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                                                                    EXHIBIT 10.7


                  SECURITY AGREEMENT dated as of April 3, 1997, among Unidigital
Elements (NY), Inc. (formerly known as Linographics Corporation), a New York
corporation, Unidigital/Cardinal Corporation, a Delaware corporation, Unidigital
Elements (SF), Inc. (formerly known as Linographics (Delaware) Corp.), a
Delaware corporation, and Unidigital/Boris Corporation, a Massachusetts
corporation (each, a "Debtor" and collectively, the "Debtors"), and The Chase
Manhattan Bank, as lender (the "Bank").

                  Reference is hereby made to the Credit Agreement dated as of
April 3, 1997 (as amended, supplemented, or modified from time to time, the
"Credit Agreement") among the Borrowers and the Bank. Terms used herein as
defined terms and not otherwise defined herein shall have the meanings given
thereto in the Credit Agreement.

                  The Bank has agreed to make Loans to the Debtors, all upon the
terms and subject to the conditions specified in the Credit Agreement. The
obligations of the Bank to make Loans is conditioned on, among other things, the
execution and delivery by the Debtors of a security agreement in the form
hereof.

                  NOW, THEREFORE, the parties hereto hereby agree as follows:


                                   ARTICLE I.

         Section 1.01. Definitions. In addition to the terms defined above, the
following words and terms shall have the respective meanings, and it is hereby
agreed with respect thereto, as follows:

                  "Account Debtor" shall mean any Person who is or may become
obligated under, with respect to or on account of an Account Receivable.

                  "Accounts Receivable" shall mean in respect of any Debtor, (i)
all present and future "accounts", "chattel paper" and "documents", as such
terms are defined in the Uniform Commercial Code, of such Debtor, (ii) without
limiting the foregoing, all right, title and interest, and all the rights,
remedies, security and Liens, in, to and in respect of any Accounts Receivable
of such Debtor, including, without limitation, all right, title and interest of
such Person in any returned goods, all guaranties or other contracts of
suretyship with respect to Accounts Receivable, deposits, or other security for
the obligation of any Account Debtor, any credit or other insurance, any rights
to stoppage in transit, replevin, reclamation, or resale, and (iii) without
limiting the foregoing, all right, title and interest of such Debtor in, to and
in respect of invoices or other documents or instruments with respect to, or
otherwise representing or evidencing, any Account Receivable.

                  "Agreement" shall mean this Security Agreement, as it shall be
amended, supplemented or otherwise modified from time to time.

                  "Collateral" shall mean and collectively refer to all of the
present and future right, title and interest of each Debtor in (i) all of its
Accounts Receivable, General Intangibles,


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Inventory, Equipment and Records, and all other personal property of such Debtor
and (ii) all Proceeds, rent, issues, profits, and products of, and all
distributions and collections in respect of, the foregoing property described in
clause (i); in each case whether now owned or hereafter acquired and wherever
located.

                  "Equipment" shall mean, in respect of any Debtor, all present
and future machinery, equipment (including, without limitation, all
manufacturing, warehouse, and office equipment), fixtures, trade fixtures,
engineering drawings and diagrams, tools and tooling (including any rights in
respect of tools or tooling in the possession of others), computer and other
data processing equipment, furniture, office, production or data processing
supplies on hand or in transit, other miscellaneous supplies and other tangible
property of any kind now owned or hereafter acquired by such Debtor or in which
such Debtor now has or may hereafter acquire any right, title or interest and
wheresoever located, in all its forms, including, without limitation, all
"equipment" of such Debtor within the meaning of the Uniform Commercial Code and
all such property located in any plant, warehouse, office or other space leased,
owned or occupied by such Debtor and all of such Debtor's interest in all
leasehold improvements and any and all additions, accessions and appurtenances
thereto, substitutions therefor and replacements thereof, together with all
attachments, components, parts and accessories installed thereon or affixed
thereto.

                  "General Intangibles" shall mean, in respect of any Debtor,
all general intangibles of such Person of every nature, whether now existing or
hereafter acquired, arising or created, and shall include, in any event, all
"general intangibles" within the meaning of the Uniform Commercial Code, and,
without limiting the foregoing, all Intellectual Property, all goodwill and
deposit accounts and all contracts, causes of action and choses in action,
suits, judgments, statutory and other claims and demands, whether or not now
known to exist, including in respect of intercompany loans, and including all
Federal, state and other income tax refunds of such Person and all rights and
claims of subrogation, recoupment, contribution or indemnity (whether in equity,
at law, by contract or otherwise) of such Person against any other Person,
including, without limitation, any letter of credit, guarantee, claim, security
interest, or other security held to secure payment by an Account Debtor of any
Account Receivable.

                  "Intellectual Property" shall mean, in respect of any Debtor,
all intellectual and similar property of such Debtor of every kind and nature
now owned or hereafter acquired by such Debtor, including inventions, designs,
patents, patent applications, copyrights, copyright registrations, applications
to register copyrights, licenses, trademarks (including service marks),
trademark or service mark applications, trade names, trade secrets, confidential
or proprietary technical and business information, know-how, show-how or other
data or information, software and databases and all embodiments or fixations
thereof and related documentation, registrations and franchises, and all
additions, improvements and accessions to, and books and records describing or
used in connection with, any of the foregoing.

                  "Inventory" shall mean, in respect of any Debtor, all present
and future inventory of such Debtor of every type or description, including,
without limitation, all goods now owned or hereafter acquired, held for sale or
lease, or furnished or to be furnished under contracts of service or consumed in
such Person's business (including all such goods that have been returned or
repossessed), whether raw, in process or finished, all materials or equipment
useable in processing the same, scrap inventory, spare parts, all supplies, all
packaging


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materials, all documents of title covering any inventory and all additions and
accessions thereto, and shall include, in any event, all "inventory" within the
meaning of the Uniform Commercial Code, wherever located.

                  "Obligations" shall mean, collectively, (a) the due and
punctual payment of (i) the principal of and premium, if any, and interest
(including interest accruing during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding) on the Loans when and as due, whether at maturity,
by acceleration, upon one or more dates set for repayment or prepayment or
otherwise, (ii) all other monetary obligations, including fees, costs, expenses
and indemnities, whether primary, secondary, direct, contingent, fixed or
otherwise (including monetary obligations incurred during the pendency of any
bankruptcy, insolvency, receivership or other similar proceeding, regardless of
whether allowed or allowable in such proceeding), of the Debtors to the Bank
under the Credit Agreement, of the Guarantor under the Guarantee Agreement, and
of the Debtors and of the other Credit Parties under any other Loan Documents
(including this Agreement) to which the Debtors or such other Credit Parties are
or are to be parties, and (b) the due and punctual performance of all covenants,
agreements, obligations and liabilities of the Debtors under or pursuant to the
Credit Agreement and of the Borrowers and of the other Credit Parties under the
other Loan Documents (including the Guarantee Agreements and this Agreement).

                  "Proceeds" shall have the meaning assigned to it under the
Uniform Commercial Code and, in any event, shall include but not be limited to
any consideration received from the sale, exchange, lease or other disposition
of any asset or property which constitutes Collateral, any distribution in
respect thereof or payment or collection thereon, and any payment received from
any insurer or other Person as a result of the destruction, loss, theft or other
involuntary conversion of whatever nature of any asset or property that
constitutes Collateral, and shall include, without limitation, all cash and
negotiable instruments received or held by the Bank pursuant to any lockbox or
similar arrangement relating to the payment of Accounts Receivable.

                  "Records" shall mean, in respect of any Debtor, all
instruments, files, ledgers and books of account and other records of such
Debtor, including, without limitation, all customer lists, computer programs,
computer disks and tapes, printouts and other materials upon which is stored any
information relating to such Debtor's business, now owned or hereafter acquired,
wherever located.

         Section 1.02. Terms Generally. The definitions in Section 1.01 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits, and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. References to
provisions of statutes, rules, regulations, and other documents shall be deemed
to include successor provisions thereto. Except as otherwise expressly provided
herein, all terms of an accounting or financial nature shall be construed in
accordance with GAAP, as in effect from time to time.


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                                   ARTICLE II.

         Section 2.01. Security Interest. As security for the due and punctual
payment and performance of its Obligations, each Debtor hereby mortgages,
pledges, assigns, transfers, sets over, hypothecates conveys, grants and
delivers to the Bank, its successors and its assigns, a first priority security
interest in all of such Debtor's right, title, and interest in, to, and under
the Collateral.

         Section 2.02. Representations, Warranties and Covenants. Each Debtor
hereby represents and warrants to, and covenants with, the Bank, as follows:

                           (A) Except for the foregoing security interest
granted to the Bank, such Debtor is and will at all times continue to be the
direct owner of, and have good and marketable title to the Collateral in respect
of which it has purported to grant a security interest hereunder, free and clear
of all Liens (other than Permitted Encumbrances), and has not made and will not
make any assignment, pledge, hypothecation or transfer of, or create or suffer
to exist any Lien, on any such Collateral other than (i) Permitted Encumbrances
and (ii) Liens in favor of the Bank.

                           (B) Such Debtor (i) has, and at all times will have,
good right and full legal power and authority to grant, confirm and continue the
security interest granted hereunder and to execute, deliver, and perform its
obligations hereunder, all without the consent or approval of any party, other
than any such consent or approval as has been obtained and (ii) will defend its
title and interest to the Collateral and the security interest (and priority
thereof) of the Bank against any and all attachments, Liens, or other
impediments of any nature, however arising, of all persons whomsoever.

                           (C) The Perfection Certificate in the form of Exhibit
2.02 hereto has been duly prepared, completed and executed and the information
set forth therein is correct and complete. Fully executed Uniform Commercial
Code financing statements or other appropriate filings, recordings or
registrations (other than, in respect of copyrights, such as would be made in
the United States Copyright Office) containing a description of the Collateral
have been delivered to the Bank for filing in each governmental, municipal or
other office specified in Schedule 4 to the Perfection Certificate, which are
all the filings, recordings and registrations that are necessary to publish
notice of and protect the validity of and to establish a valid and perfected
security interest in favor of the Bank in respect of all Collateral (other than
copyrights, to the extent that recordings and registration in the United States
Copyright Office may be necessary) in which the security interest granted
hereunder may be perfected by filing, recording or registration in the United
States (or any political subdivision thereof) and its territories and
possessions, and no further or subsequent filing, refiling, recording,
rerecording, registration or reregistration is necessary in any such
jurisdiction, except as provided under applicable law with respect to the filing
of continuation statements (and except that recordation in addition to
registration of any unregistered copyrights in the United States Copyright
Office may be necessary with respect to Collateral consisting of copyrights).

                           (D) Such Debtor will not (i) change its chief
executive office or Taxpayer Identification Number or remove its records, except
if otherwise permitted hereunder and if to a location within the continental
United States of America and upon at least thirty (30) days' prior written
notice to the Bank thereof or (ii) change its name (or do business under


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other names), identity or structure (including, without limitation, by merger or
consolidation, whether or not permitted under the Credit Agreement) unless the
Bank shall have received at least thirty (30) days' prior notice thereof and (in
any such case under clause (i) or (ii)) prior to effecting or permitting any
such change such Debtor shall have taken such action, satisfactory to the Bank,
to maintain the security interest of the Bank in all the Collateral granted
hereunder at all times valid, fully perfected and in full force and effect.

                           (E) Such Debtor shall not permit or suffer any of the
Equipment or Inventory to be located at any place other than the locations
specified in the Perfection Certificate (except in connection with sales of such
Inventory permitted in the ordinary course of business) unless the Bank shall
have received thirty (30) days' prior written notice thereof and such Debtor
shall have taken such action, satisfactory to the Bank, to maintain the security
interest in such Equipment or Inventory at all times following such change of
location valid, fully perfected and in full force and effect.

                           (F) Such Debtor shall at all times keep such accurate
and complete accounting records with respect to the Collateral as is consistent
with its current practices and in accordance with such prudent and standard
practices used in industries that are the same as or similar to those in which
such Debtor is engaged and, at such time or times as the Bank may reasonably
request, promptly prepare and deliver to the Bank a duly certified schedule or
schedules in form and detail reasonably satisfactory to the Bank showing the
identity, amount and location of any and all Collateral.

                           (G) The security interest of the Bank hereunder
constitutes a valid security interest in all the Collateral, and such security
interest secures the payment and performance of the Obligations, prior to any
other Lien in any of the Collateral.

                           (H) Upon appropriate filing of completed Uniform
Commercial Code financing statements as contemplated by paragraph (c) above, the
security interest of the Bank shall be a fully perfected security interest in
all of the Collateral in which a security interest may be perfected by filing or
recording (except for recordation or registration in respect of copyrights).

                           (I) Such Debtor has not and will not consent to the
filing or recording by any Person of, or in respect of, any Lien in any
Collateral (except by or on behalf of the Bank in respect of its security
interest hereunder).

         Section 2.03. No Assumption of Liability. The security interest of the
Bank is granted as security only and shall not subject the Bank to, or in any
way alter or modify, any obligation or liability of any Debtor with respect to
or arising out of any of the Collateral. Each Debtor shall remain liable to, at
its own cost and expense, duly and punctually observe and perform all the
conditions and obligations to be observed and performed by it under each
contract, agreement or instrument relating to the Collateral, all in accordance
with the terms and conditions thereof, and each Debtor agrees to indemnify and
hold harmless the Bank from and against any and all liability for such
performance.

         Section 2.04. Periodic Certification. Each year, at the time that
delivery of annual financial statements with respect to the preceding fiscal
year is required pursuant to the Credit Agreement, each Debtor shall deliver to
the Bank a certificate executed by the chief financial


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officer of such Debtor setting forth the information required pursuant to
Section 2 of the Perfection Certificate.

         Section 2.05.     Matters Relating to Collateral.

                           (A) Each Debtor agrees, at its expense, to execute,
acknowledge, deliver and cause to be duly filed all such further instruments and
documents and take all such actions as the Bank may from time to time reasonably
request to better assure, preserve, protect and perfect the security interest
and the rights and remedies created hereby, including the payment of any fees
and taxes required in connection with the execution and delivery of this
Agreement, the granting of the security interest hereunder and the filing of any
financing statements or other documents in connection herewith. If any amount
payable under or in connection with any of the Collateral shall be or become
evidenced by any promissory note or other instrument (other than a check issued
in payment in the ordinary course of business and timely deposited), such note
or instrument shall be immediately pledged and delivered to the Bank, duly
endorsed in a manner satisfactory to the Bank (and shall be received, and held
uncommingled in trust for the benefit of the Bank pending such endorsement and
delivery).

                           (B) The Bank and such persons as the Bank may
reasonably designate shall have the right, at any reasonable time or times upon
reasonable notice and at the Debtor's own cost and expense, to inspect the
Collateral, all Records related thereto (and to make extracts and copies from
such Records) and the premises upon which any of the Collateral is located, to
discuss any Debtor's affairs with the officers of such Debtor and its
independent accountants and to verify under reasonable procedures the validity,
amount, quality, quantity, value, condition and status of or any other matter
relating to, the Collateral, including, in the case of Accounts Receivable or
Collateral in the possession of any third party, by contacting Account Debtors
or the third party in possession of such Collateral for the purpose of making
such a verification.

                           (C) At its option, the Bank may discharge past due
taxes, assessments, charges, fees or Liens, at any time levied or placed on the
Collateral (or any part thereof), and may pay for the maintenance and
preservation of the Collateral to the extent any Debtor fails to do so as
required by this Agreement or the other Loan Documents, and such Debtor agrees
to reimburse the Bank on demand for any payment made or any reasonable and
documented expense incurred by the Bank pursuant to the foregoing authorization;
provided, however, that nothing in this paragraph shall be interpreted as
excusing any Debtor from the performance of, or imposing any obligation on the
Bank to cure or perform, any covenants or other promises of any Debtor with
respect to taxes, assessments, charges, fees or Liens or maintenance as set
forth herein or in the other Loan Documents.

                           (D) If at any time any Debtor shall take and perfect
a security interest in any property of an Account Debtor or any other Person to
secure payment and performance of an Account Receivable, such Debtor shall
promptly assign such security interest to the Bank. Such assignment need not be
filed of public record unless necessary to continue the perfected status of the
security interest against creditors of and transferees from the Account Debtor
or other person granting the security interest.

         Section 2.06. Use of Collateral. The Debtors may use but not dispose of
the Collateral in any lawful manner not inconsistent with the provisions of this
Agreement, the


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Credit Agreement or any other Loan Document, except that the Debtors may dispose
of Collateral (including sale of Inventory in the ordinary course of business)
to the extent expressly permitted by provisions of the Loan Documents. Without
limiting the generality of the foregoing, each Debtor agrees that it shall not
permit any Inventory to be in the possession or control of any warehouseman,
bailee, agent or processor at any time unless such warehouseman, bailee, agent
or processor shall have been notified of the security interest hereunder and
shall have agreed in a writing in form and substance reasonably satisfactory to
the Bank to hold the Inventory subject to the security interest hereunder and
the instructions of the Bank and to waive and release any Lien held by it with
respect to such Inventory, whether arising by operation of law or otherwise.

         Section 2.07.     Modifications, etc.

                           (A) None of the Debtors will, without the Bank's
prior written consent, grant any extension of the time of payment of any of the
Accounts Receivable, compromise, compound or settle the same for less than the
full amount thereof, release, wholly or partly, any person liable for the
payment thereof or allow any credit or discount whatsoever thereon, other than
extensions, credits, discounts, compromises or settlements granted or made in
the ordinary course of business and consistent with prior practice. After a
default or an Event of Default shall have occurred and during the continuation
thereof, the Bank may notify the Debtors not to grant or make any such
extension, credit, discount, compromise, or settlement under any circumstances
without its prior written consent.

                           (B) Without limiting any other provisions of this
Agreement, upon the occurrence and during the continuation of an Event of
Default, the Bank may, in its sole discretion, in its name or in the name of any
Debtor, or otherwise, demand, sue for, collect or receive any money or property
at any time payable or receivable on account of or in exchange for, or make any
compromise or settlement deemed desirable with respect to, any of the
Collateral, but shall be under no obligation to do so, and the Bank may extend
the time of payment, arrange for payment in installments, or otherwise modify
the terms of, or release, any of the Collateral, without thereby incurring
responsibility to, or discharging or otherwise affecting any liability of, any
Debtor. The Bank will not be required to take any steps to preserve any rights
against prior parties to the Collateral. The Bank may (but shall not be
obligated to) after notice to any Debtor, make such payments and take all such
other action as the Bank deems necessary to protect its security interest in the
Collateral hereunder and/or the value thereof, and the Bank is hereby authorized
(without limiting the general nature of any authority elsewhere herein
conferred) to pay, purchase, contest, or compromise Lien on any of the
Collateral.

                                  ARTICLE III.

         Section 3.01.     Remedies, Possession, Sale of Collateral, etc.

                           (A) Upon the occurrence and during the continuation
of an Event of Default, each Debtor agrees to deliver each item of Collateral to
the Bank on demand, and it is agreed that the Bank shall have the right (subject
to applicable law) to take any of or all the following actions at the same or
different times: (i) in respect of any Collateral consisting of Intellectual
Property, on demand, to cause the security interest hereunder therein to become
an


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assignment, transfer and conveyance of any of or all such Collateral by such
Debtor to the Bank, and in connection therewith to affix a date to and file with
the United States Patent and Trademark Office any instrument of assignment held
by the Bank for such purpose; or to license or, to the extent permitted by
applicable law, sublicense, whether general, special or otherwise, and whether
on an exclusive or non-exclusive basis, any such Collateral throughout the world
on such terms and conditions and in such manner as the Bank shall determine
(other than in violation of any then-existing licensing arrangements to the
extent that waivers cannot be obtained), and (ii) with or without legal process
and with or without previous notice or demand for performance, to take
possession of the Collateral and without liability for trespass to enter any
premises where the collateral may be located for the purpose of taking
possession of or removing the Collateral, to demand and receive Collateral from
any Person in possession thereof, to take such measures as it may deem necessary
or proper for the care or protection thereof, and, generally, to exercise any
and all rights afforded to a secured party under the Uniform Commercial Code or
other applicable law. Without limiting the generality of the foregoing, the Bank
may sell or cause to be sold, whenever it shall decide, in one or more sales or
parcels, at such prices as it may deem best, and for cash, on credit or for
future delivery, without assumption of any credit risk, all or any portion of
the Collateral, at any broker's board or at public or private sale, without
demand of performance or notice of intention to sell or of time or place of sale
(except ten (10) days' written notice to the Debtors of the time and place of
such sale, which the Debtors hereby agree to be commercially reasonable, and
such other notices as may be required by applicable statute and cannot be
waived), the Bank shall have the right to assign, transfer and deliver to the
purchaser or purchasers thereof the Collateral so sold, and any Person may be
the purchaser of all or any portion of the Collateral so sold and thereafter
hold the same absolutely, free from any claim or right of whatever kind,
including any equity of redemption of any Debtor, any such demand, notice,
claim, right or equity being hereby expressly waived and released. At any sale
or sales made pursuant to this Agreement, the Bank may bid for or purchase, free
from any claim or right of whatever kind, including any equity of redemption of
any Debtor, any such demand, notice, claim, right or equity being hereby
expressly waived and released, all or any portion of the Collateral offered for
sale, and may make any payment on account thereof by using any claim for money
then due and payable to the Bank from any Debtor as a credit against the
purchase price, and may hold, retain, and dispose of such property without
further accountability to such Debtor in respect thereof. At any such sale, the
Collateral, or portion thereof, to be sold may be sold in one lot as an entirety
or in separate parcels, as the Bank may (in its sole and absolute discretion)
determine. The Bank shall not be obligated to make any sale of any Collateral if
it shall determine not to do so, regardless of the fact that notice of sale of
such Collateral shall have been given. The Bank may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for
sale, and such sale may, without further notice, be made at the time and place
to which the same was so adjourned. In case any sale of all or any part of the
Collateral is made on credit or for future delivery, the Collateral so sold may
be retained by the Bank until the sale price is paid in full by the purchaser or
purchasers thereof, but the Bank shall not incur any liability in case any such
purchaser or purchasers shall fail to take up and pay for the Collateral so sold
and, in case of any such failure, such Collateral may be sold again as if not
previously so sold. For purposes hereof, (i) a written agreement to purchase the
Collateral or any portion thereof shall be treated as a sale thereof, (ii) the
Bank shall be free to carry out such sale pursuant to such agreement and (iii)
no Debtor shall be entitled to the return of the Collateral or any portion
thereof subject thereto, notwithstanding the fact that after the Bank shall have
entered into such an agreement all Events of Default shall have been remedied
and the Obligations paid in full.


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The Bank shall in any such sale have no obligations or responsibility whatsoever
to make any representations or warranties with respect to the Collateral or any
part thereof, and shall not be chargeable with any of the obligations or
liabilities of any Debtor. As an alternative to exercising the power of sale
herein conferred upon it, the Bank may proceed by a suit or suits at law or in
equity to foreclose upon the Collateral and to sell the Collateral or any
portion thereof pursuant to a judgment or decree of a court or courts having
competent jurisdiction or pursuant to a proceeding by a court-appointed
receiver. Any sale pursuant to the provisions of this Section shall be deemed to
conform to the commercially reasonable standards as provided in Section 9-504(3)
of the Uniform Commercial Code as in effect in the State of New York or its
equivalent in other jurisdictions.

                           (B) Each Debtor hereby agrees that it will indemnify
and hold the Bank, and its officers, directors, employees, agents, and
representatives harmless (except for its or their own wilful misconduct or gross
negligence) from and against any and all claims with respect to the Collateral
asserted both before and after the taking of actual possession or control of the
Collateral by the Bank pursuant to this Agreement, or arising out of any act or
omission of any party other than the Bank prior to such taking of actual
possession or control by the Bank, or arising out of any act or omission of such
Debtor, or any agents thereof, before or after the commencement of such actual
possession or control by the Bank. In any action hereunder the Bank shall be
entitled to the appointment, without notice, of a receiver to take possession of
all or any portion of the Collateral and to exercise such powers as the court
shall confer upon such receiver. Notwithstanding the foregoing, upon the
occurrence of an Event of Default, and during the continuation of such Event of
Default, the Bank shall be entitled to apply, without prior notice to any
Debtor, any cash or cash items constituting Collateral in the possession of the
Bank to payment of the Obligations.

         Section 3.02. Grant of License to Use Intellectual Property. For the
purpose of enabling the Bank to exercise its rights and remedies hereunder, each
Debtor hereby grants to the Bank an irrevocable, non-exclusive license
(exercisable without payment of royalty or other compensation to such Debtor) to
use, license or sub-license any of the Collateral consisting of Intellectual
Property now owned or hereafter acquired by such Debtor to the extent of the
interest of such Debtor therein at such time, and wherever the same may be
located, and including in such license reasonable access to all media in which
any of the licensed items may be recorded or stored and to all computer software
and programs used for the compilation or printout thereof. The use of such
licenses by the Bank shall be exercised, at the option of the Bank upon the
occurrence and during the continuation of an Event of Default, provided that any
license, sub-license or other transaction entered into by the Bank in accordance
herewith shall be binding upon each Debtor notwithstanding any subsequent cure
of an Event of Default. In operating under the license granted by each Debtor
pursuant to this Section, the Bank agrees that the goods sold and services
rendered under the trademarks included in the Intellectual Property shall be of
a nature and quality substantially consistent with those theretofore offered
under the trademarks by such Debtor and such Debtor shall have the right to
inspect during the term of such license, at any reasonable time or times upon
reasonable notice to the Bank, and at such Debtor's own cost and expense,
representative samples of goods sold and services rendered under the trademarks.


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         Section 3.03.     Application of Proceeds Upon Default

                           (A) Each Debtor hereby agrees that it shall upon the
occurrence and during the continuation of an Event of Default, (i) immediately
turn over to the Bank any instruments (with appropriate endorsements) or other
items constituting Collateral not then in the possession of the Bank, the
possession of which is required for the perfection of the Bank's security
interest, all of which shall be held in trust and not commingled prior to its
coming into the Bank's possession, and (ii) take all steps necessary to cause
all sums, monies, royalties, fees, commissions, charges, payments, advances,
income, profits, and other amounts constituting Proceeds of any Collateral to be
deposited directly in an account of the Debtors (or any of them) with the Bank
and to cause such sums to be applied to the satisfaction of the Obligations (in
such order as the Bank shall in its sole discretion determine).

                           (B) Upon the occurrence and during the continuation
of an Event of Default, all income on the Collateral, all proceeds from any sale
of the Collateral pursuant hereto and all deposits in accounts of any Debtor
with the Bank shall be applied (in such order as the Bank shall in its sole
discretion determine) to the payment of the fees and expenses of the Bank
incurred pursuant to this Agreement or any other Loan Document (including,
without limitation, reasonable fees and disbursements of counsel), and to the
payment of the Obligations. Any amounts remaining after such applications shall
be remitted to the Debtors or as a court of competent jurisdiction may otherwise
direct.

         Section 3.04.     Power of Attorney.

                           (A) Each Debtor does hereby irrevocably make,
constitute and appoint the Bank or any officer or designee thereof its true and
lawful attorney-in-fact with full power in the name of the Bank, and of such
Debtor, with power of substitution, to, upon the occurrence and during the
continuation of an Event of Default, receive, open and dispose of all mail
addressed to such Debtor, to endorse any note, check, draft, money order, or
other evidence of payment relating to the Collateral that may come into the
possession of the Bank, with full power and right to cause the mail of such
Debtor to be transferred to the Bank's own offices or otherwise; to communicate
with any Account Debtor in respect of any Accounts Receivable; to commence or
prosecute any suits, actions or proceedings to collect or otherwise realize upon
any Collateral or enforce any rights in respect thereof; to settle, compromise,
adjust or defend any claims in respect of any Collateral; to notify any Account
Debtors or otherwise require them to make payment directly to the Bank; to use,
sell, assign, transfer, pledge, make any agreement with respect to or otherwise
deal with all or any of the Collateral, and to do any and all other acts
necessary or proper to carry out the intent of this Agreement and each other
Loan Document and the grant, confirmation and continuation of the security
interests of the Bank hereunder or thereunder. Such power of attorney is coupled
with an interest and is irrevocable, and shall survive the bankruptcy,
insolvency or dissolution of any or all of the Debtors. Nothing herein contained
shall be construed as requiring or obligating the Bank to make any commitment or
to make any inquiry as to the nature or sufficiency of any payment received by
the Bank, or to present or file any claim or notice, or to take any action with
respect to the Collateral or any part thereof or the moneys due or to become due
in respect thereof or any property covered thereby. The Bank shall be
accountable only for amounts actually received as a result of the exercise of
the powers granted to it herein, and neither it nor its officers, directors,
employees or agents shall be responsible to any Debtor for any act or failure to
act hereunder, except for its or their own gross negligence or willful
misconduct.


                                      -10-
<PAGE>   11
The provisions of this Section shall in no event relieve any Debtor of any of
its obligations hereunder or under the other Loan Documents with respect to the
Collateral or any part thereof or impose any obligation on the Bank to proceed
in any particular manner with respect to the Collateral or any part thereof, or
in any way limit the exercise by the Bank of any other or further right that it
may have on the date of this Agreement or hereafter, whether hereunder, under
any other Loan Document, by law or otherwise. Any sale of Collateral pursuant to
the provisions of this Section and in accordance with the other terms hereof
shall be deemed to conform to the commercially reasonable standards as provided
in Section 9-504(3) of the Uniform Commercial Code as in effect in the State of
New York or its equivalent in other jurisdictions.

                           (B) Without limiting the preceding paragraph, each
Debtor does hereby further irrevocably make, constitute and appoint the Bank or
any officer or designee thereof its true and lawful attorney-in-fact with full
power in the name of the Bank, and of such Debtor, with power of substitution,
(i) to enforce all of such Debtor's rights under and pursuant to all agreements
with respect to the Collateral, all for the sole benefit of the Bank, (ii) to
enter into and perform such agreements as may be reasonably necessary in order
to carry out the terms, covenants and conditions of this Agreement that are
required to be observed or performed by such Debtor, (iii) to execute such other
and further mortgages, pledges and assignments of the Collateral and filings or
recordations in respect thereof as the Bank may require for the purpose of
protecting, maintaining or enforcing the security interest of the Bank
hereunder, (iv) to act as authorized in Section 3.05 hereof, and (v) to do any
and all other things reasonably necessary or proper to carry out the intention
of this Agreement and the grant, confirmation, continuation and perfection of
the security interests of the Bank hereunder. Such power of attorney is coupled
with an interest and is irrevocable, and shall survive the insolvency,
bankruptcy, or dissolution of any or all of the Debtors.

         Section 3.05. Financing Statements, Direct Payments, Confirmation of
Receivables and Audit Rights. Each Debtor hereby authorizes the Bank to file
Uniform Commercial Code financing statements (and any other filings required in
connection with the perfection or preservation of the security interest
hereunder of the Bank in respect of all or any part of the Collateral), and
amendments thereto and continuations thereof with regard to such Collateral,
without its signature, or, in the alternative, to execute such items on behalf
of such Debtor pursuant to the powers of attorney granted in the preceding
Section. Each Debtor further authorizes the Bank to confirm with any Account
Debtor the amounts payable to such Debtor with regard to the Collateral and to
participate with such Debtor in the audits of its respective Account Debtors.
Each Debtor hereby further authorizes the Bank upon the occurrence and during
the continuation of an Event of Default to notify any Account Debtor that all
sums payable to such Debtor relating to the Collateral shall be paid directly to
the Bank.

         Section 3.06. Termination. The security interest granted hereunder
shall terminate when all the Obligations have been fully, finally and
indefeasibly paid and performed, the Revolving Credit Exposure of the Bank shall
be zero, and when the Commitment of the Bank, shall have terminated. Thereupon,
the Bank will execute and deliver, at each Debtor's expense, Uniform Commercial
Code termination statements reasonably requested by such Debtor evidencing the
release of the security interest hereunder, all without recourse to or warranty
by the Bank, and shall also at each Debtor's expense execute and deliver such
documentation as the Debtor may reasonably request to release and cancel
(without recourse or warranty) all licenses and rights referred to in Section
3.02.



                                      -11-
<PAGE>   12
         Section 3.07. Remedies Not Exclusive. The remedies conferred upon or
reserved to the Bank in this Article and elsewhere in this Agreement are
intended to be in addition to, and not in limitation of, any other remedy
available to the Bank.

                                   ARTICLE IV.

                                  MISCELLANEOUS

         Section 4.01. No Discharge. All rights of the Bank hereunder, the
security interest granted hereunder, and the obligations of each Debtor under
this Agreement shall be absolute and unconditional and shall remain in full
force and effect without regard to, and shall not be released, discharged or in
any way diminished by (i) any lack of validity or enforceability of the Credit
Agreement, any other Loan Document (including this Agreement and each Guarantee
Agreement), any other agreement with respect to any of the Obligations or any
other agreement or instrument relating to any of the foregoing, (ii) any change
in the time, manner or place of payment of, or in any other term of, all or any
of the Obligations or any other amendment or waiver of or any consent to any
departure from the Credit Agreement, any other Loan Document or any other
agreement or instrument relating to the foregoing, (iii) any exchange, release
or nonperfection of any other collateral, or any release or amendment or waiver
of or consent to or departure from any guaranty, for all or any of the
Obligations, (iv) any exercise or nonexercise by the Bank of any right, remedy,
power or privilege under or in respect of this Agreement, any other Loan
Document or applicable law, including, without limitation, any failure by the
Bank to setoff or release in whole or in part any balance of any deposit account
or credit on its books in favor of any Credit Party or any waiver, consent,
extension, indulgence or other action or inaction in respect of any thereof, or
(v) any other act or thing or omission or delay to do any other act or thing
which may or might in any manner or to any extent vary the risk of any Credit
Party or would otherwise, but for this specific provision to the contrary,
operate as a discharge of or exonerate any Credit Party as a matter of law.

         Section 4.02. Amendment; Waiver. No amendment or waiver of any
provision of this Agreement, nor consent to any departure by any Debtor
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Bank. Any such waiver, consent or approval shall be effective
only in the specific instance and for the purpose for which given. No notice to
or demand on any Debtor in any case shall entitle any Debtor to any other or
further notice or demand in the same, similar or other circumstances. No waiver
by any Secured Party of any breach or default of or by any Debtor under this
Agreement shall be deemed a waiver of any other previous breach or default or
any thereafter occurring.

         Section 4.03. Survival; Severability.

                           (A) All covenants, agreements, representations and
warranties made by the Debtors herein and in the certificates or other
instruments prepared or delivered in connection with or pursuant to this
Agreement, the Credit Agreement or any other Loan Document shall be considered
to have been relied upon by the Bank and shall survive the making by the Bank of
the Loans, and the execution and delivery to the Bank of any Notes evidencing
such Loans, regardless of any investigation made by the Bank or on its behalf,
and shall continue in


                                      -12-
<PAGE>   13
full force and effect as long as the principal of or any accrued interest on any
Loan or any other fee or amount payable under this Agreement, the Credit
Agreement or any other Loan Document is outstanding and unpaid and as long as
the Commitment has not been terminated and the Bank's Revolving Credit Exposure
is not zero.

                           (B) Any provision of this Agreement that is illegal,
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such illegality, invalidity or unenforceability
without invalidating the remaining provisions hereof or affecting the legality,
validity or enforceability of such provisions in any other jurisdiction. The
parties hereto agree to negotiate in good faith to replace any illegal, invalid
or unenforceable provision of this Agreement with a legal, valid and enforceable
provision that, to the extent possible, will preserve the economic bargain of
this Agreement, or to otherwise amend this Agreement to achieve such result.

         Section 4.04. Successors and Assigns. Whenever in this Agreement any of
the parties hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party; and all covenants, promises and agreements
by or on behalf of any Debtor, or the Bank that are contained in this Agreement
shall bind and inure to the benefit of their respective successors and assigns.
No Debtor may assign or transfer any of its rights or obligations hereunder or
any interest herein or in the Collateral except as expressly contemplated by
this Agreement or the other Loan Documents (and any such attempted assignment
shall be void).

         Section 4.05. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.

         Section 4.06. Headings. The Article and Section headings in this
Agreement are for convenience only and shall not affect the construction hereof.

         Section 4.07. Notices. Notices, consents and other communications
provided for herein shall (except as otherwise expressly permitted herein) be in
writing and given as provided in Section 8.01 of the Credit Agreement.
Communications and notices to any Debtor shall be given to it at its address set
forth in the Credit Agreement or herein.

         Section 4.08. Reimbursement of the Bank.

                           (A) The Debtors jointly and severally agree to pay
upon demand to the Bank the amount of any and all reasonable and documented
expenses, including the reasonable and documented fees and expenses of its
counsel and of any experts or agents, that the Bank may incur in connection with
(i) the administration of the Agreement (including the customary fees and
expenses of the Bank for any audits conducted by it with respect to the Accounts
Receivable or Inventory), (ii) the custody or preservation of, or the sale of,
collection from, or other realization upon, any of the Collateral, (iii) the
exercise or enforcement of any of the rights of the Bank hereunder, or (iv) the
failure by any Debtor to perform or observe any of the provisions hereof. If the
Debtors shall fail to do any act or thing that they have covenanted to do
hereunder or any representation or warranty of the Debtors hereunder shall be
breached, the Bank may (but shall not be obligated to) do the same or cause it
to be done or remedy any such


                                      -13-
<PAGE>   14
breach and there shall be added to the Obligations the cost or expense incurred
by the Bank in so doing.

                           (B) Without limitation of their indemnification
obligations under the other Loan Documents, the Debtors jointly and severally
agree to indemnify the Bank and its officers, directors, employees, agents,
attorneys, and representatives ("Indemnitees") against, and hold each of them
harmless from, any and all losses, claims, damages, liabilities and related
expenses, including reasonable counsel fees and expenses, incurred by or
asserted against any of them arising out of, in any way connected with, or as a
result of, the execution, delivery or performance of this Agreement or any
claim, litigation, investigation or proceeding relating hereto or to the
Collateral, whether or not any Indemnitee is a party thereto, provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities or related expenses have resulted from the
gross negligence or willful misconduct of such Indemnitee.

                           (C) Any amounts payable as provided hereunder shall
be additional Obligations secured hereby and by the other Security Documents.
The provisions of this Section shall remain operative and in full force and
effect regardless of the termination of this Agreement, the consummation of the
transactions contemplated hereby, the repayment of any of the Obligations, the
invalidity or unenforceability of any term or provision of this Agreement, the
Credit Agreement or any other Loan Document or any investigation made by or on
behalf of the Bank. All amounts due under this Section shall be payable on
written demand therefor and shall bear interest at the default rate (as provided
in the Credit Agreement).

         Section 4.09. Counterparts. This Agreement may be executed in separate
counterparts (telecopy of any executed counterpart having the same effect as
manual delivery thereof), each of which shall constitute an original, but all of
which, when taken together, shall constitute but one Agreement.

         Section 4.10. Entire Agreement; Waiver of Jury Trial, etc.

                           (A) Except as expressly herein provided, this
Agreement, the Credit Agreement and the other Loan Documents constitute the
entire agreement among the parties relating to the subject matter hereof. Any
previous agreement among the parties with respect to the transactions
contemplated hereunder is superseded by this Agreement, the Credit Agreement and
the other Loan Documents. Except as expressly provided herein, the Credit
Agreement or in the other Loan Documents, nothing in this Agreement, the Credit
Agreement or in any other Loan Document, expressed or implied, is intended to
confer upon any party, other than the parties hereto, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, the Credit
Agreement or such other Loan Documents.

                           (B) Each Debtor hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of the Supreme Court of the State of New York sitting in New York
County and of the United States District Court of the Southern District of New
York, and any appellate court from any thereof, in any action or proceeding
arising out of or relating to this Agreement, or for recognition or enforcement
of any judgment, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State


                                      -14-
<PAGE>   15
or, to the extent permitted by law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement shall affect any
right that the Bank may otherwise have to bring any action or proceeding
relating to this Agreement against any Debtor or its properties in the courts of
any jurisdiction.

                           (C) Each Debtor hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection which it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this Agreement in
any court referred to in the preceding paragraph. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, the defense
of an inconvenient forum to the maintenance of such action or proceeding in any
such court.

                           (D) Each party to this Agreement irrevocably consents
to service of process in the manner provided for notices in Section 4.07 hereof
or in Section 8.01 of the Credit Agreement. Nothing in this Agreement will
affect the right of any party to this Agreement to serve process in any other
manner permitted by law.

                           (E) WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

                                      -15-
<PAGE>   16
                  IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their duly authorized officers
and delivered as of the day and year first above written.

THE CHASE MANHATTAN BANK                     UNIDIGITAL ELEMENTS (NY), INC.


By:_______________________________           By:_____________________________
   Name:                                        Name:
   Title:                                       Title:


                                             UNIDIGITAL/CARDINAL CORPORATION


                                             By:_____________________________
                                                Name:
                                                Title:


                                             UNIDIGITAL ELEMENTS (SF), INC.



                                             By:_____________________________
                                                Name:
                                                Title:


                                             UNIDIGITAL/BORIS CORPORATION


                                             By:_____________________________
                                                Name:
                                                Title:

                                      -16-