-----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, EunDiguqty5IQotFml3Fs42i7ci3sxgb3tImnNksMfMXaPR5jobGD8Yp9OG/jiBc D3DpR79GDnkll1AaYfdfkQ== 0001015357-98-000120.txt : 19981215 0001015357-98-000120.hdr.sgml : 19981215 ACCESSION NUMBER: 0001015357-98-000120 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981130 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19981214 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: 98769053 BUSINESS ADDRESS: STREET 1: 229 WEST 28TH STREET CITY: NEW YORK STATE: NY ZIP: 10001 BUSINESS PHONE: 2122447820 MAIL ADDRESS: STREET 1: 229 WEST 28TH STREET CITY: NEW YORK STATE: NY ZIP: 10001 8-K 1 8-K ACQUISITION OF SUPERGRAPHICS SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported) November 30, 1998 -------------------------------- Unidigital Inc. (Exact Name of Registrant as Specified in Charter) Delaware 0-27664 13-3856672 - ------------------------------------------------------------------------------- (State or Other (Commission (IRS Employer Jurisdiction File Number) Identification No.) of Incorporation) 229 West 28th Street, New York, New York 10001 - ------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (212) 244-7820 ------------------------------ - ------------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) ITEM 2. ACQUISITION OF ASSETS. On November 30, 1998, Unidigital Inc., a Delaware corporation (the "Company"), consummated the acquisition (the "Acquisition") of all of the issued and outstanding capital stock of SuperGraphics Holding Company, Inc., a Delaware corporation ("SuperGraphics"). As a result of the Acquisition, SuperGraphics became a wholly-owned subsidiary of the Company. SuperGraphics provides grand format, digitally printed vehicle graphics. The Company intends to continue such line of business. The purchase price included a cash payment of approximately $15,900,000, the issuance of 135,393 shares of restricted Common Stock of the Company (approximately $600,000) and the issuance of five-year warrants to purchase 225,000 shares of the Company's Common Stock at an exercise price of $5.64 per share. The purchase price also includes a deferred cash payment equal to the difference between (i) EBITDA, as defined, multiplied by six and (ii) $16,500,000. Such deferred cash payment, if any, is payable no later than March 15, 1999. In addition, subject to certain limitations, the Company granted "piggyback" registration rights to the sellers of SuperGraphics. Of the purchase price, approximately $233,000 in cash and 135,393 shares of restricted Common Stock of the Company is being held in escrow for a period of one year to satisfy any indemnification claims. In determining the purchase price, the Company considered, among other factors: (i) the composition of the assets of SuperGraphics, in particular, the strength of its balance sheet; (ii) the business, operations and prospects of SuperGraphics; (iii) the financial statements and other relevant financial and operating data of SuperGraphics; (iv) the historical and projected financial information prepared by the management of SuperGraphics; and (v) the past and projected revenues generated from the customers of SuperGraphics. The Company funded the cash portion of the purchase price from proceeds of a term loan from Canadian Imperial Bank of Commerce ("CIBC") and a subordinated loan from CIBC Wood Gundy Capital Corp. ("CWGCC"). See "Item 5. Other Events." below. -2- ITEM 5. OTHER EVENTS. In order to consummate the Acquisition, the Company amended its credit facility with CIBC to increase its term loan from $25,000,000 to $32,000,000. As a result, the Company's aggregate credit facilities with CIBC increased from $45,000,000 to $52,000,000. Upon consummation of the Acquisition, SuperGraphics became a wholly-owned subsidiary of the Company. As such, CIBC required SuperGraphics and its wholly-owned subsidiary, SuperGraphics Corporation, a California corporation ("Sub"), to guarantee the Company's credit facilities with CIBC. In addition, the Company supplemented its security agreement and pledge agreement with CIBC such that the assets and common stock of SuperGraphics acquired in the Acquisition will be included as collateral for such credit facilities. SuperGraphics also pledged all of its equity interests in Sub as collateral for such credit facilities. In addition to the foregoing, the Company borrowed a principal amount of $10,000,000 pursuant to a subordinated unsecured loan (the "Subordinated Loan") from CWGCC. The Subordinated Loan matures on March 31, 2004 and bears interest at a rate per annum equal to the sum of (i) 12.50% plus (ii) an additional percentage amount equal to 0.25% commencing on November 30, 1999 and increasing by 0.25% following the last day of each 90-day period thereafter. Until November 30, 1999, at the option of CWGCC, interest is payable in additional notes, Common Stock of the Company or warrants to purchase Common Stock of the Company. Thereafter, interest is payable in either additional notes or cash, depending on certain coverage ratios and, in the case of cash interest payments, the approval of CIBC. The Company will incur an additional premium of 5.0% on any prepayments of the Subordinated Loan made prior to November 30, 1999. Such additional premium will be reduced by 100 basis points on December 1, 1999 and shall be reduced by such amount on each December 1st thereafter until December 1, 2003. In connection with the Subordinated Loan, the Company issued ten-year warrants to CWGCC to purchase 440,000 shares of the Company's Common Stock at an exercise price not to exceed $5.00 per share. In the event the Company has not paid the loan in full by November 30, 1999 (subject to extension in certain instances), the Company will issue ten-year warrants to CWGCC to purchase an additional 200,000 shares of the Company's Common Stock at an exercise price not to exceed $5.00 per share. In the event the Subordinated Loan has not been paid in full by May 31, 2001, the exercise price of such warrants shall be reduced by $1.00 per share and, on each anniversary of such date, such exercise price shall be reduced by an additional $1.00 per share. In addition, subject to certain limitations, the Company granted registration rights, including "demand" registration rights, to CWGCC. -3- Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Financial Information of Business Acquired. To be filed by amendment. The Company believes that it is impracticable to provide such financial information as of the date hereof. Such information shall be filed with the Commission no later than February 13, 1999. (b) Pro Forma Financial Information (unaudited). To be filed by amendment. The Company believes that it is impracticable to provide such financial information as of the date hereof. Such information shall be filed with the Commission no later than February 13, 1999. (c) Exhibits. Exhibit No. Description of Exhibit 4.1 Form of Warrant Agreement issued to the stockholders of SuperGraphics Holding Company, Inc. 4.2 Warrant Agreement dated as of November 25, 1998 by and between Unidigital Inc. and CIBC Wood Gundy Capital Corp. 4.3 Registration and Equity Rights Agreement by and between Unidigital Inc. and CIBC Wood Gundy Capital Corp. 10.1 Agreement for Purchase and Sale of Stock dated as of November 16, 1998 by and among Unidigital Inc., SuperGraphics Holding Company, Inc. ("Holding"), SuperGraphics Corporation and the stockholders of Holding. 10.2 Amendment No. 3 to Credit Agreement dated as of November 30, 1998 by and among Unidigital Inc., the several lenders from time to time parties thereto and Canadian Imperial Bank of Commerce. -4- 10.3 Securities Purchase Agreement dated as of November 25, 1998 by and among Unidigital Inc., Unison (NY), Inc., Unison (MA), Inc., Unidigital Elements (NY), Inc., Unidigital Elements (SF), Inc. and Mega Art Corp. 10.4 Senior Subordinated Increasing Rate Note dated November 30, 1998 of Unidigital Inc. payable to CIBC Wood Gundy Capital Corp. in the principal amount of $10,000,000. -5- SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. Unidigital Inc. By: /s/William E. Dye ------------------------------------- William E. Dye, Chairman of the Board and Chief Executive Officer (Principal Executive, Financial and Accounting Officer) Date: December 14, 1998 EX-4.1 2 FORM OF WARRANT AGREEMENT WARRANT AGREEMENT WARRANT AGREEMENT dated as of ___________, 1998 between UNIDIGITAL INC., a Delaware corporation (the "Company"), and _______________________ (together with its transferees that become registered holders of the Warrants (as hereinafter defined), the "Holder"). W I T N E S S E T H: -------------------- WHEREAS, pursuant to that certain Agreement for Purchase and Sale of Stock dated as of November 16, 1998 (the "Stock Purchase Agreement") by and among the Holder and all other stockholders of Supergraphics Holding Company, Inc. ("Supergraphics") and the Company, the Holder is selling to the Company all of the common stock of Supergraphics held by it. WHEREAS, pursuant to the terms of the Stock Purchase Agreement, and as a portion of the consideration to be paid to the Holder for the purchase by the Company of the Holder's stock in Supergraphics, the Company has agreed to enter into this Warrant Agreement (this "Agreement"). WHEREAS, the Company proposes to issue to the Holder warrants ("Warrants") to purchase up to ________ shares of the Company's common stock, par value $.01 per share (the "Common Stock"), (one share of Common Stock issuable upon exercise of this Warrant being hereinafter referred to as a "Security" and more than one share of Common Stock issuable upon exercise of this Warrant being hereinafter referred to, collectively, as the "Securities"), as part of the aggregate of 225,000 Warrants referred to in Section 1.2 of the Stock Purchase Agreement. NOW, THEREFORE, in consideration of the transfer of shares referred to above and the agreements herein set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Grant. The Company hereby grants to the Holder the right to purchase at ----- any time from the date hereof until 5:30 P.M., New York time, on November ____, 2003, up to __________ fully paid, validly issued and non-assessable Securities as specified on the Warrant Certificates (as hereinafter defined) to be issued to the Holder, at the Exercise Price (as hereinafter defined), subject to the terms and conditions of this Agreement. 2. Warrant Certificates. The warrant certificates (the "Warrant ---------------------- Certificates") delivered and to be delivered pursuant to this Agreement shall be in the form set forth as Exhibit A attached hereto and made a part hereof, with such appropriate insertions, omissions, substitutions and other variations as required or permitted by this Agreement. 3. Exercise of Warrants. The Warrants shall be exercised by surrender of -------------------- Warrant Certificates for at least the number of Securities to be purchased, together with an Election to Purchase in the form annexed hereto duly executed and completed specifying the number of shares of Common Stock to be purchased and payment of the Exercise Price (as hereinafter defined) for the Securities to be purchased, at the Company's principal offices (presently located at 229 West 28th street, New York, New York 10001) during regular business hours on a Business Day (as hereinafter defined). Upon such exercises the registered holder of a Warrant Certificate shall be entitled to receive a certificate for the Securities so purchased. The purchase rights represented by each Warrant Certificate are exercisable at the option of the Holder thereof, in whole or in part (but not as to fractional shares of Common Stock). In case of the purchase of less than all the Securities purchasable under any Warrant Certificate, the Company shall cancel said Warrant Certificate upon the surrender thereof and shall execute and deliver a new Warrant Certificate of like tenor for the balance of the Securities purchasable thereunder. 4. Issuance of Certificates. Upon exercise of the Warrants, the Company ------------------------- shall issue certificates for the appropriate number of shares of Common Stock forthwith (and in any event within three (3) Business Days thereafter) without charge to the Holder including, without limitation, any tax which may be payable in respect of the issuance thereof, and such certificates shall (subject to the provisions of Articles 6 and 8 hereof) be issued in the name of, or in such names as may be directed by, the Holder. For purposes of this Agreement, "Business Day" shall mean any day except a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized by law to close. All Warrant Certificates and certificates representing the shares of Common Stock underlying the Warrants, or other securities, property or rights shall be executed on behalf of the Company by the manual or facsimile signature of the authorized officers of the Company under its corporate seal. Warrant Certificates shall be dated the date of execution by the Company upon initial issuance, division, exchange, substitution or transfer. 5. Restriction on Transfer of Warrants. The Holder of a Warrant --------------------------------------- Certificate, by its acceptance thereof, covenants and agrees that the Warrants are being acquired for investment purposes only and not with a view to the distribution thereof and that the Warrants may not be sold, transferred, assigned, hypothecated or otherwise disposed of, in whole or in part, except in compliance with the Securities Act of 1933, as amended (the "Securities Act"). -2- 6. Exercise Price. -------------- 6.1 Initial and Adjusted Exercise Price. The initial exercise price of each ----------------------------------- Warrant shall be $______ per Security (being 125% of the average closing bid and ask prices of the Common Stock during the 20 trading days ending two days prior to the date hereof). The exercise price shall be adjusted from time to time in accordance with the provisions of Article 8 hereof. 6.2 Exercise Price. The term "Exercise Price" as used herein shall mean the -------------- initial exercise price or the adjusted exercise price, depending upon the context. 6.3 Payment of Exercise Price. The Exercise Price may be paid either by -------------------------- check payable to the order of the Company or by wire transfer or by delivery of a duly executed Election to Purchase marked to reflect "Net Issue Exercise," together with surrender of Warrant Certificates in accordance with Section 3 hereof. Upon a Net Issue Exercise, the Company shall issue to Holder a number of shares of the Company's Common Stock computed as of the date of surrender of the Warrant Certificates to the Company using the following formula: X = Y x (A-B) --------- A Where: X = the number of shares of Common Stock to be issued to the Holder Y = the number of shares of Common Stock with respect to which the Warrant is being exercised A = the Current Market Price of one share of the Common Stock (at the date of such calculation) B = the Exercise Price (as adjusted to the date of such calculation). The "Current Market Price" for a specified date shall mean the average daily Market Price during the period of the most recent 20 days, ending on such date, on which the national securities exchanges were open for trading, except that if no Common Stock is then listed or admitted to trading on any national securities exchange or quoted in the over-the-counter market, the Current Market Price shall be the Market Price on such date. The "Market Price" for a specified date shall mean the amount per share of the Common Stock, equal to (i) the last reported sale price of such Common Stock on such date or, in case no such sale takes place on such date, the average of the closing bid and asked prices thereof, on such date, in either case as officially reported on the principal national securities exchange on which such Common Stock is then listed or admitted for trading, -3- or (ii) if such Common Stock is not then listed or admitted for trading on any national securities exchange but is designated as a national market system security the National Association of Securities Dealers, Inc. (the "NASD"), the last reported trading price of the Common Stock on such date, or (iii) if there shall have been no trading on such date or if the Common Stock is not so designated, the average of the closing bid and asked prices of the Common Stock on such date as shown by the NASD automated quotation system, or (iv) if such Common Stock is not then listed or admitted for trading on any national exchange or quoted in the over-the-counter market, the fair value thereof (as of a date which is within 20 days of the date as of which the determination is to be made) determined in good faith by the Board of Directors of the Company. 7. Registration Rights. ------------------- 7.1 Registration Under the Securities Act. The Warrants and the Securities -------------------------------------- have not been registered under the Securities Act. Certificates representing the Securities issued upon the exercise, in part or in whole, of the Warrants shall bear a legend in substantially the following form: The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended ("Act"), and may not be offered or sold except pursuant to (i) an effective registration statement under the Act or (ii) an opinion of counsel, if such opinion shall be reasonably satisfactory to counsel to the issuer, that an exemption from registration under such Act is available. Section 7.2 Piggyback Registration. If, at any time commencing after the ----------------------- date hereof, the Company proposes to register any of its securities under the Act (other than pursuant to Form S-8, S-4 or a comparable registration statement) it will give written notice by registered mail, at least thirty (30) days prior to the filing of each such registration statement, to the Holder of the Warrants and/or the Securities of its intention to do so. If the Holder of the Warrants and/or the Securities notifies the Company within twenty (20) days after receipt of any such notice of its desire to include any Securities in such proposed registration statement, the Company shall afford the Holder of the Warrants and/or Securities the opportunity to have any such Securities registered under such registration statement. Notwithstanding the provisions of this Section 7.2, the Company shall have the right at any time after it shall have given written notice pursuant to this Section 7.2 (irrespective of whether a written request for inclusion of any Securities shall have been made) to elect not to file any such proposed registration -4- statement, or to withdraw the same after the filing but prior to the effective date thereof. Section 7.3 Covenants of the Company With Respect to Registration. In --------------------------------------------------------- connection with any registration under Section 7.2 hereof, the Company covenants and agrees as follows: (a) The Company (i) shall use its best efforts to market the Securities included in any such registration statement and (ii) shall furnish the Holder such number of prospectuses as shall reasonably be requested. (b) The Company shall pay all costs (excluding any underwriting or selling commissions or other charges of any broker-dealer acting on behalf of Holder), fees and expenses in connection with all registration statements filed pursuant to Section 7.2 hereof including, without limitation, the Company's legal and accounting fees, printing expenses, blue sky fees and expenses and expenses of counsel to the Holder. If the Company shall fail to comply with the provisions of Section 7.3(a), the Company shall, in addition to any other equitable or other relief available to the Holder, be liable for any or all incidental or special damages sustained by the Holder requesting registration of Securities. (c) The Company shall take all necessary action which may be required in qualifying or registering the Securities included in a registration statement for offering and sale under the securities or blue sky laws of such states as reasonably are requested by the Holder, provided that the Company shall not be obligated to (i) execute or file any general consent to service of process, (ii) qualify as a foreign corporation to do business under the laws of any such jurisdiction or (iii) subject itself to taxation in such jurisdiction. (d) The Company shall indemnify the Holder of the Securities to be sold pursuant to any registration statement and each person, if any, who controls the Holder within the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), against all loss, claim, damage, expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Act, the Exchange Act or otherwise, arising from such registration statement (excluding any loss, claim, damage, expense or liability arising from information furnished in writing by or on behalf of the Holder, or its successors or assigns, for specific inclusion in such registration statement). (e) The Holder of the Securities to be sold pursuant to a registration statement, and its successors and assigns, shall indemnify the Company, its officers and directors -5- and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Act, the Exchange Act or otherwise, arising solely from the inclusion in such registration statement of information furnished in writing by or on behalf of such Holder, or its successors or assigns, specifically for use in such registration statement. (f) Nothing contained in this Agreement shall be construed as requiring the Holder to exercise its Warrants prior to the initial filing of any registration statement or the effectiveness thereof. (g) In the case of an underwritten offering pursuant to Section 7.2, if the managing underwriter with respect to such offering requests in writing that the number of the Company's securities to be offered by selling security holders in the registration be reduced because, in the judgment of the managing underwriter, the proposed offering would be materially and adversely affected, then such securities shall be reduced by such amount as the managing underwriter may determine in writing so as to not materially and adversely affect the proposed offering, which reduced number of securities shall be included in the offering, selected as nearly as possible pro rata from among all selling security holders. (h) The Company shall furnish to the Holder and to each underwriter, if any, a signed counterpart, addressed to the Holder or underwriter, of (i) an opinion of counsel to the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, an opinion dated the date of the closing under the underwriting agreement), and (ii) a "cold comfort" letter dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, a letter dated the date of the closing under the underwriting agreement) signed by the independent public accountants who have issued a report on the Company's financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities. (i) The Company shall as soon as practicable after the effective date of the registration statement, and in any event within 15 months thereafter, make "generally available to its -6- security holders" (within the meaning of Rule 158 under the Act) an earnings statement (which need not be audited) complying with Section 11(a) of the Act and covering a period of at least 12 consecutive months beginning after the effective date of the registration statement. (j) The Company shall deliver promptly to the Holder, if it so requests, the correspondence and memoranda described below, copies of all correspondence between the Securities and Exchange Commission (the "Commission") and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to the registration statement and permit the Holder and underwriter to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities laws or rules of the NASD. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times and as often as the Holder shall reasonably request. (k) Holder, if, as and when its Securities are covered by a registration statement filed pursuant to Section 7 hereof, agrees if and to the extent requested by the managing underwriter, in the case of an underwritten sale of its Securities (to the extent timely notified in writing by the Company or the managing underwriter), not to effect any public sale or distribution of its Securities included in such registration statement, including a sale pursuant to Rule 144 (or any similar rule then in force) under the Act, except as part of such underwritten registration, during the 30-day period prior to, and a period of up to 90 days (as determined by the managing underwriter) beginning on, the effective date of any underwritten sale of its Securities made pursuant to such registration statement. 8. Adjustments to Exercise Price and Number of Securities. ------------------------------------------------------ 8.1 Computation of Adjusted Exercise Price. The Exercise Price shall be ---------------------------------------- subject to adjustment from time to time as follows: (a) Except to the limited extent provided for in Section 8.2 hereof, no adjustment of the Exercise Price pursuant to this Article 8 shall have the effect of increasing the Exercise Price above the Exercise Price in effect immediately prior to such adjustment. -7- (b) In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined in good faith by the Board of Directors of the Company. 8.2 Subdivision and Combination. In the event of a split of Common Stock, ---------------------------- dividend of Common Stock, subdivision of Common Stock, combination or reclassification of Common Stock (including where the Common Stock is exchanged for common stock of another entity) (each, an "Action"), prior to the exercise of the Warrants, the Exercise Price shall be adjusted to equal the Exercise Price immediately prior to such Action, multiplied by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately prior to such Action, and the denominator of which is the number of shares of Common Stock outstanding immediately after such Action. 8.3 Adjustment in Number of Securities. Upon each adjustment of the ------------------------------------- Exercise Price pursuant to the provisions of this Article 8, the number of Securities issuable upon the exercise of the Warrant shall be adjusted to the nearest full amount by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of Securities issuable upon exercise of this Warrant immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. Upon the occurrence of each adjustment of the Exercise Price pursuant to this Article 8, the Company, at its expense, shall promptly (but no later than 20 days after such occurrence) compute such adjustment in accordance with the terms hereof and prepare and furnish to Holder a statement, signed by its chief financial officer, setting forth such adjustment and showing in detail the facts upon which such adjustment is based. 8.4 Definition of Common Stock. For the purpose of this Agreement, the term -------------------------- "Common Stock" shall mean (i) the Class of stock designated as Common Stock in the certificate of incorporation of the Company as it may be amended as of the date hereof or (ii) any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. 8.5 Merger or Consolidation. In case of any consolidation or merger of the ----------------------- Company with, or merger of the Company into, another corporation (other than a consolidation or merger which does not result in any reclassification or change of the outstanding Common Stock), the corporation formed by such consolidation or merger shall execute and deliver to the Holder a supplemental warrant agreement providing that the holder of each Warrant then outstanding or to be outstanding shall have the right thereafter (until the expiration of such Warrant) to receive, upon -8- exercise of such Warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or merger, by a holder of the number of shares of Common Stock for which such Warrant might have been exercised immediately prior to such consolidation, merger, sale or transfer. Such supplemental warrant agreement shall provide for adjustments which shall be identical to the adjustments provided in this Article 8. The provisions of this Section 8.5 shall similarly apply to successive consolidations or mergers. 8.6 Dividends and Other Distributions With Respect to Outstanding ---------------------------------------------------------------------- Securities. In the event that the Company shall at any time prior to the - ---------- exercise of all Warrants declare a dividend (other than a dividend consisting solely of shares of Common Stock) or otherwise distribute to its stockholders any assets, property, rights, evidences of indebtedness, securities (other than shares of Common Stock), whether issued by the Company or by another, or any other thing of value, the Holder of the unexercised Warrants shall thereafter be entitled, in addition to the shares of Common Stock or other securities and property receivable upon the exercise thereof, to receive, upon the exercise of such Warrants, the same property, assets, rights, evidences of indebtedness, securities or any other thing of value that they would have been entitled to receive at the time of such dividend or distribution as if the Warrants had been exercised immediately prior to such dividend or distribution. At the time of any such dividend or distribution, the Company shall make appropriate reserves to ensure the timely performance of the provisions of this Section 8.6. 9. Exchange and Replacement of Warrant Certificates. Each Warrant ------------------------------------------------------ Certificate is exchangeable without expense, upon the surrender thereof by the registered Holder at the principal executive office of the Company, for a new Warrant Certificate of like tenor and date representing in the aggregate the right to purchase the same number of Securities in such denominations as shall be designated by the Holder thereof at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any Warrant Certificate, and, in the case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of the Warrant Certificates, if mutilated, the Company will make and deliver a new Warrant Certificate of like tenor, in lieu thereof. 10. Elimination of Fractional Interests. The Company shall not be required ----------------------------------- to issue certificates representing fractions of shares of Common Stock upon the exercise of the Warrants, and shall not be required to issue scrip or pay cash in lieu of fractional interests, it being the intent of the parties that all -9- fractional interests shall be eliminated by rounding any fraction up to the nearest whole number of shares of Common Stock or other securities, properties or rights. 11. Reservation of Securities. The Company shall at all times reserve and ------------------------- keep available out of its authorized shares of Common Stock, solely for the purpose of issuance upon the exercise of the Warrants such number of shares of Common Stock as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Warrants and payment of the Exercise Price therefor, all shares of Common Stock and other securities issuable upon such exercise shall be duly and validly issued, fully paid, non-assessable and not subject to the preemptive rights of any stockholder. 12. Notices. ------- All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made when delivered, or mailed by registered or certified mail, return receipt requested: (a) If to the Holder of the Warrant, to the address of the Holder as shown on the books of the Company; or (b) If to the Company, to the address set forth in Section 3 hereof or to such other address as the Company may designate by notice to the Holder. 13. Supplements and Amendments. This Agreement may not be amended except in -------------------------- writing signed by the Company and the Holder. 14. Successors. All the covenants and provisions of this Agreement shall be ---------- binding upon and inure to the benefit of the Company, the Holder and their respective successors and assigns hereunder. 15. Termination. This Agreement, except for the provisions of Section 7, ----------- shall terminate at the close of business on November ____, 2003. 16. Governing Law. This Agreement and each Warrant Certificate issued -------------- hereunder shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with the laws of said State without giving effect to the rules of said State governing conflicts of laws. 17. Benefits of This Agreement. Nothing in this Agreement shall be ---------------------------- construed to give to any person or corporation other than the Company and the Holder and its transferees of the Warrant Certificates or Securities any legal or equitable right, -10- remedy or claim under this Agreement; and this Agreement shall be for the sole and exclusive benefit of the Company and the Holder and its transferees of the Warrant Certificates or Securities. 18. Valuation. The parties hereto agree that, for income tax purposes, the --------- purchase price to be attributed to the Warrants issued to the Holder hereunder on the date hereof shall be determined by the Holder, at its reasonable discretion. 19. Counterparts. This Agreement may be executed in any number of ------------ counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. UNIDIGITAL INC. By: _____________________________ Name: Title: Attest:_____________________ HOLDER: _________________________________ Name: Title: -11- EXHIBIT A THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR (ii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE. THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN. EXERCISABLE ON OR BEFORE 5:30 P.M., NEW YORK CITY TIME, NOVEMBER ___, 2003 No. W-__ ________ Warrants WARRANT CERTIFICATE This Warrant Certificate certifies that ____________ or registered assigns, is the registered holder of _________ (____) Warrants to purchase initially, at any time from November ___, 1998 until 5:30 P.M. New York time on November ___, 2003 ("Expiration Date"), up to _________ Securities, each Security consisting of one fully-paid and non-assessable share of common stock, par value $.01 per share (the "Common Stock"), of Unidigital Inc., a Delaware corporation (the "Company"), at a purchase price subject to adjustment in certain events (the "Exercise Price"), of $______ per Security (being 125% of the average closing bid and ask prices of the Common Stock during the 20 trading days ending two days prior to the date of the Warrant Agreement (as herein after defined)), upon surrender of this Warrant Certificate and payment of the Exercise Price at an office or agency of the Company, subject to the conditions set forth herein and in that certain Warrant Agreement dated as of November ___, 1998 between the Company and the Holder (the "Warrant Agreement"). Payment of the Exercise Price shall be made by check payable to the order of the Company, wire transfer or as provided in Section 6.3 of the Warrant Agreement. No Warrant may be exercised after 5:30 P.M., New York time, on the Expiration Date, at which time all Warrants evidenced hereby, unless exercised prior thereto, hereby shall thereafter be void. The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants issued pursuant to the Warrant Agreement, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the registered holder or holders of the Warrants (the "Holder"). The Warrant Agreement provides that upon the occurrence of certain events, the Exercise Price and the type and/or number of the Company's securities issuable pursuant to the Warrant Agreement may, subject to certain conditions, be adjusted. In such event, the Company will, at the request of the Holder, issue a new Warrant Certificate evidencing the adjustment in the Exercise Price and the number and/or type of securities issuable upon the exercise of Warrants; provided, however, that the failure of the Company to issue such new Warrant - -------- ------- Certificates shall not in any way change, alter, or otherwise impair, the rights of the holder as set forth in the Warrant Agreement. Upon due presentment for registration of transfer of this Warrant Certificate at an office or agency of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided herein and in the Warrant Agreement, without any charge except for any tax or other governmental charge imposed in connection with such transfer. Upon the exercise of less than all of the Warrants evidenced by this Certificate, the Company shall forthwith issue to the holder hereof a new Warrant Certificate representing such number of unexercised Warrants. The Company may deem and treat the registered holder(s) hereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership of other writing hereon made by anyone), for the purpose of any exercise hereof, and of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. All terms used in this Warrant Certificate which are defined in the Warrant Agreement shall have the meanings assigned to such terms therein. -2- IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed under its corporate seal. Dated as of November ___, 1998 UNIDIGITAL INC. By:______________________________ Name: Title: Attest:_____________________ -3- WARRANT ELECTION TO PURCHASE The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase _____________ Securities and herewith tenders in payment for such shares a check payable to the order of Unidigital Inc. (the "Company"), wire transfer or Notes or a written notice of application of the "Net Issue Exercise" provision of Section 6.3 of the Warrant Agreement in the amount of $__________________, all in accordance with the terms hereof and the terms of the Warrant Agreement dated as of November ___, 1998 between the undersigned and the Company. The undersigned requests that a certificate for such Securities be registered in the name of ___________________________ whose address is ____________________ and that such Certificate be delivered to ______________________ whose address is ____________________________________________. Dated: Signature__________________________ Name: (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) ------------------------------ (Insert Social Security or Other Identifying Number of Holder) -4- ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Warrant Certificate.) FOR VALUE RECEIVED ____________________________ hereby sells, assigns and transfers unto _____________________ - -------------------------------------------------------------------------------- (Please print name and address of transferee) this Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint _________________________ Attorney-in-Fact, to transfer the within Warrant Certificate on the books of the within-named Company, will full power or substitution. Dated: Signature__________________________ Name: (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) ------------------------------- (Insert Social Security or Other Identifying Number of Holder) EX-4.2 3 WARRANT AGREEMENT WARRANT AGREEMENT WARRANT AGREEMENT, dated as of November 25, 1998 (this "Agreement"), between UNIDIGITAL INC., a Delaware corporation ( the "Company"), and the purchaser set forth on the signature pages hereto (the "Purchaser"). Capitalized terms used herein and not otherwise defined shall have the meanings specified in the Securities Purchase Agreement described below. RECITALS WHEREAS, the Company and the Purchaser have entered into a Securities Purchase Agreement, dated as of November 25, 1998 (as amended, supplemented or otherwise modified, the "Securities Purchase Agreement"), pursuant to which the Purchaser will purchase, at par value, $10 million of the Company's Senior Subordinated Increasing Rate Notes (the "Notes"); WHEREAS, as a condition precedent to the purchase of the Notes by the Purchaser, the Company has agreed to issue, and the Purchaser is entitled to receive (on the terms and conditions set forth herein), Warrants to purchase 440,000 shares of Common Stock of the Company; WHEREAS, the number of shares of Common Stock into which the Warrants are exercisable shall be subject to increase (in respect of PIK Warrants, as defined in the Securities Purchase Agreement, and Contingent Warrants, as defined below) pursuant to the terms and conditions hereof; WHEREAS, the exercise price of the Warrants (as it may be adjusted pursuant hereto, the "Exercise Price") shall be equal to the lesser of (a) $5.00 per Warrant Share (or such different number of Warrant Shares as may result from any adjustments required pursuant to Sections 10 or 11) and (b) if the Company's Common Stock into which such Warrants are exercisable is publicly traded on a national securities exchange or the NASDAQ Stock Market, Inc. (the "NASDAQ"), at a price per Warrant Share (or such different number of Warrant Shares as may result from any adjustments required pursuant to Sections 10 or 11) equal to the average closing price for such Common Stock for the 20 trading day period comprised of the 10 trading day period ending on the Issuance Date and the 10 trading day period immediately following the Issuance Date; provided that, (i) the Exercise Price for PIK Warrants (as defined in the Securities Purchase Agreement) shall be $.01 per share and (ii) on May 31, 2001, in the event any principal, premium or accrued interest in respect of any Notes remains outstanding, the Exercise Price for all other Warrants shall be reduced by $1.00 per share (as adjusted) and, on each anniversary of such date, such Exercise Price shall be reduced by an additional $1.00 per share (as adjusted); and WHEREAS, subject to payment of the applicable Exercise Price for any Warrant, the number of Warrant Shares issuable upon the exercise of such Warrant shall be subject to adjustment from time to time upon the occurrence of certain events or circumstances described in Sections 10 and 11 below; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereto agree as follows: AGREEMENT SECTION 1. Warrant Certificates. The certificates evidencing the Warrants -------------------- (the "Warrant Certificates") to be delivered pursuant to this Agreement shall be in registered form only and shall be substantially in the form of Exhibit A attached hereto. SECTION 2. Execution of Warrant Certificates. Warrant Certificates shall be --------------------------------- signed on behalf of the Company by its chief executive officer, president, any vice-president or its chief financial officer (each an "Officer"). Each such signature upon the Warrant Certificates may be in the form of a facsimile signature of the present or any future Officer and may be imprinted or otherwise reproduced on the Warrant Certificates and for that purpose the Company may adopt and use the facsimile signature of any Person who shall have been an Officer, notwithstanding the fact that at the time the Warrant Certificates shall be delivered or disposed of he shall have ceased to hold such office. In case any Officer of the Company who shall have signed any of the Warrant Certificates shall cease to be such Officer before the Warrant Certificates so signed shall have been delivered or disposed of by the Company, such Warrant Certificates nevertheless shall be delivered or disposed of as though such Person had not ceased to be such Officer of the Company. SECTION 3. Registration. The Company shall number and register each Warrant ------------ Certificate in a register (the "Warrant Register") as such Warrant Certificate is issued and the Company may deem and treat the registered holder(s) of the Warrant Certificates as the absolute owners thereof (notwithstanding any notation of ownership or other writing thereon made by anyone), for all purposes, and shall not be affected by any notice to the contrary. SECTION 4. Registration of Transfers and Exchanges. The Company shall from --------------------------------------- time to time register the transfer of any outstanding Warrant Certificates in the Warrant Register to be maintained by the Company upon surrender thereof accompanied by a written instrument or instruments of transfer in form satisfactory to the Company, duly executed by the registered holder or holders thereof or by the duly appointed legal representative thereof or by a duly authorized attorney. Upon any such registration of transfer, a new Warrant Certificate shall be issued to the transferee(s) and the surrendered Warrant Certificate shall be canceled and disposed of by the Company. -2- The Warrant holders agree that no proposed transfer of the Warrant or of the Warrant Shares will be made unless pursuant to an effective Registration Statement (as defined in the Registration Rights Agreement) under the Securities Act or upon the receipt by the Company of an opinion of counsel, reasonably satisfactory in form and substance to the Company, that such transfer is exempt from registration requirements under the Securities Act. The Warrant holders agree that each certificate representing Warrant Shares will bear the following legend: "THE SECURITIES EVIDENCED OR CONSTITUTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THE REGISTRATION PROVISIONS OF SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS HAVE BEEN COMPLIED WITH OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." Warrant Certificates may be exchanged at the option of the holder(s) thereof when surrendered to the Company at its office for another Warrant Certificate or other Warrant Certificates of like tenor and representing in the aggregate a like number of Warrants. Warrant Certificates surrendered for exchange shall be canceled and disposed of by the Company. SECTION 5. Terms of Warrants: Exercise of Warrants. Subject to the terms of --------------------------------------- this Agreement, each Warrant holder shall have the right, which may be exercised commencing at the opening of business on the Exercise Date (as defined below) for such Warrant and until 5:00 p.m., New York City time, on the tenth anniversary of the Issuance Date, to receive from the Company the number of fully paid and nonassessable Warrant Shares which the holder may at the time be entitled to receive on exercise of such Warrant and payment of the Exercise Price for such Warrant Shares. For purposes hereof, "Exercise Date" means, (i) for any Warrant other than any PIK Warrant or Contingent Warrant, the Issuance Date, (ii) for any PIK Warrant, the date that the new Warrant Certificate(s) evidencing such PIK Warrants or notice of increase of Warrants evidenced by such holder's then existing Warrant Certificate(s), as applicable, are required to be delivered in accordance with Section 10(o), (iii) for any Contingent Warrants, the date that the new Warrant Certificate(s) for such Warrants are required to be delivered pursuant to Section 10(p) and (iv) for any Warrant, the Mandatory Exercise Date (as defined below). At any time after May 31, 2001 but prior to the tenth anniversary thereof, upon the occurrence of a Mandatory Exercise Event the Company may, by delivery of written notice in substantially the form of Exhibit B hereto (a "Mandatory Exercise Notice") to each registered holder of outstanding Warrants (as such holders may appear in the Warrant Register), declare the Exercise Date to have occurred for all (but not less than all) outstanding Warrants (a "Mandatory Exercise Date"); provided that such Mandatory Exercise Date shall not occur -------- earlier than the -3- fifth Business Day following delivery of any such Mandatory Exercise Notice or later than the tenth Business Day following any such notice. On such Mandatory Exercise Date, all outstanding Warrants shall be deemed to have been exercised (a "Mandatory Exercise") as if the holders thereof had voluntarily exercised their exercise rights as otherwise provided herein unless, prior to such Mandatory Exercise Date, any such holder has notified the Company that it is a Regulated Entity (as defined below) and such Mandatory Exercise would cause such holder to violate the BHC Act (as defined below) or any other applicable banking regulation. After receiving a Mandatory Exercise Notice from the Company, each registered holder may, by written notice to the Company, elect the method of payment of the Exercise Price as provided below; provided that, if any holder -------- fails to make such election within five Business Days following the Mandatory Exercise Date, such holder shall be deemed to have elected to pay such Exercise Price by tendering Warrants having a fair market value (as defined below) equal to such Exercise Price, as provided below. "Mandatory Exercise Event" means, with respect to any Mandatory Exercise, a period of 30 consecutive trading days (exclusive, however, of any trading days which include the date of any registered public offering or private placement by the Company of any capital stock or securities exercisable, convertible or exchangeable into capital stock, as well as the three trading days immediately prior to and immediately following such offering or placement date) shall have occurred (i) during which the closing price for the Company's Common Stock as quoted on a national securities exchange or the NASDAQ for each day during such period equaled or exceeded $12 per share, (ii) during which such period the average trading volume for the Company's Common Stock on such exchange or the NASDAQ shall have been at least 25,000 shares per trading day, and (iii) such period shall have ended not later than five Business Days prior to the date such Mandatory Exercise Notice was delivered for such Mandatory Exercise. Commencing on its Exercise Date, a Warrant may be exercised upon surrender to the Company at its office designated for such purpose (the address of which is set forth below its name on the signature pages hereto) of the certificate or certificates evidencing the Warrants to be exercised with the form of election to purchase on the reverse thereof duly filled in and signed, which signature shall be guaranteed by a bank or trust company having an office or correspondent in the United States or a broker or dealer which is a member of a registered securities exchange or the National Association of Securities Dealers, Inc. (the "NASD"), and upon payment to the Company of the Exercise Price. Payment of the Exercise Price shall be made (i) in cash or by certified or official bank check payable to the order of the Company, (ii) through the surrender of debt of the Company (including, without limitation, the Notes outstanding under the Securities Purchase Agreement) having a principal amount equal to the aggregate Exercise Price to be paid (the Company shall pay the accrued interest or dividends on such surrendered debt in cash at the time of surrender notwithstanding the stated terms thereof), (iii) through cancellation of accrued or any unpaid fees (including any interest thereon) owing by the Company to such holder, (iv) by tendering Warrants having a fair market value equal to the Exercise Price or (v) with any combination of (i), (ii), (iii) or (iv). For purpose of clause (iv) above, the "fair market value" of the Warrants shall be determined as follows: (A) to the extent the Common Stock into which such Warrants are exercisable is publicly traded and listed on a national securities exchange or the NASDAQ, the fair market value shall be equal to the -4- difference between (1) the Current Market Price (as defined below) and (2) the Exercise Price; or (B) to the extent the Common Stock into which such Warrants are exercisable is not publicly traded, or otherwise is not listed on a national securities exchange, the fair market value shall be equal to the value per share as determined in good faith by the Board of Directors of the Company pursuant to Section 10(n). Subject to the provisions of Section 6 hereof, upon such surrender of Warrants and payment of the Exercise Price, the Company shall issue and cause to be delivered with all reasonable dispatch, but in no event later than three Business Days after such surrender and payment, to or upon the written order of the holder and in such name or names as the Warrant holder may designate, a certificate or certificates for the number of full Warrant Shares issuable upon the exercise of such Warrants as provided in Section 10; provided, that if any -------- consolidation, merger or lease or sale of assets is proposed to be effected by the Company as described in Section 10(m) hereof, or a tender offer or an exchange offer for shares of Common Stock of the Company shall be made, upon such surrender of Warrants and payment of the Exercise Price as aforesaid, the Company shall, as soon as possible, but in any event not later than three Business Days thereafter, issue and cause to be delivered the full number of Warrant Shares issuable upon the exercise of such Warrants in the manner described in this sentence as provided in Section 10. Together with the delivery of such Warrant Shares, the Company shall deliver a certificate of its chief accounting or chief financial officer setting forth and certifying the calculations made by the Company pursuant to Section 10 hereof to determine the number of Warrant Shares issuable upon the exercise of the surrendered Warrant or Warrants. Such certificate or certificates representing Warrant Shares shall be deemed to have been issued and any Person so designated to be named therein shall be deemed to have become a holder of record of such Warrant Shares as of the date of the surrender of such Warrants and payment of the Exercise Price. The Warrants shall be exercisable, at the election of the holders thereof, either in full or from time to time in part and, in the event that a certificate evidencing Warrants is exercised in respect of fewer than all of the Warrant Shares issuable on such exercise at any time prior to the date of expiration of the Warrants, a new certificate evidencing the remaining Warrant or Warrants shall be issued and delivered pursuant to the provisions of this Section and of Section 2 hereof. All Warrant Certificates surrendered upon exercise of Warrants shall be canceled and disposed of by the Company. The Company shall keep copies of this Agreement and any notices given or received hereunder available for inspection by the holders during normal business hours at its office. SECTION 6. Payment of Taxes. The Company shall pay all documentary stamp ---------------- taxes attributable to the initial issuance of Warrant Shares upon the exercise of Warrants; provided that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issue of any Warrant Certificates or any certificates for Warrant -5- Shares in a name other than that of the registered holder of a Warrant Certificate surrendered upon the exercise of a Warrant, and the Company shall not be required to issue or deliver such Warrant Certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. SECTION 7. Mutilated or Missing Warrant Certificates. In case any of the ------------------------------------------- Warrant Certificates shall be mutilated, lost, stolen or destroyed, the Company may in its discretion issue, in exchange and substitution for and upon cancellation of the mutilated Warrant Certificate, or in lieu of and substitution for the Warrant Certificate lost, stolen or destroyed, a new Warrant Certificate of like tenor and representing an equivalent number of Warrants, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction of such Warrant Certificate and indemnity, if requested, also reasonably satisfactory to it. Applicants for such substitute Warrant Certificates shall also comply with such other reasonable regulations and pay such other reasonable charges as the Company may prescribe. SECTION 8. Reservation of Warrant Shares. The Company shall at all times ------------------------------ reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Stock or its authorized and issued Common Stock held in its treasury for the purpose of enabling it to satisfy any obligation to issue Warrant Shares upon exercise of Warrants, the maximum number of shares of Common Stock which may then be deliverable upon the exercise of all outstanding Warrants. The Company or, if appointed, the transfer agent for the Common Stock (the "Transfer Agent") and every subsequent transfer agent for any shares of the Company's capital stock issuable upon the exercise of any of the rights of purchase aforesaid will be irrevocably authorized and directed at all times to reserve such number of authorized shares as shall be required for such purpose. The Company will keep a copy of this Agreement on file with the Transfer Agent and with every subsequent transfer agent for any shares of the Company's capital stock issuable upon the exercise of the rights of purchase represented by the Warrants. The Company will furnish such Transfer Agent with a copy of all notices of adjustments and certificates related thereto, transmitted to each holder pursuant to Section 13 hereof. Before taking any action which would cause an adjustment pursuant to Section 10 or 11 hereof in the Exercise Rate (as defined below), the Company will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares at the Exercise Rate as so adjusted The Company covenants that all Warrant Shares which may be issued upon exercise of Warrants will, upon issue, be fully paid, nonassessable, free of preemptive rights and free from all taxes, liens, charges and security interests with respect to the issue thereof. SECTION 9. Obtaining Stock Exchange Listings. Without limiting any term or --------------------------------- provision of the Registration Rights Agreement, the Company will from time to time take all -6- action which may be necessary so that the Warrant Shares, immediately upon their issuance following the exercise of Warrants, will be listed on the principal securities exchanges and markets within the United States of America, if any, on which other shares of Common Stock are then listed. SECTION 10. Adjustment of Number of Warrant Shares Issuable; Dividends, ------------------------------------------------------------- etc. Subject to payment of the applicable Exercise Price for any Warrant, the - --- number of Warrant Shares issuable upon the exercise of such Warrant (such correlation between any Warrant and the number of shares issuable upon exercise of such Warrant, being the "Exercise Rate"), including any PIK Warrant, is subject to adjustment from time to time upon the occurrence of the events enumerated in this Section 10 and under the circumstances described in Section 11. Unless otherwise expressly provided herein, adjustments pursuant to this Section 10 and Section 11 are to be made to the Exercise Rate and not the Exercise Price. For purposes of this Section 10, "Common Stock" means Common Stock of the Company (as defined in the Securities Purchase Agreement) and any other capital stock of the Company, however designated, that has the right (subject to any prior rights of any class or series of preferred stock) to participate in any distribution of the assets or earnings of the Company without limit as to per share amount. Any term or provision of this Agreement to the contrary notwithstanding, with respect to all Contingent Warrants, if any of the events or circumstances provided for in this Section 10 or in Section 11 shall occur prior to the Contingent Warrant Issuance Date (as defined below), the Exercise Rate for such Contingent Warrants shall nonetheless be deemed to have been made so that, if (but only if) any such Contingent Warrants are actually issued, the Exercise Rate in respect thereof shall have been adjusted as if such Contingent Warrants were issued on the Issuance Date. (a) Adjustment for Change in Capital Stock. If the Company: (1) pays a dividend or makes a distribution on its Common Stock in shares of its Common Stock; (2) subdivides its outstanding shares of Common Stock into a greater number of shares; (3) combines its outstanding shares of Common Stock into a smaller number of shares; (4) makes a distribution on its Common Stock in shares of its capital stock other than Common Stock; or (5) issues by reclassification of its Common Stock any shares of its capital stock, then the Exercise Rate in effect immediately prior to such action shall be proportionately adjusted so that the holder of any Warrant thereafter exercised may receive the aggregate number -7- and kind of shares of capital stock of the Company which he would have owned immediately following such action if such Warrant had been exercised immediately prior to such action. The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision, combination or reclassification. If after an adjustment a holder of a Warrant upon exercise of such Warrant may receive shares of two or more classes of capital stock of the Company, the Company shall determine in good faith (subject to Section 10(n)) the allocation of the adjusted Exercise Rate between the classes of capital stock. After such allocation, the exercise privilege and the Exercise Rate of each class of capital stock shall thereafter be subject to adjustment on terms comparable to those applicable to Common Stock in this Section. Such adjustment shall be made successively whenever any event listed above shall occur. (b) Adjustment for Rights Issue. If the Company issues any rights, options or warrants entitling any Person to subscribe for Common Stock or securities convertible into, or exchangeable or exercisable for, Common Stock (all of the foregoing, "Rights") at an offering price (or with an initial conversion, exchange or exercise price plus such offering price) that is less than (i) $4.50 per share of Common Stock or (ii) the Current Market Price (as defined below) per share of Common Stock on the record date for such issuance the Exercise Rate shall be adjusted in accordance with the formula: E' = E x O + N --------- N x P ----- O + M where: E' = the adjusted Exercise Rate. E = the current Exercise Rate. O = the number of shares of Common Stock outstanding on the record date (assuming the conversion, exercise or exchange of all Rights and convertible securities into shares of Common Stock). N = the number of additional shares of Common Stock issuable pursuant to the Rights offered. -8- P = the offering price plus initial conversion, exchange or exercise price per share of the additional shares of Common Stock issuable pursuant to the Rights. M = the greater of (i) $4.50 per share of Common Stock or (ii) the Current Market Price per share of Common Stock on the record date. The adjustment shall be made successively whenever any such Rights are issued and shall become effective immediately after the record date for the determination of stockholders entitled to receive the Rights in the case of Rights to be issued to the holders of Common Stock. To the extent that shares of Common Stock are not delivered after the expiration of such Rights, the Exercise Rate shall be readjusted to the Exercise Rate which would otherwise be in effect had the adjustment made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered. In the event that such rights or warrants are not so issued, the Exercise Rate shall again be adjusted to be the Exercise Rate which would then be in effect if such date fixed for determination of stockholders entitled to receive such rights or warrants had not been so fixed. This subsection (b) does not apply to Rights issued to the Company's employees under bona fide, qualified employee benefit plans adopted by the Board of Directors and approved by the holders of Common Stock (when required by law), if such Rights would otherwise be covered by this subsection (b) (but only to the extent that the aggregate number of Rights excluded hereby and issued after the date of this Agreement, together with all similarly excluded Common Stock pursuant to Section 10(c), shall not exceed the right to subscribe for more than 5% of the Common Stock then outstanding, assuming the conversion, exercise or exchange of all Rights and convertible securities then outstanding into shares of Common Stock). (c) Adjustment for Common Stock Issue. If the Company issues shares of ---------------------------------- Common Stock for a consideration per share less than (i) $4.50 per share of Common Stock or (ii) the Current Market Price per share on the date the Company fixes the offering price of such additional shares, the Exercise Rate shall be adjusted in accordance with the formula: E' = E x O + N --------- N x P ----- O + M where: E' = the adjusted Exercise Rate. E = the then current Exercise Rate. -9- O = the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares (assuming the conversion, exercise or exchange of all Rights and convertible securities into shares of Common Stock). N = the number of additional shares of Common Stock issued. P = the aggregate consideration received per share for the issuance of such additional shares of Common Stock. M = the greater of (i) $4.50 per share of Common Stock or (ii) the Current Market Price per share of Common Stock on the date of issuance of such additional shares of Common Stock. The adjustment shall be made successively whenever any such issuance is made, and shall become effective immediately after such issuance. This subsection (c) does not apply to: (1) any of the transactions described in clause (a), (b) or (d) of this Section 10, (2) the exercise of Warrants, (3) Common Stock issued upon the exercise of rights or warrants issued to the holders of Common Stock, (4) Common Stock issued to stockholders of any Person that is not affiliated with the Company and that merges into the Company in proportion to their stock holdings of such Person immediately prior to such merger, upon such merger, or (5) Common Stock issued to the Company's employees under bona fide, qualified employee benefit plans adopted by the Board of Directors and approved by the holders of Common Stock (when required by law), if such Common Stock would otherwise be covered by this subsection (c) (but only to the extent that the aggregate amount of Common Stock excluded hereby and issued after the date of this Agreement, together with all similarly excluded Rights pursuant to Section 10(b) shall not exceed more than 5% of the Common Stock then outstanding, assuming the conversion, exercise or exchange of all Rights and convertible securities then outstanding into the shares of Common Stock.). (d) Adjustment for Convertible Securities Issue. If the Company issues any -------------------------------------------- securities convertible into or exchangeable for Common Stock for a consideration per share of Common Stock initially deliverable upon conversion or exchange of such securities less than (x) $4.50 per -10- share of Common Stock or (y) the Current Market Price per share on the date of issuance of such securities, the Exercise Rate shall be adjusted in accordance with the formula: E' = E x O + N --------- N x P ----- O + M where: E' = the Adjusted Exercise Rate. E = the then current Exercise Rate. O = the number of shares of Common Stock outstanding immediately prior to the issuance of such securities (assuming the conversion, exercise or exchange of all Rights and convertible securities into shares of Common Stock). N = the maximum number of shares of Common Stock deliverable upon conversion of or in exchange for such securities at the initial conversion or exchange rate. P = the aggregate consideration received for the issuance of each such security, plus any additional consideration received upon the exchange or conversion of such security. M = the greater of (i) $4.50 per share of Common Stock or (ii) the Current Market Price per share on the date of issuance of such securities. The adjustment shall be made successively whenever any such issuance is made, and shall become effective immediately after such issuance. If all of the Common Stock deliverable upon conversion or exchange of such securities has not been issued when such securities are no longer outstanding, then the Exercise Rate shall promptly be readjusted to the Exercise Rate which would then be in effect had the adjustment upon the issuance of such securities been made on the basis of the actual number of shares of Common Stock issued upon conversion or exchange of such securities. This subsection (d) does not apply to: (1) convertible securities issued to stockholders of any Person that is not affiliated with the Company and that merges into the Company, or with a subsidiary of the Company, in proportion to their stock holdings of such Person immediately prior to such merger, upon such merger, -11- (2) convertible securities that are otherwise provided for by subsections (a), (b), (c) or (d) of this Section 10. (e) Adjustment for Other Distributions. If the Company dividends or ------------------------------------- otherwise distributes to any or all holders of its Common Stock any of its assets (including but not limited to cash), debt securities, preferred stock or any rights or warrants to purchase any such securities (collectively, "Distributed Assets"), such Distributed Assets shall be proportionately distributed to all holders of Warrants on an "as-if-exercised" basis, such that each holder of a Warrant shall receive a portion of such Distributed Assets equal to what such holder would have received immediately following such dividend or distribution if such Warrant had been exercised for Common Stock immediately prior to such action. The distribution shall be made successively whenever any such dividend or distribution is made and shall become effective immediately after the record date for the determination of stockholders entitled to receive any such dividend or other distribution. This subsection does not apply to any of the transactions described in clause (a), (b), (c) or (d) of this Section 10. (f) Current Market Price. For purposes hereof, "Current Market Price" per -------------------- share of Common Stock shall mean, as of any date of determination, the average of the Quoted Prices of the Common Stock for a period of 10 consecutive trading days commencing on the 15th day before such date of determination and ending the fifth trading day before such date of determination. The "Quoted Price" of the Common Stock for any trading day shall be the last reported sales price of the Common Stock as reported by Nasdaq Stock Market, or if the Common Stock is listed on a securities exchange or the NASDAQ, the last reported sales price of the (Common Stock on such exchange, which shall be for consolidated trading if applicable to such exchange, or if neither so reported or listed, the last reported bid price for the Common Stock. In the absence of one or more such quotations, the Board of Directors of the Company shall determine, in good faith, the Current Market Price, subject in all respects to Section 10(n). (g) Consideration Received. For purposes of any computation respecting ----------------------- consideration received pursuant to clauses (d) and (e) of this Section 10, the following shall apply: (1) in the case of the issuance of shares of Common Stock for cash, the consideration shall be the amount of such cash; provided that in no case shall any deduction be made for any commissions, discounts or other expenses incurred by the Company for any underwriting of the issue or otherwise in connection therewith; (2) in the case of the issuance of shares of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined in good faith by the Board of Directors pursuant to Section 10(n), based upon the trading prices of publicly traded securities -12- where appropriate (irrespective of the accounting treatment thereof), and described in a resolution of the Board of Directors of the Company; and (3) in the case of the issuance of securities convertible into or exchangeable for shares, the aggregate consideration received therefor shall be deemed to be the consideration received by the Company for the issuance of such securities plus the additional minimum consideration, if any, to be received by the Company upon the conversion or exchange thereof (the consideration in each case to be determined in the same manner as provided in clauses (1) and (2) of this subsection). (h) When De Minimis Adjustment May Be Deferred. No adjustment in the ---------------------------------------------- Exercise Rate need be made unless the adjustment would require an increase or decrease of at least 1% in the Exercise Rate. Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section shall be made to the nearest 1/100th of a share. (i) When No Adjustment Required. No adjustment need be made for rights to ---------------------------- purchase Common Stock pursuant to a Company plan for reinvestment of dividends or interest. No adjustment need be made for a change in the par value or no par value of the Common Stock. To the extent the Warrants become convertible into cash, no adjustment need be made thereafter as to the cash. Interest will not accrue on the cash. (j) Notice of Adjustment. Whenever the Exercise Rate is adjusted, the --------------------- Company shall provide the notices required by Section 13 hereof. (k) Voluntary Increase. The Company from time to time may increase the ------------------- Exercise Rate by any amount for any period of time if the period is at least 20 days and if the increase is irrevocable during the period. Whenever the Exercise Rate is increased, the Company shall mail to Warrant holders a notice of the increase. The Company shall mail the notice at least 15 days before the date the increased Exercise Rate takes effect. The notice shall state the increased Exercise Rate and the period it will be in effect. An increase of the Exercise Rate does not change or adjust the Exercise Rate otherwise in effect for purposes of clause (a), (b), (c) or (d) of this Section 10. -13- (l) Notice of Certain Transactions. If: ------------------------------ (1) the Company takes any action that would require an adjustment, dividend or other distribution, as the case may be, pursuant to clause (a), (b), (c), (d) or (e) of this Section 10; (2) the Company takes any action that would require a supplemental Warrant Agreement pursuant to this Section 10(m); or (3) there is a liquidation or dissolution of the Company, then the Company shall mail to Warrant holders a notice stating the proposed record date for a dividend or distribution or the proposed effective date of a subdivision, combination, reclassification, consolidation, merger, transfer, lease, liquidation or dissolution. The Company shall mail the notice at least 15 days before such date. Failure to mail the notice or any defect in it shall not affect the validity of the transaction. (m) Reorganization of Company. If the Company consolidates or merges with ------------------------- or into, or transfers or leases all or substantially all its assets to, any Person, upon consummation of such transaction the Warrants shall automatically become exercisable for the kind and amount of securities, cash or other assets which the holder of a Warrant would have owned immediately after the consolidation, merger, transfer or lease if the holder had exercised the Warrant immediately before the effective date of the transaction. Concurrently with the consummation of such transaction, the corporation formed by or surviving any such consolidation or merger if other than the Company, or the Person to which such sale or conveyance shall have been made, shall enter into a supplemental Warrant Agreement so providing and further providing for adjustments which shall be as nearly equivalent as may be practical to the adjustments provided for in this Section. The successor company shall mail to Warrant holders a notice describing the supplemental Warrant Agreement. If the issuer of securities deliverable upon exercise of Warrants under the supplemental Warrant Agreement is an affiliate of the formed, surviving, transferee or lessee corporation, that issuer shall join in the supplemental Warrant Agreement. If this subsection (m) applies, clauses (a), (b), (c), (d) and (e) of this Section 10 do not apply. (n) Company Determination Not Final. Any determination that the Company or -------------------------------- its Board of Directors must make pursuant to this Agreement shall be made in good faith and shall be binding on the holders of Warrants, except as set forth herein. The Company shall give each holder of Warrants written notice of any such determination by the Company or its Board of Directors. If the holders of a majority of the Warrants do not agree with any such determination by the Company or its Board of Directors, such holders may request, in a notice delivered to the Company not later than 30 days after the date on which the holders received notice of such -14- determination from the Company, that such determination be made by an independent investment banking firm (or, if an investment banking firm is generally not qualified to render such a determination, an independent appraisal firm) of recognized national standing chosen by such holders of a majority of the Warrants, which determination shall be final and binding on the Company and the holders of Warrants, absent manifest error. All fees and expenses incurred in connection with any determination made by an independent investment banking firm or appraisal firm, as the case might be, shall be borne by the Company. (o) Increase for PIK Warrants. In the event that, pursuant to Section 2.05 ------------------------- of the Securities Purchase Agreement, any holder of Notes (which is also a holder of Warrants) elects to receive interest on any such Notes in the form of PIK Warrants, such holder shall deliver written notice of such election to the Company, and the Company shall deliver to such holder a new Warrant Certificate substantially in the form of Exhibit A hereto evidencing such PIK Warrants, together with a notice setting forth the following: (1) the dollar amount of interest which would have been payable on such Note if such interest were to be paid in cash, (2) the Interest Payment Date for such interest, and (3) the amount of Common Stock receivable by such holder in lieu of cash, with the calculation of such amount of Common Stock to be made by such holder in reasonable detail and in accordance with the terms and provisions of the Securities Purchase Agreement, including Section 2.05 thereto. (p) In the event that all principal, premiums and accrued and unpaid interest (if any), and all other fees, costs and expenses due and payable by the Company in respect of the Notes has not been paid in full in cash prior to the Contingent Warrant Issuance Date (defined below), the Holders (as defined in the Securities Purchase Agreement) of such Notes shall be entitled to receive, and the Company hereby agrees to issue to all such Holders, on a pro rata basis (based on the relation of the outstanding principal amount of all Notes held by any such Holder to the outstanding principal amount of all Notes held by all such Holders), additional Warrants ("Contingent Warrants") to purchase (in the aggregate) 200,000 shares of Common Stock of the Company. New Warrant Certificates evidencing such pro rata share of the Contingent Warrants shall be issued to each Holder of Notes, as each such Holder may appear in the records of the Company maintained for such purpose, on or within two Business Days following the Contingent Warrant Issuance Date. "Contingent Warrant Issuance Date" means the first anniversary of the Issuance Date; provided, that, the Contingent Warrant Issuance Date shall be April 1, 2000 if (but only if) one or more of the following conditions have been satisfied: (x) on or before the first anniversary of the Issuance Date, a Qualified Offering (as defined below) has occurred, (y) a registration statement, on an appropriate form, has been submitted to the Commission in furtherance of a Qualified Offering or, if such Qualified Offering is in the form of a sale without registration under the Securities Act pursuant to Rule 144A thereunder (any sale pursuant to such Rule, as it may be amended from time to time or replaced by any similar -15- rule or regulation hereafter adopted by the Commission, a "Rule 144A Sale"), a customary offering circular meeting the requirements of Rule 144A shall have been prepared and circulated to potential qualified institutional buyers in compliance with such Rule, or (z) a definitive purchase and sale agreement between the Company and a third party shall have been executed and delivered by the parties thereto, providing for the sale of assets or businesses by the Company for cash in an amount sufficient to repay in full in cash all principal, premiums and accrued and unpaid interest (if any), and all other fees, costs and expenses due and payable by the Company, in respect of the Notes, and, as of such sale, the Company shall have received all necessary governmental and third party consents and approvals (including as may be required from the lenders under the Senior Credit Facilities) necessary to approve such sale and to permit such repayment (a sale meeting the foregoing requirements, including the receipt of necessary consents and approvals being herein referred to as a "Qualified Sale"). "Qualified Offering" means the sale of debt or equity securities of the Company in an underwritten public offering registered under the Securities Act or pursuant to a Rule 144A Sale resulting in gross proceeds (before deducting underwriting commissions and discounts) of at least $15,000,000, the net proceeds of which shall be used, in appropriate amount, for the purpose of repaying in full in cash all principal, premiums and accrued and unpaid interest (if any), and all other fees, costs and expenses due and payable by the Company in respect of the Notes and as to which all third party consents and approvals (including as may be required from the lenders under the Senior Credit Facilities) shall have been received by the Company to permit such repayment. (q) Form of Warrants. Irrespective of any adjustments in the Exercise Rate ---------------- or in the kind of shares purchasable upon the exercise of the Warrants, Warrants theretofore or thereafter issued may continue to express the same price and kind of shares as are stated in the Warrants initially issuable pursuant to this Agreement. SECTION 11. No Dilution or Impairment: Capital and Ownership Structure. If ----------------------------------------------------------- any event shall occur as to which the provisions of Section 10 are not strictly applicable but the failure to make any adjustment would adversely affect the rights (including all purchase rights) represented by the Warrants in accordance with the essential intent and principles of such Section, then, in each such case, the Company shall appoint, at its own expense, an investment banking firm of recognized national standing that does not have a direct or material indirect financial interest in the Company or any of its subsidiaries, who has not been, and, at the time it is called upon to give independent financial advice to the Company, is not (and none of its directors, officers, employees, affiliates or stockholders are) a promoter, director or officer of the Company or any of its subsidiaries, which shall give their opinion upon the adjustment, if any, on a basis consistent with the essential intent and principles established in Section 10, necessary to preserve, without dilution, the purchase rights, represented by this Agreement and the Warrants. Upon receipt of such opinion, the Company will promptly mail a copy thereof to the holders of the Warrants and shall make the adjustments described therein. The Company will not, by amendment of its certificate of incorporation or through any consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the -16- terms of the Warrants, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of the Warrants against dilution or other impairment. Without limiting the generality of the foregoing, the Company (1) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock on the exercise of the Warrants from time to time outstanding and (2) will not take any action which results in any adjustment of the Exercise Rate if the total number of Warrant Shares issuable after such action upon the exercise of all of the Warrants would exceed the total number of shares of Common Stock then authorized by the Company's certificate of incorporation and available for the purposes of issue upon such exercise. A consolidation, merger, reorganization or transfer of assets involving the Company covered by Section 10(m) shall not be prohibited by or require any adjustment under this Section 11. SECTION 12. Fractional Interests. The Company shall not be required to --------------------- issue fractional Warrant Shares on the exercise of Warrants. If more than one Warrant shall be presented for exercise in full at the same time by the same holder, the number of full Warrant Shares which shall be issuable upon the exercise thereof shall be computed on the basis of the aggregate number of Warrant Shares purchasable on exercise of the Warrants so presented. If any fraction of a Warrant Share would, except for the provisions of this Section 12, be issuable on the exercise of any Warrants (or specified portion thereof), the number of Warrant Shares which shall be issued by the Company on exercise of such Warrants shall be rounded (i) to the last previous whole number if the fraction is less than 0.5 of a Warrant Share or (ii) to the next higher whole number if the fraction is greater than or equal to 0.5 of a Warrant Share. SECTION 13. Notices to Warrant Holders. Upon any adjustment of the Exercise -------------------------- Rate pursuant to Section 10, the Company shall promptly thereafter cause to be delivered, by first-class mail, postage prepaid, to each of the registered holders of the Warrant Certificates at such holder's address appearing on the Warrant Register a certificate of an Officer of the Company setting forth the Exercise Rate after such adjustment and setting forth in reasonable detail the method of calculation and the facts upon which such calculations are based and setting forth the number of Warrant Shares (or portion thereof) issuable after such adjustment in the Exercise Rate, upon exercise of a Warrant and payment of the Exercise Price. Where appropriate, such notice shall be given in advance and included as a part of the notice required to be mailed under the other provisions of this Section 13. In case: (a) the Company shall authorize the issuance to all holders of shares of Common Stock of rights, options or warrants to subscribe for or purchase shares of Common Stock or of any other subscription rights or warrants; (b) the Company shall authorize the distribution to all holders of shares of Common Stock or evidences of its indebtedness or assets (including cash dividends or cash distributions payable out of consolidated earnings or earned surplus or dividends -17- payable in shares of Common Stock or distributions referred to in subsection (a) of Section 10 hereof); (c) of any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required, or of the conveyance or transfer of the properties and assets of the Company substantially as an entirety, or of any reclassification or change of Common Stock issuable upon exercise of the Warrants (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or a tender offer or exchange offer for shares of Common Stock; (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or (e) the Company proposes to take any action which would require an adjustment of the Exercise Rate pursuant to Section 10, or a dividend or other distribution to holders of Warrants pursuant to Section 10(e), then the Company shall cause to be given to each of the registered holders of the Warrant Certificates at such holder's address appearing on the Warrant Register, at least 20 days (or 10 days in any case specified in clause (a) or (b) above) prior to the applicable record date hereinafter specified, or promptly in the case of events for which there is no record date, by first-class mail, postage prepaid, a written notice stating of such event or occurrence (in reasonable detail), together with detailed information such as (i) the date as of which any such subdivision, combination or reclassification is to be made, or (ii) the date as of which the holders of record of shares of Common Stock to be entitled to receive any such dividends, rights, options, warrants or distribution are to be determined, or (iii) the initial expiration date set forth in any tender offer or exchange offer for shares of Common Stock, or (iv) the date on which any such consolidation, merger, conveyance, transfer dissolution, liquidation or winding up is expected to become effective or consummated, and the date as of which it is expected that holders of record of shares of Common Stock shall be entitled to exchange such shares for securities or other property, if any, deliverable upon such reclassification, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up. The failure to give the notice required by this Section 13 or any delay therein shall not affect the legality or validity of any distribution, right, option, warrant, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up, or the vote upon any action. Nothing contained in this Agreement or in any of the Warrant Certificates shall be construed as conferring upon the holders thereof the right to vote for, or to consent to, the election of Directors of the Company or any other matter, or any rights whatsoever as stockholders of the Company; provided that each registered holder of Warrants shall be entitled to receive all notices sent generally to stockholders, such notices to be delivered pursuant to Section 15 hereof at the address of such holder appearing on the Warrant Register. -18- SECTION 14. BHC Act Transfer Restrictions. If a Registered Holder is a ------------------------------- Regulated Entity (as defined below), such Registered Holder may transfer Warrants only under the following circumstances: (i) in a widely distributed public offering; (ii) in an open market transfer pursuant to Rule 144A under the Securities Act of 1933, as amended, or any similar rule then in force; (iii) in a transfer constituting two percent or less (or such greater amount determined in accordance with clause (vii) below) of the outstanding shares of the Common Stock (assuming that all outstanding Warrants were exercised for Common Stock); (iv) in a transfer to a Person if such Person already owns or has negotiated to purchase at least a majority of the outstanding shares of Common Stock (assuming all outstanding Warrants were exercised for Common Stock); (v) in a transfer to the Company; (vi) in a transfer to an affiliate of such Registered Holder or to any other Regulated Entity; or (vii) in any method of transfer determined by the Regulated Entity to be permissible under the Bank Holding Company Act of 1956, as amended (the "BHC Act") and any other applicable banking regulations. -------- "Regulated Entity" means (i) any entity that is a "bank holding company" (as ----------------- defined in Section 2(a) of the BHC Act) or any non-bank subsidiary of such an entity and (ii) any entity, that pursuant to Section 8(a) of the International Banking Act of 1978, as amended, is subject to the provisions of the BHC Act or any non-bank subsidiary of such an entity. SECTION 15. Supplements and Amendments. Except as otherwise expressly ---------------------------- provided herein, the provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions of this Agreement may not be given unless the Company has obtained the written consent of holders of at least 51.0% of the outstanding Warrant Certificates (excluding Warrant Certificates held by the Company or any of its affiliates). SECTION 16. Notices. Any notice or demand authorized by this Agreement to ------- be given or made by the registered holder of any Warrant Certificate to or on the Company shall be delivered or sent by registered, certified or express mail, postage prepaid, return receipt requested, or given or made by facsimile, in each case, at the "Address for Notices" specified below the Company's name on the signature pages hereof, or at such other address as shall be designated by the Company in a written notice to the Warrant holders. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by facsimile and electronic confirmation thereof has been received or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. Any notice pursuant to this Agreement to be given by the Company to the registered holder(s) of any Warrant Certificate shall be delivered or sent by registered, certified or express mail, postage prepaid, return receipt requested, or given or made by facsimile, in each case, at the address of such holder appearing on the Warrant Register of the Company, or at such other address as shall be designated by such holder in a written notice to the Company. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by facsimile and electronic confirmation thereof has been received -19- or personally delivered or in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. SECTION 17. Successors. All the covenants and provisions of this Agreement ---------- by or for the benefit of the Company shall bind and inure to the benefit of its respective successors and assigns hereunder. SECTION 18. Termination. This Agreement shall terminate on the earlier of ----------- (x) the Business Day following the tenth anniversary of the Issuance Date and (y) the date when all Warrants have been exercised. SECTION 19. New York Law, Submission to Jurisdiction, Waiver of Jury Trial. -------------------------------------------------------------- THIS AGREEMENT AND EACH WARRANT CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HERETO HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS WARRANT AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS WARRANT AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 20. Benefits of This Agreement. Except as expressly set forth --------------------------- herein, nothing in this Agreement shall be construed to give to any Person or corporation other than the Company and the registered holders of the Warrant Certificates any legal or equitable right, remedy or claim under this Agreement; but, except as so set forth, this Agreement shall be for the sole and exclusive benefit of the Company and the registered holders of the Warrant Certificates. SECTION 21. Counterparts. This Agreement may be executed in any number of ------------ counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. SECTION 22. Remedies. Each Warrant holder, in addition to being entitled to -------- exercise all rights provided herein or granted by law, including recovery of damages, in connection with the breach by the Company of its obligations hereunder will be entitled to specific performance of its rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this -20- Agreement (including those provisions requiring the issuance of PIK Warrants or Contingent Warrants or any Warrant Certificates in respect thereof) and agrees, to the extent permitted under applicable law, to waive the defense in any action for specific performance that a remedy at law would be adequate. SECTION 23. Expenses. The Company agrees to pay all reasonable -------- out-of-pocket costs, expenses and other payments in connection with the issuance of the Warrants and the Warrant Shares as contemplated by this Agreement, including, without limitation, reasonable fees and disbursements of counsel for the Purchaser incurred in connection with the preparation and performance of this Agreement. [Signature Page Follows] -21- IN WITNESS WHEREOF, the parties hereto have caused this Common Stock Warrant Agreement to be duly executed, as of the day and year first above written. UNIDIGITAL INC. By: /s/William E. Dye -------------------------- Name: William E. Dye Title: Chief Executive Officer Address for Notices: Unidigital Inc. 229 West 28th Street New York, NY 10001 Telecopier No.: (212) 244-7815 Attention: William E. Dye, Chief Executive Officer CIBC WOOD GUNDY CAPITAL CORP. By: /s/Richard White -------------------- Name: Richard White Title: Managing Director Address for Notices: CIBC Wood Gundy Capital Corp. 425 Lexington Avenue, 9th Floor New York, NY 10017 Telecopier No.: 212-697-1544 Attention: Richard White EXHIBIT A [Form of Warrant Certificate] [Face] THE SECURITIES EVIDENCED OR CONSTITUTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THE REGISTRATION PROVISIONS OF SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS HAVE BEEN COMPLIED WITH OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. No. ____ Warrant Certificate UNIDIGITAL INC. This Warrant Certificate certifies that __________________, or its registered assigns, is the registered holder of Warrants (as defined below) to purchase 440,000 shares of common stock, $.01 par value per share (the "Common Stock"), of Unidigital Inc., a Delaware corporation ("the Company"), as such amount may be increased or otherwise adjusted pursuant to the Warrant Agreement, dated November 25, 1998 between the Company and the purchaser party thereto (the "Warrant Agreement"). (The term "Warrant" and all other capitalized terms not otherwise defined herein shall have the meaning provided in the Warrant Agreement.) This Warrant Certificate entitles the holder of the Warrants evidenced hereby, upon exercise thereof, to receive from the Company, fully paid and nonassessable shares of Common Stock (each, a "Warrant Share") at an exercise price per share (the "Exercise Price") determined pursuant to the Warrant Agreement, payable in lawful money of the United States of America (or as otherwise provided in the Warrant Agreement) upon surrender of this Warrant Certificate at the office or agency of the Company designated for such purpose, but only subject to the conditions set forth herein and in the Warrant Agreement. The number of Warrant Shares issuable upon exercise of the Warrants are subject to increase or other adjustment upon the occurrence of certain events set forth in the Warrant Agreement. No Warrant may be exercised after 5:00 p.m., New York City time, on the tenth anniversary of the Issuance Date (as defined in the Warrant Agreement). Reference is hereby made to the further provisions of this Warrant Certificate set forth on the reverse hereof and such further provisions shall for all purposes have the same effect as though fully set forth at this place. THIS WARRANT CERTIFICATE SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPALS OF CONFLICTS OF LAWS. IN WITNESS WHEREOF, Unidigital Inc. has caused this Warrant Certificate to be signed by its duly authorized officer. Dated: _____________ UNIDIGITAL INC. By: -------------------------- Name: William E. Dye Title: Chief Executive Officer A-2 [Form of Warrant Certificate] [Reverse] The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants expiring on the tenth anniversary of Issuance Date entitling the holder on exercise to receive shares of common stock, $0.01 par value per share, of the Company (the "Common Stock"). Such Warrant are or will be issued or to be issued pursuant to a Warrant Agreement, dated as of November 25, 1998 (as amended, supplemented or otherwise modified, the "Warrant Agreement"), between the Company and the purchaser party thereto, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. A copy of the Warrant Agreement may be obtained by the holder hereof upon written request to the Company. A Warrant will not be exercisable until its respective Exercise Date (as defined in the Warrant Agreement). The holder of Warrants evidenced by this Warrant Certificate may exercise them by surrendering this Warrant Certificate, with the form of election to purchase set forth hereon properly completed and executed, together with payment of the Exercise Price in cash (or as otherwise provided in the Warrant Agreement) at the office of the Company designated for such purpose. In the event that upon any exercise of Warrants evidenced hereby the number of Warrants exercised shall be less than the total number of Warrants evidenced hereby, there shall be issued to the holder hereof or his assignee a new Warrant Certificate evidencing the number of Warrants not exercised. The Warrant Agreement provides that upon the occurrence of certain events the number of Warrant Shares issuable upon the exercise of each Warrant (the "Exercise Rate") may, subject to certain conditions, be adjusted. If the Exercise Rate is adjusted, the Warrant Agreement provides that the number of shares of Common Stock issuable upon the exercise of each Warrant shall be adjusted. No fractions of a share of Common Stock will be issued upon the exercise of any Warrant. The Warrant Agreement further provides that the number of shares of Common Stock into which the Warrants are exercisable may be increased (in the event any PIK Warrants or Contingent Warrants (each as defined in the Warrant Agreement) are issued. The holders of the Warrants are entitled to certain tag-along rights with respect to the Common Stock purchasable upon exercise thereof. Said tag-along rights are set forth in full in a Registration and Equity Rights Agreement, dated as of November 25, 1998, among the Company, CIBC Wood Gundy Capital Corp., and certain stockholders of the Company party thereto. A copy of the Registration and Equity Rights may be obtained by the holder hereof upon written request to the Company. Warrant Certificates, when surrendered at the office of the Company by the registered holder thereof in person or by legal representative or attorney duly authorized in writing, may be exchanged, in the manner and subject to the limitations provided in the Warrant Agreement, but without payment of any service charge, for another Warrant Certificate or Warrant Certificates of like tenor evidencing in the aggregate a like number of Warrants. Upon due presentation for registration of transfer of this Warrant Certificate at the office of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided in the Warrant Agreement, without charge except for any tax or other governmental charge imposed in connection therewith. The Company may deem and treat the registered holder(s) thereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. Except as expressly provided in the Warrant Agreement, neither the Warrants nor this Warrant Certificate entitles any holder hereof to any rights of a stockholder of the Company. A-4 [Form of Election to Purchase] (To Be Executed Upon Exercise Of Warrant) The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to receive ____________ shares of Common Stock and herewith tenders payment for such shares to the order of UNIDIGITAL INC. in the amount of $_____ in accordance with the terms hereof and the Warrant Agreement, dated November 25, 1998, between Unidigital Inc. and the purchaser party thereto. The undersigned requests that a certificate for such shares be registered in the name of ____________________, whose address is ____________________________________ and that such shares be delivered to ________________ whose address is ___________________________________. If said number of shares is less than all of the shares of Common Stock purchasable hereunder, the undersigned requests that a new Warrant Certificate representing the remaining balance of such shares be registered in the name of ____________________, whose address is _________________________________, and that such Warrant Certificate be delivered to ___________________, whose address is _____________________________________. Signature: ----------------------------- Date: -------------------- Signature Guaranteed: ------------------- A-5 EXHIBIT B [Form of Mandatory Exercise Notice] (To Be Executed Upon Mandatory Exercise Of All Warrants Pursuant to Section 5 of the Warrant Agreement) To: [Insert Name of Registered Holder] Re: [Insert Registration No(s). of Warrant Certificate(s) Registered in Name of Above-Mentioned Registered Holder] Reference is made to the Warrant Agreement, dated November 25, 1998, ( as amended or otherwise modified, "Warrant Agreement"), between the undersigned and the purchaser party thereto. Unless otherwise defined, capitalized terms used herein have the meanings provided therefor in the Warrant Agreement. Pursuant to Section 5 of the Warrant Agreement, the undersigned hereby elects to cause a Mandatory Exercise of all (but not less than all) Warrants outstanding as of the date hereof and issued pursuant to or in connection with the Warrant Agreement or the Securities Purchase Agreement. Accordingly, upon tender of all Warrant Certificates held by you and payment in the amount of $_____________, you shall be entitled to receive ______ shares of Common Stock, all in accordance with the terms hereof and the Warrant Agreement. Certificates for such shares of Common Stock to be issued as a result of the Mandatory Exercise contemplated hereby shall be issued upon tender of the Warrant Certificate(s) and Exercise Price, as set forth above, and such certificates for Common Stock shall be registered in the name of such Person(s) at such address(es), and shall be delivered by us to such Person(s) at such address(es), as you shall instruct us in writing. You are hereby notified that, pursuant to Section 5 of the Warrant Agreement, you are entitled to elect the form of payment of the Exercise Price for your Warrants being exercised as a result of the Mandatory Exercise hereunder; provided that, if no such election is made by you within five Business Days following the Mandatory Exercise Date, you shall be deemed to have elected to pay such Exercise Price by tendering Warrants having a fair market value (as defined in the Warrant Agreement) equal to such Exercise Price. You shall also have the right to object to join any calculation set forth above in respect of the Exercise Price or the number of shares of Common Stock issuable upon exercise of your Warrants, and no such calculation shall be binding on you until you and the undersigned shall have mutually agreed thereto. UNIDIGITAL INC. -------------------------------------- By: Title: Date: ------------------------- B-2 EX-4.3 4 REGISTRATION AND EQUITY RIGHTS AGREEMENT REGISTRATION AND EQUITY RIGHTS AGREEMENT ---------------------------------------- This REGISTRATION AND EQUITY RIGHTS AGREEMENT (this ("Agreement") is made and entered into as of November 25, 1998, among UNIDIGITAL INC., a Delaware corporation (the "Company"), CIBC WOOD GUNDY CAPITAL CORP. (together with its successors and assigns, the "Purchaser") and certain stockholders of the Company identified as "Substantial Holders" on the signature pages hereto (collectively, the "Substantial Holders"). RECITALS This Agreement is made pursuant to (i) the Securities Purchase Agreement, dated as of November 25, 1998 (as amended, supplemented or otherwise modified, the "Securities Purchase Agreement"), by and among the Company, the Purchaser and certain guarantors parties thereto, and (ii) the Warrant Agreement, dated as of November 25, 1998 (as amended, supplemented or otherwise modified, the "Warrant Agreement"), between the Company and the Purchaser. In order to induce the Purchaser to enter into the Securities Purchase Agreement and purchase the Notes thereunder, the Company has agreed to provide the registration and other rights set forth in this Agreement. The execution of this Agreement is a condition precedent to the purchase of the Notes under the Securities Purchase Agreement. AGREEMENT The parties agree as follows: 1. Definitions. To the extent capitalized terms are not otherwise defined ----------- herein, such terms shall have the meanings provided in the Securities Purchase Agreement. As used in this Agreement, the following capitalized terms shall have the following meanings: "Demand Registration" has the meaning provided in Section 3(c). "Indemnified Parties" has the meaning provided in Section 6(a) hereof. "NASD" means the National Association of Securities Dealers, Inc. "Piggyback Registration" has the meaning provided in Section 3(a) hereof. "Proposed Purchaser" has the meaning provided in Section 6 hereof. "Prospectus" means the prospectus included in any Registration Statement, as such prospectus may be amended or supplemented by any supplement thereto, for any Underwritten Offering of any securities covered by such Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus. "Registered Holder" means any holder of Registrable Securities (other than the Company or any of its affiliates) designated as the registered holder thereof on the books of the Company maintained for such purpose. For purposes of this Agreement, the Company may treat such Registered Owner as the absolute owner of such Registrable Securities for all purposes and may treat such holder as the Person entitled exercise all rights with respect to such Registrable Securities, including rights created hereby. "Registrable Securities" means the Registrable Warrant Shares; provided that a security ceases to be a Registrable Security when it is no longer a Transfer Restricted Security. "Registrable Warrant Shares" means the Warrant Shares issuable to the holders of Warrants upon exercise of such Warrants. "Registration Expenses" has the meaning provided in Section 5 hereof. "Registration Statement" means any registration statement of the Company which covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, all amendments (including post-effective amendments) and supplements to such Registration Statement, all exhibits and all material incorporated by reference in such Registration Statement. "Tag-Along Purchase Offer" has the meaning provided in Section 6 hereof. "Tag-Along Sale" has the meaning provided in Section 6 hereof. "Tag-Along Securities" has the meaning provided in Section 6 hereof. "Tag-Along Seller" has the meaning provided in Section 6 hereof. "Transfer Restricted Securities" means the Registrable Securities upon original issuance thereof; provided that a Registrable Security shall no longer -------- be a Transfer Restricted Security when such Registrable Security is sold to the public pursuant to an effective Registration Statement or pursuant to Rule 144 under the Securities Act. "Underwritten Offering" means a registration of an offering of securities with the Commission pursuant to which such securities of the Company are sold to an underwriter for reoffering to the public pursuant to the Securities Act. -2- 2. Securities Subject to this Agreement. ------------------------------------ (a) Registrable Securities. The securities entitled to the benefits of this ---------------------- Agreement are the Registrable Securities. (b) Registered Holders of Registrable Securities. A Person shall be deemed -------------------------------------------- to be a Registered Holder whenever such Person owns Registrable Securities of record (as registered on the books of the Company maintained for such purpose) or has provided evidence reasonably satisfactory to the Company that such Person has the right to acquire such Registrable Securities, whether or not such acquisition has actually been effected and disregarding any legal restrictions upon the exercise of such right. 3. Registration Rights. ------------------- (a) Right to Piggyback Registration. Subject to the last sentence of this -------------------------------- clause (a), whenever the Company proposes to consummate any Underwritten Offering pursuant to which any securities of the Company are to be sold, whether in connection with a sale of such securities by the Company, by any other Person or both, and the registration form to be used may be used for the registration of the Registrable Securities (a "Piggyback Registration"), the Company shall (i) give written notice to each Registered Holder at least 30 days prior to the anticipated effective date for such Underwritten Offering, of the Company's intention to effect such offering, which notice will specify the proposed offering price range, the kind and number of securities proposed to be registered, the distribution arrangements and such other information that at the time would be appropriate to include in such notice, and (ii) subject to clause (b) below, include in such Piggyback Registration all Registrable Securities with respect to which the Company has received written requests from such Registered Holders for inclusion therein within 20 days after delivery of the Company's notice. Except as may otherwise be provided in this Agreement, Registrable Securities with respect to which such request for inclusion in such Piggyback Registration has been received will be included by the Company in such Underwritten Offering and offered to the public in a Piggyback Registration pursuant to this Section 3 on the terms and conditions at least as favorable as those applicable to the other securities to be sold by the Company or by any other Person as part of such Underwritten Offering. (b) Priority on Piggyback Registration. The Company shall use its best ------------------------------------ efforts to cause the managing underwriter or underwriters of a proposed Underwritten Offering described in clause (a) above to permit the Registrable Securities requested to be included in such Underwritten Offering on the same terms and conditions as the securities being sold by the Company or any other Person included therein. Notwithstanding the foregoing, if the managing underwriter of such offering delivers a written opinion to the Company that either because of (x) the kind or combination of securities which the Registered Holders, the Company and any other Persons or entities intend to include in such offering or (y) the size of the offering which such Registered Holders, the Company and such other Persons intend to make, are such that the success of the offering would be materially and adversely affected by inclusion of the Registrable Securities requested to be included, then (i) in the event that the size of the offering -3- is the basis of such managing underwriter's opinion, the amount of securities to be offered for the accounts of such Registered Holders shall be reduced pro rata (according to the securities proposed to be included in such offering by all Persons other than the Company) to the extent necessary to reduce the total amount of securities to be included in such offering to the amount recommended by such managing underwriter; provided that if securities are being offered for the account of other Persons as well as the Company, then with respect to the Registrable Securities intended to be offered by such Registered Holders, the proportion by which the amount of Registrable Securities intended to be offered by such Registered Holders is reduced shall not exceed the proportion by which the amount of such class of securities intended to be offered by such other Persons is reduced; and (ii) in the event that the kind (or combination) of securities to be offered is the basis of such managing underwriter's opinion, (1) the Registrable Securities to be included in such offering shall be reduced as described in clause (i) above (subject to the proviso thereof) or, (2) if the actions described in clause (1) would, in the judgment of the managing underwriter, be insufficient to substantially eliminate the adverse effect that inclusion of the Registrable Securities requested to be included would have on such offering, such Registrable Securities will be excluded from such offering altogether. (c) Right to Demand Registration. If at any time after six months after the ---------------------------- date hereof the Purchaser or Registered Holders owning at least 25% of Registrable Securities then outstanding notify the Company in writing that they intend to offer or cause to be offered for public sale all or any portion of their Registrable Securities pursuant to an Underwritten Offering (a "Demand Registration"), the Company will notify all Persons (including all Registered Holders) who would be entitled to notice of a proposed registration under Section 3(a) above of its receipt of such notification from the Purchaser or such Registered Holders, as the case may be. Upon the written request of any such Person delivered to the Company within 21 days after delivery by the Company of such notification, the Company will either (i) elect to make a primary Underwritten Offering in which case the rights of such Persons (including all Registered Holders) shall be as set forth in Section 3(a) above or (ii) elect to make a secondary Underwritten Offering pursuant to which all Registrable Securities as may be requested by any Registered Holders to be registered or included in such offering shall be included in such offering in accordance with the terms of this clause (c); provided that the rights of the Registered Holders to have all of their shares of Registrable Securities included in any such offering pursuant to this clause (c) shall be subject to (but only to) the limitation on offering size described in clause (y) of Section 3(b) above (an "Offering Size Cutback"). Any term or provision hereof to the contrary notwithstanding, (i) the Company shall in no event be obligated to effect more than two Demand Registrations; provided that, each time a Demand Registration is subject to an Offering Size Cutback resulting in the reduction by 25% or more of the total amount of Registrable Securities initially requested for inclusion in such Demand Registration by Registered Holders, an additional Demand Registration shall be available to the Registered Holders, (ii) prior to any Offering Size Cutback becoming effective as to any Registrable Securities in respect of any Demand Registration, the Company shall withdraw any securities it had intended to sell as part of such registration and (iii) the Company shall not be required to effect more than one registration in any twelve-month period. The Company shall use its best -4- efforts to ensure the Company's eligibility for registration on Form S-3, including the filing of any reports with the Commission. (d) Selection of Underwriters. With respect to each Demand Registration or ------------------------- Piggyback Registration, the Company will use its best efforts to select a managing underwriter or underwriters of nationally recognized standing to administer the offering; provided that the Company shall not be required to use an underwriter if such Demand Registration or Piggyback Registration, as the case may be, could be effected on Form S-3. (e) Furnish Information. It shall be a condition precedent to the -------------------- obligations of the Company to take any action pursuant to this Agreement with respect to the Registrable Securities of any Registered Holder that such Registered Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be reasonably required to effect the registration of such Registered Holder's Registrable Securities. (f) Underwriting Requirements. In connection with any offering involving an ------------------------- underwriting of shares being issued by the Company, the Company shall not be required to include any Registered Holder's securities in such underwriting unless such Registered Holder accepts the terms of the underwriting as agreed upon between the Company and the underwriters selected by the Company; provided, -------- however, that (i) such terms of the underwriting shall be reasonable and - ------- customary for underwritings of similar type and size and (ii) no Registered Holder participating in such underwriting shall be required to make any representations or warranties or provide indemnification except as may reasonably relate to such Registered Holder's ownership of shares and authority to enter into the underwriting agreement and to such underwriter's intended method of distribution. 4. Hold-Back Agreements. Each Registered Holder whose Registrable ---------------------- Securities are covered by a Registration Statement filed pursuant to Section 3 hereof agrees, if requested by the managing underwriters in an Underwritten Offering, not to effect any public sale or distribution of securities of the Company of the same class as the securities included in such Registration Statement, including a sale pursuant to Rule 144 under the Securities Act (except as part of such Underwritten Registration), during the 30-day period prior to, and during the 180-day period beginning on, the closing date of each Underwritten Offering made pursuant to such Registration Statement, to the extent timely notified in writing by the Company or the managing underwriters; provided, however, that each such Registered Holder shall be subject to the - -------- ------- hold-back restrictions of this Section 4 only once during any 365-day period. The foregoing provisions shall not apply to any such Registered Holder if such Registered Holder is prevented by applicable statute or regulation from entering any such agreement; provided, however, that any such Registered Holder -------- ------- shall undertake, in its request to participate in any such Underwritten Offering, not to effect any public sale or distribution of any Registrable Securities held by such Registered Holder and covered by a Registration Statement -5- commencing on the date of sale of the Registrable Securities unless it has provided 45 days prior written notice of such sale or distribution to the underwriter or underwriters. 5. Registration Expenses. All reasonable expenses incident to the Company's --------------------- performance of or compliance with this Agreement, including without limitation all (i) registration and filing fees, fees and expenses associated with filings required to be made with the NASD (including, if applicable, the fees and expenses of any "qualified independent underwriter" and its counsel as may be required by the rules and regulations of the NASD), (ii) fees and expenses of compliance with securities or blue sky laws (including fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities and determination of their eligibility for investment under the laws of such jurisdictions as the managing underwriters may request or determine), (iii) printing expenses (including expenses of printing certificates for the Registrable Securities in a form eligible for deposit with The Depository Trust Company and of printing prospectuses), (iv) fees and disbursements of counsel for the Company and for the sellers of the Registrable Securities, and customary out of pocket expenses and fees paid by issuers to the extent provided for in an underwriting agreement (excluding discounts, commissions or fees of underwriters, selling brokers, dealer managers or similar securities industry professionals relating to the distribution of the Registrable Securities, transfer taxes or legal expenses of any Person other than the Company and the selling holders), (v) the cost of Securities Act liability insurance if the Company so desires and (vi) fees and expenses of other Persons retained by the Company (all such expenses being herein called "Registration Expenses") will be borne by the Company, regardless whether the Registration Statement becomes effective. Each Registered Holder will pay any fees or disbursements of counsel to such holder and all underwriting discounts and commissions and transfer taxes, if any, and provide other fees, costs and expenses of such holder (other than Registration Expenses) relating to the sale or disposition of such Registered Holder's Registrable Securities. The Company, in any event, will pay the Company's own internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the securities to be registered on each securities exchange on which similar securities issued by the Company are then listed, rating agency fees and the fees and expenses of any Person, including special experts, retained by the Company. 6. Tag-Along Rights. If at any time after the Issuance Date, any of the ----------------- Substantial Holders (each, a "Tag-Along Seller") desires to sell, transfer or otherwise dispose of any Common Stock (or other securities convertible, exchangeable or exercisable into Common Stock) beneficially owned by such Person, other than in respect of a Permitted Transfer (defined below) to any transferee (the "Proposed Purchaser"), in a single transaction or a series of related transactions (such transaction or series of related transactions being a "Tag-Along Sale"), such Tag-Along Seller shall, prior to consummating any such Tag-Along Sale, require the Proposed Purchaser to provide not less than 30 days prior written notice of such proposed Tag-Along Sale and to offer in such notice (the "Tag-Along Purchase Offer") to purchase from each Registered Holder a "pro --- rata portion" of the amount of Registrable Securities which such Registered - ---- Holder desires to include in such proposed Tag-Along Sale (all such Registrable Securities -6- subject to a proposed Tag-Along Purchase Offer are herein collectively referred to as "Tag-Along Securities"). Within 20 days of receiving such Tag-Along Purchase Offer, each Registered Holder electing to participate in such proposed Tag-Along Sale shall provide written notice of such election to the Proposed Purchaser and the Tag-Along Seller, together with the number and type of Tag-Along Securities such Registered Holder desires to include in such proposed Tag-Along Sale (which number of securities may be in excess of the amount of securities initially proposed to be sold or otherwise disposed of in such proposed Tag-Along Sale). To the extent one or more Registered Holders elect to participate in a proposed Tag-Along Sale pursuant to this Section, the number of shares of Common Stock, as the case may be, that the Tag-Along Seller may sell in such transaction shall be proportionately reduced. For purposes of this Section, "pro rata portion" (or words of similar imports) shall mean a fraction the numerator of which is the total number of shares of Common Stock initially proposed to be sold in such Tag-Along Sale by the Tag-Along Seller (without regard to any reduction resulting from the operation of this Section) and the denominator of which is the sum of (x) the total number of shares of Registrable Securities (determined on a fully-diluted, as-if-converted basis) owned by each Registered Holder and (y) the total number of shares of Common Stock (determined on a fully-diluted, as-if- converted basis) owned by each Substantial Holder immediately prior to such Tag-Along Sale. Also for purposes of this Section, "Permitted Transfer" shall mean any transfer or sale by a Tag-Along Seller of any securities subject to this Section 6 (i) upon the death or disability of such Tag-Along Seller, or (ii) to a testamentary trust (or similar entity) for the sole benefit of such seller's spouse, parents, siblings or children; provided that the voting rights for such securities shall remain with such seller until his death or disability. No holder of Tag-Along Securities exercising its rights hereunder shall be required to make any representations or warranties except as to (x) its title to the securities to be sold by it, (y) such holder's power and authority to effect such transfer and (z) such matters pertaining to compliance with securities laws as the Proposed Purchaser may reasonably require; provided, however, that, in -------- ------- the event the Proposed Purchaser require. Any term or provision of this Section to the contrary notwithstanding: (a) The provisions of this Section shall not apply to (i) any sale pursuant to a bona fide Underwritten Offering sold pursuant to an effective registration statement under the Securities Act or (ii) any sale of shares of Common Stock effected pursuant to and in accordance with an open-market sale under Rule 144 of the Securities Act. (b) Any sale or transfer of Registrable Securities by a Registered Holder pursuant to this Section shall be on the same terms and conditions as the proposed Tag-Along Sale by the Tag-Along Seller. (c) The provisions of this Section shall be null and void and of no further force or effect after any period of 20 consecutive trading days during which (i) the aggregate -7- market value of all shares of the Company's Common Stock (exclusive of Common Stock held by executive officers and directors of the Company and Persons having direct or indirect beneficial ownership of 10% or more of the Common Stock) which is publicly traded on such national securities exchange or the NASDAQ equals or exceeds $35,000,000 and (ii) the average number of shares of the Company's Common Stock listed for trading on such national securities exchange or the NASDAQ, as the case may be, during such period equals or exceeds 3,000,000 shares per day. 7. Indemnification. --------------- (a) Indemnification by the Company. The Company agrees to indemnify and ------------------------------- hold harmless, to the full extent permitted by law, each Registered Holder its officers, directors and employees and each Person who controls such Registered Holder (within the meaning of the Securities Act) (the "Indemnified Parties") against all losses, claims, damages, liabilities and expenses incurred by such party in connection with any actual or threatened action arising out of or based upon any untrue or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or preliminary Prospectus or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same arise out of or are based upon any such untrue statement or omission made in reliance on and in conformity with any information furnished in writing to the Company by such Registered Holder or its counsel expressly for use therein. The Company shall also indemnify underwriters, their officers and directors and each Person who controls such Persons (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of such Registered Holder, if requested. (b) Indemnification by Selling Registered Holders. Each seller of -------------------------------------------------- Registrable Securities under an Underwritten Offering, severally and not jointly, agrees to indemnify and hold harmless, to the full extent permitted by law, the Company, its officers that sign any applicable Registration Statement and its directors and each other Person who controls the Company (within the meaning of the Securities Act) against all losses, claims, damages, liabilities and expenses incurred by such party in connection with any actual or threatened action arising out of or based upon any untrue or alleged untrue statement of a material fact contained in such Registration Statement or any Prospectus or preliminary Prospectus distributed in connection therewith or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, -------- ------- that such seller will be liable hereunder in any such case if and only to the extent that any such loss, claim, damage, liability or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information pertaining to such seller, as such, furnished in writing to the Company by such seller specifically for use in such Registration Statement, Prospectus or preliminary Prospectus; provided, further, however, that the liability of each -------- ------- ------- seller hereunder shall be limited to the proportion of any such loss, claim, damage, liability or expense which is equal to the proportion that the public offering price of Registrable Securities sold by such seller under such Registration Statement bears to the total public offering price of all securities sold -8- thereunder, but not to exceed the proceeds received by such seller from the sale of Registrable Securities covered by such Registration Statement. Such sellers shall also, severally and not jointly, indemnify underwriters, their officers and directors and each Person who controls such Persons (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the Company, if requested. (c) Conduct of Indemnification Proceedings. Any Person entitled to ------------------------------------------ indemnification hereunder will (i) give prompt notice to the indemnifying Person of any claim with respect to which it seeks indemnification and (ii) permit the indemnifying Person to assume the defense of such claim with counsel reasonably satisfactory to such indemnified Person; provided, however, that any Person -------- ------- entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such indemnified Person unless (a) the indemnifying Person has agreed to pay such fees or expenses, or (b) the indemnifying Person has failed to assume the defense of such claim or (c) in the reasonable judgment of any such indemnified Person, based upon advice of its counsel, a conflict of interest may exist between such indemnified Person and the indemnifying Person with respect to such claims (in which case, if such indemnified Person notifies indemnifying Person in writing that such Person elects to employ separate counsel at the expense of indemnifying Person, the indemnifying Person shall not have the right to assume the defense of such claim on behalf of such indemnified Person). If such defense is not assumed by the indemnifying Person, the indemnifying Person will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). The indemnifying Person will not be required to consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified Person a release from all liability in respect to such claim or litigation. If the indemnifying Person is not entitled to, or elects not to, assume the defense of a claim, the indemnifying Person will not be obligated to pay the fees and expenses of more than one counsel for all indemnified Persons by the indemnifying Person with respect to such claim, unless in the reasonable judgment of any such indemnified Person a conflict of interest may exist between such indemnified Person and any other indemnified Person with respect to such claim, in which event the indemnifying Person shall be obligated to pay the fees and expenses of such additional counsel or counsels, but only of one such additional counsel for each group of similarly situated indemnified Persons in any one jurisdiction. (d) Contribution. If for any reason the indemnification provided for in ------------ clause (a) or (b) is unavailable to a Person entitled to indemnification or is insufficient to hold it harmless as contemplated by such clause (a) or (b), as the case may be, then the indemnifying Person shall contribute to the amount paid or payable by such indemnified Person as a result of such loss, claim, damage, liability or expense in such proportion as is appropriate to reflect not only the relative benefits received by such indemnified Person and the indemnifying Person, but also the relative fault of such indemnified Person and the indemnifying Person, as well as any other relevant equitable considerations; provided that no Registered Holder shall be required to contribute an amount - -------- greater than the dollar amount of the proceeds received by such Registered Holder with respect to the sale of any Registrable Securities. No Person guilty of fraudulent -9- misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. 8. Rule 144. The Company covenants that it will file the reports required -------- to be filed by them under the Securities Act and the Exchange Act and the rules and regulations adopted by the Commission thereunder, and it will take such further action as any Registered Holder may reasonably request, all to the extent required from time to time to enable such Registered Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (x) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (y) any similar rule or regulation hereafter adopted by the Commission. Upon the request of any Registered Holder, the Company will deliver to such Registered Holder a written statement as to whether it has complied with such information and filing requirements. 9. Miscellaneous. ------------- (a) Remedies. Each Registered Holder, in addition to being entitled to -------- exercise all rights provided herein or granted by law, including recovery of damages, in connection with the breach by the Company of its obligations to register the Registrable Securities will be entitled to specific performance of its rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and agrees, to the extent permitted under applicable law, to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Company will not on or after the date --------------------------- of this Agreement enter into any agreement with respect to its securities which is inconsistent with the rights granted to the Registered Holders pursuant to this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Registered Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's securities under any other agreements. The Company has not previously entered into any inconsistent agreement with respect to its securities granting any registration rights to any Person. (c) Amendments and Waivers. The provisions of this Agreement, including the ---------------------- provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions of this Agreement may not be given unless the Company has obtained the written consent of holders of at least 51.0% of the outstanding Registrable Securities (excluding Registrable Securities held by the Company or any of its affiliates). (d) Notices. All notices and other communications provided for or permitted ------- hereunder shall be made in writing by hand-delivery, registered first-class mail, facsimile or air courier guaranteeing overnight delivery: -10- (i) if to a Registered Holder, at the most current address given by such holder to the Company and recorded by the Company in its books maintained for such purpose (including the Warrant Register, as defined in the Warrant Agreement) which address initially is, with respect to the Purchaser, the address set forth next to the Purchaser's name on the signature pages of the Securities Purchase Agreement; and (ii) if to the Company, initially at the address set forth next to the Company's name on the signature pages of the Securities Purchase Agreement, and thereafter at such other address, notice of which is given in accordance with the provisions of Section 11.01 of the Securities Purchase Agreement. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid if mailed; when electronic confirmation thereof is received, if delivered by facsimile; and on the next business day if timely delivered to an air courier guaranteeing overnight delivery. (e) Successors and Assigns. This Agreement shall inure to the benefit of ---------------------- and be binding upon the successors and assigns of each of the parties hereto, including without limitation, and without the need for an express assignment, subsequent Registered Holders. (f) Counterparts. This Agreement may be executed in any number of ------------ counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (g) Headings. The headings in this Agreement are for convenience of -------- reference only and shall not limit or otherwise affect the meaning hereof. (h) New York Law, Submission to Jurisdiction, Waiver of Jury Trial. THIS ---------------------------------------------------------------- AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HERETO HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR -11- RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. (i) Severability. In the event that any one or more of the provisions ------------ contained herein. or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of any such provision in such jurisdiction in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (j) Entire Agreement. This Agreement is intended by the parties as a final ---------------- expression of their agreement with respect to the subject matter contained herein and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted by the Company with respect to the securities sold pursuant to the Securities Purchase Agreement. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. [Signature Page Follows] -12- IN WITNESS WHEREOF, the parties have executed this Equity Registration Rights Agreement as of the date first written above. COMPANY: -------- UNIDIGITAL INC. By:/s/ William E. Dye ----------------------------------------- Name: Title: PURCHASER: ---------- CIBC WOOD GUNDY CAPITAL CORP. By:/s/ Richard White ----------------------------------------- Name: Richard White Title: Managing Director SUBSTANTIAL HOLDERS: -------------------- /s/ William E. Dye -------------------------------------------- William E. Dye -13- EX-10.1 5 AGREEMENT FOR PURCHASE AND SALE OF STOCK AGREEMENT FOR PURCHASE AND SALE OF STOCK of SUPERGRAPHICS HOLDING COMPANY, INC. TABLE OF CONTENTS ----------------- ARTICLE I PURCHASE AND SALE; PRICE...........................1 1.1 Purchase and Sale of the Shares...................................1 1.2 Purchase Price....................................................1 1.3 Deferred Purchase Price Payment...................................2 (a) Amount of Deferred Purchase Price Payment...............2 (b) Settlement of Deferred Purchase Price Payment............3 1.4 Financial Requirement Regarding Net Working Capital...............5 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND HOFFMAN.........6 2.1 Corporate Organization, etc.......................................6 2.2 Capital Stock; Options............................................6 2.3 Subsidiaries and Affiliates.......................................7 2.4 Authorization, etc................................................7 2.5 No Violation......................................................7 2.6 Governmental Authorities..........................................7 2.7 Financial Statements..............................................7 2.8 No Undisclosed Liabilities, Claims, etc...........................8 2.9 Absence of Certain Changes........................................8 2.10 Contracts........................................................9 2.11 True and Complete Copies.........................................9 2.12 Title and Related Matters........................................9 (a) Real Property............................................9 (b) Personal Property.......................................10 (c) No Disposition of Assets................................10 2.13 Litigation......................................................10 2.14 Tax Matters.....................................................11 2.15 Government Contracts............................................13 2.16 Compliance with Law.............................................13 2.17 Absence of Certain Business Practices...........................14 2.18 ERISA and Related Employee Benefit Matters......................14 (a) Welfare Benefit Plans...................................14 (b) Pension Benefit Plans...................................14 (c) Compliance with Applicable Law..........................15 (d) Administration of Plans.................................15 (e) Title IV Plans..........................................15 (f) Other Employee Benefit Plans and Agreements.............16 (g) Copies of Plans.........................................16 (h) Continuation Coverage Requirements for Health Plans.....16 (i) Valid Obligations.......................................17 i Page ---- 2.19 Intellectual Property...........................................17 2.20 Warranties......................................................17 2.21 Labor Relations.................................................17 2.22 Insurance.......................................................18 2.23 Liability for Services..........................................18 2.24 Environmental...................................................18 2.25 Capital Expenditures............................................20 2.26 Suppliers.......................................................20 2.27 Dealings with Affiliates........................................20 2.28 Bank Accounts...................................................21 2.29 Compensation....................................................21 2.30 Credit Facility.................................................21 2.31 Accounts Receivable.............................................21 2.32 Customers.......................................................21 2.33 Powers of Attorney..............................................21 2.34 Complete Disclosure.............................................21 2.35 Year 2000 Compliance............................................22 ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER..................22 3.1 Corporate Organization, etc......................................22 3.2 Authorization, etc...............................................22 3.3 No Violation.....................................................22 3.4 Governmental Authorities.........................................22 3.5 Capitalization...................................................22 3.6 SEC Reports and Financial Statements.............................23 ARTICLE IV COVENANTS OF THE SELLERS..........................23 4.1 Regular Course of Business.......................................23 4.2 Amendments.......................................................24 4.3 Capital Changes..................................................24 4.4 Capital and Other Expenditures...................................24 4.5 Borrowing........................................................24 4.6 Other Commitments................................................24 4.7 Interim Financial Information....................................24 4.8 Full Access and Disclosure.......................................25 4.9 Consents.........................................................25 4.10 Breach of Agreement.............................................25 4.11 Further Assurances..............................................25 4.12 Fulfillment of Conditions.......................................25 ii Page ---- ARTICLE V CONVENANTS OF BUYER............................25 5.1 Post-Closing Course of Business..................................25 5.2 Books and Records................................................26 5.3 Further Assurances...............................................26 5.4 Fulfillment of Conditions........................................26 ARTICLE VI OTHER AGREEMENTS..............................26 6.1 Agreement to Defend..............................................26 6.2 Consultants, Brokers and Finders.................................26 6.3 Noncompetition Agreement.........................................26 6.4 Taxes............................................................26 ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF BUYER...................28 7.1 Representations and Warranties; Performance......................28 7.2 Consents and Approvals...........................................28 7.3 Opinion of the Sellers' Counsel..................................28 7.4 No Proceeding or Litigation......................................28 7.5 Credit Facility..................................................28 7.6 Other Agreements.................................................28 7.7 Escrow Agreement.................................................29 7.9 Prior Owner Earn-Out.............................................29 7.10 Credit Facility Balance.........................................29 7.11 Options.........................................................29 7.12 Financial Statements............................................29 7.13 Financing.......................................................29 ARTICLE VIII CONDITIONS TO THE OBLIGATIONS OF THE SELLERS................29 8.1 Representations and Warranties; Performance......................29 8.2 No Proceeding or Litigation......................................29 8.3 Opinion of Counsel...............................................30 8.4 Payment..........................................................30 8.5 Other Documents..................................................30 8.6 Other Agreements.................................................30 8.7 Employment Agreement.............................................30 iii Page ---- ARTICLE IX CLOSING..................................30 9.1 Closing..........................................................30 9.2 Deliveries at Closing............................................30 9.3 Specific Performance.............................................31 ARTICLE X TERMINATION AND ABANDONMENT........................31 10.1 Methods of Termination..........................................31 10.2 Procedure Upon Termination......................................31 ARTICLE XI INDEMNIFICATION...............................31 11.1 Indemnification by the Sellers..................................31 11.2 Tender of Defense for Damages...................................32 ARTILCE XII MISCELLANEOUS PROVISIONS..........................33 12.1 Amendment and Modification......................................33 12.2 Waiver of Compliance; Consents..................................33 12.3 Expenses........................................................33 12.4 Investigations; Survival of Warranties..........................33 12.5 Notices.........................................................33 12.6 Assignment......................................................34 12.7 Governing Law; Dispute Resolution...............................34 12.8 Counterparts....................................................35 12.9 Neutral Interpretation..........................................35 12.10 Headings.......................................................35 12.11 Entire Agreement...............................................35 12.12 Waiver; Alteration.............................................36 (a) Waiver..................................................36 (b) Alteration..............................................36 iv SCHEDULE OF EXHIBITS TO AGREEMENT FOR PURCHASE AND SALE OF STOCK ---------------------------------------- Exhibits Title -------- ----- Exhibit 1.2(a) Stockholders Exhibit 1.2(b) Warrant Agreement Exhibit 1.3(c) EBITDA Calculation Exhibit 1.4 Calculation of Net Working Capital Exhibit 2.1.1 Foreign Qualifications Exhibit 2.2 Schedule of Authorized, Issued and Outstanding Capital Stock Exhibit 2.3 Schedule of Subsidiaries Exhibit 2.5 Restrictions on Ability to Perform Exhibit 2.8 Undisclosed Liabilities Exhibit 2.9 Certain Changes Exhibit 2.10 Schedule of Contracts Exhibit 2.12 Title and Related Matters Exhibit 2.13 Litigation Exhibit 2.14.1 Tax Matters Exhibit 2.18.1 Welfare Benefit Plans; Retiree Health Benefits Exhibit 2.18.2 Pension Benefit Plans Exhibit 2.18.3 Other Benefit Plans; Accrued Vacations Exhibit 2.18.5 Consents and Agreements Exhibit 2.19 Schedule of Intellectual Property Rights Exhibit 2.20 Warranties and Claims Under Warranties Exhibit 2.21 Labor Relations Exhibit 2.22 Schedule of Insurance Exhibit 2.24 Environmental Matters Exhibit 2.25 Schedule of Capital Expenditures Exhibit 2.27 Schedule of Contracts with Affiliates Exhibit 2.28 Bank Accounts Exhibit 2.29 Compensation Schedule Exhibit 2.30 Credit Facility Exhibit 3.5 Schedule of Authorized, Issued and Outstanding Capital Stock Exhibit 6.3 Noncompetition Agreement Exhibit 7.1 Certificate of Fulfillment of Conditions by Sellers Exhibit 7.3 Opinion of the Sellers' Counsel Exhibit 8.1 Certificate of Fulfillment of Conditions of Buyer Exhibit 8.3 Opinion of Buyer's Counsel Exhibit 11.1 Indemnity Percentages v AGREEMENT FOR PURCHASE AND SALE OF STOCK ---------------------------------------- THIS AGREEMENT (this "Agreement"), dated as of the 16th day of November 1998, is made among SUPERGRAPHICS HOLDING COMPANY, INC., a Delaware corporation ("Holding", and together with Supergraphics Corporation, a California corporation and wholly-owned subsidiary of Holding (the "Subsidiary"), collectively the "Companies"), the Subsidiary, all the stockholders of Holding identified in Exhibit 1.2(a) (each a "Seller" and collectively, the "Sellers") -------------- and Unidigital Inc., a Delaware corporation ("Buyer"). ARTICLE I --------- PURCHASE AND SALE; PRICE ------------------------ 1.1 Purchase and Sale of the Shares. At the Closing (as defined herein) and ------------------------------- in the manner herein provided, the Sellers shall sell and deliver all of the shares of capital stock of Holding (collectively, the "Shares") to Buyer, and Buyer shall purchase the Shares from the Sellers on the terms and conditions set forth herein. 1.2 Purchase Price. Subject to the terms and conditions of this Agreement --------------- and in reliance on the representations and warranties of the Sellers contained herein, and in consideration of the sale, conveyance, transfer and delivery of the Shares provided for in this Agreement, Buyer agrees to pay an aggregate purchase price (the "Purchase Price") of (a) in respect of the preferred stock of Holding included in the Shares (the "Preferred Stock"), an aggregate amount equal to the aggregate redemption price of the preferred stock plus the aggregate of all dividends accrued and unpaid on the preferred stock to the Closing Date (the "Preferred Stock Payment"), to be paid at the Closing by Buyer's delivery to each Seller of a certified or cashier's check or funds by wire transfer in the respective amount for such Seller determined as provided in Exhibit ------- 1.2(a), ------ (b) on behalf of Holding, the aggregate of all amounts outstanding on the Closing Date under those certain Promissory Notes (the "Junior Notes") dated as of January 3, 1997 from Holding to the Sellers (the "Junior Notes Payment"), to be paid at the Closing by Buyer's delivery to each Seller of a certified or cashier's check or funds by wire transfer in the respective amount for such Seller determined as provided in Exhibit 1.2(a), -------------- (c) on behalf of Holding, an aggregate of $1,076,999 (the aggregate amount of the earn-out payments Holding is required to make pursuant to Section 2.13 of the Agreement and Plan of Reorganization dated as of November 26, 1996 by and among Holding, Subsidiary, SG Acquisition (DE) Corporation and certain formershareholders of Subsidiary) (the "Earn-Out Payment"), to be paid at the Closing by Buyer's delivery to a representative of the former shareholders of Subsidiary of a certified or cashier's check or funds by wire transfer in the aggregate amount of the Earn-Out Payment, (d) on behalf of Holding, the aggregate of all amounts outstanding on the Closing Date under the Credit Facility (as defined herein) (the "Credit Facility Payment"), to be paid at the Closing by Buyer's delivery to First Source Financial LLP of funds by wire transfer in the amount of the Credit Facility Payment, (e) on behalf of Holding, an amount equal to certain fees and expenses of Holding (the "Expense Payment"), to be paid at the Closing by Buyer's delivery to the payees thereof as identified to Buyer at or before the Closing of certified or cashier's checks or funds by wire transfer in the aggregate amount of the Expense Payment, (f) on behalf of Holding, an aggregate of $240,000 (the "Employee Payment"), to be paid at the Closing by Buyer's delivery to employees identified to Buyer at or before the Closing of certified or cashier's checks or funds by wire transfer in the aggregate amount of the Employee Payment, and (g) in respect of the common stock of Holding included in the Shares: (i) an aggregate of (x) $16,500,000 less (y) the sum of the Preferred Stock Payment, Junior Notes Payment, Earn-Out Payment, Credit Facility Payment, Expense Payment and Employee Payment (the "Common Stock Payment"), to be paid at the Closing by Buyer's delivery to each Seller and to each option holder identified on Exhibit 1.2(a) (each an "Option Holder") of a --------------- certified or cashier's check or funds by wire transfer in the respective amount for such Seller or Option Holder determined as provided in Exhibit ------- 1.2(a); (ii) the Deferred Purchase Price Payment (as defined below), which ------ shall be paid in accordance with Section 1.3 hereof by delivery to each Seller and Option Holder of a certified or cashier's check or funds by wire transfer in the respective amount for such Seller or Option Holder determined as provided in Exhibit 1.2(a); and (iii) warrants (the --------------- "Warrants") to purchase an aggregate of 225,000 shares of Buyer Common Stock (as defined herein), which Warrants shall be exercisable beginning on the Closing Date and for a period of five years thereafter and shall have an exercise price equal to 125% of the average closing bid and ask prices of Buyer Common Stock during the 20 trading days ending two days prior to the Closing and which shall be issued pursuant to the terms of a Warrant Agreement substantially in the form of Exhibit 1.2(b) attached hereto, --------------- which Warrants shall be delivered at the Closing to each Seller and Option Holder in the respective amount set forth opposite such Seller's or Option Holder's name on Exhibit 1.2(a). -------------- 1.3 Deferred Purchase Price. (a) Amount of Deferred Purchase Price Payment. ----------------------- ----------------------------------------- The Sellers and Option Holders will receive an additional Purchase Price payment (the 2 "Deferred Purchase Price Payment") equal to the difference between (i) EBITDA (as defined herein) multiplied by 6 less (ii) $16,500,000. (b) Settlement of Deferred Purchase Price Payment. --------------------------------------------- (i) Buyer, at no cost to the Sellers, will issue, and cause either BDO Seidman LLP or Ernst & Young ("Buyer's Accountants") to conduct an audit of, the consolidated balance sheet and the related consolidated statements of income, retained earnings and cash flows of the Companies for the year ended December 31, 1998 on a basis consistent with past practice (the "Y/E Financials and Computations"). Sellers shall cause their accountants (to the extent different from Buyer's Accountants) to cooperate fully with Buyer and Buyer's Accountants, including providing access to their work papers as necessary. (ii) The Y/E Financials and Computations shall be delivered to the Sellers for review, together with the Deferred Purchase Price Payment which is earned pursuant to the Y/E Financials and Computations and this Agreement, no later than March 15, 1999. If the Sellers within fifteen (15) calendar days of receipt of the Y/E Financials and Computations (the "Notice Period") do not object thereto in writing, the calculation of EBITDA for the twelve months ending December 31, 1998 shall become final and binding on the parties. (iii) If Sellers do not agree with the Y/E Financials and Computations or the amount of the Deferred Purchase Price Payment, Sellers shall, during the Notice Period, deliver to Buyer a written statement (the "Dispute Notice") of the matters with respect to which there is disagreement specifying the particulars of the disagreement, including, but not limited to, the disputed amount of the calculated Deferred Purchase Price Payment. (iv) If the parties fail to resolve the disagreements outlined in the dispute Notice within fifteen (15) calendar days following receipt of the Dispute Notice, Sellers (at Seller's expense, if Buyer's Accountants are BDO Seidman LLP or at Buyer's expense if Buyer's Accountants are Ernst & Young) shall cause their independent certified public accountants ("Sellers' Accountants") to conduct an examination of the portion of the Y/E Financials and Computations in dispute, which examination shall be completed within 45 days of the date of the Dispute Notice. Buyer shall cause Buyer's Accountants to cooperate fully with Sellers' Accountants, including providing access to their work papers as necessary. (v) If Buyer's Accountants and Sellers' Accountants are in disagreement with respect to the Y/E Financials and Computations and resulting Deferred Purchase Price Payment, Buyer shall cause Buyer's Accountants and Sellers' shall cause Sellers' Accountants to mutually select a firm of independent certified public accountants of recognized standing for its determination with 3 respect to such items of disagreement. The parties will use their best efforts to cause such firm to resolve all items of disagreement within thirty (30) calendar days after submission and such firm's determination ("Final Determination") will be final and binding on the parties, notice of such Final Determination to be delivered to the parties within five (5) days of such Final Determination. The cost of such determination shall be borne by the party who proposed the Deferred Purchase Price Payment furthest from the Deferred Purchase Price Payment due as a result of the Final Determination of the independent certified public accounts chosen hereunder. (vi) To the extent the Final Determination of the Deferred Purchase Price Payment exceeds the Deferred Purchase Price Payment paid by Buyer to Sellers pursuant to Section 1.3(b)(ii), such excess of the Deferred Purchase Price Payment shall be paid by Buyer to Sellers within three days of the submission of the Final Determination. (vii) Any portion of the Final Determination of the Deferred Purchase Price Payment not paid pursuant to Section 1.3(ii) (including any excess payment to be paid pursuant to Section 1.3(b)(vi)) shall accrue interest equal to fifteen percent (15%) per annum (increasing by one percent (1%) during each subsequent 30 day period up to a maximum of 18%) on such unpaid portion for the time period beginning on March 15, 1999 and ending on the date of payment of such amounts. (c) For the purposes of this Agreement, EBITDA shall mean consolidated net income or net deficit, calculated on a basis consistent with Exhibit 1.3(c), as -------------- reflected in audited consolidated financial statements with the following adjustments: (i) less interest income; ---- (ii) plus interest (including deferred financing fees and expense) and ---- other expense in respect of indebtedness charged or accrued against such net income; (iii) plus expenses for income taxes (whether paid, accrued or ---- deferred) charged or accrued against such net income; (iv) plus expenses for depreciation and amortization charged or ---- accrued against such net income; (v) plus expenses incurred in connection with the transactions ---- contemplated by this Agreement charged or accrued against such net income; 4 (vi) plus non-recurring expenses (including without limitation, ---- non-recurring accounting expenses, expenses related to the property tax audit and management fees paid to Regent Capital Management Corp., each as listed on Exhibit 1.3(c)) charged or accrued against such net income; -------------- (vii) plus bonus payments made in lieu of options on or prior to ---- Closing. EBITDA shall be determined by the Board of Directors of Buyer from the consolidated financial statements of Holding for the year ended December 31, 1998, which shall be prepared in accordance with GAAP on an historically consistent basis. 1.4 Financial Requirement Regarding Net Working Capital. --------------------------------------------------- (a) Net Working Capital. Notwithstanding anything herein to the --------------------- contrary, Net Working Capital (as hereinafter defined) of the Companies at Closing shall be $975,000. (b) Closing Date Balance Sheet. Buyer, at no cost to Sellers, will --------------------------- prepare a consolidated balance sheet of Holdings as of the Closing Date, together with a calculation of net working capital (the "Closing Computations"). The Closing Computations shall be completed within 60 calendar days after the Closing Date and shall be delivered to Sellers for review. If the Sellers, within 15 calendar days of receipt of the Closing Computations, do not object thereto in writing, the calculation of Net Working Capital shall become final and binding upon the parties. If Sellers do not agree with the Closing Computations, the Sellers shall, prior to the expiration of such 15 calendar day period, deliver to the Buyer a written statement of the matters with respect to which there is disagreement specifying the particulars of the disagreement. If the parties fail to resolve the disagreements within 15 calendar days thereafter, Buyer and Sellers shall mutually choose a firm of nationally recognized independent certified accountants (other than BDO Seidman LLP or Ernst & Young) to resolve all items of disagreement within 30 days of submission thereto and the determination of such firm will be final and binding on the parties. The cost of such referral and determination shall be borne 50% by Sellers and 50% by Buyer. (c) For purposes of this Section 1.4, Net Working Capital shall mean the excess of current assets (excluding cash) of the Companies over the current liabilities of the Companies, in each case as determined in accordance with generally accepted accounting principles and consistent with Exhibit 1.4 attached hereto. (d) In the event that Net Working Capital, as determined in accordance with Section 1.4(b) hereof, is less than $975,000 (the amount of such deficit hereinafter referred to as the "Net Working Capital Deficit"), then the 5 Deferred Purchase Price Payment shall be reduced on a dollar-for-dollar basis by the amount that Net Working Capital is less than $975,000, provided, however, that if the Deferred Purchase Price Payment has already been made pursuant to Section 1.3 hereof, then the Sellers shall, on a pro rata basis, pay to Buyer the Net Working Capital Deficit. (e) At Closing, all liabilities of the Companies, including without limitation taxes, accounts payable and other regular and usual liabilities and obligations of the Companies incurred in the ordinary course of business, other than any amounts due and owing under the Credit Facility (as defined in Section 2.30) or any other funded debt (including but not limited to any capital lease obligation), which shall be repaid at or prior to Closing by the Companies or Sellers, shall be the obligation of Buyer. ARTICLE II ---------- REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND HOFFMAN ----------------------------------------------------------- The Companies and Louis Hoffman hereby represent and warrant to Buyer as follows: 2.1 Corporate Organization, etc. Each of Holding and the Subsidiary are ----------------------------- corporations duly organized, validly existing and in good standing under the laws of the state of Delaware, with respect to the Holding, and California, with respect to the Subsidiary, with all requisite corporate power and authority to carry on its business as it is now being conducted and to own, operate and lease its properties and assets. Exhibit 2.1.1 lists each of the states where the -------------- Companies, respectively, are qualified as a foreign corporation. The conduct of its business and its ownership or use of property do not require the Companies, respectively, to be qualified or licensed to do business as a foreign corporation in any state except those listed in Exhibit 2.1.1, or except where -------------- the failure to be so qualified or licensed would not cause a material adverse change in the Companies' business operations (as now conducted), assets, properties or rights, prospects or condition (financial or otherwise), or combination thereof which reasonably could be expected to result in any such material adverse change (a "Material Adverse Effect"). Complete and correct copies have been delivered to representatives of Buyer of each of the Companies' (i) articles or certificate of incorporation, (ii) bylaws, (iii) good standing certificates from the secretary of state of (A) the states of Delaware and California, as applicable, and (B) each of the states listed on Exhibit 2.1.1, ------------- as applicable, and (iv) certificates of authority for the states listed in Exhibit 2.1.1, each as amended to date. The Companies have all federal, state, - ------------- local and foreign licenses, permits or other approvals required for the operation of their businesses as now being conducted except for such licenses, permits or other approvals which would not cause a Material Adverse Effect. 2.2 Capital Stock; Options. The authorized capital stock of the Companies ----------------------- and the shares of capital stock of the Companies issued and outstanding, of all classes, and the related ownership thereof, are as set forth in Exhibit 2.2. The ----------- Shares represent 100% of the issued and outstanding capital stock of Holding and neither of the Companies has any treasury stock. All 6 of the issued and outstanding capital stock of the Subsidiary (the "Subsidiary Shares") is owned by Holding. All of the Shares and the Subsidiary Shares are validly issued, fully paid and nonassessable and, are owned by the Sellers and Holding, respectively, free and clear of all encumbrances or claims. Except as set forth in Exhibit 2.2, there are no issued and outstanding options, warrants, ----------- rights, securities, contracts, commitments, understandings or arrangements by which the Companies are bound to issue any additional shares of their capital stock or options to purchase shares of their capital stock. 2.3 Subsidiaries and Affiliates. Except as set forth in Exhibit 2.3, the ---------------------------- ----------- Companies have no subsidiaries, Affiliates (defined herein) or investments in any other entity or business operation. The term "Affiliates" includes any corporation, partnership or other entity in which the Companies, any of the Sellers, any family member of any of the Sellers or director or officer of the Companies has any financial interest or is a controlling person, as that term is used in connection with the federal securities laws, if such person or entity has, or in the past had, a contractual relationship with or is transacting, or has in the past transacted, business with the Companies. 2.4 Authorization, etc. The Sellers have full power and authority to enter ------------------- into this Agreement and to carry out the transactions contemplated hereby. This Agreement and all other related agreements constitute legal, valid and binding obligations of each of the Sellers, enforceable against each Seller in accordance with their respective terms. 2.5 No Violation. Except as set forth in Exhibit 2.5, neither of the ------------- ------------ Companies is subject to or obligated under any article or certificate of incorporation, bylaw, Law or any agreement or instrument, or any license, franchise or permit, which would be breached or violated by the Sellers' execution, delivery and performance of this Agreement. As used herein, "Law" shall mean all laws, rules, regulations, orders, decrees and injunctions applicable to or binding upon the Companies. The Sellers will comply with all applicable Laws in connection with their execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby. The execution of this Agreement and the consummation of the transactions contemplated hereby will not cause the creation of any liens, claims or encumbrances upon any of the assets of the Companies. 2.6 Governmental Authorities. Assuming that the ultimate parent entity (as ------------------------ such term is defined in Rule 801.1(a), 16 C.F.R. ss. 801.1(a)(3)) ("Ultimate Parent Entity") of Buyer has less than $100 million of annual net sales or total assets (as determined in accordance with Rule 801.11, 16 C.F.R. ss. 801.11) as stated on its last regularly prepared income statement and balance sheet ("HSR Assets and Revenues"), the Sellers are not required to submit any notice, report or other filing with, and no consent, approval or authorization is required, by any governmental or regulatory authority or third party in connection with the execution, delivery, consummation or performance of this Agreement or the transactions contemplated hereby. 2.7 Financial Statements. Copies have been provided to representatives of --------------------- Buyer of (i) unaudited monthly adjusted consolidated statements of income of the Companies for the nine 7 months ended September 30, 1998 and 1997, and (ii) audited consolidated statements of financial position as of December 31 for each of the years 1995 through 1997 and audited consolidated statements of income and retained earnings of the Companies for the fiscal years then ended (the "Audited Statements"), each such audited statement being audited by BDO Seidman LLP. All such statements of financial position and the notes thereto fairly present the financial position of the Companies as of the respective dates thereof, and such statements of income and retained earnings and the notes thereto fairly present the results of operations for the periods therein referred to, in accordance with generally accepted accounting principles consistently applied throughout the periods indicated (except as stated therein or in the notes thereto). The consolidated statement of financial position as of December 31, 1997 and the notes thereto are referred to as the "Balance Sheet." December 31, 1997 is referred to as the "Financial Statement Date." 2.8 No Undisclosed Liabilities, Claims, etc. Other than as set forth on ------------------------------------------- Exhibit 2.8, except for (a) liabilities fully reflected or reserved against in - ----------- the Balance Sheet and (b) regular and usual liabilities and obligations incurred in the ordinary course of business consistent with past practices after the Financial Statement Date, the Companies do not have any liabilities, obligations or claims (absolute, accrued, fixed or contingent, matured or unmatured, or otherwise), including liabilities, obligations or claims which may become known or which arise only after the Closing and which result from actions, omissions or occurrences of the Sellers prior to the Closing. 2.9 Absence of Certain Changes. Since the Financial Statement Date, except -------------------------- for Permitted Distributions (as defined in Section 4.1) or as set forth in Exhibit 2.9 there has not been: (a) any material adverse change in the business, - ----------- prospects, financial condition, earnings or operations of the Companies; (b) any damage, destruction or loss, whether covered by insurance or not, materially adversely affecting the Companies' properties and business; (c) any declaration, setting aside or payment of any dividend whether in cash, stock or property with respect to the Shares, or any redemption or other acquisition of such Shares; (d) any increase in the compensation payable or to become payable by the Companies to their respective directors, officers, key employees, Affiliates or any of the Sellers or any adoption of or increase in any bonus, insurance, pension or other employee benefit plan, payment or arrangement made to, for or with any such party; (e) any entry by the Companies into any commitment or transaction, including without limitation, any borrowing or capital expenditure other than in accordance with the schedule of capital expenditures (Exhibit ------- 2.25); (f) any change by the Companies in accounting methods, practices or - ---- principles; (g) any adoption of any statute, rule, regulation or order which adversely affects the Companies; (h) any termination or waiver of any rights of value to the business of the Companies; (i) any other transaction or event affecting the Companies other than in the ordinary course of business of the Companies, respectively; (j) any transaction or conduct inconsistent with past business practices; (k) any adoption or amendment of any collective bargaining, bonus profit sharing, compensation, stock option, pension, retirement, deferred compensation, or other plan, agreement, trust, fund or arrangement for the benefit of employees; or (l) any agreement or understanding made or entered into to do any of the foregoing. 8 2.10 Contracts. Exhibit 2.10 contains a schedule of all Contracts (defined --------- ------------ herein) to which the Companies are a party, copies of which having been provided to representatives of Buyer. The term "Contracts" shall include, but shall not be limited to, all oral (which shall be summarized in Exhibit 2.10) and written ------------ contracts, agreements, agency agreements, loan agreements, mortgages, indentures, deeds of trust, guarantees, commitments, joint venture agreements, purchase and/or sale agreements, collective bargaining, union, consulting and/or employment contracts, leases of real or personal property, easements, distribution or dealer agreements, service agreements, license agreements, and advertising agreements (except there shall not be included agreements which do not exceed, in the case of any one agreement, an obligation of $10,000 and in the case of a series of related agreements, an aggregate obligation of $20,000, so long as such agreements are not material to the business of the Companies). Neither of the Companies is in default or alleged to be in default under any Contract nor is Louis Hoffman or to the knowledge of the Companies and Louis Hoffman, any of the other Sellers, aware of any default by any other party to any Contract, and there exists no event, condition or occurrence which, after notice or lapse of time, or both, would constitute a default under any Contract. All of the Contracts are in full force and effect and constitute legal, valid and binding obligations of the parties thereto in accordance with their terms, and will remain in full force and effect after the Closing without any notice to or consent by any other party. 2.11 True and Complete Copies. Copies of all agreements, contracts and ------------------------- documents delivered and to be delivered hereunder by the Sellers or the Companies, are, and will be, true and complete copies of such agreements, contracts and documents. All written summaries of oral agreements will be true and complete. 2.12 Title and Related Matters. Except as set forth in Exhibit 2.12, the -------------------------- ------------ Companies have good and marketable title to all of the properties and assets reflected in the Balance Sheet or acquired after the date thereof (except properties sold or otherwise disposed of since the date thereof in the ordinary course of business and consistent with past practices), including, without limitation, the specific assets referred to in paragraphs (a), (b) and (c) below, free and clear of all mortgages, security interests, liens, pledges, claims, escrows, options, rights of first refusal, indentures, easements, licenses, security agreements or other agreements, arrangements, contracts, commitments, understandings, obligations, charges or encumbrances of any kind or character, except as reflected on the Balance Sheet. The Companies own or lease, directly or indirectly, all of the assets and properties, and are a party to all licenses and other agreements, presently used or necessary to carry on the business or operations of such company as presently conducted. (a) Real Property. ------------- (i) Neither of the Companies has an ownership interest in any real property. (ii) Neither of the Companies is a tenant under any lease(s) of real property used by such company except as described on Exhibit ------- 2.10. With respect to the leased real property described on Exhibit ---- ------- 2.10 and except as set forth on ---- 9 Exhibit 2.12; (A) all such leases are ------------ in full force and effect and constitute valid and binding obligations of the respective parties thereto; (B) there have not been and there currently are not any defaults thereunder by any party thereto; (C) no event has occurred which (whether with or without notice, lapse of time or the happening or occurrence of any other event) would constitute a default thereunder entitling the lessor to terminate the lease; and (D) the continuation, validity and effectiveness of all such leases under the current rentals and other current terms thereof will in no way be affected by the transactions contemplated by this Agreement or, if any would be affected, the Sellers shall use all necessary means at its disposal to cause an appropriate consent to such transactions to be delivered to Buyer prior to the Closing Date at no cost or other adverse consequences to the Companies ((B) through (D) are hereinafter collectively referred to as "Lease Restrictions"). (iii) Neither of the Companies currently has, nor to the knowledge of the Companies and Louis Hoffman in the past has had, any interest (as owner, tenant or otherwise) in any real property except as disclosed on Exhibit 2.12. ------------ (b) Personal Property. The Companies respectively have good and ------------------ marketable title to all the personal property and assets, tangible or intangible, shown on the Balance Sheet, except to the extent sold or disposed of in transactions entered into in the ordinary course of business consistent with past practices since the Financial Statement Date. The personal property in the aggregate is in good condition and working order. None of such assets are subject to any (i) contracts of sale or lease, except contracts for the sale of inventory in the ordinary and regular course of business or (ii) security interests, encumbrances, liens or charges of any kind or character, except as set forth in Exhibit 2.12. ------------- Except as set forth in Exhibit 2.12, there are no Lease Restrictions with ------------ respect to the personal property leased by the Companies. (c) No Disposition of Assets. Except for Permitted Distributions, -------------------------- there has not been since the Financial Statement Date any sale, lease or any other disposition or distribution by the Companies of any of their assets or properties and any other assets now or hereafter owned by them except transactions in the ordinary and regular course of business consistent with past practices or as otherwise consented to by Buyer. 2.13 Litigation. Except as set forth in Exhibit 2.13, there is no suit, ---------- ------------- action, investigation or proceeding pending or, to the knowledge of the Companies and Louis Hoffman, threatened against the Companies or any of the Sellers which, if adversely determined, would cause a Material Adverse Effect, nor is there any judgment, decree, injunction, rule or order of any court, governmental department, commission, agency, instrumentality or arbitrator outstanding against the Companies or which the Companies are in violation of having, or which, insofar as can be reasonably foreseen, in the future may have, any such effect. 10 2.14 Tax Matters. The term "Taxes" means all net income, capital gains, ----------- gross income, gross receipts, sales, use, transfer, ad valorem, franchise, profits, license, capital, withholding, payroll, employment, excise, goods and services, severance, stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees or assessments, or other governmental charges of any kind whatsoever, together with any interest, fines and any penalties, additions to tax or additional amounts incurred or accrued under applicable Law or assessed, charged or imposed by any governmental authority, domestic or foreign, provided that any interest, penalties, additions to tax or additional amounts that relate to Taxes for any taxable period (including any portion of any taxable period ending on or before the Closing Date) shall be deemed to be Taxes for such period, regardless of when such items are incurred, accrued, assessed or imposed. For the purposes of this Section 2.14 and Section 6.5, the Companies shall be deemed to include any predecessor of the Companies, respectively, or any person or entity from which the Companies, respectively, incur a liability for Taxes as a result of any transferee liability. Except as stated in Exhibit 2.14.1: -------------- (a) The Companies have duly and timely filed (and prior to the Closing Date will duly and timely file) true, correct and complete tax returns in all material respects, reports or estimates, all prepared in accordance with applicable Laws, for all years and periods (and portions thereof) and for all jurisdictions (whether federal, state, local or foreign) in which any such returns, reports or estimates were due. All Taxes shown as due and payable on such returns, reports and estimates have been paid, and there is no current liability for any Taxes due and payable in connection with any such returns. All material Taxes not yet due and payable have been fully accrued on the books of the Companies and adequate reserves have been established therefor; the charges, accruals and reserves for Taxes provided for on the consolidated financial statements delivered or to be delivered pursuant to Section 2.7 and Section 4.7 are adequate in all material respects; and there are no unpaid assessments for additional Taxes for any period nor is there any basis therefor. Copies of all federal, state and foreign tax returns filed by the Companies for the past three years have been provided to representatives of Buyer. (b) Neither of the Companies, respectively, has been a member of any consolidated, combined or unitary group for federal, state, local or foreign tax purposes. Neither of the Companies, respectively, have been party to any joint venture, partnership or other arrangement that could be treated as a partnership for federal income tax purposes. (c) Each of the Companies has (i) withheld all required amounts from its employees, agents, contractors and nonresidents and remitted such amounts to the proper agencies; (ii) paid all employer contributions and premiums; and (iii) filed all federal, state, local and foreign returns and reports with respect to employee income tax withholding, and social security and unemployment taxes and premiums, all in compliance with the withholding tax provisions of the Internal Revenue Code of 1986, as amended (the "Code"), as in effect for the applicable year or any prior provision thereof and other applicable Laws. 11 (d) The federal income tax returns of the Companies have been examined by the Internal Revenue Service (the "IRS"), or have been closed by the applicable statute of limitations, for all periods through December 31, 1997, the state tax returns of the Companies have been examined by the relevant state agencies or such returns have been closed by the applicable statute of limitations for all periods through December 31, 1997, no deficiencies or reassessments for any Taxes have been proposed, asserted or assessed against the Companies by any federal, state, local or foreign taxing authority. Exhibit 2.14.1 describes the status of any federal, --------------- state, local or foreign tax audits or other administrative proceedings, discussions or court proceedings that are presently pending with regard to any Taxes or tax returns of the Companies (including a description of all issues raised by the taxing authorities in connection with any such audits or proceedings), and to the knowledge of the Companies and Louis Hoffman, no additional issues are being asserted against the Companies in connection with any existing audits or proceedings. (e) The Companies have not executed or filed any agreement or other document extending the period for assessment, reassessment or collection of any Taxes, and no power of attorney granted by the Companies with respect to any Taxes is currently in force. (f) The Companies have not entered into any closing or other agreement with any taxing authority which affects any taxable year of the Companies ending after the Closing Date. The Companies are not a party to any tax sharing agreement or similar arrangement for the sharing of tax liabilities or benefits. (g) The Companies have not agreed to nor are they required to make any adjustment by reason of a change in accounting methods that affects any taxable year ending after the Closing Date. The IRS has not proposed to the Companies any such adjustment or change in accounting methods that affects any taxable year ending after the Closing Date. The Companies do not have an application pending with any taxing authority requesting permission for any changes in accounting methods that relate to its business or operations and that affects any taxable year ending after the Closing Date. (h) The Companies have not consented to the application of Code Section 341(f). (i) There is no contract, agreement, plan or arrangement covering any employee or former employee of the Companies that, individually or collectively, could give rise to the payment by the Companies of any amount that would not be deductible by reason of Code Section 280G. (j) No asset of the Companies is tax exempt use property under Code Section 168(h). No portion of the cost of any asset of the Companies has been financed directly 12 or indirectly from the proceeds of any tax exempt state or local government obligation described in Code Section 103(a). (k) The Companies do not have nor have they had a permanent establishment in any foreign country and do not engage, nor have they engaged, in a trade or business in any foreign country. None of the Sellers nor the Companies is a foreign person or entity within the meaning of Code Section 1445. (l) To the knowledge of the Companies and Louis Hoffman, none of the Buyer nor the Companies will be liable for any federal, state, local, foreign and other sales, use, documentary, recording, stamp, transfer or similar Taxes applicable to, imposed upon or arising out of the transfer of the Shares to Buyer and the transactions contemplated by this Agreement. 2.15 Government Contracts. No Contract or other aspect of the business of --------------------- the Companies is subject to the Armed Services Procurement Regulations or other regulations of any governmental agency. Neither of the Companies has bid on or been awarded any "small business set aside contract", any other "set aside contract" or other order or contract requiring small business or other special status at any time during the last three years. Neither of the Companies' sales or orders will be lost, nor the Companies' customer relations damaged, as a result of such Company continuing its operations as an entity that does not qualify as a small business. 2.16 Compliance with Law. ------------------- (a) Neither of the Companies has previously failed, and is currently failing, to comply with any applicable Laws relating to its business or the operation of its assets where such failure or failures would individually or in the aggregate have a Material Adverse Effect. In particular, but without limiting the generality of the foregoing, the Companies are in material compliance with all applicable Laws relating to (i) anti-competitive practices, (ii) price fixing, (iii) health and safety, and (iv) the environment. There are no proceedings of record and no proceedings are pending or threatened, nor have the Companies or any of the Sellers received any written notice regarding any violation of any Law, including, without limitation, any requirement of the United States Federal Trade Commission, any state or foreign franchise agency or regulatory authority, OSHA or any pollution or environmental control agency (including air and water). (b) Copies have been provided to representatives of Buyer of all reports which are known to the Companies of inspections by representatives of any federal, state or local governmental entity or agency of the business and properties of the Companies from January 1, 1994 through the date hereof under OSHA and under all other applicable health and safety Laws. The deficiencies, if any, noted on such reports or any deficiencies noted by such inspections through the Closing Date shall be corrected by the Closing Date. Neither of the Companies, nor, to the knowledge of the Companies and Louis Hoffman, any of the Sellers, know, of any other registration, safety, health, 13 environmental, anti-competitive or discrimination problems relating to the financial condition, business, assets, operations, prospects, earnings or employment practices of the Companies. 2.17 Absence of Certain Business Practices. None of the Sellers, any person ------------------------------------- or entity related to or affiliated with any of the Sellers, any officer, employee or agent of the Companies or any of the Sellers, any other person or entity acting on behalf of or associated with the Companies or any of the Sellers, nor any other entity directly or indirectly owned or controlled by any of the Sellers or the Companies, acting alone or together, has (a) received, directly or indirectly, any rebates, payments, commissions, promotional allowances or any other economic benefit, regardless of its nature or type, from any customer, supplier, trading company, shipping company, governmental employee or other entity or individual with whom the Companies have done business directly or indirectly or (b) directly or indirectly, given or agreed to give any gift or similar benefit to any customer, supplier, trading company, shipping company, governmental employee or other person or entity who is or may be in a position to help or hinder the business of the Companies (or assist the Companies in connection with any actual or proposed transaction) which (i) would be reasonably likely to subject the Companies to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, might have a Material Adverse Effect or (iii), if not continued in the future, might have had a Material Adverse Effect or which might subject the Companies to suit or penalty in any private or governmental litigation or proceeding. 2.18 ERISA and Related Employee Benefit Matters. ------------------------------------------ (a) Welfare Benefit Plans. Exhibit 2.18.1 lists each "employee welfare --------------------- -------------- benefit plan" (within the meaning of Section 3(l) of the Employee Retirement Income Security Act of 1974 ("ERISA")) maintained by the Companies or to which the Companies contribute or are required to contribute, including any multiemployer plan ("Welfare Benefit Plan") and sets forth as of the most recent valuation date (i) the amount of any liability of the Companies for payments due with respect to any Welfare Benefit Plan, (ii) the amount of any payment made and to be made, stated separately, by the Companies with respect to any Welfare Benefit Plan for the plan year during which the Closing is to occur, and (iii) with respect to any Welfare Benefit Plan to which Section 505 of the Code applies, a statement of assets and liabilities for such Welfare Benefit Plan as of the most recent valuation date. Without limiting the foregoing, Exhibit 2.18.1 -------------- discloses any obligations of the Companies to provide retiree health benefits to current or former employees of the Companies, respectively. (b) Pension Benefit Plans. Exhibit 2.18.2 lists each "employee pension --------------------- -------------- benefit plan" (within the meaning of Section 3(2) of ERISA) maintained by the Companies or to which the Companies contribute or are required to contribute, including any multiemployer plan ("Pension Benefit Plan"). All costs of the Pension Benefit Plans have been provided for on the basis of consistent methods and, if applicable, in accordance with sound actuarial assumptions and practices that are acceptable under ERISA. With 14 resect to each Pension Benefit Plan that is subject to Title I, Part 3 of ERISA (concerning "funding"), Exhibit 2.18.2 sets forth as of the valuation -------------- date (i) the unfunded liability for all accrued benefits, (ii) the funding method, (iii) the actuarially computed value of vested benefits, (iv) the fair market value of the assets held for funding purposes, (v) the amount and plan year of any "accumulated funding deficiency," as defined in Section 302(a)(2) of ERISA (arising for any reason whatever) that exists with respect to any plan year, and (vi) the amount of any contribution by the Companies paid and to be paid, stated separately, for the plan year during which the Closing is to occur. With respect to each Pension Benefit Plan that is not subject to Title I, Part 3 of ERISA, Exhibit 2.18.2 sets --------------- forth as of the valuation date (i) the amount of any liability of the Companies for any contributions due with respect to such Pension Benefit Plan and (ii) the amount of any contribution paid and to be paid, stated separately, by the Companies with respect to such Pension Benefit Plan for the plan year during which the Closing is to occur. (c) Compliance with Applicable Law. Each of the Pension Benefit Plans, ------------------------------ Welfare Benefit Plans, any related trust agreements, annuity contracts, and other fundinginstruments, comply with the provisions of ERISA and the Code and all other statutes, orders, governmental rules and regulations applicable to such Welfare Benefit Plans and Pension Benefit Plans. The Companies have performed all of their respective obligations currently required to have been performed under all Welfare Benefit Plans and Pension Benefit Plans. There are no actions, suits or claims (other than routine claims for benefits) pending or threatened against or with respect to any Welfare Benefit Plans, Pension Benefit Plans or the assets of such plans, and no facts exist that could give rise to any actions, suits or claims (other than routine claims for benefits) against such plans or the assets of such plans. Each Pension Benefit Plan is qualified in form and operation under Section 401(a) of the Code, the Internal Revenue Service has issued a favorable determination letter with respect to each Pension Benefit Plan, and no event has occurred that will or could give rise to a disqualification of any Pension Benefit Plan under Code Section 401(a). No event has occurred that will or could subject any Welfare Benefit Plan or Pension Benefit Plan to tax under Section 511 of the Code. (d) Administration of Plans. Each Welfare Benefit Plan and each ------------------------- Pension Benefit Plan has been administered to date in compliance with the requirements of ERISA and the Code. No plan fiduciary of any Welfare Benefit Plan or Pension Benefit Plan has engaged in (i) any transaction in violation of Section 406(a) or (b) of ERISA, or (ii) any "prohibited transaction" (within the meaning of Section 4975(c)(1) of the Code) for which no exemption exists under Section 408 of ERISA or Section 4975(d) of the Code. (e) Title IV Plans. With respect to each Pension Benefit Plan which is -------------- subject to the provisions of Title IV of ERISA in which the Companies (for purposes of this subsection the Companies shall include each trade or business, whether or not incorporated, which is a member of a group of which the Companies are a member and which is under common control within the meaning of Section 414 of the Code and the regulations thereunder) participate or have participated, (i) neither of the Companies has 15 withdrawn from such Pension Benefit Plan during a plan year in which it was a "substantial employer" (as defined in Section 4001(a)(2) of ERISA), (ii) neither of the Companies has completely or partially withdrawn from a Pension Benefit Plan that is a multiemployer plan, and the liability to which it would become subject under ERISA if it were to withdraw completely from all multiemployer plans in which it currently participates is not in excess of $5,000 as of the most recent valuation date applicable thereto, (iii) neither of the Companies has filed a notice of intent to terminate any such Pension Benefit Plan or adopted any amendment to treat such Pension Benefit Plan as terminated, (iv) the Pension Benefit Guaranty Corporation has not instituted proceedings to terminate any such Pension Benefit Plan, (v) no other event or condition has occurred that might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a Trustee to administer, any such Pension Benefit Plan, (vi) all required premium payments to the Pension Benefit Guaranty Corporation have been paid when due, and (vii) no "reportable event" (as described in Section 4043 of ERISA and the regulations thereunder) has occurred with respect to said Pension Benefit Plan. (f) Other Employee Benefit Plans and Agreements. Exhibit 2.18.3 lists ------------------------------------------- -------------- each fringe benefit, profit sharing, deferred compensation, bonus, stock option, stock purchase, pension, retainer, consulting, retirement, welfare, or other incentive plan or agreement, employment agreement not terminable on 30 days or less written notice, and any other employee benefit plan, agreement, arrangement, or commitment not previously listed on the Exhibits to this Section that is maintained by the Companies, respectively, or to which they contribute or are required to contribute. Exhibit 2.18.3 also -------------- contains a complete list of all employees of the Companies, respectively, and the amount of vacation pay currently accrued to each such employee. (g) Copies of Plans. True and complete copies have been provided to --------------- representatives of Buyer of the Companies': Welfare Benefit Plans; Pension Benefit Plans; related trust agreements, annuity contracts and other funding instruments; each plan, agreement, arrangement, and commitment referred to in subsection(f) of this Section; favorable determination letters; annual reports (Form 5500 series) required to be filed with any governmental agency for each Welfare Benefit Plan, Pension Benefit Plan, and fringe benefit plan for the three most recent plan years, including, without limitation, all schedules thereto and all consolidated financial statements with attached opinions of independent accountants; current summary plan descriptions; and actuarial reports as of the last valuation date for each Pension Benefit Plan that is subject to Title IV of ERISA. (h) Continuation Coverage Requirements for Health Plans. All group ------------------------------------------------------ health plans of the Companies (including any plans of affiliates of them that must be taken into account under Section 4980B of the Code) have been operated in compliance with the group health plan continuation coverage requirements of Section 4980B of the Code and Title I, Part 6 of ERISA. 16 (i) Valid Obligations. All Welfare Benefit Plans, Pension Benefit ------------------ Plans, related trust agreements, annuity contracts or other funding instruments, and all plans, agreements, arrangements and commitments referred to in subsection (f) of this Section are legal, valid and binding and in full force and effect, and there are no defaults thereunder. Except as specified in Exhibit 2.18.5, none of the rights of the Companies --------------- thereunder will be impaired by the consummation of the transactions contemplated by this Agreement, and all of the rights of the Companies thereunder will be enforceable by Buyer at and after the Closing without the consent or agreement of any other party other than consents and agreements specifically listed in Exhibit 2.18.5. -------------- 2.19 Intellectual Property. The Companies, respectively, have good and ---------------------- marketable title to, own all worldwide right, title, and interest in, to, and under, and Exhibit 2.19 contains a detailed listing of, each copyright, ------------- trademark, trade name, service mark, trade dress, patent, franchise, trade secret, product designation, formula, process, know-how, right of publicity, design, registration of any of the foregoing, and application for any patent or registration, and other similar rights (collectively "Intellectual Property Rights") used in, or necessary for, the operation of its business as currently conducted. Except as otherwise set forth on Exhibit 2.19, all of said ------------- Intellectual Property Rights, the right to use them and the right to convey them are free and clear of all royalty and other obligations, security interests, liens and encumbrances. The Companies, respectively, have the right to use all Intellectual Property Rights used in, or necessary for, the operation of its business as currently conducted. The Companies have taken all action necessary to protect against and defend against, and have no knowledge of, any conflicting use of any such Intellectual Property Rights. Except as set forth in Exhibit ------- 2.19, (i) the Companies are not a party in any capacity to any franchise, - ---- license, royalty or other agreement respecting or restricting any Intellectual Property Rights and (ii) the Intellectual Property Rights used by the Companies in the operation of their respective businesses as currently conducted do not conflict with the Intellectual Property Rights or other rights of any third party. No product, including final and intermediate products, made, imported, offered for sale, sold or distributed by the Companies, service provided by the Companies or process used by the Companies violates any license or infringes any Intellectual Property Rights or other rights of any third party, and, except as set forth on Exhibit 2.19, there are no pending claims or demands by any third ------------ party to the contrary. None of the Companies, Louis Hoffman, and, to the knowledge of the Companies and Louis Hoffman, the other Sellers, are aware that any such claim or demand will be, or is likely to be, made or of any fact or circumstance that could reasonably give rise to such claim or demand. To the knowledge of the Companies and Louis Hoffman, the Intellectual Property Rights are valid and enforceable. 2.20 Warranties. Except as set forth in Exhibit 2.20, there are no claims ---------- ------------ existing or threatened under or pursuant to any warranty, whether expressed or implied, on products or services sold by the Companies, and the Balance Sheet reserves, if any, for anticipated claims are adequate to cover any such claims. 2.21 Labor Relations. Except as set forth in Exhibit 2.21, there have been --------------- ------------ no strikes, work stoppages or any demands for collective bargaining by any union or labor organization since 17 January 1, 1994; there is no collective bargaining relationship between either of the Companies and any union; there is no dispute or controversy with any union or other organization of the Companies' employees; there are no arbitration proceedings pending or to the knowledge of the Companies threatened involving a dispute or controversy and the Companies have not received any notice from any labor union or group that it represents or intends to represent the Companies' employees. The Companies are in full compliance in all material respects with all Laws respecting employment and employment practices, terms and conditions of employment and wages and hours including, without limitation, the Fair Labor Standards Act, the Family and Medical Leave Act of 1993, the Americans with Disabilities Act of 1990, the Veterans Reemployment Rights Act, the Equal Employment Opportunities Act, as amended by the Civil Rights Act of 1991, the Occupational Safety and Health Act, the Employment Retirement Income Security Act of 1974, the Immigration Reform and Control Act of 1986, the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Older Workers Benefit Protection Act, and all other Laws, each as amended to date, relating to employer/employee rights and obligations. The Companies currently have satisfactory relationships with their respective employees. 2.22 Insurance. Exhibit 2.22 lists coverage regarding all of the Companies' --------- ------------ existing insurance policies, the premiums therefor and the coverage of each policy. Such policies and the amount of coverage and the risks insured are, in the aggregate, commercially reasonable to insure the Companies against perils which good business practice demands be insured against. Each such policy is in full force and effect, the premiums are paid to the extent due thereunder and there are no defaults under any such policies which could, in the aggregate, cause a Material Adverse Effect. 2.23 Liability for Services. There exist no known claims against the ------------------------ Companies for injury to person or property of their employees or any third parties suffered as a result of the performance of any service by the Companies, respectively, including, but not limited to, claims arising out of the defective or unsafe nature of its products or services. 2.24 Environmental. ------------- (a) For purposes of this Section: (i) "Hazardous Materials" means any hazardous, infectious or toxic substance, chemical, pollutant, contaminant, emission or waste which is or becomes regulated by any local, state, federal or foreign authority. Hazardous Materials include, without limitation, anything which is: (i) defined as a "pollutant" pursuant to 33 U.S.C. ss. 1362(6); (ii) defined as a "hazardous waste" pursuant to 42 U.S.C. ss. 6921; (iii) defined as a "regulated substance" pursuant to 42 U.S.C. ss. 6991; (iv) defined as a "hazardous substance" pursuant to 42 U.S.C. ss. 9601(14); (v) defined as a "pollutant or contaminant" pursuant to 42 U.S.C. ss. 9601(33); (vi) petroleum; (vii) asbestos; and (viii) polychlorinated biphenyl. 18 (ii) "Environmental Laws and Regulations" means all limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any Laws relating to pollution, nuisance, or the environment including, without limitation, (i) the Federal Clean Air Act, 42 U.S.C. ss.ss. 7401 et -- seq.; (ii) the Comprehensive Environmental Response, Compensation, and --- Liability Act, 42 U.S.C. ss.ss. 9601 et seq.; (iii) the Federal -- --- Emergency Planning and Community Right-to-Know Act, 42 U.S.C. ss.ss. 1101 et seq.; (iv) the Federal Insecticide, Fungicide and Rodenticide -- --- Act, 7 U.S.C. ss.ss. 136 et seq.; (v) the Federal -- --- Water Pollution Control Act, 33 U.S.C. ss.ss. 1251 et seq.; (vi) the -- --- Solid Waste Disposal Act, 42 U.S.C. ss.ss. 6901 et seq.; (vii) the -- --- Toxic Substances Control Act, 15 U.S.C. ss.ss. 2601 et seq.; (viii) -- --- Laws relating in whole or part to emissions, discharges, releases, or threatened releases of any Hazardous Material; and (ix) Laws relating in whole or part to the manufacture, processing, distribution, use coverage, disposal, transportation, storage or handling of any Hazardous Material. (b) The operations and activities of the Companies comply in all material respects with all Environmental Laws and Regulations. (c) The Companies have obtained all material permits, licenses and other authorizations which are required with respect to its respective operations, as well as the transactions contemplated hereby under all Environmental Laws and Regulations. Exhibit 2.24 lists each ------------ such permit, license or other authorization. (d) There is no civil, criminal, administrative or other action, suit, demand, claim, hearing, notice of violation, notice or demand pending, received, or, to the best knowledge of the Companies and Louis Hoffman, threatened against the Companies relating in any way to any Environmental Laws and Regulations, which if determined adversely to the Companies could cause a Material Adverse Effect. (e) Neither of the Companies has caused or experienced any past or present events, conditions, circumstances, plans or other matters which: (i) are not in material compliance with all Environmental Laws and Regulations; or (ii) may give rise to any claim, action, demand, suit, proceeding, hearing, notice of violation or investigation of or against the Companies based on or relating to Hazardous Materials including, without limitation, such matters relating to any property owned or leased by the Companies. (f) No asbestos, polychlorinated biphenyls, lead-based paints, or radon are on any real property or in any building now or previously owned, operated, leased or utilized by the Companies. (g) No employee or former employee of the Companies has been exposed to any Hazardous Material owned, produced or utilized by the Companies or any former subsidiary. 19 (h) Neither of the Companies has received any written notice or indication from any governmental agency or private or public entity advising it that it is, or may be, responsible for any investigation or response costs with respect to a release, threatened release or cleanup of chemicals or materials produced by or resulting from any business, commercial or industrial activities, operations or processes, including, without limitation, any Hazardous Materials. None of the Companies, nor, to the knowledge of the Companies and Louis Hoffman, the other Sellers, are aware of any facts which might give rise to such notices. (i) No underground tanks, piping or subsurface structures of any type exist or have existed on any real property now or previously owned, operated, leased or utilized by the Companies. (j) Exhibit 2.24 contains complete copies of all environmental ------------ investigations, assessments, audits, studies, tests and related materials in possession of the Companies, or known to them to exist, which relate to the current or prior operations of the Companies or any real property now or previously owned, operated, leased or utilized by the Companies. (k) Except in compliance with Environmental Laws and Regulations, the Company has not used, generated or stored any Hazardous Materials. 2.25 Capital Expenditures. The Companies have outstanding commitments for -------------------- capital expenditures as set forth in Exhibit 2.25, which includes a schedule of ------------ substantially all moneys disbursed on account of capital expenditures made by the Companies between the Financial Statement Date and the date hereof. After the date hereof, no capital expenditures or commitments in excess of $25,000 in the aggregate will be made by the Companies, except as set forth in Exhibit 2.25 ------------ or with Buyer's prior written consent. 2.26 Suppliers. No suppliers of goods or services to the Companies that has --------- made sales or provided services representing, individually or in the aggregate, more than $10,000 in payments or commitments by the Companies within the last 12 months has (i) ceased, or indicated any intention to cease, doing business with the Companies, respectively, or (ii) changed or indicated any intention to change any terms or conditions for future supply or sale of products or services from the terms or conditions that existed with respect to the supply or sale of such products or services during the 12 month period ending on the date hereof, and which changes are not within such suppliers ordinary course of business. 2.27 Dealings with Affiliates. Exhibit 2.27 sets forth a complete list -------------------------- ------------ (including the parties) and copies (or a detailed summary in the case of an oral agreement) of all oral or written contracts, arrangements or other agreements to which the Companies are, will be or have been a party at any time from January 1, 1997, to the Closing Date, and to which any other Affiliate or the Companies was or is also a party. 20 2.28 Bank Accounts. Exhibit 2.28 is a list of all bank accounts, lock -------------- ------------- boxes, post office boxes and safe deposit boxes maintained in the name of or controlled by the Companies and the names of the persons having access thereto. 2.29 Compensation. Exhibit 2.29 lists the current job title and total ------------ ------------- remuneration (including, without limitation, salary, commissions and bonuses) for each officer, director, employee or consultant of the Companies who received total remuneration in excess of $50,000 from either of the Companies during any of the past two fiscal years and who is expected to receive total remuneration in excess of such amount during the current fiscal year. Except as disclosed on Exhibit 2.29, neither of the Companies has since the Financial Statement Date - ------------ nor will prior to the Closing Date, increase or commit to increase the base compensation, commission, bonus or the rate (or any other component) of total compensation payable or to become payable by the Companies, respectively, to any employee (including any director or officer), whether such person is listed on Exhibit 2.29 or not, and no extraordinary compensation or bonus will be paid by - ------------ the Companies. 2.30 Credit Facility. Listed in Exhibit 2.30 is a complete and accurate ---------------- ------------- description of all outstanding advances to the Companies as of the date of this Agreement, and the date five (5) days prior to the Closing (to be delivered by Sellers to Buyer three days prior to the Closing), under that certain Credit Agreement referenced in the Balance Sheet and consisting of the following: (i) Step-down Revolving Term Loan, (ii) $1,500,000 Working Capital Commitment, and (iii) Term Loan (collectively, the "Credit Facility"). 2.31 Accounts Receivable. All accounts receivable of the Companies have -------------------- been incurred in the ordinary course of business and are accurately reflected in all material respects in the books and records of the Companies consistent with past practice and represent bona fide transactions. 2.32 Customers. There are no pending or, to the knowledge of Louis Hoffman --------- and the Companies, threatened disputes between the Companies and any of its customers which could reasonably be expected to have a Material Adverse Effect. Since December 31, 1997, (i) there has been no material adverse change in the business relationship between the Companies and any material customer, and (ii) the Companies have not received any communications from a material customer to terminate the relationship or materially reduce purchases. 2.33 Powers of Attorney. The Companies have not granted a power of attorney ------------------ to any person, which is outstanding as of the date hereof, to commit or bind the Companies. 2.34 Complete Disclosure. No representation or warranty made by Sellers or ------------------- the Companies in this Agreement, and no exhibit, schedule, certificate or other writing furnished to Buyer by or on behalf of Sellers, pursuant to this Agreement or in connection with the transactions contemplated hereby, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein and therein not misleading. 21 2.35 Year 2000 Compliance. The Companies have reviewed their products, --------------------- businesses and operations which could be adversely affected by the Year 2000 problem (as defined below). The Companies have developed, or are developing, a program to address, on a timely basis, the risk that computer applications developed, marketed, sold or used by the Companies may be unable to recognize and properly perform date-sensitive functions involving dates prior to and after December 31, 1999 (the "Year 2000 Problem"). The Companies' applications delivered to their customers and their internal information and business systems are Year 2000 compliant. The Year 2000 Problem has not resulted in, and, to the knowledge of the Companies and Louis Hoffman, is not reasonably expected to have, a Material Adverse Effect on the Companies. ARTICLE III ----------- REPRESENTATIONS AND WARRANTIES OF BUYER --------------------------------------- Buyer hereby represents and warrants to the Sellers, as follows: 3.1 Corporate Organization, etc. Buyer is a corporation duly organized, ----------------------------- validly existing and in good standing under the laws of the state of Delaware and will be qualified to do business in Delaware on the Closing Date. 3.2 Authorization, etc. Buyer has full corporate power and authority to ------------------- enter into this Agreement and to carry out the transactions contemplated hereby. The Board of Directors and stockholders of Buyer have duly authorized the execution and delivery of this Agreement and the transactions contemplated hereby, and no other corporate proceedings on its part are necessary to authorize this Agreement and the transactions contemplated hereby. This Agreement and all other related agreements constitute legal, valid and binding obligations of Buyer, enforceable against Buyer in accordance with their respective terms. 3.3 No Violation. Buyer is not subject to or obligated under any ------------- certificate of incorporation, bylaw, Law, or any agreement or instrument, or any license, franchise or permit, which would be breached or violated by its execution, delivery or performance of this Agreement. Buyer will comply with all Laws in connection with its execution, delivery and performance of this Agreement and the transactions contemplated hereby. 3.4 Governmental Authorities. Assuming that the Ultimate Parent Entity of ------------------------- the Companies has less than $100 million of HSR Assets and Revenues, Buyer is not required to submit any notice, report or other filing with and no consent, approval or authorization is required by any governmental or regulatory authority or third party in connection with Buyer's execution or delivery of this Agreement or the consummation of the transactions contemplated hereby. 3.5 Capitalization. The authorized capital stock of Buyer consists of (i) -------------- 10,000,000 shares of common stock, par value $.01 per share ("Buyer Common Stock") and (ii) 5,000,000 shares of preferred stock, par value $.01 per share, none of which are issued and outstanding. As of November 12, 1998, 5,089,858 shares of Buyer Common Stock were issued and outstanding. Except as set forth on Schedule 3.5, there are no outstanding options, warrants or - ------------ 22 contracts, commitments, understandings, or arrangements by which the Buyer is or may become bound to issue additional shares of Buyer Common Stock, or securities or rights convertible or exchangeable into shares of Buyer Common Stock. The capital stock of the Buyer is duly authorized and all issued capital stock has been duly and validly issued and is fully paid and nonassessable and free of preemptive rights. 3.6 SEC Reports and Financial Statements. Buyer has filed with the ---------------------------------------- Securities and Exchange Commission (the "SEC"), and has heretofore made available to the Sellers true and complete copies of all forms, reports, schedules, statements and other documents required to be filed by it under the Securities Act of 1933, as amended (the "Securities Act") and the Securities and Exchange Act of 1934, as amended (the "Exchange Act") (as such documents have been amended or supplemented since the time of their filing, collectively, the "SEC Reports"). As of their respective dates, the SEC Reports (including without limitation, any financial statements or schedules included therein) (a) did not contain any untrue statement of a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and (b) complied in all material respects with the applicable requirements of the Securities Act and Exchange Act (as the case may be) and all applicable rules and regulations of the SEC promulgated thereunder. Each of the consolidated financial statements included in the SEC Reports have been prepared from, and are in accordance with, the books and records of the Buyer, comply in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with U.S. GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present in all material respects the consolidated results of operations and cash flows (and changes in financial position, if any) of the Buyer as at the dates thereof or for the periods presented therein. ARTICLE IV COVENANTS OF THE SELLERS Except as otherwise consented to or approved by Buyer in writing, until the Closing, the Sellers covenant and agree (and will cause the Companies to act or refrain from acting where required hereinafter) as follows: 4.1 Regular Course of Business. The Companies will: (i) operate their --------------------------- respective businesses in the ordinary course, diligently and in good faith, consistent with past management practices; (ii) maintain all of its respective properties in customary repair, order and condition, reasonable wear and tear excepted; (iii) maintain (except for expiration due to lapse of time) all leases and contracts described herein in effect without change except as expressly provided herein; (iv) comply with the provisions of all Laws applicable to the conduct of its business; (v) not engage in any significant or unusual transaction; (vi) not cancel, release, waive or compromise any debt, claim or right in its favor having a value in excess of $25,000 other than in connection with returns for credit or replacement in the ordinary course of business; (vii) 23 maintain insurance coverage up to the Closing Date in amounts adequate to protect and insure the Companies against perils which good business practice demands be insured against or which are normally insured against by other industry members similarly situated. Notwithstanding the foregoing, the Companies shall be permitted, on or prior to the Closing Date, to pay cash dividends to the Sellers, to make payments to the Sellers, including without limitation to pay the Sellers' expenses incurred in connection with this transaction, to pay management fees to Regent Capital Management Corp. or to repay borrowings under the Credit Facility or otherwise ("Permitted Distributions"). 4.2 Amendments. Except as required for the transactions contemplated in ---------- this Agreement, no change or amendment shall be made in either Companies' articles or certificate of incorporation or bylaws. Neither of the Companies will merge into or consolidate with any other corporation or person, or change the character of its business. 4.3 Capital Changes. Neither of the Companies will (i) issue or sell any ---------------- shares of its capital stock of any class or issue or sell any securities convertible into, or options, warrants to purchase or rights to subscribe to, any shares of its capital stock of any class or (ii) directly or indirectly, redeem, purchase or otherwise acquire any shares of its capital stock. 4.4 Capital and Other Expenditures. Until the Closing, neither of the -------------------------------- Companies will make any capital expenditures, or commitments with respect thereto, except as set forth in Exhibit 2.25. Other than those agreed upon ------------- amounts set forth in Exhibit 2.25, and repayment of amounts advanced under the ------------ Credit Facility during such period, neither of the Companies will repay or prepay any principal or interest on any indebtedness or obligation (except for prepaying trade accounts payable in the normal course of business to take advantage of cash discounts). 4.5 Borrowing. Except with respect to permitted advances under the Credit --------- Facility, neither of the Companies will (i) incur, assume or guarantee any indebtedness or capital leases or (ii) create or permit to become effective any mortgage, pledge, lien, encumbrance or charge of any kind upon its assets other than in the ordinary course of business. 4.6 Other Commitments. Except in the ordinary course of business consistent ----------------- with past practices or with the written consent of Buyer, neither of the Companies will enter into any transaction, make any commitment or incur any obligation. 4.7 Interim Financial Information. The Sellers will supply Buyer with -------------------------------- unaudited monthly adjusted consolidated financial statements of Holding within fifteen (15) business days of the end of each month ending between the Financial Statement Date and the Closing Date. All such financial statements shall be accompanied by a certificate of the President and the financial officer of Holding certifying that such financial statements were prepared in accordance with generally accepted accounting principles applied on a basis consistent with the unaudited consolidated financial statements for the preceding months. 24 4.8 Full Access and Disclosure. -------------------------- (a) The Companies shall afford to Buyer and its counsel, accountants and other authorized representatives access during business hours to the Companies' plants, properties, books and records in order that Buyer may have full opportunity to make such reasonable investigations as it shall desire to make of the affairs of the Companies, and the Companies will cause their officers and employees to furnish such additional financial and operating data and other information as Buyer shall from time to time reasonably request. (b) From time to time prior to the Closing Date, the Companies will promptly supplement or amend in writing information previously delivered to Buyer with respect to any matter hereafter arising which, if existing or occurring at the date of this Agreement, would have been required to be set forth or disclosed. 4.9 Consents. The Companies will use all commercially reasonable efforts to -------- obtain on or prior to the Closing Date all consents necessary to the consummation of the transactions contemplated hereby. 4.10 Breach of Agreement. None of the Sellers or the Companies will take ------------------- any action which, if taken prior to the Closing Date, would constitute a breach of this Agreement. 4.11 Further Assurances. The Companies and the Sellers will furnish Buyer ------------------- with such other and further documents, certificates, opinions, consents and information as (a) Buyer shall reasonably request to enable Buyer to borrow funds from a bank or other lending entity or individual(s) for the purchase of the Shares, and (b) to evidence compliance with the terms and conditions of any credit agreement to be entered into between Buyer and a bank and/or other lending entities or individuals. 4.12 Fulfillment of Conditions. The Sellers and the Companies will take all ------------------------- commercially reasonable steps necessary or desirable, and proceed diligently and in good faith, to satisfy each condition to the obligations of Buyer contained in this Agreement and will not take or fail to take any action that could reasonably be expected to result in the nonfulfillment of any such condition. ARTICLE V --------- COVENANTS OF BUYER ------------------ Buyer hereby covenants and agrees with the Sellers that: 5.1 Post-Closing Course of Business. From and after the Closing through -------------------------------- December 31, 1998, the Buyer, with the cooperation of Louis Hoffman, will operate the 25 Companies in the ordinary course, diligently and in good faith, consistent with past management practices. 5.2 Books and Records. Buyer shall preserve and keep the Companies' books ----------------- and records delivered hereunder for a period of five (5) years from the date hereof and shall, during such period, make such books and records available to former officers and directors of each such company for any reasonable purpose. 5.3 Further Assurances. The Buyer will furnish the Companies and the ------------------- Sellers with such other and further documents, certificates, opinions, consents and information reasonably required by the Companies and Sellers in connection with the performance of this Agreement. 5.4 Fulfillment of Conditions. The Buyer will take all commercially --------------------------- reasonable steps necessary or desirable, and proceed diligently and in good faith, to satisfy each condition to the obligations of Sellers and the Companies contained in this Agreement and will not take or fail to take any action that could reasonably be expected to result in the nonfulfillment of any such condition. ARTICLE VI ---------- OTHER AGREEMENTS ---------------- Buyer and the Sellers covenant and agree that: 6.1 Agreement to Defend. In the event any action, suit, proceeding or -------------------- investigation of the nature specified in Section 7.4 or Section 8.2 hereof is ----------- ----------- commenced, whether before or after the Closing Date, all the parties hereto agree to cooperate and use their best efforts to defend against and respond thereto. 6.2 Consultants, Brokers and Finders. The Sellers and Buyer each represent --------------------------------- and warrant that they have not retained any consultant, broker or finder in connection with the transactions contemplated by this Agreement, except for CIBC Oppenheimer Corp. retained by Buyer and Regent Capital Management Corp. retained by Sellers. The Sellers and Buyer each hereby agree to indemnify, defend and hold the other party and its offices, directors, employees and Affiliates, harmless from and against any and all claims, liabilities or expenses for any brokerage fees, commissions or finders' fees due to any consultant, broker or finder retained by the indemnifying party. 6.3 Noncompetition Agreement. At the Closing, Buyer and each of Regent ------------------------- Capital Equity Partners, L.P., Nantucket SuperGraphics II, L.L.C., Nantucket SuperGraphics, L.L.C., the directors and officers of Holding and Richard Hochman shall enter into a Noncompetition Agreement in substantially the form set forth in Exhibit 6.3. ----------- 6.4 Taxes. ----- 26 (a) The Sellers shall cause the Companies to prepare and file all tax returns and reports of the Companies due on or prior to the Closing Date, which returns and reports shall be prepared and filed timely and on a basis consistent with existing procedures for preparing such returns and reports and in a manner consistent with prior practice with respect to the treatment of specific items on the returns or reports; provided, however, -------- ------- that if the treatment of any item on any such return or report has not been provided by prior practice, the Sellers shall cause the Companies to report such items in a manner that would result in the least amount of tax liability to the Companies and Buyer for periods ending after the Closing Date. Buyer shall cause the Companies to prepare and file all tax returns and reports of the Companies due after the Closing Date, which returns and reports, to the extent they relate to taxable periods beginning prior to, but including the Closing Date, shall be prepared and filed timely and on a basis consistent with existing procedures for preparing such returns and in a manner consistent with prior practice with respect to the treatment of specific items on the returns and reports, unless such treatment does not have sufficient legal support to avoid the imposition of penalties. (b) Buyer, the Companies and the Sellers shall provide each other with such assistance as may reasonably be requested by the others in connection with the preparation of any return or report of Taxes, any audit or other examination by any taxing authority, or any judicial or administrative proceedings relating to liabilities for Taxes. Buyer, the Companies and the Sellers will retain for the full period of any statute of limitations and provide the others with any records or information which may be relevant to such preparation, audit, examination, proceeding or determination. (c) If in connection with any examination, investigation, audit or other proceeding in respect of any tax return covering the operations of the Companies during a taxable period on or before the Closing Date, any governmental body or authority issues to the Companies a written notice of deficiency, a notice of reassessment, a proposed adjustment, an assertion of claim or demand concerning the taxable period covered by such return, Buyer or the Companies shall notify the Sellers of its receipt of such communication from the governmental body or authority within 30 business days after receiving such notice of deficiency, reassessment, adjustment or assertion of claim or demand. No failure or delay of Buyer or the Companies in the performance of the foregoing shall reduce or otherwise affect the obligations or liabilities of the Sellers pursuant to this Agreement, except to the extent that such failure or delay shall have adversely affected the Sellers' ability to defend against any liability or claim for Taxes that the Sellers are obligated to pay hereunder. Except as provided below, the Sellers shall, at their expense, have the nonexclusive right to participate in the contest of any such assessment, proposal, claim, reassessment, demand or other proceedings in connection with any tax return covering taxable periods of the Companies ending on or before the Closing Date. Buyer and the Companies will not be obligated to settle or resolve any issue related to Taxes for such a period, which, if so settled or resolved, could have an adverse effect on the Companies or Buyer for periods after the Closing Date, unless the Sellers agree in writing with Buyer and the Companies, in terms reasonably satisfactory 27 to Buyer and the Companies, to indemnify Buyer and the Companies from any cost, damage, loss or expense relating to such settlement or resolution. ARTICLE VII ----------- CONDITIONS TO THE OBLIGATIONS OF BUYER -------------------------------------- Each and every obligation of Buyer under this Agreement shall be subject to the satisfaction, on or before the Closing Date, of each of the following conditions unless waived in writing by Buyer. 7.1 Representations and Warranties; Performance. The representations and -------------------------------------------- warranties made by the Companies and the Sellers herein shall be true and correct in all material respects on the date of this Agreement and on the Closing Date with the same effect as though made on such date; the Sellers shall have performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement to be performed and complied with by them prior to the Closing Date; the Sellers shall have, and shall have caused the President of Holding to have delivered to Buyer a certificate, dated the Closing Date, in the form designated Exhibit 7.1 hereto, certifying to such ----------- matters and the other conditions contained in this Article VII. ----------- 7.2 Consents and Approvals. All consents from and filings with third ------------------------ parties, regulators and governmental agencies required to consummate the transactions contemplated hereby, or which, either individually or in the aggregate, if not obtained, would cause an adverse effect on the financial condition or business of the Companies shall have been obtained and delivered to Buyer. 7.3 Opinion of the Sellers' Counsel. Buyer shall have received an opinion -------------------------------- of the Sellers' counsel, dated the Closing Date, substantially in the form attached hereto as Exhibit 7.3. ----------- 7.4 No Proceeding or Litigation. No action, suit or proceeding before any --------------------------- court or any governmental or regulatory authority shall have been commenced or threatened, and no investigation by any governmental or regulatory authority shall have been commenced or threatened against the Sellers, the Companies, Buyer or any of their respective principals, officers or directors seeking to restrain, prevent or change the transactions contemplated hereby or questioning the validity or legality of any of such transactions or seeking damages in connection with any of such transactions. 7.5 Credit Facility. The Companies shall have no borrowings under the ---------------- Credit Facility and the Credit Facility shall have been terminated. 7.6 Other Agreements. The Agreements described in Section 6.3 shall have ----------------- ----------- been entered into and delivered. 28 7.7 Escrow Agreement. Buyer shall have entered into an Escrow Agreement ----------------- with Louis Hoffman on terms reasonably satisfactory to Buyer. 7.8 Employment Agreement. Buyer shall have entered into an Employment --------------------- Agreement with Louis Hoffman on terms reasonably satisfactory to Buyer. 7.9 Prior Owner Earn-Out. The Sellers shall have satisfied all payment --------------------- obligations relating to earn-out payments due in connection with their original acquisition of the Companies. 7.10 Credit Facility Balance. Buyer shall have received, pursuant to ------------------------- Section 2.30 hereto, a description of all outstanding advances to the Companies as of a date five (5) days prior to the Closing. 7.11 Options. All outstanding options to purchase common stock of Holding ------- set forth on Exhibit 2.2 hereto shall have been terminated. ----------- 7.12 Financial Statements. Buyer shall have received unaudited monthly --------------------- adjusted consolidated statements of income of the Companies for the tenth months ended October 31, 1998 and 1997. 7.13 Financing. Buyer shall have consummated on or before the Closing Date --------- a financing in an amount sufficient to enable Buyer to pay the Purchase Price at the Closing. ARTICLE VIII ------------ CONDITIONS TO THE OBLIGATIONS OF THE SELLERS -------------------------------------------- Each and every obligation of the Sellers under this Agreement shall be subject to the satisfaction, on or before the Closing Date, of each of the following conditions unless waived in writing by the Sellers: 8.1 Representations and Warranties; Performance. The representations and -------------------------------------------- warranties made by Buyer herein shall be true and correct in all material respects on the date of this Agreement and on the Closing Date with the same effect as though made on such date; Buyer shall have performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement to be performed and complied with by it prior to the Closing Date; Buyer shall have delivered to Sellers a certificate of its President, dated the Closing Date, certifying to the fulfillment of the conditions set forth herein, in the form designated as Exhibit 8.1 and the other conditions ----------- contained in this Article VIII. ------------ 8.2 No Proceeding or Litigation. No action, suit or proceeding before any --------------------------- court or any governmental or regulatory authority shall have been commenced, or threatened, and no investigation by any governmental or regulatory authority shall have been commenced, or threatened, against the Companies, Buyer, the Sellers, or any of their respective principals, officers or directors, seeking to restrain, prevent or change the transactions contemplated hereby 29 or questioning the validity or legality of any of such transactions or seeking damages in connection with any of such transactions. 8.3 Opinion of Counsel. The Sellers shall have received an opinion of ------------------- counsel to Buyer dated the Closing Date substantially in the form of Exhibit ------- 8.3. - ---- 8.4 Payment. The payment(s) and deliveries described in Section 1.2 shall ------- ----------- have been made, to the extent required. 8.5 Other Documents. Buyer will furnish the Sellers with such other ---------------- documents and certificates to evidence compliance with the conditions set forth in this Article as may be reasonably requested by the Sellers. 8.6 Other Agreements. The agreements described in Section 6.3 shall have ----------------- ----------- been entered into and delivered. 8.7 Employment Agreement. Buyer shall have entered into an Employment --------------------- Agreement with Louis Hoffman on terms reasonably satisfactory to Mr. Hoffman. ARTICLE IX ---------- CLOSING ------- 9.1 Closing. Unless this Agreement shall have been terminated or abandoned ------- pursuant to the provisions of Article X hereof, a closing (the "Closing") shall --------- be held on November 25, 1998, or at such other time as Buyer and the Sellers may agree, and shall occur at such place or places as Buyer and the Sellers shall agree. The date on which the Closing occurs is referred to herein as the "Closing Date." 9.2 Deliveries at Closing. --------------------- (a) At the Closing, the Sellers shall transfer and assign to Buyer all of the Shares by delivering certificates representing each of the Shares, duly endorsed for transfer to Buyer and the other agreements, certifications and other documents required to be executed and delivered hereunder at the Closing shall be duly and validly executed and delivered. (b) From time to time after the Closing, at Buyer's request and without further consideration from Buyer, the Sellers shall execute and deliver such other instruments of conveyance and transfer and take such other action as Buyer reasonably may require to convey, transfer to and vest in Buyer and to put Buyer in possession of the Shares to be sold, conveyed, transferred and delivered hereunder. (c) Buyer shall pay the Purchase Price as provided in Section 1.2 ----------- hereof. 30 9.3 Specific Performance. The parties agree that if any party hereto is --------------------- obligated to, but nevertheless does not, consummate this transaction, then any other party, in addition to all other rights or remedies, shall be entitled to the remedy of specific performance mandating that the other party or parties consummate this transaction. In an action for specific performance by any party hereto against any other party, the other party shall not plead adequacy of damages at law. ARTICLE X --------- TERMINATION AND ABANDONMENT --------------------------- 10.1 Methods of Termination. This Agreement may be terminated and the ----------------------- transactions herein contemplated may be abandoned at any time (notwithstanding approval by the Board of directors of Buyer): (a) by mutual consent of Buyer and the Sellers; or (b) by either Buyer or the Sellers, if (i) such party is not in breach hereunder and the other party is in breach hereunder and (ii) this Agreement is not consummated on or before December 2, 1998 or such other date as the Sellers and Buyer may agree. 10.2 Procedure Upon Termination. In the event of termination and ----------------------------- abandonment pursuant to Section 10.1 hereof, this Agreement shall terminate and ------------ shall be abandoned, without further action by any of the parties hereto. If this Agreement is terminated as provided herein: (a) each party will upon request redeliver all documents and other materials of any other party relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the party furnishing the same; (b) no party hereto shall have any liability or further obligation to any other party to this Agreement; and (c) each party shall bear its own expenses. ARTICLE XI ---------- INDEMNIFICATION --------------- 11.1 Indemnification by the Sellers. Each Seller hereby agrees to indemnify ------------------------------ and hold harmless Buyer and each of its shareholders, officers and directors from and against any loss, damage, or expense (including, but not limited, to reasonable attorneys' fees) ("Damages"), incurred or sustained by Buyer or any of its shareholders, officers or directors as a result of (a) any breach or nonfulfillment of any term, provision, covenant or agreement contained in this Agreement by the Sellers; (b) any inaccuracy in any of the representations or warranties made 31 by Louis Hoffman or the Companies in Article II of this Agreement; or (c) any ---------- inaccuracy or misrepresentation in any certificate or other document or instrument delivered by the Sellers or the Companies in accordance with any provision of this Agreement. The obligations of the Sellers as set forth in this Section 11.1 shall be subject to and limited by the following: (i) (A) No claim for Damages shall be paid until the cumulative amount of such Damages shall equal or exceed $180,000, and then only such claims for Damages shall be paid in excess of $180,000, (B) all claims for Damages shall be paid severally by the Sellers pro rata based on the percentages set forth opposite each Seller's name on Exhibit 11.1, and (C) with respect to each Seller, the aggregate of ------------- all claims for Damages paid by such Seller shall not exceed an amount equal to such Seller's pro rata share of $3,500,000, determined in accordance with Exhibit 11.1; and ------------ (ii) Buyer shall give written notice to the Sellers stating specifically the basis for the claim for Damages, the amount thereof and shall tender defense thereof to the Sellers as provided in Section ------- 11.2. ---- In addition to any other remedy, Buyer shall, subject to the provisions of this Section 11.1, be entitled, but shall not be obligated, to offset all such claims - ------------ for Damages against the Deferred Purchase Price Payment pursuant to Section 1.3. ----------- 11.2 Tender of Defense for Damages. Promptly upon receipt by Buyer of a ------------------------------ notice of an action, lawsuit, proceeding, investigation or other claim against it (if by a third party) or upon discovering the liability, obligation or facts giving rise to such claim for indemnification which may give rise to a claim for Damages, Buyer shall give written notice thereof to the Sellers. No failure or delay of Buyer in the performance of the foregoing shall relieve, reduce or otherwise affect the Sellers' obligations and liability to indemnify Buyer pursuant to this Agreement, except to the extent that such failure or delay shall have adversely affected the Sellers' ability to defend against such claim for Damages. If the Sellers give to Buyer an agreement in writing, in a form reasonably satisfactory to Buyer's counsel, to defend such action, lawsuit, proceeding, investigation or other claim for Damages, the Sellers may, at their sole expense, undertake the defense against such claim and may contest or settle such claim on such terms, at such time and in such manner as the Sellers, in their sole discretion, shall elect and Buyer shall execute such documents and take such steps as may be reasonably necessary in the opinion of counsel for the Sellers to enable the Sellers to conduct the defense of such claim for Damages. In the event Buyer notifies Sellers in writing that it will undertake the defense against any such claim, at its sole expense, which Buyer may do in its sole discretion, Sellers shall have no liability for Damages as relates to such claim in excess of any amount which Sellers had previously offered in writing to settle any such claim. If the Sellers fail or refuse to defend any claim for Damages, the Sellers may nevertheless, at their own expense, participate in the defense of such claim by Buyer and in any and all settlement negotiations relating thereto. In any and all events, the Sellers shall have such access to the records and files of Buyer relating to any claim for Damages as may be reasonably necessary to effectively defend or participate in the defense thereof. 32 ARTICLE XII ----------- MISCELLANEOUS PROVISIONS ------------------------ 12.1 Amendment and Modification. Subject to applicable law, this Agreement -------------------------- may be amended, modified and supplemented only by written agreement of the Sellers and Buyer. 12.2 Waiver of Compliance; Consents. Any failure of the Sellers on the one ------------------------------- hand, or Buyer on the other hand, to comply with any obligation, covenant, agreement or condition herein may be waived in writing by Buyer or the Sellers, respectively, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. Whenever this Agreement requires or permits consent by or on behalf of any party hereto, such consent shall be given in writing in a manner consistent with the requirements for a waiver of compliance as set forth in this Section 12.2. ------------ 12.3 Expenses. Each party will pay its own legal, accounting and other -------- expenses incurred by such party or on its behalf in connection with this Agreement and the transactions contemplated herein. 12.4 Investigations; Survival of Warranties. The respective representations -------------------------------------- and warranties of the Sellers and Buyer contained herein or in any certificates or other documents delivered prior to or at the Closing shall not be deemed waived or otherwise affected by any investigation made by any party hereto or by the occurrence of the Closing. Each and every such representation and warranty shall survive until March 15, 2000, provided, however, all representations and warranties made pursuant to (i) Section 2.14 shall remain in full force and effect until the expiration of the applicable statute of limitations and (ii) Section 2.24 shall survive until the fifth anniversary of the Closing. 12.5 Notices. Any notice, request, consent or communication (collectively, ------- a "Notice") under this Agreement shall be effective only if it is in writing and (i) personally delivered, (ii) sent by certified or registered mail, return receipt requested, postage prepaid, (iii) sent by a nationally recognized overnight delivery service, with delivery confirmed, or (iv) telecopied, with receipt confirmed, addressed as follows: (a) If to the Sellers, to their addresses appearing on the signature pages hereto. in each case with a copy to: 33 Robert H. Friedman Olshan Grundman Frome & Rosenzweig LLP 505 Park Avenue New York, New York 10022 Telephone: (212) 753-7200 Telecopier: (212) 755-1467 (b) If to Buyer, to: William E. Dye, Chief Executive Officer Unidigital Inc. 229 West 28th Street New York, New York 10001 Telephone: (212) 244-7820 Telecopier: (212) 244-7815 with a copy to: David J. Sorin, Esq. Buchanan Ingersoll Professional Corporation 500 College Road East Princeton, New Jersey 08540 Telephone: (609) 987-6800 Telecopier: (609) 520-0360 or such other place or address as shall be furnished in writing by any party to the other parties. A Notice shall be deemed to have been given as of the date when (i) personally delivered, (ii) five (5) days after the date when deposited with the United States mail properly addressed, (iii) when receipt of a Notice sent by an overnight delivery service is confirmed by such overnight delivery service, or (iv) when receipt of the telecopy is confirmed, as the case may be, unless the sending party has actual knowledge that a Notice was not received by the intended recipient. 12.6 Assignment. This Agreement and all of the provisions hereof shall be ---------- binding upon and inure to the benefit of the parties hereto and their respective heirs, successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by the Sellers without the prior written consent of Buyer. 12.7 Governing Law; Dispute Resolution. --------------------------------- (a) This Agreement shall be governed by the laws of the state of New York (regardless of the laws that might otherwise govern under applicable principles of conflicts 34 of law of the state of New York) as to all matters including, but not limited to, matters of validity, construction, effect, performance and remedies. (b) Other than as provided in Section 9.3, any dispute between any of the parties hereto or any claim by a party against another party arising out of or relating to this Agreement or relating to any alleged breach thereof shall be determined by arbitration in accordance with the rules then in force of the American Arbitration Association. The arbitration proceedings shall take place in New York, New York or such other location as the parties in dispute may agree upon. The arbitration proceedings shall be subject to the substantive laws of the state of New York. There shall be one arbitrator, as shall be agreed upon by the parties in dispute, who shall be an individual skilled in the legal and business aspects of the subject matter of this Agreement and of the dispute. In the absence of such an agreement, each party in dispute shall select one arbitrator and the arbitrators so selected shall select a third arbitrator. In the event the arbitrators cannot agree upon the selection of a third arbitrator, such third arbitrator shall be appointed by the American Arbitration Association at the request of any of the parties in dispute. The arbitrator shall be an individual skilled in the legal and the business aspects of the subject matter of this Agreement and of the dispute. The decision rendered by the arbitrator shall be accompanied by a written opinion in support thereof. Such decision shall be final and binding upon the parties in dispute without right of appeal. Judgment upon any such decision may be entered into in any court having jurisdiction thereof, or application may be made to such court for a judicial acceptance of the decision in an order of enforcement. Costs of the arbitration shall be assessed by the arbitrator against all or any of the parties in dispute and shall be paid promptly by the party or parties so assessed. 12.8 Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 12.9 Neutral Interpretation. This Agreement constitutes the product of the ---------------------- negotiation of the parties hereto and the enforcement hereof shall be interpreted in a neutral manner, and not more strongly for or against any party based upon the source of the draftsmanship hereof. 12.10 Headings. The article and section headings contained in this -------- Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 12.11 Entire Agreement. This Agreement, which term as used throughout ----------------- includes the Exhibits hereto, embodies the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, representations, warranties, covenants or undertakings other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 35 12.12 Waiver; Alteration. ------------------------- (a) Waiver. The waiver of a breach hereunder may be affected only by a ------ writing signed by the waiving party and shall not constitute, or be held to be, a waiver of any other or subsequent breach, or to affect in any way the effectiveness of such provision. Failure by any party to object to a breach by any other party shall not constitute or be held to be a waiver of the party's right to later object to, or to terminate this Agreement, due to any other breach or subsequent breach. (b) Alteration. Any modification or amendment to this Agreement shall ---------- be effective only if made in writing and signed by all parties hereto. (The remainder of this page has been left blank intentionally.) 36 IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as of the date first hereinabove set forth. UNIDIGITAL INC. By: /s/William E. Dye -------------------------------- Name: William E. Dye Title: Chief Executive Officer 37 IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as of the date first hereinabove set forth. SUPERGRAPHICS HOLDING COMPANY, INC. By:/s/J. Oliver Maggard -------------------------------- Name: J. Oliver Maggard Title: Vice President SUPERGRAPHICS CORPORATION By:/s/ Louis Hoffman -------------------------------- Name: Louis Hoffman Title: President 38 [AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE] REGENT CAPITAL EQUITY PARTNERS, L.P. By: Regent Capital Holdings, L.P., as General Partner By: Regent Capital Holdings, Inc., as General Partner By: /s/J. Oliver Maggard --------------------------------- Name: J. Oliver Maggard Title: Managing Director Address: 505 Park Avenue New York, New York 10022 39 [AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE] NANTUCKET SUPERGRAPHICS, L.L.C. By: /s/Joan Y. McCabe --------------------------------- Name: Joan Y. McCabe Title:General Partner Address:Two Sound View Drive Greenwich, CT 06830 [AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE] NANTUCKET SUPERGRAPHICS II, L.L.C. By: /s/ Joan Y. McCabe --------------------------------- Name: Joan Y. McCabe Title:General Partner Address:Two Sound View Drive Greenwich, CT 06830 [AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE] /s/Louis Hoffman ------------------------------- LOUIS HOFFMAN Address: [AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE] /s/Brian Labadie ------------------------------ BRIAN LABADIE Address: [AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE] /s/Tommy Greer ------------------------------ TOMMY GREER Address: 2323 Feather South Drive Apt. F207 Clearwater, FL 33762 [AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE] GORDON G. COHEN AND VICTORIA A. OLIVER AS JOINT TENANTS /s/Gordon G. Cohen ----------------------------- GORDON G. COHEN /s/Victoria A. Oliver ----------------------------- VICTORIA A. OLIVER Address: [AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE] /s/John Howard ----------------------------- JOHN HOWARD Address: /s/Lauren R. Howard ------------------------------ LAUREN R. HOWARD Address: [AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE] /s/Mark Leeds ------------------------------ MARK LEEDS Address: 178 East 80th Street Apt. 21A New York, NY 10021 [AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE] /s/James Johnson ------------------------------- JAMES JOHNSON Address: 54 Riverside Drive 9D New York, NY 10024 [AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE] /s/Richard G. Spears -------------------------------- RICHARD G. SPEARS Address: [AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE] LS PARTNERS G.P. By: /s/Sanford Shapiro -------------------------- Name: Sanford Shapiro Title: General Patner Address: 107 Pine Tree Drive Stamford, CT 06906 [AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE] GS HOLDINGS LLC By: /s/Greg Smith ---------------------------- Name: Greg Smith Title: President Address: 420 Lexington Avenue Suite 2501 New York, NY 10170 [AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE] /s/Eugene Matalene, Jr. --------------------------------- EUGENE MATALENE, JR. Address: 19 North Drive Plandome, NY 11030 [AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE] /s/Paul Higbee ------------------------------- PAUL HIGBEE Address: 175 Elmsley Ct. Ridgewood, NJ 07450 [AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE] /s/Jack Langer ------------------------------- JACK LANGER Address: [AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE] /s/Scott Howard ------------------------------- SCOTT HOWARD Address: 50 East 42nd, #2106 New York, NY 10017 [AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE] /s/Robert Pangia ------------------------------- ROBERT PANGIA Address: 31 Hyde Circle Watchung, NJ 07060 [AGREEMENT FOR PURCHASE AND SALE OF STOCK SIGNATURE PAGE] /s/Alan Gottesman ------------------------------- ALAN GOTTESMAN Address: 160 West End Avenue New York, NY 10023 EX-10.2 6 AMENDMENT NO. 3 AND WAIVER AMENDMENT NO. 3 AND WAIVER AMENDMENT NO. 3 AND WAIVER, dated as of November 30, 1998 (this "Amendment"), to the Credit Agreement, dated as of March 24, 1998 (as amended, --------- supplemented or otherwise modified prior to the date hereof, the "Credit ------ Agreement"), among UNIDIGITAL INC., a Delaware corporation (the "Borrower"), the - --------- -------- various lenders from time to time a party thereto (the "Lenders"), CANADIAN ------- IMPERIAL BANK OF COMMERCE, as administrative agent (in such capacity, the "Administrative Agent") for the Lenders and CANADIAN IMPERIAL BANK OF COMMERCE --------------------- (in such capacity, the "Issuing Lender."). -------------- RECITALS The Borrower has advised the Administrative Agent and the Lenders that it will acquire (the "SuperGraphics Acquisition") all of the issued and outstanding ------------------------- shares of SuperGraphics Holding Company, Inc., a Delaware corporation ("SuperGraphics"), pursuant to the Agreement for Purchase and Sale of Stock, ------------- dated as of November 16, 1998 (as amended, supplemented or otherwise modified as permitted by the Credit Agreement as amended hereby, the "SuperGraphics ------------- Acquisition Agreement"), among the Borrower, SuperGraphics, SuperGraphics OpCo - --------------------- (as defined below), and all the stockholders of SuperGraphics parties thereto. The Borrower has further advised the Administrative Agent that SuperGraphics Corporation, a California corporation ("SuperGraphics OpCo") is the wholly-owned ------------------ subsidiary of SuperGraphics and the operating entity of the business conducted thereby. The Borrower has further advised the Administrative Agent that it intends to use borrowings under the Term Loan Commitments (as increased hereby) to finance the SuperGraphics Acquisition and the payment of fees and expenses incurred in connection therewith. In connection with the SuperGraphics Acquisition and the borrowings referenced above, the Borrower has requested the Administrative Agent and the Lenders to agree to amend and waive certain provisions of the Credit Agreement as set forth in this Amendment. The Administrative Agent and the Lenders parties hereto are willing to agree to such amendments and waivers, but only on the terms and subject to the conditions set forth in this Amendment. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower and the Administrative Agent and the Lenders parties hereto hereby agree as follows: 1. Defined Terms. Unless otherwise defined herein, terms defined in the ------------- Credit Agreement are used herein as therein defined including, in Section 3, as defined in the Credit Agreement as amended by this Amendment. 2. Amendments. ---------- (a) Section 1.1 of the Credit Agreement is hereby amended by adding the following new definitions thereto in the appropriate alphabetical order: "Amendment No. 3 and Waiver": Amendment No. 3 and Waiver, dated as of -------------------------- November 30, 1998, to the Credit Agreement. "Consolidated Funded Debt": as of any date, the sum of all aggregate ------------------------- indebtedness of the Borrower and its Subsidiaries of the types set forth in clauses (a), other than, to the extent included therein, the Senior Subordinated Obligations, (b), (c), (d), (e) and (g) of Indebtedness, determined on a consolidated basis in accordance with GAAP, including, in any event, the Term Loans, the Acquisition Loans, Revolving Credit Loans and any purchase money Indebtedness. "Initial Term Loan": as to any Lender, the term loan made by such ------------------- Lender on the Closing Date pursuant to the Initial Term Loan Commitment of such Lender. "Initial Term Loan Commitment": as to any Lender, its obligation to ----------------------------- make a Term Loan to the Borrower on the Closing Date pursuant to Section 2.1(a) in the amount set forth opposite such Lender's name on Schedule 1.0 under the caption "Initial Term Loan". "Second Supplemental Closing Date": the date on which the conditions ---------------------------------- precedent to the effectiveness of Amendment No. 3 set forth in Section 4 of Amendment No. 3 shall have been satisfied. "Second Supplemental Fee Letter": that certain Fee Letter, dated --------------------------------- November 30, 1998, among CIBC, and the Borrower, as amended, supplemented or otherwise modified from time to time. "Securities Purchase Agreement": the Securities Purchase Agreement, ------------------------------- dated as of November 30, 1998, among the Borrower, the guarantors parties thereto and CIBC Wood Gundy Capital Corp., as purchaser, as the same may be amended, supplemented or otherwise modified from time to time as permitted under Section 10.11. "Senior Subordinated Obligation": the Indebtedness evidenced by the ------------------------------- Senior Subordinated Increasing Rate Notes. "Senior Subordinated Obligation Documents": collectively, the --------------------------------------------- Securities Purchase Agreement, the Senior Subordinated Increasing Rate Notes, the other documents listed in Schedule 1.1 to this Amendment No. 3 and Waiver, and any other documents executed in connection with the SuperGraphics Acquisition. "Senior Subordinated Increasing Rate Notes": the Borrower's 12.5% -------------------------------------------- Senior Subordinated Increasing Rate Notes issued pursuant to the Securities Purchase 2 Agreement in an original aggregate amount of $10,000,000.00, with interest to be paid in cash except in the cases provided for in Section 2.05(c)(i) of the Securities Purchase Agreement. "SuperGraphics": SuperGraphics Holding Company, Inc. ------------- "SuperGraphics Acquisition": the purchase by the Borrower of all of -------------------------- the issued and outstanding Capital Stock of SuperGraphics pursuant to the SuperGraphics Acquisition Documents. "Supplemental Fee Letter": that certain Fee Letter, dated October 30, ----------------------- 1998, among CIBC, and the Borrower, as amended, supplemented or otherwise modified from time to time. "Supplemental Term Loan": as to any Lender, the term loan made by such ---------------------- Lender on the Second Closing Date pursuant to the Supplemental Term Loan Commitment of such Lender. "Supplemental Term Loan Commitment": as to any Lender, its obligation --------------------------------- to make a Supplemental Term Loan to the Borrower pursuant to Section 2.1(b) in the amount set forth opposite such Lender's name on Schedule 1.0 under the caption "Supplemental Term Loan". "Supplemental Term Note Endorsement": with respect to the Term Note of ---------------------------------- each Lender, the promissory note endorsement made by the Borrower, substantially in the form of Exhibit A to Amendment No. 3, modifying the Term Note of such Lender (as in effect prior to the Second Supplemental Closing Date) to take account of the Supplemental Term Loan of such Lender. (b) Section 1.1 of the Credit Agreement is hereby amended by amending the following definitions in their entirety to read as follows: "Consolidated EBITDA": for any period, the sum, for the Borrower and -------------------- its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), for such period of (a) Consolidated Net Income for such period, (b) the sum of provisions for such period for income taxes, interest expense, and depreciation and amortization expense used in determining such Consolidated Net Income, (c) amounts deducted in such period in respect of non-cash expenses in accordance with GAAP, (d) non-capitalized transaction costs deducted in such period in connection with the Kwik Acquisition, the Mega Art Acquisition, the Zazula Acquisition, the SuperGraphics Acquisition and any Permitted Acquisitions and the financings relating thereto, (e) the amount of any aggregate net loss (or minus the amount of any gain) during such period arising from the sale, exchange or other disposition of capital assets, (f) non-cash expenses deducted in such period in connection with any earn-out agreements, stock appreciation rights, "phantom" stock plans, employment agreements, non-competition agreements, subscription and stockholders agreements and other 3 incentive and bonus plans and similar arrangements made in connection with acquisitions of Persons or businesses by the Borrower or its Subsidiaries or the retention of executives, officers or employees by the Borrower or its Subsidiaries, including (but without duplication) any Person that has become a Subsidiary during such specified period, on a pro forma basis as --- ----- if such acquisition had occurred on the first day of such period plus other non-recurring, non-operating expenses as shall have been approved by the Administrative Agent as exclusions from the determination of Consolidated EBITDA; provided, that Consolidated EBITDA shall in any event exclude, from -------- and after the Closing Date, (x) the effect of any write-up of the assets of Kwik, Mega Art, Zazula, SuperGraphics or any of its Subsidiaries or any other assets acquired in any Permitted Acquisitions and (y) the amount of any non-cash income recognized during any period for which Consolidated EBITDA is determined. "Term Loans": collectively, the Initial Term Loans and the ------------ Supplemental Term Loans. "Term Loan Commitment": as to any Lender, collectively, such Lender's -------------------- Initial Term Loan Commitment and Supplemental Term Loan Commitment. (c) Section 1.1 of the Credit Agreement is hereby amended by inserting, at the end of the definition of "Consolidated Fixed Charges" immediately before the period, the following new proviso: "; provided, that, in calculating the amounts set forth in clauses (i) -------- and (ii) of this definition the Senior Subordinated Obligation shall be disregarded, unless the Borrower has exceeded the covenant level stated therein." (d) Section 2.1 of the Credit Agreement as heretofore amended is hereby amended by deleting such Section in its entirety and substituting in lieu thereof a new Section 2.1 to read as follows: "2.1 Term Loan Commitments. (a) Each Lender made a term loan (an ----------------------- "Initial Term Loan") to the Borrower on the Closing Date in an amount equal ----------------- to the amount of the Initial Term Loan Commitment of such Lender. (b) Subject to the terms and conditions hereof, each Lender severally agrees to make a term loan (a "Supplemental Term Loan") to the ----------------------- Borrower on the Second Supplemental Closing Date in an amount not to exceed the amount of the Supplemental Term Loan Commitment of such Lender then in effect; provided, that the Supplemental Term Loan Commitments -------- shall terminate at 3:00 p.m., New York City time, on November 25, 1998, if the Supplemental Term Loans have not been made prior to that time. (c) The Term Loans may from time to time be (i) Eurodollar Loans, (ii) Base Rate Loans or (ii) a combination thereof, as determined by the Borrower and notified to the Administrative Agent in accordance with Sections 2.5 and 5.2." 4 (e) Section 2.2 of the Credit Agreement as heretofore amended is hereby amended by deleting the parenthetical phrase "(a "Term Note")" and substituting in lieu thereof the phrase "(as supplemented by a Supplemental Term Note Endorsement, a "Term Note")". (f) Section 2.3 of the Credit Agreement as heretofore amended is hereby amended by deleting such Section in its entirety and substituting in lieu thereof a new Section 2.3 to read as follows: "2.3 Procedure for Borrowing. The Borrower shall give the ------------------------- Administrative Agent irrevocable written notice substantially in the form attached hereto as Exhibit A-4 (which notice must be received by the Administrative Agent prior to 10:00 a.m., New York City time) (a) three Business Days prior to the Closing Date or the Supplemental Closing Date, as applicable, if all or any part of the Term Loans to be made on such date are to be initially Eurodollar Loans or (b) one Business Day prior to the Closing Date or the Supplemental Closing Date, as applicable, otherwise requesting that the Lenders make Initial Term Loans on the Closing Date or Supplemental Term Loans on the Supplemental Closing Date, as applicable, and specifying (i) the Closing Date or the Supplemental Closing Date, as applicable, (ii) the amount to be borrowed, (iii) whether the Term Loans to be made on such date are to be initially Eurodollar Loans, Base Rate Loans or a combination thereof and (iv) if the Term Loans to be made on such date are to be entirely or partly Eurodollar Loans, the respective amounts of each such Type of Loan and the respective lengths of the initial Interest Periods therefor. Upon receipt of such notice the Administrative Agent shall promptly notify each Lender thereof. Not later than 11:00 a.m. on the Closing Date or the Supplemental Closing Date, as applicable, each Lender shall make available to the Administrative Agent at its office specified in Section 13.2 the amount of such Lender's pro rata share of such borrowing in immediately available funds. The Administrative Agent shall on such date credit the account of the Borrower on the books of such office of the Administrative Agent with the aggregate of the amounts made available to the Administrative Agent by the Lenders and in like funds as received by the Administrative Agent." (g) Section 6.5 of the Credit Agreement is hereby amended by adding, at the end of clause (d) thereof, the following new sentence: "Any portion of such Net Proceeds not so applied to the repair, rebuilding or replacement of such property within such time shall immediately be applied to the prepayment of the Loans and the reduction of the Commitments as provided in Section 6.5(b)." (h) Section 10.2(i) of the Credit Agreement is hereby amended by amending such section in its entirety to read as follows: "(i) (A) the Senior Subordinated Debt, and (B) other Indebtedness in an amount and having terms approved by the Required Lenders which is subordinated on terms approved by the Required Lenders in each case in their sole discretion; and". 5 (i) Section 10 of the Credit Agreement is hereby amended by adding at the end thereof the following new Section 10.21: "10.21 Certain Fees. Pay any portion of the fee payable pursuant ------------ to the "Fee Letter", as defined in the Securities Purchase Agreement, unless, at the time of such payment (and after giving effect thereto), the Borrower would not be required pursuant to Section 2.05(c)(ii) of the Securities Purchase Agreement to pay interest on the Senior Subordinated Increasing Rate Notes in "PIK Notes", as defined in the Securities Purchase Agreement; provided, however, that if payment of -------- such fee on the scheduled payment date therefor under such Fee Letter was prohibited pursuant to this Section 10.21, and if on any subsequent Cash Interest Payment Date, as defined in the Securities Purchase Agreement, the Borrower would not be so required pursuant to Section 2.05(c)(ii) of the Securities Purchase Agreement to pay interest on the Senior Subordinated Increasing Rate Notes in such PIK Notes, then such fee (together with interest thereon pursuant to such Fee Letter) may be paid on such subsequent Cash Interest Payment Date." (j) Section 11 of the Credit Agreement is hereby amended by (i) adding at the end of subsection (l) thereof the word "or", and (ii) adding immediately following subsection (l) thereof the following new subsection (m): "(m) Any "Change of Control", as defined in the Securities Purchase Agreement, shall have occurred;". (k) The Credit Agreement is hereby amended by (i) deleting Schedules 1.0 and 2.2 to the Credit Agreement and substituting in lieu thereof Schedules 1.0 and 2.2 to this Amendment, and (ii) supplementing Schedules 7.2, 7.6, 7.15, 7.16, 7.18, 7.19, 7.22, 10.2(b), 10.3 and 10.4 by adding to such Schedules the material set forth on Schedules 7.2, 7.6, 7.15, 7.16, 7.18, 7.19, 7.22, 10.2(b), 10.3 and 10.4 to this Amendment. 3. Waiver. Each of the Administrative Agent and the Lenders hereby waives, ------ solely for the purposes of making Supplemental Term Loans on the date hereof for the financing the SuperGraphics Acquisition during the 1998 Fiscal Year, any failure of the capital expenditures made by the Borrower during the fiscal year of the Borrower ended August 31, 1998 to be less than or equal to the amount set forth for such fiscal year in Section 10.9 of the Credit Agreement; provided -------- that this waiver is granted on the condition that the actual amount of such - ---- capital expenditures for such fiscal year do not exceed $3,400,000. 6 4. Effectiveness. The effectiveness of this Amendment and Waiver, and the obligation of the Lenders to make their Supplemental Term Loans, is subject to the satisfaction of the following conditions precedent (the date of such satisfaction being herein referred to as the "Supplemental Closing Date"): ------------------------- (a) Amendment Documents. The Administrative Agent shall have received: ------------------- (i) this Amendment, executed and delivered by a duly authorized officer of the Borrower and each Subsidiary of the Borrower party to the Subsidiaries Guarantee, with a counterpart for each Lender, (ii) for the account of each Lender having a Term Loan Commitment to be increased hereunder, a Supplemental Term Note Endorsement of the Borrower conforming to the requirements hereof and executed by a duly authorized officer of the Borrower, (iii) a supplement to the Borrower Pledge Agreement, substantially in the form of Exhibit B to this Amendment (the "Pledge ------ Agreement Supplement"), executed and delivered by a duly authorized --------------------- officer of the Borrower, with a counterpart or a conformed copy for each Lender, (iv) a Pledge Agreement, substantially in the form of Exhibit G to this Amendment (the "SuperGraphics Pledge Agreement") executed and delivered by a duly authorized officer of SuperGraphics, with a counterpart or conformed copy for each Lender, (v) a Supplement to the Subsidiaries Guarantee, substantially in the form of Exhibit C to this Amendment, executed and delivered by a duly authorized officer of SuperGraphics, with a counterpart or a conformed copy for each Lender, and (vi) a Supplement to the Security Agreement, substantially in the form of Exhibit D to this Amendment, executed and delivered by a duly authorized officer of SuperGraphics, with a counterpart or a conformed copy for each Lender. Collectively, the documents referenced in clauses (i) through (vi) of this Section 4(a) are referred to herein as the "Amendment Documents". (b) Related Agreements. The Administrative Agent shall have received, ------------------ with a copy for each Lender, true and correct copies, certified as to authenticity by the Borrower, of each SuperGraphics Acquisition Document, each Senior Subordinated Obligation Document and such other documents or instruments as may be reasonably requested by the Administrative Agent, including, without limitation, a copy of any debt instrument, security agreement or other material contract to which SuperGraphics may be a party. Each of the parties to the SuperGraphics Acquisition Documents (other 7 than the Loan Parties) shall have consented to the grant of a security interest in, and the assignment of, Loan Parties' interests in the SuperGraphics Acquisition Documents pursuant to the Security Agreements, in a manner in form and substance satisfactory to the Administrative Agent. (c) Concurrent Transaction. (i) The Senior Subordinated Increasing ----------------------- Rate Notes shall have been issued and sold in accordance with the requirements of the Securities Purchase Agreement and the other Senior Subordinated Debt Documents (without any amendment, waiver of other modification thereof without the consent of the Required Lenders), and the Borrower shall have received not less than $10,000,000 aggregate cash proceeds from such issuance and sale of the Senior Subordinated Increasing Rate Notes. (ii) The SuperGraphics Acquisition shall have been or, concurrently with the making of the Supplemental Term Loans shall be, consummated in accordance with the terms of the SuperGraphics Acquisition Documents, for such total consideration (including fees) as set forth in the SuperGraphics Acquisition Documents, in each case without any amendment, modification or waiver thereof except with the consent of the Required Lenders, and the Administrative Agent shall have received evidence satisfactory to it to that effect. The Administrative Agent shall have received evidence satisfactory to it that the aggregate amount of fees and expenses incurred by the Borrower and the other Loan Parties in connection with the SuperGraphics Acquisition shall not exceed $2,000,000. (d) Borrowing Certificates. The Administrative Agent shall have ----------------------- received, with a counterpart for each Lender, (i) a certificate, signed by a responsible officer of each of the Borrower and SuperGraphics substantially in the form of Exhibit E to this Amendment, with appropriate insertions and attachments, satisfactory in form and substance to the Administrative Agent, and (ii) a certificate, signed by a responsible officer of each of the Borrower and SuperGraphics, certifying to the Administrative Agent and the Lenders that each of the representations and warranties contained in the Senior Subordinated Obligation Documents are true and correct in all material respects as of such date. (e) Proceedings of the Borrower. The Administrative Agent shall have --------------------------- received, with a counterpart for each Lender, a copy of the resolutions, in form and substance satisfactory to the Administrative Agent, of the Borrower authorizing (i) the execution, delivery and performance of this Amendment and the other Amendment Documents to which it is a party, (ii) the borrowings contemplated hereunder and thereunder, and under the Loan Documents as amended thereby, and (iii) the granting by it of the Liens created pursuant to the Pledge Agreement Supplement, certified by the Secretary or an Assistant Secretary of the Borrower as of the Supplemental Closing Date, which certificate shall be in form and substance satisfactory to the Administrative Agent and shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded. Such resolutions may be included as attachments to the 8 Borrowing Certificate delivered by the Borrower pursuant to Section 4(d) of this Amendment. (f) Borrower Incumbency Certificate. The Administrative Agent shall -------------------------------- have received, with a counterpart for each Lender, a certificate of the Borrower, dated the Supplemental Closing Date, as to the incumbency and signature of the officers of the Borrower executing this Amendment or the other Amendment Documents to which the Borrower is a party, satisfactory in form and substance to the Administrative Agent, executed by the President or any Vice President and the Secretary or any Assistant Secretary of the Borrower. Such incumbency certificate may be included in the Borrowing Certificate delivered by the Borrower pursuant to Section 4(d) of this Amendment. (g) Proceedings of SuperGraphics. The Administrative Agent shall have ---------------------------- received, with a counterpart for each Lender, a copy of the resolutions, in form and substance satisfactory to the Administrative Agent, of the Board of Directors of SuperGraphics authorizing (i) the execution, delivery and performance of the Amendment Documents to which it is or will become a party pursuant to this Amendment, and (ii) the granting by it of the Liens created pursuant to the Subsidiaries Security Agreement, certified by the Secretary or an Assistant Secretary of SuperGraphics as of the Supplemental Closing Date, which certificate shall be in form and substance satisfactory to the Administrative Agent and shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded. Such resolutions may be included as attachments to the Borrowing Certificate delivered by SuperGraphics pursuant to Section 4(d) of this Amendment. (h) SuperGraphics Incumbency Certificate. The Administrative Agent -------------------------------------- shall have received, with a counterpart for each Lender, a certificate of SuperGraphics, dated the Supplemental Closing Date, as to the incumbency and signature of the officers of SuperGraphics executing the Amendment Documents to which it is a party, satisfactory in form and substance to the Administrative Agent, executed by the President or any Vice President and the Secretary or any Assistant Secretary of SuperGraphics. Such incumbency certificate may be included in the Borrowing Certificate delivered by SuperGraphics pursuant to Section 4(d) of this Amendment. (i) Governing Documents of SuperGraphics. The Administrative Agent ------------------------------------- shall have received, with a counterpart for each Lender, true and complete copies of the certificate of incorporation, by-laws or other constituent documents of SuperGraphics, certified as of the Supplemental Closing Date as complete and correct copies thereof by the Secretary or an Assistant Secretary of SuperGraphics. (j) Good Standing Certificates. The Administrative Agent shall have --------------------------- received, with a copy for each Lender, certificates dated as of a recent date from the Secretary of State or other appropriate authority, evidencing the good standing of SuperGraphics (i) in the jurisdiction of its organization and (ii) in each other 9 jurisdiction where its ownership, lease or operation of property or the conduct of its business requires it to qualify as a foreign Person except, as to this subclause (ii), where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect. (k) Consents, Licenses and Approvals. The Administrative Agent shall --------------------------------- have received, with a counterpart for each Lender, a certificate of a Responsible Officer of SuperGraphics (i) attaching copies of any consents, authorizations and filings referred to in Section 7.4 of the Credit Agreement (as amended hereby) relative to SuperGraphics, and (ii) stating that such consents, licenses and filings are in full force and effect, and each such consent, authorization and filing shall be in form and substance satisfactory to the Administrative Agent. (l) Fees. The Administrative Agent shall have received the fees to be ---- received on the Supplemental Closing Date referred to in the Second Supplemental Fee Letter. (m) Legal Opinions. The Administrative Agent shall have received, with -------------- a counterpart for each Lender, the following executed legal opinions: (i) the executed legal opinion of Buchanan Ingersoll Professional Corporation, counsel to the Borrower and the other Loan Parties, substantially in the form of Exhibit F-1 to this Amendment; (ii) the executed legal opinion of Kelley, Drye & Warren, counsel to the Borrower and the Loan Parties in the State of California, substantially in the form of Exhibit F-2 to this Amendment. Each such legal opinion shall cover such other matters incident to the transactions contemplated by this Amendment as the Administrative Agent may reasonably require. (n) Pledged Stock. The Administrative Agent shall have received all ------------- certificates, if any, representing the Capital Stock pledged pursuant to Pledge Agreement Supplement, together with an undated stock power for each such certificate executed in blank by a duly authorized officer of the Borrower. SuperGraphics shall have delivered an acknowledgment of and consent to such Pledge Agreement Supplement, executed by a duly authorized officer of SuperGraphics, in substantially the form appended to such Pledge Agreement Supplement. (o) Actions to Perfect Liens. The Administrative Agent shall have ------------------------- received evidence in form and substance satisfactory to it that all filings, recordings, registrations and other actions, including, without limitation, the filing of duly executed financing statements on form UCC-1, necessary or, in the opinion of the Administrative Agent, desirable to perfect the Liens created by the Security Documents shall have been completed. 10 (p) Lien Searches. The Administrative Agent shall have received the ------------- results of a recent search by a Person satisfactory to the Administrative Agent, of the Uniform Commercial Code, judgment and tax lien filings which may have been filed with respect to personal property of SuperGraphics, and the results of such search shall be satisfactory to the Administrative Agent. (q) Insurance. The Administrative Agent shall have received evidence --------- in form and substance satisfactory to it that all of the requirements of Section 9.5 of the Credit Agreement shall have been satisfied with respect to SuperGraphics. (r) Representations and Warranties. Each of the representations and ------------------------------- warranties made by the Borrower and the other Loan Parties in or pursuant to the Loan Documents shall be true and correct in all material respects on and as of the Supplemental Closing Date as if made on and as of Supplemental Closing Date (and after giving effect to the amendments provided for in this Amendment) (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date). (s) No Default. No Default or Event of Default shall have occurred and ---------- be continuing on the Supplemental Closing Date or after giving effect to the amendments provided for in this Amendment or the Loans to be made on such date. (t) Additional Matters. All corporate and other proceedings, and all ------------------ documents, instruments and other legal matters in connection with the transactions contemplated by this Agreement, the other Loan Documents and the Acquisition Documents shall be satisfactory in form and substance to the Administrative Agent, and the Administrative Agent shall have received such other documents and legal opinions in respect of any aspect or consequence of the transactions contemplated hereby or thereby as it shall reasonably request. 5. Representations and Warranties. To induce the Administrative Agent and ------------------------------ the Lenders to enter into this Amendment, the Borrower hereby represents and warrants to the Administrative Agent and the Lenders that, after giving effect to the amendments provided for herein and the additional Loans contemplated hereby, the representations and warranties contained in the Credit Agreement and the other Loan Documents will be true and correct in all material respects as if made on and as of the date hereof and that no Default or Event of Default will have occurred and be continuing (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date). 6. No Other Amendments. Except as expressly amended hereby, the Credit -------------------- Agreement, the Notes and the other Loan Documents shall remain in full force and effect in accordance with their respective terms, without any waiver, amendment or modification of any provision thereof. 11 7. Counterparts. This Amendment may be executed by one or more of the ------------ parties hereto on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 8. Expenses. The Borrower agrees to pay and reimburse the Administrative -------- Agent for all of the out-of-pocket costs and expenses incurred by the Administrative Agent in connection with the preparation, execution and delivery of this Amendment, including, without limitation, the reasonable fees and disbursements of Cadwalader, Wickersham & Taft, counsel to the Administrative Agent. 9. Applicable Law. THIS AMENDMENT AND WAIVER SHALL BE GOVERNED BY, AND --------------- CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. [SIGNATURE PAGES FOLLOW] 12 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the day and year first above written. UNIDIGITAL INC. By:/s/ William E. Dye ----------------------------------------- Name: William E. Dye Title: Chief Executive Officer CANADIAN IMPERIAL BANK OF COMMERCE as Administrative Agent and a Lender By:/s/ Stephanie E. Devane ----------------------------------------- Name: Stephanie E. Devane Title: Executive Director CIBC Oppenheimer Corp., as agent MARINE MIDLAND BANK By:/s/ Martin F. Brown ----------------------------------------- Name: Martin F. Brown Title: Authorized Signatory By: ----------------------------------------- Name: Title: BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC. By: ----------------------------------------- Name: Title: By: ----------------------------------------- Name: Title: MERRILL LYNCH BUSINESS FINANCIAL SERVICES, INC. By:/s/ Ted G. Kopczynski ----------------------------------------- Name: Ted G. Kopczynski Title: Vice President By:/s/ Daniel J. McHugh ----------------------------------------- Name: Daniel J. McHugh Title: Vice President The undersigned guarantors hereby consent and agree to the foregoing Amendment: UNIDIGITAL ELEMENTS (NY), INC. By:/s/ William E. Dye ----------------------------------------- Name: William E. Dye Title: Chief Executive Officer UNIDIGITAL ELEMENTS (SF), INC. By:/s/ William E. Dye ----------------------------------------- Name: William E. Dye Title: Chief Executive Officer UNISON (NY), INC. By:/s/ William E. Dye ----------------------------------------- Name: William E. Dye Title: Chief Executive Officer UNISON (MA), INC. By:/s/ William E. Dye ----------------------------------------- Name: William E. Dye Title: Chief Executive Officer MEGA ART CORP. By:/s/ William E. Dye ----------------------------------------- Name: William E. Dye Title: Chief Executive Officer EX-10.3 7 SECURITIES PURCHASE AGREEMENT ================================================================================ SECURITIES PURCHASE AGREEMENT, dated as of November 25, 1998, among UNIDIGITAL INC., THE GUARANTORS PARTY HERETO and THE PURCHASER PARTY HERETO. ================================================================================ SECURITIES PURCHASE AGREEMENT TABLE OF CONTENTS Page ---- ARTICLE 1. DEFINITIONS Section 1.01. Definitions.....................................................1 Section 1.02. Accounting Terms and Determinations............................14 ARTICLE 2. PURCHASE AND SALE OF SECURITIES; TERMS OF SECURITIES Section 2.01. Commitment to Purchase.........................................14 Section 2.02. Takedown Procedures............................................15 Section 2.03. Fees...........................................................15 Section 2.04. Mandatory Termination of Commitment............................15 Section 2.05. Interest.......................................................16 Section 2.06. Maturity of Notes; Prepayment of Notes; Change of Control......17 Section 2.07. Taxes..........................................................19 ARTICLE 3. REPRESENTATIONS AND WARRANTIES Section 3.01. Corporate Existence and Power..................................21 Section 3.02. Authorization, Execution and Enforceability....................21 Section 3.03. Governmental Authorization.....................................22 Section 3.04. Contravention..................................................22 Section 3.05. Financial Information..........................................23 Section 3.06. Litigation.....................................................23 Section 3.07. Environmental Matters..........................................24 Section 3.08. Taxes..........................................................25 Section 3.09. Subsidiaries...................................................25 Section 3.10. Governmental Regulations.......................................25 Section 3.11. Full Disclosure................................................25 Section 3.12. Capitalization.................................................25 Section 3.13. Solicitation...................................................26 Section 3.14. Non-fungibility................................................26 Section 3.15. Permits........................................................26 Section 3.16. Representations in Other Financing Documents and in Acquisition Agreement and Related Documents..............................26 Section 3.17. No Undisclosed Liabilities.....................................27 Section 3.18. ERISA Matters..................................................27 ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER Section 4.01. Purchase for Investment; Authority; Binding Agreement..........27 ARTICLE 5. CONDITIONS PRECEDENT TO PURCHASE Section 5.01. Conditions to Purchaser's Obligation to Purchase the Notes.....28 ARTICLE 6. COVENANTS Section 6.01. Information....................................................31 Section 6.02. Payment of Obligations.........................................32 Section 6.03. Insurance......................................................32 Section 6.04. Conduct of Business and Maintenance of Existence...............32 Section 6.05. Compliance with Laws...........................................33 Section 6.06. Inspection of Property, Books and Records......................33 Section 6.07. Investment Company Act.........................................34 Section 6.08. Limitation on Debt.............................................34 Section 6.10. Investments....................................................36 Section 6.11. Negative Pledge................................................36 Section 6.12. Transactions with Affiliates...................................37 Section 6.13. Use of Proceeds................................................37 Section 6.14. Restrictions on Certain Amendments.............................37 Section 6.15. Permanent Financing............................................37 Section 6.16. Additional Subsidiary Guarantees...............................38 Section 6.17. Limitation on Sales of Assets and Subsidiary Stock.............38 Section 6.18. Sale and Leaseback Transactions................................39 Section 6.19. Business Activities............................................39 -ii- ARTICLE 7. EVENTS OF DEFAULT Section 7.01. Events of Default Defined; Acceleration of Maturity; Waiver of Default.......................................................39 ARTICLE 8. LIMITATION ON TRANSFERS Section 8.01. Restrictions on Transfer.......................................41 Section 8.02. Restrictive Legends............................................41 Section 8.03. Notice of Proposed Transfers...................................42 ARTICLE 9. SUBORDINATION Section 9.01. Notes Subordinated to Senior Debt..............................43 Section 9.02. No Payment on Notes in Certain Circumstances...................43 Section 9.03. Notes Subordinated to Prior Payment of all Senior Debt on Dissolution, Liquidation or Reorganization....................44 Section 9.04. Holders to be Subrogated to Rights of Holders of Senior Debt...45 Section 9.05. Obligations of the Company Unconditional.......................46 Section 9.06. Subordination Rights not Impaired by Acts or Omissions of the Company or Holders of Senior Debt.............................46 Section 9.07. Not to Prevent Events of Default...............................46 Section 9.08. Miscellaneous..................................................46 ARTICLE 10. GUARANTEES Section 10.01. Guarantees....................................................47 Section 10.02. Subordination of Guarantees...................................49 Section 10.03. Limitation on Guarantor Liability.............................49 Section 10.04. Consolidation or Merger of Guarantors.........................49 ARTICLE 11. MISCELLANEOUS Section 11.01 Notices........................................................49 Section 11.02. No Waivers; Amendments........................................50 Section 11.03. Indemnification...............................................50 Section 11.04. Expenses......................................................52 Section 11.05. Payment.......................................................53 Section 11.06. Confidentiality...............................................53 -iii- Section 11.07. Successors and Assigns........................................53 Section 11.08. Brokers.......................................................53 Section 11.09. New York Law; Submission to Jurisdiction; Waiver of Jury Trial........................................................53 Section 11.10. Severability..................................................54 Section 11.11. Counterparts..................................................54 Section 11.12. Survival......................................................54 SCHEDULES --------- Schedule 3.05(c) Material Adverse Change Schedule 3.06 Litigation Schedule 3.07 Environmental Matters Schedule 3.09 Subsidiaries Schedule 3.12 Capitalization of the Company Schedule 6.08(a) Ongoing Debt Schedule 6.08(i) Long-Term Debt of Foreign Subsidiaries Schedule 6.08(j) Short-Term Debt of Foreign Subsidiaries Schedule 6.10 Investments Schedule 6.11 Liens EXHIBITS -------- Exhibit A Form of Note Exhibit B Form of Warrant Agreement Exhibit C Form of Registration Rights Agreement -iv- SECURITIES PURCHASE AGREEMENT AGREEMENT dated as of November 25, 1998 among Unidigital Inc., the Guarantors listed on the signature pages hereto and the Purchaser. The parties hereto agree as follows: ARTICLE 1. DEFINITIONS Section 1.01. DEFINITIONS. The following terms, as used herein, have the following meanings: "Acquired Business" means, with respect to any Permitted Acquisition, the Person, the common stock or other ownership interest which is acquired in such Permitted Acquisition, or the business unit, division or subdivision the assets of which are acquired in such Permitted Acquisition, as the case may be. "Acquisition Agreement" means the Agreement for Purchase and Sale of Stock of SuperGraphics Holding Company, Inc., dated as of November 16, 1998, among SuperGraphics, SuperGraphics Corporation, the stockholders of SuperGraphics identified as the sellers therein and the Company, as amended, supplemented or otherwise modified from time to time in accordance with the terms hereof. "Adjusted EBITDA" means, for any period, the Consolidated EBITDA of the Company for such period plus, for each Permitted Acquisition consummated (or proposed to be consummated during such period), the Consolidated EBITDA of the Acquired Business in respect of such Permitted Acquisition for such period, calculated on a pro forma basis without duplication, as if such Permitted Acquisition had occurred on the first day of such period (and for purposes of this definition, "Consolidated EBITDA of the Acquired Business" shall mean the sum of (a) Consolidated Net Income for such period (substituting such Acquired Business for the Company), (b) the sum of provisions for such period for income taxes, interest expense, and depreciation and amortization expense used in determining such Consolidated Net Income, (c) other amounts deducted in such period in respect of non-cash expenses in accordance with U.S. GAAP, (d) non-capitalized transaction costs deducted in such period in connection with such Permitted Acquisition, (e) the amount of any aggregate net loss (or minus the amount of any gain) during such periods arising from the sale, exchange or other disposition of capital assets, (f) non-cash expenses deducted in such period in connection with any earn-out agreements, stock appreciation rights, "phantom" stock plans, employment agreements, non-competition agreements, subscription and stockholders agreements and other incentive and bonus plans and similar arrangements made in connection with acquisitions of Persons or businesses by such Acquired Business or the retention of executives, officers or employees by such Acquired Business and (g) other non-recurring, non-operating expenses as shall have been approved by the Majority Holders as exclusions from the determination of Adjusted EBITDA; provided that Adjusted EBITDA shall in any event exclude the amount of any - -------- non-cash income recognized during any period for which Consolidated EBITDA is determined; provided further that for purposes of computing Consolidated EBITDA -------- ------- of the Acquired Business, there shall be added thereto the amount by which the compensation (whether in the form of salary, bonus, dividend or other distribution) paid to the principal owner(s) and/or manager(s) of the Acquired Business prior to such Permitted Acquisition will be reduced, following such Permitted Acquisition, as set forth in a certificate of the Company reasonably acceptable to the Majority Holders. "Affiliate" means, with respect to any Person, any other Person that, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" of a Person (including, with its correlative meanings, "controlled by" and "under common control with") means the power, directly or indirectly, either to (a) vote 10% or more of the securities having ordinary voting power for the election of directors of such Person or (b) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "Agreement" means this Agreement, as amended from time to time in accordance with its terms. "Annual Budget" has the meaning set forth in Section 6.01(d). "Applicable Premium" means, with respect to the principal amount of any Note (other than any PIK Note) on any date of prepayment with respect thereto pursuant to Section 2.06(b), an amount equal to the applicable percentage of such principal amount so prepaid, as in effect for the applicable period set forth below opposite such applicable percentage: Applicable Percentage Applicable Period ---------- ----------------- 5.00% At all times on or prior to November 30, 1999 4.00% At all times on or prior to November 30, 2000 but after November 30, 1999 3.00% At all times on or prior to November 30, 2001 but after November 30, 2000 2.00% At all times on or prior to November 30, 2002 but after November 30, 2001 1.00% At all times on or prior to November 30, 2003 but after November 30, 2002 0.00% At all times after November 30, 2003. -2- "Base Financial Statements" has the meaning set forth in Section 3.05(a). "Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to close. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a Financing Lease. "Capital Stock" means (a) in the case of a corporation, corporate stock, (b) in the case of any association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) in the nature of corporate stock, (c) in the case of a partnership or limited liability company, any and all partnership or membership interests (whether general or limited) and (d) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of the issuing Person. "Cash Equivalents" means (a) securities with maturities of six months or less from the date of acquisition issued or fully guaranteed or insured by the United States Government or any agency thereof, (b) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition and overnight bank deposits of any commercial bank having capital and surplus in excess of $500,000,000, (c) repurchase obligations of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than seven days with respect to securities issued or fully guaranteed or insured by the United States Government, (d) commercial paper of a domestic issuer rated at least A-1 or the equivalent thereof by Standard and Poor's Ratings Group ("S&P") or P-1 or the equivalent thereof by Moody's Investors Service, Inc. ("Moody's") and in either case maturing within six months after the day of acquisition, (e) securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody's, (f) securities with maturities of six months or less from the date of acquisition backed by standby letters of credit issued by any commercial bank satisfying the requirements of clause (b) of this definition or (g) shares of money market mutual or similar funds registered pursuant to the Investment Company Act of 1940, as amended, which invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition. "Change of Control" means the occurrence of any of the following: (a) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act), (b) the adoption of a plan relating to the liquidation or dissolution of the Company, (c) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above) becomes the -3- "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of more than 25% of the Voting Stock of the Company (measured by voting power rather than number of shares), (d) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors or (e) the failure of William E. Dye to own, at any time prior to the date that is 180 days following the Issuance Date, free and clear of all Liens or other encumbrances, at least 991,721 shares of Common Stock of the Company. "Code" means the Internal Revenue Code of 1986, as amended, and any regulation promulgated thereunder. "Commission" means the Securities and Exchange Commission. "Commitment" means the obligation of the Purchaser to purchase Notes hereunder in an aggregate principal amount of $10,000,000. "Common Stock" means the authorized common stock, par value $.01 per share, of the Company. "Company" means Unidigital Inc., a Delaware corporation. "Competitor" means another Person having as its principal business the Permitted Business as engaged in by the Company and its Subsidiaries as of the date hereof. "Consolidated EBITDA" means, for any period, the sum, for the Company and its Subsidiaries (determined on a consolidated basis without duplication in accordance with U.S. GAAP), for such period of (a) Consolidated Net Income for such period, (b) the sum of provisions for such period for income taxes, interest expense, and depreciation and amortization expense used in determining such Consolidated Net Income, (c) amounts deducted in such period in respect of non-cash expenses in accordance with U.S. GAAP, (d) non-capitalized transaction costs deducted in such period in connection with the Kwik Acquisition, the Mega Art Acquisition, the Hy Zazula Acquisition and the SuperGraphics Acquisition and any Permitted Acquisitions and the financings relating thereto, (e) the amount of any aggregate net loss (or minus the amount of any gain) during such period arising from the sale, exchange or other disposition of capital assets, and (f) non-cash expenses deducted in such period in connection with any earn-out agreements, stock appreciation rights, "phantom" stock plans, employment agreements, non-competition agreements, subscription and stockholders agreements and other incentive and bonus plans and similar arrangements made in connection with acquisitions of Persons or businesses by the Company or its Subsidiaries or the retention of executives, officers or employees by the Company or its Subsidiaries, including (but without duplication) any Person that has become a Subsidiary during such specified period, on a pro forma basis as if such --- ----- acquisition had occurred on the first day of such period plus other non-recurring, non-operating expenses as shall have been approved by the Majority Holders as exclusions from the determination of Consolidated EBITDA; provided, that Consolidated EBITDA shall in any event - -------- -4- exclude, from and after the Issuance Date, (x) the effect of any write-up of the assets of Kwik, Mega Art, Hy Zazula, SuperGraphics or SuperGraphics Corporation or any other assets acquired in any Permitted Acquisitions and (y) the amount of any non-cash income recognized during any period for which Consolidated EBITDA is determined. "Consolidated Fixed Charges" means, for any period, the sum of (a) the amounts deducted for the cash portion of Consolidated Interest Expense in determining Consolidated Net Income for such period, (b) the amount of scheduled payments of principal of Debt during such period, (c) all amounts of capital expenditures made during such period (other than capital expenditures in respect of Financing Leases to the extent the same are included in clause (a) or (b) of this definition), and (d) the amount of cash income taxes paid during such period. "Consolidated Funded Debt" means, as of any date, the sum of all aggregate indebtedness of the Company and its Subsidiaries of the types set forth in clauses (a), (b), (c), (d), (e) and (g) of Debt, determined on a consolidated basis in accordance with U.S. GAAP, including, in any event, the Term Loans, the Acquisition Loans, Revolving Credit Loans (as each such term is defined in the Senior Credit Agreement) and any purchase money Debt. "Consolidated Interest Expense" means, for any period, the amount which, in conformity with U.S. GAAP, would be set forth opposite the caption "interest expense" or any like caption (including, without limitation, imputed interest included in payments under Financing Leases) on a consolidated income statement of the Company and the Subsidiaries for such period excluding the amortization of any original issue discount. "Consolidated Net Income" means, for any period, the consolidated net income (or deficit) of the Company and the Subsidiaries for such period (taken as a cumulative whole), determined in accordance with U.S. GAAP; provided that -------- there shall be excluded (a) the income (or deficit) of any Person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with the Company or any Subsidiary, (b) the income (or deficit) of any Person (other than a Subsidiary) in which the Company or any Subsidiary has an ownership interest, except to the extent that any such income has been actually received by the Company or such Subsidiary in the form of dividends or similar distributions, (c) the undistributed earnings of any Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any Contractual Obligation or any provision of (i) any applicable law or regulation, (ii) any of its Corporate Documents or (iii) any judgment, injunction, order, decree or other instrument binding upon it or any of its assets applicable to such Subsidiary, (d) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of income accrued during such period, (e) any aggregate net gain (but not any aggregate net loss) during such period arising from the sale, exchange or other disposition of capital assets (such term to include all fixed assets, whether tangible or intangible, all inventory sold in conjunction with the disposition of fixed assets and all securities), (f) any write-up of any asset, (g) any net gain from the collection of the proceeds of life insurance policies, (h) any gain arising from the acquisition of any securities, or the extinguishment, under U.S. GAAP, of any Debt, of the Company or any Subsidiary, (i) in the -5- case of a successor to the Company by consolidation or merger or as a transferee of its assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets, and (j) any deferred credit representing the excess of equity in any Subsidiary at the date of acquisition over the cost of the investment in such Subsidiary. "Contingent Warrants" has the meaning provided in the Warrant Agreement. "Continuing Directors" means as of any date of determination, any member of the Board of Directors of the Company who (a) was a member of such Board of Directors on the date of hereof or (b) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "Contractual Obligation" means, with respect to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "Corporate Documents" means, with respect to any Person, its articles or certificate of incorporation and by-laws, its partnership agreement, its certificate of formation and operating agreement, and/or the other organizational or governing documents of such Person. "Debt" of any Person means, with respect to any Person at any date, without duplication, (a) all indebtedness of such Person for borrowed money (whether by loan or the issuance and sale of debt securities) or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices), (b) any other indebtedness of such Person which is evidenced by a note, bond, debenture or similar instrument, (c) all obligations of such Person under Financing Leases, (d) all obligations of such Person in respect of letters of credit, acceptances or similar instruments issued or created for the account of such Person, (e) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof, (f) all other items which, in accordance with U.S. GAAP, would be included as liabilities on the liability side of the balance sheet of such Person as of the date at which Debt is to be determined and (g) all Guarantee Obligations of such Person in respect of any of the foregoing. The amount of any Debt outstanding as of any date shall be (a) the accreted value thereof, in the case of any Debt that does not require current payments of interest, and (b) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Debt. "Debt Incurrence" means any incurrence by the Company or any of its Subsidiaries of any Debt, other than Debt permitted under Section 6.08. "Default" means any Event of Default or any event or condition which, with the giving of notice or lapse of time or both, would, unless cured or waived, become an Event of Default. -6- "Designated Senior Debt" means any Senior Debt outstanding under the Senior Credit Facilities or otherwise described in clause (a) of the definition of Senior Debt. "dollars" or "$" mean lawful currency of the United States of America. "Domestic Person" means any individual resident of the United States or any other Person organized under the laws of a jurisdiction in the United States of America, any State thereof or the District of Columbia. "Domestic Subsidiary" means any Subsidiary of the Company organized under or incorporated pursuant to the laws of any State or Commonwealth of the United States of America or the District of Columbia. "Environmental Laws" means any and all statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, codes, injunctions, permits, governmental grants, licenses and governmental restrictions relating to the effect of the environment or Hazardous Materials on human health, the environment or to emissions, discharges or releases of pollutants, contaminants, Hazardous Materials or wastes into the environment, including ambient air, surface water, ground water or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, Hazardous Materials or wastes or the clean-up or other remediation thereof. "Equity Issuance" means the issuance of any equity securities by the Company (including without limitation any equity securities issued pursuant to the exercise of stock options or warrants), but excluding (a) any subscription agreement incentive plan or similar arrangement with any officer, employee or director of the Company, or (b) the issuance of any Capital Stock of the Company to any officer, director or employee of the Company. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any regulation promulgated thereunder. "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with the Company or any Subsidiary of the Company is treated as a single employer under Title IV of ERISA, or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "Event of Default" has the meaning set forth in Section 7.01. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Expiration Date" has the meaning set forth in Section 2.01(b). "Fee Letter" means the confidential fee letter, dated November 25, 1998, between the Company and the Purchaser. -7- "Financing Documents" means this Agreement, the Notes, the Guarantees, the Registration Rights Agreement, the Warrant Agreement and the Warrants. "Financing Lease" means any lease of property, real or personal, the obligations of the lessee in respect of which are required in accordance with U.S. GAAP to be capitalized on a balance sheet of the lessee. "Fixed Charge Coverage Ratio" means, at any time, the ratio of Consolidated EBITDA for the immediately preceding period of four consecutive fiscal quarters to Consolidated Fixed Charges for such period. "Guarantee" means the guarantee by the Guarantors of the Notes pursuant to Article 10. "Guarantee Obligation" means as to any Person (the "guaranteeing person"), any obligation of (a) the guaranteeing person or (b) another Person (including, without limitation, any bank under any letter of credit) to induce the creation of which the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Debt, leases, dividends or other obligations (the "primary obligations") of any other third Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (A) for the purchase or payment of any such primary obligation or (B) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Guarantee Obligation shall -------- ------- not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined in good faith by the Person to whom such Guarantee Obligation is payable. "Guarantors" means the parties listed as such on the signature pages to this Agreement and any other Subsidiary of the Company that becomes a party to this Agreement in accordance with the provisions of Section 6.16, and their respective successors and assigns. -8- "Hazardous Materials" means (a) asbestos; (b) polychlorinated biphenyls; (c) petroleum, its hazardous derivatives, by-products and other hydrocarbons; and (d) any other toxic, radioactive, caustic or otherwise hazardous substance regulated under Environmental Laws. "Hazardous Materials Contamination" means contamination of the buildings, facilities, soil or groundwater on or of the property of the Company by Hazardous Materials, or any derivatives thereof, or on or of any other property as a result of Hazardous Materials, or any derivatives thereof, generated on, emanating from or disposed of in connection with the property of the Company. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (a) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (b) other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates. "Holder" means any holder of any Note. "Hy Zazula" means Hy Zazula Associates, Inc., a New York corporation. "Hy Zazula Acquisition" means the acquisition by the Company of Hy Zazula through a merger of Hy Zazula with and into the Company's wholly-owned Subsidiary, Unison (NY), Inc., consummated on October 30,1998. "Intellectual Property Rights" means any patent, trade mark, service mark, registered design, trade name or copyright required to carry on the business of the Company and such other business as may be permitted by the terms of this Agreement and which is carried on at the relevant time. "Interest Coverage Ratio" means, for the Company and its Subsidiaries, the ratio of Consolidated EBITDA for the immediately preceding period of four consecutive fiscal quarters to Consolidated Interest Expense for such period. "Interest Expense" means, for any applicable period, the aggregate consolidated interest expense of the Company and its Subsidiaries for such applicable period, as determined in accordance with U.S. GAAP. "Interest Payment Date" means each February 28 (or February 29, in the case of a leap year), May 31, August 31 and November 30 (or, if any such date is not a Business Day, the next succeeding Business Day). "Investment" means any investment in any Person, whether by means of share purchase, capital contribution, loan, time deposit, Guarantee Obligation or otherwise. -9- "Issuance Date" means the date the Notes are initially issued by the Company and purchased by the Purchaser. "Kwik" means Kwik International Color, Ltd., a New York corporation. "Kwik Acquisition" means the acquisition by the Company of substantially all of the assets of Kwik consummated on March 25, 1998. "Leverage Ratio" means, at any time, the ratio of Consolidated Funded Debt to Adjusted EBITDA for the immediately preceding period of four consecutive fiscal quarters; provided that, in calculating the Leverage Ratio for any period -------- during which a Permitted Acquisition was consummated, Adjusted EBITDA shall be substituted for Consolidated EBITDA. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Majority Holders" means (a) at any time prior to the issuance of the Notes, the Purchaser and (b) at any time thereafter, the holders of voting rights with respect to waivers, amendments and other actions permitted or required to be taken by Holders under the terms of the Notes constituting a majority of such voting rights attributable to the aggregate outstanding amount of Notes at such time. "Material Adverse Effect" means a material adverse affect on the properties, condition (financial or otherwise), operations, performances, projections, prospects or business of the Company and its Subsidiaries, taken as a whole. "Maturity Date" means March 31, 2004. "Mega Art" means Mega Art Corp., a New York corporation. "Mega Art Acquisition" means the acquisition by the Company of all of the issued and outstanding capital stock of Mega Art consummated on September 2, 1998. "Multiemployer Plan" means any Plan that is a multiemployer plan as defined in Section 3(37) or 4001 (a)(3) of ERISA. "Net Cash Proceeds" means (a) the aggregate cash consideration received by the Company or a Subsidiary in connection with any transaction referred to in Section 2.06(c) less (b) the expenses (including out-of-pocket expenses) ---- incurred by the Company or such Subsidiary in connection with such transaction (including, in the case of any issuance of debt or equity -10- securities, underwriters' commissions and fees) and the amount of any federal and state taxes incurred in connection with such transaction, in each case as certified by the chief financial or accounting officer of the Company (or its chief executive officer if the Company does not have a chief financial or accounting officer at such time) to the Holders at the time of such transaction. "Notes" means the Company's Senior Subordinated Increasing Rate Notes substantially in the form set forth as Exhibit A hereto, and shall include any PIK Notes issued pursuant to Section 2.05(c). "Other Taxes" has the meaning set forth in Section 2.07(a). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any of its functions under ERISA. "Permanent Financing" means any Debt Incurrence or Equity Issuance following the date hereof for the purpose of refinancing the Notes that is approved and consented to by the holders of the Designated Senior Debt in accordance with the Senior Credit Agreement. "Permits" means all domestic and foreign licenses, permits and approvals required for the full operation of the Company and its Subsidiaries, including provincial, state, federal, city and county permits and approvals. "Permitted Acquisition" means an acquisition of (a) 100% of the common stock or other ownership interests of a Domestic Person or (b) a substantial amount of the assets of a Domestic Person, or of a business unit, division or subdivision of a Domestic Person, in each case engaged in or relating to a line of business substantially similar to the Permitted Business; provided that (i) -------- both immediately before and after giving effect to such acquisition no Default shall have occurred and then be continuing and (ii) no later than five Business Days prior to the consummation of such acquisition, the Holders shall have received a certificate of the chief financial or accounting officer of the Company (or its chief executive officer if the Company does not have a chief financial or accounting officer at such time) with detailed calculations establishing to the reasonable satisfaction of the Majority Holders that the foregoing requirement has been satisfied. "Permitted Business" means any business in which the Company and its Subsidiaries are engaged on the Issuance Date or any business reasonably related, incidental or ancillary thereto (including, without limitation, media services). "Permitted Liens" means Liens expressly permitted to exist by the terms of Section 6.11 hereof. "Person" means an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or any agency or political subdivision thereof) or other entity of any kind. -11- "PIK Warrants" has the meaning set forth in Section 2.05(c)(i). "PIK Notes" has the meaning set forth in Section 2.05(c)(i). "Plan" means any employee benefit plan as defined in Section 3(3) of ERISA to which the Company, any Subsidiary or any ERISA Affiliate has, or, within the six years preceding the date of this Agreement, had, any liability or in respect of which the Company or any Subsidiary of the Company or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employee' as defined in Section 3(5) of ERISA. "Pro Forma Financial Statement" has the meaning provided in Section 3.05(b). "Purchaser" means CIBC Wood Gundy Capital Corp. or any of its Affiliates. "Qualified Plan" means a Plan (other than a Multiemployer Plan) which is "a pension plan" (as defined in Section 3(2) of ERISA) intended to be tax-qualified under Section 401 (a) of the Code. "Regulatory Problem" has the meaning set forth in Section 6.21(b). "Regulatory Violation" has the meaning set forth in Section 6.20(d). "Registration Rights Agreement" means the Registration and Equity Rights Agreement, dated as of November 25, 1998, between the Company and the Purchaser, in the form attached as Exhibit C to this Agreement, as amended, supplemented or otherwise modified from time to time. "Restricted Payment" means (a) any dividend or other distribution on any shares of the Capital Stock of the Company (except dividends payable solely in shares of its Capital Stock) or (b) any payment on account of the purchase, redemption, retirement or acquisition of (i) any shares of the Capital Stock of the Company or (ii) any option, warrant or other right to acquire shares of the Capital Stock of the Company. "Rule 144A" has the meaning set forth in Section 8.03(a). "Securities Act" means the Securities Act of 1933, as amended. "Senior Credit Agreement" means the Credit Agreement, dated as of March 24, 1998, among the Company, the lenders from time to time parties thereto, and Canadian Imperial Bank of Commerce, as Administrative Agent, as amended (including any amendment and restatement), modified, renewed, refunded, replaced, increased or refinanced from time to time, whether with the same or different lenders and agents and whether in the same or a different structure. -12- "Senior Credit Facilities" means all Debt and other obligations from time to time owing pursuant to the Senior Credit Agreement and the other "Loan Documents" as defined therein, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended (including any amendment and restatement), modified, renewed, refunded, replaced, increased or refinanced from time to time, provided that the principal amount of all such Debt under all such Senior Credit Facilities does not exceed $75,000,000 at any time outstanding, plus the amount of any additional Debt incurred thereunder pursuant to Section 6.08(f). "Senior Debt" means (a) all Debt outstanding under the Senior Credit Facilities with respect to which a lender under the Senior Credit Facilities or any of its Affiliates is a counterparty, including, without limitation, in each case, principal, premium, interest (including interest accruing subsequent to the filing of, or which would have accrued but for the filing of, a petition for bankruptcy, whether or not such interest is an allowable claim in such bankruptcy proceeding), fees and expenses relating thereto, (b) all Debt incurred by the Company and its Subsidiaries that consists of Capital Lease Obligations, (c) any other Debt permitted to be incurred by the Company pursuant to clauses (a), (c), (e), (f), (g), (h)(x), (h)(y), (k) and (m) of Section 6.08 unless such Debt expressly provides that it is not senior in right of payment to the Notes and (d) all obligations with respect to the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Debt will not include (i) any liability for federal, state, local or other taxes owed or owing by the Company, (ii) any Debt of the Company owing to any of its Subsidiaries or other Affiliates, (iii) any trade payables or (iv) any Debt that is incurred in violation of this Agreement. "Small Concern" has the meaning set forth in Section 3.19. "Subordinated Obligations" has the meaning set forth in Section 9.01. "Subsidiary" means, with respect to any Person, any corporation or other entity of which a majority of the capital stock or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person. "SuperGraphics" means SuperGraphics Holding Company, Inc., a Delaware corporation. "SuperGraphics Corporation" means SuperGraphics Corporation, a California corporation, a wholly-owned Subsidiary of SuperGraphics. "SuperGraphics Acquisition" means the proposed acquisition by the Company of SuperGraphics and SuperGraphics Corporation pursuant to the Acquisition Agreement. "Taxee" has the meaning set forth in Section 2.07(a). -13- "Transfer" means any disposition of Notes that would constitute a sale thereof under the Securities Act. "U.S. GAAP" means generally accepted accounting principles as in effect from time to time in the United States of America. "Voting Stock" means, in respect of any Person, any class or classes of Capital Stock of such Person pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not, at the time, stock of any other class or classes shall have, or might have, voting power by reason of the happening of any contingency). "Warrants" means the warrants to purchase common stock of the Company to be issued pursuant to the Warrant Agreement, including any PIK Warrants or Contingent Warrants. "Warrant Agreement" means the warrant agreement, dated as of November 25, 1998, between the Company and the Purchaser in the form attached as Exhibit B to this Agreement, as amended, supplemented or otherwise modified from time to time. "Warrant Shares" has the meaning set forth in Section 5.01(n). Section 1.02. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with U.S. GAAP applied on a consistent basis. ARTICLE 2. PURCHASE AND SALE OF SECURITIES; TERMS OF SECURITIES Section 2.01. COMMITMENT TO PURCHASE. (a) Subject to the terms and conditions set forth herein and in reliance on the representations and warranties of the Company contained herein and in the other Financing Documents, the Company may at its option issue and sell to the Purchaser on the Issuance Date, and the Purchaser agrees to purchase on the Issuance Date, Notes in an aggregate outstanding principal amount equaling the Purchaser's Commitment. The purchase price for the Notes shall be 100% of the principal amount thereof. The Company and the Purchaser hereby acknowledge and agree that the Notes and the Warrants are part of an investment unit within the meaning of Section 1273(c)(2) of the Code. Any other provision of this Agreement to the contrary notwithstanding, the Company and the Purchaser hereby further acknowledge and agree that the total issue price of the investment unit consisting of the Notes (other than the PIK Notes) and Warrants (other than the PIK Warrants) for all federal, state and local income tax purposes is $1,000 per investment unit comprised of -14- $995 per $1,000 principal amount of each such Note and $5 per each such Warrant. All federal, state and local income tax returns shall be filed by the Company and the Purchaser in a manner consistent in all material respects with the provisions of this clause (a) of Section 2.01. ---------- ------------ (b) The Commitment will terminate (the "Expiration Date") at 5:00 P.M. (New York City time) on December 7, 1998 (if such date occurs prior to the Issuance Date); provided, that if at any time on or after the date hereof an Event of -------- Default shall have occurred and be continuing, the Purchaser may at its option terminate its Commitment by notice to the Company, such termination to be effective upon the giving of such notice; and provided, further that the -------- ------- Commitment shall automatically terminate, without notice to the Company or any other action on the part of the Purchaser, upon the occurrence of any of the events specified in Sections 7.01(e) and 7.01(f) with respect to the Company. (c) The Commitment is not revolving in nature, and principal amounts of Notes prepaid in accordance with Section 2.06 may not be resold hereunder to the Purchaser or any other Person. Section 2.02. TAKEDOWN PROCEDURES. (a) The Company shall give the Purchaser notice not later than 11:00 A.M. (New York City time) at least one (but not more than five) Business Days prior to the proposed purchase and sale of Notes, which notice shall specify $10,000,000 as the principal amount of Notes to be purchased and sold and the proposed Issuance Date (which shall be a Business Day). (b) On the Issuance Date, the Purchaser shall deliver by wire transfer, to the account number of the Company specified by the Company in writing no later than 2:00 P.M. (New York City time) one Business Day prior to the Issuance Date, immediately available funds in an amount equal to the aggregate purchase price of the Notes to be purchased by the Purchaser hereunder on such Issuance Date, less the aggregate amount of fees (if any) payable by the Company to the Purchaser on such date pursuant to Section 2.03 and expenses (if any) payable to the Purchaser on such date pursuant to Section 11.04. (c) On the Issuance Date, against payment as set forth in subsection (b) of this Section 2.02, the Company shall deliver to the Purchaser a single Note representing the aggregate principal amount of Notes to be purchased by the Purchaser registered in the name of the Purchaser, or, if requested by the Purchaser, separate Notes in such other denominations and registered in such name or names as shall be designated by the Purchaser by notice to the Company at least one Business Day prior to the Issuance Date. Section 2.03. FEES. The Company shall pay the Purchaser such fees at such times as is set forth in the Fee Letter. Section 2.04. MANDATORY TERMINATION OF COMMITMENT. Subject to Section 2.01(b), the Commitment shall terminate at 5:00 P.M. (New York City time) on the Expiration Date. -15- Section 2.05. INTEREST. (a) Interest on each Note shall be payable quarterly in arrears, on each Interest Payment Date of each year in which such Note remains outstanding, commencing with the first Interest Payment Date after the date of issuance thereof, on the principal sum of such Note outstanding. Interest on each Note shall be calculated at the rates per annum set forth below, and shall accrue from and including the most recent Interest Payment Date to which interest has been paid on such Note (or if no interest has been paid on such Note, from the date of issuance thereof) to but excluding the date on which payment in full of the principal sum of such Note has been made. (b) The interest rate applicable to each Note shall be a rate per annum equal to the sum of (i) 12.50% plus (ii) an additional percentage amount equal to 0.25% from and including the first day following the first anniversary of the Issuance Date and increasing by 0.25% effective on the first day following the last day of each 90-day period occurring thereafter until the date the principal amount of, all premiums, if any, and all accrued and unpaid interest, if any, on such Note is paid in full. Interest on each Note will be calculated on the basis of a 360-day year and paid for the actual number of days elapsed. (c) Interest on each Note shall be payable in cash, except as follows: (i) Until and including the Interest Payment Date occurring on November 30, 1999 (each Interest Payment Date occurring after such date being a "Cash Interest Payment Date"), interest on each outstanding Note shall be paid, at the sole option of the Holder, (x) in the form of additional Notes, substantially in the form of Exhibit A hereto (any such additional Notes issued pursuant to this clause (c) being "PIK Notes"), in a principal amount equal to the amount of interest due on such outstanding Note, or (y) in the form of Common Stock, which, for purposes hereof, shall be valued at the greater of $5.00 per share or, so long as such stock is publicly traded on a national securities exchange, 80% of the average closing price of such Common Stock for the 10-day period ended as of the Interest Payment Date for such interest. Also at the sole option of the Holder, in lieu of shares of Common Stock pursuant to clause (y) above, such Holder may elect to receive additional Warrants ("PIK Warrants") pursuant to the Warrant Agreement, which PIK Warrants shall be exercisable into the number of shares of Common Stock which would have been received by such Holder pursuant to clause (y) above. Each Holder shall give written notice of its election to receive PIK Notes, PIK Warrants or Common Stock, as the case may be, not more than 5 days prior to the relevant Interest Payment Date. (ii) Beginning with the first Cash Interest Payment Date and for each Interest Payment Date thereafter, interest payable on any such Interest Payment Date shall be paid in PIK Notes if: -16- (x) (1) the Leverage Ratio is greater than or equal to 2.0 to 1 and (2) the Fixed Charge Coverage Ratio (including interest payable on such Interest Payment Date) is less than 1.25 to 1; or (y) (1) the Leverage Ratio is less than 2.0 to 1 and (2) the Fixed Charge Coverage Ratio (including interest payable on such Interest Payment Date) is less than 1.20 to 1. In the event that interest on the Notes is required to be paid in PIK Notes pursuant to this clause (ii), such PIK Notes shall be in a principal amount equal to the amount of interest due on such outstanding Notes. (iii) If, in accordance with clause (ii) above, the Company determines to pay interest in cash on a Cash Interest Payment Date, the Company shall, at least 10 Business Days prior to such Cash Interest Payment Date, deliver to the Administrative Agent (as defined in the Senior Credit Agreement) a Cash Payment Notice (as defined below). If, at least two Business Days prior to such Cash Interest Payment Date, the Administrative Agent (in its sole discretion) notifies the Company in writing that the Administrative Agent opposes the payment of such interest by the Company in cash, then such cash interest shall not be paid in cash but shall instead be paid in the form of PIK Notes as provided in clause (ii) above; provided that, if upon delivery of the audited financial statements (relating to the financial calculations set forth in such Cash Payment Notice) of the Company pursuant to Section 6.01(a), the computation of such financial calculations are shown to be correct, such PIK Notes (together with all accrued and unpaid interest thereon) delivered as a result of the operation of this clause (iii) shall be payable in cash on the next occurring Interest Payment Date. For purposes of this clause, "Cash Payment Notice" means a written notice delivered by the Company to the Administrative Agent at least 10 Business Days prior to any Cash Interest Payment Date and certified by the chief financial or accounting officer of the Company (or its chief executive officer if the Company does not have a chief financial or accounting officer at such time) certifying compliance with the financial calculations set forth in Section 2.05(b)(ii) for the purpose of permitting interest on the Notes to be paid in cash on such Cash Interest Payment Date. Section 2.06. MATURITY OF NOTES; PREPAYMENT OF NOTES; CHANGE OF CONTROL. (a) The Notes shall mature on the Maturity Date. (b) The Company at its option may, upon two Business Days' written notice to the Holders, at any time, prepay all or any part of principal amount of the Notes at a redemption price equal to the sum of (x) 100% of the principal amount of the Notes so prepaid, (y) accrued interest on the principal amount of all such Notes to the date of prepayment and (z) the Applicable Premium then in effect on the principal amount of all such Notes other than PIK Notes. -17- (c) The Company shall (i) within five days of receipt by the Company or any of its Subsidiaries of the Net Cash Proceeds of any Debt Incurrence or any Equity Issuance (that does not result in a Change of Control) and (ii) within thirty days of receipt by the Company or any of its Subsidiaries of the Net Cash Proceeds of any conveyance, sale, lease, assignment, exchange or other disposition for cash of any asset or group of assets not made in the ordinary course of business (including, without limitation, insurance proceeds paid as a result of any destruction, casualty or taking of any property of the Company or any Subsidiary), by the Company or any of its Subsidiaries, in each case, to the extent not required to be used to repay Designated Senior Debt and not subject to any period during which the Company or any of its Subsidiaries may reinvest such proceeds prior to a requirement to repay Designated Senior Debt, redeem a principal amount of the Notes equal to the amount of such Net Cash Proceeds (less any amounts not required to be paid as a result of the requirement in subsection (d) of this Section 2.06), at a redemption price equal to the sum of (x) 100% of the principal amount of the Notes so prepaid, (y) accrued interest on the principal amount of all such Notes to the date of prepayment and (z) the Applicable Premium then in effect on the principal amount of all such Notes other than PIK Notes; provided that Net Cash Proceeds need not be applied as -------- required pursuant to clause (c)(ii) to the extent that such Net Cash Proceeds are applied to replace, repair or rebuild the property that was the source of such Net Cash Proceeds within 180 days after the receipt of such Net Cash Proceeds. (d) The Company shall (i) upon the occurrence of a Change of Control, offer to redeem from each Holder all (and not less than all) of the then outstanding Notes of such Holder at a redemption price equal to 101% of the aggregate principal amount thereof then outstanding plus all accrued and unpaid interest, within 30 days of the occurrence of such Change of Control and (ii) on presentation and surrender of any Notes by any Holder (including any portion of the Notes held by such Holder) in connection therewith on or prior to such thirtieth day, such Notes shall be paid and redeemed by the Company at such redemption price no later than such thirtieth day. (e) Any prepayment of the Notes pursuant to Section 2.06(b) shall be in a minimum amount of at least $100,000, unless less than $100,000 of the Notes remain outstanding, in which case all of the Notes must be prepaid. Any prepayment of the Notes pursuant to Section 2.06(c) shall be in a minimum amount which is a multiple of $1,000 times the number of Holders at the time of such prepayment. (f) Other than pursuant to Section 2.06(d), any partial prepayment shall be made so that the Notes then held by each Holder shall be prepaid in a principal amount which shall bear the same ratio, as nearly as may be, to the total principal amount being prepaid as the principal amount of such Notes held by such Holder shall bear to the aggregate principal amount of all Notes then outstanding. In the event of any partial prepayment (including pursuant to Section 2.06(d)), upon presentation of any Note the Company shall execute and deliver to or on the order of the Holder, at the expense of the Company, a new Note in principal amount equal to the remaining outstanding portion of such Note. -18- (g) All payments made pursuant to this Section 2.06 shall be made in cash. Section 2.07. TAXES. (a) For the purposes of this Section, the following terms have the following meanings: "Taxes" means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings with respect to any payment by the Company pursuant to this Agreement or under any Note or any other Financing Document, and all liabilities with respect thereto, excluding, in the case of the Purchaser or any other Holder, taxes imposed on the net income of the Purchaser or such Holder and franchise or similar taxes imposed on the net income of the Purchaser or such Holder, by a jurisdiction under the laws of which the Purchaser or such Holder is organized or in which its principal executive office or the office holding any Notes or any Financing Document is located. "Other Taxes" means any present or future stamp or documentary taxes and any other excise or property taxes, or similar charges or levies, which arise from any payment made pursuant to this Agreement or under any Note or any other Financing Document or from the execution, delivery, registration, recordation or enforcement of, or otherwise with respect to, this Agreement or any Note or any other Financing Document. (b) All payments by the Company to or for the account of the Purchaser or any other Holder under any Financing Document shall be made without deduction for any Taxes or Other Taxes; provided that, if the Company shall be required by -------- law to deduct any Taxes or Other Taxes from any such payment, the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional amounts payable under this Section), the Purchaser or such Holder (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, the Company shall make such deductions, the Company shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and the Company shall promptly furnish to the Purchaser or such Holder (as the case may be) the original or a certified copy of a receipt or other documentation available to the Company evidencing payment thereof (c) The Company agrees to indemnify the Purchaser and each other Holder for the full amount of Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted (whether or not correctly) by any jurisdiction on amounts payable under this Section) paid by the Purchaser or such Holder (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. (d) The Company shall have no obligation for Taxes under Section 2.07(b) or Section 2.07(c) for or on account of: -19- (i) any Taxes (other than Other Taxes) that would not have been so imposed but for the existence of any present or former connection between the Purchaser or Holder or other than sole beneficial owner (or between a fiduciary, settlor, beneficiary, member, or shareholder of, or possessor of a power over, the Purchaser, Holder or beneficial owner, if the Purchaser, Holder or beneficial owner is an estate, a trust, a partnership or corporation) and the jurisdiction imposing the Tax other than merely holding such Note or any Financing Document, or the receipt of payments in respect thereof, including, without limitation, the Purchaser, Holder or beneficial owner (or such fiduciary, settlor, beneficiary, member, shareholder, or possessor) being or having been a citizen or resident thereof, or being or having been engaged in a trade or business or having a permanent establishment or other fixed base therein, or making or having made an election the effect of which is to subject the Purchaser, Holder or beneficial owner (or such fiduciary, settler, beneficiary, member, shareholder, or possessor) to such Tax; (ii) any Taxes in the nature of estate, inheritance or gift taxes; (iii) any Tax that is imposed or withheld by reason of the failure of the Holder or beneficial owner of a Note to comply with a written request by the Company, addressed to such Holder or beneficial owner, to provide information concerning the nationality, residence or identity of such Holder or beneficial owner, if providing such information under a statute, treaty, regulation or administrative practice of the jurisdiction imposing such Tax would result in a complete exemption from such Tax; (iv) any Taxes imposed on any payment on a Note to a Holder that is a fiduciary or partnership or other beneficial owner of such payment to the extent a beneficiary or settlor with respect to such fiduciary or a member of such partnership or a beneficial owner would not have been entitled to the payment of taxes had such beneficiary, settlers member or beneficial owner directly received its beneficial or distributive share of such payment; and (v) any combination of items (i) through (iv) above. (e) If the Company determines in good faith that a reasonable basis exists for contesting the imposition of a Tax or Other Tax with respect to the Purchaser or a Holder, the Purchaser or Holder shall cooperate with the Company in challenging such Tax or Other Tax at the Company's expense (including, without limitation, any additional costs, expenses or Taxes incurred by the Purchaser or Holder, as the case may be, as a result of such contesting of such Taxes) if requested by the Company; provided, however, that nothing in this -------- ------- Section 2.07(e) shall require the Purchaser or Holder to submit to the Company any tax returns or any part thereof, or to prepare or file any tax returns other than as the Purchaser or Holder in it sole discretion shall determine. -20- (f) The Purchaser and each Holder agrees, to the extent reasonable and without material cost to it, to cooperate with the Company to minimize any amounts payable by the Company under this Section 2.07. ARTICLE 3. REPRESENTATIONS AND WARRANTIES Each of the Company and, as regards itself only, each of the Guarantors represents and warrants to the Purchaser (both before and after giving effect to the issuance of the Notes) as set forth below: Section 3.01. CORPORATE EXISTENCE AND POWER. (a) The Company (i) is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and (ii) has (A) all corporate powers and (B) all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted and as proposed to be conducted after the Issuance Date, except in the case of clause (a)(ii)(B), where the failure to do so would not have a Material Adverse Effect. (b) Each Guarantor (i) is a corporation duly incorporated, and validly existing and in good standing under the laws of its respective jurisdiction of organization, and (ii) has (A) all corporate powers and (B) all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted and as proposed to be conducted after the Issuance Date, except in the case of clause (b)(ii)(B), where the failure to do so would not have a Material Adverse Effect. Section 3.02. AUTHORIZATION, EXECUTION AND ENFORCEABILITY. (a) The execution, delivery and performance by the Company of the Financing Documents and the issuance of the Notes by the Company have been duly and validly authorized and are within its corporate powers. Each of the Financing Documents (other than the Notes) to which it is a party has been duly authorized, executed and delivered by the Company and constitutes its valid and binding agreement enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency and other similar laws affecting creditors' rights generally and equitable principles of general applicability. When executed and delivered by the Company against payment therefor in accordance with the terms hereof, the Notes will constitute valid and binding obligations of the Company, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency and other similar laws affecting creditors' rights generally and equitable principles of general applicability. (b) The execution, delivery and performance by each of the Guarantors of the Financing Documents to which it is a party have been duly and validly authorized and are within the corporate powers of each of the Guarantors. Each of the Financing Documents to which each -21- of the Guarantors is a party has been duly authorized, executed and delivered by it and constitutes its valid and binding agreement, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency and other similar laws affecting creditors' rights generally and equitable principles of general applicability. (c) The Warrants have been duly authorized by the Company and, when executed and authenticated pursuant to the terms of the Warrant Agreement and delivered to the Purchaser pursuant to the provisions of this Agreement, will be valid and binding obligations of the Company, enforceable against it in accordance with their terms, subject to applicable bankruptcy, insolvency and other similar laws affecting creditors' rights generally and equitable principles of general applicability. (d) The Warrant Shares to be issued upon exercise of the Warrants have been duly authorized and reserved for issuance by the Company and will be issued at the times and in the manner required by the Warrant Agreement and, upon due exercise of a Warrant, the Warrant Shares issued will be validly issued, fully paid and nonassessable. Section 3.03. GOVERNMENTAL AUTHORIZATION. (a) No action by or in respect of, or filing with, any governmental body, agency or governmental official is required for (i) the due execution, delivery or performance by the Company of any of the Financing Documents to which it is a party, (ii) the issuance and sale of the Notes by the Company, (iii) the issuance and delivery of the Warrants or the Warrant Shares by the Company, or (iv) the consummation of the transactions contemplated hereby or thereby, except for such actions and filings which (x) have been taken or made and remain in full force and effect, or (y) if not taken or made, will not have a material adverse effect on the validity or enforceability of the Financing Documents. (b) No action by or in respect of, or filing with, any governmental body, agency or governmental official is required for (i) the execution, delivery or performance by any of the Guarantors of any of the Financing Documents to which it is a party or (ii) the consummation of the transactions contemplated hereby or thereby, except such actions and filings which (i) have been taken or made and remain in full force and effect, or (ii), if not taken or made, will not have a material adverse effect on the validity or enforceability of the Financing Documents. Section 3.04. CONTRAVENTION. (a) The execution and delivery by the Company of the Financing Documents to which it is a party did not and will not, the issuance and sale of the Notes by the Company will not, the issuance and delivery of the Warrants and the Warrant Shares by the Company will not, and the consummation of the transactions contemplated hereby and thereby will not, (A) contravene or constitute a default under or violation of any provision of (i) any applicable law or regulation, (ii) any of its Corporate Documents or (iii) any agreement, judgment, injunction, order, decree or other instrument binding upon it or any of its assets, except in the -22- case of clauses (i) and (iii), for such contraventions, defaults or violations that would not reasonably be expected to result in a Material Adverse Effect, or (B) result in the creation or imposition of any Lien on any asset of the Company or any of its Subsidiaries other than Liens created or imposed pursuant to the Senior Credit Facilities. (b) The execution and delivery by each of the Guarantors of the Financing Documents to which it is a party did not and will not, and the consummation of the transactions contemplated hereby and thereby will not, (A) contravene or constitute a default under or violation of any provision of (i) any applicable law or regulation, (ii) any of its Corporate Documents of any Guarantor, or (iii) any agreement, judgment, injunction, order, decree or other instrument binding upon it or any of its assets, except, in the case of clauses (i) and (iii), for such contraventions, defaults or violations that would not reasonably be expected to result in a Material Adverse Effect, or (B) result in the creation or imposition of any Lien on any asset of any Guarantor, the Company or any of its Subsidiaries other than Liens created or imposed pursuant to the Senior Credit Facilities. Section 3.05. FINANCIAL INFORMATION. (a) The combined balance sheets of the Company and its Subsidiaries as of August 31, 1996, August 31, 1997 and August 31, 1998 and the related combined statements of profit and loss and cash flows for the fiscal years ended August 31, 1996, August 31, 1997 and August 31, 1998 (collectively, the "Base Financial Statements"), audited by Ernst & Young LLP, which financial statements shall have been prepared in conformity with U.S. GAAP, and shall fairly present the combined financial position of such entities as of each such date and their combined results of operations, changes in stockholders' equity and cash flows for each such period. (b) The pro forma combined balance sheet as of August 31, 1998 and the related pro forma combined statement of profit and loss for the period ended as of such date have been prepared on a basis consistent with the Base Financial Statements of the Company and its Subsidiaries and give effect to assumptions used in the preparation thereof on a reasonable basis and in good faith and present fairly the historical transactions (including the Kwik Acquisition, the Mega Art Acquisition, and the Hy Zazula Acquisition) and proposed transactions contemplated hereby and by the SuperGraphics Acquisition (the "Pro Forma Financial Statements"). (c) Except as set forth on Schedule 3.05(c), there has occurred no material adverse change in the business, condition (financial or otherwise), operations, properties or prospects of the Company and its Subsidiaries, taken as a whole, since August 31, 1998. Section 3.06. LITIGATION. Except as set forth on Schedule 3.06, there is no action, suit or proceeding pending or, to the knowledge of the Company or the Guarantors, threatened against the Company, any of its Subsidiaries, any Plan or any fiduciary of any Plan or any Guarantor before any court or arbitrator or any governmental body, agency or official which is reasonably likely to result in (x) an adverse decision which could have a material adverse effect on any such -23- Person, any of the Financing Documents or the SuperGraphics Acquisition or (y) a Material Adverse Effect. Section 3.07. ENVIRONMENTAL MATTERS. Except to the extent that the following would not reasonably be expected to result in a Material Adverse Effect and except as set forth on Schedule 3.07: (a) No property owned, leased or operated by the Company or any of its Subsidiaries is affected by any Hazardous Materials Contamination. (b) No asbestos or asbestos-containing materials are present on any of the properties now or previously owned, leased or operated by the Company or any of its Subsidiaries. (c) No polychlorinated biphenyls in regulated concentrations are located on or in any properties now or previously owned, leased or operated by the Company or any of its Subsidiaries, in the form of electrical transformers, fluorescent light fixtures with ballasts, cooling oils or any other device. (d) No underground storage tanks are located on any properties now or previously owned, leased or operated by the Company or any of its Subsidiaries, or were located on any such property and subsequently removed or filled. (e) No written notice, notification, demand, CERCLA-related request for information, complaint, citation, summons, investigation, administrative order, consent order or consent agreement, litigation or settlement with respect to Hazardous Materials or Hazardous Materials Contamination has been issued to the Company or is pending, as the case may be, or, to the Company's knowledge, proposed, threatened or anticipated, in each case, with respect to or in connection with the operation of any properties now or previously owned, leased or operated by the Company or any of its Subsidiaries. Except to the extent the following would not result in a Material Adverse Effect, all such properties and their existing and prior uses by the Company, and, to the Company's knowledge, the uses of the properties prior to the Company's ownership, lease or operation comply and at all times have complied with any applicable governmental requirements relating to environmental matters or Hazardous Materials and there is no condition on any of such properties which is in violation of any applicable governmental requirements relating to Hazardous Materials, and neither the Company nor any of its Subsidiaries has received any communication from or on behalf of any governmental authority that any such condition exists. (f) For purposes of this Section 3.07, the terms "Company" and "Subsidiary" shall include any business or business entity (including a corporation) which is, in whole or in part, a predecessor of the Company or any Subsidiary to the extent the Company would be liable for the liabilities of such predecessor under any applicable Environmental Laws. -24- Section 3.08. TAXES. (a) All income tax returns and all other tax returns which are required to be filed by or on behalf of the Company and its Subsidiaries have been filed and all taxes shown as due on such returns have been paid or adequate reserves have been established on the books of the Company, except to the extent that the failure to file any such returns or pay any such taxes would not reasonably be expected to result in a Material Adverse Effect and except for any such taxes that are being contested in good faith by appropriate proceedings and for which appropriate reserves have been established in accordance with U.S. GAAP. The charges, accruals and reserves on the books of the Company in respect of taxes or other governmental charges have been established in accordance with U.S. GAAP. (b) There is no tax, levy, impost, deduction, charge or withholding imposed by any governmental instrumentality either (i) on or by virtue of the execution, delivery, performance, enforcement or admissibility into evidence of any Financing Document or (ii) on any payment to be made by the Company or any Guarantor pursuant to any Financing Document. The Company is permitted under applicable laws to pay any additional amounts payable by it under Section 2.07. Section 3.09. SUBSIDIARIES. Other than those listed on Schedule 3.09, the Company has no Subsidiaries. Section 3.10. GOVERNMENTAL REGULATIONS. None of the Company, any of its Subsidiaries or any of the Guarantors is or will be subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, the Federal Power Act, the Interstate Commerce Act or to any other statute, rule or regulation limiting its ability to incur Debt for borrowed money. Section 3.11. FULL DISCLOSURE. The information heretofore furnished by or on behalf of the Company to the Purchaser in writing for purposes of or in connection with the Financing Documents or any transaction contemplated hereby does not, and all such information hereafter furnished by or on behalf of the Company to any Holder will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they are made, not misleading. The Company has disclosed to the Purchaser any and all facts which materially and adversely affect or may materially and adversely affect (to the extent the Company can now reasonably foresee), the business, assets or financial position of the Company or the ability of the Company to perform its obligations under the Financing Documents or to complete the SuperGraphics Acquisition. Section 3.12. CAPITALIZATION. At the Issuance Date, after giving effect to the SuperGraphics Acquisition, the capitalization of the Company will be as set forth on Schedule 3.12. All of the issued and outstanding shares of Common Stock are, and, as of the time of the issuance of the Notes and the closing of the SuperGraphics Acquisition, will be, -25- validly issued, fully paid and nonassessable and free and clear of any Lien or other right or claim (other than Liens created under the Senior Credit Facilities) and the holders thereof are not entitled to any preemptive or other similar rights. Other than options to acquire shares of Common Stock granted to the Company's employees, and as set forth on Schedule 3.12, there are no subscriptions, options, warrants, rights, convertible securities, exchangeable securities or other agreements or commitments of any character pursuant to which the Company is required to issue any shares of its capital stock. Section 3.13. SOLICITATION. No form of general solicitation or general advertising was used by the Company or, to the best of its knowledge, any other Person acting on behalf of the Company, in connection with the offer and sale of the Notes. Neither the Company nor any Person acting on behalf of the Company has, either directly or indirectly, sold or offered for sale to any Person any of the Notes or any other similar security of the Company except as contemplated by this Agreement, and the Company represents that neither the Company nor any Person acting on its behalf other than the Purchaser and its Affiliates will sell or offer for sale to any Person any such security, to, or solicit any offers to buy any such security from, or otherwise approach or negotiate in respect thereof with, any Person or Persons so as thereby to bring the issuance or sale of any of the Notes within the provisions of Section 5 of the Securities Act. Section 3.14. NON-FUNGIBILITY. When the Notes and Guarantees are issued and delivered pursuant to this Agreement, the Notes and Guarantees will not be of the same class (within the meaning of Rule 144A under the Securities Act) as securities which are (i) listed on a national securities exchange registered under Section 6 of the Exchange Act or (ii) quoted in a U.S. automated inter-dealer quotation system. Section 3.15. PERMITS. Except to the extent any of the following would not result in a Material Adverse Effect: (a) the Company and its Subsidiaries have all Permits as are necessary for the conduct of their respective businesses as it has been carried on; (b) all such Permits are in full force and effect, and each of the Company and its Subsidiaries has fulfilled and performed all obligations with respect to such Permits; (c) no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination by the issuer thereof or which results in any other impairment of the rights of the holder of any such Permit; and (d) each of the Company and its Subsidiaries has no reason to believe that any governmental body or agency is considering limiting, suspending or revoking any such Permit. Section 3.16. REPRESENTATIONS IN OTHER FINANCING DOCUMENTS AND IN ACQUISITION AGREEMENT AND RELATED DOCUMENTS. (a) Each of the representations and warranties of the Company and the Guarantors set forth in any of the other Financing Documents is true and correct in all material respects. (b) Each of the representations and warranties set forth in any of the Acquisition Agreement and each other document related thereto is true and correct in all material respects. -26- Section 3.17. NO UNDISCLOSED LIABILITIES. The Company has no material liability (absolute or contingent) except (a) those shown on the audited financial statements for the fiscal year ended August 31, 1998 and (b) those incurred under the Financing Documents. Section 3.18. ERISA MATTERS. During the twelve consecutive months ending on the date of the execution and delivery of this Agreement, no steps have been taken to terminate any Qualified Plan, and no contribution failure has occurred with respect to any Qualified Plan sufficient to give rise to a Lien under section 302(f) of ERISA, which, in the aggregate, is reasonably expected to lead to liability on the part of the Company or any ERISA Affiliate in excess of $1,000,000. No condition exists or event or transaction has occurred with respect to any Qualified Plan which could reasonably be expected to result in the incurrence by the Company of any material liability, fine or penalty other than as could not reasonably be expected to have a Material Adverse Effect. Since the date of the last period covered by the Base Financial Statements, none of the Company, any Subsidiary or any ERISA Affiliate has taken any action that could be expected to increase (i) any contingent liability with respect to any post-retirement benefit under a Welfare Plan, other than liability for continuation coverage described in part 6 of Subtitle B of Title I of ERISA or (ii) any contingent liability with respect to any Qualified Plan or Multiemployer Plan, except as would not have a Material Adverse Effect. ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER Section 4.01. PURCHASE FOR INVESTMENT; AUTHORITY; BINDING AGREEMENT. The Purchaser represents and warrants to the Company that: (a) the Purchaser is an Accredited Investor within the meaning of Rule 501(a) under the Securities Act and the Notes to be acquired by it pursuant to this Agreement are being acquired for its own account without a view toward public distribution and the Purchaser will not offer, sell, transfer, pledge, hypothecate or otherwise dispose of the Notes unless pursuant to a transaction either registered under, or exempt from registration under, the Securities Act; (b) the execution, delivery and performance of this Agreement and the purchase of the Notes pursuant hereto are within the Purchaser's corporate powers and have been duly and validly authorized by all requisite corporate action; (c) this Agreement has been duly executed and delivered by the Purchaser; (d) this Agreement constitutes a valid and binding agreement of the Purchaser enforceable in accordance with its terms; and (e) the Purchaser has such knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Notes and the Purchaser is capable of bearing the economic risks of such investment. -27- ARTICLE 5. CONDITIONS PRECEDENT TO PURCHASE Section 5.01. CONDITIONS TO PURCHASER'S OBLIGATION TO PURCHASE THE NOTES. The obligation of the Purchaser to purchase the Notes to be issued and sold by the Company on the Issuance Date is subject to the satisfaction of the following conditions contemporaneously with such purchase: (a) (i) Each of the conditions to the parties' obligations under the Acquisition Agreement shall have been satisfied or, with the prior written consent of the Purchaser, waived, (ii) the SuperGraphics Acquisition shall have been completed on the terms set forth in the Acquisition Agreement (as such terms may have been amended or waived with the consent of the Purchaser) and (iii) the aggregate amount of funds required by the Company with respect to the SuperGraphics Acquisition (including without limitation for the payment of fees, commissions and expenses) shall not exceed the sum of (x) $18,000,000 and (y) the Deferred Purchase Price (as defined in the Acquisition Agreement). (b) The Purchaser shall have received executed copies of each of the Acquisition Agreement and the Financing Documents, each of which shall be in full force and effect and no term or condition thereof shall have been amended, waived or otherwise modified without the prior written consent of the Purchaser. (c) The Senior Credit Facilities shall be in full force and effect and contain covenants and other terms and conditions customary for such transactions and satisfactory to the Purchaser. Except as disclosed in the audited financial statements for the fiscal year ended August 31, 1998, the Company and its Subsidiaries shall have no indebtedness for borrowed money other than the Senior Credit Facilities and the Notes. (d) The Purchaser shall have received the Base Financial Statements described in Section 3.05(a), as well as the Pro Forma Financial Statements described in Section 3.05(b), which Pro Forma Financial Statements shall have been certified by the chief financial or accounting officer of the Company (or its chief executive officer if the Company does not have a chief financial or accounting officer at such time) and shall have been prepared in conformity with U.S. GAAP, adjusted to give effect to (i) the SuperGraphics Acquisition, (ii) the historical transactions (including the Kwik Acquisition, the Mega Art Acquisition, and the Hy Zazula Acquisition) and proposed transactions contemplated by the Acquisition Agreement, (iii) the borrowings made under the Senior Credit Facilities as of the Issuance Date, (iv) the purchase of the Notes and Warrants on the Issuance Date and (v) the application of the proceeds from such Purchase as contemplated by the Acquisition Agreement and the Financing Documents. (e) The Purchaser shall have received evidence satisfactory to it that all material governmental, shareholder and third party consents and approvals necessary or desirable in connection with the issuance of the Notes and the SuperGraphics Acquisition and the other -28- transactions contemplated by the Financing Documents and which are required by the Acquisition Agreement have been received. (f) There shall exist no action, suit, investigation, litigation or proceeding pending or, to the Company's knowledge, threatened in any court or before any arbitrator or any governmental instrumentality that could reasonably be expected to (i) have a material adverse effect on any Financing Document, the Acquisition Agreement, the Notes or the SuperGraphics Acquisition or any of the other transactions contemplated thereby or hereby or (ii) result in a Material Adverse Effect. (g) The Purchaser shall have received opinions, dated on or prior to the Issuance Date, of Buchanan Ingersoll Professional Corporation, special counsel for the Company and each of the Guarantors, in the form and substance satisfactory to the Purchaser. (h) All fees and expenses payable to the Purchaser on or before the Issuance Date hereunder, under the Fee Letter or otherwise in connection with the transactions contemplated hereby, shall have been paid in full. (i) The representations and warranties of the Company and the Guarantors contained in the Financing Documents shall be true and correct in all material respects on and as of the Issuance Date as if made on and as of such date and each of the Company and the Guarantors shall have performed and complied with all covenants and agreements required by the Financing Documents to be performed by it or complied with by it at or prior to the Issuance Date. (j) There shall not exist any Default. (k) The Purchaser shall have received the Notes to be issued on the Issuance Date, duly executed by the Company in the denominations and registered in the names specified in or pursuant to Section 2.02. (l) The capitalization, tax and corporate and ownership structure (including the Corporate Documents) of the Company and its Subsidiaries before and after the consummation of the SuperGraphics Acquisition and the issuance of the Notes shall be consistent with that set forth in documents provided to the Purchaser prior to the date hereof or shall otherwise be satisfactory to the Purchaser in all material respects. (m) The Purchaser shall have received a certificate of the Secretary or Assistant Secretary of the Company and each Guarantor, dated as of a date reasonably satisfactory to the Purchaser, certifying (A) (i) that attached thereto is a true, complete and correct copy of resolutions duly adopted by the Board of Directors of the Company or such Guarantor, as the case may be, authorizing (1) the execution, delivery and performance of the Financing Documents to which it is a party, and (2) the transactions contemplated hereby (including the SuperGraphics Acquisition), and (ii) that such resolutions have not been amended, modified, revoked or rescinded, (B) as to the incumbency and specimen signature of each officer executing -29- any Financing Documents on its behalf, and (C) true and complete copies of its constituent documents, and such certificates and the resolutions attached thereto shall be in form and substance satisfactory to the Purchaser. (n) The Company shall have executed and delivered the Warrant Agreement and shall have executed and delivered to the Purchaser fully authenticated Warrants, registered, unregistered or registered in blank (as the Holder may request), representing the right to purchase, upon the terms and conditions of the Warrant Agreement, up to an aggregate of 640,000 shares of Common Stock (excluding PIK Warrants) of the Company, calculated after giving effect to the transactions (including the SuperGraphics Acquisition), occurring on or prior to the Issuance Date (the "Warrant Shares"), exercisable for a period of ten years at an exercise price per share provided in the Warrant Agreement. (o) No additional information shall have been disclosed to or discovered by the Purchaser that is inconsistent with the information provided to the Purchaser during the course of their due diligence investigations of the Company and that the Purchaser reasonably deem materially adverse in respect of the condition (financial or otherwise), business, assets, liabilities, properties, results of operations or prospects of the Company and its Subsidiaries. (p) All documentation and matters relating to the transactions contemplated by this Agreement, the Financing Documents, the Acquisition Agreement, the Senior Credit Facilities, the Warrant Agreement and the transactions contemplated hereby and thereby shall be satisfactory to the Purchaser in its discretion, and the Purchaser shall have received such additional certificates, legal and other opinions and documentation as they shall reasonably request. (q) The Purchaser shall have received the consent of the lenders under the Senior Credit Facilities, if required, concerning the anticipated terms and conditions of the Notes, including the application of the proceeds therefrom. (r) The Purchaser shall have received a certificate from the Company and each Guarantor, dated as of a date reasonably satisfactory to the Purchaser, signed by the chief executive officer of the Company and each Guarantor, confirming all matters set forth in Sections 5.01(a), (f), (i) and (j) hereof. ARTICLE 6. COVENANTS The Company agrees that, from and after the Issuance Date and so long as any Notes remain outstanding and unpaid, and for the benefit of the Purchaser and the Holders: -30- Section 6.01. INFORMATION. The Company will deliver to the Purchaser: (a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Company, a copy of the consolidated balance sheet of the Company and its consolidated Subsidiaries as at the end of such fiscal year and the related consolidated statements of income and retained earnings and of cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by Ernst & Young, LLP or other independent certified public accountants of nationally recognized standing; (b) as soon as available, but in any event within 45 days after the end of each of the first three quarterly periods of each fiscal year of the Company, the unaudited consolidated balance sheet of the Company and its consolidated Subsidiaries as at the end of such quarter and the related unaudited consolidated statements of income and retained earnings and of cash flows of the Company and its consolidated Subsidiaries for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by the chief financial or accounting officer of the Company (or its chief executive officer if the Company does not have a chief financial or accounting officer at such time) as being fairly stated in all material respects (subject to normal year-end audit adjustments); (c) concurrently with the delivery of the financial statements referred to in clauses (a) and (b) above and, in the case of clause (c)(i) below, within 20 days after the end of each calendar month, a certificate of the chief financial or accounting officer of the Company (or its chief executive officer if the Company does not have a chief financial or accounting officer at such time) (i) stating that, to the best of such officer's knowledge, the Company during such period has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Agreement and the other Loan Documents to be observed, performed or satisfied by it, and that such officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate and (ii) showing in detail the calculations supporting such officer's certification of the Company's compliance with the requirements of Sections 6.08 through 6.11, inclusive, on the date of such financial statements; (d) within five days after any executive officer of the Company obtains knowledge of a Default if such Default is then continuing, a certificate of the chief financial or accounting officer of the Company (or its chief executive officer if the Company does not have a chief financial or accounting officer at such time) setting forth the details thereof and the action which the Company is taking or proposes to take with respect thereto; (e) promptly upon the filing thereof, copies of all applications, registration statements or reports which the Company or any of its Subsidiaries shall have filed with the Commission or any other national or international stock exchange or any U.S. automated inter-dealer quotation system; -31- (f) promptly following the commencement thereof, notice and a description in reasonable detail of any litigation or proceeding to which the Company or any of its Subsidiaries is a party in which the amount involved is $1,000,000 or more; (g) promptly following the occurrence thereof, notice and a description in reasonable detail of any material adverse change in the business, assets or financial position of the Company and its Subsidiaries taken as a whole; (h) promptly following the occurrence thereof, notice and a copy of any amendment, modification or similar item entered into with respect to, or any matured or unmatured event of default under, the Senior Credit Facilities; and (i) from time to time such additional information regarding the financial position or business of the Company and its Subsidiaries as the Purchaser may reasonably request. All financial statements delivered pursuant to clauses (a) and (b) above shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with U.S. GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or such officer, as the case may be, and disclosed therein). Section 6.02. PAYMENT OF OBLIGATIONS. The Company will pay and discharge, and will cause each Subsidiary to pay and discharge, material obligations and liabilities, including, without limitation, tax liabilities, at or before such obligations and liabilities become due, except where the same may be contested in good faith by appropriate proceedings, and will maintain, and will cause each Subsidiary to maintain, in accordance with U.S. GAAP, appropriate reserves for the accrual of any of the same. Section 6.03. INSURANCE. The Company shall, and shall cause each of its Subsidiaries to, keep its insurable properties adequately insured at all times by financially sound and reputable insurers; maintain such other insurance, to such extent and against such risks, including fire and other risks insured against by extended coverage, as is customary with companies in the same or similar businesses operating in the same or similar locations, including (i) public liability insurance against claims for personal injury or death or property damage occurring upon, in, about in connection with the use of any properties owned, occupied or controlled by it and (ii) business interruption insurance; and maintain such other insurance as may be required by law. Section 6.04. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The Company will continue, and will cause each Subsidiary to continue, to engage in business of the same general type as now conducted by the Company and its Subsidiaries or any business reasonably related, incidental or ancillary thereto (including, without limitation, media services), and will preserve, renew and keep in full force and effect, and will cause each Subsidiary to preserve, renew and keep in full force and effect their respective corporate existence and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business, except that (i) -32- the Company may discontinue any immaterial line of business of the Company and its Subsidiaries if the Board of Directors of the Company determines that such discontinuation is in the best interests of the Company and not disadvantageous to the holder of any Note and (ii) nothing in this Section 6.04 shall prohibit the merger or consolidation of any wholly-owned Subsidiary of the Company with or into any other wholly-owned Subsidiary of the Company. Section 6.05. COMPLIANCE WITH LAWS. (a) The Company will comply, and cause each Subsidiary to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder where noncompliance could reasonably be expected to have a Material Adverse Effect). (b) The Company will take all actions to ensure that (i) the obligations of the Company under the Financing Documents are at all times valid, binding and enforceable against the Company in accordance with their terms under all applicable laws, and (ii) the Financing Documents may be admitted into evidence in any relevant jurisdiction. Section 6.06. INSPECTION OF PROPERTY, BOOKS AND RECORDS; ATTENDANCE AT BOARD MEETINGS. (a) The Company will keep, and will cause each Subsidiary to keep, proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities; and will permit, and will cause each Subsidiary to permit, representatives of the Purchaser at reasonable times and intervals, and upon reasonable notice, to visit its corporate offices, to discuss its financial matters with its officers and its independent public accountants (and the Company hereby authorizes such independent public accountants to discuss the Company's financial matters with the Purchaser or its representatives) and to examine any of its books or other financial records. (b) So long as the Purchaser holds (x) Warrant Shares equal to at least 3% of all outstanding Common Stock (on a fully diluted basis) of the Company (or Warrants exercisable into Warrant Shares equal to at least 3% of all outstanding Common Stock (on a fully diluted basis) of the Company) or (y) any Notes, the Company shall give the Purchaser written notice of each meeting of the Board of Directors (or any committee thereof) of the Company or any of its Subsidiaries at the same time and in the same manner as notice is given to the members of such Board (or such committee) (which notice shall be confirmed in writing to the Purchaser), and the Company and each of its Subsidiaries shall permit a representative of the Purchaser to attend as an observer all meetings of its Board of Directors (or any such committee thereof). Such representative shall be entitled to receive all written materials and other information (including, without limitation, copies of meeting minutes) given to directors in connection with such meetings at the same time such materials and information are given to the members of any such Board of Directors (or such committee). If the Company or any of its Subsidiaries proposes to -33- take any action by written consent in lieu of a meeting of its Board of Directors (or such committee), the Company and each such Subsidiary shall give written notice thereof to such representative prior to the effective date of such consent describing the nature and substance of such action and in any event shall give prompt written notice thereof to such representative after the effective date of such consent. Section 6.07. INVESTMENT COMPANY ACT. The Company will not be or become an open-end investment trust, unit investment trust or face-amount certificate company that is or is required to be registered under the Investment Company Act of 1940, as amended. Section 6.08. LIMITATION ON DEBT. Neither the Company nor any Subsidiary will create, incur, assume or suffer to exist any Debt, except: (a) Debt outstanding on the date of this Agreement (other than Debt incurred under the Senior Credit Facilities) and identified in Schedule 6.08(a) and refinancings and replacements thereof in a principal amount not exceeding the principal amount of the Debt so refinanced or replaced on terms no less favorable to the Holders of the Notes than those in place on the date of this Agreement and with a weighted average life to maturity of not less than the then weighted average life to maturity of the Debt so refinanced or replaced; (b) Debt of the Company evidenced by the Notes; (c) Debt incurred under the Senior Credit Facilities, not to exceed $75,000,000, and refinancings and replacements thereof (whether with the same or different lenders and agents and whether on the same or different terms or in the same or different structure) in a principal amount not exceeding the principal amount of the Debt so refinanced or replaced; (d) Debt owing to the Company or a Subsidiary; (e) Debt incurred by the Company or any of its Subsidiaries that is represented by Capital Lease Obligations, mortgage financings or purchase money obligations or otherwise to finance the acquisition of fixed or capital assets; provided, that the amount of such Debt does not exceed the -------- fair market value of the asset so financed; (f) Debt that when issued will not result, on a pro forma basis, in an --- ----- Interest Coverage Ratio less than 2.00 to 1 for the most recent fully ended fiscal quarter of the Company preceding the date of such issuance, which pro forma compliance shall be evidenced by a certificate delivered by the --- ----- chief financial or accounting officer of the Company (or its chief executive officer if the Company does not have a chief financial or accounting officer at such time) to the Holders setting forth in reasonable detail the -34- calculations required to establish whether the Company was in pro forma compliance with such requirement; (g) other Debt the Net Cash Proceeds of which are applied in accordance with Section 2.06 to prepay all amounts owing under the Notes; (h) the incurrence by the Company or any of its Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging: (x) interest rate risk with respect to any floating rate Debt that is permitted by the terms of this Agreement to be outstanding; (y) exchange rate risk with respect to any agreement or Debt of such Person payable in a currency other than U.S. dollars; or (z) commodities risk relating to commodities agreements, entered into in the ordinary course of business, for the purchase of raw material used by the Company and its Subsidiaries; (i) long-term Debt for borrowed money of any Subsidiary that is not a Domestic Subsidiary, together with similar such Debt listed on Schedule 6.08(i), not to exceed $3,000,000 at any one time outstanding; (j) short-term Debt of Subsidiaries that are not Domestic Subsidiaries incurred for working capital purposes, together with similar such Debt listed on Schedule 6.08(j), not to exceed $5,000,000 at any one time outstanding; (k) Debt of a corporation which becomes a Subsidiary after the date hereof, provided that (i) such Debt existed at the time such corporation -------- became a Subsidiary and was not created in anticipation thereof and (ii) immediately after giving effect to the acquisition of such corporation by the Company no Default or Event of Default shall have occurred and be continuing (including pursuant to clause (f) of this Section); (l) other unsecured Debt of the Company and it Subsidiaries that (i) has terms and provisions (including as to subordination, pricing, covenants, defaults, average life to maturity, etc.) which are no more favorable or advantageous to the holders thereof than the comparable terms and provisions of this Agreement and the Notes, (ii) is in an aggregate principal amount at any time outstanding not to exceed $5,000,000 and (iii) is incurred within 90 days of the Issuance Date; and (m) other unsecured Debt of the Company and it Subsidiaries in an aggregate amount at any time outstanding not to exceed $5,000,000. Section 6.09. RESTRICTED PAYMENTS; VOLUNTARY PREPAYMENTS. (a) Neither the Company nor any Subsidiary of the Company will declare or make any Restricted Payment. -35- (b) The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, optionally redeem, retire, purchase, acquire, defease or otherwise make any payment, other than required interest payments, in respect of any Debt which is subordinated to or pari passu with the Notes, other than payments in respect of Debt owing to the Company or a Subsidiary. Section 6.10. INVESTMENTS. The Company will not, and will not permit any of its Subsidiaries to, make or acquire any Investment in any Person other than (i) Investments in existence on the date hereof and identified on Schedule 6.10; (ii) Investments in Cash Equivalents; (iii) Investments made after the date hereof in Persons which are direct or indirect Subsidiaries that are also Guarantors immediately after such Investment is made; (iv) Investments in the form of loans to officers, directors and employees of the Company and its Subsidiaries for the sole purpose of purchasing common stock of the Company (or purchases of such loans made by others) in an aggregate amount at any time outstanding not to exceed $500,000; (v) any Investment made as a result of the receipt of non-cash consideration from any conveyance, sale, lease, assignment, exchange or other disposition for cash of any asset or group of assets not made in the ordinary course of business that was made pursuant to and in compliance with Section 6.17 hereof; (vi) any acquisition of assets solely in exchange for the issuance of Common Stock of the Company; (vii) extensions of trade credit in the ordinary course of business and (viii) any Permitted Acquisition if immediately prior to or following the consummation of such Permitted Acquisition (including the incurrence or assumption of all Debt and the consummation of all transactions related thereto) no Default shall have occurred and then be continuing. Section 6.11. NEGATIVE PLEDGE. The Company will not create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except: (a) the Liens identified on Schedule 6.11; (b) Liens securing the Senior Credit Facilities and any other permitted Senior Debt; (c) Liens on assets of any Subsidiary that is not a Domestic Subsidiary securing Debt of such Subsidiary permitted by Sections 6.08(i) and (j); (d) Liens on the property or assets of a corporation which becomes a Subsidiary after the date hereof securing Debt permitted by Section 6.08(k), provided that (i) such Liens existed at the time such corporation -------- became a Subsidiary and were not created in anticipation thereof, (ii) any such Lien is not spread to cover any property or assets of such corporation after the time such corporation becomes a Subsidiary, and (iii) the amount of Debt secured thereby is not increased; and (e) Liens arising in the ordinary course of its business which (i) do not secure Debt, (ii) do not secure any obligation in an amount exceeding $1,000,000 and (iii) do -36- not in the aggregate materially detract from the value of the assets of the Company and its Subsidiaries, taken as a whole, or materially impair the use thereof in the operation of its business. Section 6.12. TRANSACTIONS WITH AFFILIATES. The Company will not, and will not permit any Subsidiary to, directly or indirectly, pay any funds to or for the account of, make any investment (whether by acquisition of stock or indebtedness, by loan, advance, transfer of property, guarantee or other agreement to pay, purchase or service, directly or indirectly, any Debt, or otherwise) in, lease, sell transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect any transaction in connection with any joint enterprise or other joint arrangement with, any Affiliate, except on terms to the Company or such Subsidiary no less favorable than terms that could be obtained by the Company or such Subsidiary from a Person that is not an Affiliate, as determined, in the case of any transaction with a value of $500,000 or more, in good faith by the Board of Directors of the Company; provided, that no determination of the Board of Directors shall be required with respect to any of the following: (i) transactions entered into in the ordinary course of business and (ii) any transaction among the Purchaser or any of its Affiliates on the one hand and the Company and any Guarantors on the other hand. Section 6.13. USE OF PROCEEDS. The proceeds from the issuance and sale of the Notes by the Company pursuant to this Agreement shall be used to fund the SuperGraphics Acquisition, to pay related fees and expenses and for working capital purposes of the Company and its Subsidiaries. Section 6.14. RESTRICTIONS ON CERTAIN AMENDMENTS. The Company shall not amend or waive, or suffer to be amended or waived, any Corporate Document or Acquisition Agreement from the respective forms thereof delivered to the Purchaser pursuant to Section 5.01 in a way which has a material adverse effect on the Holders or the Purchaser without the prior written consent of the Purchaser. Section 6.15. PERMANENT FINANCING. (a) The Company will, and will cause its Subsidiaries to, use its best efforts to take all actions which, in the reasonable judgment of the Purchaser, are necessary or desirable to obtain Permanent Financing (having terms and conditions that have been approved as required pursuant to the Senior Credit Facilities) as soon as practicable through (x) bank financing on terms usual and customary for similar financings and/or (y) through issuance of securities at such interest rates and other terms as are, in the reasonable opinion of the Purchaser, prevailing for new issues of securities of comparable size and credit rating in the capital markets at the time such Permanent Financing is consummated and obtained in comparable transactions made on an arm's-length basis between unaffiliated parties. The respective amounts to be financed through bank financing or through the issuance of securities shall be as determined by the Company, but shall be in an amount at least sufficient to repay or redeem the Notes in full in accordance with their terms. The Company hereby covenants and agrees that the proceeds from such Permanent -37- Financing shall be used to the extent required to redeem in full the Notes in accordance with their terms. (b) The Company covenants that it will, and will cause its Subsidiaries to, use its best efforts to enter into such agreements as in the judgment of the Purchaser are customary in connection with the Permanent Financing (having terms and conditions that have been approved as required pursuant to the Senior Credit Facilities), make such filings under the Securities Act, the Exchange Act, the Trust Indenture Act of 1939, as amended, and state securities laws as in the reasonable judgment of the Purchaser shall be required to permit consummation of such Permanent Financing and take such steps as in the judgment of the Purchaser are necessary or desirable to cause such filings to become effective or in the judgment of the Purchaser are otherwise required to consummate such Permanent Financing. Section 6.16. ADDITIONAL SUBSIDIARY GUARANTEES. If the Company or any of its Subsidiaries shall acquire or create a Domestic Subsidiary after the date of this Agreement, then such newly acquired or created Domestic Subsidiary shall become a party to this Agreement as a Guarantor by executing a joinder to this Agreement and shall deliver to each of the Holders an Opinion of Counsel, in a form reasonably satisfactory to the Holders. Upon execution of such joinder, such Domestic Subsidiary shall be bound by, and become a party to, this Agreement as a Guarantor and shall agree to perform each and every obligation and covenant of a Guarantor hereunder. Section 6.17. LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. The Company shall not, and shall not permit any of its Subsidiaries to, enter into any agreement with respect to or consummate any conveyance, sale, lease, assignment, transfer or other disposition of any of its property, business or assets (including, without limitation, receivables and leasehold interests), whether now owned or hereafter acquired, unless the consideration received by the Company or such Subsidiary, as the case may be, is at least equal to the fair market value of the assets or property sold, transferred or otherwise disposed of (as determined in good faith by the Board of Directors of the Company), except: (a) the sale or other disposition of obsolete or worn out property in the ordinary course of business; provided that the Net Cash Proceeds of each such transaction are applied in accordance with Section 2.06(c); (b) the sale or other disposition of any property in the ordinary course of business; (c) the sale of inventory in the ordinary course of business; (d) the sale or discount without recourse of accounts receivable arising in the ordinary course of business in connection with the compromise or collection thereof; -38- (e) the sale, lease, transfer or other disposition by any wholly owned Subsidiary of any or all of its assets (upon voluntary liquidation or otherwise) to the Company or any other wholly owned Domestic Subsidiary of the Company; and (f) the sale or disposition of any other property (not including accounts receivable arising in the ordinary course of business) not in the ordinary course of business provided that all such sales shall not exceed, in the aggregate, $500,000 and that the proceeds of such sales shall be applied in accordance with Section 2.06(c). Section 6.18. SALE AND LEASEBACK TRANSACTIONS. The Company shall not, and shall not permit any of its Subsidiaries to, enter into any sale and leaseback transaction. Section 6.19. BUSINESS ACTIVITIES. The Company will not, and will not permit any Subsidiary to, engage in any business other than a Permitted Business, except to such extent as would not be material to the Company and its Subsidiaries taken as a whole. ARTICLE 7. EVENTS OF DEFAULT Section 7.01. EVENTS OF DEFAULT DEFINED; ACCELERATION OF MATURITY; WAIVER OF DEFAULT. In case one or more of the following (each, an "Event of Default"), whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body, shall have occurred and be continuing: (a) default in the payment of all or any part of the principal or premium, if any, on any of the Notes as and when the same shall become due and payable either at maturity, upon any redemption, by declaration or otherwise; or (b) default in the payment of any installment of interest upon any of the Notes or any fees payable under this Agreement or any amount payable under Section 2.07 as and when the same shall become due and payable and continuance of such default for a period of 10 days; or (c) failure on the part of the Company to observe or perform any of the covenants contained in Sections 6.07 through 6.19 (other than Sections 6.13 and 6.15) of this Agreement; or (d) failure on the part of the Company or any Guarantor to observe or perform any other of the covenants or agreements contained in the Financing Documents, if such failure shall continue for a period of 45 days after the date on which written notice thereof shall have been given to the Company by a Holder; or (e) the Company or any of its Subsidiaries shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or is debts -39- under any bankruptcy, insolvency or other similar law now or hereafter in effect in any jurisdiction or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay As debts as they become due, or shall take any corporate action to authorize any of the foregoing; or (f) an involuntary case or other proceeding shall be commenced against the Company or any of its Subsidiaries seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 90 days; or an order for relief shall be entered against the Company or any of its Subsidiaries under the bankruptcy laws as now or hereafter in effect in any jurisdiction; or (g) there shall be a default in respect of any Debt of the Company or any of its Subsidiaries in an aggregate principal amount in excess of $5,000,000 whether such Debt now exists or shall hereafter be created (excluding the Notes) if such default results in acceleration of the maturity of such Debt; or the Company or any of its Subsidiaries shall fail to pay at maturity any such Debt whether such Debt now exists or shall hereafter be created; or (h) a final judgment for the payment of money which exceeds $5,000,000 shall be rendered against the Company or any of its Subsidiaries by a court of competent jurisdiction and shall remain undischarged for a period (during which execution shall not be effectively stayed) of 60 days after such judgment becomes final; or (i) any of the Financing Documents shall for any reason fail to constitute the legal, valid and binding agreement of the Company or any Guarantor, as the case may be, or any such Person shall, directly or indirectly, contest in any manner the effectiveness, validity, binding nature or enforceability thereof; or (j) any of the following events, to the extent that such events, singly or in the aggregate, could reasonably be expected to give rise to a liability of the Company, any Subsidiary or any ERISA Affiliate in excess of $1,000,000: (i) the Company, any Subsidiary or any ERISA Affiliate shall fail to pay when due any amount or amounts, which such entity shall have become liable to pay under Title IV of ERISA; (ii) notice of intent to terminate a Qualified Plan shall be filed under Title IV of ERISA by the administrator of any Plan, the Company, any Subsidiary, any ERISA Affiliate or any combination of the foregoing; (iii) the PBGC shall institute proceedings under Title IV of ERISA to terminate, impose liability (other than for premiums due under Section 4007 of ERISA and not in default) in respect of or cause a trustee to be appointed to administer, any Plan; (iv) a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Qualified Plan be terminated; or (v) the -40- Company, any Subsidiary or any ERISA Affiliate shall incur a partial or complete withdrawal from a Multiemployer Plan; then, and in each and every such case (other than under clauses (e) and (f) with respect to the Company), unless the principal of all the Notes shall have already become due and payable, the Majority Holders (or, if at such time the Purchaser no longer holds at least 50% of the aggregate outstanding principal amount of the Notes, Holders of at least 33 1/3% of the aggregate outstanding principal amount of the Notes), by notice in writing to the Company and the agent bank under the Senior Credit Facilities, may declare the entire principal amount of the Notes together with accrued interest thereon to be immediately due and payable; provided that for so long as the Senior Credit Facilities are in -------- effect, such acceleration shall not become effective until the earlier of (i) five Business Days after the notice of acceleration is given to the Administrative Agent (as defined in the Senior Credit Agreement) or (ii) the date on which the Designated Senior Debt is accelerated. If an Event of Default specified in clauses (e) or (f) occurs, the principal of and accrued interest on the Notes will be immediately due and payable without any notice, declaration or other act on the part of the Holders. The Majority Holders may annul any such notice of acceleration or past Defaults (other than monetary Defaults not yet cured) by delivering a notice of annulment to the Company and the Administrative Agent (as defined in the Senior Credit Agreement). ARTICLE 8. LIMITATION ON TRANSFERS Section 8.01. RESTRICTIONS ON TRANSFER. From and after the Issuance Date, none of the Notes shall be transferable except upon the conditions specified in Sections 8.02 and 8.03, which conditions are intended to ensure compliance with the provisions of the Securities Act in respect of the Transfer of any of such Notes or any interest therein. The Purchaser will cause any proposed transferee of any Notes (or any interest therein) held by it to agree to take and hold such Notes (or any interest therein) subject to the provisions and upon the conditions specified in this Section 8.01 and in Sections 8.02 and 8.03. Section 8.02. RESTRICTIVE LEGENDS. (a) Each Note issued to the Purchaser or to a subsequent transferee shall (unless otherwise permitted by the provisions of Section 8.02(b) or Section 8.03) include a legend in substantially the following form: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD, UNLESS IT HAS BEEN REGISTERED UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE AND THEN ONLY IN COMPLIANCE WITH THE RESTRICTIONS ON -41- TRANSFER SET FORTH IN THE SECURITIES PURCHASE AGREEMENT DATED AS OF NOVEMBER 25, 1998, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER OF THIS SECURITY AT ITS PRINCIPAL EXECUTIVE OFFICE. (b) Any Holders of Notes registered pursuant to the Securities Act and qualified under applicable state securities laws may exchange such Notes on transfer for new securities that shall not bear the legend set forth in paragraph (a) of this Section 8.02. Section 8.03. NOTICE OF PROPOSED TRANSFERS. (a) Five Business Days prior to any proposed Transfer (other than Transfers of Notes (i) registered under the Securities Act, (ii) to an Affiliate of the Purchaser or a general partnership in which the Purchaser or any of its Affiliates is one of the general partners or (iii) to be made in reliance on Rule 144A under the Securities Act ("Rule 144A")) of any Notes, the holder thereof shall give written notice to the Company of such holder's intention to effect such Transfer, setting forth the manner and circumstances of the proposed Transfer, and shall be accompanied by (i) an opinion of counsel reasonably satisfactory to the Company addressed to the Company to the effect that the proposed Transfer of such Notes may be effected without registration under the Securities Act, (ii) such representation letters in form and substance reasonably satisfactory to the Company to ensure compliance with the provisions of the Securities Act and (iii) such letters in form and substance reasonably satisfactory to the Company from each such transferee stating such transferee's agreement to be bound by the terms of this Agreement. Such proposed Transfer may be effected only if the Company shall have received such notice of transfer, opinion of counsel, representation letters and other letters referred to in the immediately preceding sentence, whereupon the holder of such Notes shall be entitled to Transfer such Notes in accordance with the terms of the notice delivered by the holder to the Company. Each Note transferred as above provided shall bear the legend set forth in Section 8.02(a) except that such Note shall not bear such legend if the opinion of counsel referred to above is to the further effect that neither such legend nor the restrictions on Transfer in Sections 8.01 through 8.03 are required in order to ensure compliance with the provisions of the Securities Act. (b) Five Business Days prior to any proposed Transfer of any Notes to be made in reliance on Rule 144A, the holder thereof shall give written notice to the Company of such holder's intention to effect such Transfer, setting forth the manner and circumstances of the proposed Transfer and certifying that such Transfer will be made (i) in full compliance with Rule 144A and (ii) to a transferee that (A) such holder reasonably believes to be a "qualified institutional buyer" within the meaning of Rule 144A and (B) is aware that such Transfer will be made in reliance on Rule 144A. Such proposed Transfer may be made only if the Company shall have received such notice of transfer, whereupon the holder of such Notes shall be entitled to Transfer such Notes in accordance with the terms of the notice delivered by the holder to the Company. Each Note transferred as above provided shall bear the legend set forth in Section 8.02(a). -42- (c) Any term or provision hereof to the contrary notwithstanding, in no event may any Note be transferred to a Competitor, unless such Note has been registered pursuant to the Securities Act, has been transferred in reliance on Rule 144A under the Securities Act or the transferor thereof has received the prior written approval of the Company. ARTICLE 9. SUBORDINATION Section 9.01. NOTES SUBORDINATED TO SENIOR DEBT. The Company for itself and its successors, and each Holder, by its acceptance of the Notes, agrees that the payment of the principal amount of the Notes, premium (if any) and interest thereon, any obligation to redeem or repurchase Notes, Warrants or Warrant Shares pursuant to any Financing Documents, and any claim for rescission or damages in respect thereof under any applicable law (the "Subordinated Obligations") by the Company is subordinated, to the extent and in the manner provided in this Article 9, to the prior payment in full in cash or cash equivalents of all Senior Debt (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed); provided, that the -------- provisions of this Article 9 do not apply to, and the Notes are not subordinated in respect of, the proceeds of the Permanent Financing. This Article 9 will constitute a continuing offer to all Persons who, in reliance upon its provisions, become holders of, or continue to hold, Senior Debt, and such provisions are made for the benefit of the holders from time to time of Senior Debt, and such holders are made obligees under this Article 9 and they and/or each of them may enforce its provisions. Section 9.02. NO PAYMENT ON NOTES IN CERTAIN CIRCUMSTANCES. (a) No payment will be made on account of the Subordinated Obligations, or to acquire any of the Notes, Warrants or Warrant Shares for cash, property or securities, or on account of the redemption provisions of the Notes, Warrants or Warrant Shares or upon the occurrence of a Change of Control, (x) upon the maturity of any Senior Debt by lapse of time, acceleration or otherwise, unless and until all such Senior Debt shall first be paid in full in cash or cash equivalents or provided for in cash or cash equivalents or provision for the payment in full in cash or cash equivalents have been made with respect thereto, in each case, in a manner satisfactory to the holders of Senior Debt or (y) in the event that the Company defaults in the payment of any principal of or interest on or any other amounts payable on or due in connection with any Senior Debt when it becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise, unless and until such default has been cured or waived in writing. (b) Upon the occurrence of any event of default (or if an event of default would result upon any payment with respect to the Subordinated Obligations) with respect to any Designated Senior Debt, as such event of default is defined in the instruments evidencing such Designated Senior Debt or under which it is outstanding, permitting the holders to accelerate its maturity (if the default is other than default in payment of the principal of or interest on or any other amount due in connection with such Designated Senior Debt), upon written notice of the event of default -43- given to the Company by the holders of such Designated Senior Debt (or their agent or representative), then, unless and until such event of default has been cured or waived in writing, no payment will be made by the Company with respect to the Subordinated Obligations or to acquire any of the Notes, Warrants or Warrant Shares for cash, property or securities or on account of the redemption provisions of the Notes, Warrants or Warrant Shares; provided, that the foregoing will not prevent the making of any payment for a period of more than 179 days after the date the written notice of the default is given unless such Designated Senior Debt in respect of which such event of default exists has been declared due and payable in its entirety within that period, and that declaration has not been rescinded. If such Designated Senior Debt is not declared due and payable within 179 days after the written notice of the default is given, promptly after the end of the 179-day period the Company will pay all sums not paid during the 179-day period because of this paragraph (b) unless paragraph (a) above is then applicable. During any period of 360 consecutive days only one such period during which payment of principal of, or interest on, the Notes may not be made may commence and the duration of such period may not exceed 179 days. (c) If any payment or distribution of assets of the Company is received by any Holder in respect of the Subordinated Obligations at a time when that payment or distribution should not have been made because of subsection (a) or (b) above, such payment or distribution will be received and held in trust for and will be paid over to the holders of Senior Debt which is due and payable and remains unpaid or unprovided for (pro rata as to each of such holders on the basis of the respective amounts of such Senior Debt which is due and payable) until all such Senior Debt has been paid in full in cash or cash equivalents or provided for in cash or cash equivalents, in each case, in a manner satisfactory to the holders of Senior Debt, after giving effect to any concurrent cash payment or distribution or provision therefor to the holders of such Senior Debt. Section 9.03. NOTES SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR DEBT ON DISSOLUTION, LIQUIDATION OR REORGANIZATION. (a) Upon any distribution of assets of the Company upon any dissolution, winding up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency, receivership or similar proceeding related to the Company or its property or upon an assignment for the benefit of creditors, any marshaling of the Company's assets or liabilities, or otherwise): (i) the holders of all Senior Debt will first be entitled to receive payment in full in cash or cash equivalents or provision for payment in full in cash or cash equivalents in a manner satisfactory to the holders of Senior Debt of the principal of and interest on Senior Debt and other amounts due in connection with Senior Debt (including interest accruing subsequent to an event specified in Sections 7.01(e) and (f) (or which would have accrued but for the occurrence of such event) at the rate provided for in the documents governing such Senior Debt, whether or not such interest is an allowed claim enforceable against the debtor in a bankruptcy case under Title 11 of the United States -44- Code), before the Holders are entitled to receive any payment on account of the principal of, premium (if any) or interest on the Notes; (ii) any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holders would be entitled except for the provisions of this Section 9.03 will be paid by the liquidating trustee or agent or other person making such a payment or distribution directly to the holders of Senior Debt or their representatives to the extent necessary to make payment in full in cash or cash equivalents or provision for payment in full in cash or cash equivalents in a manner satisfactory to the holders of Senior Debt of all Senior Debt remaining unpaid, after giving effect to any concurrent cash payment or distribution or provision therefor to the holders of such Senior Debt; and (iii) if, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities is received by the Holders on account of the Subordinated Obligations before all Senior Debt is paid in full in cash or cash equivalents or provided for in cash or cash equivalents in a manner satisfactory to the holders of Senior Debt, such payment or distribution will be received and held in trust for and will be paid over to the holders of the Senior Debt remaining so unpaid or unprovided for or their representatives for application to the payment of such Senior Debt until all such Senior Debt has been paid in full in cash or cash equivalents or provided for in cash or cash equivalents in a manner satisfactory to the holders of Senior Debt, after giving effect to any concurrent cash payment or distribution or provision therefor to the holders of such Senior Debt. (b) The Company will give prompt written notice to the Holders of any dissolution, winding up, liquidation or reorganization of it or any assignment for the benefit of its creditors and of any event of default in respect of any Senior Debt. (c) For purposes of this Section 9.03, (i) "distribution" and "payment" with respect to the Company or its assets include payments, distributions and other transfers of assets by or on behalf of the Company from any source, of any kind or character, whether direct or indirect, by set-off or otherwise, whether in cash, property or securities, (ii) "payment on the account of the Subordinated Obligations" shall not include the Warrants, any shares issued upon exercise of the Warrants or any sale or transfer of any of the foregoing (other than a repurchase or redemption of any such Warrants or shares by the Company) or any payment made with the proceeds of the Permanent Financing and (iii) "cash equivalents" means Cash Equivalents described in clause (a) of the definition thereof. Section 9.04. HOLDERS TO BE SUBROGATED TO RIGHTS OF HOLDERS OF SENIOR DEBT. Following the payment in full in cash or cash equivalents or provision for payment in full in cash or cash equivalents in a manner satisfactory to the holders of Senior Debt of all Senior Debt, the Holders will be subrogated to the rights of the holders of Senior Debt to receive payments or distributions of assets of the Company applicable to the Senior Debt until all amounts owing on the Notes -45- have been paid in full, and for the purpose of such subrogation no such payments or distributions to the holders of Senior Debt by or on behalf of the Company or by or on behalf of the Holders by virtue of this Article 9 which otherwise would have been made to the Holders will, as between the Company and the Holders, be deemed to be payment by the Company to or on account of the Senior Debt, it being understood that the provisions of this Article 9 are and are intended solely for the purpose of defining the relative rights of the Holders, on the one hand, and the holders of Senior Debt, on the other hand. Section 9.05. OBLIGATIONS OF THE COMPANY UNCONDITIONAL. Nothing contained in this Article 9 or elsewhere in the Notes is intended to or will impair, as between the Company and the Holders, the obligations of the Company, which are absolute and unconditional, to pay to the Holders the Subordinated Obligations as and when they become due and payable in accordance with their terms, or is intended to or will affect the relative rights of the Holders and creditors of the Company other than the holders of the Senior Debt, nor will anything herein or therein prevent any Holder from exercising all remedies otherwise permitted by applicable law upon default under the Notes, subject to the rights if any, under this Article 9 of the holders of Senior Debt. Section 9.06. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF THE COMPANY OR HOLDERS OF SENIOR DEBT. No right of any present or future holders of any Senior Debt to enforce subordination as provided herein will at any time or in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act by any such holder, or by any noncompliance by the Company with the terms of this Article 9, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. The holders of Senior Debt may extend, renew, modify or amend the terms of the Senior Debt or any security or guaranty therefor or thereof, and release, sell or exchange such security, exercise or refrain from exercising any rights against the Company, any of its Subsidiaries or any other Person, and otherwise deal freely with the Company, all without affecting the liabilities and obligations of the parties to the document or the Holders. No amendment to these provisions will be effective against the holders of the Senior Debt who have not consented thereto in writing. Section 9.07. NOT TO PREVENT EVENTS OF DEFAULT. The failure to make a payment on account of the Subordinated Obligations by reason of any provision of this Article 9 will not be construed as preventing the occurrence of an Event of Default. Section 9.08. MISCELLANEOUS. Each Holder hereby authorizes and expressly directs the Purchaser on its behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Section and appoints the Purchaser its attorney-in-fact for such purpose, including, without limitation, in the event of any dissolution, winding up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency, receivership, reorganization or similar proceedings or upon an assignment for the benefit of creditors or any similar remedy or otherwise) tending towards liquidation of the business and assets of the Company, the immediate filing of a claim for the unpaid balance of the Subordinated Obligations in the form required in said proceedings and causing said claim to be approved. If the Purchaser does not file proper claim or proof of debt in the form required in such proceeding prior to the 30th day before -46- expiration of the time to file such claim or claims, then the holders of the Senior Debt are hereby authorized to have the right to file and are hereby authorized to file an appropriate claim for and on behalf of the Holders. In the event of such proceeding, until the Senior Debt is paid in full in cash or cash equivalents, without the consent of the holders of a majority in principal amount of the Senior Debt, no Holder shall waive, settle or compromise any such claim or claims relating to the Subordinated Obligations that such Holder may now or hereafter have against the Company. ARTICLE 10. GUARANTEES Section 10.01. GUARANTEES. (a) Subject to Section 10.03, each of the Guarantors jointly and severally unconditionally guarantees to each Holder, irrespective of the validity and enforceability of the other provisions of this Agreement, or of the Financing Documents, the Notes and the obligations of the Company hereunder or thereunder, that: (i) the principal of, premium (if any) and interest on the Notes shall be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and (to the extent permitted by law) interest on the overdue principal of, premium (if any) and interest on the Notes (including all reasonable costs of collection and enforcement thereof and interest thereon which would be owing by the Company but for the effect of any bankruptcy law, if any), and all other obligations of the Company to the Holders under this Agreement, the Financing Documents and the Notes shall be promptly paid in full when due or performed, all in accordance with the terms of this Agreement, the Financing Documents and the Notes; and (ii) in case of any extension of time of payment or renewal of any Notes, or the issuance of any of such other obligations, that the same shall be promptly paid in full when due or performed in accordance with their terms whether at stated maturity, by acceleration, redemption or otherwise. Failing payment when due of any amount so guaranteed for whatever reason, the Guarantors shall be jointly and severally and unconditionally obligated to pay the same immediately whether or not such failure to pay has become an Event of Default which could cause acceleration pursuant to Section 7.01. Each Guarantor agrees that this is a continuing guarantee of payment and not merely a guarantee of collection. (b) The Guarantors hereby agree that, subject to Section 10.03, their obligations hereunder shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by: (i) any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of the Company under this Agreement, the Financing Documents or the Notes, by operation of law or otherwise; (ii) any modification or amendment of or supplement to any other provisions of this Agreement, or to the Financing Documents or the Notes without the consent of the Guarantors; -47- (iii) any release, non-perfection or invalidity of any direct or indirect security for, or any other guarantee of, any of the obligations guaranteed by this Article 10; (iv) any change in the corporate existence, structure or ownership of the Company, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Company or its assets or any resulting release or discharge of any obligation of the Company contained in this Agreement, the Financing Documents or the Notes; (v) the existence of any claim, set-off or other rights which any Guarantor may have at any time against the Company or any other Person, whether in connection herewith or with any unrelated transactions, provided that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim; (vi) any invalidity or unenforceability relating to or against the Company for any reason of this Agreement, the Financing Documents or the Notes, or any provision of applicable law or regulation purporting to prohibit the payment by the Company of the principal of or interest on the Notes or any other amount payable by it under this Agreement, the Financing Documents or the Notes; (vii) any other act or omission to act or delay of any kind by the Company or any other Person or any other circumstance whatsoever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of any Guarantor's obligations hereunder; or (viii) any issuance of PIK Notes pursuant to Section 2.05(c). (c) Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenant that, subject to this Article 10, this Guarantee shall not be discharged except by complete performance of all obligations on and with respect to the Notes, this Agreement and the Financing Documents. (d) If any Holder is required by any court or otherwise to return to the Company or any of the Guarantors, or any custodian, trustee, liquidator or other similar official acting in relation to either the Company or any of the Guarantors, any amount paid to such Holder, this Guarantee, to the extent of the amount so returned, shall be reinstated in full force and effect. (e) Each Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Holders, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Section 7.01 notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby and -48- (y) in the event of any declaration of acceleration of such obligations as provided in Section 7.01, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Guarantee. The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under this Guarantee. Section 10.02. SUBORDINATION OF GUARANTEES. The obligations of each Guarantor under its Guarantee pursuant to this Article 10 are junior and subordinated to any Senior Debt owed by such Guarantor (including all guarantees by such Guarantor of any Senior Debt) on the same basis as the Notes are junior and subordinate to such Senior Debt under Article 9 (it being understood that delivery of any notice to the Company pursuant to Section 9.02(b) shall constitute notice to each Guarantor hereunder), Section 10.03. LIMITATION ON GUARANTOR LIABILITY. Each Guarantor, and by its acceptance of Notes, each Holder, hereby confirms that it is the intention of all such parties that this Guarantee not constitute a fraudulent transfer or conveyance for purposes of any bankruptcy law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to this Guarantee. To effectuate the foregoing intention, the Holders and the Guarantors hereby irrevocably agree that the obligations of each Guarantor under this Guarantee shall be limited to the maximum amount as will, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Guarantee, result in the obligations of such Guarantor under the Guarantee not constituting a fraudulent transfer or conveyance. Section 10.04. CONSOLIDATION OR MERGER OF GUARANTORS. No Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another corporation, Person or entity whether or not affiliated with such Guarantor unless such corporation, person or entity is the Company or a Guarantor. ARTICLE 11. MISCELLANEOUS Section 11.01. NOTICES. All notices, demands and other communications to any party hereunder shall be in writing (including facsimile or similar writing) and shall be given to such party at its address set forth on the signature pages hereof, or such other address as such party may hereinafter specify for the purpose. Each such notice, demand or other communication shall be effective (i) if given by facsimile, when such facsimile is transmitted to the facsimile number specified on the signature page hereof and electronic confirmation thereof is received, or (ii) if given by overnight courier, addressed as aforesaid or by any other means, when delivered at the address specified in this Section. -49- Section 11.02. NO WAIVERS; AMENDMENTS. (a) No failure or delay on the part of any party in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to any party at law or in equity or otherwise. (b) Any provision of this Agreement may be amended, supplemented or waived if, but only if, such amendment, supplement or waiver is in writing and is signed by the Company and the Majority Holders; provided, that without the -------- consent of each Holder of any Note affected thereby, an amendment, supplement or waiver may not (a) reduce the aggregate principal amount of Notes whose Holders must consent to an amendment, supplement or waiver, (b) reduce the rate or extend the time for payment of interest on any Note, (c) reduce the principal amount of or extend the stated maturity of any Note or (d) make any Note payable in money or property other than as stated in the Notes. In determining whether the Holders of the requisite principal amount of Notes have concurred in any direction, consent or waiver as provided in this Agreement or in the Notes, Notes which are owned by the Company or any other obligor on or guarantor of the Notes, or by any Person controlling, controlled by, or under common control with any of the foregoing, shall be disregarded and deemed not to be outstanding for the purpose of any such determination; and provided, further, that no such -------- ------- amendment, supplement or waiver which affects the rights of the Purchaser and its Affiliates otherwise than solely in their capacities as Holders of Notes shall be effective with respect to them without their prior written consent. Section 11.03. INDEMNIFICATION. (a) The Company (the "Indemnifying Party") agrees to indemnify and hold harmless the Purchaser, its Affiliates, and each Person, if any, who controls the Purchaser, or any of its Affiliates, within the meaning of the Securities Act or the Exchange Act (a "Controlling Person"), and the respective partners, agents, employees, officers and directors of the Purchaser, its Affiliates and any such Controlling Person (each an "Indemnified Party," and collectively, the "Indemnified Parties"), from and against any and all losses, claims, damages, liabilities and expenses (including, without limitation and as incurred, reasonable costs of investigating, preparing or defending any such claim or action, whether or not such Indemnified Party is a party thereto) arising out of, or in connection with any activities contemplated by this Agreement or any other services rendered in connection herewith, including, but not limited to, losses, claims, damages, liabilities or expenses arising out of or based upon any untrue statement or any alleged untrue statement of a material fact or any omission or any alleged omission to state a material fact in any of the disclosure or offering or confidential information documents (the "Disclosure Documents") pertaining to any of the transactions or proposed transactions contemplated herein, including any eventual refinancing or resale of the Notes; provided, that the Indemnifying Party will not be responsible for any claims, - -------- liabilities, losses, damages or expenses that are determined by final judgment of a court of competent jurisdiction to result solely from such Indemnified Party's gross negligence, willful misconduct or bad faith. The Indemnifying Party also agrees that -50- (i) no Purchaser shall have liability (except for breach of provisions of this Agreement) for claims, liabilities, damages, losses or expenses, including legal fees, incurred by the Indemnifying Party in connection with this Agreement, unless they are determined by final judgment of a court of competent jurisdiction to result from the Purchaser's gross negligence, willful misconduct or bad faith and (ii) no Purchaser shall in any event have any liability to the Company on any theory of liability for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of or in connection with, or as a result of this Agreement. (b) If any action shall be brought against an Indemnified Party with respect to which indemnity may be sought against the Indemnifying Party under this Agreement, such Indemnified Party shall promptly notify the Indemnifying Party in writing and the Indemnifying Party shall, if requested by such Indemnified Party or if the Indemnifying Party desires to do so, assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Party and payment of all reasonable fees and expenses. The failure to so notify the Indemnifying Party shall not affect any obligations the Indemnifying Party may have to such Indemnified Party under this Agreement or otherwise unless the Indemnifying Party is materially adversely affected by such failure. Such Indemnified Party shall have the right to employ separate counsel in such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party, unless: (i) the Indemnifying Party has failed to assume the defense and employ counsel reasonably satisfactory to such Indemnified Party or (ii) the named parties to any such action (including any impleaded parties) include such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the Indemnifying Party, in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense of such action or proceeding on behalf of such Indemnified Party, provided, however, that the Indemnifying Party shall not, in connection with any - -------- ------- one such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be responsible hereunder for the reasonable fees and expenses of more than one such firm of separate counsel, in addition to any local counsel, which counsel shall be designated by the Purchaser. The Indemnifying Party shall not be liable for any settlement of any such action effected without the written consent of the Indemnifying Party (which consent shall not be unreasonably withheld) and the Indemnifying Party agrees to indemnify and hold harmless each Indemnified Party from and against any loss or liability by reasons of settlement of any action effected with the consent of the Indemnifying Party. In addition, the Indemnifying Party will not, without the prior written consent of the Purchaser, settle or compromise or consent to the entry of any judgment in or otherwise seek to terminate any pending or threatened action, claim, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not any Indemnified Party is a party thereto) unless such settlement, compromise, consent or termination includes an express unconditional release of the Purchaser and the other Indemnified Parties, reasonably satisfactory in form and substance to the Purchaser, from all liability arising out of such action, claim, suit or proceeding. -51- (c) If for any reason the foregoing indemnity is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless, then in lieu of indemnifying the Indemnified Party, the Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party as a result of such claims, liabilities, losses, damages, or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Indemnifying Party on the one hand and by the Purchaser on the other from the transactions contemplated by this Agreement or (ii) if the allocation provided by clause (i) is not permitted under applicable law, in such proportion as is appropriate to reflect not only the relative benefits received by the Indemnifying Party on the one hand and the Purchaser on the other, but also the relative fault of the Indemnifying Party and the Purchaser as well as any other relevant equitable considerations. Notwithstanding the provisions of this Section 11.03, the aggregate contribution of all Indemnified Parties shall not exceed the amount of fees actually received by the Purchaser pursuant to this Agreement. It is hereby further agreed that the relative benefits to the Indemnifying Party on the one hand and the Purchaser on the other with respect to the transactions contemplated hereby shall be deemed to be in the same proportion as (i) the aggregate principal amount of Notes issued by the Company bears to (ii) the fees actually received by the Purchaser pursuant to this Agreement. The relative fault of the Indemnifying Party on the one hand and the Purchaser on the other with respect to the transactions contemplated hereby shall be determined by reference to, among other things, whether any untrue or alleged untrue statement of material fact or the omission or alleged omission to state a material fact related to information supplied by the Indemnifying Party or by the Purchaser and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. No Indemnified Party shall have any liability to the Indemnifying Party or any other Person in connection with the services rendered pursuant to the Commitment except for the liability for claims, liabilities, losses or damages finally determined by a court of competent jurisdiction to be due to such Indemnified Party's willful misconduct, or gross negligence. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. (d) The indemnification, contribution and expense reimbursement obligations set forth in this Section 11.03 (i) shall be in addition to any liability the Indemnifying Party may have to any Indemnified Party at common law or otherwise, (ii) shall survive the termination of this Agreement and the payment in full of the Notes and (iii) shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Purchaser or any other Indemnified Party. Section 11.04. EXPENSES. The Company agrees to pay all reasonable out-of-pocket costs, expenses and other payments in connection with the purchase and sale of the Notes, the Warrants and the Warrant Shares as contemplated by this Agreement and the other Financing Documents, including without limitation (i) reasonable fees and disbursements of special counsel and any local counsel for the Purchaser incurred in connection with the preparation of this Agreement and the other Financing Documents, (ii) all reasonable out-of-pocket expenses of the Purchaser, including reasonable fees and disbursements of counsel, in connection with any waiver or consent hereunder or any amendment hereof or thereof or any Default or alleged Default hereunder and (iii) if an -52- Event of Default occurs, all reasonable out-of-pocket expenses incurred by the Purchaser and each Holder of Notes, including reasonable fees and disbursements of a single counsel (which counsel shall be selected by the Purchaser if the Purchaser is a Holder of Notes when such Event of Default occurs), in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. Section 11.05. PAYMENT. The Company agrees that, so long as the Purchaser shall own any Notes purchased by it from the Company hereunder, the Company will make payments to the Purchaser of all amounts due thereon by wire transfer by 1:00 P.M. (New York City time) on the date of payment to such account as is specified beneath the Purchaser's name on the signature page hereof or to such other account or in such other similar manner as the Purchaser may designate to the Company in writing. Section 11.06. CONFIDENTIALITY. The Purchaser shall not use confidential information obtained from the Company by virtue of the transactions contemplated by this Agreement or their other relationships with the Company in connection with the performance by the Purchaser of services for other companies, and the Purchaser shall not furnish any such information to other companies. The Purchaser has no obligation to use in connection with the transactions contemplated by this Agreement, or to furnish to the Company, confidential information obtained from other companies. Section 11.07. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall inure to the benefit of the Company, the Purchaser, the holders of the Senior Debt and their respective successors and assigns; provided that the -------- Company may not assign or otherwise transfer its rights or obligations under this Agreement to any other Person without the prior written consent of the Majority Holders. All provisions hereunder purporting to give rights to the Purchaser and its Affiliates, or to Holders are for the express benefit of such Persons. Section 11.08. BROKERS. The Company represents and warrants that, except for CIBC Oppenheimer Corp., it has not employed any broker, finder, financial advisor or investment banker who might be entitled to any brokerage, finder's or other fee or commission in connection with the SuperGraphics Acquisition or the sale of the Notes. Section 11.09. NEW YORK LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HERETO HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN THE CITY OF NEW YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A -53- COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. Section 11.10. SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. Section 11.11. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original with the same effect as if the signatures thereto and hereto were upon the same instrument. Section 11.12. SURVIVAL. Any term or provision hereof to the contrary notwithstanding, Sections 6.01 and 6.06 shall survive the termination of this Agreement and the payment in full of the Notes until the sale by the Purchaser (or its Affiliates) of all of its (or their) Warrants and Warrant Shares. [Signature Pages Follow] -54- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executedby their respective authorized officers, as of the date first above written. COMPANY: -------- UNIDIGITAL INC. By: /s/ William E. Dye ------------------------------------ Name: William E. Dye Title: Chief Executive Officer Address for Notices: Unidigital Inc. 229 West 28th Street New York, NY 10001 Telecopier: (212) 244-7815 Attention: William E. Dye Chief Executive Officer GUARANTORS: ---------- UNIDIGITAL ELEMENTS (NY), INC. By: /s/ William E. Dye ------------------------------------ Name: William E. Dye Title: Chief Executive Officer Address for Notices: Unidigital Inc. 229 West 28th Street New York, NY 10001 Telecopier: (212) 244-7815 Attention: William E. Dye Chief Executive Officer UNIDIGITAL ELEMENTS (SF), INC. By: /s/ William E. Dye ------------------------------------ Name: William E. Dye Title: Chief Executive Officer Address for Notices: Unidigital Inc. 229 West 28th Street New York, NY 10001 Telecopier: (212) 244-7815 Attention: William E. Dye Chief Executive Officer UNISON (NY), INC. By: /s/ William E. Dye ------------------------------------ Name: William E. Dye Title: Chief Executive Officer Address for Notices: Unidigital Inc. 229 West 28th Street New York, NY 10001 Telecopier: (212) 244-7815 Attention: William E. Dye Chief Executive Officer UNISON (MA), INC. By: /s/ William E. Dye ------------------------------------ Name: William E. Dye Title: Chief Executive Officer Address for Notices: Unidigital Inc. 229 West 28th Street New York, NY 10001 Telecopier: (212) 244-7815 Attention: William E. Dye Chief Executive Officer MEGA ART CORP. By: /s/ William E. Dye ------------------------------------ Name: William E. Dye Title: Chief Executive Officer Address for Notices: Unidigital Inc. 229 West 28th Street New York, NY 10001 Telecopier: (212) 244-7815 Attention: William E. Dye Chief Executive Officer PURCHASER: CIBC WOOD GUNDY CAPITAL CORP. By: /s/ Richard White ------------------------------------ Name: Richard White Title: Managing Director Address for Notices: CIBC Wood Gundy Capital Corp. 425 Lexington Avenue, 9th Floor New York, NY 10017 Telecopier: 212-697-1544 Attention: Richard White Wiring Instructions: CIBC Wood Gundy Capital Corp. ABA# 021-000-018 The Bank of New York A/C# 890-0331-046 FCT# 550-00-000-01 EX-10.4 8 NOTE NOTE THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD, UNLESS IT HAS BEEN REGISTERED UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE AND THEN ONLY IN COMPLIANCE WITH THE RESTRICTIONS ON TRANSFER SET FORTH IN THE SECURITIES PURCHASE AGREEMENT DATED AS OF NOVEMBER 25, 1998, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER OF THIS SECURITY AT ITS PRINCIPAL EXECUTIVE OFFICE. No. 1 $10,000,000.00 UNIDIGITAL INC. Senior Subordinated Increasing Rate Note ---------------------------------------- UNIDIGITAL INC., a Delaware corporation (together with its successors, the "Company"), for value received hereby promises to pay to CIBC WOOD GUNDY CAPITAL CORP. and registered assigns (the "Holder") the principal sum of TEN MILLION DOLLARS by wire transfer of immediately available funds to the Holder's account at such bank in the United States as may be specified in writing by the Holder to the Company, on the Maturity Date in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest on the unpaid principal amount hereof on the dates and at the rate or rates provided for in the Securities Purchase Agreement. Reference is made to the Securities Purchase Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. This Note is one of a duly authorized issue of Senior Subordinated Increasing Rate Notes of the Company (the "Notes") referred to in the Securities Purchase Agreement, dated as of November 25, 1998, among the Company, the Guarantors named therein and the Purchaser named therein (as the same may be amended, supplemented or otherwise modified from time to time in accordance with its terms, the "Securities Purchase Agreement"). The Notes are transferable and assignable to one or more purchasers, in accordance with the limitations set forth in the Securities Purchase Asgreement. The Company agrees to issue from time to time replacement Notes in the form hereof to facilitate such transfers and assignments. The payment of the principal amount of the Notes, premium (if any) and interest thereon, and any claim for rescission or damages in respect thereof under any applicable law by the Company is subordinated to the prior payment of Senior Debt to the extent and in the manner provided in Article 9 of the Securities Purchase Agreement, and each Holder of Notes, by his acceptance hereof, accepts and agrees to be bound by such provisions. The Company shall keep at its principal office a register (the "Register") in which shall be entered the names and addresses of the registered holders of the Notes and particulars of the respective Notes held by them and of all transfers of such Notes. References to the "Holder" or "Holders" shall mean the Person listed in the Register as the payee of any Note. The ownership of the Notes shall be proven by the Register. This Note shall be deemed to be a contract under the laws of the State of New York, and for all purposes shall be construed in accordance with the laws of said State. The parties hereto, including all guarantors or endorsers, hereby waive presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Note, except as specifically provided herein, and assent to extensions of the time of payment, or forbearance or other indulgence without notice. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. Dated: November 30, 1998 UNIDIGITAL INC. By:/s/ William E. Dye --------------------- Name: William E. Dye Title: Chief Executive Officer 2 -----END PRIVACY-ENHANCED MESSAGE-----