-----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, Iihokp4DaQz6tx5NPu3W4ZubK4pMzoY/ZYpJ22n+oqEGYp0psBwQPhQ/em+fsrmn wZ/KFF4WdrHNb6pTr3twSw== 0000912057-97-001029.txt : 19970116 0000912057-97-001029.hdr.sgml : 19970116 ACCESSION NUMBER: 0000912057-97-001029 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970115 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHAMPION INDUSTRIES INC CENTRAL INDEX KEY: 0000019149 STANDARD INDUSTRIAL CLASSIFICATION: COMMERCIAL PRINTING [2750] IRS NUMBER: 550717455 STATE OF INCORPORATION: WV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-21084 FILM NUMBER: 97506449 BUSINESS ADDRESS: STREET 1: 2450 FIRST AVE STREET 2: P O BOX 2968 CITY: HUNTINGTON STATE: WV ZIP: 25728 BUSINESS PHONE: 3045282791 MAIL ADDRESS: STREET 1: 2450 FIRST AVENUE STREET 2: P O BOX 2968 CITY: HUNTINGTON STATE: WV ZIP: 25728 8-K 1 8-K SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Date of Report (date of earliest event reported): December 31, 1996. Champion Industries, Inc. ------------------------------------------------------------ (Exact name of registrant as specified in its charter)
West Virginia 0-21084 55-0717455 - ----------------------- ------------------------ --------------------- (State or other juris- (Commission File No.) (IRS Employer Identi- diction of corporation) fication No.)
2450 First Avenue P. O. Box 2968 Huntington, West Virginia 25728 - ------------------------------------------------------ ------------- (Address of principal executive offices) (Zip Code)
(304) 528-2791 ---------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable ------------------------------------------------------------ (Former name or former address, if changes since last report) 1 INFORMATION TO BE INCLUDED IN THE REPORT Item 2. Acquisition or disposition of assets. On December 31, 1996, Champion Industries, Inc. ("Champion"), a West Virginia corporation, purchased all the issued and outstanding capital stock of Interform Corporation ("Interform"), a Pennsylvania corporation engaged in the business forms manufacturing business in Bridgeville, Pennsylvania. Pursuant to a Stock Purchase Agreement dated October 28, 1996 between Champion and IRM Services, Inc., the parent company of Interform, Champion paid $2,500,000.00 cash and assumed a certain liability of Interform to IRM Services, Inc. in the amount of $130,000.00. Upon consummation of such purchase, Interform became a wholly owned subsidiary of Champion. Champion utilized the proceeds of a loan from PNC Bank, N.A. to provide the cash consideration required by the Stock Purchase Agreement and to refinance the existing long term debt of Interform. Interform is one of the top fifteen independent business form manufacturers in the United States. It sells through a distributor network concentrated in Eastern Pennsylvania, New Jersey and metropolitan New York, New York. It also engages in direct sales of business forms in the Western, Pennsylvania area through its Consolidated Graphics Communications division. Interform operates a manufacturing facility in Bridgeville, Pennsylvania producing continuous and snap-out business forms, checks and envelopes. Item 7. Financial Statements and Exhibits: (a) Financial statements of businesses acquired are filed herewith. See Exhibit Index on page 3. (b) Pro forma financial information is filed herewith. See Exhibit Index on page 3. (c) Exhibits. The exhibits listed on the Exhibit Index on page 3 of the Form 8-K are filed herewith. 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. CHAMPION INDUSTRIES, INC. ---------------------------------- (Registrant) Date: January 14, 1997 /s/ Joseph C. Worth, III ----------------------------------- Joseph C. Worth, III, Vice President and Chief Financial Officer 2 EXHIBIT INDEX Exhibit 10 Term/Time Note dated December 30, 1996, in amount of $9,000,000 from Champion to PNC Bank, National Association. Page 4. Exhibit 23.1 Consent of Independent Certified Public Accountants. Page 9. Exhibit 99.1 Interform Corporation Financial Statements For the Years Ended December 31, 1995 and 1994. Page 10. Exhibit 99.2 Champion Industries, Inc. and Subsidiaries Pro Forma Unaudited Consolidated Financial Statements. Page 24.
3 EX-10 2 EX-10 EXHIBIT 10 Term/Time Note dated December 30, 1996, in amount of $9,000,000 from Champion to PNC Bank, National Association Term/Time Note PNC BANK $ 9,000,000 December 30, 1996 FOR VALUE RECEIVED, CHAMPION INDUSTRIES, INC., a West Virginia corporation, (the "Borrower"), with an address at 2450-90 First Avenue, Huntington, West Virginia 25703, promises to pay to the order of PNC Bank, National Association (the "Bank"), in lawful money of the United States of America in immediately available funds at its offices located at 249 Fifth Avenue, Pittsburgh, PA 15222, or at such other location as the Bank may designate from time to time, the principal sum of up to NINE MILLION DOLLARS ($9,000,000), together with interest accruing on the outstanding balance from the date hereof, as provided below: 1. Rate of Interest. Amounts outstanding under this Note will bear interest at the greater of Prime Rate or the Federal Funds Effective Rate plus 150 basis points. Interest will be calculated on the basis of a year of 360 days for the actual number of days in each interest period. As used herein, "Prime Rate" shall mean the rate publicly announced by the Bank from time to time as its prime rate. The Prime Rate is not tied to any external rate or index and does not necessarily reflect the lowest rate of interest actually charged by the Bank to any particular class or category of customers. If and when the Prime Rate changes, the Floating Rate will change automatically without notice to the Borrower, effective on the date of any such change. As used herein, "Federal Funds Effective Rate" shall mean the rate per annum (based on a year of 360 days and actual days elapsed and rounded upward to the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or any successor) on such day as being the weighted average of the rates on overnight federal funds transactions arranged by federal funds brokers on the previous trading day, as computed and announced by such Federal Reserve Bank (or any successor) in substantially the same manner as such Federal Reserve Bank computes and announces the weighted average it refers to as the "Federal Funds Effective Rate" as of the date of this Note; provided, if such Federal Reserve Bank (or its successor) does not announce such rate on any day, the "Federal Funds Effective Rate" for such day shall be the Federal Funds Effective Rate for the last day on which such rate was announced. In no event will the rate of interest hereunder exceed the maximum rate allowed by law. 2. Payment Terms. Principal and interest and any other amounts owed under this Note will be due and owing without demand on January 31, 1997. If any payment under this Note shall become due on a Saturday, Sunday or public holiday under the laws of the State where the Bank's office indicated above is located, such payment shall be made on the next succeeding business day and such extension of time shall be included in computing interest in connection with such payment. The Borrower hereby authorizes the Bank to charge the Borrower's deposit accounts at the Bank for any payment when due hereunder. Payments received will be applied to charges, fees and expenses (including attorneys' fees), accrued - 4 - interest and principal in any order the Bank may choose, in its sole discretion. The Borrower will reimburse the Bank on or before January 3, 1997 for attorney's fees incurred in connection with this Note. 3. Default Rate. Upon maturity, whether by acceleration, demand or otherwise, and at the option of the Bank and upon the occurrence of any Event of Default (as hereinafter defined) and during the continuance thereof, this Note shall bear interest at a rate per annum (based on a year of 360 days and actual days elapsed) which shall be two percentage points (2%) in excess of the interest rate in effect from time to time under this Note but not more than the maximum rate allowed by law (the "Default Rate"). The Default Rate shall continue to apply whether or not judgment shall be entered on this Note. 4. Prepayment. This Note may be prepaid in whole or in part at any time without penalty. 5. Use of Proceeds. The proceeds of the loan represented by this Note shall be used exclusively to acquire all the stock of Interform Corporation pursuant to a Stock Purchase Agreement dated as of October 28, 1996 between the Borrower and IRM Services, Inc. Upon the execution of this Note, the Borrower will deliver to the Bank a payoff letter from Mellon Bank, N.A. indicating what amounts Interform Corporation needs to pay in order for Mellon Bank, N.A. to release all of its liens against Interform Corporation. 6. Additional Indebtedness. The Borrower represents and warrants to the Bank that (a) no default (or condition that with the giving of notice or passage of time would become a default) exists under any document relating to any indebtedness for borrowed money of the Borrower or any of its subsidiaries and (b) neither the Borrower nor any of its subsidiaries has incurred any indebtedness for borrowed money that is not reflected accurately on the Borrower's consolidated financial statements for the year ending October 31, 1996, a copy of which has been delivered to the Bank. The Borrower covenants that, except for the indebtedness represented by this Note, neither the Borrower nor any of its subsidiaries will incur additional commitments for indebtedness for borrowed money before the obligations represented by this Note are paid in full. The Borrower may, however, draw funds under its existing $2,000,000 unsecured revolving credit facility with Bank One West Virginia. 7. Events of Default. The occurrence of any of the following events will be deemed to be an "Event of Default" under this Note: (i) the nonpayment of any principal, interest or other indebtedness under this Note when due; (ii) the occurrence of any event of default or default and the lapse of any notice or cure period under any other debt, liability or obligation to the Bank of the Borrower or any of its subsidiaries; (iii) the filing by or against the Borrower or any of its subsidiaries of any proceeding in bankruptcy, receivership, insolvency, reorganization, liquidation, conservatorship or similar proceeding (and, in the case of any such proceeding instituted against the Borrower or any of its subsidiaries, such proceeding is not dismissed or stayed within 30 days of the commencement thereof); (iv) any assignment by the Borrower or any of its subsidiaries for the benefit of creditors, or any levy, garnishment, attachment or similar proceeding is instituted against any property of the Borrower or any of its subsidiaries held by or deposited with the Bank; (v) a default with respect to any other indebtedness of the Borrower or any of its subsidiaries for borrowed money; (vi) the commencement of any foreclosure or forfeiture proceeding, execution or attachment against the Borrower or any of its subsidiaries; (vii) the entry of a final judgment against the Borrower or any of its subsidiaries and the failure of the Borrower or any of its subsidiaries to discharge the judgment within ten days of the entry thereof; (viii) any material - 5 - adverse change in the business, assets, operations, financial condition or results of operations of the Borrower or any of its subsidiaries; (ix) the Borrower or any of its subsidiaries ceases to do business as a going concern; (x) any representation or warranty made by the Borrower to the Bank in this Note is false, erroneous or misleading in any material respect; or (xi) the failure of the Borrower to observe or perform any covenant or other agreement with the Bank contained in this Note. Upon the occurrence of an Event of Default: (a) the Bank shall be under no further obligation to make advances hereunder; (b) if an Event of Default specified in clause (iii) or (iv) above shall occur, the outstanding principal balance and accrued interest hereunder together with any additional amounts payable hereunder shall be immediately due and payable without demand or notice of any kind; (c) if any other Event of Default shall occur, the outstanding principal balance and accrued interest hereunder together with any additional amounts payable hereunder, at the option of the Bank and without demand or notice of any kind, may be accelerated and become immediately due and payable; (d) at the option of the Bank, this Note will bear interest at the Default Rate from the date of the occurrence of the Event of Default; and (e) the Bank may exercise from time to time any of the rights and remedies available to the Bank under this Note or under applicable law. 8. POWER TO CONFESS JUDGMENT: THE BORROWER HEREBY AUTHORIZES AND EMPOWERS THE PROTHONOTARY OR ANY ATTORNEY OF ANY COURT OF RECORD WITHIN THE COMMONWEALTH OF PENNSYLVANIA OR ELSEWHERE AFTER AN EVENT OF DEFAULT UNDER THIS NOTE, TO APPEAR FOR THE BORROWER, AND, WITH OR WITHOUT DECLARATION FILED, CONFESS JUDGMENT AGAINST THE BORROWER IN FAVOR OF THE BANK, AS OF ANY TERM, FOR THE UNPAID BALANCE HEREOF, AND INCLUDING, WITHOUT LIMITATION, ALL ACCRUED AND UNPAID INTEREST, CHARGES, EXPENSES OR OTHER IMPOSITIONS PAYABLE UNDER THIS NOTE, WHETHER BY ACCELERATION OR OTHERWISE WITH COSTS OF SUIT AND A REASONABLE ATTORNEY'S COMMISSION AS CERTIFIED BY THE BANK WITH RELEASE OF ALL ERRORS, WAIVING ALL LAWS EXEMPTING REAL OR PERSONAL PROPERTY FROM EXECUTION TO THE EXTENT THAT SUCH LAWS MAY LAWFULLY BE WAIVED BY THE COMPANY. NO SINGLE EXERCISE OF THE FOREGOING POWER TO CONFESS JUDGMENT SHALL BE DEEMED TO EXHAUST THE POWER, WHETHER OR NOT ANY SUCH EXERCISE SHALL BE HELD BY ANY COURT TO BE VALID, VOIDABLE, OR VOID, BUT THE POWER SHALL CONTINUE UNDIMINISHED AND IT MAY BE EXERCISED FROM TIME TO TIME AS OFTEN AS THE BANK SHALL ELECT, UNTIL SUCH TIME AS THE BANK SHALL HAVE RECEIVED PAYMENT IN FULL OF THE DEBT, INTEREST AND COSTS. BY SIGNING THIS INSTRUMENT, THE BORROWER HEREBY ACKNOWLEDGES THAT IT HAS READ, HAS HAD THE OPPORTUNITY TO HAVE IT REVIEWED BY LEGAL COUNSEL, UNDERSTANDS, AND KNOWINGLY AND VOLUNTARILY AGREES TO THE PROVISIONS CONTAINED HEREIN, INCLUDING THE CONFESSION OF JUDGMENT PROVISION AND UNDERSTANDS THAT A CONFESSION OF JUDGMENT CONSTITUTES A WAIVER OF RIGHTS IT OTHERWISE WOULD HAVE TO PRIOR NOTICE AND A HEARING BEFORE A JUDGMENT IS ENTERED AGAINST IT AND WHICH MAY RESULT IN A COURT JUDGMENT AGAINST THE BORROWER WITHOUT PRIOR NOTICE OR HEARING AND THAT THIS NOTE MAY BE COLLECTED FROM THE BORROWER REGARDLESS OF ANY CLAIM THE BORROWER MAY HAVE AGAINST THE BANK. _______Initial 9. POWER TO EXECUTE ON A JUDGMENT WITHOUT HEARING: THE BORROWER HEREBY AUTHORIZES AND EMPOWERS THE PROTHONOTARY OR ANY ATTORNEY OF ANY COURT OF RECORD OR THE SHERIFF WITHIN THE COMMONWEALTH OF PENNSYLVANIA OR ELSEWHERE, TO TAKE ALL ACTION ALLOWED BY OR PROVIDED FOR IN THE PENNSYLVANIA RULES OF CIVIL PROCEDURE OR OTHER APPLICABLE RULES OF CIVIL PROCEDURE TO EXECUTE ON ANY JUDGMENT ENTERED AGAINST THE BORROWER PURSUANT TO THE CONFESSION OF JUDGMENT SET FORTH ABOVE WITHOUT PRIOR NOTICE OR HEARING OF ANY NATURE WHATSOEVER, WAIVING ALL LAWS EXEMPTING REAL OR PERSONAL PROPERTY FROM EXECUTION, TO THE EXTENT THAT SUCH LAWS - 6 - MAY LAWFULLY BE WAIVED BY THE BORROWER. NO SINGLE EXERCISE OF THE FOREGOING POWER TO EXECUTE ON JUDGMENTS WITHOUT A HEARING SHALL BE DEEMED TO EXHAUST THE POWER, WHETHER OR NOT ANY SUCH EXERCISE SHALL BE HELD BY ANY COURT TO BE VALID, VOIDABLE OF VOID, BUT THE POWER SHALL CONTINUE UNDIMINISHED AND IT MAY BE EXERCISED FROM TIME TO TIME AS OFTEN AS THE BANK SHALL ELECT UNTIL SUCH TIME AS THE BANK SHALL HAVE RECEIVED PAYMENT IN FULL OF THE DEBT, INTEREST AND COSTS. BY SIGNING THIS INSTRUMENT THE BORROWER HEREBY ACKNOWLEDGES THAT IT HAS READ, HAS HAD THE OPPORTUNITY TO HAVE IT REVIEWED BY LEGAL COUNSEL, UNDERSTANDS AND AGREES TO THE PROVISIONS CONTAINED HEREIN, INCLUDING THE POWER TO EXECUTE ON JUDGMENT WITHOUT A HEARING, AND UNDERSTANDS THAT THE POWER TO EXECUTE ON A JUDGMENT WITHOUT A HEARING CONSTITUTES A WAIVER OF RIGHTS IT OTHERWISE WOULD HAVE TO PRIOR NOTICE AND A HEARING BEFORE EXECUTION ON A JUDGMENT, AND THAT THIS NOTE MAY BE COLLECTED FROM THE BORROWER REGARDLESS OF ANY CLAIM THAT THE BORROWER MAY HAVE AGAINST THE BANK. _______ Initial 10. Right to Setoff. In addition to all liens upon and rights of setoff against the money, securities or other property of the Borrower given to the Bank by law, the Bank shall have, with respect to the Borrower's obligations to the Bank under this Note and to the extent permitted by law, a contractual possessory security interest in and a contractual right of setoff against, and the Borrower hereby assigns, conveys, delivers, pledges and transfers to the Bank all of the Borrower's right, title and interest in and to, all deposits, moneys, securities and other property of the Borrower now or hereafter in the possession of or on deposit with, or in transit to, the Bank whether held in a general or special account or deposit, whether held jointly with someone else, or whether held for safekeeping or otherwise, excluding, however, all IRA, Keogh, and trust accounts. Every such security interest and right of setoff may be exercised without demand upon or notice to the Borrower. Every such right of setoff shall be deemed to have been exercised immediately upon the occurrence of an Event of Default hereunder without any action of the Bank, although the Bank may enter such setoff on its books and records at a later time. 11. Miscellaneous. No delay or omission of the Bank to exercise any right or power arising hereunder shall impair any such right or power or be considered to be a waiver of any such right or power, nor shall the Bank's actions or inaction impair any such right or power. The Borrower agrees to pay on demand, to the extent permitted by law, all costs and expenses incurred by the Bank in the enforcement of its rights in this Note and in any security therefor, including without limitation reasonable fees and expenses of the Bank's counsel. If any provision of this Note is found to be invalid by a court, all the other provisions of this Note will remain in full force and effect. The Borrower and all other makers and endorsers of this Note hereby forever waive presentment, protest, notice of dishonor and notice of non-payment. The Borrower also waives all defenses based on suretyship or impairment of collateral. This Note shall bind the Borrower and its successors and assigns, and the benefits hereof shall incur to the benefit of the Bank and its successors and assigns. This Note has been delivered to and accepted by the Bank and will be deemed to be made in the Commonwealth of Pennsylvania. THIS NOTE WILL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE BANK AND THE BORROWER DETERMINED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, EXCLUDING ITS CONFLICT OF LAWS RULES. The Borrower hereby irrevocably consents to the exclusive jurisdiction of any state or federal court for the county or judicial district where the Bank's office indicated above is located, and consents that all service of process be sent by nationally recognized overnight courier service directed to the Borrower at the Borrower's address set forth herein and service so made will be deemed to - 7 - be completed on the business day after deposit with such courier; provided that nothing contained in this Note will prevent the Bank from bringing any action, enforcing any award or judgment or exercising any rights against the Borrower individually, against any property of the Borrower within any other county, state or other foreign or domestic jurisdiction. The Borrower acknowledges and agrees that the venue provided above is the most convenient forum for both the Bank and the Borrower. The Borrower waives any objection to venue and any objection based on a more convenient forum in any action instituted under this Note. 12. WAIVER OF JURY TRIAL. THE BORROWER IRREVOCABLY WAIVES ANY AND ALL RIGHTS THE BORROWER MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY NATURE RELATING TO THIS NOTE, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS NOTE OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS. THE BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY. _______ Initial The Borrower acknowledges that it has read and understood all the provisions of this Note, including the confession of judgment and waiver of jury trial, and has been advised by counsel as necessary or appropriate. WITNESS the due execution hereof as a document under seal, as of the date first written above, with the intent to be legally bound hereby. Witness: CHAMPION INDUSTRIES, INC. By: /s/ Kim Stenger By: /s/ Joseph C. Worth, III ----------------------------------- ------------------------------ Print Name: Kim Stenger Print Name: Joseph C. Worth, III -------------------------- ----------------------- Title: Administrative Assistant Title: Vice President & C. F. O. ------------------------------ --------------------------
- 8 - EX-23.1 3 EX-23.1 Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the inclusion in this Current Report on Form 8-K under the Securities Exchange Act of 1934 of Champion Industries, Inc. of our report dated March 1, 1996 (except for Notes 3, 7, and 11, which are as of September 30, 1996), relating to the balance sheets of Interform Corporation as of December 31, 1995 and 1994, and the related statements of operations and accumulated deficit and cash flows for the years then ended. We also consent to the incorporation by reference in the Registration Statement pertaining to the 1993 Stock Option Plan (Form S-8, No. 33-76790) of Champion Industries, Inc. of our report dated March 1, 1996 (except for Note 3, 7 and 11, which are as of September 30, 1996) with respect to the financial statements of Interform Corporation included in this Current Report on Form 8-K dated January 14, 1997. /s/ Grossman Yanak & Ford Pittsburgh, Pennsylvania January 14, 1997 9 EX-99.1 4 EX-99.1 EXHIBIT 99.1 Interform Corporation Financial Statements For the Years Ended December 31, 1995 and 1994 TABLE OF CONTENTS
Page ------ Independent Auditors' Report 11 Financial Statements for the Years Ended December 31, 1995 and 1994: Balance Sheets 12 Statements of Operations and Accumulated Deficit 13 Statements of Cash Flows 14 Notes to Financial Statements 15
- 10 - INDEPENDENT AUDITORS' REPORT To the Board of Directors of Interform Corporation Pittsburgh, Pennsylvania We have audited the balance sheets of Interform Corporation as of December 31, 1995 and 1994, and the related statements of operations and accumulated deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements present fairly, in all material respects, the financial position of Interform Corporation as of December 31, 1995 and 1994 and the results of its operations and cash flows for the years then ended in conformity with generally accepted accounting principles. As discussed in Note 2, Interform Corporation filed for reorganization under Chapter 11 of the Federal Bankruptcy Code on January 12, 1994; on August 17, 1994, Interform Corporation's plan of reorganization was confirmed. /s/ Grossman Yanak & Ford March 1, 1996 (except for Notes 3, 7 and 11 which are as of September 30, 1996) Pittsburgh, Pennsylvania - 11 - INTERFORM CORPORATION BALANCE SHEETS DECEMBER 31, 1995 AND 1994
ASSETS NOTES 1995 1994 - ----------- -------- ------- ------- CURRENT ASSETS: Cash $ 4,625 $ 15,050 Accounts receivable (less allowance for doubtful accounts of $138,000 and $144,000, respectively). 7 5,029,412 5,307,499 Inventories 1,4,7 2,391,347 2,490,501 Prepaid expenses and other 34,325 41,361 Deferred income tax benefit 1,9 295,008 389,803 ------------ ------------ Total 7,754,717 8,244,214 PROPERTY AND EQUIPMENT - NET 1,5,7,11 2,175,690 3,554,410 OTHER ASSETS - NET 1,6,7 4,915,796 4,791,630 ------------ ------------ TOTAL ASSETS $14,846,203 $16,590,254 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES: Bank overdraft 7 $ 624,547 $ 552,247 Current portion of debt and capital lease obligations 7 3,098,199 2,209,701 Accounts payable 1,261,146 1,461,966 Accrued payroll, vacations and commissions 1,252,656 1,347,785 Payable to parent company in lieu of federal income taxes 1,9 -- 129,265 Accrued state income taxes 1,9 74,433 192,311 Accrued expenses 354,055 516,139 ------------ ------------ Total 6,665,036 6,409,414 ------------ ------------ LONG-TERM LIABILITIES: Long-term debt and capital lease obligations 7,11 1,822,680 3,215,134 Payable to parent company in lieu of federal taxes 1,9 234,260 143,010 Deferred income taxes 1,9 40,909 426,907 ------------ ------------ Total 2,097,849 3,785,051 ------------ ------------ STOCKHOLDER'S EQUITY: 1,3,10 Common stock: Class A 135,460 135,460 Class B 3,387 3,387 Paid-in capital 11,701,487 11,701,487 Accumulated deficit (5,757,016) (5,444,545) ------------ ------------ Stockholder's equity 6,083,318 6,395,789 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $14,846,203 $16,590,254 ------------ ------------ ------------ ------------
See notes to financial statements. - 12 - INTERFORM CORPORATION STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTES 1995 1994 - ----------- -------- -------- --------- NET SALES 1,3 $32,907,352 $34,105,491 COST OF SALES 1 24,094,860 24,519,596 ------------ -------------- GROSS MARGIN 8,812,492 9,585,895 SELLING EXPENSES 4,495,052 4,565,084 GENERAL AND ADMINISTRATIVE EXPENSES 3 4,269,013 3,792,629 REORGANIZATION EXPENSES, NET 2,11 -- 102,743 ------------- --------------- OPERATING INCOME 48,427 1,125,439 ------------- --------------- OTHER INCOME (EXPENSE): Interest income 1,557 1,697 Interest expense (619,004) (589,607) Other 82,661 55,653 ------------- --------------- Total (534,786) (532,257) ------------- --------------- INCOME (LOSS) BEFORE INCOME TAX PROVISION (BENEFIT) (486,359) 593,182 INCOME TAX PROVISION (BENEFIT) 1,9 (173,888) 288,072 ------------- --------------- NET INCOME (LOSS) (312,471) 305,110 ACCUMULATED DEFICIT, BEGINNING OF YEAR (5,444,545) (5,749,655) ------------- --------------- ACCUMULATED DEFICIT, END OF YEAR $(5,757,016) $(5,444,545) ------------- --------------- ------------- ---------------
See notes to financial statements. - 13 - INTERFORM CORPORATION STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994 --------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(312,471) $ 305,110 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation 807,876 1,021,542 Amortization 180,098 167,321 Deferred income taxes (291,203) 64,811 Gain on sale of assets (67,630) (42,576) (Increase) decrease in: Accounts receivable 278,087 (32,568) Inventories 99,154 (244,084) Prepaid expenses and other 7,036 165,364 Other assets (146,239) (64,462) Increase (decrease) in: Accounts payable (200,820) (213,846) Accrued payroll, vacations and commissions (95,129) (8,319) Payable to parent company in lieu of federal income taxes (38,015) 142,370 Accrued state income taxes (117,878) 102,053 Accrued expenses (162,084) (504,133) ----------- ---------- Net cash provided (used) by operating activities (59,218) 858,583 ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Property additions (389,026) (304,819) Proceeds from sale of property 1,027,500 44,500 ----------- ---------- Net cash provided (used) by investing activities 638,474 (260,319) ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in bank overdraft 72,300 181,276 Deferred financing costs (158,025) -- Repayment of debt (3,503,956) (1,526,545) Issuance of debt 3,000,000 750,000 ----------- ---------- Net cash used by financing activities (589,681) (595,269) ----------- ---------- NET INCREASE (DECREASE) IN CASH (10,425) 2,995 CASH, BEGINNING OF YEAR 15,050 12,055 ------------ ------------ CASH, END OF YEAR $ 4,625 $ 15,050 ------------ ------------ ------------ ------------ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 597,699 $ 615,677 ------------ ----------- ------------ ----------- Income taxes $ 131,335 6,864
See notes to financial statements. - 14 - INTERFORM CORPORATION NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION - The December 31, 1994 financial statements of the Company include Interform Corporation ("Interform") and its wholly-owned subsidiary, Consolidated Business Forms Co. ("CBF"). All significant intercompany profits, transactions and account balances were eliminated in consolidation. On December 31, 1994, CBF was merged into Interform Corporation. The Company manufactures and sells various types of business forms and provides mailing services for customers in the eastern United States. Prior to July 1995, the Company also performed commercial printing services, however, this division which had net sales of approximately $3,600,0000 and $4,500,000 in 1995 and 1994, respectively, was closed. This division had an operating loss of approximately $436,000 in 1995 and operating income of approximately $122,000 in 1994 prior to the allocation of corporate overhead. In conjunction with the closure, the Company sold the commercial presses and related peripheral equipment. Proceeds from the sale of equipment in excess of the related debt were utilized to prepay term debt (see Note 7). Interform Corporation is owned indirectly by Guaranty Reassurance Corporation ("GRC"). GRC's subsidiary IRM Services, Inc. ("IRM") holds the stock of Interform Corporation and certain other operating companies. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. INVENTORIES - Inventories are valued at the lower of cost, determined by the last-in, first out ("LIFO") method for raw materials and finished goods and by the first-in, first-out method for work in process, or market. The LIFO reserves at December 31, 1995 and 1994 were $405,146 and $154,146, respectively. PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Depreciation and amortization are provided based on estimated useful lives using the straight-line method for financial statement purposes and accelerated methods for tax purposes. The estimated useful lives used in computing depreciation and amortization for financial statement purposes are as follows: Buildings and building improvements 5 - 20 years Leasehold improvements 5 - 20 years Machinery and equipment 5 - 10 years Furniture and fixtures 5 years Automobiles and trucks 3 - 5 years Maintenance and repairs are charged to expense as incurred; expenditures for renewals and betterments are capitalized. The cost of property sold or retired and the related accumulated depreciation are eliminated from the accounts and the resulting gain or loss is credited or charged to operations. - 15 - OTHER ASSETS - Other assets consist primarily of goodwill which is being amortized over 34 years; deferred financing costs which are being amortized over five years and notes receivable (see Note 6). PROFIT SHARING PLANS - The Company sponsors profit sharing plans in which substantially all employees participate. Contributions are at the discretion of the Company. There were no Company contributions for 1995 and 1994 to the plans. Employees may contribute up to 15% of their compensation, subject to certain limitations, to the plans. INCOME TAXES - The Company is included in Interform's parent company's consolidated federal income tax return. The federal tax provision has been computed as if the Company were on a stand-alone basis in accordance with a tax sharing agreement (see Note 9). Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of current taxes due plus deferred taxes related primarily to differences between the bases of property and equipment and accrued expenses for financial and income tax reporting. The deferred tax assets and liabilities represent future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. 2. CHAPTER 11 FILING On January 12, 1994, Interform filed for reorganization under Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court for the Western District of Pennsylvania. CBF was not included in the filing. Difficulty in complying with terms and conditions of financing agreements, the arbitration award to a former officer (see Note 11) and the excess of current liabilities over current assets, were among the factors that lead to this management decision. Under Chapter 11, certain claims against Interform Corporation in existence prior to the filing of the petition under the Federal Bankruptcy Code were stayed while Interform Corporation continued business operations as a debtor-in-possession subject to the control and supervision of the Bankruptcy Court. Interform Corporation received approval from the Bankruptcy Court to pay or otherwise honor certain of its prepetition obligations, including payments on secured debt, employee wages and insurance. On August 17, 1994, Interform's plan of reorganization was confirmed and provided for the following: - Payment to unsecured creditors in an amount equal to 100% of their agreed-upon claims, which claims were paid on September 6, 1994. - Continuation of the Company's lease for its Bridgeville manufacturing and office facilities subject to the Company being granted a termination option in consideration of a $250,000 payment on September 6, 1994 and another $250,000 payment upon vacating the facility before the expiration of the lease on September 30, 1998. An irrevocable standby letter of credit in the amount of $250,000 was issued to the lessor to ensure that this obligation can be satisfied if required. The Company will continue to pay monthly rent until fully moved from the facility. - 16 - - Infusion of $750,000 in cash from GRC (See Notes 1 and 7) which was received on September 6, 1994 in the form of a subordinated note bearing interest at prime plus 3%. As disclosed in Note 11, a former officer appealed the Company's Chapter 11 status and his treatment thereunder. Reorganization and other expenses for the year ended December 31, 1994 consisted of the following: Arbitration accrual - former officer (Note 11) $(481,840) Professional fees 334,583 Lease modification cost 250,000 --------- Reorganization and other expense, net $ 102,743 --------- --------- 3. RELATED PARTIES The Company had sales to GRC and another subsidiary of GRC which totalled $27,663 and $40,390 for the years ended December 31, 1995 and 1994, respectively. Additionally, the Company incurred expenses of approximately $32,000 and $65,000 in 1995 and 1994, respectively for consulting services rendered by GRC. On March 6, 1995, GRC and the Company entered into an agreement with The Sidney Company for management and consulting services for a two year period ending March 5, 1997. During this time, the Company will pay The Sidney Company management fees and reimburse related expenses. Such fees and expenses approximated $108,000 for the year ended December 31, 1995. In addition to this management agreement, The Sidney Company had an exclusive option to purchase all or a portion of the Company's stock from GRC. This option to purchase the Company expired on March 6, 1996 and has not been renewed. 4. INVENTORIES Inventories consist of the following: 1995 1994 ---- ---- Raw materials $ 498,600 $ 387,307 Work in process 200,552 321,632 Finished goods 1,692,195 1,781,562 ---------- ---------- Total $2,391,347 $2,490,501 ---------- ---------- ---------- ---------- - 17 - 5. PROPERTY AND EQUIPMENT Property and equipment consist of the following: 1995 1994 ---- ---- Land $ 36,000 $ 36,000 Buildings and building improvements 634,507 634,507 Leasehold improvements 482,329 482,329 Machinery and equipment 10,262,707 11,931,116 Furniture and fixtures 848,809 635,332 Automobiles and trucks 94,273 112,796 Construction in progress 71,638 111,778 ----------- ----------- Total 12,430,263 13,943,858 Less accumulated depreciation and amortization 10,254,573 10,389,448 ----------- ----------- Property and equipment - net $ 2,175,690 $ 3,554,410 ----------- ----------- ----------- ----------- Cost of $1,543,236 and accumulated amortization of $609,076 at December 31, 1994 for machinery and equipment held under capital leases are included in the above amounts. 6. OTHER ASSETS Other assets consist of the following: 1995 1994 ---- ---- Goodwill (net of accumulated amortization of $386,925 and $246,225, respectively) $4,562,925 $4,703,625 Notes and other receivables (net of collection allowance of $40,000) 147,209 -- Other 205,662 88,005 ---------- ---------- Total $4,915,796 $4,791,630 ---------- ---------- ---------- ---------- - 18 - 7. DEBT AND CAPITAL LEASE OBLIGATIONS Debt and capital lease obligations consist of the following:
1995 1994 -------- ---------- Revolving line of credit $ 2,644,649 $2,324,727 Secured term loan agreement with Mellon Bank dated February 15, 1995 of $3,000,000; interest payable monthly at prime rate plus 2%; 84 monthly principal payments of $35,714; expiration date of February 15, 2002 2,235,860 -- Secured term loan agreement with PNC of $4,000,000; interest payable monthly at prime rate plus 2.75%; 59 monthly principal payments of $47,619; expiration date of August 31, 1997 -- 1,571,428 Subordinated, unsecured note payable to GRC due August 31, 1997; interest at prime rate plus 3% -- 750,000 Capital lease obligation due January 1999 payable in 84 equal monthly installments of $17,258 based on an annual interest rate of 11.5%; collateralized by certain machinery -- 672,312 Five year term note due March 1996 and payable in monthly installments of $3,594 based on an annual interest rate of 3%; collateralized by a first lien on certain equipment 10,727 49,381 Five year term notes due March 1996 and payable in monthly installments of $626 - $629 based on an annual interest rate of 4%; secured by certain real estate 29,643 43,408 Capital lease with PNC due March 1997 and payable in monthly installments of $612 based on an annual interest rate of 17.5%; collateralized by certain machinery -- 13,579 ------------ ----------- Total 4,920,879 5,424,835 Less current portion 3,098,199 2,209,701 ------------ ----------- Long-term debt and capital lease obligations $1,822,680 $3,215,134 ------------ ----------- ------------ -----------
- 19 - At December 31, 1995 and 1994, the revolving credit and term loan facilities were secured by accounts receivable, equipment, fixtures, inventory and intangibles. The revolving credit and term loan facilities include a number of financial covenants, including restrictions on dividends and capital expenditures and required minimum levels to be achieved for items such as tangible net worth, current ratio, working capital and net income. At December 31, 1995, the Company was not in compliance with certain of the existing loan covenants; however, on September 30, 1996, Mellon Bank retroactively amended the covenants as of December 31, 1995 and for each month thereafter through August 31, 1996 such that the Company was in compliance with the amended and restated covenants. Additionally, covenants were revised from September 30, 1996 through the duration of the loan agreement. As partial consideration for modifying the covenants, GRC must provide a cash flow support agreement to Mellon Bank by November 30, 1996 which would result in the provision of standby letters of credit by GRC to Mellon Bank in an amount equal to any cash flow losses incurred by the Company commencing with the five month period ending December 31, 1996 and continuing quarterly thereafter. The revolving credit agreement in place at December 31, 1995 provided for borrowings not to exceed the lesser of $5,000,000 or the sum of 85% of eligible accounts receivable and 50% of eligible inventory subject to certain limitations. Maximum borrowings under the line of credit in place at December 31, 1994 could not exceed the lesser of $5,000,000 of the sum of certain percentages of accounts receivable and inventory. Maximum availability under the lines of credit had been reduced to approximately $4,240,000 and $4,184,000 at December 31, 1995 and 1994, respectively, pending resolution of the contingency described in Note 11 and the lease situation described in Note 2. At December 31, 1995 and 1994, the Company had remaining availability under the lines of credit (prior to consideration of bank overdrafts - see below) of approximately $1,595,000 and $1,859,000, respectively. Interest on the revolving lines of credit was at prime plus 1.5% and 2.5% at December 31, 1995 and 1994, respectively. The effective rates of interest were 10% and 11% at December 31, 1995 and 1994, respectively. The Company's cash management arrangement with its bank provides that the line of credit be used to fund disbursements as Company checks are presented by payees for payment. Accordingly, at any point in time, the Company has a bank overdraft to the extent of then outstanding checks. At December 31, 1995 and 1994, bank overdrafts were $624,547 and $552,247, respectively. The December 31, 1994 bank overdraft in the amount of $552,247 was reclassified and the current portion of debt and capital lease obligations reduced by a like amount to present the balance sheet on a basis comparable to that as of December 31, 1995. On February 15, 1995, the Company satisfied the PNC secured term loan agreement, the subordinated note payable to GRC and the PNC capital lease obligation with proceeds from a term note with Mellon Bank in the amount of $3,000,000. There was no gain or loss associated with the extinguishment of the debt. The current portion of debt at December 31, 1994 was determined based on the refinancing. In addition to the required principal payments under the secured term loan agreement with Mellon Bank, the Company must prepay an amount equal to 50% of its excess cash flow defined as the excess of net income plus noncash charges - 20 - over capital expenditures, capital lease payments and principal repayments on debt. As discussed in Note 1, the Company sold certain commercial printing equipment in 1995. The excess of the proceeds over the capital lease obligation associated with the equipment, in the amount of $407,000, was utilized to make a prepayment on the Mellon term note. There were no other prepayment requirements related to 1995. The aggregate maturities of debt for the years subsequent to December 31, 1995 are as follows: 1996 $3,098,199 1997 443,329 1998 429,195 1999 428,568 2000 428,568 Thereafter 93,020 ---------- Total $4,920,879 ----------- -----------
8. OPERATING LEASES The Company leases equipment and real estate under various operating leases. Facilities rent and operating lease expense as of December 31, 1995 and 1994 totalled $454,242 and $459,553, respectively. As of December 31, 1995, future minimum rental payments under non-cancelable operating leases are as follows: 1996 $124,711 1997 89,130 1998 70,573 1999 10,200 2000 5,950 -------- Total $300,564 --------- ---------
The Company is also responsible for utilities and real estate taxes on the majority of leased real estate. Expenses for real estate taxes and utilities amounted to approximately $279,000 and $298,000 in 1995 and 1994, respectively. As discussed in Note 2, the lease at the Bridgeville manufacturing and office facilities was modified during the Company's Chapter 11 plan of reorganization and as such the Company does not have a long-term commitment for lease payments for the buildings. - 21 - 9. INCOME TAXES The components of the income tax provision (benefit) are as follows:
1995 1994 ------- ------- Current income tax provision: Federal $110,250 $142,370 State 7,065 80,891 ------------ ---------- Total 117,315 223,261 ------------ ---------- Deferred income tax provision (benefit): Federal (236,171) 71,411 State (55,032) (6,600) ------------- ----------- Total (291,203) 64,811 ------------- ----------- Total provision (benefit) $(173,888) $288,072 ------------- ----------- ------------- -----------
The Company's federal tax provision has been computed as if the Company were on a stand alone basis. Included in the calculation of the current Federal provision is the utilization of $272,000 in Federal operating loss carryforwards for the year ended December 31, 1994. State net operating loss carryforwards of $324,000 were utilized in the calculation of the 1995 state income tax provision. Net current deferred tax assets amounted to $295,008 and $389,803 at December 31, 1995 and 1994, respectively. Net noncurrent deferred tax liabilities consist of:
1995 1994 ------------ ----------- Noncurrent deferred tax liability $ 40,909 $ 426,907 Noncurrent deferred tax assets (net of $17,800 and $55,200 valuation allowance, respectively) -- -- ------------ ----------- Net noncurrent deferred tax liabilities $ 40,909 $ 426,907 ------------ ----------- ------------ -----------
The Company has approximately $178,000 of Pennsylvania operating loss carryforwards which may be utilized in 1996 and 1997. A valuation allowance of $17,800 has been established relative to this state net operating loss due to the short time frame in which it may be utilized and the uncertainty regarding the ability of the Company to utilize the loss carryforward. The portion of the payable to the parent company in lieu of federal taxes at December 31, 1995 and 1994 which is not permitted to be paid in the next year (in accordance with provision of the Mellon loan agreement) is classified as a long-term liability. - 22 - 10. STOCKHOLDER'S EQUITY Interform's common stock structure at December 31, 1995 and 1994 was as follows: Class A - $10 par value, voting, 20,000 shares authorized, 13,546 shares issued and outstanding; Class B - $1 par value, non-voting, 3,386.5 shares authorized, issued and outstanding. 11. COMMITMENTS AND CONTINGENCIES A former officer of the Company filed a demand for arbitration under provisions of an employment agreement seeking payments as severance compensation, insurance and reimbursement for expenses. The Company denied any liability with respect to this matter; however, the arbitrators found in favor of the former officer in August 1993 and awarded approximately $656,000, part of which was immediately payable with the balance due over the life of the former employment agreement. The Company accrued the present value of the obligation of approximately $637,000 as of December 31, 1993. As the Company did not satisfy the terms of the arbitration award, the former officer obtained a judgment and garnished certain bank and customer accounts of Interform Corporation. This combined with other factors explained in Note 2 resulted in the Company seeking protection under Chapter 11 of the Federal Bankruptcy Code in 1994. Despite various objections to Interform's Chapter 11 case by the former officer, the presiding bankruptcy judge entered an order under which this award was reduced to one year of salary and benefits or $155,160. Based on this ruling, the Company reflected a discharge of indebtedness of $481,840 which served to reduce reorganization and other expenses as disclosed at Note 2. The former officer appealed the ruling asserting that the Company sought protection under Chapter 11 only to limit his claim. Appeals were filed with the United States District Court; however, in September 1995 the presiding judge affirmed the bankruptcy court's decision to limit the claim to $155,160. The former officer appealed to the Third Circuit Court of Appeals which on September 25, 1996 affirmed the September 1995 decision of the United States District Court. The only remaining potential level of appeal is to the United States Supreme Court the likelihood of which the Company's legal counsel feels would be remote. The Company is a defendant in other business lawsuits. It is not possible to predict the outcome of the actions. In the opinion of management, however, the disposition of these matters will not have a material effect on the Company's financial position. In March 1996, the Company acquired machinery at a cost of approximately $660,000. The Company obtained an eight year $622,000 term loan from American Capital Resources, Inc. with interest at approximately 10.5%. At December 31, 1995 approximately 45% of the Company's labor force was covered by collective bargaining agreements with no strike provisions. There are separate agreements for the Bridgeville and Lock Haven manufacturing facilities which expire on May 31 and March 31, 1998, respectively. - 23 - EX-99.2 5 EX-99.2 EXHIBIT 99.2 CHAMPION INDUSTRIES, INC. AND INTERFORM CORPORATION Proforma Consolidated Financial Statements (Unaudited) On December 31, 1996, Champion Industries, Inc. (Champion) acquired all of the outstanding common stock of Interform Corporation (Interform) in exchange for cash of $2,500,000. The following pro forma consolidated balance sheet as of July 31, 1996, and the pro forma consolidated income statements for the nine months ended July 31, 1996, and for the year ended October 31, 1995, give effect to the acquisition of 100% of the outstanding common shares of Interform by Champion as if the acquisition had occurred at the beginning of each period presented. The pro forma information is based on the historical financial statements of Champion as of July 31, 1996, and for the nine months then ended, and for the year ended October 31, 1995. The pro forma information is based on the historical financial statements of Interform as of September 30, 1996, and for the nine months then ended, and for the year ended December 31, 1995. This transaction has been accounted for under the purchase method of accounting. On June 30, 1996, Champion acquired all of the outstanding common stock of Smith & Butterfield Co., Inc. in exchange for 66,666 shares (83,333 shares after giving effect to the January 27, 1997, stock split) of Champion common stock with an estimated fair value of $1,200,000. The pro forma information for the nine months ended July 31, 1996, and for the year ended October 31, 1995, gives effect to this transaction under the purchase method of accounting as if the acquisition had occurred at the beginning of each period presented. On November 13, 1995, Champion acquired all of the outstanding common stock of Donihe Graphics, Inc. in exchange for cash of $950,000 and 66,768 shares (104,325 shares after giving effect to the January 27, 1997, and January 22, 1996, stock splits) of Champion's common stock with an estimated fair value of $1,500,000. The pro forma information for the year ended October 31, 1995, gives effect to this transaction under the purchase method of accounting as if the acquisition had occurred on November 1, 1994. The pro forma consolidated financial statements have been prepared by Champion management based upon the audited financial statements of Interform, included elsewhere herein, and the audited financial statements of Donihe Graphics, Inc. and Smith & Butterfield Co., Inc. included in previously filed 1934 Act filings, and the unaudited historical interim financial statements provided by Interform and Smith & Butterfield management. These pro forma consolidated financial statements may not be indicative of the results that actually would have occurred if the combinations had been in effect on the dates indicated or which may be obtained in the future. The pro forma consolidated financial statements should be read in conjunction with the audited financial statements and notes of Champion included in Form 10-K for the year ended October 31, 1995, and not included herein, and the audited financial statements and notes of Interform for the year ended December 31, 1995, included elsewhere herein. -24- CHAMPION INDUSTRIES, INC. AND INTERFORM CORPORATION Pro Forma Condensed Balance Sheet (Unaudited)
Champion Interform Pro Forma Industries, Inc. Corporation Pro Forma Consolidated July 31, 1996 September 30, 1996 Note Adjustments July 31, 1996 --------------- ------------------ ---- ----------- ------------- Current assets: Cash $1,992,336 $7,000 $1,999,336 Accounts receivable 9,165,009 5,147,000 14,312,009 Inventories 7,075,583 2,154,000 9,229,583 Other current assets 580,348 75,000 655,348 Deferred income tax assets 272,657 332,000 604,657 ---------------------------------------------------------------------------------- Total current assets 19,085,933 7,715,000 26,800,933 ---------------------------------------------------------------------------------- Property and equipment, at cost: Land 647,340 92,211 1 (92,211) 647,340 Building & improvements 3,123,824 459,989 1 (459,989) 3,123,824 Machinery & equipment 12,846,644 12,175,403 1 (12,175,403) 17,885,644 1 5,039,000 Equipment under capital lease 1,698,990 - 1,698,990 Furniture & fixtures 1,295,960 258,728 1 (258,728) 1,415,960 1 120,000 Vehicles 1,000,356 21,083 1 (21,083) 1,000,356 ---------------------------------------------------------------------------------- 20,613,114 13,007,414 (7,848,414) 25,772,114 Less accumulated depreciation (8,444,248) (10,485,414) 1 10,485,414 (8,444,248) ---------------------------------------------------------------------------------- 12,168,866 2,522,000 2,637,000 17,327,866 ---------------------------------------------------------------------------------- Cash surrender value 430,907 - 430,907 Assets held for sale 1 300,000 300,000 Goodwill 2,250,023 4,457,000 4 (4,457,000) 2,364,023 4 114,000 Other assets 263,967 162,000 4 (150,000) 275,967 ---------------------------------------------------------------------------------- 2,944,897 4,619,000 (4,193,000) 3,370,897 ---------------------------------------------------------------------------------- $34,199,696 $14,856,000 $(1,556,000) $47,499,696 ---------------------------------------------------------------------------------- ----------------------------------------------------------------------------------
See notes to the pro forma unaudited consolidated financial statements. -25- CHAMPION INDUSTRIES, INC. AND INTERFORM CORPORATION Pro Forma Condensed Balance Sheet (Unaudited)
Champion Interform Pro Forma Industries, Inc. Corporation Pro Forma Consolidated July 31, 1996 September 30,1996 Note Adjustments July 31, 1996 --------------- ------------------ ---- ----------- ------------- Current liabilities: Notes payable $ 1,131,000 $ 3,747,000 2 3,747,000 $ 1,131,000 Accounts payable 1,126,933 1,187,000 2,313,933 Accrued payroll 1,182,361 - 1,182,361 Taxes accrued & withheld 263,353 - 263,353 Accrued income taxes 734,427 14,000 748,427 Accrued expenses 522,235 2,011,000 2,533,235 Current portion of long-term debt: Notes payable 781,563 493,000 2 (507,000) 1,781,563 Capital leases 430,627 - 430,627 ---------------------------------------------------------------------------------- Total current liabilities 6,172,499 7,452,000 3,240,000 10,384,499 Long-term debt, net of current portion: Notes payable 2,601,157 2,167,000 2 (2,500,000) 10,508,157 2 (3,240,000) Capital leases 1,184,490 - 1,184,490 Deferred income tax liabilities 1,490,941 6,000 3 (1,175,000) 2,671,941 Deferred gain 340,203 - 340,203 ---------------------------------------------------------------------------------- Total liabilities 11,789,290 9,625,000 (3,675,000) 25,089,290 ---------------------------------------------------------------------------------- Shareholders' equity: Common stock 6,483,926 139,000 1 139,000 6,483,926 Additional paid-in capital 9,342,075 11,701,000 1 11,701,000 9,342,075 Retained earnings 6,584,405 (6,609,000) 1,2,3,4 (6,609,000) 6,584,405 ---------------------------------------------------------------------------------- Total shareholders' equity 22,410,406 5,231,000 5,231,000 22,410,406 ---------------------------------------------------------------------------------- $34,199,696 $14,856,000 $ 1,556,000 $47,499,696 ---------------------------------------------------------------------------------- ----------------------------------------------------------------------------------
See notes to the pro forma unaudited consolidated financial statements. -26- CHAMPION INDUSTRIES, INC. AND INTERFORM CORPORATION Pro Forma Condensed Income Statement (Unaudited)
Pro Forma Champion Interform Consolidated Industries, Inc. Smith & Butterfield Corporation Nine months Nine months ended Eight months ended Nine months ended Pro Forma ended July 31, 1996 June 30, 1996 September 30, 1996 Note Adjustments July 31, 1996 ----------------- ------------------- ------------------ ---- ----------- ------------- Revenues: Printing $30,699,386 $ - $26,072,000 $ - $56,771,386 Office products & office furniture 11,967,586 3,354,655 - - 15,322,241 ------------------------------------------------------------------------------------------------- Total revenues 42,666,972 3,354,655 26,072,000 - 72,093,627 ------------------------------------------------------------------------------------------------- Cost of sales: Printing 20,734,624 - 17,436,000 - 38,170,624 Office products & office furniture 7,628,119 2,362,766 - - 9,990,885 ------------------------------------------------------------------------------------------------- Total cost of sales 28,362,743 2,362,766 17,436,000 - 48,161,509 ------------------------------------------------------------------------------------------------- Selling, general & administrative expenses 10,387,747 1,032,717 8,524,000 5,7 (316,691) 20,261,155 ------------------------------------------------------------------------------------------------- Income (loss) from operations 3,916,482 (40,828) 112,000 (316,691) 3,670,963 ------------------------------------------------------------------------------------------------- Other income (expenses): Interest income 13,463 - - - 13,463 Interest expense (260,758) (28,496) (452,000) 6 (122,000) (863,254) Other 130,491 4,476 (209,000) 10 (34,641) (108,674) ------------------------------------------------------------------------------------------------- (116,804) (24,020) (661,000) (156,641) (958,465) ------------------------------------------------------------------------------------------------- Income (loss) before income taxes 3,799,678 (64,848) (549,000) (473,332) 2,712,498 Income (taxes) benefit (1,558,000) 2,796 135,000 8 174,000 (1,246,204) ------------------------------------------------------------------------------------------------- Net income (loss) $ 2,241,678 $ (62,052) $ (414,000) $(299,332) $ 1,466,294 ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- Earnings per share (9) $0.28 $0.18 ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- Weighted average shares outstanding (9) 8,062,700 74,073 8,136,773 ------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------
See notes to the pro forma unaudited consolidated financial statements. -27- CHAMPION INDUSTRIES, INC. AND INTERFORM CORPORATION Pro Forma Condensed Income Statement (Unaudited)
Champion Donihe Smith & Interform Pro Forma Industries,Inc. Graphics, Inc. Butterfield Corporation Consolidated Year Ended Year Ended Year Ended Year Ended Pro Forma Year Ended October 31, 1995 September 30, 1995 September 30, 1995 December 31, 1995 Note Adjustments October 31, 1995 ---------------- ------------------ ------------------ ----------------- ---- ----------- ---------------- Revenues: Printing $ 30,269,131 $ 6,484,150 $ - $ 32,907,352 $ - $ 69,660,633 Office products & office furniture 14,532,229 - 5,105,683 - - 19,637,912 ---------------------------------------------------------------------------------------------------------------- Total revenues 44,801,360 6,484,150 5,105,683 32,907,352 - 89,298,545 ---------------------------------------------------------------------------------------------------------------- Cost of sales: Printing 18,971,767 5,319,795 - 24,094,860 - 48,386,422 Office products & office furniture 9,670,370 - 3,687,521 - 7 33,436 13,391,327 ---------------------------------------------------------------------------------------------------------------- Total cost of sales 28,642,137 5,319,795 3,687,521 24,094,860 33,436 61,777,749 ---------------------------------------------------------------------------------------------------------------- Selling, general & administrative expenses 11,162,197 1,355,012 1,581,692 8,764,065 5,7 429,878 23,292,844 ---------------------------------------------------------------------------------------------------------------- Income from operations 4,997,026 (190,657) (163,530) 48,427 (463,314) 4,227,952 ---------------------------------------------------------------------------------------------------------------- Other income (expenses): Interest income 10,705 30,553 - 1,557 - 42,815 Interest expense (185,255) (39,936) (45,531) (619,004) 6 (225,078) (1,114,804) Other 113,505 107,793 5,598 82,661 10 (34,641) 274,916 ---------------------------------------------------------------------------------------------------------------- (61,045) 98,410 (39,933) (534,786) (259,719) (797,073) ---------------------------------------------------------------------------------------------------------------- Income before income taxes 4,935,981 (92,247) (203,463) (486,359) (723,033) 3,430,879 Income taxes (1,995,000) (600) (154) 173,888 8 281,120 (1,540,746) ---------------------------------------------------------------------------------------------------------------- Net income $ 2,940,981 $ (92,847) $ (203,617) $ (312,471) $ (441,913) $ 1,890,133 ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Earnings per share (9) $ 0.37 - - - $ 0.23 ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Weighted average shares outstanding (9) 7,898,941 - - - 187,658 8,086,599 ---------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------
See notes to the pro forma unaudited consolidated financial statements -28- CHAMPION INDUSTRIES, INC. AND INTERFORM CORPORATION Notes to the Pro forma Consolidated Financial Statements (Unaudited) (1) Under purchase accounting, Interform's assets and liabilities are required to be adjusted to their estimated fair values. The fair values have been established through independent appraisals. However, these values are preliminary and were based on the pre-acquisition assets and liabilities. Champion cannot be sure that such estimated fair values represent the fair values that will ultimately be determined at the acquisition date. The following are the pro forma adjustments made to reflect Interform's assets and liabilities at fair value as of September 30, 1996: Interform Estimated Historical Estimated Fair Value Values Adjustments ---------- ---------- ----------- Land 0 92,211 (92,211) Buildings and Improvements 0 459,989 (459,989) Machinery and Equipment 5,039,000 12,175,403 (7,136,403) Furniture and Fixtures 120,000 258,728 (138,728) Vehicles 0 21,083 (21,083) Assets held for sale 300,000 300,000 Less: accumulated depreciation 0 (10,485,414) 10,485,414 --------------------------------------------- 5,459,000 2,522,000 2,937,000 --------------------------------------------- --------------------------------------------- Common stock 0 139,000 (139,000) Additional paid-in capital 0 11,701,000 (11,701,000) Accumulated deficit 0 (6,609,000) 6,609,000 --------------------------------------------- 0 5,231,000 (5,231,000) --------------------------------------------- --------------------------------------------- (2) To record the additional financing of $2,500,000 and to properly reflect the estimated current portion of long term debt. (3) To record the estimated deferred income tax liability related to the net write-up of the fixed assets. Net write-up of fixed assets 2,937,000 Income tax rate 40% --------- Deferred income tax liability 1,175,000 --------- --------- -29- (4) To eliminate previously recorded goodwill of Interform and record the excess purchase price over the fair value of the assets acquired (goodwill). Interform net assets at September 30, 1996 $ 5,231,000 Net write-up of fixed assets 2,937,000 Deferred income tax liability (1,175,000) Write-off of existing goodwill and loan financing costs (4,607,000) ---------- Interform adjusted net assets 2,386,000 Preliminary purchase price (2,500,000) ----------- Goodwill $ 114,000 ----------- ----------- (5) To amortize $114,000 goodwill of Interform and $808,000 goodwill of Smith & Butterfield over a life of 25 years using the straight-line method. (6) To record the interest expense related to financing the acquisition of Interform for 1996 and 1995 and Donihe for 1995. (7) To record depreciation on the adjusted basis of the fixed assets acquired of Donihe, Smith & Butterfield, and Interform over the remaining estimated useful life of the respective assets. (8) To record the income tax effect of the pro forma adjustments. (9) All shares outstanding and per share amounts included in the pro forma financial information have been adjusted to reflect the 5-for-4 stock split effective January 27, 1997. (10) To record the effect of abandoning certain leases of Smith & Butterfield at acquisition. -30- -----END PRIVACY-ENHANCED MESSAGE-----