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