Pursuant
to Form 8-K filed September 19, 2007, Champion Industries, Inc.
(“Champion”) advised that on September 14, 2007, Champion, as borrower,
entered into a credit agreement (the “Credit Agreement”) consisting of a
(i) $70 million term loan facility that matures on September 14, 2013,
(ii) revolving loan facility with a $30 million aggregate loan commitment
amount available, including a subfacility of up to $5 million for letters
of credit and a swingline facility of up to $5 million, which matures on
September 14, 2012, with the various lenders from time to time party
thereto and Fifth Third Bank, as Administrative Agent (the “Administrative
Agent”), Letter of Credit Issuer and Lead Arranger. All the
subsidiaries of Champion (collectively, the “Guarantors”) executed
Guaranties (the “Guaranties”) guaranteeing the payment and performance of
Champion’s obligations under the Credit Agreement.
In connection with the Credit
Agreement, Champion and all of its subsidiaries entered into a security
agreement (the “Security Agreement”) and deeds of trust and mortgages
(“Mortgages”) in favor of the Administrative Agent for the various lenders
from time to time parties to the Credit Agreement, pursuant to which
Champion and the Guarantors encumbered substantially all their assets for
the benefit of the secured parties, as collateral security for the payment
and performance of their obligations under the Credit Agreement and the
Guaranties. The encumbered assets include all tangible and
intangible assets of Champion and the Guarantors and any future
subsidiaries of Champion and the Guarantors, including, without
limitation, all accounts receivable, inventory, equipment, real estate and
stock of the Guarantors.
On March 25, 2009, the
Administrative Agent sent Champion a Notice of Default, Notice of
Institution of Default Rate and Reservation of Rights (“Notice of
Default”), advising that Champion’s default under provisions of the Credit
Agreement requiring it to maintain certain financial ratios (maintaining
at each quarter end an EBITDA for the 12 months then ended to be no less
than $18,000,000) now constitutes an Event of Default under the Credit
Agreement. Champion’s unaudited EBITDA for the 12 months ended
January 31, 2009 was approximately $15,015,000. Champion had
also advised the Administrative Agent in its quarterly compliance
certificate for the period ended January 31, 2009 that it was not in
compliance with two additional covenants in the Credit Agreement. Champion
was not in compliance with the leverage ratio covenant, which required
that the leverage ratio as defined in the Credit Agreement not be greater
than 4.00 to 1.00. Champion’s leverage ratio was 4.67 to 1.00
at January 31, 2009. Champion further advised the
Administrative Agent that it was not in compliance with the covenant which
required that the second fixed charge coverage ratio as defined in the
Credit Agreement not be less than 1.15 to 1.00 at January 31,
2009. Champion’s second fixed charge coverage ratio was 1.10 to
1.00 at January 31, 2009.
The Notice of Default further
advised Champion that the Administrative Agent has instituted the default
rate of interest, effective March 25, 2009, with respect to all loans
under the Credit Agreement. The default rate will result in
Champion paying an additional 3 percent interest on its outstanding
obligations.
The Notice of Default also
advised that the Administrative Agent has not waived the Event of Default
and reserves all rights and remedies as a result thereof. Those
remedies include, under the Credit Agreement, the right to accelerate and
declare due and immediately payable the principal and accrued interest on
all loans outstanding under the Credit Agreement.
The Notice of Default further
stated that any extension of additional credit under the Credit Agreement
would be made by the lenders in their sole discretion without any
intention to waive any Event of Default.
At January 31, 2009, the
outstanding principal balance of Champion’s obligations under the Credit
Agreement totaled approximately $69,444,198.
Champion is engaged in
discussions with the Administrative Agent and various lenders to
restructure the Credit Agreement in a mutually constructive manner, but
agreement satisfactory to Champion and the Administrative Agent and
lenders has not yet been reached.