-----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, QFLeAL/QQx2T4AzZs8Rqk/+iguwjXtuXK+535d20diZ+aIRqk3uCvkkaKyKJh38/ 1WCx7U8ff5trZ6RKj7CF+A== 0001047469-99-002588.txt : 19990201 0001047469-99-002588.hdr.sgml : 19990201 ACCESSION NUMBER: 0001047469-99-002588 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19990129 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: 10-K SEC ACT: SEC FILE NUMBER: 000-21084 FILM NUMBER: 99515939 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 10-K 1 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended October 31, 1998 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-21084 CHAMPION INDUSTRIES, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) West Virginia 55-0717455 - --------------------------------- ------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 2450 First Avenue P. O. Box 2968 Huntington, West Virginia 25728 - ----------------------------------- ------------------------------------ (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (304) 528-2791 Securities registered pursuant to Section 12(b) of Act: None Securities registered pursuant to Section 12(g) of Act: Common Stock, $1.00 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. The aggregate market value of the voting stock of the registrant held by non-affiliates as of January 15, 1999, was $44,786,508 of Common Stock, $1.00 par value. The outstanding common stock of the Registrant at the close of business on January 15, 1999 consisted of 9,713,913 shares of Common Stock, $1.00 par value. Total number of pages including cover page - 240. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registration statement on Form S-2/A No. 333-47585, filed on March 16, 1998, are incorporated by reference into Part IV, Item 14. Portions of the Registrant's definitive proxy statement dated February 16, 1999 with respect to its Annual Meeting of Shareholders to be held on March 15, 1999 are incorporated by reference into Part III, Items 10-13. Exhibit Index located on pages 58 to 63. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained in this Annual Report or in documents incorporated herein by reference, including without limitation statements including the word "believes," "anticipates," "intends," "expects" or words of similar import, constitute "forward-looking statements" within the meaning of section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements of the Company expressed or implied by such forward-looking statements. Such factors include, among others, general economic and business conditions, changes in business strategy or development plans, and other factors referenced in this Annual Report, including without limitations under the captions "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Business." Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments. 2 PART I ITEM 1 - BUSINESS HISTORY Champion Industries, Inc. ("Champion" or the "Company") is a major commercial printer, business forms manufacturer and office products and office furniture supplier in regional markets east of the Mississippi River. The Company's sales offices and production facilities are located in Huntington, Charleston, Parkersburg, Clarksburg, and Morgantown, West Virginia; Lexington and Owensboro, Kentucky; Baton Rouge and New Orleans, Louisiana; Cincinnati and Belpre, Ohio; Jackson, Mississippi; Baltimore, Maryland; Kingsport and Knoxville, Tennessee; Timmonsville, South Carolina; Evansville, Indiana; Bridgeville and Altoona, Pennsylvania; and Asheville, North Carolina. The Company's sales force of approximately 140 salespeople sells printing services, business forms management services, office products and office furniture. The Company was chartered as a West Virginia corporation on July 1, 1992. Prior to the public offering of the Company's Common Stock, on January 28, 1993 (the "Offering"), the Company's business was operated by The Harrah and Reynolds Corporation ("Harrah and Reynolds") doing business as Chapman Printing Company, together with its wholly-owned subsidiaries, The Chapman Printing Company, Inc. and Stationers, Inc. Incident to the Offering, Harrah and Reynolds and the Company entered into an Exchange Agreement, pursuant to which, upon the closing date of the Offering: (i) Harrah and Reynolds contributed to the Company substantially all of the operating assets of its printing division, including all inventory and equipment (but excluding any real estate and vehicles) and all issued and outstanding capital stock of its subsidiaries, The Chapman Printing Company, Inc. and Stationers, Inc.; (ii) the Company assumed certain of the liabilities relating to the operations of the printing divisions of Harrah and Reynolds and its subsidiaries, The Chapman Printing Company, Inc. and Stationers, Inc., excluding debts associated with real estate, certain accounts payable to affiliates and certain other liabilities; and (iii) Harrah and Reynolds was issued 2,000,000 shares of Common Stock of the Company. The Company and its predecessors have been headquartered in Huntington since 1922. Full scale printing facilities, including web presses for manufacturing business forms, and sales and customer service operations are located in Huntington. The Company's Charleston division was established in 1974 through the acquisition of the printing operations of Rose City Press. Sales and customer service operations, as well as the Company's largest pre-press department, are located in Charleston. The Parkersburg division opened in 1977 and was expanded by the acquisitions of Park Press and McGlothlin Printing Company. In addition to sales and customer service operations, this division houses a large full-color printing facility and a state-of-the-art studio, with scanners, electronic color retouching equipment and 4, 5 and 6 color presses. The Lexington division commenced operations in 1983 upon the acquisition of the 3 Transylvania Company. This location includes a pre-press department, computerized composition facilities, a press room and bindery department, as well as sales and customer service operations. The Company acquired Stationers, Inc. ("Stationers"), an office products, office furniture and retail bookstore operation located in Huntington, in 1987 and consolidated its own office products and office furniture operations with Stationers. On August 30, 1991, Stationers, Inc. sold the assets, primarily inventory and fixtures, of its retail bookstore operation. In July, 1993, Stationer's expanded through acquisition and began operations in Marietta, Ohio, under the name "Garrison Brewer." The Bourque Printing division ("Bourque") commenced operations in June, 1993, upon the acquisition of Bourque Printing, Inc. in Baton Rouge, Louisiana. This location includes a pre-press department, computerized composition facilities, a press room with up to 4-color presses and a bindery department as well as sales and customer service operations. Bourque was expanded through the acquisition of Strother Forms/Printing in Baton Rouge in 1993 and through the acquisition of the assets of E. S. Upton Printing Company, Inc. in New Orleans in 1996. The Dallas Printing division ("Dallas") commenced operations in September, 1993, upon the acquisition of Dallas Printing Company, Inc. in Jackson, Mississippi. This location includes a pre-press department, computerized composition facilities, a press room with up to 4-color presses and a bindery department as well as sales and customer service operations. On November 2, 1993, a wholly-owned subsidiary of the Company chartered to effect such acquisition purchased selected assets of Tri-Star Printing, Inc., a Delaware corporation doing business as "Carolina Cut Sheets" in the manufacture and sale of business forms in Timmonsville, South Carolina. The Company's subsidiary has changed its name to "Carolina Cut Sheets, Inc." Carolina Cut Sheets manufactures single-part business forms for sale to dealers and through the Company's other divisions. On February 25, 1994, Bourque acquired certain assets of Spectrum Press Inc. ("Spectrum"), a commercial printer located in Baton Rouge, Louisiana. On June 1, 1994, the Company acquired certain assets of Premier Data Graphics, a distributor of business forms and data supplies located in Clarksburg, West Virginia. On August 30, 1994, Dallas acquired certain assets of Premier Printing Company, Inc. ("Premier Printing") of Jackson, Mississippi. On June 1, 1995, in exchange for issuance of 52,383 shares of its Common stock, the Company acquired U.S. Tag & Ticket Company, Inc. ("U.S. Tag"), a Baltimore, Maryland based manufacturer of tags used in the manufacturing, shipping, postal, airline and cruise industries. On November 13, 1995, in exchange for $950,000 cash and the issuance of 66,768 shares 4 of its Common stock, the Company acquired Donihe Graphics, Inc. ("Donihe"), a high-volume color printer based in Kingsport, Tennessee. On February 2, 1996, Bourque purchased various assets and assumed certain liabilities of E.S. Upton Printing Company, Inc. ("Upton"), for approximately $750,000 in cash. On July 1, 1996, the Company acquired Smith & Butterfield Co., Inc. ("Smith & Butterfield"), an office products company located in Evansville, Indiana and Owensboro, Kentucky. Smith & Butterfield is operated as a division of Stationers, Inc. The Company issued 66,666 shares of common stock valued at $1,200,000 in exchange for all of the issued and outstanding shares of common stock of Smith & Butterfield. On August 21, 1996, the Company purchased the assets of The Merten Company ("Merten") a commercial printer headquartered in Cincinnati, Ohio, for cash and assumption of liabilities aggregating $2,535,295. On December 31, 1996, the Company acquired all outstanding capital stock of Interform Corporation ("Interform"), a business form manufacturer in Bridgeville, Pennsylvania, for $2,500,000 cash which was financed by a bank. On May 21, 1997, the Company acquired all outstanding common shares of Blue Ridge Printing Co., Inc. of Asheville, North Carolina and Knoxville, Tennessee ("Blue Ridge"), in exchange for 277,775 shares of the Company's common stock. The transaction has been accounted for as a pooling of interests. On February 2, 1998, the Company acquired all outstanding common shares of Rose City Press ("Rose City"), of Charleston, West Virginia, in exchange for 75,722 shares of the Company's valued at $1,250,000. On May 18, 1998, the Company acquired all outstanding common shares of Capitol Business Equipment, Inc. ("Capitol"), doing business as Capitol Business Interiors, of Charleston, West Virginia, in exchange for 72,202 shares of the Company's common stock valued at $1,000,000. On May 29, 1998, the Company acquired all outstanding common shares of Thompson's of Morgantown, Inc. and Thompson's of Barbour County, Inc. (collectively, "Thompson's"), of Morgantown, West Virginia, in exchange for 45,473 shares of the Company's valued at $600,000. Rose City, Capitol and Thompson's are operated as divisions of Stationers. BUSINESS Champion is a major commercial printer, business forms manufacturer and office products 5 and office furniture supplier in regional markets east of the Mississippi River. The Company's sales force sells a full range of printing services, business forms, office products and office furniture. Management views these sales activities as complementary since frequent customer sales calls required for one of its products or services provide opportunities to cross-sell other products and services. The Company believes it benefits from significant customer loyalty and customer referrals because it provides personal service, quality products, convenience and selection with one-stop shopping. The Company's printing services range from the simplest to the most complex jobs, including business cards, books, tags, brochures, posters, 4 to 6 color process printing and multi-part, continuous and snap-out business forms. The Company's state-of-the-art equipment enables it to provide computerized composition, art design, paste-up, stripping, film assembly and color scanner separations. The Company also offers complete bindery and letterpress services. The Company's segmented gross sales of printing services in fiscal year 1998 consisted of approximately 39% sheet and tag printing, 29% business forms printing, and 32% process color printing. The printing operations contributed $95 million, or 77% of the Company's total revenues for the fiscal year ended October 31, 1998. The Company provides a full range of office products and office furniture primarily in the budget and middle price ranges, and also offers office design services. The Company publishes a catalog of high volume, frequently ordered items purchased directly from manufacturers. These catalog sales account for the bulk of sales volume and afford sales personnel flexibility in product selection and pricing. Medium to large volume customers are offered levels of pricing discounts. In addition, the Company offers a broad line of general office products through major wholesalers' national catalogs. The Company recently introduced an on-line ordering system through software available on a CD-ROM designed and published by the Company. The office products and office furniture catalog will soon reside on the Company's web page at WWW.CHAMPION-INDUSTRIES.COM and full ordering capabilities will be available within the next six months. The Company is a member of a major office products purchasing organization. Members benefit from volume discounts, which permit them to offer competitive prices and improve margins. The Company's office furniture business focuses on the budget to middle price range lines, although upscale lines are offered as well. Office products, office furniture and office design operations contributed $28 million, or 23% of the Company's total revenues, for the fiscal year ended October 31, 1998. ORGANIZATION Champion is organized into twenty-one divisions, fifteen of which are wholly-owned subsidiaries. The Huntington headquarters provides centralized financial management and administrative services to all divisions. Each division is managed by a division manager who has profit responsibility for the sales and production operations of the division. Division managers report directly to the President of the Company. Their compensation depends primarily on the volume and profit results of their individual operations. 6 COMMERCIAL PRINTING Ten commercial printing divisions are located in Huntington, Charleston and Parkersburg, West Virginia; Lexington, Kentucky; Baton Rouge and New Orleans, Louisiana; Jackson, Mississippi; Cincinnati, Ohio; Kingsport, Tennessee; and Asheville, North Carolina. Each has a sales force, a customer service operation and a pre-press department that serve the customers in their respective geographic areas. Although each customer's interface is solely with its local division's personnel, its printing job may be produced in another division using the equipment most suited to the quality and volume requirements of the job. In this way, for example, Champion can effectively compete for high quality process color jobs in Lexington by selling in Lexington, printing in Cincinnati and binding in Huntington. The full range of printing resources is available to customers in the entire market area without Champion having to duplicate equipment in each area. BUSINESS FORMS Interform Corporation, doing business as Interform Solutions and located in Bridgeville, Pennsylvania, manufactures business forms and related products which it sells through a network of independent distributors concentrated in Eastern Pennsylvania, New Jersey and metropolitan New York, and directly through its own distributor, the Consolidated Graphics Communications division in Pittsburgh, Pennsylvania. Carolina Cut Sheets, Inc., located in Timmonsville, South Carolina, manufactures single sheet business forms which are sold to other commercial printers and dealers and through the Company's other divisions. The Huntington, West Virginia division of Chapman Printing Company manufactures single sheet and multi-part, snap-out and continuous business forms for sale through many of the Company's commercial printing divisions. TAGS U.S. Tag, located in Baltimore, Maryland, manufactures and sells tags used in the manufacturing, shipping, postal, airline and cruise industries throughout the United States through dealers and the Company's other divisions. OFFICE PRODUCTS, OFFICE FURNITURE AND OFFICE DESIGN Stationers, located in Huntington, Clarksburg (doing business as "Champion-Clarksburg"), Charleston (through its Rose City division), Morgantown (through its Thompson's division), West Virginia and Belpre, Ohio (doing business as "Garrison Brewer"), provides office products and office furniture primarily to customers in the Company's West Virginia, Ohio and Kentucky 7 market areas. Products are sold by printing division salespeople and delivered in bulk daily to each division, or shipped directly to customers. Smith & Butterfield, located in Evansville, Indiana and Owensboro, Kentucky, provides office products and office furniture primarily to customers in the Company's Indiana and Kentucky market areas. Products are sold by Smith & Butterfield sales personnel and delivered to customers daily. Stationers, through its Capitol division, offers office design services throughout West Virginia and eastern Kentucky. PRODUCTS AND SERVICES PRINTING SERVICES Champion's primary business is commercial printing and business forms manufacturing. The Company, unlike most of its regional competitors, offers the full range of printing production processes, enabling the Company to provide customers a one-stop, one-vendor source without the time and service constraints of subcontracting one or more aspects of production. Major production areas include: (i) printing of business cards, letterhead, envelopes, and one, two, or three color brochures; (ii) process color manufacturing of brochures, posters, advertising sheets and catalogues; (iii) die cutting and foil stamping; (iv) bindery services, including trimming, collating, folding and stitching the final product; (v) forms printing, encompassing roll-to-roll computer forms, checks, invoices, purchase orders and similar forms in single-part, multi-part, continuous and snap-out formats; (vi) tag manufacturing; and (vii) high volume process color web printing of brochures and catalogs. The capabilities of the Company's various printing divisions are stated below.
High Sales & Volume Customer Sheet Full Full Division Service Pre-Press Printing Color Color - ---------------- ---------- ---------- ---------- ------- -------- Huntington * * * Charleston * * Parkersburg * * * * Lexington * * * Bourque Printing, Inc. * * * * Dallas Printing Company, Inc. * * *
8 Carolina Cut Sheets, Inc. * * U.S. Tag & Ticket Company, Inc. * * * Donihe Graphics, Inc. * * * Upton Printing * * * * The Merten Company * * * * Interform Corporation * * * Blue Ridge Printing Co., Inc. * * * *
OFFICE PRODUCTS, OFFICE FURNITURE AND OFFICE DESIGN Champion provides its customers with a wide range of product offerings in two major categories: supplies, such as file folders, paper products, pens and pencils, computer paper and laser cartridges; and furniture, including budget and middle price range desks, chairs, file cabinets and computer furniture. Office supplies are sold primarily by Company salespeople through the Company's own catalogs. Office furniture is primarily sold from catalogs and supplied from in-house stock. Special orders constitute a small portion of sales. The Capitol division of Stationers provides interior design services to commercial customers. The design services include space planning, purchasing and installation of office furniture, and management of design projects. MANUFACTURING AND DISTRIBUTION The Company's pre-press facilities have desktop publishing, typesetting, laser imagesetting and scanning/retouching equipment, and complete layout, design, stripping and plate processing operations. Sheet printing equipment (for printing onto pre-cut, individual sheets) includes single color duplicators, single to six color presses and envelope presses. Rotary equipment (for printing onto continuous rolls of paper) includes multi-color business form web presses, carbon and multi-part collators, and a high speed 5-color half-web press. Binding equipment consists of hot-foil, embossing and die cutting equipment, perforators, folders, folder-gluers, scoring machines, collator/stitcher/ trimmers for saddle stitching, automatic and manual perfect binders, numbering machines and mailing equipment. Each of the Company's offices is linked with overnight distribution of products and on-line electronic telecommunications permitting timely transfer of various production work from facility to facility as required. While the Company maintains a fleet of delivery vehicles for intracompany and customer deliveries, it utilizes the most cost effective and expeditious means of delivery, including common carriers. Requirements for the Company's press runs are determined shortly before the runs are 9 made and, therefore, backlog is not a meaningful measure in connection with the Company's printing business. The Company's inventory goal is to have approximately 60% of the office products items the Company sells in stock. Another 30% are ordered on a daily basis and received overnight. The remaining 10% are items that come direct from manufacturers and may take one week from placement of order to delivery to customer. Office furniture sales are made primarily from the Company's in-house stock. However, special orders from manufacturers may require up to 90 days for delivery. CUSTOMERS The Company believes that its reputation for quality, service, convenience and selection allows it to enjoy significant loyalty from its customers. Champion's marketing strategy is to focus on manufacturers, institutions, financial services companies and professional firms. Consistent with customary practice in the commercial printing and office products industries, the Company ordinarily does not have long-term contracts with its customers, although a number of high volume customers issue yearly purchase orders. These purchase orders, which are typically for office products but may include printing services, are for firm prices adjustable for paper price changes. Depending upon customer satisfaction with price and service, these purchase orders may be renewed for another year or up to three years without repeating the full bidding process. During the fiscal year ended October 31, 1998, no single customer accounted for more than 1% of the Company's total revenues. Due to the project-oriented nature of customers' printing requirements, sales to particular customers may vary significantly from year to year depending upon the number and size of their projects. SUPPLIERS The Company has not experienced difficulties in obtaining materials in the past and does not consider itself dependent on any particular supplier for supplies. The Company has negotiated Company-wide paper purchasing agreements directly with paper manufacturers and is a member of a major office products buying group, which management believes provide the Company with a competitive advantage. COMPETITION The markets for the Company's printing services and office products are highly competitive, with success based primarily on price, quality, production capability, capacity for prompt delivery and personal service. Champion's printing competitors are numerous and range in size from very large national companies with substantially greater resources than the Company to many smaller local 10 companies. In recent years, despite consolidation within the printing industry, there has been a substantial increase in technological advances in new equipment, resulting in excess capacity and highly competitive pricing. The Company has remained competitive by maintaining its printing equipment at state-of-the-art levels and emphasizing personal attention to customers. Large national and regional mail order discount operations provide significant competition in the office products and office furniture business. The economics afforded by membership in a national purchasing association and by purchasing directly from manufacturers, and the high level of personal services to customers contribute substantially to the Company's ability to compete in the office supply and office furniture market segments. ENVIRONMENTAL REGULATION The Company is subject to the environmental laws and regulations of the United States and the states in which it operates concerning emissions into the air, discharges into waterways and the generation, handling and disposal of waste materials. The Company's past expenditures relating to environmental compliance have not had a material effect on the Company and are included in normal operating expenses. These laws and regulations are constantly evolving, and it is impossible to predict accurately the effect they may have upon the capital expenditures, earnings and competitive position of the Company in the future. Based upon information currently available, management believes that expenditures relating to environmental compliance will not have a material impact on the financial position of the Company. GEOGRAPHIC CONCENTRATION AND ECONOMIC CONDITIONS The Company's operations and the majority of its customers are located east of the Mississippi River. The Company and its profitability may be more susceptible to the effects of unfavorable or adverse local or regional economic factors and conditions than a company with a more geographically diverse customer base. SEASONALITY Historically, the Company has experienced a greater portion of its annual sales and net income in the second and fourth quarters than in the first and third quarters. The second quarter generally reflects increased orders for printing of corporate annual reports and proxy statements. A post-Labor Day increase in demand for printing services and office products coincides with the Company's fourth quarter. EMPLOYEES On October 31, 1998, the Company had 907 full-time employees. The Company's subsidiary, Interform Corporation, is party to a collective bargaining 11 agreement with the United Steelworkers of America, AFL-CIO-CLC on behalf of its Local Union 8263 covering all production and maintenance employees (totaling 93 employees at October 31, 1998) at its Bridgeville, Pennsylvania facility. The Company believes relations with the union and covered employees are good. EXECUTIVE OFFICERS OF CHAMPION
Position and offices with Champion; Name Age Principal occupation or employment - ----- ---- last five years ----------------------------------- Marshall T. Reynolds 62 President, Chief Executive Officer and Chairman of the Board of Directors of Company from December 1992 to present; President and general manager of Harrah and Reynolds, predecessor of the Company from 1964 (and sole shareholder from 1972) to 1993; Director (from 1983 to November 1993) and Chairman of the Board of Directors (from 1983 to November 1993) of Banc One West Virginia Corp. (formerly Key Centurion Bancshares, Inc.). Michael D. McKinney 45 Vice President and General Sales Manager of Company since September 1995; Vice President and Division Manager - Huntington of Company from December 1992 to September 1995; Division Manager - Huntington of Harrah and Reynolds from October 1991 to 1992; Division Manager - Lexington of Harrah and Reynolds from August 1982 to October 1991. William M. Campbell 63 Vice President and Division Manager - Parkersburg of Company from December 1992 to present; Division Manager -Parkersburg of Harrah and Reynolds from June 1977 to 1992. Ronald W. Taylor 41 Vice President and Division Manager - Lexington of Company from December 1992 to present; Division Manager - Lexington, of Harrah and Reynolds from January 1992 to December 1992; Sales Representative, Lexington Division of Harrah and Reynolds from 1986 to January 1992. J. Mac Aldridge 57 Vice President and Division Manager - Stationers of
12 Company since December 1992; Vice President of Company and Division Manager - Huntington from September 1995 to October 1997; President and General Manager of Stationers since November 1989; Sales Representative of Huntington Division of Harrah and Reynolds from July 1983 to October 1989. Gary A. Blackshire 46 Vice President of Company since December 1992; Division Manager - Merten since September 1998; Division Manager - Charleston since December 1992; Division Manager - Charleston of Harrah and Reynolds from April 1992 to December 1992; Sales Representative of Charleston Division of Harrah and Reynolds from 1975 until April 1992. R. Douglas McElwain 51 Vice President and Division Manager - Bourque Printing of Company since December 1993; General Manager of Bourque Printing from June 1993 to December 1993; Sales Representative of Charleston Division of Harrah and Reynolds and Company from 1986 until June 1993. L. David Brumfield 61 Vice President and Division Manager - Dallas Printing since May, 1997; President and General Manager, Radisson Hotel, Huntington, from 1992 to 1997. Joseph C. Worth, III 49 Vice President-Mergers and Acquisitions of Company since April 1998; Vice President and Chief Financial Officer of Company from June 1992 to March 1998. Toney K. Adkins 49 Vice President-Administration of Company since November, 1995; President, KYOWVA Corrugated Container Company, Inc. from 1991 to 1996. David B. McClure 40 Vice President and Chief Financial Officer of Company since April, 1998; Senior Manager, Ernst & Young LLP, from October 1987 to March 1998. Walter R. Sansom 69 Secretary of Company since December 1992; Production Coordinator of Company since December 1992 and of Harrah and Reynolds from August 1968 to December 1992.
13 ITEM 2 - PROPERTIES The Company conducts its operations from twenty-four (24) different physical locations, seventeen (17) of which are leased, and seven (7) of which are owned in fee simple by Company subsidiaries. The properties leased, and certain of the lease terms, as of October 31, 1998, are set forth below:
Division Occupying Square Annual Expiration Property Property Feet Rental Of Term -------- -------------------- ------- -------- ----------- 2450 1st Avenue Champion Headquarters 85,000 $116,400 2008 Huntington, West Virginia (1) and Chapman Printing- Huntington 1945 5th Avenue Stationers 37,025 60,000 2007 Huntington, West Virginia (1) 615-619 4th Avenue Stationers 59,641 21,600 2003 Huntington, West Virginia (1) 405 Ann Street Chapman Printing - 36,614 57,600 2003 Parkersburg, West Virginia (1) Parkersburg 1563 Hansford Street Chapman Printing - Charleston 21,360 49,920 2003 Charleston, West Virginia (1) 890 Russell Cave Road Chapman Printing - 20,135 57,600 2000 Lexington, Kentucky (1) Lexington 214 Stone Road Stationers - 15,146 42,000 1999 Belpre, Ohio (1) Garrison Brewer 2800 Lynch Road Smith & Butterfield 42,375 116,640 1999 Evansville, Indiana (1) 113-117 East Third St. Smith & Butterfield 8,500 14,400 2002 Owensboro, Kentucky (1) 1901 Mayview Road Interform Corporation 120,000 316,000 2003 Bridgeville, Pennsylvania (1) 736 Carondelet Street Upton Printing 15,000 62,700 2000 New Orleans, Louisiana 5600 Jefferson Highway Upton Printing 11,250 47,250 2000 Harahan, Louisiana 1515 Central Parkway The Merten Company 40,000 97,200 2001 Cincinnati, Ohio (1) 2217 Robb Street U.S. Tag 26,000 52,000 2000 Baltimore, Maryland (1)
14 Palmetto Industrial Park Carolina Cut Sheets 16,200 35,724 monthly Timmonsville, S. Carolina 711 Indiana Avenue Stationers- 22,000 96,000 2003 Charleston, West Virginia (1) Capitol Kirk and Chestnut Streets Stationers- 9,000 19,356 2003 Morgantown, West Virginia Thompson's
(1) Lease is "triple net", whereby Company pays for all utilities, insurance, taxes, repairs and maintenance, and all other costs associated with properties. The Dallas Printing Division owns, and operates from, a single-story masonry structure of approximately 19,600 square feet at 321-323 East Hamilton Street, Jackson, Mississippi. The Bourque Printing Division owns, and operates from, a single-story building of approximately 18,501 square feet at 13112 South Choctaw Drive, Baton Rouge, Louisiana. Stationers' Clarksburg operation is conducted from a single-story masonry building of approximately 20,800 square feet owned by the Company at 700 N. Fourth Street, Clarksburg, West Virginia. Donihe owns, and operates from, a single-story steel building of approximately 38,500 square feet situated on roughly 14.5 acres at 766 Brookside Drive, Kingsport, Tennessee. Blue Ridge owns, and operates from, (i) a two-story masonry building of approximately 9,066 square feet and a contiguous 1,692 square foot former residential structure at 544 and 560 Haywood Road, Asheville, North Carolina, and (ii) a two-story steel building of approximately 12,500 square feet on approximately 3 acres at 1485 Amherst Road, Knoxville, Tennessee. Stationers' Rose City division owns and operates from (i) 2 masonry buildings (2 story and 5 story) of approximately 20,900 square feet in the aggregate, at 811-813 Virginia Street, East, and (ii) an adjacent 6 story brick warehouse of approximately 42,500 square feet, in Charleston, West Virginia. ITEM 3 - LEGAL PROCEEDINGS None. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 15 PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Champion common stock has traded in the over-the-counter market on the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") National Market System since the Offering under the symbol "CHMP." The following table sets forth the high and low closing prices for Champion common stock for the period indicated. The range of high and low closing prices are based on data from NASDAQ, and do not include retail mark-up, mark-down or commission.
Fiscal Year 1998 Fiscal Year 1997 High Low High Low ------------------ ------------------ First Quarter $19.50 $16.00 $19.40 $16.75 Second quarter 17.00 13.00 19.75 16.75 Third quarter 14.56 10.50 19.50 16.00 Fourth quarter 12.50 9.25 19.38 17.75
At the close of business on January 15, 1999, there were 564 shareholders of record of Champion common stock. The following table sets forth the quarterly dividends per share declared on Champion common stock.
Fiscal year Fiscal year Fiscal year 1999 1998 1997 ----------- ------------- ------------ First quarter $.050 $.050 $.040 Second quarter -- .050 .050 Third quarter -- .050 .050 Fourth quarter -- .050 .050
16 ITEM 6 - SELECTED FINANCIAL DATA SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data for each of the five years in the period ended October 31, 1998, have been derived from the Audited Consolidated Financial Statements of the Company. The information set forth below should be read in conjunction with the Audited Consolidated Financial Statements, related notes, and the information contained in Management's Discussion and Analysis of Financial Condition and Results of Operations appearing elsewhere herein. 17
Year Ended October 31, ---------------------------------------------------------------------- 1998 1997 1996 1995 1994 ---- ---- ------ ----- ------ (In thousands, except share and per share data) INCOME STATEMENT DATA: Revenues: Printing $ 95,003 $ 87,979 $ 49,242 $ 35,371 $ 30,001 Office products and office furniture 28,058 20,406 17,115 14,532 13,229 ----------- ------------ ----------- ---------- ----------- Total revenues 123,061 108,385 66,357 49,903 43,230 Cost of sales: Printing 66,699 59,850 33,015 22,251 17,755 Office products and office furniture 18,616 13,289 11,077 9,670 8,605 ----------- ------------ ----------- ---------- ----------- Total cost of sales 85,315 73,139 44,092 31,921 26,360 ----------- ------------ ----------- ---------- ----------- Gross profit 37,746 35,246 22,265 17,982 16,870 Selling, general and administrative expense 29,872 28,079 16,197 12,788 12,486 ----------- ------------ ----------- ---------- ----------- Income from operations 7,874 7,167 6,068 5,194 4,384 Interest income 245 20 25 11 67 Interest expense (1,507) (1,586) (693) (252) (132) Other income 241 737 224 113 212 ----------- ------------ ----------- ---------- ----------- Income before income taxes 6,853 6,338 5,624 5,066 4,531 Income taxes (2,702) (2,571) (2,252) (2,060) (1,859) ----------- ------------ ----------- ---------- ----------- Net income $ 4,151 $ 3,767 $ 3,372 $ 3,006 $ 2,672 ----------- ------------ ----------- ---------- ----------- ----------- ------------ ----------- ---------- ----------- Earnings per share: Basic $ 0.45 $ 0.45 $ 0.41 $ 0.37 $ 0.33 Diluted 0.45 0.45 0.40 0.37 0.33 Dividends per share 0.20 0.19 0.152 0.122 0.098 Weighted average common shares outstanding: Basic 9,142,000 8,383,000 8,324,000 8,147,000 8,084,000 Diluted 9,172,000 8,441,000 8,356,000 8,177,000 8,099,000
18
At October 31, -------------------------------------------------------- 1998 1997 1996 1995 1994 ---- ---- ---- ----- ---- (In Thousands) BALANCE SHEET DATA: Cash and cash equivalents $ 9,773 $ 912 $ 2,461 $ 1,390 $ 3,734 Working capital 35,108 18,935 13,579 11,148 10,040 Total assets 74,505 60,346 44,063 28,643 25,690 Long-term debt 13,993 15,156 7,561 2,405 1,124 Shareholders' equity 45,310 26,850 24,641 19,794 17,739
19 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company is a commercial printer, business forms manufacturer and office products and office furniture supplier in regional markets east of the Mississippi River. The Company has grown through strategic acquisitions and internal growth. Through such growth, the Company has realized regional economies of scale, operational efficiencies, and exposure of its core products to new markets. The Company has acquired twelve printing companies and six office products and office furniture companies since the Offering. The Company's largest acquisition since the Offering was the purchase of Interform on December 31, 1996. The addition of Interform sales to the business forms segment has increased the printing component of the Company's revenue mix. Through sales to independent distributors, and through its own distributor, Consolidated Graphic Communications, Interform provides the Company's manufacturing divisions access to the large northeastern markets of Pennsylvania, New Jersey and New York. The Company's net revenues consist primarily of sales of commercial printing, business forms, tags, other printed products, office supplies, office furniture, data products and office design services. The Company recognizes revenues when products are shipped or services are rendered to the customer. The Company's revenues are subject to seasonal fluctuations caused by variations in demand for its products. The Company's cost of sales primarily consists of raw materials, including paper, ink, pre-press supplies and purchased office supplies, furniture and data products, and manufacturing costs including direct labor, indirect labor and overhead. Significant factors affecting the Company's cost of sales include the costs of paper in both printing and office supplies, the costs of labor and other raw materials. The Company's operating costs consist of selling, general and administrative expenses. These costs include salaries, commissions and wages for sales, customer service, accounting, administrative and executive personnel, rent, utilities, and equipment maintenance. 20 RESULTS OF OPERATIONS The following table sets forth for the periods indicated information derived from the Company's Consolidated Income Statements, including certain information presented as a percentage of total revenues.
YEAR ENDED OCTOBER 31, (IN THOUSANDS) --------------------------------------------------------------- 1998 1997 1996 ------------------- ------------------ ------------------- Revenues: Printing $ 95,003 77.2% $ 87,979 81.2% $ 49,242 74.2% Office products and office furniture 28,058 22.8 20,406 18.8 17,115 25.8 -------- ------- -------- ------- -------- ----- Total revenues 123,061 100.0 108,385 100.0 66,357 100.0 Cost of sales: Printing 66,699 54.2 59,850 55.2 33,015 49.8 Office products and office furniture 18,616 15.1 13,289 12.3 11,077 16.7 -------- ------- -------- ------- -------- ------ Total cost of sales 85,315 69.3 73,139 67.5 44,092 66.5 -------- ------- -------- ------- -------- ------ Gross Profit 37,746 30.7 35,246 32.5 22,265 33.5 Selling, general and administrative expenses 29,872 24.3 28,079 25.9 16,197 24.4 -------- ------- -------- ------- -------- ------ Income from operations 7,874 6.4 7,167 6.6 6,068 9.1 Other income (expense): Interest income 245 0.2 20 0.0 25 0.0 Interest expense (1,507) (1.2) (1,586) (1.4) (693) (1.0) Other income 241 0.2 737 0.7 224 0.4 -------- ------- -------- ------- -------- ------ Income before income taxes 6,853 5.6 6,338 5.9 5,624 8.5 Income taxes (2,702) (2.2) (2,571) (2.4) (2,252) (3.4) -------- ------- -------- ------- ------- ------ Net income $ 4,151 3.4% $ 3,767 3.5% $ 3,372 5.1% -------- ------- -------- ------- ------- ------ -------- ------- -------- ------- ------- ------
The following discussion and analysis presents the significant changes in the financial position and results of operations of the Company and should be read in conjunction with the audited consolidated financial statements and notes thereto included elsewhere herein. 21 YEAR ENDED OCTOBER 31, 1998 COMPARED TO YEAR ENDED OCTOBER 31, 1997 REVENUES Consolidated net revenues were $123.1 million for the year ended October 31, 1998, compared to $108.4 million in the prior fiscal year. This change represents a growth in revenues of $14.7 million or 13.5%. Printing revenues increased $7.0 million or 8.0% during the same period from $88.0 million in 1997 to $95.0 million in 1998. Approximately $5.3 million of this growth was due to the inclusion of Interform Corporation for the full fiscal year of 1998, whereas fiscal year 1997 included only ten months of Interform's operations. Internal growth accounted for the remaining $1.7 million increase in printing revenues. Office products and office furniture revenues increased $7.7 million or 37.5% from $20.4 million in fiscal year 1997 to $28.1 million in fiscal year 1998. The increase in office products and office furniture revenue was achieved through the 1998 acquisitions disclosed in Note 9 to the Consolidated Financial Statements (the "1998 acquisitions") and internal growth. The 1998 acquisitions contributed approximately $6.0 million in this growth with internal growth accounting for the remaining $1.7 million. COST OF SALES Total cost of sales for the year ended October 31, 1998, totaled $85.3 million compared to $73.1 million in the previous year. This change represents an increase of $12.2 million or 16.7% in cost of sales. Printing cost of sales increased 11.4% in fiscal year 1998 to $66.7 million from $59.9 million in fiscal year 1997, due primarily to sales volume and the impact of the Interform acquisition as discussed above. Office products and office furniture cost of sales increased 40.1% in fiscal year 1998 to $18.6 million from $13.3 million in fiscal year 1997, primarily due to the 1998 acquisitions. OPERATING EXPENSES AND INCOME Selling, general and administrative (S,G&A) expenses decreased as a percentage of revenues in fiscal year 1998 to 24.3% from 25.9% in fiscal year 1997, due primarily to management's effort to control overall expenses. As the Company expands through strategic acquisitions, this ratio is expected to improve on a long-term basis. With the growth in revenue and the reduction in S,G&A expenses as a percentage of revenues, income from operations increased 9.9% in fiscal year 1998 to $7.9 million from $7.2 million in fiscal year 1997. OTHER INCOME/EXPENSE Interest expense decreased $79,000 from $1.586 million in fiscal year 1997 to $1.507 million in fiscal year 1998 primarily as a result of the lower interest rate environment during the second half of 1998 and the reduction of notes payable and long-term debt. Interest income increased $225,000 from $20,000 in fiscal year 1997 to $245,000 in fiscal year 1998 as a result of investing the residual net proceeds from an April 1998 stock offering in a money market 22 account. Other income decreased $496,000 from $737,000 in fiscal year 1997 to $241,000 in fiscal year 1998 primarily due to a $330,000 one-time recognition of deferred gain from the previous sale of Stationers' bookstore operations included in fiscal year 1997. INCOME TAXES Income taxes as a percentage of income before income taxes decreased slightly from 40.6% in fiscal year 1997 to 39.4% as a result of tax attributes associated with acquired businesses. NET INCOME Net income for the year ended October 31, 1998, increased 10.2% to $4.15 million from the net income reported in the prior year of $3.77 million. Basic and diluted earnings per share remained the same for fiscal years 1998 and 1997 at $0.45 per share as a result of the additional shares issued in the April 1998 stock offering discussed below. YEAR ENDED OCTOBER 31, 1997 COMPARED TO YEAR ENDED OCTOBER 31, 1996 REVENUES Total revenues increased 63.3% in fiscal year 1997 to $108.4 million from $66.4 in fiscal year 1996. Printing revenue increased 78.7% in fiscal year 1997 to $88.0 million from $49.2 million in 1996. Office products and office furniture revenue increased 19.2 % in fiscal year 1997 to $20.4 million from $17.1 million in fiscal year 1996. This was achieved through new acquisitions which accounted for increased printing sales of $35.5 million and increased office products and office furniture sales of $3.6 million. The office products and office furniture change in sales was also impacted by a one-time furniture sale totaling $500,000 in 1996. COST OF SALES Total cost of sales increased 65.9% in fiscal year 1997 to $73.1 million from $44.1 million in fiscal year 1996. Printing cost of sales increased 81.3% in fiscal year 1997 to $59.9 million from $33.0 million in fiscal year 1996, due primarily to sales volume and the impact of newly acquired divisions with lower sales margins. Office products and office furniture cost of sales increased 20.0% in fiscal year 1997 to $13.3 million from $11.1 million in fiscal year 1996, primarily due to increased sales volume. OPERATING EXPENSES AND INCOME Selling, general and administrative expenses increased as a percentage of sales in fiscal year 1997 to 25.9% from 24.4% in fiscal year 1996 due to increased costs associated with acquisitions. For the reasons stated above, income from operations increased 18.1% in fiscal year 23 1997 to $7.2 million from $6.1 million in fiscal year 1996. OTHER INCOME/EXPENSE Interest expense increased $893,000 from $693,000 in fiscal year 1996 to $1.6 million in fiscal year 1997 as a result of the debt assumed in the Interform acquisition. Other income increased from $224,000 in fiscal year 1996 to $737,000 in fiscal year 1997 due to a $330,000 one-time recognition of deferred gain from the previous sale of Stationers' bookstore operations. INCOME TAXES Income taxes in fiscal year 1997 increased slightly to 40.6% from 40.0% in fiscal year 1996 due to the Company's expansion into states with higher tax rates. NET INCOME For the reasons stated above, net income for fiscal year 1997 increased 11.7% to $3.8 million, or diluted earnings per share of $0.45, from $3.4 million, or diluted earnings per share of $0.40 in fiscal year 1996. LIQUIDITY AND CAPITAL RESOURCES As of October 31, 1998, the Company had $9.8 million of cash and cash equivalents, an increase of $8.9 million from the prior year. Working capital as of October 31, 1998, was $35.1 million, an increase of $16.2 million from October 31, 1997. The increase in cash and cash equivalents and working capital consists primarily of the residual net proceeds of the stock offering and the 1998 acquisitions. In April 1998, the Company completed an offering of 1,091,993 common shares. The net proceeds (net of underwriting discounts, commissions and offering expenses) to the Company from the April 1998 offering approximated $14.1 million. Approximately $5.9 million of the net proceeds has been used to reduce long-term debt through October 31, 1998. The remaining proceeds from the April 1998 stock offering are invested in a money market account with a national financial institution. It is management's intention to maintain these funds in a highly liquid money market account to be used for further debt reduction, working capital and general purposes, including the continuation of the Company's acquisition program. Management is in the process of implementing a corporate-wide cash management program that management anticipates will provide it with better access to daily cash flow. This program is expected to be in place by the second quarter of fiscal year 1999. Once the program is implemented, management believes it will be in a position to better utilize available cash and cash equivalents and cash flows from operations to further reduce long-term debt. 24 The Company has historically used cash generated from operating activities and debt to finance capital expenditures and the cash portion of the purchase price of acquisitions. Management plans to continue making significant investments in equipment and expects total capital expenditures to approximate $3 million in 1999. Included in these capital expenditures for 1999 is the initial cost to convert the Company's printing operations to a centralized information system (see below for further discussion regarding the Company's information systems infrastructure). However, to fund the Company's continued expansion of operations internally and through acquisitions and to upgrade its information systems, additional financing may be necessary. The Company has available lines of credit totaling $12 million (see Note 3 to the Consolidated Financial Statements for additional information). For the foreseeable future, management believes it can fund operations, meet debt service requirements, and make the planned capital expenditures based on the available cash and cash equivalents, cash flow from operations, and lines of credit. CASH FLOWS FROM OPERATING ACTIVITIES Cash flows from operating activities for the years ended October 31, 1998, 1997 and 1996 were $4.2 million, $2.0 million, and $3.3 million. These cash flows increased in fiscal year 1998 compared to fiscal year 1997 primarily due to increased net income, depreciation and amortization, and the improvement in the management of accounts receivable and inventories. The reduction in deferred revenue in the year ended October 31, 1998, was from an acquired company that had previously required advance payments on certain large transactions. Cash flows from operating activities for the fiscal year 1997 compared to 1996 decreased primarily as a result of the investment in inventories to support increased sales. CASH FLOWS FROM INVESTING ACTIVITIES Cash flows used in investing activities were ($1.5) million, ($2.0) million, and ($3.8) million for the years ended October 31, 1998, 1997, and 1996. Cash flows used in investing activities decreased in 1998 compared to 1997 as a result of the increase in proceeds from sales of assets and the cash received from acquired businesses. This decrease was partially offset by the additional investment in property and equipment of $1.0 million. Cash flows used in investing activities in 1997 compared to 1996 also decreased because of the change in cash related to make acquired businesses. CASH FLOWS FROM FINANCING ACTIVITIES Cash flows provided by (used in) financing activities for the years ended October 31, 1998, 1997, and 1996 were $6.1 million, ($1.5 million), and $1.5 million. The increase in net cash provided by financing activities in 1998 compared to 1997 came from the proceeds from the stock offering, net of issuance expenses, partially offset by the repayment of notes payable and long-term debt. The decrease in net cash flows from financing activities in 1997 compared to 1996 25 related to the reduction in new long-term borrowings and the increase in debt service from the debt assumed in the Interform acquisition. Equipment and vehicles have generally been financed through bank financing. Dividends paid in fiscal years 1998, 1997 and 1996 were $1.8 million, $1.6 million and $1.2 million. INFLATION AND ECONOMIC CONDITIONS Management believes that the effect of inflation on the Company's operations has not been material and will continue to be immaterial for the foreseeable future. The Company does not have long-term contracts; therefore, to the extent permitted by competition, it has the ability to pass through to its customers most cost increases resulting from inflation, if any. SEASONALITY Historically, the Company has experienced a greater portion of its annual sales and net income in the second and fourth quarters than in the first and third quarters. The second quarter generally reflects increased orders for printing of corporate annual reports and proxy statements. A post-Labor Day increase in demand for printing services and office products coincides with the Company's fourth quarter. INFORMATION SYSTEMS AND YEAR 2000 ASSESSMENT UPDATE Management has in place a Company-wide program to assess the need to modify or replace portions or all of its information systems to maintain its competitiveness and enable the proper processing of transactions relating to the Year 2000 and beyond. Management has made the decision to purchase and implement a new information system for the printing divisions. This new system is an enterprise-wide system encompassing sales, purchasing, production, and financial reporting. Implementation is expected to begin in March or April 1999 and take approximately two years. There are four printing systems currently in use that are not Year 2000 compliant. These systems will be converted first and are expected to be operational by September 30, 1999. In the event that these non-compliant systems are not converted by December 31, 1999, the systems can be converted to the Company's core printing software, that is Year 2000 compliant, within a short timeframe of one to two months. It is anticipated that the new system will cost approximately $800,000 ($500,000 related to software and training and $300,000 of hardware costs). Approximately $600,000 of these estimated costs will be capitalized and amortized against income over a period of five years. It is the opinion of management that the cost of converting the printing divisions to a new information system and the annual amortization thereof will not materially impact results of operations or financial condition. There are a number of risks in implementing a new system, including the complexity of the conversion process and the new systems themselves, the converting of business data from the old system to the new system, and the need for comprehensive employee training on the new information systems. There can be no assurance that this process will not have a material adverse effect on the Company's business and operating results. 26 Based on its assessment of the information currently available, management has determined that the office products and office furniture division information system is Year 2000 compliant. Once the new information system is implemented in all of the printing divisions, a program will be initiated to assess the benefits of having both divisions under one financial reporting system. In addition, management is in the process of finalizing its assessment of non-critical systems. Based on the information currently available, most of these systems are Year 2000 compliant. The systems that are not compliant will be replaced. The new systems are expected to be operational by July 31, 1999. The related costs to replace these systems are not expected to be material to the operating results or financial position of the Company. The Company is also in the process of obtaining assurances from its significant suppliers, large customers, financial institutions, and others that those parties are Year 2000 compliant or have appropriate plans to remediate Year 2000 issues. The Company has received correspondence from some third parties and it appears they are taking reasonable steps to remedy Year 2000 issues. The Company continues to assess the extent to which its operations are vulnerable should those organizations fail to properly remediate their computer systems. While management believes its efforts are adequate to address its Year 2000 concerns, there can be no guarantee that the systems of other companies on which the Company's systems and operations rely will be converted on a timely basis and will not have an adverse effect on the Company's business, operating results or financial position. NEW ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board recently issued Statement No. 130 (SFAS No. 130), "Reporting Comprehensive Income" and Statement No. 131 (SFAS No. 131), "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 130 establishes standards for reporting and displaying comprehensive income and its components in a full set of general-purpose financial statements. SFAS No. 131 establishes standards for the way public companies report information about operating segments in annual financial statements and interim financial reports issued to shareholders. Management does not anticipate that the adoption of these standards will have a significant effect on the Company's financial statements and notes thereto. ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For quantitative and qualitative disclosures about market risk, see Note 10 to the Notes to Consolidated Financial Statements and the information presented herein under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations." 27 ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and other information required by this item are contained in the financial statements and footnotes thereto listed in the index on page F-1 of this report. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information relating to the directors of the Company is contained on pages 2 through 4 and page 13 of the Company's definitive Proxy Statement, dated February 16, 1999, with respect to the Annual Meeting of Shareholders to be held on March 15, 1999 which will be filed pursuant to regulation 14(a) of the Securities Exchange Act of 1934 and which is incorporated herein by reference. ITEM 11 - EXECUTIVE COMPENSATION The information called for by this item is contained on pages 6 through 10 of the Company's definitive Proxy Statement, dated February 16, 1999, with respect to the Annual Meeting of Shareholders to be held on March 15, 1999, which will be filed pursuant to regulation 14(a) of the Securities Exchange Act of 1934 and which is incorporated herein by reference. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information called for by this Item is contained on pages 4 and 5 of the Company's definitive Proxy Statement, dated February 16, 1999, with respect to the Annual Meeting of Shareholders to be held on March 15, 1999, which will be filed pursuant to regulation 14(a) of the Securities Exchange Act of 1934 and which is incorporated herein by reference. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information called for by this Item is contained on page 12 of the Company's definitive Proxy Statement, dated February 16, 1999, with respect to the Annual Meeting of Shareholders to be held on March 15, 1999, which will be filed pursuant to regulation 14(a) of the Securities Exchange Act of 1934 and which is incorporated herein by reference. 28 PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents filed for this part of the report are filed as a separate section following the signature page. Reference is made to the Audited Consolidated Financial Statements and Schedule II Table of Contents on Page F-1. (1) See Page No. F-1. (2) Schedules, other than Schedule II listed on page F-1, are omitted because of the absence of conditions under which they are required. 3. EXHIBITS
Number Description Reference (3) 3.1 Articles of Incorporation Filed as Exhibit 3.1 to Form 10-Q dated June 16, 1997, filed on June 16, 1997, incorporated herein by reference. 3.2 Bylaws Filed as Exhibit 3.2 to Registration Statement on Form S-1, File No. 33-54454, filed on November 10, 1992, incorporated herein by reference. (4) Instruments defining the rights of security See Exhibit 3.1 above. holders, including debentures. (10) Material Contracts Realty Lease dated January 28, 1993 between ADJ Corp. and Company regarding 2450 1st Avenue, Huntington, West Virginia, filed as Exhibit 10.1 to Form 10-K dated January 27, 1994, filed January 31, 1994, is incorporated herein by reference. Realty Lease dated January 28, 1993 between The Harrah and Reynolds Corporation and Company regarding
29 3. EXHIBITS (continued) 615 4th Avenue, Huntington, West Virginia, filed as Exhibit 10.2 to Form 10-K dated January 27, 1994, filed January 31, 1994, is incorporated herein by reference. Realty Lease dated January 28, 1993 between ADJ Corp. and Company regarding 617-619 4th Avenue, Huntington, West Virginia, filed as Exhibit 10.3 to Form 10-K dated January 27, 1994, filed January 31, 1994, is incorporated herein by reference. Realty Lease dated January 28, 1993 between The Harrah and Reynolds Corporation and Company regarding 1945 5th Avenue, Huntington, West Virginia, filed as Exhibit 10.4 to Form 10-K dated January 27, 1994, filed January 31, 1994, is incorporated herein by reference. Realty Lease dated January 28, 1993 between Printing Property Corp. and Company regarding 405 Ann Street, Parkersburg, West Virginia, filed as Exhibit 10.5 to Form 10-K dated January 27, 1994, filed January 31, 1994, is incorporated herein by reference. Realty Lease dated January 28, 1993 between Printing Property Corp. and Company regarding 890 Russell Cave Road, Lexington, Kentucky, filed as Exhibit 10.6 to Form 10-K dated January 27, 1994, filed January 31, 1994, is incorporated herein by reference. Realty Lease dated January 28, 1993 between BCM Company, Ltd. and
30 3. EXHIBITS (continued) Company regarding 1563 Hansford Street, Charleston, West Virginia, filed as Exhibit 10.7 to Form 10-K dated January 27, 1994, filed January 31, 1994, is incorporated herein by reference. $2,000,000 line of credit pursuant to Letter Agreement, Loan Agreement, Commercial Promissory Note and Guaranty Agreement dated September 24, 1993 with Bank One, West Virginia, Huntington, N.A., filed as Exhibit 10.11 to Form 10-K dated January 27, 1994, filed January 31, 1994, is incorporated herein by reference. Lease dated April 11, 1994 between Terry and Anis Wyatt and Stationers Inc. regarding 214 Stone Road, Belpre, Ohio, filed as Exhibit 10.1 to Form 10-K dated January 26, 1995, filed January 27, 1995, is incorporated herein by reference. Form of Indemnification Agreement between Company and all directors and executive officers, filed as Exhibit 10.4 to Registration Statement on Form S-1, File No. 33-54454, filed on November 10, 1992, is incorporated herein by reference. Lease Agreement dated June 1, 1995 between Owl Investors Joint Venture and U.S. Tag & Ticket Company, Inc. regarding 2217 Robb Street, Baltimore, Maryland filed as Exhibit 10.1 to Form 10-K dated January 26, 1996, filed January 26, 1996, is incorporated herein by reference.
31 3. EXHIBITS (continued) Lease Agreement dated November 1, 1991 between Randall M. Schulz, successor trustee of The Butterfield Family Trust No. 2 and Smith & Butterfield Co., Inc. regarding 2800 Lynch Road, Evansville, Indiana, filed as Exhibit 10.2 to Form 10-K dated January 28, 1997, filed January 28, 1997, is incorporated herein by reference. Lease Agreement dated June 1, 1972 between Earl H. and Elaine D. Seibert and Smith & Butterfield Co., Inc. regarding 113-117 East Third Street, Owensboro, Kentucky, filed as Exhibit 10.3 to Form 10-K dated January 28, 1997, filed January 28, 1997, is incorporated herein by reference. Agreement of Lease dated August 21, 1996 between Marion B. and Harold A. Merten, Jr. and CM Acquisition Corp. (now The Merten Company) regarding 1515 Central Parkway, Cincinnati, Ohio, filed as Exhibit 10.4 to Form 10-K dated January 28, 1997, filed January 28, 1997, is incorporated herein by reference. Agreement of Lease dated October 1, 1988 between Ronald H. Scott and Frank J. Scott t/d/b/a St. Clair Leasing Co. and Interform Corporation, regarding 1901 Mayview Road, Bridgeville, Pennsylvania, as amended by Amendment No. 1 dated November 30, 1989, as amended by Amendment No. 2 dated April 24, 1992, and as amended by Stipulation and Order of Court (United States Bankruptcy Court for
32 3. EXHIBITS (continued) the Western District of Pennsylvania in the matter of Interform Corporation v. Ronald H. Scott and Frank J. Scott t/d/b/a St. Clair Leasing Company, Bankruptcy No. 94-20094-JLC) entered August 17, 1994, filed as Exhibit 10.5 to Form 10-K dated January 28, 1997, filed January 28, 1997, is incorporated herein by reference. $12,500,000 Term Loan Credit Agreement by and among Champion Industries, Inc. and the Banks Party Thereto and PNC Bank, National Association, as Agent, dated as of March 31, 1997, as amended by Amendment No. 1 to Credit Agreement dated August 1, 1997, filed as Exhibit 10.1 to Form 10-K dated January 29, 1998, filed January 29, 1998, is incorporated herein by reference. Commercial Gross Lease between M. Field Gomila et al and Bourque Printing dba Upton Printing dated October 29, 1997, regarding 740 and 746 Carondolet Street, New Orleans, Louisiana, filed as Exhibit 10.3 to Form 10-K dated January 29, 1998, filed January 29, 1998, is incorporated herein by reference. Executive Compensation Plans and Company's 1993 Stock Option Plan, effective March 22, Arrangements 1994, filed as Exhibit 10.14 to Form 10-K dated January 27, 1994, filed January 31, 1994, is incorporated herein by reference. Deferred Compensation Agreement dated July 1, 1993 between Blue Ridge Printing Co., Inc. and Glenn
33 3. EXHIBITS (continued) W. Wilcox, Sr., filed as Exhibit 10.4 to Form 10-K dated January 29, 1998, filed January 29, 1998, is incorporated herein by reference. Split Dollar Life Insurance Agreement dated July 1, 1993 between Blue Ridge Printing Co., Inc. and Glenn W. Wilcox, Sr., filed as Exhibit 10.5 to Form 10-K dated January 29, 1998, filed January 29, 1998, is incorporated herein by reference. (10.1) $5,600,000 Term Loan Credit Agreement by and among the Company and its subsidiaries and PNC Bank, National Association, dated as of March 13, 1998, together with promissory note and representative security agreement attendant thereto. Page 64 (10.2) Agreement of Lease between The Tilson Group and Capitol Business Equipment, Inc. dated May 18, 1998, regarding 711 Indiana Avenue, Charleston, West Virginia. Page 155 (10.3) Agreement of Lease between Mildred Thompson and Thompson's of Morgantown, Inc. dated May 28, 1998, regarding Kirk and Chestnut Streets, Morgantown, West Virginia. Page 184 (10.4) Lease Agreement between The Equitable Life Assurance Society of the United States and Champion Industries, Inc., d/b/a Upton Printing, dated October 27, 1997,
34 3. EXHIBITS (continued) regarding 5600 Jefferson Highway, Harahan, Louisiana. Page 199 (21) Subsidiaries of the Registrant Exhibit 21 Page 218 (23) Consent of Ernst & Young LLP Exhibit 23 Page 219 (27) Financial Data Schedule Exhibit 27 Page 220 (b) Champion filed the following reports on Form 8-K during the last quarter of the period covered by this report: None.
35 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CHAMPION INDUSTRIES, INC. By /S/ MARSHALL T. REYNOLDS ------------------------------------------ Marshall T. Reynolds President and Chief Executive Officer By /S/ DAVID B. MCCLURE ------------------------------------------ David B. McClure Vice President and Chief Financial Officer Date: January 25, 1999 36 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated and on the dates indicated. SIGNATURE AND TITLE DATE /S/ ROBERT H. BEYMER January 25, 1999 - ---------------------------------------- Robert H. Beymer, Director /S/ PHILIP E. CLINE January 25, 1999 - ---------------------------------------- Philip E. Cline, Director /S/ HARLEY F. MOONEY, JR. January 25, 1999 - ---------------------------------------- Harley F. Mooney, Jr., Director /S/ TODD L. PARCHMAN January 25, 1999 - ---------------------------------------- Todd L. Parchman, Director /S/ A. MICHAEL PERRY January 25, 1999 - ---------------------------------------- A. Michael Perry, Director /S/ MARSHALL T. REYNOLDS January 25, 1999 - ---------------------------------------- Marshall T. Reynolds, Director /S/ NEAL W. SCAGGS January 25, 1999 - ---------------------------------------- Neal W. Scaggs, Director /S/ GLENN W. WILCOX, SR. January 25, 1999 - ---------------------------------------- Glenn W. Wilcox, Sr., Director 37 CHAMPION INDUSTRIES, INC. Audited Consolidated Financial Statements and Schedule October 31, 1998 CONTENTS Report of Independent Auditors (Item 8)........................................F-2 Audited Consolidated Financial Statements and Schedule (Item 8) Consolidated Balance Sheets...................................................F-3 Consolidated Income Statements................................................F-5 Consolidated Statements of Shareholders' Equity...............................F-6 Consolidated Statements of Cash Flows.........................................F-7 Notes to Consolidated Financial Statements....................................F-8 Schedule II--Valuation and Qualifying Accounts (Item 14a)....................F-20
F-1 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders Champion Industries, Inc. We have audited the accompanying consolidated balance sheets of Champion Industries, Inc. and Subsidiaries as of October 31, 1998 and 1997, and the related consolidated income statements, statements of shareholders' equity, and cash flows for each of the three years in the period ended October 31, 1998. Our audits also included the financial statement schedule listed in the index at Item 14(a). These financial statements and the schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the schedule based upon our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Champion Industries, Inc. and Subsidiaries at October 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended October 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Charleston, West Virginia December 18, 1998 F-2 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets
OCTOBER 31, 1998 1997 ---------------------------- ASSETS Current assets: Cash and cash equivalents $ 9,773,193 $ 912,290 Accounts receivable, net of allowance of $1,329,000 and $1,140,000 21,234,593 19,075,180 Inventories 12,760,204 11,576,651 Property held for sale -- 300,000 Other current assets 478,306 283,642 Deferred income tax assets 935,004 981,619 ---------------------------- Total current assets 45,181,300 33,129,382 Property and equipment, at cost: Land 984,889 784,889 Buildings and improvements 5,564,062 4,144,472 Machinery and equipment 29,195,512 22,852,103 Equipment under capital leases 2,137,400 5,720,594 Furniture and fixtures 1,943,399 1,684,275 Vehicles 2,438,462 1,914,362 ---------------------------- 42,263,724 37,100,695 Less accumulated depreciation (17,335,378) (13,825,053) ---------------------------- 24,928,346 23,275,642 Cash surrender value of officers' life insurance 935,169 921,213 Goodwill, net of accumulated amortization 3,026,106 2,558,356 Other assets 434,407 461,120 ---------------------------- 4,395,682 3,940,689 ---------------------------- Total assets $ 74,505,328 $ 60,345,713 ---------------------------- ----------------------------
F-3 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (continued)
OCTOBER 31, 1998 1997 ------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,175,743 $ 3,657,365 Notes payable -- 2,425,000 Accrued payroll and commissions 1,541,586 2,052,130 Taxes accrued and withheld 597,886 571,477 Accrued income taxes 175,202 450,027 Accrued expenses 716,582 793,848 Current portion of long-term debt: Notes payable 3,477,473 2,842,844 Capital lease obligations 388,954 1,401,519 ------------------------- Total current liabilities 10,073,426 14,194,210 Long-term debt, net of current portion: Notes payable 12,966,038 11,328,588 Capital lease obligations 1,026,517 3,827,368 Deferred income tax liabilities 4,341,150 3,589,889 Other liabilities 788,462 555,886 ------------------------- Total liabilities 29,195,593 33,495,941 Commitments and contingencies Shareholders' equity: Common stock, $1 par value, 20,000,000 shares authorized; 9,713,913 and 8,384,930 shares issued and outstanding 9,713,913 8,384,930 Additional paid-in capital 22,242,047 7,450,328 Retained earnings 13,353,775 11,014,514 ------------------------- Total shareholders' equity 45,309,735 26,849,772 ------------------------- Total liabilities and shareholders' equity $74,505,328 $60,345,713 ------------------------- -------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-4 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Income Statements
YEAR ENDED OCTOBER 31, 1998 1997 1996 ---------------------------------------------- Revenues: Printing $ 95,002,726 $ 87,978,709 $49,242,232 Office products and office furniture 28,058,762 20,405,929 17,114,644 ---------------------------------------------- Total revenues 123,061,488 108,384,638 66,356,876 Cost of sales: Printing 66,699,561 59,849,596 33,014,938 Office products and office furniture 18,615,734 13,289,403 11,076,854 ---------------------------------------------- Total cost of sales 85,315,295 73,138,999 44,091,792 Gross Profit 37,746,193 35,245,639 22,265,084 Selling, general and administrative expenses 29,871,573 28,079,009 16,197,359 ---------------------------------------------- Income from operations 7,874,620 7,166,630 6,067,725 Other income (expense): Interest income 244,753 20,116 25,287 Interest expense (1,507,387) (1,586,418) (692,914) Other 241,392 737,097 223,589 ---------------------------------------------- (1,021,242) (829,205) (444,038) ---------------------------------------------- Income before income taxes 6,853,378 6,337,425 5,623,687 Income taxes (2,702,274) (2,570,644) (2,251,319) ---------------------------------------------- Net income $ 4,151,104 $ 3,766,781 $ 3,372,368 ---------------------------------------------- ---------------------------------------------- Earnings per share: Basic $ 0.45 $ 0.45 $ 0.41 Diluted 0.45 0.45 0.40 Dividends paid per share 0.20 0.19 0.152 Weighted average shares outstanding: Basic 9,142,000 8,383,000 8,324,000 Diluted 9,172,000 8,441,000 8,356,000
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-5 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Statements of Shareholders' Equity
COMMON STOCK ADDITIONAL ------------------------------- PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS TOTAL --------------------------------------------------------------------------- Balance, October 31, 1995 6,611,721 $6,611,721 $ 6,516,199 $ 6,665,789 $19,793,709 Net income for 1996 -- -- -- 3,372,368 3,372,368 Dividends ($0.152 per share) -- -- -- (1,222,621) (1,222,621) Stock issued in acquisition 150,126 150,126 2,549,874 -- 2,700,000 Cash paid in lieu of fractional shares (146) (146) (2,590) -- (2,736) Stock split (five shares for four) 1,620,981 1,620,981 (1,620,981) -- -- --------------------------------------------------------------------------- Balance, October 31, 1996 8,382,682 8,382,682 7,442,502 8,815,536 24,640,720 Net income for 1997 -- -- -- 3,766,781 3,766,781 Dividends ($0.19 per share) -- -- -- (1,567,803) (1,567,803) Stock options exercised 2,441 2,441 11,310 -- 13,751 Cash paid in lieu of fractional shares (193) (193) (3,484) -- (3,677) --------------------------------------------------------------------------- Balance, October 31, 1997 8,384,930 8,384,930 7,450,328 11,014,514 26,849,772 Net income for 1998 -- -- -- 4,151,104 4,151,104 Dividends ($0.20 per share) -- -- -- (1,811,843) (1,811,843) Stock issued in acquisitions 193,397 193,397 1,564,894 -- 1,758,291 Stock options exercised 43,593 43,593 184,274 -- 227,867 Stock offering, net of issuance expenses 1,091,993 1,091,993 13,042,551 -- 14,134,544 --------------------------------------------------------------------------- Balance, October 31, 1998 9,713,913 $9,713,913 $22,242,047 $13,353,775 $45,309,735 --------------------------------------------------------------------------- ---------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-6 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows
YEAR ENDED OCTOBER 31, 1998 1997 1996 --------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 4,151,104 $ 3,766,781 $ 3,372,368 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 3,620,925 3,179,515 2,002,480 Gain on sales of assets (52,914) (371,041) (23,260) Deferred income taxes 616,334 334,409 236,860 Deferred compensation 56,894 82,285 92,933 Changes in assets and liabilities: Accounts receivable (372,128) (1,690,650) (1,579,298) Inventories (489,321) (1,758,510) (88,812) Other current assets (164,028) 152,345 (232,237) Accounts payable (1,038,947) 236,195 (902,376) Accrued payroll (628,118) 616,772 (222,450) Taxes accrued and withheld (58,872) (235,161) 255,134 Accrued income taxes (264,549) (946,031) 650,031 Deferred revenue (1,059,975) -- -- Accrued expenses (108,610) (1,383,537) (255,416) --------------------------------------------- Net cash provided by operating activities 4,207,795 1,983,372 3,305,957 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (3,195,260) (2,163,775) (2,538,459) Proceeds from sales of assets 513,282 163,103 34,745 Businesses acquired, net of cash received 1,159,356 254,676 (1,118,792) Increase in other assets 33,798 (297,364) (137,655) --------------------------------------------- Net cash used in investing activities (1,488,824) (2,043,360) (3,760,161) CASH FLOWS FROM FINANCING ACTIVITIES Net (payments) borrowings on notes payable (2,758,757) 1,575,000 1,300,000 Proceeds from long-term debt 1,815,465 1,306,919 3,122,343 Principal payments on long-term debt (5,465,344) (2,812,791) (1,672,249) Dividends paid (1,811,843) (1,567,803) (1,222,621) Proceeds from stock offering, net of issuance expenses 14,134,544 -- -- Proceeds for exercise of stock options 227,867 13,751 -- Cash paid in lieu of fractional shares -- (3,677) (2,736) --------------------------------------------- Net cash provided by (used in) financing activities 6,141,932 (1,488,601) 1,524,737 --------------------------------------------- Net increase (decrease) in cash 8,860,903 (1,548,589) 1,070,533 Cash and cash equivalents at beginning of year 912,290 2,460,879 1,390,346 --------------------------------------------- Cash and cash equivalents at end of year $ 9,773,193 $ 912,290 $ 2,460,879 --------------------------------------------- ---------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-7 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements October 31, 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of Champion conform to generally accepted accounting principles. The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. The following is a summary of the more significant accounting and reporting policies. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements of Champion Industries, Inc. and Subsidiaries (the "Company") include the accounts of The Chapman Printing Company, Inc., Bourque Printing, Inc., Dallas Printing Company, Inc., Stationers, Inc., Carolina Cut Sheets, Inc., U.S. Tag & Ticket Company, Inc., Donihe Graphics, Inc., Smith and Butterfield Co., Inc., The Merten Company, Interform Corporation, Blue Ridge Printing Co., Inc., CHMP Leasing, Inc., Rose City Press, Capitol Business Equipment, Inc. and Thompson's of Morgantown, Inc. Significant intercompany transactions have been eliminated in consolidation. CASH EQUIVALENTS Cash and cash equivalents consist principally of cash on deposit with banks, repurchase agreements for government securities, and a money market account, all highly liquid investments, with an original maturity of three months or less. At October 31, 1998 and 1997, the Company held overnight repurchase agreements for $1,686,000 and $51,000 of Federal National Mortgage Association securities with stated interest rates of 4.07% and 4.0%. In addition, at October 31, 1998, the Company had invested $5,238,000 in a money market account with a national financial institution that earned 4.94% during October 1998. INVENTORIES Inventories are principally stated at the lower of first-in, first-out cost or market. Manufactured finished goods and work-in-process inventories include material, direct labor and overhead based on standard costs, which approximate actual costs. PROPERTY AND EQUIPMENT Depreciation of property and equipment and amortization of leasehold improvements and equipment under capital leases are recognized primarily on the straight-line and declining-balance methods in amounts adequate to amortize costs over the estimated useful lives of the assets as follows: Buildings and improvements 5 - 40 years Machinery and equipment 5 - 10 years Furniture and fixtures 5 - 10 years Vehicles 3 - 5 years
F-8 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) The Company leases certain equipment under financing agreements which are classified as capital leases. These leases are for a term of five years and contain purchase options at the end of the original lease term. Amortization of assets recorded under capital lease agreements is included in depreciation expense. Major renewals, betterments, and replacements are capitalized while maintenance and repair costs are charged to operations as incurred. Upon the sale or disposition of assets, the cost and related accumulated depreciation are removed from the accounts with the resulting gains or losses reflected in income. Depreciation expense approximated $3,432,000, $3,021,000 and $1,905,000 for the years ended October 31, 1998, 1997, and 1996. GOODWILL The excess cost over fair value of net assets of acquired businesses, goodwill, is being amortized by the straight-line method over 10 to 30 years. The carrying value of goodwill is evaluated periodically for impairment. This evaluation includes the review of operating performance and estimated future undiscounted cash flows of the underlying businesses. Any impairment loss is recognized in the period when it is determined that the carrying value of the goodwill may not be recoverable. Accumulated amortization at October 31, 1998 and 1997, approximated $1,093,000 and $956,000. Amortization expense approximated $137,000, $132,000 and $98,000 for the years ended October 31, 1998, 1997, and 1996. ADVERTISING COSTS Advertising costs are expensed as incurred. Advertising expense for the years ended October 31, 1998, 1997, and 1996 approximated $650,000, $646,000, and $378,000. INCOME TAXES Provisions for income taxes currently payable and deferred income taxes are based on the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. EARNINGS PER SHARE Basic earnings per share is computed by dividing net income by the weighted average shares of common stock outstanding for the period and excludes any dilutive effects of stock options. Diluted earnings per share is computed by dividing net income by the weighted average shares of common stock outstanding for the period plus the shares that would be outstanding assuming the exercise of dilutive stock options. The effect of dilutive stock options increased weighted average shares outstanding by 30,000, 58,000 and 32,000 for the years ended October 31, 1998, 1997, and 1996. F-9 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) 2. INVENTORIES Inventories consisted of the following:
OCTOBER 31, 1998 1997 -------------------------- Printing: Raw materials $ 3,117,249 $ 2,843,081 Work in process 2,112,007 2,655,231 Finished goods 3,621,439 2,923,560 Office products and office furniture 3,909,509 3,154,779 -------------------------- $12,760,204 $11,576,651 -------------------------- --------------------------
3. LONG-TERM DEBT Long-term debt consisted of the following:
OCTOBER 31, 1998 1997 -------------------------- Unsecured term notes payable to a bank, due in monthly principal installments of $217,000 plus interest at the prime rate with the last note maturing April 2004 $13,593,658 $11,600,431 Installment notes payable to banks, due in monthly installments totaling $90,000 with interest rates approximating the bank's prime rate and the last note maturing October 2002, collateralized by equipment, vehicles, inventory, and accounts receivable 2,141,994 2,122,215 Unsecured installment notes payable to banks, due in monthly installments totaling $1,700, with interest rates approximating the bank's prime rate, with the last note maturing June 1999 13,133 448,786 Mortgage note payable to a bank, due in monthly installments of $11,000, including interest at the prime rate with the note maturing November 2005, collateralized by real estate 694,726 -- Capital lease obligations, due in monthly installments totaling $43,000, including interest at the bank's prime rate through July 2002 1,415,471 5,228,887 -------------------------- 17,858,982 19,400,319 Less current portion 3,866,427 4,244,363 -------------------------- Long-term debt, net of current portion $13,992,555 $15,155,956 -------------------------- --------------------------
The unsecured term note agreements contain restrictive financial covenants requiring the Company to maintain certain financial ratios. F-10 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) Maturities of long-term debt for each of the next five years follows:
NOTES CAPITAL PAYABLE LEASES TOTAL --------------------------------------- 1999 $ 3,477,473 $ 388,954 $ 3,866,427 2000 3,293,099 316,598 3,609,697 2001 3,060,308 341,661 3,401,969 2002 2,980,725 368,258 3,348,983 2003 2,487,604 -- 2,487,604 Thereafter 1,144,302 -- 1,144,302 --------------------------------------- $16,443,511 $1,415,471 $17,858,982 --------------------------------------- ---------------------------------------
The Company has unsecured revolving lines of credit with banks for borrowings to a maximum of $12,000,000 with interest payable monthly at interest rates approximating the prime rate. These lines of credit, $2,000,000 of which expires in May 1999, and $10,000,000 in January 2002, contain certain restrictive financial covenants. There were no borrowings outstanding under these facilities at October 31, 1998 and $2,000,000 outstanding at October 31, 1997. The prime rate, the base interest rate on the above loans, approximated 8.0% and 8.5% at October 31, 1998 and 1997. Interest paid during the years ended October 31, 1998, 1997, and 1996 approximated $1,588,000, $1,511,000 and $632,000. The Company's non-cash activities for 1998 and 1997 included equipment purchases of approximately $579,000 and $1,733,000, which were financed by a bank. 4. EMPLOYEE BENEFIT PLANS The Company had a Profit Sharing Plan that covered all eligible employees and qualified as a Savings Plan under Section 401(k) of the Internal Revenue Code. Effective January 1, 1998, the Profit Sharing Plan was merged into The Champion Industries, Inc. 401(k) Plan (the "Plan"). The Plan covers all eligible employees who satisfy the age and service requirements. Each participant may elect to contribute up to 15% of annual compensation, and the Company is obligated to contribute 100% of the participant's contribution not to exceed 2% of the participant's annual compensation. The Company may make discretionary contributions to the Plan. In The Company's expense under these Plans was approximately $311,000, $158,000 and $97,000 for the years ended October 31, 1998, 1997 and 1996. The Company's 1993 Stock Option Plan provides for the granting of both incentive and non-qualified stock options to management personnel for up to 762,939 shares of the Company's common stock. The option price per share for incentive stock options shall not be lower than the fair market value of the common stock at the date of grant. The option price per share for non-qualified stock options shall be at such price as the Compensation Committee of the Board of Directors may determine at its sole discretion. All options to date F-11 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) are incentive stock options. Exercise prices for options outstanding as of October 31, 1998, ranged from $13.12 to $18.50. Options vest immediately and may be exercised within five years from the date of grant. The weighted average remaining contractual life of those options is 2.6 years. A summary of the Company's stock option activity and related information for the years ended October 31 follows:
WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE 1998 PRICE 1997 PRICE 1996 PRICE --------------------------------------------------------------- Outstanding-beginning of year 179,532 $12.52 146,973 $ 11.12 100,098 $ 9.28 Granted 42,000 18.50 35,000 17.90 46,875 15.04 Exercised (43,593) 6.30 (2,441) 5.63 -- -- Forfeited (19,515) 11.88 -- -- -- --------- --------- --------- Outstanding-end of year 158,424 15.89 179,532 12.52 146,973 11.12 --------- --------- --------- --------- --------- --------- Weighted average fair value of options granted during the year $ 4.51 $ 4.63 $ 3.62 --------- --------- --------- --------- --------- ---------
The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related interpretations in accounting for its employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. The fair value of these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1998, 1997 and 1996, respectively: risk-free interest rates of 6.00%, 6.04% and 5.63%; dividend yields of 1.08%, 1.10% and 1.37%; volatility factors of the expected market price of the Company's common stock of 21.2%, 23.6% and 23.0%; and a weighted-average expected life of the option of 4 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. Accordingly, the following pro forma disclosures are not likely to be representative of the effects on reported net income for future years. F-12 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) The following pro forma information has been determined as if the Company had accounted for its employee stock options under the fair value method. For purposes of pro forma disclosures, the estimated fair value of the options is expensed in the year granted since the options vest immediately. The Company's pro forma information for the years ended October 31 follows:
1998 1997 1996 ------------------------------------- Pro forma net income $3,962,000 $3,605,000 $3,203,000 ------------------------------------- ------------------------------------- Pro forma basic and diluted earnings per share $0.43 $0.43 $0.38 ------------------------------------- -------------------------------------
The Company has deferred compensation agreements with two employees of Blue Ridge Printing Co., Inc. providing for payments totaling approximately $1,000,000 over a ten year period after retirement. The Company had accrued approximately $609,000 and $556,000 at October 31, 1998 and 1997, relating to these agreements. The amount expensed for these agreements for the years ended October 31, 1998, 1997, and 1996 approximated $53,000, $82,000, and $93,000. To assist in funding the deferred compensation agreements, the Company has invested in life insurance policies which had cash surrender values of $400,000 at October 31, 1998 and 1997. 5. INCOME TAXES Income taxes consisted of the following:
YEAR ENDED OCTOBER 31, 1998 1997 1996 --------------------------------------- Current expense: Federal $1,662,406 $1,783,878 $1,620,319 State 423,534 452,357 394,000 Deferred expense 616,334 334,409 237,000 --------------------------------------- $2,702,274 $2,570,644 $2,251,319 --------------------------------------- ---------------------------------------
F-13 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) Deferred tax assets and liabilities are as follows:
OCTOBER 31, 1998 1997 ------------------------ Assets: Allowance for doubtful accounts $ 531,611 $ 455,940 Deferred compensation 243,412 222,354 Net operating loss carryforward of acquired companies 253,461 307,035 Accrued vacation 207,693 217,980 Other accrued liabilities 117,995 238,244 ------------------------ Gross deferred tax assets 1,354,172 1,441,553 Liabilities: Property and equipment 4,631,527 4,049,824 Other assets 128,791 -- ------------------------ Gross deferred liability 4,760,318 4,049,824 ------------------------ Net deferred tax liabilities $3,406,146 $2,608,271 ------------------------ ------------------------
A reconciliation of the statutory federal income tax rate to the Company's effective income tax rate is as follows:
YEAR ENDED OCTOBER 31, 1998 1997 1996 ------------------ Statutory federal income tax rate 34% 34% 34% State taxes, net of federal benefit 4 5 5 Other 1 2 1 ------------------ Effective tax rate 39% 41% 40% ------------------ ------------------
Income taxes paid during the years ended October 31, 1998, 1997 and 1996 approximated $2,393,000, $3,024,000 and $1,437,000. The Company has available, for income tax purposes, net operating loss carryforwards from acquired companies of approximately $1,653,000 of which $57,000 expires in 2010, $697,000 in 2011, and $899,000 in 2012. 6. RELATED PARTY TRANSACTIONS AND OPERATING LEASE COMMITMENTS The Company leases operating facilities from entities controlled by its President, his family and affiliates. The terms of these leases, which are accounted for as operating leases, range from five to fifteen years. F-14 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) A summary of significant related party transactions follows:
YEAR ENDED OCTOBER 31, 1998 1997 1996 ------------------------------ Rent expense paid to affiliated entities for operating facilities $363,000 $363,000 $363,000 Sales of office products, office furniture and printing services to affiliated entities 447,000 462,000 840,000
When a new vehicle is required, the Company either purchases a new vehicle or enters into a new vehicle lease with unrelated entities. These leases are on a month-to-month basis. Other vehicle rent expense to unrelated entities totaled $231,000, $262,000 and $265,000 for the years ended October 31, 1998, 1997 and 1996. In addition, the Company leases property and equipment from unrelated entities under operating leases. Rent expense amounted to $779,000, $489,000 and $321,000 for the years ended October 31, 1998, 1997, and 1996. Under the terms and conditions of the above-mentioned leases, the Company pays all taxes, assessments, maintenance, repairs or replacements, utilities and insurance. Future minimum rental commitments for all noncancelable operating leases with initial terms of one year or more consisted of the following at October 31, 1998: 1999 $ 894,000 2000 710,000 2001 509,000 2002 408,000 2003 271,000 Thereafter 690,000 ----------- $3,482,000 ----------- -----------
In order to minimize premium costs, the Company participates in a self-insurance program for employee health care benefits with affiliates controlled by its President. The Company is allocated costs based on its proportionate share to provide such benefits to its employees. The Company's expense related to this program for the years ended October 31, 1998, 1997 and 1996 was approximately $2,049,000, $1,960,000 and $733,000. 7. DEFERRED GAIN On August 30, 1991, Stationers, Inc. sold assets of its retail bookstore consisting primarily of inventory and fixtures. The assets sold represented a separate area of Stationers' retail location and thus the transaction was considered to be a disposal of a portion of a product line incident to the evolution of its overall business. F-15 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) Stationers, Inc. unconditionally guaranteed a bank loan of the purchaser amounting to $600,000. Accordingly, the gain from the sale of $591,835 was deferred and recognized as the purchaser made payments on the purchaser's bank loan and the note receivable. In 1997, Stationers was released from this guarantee, and the remaining gain was recognized. The gain recognized for the years ended October 31, 1997 and 1996, amounted to $330,000 and $23,000. 8. COMMITMENTS AND CONTINGENCIES The Company is subject to the environmental laws and regulations of the United States and the states in which it operates concerning emissions into the air, discharges into the waterways and the generation, handling and disposal of waste materials. The Company's past expenditures relating to environmental compliance have not had a material effect on the Company and are included in normal operating expenses. These laws and regulations are constantly evolving, and it is impossible to predict accurately the effect they may have upon the capital expenditures, earnings, and competitive position of the Company in the future. Based upon information currently available, management believes that expenditures relating to environmental compliance will not have a material impact on the financial position of the Company. 9. ACQUISITIONS On May 29, 1998, the Company acquired all of the outstanding common stock of Thompson's of Morgantown, Inc. and Thompson's of Barbour County, Inc. (collectively referred to as "Thompson"), both companies doing business as Thompson's Office Furniture and Supplies of Morgantown and Philippi, West Virginia, in exchange for 45,473 shares of its common stock with a market value at the time of acquisition of $600,000. On May 18, 1998, the Company acquired all of the outstanding common shares of Capitol Business Equipment, Inc. (Capitol), doing business as Capitol Business Interiors of Charleston, West Virginia, in exchange for 72,202 shares of its common stock with a market value at the time of acquisition of $1,000,000. The Capitol and Thompson transactions were accounted for under the pooling of interests method. However, prior period financial statements were not restated due to the immaterial effect on Champion's consolidated financial statements. Accordingly, Capitol's and Thompson's operations are included in these consolidated financial statements since their acquisition date. On February 2, 1998, the Company acquired all of the outstanding common stock of Rose City Press (Rose City) of Charleston, West Virginia, an office products company, in exchange for 75,722 shares of its common stock with a market value at the time of acquisition of $1,250,000. The transaction was accounted for under the purchase method and Rose City's operations are included in these consolidated financial statements since the acquisition date. Pro forma financial information related to these acquisitions has not been presented because such information would not be materially different from amounts reported herein. F-16 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) On December 31, 1996, the Company acquired all of the outstanding common stock of Interform Corporation (Interform) in exchange for cash of $2,500,000, obtained through bank financing. This acquisition was accounted for under the purchase method. At December 31, 1996, Interform held for sale one of its former facilities which was recorded at its estimated fair value. This facility was sold in December 1997 for its estimated fair market value. The Interform acquisition has been accounted for under the purchase method of accounting. Accordingly, the purchase price has been allocated to the assets acquired and liabilities assumed based upon their fair values at the acquisition date. The operating results of Interform are included in the Consolidated Income Statements since its acquisition date. The following summarizes the unaudited consolidated pro forma results of operations for the year ended October 31, 1997, assuming the acquisition of Interform, accounted for under the purchase method had been consummated at the beginning of the year. Revenues $113,710,000 Net income $3,661,000 Diluted earnings per share $0.43 Diluted weighted average shares outstanding 8,441,000
10. INDUSTRY SEGMENT INFORMATION The Company operates principally in two industry segments: the production, printing and sale, principally to commercial customers, of printed materials (including brochures, pamphlets, reports, tags, continuous and other forms); and the sale of office products and office furniture including interior design services. The Company employs approximately 1,000 people, approximately 100 of whom are covered by a collective bargaining agreement which expires on May 31, 2001. The Company believes its relations with employees is satisfactory. The Company operates entirely in the United States. Inter-segment sales are not significant and no sales to one customer represented 10% of total revenues. F-17 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) Revenues and operating income for the years ended October 31, 1998, 1997, and 1996, and identifiable assets at the end of each of those years, were as follows:
1998 1997 1996 ---------------------------------------- Revenues: Printing $95,002,726 $87,978,709 $49,242,232 Office products and office furniture 28,058,762 20,405,929 17,114,644 Operating income: Printing 5,947,416 6,065,034 4,768,676 Office products and office furniture 1,927,204 1,101,596 1,299,049 Depreciation and amortization: Printing 3,306,724 2,955,739 1,843,309 Office products and office furniture 314,201 223,776 159,171 Capital expenditures: Printing 3,048,842 1,812,896 2,375,301 Office products and office furniture 146,418 350,879 163,158 Identifiable assets: Printing 61,904,800 52,577,247 36,498,504 Office products and office furniture 12,600,528 7,768,466 7,564,072
In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (Statement 131). Statement 131 establishes standards for the way public companies report information about operating segments in annual financial statements and interim financial reports. Statement 131 is effective for the Company for the year ending October 31, 1999. Management does not anticipate that the adoption of this standard will have a significant effect on the segments reported herein. 11. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. The fair value of revolving credit agreements and long-term debt was estimated using discounted cash flows and it approximates their carrying value. F-18 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) 12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the quarterly results of operations for the years ended October 31, 1998 and 1997.
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------------------------------------------------- REVENUES 1998 29,634,000 31,181,000 30,765,000 31,481,000 1997 21,116,000 29,260,000 27,454,000 30,555,000 GROSS PROFIT 1998 8,366,000 9,755,000 9,168,000 10,457,000 1997 6,005,000 10,009,000 8,936,000 10,296,000 NET INCOME 1998 797,000 1,021,000 1,021,000 1,312,000 1997 869,000 971,000 781,000 1,146,000 EARNINGS PER SHARE Basic 1998 .10 .12 .11 .14 1997 .10 .12 .09 .14 Diluted 1998 .09 .12 .11 .14 1997 .10 .12 .09 .14 WEIGHTED AVERAGE SHARES OUTSTANDING Basic 1998 8,386,000 8,819,000 9,647,000 9,708,000 1997 8,382,000 8,382,000 8,384,000 8,385,000 Diluted 1998 8,437,000 8,856,000 9,674,000 9,711,000 1997 8,439,000 8,442,000 8,437,000 8,445,000
F-19 CHAMPION INDUSTRIES, INC. AND SUBSIDIARIES Schedule II Valuation and Qualifying Accounts Years Ended October 31, 1998, 1997, and 1996
ADDITIONS BALANCE AT BALANCES OF CHARGED TO BALANCE BEGINNING ACQUIRED COSTS AND AT END DESCRIPTION OF PERIOD COMPANIES EXPENSES DEDUCTIONS(1) OF PERIOD - --------------------------------------------------------------------------------------------------- 1998 Allowance for doubtful accounts $1,139,985 $ 59,515 $274,191 (144,664) $1,329,027 1997 Allowance for doubtful accounts 548,284 314,313 373,165 (95,777) 1,139,985 1996 Allowance for doubtful accounts 422,377 -- 191,094 (65,187) 548,284
- ---------- (1) Uncollectible accounts written off, net of recoveries. F-20 3. EXHIBIT INDEX
Number Description Reference (3) 3.1 Articles of Incorporation Filed as Exhibit 3.1 to Form 10-Q dated June 16, 1997, filed on June 16, 1997, incorporated herein by reference. 3.2 Bylaws Filed as Exhibit 3.2 to Registration Statement on Form S-1, File No. 33-54454, filed on November 10, 1992, incorporated herein by reference. (4) Instruments defining the rights of security See Exhibit 3.1 above. holders, including debentures. (10) Material Contracts Realty Lease dated January 28, 1993 between ADJ Corp. and Company regarding 2450 1st Avenue, Huntington, West Virginia, filed as Exhibit 10.1 to Form 10-K dated January 27, 1994, filed January 31, 1994, is incorporated herein by reference. Realty Lease dated January 28, 1993 between The Harrah and Reynolds Corporation and Company regarding 615 4th Avenue, Huntington, West Virginia, filed as Exhibit 10.2 to Form 10-K dated January 27, 1994, filed January 31, 1994, is incorporated herein by reference. Realty Lease dated January 28, 1993 between ADJ Corp. and Company regarding 617-619 4th Avenue, Huntington, West Virginia, filed as Exhibit 10.3 to Form 10-K dated January 27, 1994, filed January 31, 1994, is incorporated herein by reference. Realty Lease dated January 28, 1993 between The Harrah and Reynolds Corporation and Company regarding 1945 5th Avenue, Huntington, West
58 Virginia, filed as Exhibit 10.4 to Form 10-K dated January 27, 1994, filed January 31, 1994, is incorporated herein by reference. Realty Lease dated January 28, 1993 between Printing Property Corp. and Company regarding 405 Ann Street, Parkersburg, West Virginia, filed as Exhibit 10.5 to Form 10-K dated January 27, 1994, filed January 31, 1994, is incorporated herein by reference. Realty Lease dated January 28, 1993 between Printing Property Corp. and Company regarding 890 Russell Cave Road, Lexington, Kentucky, filed as Exhibit 10.6 to Form 10-K dated January 27, 1994, filed January 31, 1994, is incorporated herein by reference. Realty Lease dated January 28, 1993 between BCM Company, Ltd. and Company regarding 1563 Hansford Street, Charleston, West Virginia, filed as Exhibit 10.7 to Form 10-K dated January 27, 1994, filed January 31, 1994, is incorporated herein by reference. $2,000,000 line of credit pursuant to Letter Agreement, Loan Agreement, Commercial Promissory Note and Guaranty Agreement dated September 24, 1993 with Bank One, West Virginia, Huntington, N.A., filed as Exhibit 10.11 to Form 10-K dated January 27, 1994, filed January 31, 1994, is incorporated herein by reference. Lease dated April 11, 1994 between Terry and Anis Wyatt and Stationers Inc. regarding 214 Stone Road,
59 Belpre, Ohio, filed as Exhibit 10.1 to Form 10-K dated January 26, 1995, filed January 27, 1995, is incorporated herein by reference. Form of Indemnification Agreement between Company and all directors and executive officers, filed as Exhibit 10.4 to Registration Statement on Form S-1, File No. 33-54454, filed on November 10, 1992, is incorporated herein by reference. Lease Agreement dated June 1, 1995 between Owl Investors Joint Venture and U.S. Tag & Ticket Company, Inc. regarding 2217 Robb Street, Baltimore, Maryland filed as Exhibit 10.1 to Form 10-K dated January 26, 1996, filed January 26, 1996, is incorporated herein by reference. Lease Agreement dated November 1, 1991 between Randall M. Schulz, successor trustee of The Butterfield Family Trust No. 2 and Smith & Butterfield Co., Inc. regarding 2800 Lynch Road, Evansville, Indiana, filed as Exhibit 10.2 to Form 10-K dated January 28, 1997, filed January 28, 1997, is incorporated herein by reference. Lease Agreement dated June 1, 1972 between Earl H. and Elaine D. Seibert and Smith & Butterfield Co., Inc. regarding 113-117 East Third Street, Owensboro, Kentucky, filed as Exhibit 10.3 to Form 10-K dated January 28, 1997, filed January 28, 1997, is incorporated herein by reference. Agreement of Lease dated August 21, 1996 between Marion B. and Harold A. Merten, Jr. and CM
60 Acquisition Corp. (now The Merten Company) regarding 1515 Central Parkway, Cincinnati, Ohio, filed as Exhibit 10.4 to Form 10-K dated January 28, 1997, filed January 28, 1997, is incorporated herein by reference. Agreement of Lease dated October 1, 1988 between Ronald H. Scott and Frank J. Scott t/d/b/a St. Clair Leasing Co. and Interform Corporation, regarding 1901 Mayview Road, Bridgeville, Pennsylvania, as amended by Amendment No. 1 dated November 30, 1989, as amended by Amendment No. 2 dated April 24, 1992, and as amended by Stipulation and Order of Court (United States Bankruptcy Court for the Western District of Pennsylvania in the matter of Interform Corporation v. Ronald H. Scott and Frank J. Scott t/d/b/a St. Clair Leasing Company, Bankruptcy No. 94-20094-JLC) entered August 17, 1994, filed as Exhibit 10.5 to Form 10-K dated January 28, 1997, filed January 28, 1997, is incorporated herein by reference. $12,500,000 Term Loan Credit Agreement by and among Champion Industries, Inc. and the Banks Party Thereto and PNC Bank, National Association, as Agent, dated as of March 31, 1997, as amended by Amendment No. 1 to Credit Agreement dated August 1, 1997, filed as Exhibit 10.1 to Form 10-K dated January 29, 1998, filed January 29, 1998, is incorporated herein by reference. Commercial Gross Lease between M. Field Gomila et al and Bourque
61 Printing dba Upton Printing dated October 29, 1997, regarding 740 and 746 Carondolet Street, New Orleans, Louisiana, filed as Exhibit 10.3 to Form 10-K dated January 29, 1998, filed January 29, 1998, is incorporated herein by reference. Executive Compensation Plans and Company's 1993 Stock Option Plan, effective March Arrangements 22, 1994, filed as Exhibit 10.14 to Form 10-K dated January 27, 1994, filed January 31, 1994, is incorporated herein by reference. Deferred Compensation Agreement dated July 1, 1993 between Blue Ridge Printing Co., Inc. and Glenn W. Wilcox, Sr., filed as Exhibit 10.4 to Form 10-K dated January 29, 1998, filed January 29, 1998, is incorporated herein by reference. Split Dollar Life Insurance Agreement dated July 1, 1993 between Blue Ridge Printing Co., Inc. and Glenn W. Wilcox, Sr., filed as Exhibit 10.5 to Form 10-K dated January 29, 1998, filed January 29, 1998, is incorporated herein by reference. (10.1) $5,600,000 Term Loan Credit Agreement by and among the Company and its subsidiaries and PNC Bank, National Association, dated as of March 13, 1998, together with promissory note and representative security agreement attendant thereto. Page 64 (10.2) Agreement of Lease between The Tilson Group and Capitol Business Equipment, Inc. dated May 18, 1998, regarding 711 Indiana Avenue, Charleston, West Virginia.
62 Page 155 (10.3) Agreement of Lease between Mildred Thompson and Thompson's of Morgantown, Inc. dated May 28, 1998, regarding Kirk and Chestnut Streets, Morgantown, West Virginia. Page 184 (10.4) Lease Agreement between The Equitable Life Assurance Society of the United States and Champion Industries, Inc., d/b/a Upton Printing, dated October 27, 1997, regarding 5600 Jefferson Highway, Harahan, Louisiana. Page 199 (21) Subsidiaries of the Registrant Exhibit 21 Page 218 (23) Consent of Ernst & Young LLP Exhibit 23 Page 219 (27) Financial Data Schedule Exhibit 27 Page 220
63 EX-10.1 2 EXHIBIT 10.1 EXHIBIT 10.1 EXECUTION COPY $5,600,000 TERM LOAN CREDIT AGREEMENT by and among CHAMPION INDUSTRIES, INC. INTERFORM CORPORATION U.S. TAG & TICKET COMPANY, INC. BOURQUE PRINTING, INC. SMITH & BUTTERFIELD CO., INC. DALLAS PRINTING COMPANY, INC. THE CHAPMAN PRINTING COMPANY, INC. STATIONERS, INC. DONIHE GRAPHICS, INC. CAROLINA CUT SHEETS, INC. CHMP LEASING, INC. BLUE RIDGE PRINTING CO., INC. ROSE CITY PRESS THE MERTEN COMPANY and PNC BANK, NATIONAL ASSOCIATION Dated as of March 13, 1998 64 TABLE OF CONTENTS
SECTION PAGE 1. CERTAIN DEFINITIONS............................................................................................1 1.1 Certain Definitions..................................................................................1 1.2 Construction........................................................................................12 1.2.1 Number; Inclusion........................................................................13 1.2.2 Determination............................................................................13 1.2.3 Bank's Discretion and Consent............................................................13 1.2.4 Documents Taken as a Whole...............................................................13 1.2.5 Headings.................................................................................13 1.2.6 Implied References to this Agreement.....................................................13 1.2.7 Persons..................................................................................13 1.2.8 Modifications to Documents...............................................................13 1.3 Accounting Principles...............................................................................14 2. TERM LOAN.....................................................................................................14 2.1 The Commitments.....................................................................................14 2.2 Commitment Fees.....................................................................................15 2.3 Term Notes..........................................................................................15 2.4 Use of Proceeds.....................................................................................15 3. INTEREST RATES................................................................................................15 3.1 Interest Rate Options...............................................................................15 3.2 Interest Periods....................................................................................16 3.2.1 Initial Period...........................................................................16 3.2.2 Subsequent Periods.......................................................................16 3.2.3 Rate Quotations..........................................................................16 3.2.4 Ending Date and Business Day.............................................................16 3.2.5 Termination Before Expiration Date.......................................................16 3.3 Interest After Default..............................................................................17 3.4 Euro-Rate Unascertainable...........................................................................17 3.4.1 Unascertainable..........................................................................17 3.4.2 Illegality; Increased Costs; Deposits Not Available......................................17 3.4.3 Bank's Rights............................................................................18 4. PAYMENTS......................................................................................................18 4.1 Payments............................................................................................18 4.2 Interest Payment Dates..............................................................................18 4.3 Principal...........................................................................................19 4.4 Prepayments.........................................................................................19 65 4.4.1 Right to Prepay..........................................................................19 4.4.2 Change of Lending Office.................................................................19 4.5 Additional Compensation in Certain Circumstances....................................................20 4.5.1 Increased Costs or Reduced Return Resulting From Taxes, Reserves, Capital Adequacy Requirements, Expenses, Etc.........................................................20 4.5.2 Indemnity and Compensation...............................................................21 5. REPRESENTATIONS AND WARRANTIES................................................................................21 5.1 Representations and Warranties......................................................................21 5.1.1 Organization and Qualification...........................................................21 5.1.2 Capitalization and Ownership.............................................................21 5.1.3 Subsidiaries.............................................................................22 5.1.4 Power and Authority......................................................................22 5.1.5 Validity and Binding Effect..............................................................22 5.1.6 No Conflict..............................................................................23 5.1.7 Litigation...............................................................................23 5.1.8 Title to Properties......................................................................23 5.1.9 Financial Statements.....................................................................23 5.1.10 Use of Proceeds; Margin Stock...........................................................24 5.1.11 Full Disclosure.........................................................................24 5.1.12 Taxes...................................................................................24 5.1.13 Consents and Approvals..................................................................25 5.1.14 No Event of Default; Compliance with Instruments........................................25 5.1.15 Patents, Trademarks, Copyrights, Licenses, Etc..........................................25 5.1.16 Security Interests......................................................................25 5.1.17 Insurance...............................................................................26 5.1.18 Compliance with Laws....................................................................26 5.1.19 Material Contracts; Burdensome Restrictions.............................................26 5.1.20 Investment Companies; Regulated Entities................................................26 5.1.21 Plans and Benefit Arrangements..........................................................27 5.1.22 Employment Matters......................................................................28 5.1.23 Environmental Matters...................................................................28 5.1.24 Senior Debt Status......................................................................29 5.2 Updates to Schedules................................................................................29 6. CONDITIONS OF LENDING.........................................................................................30 6.1 First Loan. On the Closing Date:...................................................................30 6.2 Each Additional Loan................................................................................32 7. COVENANTS.....................................................................................................32 7.1 Affirmative Covenants...............................................................................32 66 7.1.1 Preservation of Existence, Etc...........................................................33 7.1.2 Payment of Liabilities, Including Taxes, Etc.............................................33 7.1.3 Maintenance of Insurance.................................................................33 7.1.4 Maintenance of Properties and Leases.....................................................33 7.1.5 Maintenance of Patents, Trademarks, Etc..................................................33 7.1.6 Visitation Rights........................................................................34 7.1.7 Keeping of Records and Books of Account..................................................34 7.1.8 Plans and Benefit Arrangements...........................................................34 7.1.9 Compliance with Laws.....................................................................34 7.1.10 Use of Proceeds.........................................................................34 7.2 Negative Covenants..................................................................................35 7.2.1 Indebtedness.............................................................................35 7.2.2 Liens....................................................................................36 7.2.3 Guaranties...............................................................................36 7.2.4 Loans and Investments....................................................................36 7.2.5 Liquidations, Mergers, Consolidations and Acquisitions...................................37 7.2.6 Dispositions of Assets or Subsidiaries...................................................38 7.2.7 Affiliate Transactions...................................................................38 7.2.8 Continuation of or Change in Business....................................................38 7.2.9 Plans and Benefit Arrangements...........................................................38 7.2.10 Fiscal Year.............................................................................39 7.2.11 Changes in Organizational Documents.....................................................39 7.2.12 Capital Expenditures and Leases.........................................................40 7.2.13 Minimum Fixed Charge Coverage Ratio.....................................................40 7.2.14 Maximum Leverage Ratio..................................................................40 7.2.15 Minimum Tangible Net Worth..............................................................40 7.3 Reporting Requirements..............................................................................41 7.3.1 Quarterly Financial Statements...........................................................41 7.3.2 Annual Financial Statements..............................................................41 7.3.3 Certificate of the Borrowers.............................................................41 7.3.4 Notice of Default........................................................................42 7.3.5 Notice of Litigation.....................................................................42 7.3.6 Certain Events...........................................................................42 7.3.7 Budgets, Forecasts, Other Reports and Information........................................42 7.3.8 Notices Regarding Plans and Benefit Arrangements.........................................43 8. DEFAULT.......................................................................................................44 8.1 Events of Default...................................................................................45 8.1.1 Payments Under Loan Documents............................................................45 8.1.2 Breach of Warranty.......................................................................45 8.1.3 Breach of Negative Covenants or Visitation Rights........................................45 8.1.4 Breach of Other Covenants................................................................45 8.1.5 Defaults in Other Agreements or Indebtedness.............................................45 67 8.1.6 Final Judgments or Orders................................................................46 8.1.7 Loan Document Unenforceable..............................................................46 8.1.8 Uninsured Losses; Proceedings Against Assets.............................................46 8.1.9 Notice of Lien or Assessment.............................................................46 8.1.10 Insolvency..............................................................................46 8.1.11 Events Relating to Plans and Benefit Arrangements.......................................47 8.1.12 Cessation of Business...................................................................47 8.1.13 Change of Control.......................................................................47 8.1.14 Involuntary Proceedings.................................................................48 8.1.15 Voluntary Proceedings...................................................................48 8.2 Consequences of Event of Default....................................................................48 8.2.1 Events of Default Other Than Bankruptcy, Insolvency or Reorganization Proceedings........48 8.2.2 Bankruptcy, Insolvency or Reorganization Proceedings.....................................48 8.2.3 Set-off..................................................................................49 8.2.4 Suits, Actions, Proceedings..............................................................49 8.2.5 Application of Proceeds..................................................................49 9. MISCELLANEOUS.................................................................................................50 9.1 Modifications, Amendments or Waivers................................................................50 9.2 No Implied Waivers; Cumulative Remedies; Writing Required...........................................50 9.3 Reimbursement and Indemnification of Bank by the Borrowers; Taxes...................................50 9.4 Holidays............................................................................................51 9.5 Notices.............................................................................................51 9.6 Severability........................................................................................52 9.7 Governing Law.......................................................................................53 9.8 Prior Understanding.................................................................................53 9.9 Duration; Survival..................................................................................53 9.10 Successors and Assigns.............................................................................53 9.11 Confidentiality....................................................................................53 9.12 Counterparts.......................................................................................54 9.13 Bank's Consent.....................................................................................54 9.14 Exceptions.........................................................................................54 9.15 CONSENT TO FORUM; WAIVER OF JURY TRIAL.............................................................54
68 LIST OF SCHEDULES AND EXHIBITS SCHEDULE SCHEDULE 1.1(P) - PERMITTED LIENS SCHEDULE 5.1.2 - CAPITALIZATION SCHEDULE 5.1.3 - SUBSIDIARIES, PARTNERSHIPS AND LLC INTERESTS SCHEDULE 5.1.21 - EMPLOYEE BENEFIT PLAN DISCLOSURES SCHEDULE 5.1.23 - ENVIRONMENTAL DISCLOSURES SCHEDULE 7.2.1 - PERMITTED INDEBTEDNESS EXHIBITS EXHIBIT 1.1(T) - TERM NOTE EXHIBIT 7.3.3 - QUARTERLY COMPLIANCE CERTIFICATE 69 CREDIT AGREEMENT THIS CREDIT AGREEMENT is dated as of March 13, 1998, and is made by and among CHAMPION INDUSTRIES, INC., a West Virginia corporation ("Champion"), INTERFORM CORPORATION, a Pennsylvania corporation, U.S. TAG & TICKET COMPANY, INC., a Maryland corporation, BOURQUE PRINTING, INC., a Louisiana corporation, SMITH & BUTTERFIELD CO., INC., an Indiana corporation, DALLAS PRINTING COMPANY, INC., a Mississippi corporation, THE CHAPMAN PRINTING COMPANY, INC., a West Virginia corporation, STATIONERS, INC., a West Virginia corporation, DONIHE GRAPHICS, INC., a Tennessee corporation, CAROLINA CUT SHEETS, INC., a West Virginia corporation, CHMP LEASING, INC., a West Virginia corporation, BLUE RIDGE PRINTING CO., INC., a North Carolina corporation, ROSE CITY PRESS, a West Virginia corporation and THE MERTEN COMPANY, an Ohio corporation (each a "Borrower" and collectively and jointly and severally, the "Borrowers"), and PNC BANK, NATIONAL ASSOCIATION ("Bank"). WITNESSETH: WHEREAS, the Borrowers have requested the Bank to provide term loans to the Borrowers in an aggregate principal amount of up to Five Million Six Hundred Thousand Dollars ($5,600,000) for the purpose of refinancing existing equipment leases and financing equipment purchases; and WHEREAS, the Bank is willing to provide such credit upon the terms and conditions hereinafter set forth; NOW, THEREFORE, the parties hereto, in consideration of their mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, covenant and agree as follows: 1. CERTAIN DEFINITIONS 1.1 CERTAIN DEFINITIONS. In addition to words and terms defined elsewhere in this Agreement, the following words and terms shall have the following meanings, respectively, unless the context hereof clearly requires otherwise: AFFILIATE as to any Person shall mean any other Person (i) which directly or indirectly controls, is controlled by, or is under common control with such Person, (ii) which beneficially owns or holds 5% or more of any class of the voting or other equity interests of such Person, or (iii) 5% or more of any class of voting interests or other equity interests of which is beneficially owned or held, directly or indirectly, by such Person. Control, as used in this definition, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise, including the power to 70 elect a majority of the directors or trustees of a corporation or trust, as the case may be. AGREEMENT shall mean this Credit Agreement, as the same may be supplemented or amended from time to time, including all schedules and exhibits. ANNUAL STATEMENTS shall have the meaning assigned to that term in Section 5.1.9(i). AUTHORIZED OFFICER shall mean those individuals, designated by written notice to the Bank from the Borrowers, authorized to execute notices, reports and other documents on behalf of the Borrowers required hereunder. The Borrowers may amend such list of individuals from time to time by giving written notice of such amendment to the Bank. BANK shall mean PNC Bank, National Association and its respective successors and assigns as permitted hereunder. BASE RATE shall mean the greater of (i) the interest rate per annum announced from time to time by PNC Bank at its Principal Office as its then prime rate, which rate may not be the lowest rate then being charged commercial borrowers by the Bank, or (ii) the Federal Funds Effective Rate plus 0.5% per annum. BENEFIT ARRANGEMENT shall mean at any time an "employee benefit plan," within the meaning of Section 3(3) of ERISA, which is neither a Plan nor a Multiemployer Plan and which is maintained, sponsored or otherwise contributed to by any member of the ERISA Group. BORROWERS shall have the meaning given in the recitals to this Agreement. BUSINESS DAY shall mean any day other than a Saturday or Sunday or a legal holiday on which commercial banks are authorized or required to be closed for business in Pittsburgh, Pennsylvania and on which dealings in dollar deposits are carried on in the London interbank market. CLOSING DATE shall mean the Business Day on which the Term Loans shall be made, which shall be March 13, 1998, or such other time and place as the parties agree. CONSIDERATION shall mean with respect to any Permitted Acquisition, the aggregate of (i) the net present value paid by any Borrower, directly or indirectly, to the seller in connection therewith, (ii) the Indebtedness incurred or assumed by any Borrower, whether in favor of the seller or otherwise and whether fixed or contingent, (iii) any Guaranty given or incurred by any Borrower in connection therewith, (iv) 50% of the value of stock transferred, and (v) the net present value of any other consideration given or obligation incurred by any Borrower in connection therewith. 71 CONSOLIDATED CASH FLOW FROM OPERATIONS for any period of determination shall mean the sum of net income, depreciation, amortization, other non-cash charges to net income, interest expense and cash income tax expense minus non-cash credits to net income, all measured on a rolling four quarters basis of the Borrowers for such period determined and consolidated in accordance with GAAP. CONSOLIDATED TANGIBLE NET WORTH shall mean as of any date of determination total stockholders' equity less intangible assets of the Borrowers as of such date determined and consolidated in accordance with GAAP. DOLLAR, DOLLARS, U.S. DOLLARS and the symbol $ shall mean lawful money of the United States of America. ENVIRONMENTAL COMPLAINT shall mean any written complaint setting forth a cause of action for personal or property damage or natural resource damage or equitable relief, order, notice of violation, citation, request for information issued pursuant to any Environmental Laws by an Official Body, subpoena or other written notice of any type relating to, arising out of, or issued pursuant to, any of the Environmental Laws or any Environmental Conditions, as the case may be. ENVIRONMENTAL CONDITIONS shall mean any conditions of the environment, including the workplace, the ocean, natural resources (including flora or fauna), soil, surface water, groundwater, any actual or potential drinking water supply sources, substrata or the ambient air, relating to or arising out of, or caused by, the use, handling, storage, treatment, recycling, generation, transportation, release, spilling, leaking, pumping, emptying, discharging, injecting, escaping, leaching, disposal, dumping, threatened release or other management or mismanagement of Regulated Substances resulting from the use of, or operations on, any Property. ENVIRONMENTAL LAWS shall mean all federal, state, local and foreign Laws and regulations, including permits, licenses, authorizations, bonds, orders, judgments, and consent decrees issued, or entered into, pursuant thereto, relating to pollution or protection of human health or the environment or employee safety in the workplace. ERISA shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect. ERISA GROUP shall mean, at any time, the Borrowers and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control and all other entities which, together with any Borrower, are treated as a single employer under Section 414 of the Internal Revenue Code. EURO-RATE shall mean with respect to the Term Loans, the interest rate per annum for any Interest Period determined by the Bank by dividing (the resulting quotient rounded upward to the nearest 1/100th of 1% per annum) (i) the rate of interest determined by the Bank in accordance with its usual procedures (which determination shall be conclusive and binding upon the 72 Borrowers, absent manifest error on the part of the Bank) to be equal to the offered rates for deposits in Dollars for the applicable Euro-Rate Interest Period which appears on Page 3750 of the TELERATE rate reporting system or other similar system as of approximately 11:00 a.m. Greenwich Mean Time, two (2) Business Days prior to the first day of such Euro-Rate Interest Period for an amount comparable to such Loan and having a borrowing date and a maturity comparable to such Interest Period by (ii) a number equal to 1.00 minus the Euro-Rate Reserve Percentage. The Euro-Rate may also be expressed by the following formula: Euro Rate = OFFERED RATE ON TELERATE PAGE 3750 1.00 - Euro-Rate Reserve Percentage If more than one offered rate appears on Page 3750 of the TELERATE reporting system or similar system, the rate will be the arithmetic mean of such offered rates. The Euro-Rate shall be adjusted with respect to the balance of the Term Loans outstanding on the effective date of any change in the Euro-Rate Reserve Percentage as of such effective date. The Bank shall give prompt notice to the Borrowers of the Euro-Rate as determined or adjusted in accordance herewith, which determination shall be conclusive absent manifest error. EURO-RATE RESERVE PERCENTAGE shall mean the maximum percentage (expressed as a decimal rounded upward to the nearest 1/100 of 1%) as determined by the Bank which is in effect during any relevant period, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirements (including supplemental, marginal and emergency reserve requirements) with respect to eurocurrency funding (currently referred to as "Eurocurrency Liabilities") of a member bank in such System. EVENT OF DEFAULT shall mean any of the events described in Section 8.1 and referred to therein as an "Event of Default." FEDERAL FUNDS EFFECTIVE RATE for any day 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 Agreement; 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. FINANCIAL PROJECTIONS shall have the meaning assigned to that term in Section 5.1.9(ii). FIXED CHARGE COVERAGE RATIO shall mean the ratio of Consolidated Cash Flow from Operations to Fixed Charges. 73 FIXED CHARGES shall mean for any period of determination the sum of interest expense, cash income taxes, scheduled principal installments on indebtedness (as adjusted for prepayments), the unfunded portion of capital expenditures and payments under capitalized leases of the Borrowers for such period determined and consolidated in accordance with GAAP. GAAP shall mean generally accepted accounting principles as are in effect from time to time, subject to the provisions of Section 1.3, and applied on a consistent basis both as to classification of items and amounts. GUARANTY of any Person shall mean any obligation of such Person guaranteeing or in effect guaranteeing any liability or obligation of any other Person in any manner, whether directly or indirectly, including any performance bond or other suretyship arrangement and any other form of assurance against loss, except endorsement of negotiable or other instruments for deposit or collection in the ordinary course of business and indemnities. INDEBTEDNESS shall mean, as to any Person at any time, any and all indebtedness, obligations or liabilities (whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, or joint or several) of such Person for or in respect of: (i) borrowed money, (ii) amounts raised under or liabilities in respect of any note purchase or acceptance credit facility, (iii) reimbursement obligations (contingent or otherwise) under any letter of credit, currency swap agreement, interest rate swap, cap, collar or floor agreement or other interest rate management device, (iv) any other transaction (including forward sale or purchase agreements, capitalized leases and conditional sales agreements) having the commercial effect of a borrowing of money entered into by such Person to finance its operations or capital requirements (but not including trade payables and accrued expenses incurred in the ordinary course of business which are not represented by a promissory note or other evidence of indebtedness and which are not more than thirty (30) days past due), or (v) any Guaranty of Indebtedness for borrowed money. INELIGIBLE SECURITY shall mean any security which may not be underwritten or dealt in by member banks of the Federal Reserve System under Section 16 of the Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as amended. INSOLVENCY PROCEEDING shall mean, with respect to any Person, (a) case, action or proceeding with respect to such Person (i) before any court or any other Official Body under any bankruptcy, insolvency, reorganization or other similar Law now or hereafter in effect, or (ii) for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (or similar official) of any Borrower or otherwise relating to liquidation, dissolution, winding-up or relief of such Person, or (b) any general assignment for the benefit of creditors, composition, marshaling of assets for creditors, or other, similar arrangement in respect of such Person's creditors generally or any substantial portion of its creditors, undertaken under any Law. INTEREST PERIOD shall have the meaning assigned to such term in Section 3.2. INTERNAL REVENUE CODE shall mean the Internal Revenue Code of 1986, as the same may be amended or supplemented from time to time, and any successor statute of similar 74 import, and the rules and regulations thereunder, as from time to time in effect. LABOR CONTRACTS shall mean all employment agreements, employment contracts, collective bargaining agreements and other agreements among any Borrower and its employees. LAW shall mean any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, opinion, release, ruling, order, injunction, writ, decree or award of any Official Body. LIEN shall mean any mortgage, deed of trust, pledge, lien, security interest, charge or other encumbrance or security arrangement of any nature whatsoever, whether voluntarily or involuntarily given, including any conditional sale or title retention arrangement, and any assignment, deposit arrangement or lease intended as, or having the effect of, security and any filed financing statement or other notice of any of the foregoing (whether or not a lien or other encumbrance is created or exists at the time of the filing). LLC INTERESTS shall have the meaning given to such term in Section 5.1.3. LOAN DOCUMENTS shall mean this Agreement, the Term Notes, and any other instruments, certificates or documents delivered or contemplated to be delivered hereunder or thereunder or in connection herewith or therewith, as the same may be supplemented or amended from time to time in accordance herewith or therewith, and LOAN DOCUMENT shall mean any of the Loan Documents. MATERIAL ADVERSE CHANGE shall mean any set of circumstances or events which (a) has or could reasonably be expected to have any material adverse effect whatsoever upon the validity or enforceability of this Agreement or any other Loan Document, (b) is or could reasonably be expected to be material and adverse to the business, properties, assets, financial condition, results of operations of the Borrowers taken as a whole, (c) impairs materially or could reasonably be expected to impair materially the ability of the Borrowers taken as a whole to duly and punctually pay or perform their Indebtedness, or (d) impairs materially or could reasonably be expected to impair materially the ability of the Bank, to the extent permitted, to enforce their legal remedies pursuant to this Agreement or any other Loan Document. MATURITY DATE shall mean March 1, 2003 with respect to the Tranche A Loan and December 1, 2003 with respect to the Tranche B Loan. MONTH, with respect to an Interest Period, shall mean the interval between the days in consecutive calendar months numerically corresponding to the first day of such Interest Period. If any Interest Period begins on a day of a calendar month for which there is no numerically corresponding day in the month in which such Interest Period is to end, the final month of such Interest Period shall be deemed to end on the last Business Day of such final month. MULTIBANK CREDIT AGREEMENT shall mean the Credit Agreement by and among Champion Industries, Inc., the banks party thereto and the Bank as Agent, dated as of March 31, 1997 as the same may be amended from time to time. 75 MULTIEMPLOYER PLAN shall mean any employee benefit plan which is a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to which any Borrower or any member of the ERISA Group is then making or accruing an obligation to make contributions or, within the preceding five Plan years, has made or had an obligation to make such contributions. MULTIPLE EMPLOYER PLAN shall mean a Plan which has two or more contributing sponsors (including any Borrower or any member of the ERISA Group) at least two of whom are not under common control, as such a plan is described in Sections 4063 and 4064 of ERISA. NOTICES shall have the meaning assigned to that term in Section 9.5. OBLIGATION shall mean any obligation or liability of the Borrowers to the Bank, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, under or in connection with this Agreement, the Term Notes, or any other Loan Document. OFFICIAL BODY shall mean any national, federal, state, local or other government or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. PARTNERSHIP INTERESTS shall have the meaning given to such term in Section 5.1.3. PBGC shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA or any successor. PERMITTED ACQUISITION shall have the meaning assigned to such term in Section 7.2.5. PERMITTED INVESTMENTS shall mean: (i) direct obligations of the United States of America or any agency or instrumentality thereof or obligations backed by the full faith and credit of the United States of America maturing in twelve (12) months or less from the date of acquisition; (ii) commercial paper maturing in 180 days or less rated not lower than A-1, by Standard & Poor's or P-1 by Moody's Investors Service, Inc. on the date of acquisition; (iii) demand deposits, time deposits or certificates of deposit maturing within one year in commercial banks whose obligations are rated A-1, A or the equivalent or better by Standard & Poor's on the date of acquisition; and (iv) Investments shown on SCHEDULE 1.1(P). 76 PERMITTED LIENS shall mean: (i) Liens, security interests and mortgages in favor of the Bank; (ii) Liens, security interests and mortgages in favor of the Bank pursuant to the Multibank Credit Agreement; (iii) Liens for taxes, assessments, or similar charges, incurred in the ordinary course of business and which are not yet due and payable; (iv) Pledges or deposits made in the ordinary course of business to secure payment of workmen's compensation, or to participate in any fund in connection with workmen's compensation, unemployment insurance, old-age pensions or other social security programs; (v) Liens of mechanics, materialmen, warehousemen, carriers, or other like Liens, securing obligations incurred in the ordinary course of business that are not yet due and payable and Liens of landlords securing obligations to pay lease payments that are not yet due and payable or in default; (vi) Good-faith pledges or deposits made in the ordinary course of business to secure performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, not in excess of the aggregate amount due thereunder, or to secure statutory obligations, or surety, appeal, indemnity, performance or other similar bonds required in the ordinary course of business; (vii) Encumbrances consisting of zoning restrictions, easements or other restrictions on the use of real property, none of which materially impairs the use of such property or the value thereof, and none of which is violated in any material respect by existing or proposed structures or land use; (viii) Liens on property leased by the Borrowers under capital and operating leases permitted in Section 7.2.12 securing obligations of the Borrowers to the lessor under such leases; (ix) Any Lien existing on the date of this Agreement and described on SCHEDULE 1.1(P), as the debt underlying such Lien may be refinanced or replaced (but the principal amount secured thereby is not hereafter increased, and no additional assets become subject to such Lien) and a replacement Lien placed thereon; (x) Purchase Money Security Interests, PROVIDED that the aggregate amount of Purchase Money Indebtedness secured by such Purchase Money Security Interests shall not exceed the limitations on Purchase Money Indebtedness set forth in Section 7.2.1(iv); (xi) The following, (A) if the validity or amount thereof is being contested in good faith by appropriate and lawful proceedings diligently conducted so long as levy 77 and execution thereon have been stayed and continue to be stayed or (B) if a final judgment is entered and such judgment is discharged within thirty (30) days of entry, and in either case they do not, in the aggregate, materially impair the ability of such Borrower to perform its Obligations hereunder or under the other Loan Documents: (1) Claims or Liens for taxes, assessments or charges due and payable and subject to interest or penalty, PROVIDED that the Borrowers maintain such reserves or other appropriate provisions as shall be required by GAAP and pays all such taxes, assessments or charges forthwith upon the commencement of proceedings to foreclose any such Lien; (2) Claims, Liens or encumbrances upon, and defects of title to, real or personal property, including any attachment of personal or real property or other legal process prior to adjudication of a dispute on the merits; or (3) Claims or Liens of mechanics, materialmen, warehousemen, carriers, or other statutory nonconsensual Liens. (4) Liens resulting from final judgments or orders described in Section 8.1.6; and PERSON shall mean any individual, corporation, partnership, limited liability company, association, joint-stock company, trust, unincorporated organization, joint venture, government or political subdivision or agency thereof, or any other entity. PLAN shall mean at any time an employee pension benefit plan (including a Multiple Employer Plan, but not a Multiemployer Plan) which is covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained by any entity which was at such time a member of the ERISA Group for employees of any entity which was at such time a member of the ERISA Group. POTENTIAL DEFAULT shall mean any event or condition which with notice, passage of time or a determination by the Bank would constitute an Event of Default. PRINCIPAL OFFICE shall mean the main banking office of the Bank in Pittsburgh, Pennsylvania. PROHIBITED TRANSACTION shall mean any prohibited transaction as defined in Section 4975 of the Internal Revenue Code or Section 406 of ERISA for which neither an individual nor a class exemption has been issued by the United States Department of Labor. PROPERTY shall mean all real property, both owned and leased, of the Borrowers. 78 PURCHASE MONEY INDEBTEDNESS shall mean any loan or deferred payment obligation of the Borrowers secured by a Purchase Money Security Interest. PURCHASE MONEY SECURITY INTEREST shall mean Liens upon tangible property securing loans to the Borrowers or deferred payments by the Borrowers for the purchase of such tangible property. RATIO shall mean the ratio of the Borrower's Total Senior Indebtedness to Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA"). For purposes of the Ratio, Total Senior Indebtedness shall be measured as of the end of each fiscal quarter and EBITDA shall be measured as of the end of each fiscal quarter for the previous four fiscal quarters. REGULATED SUBSTANCES shall mean any substance, including any solid, liquid, semisolid, gaseous, thermal, thoriated or radioactive material, refuse, garbage, wastes, chemicals, petroleum products, by-products, coproducts, impurities, dust, scrap, heavy metals, defined as a "hazardous substance," "pollutant," "pollution," "contaminant," "hazardous or toxic substance," "extremely hazardous substance," "toxic chemical," "toxic waste," "hazardous waste," "industrial waste," "residual waste," "solid waste," "municipal waste," "mixed waste," "infectious waste," "chemotherapeutic waste," "medical waste," or "regulated substance" or any related materials, substances or wastes as now or hereafter defined pursuant to any Environmental Laws, ordinances, rules, regulations or other directives of any Official Body, the generation, manufacture, extraction, processing, distribution, treatment, storage, disposal, transport, recycling, reclamation, use, reuse, spilling, leaking, dumping, injection, pumping, leaching, emptying, discharge, escape, release or other management or mismanagement of which is regulated by the Environmental Laws. REGULATION U shall mean Regulation U, T, G or X as promulgated by the Board of Governors of the Federal Reserve System, as amended from time to time. REPORTABLE EVENT shall mean a reportable event described in Section 4043 of ERISA and regulations thereunder with respect to a Plan or Multiemployer Plan. SECTION 20 SUBSIDIARY shall mean the Subsidiary of the bank holding company controlling any Bank, which Subsidiary has been granted authority by the Federal Reserve Board to underwrite and deal in certain Ineligible Securities. SECURITY AGREEMENTS shall mean the Security Agreements in substantially the form of EXHIBIT 1.1(S) executed and delivered by each of the Borrowers to the Bank. SHARES shall have the meaning assigned to that term in Section 5.1.2. STANDARD & POOR'S shall mean Standard & Poor's Ratings Services. SUBSIDIARY of any Person at any time shall mean (i) any corporation or trust of which more than 50% (by number of shares or number of votes) of the outstanding capital stock or shares of beneficial interest normally entitled to vote for the election of one or more directors or trustees (regardless of any contingency which does or may suspend or dilute the voting rights) is at 79 such time owned directly or indirectly by such Person or one or more of such Person's Subsidiaries, (ii) any partnership of which such Person is a general partner or of which more than 50% or more of the partnership interests is at the time directly or indirectly owned by such Person or one or more of such Person's Subsidiaries, (iii) any limited liability company of which such Person is a member or of which more than 50% of the limited liability company interests is at the time directly or indirectly owned by such Person or one or more of such Person's Subsidiaries or (iv) any corporation, trust, partnership, limited liability company or other entity which is controlled or capable of being controlled by such Person or one or more of such Person's Subsidiaries. SUBSIDIARY SHARES shall have the meaning assigned to that term in Section 5.1.3. TRANCHE B LOAN COMMITMENT EXPIRATION DATE shall mean March 12, 1999. TERM LOANS shall have the meaning assigned to that term in Section 2.1. TERM NOTES shall mean collectively and Term Note shall mean separately all of the Term Notes of the Borrowers in the form of Exhibit 1.1(T) evidencing the Tranche A Loan and the Tranche B Loan together with all amendments, extensions, renewals, replacements refinancings or refunds thereof in whole or in part. TOTAL SENIOR INDEBTEDNESS shall mean as to the Borrowers, taken as a whole, the sum of all borrowed money and all reimbursement obligations under any letters of credit. TRANCHE A LOAN shall have the meaning assigned to that term in Section 2.1. TRANCHE B LOAN shall have the meaning assigned to that term in Section 2.1. TRANCHE B LOAN COMMITMENT shall mean $3,000,000. 1.2 CONSTRUCTION. Unless the context of this Agreement otherwise clearly requires, the following rules of construction shall apply to this Agreement and each of the other Loan Documents: 1.2.1 NUMBER; INCLUSION. references to the plural include the singular, the plural, the part and the whole; "or" has the inclusive meaning represented by the phrase "and/or," and "including" has the meaning represented by the phrase "including without limitation"; 1.2.2 DETERMINATION. references to "determination" of or by the Bank shall be deemed to include good-faith estimates by the Bank (in the case of quantitative determinations) and good-faith beliefs by the Bank (in the case of qualitative determinations) and such determination shall be conclusive absent manifest error; 80 1.2.3 BANK'S DISCRETION AND CONSENT. whenever the Bank is granted the right herein to act in its sole discretion or to grant or withhold consent such right shall be exercised reasonably and in good faith; 1.2.4 DOCUMENTS TAKEN AS A WHOLE. the words "hereof," "herein," "hereunder," "hereto" and similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document as a whole and not to any particular provision of this Agreement or such other Loan Document; 1.2.5 HEADINGS. the section and other headings contained in this Agreement or such other Loan Document and the Table of Contents (if any), preceding this Agreement or such other Loan Document are for reference purposes only and shall not control or affect the construction of this Agreement or such other Loan Document or the interpretation thereof in any respect; 1.2.6 IMPLIED REFERENCES TO THIS AGREEMENT. article, section, subsection, clause, schedule and exhibit references are to this Agreement or other Loan Document, as the case may be, unless otherwise specified; 1.2.7 PERSONS. reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement or such other Loan Document, as the case may be, and reference to a Person in a particular capacity excludes such Person in any other capacity; and 1.2.8 MODIFICATIONS TO DOCUMENTS. reference to any agreement (including this Agreement and any other Loan Document together with the schedules and exhibits hereto or thereto), document or instrument means such agreement, document or instrument as amended, modified, replaced, substituted for, superseded or restated. 81 1.3 ACCOUNTING PRINCIPLES. Except as otherwise provided in this Agreement, all computations and determinations as to accounting or financial matters and all financial statements to be delivered pursuant to this Agreement shall be made and prepared in accordance with GAAP (including principles of consolidation where appropriate), and all accounting or financial terms shall have the meanings ascribed to such terms by GAAP; PROVIDED, HOWEVER, that all accounting terms used in Section 7.2 (and all defined terms used in the definition of any accounting term used in Section 7.2 shall have the meaning given to such terms (and defined terms) under GAAP as in effect on the date hereof applied on a basis consistent with those used in preparing the Annual Statements referred to in Section 5.1.9(i). In the event of any change after the date hereof in GAAP, and if such change would result in the inability to determine compliance with the financial covenants set forth in Section 7.2 based upon the Borrowers' regularly prepared financial statements by reason of the preceding sentence, then the parties hereto agree to endeavor, in good faith, to agree upon an amendment to this Agreement that would adjust such financial covenants in a manner that would not affect the substance thereof, but would allow compliance therewith to be determined in accordance with the Borrowers' financial statements at that time. 2. TERM LOAN 2.1 THE COMMITMENTS. (a) $2,6000,000 TERM LOAN. Subject to the terms and conditions hereof and relying upon the representations and warranties herein set forth, the Bank agrees to make a term loan to the Borrowers on the Closing Date in a principal amount equal to Two Million Six Hundred Thousand Dollars and No/100 ($2,600,000.00) ("Tranche A Loan"). (b) EQUIPMENT LINE/TERM CREDIT FACILITY. Subject to the terms and conditions hereof and relying upon the representations and warranties herein set forth, the Bank agrees to make additional term loans to the Borrowers in the maximum aggregate principal amount of Three Million Dollars and No/100 ($3,000,000.00) ("Tranche B Loan") which can be drawn on until the Tranche B Commitment Expiration Date to finance equipment acquisitions by the Borrowers. The Borrowers shall request advances for Tranche B Loans by submitting invoices to the Bank for equipment acquisitions. If the Bank finds the invoice in order, and if the face amount of the invoice, together with all Tranche B Loans then outstanding, would not exceed the Tranche B Loan Commitment, the Bank will advance the face amount of the invoice to the Borrowers. The term loans described in subparagraphs (a) and (b) above shall be known collectively as the "Term Loans," each a "Term Loan." The Commitments are not revolving credit commitments, and the Borrowers shall not have the right to borrow, repay and reborrow under this Section 2.1. 82 2.2 COMMITMENT FEES. Accruing from the date hereof until the Tranche B Commitment Expiration Date, the Borrowers agree to pay to the Bank as consideration for the Bank's Equipment Line/Term Credit Facility Commitment hereunder, a commitment fee equal to one-fourth percent (1/4%) per annum (computed on the basis of a year of 360 days and actual days elapsed) on the average daily unborrowed amount of the Tranche B Loan Commitment as the same may be constituted from time to time. All Commitment Fees shall be payable in arrears on the last Business Day of the January, April, July, and October immediately following the date hereof and on the Tranche B Commitment Expiration Date or upon acceleration of the Term Notes, if sooner. 2.3 TERM NOTES. The Obligation of the Borrowers to repay the unpaid principal amount of the Term Loans made to it by the Bank, together with interest thereon, shall be evidenced by a Tranche A Term Note and a Tranche B Term Note, each dated the date of this Agreement. 2.4 USE OF PROCEEDS. The proceeds of the Tranche A Loan shall be used by the Borrowers to refinance their existing equipment leases. The proceeds of the Tranche B Loans shall be used to finance the Borrowers' equipment acquisitions. 3. INTEREST RATES 3.1 INTEREST RATE OPTIONS. The Borrowers shall pay interest in respect of the outstanding unpaid principal amount of Term Loans as selected by it from the Base Rate Option or Euro-Rate Option set forth below. If at any time the designated rate applicable to the Term Loans made by the Bank exceeds the Bank's highest lawful rate, the rate of interest on such Term Loan shall be limited to the Bank's highest lawful rate. The Borrowers shall have the right to select from the following Interest Rate Options applicable to the Term Loans: (a) BASE RATE OPTION: A fluctuating rate per annum (computed on the basis of a year of 360 days and actual days elapsed) equal to the Base Rate plus one-half percent (1/2%), such interest rate to change automatically from time to time effective as of the effective date of each change in the Base Rate; or (b) EURO-RATE OPTION: The Euro-Rate applicable to the Term Loan shall be a rate per annum (computed on the basis of a year of 360 days and actual days elapsed) determined by reference to the Ratio as follows:
RATIO EURO-RATE + ----- ----------- >= 2.00 X 175 basis points 83 >= 1.50 X < 2.00 X 150 basis points < 1.50 X 125 basis points
(c) ASSUMED DESIGNATION. If with respect to any Loan the Borrowers do not designate an interest rate option, the Base Rate shall apply. 3.2 INTEREST PERIODS. 3.2.1 INITIAL PERIOD. From time to time, the Borrowers may specify one or more interest periods during which the Euro-Rate shall apply to the Term Loans. Such initial interest period, and all subsequent interest periods elected by the Borrowers (each being an "Interest Period") shall be one, two, three or six Months in duration. 3.2.2 SUBSEQUENT PERIODS. At least three (3) Business Days prior to the expiration of the Interest Period then in effect, the Borrowers shall submit a written request (the "Euro-Rate Request") to the Bank specifying the term of the next Interest Period to which the Euro-Rate shall apply. 3.2.3 RATE QUOTATIONS. The Borrowers may call the Bank on or before the date on which a Euro-Rate Request is to be delivered to receive an indication of the rates then in effect, but it is acknowledged that such projection shall not be binding on the Bank nor affect the rate of interest which thereafter is actually in effect when the election is made. 3.2.4 ENDING DATE AND BUSINESS DAY. Any Interest Period which would otherwise end on a date which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day. 3.2.5 TERMINATION BEFORE EXPIRATION DATE. The Borrowers shall not select, convert to or renew an Interest Period for any portion of the Term Loans that would end after the applicable Maturity Date. 84 3.3 INTEREST AFTER DEFAULT. To the extent permitted by Law, upon the occurrence of an Event of Default and until such time such Event of Default shall have been cured or waived, the rate of interest applicable to the entire outstanding balance of the Term Loans shall be increased to a rate of interest equal to the Base Rate plus 2.0% per annum (the "Default Rate"). The Borrowers acknowledge that the increase in rates referred to in this Section 3.3 reflects, among other things, the fact that such Term Loans or other amounts have become a substantially greater risk given their default status and that the Bank is entitled to additional compensation for such risk; and all such interest shall be payable by Borrowers upon demand by the Bank. 3.4 EURO-RATE UNASCERTAINABLE. 3.4.1 UNASCERTAINABLE. If on any date on which a Euro-Rate would otherwise be determined, the Bank shall have determined that: (i) adequate and reasonable means do not exist for ascertaining such Euro-Rate, or (ii) a contingency has occurred which materially and adversely affects the secondary market for negotiable certificates of deposit maintained by dealers of recognized standing relating to the London interbank eurodollar market relating to the Euro-Rate, the Bank shall have the rights specified in Section 3.4.3. 3.4.2 ILLEGALITY; INCREASED COSTS; DEPOSITS NOT AVAILABLE. If at any time the Bank shall have determined that: (i) the making, maintenance or funding of any Loan to which a Euro-Rate would otherwise apply has been made impracticable or unlawful by compliance by the Bank in good faith with any Law or any interpretation or application thereof by any Official Body or with any request or directive of any such Official Body (whether or not having the force of Law), or (ii) such Euro-Rate would not adequately and fairly reflect the cost to the Bank of the establishment or maintenance of any such Term Loan, or (iii)after making all reasonable efforts, deposits of the relevant amount in Dollars for the relevant Interest Period for a Loan to which a Euro-Rate would otherwise apply, are not available to the Bank at the effective cost of funding a proposed Loan in the London interbank market, then the Bank shall have the rights specified in Section 3.4.3. 85 3.4.3 BANK'S RIGHTS. In the case of any event specified in Section 3.4.1 or Section 3.4.2 above, the Bank shall promptly so notify the Borrowers thereof, and in the case of an event specified in Section 3.4.2 above, the Bank shall promptly endorse a certificate to such notice as to the specific circumstances of such notice, and the Bank shall promptly send copies of such notice and certificate to the Borrowers. If the Bank notifies the Borrowers of a determination under Section 3.4.1 or Section 3.4.2, the Borrowers shall, subject to the Borrowers' indemnification Obligations under Section 4.5.2, on the date specified in such notice either convert the outstanding balance of the applicable Term Loan to the Base Rate or prepay the applicable Term Loan in accordance with Section 4.4. Absent due notice from the Borrowers of conversion or prepayment, the then outstanding balance of the Term Loan shall automatically be converted to the Base Rate upon such specified date. 4. PAYMENTS 4.1 PAYMENTS. All payments and prepayments to be made in respect of principal, interest, or other fees or amounts due from the Borrowers hereunder shall be payable prior to 1:00 p.m., Pittsburgh time, on the date when due without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by the Borrowers, and without set-off, counterclaim or other deduction of any nature, and an action therefor shall immediately accrue. Such payments shall be made to the Bank at the Principal Office in U.S. Dollars and in immediately available funds. The Bank's statement of account, ledger or other relevant record shall, in the absence of manifest error, be conclusive as the statement of the amount of principal of and interest on the Loans and other amounts owing under this Agreement and shall be deemed an "account stated." 4.2 INTEREST PAYMENT DATES. Interest on the outstanding balance of the Term Loans shall be due and payable in arrears on the tenth Business Day of each month beginning April 14, 1998 and on the applicable Maturity Date or upon acceleration of the Term Notes. Interest on the principal amount of the Term Loans or other monetary Obligation shall be due and payable on demand after such principal amount or other monetary Obligation becomes due and payable (whether on the stated maturity date, upon acceleration or otherwise). 4.3 PRINCIPAL The Tranche A Term Loan shall be repaid in 59 equal consecutive monthly installments of $43,333.33 each, beginning April 1, 1998. All remaining principal and interest will be due and owing on March 1, 2003. The Tranche B Term Loan shall be repaid in 60 equal consecutive monthly installments, based on the outstanding balance on the Tranche B Commitment Expiration Date, beginning January 1, 1999 and ending December 1, 2003. 86 4.4 PREPAYMENTS. 4.4.1 RIGHT TO PREPAY. The Borrowers shall have the right at its option from time to time to prepay the Term Loans in whole or part without premium or penalty (except as provided in Section 4.5) unless the Borrowers have selected a Euro-Rate Option and the Euro Rate contract is terminated early, in which case the Borrowers shall be liable for a penalty in the amount of the Bank's cost to terminate such contract. Whenever the Borrowers desire to prepay any part of the Term Loan, they shall provide a prepayment notice to the Bank at least one (1) Business Day prior to the date of prepayment of the Term Loans setting forth the following information: (x) the date, which shall be a Business Day, on which the proposed prepayment is to be made; (y) the total principal amount of such prepayment, which shall not be less than $100,000 and (z) the Commitment under which the Term Loan was made. All prepayment notices shall be irrevocable. All Term Loan prepayments permitted pursuant to this Section 4.5.1 shall be applied first to the unpaid installments of principal of the Tranche B Loan in the inverse order of scheduled maturities and second to the unpaid installments of principal of the Tranche A Loan in inverse order of maturities. Any prepayment hereunder shall be subject to the Borrowers' Obligation to indemnify and compensate the Bank under Section 4.5.2. 4.4.2 CHANGE OF LENDING OFFICE The Bank agrees that upon the occurrence of any event giving rise to increased costs or other special payments under Section 3.4.2 (Illegality, etc.) or 4.5.1 (Increased Costs, etc.) with respect to the Bank, it will if requested by the Borrowers use reasonable efforts (subject to overall policy considerations of the Bank) to designate another lending office for any Loans affected by such event, PROVIDED that such designation is made on such terms that the Bank and its lending office suffer no economic, legal or regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of such Section. Nothing in this Section 4.5.2 shall affect or postpone any of the Obligations of the Borrowers or the rights of the Bank provided in this Agreement. 4.5 ADDITIONAL COMPENSATION IN CERTAIN CIRCUMSTANCES. 4.5.1 INCREASED COSTS OR REDUCED RETURN RESULTING FROM TAXES, RESERVES, CAPITAL ADEQUACY REQUIREMENTS, EXPENSES, ETC. If any Law, guideline or interpretation or application thereof by any Official 87 Body charged with the interpretation or administration thereof enacted or made after the date of this Agreement or compliance with any request or directive (whether or not having the force of Law) of any central bank or other Official Body made after the date of this Agreement: (i) subjects the Bank to any tax or changes the basis of taxation with respect to this Agreement, the Term Notes, the Term Loans or payments by the Borrowers of principal, interest or other amounts due from the Borrowers hereunder or under the Term Notes (except for taxes on the overall net income or gross receipts of the Bank), (ii) imposes, modifies or deems applicable any reserve, special deposit or similar requirement against credits or commitments to extend credit extended by, or assets (funded or contingent) of, deposits with or for the account of, or other acquisitions of funds by, the Bank, or (iii)imposes, modifies or deems applicable any capital adequacy or similar requirement (A) against assets (funded or contingent) of, or other credits or commitments to extend credit extended by, the Bank, or (B) otherwise applicable to the obligations of the Bank under this Agreement, and the result of any of the foregoing is to increase the cost to, reduce the income receivable by, or impose any expense (including loss of margin) upon the Bank with respect to this Agreement, the Term Notes or the making, maintenance or funding of any part of the Term Loans (or, in the case of any capital adequacy or similar requirement, to have the effect of reducing the rate of return on the Bank's capital, taking into consideration the Bank's customary policies with respect to capital adequacy) by an amount which the Bank in its sole discretion deems to be material, the Bank shall from time to time notify the Borrowers of the amount determined in good faith (using any averaging and attribution methods employed in good faith including allocation to the Borrowers of pro rated amounts ) by the Bank to be necessary to compensate the Bank for such increase in cost, reduction of income, additional expense or reduced rate of return. The Bank will use reasonable efforts to avoid such increase in costs, reduction of income, additional expense or reduced rate of return . Notice shall set forth in reasonable detail the basis for such determination. Such amount shall be due and payable by the Borrowers to the Bank thirty (30) Business Days after such notice is given. 4.5.2 INDEMNITY AND COMPENSATION. In addition to the compensation required by Section 4.5.1, the Borrowers shall indemnify and compensate each Bank against all liabilities, losses or expenses (including loss of margin, any loss or expense incurred in liquidating or employing deposits from third parties and any loss or expense incurred in connection with funds acquired by the Bank to fund or maintain any portion of the Term Loans subject to the Euro-Rate) which the Bank sustains or incurs as a consequence of any default by the Borrowers in the performance or observance of any covenant or condition contained in this Agreement or any other Loan Document, including any failure of the Borrowers to pay when due (by acceleration or otherwise) any principal, interest or any other amount due hereunder. 88 If the Bank sustains or incurs any such loss or expense, it shall from time to time notify the Borrowers of the amount determined in good faith by the Bank (which determination may include such assumptions, allocations of costs and expenses and averaging or attribution methods as the Bank shall deem reasonable) to be necessary to indemnify and compensate the Bank for such loss or expense. Such notice shall set forth in reasonable detail the basis for such determination and shall be binding absent manifest error. Such amount shall be due and payable by the Borrowers to the Bank ten (10) Business Days after such notice is given. 5. REPRESENTATIONS AND WARRANTIES 5.1 REPRESENTATIONS AND WARRANTIES. The Borrowers jointly and severally represent and warrant to the Bank on the date of this Agreement as follows: 5.1.1 ORGANIZATION AND QUALIFICATION. Each of the Borrowers is a corporation, duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. Each of the Borrowers has the lawful power to own or lease its properties and to engage in the business it presently conducts or proposes to conduct. Each of the Borrowers is duly licensed or qualified and in good standing in all other jurisdictions where the property owned or leased by it or the nature of the business transacted by it or both makes such licensing or qualification necessary. 5.1.2 CAPITALIZATION AND OWNERSHIP. The authorized capital stock of Champion consists of 20,000,000 shares of Common Stock, $1 par value, of which 8,464,167 shares (referred to herein as the "Shares") are issued and outstanding. All of the Shares have been validly issued and are fully paid and nonassessable. There are no options, warrants or other rights outstanding to purchase any such shares except as indicated on SCHEDULE 5.1.2. 89 5.1.3 SUBSIDIARIES. SCHEDULE 5.1.3 states the name of each of the Borrowers (other than Champion Industries, Inc.), its jurisdiction of incorporation, its authorized capital stock, the issued and outstanding shares (referred to herein as the "Subsidiary Shares") and the owners thereof if it is a corporation, its outstanding partnership interests (the "Partnership Interests") if it is a partnership and its outstanding limited liability company interests, interests assigned to managers thereof and the voting rights associated therewith (the "LLC Interests") if it is a limited liability company. Each of the Borrowers has good and marketable title to all of the Subsidiary Shares, Partnership Interests and LLC Interests it purports to own, free and clear in each case of any Lien. All Subsidiary Shares, Partnership Interests and LLC Interests have been validly issued, and all Subsidiary Shares are fully paid and nonassessable. All capital contributions and other consideration required to be made or paid in connection with the issuance of the Partnership Interests and LLC Interests have been made or paid, as the case may be. There are no options, warrants or other rights outstanding to purchase any such Subsidiary Shares, Partnership Interests or LLC Interests except as indicated on SCHEDULE 5.1.3. 5.1.4 POWER AND AUTHORITY. Each of the Borrowers has full power to enter into, execute, deliver and carry out this Agreement and the other Loan Documents to which it is a party, to incur the Indebtedness contemplated by the Loan Documents and to perform its Obligations under the Loan Documents to which it is a party, and all such actions have been duly authorized by all necessary proceedings on its part. 5.1.5 VALIDITY AND BINDING EFFECT. This Agreement has been duly and validly executed and delivered by each of the Borrowers, and each other Loan Document which any Borrower is required to execute and deliver on or after the date hereof will have been duly executed and delivered by such Borrower on the required date of delivery of such Loan Document. This Agreement and each other Loan Document constitutes, or will constitute, legal, valid and binding obligations of each Borrower which is or will be a party thereto on and after its date of delivery thereof, enforceable against such Borrower in accordance with its terms, except to the extent that enforceability of any of such Loan Document may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforceability of creditors' rights generally or general equitable principles. 90 5.1.6 NO CONFLICT. Neither the execution and delivery of this Agreement or the other Loan Documents by the Borrowers nor the consummation of the transactions herein or therein contemplated or compliance with the terms and provisions hereof or thereof by any of them will conflict with, constitute a default under or result in any breach of (i) the terms and conditions of the certificate of incorporation, bylaws, certificate of limited partnership, partnership agreement, certificate of formation, limited liability company agreement or other organizational documents of the Borrowers or (ii) any Law or any material agreement or instrument or order, writ, judgment, injunction or decree to which any Borrower is a party or by which any Borrower is bound or to which it is subject, or result in the creation or enforcement of any Lien, charge or encumbrance whatsoever upon any property (now or hereafter acquired) of any Borrower. 5.1.7 LITIGATION. There are no actions, suits, proceedings or investigations pending or, to the knowledge of the Borrowers, threatened against any Borrower at law or equity before any Official Body which individually or in the aggregate may result in any Material Adverse Change. None of the Borrowers is in material violation of any order, writ, injunction or any decree of any Official Body which may result in any Material Adverse Change. 5.1.8 TITLE TO PROPERTIES. Each of the Borrowers has good and marketable title to or valid leasehold interest in all properties, assets and other rights which it purports to own or lease or which are reflected as owned or leased on its books and records, free and clear of all Liens and encumbrances except Permitted Liens, and subject to the terms and conditions of the applicable leases. All leases of property are in full force and effect without the necessity for any consent which has not previously been obtained upon consummation of the transactions contemplated hereby. 5.1.9 FINANCIAL STATEMENTS. (I) ANNUAL STATEMENTS. Champion has delivered to the Bank copies of its audited consolidated year-end financial statements for and as of the end of the three fiscal years ended October 31, 1997 (the "Annual Statements"). The Annual Statements were compiled from the books and records maintained by the Borrowers' management, are correct and complete and fairly represent the consolidated financial condition of the Borrowers as of their dates and the results of operations for the fiscal periods then ended and have been prepared in accordance with GAAP consistently applied, subject to normal year-end audit adjustments. (II) FINANCIAL PROJECTIONS. Champion has delivered to the Bank financial projections of the Borrowers for the period through _______ ___, 199__ derived from various assumptions of the Borrowers' management (the "Financial Projections"). The Financial Projections represent a reasonable range of possible results in light of the history of the business, present and foreseeable conditions and the intentions of the Borrowers' management. The Financial Projections accurately reflect the liabilities of the Borrowers upon consummation of the transactions 91 contemplated hereby as of the Closing Date. (III)ACCURACY OF FINANCIAL STATEMENTS. None of the Borrowers has any material liabilities, contingent or otherwise, or forward or long-term commitments that are not disclosed in the Annual Statements or in the notes thereto and which under GAAP were required to be disclosed therein, and except as disclosed therein there are no unrealized or anticipated losses from any commitments of any Borrower which are reasonably likely to cause a Material Adverse Change. Since October 31, 1997, no Material Adverse Change has occurred. 5.1.10 USE OF PROCEEDS; MARGIN STOCK. The Borrowers intend to use the proceeds of the Loans in accordance with Section 2.4 hereof. None of the Borrowers engages or intends to engage principally, or as one of its important activities, in the business of extending credit for the purpose, immediately, incidentally or ultimately, of purchasing or carrying margin stock (within the meaning of Regulation U). No part of the proceeds of the Term Loans has been or will be used, immediately, incidentally or ultimately, to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock or to refund Indebtedness originally incurred for such purpose, or for any purpose which entails a violation of or which is inconsistent with the provisions of the regulations of the Board of Governors of the Federal Reserve System. None of the Borrowers holds or intends to hold margin stock in such amounts that more than 25% of the reasonable value of the assets of such Borrower are or will be represented by margin stock. 5.1.11 FULL DISCLOSURE. Neither this Agreement nor any other Loan Document, nor any certificate, statement, agreement or other documents furnished to the Bank in connection herewith or therewith, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein, in light of the circumstances under which they were made, not misleading. 5.1.12 TAXES. All federal, state, local and other tax returns required to have been filed with respect to the Borrowers have been filed, and payment or adequate provision has been made for the payment of all taxes, fees, assessments and other governmental charges which have or may become due pursuant to said returns or to assessments received, except to the extent that such taxes, fees, assessments and other charges are not material and are being contested in good faith by appropriate proceedings diligently conducted and for which such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made. There are no agreements or waivers extending the statutory period of limitations applicable to any federal income tax return of any Borrower for any period. 92 5.1.13 CONSENTS AND APPROVALS. No consent, approval, exemption, order or authorization of, or a registration or filing with, any Official Body or any other Person is required by any Law or any agreement in connection with the execution, delivery and carrying out of this Agreement and the other Loan Documents by the Borrowers. 5.1.14 NO EVENT OF DEFAULT; COMPLIANCE WITH INSTRUMENTS. No event has occurred and is continuing and no condition exists or will exist after giving effect to the borrowings or other extensions of credit to be made on the Closing Date under or pursuant to the Loan Documents which constitutes an Event of Default or Potential Default. None of the Borrowers is in material violation of (i) any term of its certificate of incorporation, bylaws, certificate of limited partnership, partnership agreement, certificate of formation, limited liability company agreement or other organizational documents or (ii) any material agreement or instrument to which it is a party or by which it or any of its properties may be subject or bound. 5.1.15 PATENTS, TRADEMARKS, COPYRIGHTS, LICENSES, ETC. Each of the Borrowers owns or possesses all the material patents, trademarks, service marks, trade names, copyrights, licenses, registrations, franchises, permits and rights necessary to own and operate its properties and to carry on its business as presently conducted and planned to be conducted by such Borrower, without known possible, alleged or actual conflict with the rights of others. 5.1.16 SECURITY INTERESTS. The Liens and security interests granted to the Bank pursuant to the Security Agreement in the Collateral constitute and will continue to constitute Prior Security Interests under the Uniform Commercial Code as in effect in each applicable jurisdiction (the "Uniform Commercial Code") or other applicable Law entitled to all the rights, benefits and priorities provided by the Uniform Commercial Code or such Law. Upon the filing of financing statements relating to said security interests in each office and in each jurisdiction where required in order to perfect the security interests described above, all such action as is necessary or advisable to establish such rights of the Bank will have been taken, and there will be upon execution and delivery of the Security Agreement, such filings, and no necessity for any further action in order to preserve, protect and continue such rights, except (i) the filing of continuation statements with respect to such financing statements within six months prior to each five-year anniversary of the filing of such financing statements, and (ii) filing additional financing statements if, as provided in the Security Agreement, additional locations or names are used. All filing fees and other expenses in connection with each such action have been or will be paid by the Borrowers. 93 5.1.17 INSURANCE. The Borrowers maintain policies and bonds provide adequate coverage from reputable and financially sound insurers in amounts sufficient to insure the assets and risks of each Borrower in accordance with prudent business practice in the industries of the Borrowers. No notice has been given or claim made and no grounds exist to cancel or avoid any such policy or bonds or to reduce the coverage provided hereby. 5.1.18 COMPLIANCE WITH LAWS. The Borrowers are in compliance in all material respects with all applicable Laws (other than Environmental Laws which are specifically addressed in Section 5.1.24) in all jurisdictions in which the Borrowers are presently or will be doing business. 5.1.19 MATERIAL CONTRACTS; BURDENSOME RESTRICTIONS. All material agreements relating to the business operations of each Borrower, including all employee benefit plans and Labor Contracts are valid, binding and enforceable upon such Borrower and each of the other parties thereto in accordance with their respective terms, and there is no default thereunder, to such Borrower's knowledge, with respect to parties other than such Borrower. None of the Borrowers is bound by any contractual obligation, or subject to any restriction in any organization document, or any requirement of Law which is reasonably likely to result in a Material Adverse Change. 5.1.20 INVESTMENT COMPANIES; REGULATED ENTITIES. None of the Borrowers is an "investment company" registered or required to be registered under the Investment Company Act of 1940 or under the "control" of an "investment company" as such terms are defined in the Investment Company Act of 1940 and shall not become such an "investment company" or under such "control. "None of the Borrowers is subject to any other Federal or state statute or regulation limiting its ability to incur Indebtedness for borrowed money. 5.1.21 PLANS AND BENEFIT ARRANGEMENTS. Except as set forth on SCHEDULE 5.1.21: (i) The Borrowers and each other member of the ERISA Group are in compliance in all material respects with any applicable provisions of ERISA with respect to all Benefit Arrangements, Plans and Multiemployer Plans. There has been no Prohibited Transaction with respect to any Benefit Arrangement or any Plan or, to the best knowledge of the Borrowers, with respect to any Multiemployer Plan or Multiple Employer Plan, which is material. The Borrowers and all other members of the ERISA Group have made when due any and all payments required to be made under any agreement relating to a Multiemployer Plan or a Multiple Employer Plan or any Law pertaining thereto. With respect to each Plan and Multiemployer Plan, the Borrowers and each other member of the ERISA Group (i) have fulfilled in all material respects their 94 obligations under the minimum funding standards of ERISA, (ii) have not incurred any liability to the PBGC, and (iii) have not had asserted against them any penalty for failure to fulfill the minimum funding requirements of ERISA. (ii)To the best of the Borrowers' knowledge, each Multiemployer Plan and Multiple Employer Plan is able to pay benefits thereunder when due. (iii) None of the Borrowers nor or any other member of the ERISA Group has instituted or intends to institute proceedings to terminate any Plan. (iv)No event requiring notice to the PBGC under Section 302(f)(4)(A) of ERISA has occurred or is reasonably expected to occur with respect to any Plan, and no amendment with respect to which security is required under Section 307 of ERISA has been made or is reasonably expected to be made to any Plan. (v) The aggregate actuarial present value of all benefit liabilities (whether or not vested) under each Plan, determined on a plan termination basis, as disclosed in, and as of the date of, the most recent actuarial report for such Plan, does not exceed the aggregate fair market value of the assets of such Plan. (vi)None of the Borrowers nor any other member of the ERISA Group has incurred or reasonably expects to incur any material withdrawal liability under ERISA to any Multiemployer Plan or Multiple Employer Plan. Neither any Borrower nor any other member of the ERISA Group has been notified by any Multiemployer Plan or Multiple Employer Plan that such Multiemployer Plan or Multiple Employer Plan has been terminated within the meaning of Title IV of ERISA and, to the best knowledge of the Borrowers, no Multiemployer Plan or Multiple Employer Plan is reasonably expected to be reorganized or terminated, within the meaning of Title IV of ERISA. (vii) To the extent that any Benefit Arrangement is insured, the Borrowers and all other members of the ERISA Group have paid when due all premiums required to be paid for all periods through the Closing Date. To the extent that any Benefit Arrangement is funded other than with insurance, the Borrowers and all other members of the ERISA Group have made when due all contributions required to be paid for all periods through the Closing Date. (viii) All Plans, Benefit Arrangements and Multiemployer Plans have been administered in accordance with their terms and applicable Law. 95 5.1.22 EMPLOYMENT MATTERS. Each of the Borrowers is in compliance with the Labor Contracts and all applicable federal, state and local labor and employment Laws including those related to equal employment opportunity and affirmative action, labor relations, minimum wage, overtime, child labor, medical insurance continuation, worker adjustment and relocation notices, immigration controls and worker and unemployment compensation, where the failure to comply would constitute a Material Adverse Change. There are no outstanding grievances, arbitration awards or appeals therefrom arising out of the Labor Contracts or current or threatened strikes, picketing, handbilling or other work stoppages or slowdowns at facilities of any Borrower which in any case would constitute a Material Adverse Change. The Borrowers have delivered to the Bank true and correct copies of each of the Labor Contracts (if any). 5.1.23 ENVIRONMENTAL MATTERS. Except as disclosed on SCHEDULE 5.1.23: (i) None of the Borrowers has received any material Environmental Complaint from any Official Body or private Person alleging that such Borrower or any prior or subsequent owner of any of the Property is a potentially responsible party under the Comprehensive Environmental Response, Cleanup and Liability Act, 42 U.S.C. Section 9601, ET SEQ., and no Borrower has reason to believe that such an Environmental Complaint might be received. There are no pending or, to the Borrowers' knowledge, threatened Environmental Complaints relating to any Borrower or, to the Borrowers' knowledge, any prior or subsequent owner of any of the Property pertaining to, or arising out of, any material Environmental Conditions. (ii)There are no circumstances at, on or under any of the Property that constitute a breach of or non-compliance with any of the Environmental Laws, and there are no past or present Environmental Conditions at, on or under any of the Property or, to the Borrowers' knowledge, at, on or under adjacent property, that prevent compliance with the Environmental Laws at any of the Property. (iii) Neither any of the Property nor any structures, improvements, equipment, fixtures, activities or facilities thereon or thereunder contain or use Regulated Substances except in substantial compliance with Environmental Laws. There are no processes, facilities, operations, equipment or other activities at, on or under any of the Property, or, to the Borrowers' knowledge, at, on or under adjacent property, that currently result in the release or threatened release of Regulated Substances onto any of the Property, except to the extent that such releases or threatened releases are not a substantial breach of or otherwise not a violation of the Environmental Laws. (iv)There are no aboveground storage tanks, underground storage tanks or underground piping associated with such tanks, used for the management of Regulated Substances at, on or under any of the Property that (a) do not have, to the extent required by Environmental Laws, a full operational secondary containment system in place, and (b) are not 96 otherwise in compliance with all Environmental Laws. There are no abandoned underground storage tanks or underground piping associated with such tanks, previously used for the management of Regulated Substances at, on or under any of the Property that have not either been closed in place in accordance with Environmental Laws or removed in compliance with all applicable Environmental Laws and no contamination associated with the use of such tanks exists on any of the Property that is not in compliance with Environmental Laws. (v) Each Borrower has all material permits, licenses, authorizations, plans and approvals necessary under the Environmental Laws for the conduct of the business of such Borrower as presently conducted. Each Borrower has submitted all material notices, reports and other filings required by the Environmental Laws to be submitted to an Official Body which pertain to past and current operations on any of the Property. (vi)All past and present on-site generation, storage, processing, treatment, recycling, reclamation, disposal or other use or management of Regulated Substances at, on, or under any of the Property and all off-site transportation, storage, processing, treatment, recycling, reclamation, disposal or other use or management of Regulated Substances have been done materially in accordance with the Environmental Laws. 5.1.24 SENIOR DEBT STATUS. (i) The Obligations of the Borrowers under this Agreement, the Term Notes and each of the other Loan Documents to which it is a party do rank and will rank at least PARI PASSU in priority of payment with all other Indebtedness of the Borrowers except Indebtedness of the Borrowers to the extent secured by Permitted Liens. There is no Lien upon or with respect to any of the properties or income of any Borrower which secures indebtedness or other obligations of any Person except for Permitted Liens. 5.2 UPDATES TO SCHEDULES. Should any of the information or disclosures provided on any of the Schedules attached hereto become outdated or incorrect in any material respect, the Borrowers shall promptly provide the Bank in writing with such revisions or updates to such Schedule as may be necessary or appropriate to update or correct same; PROVIDED, however, that no Schedule shall be deemed to have been amended, modified or superseded by any such correction or update, nor shall any breach of warranty or representation resulting from the inaccuracy or incompleteness of any such Schedule be deemed to have been cured thereby, unless and until the Bank, in its reasonable discretion, shall have accepted in writing such revisions or updates to such Schedule. 6. CONDITIONS OF LENDING The obligation of the Bank to make the Term Loans hereunder is subject to the performance by each of the Borrowers of its Obligations to be performed hereunder at or prior to the making of such Term Loan and to the satisfaction of the following further conditions: 97 6.1 FIRST LOAN. On the Closing Date: (a) OFFICER'S CERTIFICATE. The representations and warranties of the Borrowers contained in Section 5 and in each of the other Loan Documents shall be true and accurate on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date (except representations and warranties which relate solely to an earlier date or time, which representations and warranties shall be true and correct on and as of the specific dates or times referred to therein and except changes in representations and warranties that, in the determination of the Bank, are not reasonably likely to result in a Material Adverse Change), and the Borrowers shall have performed and complied with all covenants and conditions hereof and thereof, no Event of Default or Potential Default shall have occurred and be continuing or shall exist; and Champion, on behalf of all of the Borrowers, shall have delivered to the Bank a certificate, dated the Closing Date to each such effect and signed by two of the following officers: the Chief Executive Officer, President, Chief Financial Officer, Secretary or Assistant Secretary of the Champion. (b) SECRETARY'S CERTIFICATE. There shall be delivered to the Bank a certificate dated the Closing Date and signed by the Secretary or an Assistant Secretary of Champion, certifying as appropriate as to: (i) all action taken by the Borrowers in connection with this Agreement and the other Loan Documents; (ii)the names of the officer or officers authorized to sign this Agreement and the other Loan Documents and the true signatures of such officer or officers and specifying the Authorized Officers permitted to act on behalf of the Borrowers for purposes of this Agreement and the true signatures of such officers, on which the Bank may conclusively rely; and (iii) copies of its organizational documents, including its certificate of incorporation, bylaws, certificate of limited partnership, partnership agreement, certificate of formation, and limited liability company agreement as in effect on the Closing Date certified by the appropriate state official where such documents are filed in a state office together with certificates from the appropriate state officials as to the continued existence and good standing (or subsistence) of each Borrower in each state where organized or qualified to do business and a bring-down certificate by facsimile dated the Closing Date. (c) OPINION OF COUNSEL. There shall be delivered to the Bank a written opinion of Huddleston, Bolen, Beatty, Porter & Copen, counsel for the Borrowers, dated the Closing Date and in form and substance satisfactory to the Bank and its counsel as to such other matters incident to the transactions contemplated herein as the Bank may reasonably request. (d) LEGAL DETAILS. 98 All legal details and proceedings in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be in form and substance satisfactory to the Bank and counsel for the Bank, and the Bank shall have received all such other counterpart originals or certified or other copies of such documents and proceedings in connection with such transactions, in form and substance satisfactory to the Bank and said counsel, as the Bank or said counsel may reasonably request. (e) PAYMENT OF FEES. The Borrowers shall have paid or caused to be paid to the Bank, counsel fees, and all other fees, costs and expenses accrued through the Closing Date for which the Bank is entitled to be reimbursed. (f) OFFICER'S CERTIFICATE REGARDING MACS. Since October 31, 1997, no Material Adverse Change shall have occurred; prior to the Closing Date, there shall have been no material change in the management of any Borrower, and there shall have been delivered to the Bank a certificate of Champion dated the Closing Date and signed on behalf of all Borrowers by any two of the Chief Executive Officer, President, Chief Financial Officer, Secretary or Assistant Secretary of Champion to each such effect. (g) NO VIOLATION OF LAWS. The making of the Term Loan shall not contravene any Law applicable to the Borrowers or to the Bank. (h) NO ACTIONS OR PROCEEDINGS. No action, proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed before any court, governmental agency or legislative body to enjoin, restrain or prohibit, or to obtain damages in respect of, this Agreement, the other Loan Documents or the consummation of the transactions contemplated hereby or thereby or which, in the Bank's reasonable judgment, would make it inadvisable to consummate the transactions contemplated by this Agreement or any of the other Loan Documents. 99 6.2 EACH ADDITIONAL LOAN. At the time of making any Loans other than Loans made on the Closing Date hereunder and after giving effect to the proposed borrowings: the representations and warranties of the Borrowers contained in Section 5 shall be true on and as of the date of such additional Loan with the same effect as though such representations and warranties had been made on and as of such date (except representations and warranties which relate solely to an earlier date or time, which representations and warranties shall be true and correct on and as of the specific dates or times referred to therein and except changes in representations and warranties that, in the determination of the Bank, are not reasonably likely to result in a Material Adverse Change), and the Borrowers shall be in compliance with all covenants and conditions hereof and; no Event of Default or Potential Default shall have occurred and be continuing or shall exist; the Borrowers shall have delivered to the Bank a duly executed and completed Loan request; and Champion, on behalf of all the Borrowers, shall have delivered to the Bank a certificate, dated the date of the Loan request to each such effect and signed by two of the following officers: the Chief Executive Officer, President, Chief Financial Officer, Secretary or Assistant Secretary of Champion. 7. COVENANTS 7.1 AFFIRMATIVE COVENANTS. The Borrowers covenant and agree that until payment in full of the Term Loans, and interest thereon, and satisfaction of all of the Borrowers' other Obligations under the Loan Documents, the Borrowers shall comply at all times with the following affirmative covenants: 7.1.1 PRESERVATION OF EXISTENCE, ETC. Each of the Borrowers shall maintain its legal existence as a corporation, limited partnership or limited liability company and its license or qualification and good standing in each jurisdiction in which its ownership or lease of property or the nature of its business makes such license or qualification necessary, except as otherwise expressly permitted in Section 7.2.5. 7.1.2 PAYMENT OF LIABILITIES, INCLUDING TAXES, ETC. Each of the Borrowers shall duly pay and discharge all liabilities to which it is subject or which are asserted against it, promptly as and when the same shall become due and payable, including all taxes, assessments and governmental charges upon it or any of its properties, assets, income or profits, prior to the date on which penalties attach thereto, except to the extent that such liabilities, including taxes, assessments or charges, are being contested in good faith and by appropriate and lawful proceedings diligently conducted and for which such reserve or other appropriate provisions, if any, as shall be required by GAAP shall have been made, but only to the extent that failure to discharge any such liabilities would not result in any additional liability which would adversely affect to a material extent the financial condition of any Borrower. 100 7.1.3 MAINTENANCE OF INSURANCE. Each of the Borrowers shall insure its properties and assets against loss or damage by fire and such other insurable hazards as such assets are commonly insured (including fire, extended coverage, property damage, workers' compensation, public liability and business interruption insurance) and against other risks (including errors and omissions) in such amounts as similar properties and assets are insured by prudent companies in similar circumstances carrying on similar businesses, and with reputable and financially sound insurers, including self-insurance to the extent customary, all as reasonably determined by the Bank. 7.1.4 MAINTENANCE OF PROPERTIES AND LEASES. Each of the Borrowers shall maintain in good repair, working order and condition (ordinary wear and tear excepted) in accordance with the general practice of other businesses of similar character and size, all of those properties useful or necessary to its business, and from time to time, the Borrowers will make or cause to be made all appropriate repairs, renewals or replacements thereof. 7.1.5 MAINTENANCE OF PATENTS, TRADEMARKS, ETC. Each of the Borrowers shall maintain in full force and effect all patents, trademarks, service marks, trade names, copyrights, licenses, franchises, permits and other authorizations necessary for the ownership and operation of its properties and business if the failure so to maintain the same would constitute a Material Adverse Change. 7.1.6 VISITATION RIGHTS. Each of the Borrowers shall permit any of the officers or authorized employees or representatives of the Bank to visit and inspect any of its properties and to examine and make excerpts from its books and records and discuss its business affairs, finances and accounts with its officers, all in such detail and at such times and as often as the Bank may reasonably request, PROVIDED that the Bank shall provide the Borrowers with reasonable notice prior to any visit or inspection. 7.1.7 KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Each of the Borrowers shall maintain and keep proper books of record and account which enable the Borrowers to issue financial statements in accordance with GAAP and as otherwise required by applicable Laws of any Official Body having jurisdiction over the Borrowers, and in which full, true and correct entries shall be made in all material respects of all its dealings and business and financial affairs. 101 7.1.8 PLANS AND BENEFIT ARRANGEMENTS. Each of the Borrowers shall, and shall cause each member of the ERISA Group to, comply with ERISA, the Internal Revenue Code and other applicable Laws applicable to Plans and Benefit Arrangements except where any such failure would not result in a Material Adverse Change. Without limiting the generality of the foregoing, the Borrowers shall cause all of its Plans and all Plans maintained by any member of the ERISA Group to be funded in accordance with the minimum funding requirements of ERISA and shall make, and cause each member of the ERISA Group to make, in a timely manner, all contributions due to Plans, Benefit Arrangements and Multiemployer Plans except where such failure would not result in a Material Adverse Change. 7.1.9 COMPLIANCE WITH LAWS. Each of the Borrowers shall comply with all applicable Laws, including all Environmental Laws, in all respects, PROVIDED that it shall not be deemed to be a violation of this Section 7.1.9 if any failure to comply with any Law would not result in fines, penalties, remediation costs, other similar liabilities or injunctive relief any of which would constitute a Material Adverse Change. 7.1.10 USE OF PROCEEDS. 7.1.10.1 GENERAL The Borrowers will use the proceeds of the Term Loans only to refinance existing equipment leases and to finance future equipment purchases. 7.1.10.2 MARGIN STOCK. The Borrowers shall not use the proceeds of the Term Loans to purchase or carry margin stock as more fully provided in Section 5.1.10. 7.1.10.3 SECTION 20 SUBSIDIARIES. The Borrowers will not, directly or indirectly, use any portion of the proceeds of the Term Loans (i) knowingly to purchase any Ineligible Securities from a Section 20 Subsidiary during any period in which such Section 20 Subsidiary makes a market in such Ineligible Securities, (ii) knowingly to purchase during the underwriting or placement period Ineligible Securities being underwritten or privately placed by a Section 20 Subsidiary, or (iii) to make payments of principal or interest on Ineligible Securities underwritten or privately placed by as Section 20 Subsidiary and issued by or for the benefit of any Borrower or any Affiliate of any Borrower. 7.2 NEGATIVE COVENANTS. The Borrowers covenant and agree that until payment in full of the Term Loans, and interest thereon and satisfaction of all of the Borrowers' other Obligations hereunder, the Borrowers shall comply with the following negative covenants: 102 7.2.1 INDEBTEDNESS. None of the Borrowers shall, at any time create, incur, assume or suffer to exist any Indebtedness, except: (i) Indebtedness under the Loan Documents; (ii)Existing Indebtedness as set forth on SCHEDULE 7.2.1. (including any extensions, renewals or refinancings thereof), PROVIDED there is no increase in the amount thereof or other significant change in the terms thereof unless otherwise specified on SCHEDULE 7.2.1; (iii) Capitalized and operating leases as and to the extent permitted under Section 7.2.13; (iv)Purchase Money Indebtedness not exceeding (a) in any fiscal year fifteen percent (15%) of Champion's total shareholders' equity (as defined by GAAP) for the prior fiscal year, and (b) the aggregate amount of the Purchase Money Indebtedness outstanding at any time not exceeding thirty percent (30%) of Champion's total shareholders' equity at the conclusion of the prior fiscal year, both such limitations to be adjusted annually; PROVIDED, that neither of the limitations on Purchase Money Indebtedness provided in this Section 7.2.1(iv) for Borrower's 1998 fiscal year shall apply to Purchase Money Indebtedness incurred by the Borrowers during such fiscal year 1998 with respect to the refinancing of equipment with the proceeds of the Tranche A Loan as contemplated by this Agreement; (v) Champion's existing $2,000,000 unsecured revolving credit facility with Banc One, West Virginia; (vi)Champion's existing $800,000 unsecured revolving credit facility with First Sentry Bank, Huntington, West Virginia, which is personally guaranteed by Marshall T. Reynolds; and (vii) Indebtedness under the Multibank Credit Agreement. 7.2.2 LIENS. None of the Borrowers shall, at any time create, incur, assume or suffer to exist any Lien on any of its property or assets, tangible or intangible, now owned or hereafter acquired, or agree or become liable to do so, except Permitted Liens. 7.2.3 GUARANTIES. None of the Borrowers shall, at any time, directly or indirectly, become or be liable in respect of any Guaranty, or assume, guarantee, become surety for, endorse or otherwise agree, become or remain directly or contingently liable upon or with respect to any obligation or liability of any other Person. 103 7.2.4 LOANS AND INVESTMENTS. None of the Borrowers shall, at any time, make or suffer to remain outstanding any loan or advance to, or purchase, acquire or own any stock, bonds, notes or securities of, or any partnership interest (whether general or limited) or limited liability company interest in, or any other investment or interest in, or make any capital contribution to, any other Person, or agree, become or remain liable to do any of the foregoing, except: (i) trade credit extended on usual and customary terms in the ordinary course of business; (ii)advances to employees to meet expenses incurred by such employees in the ordinary course of business; (iii) Permitted Investments; (iv)loans, advances and investments in Affiliates of any Borrower. 7.2.5 LIQUIDATIONS, MERGERS, CONSOLIDATIONS AND ACQUISITIONS.. None of the Borrowers shall dissolve, liquidate or wind-up its affairs, or become a party to any merger or consolidation, or acquire by purchase, lease or otherwise all or substantially all of the assets or capital stock of any other Person, PROVIDED that (i) any Affiliate of any Borrower may consolidate or merge into another Affiliate of such Borrower which is wholly-owned by such Borrower, and (ii)Champion may acquire, whether by purchase or by merger, (A) all of the ownership interests and voting rights of another Person or (B) substantially all of assets of another Person or of a business or division of another Person (each an "Permitted Acquisition"), PROVIDED that each of the following requirements is met: (1) the board of directors or other equivalent governing body of such Person shall have approved such Permitted Acquisition and the Loan Parties shall have delivered to the Bank written evidence of such approval prior to such Permitted Acquisition; (2) the business acquired, or the business conducted by the Person whose ownership interests are being acquired, as applicable, shall be substantially the same as one or more line or lines of business conducted by Champion and shall comply with Section 7.2.8; (3) immediately prior to and after giving effect to such Permitted Acquisition, (A) no payment default exists, (B) no violation of Section 7.2 exists, (C) the Bank has not sent a notice of a violation of Section 7.1 which has not been cured and (D) no Event of Default exits; and (4) Champion shall demonstrate on a pro forma basis that they shall be in compliance with all the covenants contained in this Agreement after giving effect to such Permitted 104 Acquisition by delivering at least five (5) Business Days prior to such Permitted Acquisition a certificate evidencing such compliance. Subject to the above limitations, Permitted Acquisitions may include any merger or acquisition, whether accounted for under GAAP as a purchase or a pooling of interests and regardless of whether the value of the Consideration paid or received is comprised of cash, common stock, preferred stock, assets or partnership interests, estimated value of earn-outs or other means. 7.2.6 DISPOSITIONS OF ASSETS OR SUBSIDIARIES. None of the Borrowers shall sell, convey, assign, sell and leaseback, abandon or otherwise transfer or dispose of, voluntarily or involuntarily, any of its properties or assets, tangible or intangible (including sale, assignment, discount or other disposition of accounts, contract rights, chattel paper, equipment or general intangibles with or without recourse or of capital stock, shares of beneficial interest, partnership interests or limited liability company interests of a Subsidiary of any Borrower), except: (i) transactions involving the sale of inventory in the ordinary course of business; (ii)any sale, transfer or lease of assets in the ordinary course of business which are no longer necessary or required in the conduct of the Borrower's or such Subsidiary's business; (iii) any sale, transfer or lease of assets by any Subsidiary of any Borrower to such Borrower; or (iv)any sale, transfer or lease of assets in the ordinary course of business which are replaced by substitute assets acquired or leased within the parameters of Section 7.2.12. 7.2.7 AFFILIATE TRANSACTIONS. None of the Borrowers shall enter into or carry out any transaction (including purchasing property or services from or selling property or services to any Affiliate of any Borrower or other Person) unless such transaction is not otherwise prohibited by this Agreement, is entered into in the ordinary course of business upon fair and reasonable arm's-length terms and conditions which are fully disclosed to the Bank and is in accordance with all applicable Law. 7.2.8 CONTINUATION OF OR CHANGE IN BUSINESS. None of the Borrowers shall engage in any business other than commercial printing, and certain leasing businesses in support thereof, and the supplying of office products and office furniture, substantially as conducted and operated by such Borrower during the present fiscal year, and such Borrower shall not permit any material change in such business. 105 7.2.9 PLANS AND BENEFIT ARRANGEMENTS. None of the Borrowers shall: (i) fail to satisfy the minimum funding requirements of ERISA and the Internal Revenue Code with respect to any Plan where such failure is likely to result in a Material Adverse Change; (ii)request a minimum funding waiver from the Internal Revenue Service with respect to any Plan; (iii) engage in a Prohibited Transaction with any Plan, Benefit Arrangement or Multiemployer Plan which would constitute a Material Adverse Change; (iv)permit the aggregate actuarial present value of all benefit liabilities (whether or not vested) under each Plan, determined on a plan termination basis, as disclosed in the most recent actuarial report completed with respect to such Plan, to exceed, as of any actuarial valuation date, the fair market value of the assets of such Plan; (v) fail to make when due any contribution to any Multiemployer Plan that any Borrower or any member of the ERISA Group may be required to make under any agreement relating to such Multiemployer Plan, or any Law pertaining thereto, where such failure is likely to result in a Material Adverse Change; (vi)withdraw (completely or partially) from any Multiemployer Plan or withdraw (or be deemed under Section 4062(e) of ERISA to withdraw) from any Multiple Employer Plan, where any such withdrawal is likely to result in a Material Adverse Change; (vii) terminate, or institute proceedings to terminate, any Plan, where such termination is likely to result in a Material Adverse Change; (viii) make any amendment to any Plan with respect to which security is required under Section 307 of ERISA; or (ix)fail to give any and all notices and make all disclosures and governmental filings required under ERISA or the Internal Revenue Code, where such failure is likely to result in a Material Adverse Change. 7.2.10 FISCAL YEAR. None of the Borrowers shall change its fiscal year from the twelve-month period beginning November 1 and ending October 31. 7.2.11 CHANGES IN ORGANIZATIONAL DOCUMENTS. 106 None of the Borrowers shall amend in any respect its certificate of incorporation (including any provisions or resolutions relating to capital stock), by-laws, certificate of limited partnership, partnership agreement, certificate of formation, limited liability company agreement or other organizational documents in the event such change would be adverse to the Bank as determined by the Bank in its sole discretion, without obtaining the prior written consent of the Bank. Each of the Borrowers shall provide true and correct copies of all amendments to organizational documents to the Bank at the time annual financial statements are delivered. 7.2.12 CAPITAL EXPENDITURES AND LEASES. None of the Borrowers shall make any capital expenditures, as defined by GAAP, including the purchase or lease of any assets which if purchased would constitute fixed assets or which if leased would constitute a capitalized lease, other than capital expenditures in the aggregate not to exceed fifteen percent (15%) per annum of Champion's total shareholders' equity (as defined by GAAP) for the previous fiscal year ended, and all such capital expenditures and leases shall be made under usual and customary terms and in the ordinary course of business. By way of example, for the fiscal year November 1, 1997 through October 31, 1998, 15% of the prior year's total shareholders' equity is $3,464,000. 7.2.13 MINIMUM FIXED CHARGE COVERAGE RATIO. The Borrowers shall not permit the ratio of Consolidated Cash Flow from Operations divided by Fixed Charges, calculated as of the end of each fiscal quarter for the previous four fiscal quarters then ended, to be less than 1.10 to 1.0. 7.2.14 MAXIMUM LEVERAGE RATIO. The Borrowers shall not at any time permit the ratio of Total Senior Indebtedness divided by EBITDA to be greater than: 2.75 to 1.0 as of October 31, 1997 2.50 to 1.0 as of October 31, 1998 2.50 to 1.0 as of October 31, 1999 2.25 to 1.0 as of October 31, 2000 and 2.0 to 1.0 as of October 31 of each year thereafter. 7.2.15 MINIMUM TANGIBLE NET WORTH. The Borrowers shall not at any time permit Consolidated Tangible Net Worth to be less than the sum of (i) 90% of Tangible Net Worth on the Closing Date, (ii) an amount equal to 50% of the Consolidated Net Income and (iii) 100% of the proceeds of all stock issued by the Borrowers. 107 7.3 REPORTING REQUIREMENTS. The Borrowers covenant and agree that until payment in full of the Term Loan and interest thereon and satisfaction of all of the Borrowers' other Obligations hereunder and under the other Loan Documents the Borrowers will furnish or cause to be furnished to the Bank: 7.3.1 QUARTERLY FINANCIAL STATEMENTS. As soon as available and in any event within forty-five (45) calendar days after the end of each of the first three fiscal quarters in each fiscal year, financial statements of the Borrowers, consisting of a consolidated balance sheet as of the end of such fiscal quarter and related consolidated statements of income, retained earnings and cash flows for the fiscal quarter then ended and the fiscal year through that date, all in reasonable detail and certified (subject to normal year-end audit adjustments) by the Chief Executive Officer, President or Chief Financial Officer of Champion as having been prepared in accordance with GAAP, consistently applied, and setting forth in comparative form the respective financial statements for the corresponding date and period in the previous fiscal year. 7.3.2 ANNUAL FINANCIAL STATEMENTS. As soon as available and in any event within ninety (90) days after the end of each fiscal year of the Borrowers, financial statements of the Borrowers consisting of a consolidated balance sheet as of the end of such fiscal year, and related consolidated statements of income, retained earnings and cash flows for the fiscal year then ended, all in reasonable detail and setting forth in comparative form the financial statements as of the end of and for the preceding fiscal year, and certified by independent certified public accountants of nationally recognized standing. The certificate or report of accountants shall be free of qualifications (other than any consistency qualification that may result from a change in the method used to prepare the financial statements as to which such accountants concur). 7.3.3 CERTIFICATE OF THE BORROWERS Concurrently with the financial statements of the Borrowers. furnished to the Bank pursuant to Sections 7.3.1 and 7.3.2, a certificate of the Borrowers signed by the Chief Executive Officer, President or Chief Financial Officer of Champion, on behalf of all the Borrowers, in the form of EXHIBIT 7.3.3, to the effect that, except as described pursuant to Section 7.3.4, (i) the representations and warranties of the Borrowers contained in Section 5 and in the other Loan Documents are true on and as of the date of such certificate with the same effect as though such representations and warranties had been made on and as of such date (except representations and warranties which expressly relate solely to an earlier date or time) and the Borrowers have performed and complied with all covenants and conditions hereof, (ii) no Event of Default or Potential Default exists and is continuing on the date of such certificate and (iii) containing calculations in sufficient detail to demonstrate compliance as of the date of such financial statements with all financial covenants contained in Section 7.2. 108 7.3.4 NOTICE OF DEFAULT. Promptly after any executive officer of any Borrower has learned of the occurrence of an Event of Default or Potential Default, a certificate signed on behalf of the Loan parties by an executive officer of such Borrower setting forth the details of such Event of Default or Potential Default and the action which such Borrower proposes to take with respect thereto. 7.3.5 NOTICE OF LITIGATION. Promptly after the commencement thereof, notice of all actions, suits, proceedings or investigations before or by any Official Body or any other Person against any Borrower which involve a claim or series of claims in excess of $500,000 or which if adversely determined would constitute a Material Adverse Change. 7.3.6 CERTAIN EVENTS. Written notice to the Bank: (i) at least ten (10) calendar days after closing, with respect to any proposed sale or transfer of assets pursuant to Section 7.2.6(iv), and (ii)within the restrictions set forth in Section 7.2.12, any amendments to the organizational documents of any Borrower. 7.3.7 BUDGETS, FORECASTS, OTHER REPORTS AND INFORMATION. Promptly upon their becoming available to the Borrowers: (i) the annual budget and any forecasts of the Borrowers, to be supplied not later than thirty (30) days prior to commencement of the fiscal year to which any of the foregoing may be applicable, (ii)any reports including reports on the internal control structure the Borrowers based upon any audit of the Borrowers, (iii) any reports, notices or proxy statements generally distributed by Champion to its stockholders on a date no later than the date supplied to such stockholders, (iv)regular or periodic reports, including Forms 10-K, 10-Q and 8-K, registration statements and prospectuses, filed by Champion with the Securities and Exchange Commission, (v) upon the Bank's reasonable request, a copy of any order in any proceeding to which any Borrower is a party issued by any Official Body, and (vi)such other reports and information as any of the Bank may from time to time reasonably request. The Borrowers shall also notify the Bank promptly of the enactment or adoption of any Law which may result in a Material Adverse Change. 109 7.3.8 NOTICES REGARDING PLANS AND BENEFIT ARRANGEMENTS. 7.3.8.1CERTAIN EVENTS. Promptly upon becoming aware of the occurrence thereof, notice (including the nature of the event and, when known, any action taken or threatened by the Internal Revenue Service or the PBGC with respect thereto) of: (i) any Reportable Event with respect to any Borrower or any other member of the ERISA Group (regardless of whether the obligation to report said Reportable Event to the PBGC has been waived), (ii)any Prohibited Transaction which could subject any Borrower or any other member of the ERISA Group to a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Internal Revenue Code in connection with any Plan, any Benefit Arrangement or any trust created thereunder where such civil penalty or tax is likely to result in a Material Adverse Change, (iii) any assertion of material withdrawal liability with respect to any Multiemployer Plan, (iv)any partial or complete withdrawal from a Multiemployer Plan by any Borrower or any other member of the ERISA Group under Title IV of ERISA (or assertion thereof), where such withdrawal is likely to result in material withdrawal liability, (v) any cessation of operations (by any Borrower or any other member of the ERISA Group) at a facility in the circumstances described in Section 4062(e) of ERISA, (vi)withdrawal by any Borrower or any other member of the ERISA Group from a Multiple Employer Plan, (vii) a failure by any Borrower or any other member of the ERISA Group to make a payment to a Plan required to avoid imposition of a Lien under Section 302(f) of ERISA, (viii) the adoption of an amendment to a Plan requiring the provision of security to such Plan pursuant to Section 307 of ERISA, or (ix)any change in the actuarial assumptions or funding methods used for any Plan, where the effect of such change is to materially increase or materially reduce the unfounded benefit liability or obligation to make periodic contributions. 110 7.3.8.2 NOTICES OF INVOLUNTARY TERMINATION AND ANNUAL REPORTS. Promptly after receipt thereof, copies of (a) all notices received by any Borrower or any other member of the ERISA Group of the PBGC's intent to terminate any Plan administered or maintained by any Borrower or any member of the ERISA Group, or to have a trustee appointed to administer any such Plan; and (b) at the request of the Bank each annual report (IRS Form 5500 series) and all accompanying schedules, the most recent actuarial reports, the most recent financial information concerning the financial status of each Plan administered or maintained by any Borrower or any other member of the ERISA Group, and schedules showing the amounts contributed to each such Plan by or on behalf of any Borrower or any other member of the ERISA Group in which any of their personnel participate or from which such personnel may derive a benefit, and each Schedule B (Actuarial Information) to the annual report filed by any Borrower or any other member of the ERISA Group with the Internal Revenue Service with respect to each such Plan. 7.3.8.3 NOTICE OF VOLUNTARY TERMINATION. Promptly upon the filing thereof, copies of any Form 5310, or any successor or equivalent form to Form 5310, filed with the PBGC in connection with the termination of any Plan. The Borrowers shall be deemed to have satisfied certain of the reporting requirements (the "Required Reports") set forth in this Section 7.3 to the extent that the information contained in any such Required Report is included among filings made to the Securities and Exchange Commission via the Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"); PROVIDED, HOWEVER, that the Borrowers shall provide directly to the Bank any and all Required Reports as the Bank may request from time to time, regardless of whether such Required Reports have been included in the Borrowers' EDGAR filings. 8. DEFAULT 8.1 EVENTS OF DEFAULT. An Event of Default shall mean the occurrence or existence of any one or more of the following events or conditions (whatever the reason therefor and whether voluntary, involuntary or effected by operation of Law): 8.1.1 PAYMENTS UNDER LOAN DOCUMENTS. The Borrowers shall fail to pay any principal of the Term Loans (including scheduled installments, mandatory prepayments or the payment due at maturity), or shall fail to pay any interest on the Term Loans after such principal or interest becomes due in accordance with the terms hereof or thereof, or the Borrowers fail to pay any other amount owing hereunder or under the other Loan Documents after the date provided in an invoice or other notice of payment due; 111 8.1.2 BREACH OF WARRANTY. Any representation or warranty made at any time by any Borrower herein or in any other Loan Document, or in any certificate, other instrument or statement furnished pursuant to the provisions hereof or thereof, shall prove to have been false or misleading in any material respect as of the time it was made or furnished; 8.1.3 BREACH OF NEGATIVE COVENANTS OR VISITATION RIGHTS. A default shall occur in the observance or performance of any covenant contained in Section 7.1.6 or Section 7.2; 8.1.4 BREACH OF OTHER COVENANTS. Any of the Loan Parties shall default in the observance or performance of any other covenant, condition or provision hereof or of any other Loan Document and such default shall continue unremedied for a period of thirty (30) Business Days after the Chief Executive Officer, President, Chief Financial Officer or Corporate Secretary of any Borrower becomes aware of the occurrence thereof (such grace period to be applicable only in the event such default can be remedied by corrective action of such Borrower as determined by the Bank in its sole discretion); 8.1.5 DEFAULTS IN OTHER AGREEMENTS OR INDEBTEDNESS. A default or event of default shall occur at any time under the terms of any other agreement involving borrowed money or the extension of credit or any other Indebtedness under which any Borrower may be obligated as a borrower or guarantor in excess of $750,000 in the aggregate, and such breach, default or event of default consists of the failure to pay (beyond any period of grace permitted with respect thereto, whether waived or not) any indebtedness when due (whether at stated maturity, by acceleration or otherwise) or if such breach or default permits (because of nonpayment) or causes the acceleration of any indebtedness (whether or not such right shall have been waived) or the termination of any commitment to lend; 8.1.6 FINAL JUDGMENTS OR ORDERS. Any final judgments or orders for the payment of money in excess of $50,000 in the aggregate shall be entered against any Borrower by a court having jurisdiction in the premises, which judgment is not discharged, vacated, bonded or stayed pending appeal within a period of thirty (30) days from the date of entry; 112 8.1.7 LOAN DOCUMENT UNENFORCEABLE. Any of the Loan Documents shall cease to be legal, valid and binding agreements enforceable against the party executing the same or such party's successors and assigns (as permitted under the Loan Documents) in accordance with the respective terms thereof or shall in any way be terminated (except in accordance with its terms) or become or be declared ineffective or inoperative or shall in any way be challenged or contested or cease to give or provide the respective Liens, security interests, rights, titles, interests, remedies, powers or privileges intended to be created thereby; 8.1.8 UNINSURED LOSSES; PROCEEDINGS AGAINST ASSETS. Any assets of any Borrower are attached, seized, levied upon or subjected to a writ or distress warrant; or such come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors and the same is not cured within thirty (30) days thereafter; 8.1.9 NOTICE OF LIEN OR ASSESSMENT. A notice of Lien or assessment, other than a Permitted Lien, is filed of record with respect to all or any part of the assets of any Borrower by the United States, or any department, agency or instrumentality thereof, or by any state, county, municipal or other governmental agency, including the PBGC, or any taxes or debts owing at any time or times hereafter to any one of these becomes payable and the same is not paid within thirty (30) days after the same becomes payable; 8.1.10 INSOLVENCY. Any Borrower ceases to be solvent or admits in writing its inability to pay its debts as they mature; 113 8.1.11 EVENTS RELATING TO PLANS AND BENEFIT ARRANGEMENTS. Any of the following occurs: (i) any Reportable Event, which the Bank determines in good faith constitutes grounds for the termination of any Plan by the PBGC or the appointment of a trustee to administer or liquidate any Plan, shall have occurred and be continuing; (ii) proceedings shall have been instituted or other action taken to terminate any Plan, or a termination notice shall have been filed with respect to any Plan; (iii) a trustee shall be appointed to administer or liquidate any Plan; (iv) the PBGC shall give notice of its intent to institute proceedings to terminate any Plan or Plans or to appoint a trustee to administer or liquidate any Plan; and, in the case of the occurrence of (i), (ii), (iii) or (iv) above, the Bank determines in good faith that the amount of any Borrower's liability is likely to exceed 10% of its Consolidated Net Worth; (v) any Borrower or any member of the ERISA Group shall fail to make any contributions when due to a Plan or a Multiemployer Plan; (vi) any Borrower or any other member of the ERISA Group shall make any amendment to a Plan with respect to which security is required under Section 307 of ERISA; (vii) any Borrower or any other member of the ERISA Group shall withdraw completely or partially from a Multiemployer Plan; (viii) any Borrower or any other member of the ERISA Group shall withdraw (or shall be deemed under Section 4062(e) of ERISA to withdraw) from a Multiple Employer Plan; or (ix) any applicable Law is adopted, changed or interpreted by any Official Body with respect to or otherwise affecting one or more Plans, Multiemployer Plans or Benefit Arrangements and, with respect to any of the events specified in (v), (vi), (vii), (viii) or (ix), the Bank determines in good faith that any such occurrence would be reasonably likely to materially and adversely affect the total enterprise represented by any Borrower and the other members of the ERISA Group; 8.1.12 CESSATION OF BUSINESS. Any Borrower ceases to conduct its business as contemplated, except as expressly permitted under Section 7.2.5 or 7.2.6, or any Borrower is enjoined, restrained or in any way prevented by court order from conducting all or any material part of its business and such injunction, restraint or other preventive order is not dismissed within thirty (30) days after the entry thereof; 8.1.13 CHANGE OF CONTROL. (i) Any person or group of persons (within the meaning of Sections 13(a) or 14(a) of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership of (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) 33% or more of the voting capital stock of any Borrower; or (ii) Marshall T. Reynolds shall cease to have beneficial ownership of at least 40% of the voting capital stock of Champion. 114 8.1.14 INVOLUNTARY PROCEEDINGS. A proceeding shall have been instituted in a court having jurisdiction in the premises seeking a decree or order for relief in respect of any Borrower in an involuntary case under any applicable bankruptcy, insolvency, reorganization or other similar law now or hereafter in effect, or for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (or similar official) of any Borrower for any substantial part of its property, or for the winding-up or liquidation of its affairs, and such proceeding shall remain undismissed or unstayed and in effect for a period of thirty (30) consecutive days or such court shall enter a decree or order granting any of the relief sought in such proceeding; or 8.1.15 VOLUNTARY PROCEEDINGS. Any Borrower shall commence a voluntary case under any applicable bankruptcy, insolvency, reorganization or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (or other similar official) of itself or for any substantial part of its property or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any action in furtherance of any of the foregoing. 8.2 CONSEQUENCES OF EVENT OF DEFAULT. 8.2.1 EVENTS OF DEFAULT OTHER THAN BANKRUPTCY, INSOLVENCY OR REORGANIZATION PROCEEDINGS. If an Event of Default specified under Sections 8.1.1 through 8.1.13 shall occur and be continuing, the Bank shall be under no further obligation to make Loans hereunder and the Bank shall by written notice to the Borrowers declare the unpaid principal amount of the Term Notes then outstanding and all interest accrued thereon, any unpaid fees and all other Indebtedness of the Borrowers to the Bank hereunder and thereunder to be forthwith due and payable, and the same shall thereupon become and be immediately due and payable to the Bank without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, and 8.2.2 BANKRUPTCY, INSOLVENCY OR REORGANIZATION PROCEEDINGS. If an Event of Default specified under Section 8.1.14 or 8.1.15 shall occur, the Bank shall be under no further obligations to make Loans hereunder and the unpaid principal amount of the Term Notes then outstanding and all interest accrued thereon, any unpaid fees and all other Indebtedness of the Borrowers to the Bank hereunder and thereunder shall be immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived; and 115 8.2.3 SET-OFF. If an Event of Default shall occur and be continuing, the Bank or any participant of such Bank, and any branch, Subsidiary or Affiliate of such Bank or participant anywhere in the world shall have the right, in addition to all other rights and remedies available to it, without notice to such Loan Party, to set-off against and apply to the then unpaid balance of all the Loans and all other Obligations of the Borrowers hereunder or under any other Loan Document any debt owing to, and any other funds held in any manner for the account of, the Borrowers by the Bank or participant or by such branch, Subsidiary or Affiliate, including all funds in all deposit accounts (whether time or demand, general or special, provisionally credited or finally credited, or otherwise) now or hereafter maintained by the Borrowers for their own respective account (but not including funds held in custodian or trust accounts) with the Bank or participant or such branch, Subsidiary or Affiliate. Such right shall exist whether or not the Bank shall have made any demand under this Agreement or any other Loan Document, whether or not such debt owing to or funds held for the account of such Loan Party is or are matured or unmatured and regardless of the existence or adequacy of any Guaranty or any other security, right or remedy available to the Bank; and 8.2.4 SUITS, ACTIONS, PROCEEDINGS. If an Event of Default shall occur and be continuing, and if the Bank has elected to accelerate the maturity of Loans pursuant to any of the foregoing provisions of this Section 8.2, the Bank, if owed any amount with respect to the Term Notes, may proceed to protect and enforce its rights by suit in equity, action at law and/or other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Agreement or the Term Notes, including as permitted by applicable Law the obtaining of the EX PARTE appointment of a receiver, and, if such amount shall have become due, by declaration or otherwise, proceed to enforce the payment thereof or any other legal or equitable right of the Bank; and 8.2.5 APPLICATION OF PROCEEDS. From and after the date on which the Bank has taken any action pursuant to this Section 8.2 and until all Obligations of the Borrowers have been paid in full, any and all proceeds received by the Bank from the exercise of any other remedy by the Bank, shall be applied as follows: (i) first, to reimburse the Bank for out-of-pocket costs, expenses and disbursements, including reasonable attorneys' and paralegals' fees and legal expenses, incurred by the Bank in connection with realizing on the Collateral or collection of any Obligations of any Borrower under any of the Loan Documents; (ii)second, to the repayment of all Indebtedness then due and unpaid of the Borrowers to the Bank incurred under this Agreement or any of the other Loan Documents, whether of principal, interest, fees, expenses or otherwise, in such manner as the Bank may determine in its discretion; and (iii) the balance, if any, as required by Law. 116 9. MISCELLANEOUS 9.1 MODIFICATIONS, AMENDMENTS OR WAIVERS. If an amendment is made to a section of the Multibank Credit Facility that has an exact counterpart in this Agreement, the counterpart section in this Agreement will be deemed to have been amended in the same way. In addition, the Bank and the Borrowers, may from time to time enter into written agreements amending or changing any provision of this Agreement or any other Loan Document or the rights of the Bank or any Borrower hereunder or thereunder, or may grant written waivers or consents to a departure from the due performance of the Obligations of the Borrowers hereunder or thereunder. Any such agreement, waiver or consent made with such written consent shall be effective to bind the Bank and the Borrowers. 9.2 NO IMPLIED WAIVERS; CUMULATIVE REMEDIES; WRITING REQUIRED. No course of dealing and no delay or failure of the Bank or the Borrowers in exercising any right, power, remedy or privilege under this Agreement or any other Loan Document shall affect any other or future exercise thereof or operate as a waiver thereof, nor shall any single or partial exercise thereof or any abandonment or discontinuance of steps to enforce such a right, power, remedy or privilege preclude any further exercise thereof or of any other right, power, remedy or privilege. The rights and remedies of the Bank under this Agreement and any other Loan Documents are cumulative and not exclusive of any rights or remedies which it would otherwise have. Any waiver, permit, consent or approval of any kind or character on the part of the Bank of any breach or default under this Agreement or any such waiver of any provision or condition of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. 9.3 REIMBURSEMENT AND INDEMNIFICATION OF BANK BY THE BORROWERS; TAXES. 117 The Borrowers agree within thirty (30) calendar days after demand to pay or reimburse to the Bank and to save such Bank harmless against (i) liability for the payment of all reasonable out-of-pocket costs, expenses and disbursements (including fees and expenses of counsel for the Bank except with respect to (a) and (b) below), incurred by the Bank (a) in connection with the interpretation of this Agreement, and other instruments and documents to be delivered hereunder, (b) relating to any amendments, waivers or consents pursuant to the provisions hereof, (c) in connection with the enforcement of this Agreement or any other Loan Document, or collection of amounts due hereunder or thereunder or the proof and allowability of any claim arising under this Agreement or any other Loan Document, whether in bankruptcy or receivership proceedings or otherwise, and (d) in any workout or restructuring or in connection with the protection, preservation, exercise or enforcement of any of the terms hereof or of any rights hereunder or under any other Loan Document or in connection with any foreclosure, collection or bankruptcy proceedings, or (ii) all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Bank, in its capacity as such, in any way relating to or arising out of this Agreement or any other Loan Documents or any action taken or omitted by the Bank hereunder or thereunder, PROVIDED that the Borrowers shall not be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements (A) if the same results from the Bank's gross negligence or willful misconduct, or (B) if the Borrowers were not given notice of the subject claim and the opportunity to participate in the defense thereof, at its expense (except that the Borrowers shall remain liable to the extent such failure to give notice does not result in a loss to the Borrowers), or (C) if the same results from a compromise or settlement agreement entered into without the consent of the Borrowers, which shall not be unreasonably withheld. The Borrowers agree unconditionally to pay all stamp, document, transfer, recording or filing taxes or fees and similar impositions now or hereafter determined by the Bank to be payable in connection with this Agreement or any other Loan Document, and the Borrowers agree unconditionally to save the Bank harmless from and against any and all present or future claims, liabilities or losses with respect to or resulting from any omission to pay or delay in paying any such taxes, fees or impositions. 9.4 HOLIDAYS. Whenever payment to be made or taken hereunder shall be due on a day which is not a Business Day such payment shall be due on the next Business Day and such extension of time shall be included in computing interest and fee, except that the Term Loans shall be due on the Business Day preceding the applicable Maturity Date if the applicable Maturity Date is not a Business Day. Whenever any payment or action to be made or taken hereunder (other than payment of the Loans) shall be stated to be due on a day which is not a Business Day, such payment or action shall be made or taken on the next following Business Day (except as provided in Section 3.2 with respect to Interest Periods), and such extension of time shall not be included in computing interest or fees, if any, in connection with such payment or action. 9.5 NOTICES. 118 All notices, requests, demands, directions and other communications (as used in this Section 9.5, collectively referred to as "notices") given to or made upon any party hereto under the provisions of this Agreement shall be by telephone or in writing (including telex or facsimile communication) unless otherwise expressly permitted hereunder and shall be delivered or sent by telex or facsimile to the respective parties at the addresses and numbers set forth below or in accordance with any subsequent unrevoked written direction from any party to the others: If to the Borrowers: Champion Industries, Inc. 2450-90 First Avenue Huntington, West Virginia 25728 Attention: Joseph C. Worth III, Chief Financial Officer Telephone: (310) 823-1700 Telecopy: (310) 823-7318 If to the Bank: PNC Bank, National Association One PNC Plaza 249 5th Avenue Pittsburgh, PA 15222-2707 Attention: Mark J. Stasenko Telephone: (412) 762-4690 Telecopy: (412) 762-7353 All notices shall, except as otherwise expressly herein provided, be effective (a) in the case of telex or facsimile, when received, (b) in the case of hand-delivered notice, when hand-delivered, (c) in the case of telephone, when telephoned, PROVIDED, however, that in order to be effective, telephonic notices must be confirmed in writing no later than the next day by letter, facsimile or telex, (d) if given by mail, four (4) days after such communication is deposited in the mail with first-class postage prepaid, return receipt requested, and (e) if given by any other means (including by air courier), when delivered; PROVIDED, that any notices of a Potential Default or an Event of Default shall be sent by facsimile or overnight delivery service. 9.6 SEVERABILITY. The provisions of this Agreement are intended to be severable. If any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction. 119 9.7 GOVERNING LAW. This Agreement shall be deemed to be a contract under the Laws of the Commonwealth of Pennsylvania and for all purposes shall be governed by and construed and enforced in accordance with the internal laws of the Commonwealth of Pennsylvania without regard to its conflict of laws principles. 9.8 PRIOR UNDERSTANDING. This Agreement and the other Loan Documents supersede all prior understandings and agreements, whether written or oral, between the parties hereto and thereto relating to the transactions provided for herein and therein, including any prior confidentiality agreements and commitments. 9.9 DURATION; SURVIVAL. All representations and warranties of the Borrowers contained herein or made in connection herewith shall survive the making of the Term Loans and shall not be waived by the execution and delivery of this Agreement, any investigation by the Bank, the making of the Term Loans, or payment in full of the Term Loans. All covenants and agreements of the Borrowers contained in Sections 7.1, 7.2 and 7.3 herein shall continue in full force and effect from and after the date hereof until payment in full of the Term Loans. All covenants and agreements of the Borrowers contained herein relating to the payment of principal, interest, premiums, additional compensation or expenses and indemnification, including those set forth in the Term Notes, Section 4 and Section 9.3, shall survive payment in full of the Term Loans. 9.10 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall inure to the benefit of the Bank, the Borrowers and their respective successors and assigns, except that the Borrowers may not assign or transfer any of their rights and Obligations hereunder or any interest herein. 9.11 CONFIDENTIALITY. 120 The Bank each agrees to keep confidential all information obtained from any Borrower which is nonpublic and confidential or proprietary in nature (including any information such Borrower specifically designates as confidential), except as provided below, and to use such information only in connection with its respective capacity under this Agreement and for the purposes contemplated hereby. The Bank shall be permitted to disclose such information (i) to outside legal counsel, accountants and other professional advisors who need to know such information in connection with the administration and enforcement of this Agreement, subject to agreement of such Persons to maintain the confidentiality, (ii) to assignees and participants as contemplated by Section 9.10 PROVIDED that they shall execute an agreement in favor of the Borrowers covering the matters set forth in this Section 9.11, (iii) to the extent requested by any bank regulatory authority or, with notice to the Borrowers, as otherwise required by applicable Law or by any subpoena or similar legal process, or in connection with any investigation or proceeding arising out of the transactions contemplated by this Agreement, (iv) if it becomes publicly available other than as a result of a breach of this Agreement or becomes available from a source not bound by confidentiality restrictions, or (v) if the Borrowers shall have consented to such disclosure. 9.12 COUNTERPARTS. This Agreement may be executed by different parties hereto on any number of separate counterparts, each of which, when so executed and delivered, shall be an original, and all such counterparts shall together constitute one and the same instrument. 9.13 BANK'S CONSENT. Except as otherwise provided in the Loan Documents, whenever the Bank's consent is required to be obtained under this Agreement or any of the other Loan Documents as a condition to any action, inaction, condition or event, the Bank shall be authorized to give or withhold such consent in its reasonable discretion. 9.14 EXCEPTIONS. The representations, warranties and covenants contained herein shall be independent of each other, and no exception to any representation, warranty or covenant shall be deemed to be an exception to any other representation, warranty or covenant contained herein unless expressly provided, nor shall any such exceptions be deemed to permit any action or omission that would be in contravention of applicable Law. 9.15 CONSENT TO FORUM; WAIVER OF JURY TRIAL. 121 EACH OF THE BORROWERS HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF THE COURT OF COMMON PLEAS OF ALLEGHENY COUNTY AND THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA, AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO THE BORROWERS AT THE ADDRESS PROVIDED FOR IN SECTION 9.5 AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. EACH OF THE BORROWERS WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED AGAINST IT AS PROVIDED HEREIN AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE. THE BORROWERS AND THE BANK HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE COLLATERAL TO THE FULL EXTENT PERMITTED BY LAW. IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have executed this Agreement as of the day and year first above written.
ATTEST: CHAMPION INDUSTRIES, INC., a West Virginia corporation /s/ Thomas J. Murray By: /S/ JOSEPH C. WORTH, III - ------------------------------------ ----------------------------------------- Title: VICE PRESIDENT AND CHIEF FINANCIAL OFFICER ATTEST: INTERFORM CORPORATION - ------------------------------------ /S/ TONEY K. ADKINS By:/S/ JOSEPH C. WORTH, III - ------------------------------------ ----------------------------------------- (SEAL) Print Name: TONEY K. ADKINS Print Name: JOSEPH C. WORTH, III - ------------------------------------- ----------------------------------------- Title: VICE PRESIDENT CHAMPION Title: VICE PRESIDENT INDUSTRIES, INC. ATTEST: U.S. TAG & TICKET COMPANY, INC. - -----------------------------------
122
/S/ TONEY K. ADKINS By:/S/ JOSEPH C. WORTH, III - ------------------------------------ ----------------------------------------- (SEAL) Print Name: TONEY K. ADKINS Print Name: JOSEPH C. WORTH, III Title:VICE PRESIDENT CHAMPION INDUSTRIES, INC. Title: VICE PRESIDENT ATTEST: THE CHAPMAN PRINTING COMPANY, INC. - ------------------------------------ /S/ TONEY K. ADKINS By:/S/ JOSEPH C. WORTH, III - ------------------------------------ ----------------------------------------- (SEAL) Print Name: TONEY K. ADKINS Print Name: JOSEPH C. WORTH, III Title:VICE PRESIDENT CHAMPION INDUSTRIES, INC. Title: VICE PRESIDENT ATTEST: STATIONERS, INC. - ------------------------------------ /S/ TONEY K. ADKINS By:/S/ JOSEPH C. WORTH, III - ------------------------------------ ----------------------------------------- (SEAL) Print Name: TONEY K. ADKINS Print Name: JOSEPH C. WORTH, III Title: VICE PRESIDENT CHAMPION INDUSTRIES, INC. Title: VICE PRESIDENT ATTEST: DONIHE GRAPHICS, INC. - ------------------------------------ /S/ TONEY K. ADKINS By:/S/ JOSEPH C. WORTH, III - ------------------------------------ ----------------------------------------- (SEAL) Print Name: TONEY K. ADKINS Print Name: JOSEPH C. WORTH, III
123
Title: VICE PRESIDENT CHAMPION INDUSTRIES, INC. Title: VICE PRESIDENT ATTEST: THE MERTEN COMPANY - ------------------------------------ /S/ TONEY K. ADKINS By:/S/ JOSEPH C. WORTH, III - ------------------------------------ ----------------------------------------- (SEAL) Print Name: TONEY K. ADKINS Print Name: JOSEPH C. WORTH, III Title: VICE PRESIDENT CHAMPION INDUSTRIES, INC. Title: VICE PRESIDENT ATTEST: BOURQUE PRINTING, INC. - ------------------------------------ /S/ TONEY K. ADKINS By:/S/ JOSEPH C. WORTH, III - ------------------------------------ ----------------------------------------- (SEAL) Print Name: TONEY K. ADKINS Print Name: JOSEPH C. WORTH, III Title: VICE PRESIDENT CHAMPION INDUSTRIES, INC. Title: VICE PRESIDENT ATTEST: SMITH & BUTTERFIELD CO., INC. - ------------------------------------ /S/ TONEY K. ADKINS By:/S/ JOSEPH C. WORTH, III - ------------------------------------ ----------------------------------------- (SEAL) Print Name: TONEY K. ADKINS Print Name: JOSEPH C. WORTH, III Title: VICE PRESIDENT CHAMPION INDUSTRIES, INC. Title: VICE PRESIDENT
124
ATTEST: DALLAS PRINTING COMPANY, INC. - ------------------------------------ /S/ TONEY K. ADKINS By:/S/ JOSEPH C. WORTH, III - ------------------------------------ ----------------------------------------- (SEAL) Print Name: TONEY K. ADKINS Print Name: JOSEPH C. WORTH, III Title: VICE PRESIDENT CHAMPION INDUSTRIES, INC. Title: VICE PRESIDENT ATTEST: CAROLINA CUT SHEETS, INC. - ------------------------------------ /S/ TONEY K. ADKINS By:/S/ JOSEPH C. WORTH, III - ------------------------------------ ----------------------------------------- (SEAL) Print Name: TONEY K. ADKINS Print Name: JOSEPH C. WORTH, III Title: VICE PRESIDENT CHAMPION INDUSTRIES, INC. Title: VICE PRESIDENT ATTEST: CHMP LEASING, INC. - ------------------------------------ /S/ TONEY K. ADKINS By:/S/ JOSEPH C. WORTH, III - ------------------------------------ ----------------------------------------- (SEAL) Print Name: TONEY K. ADKINS Print Name: JOSEPH C. WORTH, III Title: VICE PRESIDENT CHAMPION INDUSTRIES, INC. Title: VICE PRESIDENT ATTEST: BLUE RIDGE PRINTING CO., INC. - ------------------------------------ /S/ TONEY K. ADKINS By:/S/ JOSEPH C. WORTH, III - ------------------------------------ ----------------------------------------- (SEAL)
125
Print Name: TONEY K. ADKINS Print Name: JOSEPH C. WORTH, III Title: VICE PRESIDENT CHAMPION INDUSTRIES, INC. Title: VICE PRESIDENT ATTEST: ROSE CITY PRESS - ------------------------------------ /S/ TONEY K. ADKINS By:/S/ JOSEPH C. WORTH, III - ------------------------------------ ----------------------------------------- (SEAL) Print Name: TONEY K. ADKINS Print Name: JOSEPH C. WORTH, III Title: VICE PRESIDENT CHAMPION INDUSTRIES, INC. Title: VICE PRESIDENT PNC BANK, NATIONAL ASSOCIATION BY: -------------------------------------- TITLE: -----------------------------------
126 TERM NOTE --------- $3,000,000 Pittsburgh, Pennsylvania March 13, 1998 FOR VALUE RECEIVED, the undersigned, CHAMPION INDUSTRIES, INC., a West Virginia corporation ("Champion"), INTERFORM CORPORATION, a Pennsylvania corporation, U.S. TAG & TICKET COMPANY, INC., a Maryland corporation, BOURQUE PRINTING, INC., a Louisiana corporation, SMITH & BUTTERFIELD CO., INC., an Indiana corporation, DALLAS PRINTING COMPANY, INC., a Mississippi corporation, THE CHAPMAN PRINTING COMPANY, INC., a West Virginia corporation, STATIONERS, INC., a West Virginia corporation, DONIHE GRAPHICS, INC., a Tennessee corporation, CAROLINA CUT SHEETS, INC., a West Virginia corporation, CHMP LEASING, INC., a West Virginia corporation, BLUE RIDGE PRINTING CO., INC., a North Carolina corporation, ROSE CITY PRESS, a West Virginia corporation and THE MERTEN COMPANY, an Ohio corporation (each a "Borrower" and collectively and jointly and severally, the "Borrowers") hereby unconditionally promise to pay to the order of PNC Bank, National Association ("BANK"), at the office of the Bank at 249 Fifth Avenue, Pittsburgh PA 15222, or at such other place as the holder of this Term Note may from time to time designate in writing, in lawful money of the United States of America and in immediately available funds, the principal sum of Three Million Dollars ($3,000,000.00). 1. PAYMENTS. This Term Note is payable in periodic installments on the dates and in the amounts set forth in the hereinafter defined Credit Agreement. This Term Note is one of the Term Notes referred to in, was executed and delivered pursuant to, and evidences obligations of Borrower under, that certain Credit Agreement dated as of the date hereof by and among Borrowers and the Bank (as the same may be amended, restated, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), to which reference is hereby made for a statement of the terms and conditions under which the loan evidenced hereby is made and is to be repaid and for a statement of Bank's remedies upon the occurrence of an Event of Default (as defined therein). The Credit Agreement is incorporated herein by reference in its entirety. Capitalized terms used but not otherwise defined herein are used in this Term Note as defined in the Credit Agreement. 2. INTEREST. Borrowers further promise to pay interest on the outstanding unpaid principal amount hereof from the date hereof until payment in full hereof at the rate from time to time applicable to the Term Loan as determined in accordance with the Credit Agreement; PROVIDED, HOWEVER, that upon the occurrence and during the continuance of an Event of Default, as provided in the Credit Agreement, Borrowers shall pay to Bank, if Bank so elects, interest on the outstanding principal balance of this Term Note at the rate of interest applicable upon the occurrence and during the continuance of an Event of Default as determined in accordance with the Credit Agreement. Interest charges shall be computed on the daily principal balance of the Term Loan on the basis of a three hundred sixty (360) day year for the actual number of days elapsed in the period during which it accrues. In computing interest on this Term Note, the date of funding of the Term Loan shall be included and the date of actual payment in full of the Term Loan shall be 127 excluded; PROVIDED, HOWEVER, that if the Term Loan is repaid on the same day on which it is made, one day's interest shall be paid on the Term Loan. Interest on this Term Note shall be payable at the rates, at the times and from the dates specified in the Credit Agreement, on the date of any prepayment hereof, at maturity, whether due by acceleration or otherwise, and as otherwise provided in the Credit Agreement. From and after the date when the principal balance hereof becomes due and payable, whether by acceleration or otherwise, interest hereon shall be payable on demand. If a payment hereunder becomes due and payable hereunder other than on a Business Day, the due date thereof shall be extended to the next succeeding Business Day, and interest shall be payable thereon during such extension at the applicable rate specified in the Credit Agreement. Credit for any payments made by Borrowers shall, for the purpose of computing interest earned by Bank, be given in accordance with the Credit Agreement. In no contingency or event whatsoever shall interest charged hereunder, however such interest may be characterized or computed, exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such a court determines that Bank received interest hereunder in excess of the highest rate applicable hereto, such excess shall be applied in accordance with the terms of the Credit Agreement. 3. DEFAULT; WAIVER OF NOTICE. Bank shall have the continuing exclusive right to apply after the occurrence and during the continuance of an Event of Default and to reapply any and all payments hereunder against the Obligations in such manner, consistent with the terms of the Credit Agreement, as Bank deems advisable. Borrower hereby waives demand, presentment and protest and notice of demand, presentment, protest and nonpayment. 4. POWER TO CONFESS JUDGMENT: EACH OF THE BORROWERS HEREBY AUTHORIZES AND EMPOWERS THE PROTHONOTARY OR ANY ATTORNEY OF ANY COURT OF RECORD WITHIN THE COMMONWEALTH OF PENNSYLVANIA OR ELSEWHERE AFTER TO APPEAR FOR ONE OR MORE OF THE BORROWERS AFTER AN EVENT OF DEFAULT UNDER THE CREDIT AGREEMENT HAS OCCURRED AND, WITH OR WITHOUT DECLARATION FILED, CONFESS JUDGMENT AGAINST ONE OR MORE OF THE BORROWERS IN FAVOR OF THE BANK FOR THE UNPAID BALANCE OF THE OBLIGATIONS, AND INCLUDING, WITHOUT LIMITATION, ALL ACCRUED AND UNPAID INTEREST, CHARGES, EXPENSES OR OTHER IMPOSITIONS, 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 BORROWERS. 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 128 THE BANK SHALL HAVE RECEIVED PAYMENT IN FULL OF THE LOAN, INTEREST AND COSTS. BY SIGNING THIS TERM NOTE, EACH OF THE BORROWERS 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 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 BORROWERS, OR ANY OF THEM, WITHOUT PRIOR NOTICE OR HEARING AND THAT THE OBLIGATIONS MAY BE COLLECTED FROM SUCH BORROWER REGARDLESS OF ANY CLAIM ANY BORROWER MAY HAVE AGAINST THE BANK. 5. POWER TO EXECUTE ON A JUDGMENT WITHOUT HEARING: EACH OF THE BORROWERS 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 ONE OR MORE OF THE BORROWERS 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 MAY LAWFULLY BE WAIVED BY THE BORROWERS. NO SINGLE EXERCISE OF THE FOREGOING POWER TO EXECUTE ON JUDGMENT 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 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 OBLIGATIONS INCLUDING INTEREST AND COSTS. BY SIGNING THIS INSTRUMENT EACH OF THE BORROWERS 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 A 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 THE LOAN MAY 129 BE COLLECTED FROM THE BORROWER REGARDLESS OF ANY CLAIM THAT ANY BORROWER MAY HAVE AGAINST THE BANK. 6. EXPENSES. In addition to, and not in limitation of, the foregoing and the provisions of the Credit Agreement, the undersigned further agrees, subject only to any limitation imposed by applicable law, to pay all reasonable expenses, including reasonable attorneys' fees and legal expenses, incurred by the holder of this Term Note in endeavoring to collect any amounts payable hereunder which are not paid when due, whether by acceleration or otherwise. 7. APPLICABLE LAW. This term note shall be deemed to have been delivered and made at Pittsburgh, Pennsylvania and shall be interpreted and the rights and liabilities of the parties hereto determined in accordance with the internal laws (as opposed to conflicts of law provisions) and judicial decisions of the Commonwealth of Pennsylvania. 8. MISCELLANEOUS. Whenever possible each provision of this Term Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Term Note shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Term Note. Whenever in this Term Note reference is made to Bank or Borrowers, such reference shall be deemed to include, as applicable, a reference to their respective permitted successors and assigns and, in the case of Banks, any financial institutions to which it has sold or assigned all or any part of its commitment to make the Term Loan as permitted under the Credit Agreement. The provisions of this Term Note shall be binding upon and shall inure to the benefit of Bank and its permitted successors and assigns. Borrowers' successors and assigns shall include, without limitation, a receiver, trustee or debtor in possession of or for Borrowers. CHAMPION INDUSTRIES, INC.,a West Virginia corporation By: /S/ JOSEPH C. WORTH, III ------------------------------------------ Title: VICE PRESIDENT AND CHIEF FINANCIAL --------------------------------------- OFFICER ------- INTERFORM CORPORATION 130 By:/S/ JOSEPH C. WORTH, III ------------------------------------------ (SEAL) Print Name: JOSEPH C. WORTH, III ---------------------------------------- Title: VICE PRESIDENT --------------------------------------- U.S. TAG & TICKET COMPANY, INC. By:/S/ JOSEPH C. WORTH, III ------------------------------------------ (SEAL) Print Name: JOSEPH C. WORTH, III ---------------------------------------- Title: VICE PRESIDENT --------------------------------------- THE CHAPMAN PRINTING COMPANY, INC. By:/S/ JOSEPH C. WORTH, III ------------------------------------------ (SEAL) Print Name: JOSEPH C. WORTH, III ---------------------------------------- Title: VICE PRESIDENT --------------------------------------- STATIONERS, INC. By:/S/ JOSEPH C. WORTH, III ------------------------------------------ (SEAL) Print Name: JOSEPH C. WORTH, III ---------------------------------------- Title: VICE PRESIDENT --------------------------------------- DONIHE GRAPHICS, INC. By:/S/ JOSEPH C. WORTH, III ------------------------------------------ (SEAL) Print Name: JOSEPH C. WORTH, III ---------------------------------------- Title: VICE PRESIDENT --------------------------------------- 131 THE MERTEN COMPANY By:/S/ JOSEPH C. WORTH, III ------------------------------------------ (SEAL) Print Name: JOSEPH C. WORTH, III ---------------------------------------- Title: VICE PRESIDENT --------------------------------------- 132 BOURQUE PRINTING, INC. By:/S/ JOSEPH C. WORTH, III ------------------------------------------ (SEAL) Print Name: JOSEPH C. WORTH, III ---------------------------------------- Title: VICE PRESIDENT --------------------------------------- SMITH & BUTTERFIELD CO., INC. By:/S/ JOSEPH C. WORTH, III ------------------------------------------ (SEAL) Print Name: JOSEPH C. WORTH, III ---------------------------------------- Title: VICE PRESIDENT --------------------------------------- DALLAS PRINTING COMPANY, INC. By:/S/ JOSEPH C. WORTH, III ------------------------------------------ (SEAL) Print Name: JOSEPH C. WORTH, III ---------------------------------------- Title: VICE PRESIDENT --------------------------------------- CAROLINA CUT SHEETS, INC. By:/S/ JOSEPH C. WORTH, III ------------------------------------------ (SEAL) Print Name: JOSEPH C. WORTH, III ---------------------------------------- Title: VICE PRESIDENT --------------------------------------- CHMP LEASING, INC. 133 By:/S/ JOSEPH C. WORTH, III ------------------------------------------ (SEAL) Print Name: JOSEPH C. WORTH, III ---------------------------------------- Title: VICE PRESIDENT --------------------------------------- BLUE RIDGE PRINTING CO., INC. By:/S/ JOSEPH C. WORTH, III ------------------------------------------- (SEAL) Print Name: JOSEPH C. WORTH, III ---------------------------------------- Title: VICE PRESIDENT --------------------------------------- ROSE CITY PRESS By:/S/ JOSEPH C. WORTH, III ------------------------------------------- (SEAL) Print Name: JOSEPH C. WORTH, III ---------------------------------------- Title: VICE PRESIDENT --------------------------------------- 134 TERM NOTE --------- $2,222,038.37 Pittsburgh, Pennsylvania March 30, 1998 FOR VALUE RECEIVED, the undersigned, CHAMPION INDUSTRIES, INC., a West Virginia corporation ("Champion"), INTERFORM CORPORATION, a Pennsylvania corporation, U.S. TAG & TICKET COMPANY, INC., a Maryland corporation, BOURQUE PRINTING, INC., a Louisiana corporation, SMITH & BUTTERFIELD CO., INC., an Indiana corporation, DALLAS PRINTING COMPANY, INC., a Mississippi corporation, THE CHAPMAN PRINTING COMPANY, INC., a West Virginia corporation, STATIONERS, INC., a West Virginia corporation, DONIHE GRAPHICS, INC., a Tennessee corporation, CAROLINA CUT SHEETS, INC., a West Virginia corporation, CHMP LEASING, INC., a West Virginia corporation, BLUE RIDGE PRINTING CO., INC., a North Carolina corporation, ROSE CITY PRESS, a West Virginia corporation and THE MERTEN COMPANY, an Ohio corporation (each a "Borrower" and collectively and jointly and severally, the "Borrowers") hereby unconditionally promise to pay to the order of PNC Bank, National Association ("BANK"), at the office of the Bank at 249 Fifth Avenue, Pittsburgh PA 15222, or at such other place as the holder of this Term Note may from time to time designate in writing, in lawful money of the United States of America and in immediately available funds, the principal sum of Two Million Two Hundred Twenty Two Thousand Thirty Eight Dollars and Thirty Seven/100 ($2,222,038.37). 1. PAYMENTS. This Term Note is payable in periodic installments on the dates and in the amounts set forth in the hereinafter defined Credit Agreement. This Term Note is one of the Term Notes referred to in, was executed and delivered pursuant to, and evidences obligations of Borrower with respect to the "Tranche A Loan" described in, that certain Credit Agreement dated as of the date hereof by and among Borrowers and the Bank (as the same may be amended, restated, supplemented or otherwise modified from time to time, the "CREDIT Agreement"), to which reference is hereby made for a statement of the terms and conditions under which the loan evidenced hereby is made and is to be repaid and for a statement of Bank's remedies upon the occurrence of an Event of Default (as defined therein). The Credit Agreement is incorporated herein by reference in its entirety. Capitalized terms used but not otherwise defined herein are used in this Term Note as defined in the Credit Agreement. 2. INTEREST. Borrowers further promise to pay interest on the outstanding unpaid principal amount hereof from the date hereof until payment in full hereof at the rate from time to time applicable to the Term Loan as determined in accordance with the Credit Agreement; PROVIDED, HOWEVER, that upon the occurrence and during the continuance of an Event of Default, as provided in the Credit Agreement, Borrowers shall pay to Bank, if Bank so elects, interest on the outstanding principal balance of this Term Note at the rate of interest applicable upon the 135 occurrence and during the continuance of an Event of Default as determined in accordance with the Credit Agreement. Interest charges shall be computed on the daily principal balance of the Term Loan on the basis of a three hundred sixty (360) day year for the actual number of days elapsed in the period during which it accrues. In computing interest on this Term Note, the date of funding of the Term Loan shall be included and the date of actual payment in full of the Term Loan shall be excluded; PROVIDED, HOWEVER, that if the Term Loan is repaid on the same day on which it is made, one day's interest shall be paid on the Term Loan. Interest on this Term Note shall be payable at the rates, at the times and from the dates specified in the Credit Agreement, on the date of any prepayment hereof, at maturity, whether due by acceleration or otherwise, and as otherwise provided in the Credit Agreement. From and after the date when the principal balance hereof becomes due and payable, whether by acceleration or otherwise, interest hereon shall be payable on demand. If a payment hereunder becomes due and payable hereunder other than on a Business Day, the due date thereof shall be extended to the next succeeding Business Day, and interest shall be payable thereon during such extension at the applicable rate specified in the Credit Agreement. Credit for any payments made by Borrowers shall, for the purpose of computing interest earned by Bank, be given in accordance with the Credit Agreement. In no contingency or event whatsoever shall interest charged hereunder, however such interest may be characterized or computed, exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such a court determines that Bank received interest hereunder in excess of the highest rate applicable hereto, such excess shall be applied in accordance with the terms of the Credit Agreement. 3. DEFAULT; WAIVER OF NOTICE. Bank shall have the continuing exclusive right to apply after the occurrence and during the continuance of an Event of Default and to reapply any and all payments hereunder against the Obligations in such manner, consistent with the terms of the Credit Agreement, as Bank deems advisable. Borrower hereby waives demand, presentment and protest and notice of demand, presentment, protest and nonpayment. 4. POWER TO CONFESS JUDGMENT: EACH OF THE BORROWERS HEREBY AUTHORIZES AND EMPOWERS THE PROTHONOTARY OR ANY ATTORNEY OF ANY COURT OF RECORD WITHIN THE COMMONWEALTH OF PENNSYLVANIA OR ELSEWHERE AFTER TO APPEAR FOR ONE OR MORE OF THE BORROWERS AFTER AN EVENT OF DEFAULT UNDER THE CREDIT AGREEMENT HAS OCCURRED AND, WITH OR WITHOUT DECLARATION FILED, CONFESS JUDGMENT AGAINST ONE OR MORE OF THE BORROWERS IN FAVOR OF THE BANK FOR THE UNPAID BALANCE OF THE OBLIGATIONS, AND INCLUDING, WITHOUT LIMITATION, ALL ACCRUED AND UNPAID INTEREST, CHARGES, EXPENSES OR OTHER IMPOSITIONS, WHETHER BY ACCELERATION OR OTHERWISE WITH COSTS OF SUIT AND A REASONABLE ATTORNEY'S COMMISSION AS CERTIFIED BY THE BANK WITH RELEASE OF ALL 136 ERRORS, WAIVING ALL LAWS EXEMPTING REAL OR PERSONAL PROPERTY FROM EXECUTION TO THE EXTENT THAT SUCH LAWS MAY LAWFULLY BE WAIVED BY THE BORROWERS. 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 LOAN, INTEREST AND COSTS. BY SIGNING THIS TERM NOTE, EACH OF THE BORROWERS 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 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 BORROWERS, OR ANY OF THEM, WITHOUT PRIOR NOTICE OR HEARING AND THAT THE OBLIGATIONS MAY BE COLLECTED FROM SUCH BORROWER REGARDLESS OF ANY CLAIM ANY BORROWER MAY HAVE AGAINST THE BANK. 5. POWER TO EXECUTE ON A JUDGMENT WITHOUT HEARING: EACH OF THE BORROWERS 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 ONE OR MORE OF THE BORROWERS 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 MAY LAWFULLY BE WAIVED BY THE BORROWERS. NO SINGLE EXERCISE OF THE FOREGOING POWER TO EXECUTE ON JUDGMENT 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 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 OBLIGATIONS INCLUDING INTEREST AND COSTS. 137 BY SIGNING THIS INSTRUMENT EACH OF THE BORROWERS 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 A 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 THE LOAN MAY BE COLLECTED FROM THE BORROWER REGARDLESS OF ANY CLAIM THAT ANY BORROWER MAY HAVE AGAINST THE BANK. 6. EXPENSES. In addition to, and not in limitation of, the foregoing and the provisions of the Credit Agreement, the undersigned further agrees, subject only to any limitation imposed by applicable law, to pay all reasonable expenses, including reasonable attorneys' fees and legal expenses, incurred by the holder of this Term Note in endeavoring to collect any amounts payable hereunder which are not paid when due, whether by acceleration or otherwise. 7. APPLICABLE LAW. This term note shall be deemed to have been delivered and made at Pittsburgh, Pennsylvania and shall be interpreted and the rights and liabilities of the parties hereto determined in accordance with the internal laws (as opposed to conflicts of law provisions) and judicial decisions of the Commonwealth of Pennsylvania. 8. MISCELLANEOUS. Whenever possible each provision of this Term Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Term Note shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Term Note. Whenever in this Term Note reference is made to Bank or Borrowers, such reference shall be deemed to include, as applicable, a reference to their respective permitted successors and assigns and, in the case of Banks, any financial institutions to which it has sold or assigned all or any part of its commitment to make the Term Loan as permitted under the Credit Agreement. The provisions of this Term Note shall be binding upon and shall inure to the benefit of Bank and its permitted successors and assigns. Borrowers' successors and assigns shall include, without limitation, a receiver, trustee or debtor in possession of or for Borrowers. 138 CHAMPION INDUSTRIES, INC., a West Virginia corporation By: Title: INTERFORM CORPORATION By: ---------------------------- (SEAL) Print Name: -------------------- Title: ------------------------- U.S. TAG & TICKET COMPANY, INC. By: ---------------------------- (SEAL) Print Name: -------------------- Title: ------------------------- THE CHAPMAN PRINTING COMPANY, INC. By: ---------------------------- (SEAL) Print Name: -------------------- Title: ------------------------- STATIONERS, INC. By: ---------------------------- (SEAL) 139 Print Name: -------------------- Title: ------------------------- DONIHE GRAPHICS, INC. By: ---------------------------- (SEAL) Print Name: -------------------- Title: ------------------------- THE MERTEN COMPANY By: ---------------------------- (SEAL) Print Name: -------------------- Title: ------------------------- 140 BOURQUE PRINTING, INC. By: ---------------------------- (SEAL) Print Name: -------------------- Title: ------------------------- SMITH & BUTTERFIELD CO., INC. By: ---------------------------- (SEAL) Print Name: -------------------- Title: ------------------------- DALLAS PRINTING COMPANY, INC. By: ---------------------------- (SEAL) Print Name: -------------------- Title: ------------------------- CAROLINA CUT SHEETS, INC. By: ---------------------------- (SEAL) Print Name: -------------------- Title: ------------------------- CHMP LEASING, INC. 141 By: ---------------------------- (SEAL) Print Name: -------------------- Title: ------------------------- BLUE RIDGE PRINTING CO., INC. By: ---------------------------- (SEAL) Print Name: -------------------- Title: ------------------------- ROSE CITY PRESS By: ---------------------------- (SEAL) Print Name: -------------------- Title: ------------------------- 142 SECURITY AGREEMENT THIS SECURITY AGREEMENT (this "AGREEMENT") is entered into as of this 13th day of March, 1998 by and between THE MERTEN COMPANY, an Ohio corporation (the "BORROWER"), with an address at 1515 Central Parkway, Cincinnati, Ohio 45214, and PNC BANK, NATIONAL ASSOCIATION (the "BANK"), with an address at One PNC Plaza, 249 Fifth Avenue, Pittsburgh, Pennsylvania 15222-2709. WHEREAS, the Borrower, the Bank, Champion Industries, Inc., a West Virginia Corporation, Interform Corporation, a Pennsylvania corporation, U.S. Tag & Ticket company, Inc., a Maryland corporation, Bourque Printing, Inc., a Louisiana corporation, Smith & Butterfield Co., Inc., an Indiana corporation, Dallas Printing Company, Inc., a Mississippi corporation, The Chapman Printing Company, Inc., a West Virginia corporation, Stationers, Inc., a West Virginia corporation, Donihe Graphics, Inc., a Tennessee corporation, Carolina Cut Sheets, Inc., a West Virginia corporation, CHMP Leasing, Inc., a West Virginia corporation, Blue Ridge Printing Co., Inc., a North Carolina corporation and Rose City Press, a West Virginia corporation (collectively, the "CO-BORROWERS") have entered into that certain Credit Agreement, dated as of March 13, 1998 (as the same may be amended, restated or otherwise modified from time to time, the "CREDIT AGREEMENT"), pursuant to which the Bank has agreed to extend to the Borrower and the Co-Borrowers, upon the terms and subject to the conditions set forth therein, term loans for the purpose of refinancing existing equipment leases and financing equipment purchases. (All terms capitalized but not otherwise defined herein shall have the meanings ascribed to such terms in the Credit Agreement unless the context otherwise requires). WHEREAS, the Borrower has agreed to enter into this Agreement for the purpose of granting to the Bank a first priority perfected lien on all property of the Borrower purchased or otherwise refinanced with proceeds of the term loans provided under the Credit Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: 1. DEFINITIONS. (a) "Collateral" means the Borrower's entire right, title and interest in and to all equipment of the Borrower, wherever located, as described in attached EXHIBIT "A" attached hereto, and also in (i) all other property later acquired or refinanced by the Borrower, wherever located, with proceeds of the term loans provided under the Credit Agreement, (ii) all accessions to, substitutions for and all replacements, products and proceeds of the foregoing, including proceeds of insurance policies insuring the Collateral, all property received wholly or partly in trade or exchange for such Collateral, and all rents, revenues, issues, profits and proceeds arising from the sale, lease, license, encumbrance, collection or any other temporary or permanent 143 disposition of such items or any interest therein whether or not they constitute "proceeds" as defined in the Uniform Commercial Code; and (iv) all books, records, documents and ledger receipts of the Borrower pertaining to any of the foregoing including, but not limited to, customer lists, credit files, computer records and programs, storage media and computer software used or required in connection with generating, processing and storing such books and records or otherwise used or acquired in connection with documenting information pertaining to the Collateral. (b) "Secured Obligations" means, without limitation, (i) all indebtedness, obligations and liabilities, whether of principal, interest, fees, expenses or otherwise, of the Borrower to the Bank, whether now existing or hereafter incurred under the Credit Agreement, the Notes, or any other Loan Document, whether or not contemplated by the Borrower or the Bank at the date hereof and whether direct, indirect, matured or contingent, joint or several, or otherwise, together with any and all extensions, renewals, refinancings or refundings thereof in whole or in part, and (ii) all costs and expenses, including, but not limited to, attorneys' fees and legal expenses incurred by the Bank in the collection of any of the indebtedness referred to in clause (i), and (iii) any advances made by the Bank for the insurance, maintenance, preservation, protection or enforcement of, or realization upon, any property or assets now or hereafter made subject to a mortgage, pledge, lien or security interest granted pursuant to this Agreement or pursuant to any agreement, instrument or note relating to any of the Secured Obligations, including, but not limited to, advances for taxes, insurance, repairs and the like. (c) "Liens" includes security interests, pledges, bailments, leases, mortgages, conditional sales and title retention agreements, charges, claims, encumbrances and liens. (d) "Prior Security Interest" means an enforceable, perfected security interest under the Uniform Commercial Code which is prior to all Liens, except Liens for taxes not yet due and payable to the extent given priority by statute and Permitted Liens. (e) Terms and phrases defined in the Uniform Commercial Code are used herein as therein defined except where the context otherwise requires. 2. GRANT OF SECURITY INTEREST. As security for the due and punctual payment and performance of the Secured Obligations, the Borrower, as debtor, hereby assigns and grants to the Bank, as secured party, a continuing lien on and security interest in the Collateral. The security interest in the Collateral granted hereunder also secures future advances that constitute Secured Obligations. The Bank shall also have the right to apply toward and set off against the unpaid balance of the Secured Obligations any or all amounts owing to the Borrower by the Bank, including without limitation any items or funds in any deposit account now or hereafter maintained by the Borrower with the Bank, and any and all other property of the Borrower now or hereafter in the possession of the Bank in whatever capacity, and for such purpose the Bank shall have, and there is hereby granted to and created in favor of the Bank a first Lien on all such deposit accounts and property. The Bank is hereby authorized to charge any account of the Borrower with the Bank for any or all amounts of Secured Obligations which are due. 144 3. CHANGE IN NAME OR LOCATIONS. The Borrower hereby agrees that if the Borrower desires to change the location of any of the Collateral from the locations listed on EXHIBIT "B" hereto and made part hereof, or if the Borrower desires to change its name or form of organization, or establish a name in which it may do business or in which it may invoice account debtors or maintain records concerning the Collateral that is not listed on EXHIBIT "B" hereto, it shall first, with respect to such new location or name: (i) give the Bank at least 10 days' prior written notice of its intention to do so and provide the Bank with such information in connection therewith as the Bank may reasonably request including, without limitation, lien search results; and (ii) if financing statements are on file, take such action, satisfactory to the Bank, as may be necessary to maintain at all times the perfection and priority of the security interest in the Collateral granted to the Bank hereunder. The Borrower's chief executive office is also shown on EXHIBIT "B" hereto. 4. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Borrower represents, warrants and covenants to the Bank as follows: (a) The Borrower has good and marketable title to the Collateral, free and clear of all Liens except for Permitted Liens. (b) The Borrower will not hereafter, without the prior written consent of the Bank, (i) sell, pledge, encumber, assign or otherwise dispose of any of the Collateral or grant (other than by operation of law) any right of setoff, lien or security interest to exist thereon except to the Bank, (ii) materially alter its ordinary course of business, including its sales terms, conditions and practices, or (iii) extend, postpone or compromise (except in the ordinary course of business) the time or amount of payment on any account or accounts or other amounts owing to it which, individually or in the aggregate, are material. (c) The Borrower will from time to time and at all reasonable times following the protocols established in Section 7.1.6 of the Credit Agreement allow the Bank, by or through any of its officers, agents, attorneys, or accountants, to examine or inspect the Collateral. (d) The Borrower will defend the Collateral against all claims and demands of all persons at any time claiming the same or any interest therein. (e) The Borrower, if the Bank deems necessary or advisable, (i) execute, deliver, file and record such security agreements, financing statements, instruments and documents and take such other action to attach, perfect, continue, preserve and protect the Bank's Prior Security Interest in the Collateral and proceeds thereof and pay all filing fees and taxes related thereto, and the Borrower hereby irrevocably appoints the Bank, its officers, employees and agents, or any of them, as attorneys in fact for the Borrower and in the Borrower's name, place and stead, (ii) maintain and protect the Collateral and defend and preserve the Borrower's title thereto and the Bank's Prior Security Interest therein free from all other Liens, and (iii) keep accurate and complete books and records concerning the Collateral. 145 (f) The Borrower will promptly furnish to the Bank such information and documents relating to the Collateral and to the Borrower's financial condition, business, assets or liabilities, at such times and in such form and detail as the Bank may reasonably request. (g) The Borrower will maintain the equipment in good condition, repair and working order, ordinary wear and tear alone excepted, and will maintain and operate the equipment and every portion thereof in full compliance with all applicable laws, ordinances, regulations, decrees and orders, the violation of which would have a material adverse effect on the value of the Collateral. The Borrower will promptly notify the Bank of any event causing a material loss or decline in value of the Collateral whether or not covered by insurance and the amount of such loss or depreciation; (h) The Borrower will promptly notify the Bank of (i) any materially adverse change in the Borrower's financial condition or business affairs, and (ii) any default, or any event or condition which with the passage of time would result in a default under any other Loan Document. (i) Risk of loss of, damage to or destruction of the Collateral and all proceeds thereof is on the Borrower. The Borrower will maintain insurance at all times with respect to all Collateral as required by the Credit Agreement. In the event of failure to provide insurance as herein provided, the Bank may, at its option, obtain such insurance and the Borrower shall pay to the Bank, on demand, the cost thereof. Proceeds of insurance may be applied as provided in the Credit Agreement by the Bank to reduce the Secured Obligations or to repair or replace Collateral, all in the Bank's sole discretion. (j) The security interests granted to the Bank pursuant to this Agreement constitute and will continue to constitute Prior Security Interests under the Uniform Commercial Code as in effect in each applicable jurisdiction or other applicable Law, entitled to all the rights, benefits and priorities provided by the Uniform Commercial Code or such Law. Upon the filing of financing statements relating to said security interests in each office and in each jurisdiction where required in order to perfect the security interests granted pursuant to this Agreement, all such action as is necessary or advisable to establish such rights of the Bank will have been taken, and upon execution and delivery of this Agreement and such filings, there will be no necessity for any further action in order to preserve, protect and continue such rights, except (i) the filing of continuation statements with respect to such financing statements within six months prior to each five-year anniversary of the filing of such financing statements, (ii) perfection of interests in titled vehicles and (iii) filing additional financing statements if, as provided in this Agreement, additional locations or names are used. All filing fees and other expenses in connection with each such action have been or will be paid by the Borrower. (k) The Borrower shall take all necessary action, at its own cost and expense, to observe and perform its agreements and covenants, and keep its representations and warranties true, correct, and complete under this Agreement. 146 (l) The Borrower's agreements, covenants, representations and warranties under this Agreement are continuing ones, shall at all times remain true, correct and complete and shall at all times be observed and performed and shall relate to each item of Collateral upon its coming into existence and at all times thereafter. 5. EVENTS OF DEFAULT. The Borrower shall, at the option of the Bank, be in default under this Agreement upon the happening of any of the following events or conditions (each, an "Event of Default"): (a) any Event of Default as defined in the Credit Agreement or any other Loan Document; or (b) the failure of the Bank to have a Prior Security Interest in the Collateral; or (c) any indication or evidence received by the Bank that the Borrower may have directly or indirectly been engaged in any type of activity which, in the Bank's discretion, might result in the forfeiture of any property of the Borrower to any governmental entity, federal, state or local. 6. REMEDIES. Upon the occurrence of any such Event of Default and at any time thereafter, the Bank shall have the right, without presentment, demand, protest or notice of any kind, to declare all or any part of the Secured Obligations secured thereby immediately due and payable and shall have, in addition to any remedies provided herein or by any applicable law or in equity, all the remedies of a secured party under the Uniform Commercial Code. Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, the Bank will give the Borrower reasonable notice of the time and place of any public sale thereof or of the time after which any private sale or any other intended disposition thereof is to be made. The requirements of commercially reasonable notice shall be met if such notice is sent to the Borrower at least ten (10) days before the time of the intended sale or disposition. At any such sale or other disposition, the Bank may, to the extent permissible under applicable laws, purchase the whole or any part of the Collateral, free from any right of redemption on the part of the Borrower, which right is hereby waived and released. Expenses of retaking, holding, preparing for sale, selling or the like shall include the Bank's attorneys' fees and legal expenses, incurred or expended by the Bank to enforce any payment due it under this Agreement either as against the Borrower, or in the prosecution or defense of any action, or concerning any matter growing out of or in connection with the subject matter of this Agreement and the Collateral secured hereunder. Without limiting the generality of any of the rights and remedies conferred upon the Bank under this paragraph, the Bank may, to the full extent permitted by the applicable laws (i) enter upon the premises of the Borrower (and, to the extent necessary in the judgment of the Bank, exclude therefrom the Borrower) and take immediate possession of the Collateral, either 147 personally or by means of a receiver appointed by a court of competent jurisdiction, using all necessary force to do so, (ii) at the Bank's option, use, operate, manage, and control the Collateral in any lawful manner, (iii) collect and receive all rents, income, revenue, earnings, and issues and profits therefrom, and (iv) maintain, repair, renovate, alter, or remove the Collateral as the Bank may determine in its exclusive discretion. Each of the rights, privileges and remedies provided to the Bank hereunder or otherwise by law with respect to the Collateral shall be exercised only for the benefit of the Bank and any Collateral or proceeds thereof held or realized upon at any time by the Bank shall inure to the benefit of the Bank for the benefit of the Banks (i) first, to reimburse the Bank for expenses and fees incurred in connection with the Credit Agreement, this Agreement, and all other Loan Documents, including, without limitation, attorneys' fees and legal expenses, and (ii) second, to liquidate the Secured Obligations. Any surplus shall be paid to the Borrower, its successors or assigns, or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction shall determine. The Borrower shall remain liable to the Bank for and shall pay to the Bank any deficiency which may remain after such sale or collection. All of the rights and remedies of the Bank under this Agreement shall be cumulative and not exclusive of other rights and remedies which it otherwise would have, whether under the Credit Agreement, the Notes, the other Loan Documents, the Uniform Commercial Code, applicable law or otherwise. 7. POWER OF ATTORNEY. The Borrower does hereby make, constitute and appoint any officer or agent of the Bank as the Borrower's true and lawful attorney-in-fact (without requiring any of them to act as such) with all necessary power to (i) at any time after the occurrence and during the continuance of an Event of Default, receive, open and dispose of all mail addressed to the Borrower and notify postal authorities to change the address for delivery thereof to such address as the Bank may designate, (ii) at any time after the occurrence and during the continuance of an Event of Default, endorse the name of the Borrower or any of the Borrower's officers or agents upon any notes, checks, drafts, money orders, or other instruments of payment or Collateral that may come into the possession of the Bank in full or part payment of any amounts owing to the Bank, (iii) to do any and all things necessary to be done in and about the premises as fully and with the same effect as the Borrower might or could do, including the right to sign, for the Borrower, UCC-1 financing statements and UCC-3 Statements of Change, provided that the Bank shall provide the Borrower with notice of any such action, and (iv) at any time after an occurrence of and during the continuance of an Event of Default, to sue for, compromise, settle and release all claims and disputes with respect to the Collateral. The Borrower hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof, except for gross negligence or willful misconduct of the Bank. This power of attorney is coupled with an interest and is irrevocable. 8. PAYMENT OF EXPENSES. At its option, and after notice to the Borrower if no potential default or Event of Default exists, the Bank may discharge taxes, liens, security interests or such other encumbrances as may attach to the Collateral, may pay for required insurance on the Collateral and may pay for the maintenance, appraisal or reappraisal, and preservation of the 148 Collateral, as determined by the Bank to be necessary. The Borrower will reimburse the Bank on demand for any payment so made or any expense incurred by the Bank pursuant to the foregoing authorization, and the Collateral also will secure any advances or payments so made or expenses so incurred by the Bank. 9. NOTICES. All notices, and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed to have been duly given or made in accordance with Section 10.6 of the Credit Agreement. Any party hereto may change the address to which notice to it, or copies thereof, shall be addressed, by giving notice thereof to the other parties hereto in conformity with the foregoing. 10. PRESERVATION OF RIGHTS. No delay or omission on the part of the Bank to exercise any right or power arising hereunder will impair any such right or power or be considered a waiver of any such right or power or any acquiescence therein, nor will the action or inaction of the Bank impair any right or power arising hereunder. The Bank's rights and remedies hereunder are cumulative and not exclusive of any other rights or remedies which the Bank may have under other agreements, at law or in equity. 11. ILLEGALITY. If any term, provision, or restriction of this Agreement is held to be invalid, void or unenforceable in any way in any jurisdiction, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect in such jurisdiction and shall in no way be affected, impaired or invalidated, and such invalidity or impairment shall not affect the validity and enforceability of such provision, covenant, or restriction in any other jurisdiction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such which may be hereafter declared invalid, void or unenforceable. 12. CHANGES IN WRITING. No modification, amendment or waiver of any provision of this Agreement nor consent to any departure by the Borrower therefrom, will in any event be effective unless the same is in writing and signed by the Bank, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Any modification, amendment or waiver binding the Borrower must be consented to by the Borrower. 13. ENTIRE AGREEMENT. This Agreement (including the documents and instruments referred to herein) constitutes the entire agreement and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. 14. COUNTERPARTS. This Agreement may be signed in any number of counterpart copies and by the parties hereto on separate counterparts, but all such copies shall constitute one and the same instrument. 15. SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and inure to the benefit of the Borrower and the Bank and their respective heirs, executors, administrators, 149 successors and assigns; PROVIDED, HOWEVER, that the Borrower may not assign this Agreement in whole or in part without the prior written consent of the Bank, and the Bank at any time may assign this Agreement in whole or in part. 16. INTERPRETATION. In this Agreement, unless the Bank and the Borrower otherwise agree in writing, the singular includes the plural and the plural the singular; words importing any gender include the other genders; references to statutes are to be construed as including all statutory provisions consolidating, amending or replacing the statute referred to; the word "or" shall be deemed to include "and/or," the words "including," "includes" and "include" shall be deemed to be followed by the words "without limitation"; references to articles, sections (or subdivisions of sections) or exhibits are to those of this Agreement unless otherwise indicated. Section headings in this Agreement are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 17. INDEMNITY. The Borrower agrees to indemnify each of the Bank and its directors, officers and employees and each legal entity, if any, who controls the Bank (the "INDEMNIFIED PARTIES") and to hold each Indemnified Party harmless from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, all fees of counsel with whom any Indemnified Party may consult and all expenses of litigation or preparation therefor) which any Indemnified Party may incur or which may be asserted against any Indemnified Party as a result of the execution of or performance under this Agreement; PROVIDED, HOWEVER, that the foregoing indemnity agreement shall not apply to claims, damages, losses, liabilities and expenses attributable to an Indemnified Party's gross negligence or willful misconduct. The indemnity agreement contained in this Section shall survive the termination of this Agreement. The Borrower may participate at its expense in the defense of any such claim. 18. GOVERNING LAW; VENUE. The Uniform Commercial Code shall govern the attachment, perfection and the effect of attachment and perfection of the Bank's security interest in the Collateral, and the rights, duties and obligations of the Bank and the Borrower with respect thereto. Except as provided by the immediately preceding sentence, this Agreement shall be deemed to be a contract under the laws of the Commonwealth of Pennsylvania and the execution and delivery thereof and the terms and provisions shall be governed by and construed in accordance with the laws of said Commonwealth. The Borrower irrevocably consents to the nonexclusive jurisdiction of the Court of Common Pleas of Allegheny County and the United States District Court for the Western District of Pennsylvania, and waives personal service of any and all process upon it and consents that all such service of process be made by certified or registered mail directed to it at the address provided for in Section 10.6 of the Credit Agreement and service so made shall be deemed to be completed upon actual receipt thereof. The Borrower waives any objection to jurisdiction and venue of any action instituted against it as provided herein and agrees not to assert any defense based on lack of jurisdiction or venue. 19. SELF-HELP REMEDIES. THE BORROWER KNOWINGLY CONSENTS TO THE BANK'S EXERCISE OF ITS RIGHTS AS A SECURED LENDER UNDER THE LOAN DOCUMENTS AND APPLICABLE LAW. 150 20. WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE BANK IRREVOCABLY WAIVES ANY AND ALL RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY NATURE RELATING TO THIS AGREEMENT, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS. THE BORROWER AND THE BANK ACKNOWLEDGE THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 151 WITNESS the due execution of this Security Agreement as a document under seal, as of the date first written above. ATTEST: THE MERTEN COMPANY, an Ohio corporation By: - ------------------------- -------------------------------- Name: Name: -------------------- -------------------------- Title: -------------------- ------------------------------- PNC BANK, NATIONAL ASSOCIATION By: -------------------------------- Name: ------------------------------ Title: ----------------------------- 152 EXHIBIT "A" TO SECURITY AGREEMENT LIST OF EQUIPMENT 153 EXHIBIT "B" TO SECURITY AGREEMENT Address of Borrower's chief executive office, including the county: 1515 Central Parkway Cincinnati, Ohio 45214 Hamilton County Address for books and records, if different: Addresses of other Collateral locations, including counties and name and address of landlord or owner if location is not owned by the Borrower: - --------------------- - --------------------- - --------------------- Other names or trade names now or formerly used by the Borrower: 154 EX-10.2 3 EXHIBIT 10.2 EXHIBIT 10.2 THIS AGREEMENT OF LEASE is made as of the 18th day of May, 1998, between THE TILSON GROUP, a West Virginia general partnership, hereinafter called "Lessor," and CAPITOL BUSINESS EQUIPMENT, INC., a West Virginia corporation, hereinafter called "Lessee." 1. DEMISE OF PREMISES. Lessor hereby demises and leases to Lessee and Lessee hereby accepts and leases from Lessor, for the term and upon the terms and conditions hereinafter set forth, the real property described in Exhibit A attached hereto and incorporated herein by reference (hereinafter called "Premises" or "Demised Premises"), together with all improvements now existing thereon and all easements appurtenant thereto or necessary for Lessee's intended use of the Premises. 2. TERM AND RENEWAL. The term of this lease shall be sixty (60) months commencing on June 1, 1998, and ending at 11:59 p.m. on May 31, 2003, both dates inclusive, unless sooner terminated as hereinafter provided or unless renewed as hereinafter provided. 3. RENT. Lessee shall pay to Lessor, as rental for the occupation and use of the Premises for and during the original term hereof, a total rental of Four Hundred Eighty Thousand Dollars ($480,000.00) payable monthly in advance in equal installments of Eight Thousand Dollars ($8,000.00) each, the first of such installments being payable on the 1st day of June, 1998, and the remaining installments being due and payable on the 1st day of each calendar month thereafter during the original term hereof. All rental shall be payable to Lessor at 825 Edgewood Drive, Charleston, West Virginia, 25302, Attention: Brenda Tilson, or at such other place as Lessor may direct in writing. 155 4. TAXES AND INSURANCE. It is the intention of the Lessor and the Lessee that the rent herein specified shall be net to the Lessor in each month during the term of this lease; that all costs, expenses, and obligations of every kind relating to the Demised Premises, except as may be specifically otherwise provided in this Lease, which may arise or become due during the term of this lease shall be paid by the Lessee; and that the Lessor shall be indemnified by the Lessee against such costs, expenses and obligations. Without limiting the generality of the foregoing provision, the parties agree that: a. Lessee shall promptly pay all taxes and assessments against or allocated to the Premises as and when they become due for tax periods after the signing of this Lease. Lessee will pay all taxes and assessments levied against the equipment, buildings, or other property which is now located on or which Lessee may erect, install or have located on the Premises. Taxes for the current year shall be prorated on a calendar year basis between Lessor and Lessee as of the date of commencement of this Lease. Taxes for the final year of the lease term shall also be prorated on a calendar year basis. b. In the event Lessee fails to pay the entire real estate tax bill when due, Lessor may, but shall not be obligated to, pay the tax bill and the amount so paid together with interest at the rate of eighteen (18%) percent per annum from the date of payment shall be deemed additional rent due hereunder and shall be paid by Lessee not later than the date the next installment of rent shall become due hereunder. c. Lessee, at its own cost and expense, covenants and agrees to keep the Premises, including any improvements and betterments now existing or which may be made to the Premises, fully insured during the term of this lease against loss or damage by fire and 156 other casualty; such insurance to be written by an insurance company or companies authorized to do business in the State of West Virginia for the full insurable replacement value of the Premises, including improvements. Lessee covenants and agrees that Lessor and Lessee shall be named as insured parties on such policies as their interests may appear, and that Lessee shall procure endorsements on the policies required to be maintained by it under the provisions of this paragraph wherein and whereby the insurance company will agree that the Lessor will be given fifteen (15) days' advance written notice of any cancellation or reduction of insurance under any such policy and that copies of all endorsements issued after the date of such policy will be forwarded to Lessor. In the event that Lessee fails to pay for such fire and other casualty insurance when the premiums are due, Lessor may, but shall not be obligated to, pay the premium necessary to prevent the lapse of existing policies or obtain and pay the premium for replacement policies, and the amount so paid together with interest at the rate of eighteen percent (18%) per annum from the date of payment shall be deemed additional rent due hereunder and shall be paid by Lessee not later than the date the next installment of rent shall become due hereunder. 5. CONSTRUCTION AND ALTERATIONS BY LESSEE. Lessee may after having first obtained the written consent of Lessor, which consent shall not be unreasonably withheld or delayed, and at Lessee's full cost and expense, alter or construct improvements upon the Demised Premises, or make alterations or site improvements such as utility extensions, grading, paving, curbs, sidewalks, landscaping, etc., to the Demised Premises, such as may be necessary or incidental to the purposes and uses for which the Premises are leased. Except as provided in subparagraph c with respect to the removal of personalty and fixtures, all such improvements 157 shall, at the option of Lessor, become a part of the Demised Premises and shall be the sole property of Lessor upon the termination of this Lease. a. MECHANIC'S AND MATERIAL LIENS. The Lessor shall not be liable for any labor or materials furnished to the Lessee and the mechanic's or other lien for such labor and materials shall not attach to or affect the Lessor's interest in the Demised Premises. The Lessee hereby agrees to pay any mechanic's or other lien, or to discharge any such lien by bond or deposit or provide an escrow deposit sufficient for that purpose upon request of the Lessor, and failing to do so, the Lessor may, without having an obligation to do so, upon giving fifteen (15) days written notice to the Lessee, pay or discharge the same and the amount so paid or deposited together with interest at the rate of eighteen (18%) percent per annum shall be deemed additional rent due hereunder and payable when the next installment of rent shall become due. b. The Lessee shall be responsible for obtaining all required licenses, approvals or permits for any of the construction, alteration or installation allowed by this lease. Lessee shall be solely responsible for all work in connection with the alterations and construction and shall be solely responsible for assuring that all work is completed in a good and workmanlike manner and in conformity with all federal, state and local laws and regulations, including, without limitation, the Americans With Disabilities Act, and shall indemnify and hold Lessor harmless from any loss, cost or expense, including attorney fees, in, arising out of, or relating to, Lessee's failure to comply with the provisions of this paragraph. c. All trade fixtures, signs, equipment, furniture, furnishings or other personal property of whatever kind and nature kept or installed on the Premises by Lessee 158 shall not become the property of Lessor or a part of the realty no matter how affixed to the Premises and may be removed by Lessee at any time and from time to time during the entire term of this lease and any extension thereof. If Lessee is in compliance with all terms hereof at the termination of this lease, Lessee shall have the right and obligation to remove any and all of its furniture, furnishings, trade fixtures, equipment or other personal property then located on the Premises and to dispose of the same. Lessee shall repair any damage to the Premises caused by such removal. Lessee agrees that such removal of personal property and fixtures shall occur within ten (10) days after the termination or cancellation of this lease or any extension thereof. Lessee shall notify Lessor in writing thirty (30) days prior to termination of this lease by its terms or within five (5) days after cancellation of this lease by Lessor or Lessee of its election to remove said property or said property may, at Lessor's option, be and become the property of Lessor. If Lessor shall elect not to retain the property it may be removed by Lessor at Lessee's expense. Upon request of Lessee or its assignees or any subtenant permitted hereunder, Lessor shall execute and deliver such landlord consent or lien waiver forms submitted by any vendors, lessors, chattel mortgagors or owners of, or lenders who may be granted security interests by Lessee in, any trade fixtures, signs, equipment, furniture, furnishings or other personal property of any kind and description kept or installed on the Premises setting forth that Lessor subordinates in favor of the vendor, lessor, chattel mortgagor, owner or security interest holder any superior lien, claim interest or other right therein. Lessor shall further acknowledge that property covered by the consent or waiver forms is personal property and is not to become a part of the realty no matter how affixed thereto, and that such property may 159 be removed from the Premises by the vendor, lessor, chattel mortgagee, owner or security interest holder at any time upon default in the terms of such lease, chattel mortgage, security agreement or other similar document, free and clear of any claim or lien of Lessor provided that all damage resulting from such removal is promptly repaired. 6. PERMISSIBLE USE. The Lessee shall during the continuance of this lease, conduct upon said Demised Premises an interior design, printing and/or office supply and furniture business and shall neither use nor suffer the same to be used for any other purpose without the prior written consent of the Lessor, which consent shall not be unreasonably withheld or delayed. Lessee shall conduct and manage the Demised Premises in proper and orderly manner and will not allow the Demised Premises or any part thereof to be used for any illegal or immoral purpose and will not carry on or permit upon said Demised Premises any offensive, noisy, or dangerous trade, business, manufacture or occupation of a nuisance. Lessor hereby represents and warrants that no "Hazardous Substances," as defined hereinafter, have been discharged, dispersed, released, stored, treated, generated, disposed of or allowed to escape on the Premises prior to the date of this Lease. Lessee hereby represents and warrants that, except for materials customarily used in Lessee's normal course of business which shall be used and disposed of in compliance with all applicable laws and regulations, no "Hazardous Substances", as defined hereinafter, will be discharged, dispersed, released, stored, treated, generated, disposed of, or allowed to escape on the Premises during the term of this lease or any renewal hereof. For purposes of this lease, "Hazardous Substances" shall mean and include those elements or compounds which are contained in the list of hazardous substances adopted by the United States Environmental Protection Agency ("EPA") and the list 160 of toxic pollutants designated by Congress or the EPA or defined by or in or pursuant to 42 U.S.C. Section 9601 or any other Federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste, substance or material, as now or at any time hereafter in effect. The Lessee shall, at its expense, take all necessary remedial action(s) in response to the presence of any Hazardous Substances in, on, under or about the Premises attributable to its occupancy hereunder. The Lessor shall, at its expense, take all necessary remedial action(s) in response to the presence of Hazardous Substances in, on, under or about the Premises attributable to occurrences prior to the commencement of the term of this lease. 7. CONDITION/MAINTENANCE OF PREMISES. Lessor warrants and represents that at the commencement of this lease the Premises shall be in compliance with all material laws, rules and regulations affecting the Premises or its use and that there is no adverse fact known to Lessor relating to the physical, environmental, mechanical or structural condition of the Premises or any portion thereof which has not been specifically disclosed to Lessee. The Lessee shall at its own expense maintain and make all necessary repairs and replacements to the pipes, heating and air conditioning systems, plumbing systems, glass, fixtures, and all other appliances and appurtenances belonging to the Demised Premises, and the fundamental structure of the Demised Premises, meaning the roof, exterior brick and block walls, supporting walls, and foundations, and the sidewalks, parking lots, curbs and driveways adjoining or appurtenant to the Demised Premises. Such repairs and replacements, interior and exterior, ordinary as well as extraordinary, and structural as well as non-structural, shall be made promptly as and when necessary. All repairs to or maintenance of the Demised Premises shall 161 be made by Lessee at its sole cost and expense. All repairs and replacements shall be in quality and class at least equal to the original work. Upon written notice by one party to the other that such maintenance, repairs or replacements which are the responsibility of the other party are necessary, and the failure of said other party to effect such maintenance, repairs or replacements or commence and diligently complete work thereon within fifteen (15) days after such written notice is given, the party giving notice shall have the right to make such repairs or replacements as are specified in the notice at the expense of the other party and obtain reimbursement from said other party for the cost thereof plus interest thereon at the rate of eighteen percent (18%) per annum. Lessor shall be entitled to collect such costs as additional rent and Lessee shall be entitled to set off such costs against rentals. 8. COMPLIANCE WITH LAWS. The Lessee at its sole expense shall comply with all material laws, orders, and regulations of federal, state, county, and municipal authorities, and with any direction of any public officer, pursuant to law, which shall impose a duty upon the Lessee with respect to Lessee's operations on the Demised Premises. The Lessee, at its sole expense, shall obtain all licenses or permits which may be required for the conduct of its business within the provisions of this Lease, or for the making of any permitted alterations, improvements or additions, and the Lessor, where necessary, will join with the Lessee in applying for all such permits or licenses. 9. UTILITIES. Lessor shall not be required to furnish any utility or similar service to the Premises, including but not limited to, steam, gas, water, heat or electricity. Lessor shall not be liable for any failure of any utility service or for injury to person (including death) or damage to property resulting from steam, gas, water, heat, electricity, rain or snow which may 162 flow or leak from any part of the Premises or from any pipes, appliances or plumbing works, from the street or subsurface or from any other place, or for interference with light or other easements. Lessee shall pay all charges for utility service, including but not limited to, steam, gas, water, heat, electricity and other services used in or about or supplied to the Premises and shall indemnify Lessor against any liability on such account. 10. INDEMNITY. Lessee during the term of this lease will indemnify Lessor against and hold Lessor harmless from all claims, demands and/or causes of action including all costs, expenses and attorneys fees of Lessor incident thereto for (1) injury to or death of any person or loss of or damage to any property, including the Premises, (2) failure by Lessee to perform any covenant required to be performed by Lessee hereunder, (3) failure to comply with any requirements of any governmental authority, (4) any mechanic's lien or security agreement filed against the Premises, any equipment therein or any materials used in the construction or alteration of any building or improvement thereon, where such claims, demands, and/or causes of action arise from or are incidental to the use of the Premises by Lessee, its officers, agents, servants, employees and/or invitees. 11. INSURANCE. Lessee agrees that it will, at its cost and expense, obtain and keep in force and effect in the names of both Lessor and Lessee, as their respective interests may appear, general liability insurance against any and all claims for personal injury or property damage occurring in, upon or about the Premises during the term of this lease. Such insurance shall be maintained for the purpose of protecting Lessor and Lessee pursuant to the indemnity contained in the foregoing Section 10, but shall not be in satisfaction of the indemnity obligations stated herein, and shall have limits of liability of not less than Two 163 Million Dollars ($2,000,000) for injuries to any number of persons in any one accident or occurrence or for damage to property in any one accident or occurrence. Lessee agrees that it will, at its cost and expense, obtain and keep in force and effect in the names of Lessor and Lessee, as their respective interests may appear, a standard fire and extended coverage insurance policy or policies protecting the Premises from loss or damage within the coverage of such insurance policy or policies for its full insurable replacement value. Lessee will furnish to Lessor appropriate and acceptable evidence of its compliance with the provisions of this paragraph, such as certificates of insurance or copies of the policies. Such certificates or policies shall provide that such insurance will not be canceled or materially amended unless fifteen (15) days prior written notice of such cancellation or amendment is given to Lessor. 12. EMINENT DOMAIN. If all the Premises or such portion thereof as would make it impossible for Lessee to continue its then existing business on the Premises is taken by condemnation or under the power of eminent domain, or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), Lessee may, in its sole discretion, (i) exercise its option to purchase the Premises and be entitled to the award or payment resulting from the condemnation or (ii) terminate this lease as of the date the condemning authority takes title or possession, whichever occurs first. If any other taking (of the Premises or otherwise) adversely and substantially affects Lessee's use, access, or rights of ingress or egress of or to the Premises, then Lessee may (i) exercise its option to purchase the Premises and be entitled to receive the full amount of the award or payment resulting from the condemnation, (ii) elect to terminate this lease as of the date the condemning authority takes possession, or (iii) elect to repair the Premises and permit 164 the lease to continue. Lessee's election to terminate this lease or to exercise its option to purchase the Premises shall be made in writing within forty-five (45) days after Lessor has given Lessee written notice of the taking (or in the absence of such notice, within thirty (30) days after the condemning authority has taken possession). If Lessee does not terminate this lease in accordance with this section, this lease shall remain in full force and effect as to the portion of the Premises remaining, except that rent shall be reduced in the proportion that the area taken diminishes the value and use of the Premises to Lessee and the purchase price for the option to purchase shall by reduced by the difference between the amount of the award payable to Lessor on account of the condemnation and the portion of the award used by Lessee in the repair of the Premises. In the event that the Lessee does not elect to terminate the lease or exercise its option to purchase, Lessee shall promptly repair any damage to the Premises caused by condemnation and restore the remainder of the Premises to Lessee's reasonable satisfaction. Lessor shall place all proceeds of the condemnation award paid to it in escrow and make such proceeds available to Lessee for purposes of such repairs. Lessor shall be entitled to retain any of the award payable to it which is not used by Lessee in making repairs or restorations to the Premises. In the event Lessee exercises its option to purchase the Premises following the occurrence of a condemnation, any award or payment made upon condemnation of all or any part of the Premises shall be the property of Lessee. In the event that Lessee elects to terminate this lease, any award or payment made upon condemnation of the Premises shall be the property of the Lessor, whether such award or payment is made as compensation for the taking of the fee or as severance damages; provided Lessee shall in any event be entitled to 165 seek an award or payment for loss of or damage to Lessee's trade fixtures, removable personal property, and additions, alterations and improvements made to the Premises by Lessee, and for its loss of business or the leasehold herein created or any other consequential or special damages, such as Lessee's relocation and moving expenses, provided that such award does not impair Lessor's ability to recover its claim. Lessor shall give notice to Lessee within five (5) days after receipt of notification from any condemning authority of its intention to take all or a portion of the Premises. Notwithstanding anything, expressed or implied, to the contrary contained in this lease, Lessee, at its own expense, may in good faith contest any such award for loss of or damage to Lessee's trade fixtures, removable personal property, and additions, alterations and improvements made to the Premises by Lessee, and for its loss of business or the leasehold herein created or any other consequential or special damages, such as Lessee's relocation and moving expenses. 13. FIRE OR OTHER CASUALTY LOSSES. In the event the Premises are damaged or destroyed or rendered partially untenantable for their then use by fire or other casualty, Lessee may, in its discretion, (i) exercise its option to purchase the Premises within thirty (30) days of the occurrence of the casualty and be entitled to retain all insurance proceeds payable on account of such casualty, or (ii) repair and/or rebuild the Premises as promptly as possible, provided that the proceeds from Lessee's insurance policies are available to Lessee and sufficient in amount to fully pay all costs of repair or rebuilding. Lessee's obligation hereunder is merely to restore the Premises to substantially the same condition as existed immediately prior to the happening of the casualty and shall not extend to the repair or replacement of any 166 improvements, additions, fixtures, installations or exterior signs of the Lessee. If such fire or other casualty was not the fault of the Lessee and as a result of such partial destruction or damage there is substantial interference with the operation of Lessee's business in the Premises, the rent payable under this lease shall be abated in the proportion that the portion of the Premises destroyed or rendered untenantable bears to the total Premises. Such abatement shall continue for the period commencing with such damage or destruction and ending with the completion by the Lessor of the work of repair and/or reconstruction, if Lessee elects to complete such work. If the damage or casualty was caused by the fault of the Lessee, there shall be no abatement of rent. Notwithstanding the foregoing, in the event that fifty percent (50%) or more of the Premises or fifty percent (50%) or more of the buildings situate on the Premises are destroyed or rendered untenantable by fire or other casualty, Lessee shall have the option to (i) exercise its option to purchase the Premises hereunder, (ii) terminate this lease effective as of the date of such casualty, (iii) repair the Premises as provided in the immediately preceding paragraph. In the event Lessee exercises its option to purchase the Premises Lessee shall be entitled to retain all insurance proceeds. In the event that Lessee elects to terminate this lease, Lessor may in such event retain the casualty insurance proceeds with respect to the Premises. Lessee shall either exercise its option to purchase, give the Lessor notice of termination, or commence repair or rebuilding of the Premises within forty-five (45) days after the happening of such casualty. If Lessee does not elect to terminate this lease, Lessee shall repair and/or rebuild the Premises as promptly as possible as set forth above, subject to any delay from causes beyond 167 its reasonable control and the terms of this lease shall continue in full force and effect, and subject to equitable abatement of rent as set forth above. 14. ASSIGNMENT OR SUBLETTING. Lessee shall not assign, transfer, mortgage, or pledge this lease and will not sublet the Premises or any part thereof without first obtaining the Lessor's written approval, which shall not be unreasonably withheld or delayed. Lessor reserves the right to sell its interest in the Premises and to assign or transfer this lease upon the condition that in such event this lease shall remain in full force and effect, subject to the performance by Lessee of all the terms, covenants and conditions on its part to be performed, and upon the further condition that such assignee or transferee (except an assignee or transferee merely for security) agrees to be bound to perform all terms, covenants and conditions of this lease. Upon any such sale, assignment or transfer (other than merely as security or any subletting or assignment to a parent or affiliate of Lessee), Lessor agrees to look solely to the assignee or transferee with respect to all matters in connection with this lease and Lessee shall be released from any further obligations hereunder. Notwithstanding the foregoing provisions of this Article, Lessee shall have the right, without the necessity of obtaining Lessor's written consent, to: (i) Sublet all or part of the Demised Premises to any parent or affiliate of Lessee; or (ii) Assign this lease to any parent or affiliate of Lessee. For purposes of this paragraph, the term "parent" shall mean any company or entity which now or hereafter owns or controls, directly or indirectly, fifty (50%) percent or more of the stock or other ownership interest in Lessee. For the purposes of this paragraph, the term 168 "affiliate" shall mean any company in which Lessee or Lessee's parent now or hereafter owns or controls, directly or indirectly, fifty (50%) percent or more of the stock or other ownership interest having the right to vote for, or appoint, directors or managers thereof. For the purpose of this definition, the stock or other ownership interest so owned or controlled shall be deemed to include all stock or ownership interests owned or controlled directly or indirectly by any other company of which Lessee or Lessee's parent owns or controls, directly or indirectly, fifty (50%) or more of the stock or ownership interest having the right to vote for directors or managers thereof. 15. OPTION TO PURCHASE. The Lessee shall have the exclusive right to purchase the Demised Premises at any time prior to the expiration of the term of this Lease, on the terms and conditions hereinafter set forth: a. EXERCISE OF OPTION. This right shall be exercised by the Lessee giving Lessor written notice of its intent to exercise this option. b. DURATION OF OPTION. In the event of a casualty or condemnation, the option to purchase may be exercised within forty-five (45) days of the occurrence of the casualty or condemnation. If not exercised by reason of condemnation or casualty, the option given herein may be exercised by the Lessee at any time prior to expiration of the term of the Lease. If not timely exercised, the option expires. c. CONDITION TO EXERCISE OF OPTION. The option provided herein can only be exercised by the Lessee at a time when this Lease is still in force and effect and the Lessee is not in default under any of the terms hereof. 169 d. EXERCISE OF OPTION CREATES CONTRACT. If the Lessee exercises the said option in the manner set forth above, the same shall constitute a contract for the purchase of the Demised Premises between the parties contingent upon Lessee not being in default under the terms of the Lease at the time of Closing. e. CLOSING. In the event Lessee elects to exercise its option to purchase the Premises, Closing shall occur within thirty (30) days following exercise of the option by Lessee, or such other date as the parties hereto may agree. The Closing shall take place at such a place as the parties may agree or at such other place in the City of Charleston, West Virginia, as may be designated by the Lessor. f. PURCHASE PRICE. The purchase price for the Demised Premises shall be the sum of Eight Hundred Sixty Thousand Dollars ($860,000.00), subject to reduction as provided in paragraph 12 in the event of exercise of this option to purchase following a condemnation. g. PAYMENT OF PURCHASE PRICE. The total purchase price shall be payable in cash or certified funds at Closing. h. DELIVERY OF DEED. It is agreed by and between the parties hereto that at the Closing of this transaction, Lessor shall convey good and marketable indefeasible fee simple title to the Demised Premises to Lessee by good and sufficient general warranty deed (the "Deed"), free and clear of all liens, defects, encumbrances and clouds on the title except the following permitted exceptions (the "Permitted Exceptions"): (i) zoning ordinances, if any; and (ii) real estate taxes not yet due and payable. 170 (iii) liens of taxes, covenants and restrictions of record and liens and encumbrances created by or at the instance of Lessee. i. TITLE EXAMINATION. Lessee shall, upon giving Lessor notice exercising its option to purchase, obtain at Lessee's expense, a title examination covering the Demised Premises. Within ten (10) days after receipt of the title report, Lessee shall serve upon Lessor notice specifying those exceptions to title, if any, to which Lessee objects, except for those matters previously identified as Permitted Exceptions or arising as a result of the actions or inaction of Lessee (the "Title Defects"). Upon receipt by the Lessor of Lessee's notice of Title Defects, Lessor shall immediately and diligently pursue the removal of the Title Defects. Lessor shall have thirty (30) days from receipt of Lessee's notice of Title Defects to cure same to the reasonable satisfaction of Lessee. If the Title Defects are not cured within such time period, Lessee may (a) terminate this Lease or (b) waive the unsatisfied Title Defects and close the transaction. j. It is understood and agreed by and between the parties hereto that, subject to Lessee's obligations under this lease, responsibility for the risk of loss respecting the subject property shall remain with the Lessor until the closing of the transaction contemplated by the exercise of the option. k. It is understood and agreed by and between the parties hereto that this option and any contract created by the exercise hereto shall be governed by the laws of the State of West Virginia. l. If the option to purchase is exercised by the Lessee, the Lessor's obligation to close shall survive the expiration of this Lease as extended or renewed in the 171 event the Closing has not occurred prior to the expiration of the extended or renewed lease term. In such event, the Lessee shall be permitted to continue to occupy the Demised Premises by paying to the Lessor the monthly rental required herein pro rated from the date of the expiration of the extended or renewed lease term until the date of the Closing of the purchase, which such rentals shall be applied to the Purchase Price of the Demised Premises at Closing but shall be retained by Lessor in the event Closing does not occur without the fault of breach by Lessor. m. At the closing, Lessor shall deliver to Lessee the following: (i) a duly executed and acknowledged Deed conveying good and indefeasible title in fee simple to the Demised Premises, free and clear of any and all liens, encumbrances and restrictions of record, except for the Permitted Exceptions; (ii) a certificate stating that all representations and warranties made by Lessor herein are true and correct on the closing date; (iii) a Vendor's Affidavit stating that no federal income tax is required to be withheld under the Foreign Investment and Real Property Tax Act; and (iv) all other documents reasonably requested by Lessee to close this transaction. n. CLOSING COSTS. Lessor shall pay the cost of any real estate conveyance fee or transfer tax charged, the cost of preparation of the Deed and Vendor's Affidavit; and any other expenses stipulated to be paid by Lessor under the provisions herein. Lessee agrees to pay the cost of recording fees, the cost of the title examination and any other expenses stipulated to be paid by Lessee under the provisions herein. 16. EVENTS OF DEFAULT. 172 a. BY LESSEE. In the event that the rent, or any part thereof, or any additional rental or other payment shall not be paid on any day when such payment is due and such default shall continue for a period of ten (10) days after written notice by Lessor to Lessee; or if Lessee should fail in the performance of, breach or permit the violation of any of the covenants, conditions, terms, or provisions contained in this lease which on the part of the Lessee ought to be observed, performed or fulfilled and shall fail to cure or make good such failure, breach or violation within thirty (30) days after written notice and demand from Lessor; or if the Demised Premises or any part thereof shall be abandoned for thirty (30) days; or if Lessee shall be dispossessed therefrom by or under the authority of anyone other than Lessor; or if Lessee shall file any petition or institute any proceeding under an insolvency or bankruptcy act (or any amendment or addition thereto hereafter made) seeking to effect an arrangement or its reorganization or composition with its creditors; or if in any proceedings based on the insolvency of Lessee or relating to bankruptcy proceedings be instituted and not discharged within ninety (90) days; or if a receiver or trustee shall be appointed for Lessee or the Demised Premises and be not discharged within ninety (90) days; or if the Lessee's estate created hereby shall be taken in execution or by any process of law; or if Lessee shall admit in writing its inability to pay its obligations generally as they become due, then, at the option of Lessor, this lease and everything herein contained on the part of the Lessor to be kept and performed shall cease, terminate and be at an end, and Lessor shall be entitled to have again and repossess the Premises as its former estate and Lessee shall be put out. This remedy of forfeiture shall be deemed cumulative and in addition to all other remedies provided by law. In the event Lessor exercises its option to terminate this lease, repossess the Premises and put 173 Lessee out as herein provided, this shall not relieve Lessee from its obligations to pay rent provided to be paid herein for the remainder of the term of this lease and Lessee shall remain liable to Lessor for any costs or expenses incurred by Lessor in reletting the Premises and for the difference between the rent received upon such reletting and the rent herein specified to be paid by Lessee for the term hereof. b. BY LESSOR. In the event that Lessor shall fail to complete the sale of the Premises following Lessee's exercise of its option to purchase, Lessee may seek specific performance of the contract arising from the exercise of its option to purchase, such remedy being deemed cumulative and in addition to all other remedies provided by law. 17. SURRENDER OF PREMISES. Upon expiration of the term of this Lease or any renewal term, or the sooner termination of this Lease or repossession of the Premises as herein provided, the Lessee shall peaceably surrender possession of the Premises in as good order and condition as they now are, reasonable wear and tear excepted, and shall deliver all keys to the Premises to Lessor. 18. RIGHT OF ACCESS OF THE LESSOR. The Lessee further covenants and agrees that the Lessor may have access to the Demised Premises at all reasonable times and upon reasonable notice for the purpose of the examining or exhibiting the same for sale. Lessor agrees to conduct any inspections in such a manner as will not interfere with Lessee's use of the Premises. 19. NOTICES. All notices permitted or required to be given hereunder shall be effectual if in writing signed by the party given notice and sent by certified or registered U.S. mail, postage prepaid, to the other parties at the following addresses: 174 Lessor: 825 Edgewood Drive Charleston, West Virginia 25302 Attention: Brenda Tilson Lessee: 711 Indiana Avenue Charleston, West Virginia 25302 20. BROKER. Lessee and Lessor covenant, warrant and represent that there was no broker instrumental in consummating this lease and that no conversations or prior negotiations were held with any broker concerning the renting of the Demised Premises. Lessee and Lessor each agree to hold the other harmless against any claim for brokerage commission arising out of any conversations or negotiations had by Lessee or Lessor with any broker. 21. TITLE AND WARRANTY/SUBORDINATION. Lessor covenants and agrees with Lessee that Lessor is the lawful owner of the Premises, that such Premises are free and clear of any and all liens, claims and encumbrances whatsoever, except the permitted encumbrances described below, zoning requirements, covenants, conditions, easements and restrictions of record which have been disclosed to Lessee and non-delinquent taxes and assessments, and that Lessor will defend the same against all other claims whatsoever. Lessor further covenants and agrees that Lessee by paying the rents and observing and keeping the covenants of this lease on Lessee's part to be kept, shall peaceably and quietly hold, occupy and enjoy the Premises during the term herein created, or any extension. Upon request by the Lessor, Lessee shall subordinate its rights hereunder to the lien of any mortgage or deed of trust, or the lien resulting from any other method of financing or refinancing, now or hereafter in force against the Premises, and to all advances made or hereafter to be made upon the security thereof and will attorn to the mortgagee or beneficiary 175 or their assigns in the event of foreclosure; provided, however, that conditions precedent to Lessee's attornment and requirement to subordinate hereunder shall be (i) that Lessee, upon notice from such mortgagee or beneficiary of any default in the terms of such financing by Lessor, shall have the right to pay the rental due hereunder directly to the mortgagee, trustee or beneficiary of such deed of trust or other persons to whom Lessor may be obligated under such financing and, so long as Lessee does so pay the rentals as herein provided and perform all of its obligations pursuant to this lease, this lease and all Lessee's rights and options hereunder shall remain in full force and effect as to such mortgagee, trustee or beneficiary or other financing obligee of Lessor and (ii) that such mortgagee, beneficiary, their successors and assigns agree to perform the obligations of Lessor under this lease. Lessee shall, upon request of any party-in-interest, execute within ten (10) days of Lessee's receipt, such instruments or certificates to carry out the intent of this paragraph. Provided, however, that nothing contained in such instruments or certificates required by Lessor or other party-in-interest shall be in derogation of any rights granted to Lessee hereunder, nor expand Lessee's obligations hereunder. 22. ZONING; PERMITS. Anything elsewhere in this Lease to the contrary notwithstanding, this Lease and all terms, covenants and conditions hereof are in all respects subject and subordinate to all zoning restrictions affecting the Premises, and the Lessee shall be bound by such restrictions. The Lessor does not warrant that any licenses or permits which may be required for Lessee's business to be conducted on the Premises will be granted, or if granted will be continued in effect or renewed. Any failure to obtain licenses or permits or any 176 revocation thereof or failure to renew shall not release Lessee from continuing performance of this Lease. 23. MISCELLANEOUS. a. Wherever the words "Lessor" and "Lessee" appear in this lease, they shall include the parties and their respective sublessee heirs, devisees, executors, administrators, successors and assigns, and the provisions of this agreement are binding upon them. Those words as may be used herein, shall be construed to include the plural as well as the singular; and the necessary grammatical changes required to make the provisions apply to either corporations, partnerships, other entities, or individuals, masculine or feminine, shall in all cases be assumed as though fully expressed. The neuter gender has been used herein for convenience only. b. This lease expresses the entire agreement between the parties hereto. No amendments, modification, or waiver of any provision hereof shall be valid unless in writing and signed by all of the parties hereto. Waiver of any default or breach in any one instance by Lessor or Lessee shall not be construed as a waiver of any subsequent default or breach or condition of the lease to which such default or breach related. c. This agreement shall be construed in accordance with the laws of the State of West Virginia. d. If any provisions or paragraphs or part thereof of this agreement are held invalid or unenforceable, such invalidity or unenforceability shall not effect the validity or enforceability of the other portions hereof, all of which provisions are hereby declared severable. 177 e. This lease shall not be recorded. However, the parties hereto mutually agree, upon the written request of either one to the other, to execute a memorandum of this lease in recordable form for filing and recording in the Office of the Clerk of the County Commission of the county in which the Demised Premises are located. IN WITNESS WHEREOF, the parties do hereunto set their hands to multiple copies hereof, each of which shall constitute an original, by their respective officers thereunto duly authorized all as of the day and year hereinabove set forth. LESSOR: THE TILSON GROUP By /S/ JAMES TILSON ------------------------------------ Its GENERAL PARTNER ----------------------------------- Dated: May 18, 1998 LESSEE: CAPITOL BUSINESS EQUIPMENT, INC. A WEST VIRGINIA CORPORATION Dated: May 18, 1998 By /S/ JAMES TILSON ------------------------------------ Its VICE PRESIDENT ----------------------------------- 178 STATE OF WEST VIRGINIA, COUNTY OF KANAWHA, TO-WIT: The foregoing instrument was acknowledged before me this 18th day of May, 1998, by James Tilson, General Partner The Tilson Group, a West Virginia general partnership, on behalf of the partnership. My commission expires: JULY 3, 2006 . ------------------------------------------ /S/ MONIKA J. HUSSELL ------------------------------------ Notary Public STATE OF WEST VIRGINIA, COUNTY OF KANAWHA, TO-WIT: The foregoing instrument was acknowledged before me this 18th day of May, 1998, by James Tilson, Vice President, of Capitol Business Equipment, Inc., a West Virginia corporation, on behalf of said corporation. My commission expires: JULY 3, 2006 . ------------------------------------------ /S/ MONIKA J. HUSSELL ------------------------------------ Notary Public This Instrument Was Prepared By: Thomas J. Murray Huddleston, Bolen, Beatty, Porter & Copen Post Office Box 2185 Huntington, West Virginia 25722 179 EXHIBIT A TO LEASE PARCEL NO. 1 - 38' X 120' - PARKING LOT (LT 14 AND PT LT 15) All of that certain lot or parcel of land situate in the City of Charleston, Kanawha County, West Virginia, together with the buildings and improvements thereon and appurtenances thereunto belonging, more particularly bounded and described as follows, to-wit: BEGINNING at an iron pin in the north line of Indiana Avenue located 12.50 feet in a southwesterly direction from the common front corner to Lots Nos. 15 and 16 of Block 1 of Elk Extension known as Bigley and Walker Addition, and running thence with the north line of said Indiana Avenue S. 88 degree 30' W. 37.50 feet to a point where a large Elm tree now stands and located at the common front corner to Lots Nos. 13 and 14 of said Block 1; thence running with the division line between Lots 13 and 14 N. 1 degree 30' W. 120.00 feet to a point in the south line of an alley located at the common rear corner to said Lots Nos. 13 and 14; thence running with the south line of said alley N. 88 degree 30' E. 37.50 feet to a point located in the north boundary line of Lot No. 15; thence running with a line thru Lot No. 15 parallel to and 12.50 feet from the division line between Lots Nos. 14 and 15 S. 1 degree 30' E. 120.00 feet to the place of beginning, and being all of Lot No. 14 and part of Lot No. 15 of Block 1 of Bigley and Walker Addition. 180 Being all of that certain lot conveyed to the Tilson Group by Robert C. Means, et al. by deed dated December 18, 1990 and recorded in the Office of the Kanawha County Clerk in Deed Book 2262, at Page 260. 181 Parcel No. 2 - 37.5' x 120' Fronting INDIANA AVENUE (LT 6 & PT LT 7) All that certain lot or parcel of land situate in the City of Charleston, Kanawha County, West Virginia, bounded and described as follows: Being all of Lot No. Six (6) and one-half of Lot No. Seven (7) of Block One of the Bigley Walker Addition to the City of Charleston, fronting thirty-seven and one-half feet on Indiana Avenue, and extending between parallel lines a distance of one hundred twenty feet to an alley. Being all of that certain lot conveyed to the Tilson Group by Pressure Products, Inc. as Parcel No. 5 in that certain deed dated June 14, 1990 and recorded in the Office of the Kanawha County Clerk in Deed Book 2250, at Page 178. Parcel No. 3 - 95' x 120' Fronting INDIANA AVENUE (LT 5 AND PT LTS 2, 3, AND 4) All that certain lot or parcel of land situate in the City of Charleston, Kanawha County, West Virginia, bounded and described as follows: BEGINNING at a stake 85 feet from the corner of West Washington Street (formerly Charleston Street) and Indiana Avenue; thence leaving Indiana Avenue N. 1 degree 30' W. 118.33 feet to a point in a 10 foot alley; thence running with said alley N. 87 degrees 29' E. 95.02 feet; thence leaving said alley and running toward Indiana Avenue S. 1 degree 30' E. 120 feet to a point in the right of way of said Indiana Avenue; thence with the right of way said Indiana Avenue S. 88 degrees 30' W. 95 feet to the place of beginning, and being all of Lots E and F and 15 feet off the rear of Lots B, C and D, as shown on that certain partition map recorded in the office of the Clerk of the County Court of Kanawha County, West Virginia, in Deed Book 91, at Page 348, and also being part of Lots Two (2), Three (3) and Four (4) and all of Lot Five (5), Block 1, Bigley and Walker "Elk Park" Addition, as shown on the map of said addition, recorded in said Clerk's office, and further shown upon that certain map prepared by J. Lewis Hark, dated February 27, 1971, attached hereto and being made a part hereof. 182 Being all of that certain lot conveyed to the Tilson Group by Pressure Products, Inc. as Parcel No. 4 in that certain deed dated June 14, 1990 and recorded in the Office of the Kanawha County Clerk in Deed Book 2250, at Page 178. 183 EX-10.3 4 EXHIBIT 10.3 EXHIBIT 10.3 THIS AGREEMENT is made and entered into this 28th day of May, 1998, by and between MILDRED THOMPSON, single, party of the first part (hereinafter called "Lessor"); and THOMPSON'S OF MORGANTOWN, INC., a West Virginia corporation, party of the second part (hereinafter called "Lessee") . LEASE 1. PREMISES. Lessor hereby leases to Lessee and Lessee hereby leases from Lessor the lower or first floor or level and approximately one-half of the middle or second floor or level, presently occupied by Lessee, of that certain building situate, lying and being in the Third Ward of the City of Morgantown, Monongalia County, West Virginia, which building is located on the northeast corner of Kirk and Chestnut Streets. 2. CONDITION OF PROPERTY. Lessor warrants and represents that at the commencement of this lease the leased premises shall be in compliance with all laws, rules and regulations affecting the leased premises or its use, including those relating to the environmental or physical condition of the leased premises, and that there is no adverse fact known to Lessor relating to the physical, environmental, mechanical or structural condition of the Premises or any portion thereof which has not been specifically disclosed to Lessee. 3. TERM/EXTENDED TERM. The initial term of this Agreement shall be for a period of five (5) years, commencing on June 1, 1998 (the "Commencement Date"), and terminating without further notice on May 31, 2003, both dates inclusive. In the event that Lessee takes possession of the leased premises prior to the Commencement Date, Lessee shall possess such property for a term of days under the same terms and conditions, and at the same prorata rent as is payable hereunder. 184 Provided Lessee is not then in default under the terms of this lease, and that no condition then exists which, with the passage of time or the giving of notice, or both, would constitute a default hereunder, Lessee shall have the option, in its sole discretion, to renew the initial term of this Lease for one additional period of five (5) years commencing June 1, 2003 and ending May 31, 2008, both dates inclusive (the "renewal term"), under the following terms and conditions: (a) Lessee shall furnish to Lessor written notice of the election to exercise its option to renew the initial term of this Lease not less than sixty (60) days prior to May 31, 2003. (b) All terms and conditions of this Lease, other than rental, which shall be as hereinafter provided, and the renewal option, shall continue without change and be applicable during the renewal term hereof. 4. POSSESSION/TITLE. Except for and excluding a lien on the premises securing a loan by Huntington National Bank, Lessor covenants and agrees with Lessee that Lessor is the lawful owner of the leased premises, that such premises are free and clear of any and all liens, claims and encumbrances whatsoever, except zoning requirements, covenants, conditions, easements and restrictions of record which have been disclosed to Lessee, and non-delinquent taxes and assessments, and that Lessor will defend the same against all other claims whatsoever. Lessor further covenants and agrees that Lessee by paying the rents and observing and keeping the covenants of this lease on Lessee's part to be kept, shall peaceably and quietly hold, occupy and enjoy the Premises during the initial term herein created and any renewal term. 5. RENT. (a) BASE RENT. Lessee agrees to pay a yearly base rental of Nineteen Thousand Three Hundred Fifty-Six and 00/100 ($19,356.00) for each year of the initial five year lease term, 185 payable in monthly installments of One Thousand Six Hundred Thirteen and 00/100 Dollars ($1,613.00) per month on the 1st day June, 1998 and continuing on the 1st day of each calendar month thereafter. In the event that the Lessee takes possession of the leased premises prior to the Commencement Date, Lessee shall pay a prorata portion of such monthly rental upon taking possession, such portion to cover the period from the possession date through May 31, 1998. All monthly rental payments shall be paid in advance on the first day of each month and shall be made to the Lessor as follows: Mrs. F. R. Thompson, P. O. Box 845, Morgantown, WV 26507. (b) RENEWAL TERM BASE RENT. The yearly base rental for the renewal term, if exercised, shall be the sum of Twenty Thousand Three Hundred Twenty-Eight and 00/100 Dollars ($20,328.00) for each year of the renewal term, payable in monthly installments of One Thousand Six Hundred Ninety Four and 00/100 Dollars ($1,694.00) per month commencing June 1, 2003, and continuing on the 1st day of each calendar month thereafter. (c) INCREASE IN TAXES, ETC. Any increase (from amounts payable as of the Commencement Date) in real estate taxes, insurance premiums (other than extraordinary increases caused by the nature of the use of other occupants of the leased premises) or fire service fees affecting the real estate where the leased premises are located shall be paid by the Lessee as additional rent on a prorata basis. Such increases, if any, will be added to the next monthly installment after Lessee has received notice of any such increase. 6. USE OF PREMISES. Lessee shall use the leased premises for an office furniture supply business only. Lessee shall not use or knowingly permit any part of the leased property to be used for any unlawful purposes without the prior written consent of Lessor, which consent shall not be unreasonably withheld or delayed. Except as expressly elsewhere in this lease 186 provided, Lessee agrees to perform, fully obey and comply with all the ordinances, rules, regulations and laws of all public authorities. Lessee shall erect no sign, nor shall any advertisement or notice be inscribed, painted or affixed on any part of the outside or inside of said building unless such color, size and style, and the location of the same, be first approved by the Lessor in writing; such approval shall not be unreasonably withheld or delayed. 7. TAXES. Lessor, subject to her right to partial reimbursement of increases in taxes and fees as provided in paragraph 5(c) hereof, shall timely pay all ad valorem real property taxes, fire service fees and other assessments against the leased premises prior to such taxes and fees becoming delinquent. 8. REPAIRS. Lessor shall, at its own expense, maintain in good operating condition and in compliance with all the ordinances, rules, regulations and laws of all public authorities, and make all necessary repairs and replacements to, the pipes, heating and air conditioning systems, plumbing systems, glass, and all other appliances and appurtenances belonging to the leased premises, and to the fundamental structure of the leased premises, meaning the roof, exterior brick and block walls, supporting walls, and foundations, and the sidewalks, parking lots, curbs and driveways adjoining or appurtenant to the leased premises. Such repairs and replacements, interior and exterior, ordinary as well as extraordinary, and structural as well as non-structural, shall be made promptly as and when necessary. All other non-structural repairs and maintenance shall be made by Lessee at its sole cost and expense. All repairs and replacements shall be in quality and class at least equal to the original work. Upon written notice by one party to the other that such maintenance, repairs or replacements which are the responsibility of the other party are necessary, and the failure of said other party to effect such maintenance, repairs or replacements 187 or commence and diligently complete work thereon within fifteen (15) days after such written notice is given, the party giving notice shall have the right to make such repairs or replacements as are specified in the notice at the expense of the other party and obtain reimbursement from said other party for the cost thereof plus interest thereon at the rate of ten percent (10%) per annum. Lessor shall be entitled to collect such costs as additional rent and Lessee shall be entitled to set off such costs against rentals. Lessee may make any improvements to the leased premises provided that such improvements comply with federal, state and municipal statutes and ordinances, and further provided that Lessee obtain Lessor's prior approval for such improvements and repairs. Lessee shall be responsible for obtaining any necessary building permits. Lessee agrees that all damage or injury done to the premises by Lessee or by any person who may be in or upon the premises, except Lessor, Lessor's agents, servants and employees, shall be repaired by Lessee, or its employees, at Lessee's expense. Lessee shall indemnify Lessor against any mechanic's lien or other lien arising out of the making of any alterations, additions, repairs, or improvements by Lessee. At the end of the Lease term, any improvements located on the leased premises shall become the property of the Lessor. All trade fixtures, signs, equipment, furniture or other personal property of whatever kind and nature kept or installed on the leased premises by Lessee shall not become the property of Lessor or a part of the realty no matter how affixed to the leased premises and may be removed by Lessee at any time and from time to time during the entire term of this lease. Upon request of Lessee or its assignees or any subtenant permitted hereunder, Lessor shall execute and deliver any landlord consent or lien waiver forms submitted by any vendors, lessors, chattel mortgagors 188 or owners of, or holders of security interests granted by Lessee against, any trade fixtures, signs, equipment, furniture or other personal property of any kind and description kept or installed on the leased premises setting forth that Lessor waives, in favor of the vendor, lessor, chattel mortgagor, secured interest holder or owner, any superior lien, claim interest or other right therein. Lessor shall further acknowledge that property covered by the consent or waiver forms is personal property and is not to become a part of the realty no matter how affixed thereto, and that such property may be removed from the leased premises by the vendor, lessor, chattel mortgagee, security interest holder or owner at any time upon default in the terms of such chattel mortgage, security agreement, lease or other similar document, free and clear of any claim or lien of Lessor provided that all damage resulting from such removal is promptly repaired. Lessor has disclosed to Lessee the presence of an underground storage tank on the leased premises. Lessor and Lessee confirm that Lessee has not used and does not intend to use the storage tank and that such tank is expressly excluded from the premises being leased to Lessee. Lessor shall remain solely responsible for compliance with all laws, rules and regulations of all governmental authorities with respect to said underground storage tank. 9. UTILITIES. Lessee, in conjunction and cooperation with the tenant of the property adjacent to the leased premises, shall share and pay all charges incurred for utilities serving the building of which the demised premises are a part, including, but not limited to, gas, heat, electricity and telephone or other communication systems, and shall indemnify Lessor against any liability or damage on such account. 10. INSURANCE/DESTRUCTION OF PREMISES. (a) Lessor shall maintain throughout the initial term and renewal term, if exercised, 189 at Lessor's cost and expense, a policy or policies of insurance against loss or damage to the leased premises by reason of fire or other casualty in the amount of the full insurable value thereof. Such policy shall be written by a company reasonably acceptable to Lessee, shall be maintained in the names of both Lessor and Lessee, as their respective interests may appear, shall contain a provision waiving subrogation rights against the Lessee from all claims, losses and liabilities arising from or caused by any hazard covered by such insurance, and shall provide that the same may not be canceled except upon 30 days prior written notice to Lessee. Lessor shall furnish to Lessee the original policy or a certificate with respect thereto in connection with such policy. Lessee shall maintain fire or other casualty insurance or provide self insurance against damage to its personal property maintained at the leased premises. (b) In the event the leased premises are damaged or destroyed or rendered partially untenantable for their then use by fire or other casualty, Lessor shall repair and/or rebuild the same as promptly as possible, provided that the proceeds from Lessor's insurance policies are available to Lessor to pay the costs of repair or rebuilding. Lessor's obligation hereunder is merely to restore the leased premises to substantially the same condition as existed immediately prior to the happening of the casualty and shall not extend to the repair or replacement of any improvements, additions, fixtures, installations or exterior signs of the Lessee. If as a result of such partial destruction or damage there is substantial interference with the operation of Lessee's business in the leased premises, the rent payable under this lease shall be abated in the proportion that the leased premises destroyed or rendered untenantable bears to the total leased premises. Such abatement shall continue for the period commencing with such damage or destruction and ending with the completion by the Lessor of the work of repair and/or reconstruction, if Lessor 190 is obligated to complete such work. Notwithstanding the foregoing, in the event that fifty percent (50%) or more of the leased premises is destroyed or rendered untenantable by fire or other casualty, or if said building be damaged or destroyed by any cause so that Lessor shall decide to demolish or completely rebuild the building, Lessor shall have the option to terminate this lease effective as of the date of such casualty by giving to the Lessee within thirty (30) days after the happening of such casualty written notice of such termination. During such thirty (30) day period Lessee shall have the option to terminate this lease by written notice to Lessor in the event that the damage cannot reasonably be repaired within ninety days of the occurrence of the fire or other casualty. If neither Lessor or Lessee elect to terminate this lease, Lessor shall repair and/or rebuild the leased premises as promptly as possible as set forth above, subject to any delay from causes beyond its reasonable control and the terms of this lease shall continue in full force and effect, subject to equitable abatement of rent as set forth above. 11. INDEMNITY AND INSURANCE. Except for claims or demands arising from (i) the failure of Lessor to perform its maintenance and repair obligations under this lease, or (ii) the actions of Lessor, its agents, employees and invitees on the leased premises in the performance of such obligations, Lessee agrees to indemnify Lessor against and to hold Lessor harmless from any and all claims or demands for loss of or damage of property or for injury or death to any person from any cause whatsoever while upon or about said leased premises during the term of this lease. Lessee agrees to take out and maintain with a reputable insurance company, at its sole cost and expense, public liability insurance in the amount of not less than $1,000,000.00 in respect to bodily injury or death, and not less than $100,000.00 in respect to property damage growing out 191 of the use of or occurring on or about the premises. Lessor shall be named as co-insured on all such policies, and shall be entitled to a certificate of the insurer showing said coverage to be in effect. 12. CONDEMNATION. If the whole of the leased premises, or such portion thereof as will make the leased premises unsuitable for the purposes herein leased, is condemned for any public use or purpose by any legally constituted authority, then in either of such events this lease shall cease from the time when possession is taken by such public authority and rental shall be accounted for between Lessor and Lessee as of the date of the surrender of possession. Such termination shall be without prejudice to the rights of either Lessor or Lessee to recover compensation from the condemning authority for any loss or damage caused by such condemnation. Neither Lessor nor Lessee shall have any rights in or to any award made to the other by the condemning authority. If any other taking (of the leased premises or otherwise) adversely and substantially affects Lessee's use, access, or rights of ingress or egress of or to the leased premises, then Lessee may elect to terminate this lease as of the date the condemning authority takes possession. Lessee's election to terminate shall be made in writing within thirty (30) days after Lessor has given Lessee written notice of the taking (or in the absence of such notice, within fifteen (15) days after the condemning authority has taken possession). If Lessee does not terminate this lease in accordance with this section, this lease shall remain in full force and effect as to the portion of the leased premises remaining, except that rent shall be reduced in the proportion that the area taken diminishes the value and use of the leased premises to Lessee. In addition, Lessor, at its expense, shall promptly repair any damage to the leased premises caused by condemnation and restore the 192 remainder of the leased premises to the reasonable satisfaction of Lessee. 13. ASSIGNMENT AND SUBLETTING. Lessee shall not assign this lease or any interest therein, let or sublet the said premises or any part thereof or any right or privilege appurtenant thereto, or permit the occupancy or use of any part thereof by another person without the express written consent of Lessor first had and obtained, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing provisions of this paragraph, Lessee shall have the right, without the necessity of obtaining Lessor's written consent, to: (i) Sublet all or part of the leased premises to any parent or affiliate of Lessee; or (ii) Assign this lease to any parent or affiliate of Lessee. For purposes of this paragraph, the term "parent" shall mean any company or entity which now or hereafter owns or controls, directly or indirectly, fifty (50%) percent or more of the stock or other ownership interest in Lessee. For the purposes of this paragraph, the term "affiliate" shall mean any company of which Lessee or Lessee's parent now or hereafter owns or controls, directly or indirectly, fifty (50%) percent or more of the stock or other ownership interest having the right to vote for, or appoint, directors or managers thereof. For the purpose of this definition, the stock or other ownership interest so owned or controlled shall be deemed to include all stock or ownership interests owned or controlled directly or indirectly by any other company of which Lessee or Tenant's parent owns controls, directly or indirectly, fifty (50%) or more of the stock or ownership interest having the right to vote for directors or managers thereof. 14. MAINTENANCE. The Lessee shall keep said leased premises clean and in safe 193 condition for invitees or licensees in said premises, and will be responsible for keeping the area in a tidy condition and for keeping the sidewalks adjacent to said premises clean and free of garbage, ice and snow. Lessee will save the Lessor harmless from any claim for loss or damage occasioned by the condition of the premises or the sidewalks abutting the same. 15. NOTICES. All notices given to Lessee shall be in writing, deposited in the United States mail, certified or registered, with postage prepaid, and addressed to Lessee at ____________________________________, West Virginia _____. Notices by Lessee to Lessor shall be in writing, deposited in the United States mail, certified or registered, with postage prepaid, and addressed to Lessor at P. O. Box 845, Morgantown, West Virginia 26507. Notices shall be deemed delivered when deposited in the United States mail, as above provided. Changes of address by either party must be given to the other in the same manner as above specified. 16. DEFAULT. This lease is made upon the express condition that if Lessee fails to pay the rental reserved hereunder or any part thereof after the same shall become due, and should such failure continue for a period of ten (10) days, or if Lessee fails or neglects to perform, meet or observe any of Lessee's other obligations hereunder and such failure or neglect shall continue for a period of thirty (30) days, then Lessor at any time thereafter, by ten (10) days written notice to Lessee, may lawfully declare the termination hereof and re-enter said premises, and by due process of law, expel, remove and put out Lessee or any person or persons occupying said premises and may remove all personal property therefrom without prejudice to any remedies which might otherwise be used for the collection of arrears of rent or for the preceding breach of covenant or condition. 194 Notwithstanding any other provisions of this lease, where the curing of an alleged default requires more than payment of money, and the work of curing said default cannot reasonably be accomplished within the time otherwise permitted herein, and where Lessee has commenced upon the said work of curing said default and is diligently pursuing same, then Lessee shall be entitled to reasonable time extensions to permit the completion of said work of curing said default, as a condition precedent to any re-entry by Lessor or termination of the lease by Lessor, and any defect that is cured shall not thereafter be grounds for re-entry or for termination. In the event that Lessor shall fail to perform any of its obligations hereunder following fifteen (15) days written notice, Lessee may (i) by written notice to Lessor terminate this lease as of a date specified in the notice and receive a refund of any pre-paid rent or taxes, and without prejudice to any right of action or remedy which might otherwise be used by Lessee to enforce its rights with respect to an antecedent breach; or (ii) perform or pay Lessor's obligations and be entitled to offset all such amounts, plus interest at the rate of ten percent (10%) per annum. These remedies shall be deemed cumulative and in addition to all other remedies provided by law. Notwithstanding any other provisions of this lease, where the curing of an alleged default by Lessor requires more than payment of money, and the work of curing said default cannot reasonably be accomplished within the time otherwise permitted herein, and where Lessor has commenced upon the said work of curing said default and is diligently pursuing same, then Lessor shall be entitled to reasonable time extensions to permit the completion of said work of curing said default, as a condition precedent to any termination of the lease by Lessee, and any defect that is cured shall not thereafter be grounds for termination. 17. NON-WAIVER OF DEFAULT. The subsequent acceptance of rent hereunder by Lessor 195 shall not be deemed a waiver of any preceding breach of any obligation hereunder by Lessee other than the failure to pay the particular rental so accepted, and the waiver of any breach of any covenant or condition by Lessor shall not constitute a waiver of any other breach regardless of knowledge thereof. 18. ENTRY AND INSPECTION. Upon reasonable notice given to Lessee by Lessor, Lessee shall permit Lessor and its agents to enter the demised premises at reasonable times for any of the following purposes: to inspect the same and to assure maintenance of the building in which the said premises are located, and to make such repairs to the demised premises as Lessor may elect or be required to make. 19. RELATIONSHIP OF PARTIES. It is understood and agreed that the relationship of the parties hereto is strictly that of landlord and tenant and that this lease shall not be construed as a joint venture or partnership. The parties hereto are not and shall not be deemed to be agents or representatives of each other. 20. TERMINATION. Upon the termination of this lease, the Lessee shall surrender said premises in as good condition as they now are, reasonable wear and use excepted, and remove therefrom all personal effects, including trade fixtures, furniture, belonging to the Lessee. Any and all improvements, repairs and remodeling done to the leased premises shall become the sole property of the Lessor. 21. MISCELLANEOUS. (a) The paragraph captions in this Agreement are for convenience only and shall not in any wise limit or be deemed to construe or interpret the terms and provisions hereof. (b) Time is of the essence of this agreement and of 196 all provisions hereof. (c) This Agreement shall be construed and enforced in accordance with the laws of the State of West Virginia. (d) Any amendment to this Agreement must be in writing and signed by all parties hereto. 22. SUCCESSORS. All the terms, covenants, and conditions hereunder shall be binding upon and inure to the benefit of the heirs, executors, administrators, successors, and assigns of the parties hereto. 23. MEMORANDUM OF LEASE. This lease shall not be recorded. The parties shall, if Lessee requires, execute and deliver a memorandum of this lease in proper form for the purpose of recording. However, the memorandum shall not in any circumstances be deemed to modify or change any provision of this lease. The lease provisions shall in all instances prevail. 24. ENTIRE AGREEMENT. Lessor and Lessee agree that this Agreement contains the final and entire agreement between the parties hereto, and they shall not be bound by any terms, conditions, statements, or representations, oral or written, not herein contained. WITNESS the following signatures and seals: Lessor: /S/ MILDRED T. BRIGHT, ATTORNEY ------------------------------- IN FACT MILDRED THOMPSON Lessee: THOMPSON'S OF MORGANTOWN, INC., 197 a West Virginia corporation By: /S/ GEORGE T. BRIGHT --------------------- Its President 198 EX-10.4 5 EXHIBIT 10.4 EXHIBIT 10.4 LEASE AGREEMENT 1) PARTIES. THIS LEASE, dated the 27TH day of OCTOBER, 1997, by and between THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, (hereinafter "Lessor"), and CHAMPION INDUSTRIES. INC. D/B/A UPTON PRINTING, (hereinafter "Lessee"), WITNESSETH: In consideration of the rental stated herein and their mutual covenants, Lessor leases to Lessee and Lessee leases from Lessor, on the terms and conditions herein, the Premises, situated in Jefferson Parish, Louisiana, and described more particularly as follows: APPROXIMATELY 11,250 SQ.FT. OF OFFICE/WAREHOUSE, 5600 JEFFERSON HIGHWAY, BUILDING W-2, SUITES 278-282, HARAHAN, LA 70123 (SEE ATTACHED EXHIBIT"A") 2) TERM. The term of this Lease is THREE (3) year(s), commencing NOVEMBER 1, 1997 and expiring OCTOBER 31, 2000; provided, however, that if Lessee takes occupancy sooner than the commencement date, the commencement date shall be the date of occupancy, the Lease shall commence upon Lessee's acceptance and the term will run from the first of the following month for the number of years set out above. 3) RENTAL. Lessee agrees to pay to Lessor, without deduction, set off, prior notice, or demand, rental during said term payable on the first day of each month in advance monthly installments of THREE THOUSAND NINE HUNDRED THIRTY-SEVEN AND 50/100------($3,937.50) dollars. One monthly installment of rent shall be due and payable on the date of execution of this Lease by Lessee for the first month's rent and a like monthly installment shall be due and payable on or before the first day of each calendar month succeeding the "commencement date" during the demised term; provided, that if the "commencement date" should be a date other than the first day of a calendar month, the monthly rental set forth above shall be prorated to the end of that calendar month, and all succeeding installments of rent shall be payable on or before the first day of each succeeding calendar month during the demised term. On the date of execution of this Lease by Lessee, there shall be due and 199 payable by Lessee a security deposit in an amount equal to one monthly rental installment to be held for the performance by Lessee of Lessee's covenants and obligations under this Lease, it being expressly understood that the deposit shall not be considered an advance payment of rental or a measure of Lessor's damage in case of default by Lessee. Upon the occurrence of any event of default by Lessee or breach by Lessee of Lessee's covenants under this Lease, Lessor may, from time to time, without prejudice to any other remedy, use the security deposit to the extent necessary to make good any arrears of rent and/or any damage, injury, expense or liability caused to Lessor by the event of default or breach of covenant, any remaining balance of the security deposit to be returned by Lessor to Lessee upon termination of this Lease. All rental due under this Lease is payable to the order of THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, but delivered to Lessor or Lessor's Agent at the address designated for notice in Article 26. 4) LATE CHARGES. Lessee's failure to pay rent promptly may cause Lessor to incur unanticipated costs. The exact amount of such costs is impractical or extremely difficult to ascertain. Such costs may include, but are not limited to processing and accounting charges and late charges which may be imposed on Lessor by any ground lease, any rent payment within ten (10) days after it becomes due, Lessee shall pay Lessor a late charge equal to ten percent (10%) of the overdue amount. The parties agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such payment. 5) IMPROVEMENTS TO BE MADE; DELIVERY OF PREMISES. If Lessor is to make any improvements prior to Lessee's occupancy, a separate Schedule A shall be attached and initialed by each party setting out the agreed improvements; in such event Lessor shall proceed diligently to make such improvements and the Premises shall be deemed acceptable when such improvements are made. If no Schedule A is attached, Lessee shall be deemed to have accepted the Premises in their existing condition. Lessee shall in no event be liable for any latent defects. Should Lessor's delay be reasonably preventable, Lessee's remedy shall be to terminate this Lease should Lessor still fail after notice to complete the work with dispatch. Any improvements desired by Lessee not included in Schedule A shall be at Lessee's cost and a delay arising from their completion will not delay the commencement of the Lease. 6) TAXES. In addition to the rental provided for hereinabove, Lessee shall pay each month one-twelfth of his prorata portion (based upon the ratio which the total number of square feet covered by this Lease bears to the total number of 200 square feet in the center) of the real estate taxes and assessments general and special, levied or imposed, with respect to said multiple occupancy buildings which for the purposes hereof shall be deemed to include related parking facilities and all the improvements to said buildings, as estimated by Lessor. In January of each year, Lessor shall furnish Lessee with a statement setting forth the amount of tax levied against the land, buildings and improvements, the Lessee's share of said tax, and the amount paid by the Lessee to pay for said tax during the prior year. Said statement shall include a copy of the tax bills for the year and a check or bill for any over or under payment for said taxes. In addition to all other payments required to be paid by Lessee to Lessor, Lessee shall pay in the same manner as set forth in the preceding paragraph all rents, sales and use taxes, if any, levied or imposed with respect to the leased Premises or this Lease and all such levies of ad valorem or other property taxes or taxes assessed with respect to property ownership, as amended or modified, which are not presently in effect and with which it would be chargeable as a consequence of the ownership of the demised Premises if in fact it were the owner thereof in fee simple at the time of such assessment of levy. 7) KIND OF BUSINESS. Lessee shall occupy the Premises throughout the full term of the Lease, and the principal business to be conducted is STORAGE & WHOLESALE DISTRIBUTION OF PRINTED FORMS AND RELATED OFFICE USE . Lessee agrees to comply with (and to indemnify Lessor from any violations of) all laws or ordinances, including the Occupational Safety and Health Act of 1970, relative to Lessee's use of the Premises. 8) COMPLIANCE WITH LAWS & REGULATIONS. Lessee shall at its own cost and expense obtain any and all licenses and permits necessary of any such use. Lessee shall comply with all governmental laws, ordinances and regulations applicable to Lessee's use of the Premises, and shall promptly comply with all governmental orders and directives for the corrections, preventions and abatement of nuisances in, upon, or connected with Premises, all at Lessee's sole expense. Without Lessor's prior written consent, Lessee shall not receive, store or otherwise handle any product, material or merchandise which is explosive or highly inflammable, or considered to be Hazardous Material (see Article 9f below). Lessee will not permit the Premises to be used for any purpose or in any manner which would render the insurance thereon void or the insurance risk more hazardous. Lessee shall also be responsible for making any modifications and repairs to the facility at Lessee's expense which are imposed or required by any governmental authority as a result of Lessee's use and/or occupancy of the Premises. Said repairs and/or modifications shall be approved 201 by the Lessor. 9) ENVIRONMENTAL. (a) LESSOR'S REPRESENTATION. As of the date of this Lease, Lessor represents to Lessee, to the best of Lessor's knowledge based solely on the Environmental Reports dated July, 1991; March, 1992; and, January, 1994 that the Lessor has not disposed, stored or used Hazardous Materials (as hereinafter defined) in the Building, other than those that are in compliance with law. (b) LESSEE'S REPRESENTATIONS, WARRANTIES AND COVENANTS. i) Lessee represents, warrants and covenants that (1) the Premises will not be used for any dangerous, noxious or offensive trade or business and that it will not cause or maintain a nuisance there, (2) it will not bring, generate, treat, store, use or dispose of Hazardous Materials at the Premises, (3) it shall at all times comply with all Environmental Laws (as hereinafter defined) and shall cause the Premises to comply, and (4) Lessee will keep the Premises free of any lien imposed pursuant to any Environmental Laws. ii) Premises for purposes of this Article shall mean the Building and the Property including parking areas. iii) REPORTING REQUIREMENT. Lessee warrants that it will promptly deliver to the Lessor, (1) copies of any documents received from the United States Environmental Protection Agency and/or any state, parish or municipal environmental or health agency concerning Lessee's operations upon the Premises, (2) copies of any documents submitted by the Lessee to the United States Environmental Protection Agency and/or any state, parish or municipal environmental or health agency concerning its operations on the Premises, including but not limited to copies of permits, licenses, annual filings, registration forms and, (3) upon the request of Lessor, Lessee shall provide Lessor with evidence of compliance of Environmental Laws. iv) TERMINATION, CANCELLATION, SURRENDER. At the expiration or earlier termination of this Lease, Lessee shall surrender the Premises to Lessor 202 free of any and all Hazardous Materials and in compliance with all Environmental Laws. Lessor may require, at Lessee's sole expense at the end of the term, a clean-site certification, environmental audit or site assessment. v) Subject to the provisions of this Article and to the prior written consent by Lessor which may be given or withheld in Lessor's sole discretion, Lessee shall be entitled to use and store only those Hazardous Materials that are necessary for Lessee's business, provided that such usage and storage is in full compliance with all applicable Environmental Laws. vi) Lessee shall not be entitled to install any tanks under, on or about the Premises for the storage of hazardous Materials without the express written consent of Lessor, which may be given or withheld in Lessor's sole discretion. (c) LESSOR'S RIGHT OF ACCESS AND INSPECTION. i) Lessor shall have the right but not the obligation, at all times during the term of this Lease to (1) inspect the Premises, (2) conduct tests and investigations and take samples to determine whether Lessee is in compliance with the provisions of this Article, and (3) request lists of all hazardous Materials used, stored or located on the Premises. If such tests, inspections and/or samples are conducted by Lessor as a result of Lessee's violations of the provisions of Article 9 of this Lease, the Lessee shall bear the cost of said tests, inspections and/or samples. ii) Lessee will cooperate with Lessor and allow Lessor and Lessor's representatives access to any and all parts of the Premises and to the records of Lessee with respect to the Premises for inspection purposes at any time. In connection therewith, Lessee hereby agrees that Lessor or Lessor's representatives may perform any testing upon or of the Premises that Lessor deems reasonably necessary for the evaluation of environmental risks, costs, or procedures, including soils or other sampling or coring. (d) VIOLATIONS - ENVIRONMENTAL DEFAULTS. i) Lessee shall give to Lessor immediate verbal and follow-up written notice of any presence, disposal, escape, migration leakage, spillage, discharge, emission release, threatened release, handling or transportation of Hazardous Materials in, on, at, under, from, in the 203 vicinity of, affecting or related to the Premises or any part thereof. Lessee covenants to promptly investigate, clean up and otherwise remediate any spill, release or discharge of Hazardous Materials on, at, from or adjacent to the Premises at Lessee's sole cost and expense; such investigation, clean up and remediation to be performed in accordance with all Environmental Laws. Lessee shall return the Premises to the condition existing prior to the introduction of any such Hazardous Materials. ii) In the event of (1) a violation of any Environmental Law, (2) a release, spill or discharge of a Hazardous Substance on or from the Premises, or (3) the discovery of any environmental condition requiring response which violation, release, or condition is attributable to the acts or omissions of Lessee, its agents, employees, representatives, invitees, licensees, sublessees, customers, or contractors, or (4) an emergency environmental condition (together "Environmental Defaults"), Lessor shall have the right, but not the obligation, to immediately enter the Premises, to supervise and approve any actions taken by Lessee to address the violation, release, or environmental condition, or if the Lessor deems it necessary, then Lessor may perform, at Lessee's expense, any lawful actions necessary to address the violation, release, or environmental condition. iii) Lessor has the right but not the obligations to cure any Environmental Defaults, has the right to suspend some or all of the operations of the Lessee until it has determined to its sole satisfaction that appropriate measures have been taken, and has the right to terminate the Lease upon the occurrence of any Environmental Defaults. (e) ADDITIONAL RENT. Any expenses which the Lessor incurs, which are to be at Lessee's expense pursuant to this Article, will be considered Additional Rent under this Lease and shall be paid by Lessee on demand by Lessor. (f) DEFINITIONS. i) "HAZARDOUS MATERIALS" shall mean, (1) any "hazardous waste" as defined by the Resource Conservation and Recovery Act of 1976 ("RCRA"), as amended from time to time; (2) "hazardous substance" as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. ss.9601, ET. SEQ.) ("CERCLA"), as amended from time to time; (3) hazardous waste, hazardous materials, toxic substances or hazardous substances as defined in Governmental Requirements (defined below) now existing or hereafter enacted; (4) 204 asbestos containing materials; (5) polychlorinated biphenyls; (6) radioactive materials; (7) chemicals known to cause cancer or reproductive toxicity; (8) spilled or leaked petroleum products, distillates or fractions; (9) any substance the presence of which on the Property is prohibited by any Governmental Requirements; and (10) any substance for which any Governmental Requirements requires a permit or special handling in its use, collection, storage, treatment, or disposal. ii) "ENVIRONMENTAL LAWS" means any and all federal, state and local laws, statutes, rules, regulations, permits, licenses and all other legal requirements regulating or imposing liability or standards of conduct concerning, any hazardous, toxic, or dangerous waste, substance or material or the protection of human health or the environment, including, but not limited to, requirements pertaining to the manufacture, processing, distribution, use, treatment, storage, disposal, transportation, handling, reporting, licensing, permitting, investigation or remediation of Hazardous Materials. Environmental Laws include, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. ss.9601, ET. SEQ.)("CERCLA"), the Hazardous Material Transportation Act (49 U.S.C. 1801 ET SEQ.), the Resource Conservation and Recovery Act (42 U.S.C. ss.6901 ET SEQ.) ("RCRA"), the Federal Water Pollution Control Act, (33 U.S.C. ss.1251, ET SEQ.), the Clean Air Act, (42 U.S.C. ss.7401, ET Seq.), the Toxic Substances Control Act, (15 U.S.C. ss.2601 ET SEQ.), the Safe Drinking Water Act, (42 U.S.C. ss.300 ET SEQ.), the Environmental Protection Agency's regulations relating to underground storage tanks (40 C.F.R. Parts 280 and 281), any so-called "Superfund" or "Superlien" law, and the Louisiana Environmental Quality Act, La. R.S. 30:2001, ET SEQ., as such laws have been amended or supplemented. (g) SURVIVAL. The provisions of this Article shall survive the expiration or earlier termination of this Lease. 10) ALTERATIONS. All alterations, replacements and improvements made upon the Premises during the Lease, including lighting, electrical wiring, office partitions, all heating and air conditioning, shall be done only with the prior express written consent of Lessor and shall become the property of Lessor upon expiration of the Lease. However, those certain trade fixtures, machinery and equipment installed by Lessee solely for use in his business shall remain the property of Lessee; such trade fixtures, machinery and equipment installed by Lessee shall be removed at the expiration of the Lease, provided the Lease not then be in default and provided the Premises be returned to the same 205 conditions as when let, ordinary wear and tear, act of God or other casualty excepted. No consent of Lessor for Lessee to make improvements or repairs to the Premises shall be deemed to permit Lessor's interest to become subject to labor or material liens. 11) DELIVERY AT END OF LEASE. At expiration of this Lease, Lessee shall redeliver to Lessor the Premises in good order and condition, clear of all goods and broom cleaned and shall make good all damages to the Premises, usual wear and tear damage by the elements excepted, and shall remain liable for holdover rent until the Premises with keys shall be returned to such order to Lessor. No demand notice of such delivery shall be necessary. 12) LIEN FOR PAYMENT OF RENTAL. Lessee hereby agrees that Lessor shall have the rights provided for protection of interests under Louisiana law, and in addition shall have a possessory lien on all goods located upon the Premises for payment of all rental and other sums due by Lessee to Lessor by reason of this Lease. 13) ASSIGNMENT AND SUB-LETTING. The Lease may not be assigned, and the Premises may not be sublet, partially or fully, without prior written consent of Lessor. Even in the event of permitted assignment or subletting, Lessee acknowledges that it shall remain fully responsible for compliance with all terms of the Lease. Any sublessee occupying any part of this space shall, by the act of subletting formally or informally, assume all obligations of Lessee, whether or not Lessor knew of or approved or disapproved of such subletting. 14) INSOLVENCY, ETC. AS DEFAULT. In the event of Lessee's bankruptcy, receivership, insolvency, attachment by law of its contents, or assignment for the benefit of creditors, or Lessee's failure to maintain a going business in the Premises; Lessor may immediately upon written notice to Lessee declare a default in the Lease. 15) DEFAULT BY LESSEE. Should Lessee fail to pay any of the rentals provided for herein, or should Lessee fail to comply with any of the other obligations of this Lease, within ten (10) days from the mailing, by Lessor of notice demanding same, Lessor shall have the right, at Lessor's option (a) to cancel this Lease, in which event there shall be due to Lessor as liquidated damages, a sum equal to the amount of the guaranteed rent for one year, or alternatively at Lessor's option to be reimbursed all actual cost incurred in reentering, renovating and reletting said Premises; (b) to accelerate all rentals due for the unexpired remaining term of this Lease and declare same immediately due and payable; or (c) to sue for the rents in intervals or as 206 the same accrues. The foregoing provisions are without prejudice to any remedy which might otherwise be used under the laws of Louisiana for arrears of rent or breaches of contract, or to any lien to which Lessor may be entitled. If Lessee has taken steps to cure any default not curable in ten (10) days, such additional reasonable time as is necessary to cure such default shall be granted Lessee. Should Lessor terminate this Lease as provided in this article, Lessor may reenter said Leased Premises and remove all persons, or personal property, without legal process, and all claims for damages by reason of such reentry are expressly waived. Lessor's failure to strictly and promptly enforce these conditions shall not operate as a waiver of Lessor's right, Lessor hereby expressly reserving the right to always enforce prompt payment of rent, or to cancel this Lease regardless of any indulgences or extensions previously granted. In the event Lessee defaults in the performance of any of the terms, covenants, agreements or conditions contained in this Lease and Lessor places the enforcement of this Lease, or any part thereof, or the collection of any rent due or to become due hereunder, or recovery of the possession of the Leased Premises in the hands of an attorney, or files suit upon the same, Lessee agrees to pay reasonable attorney's fees incurred by Lessor. 16) RIGHT TO SHOW SIGN. Lessor shall be permitted to keep or exhibit inside the show window, or on the exterior of the Premises a "for lease" sign for 90 days prior to expiration of the Lease and shall have the right to enter the space at reasonable hours for the purpose of showing the same. 17) RIGHT OF ENTRY. Lessor may enter the Premises at reasonable times to inspect same, to make repairs and alterations, or to run pipe or electric wire, as Lessor may deem necessary and appropriate, provided Lessor will not unduly inconvenience Lessee's business. 18) SIGNS. Unless otherwise agreed in this Lease, Lessee shall not be permitted to place any signs on the Premises without Lessor's prior written approval. Upon termination of this Lease, Lessee shall remove any sign, advertisement or notice painted on or affixed to the leased Premises and restore the place it occupied to the condition in which it existed as of the date of this Lease. Upon Lessee's failure to do so, Lessor may do so at Lessee's expense. 207 19) CONDITION AND UPKEEP OF PREMISES. Lessee will at Lessee's sole expense keep and maintain in good repair the entire leased Premises including without limitation interior walls, floors, ceilings, ducts, utilities, air conditioning, heating, lighting, sprinkler and plumbing, termite and pest extermination, and also including the loading dock, stairs and any parking area exclusively used by Lessee. Lessor shall be responsible only to maintain the roof, foundations, and outside walls (not including doors and floors or stairs). Where contractors' or manufacturers' warranties are applicable and the Lessee advises the Lessor in writing of the need for such repair, the Lessor, at its option, will enforce such warranties for Lessee's benefit or assign such warranties to Lessee for Lessee to enforce. However, Lessor shall not be obliged to make any repair unless it shall be notified in writing by Lessee of the need of such repair and shall have had a reasonable period of time to make such repair and shall not be liable to make any repair occasioned by Lessee's acts within the Premises. Lessor shall not be liable for any damage or loss in consequence of leaks, stoppage of water, sewer or drains or any other defects about the building and Premises, unless it shall have failed to repair the defect within a reasonable time following written demand of Lessee to do so. It is specifically acknowledged that safety and replacement of the plate glass are Lessee's responsibility, as well as keeping pipes from freezing in the winter. 20) COMMON AREA MAINTENANCE. Lessee shall be responsible for maintaining the common areas used in conjunction with the leased Premises in a clean condition. Should Lessor, in its sole business judgment, decide to contract for the services of maintaining the common areas, Lessee shall pay as additional rent Lessee's prorata share of the cost of such services. Said additional rent shall be paid in monthly installments of one-twelfth of the estimated annual cost attributed to Lessee. In January of each year, Lessor shall furnish Lessee a statement setting forth Lessee's actual prorata portion of said costs. Said statement shall include a check or bill for any over or under payment for said maintenance items and shall include, but not be limited to, all parking areas, access roads and facilities in or at the Premises including driveways, loading docks and areas, sidewalks, ramps, landscaped and planting areas, lighting facilities, signs and all other areas and improvements for the general use, in common, of Lessees, their officers, agents, employees and customers. Lessor shall have the right from time to time to establish, modify and enforce reasonable rules and regulations with respect to all such facilities and areas; to change truck routes provided the leased Premises are adequately 208 served by the new route; to restrict parking by Lessees, their officers, agents and employees to designated areas; and to do and perform such other acts as Lessor shall, in the use of its business judgment, determine to be advisable with a view to the improvement of the convenience and use thereof by Lessees, their officers, agents, employees and customers. 21) FIRE AND CASUALTY CLAUSE. In case the said Premises shall be so damaged by fire or other cause as to be rendered untenantable and necessary repairs cannot be made within 180 days, this Lease shall terminate as of the time the Premises were rendered untenantable. However, if the damage is such that repairs can be completed within 180 days, Lessor agrees to make such repairs promptly, and to allow Lessee an abatement in rent for such time as the Premises remains untenantable. If the loss occurs in the last 18 months of the original term or extension thereof, either party may terminate this Lease effective the date of the casualty by giving the other party written notice of such election within 30 days of the loss. In the event of partial loss, the rent shall be abated by that proportion of the Leased Premises rendered unfit for use. 22) INSURANCE AND INDEMNITY. (a) Liability and Property Damage: Lessee shall at all times during the full term of this Lease and during the full term of any holdovers or other rental agreements, carry and maintain at its own cost and expense, Broad Form Commercial General Liability Insurance against claims for personal injury or injuries, including death and property damage occurring in, on or about the leased Premises, such insurance to afford protection to the limit of not less than $1,000,000.00 Dollars in respect to each person, and to the limit of not less than $1,000,000.00 in respect to any one occurrence causing bodily injury or death, and to the limit of, not less than $500,000.00 in respect to property damage. Lessee shall furnish Lessor with a duplicate certificate or certificates of such insurance policy or policies and such insurance policy shall name Lessor as an additional insured thereunder. All such insurance shall be procured from a responsible insurance company or companies reasonably satisfactory to Lessor and authorized to do business in the state where the leased Premises are located and may be obtained by Lessee by endorsement on its blanket insurance policies, provided that the insurance company or companies are satisfactory to Lessor. All such policies shall provide that the same may not be canceled or altered except upon ten (10) days prior written notice to Lessor. Lessor makes no representation that the limits of liability specified to be carried by Lessee under the terms of this Lease are adequate to protect Lessee against Lessee's undertaking under this Section, and in the event Lessee believes that any such insurance coverage called for under this Lease is insufficient, Lessee shall provide, at its own expense, such 209 additional insurance as Lessee deems adequate. (b) Fire and Extended Coverage: The Lessor shall, at all times during the full term of this Lease, keep all improvements in and on the demised Premises insured to the full replacement value thereof against loss by fire and extended coverage and maintain such insurance at all times as specified herein. Lessee shall pay each month as additional rent one-twelfth of Lessee's prorata share of Lessor's insurance premium attributable to the full insurable value of the improvements covered by this Lease. Lessee is not to suffer anything to be or remain on or about the Premises nor carry on nor permit upon the Premises any trade or occupation or suffer to be done anything which may render an increased or extra premium payable for the insurance of the Premises against fire and the hazards insured under extended coverage, unless consented to in writing by the Lessor and if so consented to, the Lessee shall pay such increased or extra premium within ten days after the Lessee shall have been advised of the amount thereof. (c) Placement of Insurance: All of the aforementioned policies of insurance shall be written and maintained with responsible insurance companies duly authorized and licensed to do business in and to issue policies in the State of Louisiana. The policies providing for the protection required in subparagraph (a) hereof may remain in the possession of Lessee, provided, however, that Lessee furnish satisfactory evidence to Lessor or the Lessor's mortgagee that such policy or policies fulfill the requirements of this subparagraph. Lessee agrees to pay all premiums in full as they become due. (d) Voiding Insurance: Lessee will not permit the herein demised Premises to be used for any purpose which would render the insurance thereon void. (e) INDEMNITY: Lessee shall indemnify defend (with counsel approved by Lessor) and hold Lessor and Lessor's affiliates, shareholders, directors, officers, employees and agents harmless from and against any and all claims, judgements, damages (including consequential damages), penalties, fines, liabilities, losses, suits, administrative proceedings, costs and expense of any kind or nature, known or unknown, contingent or otherwise, which arise out of or in anyway related to the Premises caused by or resulting from the acts or omissions of Lessee, its agents, employees, representatives, invitees, licensees, sublessees, customers or contractors during or after the term of this Lease (including, but not limited to attorneys', consultants, laboratory and expert fees and including without limitation, diminution in the value of the Building or Property, damages for the loss or restriction on use of rentable or usable space or of any amenity of the Building or 210 Project and damages arising from any adverse impact on marketing of space in the Building), including but not limited to those arising from or related to the use, presence transportation, storage, disposal, spill, release or discharge of Hazardous Materials on or about the Premises. 23) LESSOR'S LIABILITY. Should Lessor incur any liability arising under the terms of this Lease Agreement, subject liability shall be limited only to the interest of Lessor in the building and the land and the proceeds of any insurance carried by Lessor and collectible with respect to any such damages and Lessor shall not be personally liable for any deficiency. In the event the building is damaged or destroyed, any liability of Lessor for any damages suffered by Lessee shall be limited to the interest of Lessor in the building, the land, and the proceeds of insurance from such damage or destruction to the extent proceeds of such insurance are not used to rebuild or repair the building, and Lessor shall not be personally liable for any deficiency. 24) UTILITIES. All utility charges on and attached to the Premises shall be paid by Lessee, including cost of heat, water, electric current, gas garbage pickup, sewer and special fees. Lessee shall maintain an active electrical connection through the duration of this Lease with the electric utility company. In the event the Premises constitute a portion of a multiple occupancy building and a utility is not separately metered, Lessee will pay a proportionate share of the cost for that utility, such share calculated on the basis of the space occupied by Lessee as compared to the entire leased space contained in the building. 25) ATTORNEY'S FEES AND INTEREST. In the event it becomes necessary for Lessor to employ an attorney to enforce collection of the rents agreed to be paid, or to enforce compliance with any of the covenants and agreements herein contained, Lessee shall be liable for reasonable attorney's fees, costs and expenses incurred by Lessor. 26) NOTICE. Any notice provided for herein will be deemed given when deposited by certified mail, or actually delivered in person to the parties or their designated agents at the following addresses or at such other addresses as they may from time to time direct. LESSOR: EQUITABLE LIFE ASSURANCE SOCIETY OF THE U.S., C/O ROBERT D. BRIDGEWATER, 5612 JEFFERSON HWY., N.O., LA 70123. 211 LESSEE: CHAMPION INDUSTRIES, INC., C/O TONY D. ADKINS, V.P. & CONTROLLER, 2450 FIRST AVENUE, HUNTINGTON, WV 25703 27) CONDEMNATION. If the leased Premises be subjected to any eminent domain proceedings, the Lease shall terminate if all of the leased Premises are taken or if the portion taken is so extensive that the residue is wholly inadequate for Lessee's purpose. If the taking is partial, then Lessee's rentals shall be reduced in the proportion which space taken bears to the space originally leased. In such condemnation proceedings Lessee may claim compensation for moving expenses and for the taking of any removable installations which by the terms of this Lease Lessee would be permitted to remove at the expiration of this Lease, if such award is separately allowed by the condemning authority, but Lessee shall be entitled to no additional award, it being agreed that all damages allocable to full fee simple ownership of the entire leased Premises shall in any event be payable to Lessor. 28) QUIET POSSESSION. Lessor agrees to warrant and defend Lessee in its quiet and peaceful possession of the Premises so long as the Lease is not in default. 29) REPAIRS AND CLEANLINESS. Lessee shall immediately repair any damages caused by Lessee that threaten or weaken the structure or detract from the appearance of the Premises. Lessee shall also maintain a high degree of neatness and cleanliness in the building and on adjacent grounds, including loading docks, stairs, parking lots and rail sidings, if any, alongside and in the vicinity of the building occupied by Lessee. If Lessee does not correct the damages and/or clean the Premises within five (5) days of written notification by Lessor, Lessor may proceed with repairs and/or cleanup at Lessee's expense. 30) TRASH. Lessee shall not store merchandise or vehicles or leave trash outside the leased Premises. All trash shall be kept in metal containers with metal tops which must be painted, and their design and location on the Premises must be approved by Lessor. Should Lessee be in default in the requirements of this provision, Lessor may, after notice to Lessee, remedy such default at Lessee's expense, and such expense shall be treated as additional rental due under this Lease by Lessee. 31) LEASE HOLDOVER. Should Lessee remain on the Premises after expiration of this Lease Agreement, Lessor has the option to interpret such actions as creating a month-to-month lease at a rental one hundred per cent (100%) higher than that payable for the last month of the Lease term, or to 212 consider the holding over a trespass. Only a new signed lease or extension agreement shall deprive Lessor of the choice of action. 32) ENTIRETY OF UNDERSTANDING IN WRITTEN LEASE. It is agreed that the entire understanding between the parties is set out in the Lease and any riders which are hereto annexed, that this Lease supersedes and voids all prior proposals, letters and agreements, oral or written, and that no modification or alteration of the Lease shall be effective unless evidenced by an instrument in writing signed by both parties. The law of Louisiana where the Lease Premises are situated shall apply. 33) WAIVER. Failure of Lessor to declare any default immediately upon occurrence thereof or delay in taking any action in connection therewith shall not waive such default, but Lessor shall have the right to declare any such default at any time; no waiver of any default shall alter Lessee's obligations under the Lease with respect to any other existing or subsequent default. 34) BINDING ON HEIRS, ETC. It is further agreed by the parties to this Lease that all of the covenants and agreements enumerated herein shall be binding upon both parties' legal representatives, heirs and assigns throughout the life of this instrument. 35) AMERICANS WITH DISABILITIES ACT ("ADA"). Lessee hereby represents that it is not a public accommodation, as defined in the ADA. The Lessor shall take whatever steps are necessary to cause the common areas of the building as hereinafter defined, to meet the requirements of the Title III of ADA. The Lessee at its sole cost and expense shall be solely responsible for taking any and all measures which are required to comply with the requirements of Title I and/or Title III of the ADA within Lessee's leased Premises. Any Alterations to the Premises made by Lessee for the purpose of complying with the ADA or which otherwise require compliance with the ADA shall be done in accordance with this Lease; provided, that Lessor's consent to such Alterations shall not constitute either Lessor's assumption, in whole or in part, of Lessee's responsibility for compliance with the ADA, or representation or confirmation by Lessor that such Alterations comply with the provisions of the ADA. Lessee shall indemnify the Lessor for all claims, damages, judgments, penalties, fines, administrative proceedings, costs, expenses and liability arising from Lessee's failure to comply with any of the requirements of Title I and/or Title 213 III of the ADA within Lessee's leased Premises. Lessor shall indemnify the Lessee for all claims, damages, judgments, penalties, fines, administrative proceedings, costs, expenses and liability arising from Lessor's failure to comply with Title III of the ADA within the common areas. Common areas shall mean all portions of the development not covered by the buildings, including all service roads, sidewalks, driveways, entry's and parking areas not primarily used by Lessee. 36) CARPET PROTECTORS. Lessor requires the use of carpet protectors at all desk areas in order to maintain the carpet in good condition and prevent abnormal wear. 37) SUBROGATION. Neither the Lessor nor the Lessee shall be liable to the other for the loss arising out of damage to or destruction of the leased Premises, or the building or improvements of which the leased Premises are a part thereof, when such loss is caused by any of the perils which are or could be included within or are insured against by a standard form of fire insurance with extended coverage, including sprinkler leakage insurance, if any. All such claims for any and all loss, however caused, hereby are waived. Said absence of liability shall exist whether or not the damage or destruction is caused by the negligence of either Lessor or Lessee or by any of their respective agents, servants or employees. It is the intention and agreement of the Lessor and the Lessee that each party shall look to his respective insurance carriers for reimbursement of any such loss, and further, that the insurance carriers involved shall not be entitled to subrogation under any circumstances against any party to this Lease. Neither the Lessor nor the Lessee shall have any interest or claim in the other's insurance policy or policies, or the proceeds thereof, unless specifically covered therein as a joint assured. Each party to this Lease agrees immediately to give to each insurance company, written notice of the terms of the mutual waivers contained herein, and to have the insurance policies properly endorsed, if necessary, to prevent the invalidation of the insurance coverage by reason of the mutual waivers contained in this Section. 38) SUBORDINATE TO MORTGAGE. At the option of Lessor's mortgagee, the Lessee agrees to subordinate this Lease to any mortgage, deed of trust or encumbrance which the Lessor may have placed, or may hereafter place, on the Premises. Lessee agrees to execute, on demand, any instrument which may be deemed necessary or desirable to render such mortgage, deed of trust or 214 encumbrance, whenever made, superior and prior to this Lease. 39) RELOCATION. Lessor reserves the right, at its option, to require Lessee to move its Leased Premises, and relocate to other space in this property. If Lessor exercises this option, it shall give Lessee three (3) months prior written notice; and, Lessor shall provide Lessee with such other space as is equal to or larger than the Leased Premises, and of the same approximate quality. Lessor shall pay all actual expenses of such relocation, including providing Lessee with comparable tenant finish improvements. In such event of relocation, this Lease shall otherwise continue in full force and effect, without interruption, as to all of its terms and conditions. 40) LEASING COMMISSION. Lessor and Lessee each warrant and represent that it had no dealings, with respect to the Demised Premises or this Lease, with any broker or real estate dealer except for Robert D. Bridgewater, as agent for Lessor. It is understood and agreed that Lessor shall be responsible for the payment of any and all brokers and/or dealers commissions and fees in connection with this transaction including those commissions and fees which may be earned by Robert D. Bridgewater. The Commission Agreement, is attached hereto and forms a part hereof. 41) It is understood and agreed that this Lease Agreement shall not be binding until and unless all parties have signed it. IN WITNESS WHEREOF, the parties have set their hands to duplicate original copies as to the day and year above written. LESSOR: THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES WITNESSES: /S/ STEPHEN S. WILLIAMS ------------------------ By: Stephen S. Williams Investment Officer LESSEE: CHAMPION INDUSTRIES, INC. D/B/A UPTON PRINTING 215 /S/ TONEY K. ADKINS ------------------------ By: Toney K. Adkins, Vice President & Controller for Champion Industries, Inc. 216 SCHEDULE "A" Space is leased "as-is" with the exception of the following improvements to be provided by Lessor: 1) Provide separate electric meter; 2) Close in all openings in existing fire wall between tenants; and, open wall inside office to expose existing glassfront panel. 3) Demolish portion of office to provide access to one dock-high loading door; raise existing lighting to warehouse roof rafters and provide circuit wiring from panel. 4) Place all air-conditioning & heating units, plumbing and electrical fixtures, and doors in good working condition; Lessor will provide the following improvements at Lessee expense. Lessee to give Lessor a check in the amount of $1,950.00, with the signing of this Lease, to cover the cost of these items. 5) ELECTRICAL. Install (5) duplex recepticles in office and warehouse area (locations by Lessee); Remove (2) 220 volt circuits and wiring from office walls. 6) FINISH. Install (1) six foot, double-door in office wall (location by Lessee). 217 EX-21 6 EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT The Registrant, Champion Industries, Inc., a West Virginia corporation, does business under the trade name "Chapman Printing Company". Its wholly owned subsidiaries are: 1. The Chapman Printing Company, Inc., a West Virginia corporation. 2. Stationers, Inc., a West Virginia corporation (doing business in Ohio as "Garrison Brewer"). 3. Bourque Printing, Inc., a Louisiana corporation. 4. Dallas Printing Company, Inc., a Mississippi corporation. 5. Carolina Cut Sheets, Inc., a West Virginia corporation. 6. U.S. Tag & Ticket Company, Inc., a Maryland corporation. 7. Donihe Graphics, Inc., a Tennessee corporation. 8. Smith & Butterfield Co., Inc., an Indiana corporation. 9. The Merten Company, an Ohio corporation. 10. Interform Corporation, a Pennsylvania corporation. 11. CHMP Leasing, Inc., a West Virginia corporation. 12. Blue Ridge Printing Co., Inc., a North Carolina corporation. 13. Rose City Press, a West Virginia corporation 14. Capitol Business Equipment, Inc., a West Virginia corporation 15. Thompson's of Morgantown, Inc., a West Virginia corporation 218 EX-23 7 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the inclusion in this Annual Report (Form 10-K) of Champion Industries, Inc. of our report dated December 18, 1998, with respect to the consolidated financial statements of Champion Industries, Inc. and Subsidiaries for the year ended October 31, 1998. 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 December 18, 1998, with respect to the consolidated financial statements of Champion Industries, Inc. and Subsidiaries included in the Annual Report (Form 10-K) for the year ended October 31, 1998. /s/ Ernst & Young LLP Charleston, West Virginia January 25, 1999 219 EX-27 8 EXHIBIT 27
5 12-MOS OCT-31-1998 NOV-01-1997 OCT-31-1998 9773193 0 22563593 1329000 12760204 45181300 42263724 17335378 74505328 10073426 0 0 0 9713913 35595822 74505328 123061488 123061488 85315295 85315295 29597382 274191 1507387 6853378 2702274 6853378 0 0 0 4151104 0.45 0.45
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