creditors' rights generally or (2) general principles of equity, whether considered in a proceeding at law or in equity, (iv) no action has been taken by Mega Art and no event has occurred which, with notice or lapse of time or both, would permit termination, modification or acceleration by a party thereto other than Mega Art without the consent of Mega Art under any such Lease that is material to Mega Art, (v) no party has repudiated in writing any term thereof or threatened in writing to terminate, cancel or not renew any such Lease that is material to Mega Art and (vi) Mega Art has not assigned, transferred, conveyed, mortgaged or encumbered any interest therein or in any leased property subject thereto (or any portion thereof). 3.10. Environmental Matters. (a) Mega Art is in material compliance with all Environmental Laws applicable to the Business as currently or formerly conducted. Mega Art has not received any notice to the effect that or otherwise has knowledge that (i) it is not in compliance in any material respect with, or is in violation of, any such Environmental Laws or Permits required thereunder or (ii) any currently or formerly existing circumstances are likely to result in a failure of Mega Art to comply with, or result in a violation by Mega Art of, any such Environmental Laws or Permits required thereunder. Mega Art has not taken any action during the previous five years that would constitute a material violation of any Environmental Laws. (b) There are no existing or, to the best knowledge of Mega Art, potential, Environmental Claims against Mega Art, nor has it received any written notification or otherwise has any knowledge, of any allegation of any actual, or potential responsibility for, or any inquiry or investigation regarding, any disposal, release or threatened release at any location of any Hazardous Substance used, generated or transported by Mega Art. (c) To the best knowledge of Mega Art, (i) no underground tank or other underground storage receptacle for Hazardous Substances is currently located on the Facilities, and there have been no releases of any Hazardous Substances from any such underground tank or related piping and (ii) there have been no releases (i.e., any past or present releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing, or dumping) of Hazardous Substances in quantities exceeding the reportable quantities as defined under any Environmental Law by Mega Art, or any of its precedessors in interest, on, upon or into the Facilities or 14 elsewhere other than those authorized by Environmental Laws including, without limitation, the Permits required thereunder. (d) To Mega Art's best knowledge, there are no PCBs or asbestos-containing materials located at or on the Facilities. (e) Except as set forth on Schedule 3.10(e), Mega Art is not a party, whether as a direct signatory or as successor, assign or third-party beneficiary, or otherwise bound, to any Lease or other Contract (excluding insurance policies disclosed on the Schedules) under which Mega Art is obligated by or entitled to the benefits of, directly or indirectly, any representation, warranty, indemnification, covenant, restriction or other undertaking concerning Environmental Conditions. (f) Except as set forth on Schedule 3.10(f), to Mega Art's best knowledge, Mega Art has not released any other person from any claim under any Environmental Law or waived any rights concerning any Environmental Condition. (g) To Mega Art's best knowledge, there are no consent decrees, consent orders, judgments, judicial or administrative orders or agreements (other than Permits) with or liens by, any governmental authority or quasi-governmental entity relating to any Environmental Law which regulate, obligate or bind Mega Art. 3.11. Contracts. (a) Schedule 3.11 sets forth a complete and accurate list of all of Mega Art's material Contracts. Complete and accurate copies of all of the Contracts listed on Schedule 3.11, including all amendments and supplements thereto, have been made available to Unidigital. (b) All of the Contracts on Schedule 3.11 are valid, binding and enforceable in accordance with their terms with no existing (or to the knowledge of Mega Art or the Principal Stockholder, threatened) Default or dispute, except as set forth on Schedule 3.11. Mega Art has fulfilled, or taken all action necessary to enable it to fulfill when due, all of its material obligations under each of such Contracts. To the knowledge of Mega Art or the Principal Stockholder, all parties to such Contracts have complied in all material respects with the provisions thereof, no party is in Default thereunder and no notice of any claim of Default has been given to Mega Art or the Principal Stockholder. 3.12. No Conflict or Violation; Consents. Except as set forth on Schedule 3.12, none of the execution, delivery or performance of this Agreement or any Ancillary Agreement, the consummation of the transactions contemplated hereby or thereby, nor compliance by Mega Art or the Principal Stockholder with any of the provisions hereof or thereof, will (a) violate or conflict with any provision of the Certificate of Incorporation or Bylaws of Mega Art, (b) violate, conflict with, or result in a breach of or constitute a default (with or without notice of passage of time) under, or result in the termination of, or accelerate the performance required by, or result in a right to terminate, accelerate, modify or cancel under, or result in the creation of any Encumbrance upon any of its respective assets under, any material Contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, security interest or other arrangement that relates exclusively to the Business to which Mega Art or the Principal Stockholder is a party or by which Mega Art or the Principal Stockholder is bound or to which any of their respective assets are subject, (c) violate any applicable Regulation or 15 Court Order which would have a Material Adverse Effect or (d) impose any Encumbrance on any Assets or the Business which would have a Material Adverse Effect. Except as set forth on Schedule 3.12, no notices to, declaration, filing or registration with, approvals or Consents of, or assignments by, any Persons (including any federal, state or local governmental or administrative authorities) are necessary to be made or obtained by Mega Art or the Principal Stockholder in connection with the execution, delivery or performance of this Agreement or any Ancillary Agreement or the consummation of the transactions contemplated hereby or thereby. 3.13. Permits. Schedule 3.13 sets forth a complete list of all material Permits necessary for the conduct of the Business, all of which are as of the date hereof, and will be as of the Closing Date, in full force and effect. Mega Art has, and at all times has had, all Permits required under any applicable Regulation in its operation of the Business or in its ownership of the Assets, except where the failure to have such Permits would not have a Material Adverse Effect. Mega Art is not in default, nor has Mega Art or the Principal Stockholder received any notice of any claim of default, with respect to any such Permit. 3.14. Financial Statements; Books and Records. (a) The Financial Statements are, or will be, complete, are in accordance with the Books and Records, fairly present in all material respects the Assets and Liabilities of Mega Art and financial condition and results of operations indicated thereby in accordance with GAAP consistently applied throughout the periods covered thereby. (b) The Books and Records accurately and fairly reflect the activities of Mega Art and the Business in all material respects and have been, or will be, provided to Unidigital for its inspection. (c) Mega Art has not engaged in any transaction, maintained any bank account or used any corporate funds except for transactions, bank accounts or funds which have been and are reflected in the normally maintained Books and Records. (d) Except as set forth on Schedule 3.2, the stock records and minute books of Mega Art that have been, or will be, made available to Unidigital fully reflect all minutes of meetings, resolutions and other material actions and proceedings of Mega Art's stockholders and boards of directors and all committees thereof, all issuances, transfers and redemptions of capital stock of which Mega Art or the Principal Stockholder are aware and contain true, correct and complete copies of Mega Art's Certificate of Incorporation and Bylaws and all amendments thereto through the date hereof. 3.15. Absence of Certain Changes or Events. Except as set forth on Schedule 3.15, since the Balance Sheet Date there has not been any: (a) Material Adverse Change with respect to Mega Art; (b) failure to operate the Business in the ordinary course in all material respects so as to use its commercially reasonable efforts to preserve the Business intact and to preserve the continued services of its Employees and the goodwill of suppliers, customers and others having business relations with Mega Art or its Representatives; 16 (c) resignation or termination of any officer or non-clerical Employee, or, except as set forth in the Salary Table (as hereinafter defined), any material increase in the rate of compensation payable or to become payable to any officer or Employee of Mega Art, including the making of any loan to, or the payment, grant or accrual of any bonus in excess of $5,000, incentive compensation, service award or other similar benefit to, any such Person, or the addition to, modification of, or contribution to any Plan (as hereinafter defined); (d) payment, loan or advance of any amount to or in respect of, or the sale, transfer or lease of any properties or the Assets to, or entering into of any Contract with, any Related Party in excess of $5,000 except (i) directors' fees, (ii) compensation to Employees at the rates disclosed pursuant to Section 3.18(d) and (iii) forgiveness of loans in the amounts and to the individuals set forth on Schedule 3.15; (e) sale, assignment, license, transfer or Encumbrance of any of the Assets, tangible or intangible, singly or in the aggregate, other than sales of products and services in the ordinary course of business and consistent with past practice; (f) new material Contracts, or extensions, modifications, terminations or renewals thereof, except for material Contracts entered into, modified or terminated in the ordinary course of business and consistent with past practice; (g) actual or, to the knowledge of Mega Art or the Principal Stockholder, threatened termination of any material customer account or group of accounts or actual or threatened material reduction in purchases or royalties payable by any such customer or occurrence of any event that is likely to result in any such termination or reduction; (h) disposition or lapsing of any Proprietary Rights of Mega Art, in whole or in part, or any disclosure of any trade secret, process or know-how to any Person not an Employee; (i) change in accounting methods or practices by Mega Art; (j) revaluation by Mega Art of any of the Assets, including writing off notes or accounts receivable other than for which adequate reserves have been established; (k) damage, destruction or loss (whether or not covered by insurance) materially adversely affecting the Assets, the Business or the prospects of Mega Art; (l) declaration, setting aside or payment of dividends or distributions in respect of any capital stock of Mega Art or any redemption, purchase or other acquisition of any equity securities of Mega Art; (m) issuance or reservation for issuance by Mega Art of, or commitment of it to issue or reserve for issuance, any shares of capital stock or other equity securities or obligations or securities convertible into or exchangeable for shares of capital stock or other equity securities; (n) increase, decrease or reclassification of the capital stock of Mega Art; (o) amendment of the Certificate of Incorporation or Bylaws of Mega Art; 17 (p) capital expenditure or execution of any lease or any incurring of liability therefor by Mega Art, involving payments in excess of $10,000 in the aggregate; (q) failure to pay any material obligation of Mega Art when due; (r) cancellation of any material indebtedness or waiver of any rights of substantial value to Mega Art, except in the ordinary course of business and consistent with past practice; (s) indebtedness incurred by Mega Art for borrowed money or any commitment to borrow money entered into by Mega Art, or any loans made or agreed to be made by Mega Art; (t) liability incurred by Mega Art except in the ordinary course of business and consistent with past practice, or any increase or change in any assumptions underlying or methods of calculating any bad debt, contingency or other reserves; (u) payment, discharge or satisfaction of any Liabilities of Mega Art other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of Liabilities reflected or reserved against in the Financial Statements or incurred in the ordinary course of business and consistent with past practice since the Balance Sheet Date; (v) acquisition of any equity interest in any other Person; or (w) agreement by Mega Art to do any of the foregoing. 3.16. Liabilities. Mega Art has no material Liabilities or obligations (absolute, accrued, contingent or otherwise) except (i) Liabilities which are, or will be, fully reflected (in accordance with GAAP) in the Financial Statements, (ii) Liabilities incurred in the ordinary course of business and consistent with past practice since the Balance Sheet Date (all of which liabilities do not exceed $50,000 in the aggregate) and (iii) Liabilities arising under the Contracts (other than obligations which are required to be reflected on the Financial Statements prepared in accordance with GAAP) set forth on Schedule 3.11 or which are not required to be disclosed on such Schedule and which have arisen or been incurred in the ordinary course of business. Except as set forth in Schedule 3.16, Mega Art does not have any contingent liabilities. 3.17. Litigation. There is no Action, pending or, to the knowledge of Mega Art or the Principal Stockholder, threatened or anticipated (i) against, relating to or adversely affecting Mega Art or the Principal Stockholder, any of the Assets or any of their respective officers and directors as such, (ii) which seeks to enjoin or obtain damages in respect of the transactions contemplated hereby or by the Ancillary Agreements or (iii) with respect to which there is a reasonable likelihood of a determination which would prevent Mega Art or the Principal Stockholder from consummating the transactions contemplated hereby. To the knowledge of Mega Art and the Principal Stockholder, there is no basis for any Action, which if adversely determined against the Principal Stockholder, Mega Art, their respective directors or officers, or any other Person could reasonably be expected to result in a loss to Mega Art. There are presently no outstanding judgments, decrees or orders of any court or any governmental or administrative agency against or affecting Mega Art, the Business or any of the Assets that could result in a Material Adverse Effect. Schedule 3.17 contains a complete and accurate description of all Actions since December 31, 1996 to which Mega Art has been a party or which relate to any of the Assets or its 18 officers or directors as such, or any such Actions which were settled prior to the institution of formal proceedings, other than Actions brought by Mega Art for collection of monies owed in the ordinary course of business. 3.18. Labor Matters. (a) A complete list of Employees has been, or will be, provided to Unidigital. Mega Art is not a party to any labor agreement with respect to its Employees with any labor organization, group or association and has not experienced any attempt by organized labor or its representatives to make Mega Art conform to demands of organized labor relating to its Employees or to enter into a binding agreement with organized labor that would cover the Employees of Mega Art. There is no unfair labor practice charge or complaint against Mega Art pending before the National Labor Relations Board or any other governmental agency arising out of Mega Art's activities, and neither Mega Art nor the Principal Stockholder has any knowledge of any facts or information which would give rise thereto; there is no labor strike or labor disturbance pending or, to the knowledge of Mega Art or the Principal Stockholder, threatened against Mega Art nor is any grievance currently being asserted against it; and Mega Art has not experienced a work stoppage or other labor difficulty. There are no material controversies pending or, to the knowledge of Mega Art or the Principal Stockholder, threatened between Mega Art and any of its Employees, and neither Mega Art nor the Principal Stockholder is aware of any facts which could reasonably result in any such controversy. (b) Except as set forth in Schedule 3.18(b), Mega Art is in material compliance with all applicable Regulations respecting employment practices, terms and conditions of employment, wages and hours, equal employment opportunity, and the payment of social security and similar taxes, and none of them are engaged in any unfair labor practice. To its knowledge, Mega Art is not liable for any claims for past due wages or any penalties for failure to comply with any of the foregoing. (c) Except with respect to the employment agreements set forth on Schedule 3.18(c) (the "Existing Employment Agreements"), Mega Art has not entered into any severance or similar arrangement in respect of any present or former Employee that will result in any obligation (absolute or contingent) of Unidigital or Mega Art to make any payment in excess of $5,000 to any present or former Employee following termination of employment or upon consummation of the transactions contemplated by this Agreement. (d) Mega Art has provided, or will provide, Unidigital with a table setting forth the current salary or hourly wages and other compensation payable by Mega Art to each of such Employees (the "Salary Table"). 3.19. Employee Benefit Plans. Except as set forth on Schedule 3.19, neither Mega Art nor any member of the "controlled group of corporations" (within the meaning of Section 414(b) of the Code), of which Mega Art has been a member, nor any trade or business "under common control" (within the meaning of Section 414(c) of the Code) with Mega Art, during the five year period preceding the date hereof, presently, or during such five year period, has been a sponsor of, party to or obligated to contribute to any employee benefit plan (as defined in Section 3(3) of ERISA), or any employment contract, employee loan, incentive compensation, deferred compensation, severance, termination pay, stock option or purchase plan, guaranteed annual income plan, fund or arrangement, payroll incentive, policy, fund, agreement or arrangement, noncompetition or consulting agreement, or other employee fringe benefit program or plan, 19 or any other plan, payroll practice, policy, fund, agreement or arrangement similar to or in the nature of the foregoing, oral or written ("Plans"). None of the Plans is a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) or a defined benefit plan (as defined in Section 3(35) of ERISA) subject to the provisions of Title IV of ERISA. Complete and correct copies of all written Plans, and summary plan descriptions thereof, if any, and summaries of all oral Plans have been delivered to Unidigital. Each Plan which is intended to be qualified under Section 401(a) of the Code is the subject of a favorable determination letter from the Internal Revenue Service stating that it satisfies the requirements of Section 401(a) of the Code. All of the Plans have been operated in material compliance with their respective terms and all legal requirements. 3.20. Transactions with Related Parties. Except for employment agreements and other compensation arrangements disclosed on Schedule 3.20, no Related Party has (a) borrowed or loaned money or other property to Mega Art which has not been, or by the Closing Date will not be, repaid or returned, (b) any contractual or other claims, express or implied, of any kind whatsoever against Mega Art or (c) any interest in any property used by Mega Art. 3.21. Compliance with Law. Except as set forth on Schedule 3.21, Mega Art has conducted the Business in compliance with all applicable Regulations and Court Orders, except where the failure to do so would not have a Material Adverse Effect. Neither Mega Art nor the Principal Stockholder has received any notice to the effect that, or has otherwise been advised that, Mega Art is not in compliance with any such Regulations or Court Orders. 3.22. Intellectual Property. (a) Schedule 3.22 sets forth all Proprietary Rights of Mega Art. True and correct copies of all Proprietary Rights (including all pending applications, application related documents and materials and written materials relating to Trade Secrets) owned, controlled or used by or on behalf of Mega Art or in which Mega Art has any interest whatsoever have been, or will be, provided or made available to Unidigital. (b) The Proprietary Rights of Mega Art are all those necessary for the normal conduct of the Business as presently conducted and as presently contemplated, including the design, manufacture and sale of all products currently under development, planned for development or in production. (c) Except with respect to the Existing Employment Agreements, Mega Art has no obligation to compensate any Person for the use of any of its Proprietary Rights. Except in the ordinary course of business, Mega Art has not granted to any Person any license, option or other rights to use in any manner any of its Proprietary Rights, whether requiring the payment of royalties or not. (d) Mega Art owns or has a valid right to use its Proprietary Rights, and such Proprietary Rights will not cease to be valid rights of Mega Art by reason of the execution, delivery and performance of this Agreement or the Ancillary Agreements or the consummation of the transactions contemplated hereby or thereby. 20 (e) Neither Mega Art nor the Principal Stockholder (A) has received any notice alleging, or otherwise has knowledge of facts that might give rise to, invalidity with respect to any of the Proprietary Rights of Mega Art or (B) has received any notice of alleged infringement of any rights of others due to any activity by Mega Art. To the knowledge of Mega Art or the Principal Stockholder, Mega Art's use of its Proprietary Rights in its past, current and planned products do not and would not infringe upon or otherwise violate the valid rights of any third party anywhere in the world. No other Person (i) has notified Mega Art or the Principal Stockholder that it is claiming any ownership of or right to use any of Mega Art's or (ii) to the knowledge of Mega Art or any Principal Stockholder, is infringing upon any such Proprietary Rights in any way. (f) All of the pending applications for Mega Art's Proprietary Rights have been duly filed and all other actions to protect such Proprietary Rights have been taken. Mega Art has taken reasonable steps necessary or appropriate (including, entering into appropriate confidentiality and nondisclosure agreements with officers, directors, subcontractors, Employees, licensees and customers in connection with the Assets or the Business) to safeguard and maintain the secrecy and confidentiality of, and the proprietary rights in, the Proprietary Rights that are material to the Business. Neither Mega Art nor the Principal Stockholder has knowledge of any breach of any such confidentiality or nondisclosure agreement by any party thereto. 3.23. Tax Matters. (a) Mega Art has filed, or by the Closing Date, will have filed, with the appropriate taxing authorities all Tax Returns required to be filed by Mega Art through the date hereof. The Tax Returns filed are complete and accurate in all material respects. Except as specified in Schedule 3.23, Mega Art has not requested any extension of time within which to file its Tax Returns that are otherwise currently due. Mega Art has delivered to Unidigital complete and accurate copies of federal, state and local Tax Returns of Mega Art for the year ended July 31, 1997. Schedule 3.23 sets forth a list of such Tax Returns as delivered hereunder. (b) Except as set forth on Schedule 3.23, all Taxes due from Mega Art, or for which it could be liable, in respect of periods (or portions thereof) beginning before the Closing Date have been paid. Except as set forth on Schedule 3.23 or the Financial Statements, Mega Art has no material Liability for Taxes in excess of the amounts so paid. All Taxes that Mega Art is required by law to withhold or collect have been duly withheld or collected and have been timely paid over to the appropriate governmental authorities to the extent due and payable. (c) No deficiencies for Taxes of Mega Art have been claimed, proposed or assessed by any taxing or other governmental authority, which if claimed, obtained, proposed or assessed would have a Material Adverse Effect on Mega Art. Except as set forth on Schedule 3.23, there are no pending or, to the knowledge of Mega Art or the Principal Stockholder, threatened audits, assessments or other Actions for or relating to any Liability in respect of Taxes of Mega Art or the Principal Stockholder, and there are no matters under discussion with any governmental authorities, or known to Mega Art or the Principal Stockholder, with respect to Taxes that are likely to result in an additional Liability for Taxes. Except as set forth in Schedule 3.23, Mega Art has not been notified that any taxing authority intends to audit a Tax Return of Mega Art. No extension of a statute of limitations relating to Taxes is in effect with respect to Mega Art. 21 (d) There are no Encumbrances for Taxes (other than for current Taxes not yet due and payable) on any of the Assets. (e) All elections with respect to Taxes affecting Mega Art or the Assets as of the date hereof are set forth on Mega Art's latest Tax Returns on Schedule 3.23. Except as set forth on Schedule 3.23, Mega Art (i) has not consented at any time under Section 341(f)(1) of the Code to have the provisions of Section 341(f)(2) of the Code apply to any disposition of any Assets, (ii) has not agreed, or is not required, to make any adjustment under Section 481(a) of the Code by reason of a change in accounting method or otherwise, (iii) has not made an election, or is not required, to treat any Asset as owned by another Person pursuant to the provisions of Section 168(f) of the Code or as tax-exempt bond financed property or tax-exempt use property within the meaning of Section 168 of the Code, (iv) does not directly or indirectly secure any debt the interest on which is tax exempt under Section 103(a) of the Code, or (v) has not made any of the foregoing elections or is required to apply any of the foregoing rules under any comparable state or local Tax provision. (f) There are no Tax-sharing agreements or similar arrangements (including indemnity arrangements) with respect to or involving Mega Art, and, after the Closing Date, Mega Art shall not be bound by any such Tax-sharing agreements or similar arrangements or have any Liability thereunder for amounts due in respect of periods prior to the Closing Date. (g) Mega Art has no interest in or is not subject to any joint venture, partnership, or other arrangement or contract which is treated as a partnership for federal income tax purposes. Mega Art is not a successor to any other Person by way of merger, reorganization or similar transaction. 3.24. Insurance. Schedule 3.24 contains a complete and accurate list of all policies or binders of insurance. Such policies are adequate and customary in all material respects for the Business. Mega Art is not in default under any of such policies or binders, and has not failed to give any notice or to present any claim under any such policy or binder in a due and timely fashion which default or failure to give notice would have a Material Adverse Effect. There are no facts known to Mega Art or the Principal Stockholder upon which an insurer would reasonably be justified in reducing or denying coverage or increasing premiums on existing policies or binders. There are no material outstanding unpaid claims under any such policies or binders. Such policies and binders are in full force and effect on the date hereof and shall be kept in full force and effect by Mega Art through the Closing Date. 3.25. Accounts Receivable. The accounts receivable reflected in the balance sheet at the Balance Sheet Date, and all accounts or notes receivable arising since the Balance Sheet Date, represent bona fide claims against debtors for sales, services performed or other charges arising on or before the date of recording thereof, and all the goods delivered and services performed which gave rise to said accounts were delivered or performed in all material respects in accordance with the applicable orders, Contracts or customer requirements. Mega Art or the Principal Stockholder has no knowledge of any facts or circumstances other than general economic conditions (and the consummation of the transactions contemplated hereby) which would result in any material increase in the uncollectability of all such receivables in the ordinary course of business except to the extent of an amount not in excess of the reserve for doubtful accounts reflected on the Balance Sheet and additions to such reserves as reflected on the Books and Records. 22 3.26. Supplies. The value at which the Supplies are shown on the Balance Sheet has been determined in accordance with the normal valuation policy of Mega Art, consistently applied and in accordance with GAAP. The Supplies (and the specific items acquired or manufactured subsequent to the Balance Sheet Date) consist only of items of quality commercially usable and salable in the ordinary course of business, except for any items of obsolete material or material below standard quality, all of which have been written down to realizable market value, or for which adequate reserves have been provided. Schedule 3.26 contains a complete and accurate list of all Supplies as of the Balance Sheet Date and the addresses at which the Supplies are located. 3.27. Customers and Suppliers. Schedule 3.27 will be made available to Unidigital prior to the Closing and will set forth a complete and accurate list of the names and addresses of (i) the ten customers who purchased from Mega Art the greatest dollar volume of products or services during the fiscal year ended on July 31, 1998, showing the approximate total sales in dollars to each such customer during such fiscal year; and (ii) the ten suppliers with the greatest dollar volume of sales to Mega Art during the fiscal year ended on July 31, 1998, showing the approximate total purchases in dollars by Mega Art from each such supplier during such fiscal year. Mega Art has not received any written communication from any customer or supplier named on Schedule 3.27 of any intention to return, terminate or materially reduce purchases from or supplies to Mega Art. 3.28. Brokers; Transaction Costs. Neither Mega Art nor the Principal Stockholder has entered into or will enter into any contract, agreement, arrangement or understanding with any Person which will result in the obligation of Unidigital or Mega Art to pay any finder's fee, brokerage commission or similar payment in connection with the transactions contemplated hereby. 3.29. No Other Agreements to Sell Mega Art or the Assets. Neither Mega Art nor the Principal Stockholder has any legal obligation, absolute or contingent, to any other Person to sell the Assets (other than in the ordinary course of business) or to sell any capital stock of Mega Art or to effect any merger, consolidation or other reorganization of Mega Art or to enter into any agreement with respect thereto, except pursuant to this Agreement. 3.30. Material Misstatements or Omissions. No representations or warranties by Mega Art or the Principal Stockholder in this Agreement or any Ancillary Agreement to which either is a party or in any exhibit, statement, certificate or schedule heretofore or hereinafter furnished by Mega Art or the Principal Stockholder or any of their respective Representatives to Unidigital pursuant hereto, or in connection with the transactions contemplated by this Agreement or by such Ancillary Agreements contains or will contain any untrue statement of a material fact, or omits or will omit to state any material fact necessary to make the statements or facts contained therein not misleading. 23 3.31. Purchase for Investment. The Principal Stockholder represents that he is acquiring the Unidigital Stock for his own account, for investment purposes only, and not with a view to the resale or distribution of all or any part thereof. The Principal Stockholder agrees not to distribute or to transfer any of the shares of Unidigital Stock in the United States except in compliance with all applicable United States federal and state securities laws. The Principal Stockholder further recognizes that the shares of Unidigital Stock will not be registered under the Securities Act or the securities laws of any state, and the transfer of the same will be restricted under such laws, and the shares of Unidigital Stock cannot be sold except pursuant to an effective registration statement under such laws or an available exemption from such registration, and the certificates or instruments representing the shares of Unidigital Stock will bear a legend to such effect. The Principal Stockholder acknowledges and understands that Unidigital is under no obligation to register the shares of Unidigital Stock; provided, however, that, subject to the approval of the lead managing underwriter, Unidigital shall register a portion of the Principal Stockholder's Unidigital Stock on a pro-rata basis (based on the total number of shares of Unidigital Stock to be sold by the Principal Stockholder and any other selling stockholders compared to the total number of shares of Unidigital Stock owned by such selling stockholders) in any underwritten public offering which includes any other selling stockholders of Unidigital. The Principal Stockholder is, or will be prior to the Closing, aware of Unidigital's business affairs and financial condition, has had, and will have, the opportunity to ask questions of Unidigital's management with respect to its business affairs and financial condition and has acquired, or will acquire, sufficient information (including, but not limited to, Unidigital's Form 10-KSB for the fiscal year ended August 31, 1997, Unidigital's 1997 annual report, Unidigital's 1997 proxy statement and Unidigital's Form 10-QSB for the quarter ended May 31, 1998) about Unidigital to reach an informed and knowledgeable decision to acquire the shares of Unidigital Stock. The Principal Stockholder acknowledges that, upon consummation of the transactions contemplated hereby, he will be deemed an "affiliate" of Unidigital as such term is defined under the Securities Act and, as an affiliate of Unidigital, he will be subject to the reporting and legal requirements under Sections 13 and 16 of the Exchange Act. Unidigital hereby agrees to pay for the Principal Stockholder's expenses incurred in connection with his reporting obligations as an affiliate of Unidigital. 3.32. Ownership of Mega Art Stock; Title. The number of shares of Mega Art Stock held by the Principal Stockholder is accurately set forth on Schedule 3.2 and all of such shares of Mega Art Stock are owned of record and beneficially owned by the Principal Stockholder, free and clear of any Encumbrances. Upon consummation of the Acquisition, Unidigital shall acquire good title to such shares of Mega Art Stock, free and clear of all Encumbrances. ARTICLE 3A. REPRESENTATIONS AND WARRANTIES OF THE MINORITY STOCKHOLDERS As an inducement to Unidigital to enter into this Agreement, each of the Minority Stockholders hereby makes, severally, and not jointly, as of the date hereof and as of the Closing Date, the following representations and warranties to Unidigital, except as otherwise set forth in the Schedules delivered to Unidigital prior to the Closing Date, a copy of which is attached hereto. The Schedules are numbered to correspond to the various sections of this Article 3A setting forth certain exceptions to the representations and warranties contained in this Article 3A and certain other information called for by this Agreement. 24 3A.1. Authorization. Each Minority Stockholder has the capacity to consummate the transactions contemplated by this Agreement and the Ancillary Agreements, if any, to which it is a party and to perform its obligations hereunder and thereunder. This Agreement has been duly executed and delivered by each Minority Stockholder and is, and upon the execution and delivery thereof each Ancillary Agreement, if any, to which it is a party will be, a valid and binding obligation of each Minority Stockholder, enforceable against each Minority Stockholder in accordance with its terms, except that enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights of creditors, (b) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity), or (c) the exercise of judicial discretion with respect to any covenants not to compete or other restrictive covenant contained herein or therein. 3A.2. No Conflict or Violation; Consents. None of the execution, delivery or performance of this Agreement or any Ancillary Agreement, if any, the consummation of the transactions contemplated hereby or thereby, nor compliance by any Minority Stockholder with any of the provisions hereof or thereof, will (a) violate, conflict with, or result in a breach of or constitute a default (with or without notice of passage of time) under, or result in the termination of, or accelerate the performance required by, or result in a right to terminate, accelerate, modify or cancel under, or result in the creation of any Encumbrance upon any of their respective assets under, any Contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, security interest or other arrangement to which any Minority Stockholder is a party or by which any Minority Stockholder is bound or to which any of their respective assets are subject or (b) violate any applicable Regulation or Court Order, which violation would have a Material Adverse Effect. Except as set forth on Schedule 3A.2, no notices to, declaration, filing or registration with, approvals or Consents of, or assignments by, any Persons (including any federal, state or local governmental or administrative authorities) are necessary to be made or obtained by any Minority Stockholder in connection with the execution, delivery or performance of this Agreement or any Ancillary Agreement or the consummation of the transactions contemplated hereby or thereby. 3A.3. Ownership of Mega Art Stock; Title. The number of shares of Mega Art Stock held by each Minority Stockholder is accurately set forth on Schedule 3.2 and all of such shares of Mega Art Stock are, except as set forth on Schedule 3.2, owned of record and beneficially owned by such Minority Stockholder, free and clear of any Encumbrances. Upon consummation of the Acquisition, Unidigital shall acquire good title to such shares of Mega Art Stock, free and clear of all Encumbrances. 3A.4. Investment Representations. Each Minority Stockholder represents as follows with respect to the shares to be acquired in connection with the Acquisition: (i) such Minority Stockholder has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the investment in the shares; 25 (ii) such Minority Stockholder is receiving such shares for investment for his own account and not with a view to, or for resale in connection with, the distribution or other disposition thereof; (iii) such Minority Stockholder has been given the opportunity to obtain any information or documents relating to, and to ask questions and receive answers about, Unidigital and the business and prospects of Unidigital which he deems necessary to evaluate the merits and risks related to his investment in such shares and to verify the information received, and such Minority Stockholder's knowledge and experience in financial and business matters are such that it is capable of evaluating the merits and risks of its receipt of the shares; (iv) such Minority Stockholder's financial condition is such that it can afford to bear the economic risk of holding the shares for an indefinite period of time and has adequate means for providing for such Minority Stockholder's current needs and contingencies and to suffer a complete loss of its investment in the shares; (v) such Minority Stockholder has been advised that (i) Unidigital's issuance of the shares to the Minority Stockholders will not have been registered under the Securities Act, (ii) such shares may need to be held indefinitely, and such Minority Stockholder must continue to bear the economic risk of the investment in such shares unless they are subsequently registered under the Securities Act or an exemption from such registration is available, (iii) there may not be a public market for such shares, (iv) when and if such shares may be disposed of without registration in reliance on Rule 144 promulgated under the Securities Act, such disposition can be made only in limited amounts in accordance with the terms and conditions of such Rule, (v) if the Rule 144 exemption is not available, public sale without registration will require compliance with an exemption under the Securities Act and (vi) a restrictive legend shall be placed on the certificates representing the shares. ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF UNIDIGITAL As an inducement to Mega Art and the Stockholders to enter into this Agreement, Unidigital hereby makes, as the date hereof and as of the Closing Date, the following representations and warranties to Mega Art and the Stockholders, except as otherwise set forth on the Schedules delivered to Mega Art and the Stockholders prior to the Closing Date, a copy which is attached hereto. The Schedules are numbered to correspond to the various sections of this Article 4 setting forth certain exceptions to the representations and warranties contained in this Article 4 and certain other information called for by this Agreement. 4.1. Organization. Unidigital is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. Unidigital has full corporate power and authority to conduct its business as it is presently being conducted and to own or lease, as applicable, the assets owned or leased by it. Unidigital is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which such qualification is necessary under applicable law as a result of the conduct of its business or the ownership of its properties and where the failure to be so qualified would have a Material 26 Adverse Effect on Unidigital. Each jurisdiction in which Unidigital is qualified to do business as a foreign corporation is set forth in Schedule 4.1. 4.2. Authorization. Unidigital has all necessary corporate power and authority to enter into this Agreement and the Ancillary Agreements to which it is a party and has taken all action necessary to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder. This Agreement has been duly executed and delivered by Unidigital, and this Agreement is, and upon execution and delivery each of the Ancillary Agreements to which Unidigital is a party will be, a valid and binding obligation of Unidigital enforceable against Unidigital in accordance with its terms, except that enforceability may be limited by the effect of (a) bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights of creditors or (b) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). 4.3. No Conflict or Violation; Consents. None of the execution, delivery or performance of this Agreement or any Ancillary Agreement, the consummation of the transactions contemplated hereby or thereby, nor compliance by Unidigital with any of the provisions hereof or thereof, will (a) violate or conflict with any provision of Unidigital's Certificate of Incorporation or Bylaws to the extent applicable, (b) violate, conflict with, or result in a breach of or constitute a default (with or without notice of passage of time) under, or result in the termination of, or accelerate the performance required by, or result in a right to terminate, accelerate, modify or cancel under, or require a notice under, or result in the creation of any Encumbrance upon any of its assets under, any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, security interest or other arrangement to which Unidigital is a party or by which Unidigital is bound or to which any of their respective assets are subject, (c) violate any Regulation or Court Order applicable to Unidigital or (d) impose any Encumbrance on any assets of Unidigital. Except as set forth on Schedule 4.3, no notices to, declaration, filing or registration with, approvals or Consents of, or assignments by, any Persons (including any federal, state or local governmental or administrative authorities) are necessary to be made or obtained by Unidigital in connection with the execution, delivery or performance of this Agreement or any Ancillary Agreement or the consummation of the transactions contemplated hereby or thereby. 4.4. Disclosure. No representation, warranty or other statement by Unidigital herein or in any filing made under the Exchange Act contains an untrue statement of a material fact, or omits to state a material fact necessary to make the statements contained herein not misleading. The financial statements of Unidigital contained in any filing under the Exchange Act fairly present in all material respects the Assets and Liabilities of Unidigital and financial condition and results of operations indicated thereby in accordance with GAAP consistently applied throughout the periods covered thereby. 4.5. Absence of Certain Changes or Events. Except as set forth on Schedule 4.5, since May 31, 1998 there has not been any Material Adverse Change with respect to Unidigital. 27 4.6. Litigation. Except as set forth on Schedule 4.6, there is no Action, pending or, to the knowledge of Unidigital, threatened or anticipated (i) against, relating to or adversely affecting Unidigital, any of its Assets, officers and directors as such, (ii) which seeks to enjoin or obtain damages in respect of the transactions contemplated hereby or by the Ancillary Agreements or (iii) with respect to which there is a reasonable likelihood of a determination which would prevent Unidigital from consummating the transactions contemplated hereby. 4.7. Brokers; Transaction Costs. Unidigital has not entered into or will not enter into any contract, agreement, arrangement or understanding with any Person which will result in the obligation of Unidigital or Mega Art to pay any finder's fee, brokerage commission or similar payment in connection with the transactions contemplated hereby. 4.8. Capitalization of Unidigital. All outstanding shares of Unidigital Stock are, and upon receipt by Unidigital of payment therefor as provided in this Agreement, the shares of Unidigital Stock to be issued to the Stockholders hereunder will be, validly issued, fully paid and non-assessable and are not subject to any preemptive rights created by statute, Unidigital's Certificate of Incorporation or Bylaws or any Contract. Based in part on the representations of the Stockholders contained herein, the shares of Unidigital Stock have been issued in material compliance with all federal and state securities laws. 4.9. Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the SEC which may at any time permit the sale of the shares of Unidigital Stock issued hereunder to the public without registration, Unidigital agrees to make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, and to use its best efforts to file with the SEC in a timely manner all reports and other documents required of Unidigital under the Exchange Act. 4.10. Compliance with Law. Except as set forth on Schedule 4.10, Unidigital has conducted its business in compliance with all applicable Regulations and Court Orders, except where the failure to do so would not have a Material Adverse Effect. Unidigital has not received any notice to the effect that, or has otherwise been advised that, either Unidigital is not in compliance with any such Regulations or Court Orders. 28 ARTICLE 5. ACTIONS BY MEGA ART, THE STOCKHOLDERS AND UNIDIGITAL PRIOR TO THE CLOSING Mega Art, the Stockholders and Unidigital, each as indicated below, covenant as follows for the period from the date hereof through the Closing Date: 5.1. Conduct of Business. From the date hereof through the Closing, Mega Art and the Stockholders shall, except as contemplated by this Agreement, or as consented to by Unidigital, operate the Business in the ordinary course of business and substantially in accordance with past practice and will not take any action inconsistent with this Agreement, the Ancillary Agreements or the consummation of the Closing. Without limiting the generality of the foregoing, Mega Art shall not, and the Stockholders shall not, cause Mega Art to, except as specifically contemplated by this Agreement or as consented to by Unidigital in writing: (a) incur any indebtedness for borrowed money not in the ordinary course of business, or assume, guarantee, endorse (other than endorsements for deposit or collection in the ordinary course of business), or otherwise become responsible for obligations of any other Person in any amount exceeding $10,000; (b) issue or commit to issue any shares of its capital stock or any other securities or any securities convertible into shares of its capital stock or any other securities, including, without limitation, any options to acquire capital stock; (c) pay or incur any obligation to pay any dividend on its capital stock or make or incur any obligation to make any distribution or redemption with respect to capital stock; (d) make any change to Mega Art's Certificate of Incorporation or Bylaws other than as required to complete the transactions contemplated by this Agreement; (e) mortgage, pledge or otherwise encumber any Assets or sell, transfer, license or otherwise dispose of any Assets except for the sale or licensing of Mega Art's products and services in the ordinary course of business and consistent with past practice; (f) cancel, release or assign any material indebtedness owed to it or any material claims or rights held by it, except in the ordinary course of business and consistent with past practice; (g) make any investment of a capital nature either by purchase of stock or securities, contributions to capital, property transfer or otherwise, or by the purchase of any property or assets of any other Person other than in the ordinary course of business; (h) terminate any material Contract or make any material change in any material Contract; (i) enter into or modify any employment Contract, (ii) pay any compensation to or for any Employee, officer or director other than in the ordinary course of business and pursuant to 29 existing employment arrangements, (iii) pay or agree to pay any bonus, incentive compensation, service award or other like benefit or (iv) enter into or modify any other Plan; (j) enter into or modify any Contract with a Related Party; (k) declare any dividend or make any payment or distribution to the Stockholders or redeem or purchase any shares of its capital stock; (l) make any change in any method of accounting or accounting practice; (m) fail to pursue the development and introduction of new products and technology advances in connection with the Business on a basis consistent with past practice; (n) fail to comply in all material respects with all Regulations applicable to the Assets and the Business consistent with past practices; (o) fail to use its commercially reasonable efforts to (i) maintain the Business, (ii) retain the non-clerical Employees so that such Employees will remain available to Unidigital on and after the Closing Date (provided that Mega Art shall not be required by this Section 5.1(o) to enter into any employment agreement with any Employee), (iii) maintain existing relationships with suppliers and customers and others having business dealings with Mega Art and (iv) otherwise to preserve the goodwill of the Business so that such relationships and goodwill will be preserved on and after the Closing Date; or (p) do any other act which would cause any representation or warranty of Mega Art or the Stockholders in this Agreement to be or become untrue in any material respect or that is not in the ordinary course of business consistent with past practice. 5.2. Investigation by Unidigital. From the date hereof through the Closing Date, Mega Art shall, and shall cause Mega Art's officers, Employees and Representatives to, afford the Representatives of Unidigital and its Affiliates access upon reasonable notice and at all reasonable times to its Business for the purpose of inspecting the same, and to its officers, Employees and Representatives, properties, Books and Records, Contracts and other Assets, and shall furnish Unidigital and its Representatives, upon reasonable notice and in a timely manner, all financial, operating and other data and information (including with respect to Proprietary Rights) as Unidigital or its Affiliates, through their respective Representatives, may reasonably request. 5.3. Notification of Certain Matters. Mega Art and the Stockholders shall give prompt notice to Unidigital of (i) the occurrence, or failure to occur, of any event which occurrence or failure would be reasonably likely to cause any representation or warranty of Mega Art or the Stockholders contained in this Agreement to be untrue or inaccurate in any material respect and (ii) any failure of Mega Art or any Stockholder to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that such disclosure shall not be deemed to cure any breach of a representation, warranty, covenant or agreement or to satisfy any condition. Mega Art and the Stockholders shall promptly notify Unidigital of any Default, the threat or commencement of any Action, 30 or any development that occurs before the Closing that is reasonably likely to result in a Material Adverse Effect upon Mega Art. 5.4. No Mergers, Consolidations, Sale of Stock, Etc. Neither Mega Art nor the Stockholders will, directly or indirectly, (a) solicit any inquiries or proposals or enter into or continue any discussions, negotiations or agreements relating to (i) the sale or exchange of Mega Art's capital stock, (ii) the merger of Mega Art with, or the direct or indirect disposition of a significant amount of the Assets or the Business to, any Person other than Unidigital or its Affiliates or (iii) the licensing of Mega Art's Proprietary Rights to any Person other than in the ordinary course of business consistent with past practice or (b) provide any assistance or any information to or otherwise cooperate with any Person in connection with any such inquiry, proposal or transaction. Mega Art and the Stockholders hereby represent that neither Mega Art nor the Stockholders are now engaged in discussions or negotiations with any party other than Unidigital with respect to any transaction of the kind described in clauses (a) (i) through (a) (iii) of the preceding sentence (a "Proposed Acquisition Transaction"). Mega Art and the Stockholders shall (w) immediately notify Unidigital (orally or in writing) if any offer or proposal in excess of $5,000,000 is made, any discussions or negotiations are sought to be initiated, any inquiry, proposal or contact is made or any information is requested with respect to any Proposed Acquisition Transaction, (x) promptly notify Unidigital of the terms of any proposal in excess of $5,000,000 which it may receive in respect of any such Proposed Acquisition Transaction, including, without limitation, the identity of the prospective purchaser or soliciting party, (y) promptly provide Unidigital with a copy of any such offer, if written, or a written summary (in reasonable detail) of such offer, if not in writing, and (z) keep Unidigital informed of the status of such offer and the offeror's efforts and activities with respect thereto. 5.5. Further Assurances. Upon the terms and subject to the conditions contained herein, the parties agree, in each case both before and after the Closing, (i) to use all reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement and the Ancillary Agreements, (ii) to execute any documents, instruments or conveyances of any kind which may be reasonably necessary or advisable to carry out any of the transactions contemplated hereunder and thereunder and (iii) to cooperate with each other in connection with the foregoing. Without limiting the foregoing, the parties agree to use their respective reasonable efforts (A) to obtain any necessary Consents (including, without limitation, all filings required to be made under the HSR Act, if any, with respect to this Agreement and the transactions contemplated hereby) (B) to give all notices to, and make all registrations and filings with third parties, including submissions of information requested by governmental authorities and (C) to fulfill all other conditions to this Agreement. ARTICLE 6. CONDITIONS TO MEGA ART'S AND THE STOCKHOLDERS' OBLIGATIONS The obligations of Mega Art and the Stockholders to effect the Acquisition and complete the related transactions contemplated by this Agreement are subject, in the reasonable discretion of Mega Art and the Stockholders, to the satisfaction, on or prior to the Closing Date, of each of the following conditions or the waiver of such conditions by Mega Art and the Stockholders: 31 6.1. Representations, Warranties and Covenants. All representations and warranties of Unidigital contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date as if such representations and warranties were made at and as of the Closing Date, and Unidigital shall have performed in all material respects all agreements and covenants required hereby to be performed by it prior to or at the Closing Date. There shall be delivered to Mega Art and the Stockholders a certificate signed by the Chief Executive Officer of Unidigital to the foregoing effect ("Unidigital Closing Certificate"). 6.2. Consents. All Consents, approvals and waivers from governmental authorities and other parties necessary to permit Unidigital to consummate the Acquisition as contemplated hereby and by the Ancillary Agreements shall have been obtained. Mega Art and the Stockholders shall be satisfied that all approvals required under any Regulations to permit Unidigital to carry out the transactions contemplated by this Agreement and the Ancillary Agreements (including, without limitation, the expiration or termination of the waiting period under the HSR Act, if applicable) shall have been obtained. 6.3. No Actions or Court Orders. No Action by any court, governmental authority or other Person shall have been instituted or threatened which questions the validity or legality of the transactions contemplated hereby and by the Ancillary Agreements. There shall not be any Regulation or Court Order that makes the acquisition of the Mega Art Stock contemplated hereby illegal or otherwise prohibited. 6.4. Closing Documents. Unidigital shall have delivered to Mega Art and the Stockholders the documents and other items described in Section 8.2 and such other documents and items as Mega Art or the Stockholders may reasonably require. 6.5. Board of Directors Approval. The Acquisition shall have been approved by appropriate action of the Board of Directors of Mega Art. 6.6. Material Adverse Change. There shall not have been any Material Adverse Change that became known since July 31, 1998 with respect to Unidigital. ARTICLE 7. CONDITIONS TO UNIDIGITAL'S OBLIGATIONS The obligations of Unidigital to effect the Acquisition and complete the related transactions contemplated by this Agreement are subject, in the reasonable discretion of Unidigital, to the satisfaction, on or prior to the Closing Date, of each of the following conditions, or the waiver of such conditions by Unidigital: 32 7.1. Representations, Warranties and Covenants. (a) All representations and warranties of Mega Art and the Stockholders contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date as if such representations and warranties were made at and as of the Closing Date (except as set forth in clause (b) below), and Mega Art and the Stockholders shall have performed in all material respects all agreements and covenants required hereby to be performed prior to or at the Closing Date. There shall be delivered to Unidigital a certificate signed by the President and the Chief Financial Officer of Mega Art ("Mega Art Closing Certificate") and the Stockholders to the foregoing effect (the "Stockholders' Closing Certificate"). (b) For purposes of the foregoing paragraph (a), the Schedules required to be provided pursuant to the representations and warranties set forth herein shall be permitted to be updated as of the Closing Date. 7.2. Consents. All Consents, approvals and waivers from governmental authorities and other parties necessary to permit Mega Art and the Stockholders to consummate the Acquisition as contemplated hereby and by the Ancillary Agreements and for the operation of the Business after the Closing (including all required third party consents under the Contracts, except where failure to do so would not result in a Material Adverse Effect) shall have been obtained. Unidigital shall be satisfied that all approvals required under any Regulations to permit Mega Art and the Stockholders to carry out the transactions contemplated by this Agreement and the Ancillary Agreements (including, without limitation, the expiration or termination of the waiting period under the HSR Act, if applicable) shall have been obtained. 7.3. No Actions or Court Orders. No Action by any court, governmental authority or other Person shall have been instituted or threatened which questions the validity or legality of the transactions contemplated hereby and by the Ancillary Agreements and which could reasonably be expected to damage Unidigital, the Assets or the Business materially if the transactions contemplated hereby or thereby are consummated, including any material adverse effect on the right or ability of Unidigital to own, operate or transfer Mega Art after the Closing. There shall not be any Regulation or Court Order that makes the Acquisition contemplated hereby illegal or otherwise prohibited or that otherwise may have a Material Adverse Effect upon Mega Art. 7.4. Closing Documents. Mega Art and/or the Stockholders, as the case may be, shall have delivered to Unidigital the documents and other items described in Section 8.1 and such other documents and items as Unidigital may reasonably require. 7.5. Exemption under Federal and State Securities Laws. The issuance of shares of Unidigital Stock in the Acquisition shall not violate any federal or state securities laws. 33 7.6. Mega Art Balance Sheets. The aggregate amount of cash, cash equivalents and accounts receivable (net of doubtful accounts) on Mega Art's respective balance sheets dated as of the Balance Sheet Date and August 31, 1998 shall exceed its accounts payable, accrued expenses and other current liabilities. 7.7. Completion of Unidigital Due Diligence. Unidigital shall have completed its business and legal due diligence to its satisfaction, in its sole judgment. 7.8. Delivery of Certificates. Each Stockholder shall have delivered to Unidigital the Certificate or Certificates representing the shares of Mega Art Stock held by such Stockholder. 7.9. Board of Directors Approval. The Acquisition shall have been approved by appropriate action of the Board of Directors of Unidigital. 7.10. Tax Matters. No new elections with respect to Taxes, or changes in current elections with respect to Taxes, affecting Mega Art shall have been made after the date of this Agreement without the prior written consent of Unidigital, which consent shall not be unreasonably withheld. 7.11. Material Adverse Change. There shall not have been any Material Adverse Change that became known since July 31, 1998 with respect to Mega Art. ARTICLE 8. CLOSING On the Closing Date at the Closing Place: 8.1. Deliveries by Mega Art and the Stockholders to Unidigital. Mega Art and the Stockholders, as applicable, shall deliver (or cause to be delivered) to Unidigital: (a) the Ancillary Agreements, duly executed by each party thereto other than Unidigital; (b) any Consents required to be obtained by Mega Art or the Stockholders; (c) the Mega Art Closing Certificate and the Stockholders' Closing Certificate; 34 (d) an opinion of Orrick, Herrington & Sutcliffe LLP, counsel to Mega Art and the Stockholders, dated as of the Closing Date, in a form reasonably satisfactory to Unidigital; (e) all Certificates representing the shares of Mega Art Stock; (f) the Financial Statements dated as of the Balance Sheet Date; and (g) such other documents and certificates duly executed as may reasonably be requested by Unidigital prior to the Closing Date. 8.2. Deliveries by Unidigital. Unidigital shall deliver to Mega Art and the Stockholders, or any other appropriate Persons: (a) the Ancillary Agreements to which Unidigital is a party, duly executed by them; (b) any Consents required to be obtained by Unidigital; (c) the Unidigital Closing Certificate; (d) an opinion of Buchanan Ingersoll, counsel to Unidigital, dated as of the Closing Date, in a form reasonably satisfactory to Mega Art; (e) the Initial Purchase Price; and (f) such other documents and certificates duly executed as may reasonably be requested by Mega Art or the Stockholders prior to the Closing Date. ARTICLE 9. INDEMNIFICATION 9.1. Survival of Representations, Etc. All statements contained in this Agreement, any schedule or in any certificate or instrument of conveyance delivered by or on behalf of the parties pursuant to this Agreement or in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by such party hereunder. The representations and warranties contained herein shall survive the Closing Date until (and claims based upon or arising out of such representations and warranties, as well as any claims based upon or arising out of any covenants and agreements herein or made hereunder, may be asserted at any time before the date which shall be) the eighteen month anniversary of the Closing Date; provided, however, (a) Mega Art's and the Principal Stockholder's representations and warranties in Section 3.10 (Environmental Matters), Section 3.23 (Taxes) and Section 3.32 (Ownership of Mega Art Stock; Title) and the Minority Stockholders' representations and warranties set forth in Section 3A.3 (Ownership of Mega Art Stock; Title) shall survive the Closing until the third anniversary of the Closing Date. No investigation made by any of the parties hereto (whether prior to, on or after the Closing Date) shall in any way limit the representations and warranties of the parties unless such party has actual knowledge of the misrepresentation. On the Closing Date all representations and warranties contained in this Agreement and made by Mega Art and the Stockholders shall expire as to Mega Art and thereafter will be deemed to have been made exclusively by the Principal Stockholder. The termination of the 35 representations and warranties provided herein shall not affect the rights of a party in respect of any claim made by such party in a writing received by the other party prior to the expiration of the applicable survival period provided herein. 9.2. Indemnification. (a) General. (i) Subsequent to the Closing, the Principal Stockholder shall indemnify Unidigital, its Affiliates, and each of their respective, officers, directors, employees, stockholders and agents ("Unidigital Indemnified Parties") against, and hold each of the Unidigital Indemnified Parties harmless from any damage, claim, loss, cost, liability or expense, including without limitation, interest, penalties, reasonable attorneys' fees and expenses of investigation (collectively "Damages") incurred by any such Unidigital Indemnified Party, that arise out of, whether directly or indirectly, the breach of any warranty, representation, covenant or agreement of Mega Art or the Stockholders contained in this Agreement or any schedule hereto or in any certificate or instrument of conveyance delivered by or on behalf of Mega Art or any such holder pursuant to this Agreement or in connection with the transactions contemplated hereby; provided, however, that the Unidigital Indemnified Parties shall be entitled to indemnification hereunder only when and only if amounts by which the aggregate value of all such Damages exceeds $100,000. (ii) Subsequent to the Closing, Unidigital shall indemnify the Stockholders against, and hold the Stockholders harmless from, any Damages incurred by the Stockholders, that arise out of, whether directly or indirectly, the breach of any warranty, representation, covenant or agreement of Unidigital contained in this Agreement, any schedule or in any certificate or instrument of conveyance delivered by or on behalf of Unidigital pursuant to this Agreement or in connection with the transactions contemplated hereby; provided, however, that the Stockholders shall be entitled to indemnification hereunder only when and only if amounts by which the aggregate value of all such Damage exceeds $100,000. The term "Damages" as used in this Section 9.2 is not limited to matters asserted by third parties against the Stockholders or Unidigital Indemnified Parties, but includes Damages incurred or sustained by such persons in the absence of third party claims. (b) Procedure for Claims. If a claim for Damages (a "Claim") is to be made by a person entitled to indemnification hereunder, the person claiming such indemnification (the "Indemnified Party"), shall give written notice specifying in reasonable detail the nature of any such Claim (a "Claim Notice") to the indemnifying person (the "Indemnifying Party") as soon as practicable after the Indemnified Party becomes aware of any fact, condition or event which may give rise to Damages for which indemnification may be sought under this Section 9.2. The failure of any Indemnified Party to give timely notice hereunder shall not affect rights to indemnification hereunder, except and only to the extent that, the Indemnifying Party demonstrates actual material damage caused by such failure. In the case of a Claim involving the assertion of a claim by a third party (whether pursuant to a lawsuit or other legal action or otherwise, a "Third-Party Claim"), if the Indemnifying Party shall acknowledge in writing to the Indemnified Party that the Indemnifying Party shall be obligated to indemnify the Indemnified Party under the terms of its indemnity hereunder in connection with such Third-Party Claim, then (A) the Indemnifying Party shall be entitled and, if it so elects, shall be obligated at its own cost, risk and expense (1) to take control of the defense and investigation of such Third-Party Claim and (2) to pursue the defense thereof in good faith by appropriate actions or proceedings promptly taken or instituted and 36 diligently pursued, including, without limitation, to employ and engage attorneys of its own choice reasonably acceptable to the Indemnified Party to handle and defend the same, and (B) the Indemnifying Party shall be entitled (but not obligated), if it so elects, to compromise or settle such claim, which compromise or settlement shall be made only with the written consent of the Indemnified Party, such consent not to be unreasonably withheld. In the event the Indemnifying Party elects to assume control of the defense and investigation of such lawsuit or other legal action in accordance with this Section 9.2(b), the Indemnified Party may, at its own cost and expense, participate in the investigation, trial and defense of such Third-Party Claim. So long as the Indemnifying Party is defending in good faith any such Third-Party Claim, the Indemnified Party shall not settle or compromise such Third-Party Claim. The Indemnified Party shall make available to the Indemnifying Party or its Representatives all records and other materials reasonably required by them for their use in contesting any Third-Party Claim and shall cooperate fully with the Indemnifying Party in the defense of all such Claims. If the Indemnifying Party fails to assume the defense of such Third-Party Claim in accordance with this Section 9.2 within 10 calendar days after receipt of the Claim Notice, the Indemnified Party against which such Third-Party Claim has been asserted shall (upon delivering notice to such effect to the Indemnifying Party have the right to undertake, at the Indemnifying Party's cost, risk and expense, the defense, compromise and settlement of such Third-Party Claim on behalf of and for the account of the Indemnifying Party; provided that such Third-Party Claim shall not be compromised or settled without the written consent of the Indemnifying Party, which consent shall not be unreasonably withheld. In the event the Indemnifying Party assumes the defense of the claim, the Indemnifying Party shall keep the Indemnified Party reasonably informed of the progress of any such defense, compromise or settlement, and in the event the Indemnified Party assumes the defense of the claim, the Indemnified Party shall keep the Indemnifying Party reasonably informed of the progress of any such defense, compromise or settlement. The Indemnifying Party shall be liable for any settlement of any Third-Party Claim effected pursuant to and in accordance with this Section 9.2 and for any final judgment (subject to any right of appeal). 9.3. No Right of Contribution. After the Closing, the Stockholders shall not have any right of contribution against the Surviving Corporation for any breach of any representation, warranty, covenant or agreement of Mega Art. Notwithstanding any provision herein to the contrary, the Stockholders and Unidigital shall be entitled to specific performance and injunctive relief, without posting bond or other security, for the purpose of asserting their respective rights under this Article 9. Except in the case of actual fraud committed by any of the Stockholders, the remedies described in this Article 9 shall be in lieu of any other remedies at law or in equity that the parties may elect to pursue. 9.4. Right of Offset. Subject to Section 9.5, to the extent such payments have not been made, the obligations of the Principal Stockholder under this Article 9 shall be satisfied first by reducing the amounts owing to the Principal Stockholder under (i) the Deferred Payment and (ii) the Earn-Out Payment, if any. 9.5. Limitation on Liability. (a) In case any event shall occur which would otherwise entitle either party to assert a claim for indemnification hereunder, no loss, damage or expense shall be deemed to have been sustained by such party to the extent of (i) any tax savings realized by such party with respect thereto, or (ii) any proceeds received by such party from any insurance policies with respect thereto. 37 (b) The aggregate amount of all Claims subject to indemnification hereunder by any of the parties hereto shall not exceed $5,000,000. (c) An Indemnifying Party shall not be liable under this Article 9 for a loss resulting from any event relating to a breach of any representation or warranty if the Indemnifying Party can establish that the Indemnified party had actual knowledge on or before the Closing Date of such event. 9.6. Option to Pay in Stock. In the event any payment of the indemnity obligations of the Stockholders set forth in Section 9.1 is required to be made, the Stockholders, at the discretion of Unidigital, may satisfy such payment by delivery to Unidigital of shares of Unidigital's Common Stock acquired by them pursuant to the Acquisition, which shares, for such purpose, shall be valued at the greater of (i) $8.09 per share or (ii) the closing price of Unidigital's Common Stock on the date such liability is finally determined as reported by The Nasdaq Stock Market. ARTICLE 10. POST-CLOSING AGREEMENTS 10.1. Non-Competition. If the Acquisition is consummated, the Minority Stockholders shall not, for a period of one (1) year after the Closing Date, directly or indirectly, engage, anywhere in which Unidigital or its Subsidiaries conducts, or proposes to conduct, business, in the sale or offering or promoting for sale of any product, process, good or service which is the same as, is functionally similar to, or directly competes with, any product, process, good or service which Unidigital or Mega Art sells or offers or promotes for sale at the Closing Date. 10.2. Non-Solicitation of Employees of Unidigital. If the Acquisition is consummated, the Minority Stockholders shall not directly or indirectly, for themselves on behalf of any other individual or entity, hire any employee of Unidigital or any of its Subsidiaries, including, without limitation, any employees of Mega Art, or induce nor attempt to induce any such employee to leave his or her employment with Unidigital or any of its Subsidiaries, at any time within one (1) year from the Closing Date. If the Acquisition is not consummated, neither Mega Art, the Stockholders nor any of their respective Affiliates shall directly or indirectly, for himself or itself or on behalf of any other individual or entity, induce any such employee to leave his or her employment with Unidigital or any of its Subsidiaries, at any time within nine (9) months from the date of written notice of termination of this Agreement. 10.3. Non-Solicitation or Interference with Customers and Suppliers of Unidigital. If the Acquisition is consummated, the Minority Stockholders shall not, directly or indirectly, for themselves or on behalf of any other individual or entity, solicit, divert, take away or attempt to take away any of Unidigital's or any of its Subsidiaries' current or prospective customers or suppliers or the business or patronage of any such customers or suppliers or in any way knowingly interfere with, disrupt or attempt to disrupt any then existing relationships between Unidigital or any of its Subsidiaries and any of their current customers or suppliers at any time within one (1) year from the Closing Date. 38 10.4. Non-Solicitation or Interference with Customers and Suppliers of Mega Art. If the Acquisition is not consummated, neither Unidigital nor any of its Affiliates shall, directly or indirectly, for itself or on behalf of any other individual or entity, solicit, divert, take away or attempt to take away any of Mega Art's current or prospective customers or suppliers made known in writing to Unidigital by Mega Art during the negotiation of this Agreement or subsequent to its signing, or the business or patronage of any such customers or suppliers or in any way knowingly interfere with, disrupt or attempt to disrupt any then existing relationships between Mega Art and any of such customers or suppliers at any time within one (1) year from the date of written notice of termination of this Agreement. 10.5. Non-Solicitation of Employees of Mega Art. If the Acquisition is not consummated, neither Unidigital nor any of its Affiliates shall directly or indirectly, for itself or on behalf of any other individual or entity, hire any employee of Mega Art or induce any such employee to leave his or her employment with Mega Art at any time within one (1) year from the date of written notice of termination of this Agreement. 10.6. Acknowledgments. Each of the parties hereto acknowledges that, in view of the nature of Mega Art's business and the business objectives of Unidigital in acquiring Mega Art, and the consideration paid in the Acquisition to the Stockholders therefor, the restrictions contained in this Article 10 are reasonably necessary to protect the legitimate business interests of Unidigital and that any violation of such restrictions will result in irreparable injury to Unidigital and the business Unidigital has acquired hereunder for which damages will not be an adequate remedy. 10.7. Delivery of Financial Statements. Mega Art shall deliver the Financial Statements dated as of August 31, 1998 as soon as practicable after the Closing Date, but in no event later than sixty (60) calendar days after the Closing Date. ARTICLE 11. MISCELLANEOUS 11.1. Termination. (a) This Agreement may be terminated at any time prior to Closing: (i) By mutual written consent of Unidigital and Mega Art; (ii) By Unidigital or Mega Art if the Closing shall not have occurred on or before August 31, 1998 (unless extended by the written agreement of the parties hereto), other than due to a breach of this Agreement by the party seeking to terminate; (iii) By Unidigital if there is a material breach of any representation or warranty set forth in Article 3 or 3A or any covenant or agreement to be complied with or performed by 39 Mega Art or the Stockholders pursuant to the terms of this Agreement, so long as any such breach is not caused by the action or inaction of Unidigital; (iv) By Mega Art if Mega Art notifies Unidigital in writing that it is not satisfied with its due diligence review; (v) By Unidigital if Unidigital notifies Mega Art in writing that it is not satisfied with its due diligence review (including, but not limited to, its review of the Schedules) pursuant to Section 7.7; or (vi) By Mega Art if there is a material breach of any representation or warranty set forth in Article 4 hereof or of any covenant or agreement to be complied with or performed by Unidigital pursuant to the terms of this Agreement, so long as any such breach is not caused by the action or inaction of Mega Art or the Stockholders. (b) In the event of termination of this Agreement: (i) The provisions of the Confidentiality Agreement and the restrictive covenants set forth in Article 10 shall continue in full force and effect; (ii) No party hereto shall have any liability to any other party to this Agreement; and (iii) By any party for any reason other than its due diligence review, the party abandoning the transactions contemplated hereby shall reimburse the other party for its expenses, including fees and expenses of its legal counsel, up to a maximum of $70,000. 11.2. Assignment. Neither this Agreement nor any of the rights or obligations hereunder may be assigned by Mega Art or the Stockholders without the prior written consent of Unidigital, or by Unidigital without the prior written consent of Mega Art or the Stockholders. 11.3. Notices. Unless otherwise provided herein, any notice, request, instruction or other document to be given hereunder by any party to the other shall be in writing and delivered in person or by courier, telegraphed, telexed, sent by facsimile transmission, sent via overnight delivery service or mailed by registered or certified mail (such notice to be effective upon receipt), as follows: If to any of the Stockholders, to the address of such Stockholder as set forth on the signature page hereto. 40 If prior to the Closing, to Mega Art or the Stockholders: Mega Art Corp. Pier 40, 2nd Floor Westside Highway and West Houston Street New York, New York 10014 Fax: (212) 989-2212 Attention: Ehud Aloni, President With a copy to: Orrick, Herrington & Sutcliffe LLP 30 Rockefeller Plaza New York, New York 10112 Fax: (212) 506-3730 Attention: Rubi Finkelstein, Esq. If to Unidigital: Unidigital Inc. 229 West 28th Street, 10th Floor New York, New York 10001 Fax: (212) 244-7815 Attention: William E. Dye, Chief Executive Officer With a copy to: Buchanan Ingersoll Professional Corporation 500 College Road East Princeton, New Jersey 08540 Fax: (609) 520-0360 Attention: David J. Sorin, Esq. or to such other place and with such other copies as either party may designate as to itself by written notice to the others. 11.4. Choice of Law. This Agreement shall be construed, interpreted and the rights of the parties determined in accordance with the laws of the State of New York without giving regard to conflicts of law principles. 11.5. Descriptive Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 11.6. Entire Agreement; Amendments and Waivers. This Agreement, together with all exhibits and schedules hereto, and the Confidentiality Agreement, constitute the entire agreement among the parties pertaining to the subject matter hereof and 41 supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties. No supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. 11.7. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 11.8. Invalidity. In the event that any one or more of the provisions contained in this Agreement or in any other instrument referred to herein, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any other such instrument. 11.9. Expenses. Except as otherwise provided in this Agreement, Unidigital will be liable for its expenses, and Mega Art will be liable for its and the Stockholders' expenses, incurred in connection with the negotiation, preparation, execution and performance of this Agreement. 11.10. Publicity. Except as required by law or on advice of counsel, neither party shall issue any press release or make any public statement regarding the transactions contemplated hereby without the prior approval of the other parties, and the parties hereto shall issue a mutually acceptable press release as soon as practicable after the date hereof and after the Closing Date. Notwithstanding the foregoing, Unidigital shall be permitted to make any public statement without obtaining the consent of any other party hereto if the disclosure is required by law. 11.11. No Third Party Beneficiaries. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement, including, without limitation, by way of subrogation, except as specifically set forth in Article 9 hereof. 42 IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be duly executed on its behalf by its officer thereunto duly authorized, as of the day and year first above written. UNIDIGITAL INC. By: /s/ William E. Dye ------------------------------- Name: William E. Dye Title: Chief Executive Officer MEGA ART CORP. By: /s/ Ehud Aloni ------------------------------- Name: Ehud Aloni Title: President STOCKHOLDERS /s/ Ehud Aloni ---------------------------------- Name: Ehud Aloni Address: /s/ Ehud Aloni ---------------------------------- Name: Amit Primor, by Ehud Aloni, as Attorney-in-Fact Address: /s/ Jeffrey E. Rothman ---------------------------------- Name: Jeffrey E. Rothman Address: 5 West 86th Street New York, NY 10024 SELIGSON, ROTHMAN & ROTHMAN By: /s/ Aaron Seligson ------------------------------- Name: Aaron Seligson Title: Partner 43 EX-10.2 4 EMPLOYMENT AGREEMENT EXH TO 8-K EMPLOYMENT AGREEMENT -------------------- THIS AGREEMENT (the "Agreement") is dated as of this 2nd day of September, 1998, by and between Mega Art Corp., a New York corporation, with an office for purposes of this Agreement at 229 West 28th Street, New York, NY 10001 (hereinafter the "Company" or "Employer"), Ehud Aloni with an address at Pier 40, 2nd Floor, West Side Highway and West Houston Street, New York, New York 10014 (hereinafter the "Employee"), and for purposes of Section 4 of this Agreement only, Unidigital Inc., a Delaware corporation and the Company's parent, with an office for purposes of this Agreement at 229 West 28th Street, New York, New York 10001 (hereinafter "Unidigital"). WITNESSETH: ---------- WHEREAS: (a) Company wishes to engage the services of Employee to render services for and on its behalf in accordance with the following terms, conditions and provisions; and (b) Employee wishes to perform such services for and on behalf of the Company, in accordance with the following terms, conditions and provisions. NOW, THEREFORE, in consideration of the mutual covenants and conditions herein contained the parties hereto intending to be legally bound hereby agree as follows: 1. EMPLOYMENT. Company hereby employs Employee and Employee accepts such employment and shall perform his duties and the responsibilities provided for herein in accordance with the terms and conditions of this Agreement principally in New York City, New York. 2. EMPLOYMENT STATUS. Employee shall at all times be Company's employee subject to the terms and conditions of this Agreement. 3. TERM. The term of this Agreement (the "Term") shall commence on September 2, 1998, and shall terminate on August 31, 2001 (the "Termination Date"), for a total term of three (3) years, unless earlier terminated pursuant to the terms and provisions of this Agreement. 4. POSITION. During Employee's employment hereunder, Employee shall serve as President of the Company. In such position, Employee shall have the full power and authority to manage and conduct all of the business of Mega Art. Employee shall report directly to William E. Dye (or his successor) and to no other person, entity or committee other than William E. Dye (or his successor). Employee shall devote such time necessary to perform his duties hereunder; provided, however, that subject to the terms and conditions of this Agreement, Employee shall be permitted to pursue certain business activities outside of his employment hereunder, provided that such activities do not materially adversely interfere with the Employee's ability to perform his duties and obligations to the Company hereunder. Employee shall be provided with an office, staff and other working facilities consistent with his positions and as required for the performance of his duties. In addition, Company and Unidigital agree to cause Employee to (i) be nominated as a director of the Company and to -2- use their best efforts to cause Employee to be elected to the Board of Directors of the Company (the "Board") and to be retained as a director of the Company, and (ii) be appointed to serve on the Executive Committee of Senior Management (or such other similar committee) (the "Executive Committee") of Unidigital and to cause Employee to be retained as a member of the Executive Committee, during Employee's employment during the Term, as it may be extended. 5. COMPENSATION. (a) For the performance of all Employee's services to be rendered pursuant to the terms of this Agreement, Company will pay and Employee will accept the following compensation: Base Salary. During the Term, Company shall pay the Employee ----------- an initial base annual salary of $200,000 (the "Base Salary") payable in regular installments in accordance with the Company's usual payment practices (which currently is in equal bi-monthly installments). Employee shall be entitled to such further increases, if any, in his Base Salary as may be determined from time to time in the sole discretion of the Board. Employee's Base Salary, as in effect from time to time, is hereinafter referred to as the "Employee's Base Salary". Bonus. During the Term, Employee shall be eligible for and may ----- receive bonuses. The amount of such bonuses, if any, shall be solely within the discretion of the Board or the Compensation Committee thereof and may be in the form of cash or stock options. The Board or the Compensation Committee, as the case may be, will, commensurate with the -3- Company's policies and practices, consider certain factors in making its determination hereunder, including, but not limited to, the performance, profitability and cash flow of the Mega Art division. (b) Company shall deduct and withhold from Employee's compensation all necessary or required taxes, including, but not limited to, Social Security, withholding and any other applicable amounts required by law or any taxing authority. 6. EMPLOYEE BENEFITS. In addition to the Employee's Base Salary, during the Term hereof and so long as Employee is not terminated, Employee shall receive and be provided health and insurance benefits at the Company's cost, and during Employee's employment hereunder, Employee shall receive and be provided employee benefits (including, without limitation, if offered by the Company, fringe benefits, vacation, automobile, retirement plan participation and life, health, accident and disability insurance, etc. (collectively, "Employee Benefits") on the same basis as those benefits are generally made available to the most senior executives of the Company or other subsidiaries of Unidigital. Employee shall be entitled to receive not less than three weeks of paid vacation per year and if such vacation time is not taken by Employee, in the then current year, Employee at his option may accrue vacation or receive compensation at the then current level. -4- 7. BUSINESS EXPENSES AND PERQUISITES. (a) Reasonable travel, entertainment and other business expenses incurred by Employee in the performance of his duties hereunder shall be reimbursed by the Company in accordance with Company policies then in effect. (b) Company shall provide Employee a new automobile, every three years, including all related maintenance, repairs, insurance parking and other costs. The base annual automobile rental expense shall not exceed $18,000 per annum. 8. TERMINATION. (a) For Cause by the Company. (i) Employee's employment hereunder may be ------------------------ terminated by the Company for cause. For purposes of this Agreement, "cause" shall mean (A) Employee's unjustified failure to perform his duties hereunder, for the benefit of Mega Art through August 31, 1999, and for the benefit of Unidigital and its subsidiaries thereafter, or to follow reasonable directions of William E. Dye with respect to such duties, provided such failure has a material adverse effect on Mega Art through August 31, 1999, or Unidigital and its subsidiaries thereafter, (B) willful misconduct by Employee in connection with his employment, (C) Employee's conviction of, or plea of nolo contendere to, any crime constituting a felony under the laws of the United States or any State thereof, or any crime constituting a misdemeanor under any such law involving moral turpitude, or (D) Employee's material breach of any of the provisions of this Agreement, provided that the Company delivers a written notice detailing the alleged misconduct to the Employee and the Employee -5- has an opportunity to refute the allegations set forth in such notice in person, or by teleconference, in front of the Board within five (5) business days of receipt of such notice. Any termination for cause without the notice required under this Section 8(a) shall be deemed a termination without cause. (ii) If Employee is terminated for cause, he shall be entitled to receive Employee's Base Salary from Company through the date of termination and Employee shall be entitled to no other payments of Employee's Base Salary under this Agreement, including, without limitation, the Non-Competition Consideration (as defined below). All other benefits, if any, due Employee following Employee's termination of employment pursuant to this Section 8(a) shall be determined in accordance with the written plans, policies and practices of the Company. (b) Disability or Death. (i) Employee's employment hereunder shall ------------------- terminate upon his death or if Employee becomes physically or mentally incapacitated and is therefore unable (or will as a result thereof, be unable) for a period of six (6) consecutive months or for an aggregate of twelve (12) months in any twenty-four (24) consecutive month period to perform his duties (such incapacity is hereinafter referred to as "Disability"). Any question as to the existence of the Disability of Employee as to which Employee and the Company cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to Employee (or a representative of the Employee) and the Company. If Employee and the Company cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such -6- determination in writing. The determination of Disability made in writing to the Company and Employee shall be final and conclusive for all purposes of the Agreement. (ii) Upon termination of Employee's employment hereunder during the Term for Disability, Employee shall receive from the Company 50% of Employee's Base Salary through the end of the Term and the amount equivalent to 50% of the cash bonus paid in the immediately preceding fiscal year, if any, received by the Employee under the terms of this Agreement, provided that any payment under this Section 8(b)(ii) shall be reduced by the amount of any disability benefits paid to Employee under any other disability plan, program or arrangement maintained and paid for by the Company or its affiliates. Such payments shall be payable in regular installments in accordance with the Company's usual payment practices (which currently is in bi-monthly installments). Except as provided for in this Section 8(b)(ii), in the event of termination as a result of Disability, Employee shall not be entitled to any further payments of Employee's Base Salary and the Non-Competition Consideration under this Agreement. (iii) Upon termination of Employee's employment hereunder during the Term as a result of death, the Employee's estate or named beneficiary(ies) shall receive from the Company (A) Employee's Base Salary at the rate in effect at the time of Employee's death through the end of the month in which his death occurs and, on a pro rata basis, the cash bonus paid to Employee during the immediately preceding fiscal year, and (B) the proceeds of any life insurance policy maintained for his benefit by the Company pursuant to Section 6 under this Agreement. -7- (iv) All other benefits, if any, due Employee following Employee's termination of employment pursuant to this Section 8(b) shall be determined in accordance with the written plans, policies and practices of the Company and shall be at least equal to those received by employees of the Company. (c) Without Cause by the Company. If Employee's employment is ------------------------------ terminated by the Company without cause (other than Disability or death), then Employee shall be entitled to receive (i) the Employee's Base Salary and, on a pro rata basis, the cash bonus paid to Employee during the immediately preceding fiscal year, from the Company through the end of the Term, payable in regular installments in accordance with the Company's usual payment practices (which currently is in bi-monthly installments), and (ii) the Earn-Out Payment (as defined under that certain Agreement of Purchase and Sale dated as of August 3, 1998, and as amended by that certain letter agreement dated August 28, 1998, among Unidigital, the Company, and the stockholders of the Company). All other benefits, if any, due Employee following Employee's termination of employment pursuant to this Section 8(c) shall be determined in accordance with the written plans, policies and practices of the Company. If Employee breaches or threatens to breach any of the covenants set forth in either Section 9 or 10, or both, of this Agreement, Employee shall not be entitled to any further payments under this Section 8(c). (d) For Good Reason by Employee. (i) The Employee may terminate ---------------------------- employment hereunder for good reason immediately and with prompt notice to the Company. "Good reason" for termination by the Employee shall be limited to the following conduct of the -8- Company: (A) material breach of any provision of this Agreement by the Company, which breach shall not have been cured by the Company within ten (10) days of receipt of written notice of said breach; (B) failure to maintain the Employee in a position commensurate with that referred to in Section 4 of this Agreement including, without limitation, the alteration of the officer to whom the Employee reports without the prior written consent of the Employee; (C) any action by the Company which results in a material diminution of such position, authority, duties or responsibilities, excluding for this purpose any isolated action not taken in bad faith and which is promptly remedied by the Company after receipt of written notice thereof given by the Employee; or (D) if Company's principal executive offices are moved outside of a one hundred (100) mile radius of New York City. (ii) If Employee terminates his employment for good reason, then Employee shall be entitled to receive payments in accordance with the provisions set forth in Section 8(c). (e) Termination by Employee Without Good Reason. (i) If Employee --------------------------------------------- wishes to terminate his employment with the Company without good reason, Employee must afford the Company with at least six (6) full month's written notice of termination. Such termination shall not be deemed a breach of this Agreement. (ii) If Employee terminates his employment under this Section 8(e), he shall be entitled to receive Employee's Base Salary from Company through the date of termination and Employee shall be entitled to no other payments of Employee's Base Salary under this Agreement, including, without limitation, the Non-Competition Consideration (as -9- defined below). All other benefits, if any, due Employee following Employee's termination of employment pursuant to this Section 8(e) shall be determined in accordance with the written plans, policies and practices of the Company. (f) Change of Control. For purposes of this Agreement, "Change of ----------------- Control" shall mean (i) any transaction or series of transactions (including, without limitation, a tender offer, merger or consolidation) the result of which is that any "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), becomes the "beneficial" owner (as defined in Rule 13(d)(3) under the Exchange Act) of more than fifty percent (50%) of the total aggregate voting power of all classes of the voting stock of Unidigital and/or warrants or options to acquire such voting stock, calculated on a fully diluted basis, or (ii) a sale of assets constituting all or substantially all of the assets of Unidigital (determined on a consolidated basis). In the event of such a Change of Control, the new entity (if the Company is not the surviving corporation) shall be obligated to perform the Company's obligations under the terms of this Agreement. Notwithstanding the foregoing, such Change in Control shall not release the Company from its liability for the full and faithful performance of all the terms and conditions of this Agreement. Any purported assignment of this Agreement that is not agreed to by Unidigital's successor shall be deemed a termination without cause. (g) Loft Lease. In the event that Employee is terminated for any ---------- reason whatsoever, or upon the expiration of the Term hereof, the Company or its successors or -10- assigns shall take all necessary action to assign the lease of a certain loft located at 529-535 West 20th Street, New York, New York to Employee. 9. NON-DISCLOSURE OF INFORMATION. Employee acknowledges that by virtue of his position he will be privy to the Company's and Unidigital's and its subsidiaries' confidential information including, but not limited to, scientific and proprietary information, research, development, patents and applications thereto, technical information, computer programs, know-how, trade secrets, knowledge, designs, drawings, specifications, concepts, data, reports, methods, processes, documentation, methodology, pricing, marketing plans, acquisition plans, customer lists, salaries, business affairs, suppliers, profits, markets, sales strategies, unique servicing techniques and any other information not available to the general public (hereafter collectively "Confidential Information"). Without the prior written consent of the Company, Employee shall not, during the Term and for a period of two (2) years thereafter, intentionally disclose all or any part of the Confidential Information to any person, firm, corporation, association or any other entity for any reason or purpose whatsoever, nor shall Employee and any other person by, through or with Employee, during the Term and for a period of two (2) years thereafter, intentionally make use of any of the Confidential Information for any purpose or for the benefit of any other person or entity, other than Company or its affiliates, under any circumstances. Company and Employee agree that a violation of the foregoing covenants will cause irreparable injury to the Company, and that in the event of a breach or threatened breach by the Employee of the provisions of this Section 9, Company shall be entitled to an injunction. -11- The foregoing to the contrary notwithstanding, no information, written or oral, shall be construed or considered "Confidential Information" and thereby subject to the restrictions of this Section 9 if such information was (i) generally available to the public other than as a result of a disclosure by the Employee or anyone to whom the Employee transmits the information in violation hereof, (ii) in the possession of the Employee or known to him on a non-confidential basis prior to its disclosure to him, (iii) available to the Employee on a non-confidential basis from a source other than Company who is not bound by a confidentiality agreement with Company, (iv) available in trade publications, reference books or other resources and which may be compiled by any person desirous of preparing a report or memorandum containing such information, or (v) required by law to be disclosed. 10. RESTRICTIVE COVENANT. Without the prior written approval of the Board first obtained: (a) During the term of this Agreement and for a period of two (2) years after the termination of this Agreement (the "Restrictive Period"), Employee covenants and agrees that, within fifty (50) miles of the location of any facility at which the Company, Unidigital or its subsidiaries conducts business on the date hereof or at the date of termination, he shall not directly or indirectly (i) manufacture, market or sell any products or services which have the same or substantially the same function and primary application as any existing products or services manufactured by the Company, Unidigital or its subsidiaries on the date hereof or at the date of termination or (ii) engage in, manage, operate, be connected -12- with or acquire any interest in, as an employee, consultant, advisor, agent, owner, partner, co-venturer, principal, director, shareholder, lender or otherwise, any business competitive with the business of the Company, Unidigital or its subsidiaries as conducted on the date hereof or at the date of termination (a "Competitive Business"), except that the Employee may own not more than five percent (5%) of the outstanding shares of any publicly held corporation which is a Competitive Business which has shares listed for trading on a securities exchange registered with the Securities and Exchange Commission or through the automatic quotation system of a registered securities association. Employee further covenants and agrees he shall not, directly or indirectly, in any manner whatsoever interfere with, solicit or disrupt or attempt to interfere with, solicit or disrupt the relationship, contractual or otherwise, between Company, Unidigital or its subsidiaries and any of their respective customers, suppliers, lessees or employees during the Restrictive Period. (b) During the Restrictive Period, Employee covenants and agrees that within a radius of fifty (50) miles from each of the place(s) of Company's, Unidigital's or its subsidiaries' business or any other area in which Company, Unidigital or its subsidiaries are engaged in business (at the date of termination), he shall not render any services to any person, firm, corporation, association or other entity to whom any Confidential Information in whole or in part, has been disclosed or is threatened to be disclosed in violation of this Agreement. (c) Company and Employee agree that a violation of either of the foregoing covenants will cause irreparable injury to the Company, and that in the event of a -13- breach or threatened breach by Employee of the provisions of this Section 10, Company shall be entitled to an injunction. (d) During the Restrictive Period, in consideration for the restrictive covenants set forth in this Section 10, Company shall make annual payments to the Employee of $25,000 (the "Non-Competition Consideration"), payable in regular installments in accordance with the Company's usual payment practices (which currently is in equal bi-monthly installments); provided, however, that if Employee breaches or threatens to breach the covenants set forth in either Section 9 or 10, or both, of this Agreement, he shall not be entitled to any further payments under this Section 10(d). (e)(i) The Restrictive Period (together with the Company's obligation to pay the Non-Competition Consideration) shall be terminated immediately in the event that Unidigital: (A) admits in writing its inability to pay its debts generally as they become due; (B) files a petition in bankruptcy or a petition to take advantage of any insolvency act; (C) is adjudicated bankrupt on a petition in bankruptcy filed against it; or (D) through the Company, terminates the Employee without cause or the Employee terminates his employment hereunder for good reason. (ii) The Restrictive Period (together with the Company's obligation to pay the Non-Competition Consideration) shall be reduced to a period of six (6) -14- months after the termination of this Agreement in the event that the closing price of Unidigital's common stock on the Nasdaq National Market (or such other quotation system or exchange on which Unidigital's common stock is then traded) as reported by Nasdaq on the date of termination of this Agreement (other than termination for cause by the Company or termination by the Employee without good reason prior to the end of the Term hereof) is less than $4.00 per share (as proportionately adjusted for any increase or decrease in the number of issued shares of Unidigital's common stock resulting from a stock split, stock dividend, combination or reclassification of Unidigital's common stock). (f) Employee acknowledges that the restrictions contained in this Section 10 are reasonable. In that regard, it is the intention of the parties to this Agreement that the provisions of this Section 10 shall be enforced to the fullest extent permissible under the law and public policy applied in each jurisdiction in which enforcement is sought. Accordingly, if any portion of this Section 10 shall be adjudicated or deemed to be invalid or unenforceable, the remaining portions shall remain in full force and effect, and such invalid or unenforceable portion shall be limited to the particular jurisdiction in which such adjudication is made. 11. BREACH OR THREATENED BREACH OF COVENANTS. In the event of Employee's actual or threatened breach of his obligations under either Section 9 or 10, or both, of this Agreement, in addition to any other remedies Company may have, Company shall be entitled to obtain a temporary restraining order and a preliminary and/or permanent injunction restraining the other from violating these provisions. Nothing in this Agreement shall be construed to prohibit Company from pursuing and obtaining any other available -15- remedies which Company may have for such breach or threatened breach, whether at law or in equity, including the recovery of damages from the other. 12. REPRESENTATIONS AND WARRANTIES BY EMPLOYEE. Employee hereby warrants and represents that he is not subject to or a party to any restrictive covenants or other agreements that in any way preclude, restrict, restrain or limit him (a) from being an Employee of Company, (b) from engaging in the business of Company in any capacity, directly or indirectly, and (c) from competing with any other persons, companies, businesses or entities engaged in the business of Company. 13. ARBITRATION. Except as set forth in Section 11, any controversy or claim arising out of or relating to this 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. In no event may the arbitration determination change Employee's compensation, title, duties or responsibilities, the entity to whom Employee reports or the principal place where Employee is to render his services. 14. NOTICES. Any notice required, permitted or desired to be given under this Agreement shall be sufficient if it is in writing and (a) personally delivered to Employee or William E. Dye, as an authorized member of Company, (b) sent by overnight delivery, or (c) -16- sent by registered or certified mail, return receipt requested, to Employer's or Employee's address as provided in this Agreement or to a different address designated in writing by either party. In all instances of notices to be given to Company, a copy by like means shall be delivered to Company's counsel care of Buchanan Ingersoll Professional Corporation, 500 College Road East, Princeton, NJ 08540, Attn: David Sorin, Esq. In all instances of notices to be given to Employee, a copy by like means shall be delivered to Employee's counsel care of Orrick, Herrington & Sutcliffe LLP, 30 Rockefeller Plaza, New York, New York 10112, Attn: Rubi Finkelstein, Esq. Notice is deemed given on the day it is delivered personally or by overnight delivery, or five (5) business days after it is mailed, if transmitted by the United States Post Office. 15. ASSIGNMENT. Employee acknowledges that his services are unique and personal. Accordingly, Employee may not assign his rights or delegate his duties or obligations under this Agreement. Company's rights and obligations under this Agreement shall inure to the benefit of and shall be binding upon the Company's successors and assigns. Company has the absolute right to assign its rights and benefits under the terms of this Agreement. 16. WAIVER OF BREACH. Any waiver of a breach of provision of this Agreement, or any delay of failure to exercise a right under a provision of this Agreement, by either party, shall not operate or be construed as a waiver of that or any other subsequent breach or right. -17- 17. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties. It may not be changed orally but only by an agreement in writing which is signed by the parties. The parties hereto agree that any existing employment agreement between them shall be terminated as of the date of this Agreement. 18. GOVERNING LAW. This Agreement shall be construed in accordance with and governed by the internal laws of the State of New York without giving regard to conflicts of law principles. 19. SEVERABILITY. The invalidity or non-enforceability of any provision of this Agreement or application thereof shall not affect the remaining valid and enforceable provisions of this Agreement or application thereof. 20. SURVIVAL. The obligations of Employee set forth in Sections 9, 10, 11 and 13 represent independent covenants by which Employee is and will remain bound notwithstanding any breach by the Company, and shall survive the termination of this Agreement. 21. CAPTIONS. Captions in this Agreement are inserted only as a matter of convenience and reference and shall not be used to interpret or construe any provisions of this Agreement. 22. GRAMMATICAL USAGE. In construing or interpreting this Agreement, masculine usage shall be substituted for those feminine in form and vice versa, and plural -18- usage shall be substituted or singular and vice versa, in any place in which the context so requires. 23. CAPACITY. Employee has read and is familiar with all the terms and conditions of this Agreement and has the capacity to understand such terms and conditions hereof. By executing this Agreement, Employee agrees to be bound by this Agreement and the terms and conditions hereof. 24. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same Agreement. [signature page follows] -19- IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the date first hereinabove written. MEGA ART CORP. /s/ William E. Dye By: ---------------------- Name: William E. Dye Title: Chief Executive Officer EMPLOYEE /s/ Ehud Aloni -------------------------- Ehud Aloni For purposes of Section 4 of this Agreement only, the undersigned has executed this Agreement as of the date first hereinabove written. UNIDIGITAL INC. /s/ William E. Dye By: ---------------------- Name: William E. Dye Title: Chief Executive Officer -20- -----END PRIVACY-ENHANCED MESSAGE-----