<PAGE>
As filed with the Securities and Exchange Commission on March 9, 1998
Registration No. 333-47585
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
______________________________
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________________
CHAMPION INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
WEST VIRGINIA 55-0717455
(State or Other Jurisdiction (IRS Employer Identification Number)
of Incorporation or Organization)
2450 FIRST AVENUE, P.O. BOX 2968
HUNTINGTON, WEST VIRGINIA 25728
(304) 528-2791
(Address, including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
______________________________
JOSEPH C. WORTH, III, CHIEF FINANCIAL OFFICER
CHAMPION INDUSTRIES, INC.
2450 FIRST AVENUE, P. O. BOX 2968
HUNTINGTON, WEST VIRGINIA 25728
(304) 528-2791
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
______________________________
Copies to:
THOMAS J. MURRAY, ESQUIRE A. LYNNE PUCKETT, ESQUIRE
HUDDLESTON, BOLEN, BEATTY, SHAPIRO AND OLANDER
PORTER & COPEN 36 South Charles Street - 20th Floor
611 Third Avenue Baltimore, Maryland 21201-3147
Huntington, West Virginia 25701 (410) 385-0202
(304) 691-8398
______________________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are being offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [ ]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legal facsimile thereof, pursuant to Item 11(a)(1)
of this form, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=======================================================================================================================
<S> <C> <C> <C> <C>
Title of Each Class of | Amount to be | Proposed Maximum | Proposed Maximum | Amount of
Securities to be Registered | Registered(1) | Offering Price Per Share | Aggregate Offering Price(2) | Registration Fee
- -----------------------------------------------------------------------------------------------------------------------
Common Stock, par value | 1,150,000 | $15.125 | $17,393,750 | $5,131.16
$1.00 per share | shares | | |
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 150,000 shares of Common Stock that the Underwriter has the
option to purchase solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
______________________________
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 9, 1998
1,000,000 SHARES
[LOGO] CHAMPION INDUSTRIES, INC.
COMMON STOCK
______________________________
All of the 1,000,000 shares of Common Stock, per value $1.00 per share
(the "Common Stock"), of Champion Industries, Inc. (the "Company") offered
hereby are being sold by the Company. The Common Stock is currently listed on
The Nasdaq Stock Market's National Market System (the "Nasdaq National Market")
under the symbol "CHMP." On March 6, 1998, the last reported closing price of
the Common Stock on the Nasdaq National Market was $15.50. See "Price Range
of Common Stock."
______________________________
SEE "INVESTMENT CONSIDERATIONS" FOR CERTAIN
FACTORS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.
______________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
===============================================================================
| Price | Underwriting | Proceeds
| to | Discounts and | to
| Public | Commissions(1) | Company(2)
- -------------------------------------------------------------------------------
Per Share................. | $ | $ | $
- -------------------------------------------------------------------------------
Total(3).................. | $ | $ | $
===============================================================================
(1) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, which are estimated at
$282,000.
(3) The Company has granted the Underwriter a 30-day option to purchase up to
150,000 additional shares of Common Stock on the same terms and
conditions as set forth above, solely to cover over-allotments, if any.
If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
________, ________ and ______, respectively. See "Underwriting."
______________________________
The shares of Common Stock are offered by the Underwriter, subject to
prior sale, to withdrawal, cancellation or modification of the offer without
notice, to delivery and to acceptance by the Underwriter and to certain further
conditions. It is expected that delivery of the certificates representing such
shares will be made against payment therefor at the offices of Ferris, Baker
Watts, Incorporated, 1720 Eye Street, N.W., Washington, D.C. or through the
facilities of the Depository Trust Company, on or about March ___, 1998.
______________________________
FERRIS, BAKER WATTS
Incorporated
______________________________
The date of this Prospectus is , 1998
<PAGE>
Photo: Printing Press
Photo: Office Products - Supplies, pens, pads
Map: Eastern United States
______________________________
IN CONNECTION WITH THE OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE MARKET PRICE OF
COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME. FOR DESCRIPTION OF THE ACTIVITIES, SEE "UNDERWRITING."
______________________________
IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
NASDAQ IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the financial statements
and notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, all information in this Prospectus assumes that the Underwriter's
over-allotment option will not be exercised. The offering of the shares of
Common Stock pursuant to this Prospectus is referred to herein as the
"Offering." Investors should carefully consider the information set forth under
the heading "Investment Considerations." This Prospectus contains
forward-looking statements that involve risks and uncertainties. See "Special
Note Regarding Forward-Looking Statements."
______________________________
THE COMPANY
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. Since
its initial public offering (the "IPO") in 1993, the Company has been a major
consolidator within the fragmented printing and office products industries,
having acquired 16 businesses. The Company provides state-of-the-art printing
services ranging from the simplest to the most complex jobs, including business
cards, books, brochures, posters, 4- to 6-color process printing and
multi-part, continuous and snap-out business forms. The Company also offers
a full line of office products and office furniture primarily in the budget
and middle price ranges.
As a result of its consolidating acquisitions and internal growth, the
Company's revenues have increased from $33.6 million in the fiscal year ended
October 31, 1993 to $108.4 million in fiscal 1997. For fiscal 1997, printing
accounted for 81.2% of total revenues and office products and furniture sales
accounted for 18.8% of total revenues.
The Company's marketing strategy focuses on manufacturers, institutions,
financial services companies and professional firms. The Company employs
approximately 130 salespeople who sell a full range of printing services,
office products and office furniture. The Company believes that its reputation
for quality, service, convenience and selection allows it to enjoy significant
customer loyalty and customer referrals.
The Company's strategic objective is to grow its revenues and profits by
continuing its emphasis on cross-sales of products and services by its highly
competent and motivated sales force with additional industry consolidating
acquisitions designed to enhance the Company's geographic coverage, market
penetration, cross-selling opportunities and economies of scale. Key elements
of the Company's strategy are as follows:
o Strategic acquisitions: The Company intends to continue making
strategic acquisitions to acquire new products and capabilities,
acquire new markets for existing Company products and services and
increase market share and revenues. The Company believes favorable
acquisition opportunities are available as the fragmented printing
and office products industries undergo further consolidation.
Champion believes that its competitive and financial strengths and
considerable experience in acquiring and integrating businesses will
continue to provide significant growth opportunities.
o Cross-selling of products and services: Management believes that
printing and office products sales activities are complementary,
since frequent customer sales calls required for one of its products
or services provide opportunities to sell other products and services.
o Expanded product and service lines: Certain of the Company's
acquisitions have permitted it to provide new products to its
existing customer base while providing new markets for its existing
products and services, enhancing economies of scale, vertical
integration and margins. As a result of the Company's expanded
products and services, enhanced geographic market presence
and reputation for quality, the Company has attracted customers in
new markets and captured incremental sales from existing customers.
o Low cost operating structure: The Company negotiates 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.
Additionally, the Company's ability to integrate acquired
businesses, and to perform work at the most advantageous location,
contribute to cost reduction.
o Highly motivated sales force: Salespeople are compensated based on
their individual profitability. The Company's acquisitions have
provided its sales force with enhanced sales and compensation
opportunities by expanding the number of available products and
services, thereby contributing to the Company's ability to attract
and maintain a highly motivated sales force.
3
<PAGE>
The Company was incorporated in West Virginia in 1992. The Company's
principal executive offices are located at 2450 First Avenue, Huntington, West
Virginia 25703. The Company's telephone number is (304) 528-2791.
RECENT ACQUISITION
On February 2, 1998, the Company acquired all outstanding capital stock
of Rose City Press ("Rose City"), a full-line office products and office
furniture supplier in Charleston, West Virginia in exchange for 75,722 shares
of Company Common Stock. Rose City, with approximately $4 million in sales in
its most recent calendar year, is a major competitive presence in the
Charleston, West Virginia market and will operate as a division of Stationers,
Inc. ("Stationers"). The acquisition of Rose City will not materially impact
the Company's financial position, results of operations or cash flows as
presented herein.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock Offered by the Company................... 1,000,000 shares
Common Stock to be Outstanding after the Offering..... 9,464,167 shares(1)
Use of Proceeds....................................... To repay certain indebtedness and for general
corporate purposes, including working capital
and future acquisitions. See "Use of Proceeds."
Nasdaq National Market Symbol......................... "CHMP"
</TABLE>
- -----------------
(1) Excludes 218,017 shares of Common Stock issuable upon the exercise of
outstanding stock options as of March 6, 1998, all of which were then
exercisable.
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following summary selected financial information should be read in
conjunction with, and is qualified in its entirety by, the more detailed
financial statements and notes thereto included elsewhere in this Prospectus.
The summary income statement data of the Company for the years ended
October 31, 1993, 1994, 1995, 1996, and 1997 and the summary balance sheet
data as of October 31, 1997 have been derived from the Consolidated Financial
Statements of the Company. This data should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein. The historical financial data as of and for the
three months ended January 31, 1997 and 1998 are derived from the Company's
unaudited financial statements. It is management's opinion that the historical
financial data as of and for the three months ended January 31, 1997 and 1998,
contain all adjustments, consisting solely of normal recurring adjustments,
which management considers necessary to fairly present the financial data set
forth herein in conformity with generally accepted accounting principles. The
results of operations for the three months ended January 31, 1997 and 1998 are
not necessarily indicative of the results to be expected for future periods.
In 1997, the Company acquired all the outstanding common stock of Blue Ridge
Printing Co., Inc. ("Blue Ridge"). This combination has been accounted for
as a pooling of interests. Accordingly, all financial information for the
three months ended January 31, 1997 has been restated as though Blue Ridge and
the Company had always been combined.
<TABLE>
<CAPTION>
Three Months Ended
Year Ended October 31, January 31,
----------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(In thousands, except share and per share data)
INCOME STATEMENT DATA:
Revenues.............................. $ 33,590 $ 43,230 $ 49,903 $ 66,357 $ 108,385 $ 21,115 $ 29,634
Cost of sales......................... 20,314 26,360 31,921 44,092 73,139 15,111 21,267
--------- --------- --------- --------- --------- --------- ---------
Selling, general and administrative
expenses............................ 10,155 12,486 12,788 16,197 28,079 4,694 6,663
--------- --------- --------- --------- --------- --------- ---------
Income from operations................ 3,121 4,384 5,194 6,068 7,167 1,310 1,704
Other income (expense)................ 58 147 (128) (444) (829) 224 (317)
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes............ 3,179 4,531 5,066 5,624 6,338 1,534 1,387
Income taxes.......................... (1,278) (1,859) (2,060) (2,252) (2,571) (665) (590)
--------- --------- --------- --------- --------- --------- ---------
Net income............................ $ 1,901 $ 2,672 $ 3,006 $ 3,372 $ 3,767 $ 869 $ 797
========= ========= ========= ========= ========= ========= =========
Earnings per share(1):
Basic............................... $ 0.26 $ 0.33 $ 0.37 $ 0.41 $ 0.45 $ 0.10 $ 0.10
Diluted............................. $ 0.26 $ 0.33 $ 0.37 $ 0.40 $ 0.45 $ 0.10 $ 0.09
Weighted average common shares
outstanding(1):
Basic............................... 7,299,035 8,084,088 8,147,389 8,323,518 8,383,391 8,382,489 8,385,656
Diluted............................. 7,299,035 8,098,799 8,176,716 8,356,032 8,441,083 8,438,879 8,435,507
</TABLE>
At January 31, 1998
----------------------------
Actual As Adjusted(2)
------ --------------
BALANCE SHEET DATA:
Working capital............................ $ 18,624
Total assets............................... 58,881
Short-term debt............................ 4,244
Long-term debt, net of current portion..... 14,300
Shareholders' equity....................... 27,277
(1) For each of the five years in the period ended October 31, 1997, and for
the three months ended January 31, 1997, earnings per share and weighted
average common shares outstanding amounts have been restated to comply
with Statement of Financial Accounting Standards No. 128, "Earnings per
Share."
(2) Adjusted to give effect to the Offering at an assumed price to the public
of $_____ per share and after deducting estimated underwriting discounts
and offering expenses.
5
<PAGE>
INVESTMENT CONSIDERATIONS
The following factors, in addition to other information in this
Prospectus, should be carefully considered in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby:
Growth Through Acquisitions
To expand its markets, diversify its business mix and take advantage of
the fragmented printing and office products industries, the Company intends to
grow through acquisitions. There can be no assurance that future acquisitions
will be consummated on acceptable terms or that any newly acquired companies
will be successfully integrated into the Company's operations. The Company may
use Common Stock (which could result in dilution to the purchasers of the
Common Stock offered hereby) or may incur additional indebtedness or a
combination thereof for all or a portion of the consideration to be paid in
future acquisitions. The Company continuously evaluates opportunities to make
strategic acquisitions.
Competition
The printing, office products and office furniture industries are
extremely competitive and fragmented. The Company competes with numerous large
and small companies that operate in each industry, some of which have greater
financial resources than the Company. The Company competes on the basis of its
reputation for quality, production capability, prompt delivery, price and the
strength of its continuing customer relationships. See "Business -
Competition."
Technology
Production technology in the printing industry has evolved and continues
to evolve. Although the Company has invested in excess of $10.5 million in
equipment since the beginning of fiscal 1993, it may be required to invest
significant capital in additional production technology in order to remain
competitive. The Company believes that its capital investments in state-of-
the-art technology have allowed it to realize increased efficiencies.
Dependence on Marshall T. Reynolds; Control of the Company
The Company's operations and prospects are dependent in large part on the
continued efforts of Marshall T. Reynolds. The loss of Mr. Reynolds could have
an adverse effect on the Company. In addition, by virtue of Mr. Reynolds'
ownership of 50.1% of the Common Stock after giving effect to the Offering made
hereby, Mr. Reynolds will continue to control the Company.
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. 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
condition of the Company.
Geographic Concentration and Economic Conditions
The Company's operations and the majority of its customers are located in
West Virginia, Ohio, Pennsylvania, Kentucky, Indiana, Tennessee, Maryland,
Louisiana, Mississippi, North Carolina and South Carolina. 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.
Shares Eligible for Future Sale
As of February 24, 1998, Marshall T. Reynolds and his affiliated
entities, including The Harrah and Reynolds Corporation ("Harrah and
Reynolds"), held 4,741,127 shares (56.0%) of the Common Stock of the Company.
Assuming no change in these holdings between February 24, 1998 and the closing
of this Offering, Mr. Reynolds will hold 50.1% of the Common Stock of the
Company. Sales by Mr. Reynolds of Common Stock could adversely affect the
prevailing market price of the Common Stock. The Company is unable to
estimate the amount of Common Stock, if any, that may be sold in the future.
The Company and its officers and directors, including Mr. Reynolds, have
agreed with the Underwriters not to sell or otherwise dispose of any shares
of Common Stock for a period of 180 days after the date of this Prospectus
without the prior written consent of the Underwriter.
6
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock by the Company in this Offering (at an assumed offering price of
$15.50 per share) are estimated to be approximately $14,165,000 ($16,327,250)
if the Underwriter's over-allotment option is exercised in full), after
deducting underwriting discounts and commissions and offering expenses payable
by the Company.
The Company will apply no more than 75% of the proceeds to reduction of
indebtedness. The Company intends to use the balance of the net proceeds of
the Offering for working capital and other general corporate purposes to fund
the Company's continued growth. Pending the use of proceeds, the Company may
invest in short-term money market, government and federal agency obligations,
bank certificates of deposit and savings deposits.
PRICE RANGE OF COMMON STOCK
The Common Stock is currently listed on the Nasdaq National Market under
the symbol "CHMP." The following table sets forth the high and low sales
prices of the Common Stock for the periods indicated as reported by the Nasdaq
National Market, and reflects two 25% stock dividends, accounted for as 5 for 4
stock splits, paid on January 22, 1996 and January 27, 1997:
High Low
---- ---
Fiscal 1996:
First Quarter........................................... $15.52 $13.12
Second Quarter.......................................... 16.60 12.80
Third Quarter........................................... 15.40 13.60
Fourth Quarter.......................................... 18.00 13.60
Fiscal 1997:
First Quarter........................................... 19.40 17.00
Second Quarter.......................................... 19.75 17.00
Third Quarter........................................... 19.50 16.13
Fourth Quarter.......................................... 19.25 18.00
Fiscal 1998:
First Quarter........................................... 19.50 16.00
Second Quarter (through March 6, 1998).................. 17.00 14.75
The last reported closing price of the Common Stock as reported by the
Nasdaq National Market on March 6, 1998, was $15.50. As of March 2, 1998,
there were 547 holders of record of the Common Stock.
7
<PAGE>
DIVIDEND POLICY
The following table sets forth the quarterly dividends per share declared
on Company Common Stock, and reflects three 25% stock dividends, accounted for
as 5 for 4 stock splits, paid on January 23, 1995, January 22, 1996 and
January 27, 1997.
Fiscal 1995 Fiscal 1996 Fiscal 1997 Fiscal 1998
----------- ----------- ----------- -----------
First Quarter $0.026 $0.032 $0.040 $0.050
Second Quarter 0.032 0.040 0.050 $0.050
Third Quarter 0.032 0.040 0.050
Fourth Quarter 0.032 0.040 0.050
The Company's Board of Directors intends to continue the payment of
regular quarterly cash dividends on its Common Stock, subject to the Company's
need for those funds. The Company's ability to pay dividends is not currently
restricted by any of its financing agreements.
CAPITALIZATION
The following table sets forth the capitalization of the Company at
January 31, 1998, and as adjusted to give effect to the sale by the Company of
1,000,000 shares of Common Stock in the Offering (at an assumed price to the
public of $15.50 per share), and the application of the estimated net proceeds
therefrom, as if such transactions had occurred as of January 31, 1998. This
table should be read in conjunction with the Company's financial statements and
the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
As of January 31, 1998
------------------------
Actual As Adjusted
------ -----------
(In thousands)
<S> <C> <C>
Long-term debt and capital lease obligations, net of current portion.... $14,300
Shareholders' equity:
Common Stock, par value $1.00 per share, 20,000,000 shares
authorized, 8,388,445 shares issued and outstanding, actual;
9,388,445 shares issued and outstanding, as adjusted(1)............. 8,388
Additional paid-in capital............................................ 7,496
Retained earnings..................................................... 11,393
=======
Total shareholders' equity.......................................... 27,277
=======
Total capitalization.............................................. $41,577
=======
</TABLE>
- -----------------
(1) Excludes 218,017 shares of Common Stock issuable upon the exercise of
certain stock options outstanding on January 31, 1998, all of which were
then exercisable.
8
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The Consolidated Income Statement and Balance Sheet Data of the Company
set forth below at and for the years ended October 31, 1993 through 1997 have
been derived from the audited Consolidated Financial Statements of the Company.
The information set forth below should be read in conjunction with the
Consolidated Financial Statements of the Company (and notes thereto) appearing
elsewhere herein and the information contained in "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The historical
financial data as of and for the three months ended January 31, 1997 and 1998
are derived from the Company's unaudited financial statements. It is
management's opinion that the historical financial data as of and for the three
months ended January 31, 1997 and 1998 contain all adjustments, consisting
solely of normal recurring adjustments, which management considers necessary
to fairly present the financial data set forth herein in conformity with
generally accepted accounting principles. The results of operations for the
three months ended January 31, 1997 and 1998 are not necessarily indicative of
the results to be expected for future periods. In 1997, the Company acquired
all the outstanding common stock of Blue Ridge. This combination has been
accounted for as a pooling of interests. Accordingly, all financial
information for the three months ended January 31, 1997 has been restated as
though Blue Ridge and the Company had always been combined.
<TABLE>
<CAPTION>
Three Months Ended
Year Ended October 31, January 31,
----------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(In thousands, except share and per share data)
INCOME STATEMENT DATA:
Revenues:
Printing............................ $ 22,899 $ 30,001 $ 35,371 $ 49,242 $ 87,979 $ 16,137 $ 23,956
Office products and office
furniture......................... 10,691 13,229 14,532 17,115 20,406 4,978 5,678
--------- --------- --------- --------- --------- --------- ---------
Total revenues........................ 33,590 43,230 49,903 66,357 108,385 21,115 29,634
Cost of sales:
Printing............................ 13,478 17,755 22,251 33,015 59,850 11,779 17,508
Office products and office
furniture......................... 6,836 8,605 9,670 11,077 13,289 3,332 3,759
--------- --------- --------- --------- --------- --------- ---------
Total cost of sales................... 20,314 26,360 31,921 44,092 73,139 15,111 21,267
Selling, general and administrative
expenses............................ 10,155 12,486 12,788 16,197 28,079 4,694 6,663
--------- --------- --------- --------- --------- --------- ---------
Income from operations................ 3,121 4,384 5,194 6,068 7,167 1,310 1,704
Interest income..................... 129 67 11 25 20 7 -
Interest expense.................... (140) (132) (252) (693) (1,586) (238) (427)
Other income........................ 69 212 113 224 737 455 110
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes............ 3,179 4,531 5,066 5,624 6,338 1,534 1,387
Income taxes........................ (1,278) (1,859) (2,060) (2,252) (2,571) (665) (590)
--------- --------- --------- --------- --------- --------- ---------
Net income............................ $ 1,901 $ 2,672 $ 3,006 $ 3,372 $ 3,767 $ 869 $ 797
========= ========= ========= ========= ========= ========= =========
Earnings per share(1):
Basic............................... $ 0.26 $ 0.33 $ 0.37 $ 0.41 $ 0.45 $ 0.10 $ 0.10
Diluted............................. $ 0.26 $ 0.33 $ 0.37 $ 0.40 $ 0.45 $ 0.10 $ 0.09
Dividends per share................... $ 0.041 $ 0.098 $ 0.122 $ 0.152 $ 0.190 $ 0.040 $ 0.050
Weighted average common shares
outstanding(1):
Basic............................... 7,299,035 8,084,088 8,147,389 8,323,518 8,383,391 8,382,489 8,385,656
Diluted............................. 7,299,035 8,098,799 8,176,716 8,356,032 8,441,083 8,438,879 8,435,507
</TABLE>
<TABLE>
<CAPTION>
At October 31, At January 31,
----------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
BALANCE SHEET DATA:
Working capital....................... $ 9,603 $ 10,040 $ 11,148 $ 13,579 $ 18,935 $ 17,490 $ 18,624
Total assets.......................... 21,050 25,690 28,643 44,063 60,346 57,255 58,881
Short-term debt....................... 484 538 1,077 2,437 4,244 3,369 4,244
Long-term debt, net of current
portion............................. 1,131 1,124 2,405 7,561 15,156 15,614 14,300
Shareholders' equity.................. 15,027 17,739 19,794 24,641 26,850 25,178 27,277
</TABLE>
- -----------------
(1) For each of the five years in the period ended October 31, 1997, and for
the three months ended January 31, 1997, earnings per share and weighted
average common shares outstanding amounts have been restated to comply
with Statement of Financial Accounting Standards No. 128, "Earnings per
Share."
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company is a commercial printer, business form 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 and operational efficiencies.
The Company's largest acquisition since the IPO was the purchase of
Interform Corporation ("Interform") on December 31, 1996. The addition of
Interform's sales in 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. Interform contributed significantly to revenues in the quarter ended
January 31, 1998.
The Company's 1997 acquisition of Blue Ridge, located in Asheville, North
Carolina and Knoxville, Tennessee added a premier commercial color printer
specializing in sales to and through advertising agencies. A portion of its
sales utilize the proprietary QuadRaster(TM) technology which creates color
printing of significantly higher resolution and impact than traditional color
imaging methods. This technology provides the opportunity for increased sales
of high-end color jobs throughout the Company.
The Company's most recent acquisition was the addition of Rose City,
located in Charleston, West Virginia. Rose City is a major competitor in the
office products arena in the important Charleston market and has been in
business since 1923. Rose City has now come full circle, having sold its
printing assets to Champion's predecessor, Chapman Printing Company, in 1974.
The combination of Rose City and Chapman Printing's Charleston division gives
Champion a powerful presence in West Virginia's capital city. The acquisition
of Rose City will not materially impact the Company's financial position,
results of operations or cash flows as presented herein.
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. Revenues are
recognized by the Company when products are shipped or services are rendered
to the customer. The Company's revenues are subject to quarterly fluctuations
caused by variations in demand for its products.
The Company's cost of sales primarily consist 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.
10
<PAGE>
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. In 1997, the Company
acquired all of the outstanding common stock of Blue Ridge. This combination
has been accounted for as a pooling of interests. Accordingly, financial
information for the three months ended January 31, 1997 has been restated as
though Blue Ridge and the Company had always been combined.
<TABLE>
<CAPTION>
Year Ended October 31, Three Months Ended January 31,
------------------------------------------------- ---------------------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
(unaudited)
(Dollars in thousands)
Printing.................... $ 35,371 70.9% $ 49,242 74.2% $ 87,979 81.2% $ 16,137 76.4% $ 23,956 80.8%
Office products and office
furniture................. 14,532 29.1 17,115 25.8 20,406 18.8 4,978 23.6 5,678 19.2
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total revenues......... 49,903 100.0 66,357 100.0 108,385 100.0 21,115 100.0 29,634 100.0
Cost of sales:
Printing.................... 22,251 44.6 33,015 49.8 59,850 55.2 11,779 55.8 17,508 59.0
Office products and office
furniture................. 9,670 19.4 11,077 16.7 13,289 12.3 3,332 15.8 3,759 12.7
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total cost of sales.... 31,921 64.0 44,092 66.5 73,139 67.5 15,111 71.6 21,267 71.7
Selling, general and
administrative expenses..... 12,788 25.6 16,197 24.4 28,079 25.9 4,694 22.2 6,663 22.5
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income from operations........ 5,194 10.4 6,068 9.1 7,167 6.6 1,310 6.2 1,704 5.8
Other income (expense):
Interest income........... 11 0.0 25 0.0 20 0.0 7 0.0 0.0 0.0
Interest expense.......... (252) (0.5) (693) (1.0) (1,586) (1.4) (238) (1.1) (427) (1.4)
Other income.............. 113 0.2 224 0.4 737 0.7 455 2.2 110 0.3
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income before income taxes.... 5,066 10.1 5,624 8.5 6,338 5.9 1,534 7.3 1,387 4.7
Income taxes................ (2,060) (4.1) (2,252) (3.4) (2,571) (2.4) (665) (3.2) (590) (2.0)
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Net income.................... $ 3,006 6.0% $ 3,372 5.1% $ 3,767 3.5% $ 869 4.1% $ 797 2.7%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
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 financial statements and notes thereto included
elsewhere herein.
Three Months Ended January 31, 1998 Compared to Three Months Ended
January 31, 1997
Revenues
Total revenues increased 40.3% in the first quarter of 1998 to $29.6
million from $21.1 million in the first quarter of 1997. Printing revenue
increased 48.5% in the first quarter of 1998 to $24.0 million from $16.1
million in the first quarter of 1997. Office products and office furniture
revenue increased 14.1% in the first quarter of 1998 to $5.7 million from $5.0
million in the first quarter of 1997. The increase in total revenues was
primarily achieved through the acquisition of Interform, which contributed
$6.4 million to this change. Revenues at existing printing divisions
increased by approximately $1.4 million in the first quarter of 1998 due to
increased sales efforts coupled with increased printing capabilities at
various locations. Since the printing business is very capital and labor
intensive, a key success factor is increasing revenues to a level exceeding
fixed costs. The Company has been increasing volume through acquisitions and
increased marketing activity to new and existing customers. The Company
expects to realize the benefit of improved margins as volume increases. The
existing office products and office furniture divisions also experienced a
sales increase during the first quarter of 1998 of approximately $700,000 due
to increased sales efforts.
11
<PAGE>
Cost of Sales
Total cost of sales increased 40.7% in the first quarter of 1998 to $21.3
million from $15.1 million in the first quarter of 1997. Printing cost of
sales increased 48.6% in the first quarter of 1998 to $17.5 million from $11.8
million in the first quarter of 1997, due primarily to sales volume and the
addition of newly acquired divisions with lower sales margins. As the Company
has increased volume through the addition of acquired businesses, cost of
sales as a percentage of revenues has increased because the additions have
been lower margin businesses than the Company's original core operations. The
first quarter gross margins are historically lower than complete year amounts,
because the second and fourth quarters are typically the most profitable
and absorb more overhead. The cost of sales for the first quarter of 1998
was lower than the year ago quarter due to the effect of Interform's lower
margin sales. Office products and office furniture cost of sales increased
12.8% in the first quarter of 1998 to $3.8 million from $3.3 million in the
first quarter of 1997, primarily due to growth in sales. The increase in cost
of sales parallels the change in sales. The cost of office products sales as
a percentage of office products sales has remained relatively stable.
Operating Expenses and Income
Selling, general and administrative expenses increased as a percentage of
sales in first quarter of 1998 to 22.5% from 22.2% in the first quarter of 1997
due to increased overhead costs associated with acquired businesses. Selling,
general and administrative expenses continue to fall on an annual basis as
they are spread over an increasingly large sales base. For the reasons stated
above, income from operations increased 30.1% in the first quarter of 1998 to
$1.7 million from $1.3 million in the first quarter of 1997. Operating income
as a percentage of sales has declined steadily over the last three years due
to the addition of lower margin acquired businesses. The Company expects to
realize the benefits of the increased volume from acquired businesses in the
future as a result of cross selling, capital equipment improvements, broader
product lines and corporate purchasing advantages.
Other Income/Expense
Interest expense increased $189,000 to $427,000 in the first quarter of
1998 from $238,000 in the first quarter of 1997 as a result of the debt
assumed in the Interform acquisition and the financing of the purchase price.
Other income decreased from $455,000 in the first quarter of 1997 to $110,000
in the first quarter of 1998 due primarily to the recognition of a nonrecurring
deferred gain of $330,000 in the first quarter of 1997.
Income Taxes
The provision for income taxes as a percentage of income before income
taxes was approximately 43% in the first quarters of 1998 and 1997, and is
consistent with the rates for the years ended October 31, 1997 and 1996. The
effective income tax rate was approximately the combined federal and state,
net of federal benefit, statutory income tax rate.
Net Income
After adjusting for the nonrecurring gain, net core earnings increased
17.2% to $797,000 in the first quarter of 1998, compared to $681,000 in the
first quarter of 1997. Net income for the first quarter of 1998 decreased
8.2% to $797,000 from $869,000 in the first quarter of 1997. Diluted earnings
per share in the first quarter of 1998 were $0.09 compared to $0.10 in the
first quarter of 1997. Net income as a percentage of sales has declined
over the last three years due to the addition of acquired businesses with
lower margins as discussed above. The Company expects to realize the benefits
of the increased volume from acquired businesses in the future as a result of
cross selling, capital equipment improvements, broader product lines and
corporate purchasing advantages.
Year Ended October 31, 1997 Compared to Year Ended October 31, 1996
Revenues
Total revenues increased 63.3% in fiscal 1997 to $108.4 million from
$66.4 million in fiscal 1996. Printing revenue increased 78.7% in fiscal 1997
to $88.0 million from $49.2 million in 1996. Office products and office
furniture revenue increased 19.2% in fiscal 1997 to $20.4 million from $17.1
million in fiscal 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 approximately $500,000 in 1996.
12
<PAGE>
Cost of Sales
Total cost of sales increased 65.9% in fiscal 1997 to $73.1 million from
$44.1 million in fiscal 1996. Printing cost of sales increased 81.3% in fiscal
1997 to $59.9 million from $33.0 million in fiscal 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 1997 to $13.3 million from $11.1 million in fiscal 1996, primarily
due to increased sales volume.
Operating Expenses and Income
Selling, general and administrative expenses increased as a percentage of
sales in fiscal 1997 to 25.9% from 24.4% in fiscal 1996, due to increased
costs associated with acquisitions. For the reasons stated above, income
from operations increased 18.1% in fiscal 1997 to $7.2 million from $6.1
million in fiscal 1996.
Other Income/Expense
Interest expense increased $893,000 from $693,000 in fiscal 1996 to
$1.6 million in fiscal 1997 as a result of the debt assumed in the Interform
acquisition. Other income increased from $224,000 in fiscal 1996 to $737,000
in fiscal 1997, due to a $330,000 one-time recognition of deferred gain from
the previous sale of Stationer's bookstore operations.
Net Income
Income taxes in fiscal 1997 increased slightly to 40.6% from 40.0% in
fiscal 1996, due to the Company's expansion into states with higher tax rates.
For the reasons stated above, net income for fiscal 1997 increased 11.7% to
$3.8 million, or $0.45 per share (diluted), from $3.4 million, or $0.40 per
share (diluted), in fiscal 1996.
Year Ended October 31, 1996 Compared to Year Ended October 31, 1995
Revenues
Total revenues increased 33.0% in fiscal 1996 to $66.4 million from
$49.9 million in fiscal 1995. Printing revenue increased 39.2% in fiscal 1996
to $49.2 million from $35.4 million in 1995. Office products and office
furniture revenue increased 17.8% in fiscal 1996 to $17.1 million from $14.5
million in fiscal 1995. This was achieved through new acquisitions which
accounted for increased printing sales of $5.5 million and increased office
products and office furniture sales of $1.6 million. The office products and
office furniture divisions also experienced approximately $1.0 million of
sales growth due to increased sales efforts and a one-time furniture sale
totaling approximately $500,000.
Cost of Sales
Total cost of sales increased 38.1% in fiscal 1996 to $44.1 million from
$31.9 million in fiscal 1995. Printing cost of sales increased 48.4% in
fiscal 1996 to $33.0 million from $22.3 million in fiscal 1995, due primarily
to sales volume and the addition of newly acquired divisions with lower sales
margins. Office products and office furniture cost of sales increased 14.5%
in fiscal 1996 to $11.1 million from $9.7 million in fiscal 1995, primarily
due to sales volume.
Operating Expenses and Income
Selling, general and administrative expenses declined as a percentage of
sales in fiscal 1996 to 24.4% from 25.6% in fiscal 1995, due to cost controls
implemented by management and spreading overhead expenses over increasing
revenues. For the reasons stated above, income from operations increased
16.8% in fiscal 1996 to $6.1 million from $5.2 million in fiscal 1995.
Other Income/Expense
Interest expense on a comparative basis increased $441,000 as a result of
increased debt.
Net Income
Income taxes remained relatively constant at about 40%. For the reasons
stated above, net income increased 12.2% to $3.4 million, or $0.40 per share
(diluted), for fiscal 1996, from $3.0 million, or $0.37 per share (diluted),
in fiscal 1995.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operating activities for the three months ended
January 31, 1998, was $105,000, compared to cash used in operating activities
of ($662,000) for the same period in 1997, and was positively impacted by
controlled growth in inventories, improved collection of accounts receivable,
and timing of payments of accrued income taxes and expenses.
The Company continues to make significant investments in equipment.
Capital expenditures for the three months ended January 31, 1998, were
$596,000 versus the $543,000 expended in the first quarter of 1997. These
expenditures primarily relate to the upgrading of printing equipment to meet
the demands of production. Management plans to continue making such
improvements and expects total capital expenditures to approximate $3 million
in 1998. Included in these capital expenditures for 1998 is the initial phase
of upgrading the Company's information systems. Management plans to develop
and implement a centralized information system infrastructure.
At January 31, 1998, working capital was $18.6 million compared to $18.9
million and $17.5 million at October 31, 1997 and January 31, 1997. Working
capital continues to be adequate to meet current operating needs.
The Company has historically financed its acquisitions, capital
expenditures, and working capital needs from cash generated from its
operations and bank borrowings. However, to fund the Company's plans to
continue to expand its operations internally and through acquisitions
and to upgrade its information systems, additional financing is necessary.
The Company is currently evaluating financing alternatives such as the
issuance of stock, obtaining additional debt or a combination thereof.
These financing arrangements should be in place within the next three months.
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.
YEAR 2000 ASSESSMENT
Management has initiated a Company-wide program to assess the need to
modify or replace portions of its information systems enabling the proper
processing of transactions relating to the Year 2000 and beyond. The Company
primarily utilizes purchased software and management believes that there are
adequate sources of Year 2000 compliant software available from vendors that
will meet its needs. Management continues to evaluate appropriate courses of
corrective action, including the cost/benefit of modifying existing software
versus purchasing new software and hardware. However, until a complete cost/
benefit analysis of the various alternatives available to the Company is
completed, an estimate of the total cost of its Year 2000 project cannot be
made at this time. Management does not expect the Year 2000 project to
materially impact results of operations based on the current status of the
analysis.
The Year 2000 project is expected to be completed no later than
December 31, 1998. Management believes that with modifications to existing
software and/or conversions to new software, the Year 2000 problem will not
pose significant operational problems to the Company. However, if such
modifications and/or conversions are not made, or are not completed timely,
this issue could have a material impact on the Company's operations. The
Company has initiated discussions with its significant suppliers, large
customers and financial institutions to ensure that those parties have
appropriate plans to remediate Year 2000 issues where their systems interface
with the Company's systems or otherwise impact its operations. The Company
is assessing the extent to which its operations are vulnerable should those
organizations fail to properly remediate their computer systems. While
management believes its planning 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 a material effect on the Company.
14
<PAGE>
BUSINESS
GENERAL
Champion 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 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 a one-stop
shopping approach.
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 laser scanner separations. The Company also offers
complete bindery and letterpress services. The Company's segmented gross
sales of printing services in fiscal 1997 consisted of approximately 41%
sheet and tag printing, 29% business forms printing and 30% process color
printing. The printing operations contributed $88.0 million, or 81.2%, of the
Company's total revenues for fiscal 1997.
The Company provides a full range of office products and office furniture
primarily in the budget and middle price ranges. The Company publishes a
catalog of high volume, frequently ordered items purchased directly from the
manufacturer. 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 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 and office furniture
operations contributed $20.4 million, or 18.8%, of the Company's total
revenues for fiscal 1997.
[Business Mix Pie Chart]
Office Products 18.8%
Printing 81.2%
History
The Company was chartered as a West Virginia corporation on July 1, 1992.
Prior to the IPO in January 1993, the Company's business was operated by
Harrah and Reynolds doing business as Chapman Printing Company ("Chapman
Printing"), together with its wholly-owned subsidiaries, The Chapman Printing
Company, Inc. and Stationers.
15
<PAGE>
Since the IPO the Company has grown through internal growth and
acquisitions, and has made 16 acquisitions, summarized below.
<TABLE>
<CAPTION>
Approximate
Business Strategic Revenues
Business Acquired Date Capabilities Benefits (at acquisition)
- ----------------- ---- ------------ -------- ----------------
<S> <C> <C> <C> <C>
Bourque Printing, Inc. 1993 Commercial printer Access to large, rapidly $ 2,000,000
growing Baton Rouge,
LA market
Garrison Brewer 1993 Full-line office Cross-selling to $ 3,700,000
products, furniture Parkersburg printing
division; increase
purchasing volume and
discounts
Dallas Printing Company, Inc. 1993 Commercial printer Access to large, rapidly $ 1,000,000
growing Jackson, MS
market
Strother Forms/Printing (combined 1993 Business form Business form cross- $ 1,000,000
with Bourque Printing) manufacturer selling for Bourque
Printing
Carolina Cut Sheets, Inc. 1993 Specialty cut sheet Cost-effective, in-house $ 400,000
manufacturer manufacturing
Spectrum Press, Inc. (combined 1994 Pre-press operation Augments Bourque $ 1,800,000
with Bourque Printing) Printing pre-press
capabilities
Premier Data Graphics (now 1994 Printing broker Access to northern $ 500,000
Champion Clarksburg) West Virginia market
for office products and
commercial printing
Premier Printing Company 1994 Commercial printer Increase customer $ 1,000,000
(combined with Dallas Printing) base and production
capacity in Jackson,
MS
U.S. Tag & Ticket Company, Inc. 1995 Stock and custom In-house manufacturing $ 2,500,000
tag manufacturing capability, access to
Baltimore, MD market
Donihe Graphics, Inc. 1995 High-volume color In-house manufacturing $ 6,500,000
printing capability and cross-
sales
Upton Printing (Bourque Printing's 1996 Full-color 4-color printing for $ 2,500,000
New Orleans operation) commercial printer Bourque Printing;
access to large, rapidly
growing New Orleans,
LA market
Smith & Butterfield Co., Inc. 1996 Full-line office Access to Indiana/ $ 5,300,000
products, furniture Kentucky markets;
increase purchasing
volume and discounts
The Merten Company 1996 Full-color Access to Cincinnati, $ 6,400,000
commercial printer OH market; 4-color
printing for Lexington,
KY operation
Interform 1996 Medium- and high- Access to northeastern $33,000,000
volume business U.S. market, addition
form manufacturer of high-volume
business form capacity
Blue Ridge 1997 Full-color Access to markets $ 6,000,000
commercial printer served by advertising
agencies, high
resolution QuadRaster(TM)
color printing
Rose City 1998 Full-line office Increase office products $ 4,000,000
products, furniture market share in
Charleston, WV
</TABLE>
16
<PAGE>
BUSINESS STRATEGY
The Company's business strategy combines continuing its emphasis on
cross-sales of products and services by its highly competent and motivated
sales force with additional industry consolidating acquisitions designed to
enhance the Company's geographic coverage, market penetration, cross-selling
opportunities and economies of scale.
Consolidating Acquisitions. The Company intends to continue its strategy
of aggressively increasing its market share in areas it currently serves and
expanding into new markets through consolidating acquisitions. The Company
believes the printing and office products industries are highly fragmented and
that it is well positioned to acquire desirable businesses in existing market
areas, contiguous geographic regions, and new geographic markets. As a result
of its competitive and financial strengths, considerable experience in
integrating acquired businesses, and its reputation for retaining management
and employees of acquired companies, the Company believes it is perceived as
an attractive partner in consolidating acquisitions.
Cross-Sales of an Expanding Line of Products and Services. Printing and
office products sales activities are complementary. Frequent customer sales
calls for one of its products or services provide opportunities to sell other
products and services. Expanded products and services, a growing geographic
market, and the Company's reputation for quality, have enabled the Company to
expand the products and services sold to its customer base. Further, many of
the Company's acquisitions have enabled it to do the following:
o add new products and services;
o enhance economies of scale through, among others, centralized
management, purchasing, and accounting;
o maximize vertical integration opportunities (such as the Company's
purchase of U.S. Tag & Ticket Co., Inc. ("U.S. Tag") which
manufactures a product the Company previously purchased from third
party vendors), and maximize lower cost bulk purchasing opportunities;
and
o increase the Company's profit margins by successfully integrating
acquired businesses, with attendant reductions in overhead.
Maintaining a Highly Competent and Motivated Sales Force. The Company's
salespeople are compensated based on their individual profitability. The
Company's acquisitions, and resulting increase in the number of products and
services available to its customers, provide the Company's sales force with
enhanced sales opportunities and income potential. These factors contribute
to the Company's ability to attract and maintain highly competent and
motivated salespeople.
COMPANY STRUCTURE
Champion is organized into 16 divisions, 12 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.
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, 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.
17
<PAGE>
Carolina Cut Sheets, Inc. ("Carolina Cut Sheets"), 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 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 and Office Furniture
Stationers, located in Huntington, Charleston (doing business as "Rose
City Press") and Clarksburg (doing business as "Champion Clarksburg"), 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 market areas. Products are sold by printing
division salespeople and delivered in bulk daily to each division, or shipped
directly to customers.
Smith & Butterfield Co., Inc. ("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.
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 printing divisions are stated below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High
Sales & Volume Continuous Cut
Customer Sheet Full Full and Snap-out Sheet
Division Service Pre-Press Printing Color Color Forms Forms Tags
- --------------------- -------- --------- -------- ----- ------- ------------ ----- ----
Chapman Printing/ o o o o o
Huntington
- --------------------------------------------------------------------------------------------------------
Chapman Printing/ o o
Charleston
- --------------------------------------------------------------------------------------------------------
Chapman Printing/ o o o o
Parkersburg
- --------------------------------------------------------------------------------------------------------
Chapman Printing/ o o o
Lexington
- --------------------------------------------------------------------------------------------------------
Bourque Printing, Inc. o o o o
- --------------------------------------------------------------------------------------------------------
Dallas Printing o o o
Company, Inc.
- --------------------------------------------------------------------------------------------------------
Carolina Cut Sheets o o o
- --------------------------------------------------------------------------------------------------------
U.S. Tag o o o o
- --------------------------------------------------------------------------------------------------------
Donihe Graphics, Inc. o o o
- --------------------------------------------------------------------------------------------------------
Upton Printing o o o o
- --------------------------------------------------------------------------------------------------------
The Merten Company o o o o
- --------------------------------------------------------------------------------------------------------
Interform o o o o o
- --------------------------------------------------------------------------------------------------------
Blue Ridge o o o o
- --------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
Office Products and Office Furniture
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. Most office furniture is sold from catalogs and
supplied from in-house stock. Special orders and design projects constitute
a small portion of sales.
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 6-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 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 product 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.
SALES AND MARKETING
The Company's commercial printing operations currently utilize a sales
force of approximately 130 salespeople. Each of the Company's salespeople
market printing services, business forms and office products and office
furniture. The ability of the sales force to sell all the Company's products
and services constitutes an important part of the Company's marketing
strategy, with the sale of any one product or service providing a basis for
frequent customer visits, creating opportunities to sell additional products
and services.
The Company's sales philosophy stresses frequent sales calls on existing
customers, constant marketing for new customers, cross-selling of all Company
products and services and target account marketing programs focusing on
priority customers. Champion communicates to its customers the breadth and
sophistication of its products, the speed and quality of its service and
personal attention offered by the Company's salespeople.
The sales force currently has an average of approximately 17 years
industry experience and reflects a blend of seasoned and newer salespeople.
The Company requires new salespeople to participate in a training program
which focuses on sales techniques and the Company's printing production
processes.
Salespeople receive a base salary each month and commissions based on
their individual profitability. The Company's acquisitions, and resulting
increase in product diversification, provide the Company's salespeople with
enhanced earnings opportunities. The sales program's emphasis on
profitability, substantial rewards for profitable performance and increase
in product diversification contribute to the Company's ability to attract and
maintain highly competent and motivated salespeople.
Champion's office product operations regularly conduct sales promotions
of selected office products. Management believes that this strategy encourages
higher aggregate orders by customers who purchase the specially advertised
products. The Company distributes a variety of brochures, price lists and
other promotional matter to its customers and prospective customers. The
Company publishes a catalog of high volume, frequently ordered items purchased
directly from the manufacturer. These catalog sales afford sales personnel
flexibility in product selection and pricing. The Company recently introduced
an on-line ordering system through software available on a CD-ROM designed and
published by the Company. The Company uses very little media advertising,
relying instead on frequent sales calls as its primary marketing tool.
19
<PAGE>
Several of the Company's acquisitions have added new dimensions and a
broader scope to its marketing capabilities. The Donihe Graphics, Inc.
("Donihe") subsidiary specializing in high-speed, high-volume color printing,
uses an in-house telemarketing force for sales of its specialty high-speed
products and other divisions' printing products. Interform sells a
significant portion of its business forms through independent distributors
and its own distributor, Consolidated Graphic Communications, in the
Pennsylvania, New York and New Jersey markets. The U.S. Tag and Carolina Cut
Sheets operations, in addition to providing products for Company retail sales,
primarily sell to third party dealers and printers.
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, 1997, no single customer
accounted for more than 1% of 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.
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 provides 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 companies. In recent years, 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 economies 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.
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, 1997, the Company had 897 full-time employees.
The Company's Interform subsidiary is party to a collective bargaining
agreement with the United Steelworkers of America, AFL-CIO-CLC on behalf of
its Local Union 8263 covering all production and maintenance employees
(currently numbering 96) at its Bridgeville, Pennsylvania facility. The
Company believes relations with the union and covered employees are good.
20
<PAGE>
PROPERTIES
The Company's corporate office is located in leased facilities in
Huntington, West Virginia. Operating facilities are located throughout the
eastern portion of the United States, as set forth below:
<TABLE>
<CAPTION>
Leased
or
Location and Division Use Owned Footage
- --------------------- --- ------ -------
<S> <C> <C> <C>
Champion/Chapman Printing- Headquarters/Printing Plant Leased 85,000(1)
Huntington, WV
Stationers- Office Products Leased 60,000(1)
Huntington, WV
Stationers- Office Products Leased 21,600(1)
Huntington, WV
Chapman Printing- Printing Plant Leased 36,614(1)
Parkersburg, WV
Chapman Printing- Printing Plant Leased 21,360(1)
Charleston, WV
Rose City- Office Products Owned 63,400
Charleston, WV
Champion Clarksburg- Printing and Office Products Owned 20,800
Clarksburg, WV
Chapman Printing- Printing Plant Leased 20,135(1)
Lexington, KY
Smith & Butterfield- Office Products Leased 8,500
Owensboro, KY
Smith & Butterfield- Office Products Leased 42,375
Evansville, IN
Stationers (Garrison Brewer)- Office Products Leased 15,146
Belpre, OH
The Merten Company- Printing Plant Leased 40,000
Cincinnati, OH
U.S. Tag- Printing Plant Leased 26,000
Baltimore, MD
Interform- Printing Plant Leased 120,000
Bridgeville, PA
Donihe- Printing Plant Owned 38,500
Kingsport, TN
Blue Ridge- Printing Plant Owned 12,500
Knoxville, TN
Blue Ridge- Printing Plant Owned 10,758
Asheville, NC
Carolina Cut Sheets- Printing Plant Leased 16,200
Timmonsville, SC
Bourque Printing, Inc.- Printing Plant Owned 18,501
Baton Rouge, LA
Upton Printing- Printing Plant Leased 15,000
New Orleans, LA
Dallas Printing Company, Inc.- Printing Plant Owned 19,600
Jackson, MS
</TABLE>
- -----------------
(1) These properties are leased from Harrah and Reynolds, Marshall T.
Reynolds and affiliated entities or Company officers. The Company
believes that these properties are leased on terms no less favorable to
Company than those available from unaffiliated parties.
21
<PAGE>
LEGAL PROCEEDINGS
The Company is not currently party to any legal proceedings of a material
nature.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Years with
Name Age Company Position with Company
- ---- --- ---------- ---------------------
Marshall T. Reynolds 61 40 President, Chief Executive Officer and
Chairman of the Board of Directors
Joseph C. Worth, III 48 5 Vice President and Chief Financial
Officer of Company
Michael D. McKinney 44 21 Vice President and General Sales
Manager of Company
William M. Campbell 62 21 Vice President of Company and
Division Manager - Parkersburg
Ronald W. Taylor 40 12 Vice President of Company and
Division Manager - Lexington
J. Mac Aldridge 56 14 Vice President of Company;
President and Division Manager
- Stationers
Gary A. Blackshire 45 22 Vice President of Company and
Division Manager - Charleston
R. Douglas McElwain 50 12 Vice President of Company and
Division Manager - Bourque
Printing
David G. Pilcher 55 1 Vice President of Company and
Division Manager - Interform
L. David Brumfield 60 28 Vice President of Company and
Division Manager - Dallas Printing
Toney K. Adkins 48 10 Vice President of the Company
Walter R. Sansom 68 28 Secretary of Company
Robert H. Beymer 70 5 Director
Philip E. Cline 64 5 Director
Harley F. Mooney, Jr. 69 5 Director
Todd L. Parchman 43 5 Director
A. Michael Perry 61 5 Director
Neal W. Scaggs 61 5 Director
Glenn W. Wilcox, Sr. 66 1 Director
</TABLE>
Marshall T. Reynolds was the President and General Manager of Harrah
and Reynolds, predecessor of the Company, from 1964, and sole shareholder
from 1972, until the Company's IPO in 1993. He has served as President,
Chief Executive Officer and Chairman of the Board of Directors since the IPO.
Joseph C. Worth, III has served as Chief Financial Officer of the Company
since June 1992.
22
<PAGE>
Michael D. McKinney has served as Vice President and General Sales
Manager of the Company since 1995. He was Division Manager of the Company's
Huntington Division from 1992 to 1995. He served as Division Manager of the
Huntington Division of Harrah and Reynolds from October 1991. He served as
Division Manager of the Lexington Division of Harrah and Reynolds from
August 1982 to October 1991. He served as a sales representative for Harrah
and Reynolds in eastern Kentucky from February 1976 to August 1982.
William M. Campbell has served as Division Manager of the Parkersburg
Division of the Company, and of Harrah and Reynolds, since June 1977.
Ronald W. Taylor has served as Division Manager of the Lexington Division
of the Company, and of Harrah and Reynolds since January 1992. He served as
sales representative in the Lexington Division from 1986 to January 1992.
J. Mac Aldridge has served as President and Division Manager of
Stationers since November 1989, Vice President of the Company since 1993, and
served as Division Manager of the Huntington Division from 1995 through 1997.
He served as a sales representative of the Huntington Division of Harrah and
Reynolds from 1983 to 1989.
Gary A. Blackshire has served as Division Manager of the Charleston
Division of the Company, and of Harrah and Reynolds, since April 1992. He
served as a sales representative of the Charleston Division of Harrah and
Reynolds from 1975 until April 1992.
R. Douglas McElwain has served as Vice President and Division Manager of
Bourque Printing, Inc. since 1993, and was a sales representative of the
Charleston Division of the Company and Harrah and Reynolds from 1986 until
1993.
David G. Pilcher has served as Vice President of Company since April 1997
and as President of Interform since January 1995. He was President of
Printing Center Media (Fort Worth, Texas) from 1989 to 1995.
L. David Brumfield has served as Vice President and Division Manager of
Dallas Printing Company, Inc. since May 1997. He was the President and
General Manager, Radisson Hotel, Huntington, West Virginia, from 1992 to 1997.
He served as Division Manager of the Charleston Division of Harrah and
Reynolds from 1978 until 1992.
Toney K. Adkins has served as Vice President of the Company since 1995.
He was President of KYOWVA Corrugated Container Company, Inc. from 1991 to
1996. He served as Treasurer of Harrah and Reynolds from 1982 to 1991.
Walter R. Sansom has served as Secretary of the Company since December
1992. He has been the Production Coordinator of the Company since 1992, and
served in that capacity for Harrah and Reynolds from 1968 until 1992.
Robert H. Beymer has served as President of First Sentry Bank (Huntington,
West Virginia) since 1996, and was President of First Guaranty Bank (Hammond,
Louisiana) from 1992 to 1994.
Philip E. Cline has served as President and Chief Executive Officer of
Broughton Foods Company since November 1996 and was employed in various
capacities (Vice President and Treasurer, Executive Vice President and
consultant) by J.H. Fletcher & Co., a manufacturer of underground mining
equipment in Huntington, West Virginia from 1968 to 1996.
Harley F. Mooney, Jr., Brig. Gen. U.S. Army (Ret.), is Managing Partner
of Mooney-Osborne & Associates, a management consulting firm. He has served
as a director of Stationers, Inc. since 1989, and served as a consultant to
Stationers, Inc. from 1988 to 1990.
Todd L. Parchman has been a partner of Parchman, Vaughn & Company
(investment bankers) since 1996 and was a Senior Vice President from 1990 to
1996 and Director from 1994 until 1996 of Ferris, Baker Watts, Incorporated.
A. Michael Perry has served as President from 1983 to 1993 and Chief
Executive Officer from 1983 to present of Banc One West Virginia Corporation
and its predecessor, Key Centurion Bancshares, Inc.
Neal W. Scaggs has served as President of Baisden Brothers, Inc., a
retail and wholesale hardware company, since 1963.
Glenn W. Wilcox, Sr. has served as Chairman of the Board of Wilcox Travel
Agency, Inc. since 1953, and as Chairman of the Board of Directors since 1974
and President from 1974 to 1997 of Blue Ridge.
PRINCIPAL SHAREHOLDER
To the Company's knowledge, Marshall T. Reynolds is the only beneficial
owner of more than 5% of the Company's Common Stock, owning 4,741,127 shares,
or 56.0% of all outstanding Common Stock, through Harrah and Reynolds, a
corporation he controls, and his spouse. Assuming no change in Mr. Reynolds'
beneficial ownership, after giving effect to the Offering, Mr. Reynolds will
beneficially own 50.1% of all Common Stock of the Company.
23
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized stock of the Company consists of 20,000,000 shares of
Common Stock, par value $1.00 per share referred to as, the "Common Stock."
As of March 5, 1998, 8,464,167 shares of Common Stock were outstanding. The
rights of holders of the Company's Common Stock are defined by the Company's
Articles of Incorporation, as amended from time to time (the "Articles"), as
well as by the Company's Bylaws, as amended from time to time (the "Bylaws"),
and the West Virginia Corporation Act, as amended from time to time (the
"WVCA"). The following summary of certain provisions of the Common Stock of
the Company does not purport to be complete and is subject to, and qualified
in its entirety by reference to the provisions of the Articles and Bylaws,
which are included as exhibits to the Registration Statement of which this
Prospectus forms a part, and by provisions of applicable law, including the
WVCA.
COMMON STOCK
Upon completion of the Offering, 9,464,167 shares of Common Stock will
be issued and outstanding.
Holders of Common Stock have no preemptive or other rights to subscribe
for additional shares of the Company's capital stock. If the Company should
decide to issue any or all of its authorized but unissued shares of Common
Stock, the effect would be to dilute the percentage of ownership of then
current Company shareholders who do not purchase a pro rata portion of shares
issued.
Under the WVCA, in the election of directors, holders of Common Stock
possess cumulative voting rights: they have as many votes as the number of
shares owned, multiplied by the number of directors to be elected, and may
either accumulate all votes for one candidate or distribute those votes among
as many candidates as the shareholder may choose. For all other purposes,
each share of Common Stock is entitled to one vote.
Cumulative voting is a form of proportional representation which can
provide a significant group of shareholders, though a minority, the ability to
elect one or more directors. Under straight voting, a majority (over 50%)
shareholder can elect all directors. Because cumulative voting applies to the
election of Company directors, depending upon the total number of shares
represented at a shareholders meeting and the number of directors to be
elected, despite Mr. Reynolds' beneficial ownership, after giving effect to
the Offering, of over 50% of the outstanding Common Stock of the Company, he
cannot be assured of electing all directors (currently eight) of the Company.
Holders of Common Stock are entitled to such dividends as may be declared
by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." Upon liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to receive pro rata the net
assets of the Company remaining after the payment of all creditors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Wachovia Bank of
North Carolina, N.A.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the form of which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part (the "Underwriting
Agreement"), the Company has agreed to sell the number of shares of Common
Stock to Ferris, Baker Watts, Incorporated (the "Underwriter"), and the
Underwriter has agreed to purchase the aggregate number of shares of Common
Stock set forth opposite its name below:
Underwriter Number of Shares
----------- ----------------
Ferris, Baker Watts, Incorporated............
Total........................................ 1,000,000
=========
24
<PAGE>
The nature of the Underwriter's obligations under the Underwriting
Agreement is such that all shares of Common Stock offered hereby, excluding
shares covered by the over-allotment option granted to the Underwriter, must
be purchased if any are purchased. The Underwriting Agreement provides that
the obligations of the Underwriter to pay for and accept delivery of the
shares of Common Stock offered hereby are subject to the approval of certain
legal matters by counsel and to certain other conditions.
The Company has been advised by the Underwriter that the Underwriter
proposes to offer the shares of Common Stock to the public at the public
offering price set forth on the cover page of this Prospectus, and to certain
dealers at such public offering price less a selling concession not in excess
of ____ per share. The Underwriter may allow, and such dealers may reallow, a
concession not in excess of ____ per share to certain other underwriters or to
certain other brokers or dealers.
The Company has granted the Underwriter an option, exercisable within 30
days after the date of this Prospectus, to purchase up to an additional
150,000 shares of Common Stock to cover over-allotments, at the same price per
share to be paid by the Underwriter for the other shares offered hereby. The
Underwriter may purchase such shares only to cover over-allotments, if any, in
connection with the Offering made hereby.
The executive officers, directors and certain stockholders of the Company
have agreed that they will not offer, sell, contract to sell or grant an
option to purchase or otherwise dispose of any shares of Common Stock, options
to acquire shares of Common Stock or any securities exercisable for or
convertible into Common Stock owned by them, in the open market, for a period
of 180 days from the date of this Prospectus, without the prior written
consent of the Underwriter. The Company has agreed not to offer, sell or issue
any shares of Common Stock, options to acquire Common Stock or securities
exercisable for or convertible into shares of Common Stock for a period of
180 days after the date of this Prospectus, without the prior written consent
of the Underwriter, except that the Company may issue securities pursuant to
the Company's stock option plans and upon the exercise of all outstanding
stock options.
The Company and the Underwriter have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act,
which may arise out of or be based upon any untrue statement or alleged untrue
statement of any material fact made by the indemnifying party and contained in
this Prospectus, the Registration Statement, any supplement or amendment
thereto, or any documents filed with state securities authorities, or any
omission or alleged omission of the indemnifying party to state a material
fact required to be stated in any such document or required to make the
statements in any such document, in light of the circumstances in which they
are made, not misleading.
The Underwriter intends to make a market in the securities of the
Company, as permitted by applicable laws and regulations. The Underwriter,
however, is not obligated to make a market in such securities and any such
market making may be discontinued at any time at the sole discretion of the
Underwriter.
The Underwriter has informed the Company that it does not intend to
confirm any sales to accounts over which it exercises discretionary authority.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriter
and certain selling group members to bid for and purchase the Common Stock.
As an exception to these rules, the Underwriter is permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Common Stock.
If the Underwriter creates a short position in the Common Stock in
connection with the Offering, i.e., if it sells more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Underwriter may
reduce that short position by purchasing Common Stock in the open market. The
Underwriter may also elect to reduce any short position by exercising all or
part of the over allotment option described above.
The Underwriter may also impose a penalty bid on certain selling group
members. This means that if the Underwriter purchases shares of Common Stock
in the open market to reduce the Underwriter's short position or to stabilize
the price of the Common Stock, it may reclaim the amount of the selling
concession from the selling group members who sold those shares as part of the
Offering.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a
penalty bid might also have an effect on the price of a security to the extent
that it were to discourage resales of the security.
25
<PAGE>
Neither the Company nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above might have on the price of the Common Stock. In
addition, neither the Company nor the Underwriter makes any representation
that the Underwriter will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered by
this Prospectus will be passed upon for the Company by Huddleston, Bolen,
Beatty, Porter & Copen, Huntington, West Virginia. Certain legal matters
related to the Offering will be passed upon for the Underwriter by Shapiro and
Olander, Baltimore, Maryland.
EXPERTS
The consolidated financial statements of Champion Industries, Inc. and
subsidiaries at October 31, 1997 and 1996, and for each of the three years in
the period ended October 31, 1997, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus 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 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and 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 Prospectus, including
without limitation under the captions: "Investment Considerations,"
"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.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports, proxy statements, and other
information with the Securities and Exchange Commission (the "Commission").
This Prospectus, which constitutes a part of a registration statement on Form
S-2 (the "Registration Statement") filed by the Company with the Commission
under the Securities Act, omits certain of the information set forth in the
Registration Statement and the exhibits thereto, as permitted by the rules and
regulations of the Commission. Reference is hereby made to the Registration
Statement and the exhibits thereto for further information with respect to the
Company. Statements contained herein as to the content of any contract or
other document are necessarily summaries of such documents, and each such
statement is qualified in its entirety by reference to a copy of the applicable
document filed with the Commission. The Registration Statement, including the
exhibits and schedules filed thereto, and the reports, proxy statements and
other information filed by the Company with the Commission, can be inspected
and copied at the public reference facilities maintained by the Commission at
its principal office at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's Regional Offices at Seven World Trade Center,
13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material also can
be obtained from the Public Reference Section of the Commission, Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, registration statements, reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission (such as the Company) through the Commission's Electric Data
Gathering, Analysis and Retrieval ("EDGAR") system are publicly available
through the Commission's site on the World Wide Web, located at
http://www.sec.gov. Copies of certain reports, proxy statements and other
information filed by the Company can be inspected at the offices of National
Association of Securities Dealers, 1735 K Street, N.W., Washington, D.C.
20006-1500.
26
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This Prospectus incorporates by reference documents which are not
presented herein or delivered herewith. These documents (without exhibits,
unless such exhibits are specifically incorporated by reference) are available
without charge and upon request. Requests for documents should be directed to
Champion Industries, Inc., Attention: Joseph C. Worth, III (Telephone:
(304) 528-2791).
The following documents are incorporated by reference in this Prospectus:
1. The Registrant's Annual Report on Form 10-K for the fiscal year ended
October 31, 1997.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document that also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as
so modified or superseded, to constitute a part of this Prospectus.
27
<PAGE>
Champion Industries, Inc. and Subsidiaries
Consolidated Financial Statements
TABLE OF CONTENTS
Consolidated Financial Statements (Audited)
Report of Independent Auditors........................................ F-2
Consolidated Balance Sheet............................................ 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
Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets........................................... F-20
Consolidated Income Statements........................................ F-22
Consolidated Statements of Cash Flows................................. F-23
Notes to Consolidated Financial Statements............................ F-24
F-1
<PAGE>
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, 1997 and 1996, 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,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements 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, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended October 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Charleston, West Virginia
January 23, 1998, except
for Note 10, as to which the date
is March 2, 1998
F-2
<PAGE>
Champion Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
OCTOBER 31,
1997 1996
-------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 912,290 $ 2,460,879
Accounts receivable, net of allowance of $1,140,000 and $548,000 19,075,180 11,683,573
Inventories 11,576,651 7,446,025
Property held for sale 300,000 -
Other current assets 283,642 410,706
Deferred income tax assets 981,619 560,511
-------------------------------
Total current assets 33,129,382 22,561,694
Property and equipment, at cost:
Land 784,889 795,336
Buildings and improvements 4,144,472 4,124,217
Machinery and equipment 22,852,103 16,716,660
Equipment under capital leases 5,720,594 4,401,928
Furniture and fixtures 1,684,275 1,329,459
Vehicles 1,914,362 1,318,437
-------------------------------
37,100,695 28,686,037
Less accumulated depreciation (13,825,053) (10,852,764)
-------------------------------
23,275,642 17,833,273
Cash surrender value of officers' life insurance 921,213 784,089
Goodwill, net of accumulated amortization 2,558,356 2,565,287
Other assets 461,120 318,233
-------------------------------
3,940,689 3,667,609
-------------------------------
Total assets $60,345,713 $44,062,576
===============================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
Champion Industries, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
OCTOBER 31,
1997 1996
-------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 3,657,365 $ 1,667,705
Notes payable 2,425,000 1,300,000
Accrued payroll and commissions 2,052,130 1,065,721
Taxes accrued and withheld 571,477 806,638
Accrued income taxes 450,027 1,311,437
Accrued expenses 793,848 394,617
Current portion of long-term debt:
Notes payable 2,842,844 1,690,078
Capital lease obligations 1,401,519 746,708
------------------------------
Total current liabilities 14,194,210 8,982,904
Long-term debt, net of current portion:
Notes payable 11,328,588 4,447,934
Capital lease obligations 3,827,368 3,113,083
Deferred income tax liability 3,589,889 2,073,891
Deferred compensation 555,886 473,601
Deferred gain - 330,443
------------------------------
Total liabilities 33,495,941 19,421,856
Commitments and contingencies - -
Shareholders' equity:
Common stock, $1 par value, 20,000,000
shares authorized; 8,384,930 and 8,382,682
shares issued and outstanding 8,384,930 8,382,682
Additional paid-in capital 7,450,328 7,442,502
Retained earnings 11,014,514 8,815,536
------------------------------
Total shareholders' equity 26,849,772 24,640,720
------------------------------
Total liabilities and shareholders' equity $60,345,713 $44,062,576
==============================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
Champion Industries, Inc. and Subsidiaries
Consolidated Income Statements
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996 1995
-----------------------------------------------------
<S> <C> <C> <C>
Revenues:
Printing $ 87,978,709 $ 49,242,232 $ 35,370,827
Office products and office furniture 20,405,929 17,114,644 14,532,229
-----------------------------------------------------
Total revenues 108,384,638 66,356,876 49,903,056
Cost of sales:
Printing 59,849,596 33,014,938 22,250,920
Office products and office furniture 13,289,403 11,076,854 9,670,370
-----------------------------------------------------
Total cost of sales 73,138,999 44,091,792 31,921,290
Selling, general and administrative expenses 28,079,009 16,197,359 12,787,876
-----------------------------------------------------
Income from operations 7,166,630 6,067,725 5,193,890
Other income (expense):
Interest income 20,116 25,287 10,705
Interest expense (1,586,418) (692,914) (252,368)
Other 737,097 223,589 113,505
-----------------------------------------------------
(829,205) (444,038) (128,158)
-----------------------------------------------------
Income before income taxes 6,337,425 5,623,687 5,065,732
Income taxes (2,570,644) (2,251,319) (2,059,447)
-----------------------------------------------------
Net income $ 3,766,781 $ 3,372,368 $ 3,006,285
Earnings per share:
Basic $ 0.45 $ 0.41 $ 0.37
Diluted $ 0.45 $ 0.40 $ 0.37
Weighted-average shares outstanding:
Basic 8,383,391 8,323,518 8,147,389
Diluted 8,441,083 8,356,032 8,176,716
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
Champion Industries, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1994 5,292,717 $5,292,717 $7,829,209 $ 4,617,564 $17,739,490
Net income for 1995 - - - 3,006,285 3,006,285
Dividends ($0.122 per share) - - - (958,060) (958,060)
Stock issued in acquisitions 52,383 52,383 (42,808) - 9,575
Cash paid in lieu of fractional shares (168) (168) (3,413) - (3,581)
Stock split (five shares for four) 1,266,789 1,266,789 (1,266,789) - -
--------------------------------------------------------------------------
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 shares) 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
==========================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
Champion Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996 1995
---------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,766,781 $ 3,372,368 $ 3,006,285
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation, amortization and accretion 3,179,515 2,002,480 1,314,937
Deferred gain on sale of assets (371,041) (23,260) (19,128)
Deferred income taxes (benefit) 334,409 236,860 (65,135)
Deferred compensation 82,285 92,933 109,911
Changes in assets and liabilities:
Accounts receivable (1,690,650) (1,579,298) (923,706)
Inventories (1,758,510) (88,812) (1,487,066)
Other current assets 152,345 (232,237) (35,769)
Accounts payable 236,195 (902,376) (85,317)
Accrued payroll 616,772 (222,450) 71,751
Taxes accrued and withheld (235,161) 255,134 (44,280)
Accrued income taxes (946,031) 650,031 (1,298,839)
Accrued expenses (1,383,537) (255,416) (24,119)
----------------------------------------------------
Net cash provided by operating activities 1,983,372 3,305,957 519,525
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,163,775) (2,538,459) (3,409,124)
Proceeds from sale of assets 163,103 34,745 -
Businesses acquired, net of cash received 254,676 (1,118,792) 18,206
Increase in other assets (297,364) (137,655) (88,796)
----------------------------------------------------
Net cash (used in) investing activities (2,043,360) (3,760,161) (3,479,714)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on notes payable 1,575,000 1,300,000 -
Proceeds from long-term debt and capital leases 1,306,919 3,122,343 2,393,559
Principal payments on long-term debt and capital leases (2,812,791) (1,672,249) (815,506)
Dividends paid (1,567,803) (1,222,621) (958,060)
Proceeds from exercise of stock options 13,751 - -
Cash paid in lieu of fractional shares (3,677) (2,736) (3,581)
----------------------------------------------------
Net cash (used in) provided by financing activities (1,488,601) 1,524,737 616,412
----------------------------------------------------
Net (decrease) increase in cash (1,548,589) 1,070,533 (2,343,777)
Cash and cash equivalents at beginning of year 2,460,879 1,390,346 3,734,123
----------------------------------------------------
Cash and cash equivalents at end of year $ 912,290 $2,460,879 $1,390,346
====================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
<PAGE>
Champion Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
October 31, 1997
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, and Blue Ridge Printing Company, Inc.
Significant intercompany transactions have been eliminated in consolidation.
CASH EQUIVALENTS
The Company considers all highly liquid investments, with an original maturity
of three months or less, to be cash equivalents.
Cash and cash equivalents consist principally of cash on deposit with banks
and repurchase agreements for government securities held in one bank. At
October 31, 1997 and 1996, the Company held overnight repurchase agreements
for $50,621 and $119,393 of Federal National Mortgage Association securities
with stated interest rates of 4.0% and 4.06%.
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
<PAGE>
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 $3,021,000, $1,905,000 and
$1,183,000 for the years ended October 31, 1997, 1996, and 1995.
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 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, 1997
and 1996, approximated $956,000 and $824,000. Amortization expense approximated
$132,000, $98,000 and $132,000 for the years ended October 31, 1997, 1996, and
1995.
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.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expense for the years
ended October 31, 1997, 1996, and 1995 approximated $646,000, $378,000 and
$346,000.
2. INVENTORIES
Inventories consisted of the following:
OCTOBER 31,
1997 1996
-------------------------
Printing:
Raw materials $ 3,030,425 $2,507,717
Work in process 2,867,270 1,530,933
Finished goods 2,806,475 572,228
Office products and office furniture 2,872,481 2,835,147
-------------------------
$11,576,651 $7,446,025
=========================
F-9
<PAGE>
Champion Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. CREDIT ARRANGEMENTS
The Company has an unsecured line of credit with a bank for borrowings to a
maximum of $2,000,000 with interest payable quarterly at the prime rate plus
0.5%. This line of credit, which expires on May 31, 1998, contains certain
restrictive financial covenants. There was $2,000,000 outstanding under this
facility at October 31, 1997 and $1,100,000 outstanding at October 31, 1996.
The Company also has an unsecured line of credit with a bank for borrowings
to a maximum of $800,000 with interest payable quarterly at the bank's
prime rate. This line of credit expires on March 11, 1998, and is guaranteed
by the President of the Company. There was $425,000 outstanding under this
facility at October 31, 1997 and 1996.
4. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
1997 1996
-----------------------------
<S> <C> <C>
Unsecured term note payable to a bank, due in
monthly principal installments of $149,000 plus
interest at the prime rate with the note maturing
April 2004 $11,600,431 $ -
Installment notes payable to banks, due in monthly
installments totaling $103,000 with interest rates
approximating the bank's prime rate and the last note
maturing October 2002, collateralized by equipment,
vehicles, inventory, accounts receivable, and, on
certain notes, the personal guarantee of the President
of the Company 2,122,215 3,987,464
Unsecured installment notes payable to banks, due in
monthly installments totaling $27,000, with interest
rates approximating the bank's prime rate, with the
last note maturing August 1999 448,786 2,150,548
Capital lease obligations, due in monthly installments
totaling $177,000, including interest at the bank's
prime rate, less .50% to 1%, through March 2004 5,228,887 3,859,791
-----------------------------
19,400,319 9,997,803
Less current portion 4,244,363 2,436,786
-----------------------------
Long-term debt, net of current portion $15,155,956 $7,561,017
==============================
</TABLE>
The unsecured term note agreement contains restrictive financial covenants
requiring the Company to maintain certain financial ratios.
F-10
<PAGE>
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
----------------------------------------
1998 $2,842,844 $1,401,519 $4,244,363
1999 2,368,790 1,346,313 3,715,103
2000 2,174,840 1,004,298 3,179,138
2001 2,065,791 836,592 2,902,383
2002 1,963,494 435,668 2,399,162
Thereafter 2,755,673 204,497 2,960,170
----------------------------------------
$14,171,432 $5,228,887 $19,400,319
=========================================
The prime rate, the base interest rate on the above loans, approximated 8.0%
and 8.25% at October 31, 1997 and 1996. Interest paid during the years ended
October 31, 1997, 1996, and 1995 approximated $1,511,000, $632,000 and
$240,000.
The Company's non-cash activities included equipment purchases of approximately
$1,733,000, which were financed by a bank.
5. INCOME TAXES
Income taxes consisted of the following:
Year Ended October 31,
1997 1996 1995
----------------------------------------
Current expense:
Federal $1,783,878 $1,620,319 $1,709,746
State 452,357 394,000 415,000
Deferred expense (benefit) 334,409 237,000 (65,299)
----------------------------------------
$2,570,644 $2,251,319 $2,059,447
========================================
F-11
<PAGE>
Champion Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
October 31,
1997 1996
------------------------
<S> <C> <C>
Assets:
Allowance for doubtful accounts $ 455,940 $ 218,977
Deferred compensation 222,354 184,704
Net operating loss carryforward of acquired companies 307,035 198,663
Accrued vacation 217,980 -
Other accrued liabilities 238,244 156,829
------------------------
Gross deferred tax assets 1,441,553 759,173
Liabilities:
Property and equipment 4,049,824 2,272,554
------------------------
Gross deferred liability 4,049,824 2,272,554
------------------------
Net deferred tax liabilities $2,608,271 $1,513,381
========================
</TABLE>
A reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate is as follows:
Year Ended October 31,
1997 1996 1995
-------------------------------
Statutory federal income tax rate 34% 34% 34%
State taxes, net of federal benefit 5 5 6
Other 2 1 1
------------------------------
Effective tax rate 41% 40% 41%
==============================
Income taxes paid during the years ended October 31, 1997, 1996 and 1995
approximated $3,024,000, $1,437,000 and $3,414,000.
The Company has available, for income tax purposes, net operating loss
carryforwards from acquired companies of approximately $464,000, of which
$122,000 expires in 2010 and $342,000 in 2011.
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.
The Company also leases vehicles from an entity controlled by its President.
Vehicle leases are for an initial term of twenty-four months and month-to-
month thereafter. Lease payments average $350 per month.
F-12
<PAGE>
Champion Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
A summary of significant related party transactions follows:
<TABLE>
<CAPTION>
Year Ended October 31,
1997 1996 1995
---------------------------------------
<S> <C> <C> <C>
Rent expense paid to affiliated entities for:
Vehicles $ 7,920 $ 13,130 $ 86,559
Operating facilities 363,100 363,100 363,100
Purchases of materials and supplies from
affiliated entities 95,616 181,113 197,963
Sales of office products, office furniture and
printing services to affiliated entities 461,674 840,482 984,132
</TABLE>
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
$334,000, $265,000 and $368,000 for the years ended October 31, 1997, 1996 and
1995.
In addition, the Company leases property and equipment from unrelated entities
under operating leases. Rent expense amounted to $489,000, $321,000 and
$125,000 for the years ended October 31, 1997, 1996, and 1995.
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,
1997:
1997 $738,000
1998 718,000
1999 502,000
2000 379,000
2001 292,000
Thereafter 893,000
----------
$3,522,000
==========
Accounts receivable from affiliated entities resulting from sales transactions
approximated $32,000 and $54,000 at October 31, 1997 and 1996.
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, 1997, 1996
and 1995 was approximately $1,456,000, $733,000 and $652,000.
F-13
<PAGE>
Champion Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. EMPLOYEE BENEFIT PLANS
The Company has a Profit Sharing Plan (the "Plan") which covers all eligible
employees and qualifies as a Savings Plan under Section 401(k) of the Internal
Revenue Code. The Company may make discretionary contributions to the Plan. In
addition to the Company's contribution, the participants may make voluntary
contributions up to 2% of their salary not to exceed $300. The Company's
expense under the Plan was approximately $158,000, $97,000 and $66,000 for
the years ended October 31, 1997, 1996 and 1995.
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
610,351 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 are incentive stock options. 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 2.4 years. A summary of
the Company's stock option activity and related information for the years
ended October 31 follows:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Exercise Exercise
1997 Price 1996 Price
-------------------------------------------
<S> <C> <C> <C> <C>
Outstanding-beginning of year 146,973 $11.12 100,098 $ 9.28
Granted 35,000 17.90 46,875 15.04
Exercised (2,441) 5.63 - -
-------- --------
Outstanding-end of year 179,532 12.52 146,973 11.12
======== ========
Weighted average fair value of
options granted during the year $4.63 $3.62
======== ========
</TABLE>
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.
F-14
<PAGE>
Champion Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Pro forma information regarding net income and earnings per share has been
determined as if the Company had accounted for its employee stock options
under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions for 1997 and
1996, respectively: risk-free interest rates of 6.04% and 5.63%; dividend
yields of 1.10% and 1.37%; volatility factors of the expected market price
of the Company's common stock of .236 and .230; 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.
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:
1997 1996
--------------------------------------
Pro forma net income $3,605,000 $3,203,000
======================================
Pro forma basic and diluted
earnings per share $0.41 $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 $556,000 and $474,000 at October 31, 1997 and 1996, relating
to these agreements. The amount expensed for these agreements for the years
ended October 31, 1997, 1996, and 1995 approximated $82,000, $93,000, and
$110,000. To assist in funding the deferred compensation agreements, the
Company has invested in life insurance policies which had cash surrender
values of $404,000 and $359,000 at October 31, 1997 and 1996.
8. 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 Stationer's 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. 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, Stationer's
was released from this guarantee, and the remaining gain was recognized. The
gain recognized for the years ended October 31, 1997, 1996, and 1995 amounted
to $330,000, $23,000 and $19,000.
F-15
<PAGE>
Champion industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. 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.
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.
10. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued statement No. 128,
"Earnings Per Share," which requires the reporting of basic and diluted
earnings per share. The Company adopted Statement 128 in the first quarter
of 1998, as required. Earnings per share and weighted average shares
outstanding for all periods presented have been restated to conform to
Statement 128. Basic earnings per share is calculated by dividing net income
by the weighted average number of shares outstanding for the respective
period. Diluted earnings per share is computed by dividing net income by
weighted average number of shares outstanding for the respective period plus
the number of shares which would be issued assuming the exercise of dilutive
stock options. The dilutive effect of stock options approximated 57,692,
32,514 and 29,327 shares in 1997, 1996 and 1995, respectively.
11. ACQUISITIONS
On December 31, 1996, the Company acquired all of the outstanding common
stock of Interform Corporation 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.
On August 21, 1996, the Company acquired various assets with a fair value
of approximately $2,500,000 and assumed certain liabilities of approximately
$2,500,000 of The Merten Company. The Company refinanced $2,000,000 of the
assumed liabilities through a loan from a bank.
On July 1, 1996, the Company acquired all of the outstanding common stock of
Smith and Butterfield Co., Inc. in exchange for 66,666 shares of its common
stock with a fair value of $1,200,000.
F-16
<PAGE>
Champion Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
On February 2, 1996, the Company acquired various assets and assumed certain
liabilities of E.S. Upton Printing Company, Inc. for approximately $750,000
in cash. The Company obtained a loan from a bank of $750,000 to finance
this acquisition.
These acquisitions have been accounted for under the purchase method of
accounting. Accordingly, the purchase prices have been allocated to the
assets acquired and liabilities assumed based upon their fair values at the
respective acquisition date. The operating results of these businesses are
included in the Consolidated Income Statements since their respective
acquisition dates.
The following summarizes the unaudited consolidated pro forma results of
operations for the years ended October 31, 1997 and 1996, assuming all of
the acquisitions, including Interform Corporation, accounted for under the
purchase method had been consummated at the beginning of each year presented.
1997 1996
----------- -----------
Revenues $113,710,000 $104,054,000
Net income $3,661,000 $2,410,000
Diluted earnings per share $0.43 $0.29
Diluted weighted average
shares outstanding 8,441,083 8,414,548
In April 1997, the Company acquired all of the outstanding common stock of
Blue Ridge Printing Co., Inc. (Blue Ridge) in exchange for 277,775 shares of
the Company's common stock. This combination has been accounted for as a
pooling of interests. Accordingly, all prior period financial information
has been restated as though they had always been combined. The following is
an analysis presenting the results of operations for 1997 and 1996 of the
separate companies.
Diluted
Net Earnings
Revenues Income Per Share
--------------- --------------- ------------
1997
----
Champion $101,233,702 $3,400,266 $0.42
Blue Ridge 7,150,936 366,515
-----------------------------
Consolidated $108,384,638 $3,766,781 $0.45
============================
1996
----
Champion $ 59,884,599 $3,252,476 $0.40
Blue Ridge 6,472,277 119,892
-----------------------------
Consolidated $ 66,356,876 $3,372,368 $0.40
============================
F-17
<PAGE>
Champion Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. 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. The Company employs
approximately 900 people, approximately 100 of whom are covered by a
collective bargaining agreement which expires on May 31, 2004. The Company
believes its relations with employees is satisfactory.
The Company operates entirely in the United States. Inter-segment sales
are not significant.
Revenues and operating income for the years ended October 31, 1997,
1996, and 1995, and identifiable assets at the end of each of those years,
were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------------------
Revenues:
<S> <C> <C> <C>
Printing $87,978,709 $49,242,232 $35,370,827
Office products and furniture 20,405,929 17,114,644 14,532,229
Operating income:
Printing 6,065,034 4,768,676 3,991,652
Office products and furniture 1,101,596 1,299,049 1,202,238
Depreciation and amortization:
Printing 2,955,739 1,843,309 1,203,135
Office products and furniture 223,776 159,171 111,802
Capital expenditures:
Printing 1,812,896 2,375,301 3,322,984
Office products and furniture 350,879 163,158 86,140
Identifiable assets:
Printing 52,577,247 36,498,504 23,863,639
Office products and furniture 7,768,466 7,564,072 4,779,198
</TABLE>
13. 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 short-term
revolving credit agreements and long-term debt was estimated using discounted
cash flows and it approximates their carrying value.
F-18
<PAGE>
Champion Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the
years ended October 31, 1997 and 1996. Earnings per share and weighted
average shares outstanding amounts have been restated to comply with Statement
of Financial Accounting Standards No. 128, "Earnings Per Share."
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------------------------------------------------------
REVENUES
1997 $21,116,000 $29,260,000 $27,867,000 $30,142,000
1996 15,718,000 15,941,000 15,664,000 19,034,000
COST OF SALES
1997 15,111,000 19,331,000 19,129,000 19,568,000
1996 10,904,000 10,412,000 10,177,000 12,599,000
NET INCOME
1997 869,000 971,000 781,000 1,146,000
1996 630,000 895,000 776,000 1,071,000
BASIC AND DILUTED
EARNINGS PER SHARE
1997 .10 .12 .09 .14
1996 .08 .11 .09 .13
WEIGHTED AVERAGE
SHARES OUTSTANDING
Basic
1997 8,382,489 8,382,489 8,383,656 8,384,930
1996 8,284,608 8,299,350 8,327,429 8,382,683
Diluted:
1997 8,438,879 8,442,243 8,435,827 8,447,106
1996 8,317,269 8,329,445 8,360,283 8,417,132
F-19
<PAGE>
Champion Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
Assets
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1998 1997
--------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ (77,007) $ 912,290
Accounts receivable, net of allowance of $1,221,000 and $1,140,000 18,634,981 19,075,180
Inventories 11,727,541 11,576,651
Property held for sale --- 300,000
Other current assets 501,271 283,642
Deferred income tax assets 981,619 981,619
--------------------------------
Total current assets 31,768,405 33,129,382
Property and equipment, at cost:
Land 784,889 784,889
Buildings and improvements 4,180,269 4,144,472
Machinery and equipment 23,464,881 22,852,103
Equipment under capital leases 5,720,594 5,720,594
Furniture and fixtures 1,652,194 1,684,275
Vehicles 1,986,223 1,914,362
--------------------------------
37,789,050 37,100,695
Less accumulated depreciation (14,596,448) (13,825,053)
--------------------------------
23,192,602 23,275,642
Cash surrender value of officers' life insurance 972,424 921,213
Goodwill, net of accumulated amortization 2,543,153 2,558,356
Other assets 404,037 461,120
--------------------------------
3,919,614 3,940,689
--------------------------------
Total assets $58,880,621 $60,345,713
===============================
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
F-20
<PAGE>
<TABLE>
<CAPTION>
Champion Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
Liabilities and Shareholders' Equity
JANUARY 31, OCTOBER 31,
1998 1997
--------------------------------
<S> <C> <C>
Current liabilities:
Notes payable $ 2,900,000 $ 2,425,000
Accounts payable 2,423,898 3,657,365
Accrued payroll 1,731,298 2,052,130
Taxes accrued and withheld 547,387 571,477
Accrued income taxes 478,218 450,027
Accrued expenses 819,386 793,848
Current portion of long-term debt:
Notes payable 2,842,844 2,842,844
Capital lease obligations 1,401,519 1,401,519
---------------------------------
Total current liabilities 13,144,550 14,194,210
Long-term debt, net of current portion
Notes payable 10,796,498 11,328,588
Capital lease obligations 3,503,618 3,827,368
Deferred compensation 569,047 555,886
Deferred income tax liability 3,589,889 3,589,889
Deferred gain --- ---
--------------------------------
Total liabilities 31,603,602 33,495,941
Commitments and contingencies --- ---
Shareholders' equity:
Common stock, $1 par value, 20,000,000 shares authorized;
8,388,445 and 8,384,930 shares issued and outstanding 8,388,445 8,384,930
Additional paid-in capital 7,495,930 7,450,328
Retained earnings 11,392,644 11,014,514
-------------------------------
Total shareholders' equity 27,277,019 26,849,772
-------------------------------
Total liabilities and shareholders' equity $58,880,621 $60,345,713
===============================
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
F-21
<PAGE>
<TABLE>
<CAPTION>
Champion Industries, Inc. and Subsidiaries
Consolidated Income Statements
(Unaudited)
Three Months Ended
January 31,
1998 1997
--------------------------------
<S> <C> <C>
Revenues:
Printing $ 23,955,963 $ 16,137,366
Office products and office furniture 5,678,515 4,978,470
---------------------------------
Total revenues 29,634,478 21,115,836
Cost of sales:
Printing 17,508,471 11,778,980
Office products and office furniture 3,759,136 3,332,299
---------------------------------
Total cost of sales 21,267,607 15,111,279
---------------------------------
Gross profit 8,366,871 6,004,557
---------------------------------
Selling, general and administrative expenses 6,662,752 4,694,266
---------------------------------
Income from operations 1,704,119 1,310,291
---------------------------------
Other income (expense):
Interest income 157 7,396
Interest expense (427,415) (238,070)
Other 110,208 454,846
---------------------------------
(317,050) 224,172
---------------------------------
Income before income taxes 1,387,069 1,534,463
Income taxes (589,691) (665,466)
---------------------------------
Net income $ 797,378 $ 868,997
================================
Earnings per share:
Basic $.10 $.10
Diluted .09 .10
Dividends per share: $.05 $.04
Weighted average shares outstanding:
Basic 8,385,656 8,382,489
Diluted 8,435,507 8,438,879
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
F-22
<PAGE>
<TABLE>
<CAPTION>
Champion Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
January 31,
1998 1997
--------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 797,377 $ 868,998
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation, amortization and accretion 786,597 636,486
Gain on sale of property (39,000) --
Deferred gain on sale of assets -- (330,443)
Deferred income taxes -- 36,031
Deferred compensation 13,161 18,988
Changes in assets and liabilities:
Accounts receivable 440,199 1,371,015
Inventories (150,889) (836,877)
Other current assets (217,629) (187,678)
Accounts payable (1,233,467) (461,614)
Accrued payroll (320,832) (88,130)
Taxes accrued and withheld (24,090) (139,617)
Accrued income taxes 28,191 (678,302)
Accrued expenses 25,538 (871,228)
--------------------------------
Net cash provided by (used in) operations 105,156 (662,371)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (596,101) (543,192)
Proceeds from sale of assets 339,000 --
Business acquired, net of cash received -- 254,676
Increase in cash surrender value of officer's life insurance (51,211) (46,673)
Decrease in other assets 57,084 9,296
--------------------------------
Net cash (used in) provided by investing activities (251,228) (325,893)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on notes payable 475,000 950,000
Proceeds from long-term debt and capital leases 104,000 282,433
Principal payments on long-term debt and capital leases (1,052,093) (749,442)
Proceeds from exercise of stock options 49,115 --
Cash paid in lieu of fractional shares -- (3,677)
Dividends paid (419,247) (324,195)
--------------------------------
Net cash (used in) provided by financing activities (843,225) 155,119
--------------------------------
Net (decrease) increase in cash (989,297) (833,145)
Cash and cash equivalents, beginning of period 912,290 2,460,879
--------------------------------
Cash and cash equivalents, end of period $ (77,007) $1,627,734
================================
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
F-23
<PAGE>
Champion Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BUSINESS OPERATIONS AND BASIS OF PRESENTATION
The foregoing financial information is unaudited and has been prepared from
the records of Champion Industries, Inc., and subsidiaries ("Champion" or the
"Company"). In the opinion of management, the financial information reflects
all adjustments (consisting only of normal recurring adjustments) necessary
for a fair presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles. These
interim financial statements should be read in conjunction with the financial
statements for the year ended October 31, 1997 and related notes thereto
contained in the Company's Form 10-K dated January 29, 1998. The accompanying
unaudited financial statements are presented in accordance with generally
accepted accounting principles and instructions to the Securities and Exchange
Commission Form 10-Q.
The accompanying consolidated financial statements of the Company include the
accounts of The Chapman Printing Company, Inc., Stationers, Inc., Bourque
Printing, Inc., Dallas Printing Company, Inc., Carolina Cut Sheets, Inc.,
U.S. Tag & Ticket Company, Inc., Donihe Graphics, Inc., The Merten Company,
Smith & Butterfield Co., Inc., Interform Corporation and Blue Ridge Printing
Co., Inc.
2. 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. The Company utilizes an estimated gross profit method for
determining cost of sales in interim periods.
Inventories consisted of the following:
JANUARY 31, OCTOBER 31,
1998 1997
-------------------------
Printing:
Raw materials $ 3,049,180 $ 3,030,425
Work in process 2,885,015 2,867,270
Finished goods 2,823,844 2,806,475
Office products and office furniture 2,969,502 2,872,481
-------------------------
$11,727,541 $11,576,651
=========================
3. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board (FASB) issued Statement
No. 128, Earnings per Share, which requires the reporting of basic and diluted
earnings per share. The Company adopted Statement 128 in the first quarter of
1998 as required. Earnings per share and weighted average shares outstanding
for all periods presented have been restated to conform to Statement 128.
Basic earnings per share excludes any dilutive effects of stock options and is
computed by dividing net income by the weighted average shares of common stock
outstanding for the period. 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 on weighted
average shares outstanding was 49,851 and 56,390 for the quarters ended
January 31, 1998 and 1997.
F-24
<PAGE>
Champion Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), continued
4. DIVIDENDS
The Company declared a dividend of five cents to be paid on March 27, 1998,
to stockholders of record on March 9, 1998.
5. ACQUISITIONS
On December 31, 1996, the Company acquired all the issued and outstanding
common shares of Interform Corporation ("Interform"), a business forms printer
located in Bridgeville, Pennsylvania, in exchange for cash of $2.5 million.
Champion utilized the proceeds of a loan from a bank to provide the cash
consideration and to refinance the existing long-term debt of Interform.
The transaction was accounted for under the purchase method of accounting.
The following summarizes the unaudited consolidated pro forma results of
operations for the quarter ended January 31, 1997, assuming the acquisition
had been consummated at the beginning of the quarter.
1997
-----------
Revenues $26,441,000
Net income $691,000
Diluted earnings per share $.08
Diluted weighted average shares outstanding 8,438,879
6. NEW ACCOUNTING PRONOUNCEMENTS
In June, 1997, the FASB issued Statement No. 130 "Reporting Comprehensive
Income" and Statement No. 131, "Disclosures About Segments of an Enterprise
and Related Information." The Company does not expect that the adoption of
these statements will have a material impact on the consolidated financial
statements.
F-25
<PAGE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
======================================================= =======================================================
No dealer, salesperson or other individual has
been authorized to give any information or make any
representations in connection with this Offering other
than those contained in this Prospectus, and if given
or made, such information or representations must not 1,000,000 SHARES
be relied upon as having been authorized by the
Company or any Underwriter. This Prospectus does not
constitute an offer to sell, or a solicitation of an
offer to buy, any securities other than the shares of
Common Stock to which it relates or an offer to, or
a solicitation of, any person in any jurisdiction in [LOGO]
which such offer or solicitation would be unlawful.
Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create
an implication that there has not been any change in
the affairs of the Company or that the information
contained herein is correct as of any time subsequent
to the date hereof.
CHAMPION
------------------------------- INDUSTRIES, INC.
TABLE OF CONTENTS
Page Common Stock
----
Prospectus Summary................................. 3 ------------------------------------------------------
Investment Considerations.......................... 6 PROSPECTUS
Use of Proceeds.................................... 7 ------------------------------------------------------
Price Range of Common Stock........................ 7
Dividend Policy.................................... 8
Capitalization..................................... 8
Selected Consolidated Financial Data............... 9
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 10
Business........................................... 15
Legal Proceedings.................................. 23
Management......................................... 23
Principal Shareholder.............................. 24 FERRIS, BAKER WATTS
Description of Capital Stock....................... 25 Incorporated
Underwriting....................................... 25
Legal Matters...................................... 27
Experts............................................ 27
Special Note Regarding Forward-Looking Statements.. 27
Available Information.............................. 27
Incorporation of Certain Information by Reference.. 28
Index to Consolidated Financial Statements......... F-1 , 1998
======================================================= =======================================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Printing and engraving expenses..... $104,000
Legal fees and expenses............. 120,000
Accounting fees and expenses........ 45,000
Transfer agent fees................. 3,000
Miscellaneous....................... 10,000
--------
Total............................... $282,000
========
- -----------------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
West Virginia Code 31-1-9, entitled "Indemnification of officers,
directors, employees, and agents" states as follows:
"(a) A corporation shall have the power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending
or completed action or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines, taxes and penalties and interest thereon,
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding had
no reasonable cause to believe his conduct was unlawful. The termination of
any action or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, that such
person did have reasonable cause to believe that his conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or proceeding by or in the right of the corporation to
procure judgment in its favor by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of such action or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter,
including, but not limited to, taxes or any interest or penalties thereon, as
to which such person shall have been adjudged to be liable for negligence or
misconduct
II-1
<PAGE>
in the performance of his duty to the corporation unless and only to the
extent that the court in which such action or proceeding was brought shall
determine upon application that, despite the adjudication of liability but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action or proceeding referred to in subsection (a) or (b), or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(d) Any indemnification under subsection (a) or (b) (unless ordered by
a court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsection (a) or (b). Such
determination shall be made (1) by the board of directors by a majority vote
of a quorum consisting of directors who were not parties to such action or
proceeding, or (2) if such a quorum is not obtainable, or even if obtainable
a quorum of disinterested directors so directs, by independent legal counsel
in a written opinion, or (3) by the stockholders or members.
(e) Expenses (including attorneys' fees) incurred in defending a civil
or criminal action or proceeding may be paid by the corporation in advance of
the final disposition of such action or proceeding as authorized in the manner
provided in subsection (d) upon receipt of an undertaking by or on behalf of
the director, officer, employee or agent to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
corporation as authorized in this section.
(f) The indemnification provided by this section shall not be deemed
exclusive of any other rights to which any stockholder or member may be
entitled under any bylaw, agreement, vote of stockholders, members or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors, and
administrators of such a person.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation, partnership,
joint partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity or
arising out of his status as such, whether or not the corporation would have
the power to indemnify him against such liability under the provisions of this
section."
Article VIII of the Registrant's By-Laws provides as follows:
Each director of this corporation, or former director or officer of
this corporation, or any person who may have served at its request as a
director or officer of another corporation, his heirs and personal
representatives, shall be indemnified by this corporation against costs
and expenses at any time reasonably incurred by him arising out of or in
connection with any claim, action, suit or proceeding, civil or criminal,
against him or to which he may be made a party by reason of his being or
having been such director or officer except in relation to matters as to
which he shall be adjudged in such action, suit or proceeding to be
liable for gross negligence or willful misconduct in the performance of a
duty to the corporation. If in the judgement of the board of directors
of this corporation a settlement of any claim, action, suit or proceeding
so arising be deemed in the best interests of the corporation, any such
director or officer shall be reimbursed for any amounts
II-2
<PAGE>
paid by him in effecting such settlement and reasonable expenses incurred
in connection therewith. The foregoing right of indemnification shall be
in addition to any and all rights to which any director or officer may be
entitled as a matter of law.
Pursuant to the foregoing authority, the Registrant has entered into
Indemnification Agreements dated January 28, 1993 with certain of its
directors and officers, the form of which is incorporated by reference as an
exhibit to this Registration Statement.
ITEM 16. EXHIBITS
Number Description Reference
- -------------------------------------------------------------------------------
(1) Form of Underwriting Agreement Exhibit 1.1
(2) Plan of acquisition, Agreement of Merger dated March 24,
reorganization, arrangement, 1997 between Company and Blue Ridge
liquidation or succession Printing Co., Inc., filed as
Exhibit 2.1 to Form 8-K dated
April 3, 1997 filed April 3, 1997.
(3) 3.1 Articles of Incorporation Filed as Exhibit 3.1 to Form 10-Q
dated June 16, 1997, filed on
June 16, 1997.
3.2 Bylaws Filed as Exhibit 3.2 to
Registration Statement on Form
S-1, File No. 33-54454, filed on
November 10, 1992.
(4) Instruments defining the See Exhibit 3.1 above.
rights of security holders,
including debentures.
(5) Opinion and Consent of Exhibit 5.1.
Huddleston, Bolen, Beatty,
Porter & Copen
(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.
II-3
<PAGE>
16. EXHIBITS (continued)
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.
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.
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.
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.
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.
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.
$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.
II-4
<PAGE>
16. EXHIBITS (continued)
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.
Form of Indemnification Agreement
between Company and certain
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.
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.
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.
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.
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.
II-5
<PAGE>
16. EXHIBITS (continued)
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.
Master Vehicle Lease dated
January 28, 1993 between
Champion Leasing Corp. and
Company, filed as Exhibit 10.8
to Form 10-K dated January 27,
1994, filed January 31, 1994.
Line of credit pursuant to Note
of Stationers, Inc. in principal
amount of $500,000, payable to
The Twentieth Street Bank, filed
as Exhibit 10.5 to Registration
Statement on Form S-1, File
No. 33-54454, filed on
November 10, 1992.
$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.
Business Loan Agreement between
Stationers Inc. and First Sentry
Bank dated March 11, 1997 in
original principal amount of
$800,000, with attendant
Promissory Note, filed as Exhibit
10.2 to Form 10-K dated January 29,
1998, filed January 29, 1998.
Commercial Gross Lease between M.
Feild Gomila et al and Bourque
Printing d/b/a 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.
II-6
<PAGE>
16. EXHIBITS (continued)
Executive Compensation Plans Company's 1993 Stock Option Plan,
and Arrangements effective March 22, 1994, filed as
Exhibit 10.14 to Form 10-K dated
January 27, 1994, filed January 31,
1994.
(10.4) 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.
(10.5) 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.
(21) Subsidiaries of the Registrant Exhibit 21.1
(23.1) Consent of Ernst & Young LLP Exhibit 23.1
(24) Power of Attorney Exhibit 24.1
(27) Financial Data Schedule Exhibit 27 EDGAR
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
II-7
<PAGE>
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering such securities at that time shall be deemed
to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
Amendment No. 1 to Registration Statement No. 333-47585 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Huntington, State of West Virginia, on March 16, 1998.
CHAMPION INDUSTRIES, INC.
By /s/ Marshall T. Reynolds
-------------------------------------
Marshall T. Reynolds
President and Chief Executive Officer
II-9
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement No. 333-47585 has been signed
below by the following persons in the capacities on the dates indicated.
SIGNATURE AND TITLE DATE
/s/ Marshall T. Reynolds March 16, 1998
- ------------------------------------------
Marshall T. Reynolds, Chairman of the
Board of Directors, President and Chief
Executive Officer (Principal Executive
Officer)
/s/ Joseph C. Worth, III March 16, 1998
- ------------------------------------------
Joseph C. Worth, III, Chief Financial
Officer (Principal Financial Officer);
Vice President
/s/ Marshall T. Reynolds * March 16, 1998
- ------------------------------------------
Robert H. Beymer, Director
/s/ Marshall T. Reynolds * March 16, 1998
- ------------------------------------------
Philip E. Cline, Director
/s/ Marshall T. Reynolds * March 16, 1998
- ------------------------------------------
Harley F. Mooney, Jr., Director
/s/ Marshall T. Reynolds * March 16, 1998
- ------------------------------------------
Todd L. Parchman, Director
/s/ Marshall T. Reynolds * March 16, 1998
- ------------------------------------------
A. Michael Perry, Director
/s/ Marshall T. Reynolds * March 16, 1998
- ------------------------------------------
Neal W. Scaggs, Director
/s/ Marshall T. Reynolds * March 16, 1998
- ------------------------------------------
Glenn W. Wilcox, Sr., Director
* By Marshall T. Reynolds, attorney in fact
II-10
<PAGE>
EXHIBIT 1.1
FORM OF UNDERWRITING AGREEMENT
March ___, 1998
Ferris, Baker Watts, Incorporated
As Representative of the
Several Underwriters Identified
In Schedule A Annexed Hereto
100 Light Street
Baltimore, Maryland 21202
Gentlemen:
SECTION 1. Introduction. Champion Industries Inc., a West Virginia
corporation (the "Company"), has authorized capital stock consisting of
20,000,000 shares of Common Stock, $1.00 par value per share (the "Common
Stock"), of which 8,464,167 shares are issued and outstanding. The Company
proposes to sell an aggregate of 1,000,000 shares of Common Stock (the "Firm
Common Shares") to the several underwriters identified in Schedule A annexed
hereto (the "Underwriters"), who are acting severally and not jointly. In
addition, the Company has agreed to grant to the Underwriters an option to
purchase up to 150,000 additional shares of Common Stock (the "Optional
Common Shares") as provided in Section 4 hereof. The Firm Common Shares and,
to the extent such option is exercised, the Optional Common Shares, are
hereinafter collectively referred to as the "Common Shares."
You, as representative of the Underwriters (the "Representative"),
have advised the Company that the Underwriters propose to make a public
offering of the Common Shares on the effective date of the Registration
Statement, as defined in Section 2(f) hereof, or as soon thereafter as in
the Representative's judgment is advisable, and that the purchase price
of the Common Shares will be the public offering price of $_____ per share
less underwriting discounts and commissions of seven percent (7%) or
$_____ per share.
The Company hereby confirms its agreements with the Underwriters
as follows:
SECTION 2. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) The Company and its subsidiaries (collectively the
"Subsidiaries") are duly incorporated and validly existing as corporations
in good standing under the laws of their jurisdictions of incorporation,
with full corporate power and authority to own and/or lease their
properties and conduct their business as described in the Prospectus
(as defined in Section 2(f) hereof); the Company and its Subsidiaries are
duly qualified to do business as foreign corporations under the corporation
law of, and are in good standing as such in, each jurisdiction in which they
own or lease properties, have an office or conduct business and such
qualification is required, and no proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit
or curtail, such power and authority or qualification.
(b) The Company does not own or control any subsidiary and does
not own any interest in any other corporation, joint venture, proprietorship
or other commercial entity or organization except as described in the
Prospectus.
(c) The shares of Common Stock outstanding have been duly and
validly authorized and are validly issued, fully paid and nonassessable.
There are no pre-emptive, preferential or other rights to subscribe for or
purchase any of the Common Shares to be sold by the Company hereunder,
and no shares
<PAGE>
of Common Stock have been issued in violation of such rights of stockholders.
There are no outstanding rights, warrants or options to acquire or instruments
convertible into or exchangeable for, any shares of Common Stock or other
equity interest in the Company, except as described in the Prospectus. No
holders of securities of the Company have any rights to the registration of
such securities under the Registration Statement, or such rights have been
waived with respect to the Registration Statement. The statements made in the
Prospectus under the caption "Description of Capital Stock" are accurate in
all material respects.
(d) The Common Shares to be sold by the Company have been duly
authorized, and when issued, delivered and paid for pursuant to this Agreement,
will be validly issued, fully paid and nonassessable, and will conform to
the description thereof contained in the Prospectus. Upon consummation of
the purchase of the Common Shares by the Underwriters under this Agreement,
the Underwriters will acquire good and marketable title thereto, free and
clear of any claim, security interest, community property right, or other
encumbrance or restriction on transfer.
(e) The Company has full corporate power and authority to enter
into and perform this Agreement, and the execution and delivery hereof and
the performance of the Company's obligations hereunder have been duly
authorized by all necessary corporate action. This Agreement has been duly
executed and delivered by the Company and is the legal, valid and binding
agreement of the Company enforceable in accordance with its terms, except
that rights to indemnity or contributions may be limited by applicable law
and enforceability may be limited by bankruptcy, insolvency or similar
laws generally affecting the rights of creditors and by equitable principles
limiting the right to specific performance or other equitable relief. The
execution and performance by the Company of this Agreement, including
application of the net proceeds of the offering, if and when received, as
described in the Prospectus under "Prospectus Summary," "Capitalization" and
"Use of Proceeds," will not violate any provisions of the Certificate or
Articles of Incorporation or By-Laws of the Company, or its Subsidiaries, or
any law, rule or regulation applicable to the Company or its Subsidiaries of
any government, court, regulatory body, administrative agency or other
governmental body having jurisdiction over the Company or its Subsidiaries
or any of its businesses or properties, and will not result in the breach,
or be in contravention, of any provision of any loan agreement, lease,
franchise, license, note, bond, other evidence of indebtedness, indenture,
mortgage, deed of trust, other instrument, permit or other contractual
obligation to which the Company or its Subsidiaries is a party or by which
the Company or its Subsidiaries or its property may be bound or affected,
or any order of any court or governmental agency or authority entered in any
proceeding to which the Company or its Subsidiaries was or is now a party
or by which it is bound except those, if any, described in the Prospectus
or which are not material to the Company and do not materially affect its
business. No consent, approval, authorization or other order of any court,
regulatory body, administrative agency, or other governmental body is
required for the execution and delivery of this Agreement by the Company
or the consummation by the Company of the transactions contemplated by this
Agreement, except for compliance with the Securities Act of 1933, as amended
(the "Act") and the state securities laws (the "Blue Sky Laws") applicable to
the public offering of the Common Shares by the Underwriters, and the
clearance of such offering with the National Association of Securities
Dealers, Inc. (the "NASD").
(f) A registration statement with respect to the Common Shares,
prepared by the Company in conformity with the requirements of the Act and
the rules and regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") thereunder, has been filed with
the Commission, and the Company has prepared and has filed prior to the
effective date of such registration statement an amendment or amendments to
such registration statement as may be required. There have been delivered
to the Representative and its counsel two signed copies of such registration
statement, as initially filed with the Commission and for each of the
Underwriters conformed copies of such registration statement, as initially
filed with the Commission and each amendment thereto (but without exhibits)
and
2
<PAGE>
of each related preliminary prospectus included in the registration statement
prior to the time it becomes effective or filed with the Commission pursuant
to Rule 424(a) under the Act (each, a "Preliminary Prospectus").
Such registration statement, as finally amended and revised at the
time such registration statement becomes effective, which shall be deemed
to include all information omitted therefrom in reliance upon Rule
430A under the Act and contained in the Prospectus (hereafter defined),
and any amendments thereto, is herein referred to as the "Registration
Statement". The related final prospectus, including any information
incorporated by reference therein, filed by the Company with the Commission
pursuant to Rules 424(b) and 430A under the Act is herein referred to as the
"Prospectus."
(g) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus has conformed fully in all material respects with the
requirements of the Act and the Rules and Regulations and, as of its date,
has not included any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they are made,
not misleading. The Registration Statement and the Prospectus, and any
amendments or supplements thereto, contain all statements that are required
to be stated therein in accordance with the Act and the Rules and Regulations
and in all material respects conform to the requirements of the Act and the
Rules and Regulations, and neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, includes any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they are made, not misleading; provided, however,
that the Company makes no representation or warranty as to information
contained in or omitted from any Preliminary Prospectus, the Registration
Statement, the Prospectus or any such amendment or supplement in reliance
upon and in conformity with written information furnished to the Company by
or on behalf of any Underwriter through the Representative specifically for
use in the preparation thereof. There are no legal or governmental actions,
suits or legal proceedings, and there are no contracts or other documents,
transactions or relationships of or by the Company required to be described
in the Registration Statement or to be filed as exhibits to the Registration
Statement by the Act or by the Rules and Regulations which have not been
described or filed as required.
(h) Ernst & Young LLP, which has expressed its opinion with respect
to certain of the financial statements filed with the Commission as a part
of the Registration Statement and included in the Prospectus, are independent
certified public accountants as required by the Act and the Rules and
Regulations.
(i) The financial statements of the Company for the respective
periods covered thereby, and the related notes and schedules thereto included
in the Registration Statement and the Prospectus, present fairly the
financial position of the Company for the periods covered thereby as of the
respective dates of such financial statements, all in conformity with
generally accepted accounting principles consistently applied throughout the
periods involved. All adjustments for a fair presentation of results have
been made. The selected financial data included in the Registration Statement
present fairly the information shown therein and have been compiled on a
basis consistent with the financial statements presented therein. No other
financial statements are required by Form S-2 or otherwise to be included
in the Registration Statement.
(j) Neither the Company nor its Subsidiaries is in violation of its
Certificate or Articles of Incorporation or By-Laws, or in default under any
court or administrative order or decree, or in default with respect to any
provision of any material loan agreement, lease, franchise, license, note,
bond, other evidence of indebtedness, indenture, mortgage, deed of trust,
other instrument, permit or other contractual obligation to which the
Company or its Subsidiaries is a party or by which the Company or its
Subsidiaries
3
<PAGE>
or any of its properties or businesses may be bound, and, to the knowledge of
the Company, there does not exist any state of facts which constitutes an
event of default as defined in such documents or which, upon notice or lapse of
time or both, would constitute such an event of default, except those, if any,
described in the Prospectus or which are not material to the Company and do
not materially affect its business.
(k) There are no governmental actions, suits or legal proceedings
pending or, to the Company's knowledge, threatened to which the Company or
its Subsidiaries is a party or to which the
business of the Company or its Subsidiaries or any material property owned
or leased by the Company or its Subsidiaries is subject, or related to
product liability, environmental or discrimination matters which are not
disclosed in the Registration Statement and the Prospectus, or which
question the validity of this Agreement or the Exchange Agreement or any
action taken or to be taken pursuant hereto and thereto except those, if any,
described in the Prospectus or which are not material to the Company and do
not materially affect its business.
(l) The Company and its Subsidiaries have good and marketable
title to all the properties and assets reflected as owned in the financial
statements hereinabove described (or elsewhere in the Prospectus), subject
to no lien, mortgage, pledge, charge or encumbrance of any kind or nature
whatsoever except those, if any, reflected in such financial statements
(or elsewhere in the Prospectus) or which, in the aggregate, are not material
to the Company, its Subsidiaries, and its business and do not materially
affect the value of such property and do not materially interfere with the
use made or proposed to be made of such property; all material properties
held or used by the Company, and its Subsidiaries under leases, licenses or
other agreements are held by them under valid, subsisting and enforceable
leases, franchises, or other agreements with respect to which they are not
in default, except to the extent that the enforceability of the rights and
remedies of the Company and its Subsidiaries under any such lease, franchise,
license or other agreement may be limited by bankruptcy, insolvency or
similar laws generally affecting the rights of creditors and by equitable
principles limiting the right to specific performance or other equitable
relief.
(m) The Company and its Subsidiaries will not take and have not
taken, directly or indirectly, any action (and does not know of any action
by their directors, officers or stockholders, or others) designed to or
which has constituted or which might reasonably be expected to cause or
result, under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or otherwise, in stabilization or manipulation of the price of the
Common Shares to facilitate the sale or resale of the Common Shares.
(n) Except as reflected in or contemplated by the Registration
Statement or any amendment thereto, since the respective dates as of which
information is given in the Registration Statement:
(i) the Company and its Subsidiaries have not incurred any
material liabilities or obligations, direct or contingent, nor
entered into any material transactions not in the ordinary course
of business;
(ii) the Company and its Subsidiaries have not paid or
declared any dividends or other distributions with respect to
their capital stock and is not delinquent in the payment of
principal or interest on any outstanding debt obligations; and
(iii) there has not been any change in the capital stock or
long-term debt of the Company and its Subsidiaries or any material
adverse change in the business (resulting from litigation or
otherwise), business prospects, properties, condition (financial
or otherwise), net worth or results of operations of the Company
and its Subsidiaries.
4
<PAGE>
(o) The Company and its Subsidiaries have filed all necessary
federal, state and foreign income and franchise tax returns and paid all
taxes shown as due thereon; and the Company and its Subsidiaries have no
knowledge of any tax deficiency which has been asserted or threatened
against the Company and its Subsidiaries which would materially adversely
affect the business or operations or properties of the Company taken as a whole.
(p) The Company has an outstanding capitalization as set forth under
"Capitalization" in the Prospectus as of the date indicated therein and there
has been no material change therein except as disclosed in the Prospectus.
The financial and numerical information and data in the Prospectus under
"Prospectus Summary," "The Company," "Use of Proceeds," "Dividend Policy,"
"Selected Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business," "Management," "Principal
Shareholder," "Certain Transactions" and "Description of Capital Stock" are
fairly presented and prepared on a basis consistent with the audited financial
statements of the Company.
(q) The Company and its Subsidiaries have obtained all material
licenses, permits, approvals and other governmental authorizations required
for the present and proposed conduct of their business as described in the
Prospectus. Such licenses, permits and other governmental authorizations
are in full force and effect, the Company and its Subsidiaries are in all
material respects complying therewith, and the Company and its Subsidiaries
have not received any notice of proceedings relating to the revocation or
modification of any such license, permit, approval or authorization. The
Company and its Subsidiaries are complying in all material respects with all
material laws, ordinances and regulations applicable to the Company and its
Subsidiaries, its properties and its business.
(r) The Company and its Subsidiaries have maintained its books of
account in accordance with generally accepted accounting principles
consistently applied in all material respects, and such books and records
are, and during periods covered by the financial statements included in the
Registration Statement and the Prospectus are, correct and complete in all
material respects, and fairly and accurately reflect the income, expenses,
assets and liabilities of the Company and provide a fair and materially
accurate basis for the preparation of such financial statements.
(s) The minute books of the Company and its Subsidiaries are
current and contain a materially correct and complete record of all corporate
action taken by the Board of Directors and the stockholder of the Company
and its Subsidiaries and all signatures contained therein are true signatures
of the persons whose signatures they purport to be.
(t) Except as described in the Prospectus, the Company and its
Subsidiaries are unaware of any loss or threatened loss of any key customer,
supplier, or account which is material to the Company.
(u) The Company and its Subsidiaries own or possess all patents,
patent rights, licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks and trade
names used by them or necessary in connection with the present and proposed
conduct of their business as described in the Prospectus, and the Company
and its Subsidiaries have not received any notice of infringement of or
conflict with asserted rights of others with respect to any of the foregoing
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in any material adverse change in the
condition, financial or otherwise, or in the earnings, affairs or business
prospects of the Company and its Subsidiaries.
(v) The Company and its Subsidiaries are in substantial compliance
with all federal, state or local laws or ordinances, including orders, rules
and regulations thereunder, regulating or otherwise
5
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affecting employee health and safety or the environment, non-compliance with
which could have a material adverse effect on the Company. To their
knowledge, the Company and its Subsidiaries have disposed of all wastes in
substantial compliance with applicable laws, and they are not aware of any
existing condition that may form the basis for any present or future claim,
demand or action seeking clean-up of any site, location, or body of water,
surface or subsurface.
(w) The provisions of any qualified retirement plans sponsored by
the Company and its Subsidiaries are in compliance with the Employee
Retirement Income Security Act of 1974 ("ERISA"), and the Company and its
Subsidiaries are in material compliance with ERISA, including, without
limitation, ERISA's fiduciary and prohibited transaction rules, or the
funding requirements with respect to any such plan. The Company and its
Subsidiaries have timely filed the reports required to be filed by ERISA in
connection with the maintenance of plans sponsored by the Company and its
Subsidiaries,and no fact, including, without limitation, any "reportable
event" as defined by ERISA and the regulations thereunder, exists in
connection with any plan sponsored by the Company and its Subsidiaries which
might constitute grounds for the termination of such plan by the Pension
Benefit Guaranty Corporation or for the appointment by the appropriate United
States District Court of a trustee to administer any such plan. With respect
to multiemployer plans in which the Company and its Subsidiaries participates
on behalf of its employees who are members of collective bargaining units, the
Company and its Subsidiaries have no withdrawal liability except to the extent
set forth in the Prospectus. The provisions of any employee benefit welfare
plan, as defined in ERISA's Section 3(l), sponsored by the Company and its
Subsidiaries are in material compliance with ERISA's fiduciary and prohibited
transaction rules and reporting and disclosure requirements with respect to
any such plan.
(x) No labor dispute with the employees of the Company and its
Subsidiaries exist or, to the knowledge of the Company and its Subsidiaries,
is imminent, and they are not aware of any existing or imminent labor
disputes by the employees of any of their principal suppliers, manufacturers
or contractors which might be expected to result in any material adverse
change in the condition, financial or otherwise, or in the earnings, affairs
or business prospects of the Company and its Subsidiaries.
A certificate signed by any officer of the Company delivered to you
or to counsel for the Underwriters shall be deemed a representation and
warranty of the Company and its Subsidiaries to you as to the matters covered
thereby.
SECTION 3. Representation of Underwriters. You have been duly
authorized to act and will act as the Representative for the Underwriters
in connection with this financing, and any action under or in respect of
this Agreement taken by you, as such Representative, will be binding upon
all Underwriters. You may engage another representative to co-manage the
public offering, and from and after the date of any such engagement, the
term Representative, used herein, shall include such other representative.
SECTION 4. Purchase, Sale and Delivery of Common Shares. On the basis
of the representations, warranties and agreements herein contained, but
subject to the terms and conditions herein set forth, the Company agrees
to sell 1,000,000 Firm Common Shares to the Underwriters, and the
Underwriters agree, severally and not jointly, to purchase from the Company
the number of Firm Common Shares as hereinafter set forth at the price per
share set forth in Section 1 hereof. In addition, on the basis of the
representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company hereby grants
an option to the Underwriters, severally and not jointly, to purchase from
the Company up to 150,000 Optional Common Shares at the same purchase price
per share to be paid for the Firm Common Shares, for use solely in covering
any overallotment made by the Underwriters in the sale and distribution of
the Firm Common Shares. The obligation of each Underwriter to the Company
shall be to purchase from the Company that number of full Optional Common
Shares which (as nearly as practicable in full shares as determined by the
Representative) bears to 1,000,000 the
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same proportion as the number of shares set forth opposite the name of such
Underwriter in Schedule A hereto bears to the total number of Firm Common
Shares to be purchased by all the Underwriters under this Agreement.
At 9:00 A.M., Baltimore time, on the third full business day after
the public offering, or at such other time not later than seven (7) full
business days after the public offering, as the Representative, and the
Company may agree, the Company will deliver to the Representative, at the
offices of Ferris, Baker Watts, Incorporated, 1720 Eye Street, N.W.,
Washington, D.C., or through the facilities of The Depository Trust Company,
for the accounts of the Underwriters, certificates representing the Firm
Common Shares to be sold against payment in Baltimore, Maryland of the
purchase price therefor by certified or bank cashier's check or wire transfer
payable, as appropriate, to the order of the Company in respect of the Firm
Common Shares being sold by the Company. Such time of delivery and payment
is referred to throughout this Agreement as the "First Closing Date."
The certificates for the Firm Common Shares to be so delivered will be in
denominations and registered in such names as the Representative requests by
notice delivered to the Company prior to 9:00 A.M., Baltimore time, no later
than the second full business day preceding the First Closing Date, and,
if the certificates are to be physically delivered, will be made available for
checking and packaging at 9:00 A.M., Baltimore time, at least 24 hours prior
to the First Closing Date at a location to be designated by the Representative.
The overallotment option granted hereunder may be exercised at any time
(but not more than once) within thirty (30) days after the date the
Registration Statement becomes effective upon written notice by the
Representative to the Company setting forth the aggregate number of Optional
Common Shares as to which the Underwriters are exercising the option, the
names and denominations in which the certificates for such shares are to be
registered and the time and place at which such certificates will be
delivered. Such time of delivery (which may not be earlier than the First
Closing Date, as hereinafter defined), being herein referred to as the
"Second Closing Date," shall be determined by the Representative, but if at
any time other than the First Closing Date, shall not be earlier than three
(3) nor later than seven (7) full business days after delivery of such
notice of exercise to the Company. Certificates for the Optional Common
Shares will be made available for checking and packaging at 9:00 A.M.,
Baltimore time, at least 24 hours prior to the Second Closing Date at a
location to be designated by the Representative if the certificates are to be
physically delivered. The manner of payment for and delivery of (including
the denominations of and the names in which certificates are to be
registered) the Optional Common Shares shall be the same as for the Firm
Common Shares purchased from the Company. As Representative of the
Underwriters, you may cancel the option at any time prior to its expiration
by giving written notice of such cancellation to the Company.
The Representative has advised the Company that each Underwriter has
authorized the Representative to accept delivery of its Common Shares and
to make payment therefor. You, individually and not as the Representative
of the Underwriters, may make payment for any Common Shares to be purchased
by any Underwriter whose funds shall not have been received by you by the
First Closing Date or the Second Closing Date, as the case may be, for the
account of such Underwriter, but any such payment shall not relieve such
Underwriter from any obligation hereunder.
SECTION 5. Covenants of the Company. The Company covenants and
agrees with the several Underwriters as follows:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective at the earliest possible time and
upon notification from the Commission that the Registration Statement has
become effective, will so advise the Representative and its counsel promptly.
Thereafter, the Company will prepare and timely file with the Commission
pursuant to Rule 424(b) under the Act the Prospectus containing information
previously omitted in reliance on Rule 430A under the Act. The Company will
advise the Representative and its counsel promptly of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any
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proceedings for that purpose, or of any notification of the initiation or
threatening of any proceedings for that purpose, and will also advise the
Representative and its counsel promptly of any request of the Commission for
amendment or supplement of the Registration Statement (either before or after
it becomes effective), of any Preliminary Prospectus or of the Prospectus, or
for additional information, and will not file or make any amendment or
supplement of the Registration Statement (either before or after it becomes
effective), to any Preliminary Prospectus or to the Prospectus of which the
Representative has not been furnished with a copy prior to such filing or
to which you object; and the Company will file promptly and will furnish to
the Representative at or prior to the filing thereof copies of all reports
and any definitive proxy or information statements required to be filed by
the Company with the Commission pursuant to Sections 13, 14 and 15 of the
Exchange Act subsequent to the date of the Prospectus, and for so long as the
delivery of a prospectus is required in connection with the offering or sale
of the Common Shares.
(b) If, at any time when a prospectus relating to the Common Shares
is required to be delivered under the Act, any event occurs as a result of
which the Prospectus, including any subsequent amendment or supplement,
would include an untrue statement of a material fact, or would omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the
Prospectus, including any amendment or supplement thereto, to comply with
the Act or the Rules and Regulations, the Company promptly will advise the
Representative and its counsel thereof and will promptly prepare and file
with the Commission an amendment or supplement which will correct such
statement or omission or an amendment which will effect such compliance;
and, in case any Underwriter is required to deliver a prospectus nine months
or more after the effective date of the Registration Statement, the Company
upon request, but at the expense such Underwriter, will prepare promptly
such prospectus or prospectuses as may be necessary to permit compliance
with the requirements of Section 10(a)(3) of the Act.
(c) Except as described in the Prospectus, the Company and its
Subsidiaries will not, prior to the Second Closing Date (or the expiration
of the thirty (30) day period within which the Representative is required
to exercise the over allotment option pursuant to Section 4 hereof if there
is no Second Closing Date), incur any liability or obligation, direct or
contingent, or enter into any material transaction, other than in the
ordinary course of business.
(d) The Company will not acquire any of the Company's capital stock
prior to the Second Closing Date (or the expiration of the thirty (30) day
period within which the Representative is required to exercise the over
allotment option pursuant to Section 4 hereof if there is no Second Closing
Date) nor will the Company declare or pay any dividend or make any other
distribution upon its capital stock payable to its holders of record on a
date prior to the Second Closing Date or, if there is no Second Closing Date,
then prior to the First Closing Date.
(e) Until the Underwriters have completed the offering referred to
in Section 1 above, the Company and its Subsidiaries will not take, directly
or indirectly, any action designed to or which might reasonably be expected
to cause or result, under the Exchange Act, or otherwise, in stabilization
or manipulation of the price of the Common Shares to facilitate the sale or
resale of the Common Shares.
(f) The Company will make generally available to the Representative
and to the Company's security holders an earnings statement (which need not
be audited) as soon as practicable, but in no event later than 15 months
after the end of the Company's current fiscal quarter, covering a period of
12 consecutive calendar months beginning after the effective date of the
Registration Statement, which will satisfy the provisions of the last
paragraph of Section 11(a) of the Act and Rule 158 promulgated thereunder.
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(g) During such period as a prospectus is required by law to be
delivered in connection with sales by an Underwriter or dealer, the Company
will furnish the Representative, at the Company's expense, with copies of
the Registration Statement, the Prospectus, the Preliminary Prospectus and
all amendments and supplements to any such documents in each case as soon
as available and in such quantities as the Representative may reasonably
request, for the purposes contemplated by the Act or Exchange Act.
(h) The Company will cooperate with the Representative, its
counsel and the Underwriters in qualifying or registering the Common Shares
if and as required for sale under the Blue Sky Laws of such jurisdictions
as the Representative shall designate, and will continue such qualifications
or registrations in effect so long as reasonably requested by the
Representative to effect the distribution of the Common Shares. The Company
shall not be required to qualify as a foreign corporation or to file a
general consent to service of process in any such jurisdiction where it is
not presently qualified to transact business.
(i) During the period of five years after the date hereof, as soon
as practicable after the end of each fiscal year, the Company will furnish
the Representative with two copies, and to each of the other Underwriters
who may so request, one copy, of the Annual Report of the Company containing
the balance sheet of the Company as of the close of such fiscal year and
corresponding statements of earnings, stockholders' equity and cash flows
for the year then ended, such financial statements to be under the
certificate or opinion of the Company's independent certified public
accountants. During such period the Company will also furnish the
Representative with one copy:
(i) as soon as practicable after the filing thereof, of each
report filed by the Company with the Commission; and
(ii) as soon as available, of each report of the Company
mailed to its stockholders.
(j) The Company will comply or cause to be complied with the
conditions to the obligations of the Underwriters set forth in Section 7
hereof.
(k) The Company shall take all necessary and appropriate action
such that the Common Shares are authorized for trading on the NASDAQ National
Market System as soon as practicable after the effectiveness of the
Registration Statement and the Common Shares shall remain so authorized for
at least thirty-six (36) months thereafter.
(l) The Company shall promptly prepare and file with the
Commission, from time to time, such reports as may be required to be filed by
the Rules and Regulations.
(m) The Company shall comply in all respects with the undertakings
given by the Company in connection with the qualification or registration of
the Common Shares for offering and sale under the Blue Sky Laws of one or
more jurisdictions.
(n) The Company shall apply the net proceeds from the sale of the
Common Shares to be sold by it hereunder for the purposes set forth in the
Prospectus.
(o) Except for the sale of Common Shares pursuant to this Agreement,
the Company shall not make any offering, sale or other disposition of any of
its Common Stock on the open market or otherwise within 180 days after the
effective date of the Registration Statement without the Representative's
prior written consent. The Company has obtained for the benefit of the
Underwriters, the agreement of all present officers, directors and principal
stockholders of the Company that for the period indicated in the foregoing
sentence, they will not offer, sell or otherwise dispose of any Common Stock
without the Representative's prior written consent.
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<PAGE>
SECTION 6. Payment of Expenses. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective
or is terminated for any reason, except as otherwise set forth below, the
Company will pay the costs and expenses incurred in connection with the public
offering. Costs, fees and expenses to be paid by the Company include:
(a) All costs, fees and expenses incurred in connection with the
performance of the Company's obligations hereunder, including without
limiting the generality of the foregoing, all costs and expenses incurred
in connection with the preparation, printing, filing and distribution of
the Registration Statement, each Preliminary Prospectus and the Prospectus
(including all exhibits and financial statements) and all agreements and
supplements provided for herein, this Agreement, the Agreement Among
Underwriters, the Selected Dealers Agreement, the Underwriters'
Questionnaire, various letters from the Representative to the Underwriters
and the Preliminary and, if required, any Supplemental Blue Sky Memoranda.
(b) All costs, fees and expenses, including legal fees and
disbursements of counsel for the Underwriters, incurred by the Underwriters
in connection with qualifying or registering all or any part of the Common
Shares for offer and sale under the Blue Sky Laws, if required, including
the preparation of the Preliminary and any Supplemental Blue Sky Memoranda
relating to the Common Shares, and the clearing of such sales with the NASD.
(c) All fees and expenses of the Company's transfer agent,
printing of the certificates for the Common Shares, and all transfer taxes,
if any, with respect to the transfer, sale and delivery of the Common Shares
to the several Underwriters and all fees of the NASD and NASDAQ.
(d) Expenses incurred by the Underwriters, as follows:
(i) Actual, accountable, out-of-pocket expenses;
(ii) All costs and expenses customarily incurred by the
Underwriters associated with settlement in same day funds
(including, but not limited to, interest or cost of funds expenses),
if settlement in same day funds is requested by the Company;
(iii) All costs and expenses of advertising the public
offering, including any "tombstone" advertisements; provided,
however, that the Underwriters shall not be entitled to such
payment if the Underwriters terminates this Agreement except as
provided in Section 13(b) hereof or the Company terminates this
Agreement because of the negligence or material breach on the part
of the Underwriters which was the cause of the failure of the
offering to be completed.
SECTION 7. Conditions of the Obligations of the Underwriters. The
obligations of the Underwriters to purchase and pay for the Firm Common
Shares on the First Closing Date and the Optional Common Shares on the
Second Closing Date shall be subject to the accuracy of the representations
and warranties on the part of the Company herein set forth as of the date
hereof and as of the First Closing Date or the Second Closing Date, as the
case may be, to the accuracy of the statements of Company officers made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, and to the following additional conditions:
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(a) The Registration Statement shall have become effective not
later than 1:00 P.M., Baltimore time, on the date of this Agreement, or such
later time as shall have been consented to by the Representative but in no
event later than 1:00 P.M., Baltimore time, on the third full business day
following the date hereof; prior to each Closing Date, no stop order
suspending the effectiveness of the Registration Statement shall have been
instituted or shall be pending or, to the knowledge of the Company, or the
Representative, shall be contemplated by the Commission, and any request
of the Commission for additional information shall have been complied with
to the Representative's reasonable satisfaction.
(b) The Common Shares shall either be "covered securities" as
defined in the Act or shall have been qualified or registered for sale under
the Blue Sky Laws of such states as shall have been specified by the
Representative prior to the date hereof.
(c) The legality and sufficiency of the authorization, issuance
and sale of the Common Shares hereunder, the validity and form of the
certificates representing the Common Shares, the execution and delivery of
this Underwriting Agreement, and all corporate proceedings and other legal
matters incident thereto, and the form of the Registration Statement and the
Prospectus (except financial statements and other financial data included
therein) shall have been approved by Shapiro and Olander, Baltimore,
Maryland, counsel for the Representative and the Underwriters.
(d) The Representative shall not have advised the Company that
the Registration Statement or Prospectus, or any amendment or supplement
thereto, contains an untrue statement of fact, which, in the opinion of
Shapiro and Olander, counsel for the Representative and the Underwriters,
is material or omits to state a fact which, in the written opinion of such
counsel, is material and is required to be stated therein or necessary to
make the statements therein not misleading.
(e) Since the dates as of which information is given in the
Registration Statement:
(i) the Company and its Subsidiaries shall not have sustained
any material loss or interference with its business from any labor
dispute, strike, fire, explosion, flood or other calamity (whether
or not insured), or from any court or governmental action, order
or decree; and
(ii) there shall not have been any change in the capital
stock, short-term debt or long-term debt of the Company or a change
or a development involving a prospective change in or affecting the
ability of the Company or its Subsidiaries to conduct their
business (whether by reason of any court, legislative, other
governmental action, order, decree, or otherwise), or in the
general affairs, management, financial position, stockholders'
equity or results of the operations of Company, whether or not
arising from transactions in the ordinary course of business, in
each case other than as set forth in or contemplated by the
Registration Statement and Prospectus.
The effect of which on the Company, in any such case described in
clause (i) or (ii), above, is in the Representative's opinion sufficiently
material and adverse as to make it impracticable or inadvisable to proceed
with the public offering or the delivery of the Common Shares on the terms
and in the manner contemplated in the Registration Statement and the
Prospectus.
(f) All formal and informal voting agreements, understandings and
arrangements with respect to the voting of Common Stock shall have been
terminated and shall be of no further force or effect except as disclosed in
the Prospectus.
(g) There shall have been furnished to you, as Representative of
the Underwriters, on each Closing Date:
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(i) An opinion of Huddleston, Bolen, Beatty, Porter & Copen,
counsel for the Company, addressed to the Representative as such
and dated the First Closing Date or the Second Closing Date, as
the case may be, to the effect that:
(1) the Company and its Subsidiaries are duly
incorporated, validly existing and in good standing under the
laws of their jurisdiction of incorporation with full
corporate power and authority to own and/or lease their
properties and conduct their business as described in the
Prospectus; and the Company and its Subsidiaries are duly
qualified to do business as foreign corporations under the
corporation law of, and is in good standing as such in,
each state where such qualification is required, and do not
own or lease any property or have any employees situated in
any other state.
(2) the Company does not own or control any subsidiary
and does not, to such counsel's knowledge after due
investigation, own any interest in any other corporation,
joint venture, proprietorship or other commercial entity or
organization except as described in the Prospectus.
(3) the authorized capital stock of the Company consists
of 20,000,000 shares of Common Stock, $1.00 par value, and
all such capital stock conforms as to legal matters to the
description thereof in the Registration Statement and
Prospectus; the issued and outstanding shares have been duly
authorized and validly issued and are fully paid and
nonassessable and were issued in compliance with exemptions
from or were registered in accordance with the registration
provisions of Section 5 of the Act and comparable provisions
of applicable Blue Sky Laws; there are not preemptive,
preferential or other rights to subscribe for or purchase any
of the Common Shares to be sold by the Company hereunder and
no shares of Common Stock have been issued in violation of
such rights of stockholders; and, to such counsel's knowledge,
after due investigation, there are not outstanding rights,
warrants or options to acquire, or instruments convertible
into or exchangeable for, any shares of Common Stock or other
equity interest in the Company. Except as otherwise stated in
the Registration Statement, to such counsel's knowledge, after
due investigation, no holders of securities of the Company have
rights to the registration of such securities in the
Registration Statement. The statements made in the Prospectus
under the section entitled "Description of Capital Stock" are
accurate in all material respects.
(4) the Common Shares will be duly authorized and
validly issued, fully paid and nonassessable and, upon
consummation of the purchase by the Underwriters, and assuming
they have no knowledge of any liens, claims or encumbrances
affecting the Common Shares, the Underwriters will acquire
good and marketable title thereto, free and clear of any
claim, security interest, community property right, or other
encumbrance or restriction on transfer (except for
restrictions under the Act and under the Blue Sky Laws).
(5) the Company has full corporate power and authority
to enter into and perform this Agreement and this Agreement
the execution and delivery hereof, and the performance of the
Company's obligations hereunder have been duly executed and
delivered by and on behalf of the Company, and are legal,
valid, and binding agreements of the Company, enforceable in
accordance with their terms, except that rights to indemnity
or contribution may be limited by applicable law and
enforceability may be
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limited by bankruptcy, insolvency or similar laws affecting the
rights of creditors and by equitable principles limiting the
right to specific performance or other equitable relief.
(6) the execution and performance by the Company of
this Agreement, including application of the net proceeds of
the offering, if and when received, as described in the
Prospectus under "Prospectus Summary," "Capitalization" and
"Use of Proceeds," will not violate any provisions of the
Company's or its Subsidiaries' Articles or Certificate of
Incorporation or By-Laws or, to such counsel's knowledge
after due investigation, any law, rule or regulation
applicable to the Company or its Subsidiaries of any
government, court, regulatory body, administrative agency or
other governmental body having jurisdiction over the Company
or its Subsidiaries or any of their properties, and will
not, to such counsel's knowledge after due investigation,
result in the breach, or be in contravention, of any
provision of any loan agreement, lease, franchise, license,
note, bond, other evidence of indebtedness, indenture,
mortgage, deed of trust, other instrument, permit or other
contractual obligation to which the Company or its
Subsidiaries is a party or by which the Company or its
Subsidiaries or their property may be bound, or any order
of any court or governmental agency or authority entered in
any proceeding to which the Company or its Subsidiaries was
or is now a party or by which they are bound.
(7) no consent, approval, authorization or other order
of any court, regulatory body, administrative agency or
other governmental body is required for the execution and
delivery of this Agreement by the Company or the consummation
by the Company of the transactions contemplated by this
Agreement, except for compliance with the Act and Blue Sky
Laws applicable to the public offering of the Common Shares
by the Underwriters, and the clearance of such offering with
the NASD.
(8) the Registration Statement has become effective under
the Act, and, to the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the Act, and
the Registration Statement, the Prospectus and each amendment
or supplement thereto comply as to form in all material respects
with the requirements of the Act and the Rules and Regulations
(except that such counsel need express no opinion as to the
financial statements and other financial data included therein);
such counsel has no reason to believe that either the
Registration Statement or the Prospectus or any such amendment
or supplement thereto, or any document incorporated by reference
therein, contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances in which they are made, not misleading (except
that such counsel need express no opinion as to the financial
statements and other financial data included therein); such
counsel, after due investigation, does not know of any legal or
governmental proceedings or of any contracts or other documents,
transactions or relationships of or by the Company or its
Subsidiaries required to be described in the Registration
Statement or to be filed as exhibits to the Registration
Statement by the Act or the Rules and Regulations which are not
described or filed, as required.
(9) except as described in the Prospectus, there are no
legal or governmental actions, suits or legal proceedings pending
or threatened to which the Company or its Subsidiaries is a party
or to which their respective businesses or material property
owned or leased by the Company or its Subsidiaries is subject, or
which
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question the validity of this Agreement or any action taken
or to be taken pursuant hereto.
(10) to the knowledge of such counsel, the Company and its
Subsidiaries have good and marketable title except as otherwise
stated in the Prospectus, to all the real property owned by the
Company and its Subsidiaries as set forth in the Prospectus,
subject to no lien, mortgage, pledge, charge or encumbrance of
any kind or nature whatsoever except those, if any, referred to
in the Prospectus (or reflected in the financial statements
included therein) or which, in the aggregate, are not material
to the Company and its Subsidiaries and their business and do not
materially affect the value of such property; and the real
properties held or used, by the Company and its Subsidiaries
under leases or other agreements as set forth in the Prospectus
are, held by them under valid, subsisting and enforceable leases
or other agreements with respect to which, to such counsel's
knowledge after due investigation, the Company and its
Subsidiaries are not in default, except to the extent that the
enforceability of the rights and remedies of the Company and its
Subsidiaries under any such lease or other agreement may be
limited by bankruptcy, insolvency, or similar laws generally
affecting the rights of creditors and by equitable principles
limiting the right to specific performance or other equitable
relief.
(11) (i) the Company and its Subsidiaries possess all
licenses, permits, approvals and other governmental
authorizations required for the conduct of its business, as
described in the Prospectus; (ii) such licenses, permits and
other governmental authorizations are in full force and effect
and the Company and its Subsidiaries are in all material respects
complying therewith; (iii) the Company and its Subsidiaries are
complying in all respects with all laws, ordinances and
regulations applicable to the Company and its Subsidiaries, their
properties and business, the noncompliance or violation of which
would have a material adverse effect on the Company.
(12) to the knowledge of such counsel, the Company and
its Subsidiaries own or possess all patents, patent rights,
licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks,
service marks, and trade names used by them or necessary in
connection with the conduct of their business, as described in
the Prospectus.
It is understood that the opinion of such counsel may state that such
counsel is relying as to factual matters on certificates of officers of the
Company and its Subsidiaries and of state officials and, as to legal matters
in jurisdictions other than in which they are domiciled, on opinions of local
counsel or of other counsel retained or having rendered legal services with
respect to specific matters, in which case their opinion is to state that they
are so doing and they believe such reliance is reasonable, and copies of said
certificates and/or opinions are to be attached to the opinion.
(ii) An opinion of Shapiro and Olander, counsel for the
Representative and the Underwriters, addressed to the Representative
in such capacity and dated the First Closing Date or the Second
Closing Date, as the case may be, with respect to the validity of the
Common Shares, the Registration Statement and the Prospectus and other
related matters as you may reasonably require, and the Company shall
have furnished to such counsel such documents and shall have exhibited
to them such papers and records as they request for the purpose of
enabling them to pass upon such matters.
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(iii) A certificate of the chief executive officer and the
principal financial officer and the chief accountant of the Company
dated the First Closing Date or the Second Closing Date, as the case
may be, to the effect that:
(1) the representations and warranties of the Company set
forth in Section 2 of this Agreement are true and correct as of
the date of this Agreement and as of the First Closing Date or
the Second Closing Date, as the case may be, as if again made on
and as of such Closing Date, and the Company has complied with
all the agreements and satisfied all the conditions to be
performed or satisfied by it at or prior to such Closing Date.
(2) the Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or the
Prospectus filed as a part of the Registration Statement or any
amendment thereto; no stop order suspending the effectiveness of
the Registration Statement has been issued, and no proceedings
for that purpose have been instituted or are pending or
contemplated under the Act.
(3) each of the respective signatories of the certificate
for the Company has carefully examined the Registration Statement
and the Prospectus, and any amendment or supplement thereto, and,
in the opinion of such signatory and to his knowledge, the
Registration Statement and the Prospectus and any amendment or
supplement thereto contain all statements that are required to
be stated therein, and neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, includes any
untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which
they are made, not misleading, and, since the date on which the
Registration Statement was first filed with the Commission, there
has occurred no event required to be set forth in an amended or
supplemented prospectus or in an amendment to the Registration
Statement which has not been so set forth.
(4) since the date on which said Registration Statement
was initially filed, there has not been any material adverse
change or a development involving a prospective material adverse
change in the business, properties, financial condition or
earnings of the Company or its Subsidiaries, whether or not
arising from transactions in the ordinary course of business,
except as disclosed in said Registration Statement as heretofore
amended including the proposed amendment thereto delivered to the
Representative prior to or contemporaneously with the execution
of this Agreement or (but only if the Representative expressly
consents thereto in writing) delivered to the Representative
thereafter; since such date and except as so disclosed or in the
ordinary course of business, the Company and its Subsidiaries
have not incurred any liability or obligation, direct or
indirect, or entered into any material transaction since such
date and except as so disclosed there has not been any material
change in the capital stock, short-term debt or long-term debt
of the Company and its Subsidiaries and the Company has not
acquired any of the Common Shares nor has the Company declared
or paid any dividend, or made any other distribution, upon its
outstanding shares of Common Stock payable to stockholders of
record on a date prior to the First Closing Date or Second
Closing Date, as the case may be; since such date and except as
so disclosed, the Company and its Subsidiaries have not incurred
any material contingent obligations, and no material litigation
is pending or threatened against the Company and its
Subsidiaries; and, since such date and except as so disclosed the
Company and its Subsidiaries have not sustained a material loss
or interference by strike, labor dispute, fire, explosion, flood,
windstorm, accident or other calamity (whether or not insured) or
from any court or governmental action, order or decree.
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<PAGE>
The delivery of the certificate provided for in this subparagraph (iii)
shall be and constitute a representation and warranty of the Company as to the
facts required in the immediately foregoing clauses (1), (2), (3) and (4) of
this subparagraph (iii) to be set forth in said certificate.
(iv) A written agreement or agreements signed by each
director, officer and principal stockholder of the Company to the
effect that such persons will not make any offering, sale or
other disposition of any Common Stock in the open market or
otherwise for a period of 180 days after the commencement of the
public offering of the Common Shares by the Underwriters, except
with the prior written consent of the Representative.
(v) At the time this Agreement is executed and also on the
First Closing Date and the Second Closing Date, there shall be
delivered to the Representative a letter addressed to the
Representative, as Representative of the Underwriters, from
Ernst & Young LLP, independent certified public accountants, the
first letter to be dated the date of this Agreement, the second
letter to be dated the First Closing Date and the third letter
(in the event of a Second Closing) to be dated the Second Closing
Date, to the effect set forth in Schedule B annexed hereto and
containing the information set forth therein and such other
information as may be requested by the Representative as of a
date within five days of the date of such letter. There shall
not have been any change or decrease specified in any of the
letters referred to in this subparagraph (vi) which makes it
impractical or inadvisable in the Representative's judgment to
proceed with the initial public offering or the purchase of the
Common Shares as contemplated hereby.
(vi) Such further certificates and documents as the
Representative may reasonably request.
All such opinions, certificates, letters and documents shall be
in compliance with the provisions hereof only if they are satisfactory
to the Representative and to Shapiro and Olander, counsel for the
Representative and the Underwriters. The Company shall furnish the
Representative with such manually signed or conformed copies of such
opinions, certificates, letters and documents as the Representative may
reasonably request.
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at either Closing Date is not so satisfied, this
Agreement at the Representative's election will terminate upon
notification to the Company without liability on the part of any
Underwriter (including the Representative), or the Company except for
the expenses to be paid by the Company pursuant to Section 6 hereof or
reimbursed by the Company pursuant to Section 8 hereof and except to the
extent provided in Section 10 hereof.
SECTION 8. Reimbursement of Underwriters' Expenses. If the sale to the
Underwriters of the Common Shares at the First Closing Date or the Second
Closing Date is not consummated because any condition to the Underwriters'
obligations hereunder is not satisfied, because the Company terminates this
Agreement pursuant to Section 13, or because of any refusal, inability or
failure on the part of the Company to perform any agreement herein or comply
with any provision hereof, the Company agrees to reimburse the Representative
and the other Underwriters upon demand for all out-of-pocket expenses
(including reasonable fees and disbursements of counsel) that shall have been
incurred by the Representative and them in connection with the proposed
purchase and the sale of the Common Shares. Any such termination shall be
without liability of any party to any other party except that the provisions
of this Section, Section 6 and Section 10 shall at all times be effective and
shall apply.
16
<PAGE>
SECTION 9. Effectiveness of Registration Statement. The Representative
and the Company will each use their respective best efforts to cause the
Registration Statement to become effective, to prevent the issuance of any
stop order suspending the effectiveness of the Registration Statement, and, if
such stop order is issued, to obtain as soon as possible the lifting thereof.
SECTION 10. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within
the meaning of the Act or the Exchange Act against any losses, claims,
damages, or liabilities, joint or several, to which such Underwriter or
each such controlling person may become subject under the Act, the
Exchange Act, Blue Sky Laws or other federal or state securities laws
or regulations, at common law or otherwise (including in settlement of
any litigation, if such settlement is effected with the written consent
of the Company), insofar as such losses, claims, damages or liabilities
(or actions in respect thereof, arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus,
the Prospectus, or any amendment or supplement thereto, or in any
application filed under any Blue Sky Law or other document executed by
the Company specifically for that purpose or filed in any state or
other jurisdiction in order to qualify any or all of the Common Shares
under the securities laws thereof (any such application or document
being hereinafter referred to as a "Blue Sky Application") or arise out
of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they are
made, not misleading; the Company agrees, to reimburse each Underwriter
and each such controlling person for any legal or other expenses
reasonably incurred by such Underwriter and each such controlling person
for any legal or other expenses reasonably incurred by such Underwriter
or any such controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such case to the
extent that:
(i) any such loss, claim, damage, liability arises out of
or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto or in any Blue Sky Application in reliance upon
and in conformity with written information furnished to the Company
by or on behalf of any Underwriter through the Representative
specifically for use therein; or
(ii) if such statement or omission was contained or made in
any Preliminary Prospectus and corrected in the Prospectus and
(1) any such loss, claim, damage or liability suffered or incurred
by any Underwriter (or any person who controls any Underwriter)
resulted from an action, claim or suit by any person who purchased
Common Shares which are the subject thereof from such Underwriter
in the offering, and (2) such Underwriter failed to deliver or
provide a copy of the Prospectus to such person at or prior to the
confirmation of the sale of such Common Shares in any case where
such delivery is required by the Act unless such failure was due to
failure by the Company to provide copies of the Prospectus to the
Underwriters as required by this Agreement.
The indemnification obligations of the Company as provided above are in
addition to any liabilities the Company may otherwise have under other
agreements, under common law or otherwise.
(b) Each Underwriter will severally and not jointly indemnify and
hold harmless the Company, each of its directors and each of its officers
who sign the Registration Statement, and each person, if any, who
controls the Company within the meaning of the Act or the Exchange Act,
against any losses, claims, damages or liabilities to which the Company,
or any such director, officer or controlling person may become subject
under the Act, the Exchange Act, Blue Sky Laws or other federal or state
statutory laws or regulations, at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the
written consent of such Underwriter and the Representative, which shall
not be unreasonably withheld), insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon any untrue or alleged untrue statement of any material fact contained
in the Registration Statement, any Preliminary Prospectus, the Prospectus,
or any amendment or supplement thereto, or in any Blue Sky Application,
or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or
any amendment or supplement thereto, or in any Blue Sky Application, in
reliance upon and in conformity with any written information furnished to
the Company by such Underwriter through the Representative specifically
for use in the preparation thereof; each Underwriter will severally
reimburse any legal or other expenses reasonably incurred by the Company,
or any such director, officer, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or
action. The indemnification obligations of each Underwriter as provided
above are in addition to any liabilities any such Underwriter may
otherwise have under other agreements, under common law or otherwise.
Notwithstanding the provisions of this Section, no Underwriter shall be
required to indemnify the Company, or any officer, director or controlling
person of the Company in any amount in excess of the total price at which
the Common Shares purchased by any such Underwriter hereunder were offered
to the public, plus reimbursement for reasonable legal fees and other
reasonable expenses incurred. For all purposes of this Agreement,
the name of each Underwriter, and the amounts of the selling concession
and reallowance set forth in the Prospectus constitute the only
information furnished in writing by or on behalf of any Underwriter for
inclusion in the Preliminary Prospectus, Registration Statement,
Prospectus (as amended or supplemented from time to time) or Blue Sky
Application.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against an
indemnifying party under this Section, notify the indemnifying party in
writing of the commencement thereof, but the omission to so notify the
indemnifying party will not relieve any indemnifying party from any
liability which it or he may have to any indemnified party otherwise
than under this Section. In case any such action is brought against any
indemnified party and such indemnified party notifies an indemnifying
party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it or he may wish,
jointly with all other indemnifying parties, similarly notified, to
assume the
17
<PAGE>
defense thereof, with counsel reasonably satisfactory to such indemnified
party, provided, however, if the defendants in any such action include
both the indemnified party and the indemnifying party and the indemnified
party shall have reasonably concluded that there may be legal defenses
available to it or he and/or other indemnified parties which are
different from or additional to those available to the indemnifying
party, the indemnified party or parties shall have the right to select
separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified
party or parties. Upon receipt of notice from the indemnifying party to
such indemnified party of its election to assume the defense of such
action and upon approval by the indemnified party of counsel to the
indemnifying party, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof, unless:
(i) the indemnified party shall have employed such counsel in
connection with the assumption of legal defenses in accordance with
the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel, approved by the
Representative in the event that one or more of the Underwriters,
their directors, officers or controlling persons, are the
indemnified parties);
(ii) the indemnifying party shall not have employed counsel
reasonable satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of
commencement of the action; or
(iii) the indemnifying party has authorized the employment of
counsel at the expense of the indemnifying party.
(d) If the indemnification provided for in this Section is
unavailable to an indemnified party under subparagraphs (a) or (b)
hereof in respect of any losses, claims, damages or liabilities referred
to therein, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall, subject to the limitations hereinafter set
forth, contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities:
(i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Underwriters from
the offering of the Common Shares; or
(ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause
(i) above, but also the relative fault of the Company and the
Underwriters in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as
any other relevant equitable considerations.
The respective relative benefits received by the Company and the
Underwriters shall be deemed to be in such proportion so that the
Underwriters are responsible for the portion of the losses, claims,
damages or liabilities represented by the percentage that the
underwriting discount per share appearing on the cover page of the
Prospectus bears to the initial public offering price per share
appearing thereon, and the Company is responsible for the remaining
portion. The relative fault of the Company and the Underwriters
shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
the information supplied by the Company or by the Underwriters and
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The
amount paid or payable by a party as a result of the losses, claims,
damages and liabilities referred to above shall be deemed to include,
subject to the limitations set forth in paragraph (d) of this Section,
any legal or other fees or expenses reasonably incurred by such party
in connection with investigating or defending any action or claim.
18
<PAGE>
The Company, and the Underwriters agree that it would not be just
and equitable if contribution pursuant to this Section were determined
by pro rata or per capita allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method or
allocation which does not take into account the equitable considerations
referred to in the immediately preceding paragraph. Notwithstanding the
provisions of this Section, no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the
Common Shares underwritten by it and distributed to the public exceeds
the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section are several in
proportion to their respective underwriting commitments and not joint.
SECTION 11. Default of Underwriters. It shall be a condition to this
Agreement and the obligation of the Company to sell and deliver the Common
Shares hereunder, and of each Underwriter to purchase the Common Shares
hereunder in the manner as described herein, that, except as hereinafter in
this paragraph provided, each of the Underwriters shall purchase and pay for
all of the Common Shares agreed to be purchased by such Underwriter hereunder
upon tender to the Representative of all such Common Shares in accordance with
the terms hereof. If any Underwriter or Underwriters default in their
obligations to purchase Common Shares hereunder on either the First or Second
Closing Date and the aggregate number of Common Shares which such defaulting
Underwriter or Underwriters agreed but failed to purchase does not exceed ten
percent (10%) of the total number of Common Shares which the Underwriters are
obligated to purchase on such Closing Date, the Representative may make
arrangements satisfactory to the Company for the purchase of such Common Shares
by other persons, including any of the Underwriters, but if no such
arrangements are made by such Closing Date the nondefaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Common Shares which such defaulting Underwriters
agreed but failed to purchase on such Closing Date. If any Underwriter or
Underwriters so default and the aggregate number of Common Shares with respect
to such default or defaults occur is greater than the above percentage and
arrangements satisfactory to the Representative and the Company for the
purchase of such Common Shares by other persons are not made with 36 hours
after such default, this Agreement will terminate without liability on the
part of any non-defaulting Underwriter or the Company except for the expenses
to be paid by the Company pursuant to Section 6 hereof and except to the
extent provided in Section 10 hereof.
In the event that Common Shares to which a default relates are to be
purchased by the non-defaulting Underwriters or by another party or parties,
the Representative or the Company shall have the right to postpone the First
or Second Closing Date, as the case may be, for not more than seven business
days in order that the necessary changes in the Registration Statement,
Prospectus and any other documents, as well as any other arrangements, may be
effected. Nothing herein will relieve a defaulting Underwriter from liability
for its default.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section.
SECTION 12. Effective Date. This Agreement shall become effective
immediately as to Sections 6, 8, 10 and 13 and, as to all other provisions,
at 9:00 A.M., Baltimore time, on the day following the date upon which the
Registration Statement becomes effective, unless such a day is a Saturday,
Sunday or holiday (in which event this Agreement shall become effective at
such hour on the business day next succeeding such Saturday, Sunday or
holiday); notwithstanding the foregoing, this Agreement shall nevertheless
become effective at such earlier time after the Registration Statement becomes
effective as the Representative may determine on and by notice to the Company
or by release of any of the Common Shares for sale to the public. For the
purposes of this Section, the Common Shares shall be deemed to have been
released upon the release for publication of any newspaper advertisement
relating to the Common Shares or upon the release by the Representative of
telegrams:
(a) advising the Underwriters that the Common Shares are released
for public offering; or
19
<PAGE>
(b) offering the Common Shares for sale to securities dealers,
whichever may occur first.
SECTION 13. Termination. Without limiting the right to terminate this
Agreement pursuant to any other provisions hereof:
(a) This Agreement may be terminated by the Company by notice to
the Representative or by the Representative by notice to the Company at
any time prior to the time this Agreement shall become effective as to
all its provisions, and any such termination shall be without liability
on the part of the Company to any Underwriter (except for the expenses
to be paid by the Company pursuant to Section 6 hereof or reimbursed by
the Company pursuant to Section 8 hereof and except to the extent
provided in Section 10 hereof) or of any Underwriter to the Company.
(b) This Agreement may also be terminated by the Representative
prior to the First Closing Date, and the option from the Company referred
to in Section 4 hereof, if exercised, may be canceled at any time prior
to the Second Closing Date, if in the Representative's judgment payment
for and delivery of the Common Shares is rendered impracticable or
inadvisable because:
(i) additional material governmental restrictions, not in
force and effect on the date hereof, shall have been imposed upon trading
in securities generally or minimum or maximum prices shall have been
generally established on the New York Stock Exchange, the American
Stock Exchange, the NASDAQ National Market or over-the-counter market,
or trading in securities generally shall have been suspended on either
such exchange or over-the-counter market or a general banking moratorium
shall have been established by federal, or New York or West Virginia
authorities;
(ii) any event shall have occurred or shall exist which makes
untrue or incorrect in any material respect any statement or
information contained in the Registration Statement or which is not
reflected in the Registration Statement but should be reflected
therein in order to make the statements or information contained
therein, in light of the circumstances in which they are made, not
misleading in any material respect;
(iii) an outbreak or escalation of major hostilities or other
national or international emergency or calamity or any substantial
change in political, financial or economic conditions shall have
occurred or shall have accelerated to such extent, as in your
judgment, to have a material adverse effect on the general
securities market or make it impractical or inadvisable to proceed
with completion of the sale of and payment for the Common Shares; or
(iv) since the respective dates as of which information is
given in the Registration Statement and the Prospectus, a material
adverse change has occurred in the business, financial condition,
results of operations, properties or business prospects of the
Company and its Subsidiaries, whether or not in the ordinary course
of business.
Any termination pursuant to subsection (b) shall be without
liability on the part of any Underwriter to the Company or on the part
of the Company to any Underwriter (except for expenses to be paid by the
Company pursuant to Section 6 hereof or reimbursed by the Company
pursuant to Section 8 hereof and except as to indemnification to the
extent provided in Section 10 hereof).
SECTION 14. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties, and other
statements of the Company, of its officers or directors, and of the
Underwriters set forth in or made pursuant to this Agreement will remain in
full force and effect, regardless of any investigation made by or on behalf
of any Underwriter or the Company or any of its or their partners, officers,
20
<PAGE>
directors or any controlling person, as the case may be, and will survive
delivery of and payment for the Common Shares sold hereunder.
SECTION 15. Notices. All communications hereunder will be in writing
and, if sent to the Underwriters or the Representative will be mailed,
delivered or telegraphed and confirmed to you c/o Ferris, Baker Watts,
Incorporated, 100 Light Street, 8th Floor, Baltimore, Maryland 21202,
Attention: Steven Shea, Senior Vice President,
With a copy to:
Shapiro and Olander
20th Floor
36 S. Charles Street
Baltimore, Maryland 21201
Attention: A. Lynne Puckett
If sent to the Company will be mailed, delivered or telegraphed and
confirmed to the Company at:
Champion Industries, Inc.
2450 First Avenue
Huntington, West Virginia 25728
Attention: Marshall T. Reynolds, President
With a copy to:
Huddleston, Bolen, Beatty, Porter & Copen
611 Third Avenue
Huntington, West Virginia 25701
Attention: Thomas J. Murray
SECTION 16. Successors. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors,
personal representatives and assigns, and to the benefit of the officers and
directors and controlling persons referred to in Section 10, and no other
person will have any right or obligations hereunder. The term "successors"
shall not include any purchaser of the Common Shares as such from any of the
Underwriters merely by reason of such purchase.
SECTION 17. Partial Unenforceability. If any section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, such determination shall not affect the validity or
enforceability of any other section, paragraph or provision hereof.
SECTION 18. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Maryland, except in
regard to its choice of law.
21
<PAGE>
SECTION 19. Counterparts. This Agreement may be signed in counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the
several Underwriters, including you, all in accordance with its terms.
Very truly yours,
Champion Industries, Inc.
By:
------------------------------------
Marshall T. Reynolds, President
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
FERRIS, BAKER WATTS, INCORPORATED
By:
---------------------------------
Acting as Representative of the
several Underwriters (including
itself) named in Schedule A
hereto.
22
<PAGE>
SCHEDULE A
----------
Number of
Name of Underwriter Shares
------------------- ---------
Total............................................................. 1,000,000
=========
<PAGE>
SCHEDULE B
(1) They are independent public accountants with respect to the Company
within the meaning of the Act and the applicable rules and regulations
thereunder, and the answer to Item _ of the Form S-_ Registration Statement,
insofar as it relates to them, is correct.
(2) In their opinion, the financial statements of the Company included
in the Registration Statement comply as to form in all material respects with
the applicable accounting requirements of the Act and the rules and
regulations thereunder.
(3) They have not examined any financial statements of the Company as of
any date or for any period subsequent to October 31, 1997.
(4) For purposes of their letter, they have read the minutes of meetings
of the stockholders and Board of Directors of the Company as set forth in the
respective minute books at February _, 1998, officials of the Company having
advised them that the minutes of all such meetings through that date were set
forth therein, and have carried out other procedures to February _, 1998, as
follows:
(a) With respect to the period from November 1, 1997 to
February , 1998, they have:
(i) Read the unaudited, internally prepared financial statements
of the Company for November and December of 1997 and January of 1998
furnished by the Company, officials of the Company having advised them
that no such financial statements as of any later date were available;
and
(ii) Made inquiries of certain officials of the Company who have
responsibility for financial and accounting matters regarding whether
the unaudited financial statements referred to under (4)(a)(i) are
stated on a basis substantially consistent with that of the audited
financial statements included in the Registration Statement; and
(iii) Read the unaudited financial statements of the Company for
November and December of 1997, and January of 1998, furnished by the
Company, officials of the Company having advised them that no such
financial statements as of any date or for any period subsequent to
January 31, 1998 were available; and
(iv) Made inquiries of certain officials of the Company who have
responsibility for financial and accounting matters regarding whether
the unaudited financial statements referred to under (4)(a)(iii) are
stated on a basis substantially consistent with that of the audited
balance sheet included in the Registration Statement.
(5) Nothing came to their attention as a result of the foregoing
procedures, however, that caused them to believe that
(a) at February _, 1998, there was any change in the long-term debt of
the Company or any decreases in net current assets or net assets as
compared with amounts shown in the October 31, 1997 audited balance sheet
included in the Registration Statement or (ii) for the period from
November 1, 1997 to February _, 1998, there were any decreases, as compared
with the corresponding period in the preceding year, in - revenues or in
the total amounts of net income of the Company; or
B-1
<PAGE>
(6) They have made inquiries of certain officials have responsibility for
financial and accounting matters regarding whether (a) there was any change at
February _, 1998, in the long-term debt of the Company or any decreases in net
current assets or Net assets as compared with amounts shown on the October
31, 1997 balance sheet included in the Registration Statement or (b) for the
period from November 1, 1997 to February _, 1998, there were any decreases, as
compared with the corresponding period in the preceding year, in revenues or in
the total amounts of net income. They have made inquiries of certain Company
officials who have responsibility for financial and accounting matters
regarding whether there was any change at February _, 1998, in the capital
stock of the Company or any decreases in total stockholders' equity as
compared with amounts shown on the October 31, 1997 audited balance sheet
included in the Registration Statement. On the basis of these inquiries and
their reading of the minutes as described in 4 above, nothing came to their
attention that caused them to believe that there was any such change or
decrease except in all instances for changes or decreases that the
Registration Statement discloses have occurred or may occur.
(7) In addition to the procedures referred to in 4, 5 and 6 above, they
have carried out certain specified procedures, not constituting an audit, with
respect to certain amounts, percentages, numerical data and financial
information appearing in the Registration Statement, which have previously been
specified by the Representative and which are specified in their letter, and
have compared certain of such items with, and have found such amounts,
percentages, numerical data and financial information to be in agreement with,
the accounting, financial and other records of the Company.
B-2
<PAGE>
EXHIBIT 5.1
March , 1998 DIRECT DIAL NUMBER: (304) 691-8398
Champion Industries, Inc.
Post Office Box 2968
Huntington, WV 25728
RE: Form S-2 Registration Statement
Number 333-47585
Gentlemen:
This opinion is rendered in connection with the Form S-2
Registration Statement (the "Registration Statement") which has
been filed on March , 1998, by Champion Industries, Inc. (the
"Registrant") with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, with respect to the proposed
offering and sale of 1,150,000 shares of common stock of the
Registrant, $1.00 par value (the "Common Stock").
We are of the opinion that:
(1) The Common Stock, when issued as described in the
Registration Statement, will be validly issued, fully paid and nonassessable,
and
(2) No personal liability for the liabilities of the
Registrant attaches to the ownership of such Common Stock under the
laws of the State of West Virginia.
We hereby consent to the use of this opinion as an Exhibit to
the Registration Statement and to the reference of our firm under
the caption "Legal Opinion" in the Prospectus forming a part of the
Registration Statement.
Very truly yours,
/s/ Thomas J. Murray
Thomas J. Murray
TJM/cgd
<PAGE>
EXHIBIT 21.1
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.
<PAGE>
EXHIBIT 23.1
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 23, 1998, in the Registration Statement
(Form S-2 No. 333-47585) and related Prospectus of Champion Industries, Inc.
for the registration of 1,150,000 shares of its common stock.
/s/ Ernst & Young LLP
Charleston, West Virginia
March 4, 1998
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned do hereby
constitute and appoint MARSHALL T. REYNOLDS and JOSEPH C. WORTH,
III and each of them severally, the true and lawful agents and
attorneys-in-fact (the "Agents" and, severally, an "Agent") of the
undersigned with full power to act and sign, upon the terms and
conditions herein set forth, with full power of substitution and
resubstitution, for and in the name, place and stead (in any such
capacity) with respect to all applications, certificates, letters,
registration statements, exhibits, amendments (including
post-effective amendments) to registration statements or other
documents addressed to or filed with the Securities and Exchange
Commission which may be required in connection with the
registration under the Securities Act of 1933, as amended, of the
common stock of Champion Industries, Inc., and to file the same
with the Securities and Exchange Commission, each of said attorneys
and agents to have power to act with or without the other, and to
have full power and authority to do and perform in the name and on
behalf of each of the undersigned directors every act whatsoever
necessary or advisable to be done in the premises as fully and to
all intents and purposes as the undersigned may or could do in
person, all of such acts being hereby ratified and confirmed.
<PAGE>
WITNESS the following signatures and seals:
/s/ Robert H. Beymer
- ------------------------------
Robert H. Beymer
/s/ Philip E. Cline
- ------------------------------
Philip E. Cline
/s/ Harley F. Mooney, Jr.
- ------------------------------
Harley F. Mooney, Jr.
/s/ Todd L. Parchman
- ------------------------------
Todd L. Parchman
/s/ A. Michael Perry
- ------------------------------
A. Michael Perry
/s/ Neal W. Scaggs
- ------------------------------
Neal W. Scaggs
/s/ Glenn W. Wilcox, Sr.
- ------------------------------
Glenn W. Wilcox, Sr.
2
<PAGE>
STATE OF WEST VIRGINIA,
COUNTY OF CABELL, TO-WIT:
I, Lisa A. Lucas, a Notary Public in and for the
aforesaid, do hereby certify that Robert H. Beymer, Philip E.
Cline, Harley F. Mooney, Jr., Todd L. Parchman, A. Michael Perry,
Neal W. Scaggs, and Glenn W. Wilcox, Sr., to me known to be the
persons described in and who executed the foregoing instrument and
whose names are signed to the same, have this day acknowledged that
they executed the same, before me, in my said state.
Given under my hand and official seal this 6th day of
March, 1998.
My commission expires December 22, 2003.
(SEAL)
/s/ Lisa A. Lucas
--------------------------------------
Notary Public
3
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