<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------------------
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 1-12282
CORRPRO COMPANIES, INC.
(Exact name of registrant as specified in its charter)
OHIO 34-1422570
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1090 ENTERPRISE DRIVE, MEDINA, OHIO 44256
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (330) 723-5082
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
As of November 7, 1996, 6,657,089 Common Shares, without par value, were
outstanding.
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CORRPRO COMPANIES, INC.
-----------------------
<TABLE>
<CAPTION>
INDEX
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Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Shareholders' Equity 6
Notes to the Consolidated Financial Statements 7-9
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-15
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings 16-17
ITEM 4. Submission of Matters to a Vote of Security Holders 17
ITEM 6. Exhibits and Reports on Form 8-K 17
</TABLE>
2
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PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
- -------
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
------------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,726 $ 3,256
Accounts receivable, net 36,955 30,257
Inventories 20,266 17,056
Costs and estimated earnings in excess of billings
on uncompleted contracts 2,131 2,145
Prepaid expenses and other 5,207 7,201
--------- ---------
Total current assets 68,285 59,915
--------- ---------
Property and Equipment, net 20,352 20,615
Other Assets:
Goodwill 24,130 24,291
Patents and other intangibles 2,198 1,865
Other 1,612 1,512
--------- ---------
Total other assets 27,940 27,668
--------- ---------
$ 116,577 $ 108,198
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ 264 $ 40
Current portion of long-term debt 1,246 1,487
Accounts payable 18,043 16,836
Accrued liabilities and other 10,713 7,762
--------- ---------
Total current liabilities 30,266 26,125
--------- ---------
Long-Term Debt, net of current portion 28,549 26,616
Deferred Income Taxes 581 674
Commitments and Contingencies -- --
Minority Interest 478 502
Shareholders' Equity:
Serial preferred shares -- --
Common shares 2,225 2,196
Additional paid-in capital 50,429 50,043
Accumulated earnings 3,666 1,963
--------- ---------
56,320 54,202
Cumulative translation adjustment 435 131
Common shares in treasury, at cost (52) (52)
--------- ---------
Total shareholders' equity 56,703 54,281
--------- ---------
$ 116,577 $ 108,198
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these balance sheets.
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
September 30 September 30
-------------------------- ------------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Engineering & construction services $ 18,546 18,639 34,209 32,839
Product sales 22,175 19,375 42,980 38,652
-------- -------- -------- --------
40,721 38,014 77,189 71,491
Cost of sales:
Engineering & construction services 12,169 13,559 22,104 24,738
Product sales 16,313 16,363 31,823 31,366
-------- -------- -------- --------
28,482 29,922 53,927 56,104
-------- -------- -------- --------
Gross profit 12,239 8,092 23,262 15,387
Selling, general & administrative expenses 8,362 8,602 16,760 18,512
Unusual charges 2,400 -- 2,400 1,500
-------- -------- -------- --------
Operating income (loss) 1,477 (510) 4,102 (4,625)
Interest expense (648) (791) (1,238) (1,356)
-------- -------- -------- --------
Income (loss) before income taxes 829 (1,301) 2,864 (5,981)
Provision (benefit) for income taxes 346 (258) 1,161 (1,793)
-------- -------- -------- --------
Net income (loss) $ 483 $ (1,043) $ 1,703 $ (4,188)
======== ======== ======== ========
Net income (loss) per share $ .07 $ (.17) $ .25 $ (.70)
======== ======== ======== ========
Number of common and common share
equivalents 6,801 5,979 6,793 5,967
======== ======== ======== ========
</TABLE>
The accompanying notes to Consolidated Financial Statements are an integral part
of these statements.
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,703 $ (4,188)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization 1,938 1,697
Deferred income taxes (694) (39)
Gain on sale of fixed assets 5 (11)
Minority interest (35) 50
Changes in assets and liabilities:
Accounts receivable (6,517) (3,566)
Inventories (3,139) (2,243)
Contracts in progress, net (578) 1,682
Prepaid expenses and other 3,442 (37)
Accounts payable and accrued expenses 4,034 1,792
Other assets (420) (149)
------- --------
Total adjustments (1,964) (824)
------- --------
Net cash used for operating activities (261) (5,012)
------- --------
Cash flows from investing activities:
Additions to property and equipment (1,079) (1,147)
Disposal of property and equipment 92 156
Other assets (500) (600)
------- --------
Net cash used for investing activities (1,487) (1,591)
------- --------
Cash flows from financing activities:
Proceeds from long-term debt 2,605 17,511
Repayment of long-term debt (514) (11,630)
Proceeds from (repayment of) short-term borrowings, net (26) 230
Net proceeds from issuance of Common Shares 207 152
------- --------
Net cash provided by financing activities 2,272 6,263
------- --------
Effect of changes in foreign currency exchange rates (54) 22
Net increase (decrease) in cash 470 (318)
Cash and cash equivalents at beginning of period 3,256 1,385
------- --------
Cash and cash equivalents at end of period $ 3,726 $ 1,067
======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ 906 $ 892
Interest $ 959 $ 1,031
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Common Common
Serial Shares Additional Cumulative Shares
Preferred ($0.33 Paid-In- Accumulated Translation in
Shares Stated Value) Capital Earnings Adjustment Treasury* Total
------ ------------- ------- -------- ---------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31, 1995 $ -- $1,989 $46,333 $ 7,175 $ 615 $(52) $ 56,060
Net loss -- -- -- (5,212) -- -- (5,212)
Exercise of 89
stock options -- 30 391 -- -- -- 421
Conversion of 530
CSG shares -- 177 3,319 -- -- -- 3,496
Cumulative
translation
adjustment -- -- -- -- (484) -- (484)
--------- ------ ------- ------- ----- ---- --------
March 31, 1996 -- 2,196 50,043 1,963 131 (52) 54,281
Net income -- -- -- 1,703 -- -- 1,703
Exercise of 89
stock options -- 29 386 -- -- -- 415
Cumulative
translation
adjustment -- -- -- -- 304 -- 304
--------- ------ ------- ------- ----- ---- --------
September 30, 1996 $ -- $2,225 $50,429 $ 3,666 $ 435 $(52) $ 56,703
========= ====== ======= ======= ===== ==== ========
<FN>
* Shares held in treasury totaled 25 for all periods presented.
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
</TABLE>
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 - INTERIM FINANCIAL STATEMENTS
The accompanying interim consolidated financial statements include the
accounts of Corrpro Companies, Inc. and its wholly-owned subsidiaries (the
"Company"). All significant intercompany accounts and transactions have been
eliminated in consolidation. Certain fiscal 1996 amounts have been reclassified
to conform with the fiscal 1997 presentation.
The information furnished in the accompanying interim consolidated
financial statements has not been audited by independent accountants; however,
in the opinion of management, the interim consolidated financial statements
include all adjustments, consisting only of normal and recurring adjustments,
necessary for a fair presentation of the consolidated financial position,
results of operations and cash flows for the interim periods presented. The
results of operations for the six months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the fiscal year
ending March 31, 1997 or any other period. The interim consolidated financial
statements should be read in conjunction with the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1996.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2 - INVENTORY
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
---- ----
<S> <C> <C>
Inventories consist of:
Component parts and raw materials $ 10,086 $ 9,004
Work in process 1,204 1,492
Finished products 9,579 7,215
------- -------
20,869 17,711
Reserve for slow moving and potentially
obsolete materials (603) (655)
-------- --------
$ 20,266 $ 17,056
======== ========
</TABLE>
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NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
---- ----
<S> <C> <C>
Property, plant and equipment consists of the following:
Land $ 782 $ 782
Buildings 5,961 5,886
Equipment, furniture and fixtures 20,571 19,849
Leasehold improvements 577 529
-------- --------
27,891 27,046
Less: Accumulated depreciation (7,539) (6,431)
-------- --------
$ 20,352 $ 20,615
======== ========
</TABLE>
NOTE 4 - EARNINGS PER SHARE
Earnings per share is computed by dividing net income (loss) by the
weighted average number of Common and Common Share equivalents outstanding.
Common Share equivalents are computed using the treasury stock method. Common
Share equivalents were excluded from the net loss per share computation for the
three and six months ended September 30, 1995, as the effect would be
antidilutive. The weighted average number of Common and Common Share equivalents
outstanding for the three months ended September 30, 1996 and 1995 were 6,801
and 5,979, respectively and for the six months ended September 30, 1996 and 1995
were 6,793 and 5,967, respectively.
NOTE 5 - OTHER INFORMATION
Stock options:
The Company granted options to purchase 142 Common Shares at exercise
prices between $8.11 and $9.69 per share under the 1994 Corrpro Stock Option
Plan (the "Plan") during the six months ended September 30, 1996. During such
period, the Company terminated 2 previously granted options in accordance with
the provisions of the Plan. There were 89 Common Share options exercised at an
exercise price of $2.33 per share during the six month period ended September
30, 1996.
Also during the six months ended September 30, 1996, the Company
granted options to purchase 6 Common Shares at exercise prices between $10.32
and $11.21 per share under the 1994 Corrpro Outside Directors' Stock Option Plan
(the "Directors' Plan"). During such period, the Company terminated 3 previously
granted options in accordance with provisions of the Directors' Plan.
Legal matters:
In June 1995, the Company announced that earnings per share for fiscal
1995 were expected to be substantially below analysts' expectations, and in
August 1995, the Company restated its previously reported unaudited results for
the second and third quarters of fiscal 1995 securities class action litigation
and shareholder derivative litigation were commenced seeking substantial damages
from the Company and/or certain of its current and former
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directors and officers. During September 1995, the class action litigation was
consolidated and an amended and consolidated class action complaint was filed on
behalf of a purported class consisting of investors who purchased the Company's
Common Shares between June 1, 1994 and June 19, 1995. The Company and certain of
its current or former directors and/or officers were named defendants.
In addition, the Company is cooperating in an investigation being
conducted by the Securities and Exchange Commission ("SEC") concerning certain
matters, including those described above. The Company is unable to assess the
impact of the ultimate resolution of this matter.
Motions to dismiss the consolidated class action lawsuit and the
shareholder derivative action were filed in November 1995 and October 1995,
respectively. On December 28, 1995, the motion to dismiss the shareholder
derivative action was granted without prejudice. An appeal is pending. The
motions to dismiss the consolidated class action complaint are still pending.
On October 17, 1996, the Company reached an agreement in principle to
settle the securities class action and shareholder derivative lawsuits. The
proposed settlement is subject to certain conditions including the negotiation
and signing of a definitive settlement agreement and court approval. The total
of the proposed settlement is $6,100. The Company has agreed to pay $1,100 in
cash, to issue a promissory note in the amount of $500 and to pay an additional
$1,400 in cash or equity securities valued at the time of distribution. The
Company's directors and officers liability insurance ("D&O") carrier has agreed
to pay the balance of the settlement amount. During the quarter ended September
30, 1996, the Company recorded an unusual charge totaling $2,400 relating to the
settlement. Such amount represents the Company's share of the proposed
settlement, net of estimated litigation related legal fees to be reimbursed by
the D&O carrier.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------
OF OPERATIONS
A. RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 1995
Revenues
- --------
Revenues for the fiscal 1997 second quarter totaled $40.7 million, an
increase of $2.7 million or 7.1% over the fiscal 1996 second quarter. The
revenue growth was all internally generated as there were no acquisitions in
either the current or prior year.
During the fiscal 1997 second quarter, approximately 46% of the Company's
revenues related to services and 54% related to products, compared to 49% and
51%, respectively during the fiscal 1996 second quarter.
Revenues from services were essentially flat during the quarter. Service
revenues related to the Company's domestic market (historical core businesses)
were affected by several concrete contacts which have been delayed to future
periods. In addition, the Company continued to emphasize profitability over
revenue growth.
Product revenues increased $2.8 million or 14.5%. This growth is largely
due to improved performance by the Company's Wilson Walton UK operation which
benefited from several large offshore projects currently in process.
Gross Profit
- ------------
The Company's gross profit for the fiscal 1997 second quarter totaled $12.2
million (or 30.1% of revenues) compared to $8.1 million (or 21.3% of revenues)
for the fiscal 1996 second quarter. This represents an increase gross profit
dollars of 51.2%. During fiscal 1996, the Company effected pricing disciplines
and implemented cost reductions, which have resulted in improved gross profit
margins.
Gross profit related to services totaled $6.4 million (or 34.4% of
revenues) for the fiscal 1997 second quarter, compared to $5.1 million (or 27.3%
of revenues) for the fiscal 1996 second quarter, an increase in gross profit
dollars of 25.5%. Fiscal 1996 second quarter gross margins were negatively
impacted as the Company completed a number of lower margin jobs and orders which
were in the backlog at the beginning of such fiscal year.
Gross profit related to product sales totaled $5.9 million (or 26.4% of
revenues) for the fiscal 1997 second quarter, compared to $3.0 million (or 15.5%
of revenues) for the fiscal 1996 second quarter, an increase in gross profit
dollars of 94.6%. Product margins, however, continue to be negatively impacted
by low margins at the Corrtherm foundry operation. Although Corrtherm's gross
margins have improved between years, they continue to be below those of the
Company's other operations.
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Selling, General and Administrative Expense
- -------------------------------------------
Selling, general and administrative ("S,G&A") expense for the fiscal 1997
second quarter totaled $8.4 million (or 20.5% of revenues) compared to $8.6
million (or 22.6% of revenues) for the fiscal 1996 second quarter, a decrease of
2.8%. This improvement reflects the benefits from cost reduction measures
implemented during the prior fiscal year.
Unusual Charge
- --------------
During the fiscal 1997 second quarter, the Company recorded a $2.4 million
unusual charge relating to the proposed settlement of the securities class
action and shareholder derivative litigation.
Operating Income (Loss)
- -----------------------
Operating income during the fiscal 1997 second quarter totaled $1.5 million
compared with an operating loss of $0.5 million for the fiscal 1996 second
quarter. The fiscal 1997 second quarter includes the $2.4 million unusual charge
discussed above. The increase in operating income relates to the improved gross
profit margins as well as reduced S,G&A expense.
Interest Expense
- ----------------
Interest expense totaled $0.6 million for the 1997 second quarter compared
with $0.8 million for the 1996 second quarter.
Income Tax Provision
- --------------------
The Company recorded a provision for income taxes of $0.3 million for the
fiscal 1997 second quarter compared to a benefit of $0.3 million for the fiscal
1996 second quarter. The effective tax rate for the fiscal 1997 second quarter
was 41.7% compared to 19.8% for the fiscal 1996 second quarter.
Net Income
- ----------
The Company generated net income of $0.5 million for the fiscal 1997 second
quarter compared to a net loss of $1.0 million for the fiscal 1996 second
quarter.
RESULTS OF OPERATIONS - SIX MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO SIX
MONTHS ENDED SEPTEMBER 30, 1995
Revenues
- --------
Revenues for the six months ended September 30, 1996 totaled $77.2 million,
an increase of $5.7 million or 8.0% over the fiscal 1996 six month period. The
revenue growth was all internally generated as there were no acquisitions in
either the current or prior year.
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<PAGE> 12
During the fiscal 1997 six months, approximately 44% of the Company's
revenues related to services and 56% related to products, compared to 46% and
54%, respectively during the fiscal 1996 six months.
Revenues from services increased $1.4 million or 4.2%. The increase is
primarily attributable to growth at the Company's domestic core businesses.
Product revenues increased $4.3 million or 11.2%. The increase also relates
to the domestic core businesses as well as growth at Wilson Walton.
The Company believes that a portion of the increase for the six month
period is a carryover of business from the fourth quarter of fiscal 1996, when
severe winter weather delayed certain engineering and construction projects to
future periods.
Gross Profit
- ------------
The Company's gross profit for the fiscal 1997 six months totaled $23.3
million (or 30.1% of revenues) compared to $15.4 million (or 21.5% of revenues)
for the fiscal 1996 six months. This represents an increase gross profit dollars
of 51.2%. During fiscal 1996, the Company effected pricing disciplines and
implemented cost reductions which have resulted in improved gross profit
margins.
Gross profit related to services totaled $12.1 million (or 35.4% of
revenues) for the fiscal 1997 six months, compared to $8.1 million (or 24.7% of
revenues) for the fiscal 1996 six months, an increase in gross profit dollars of
49.4%. Fiscal 1996 six month gross margins were negatively impacted as the
Company completed a number of lower margin jobs and orders which were in backlog
at the beginning of such fiscal year.
Gross profit related to product sales totaled $11.2 million (or 26.0% of
revenues) for the fiscal 1997 six months, compared to $7.3 million (or 18.9% of
revenues) for the fiscal 1996 six months, an increase in gross profit dollars of
53.1%. Product margins, however, continue to be negatively impacted by low
margins at Corrtherm. Although Corrtherm's gross margins have improved between
years, they continue to be below those of the Company's other operations.
Selling, General and Administrative Expense
- -------------------------------------------
Selling, general and administrative ("S,G&A") expense for the fiscal 1997
six months totaled $16.8 million (or 21.7% of revenues) compared to $18.5
million (or 25.9% of revenues) for the fiscal 1996 six months, a decrease of
9.5%. This improvement reflects the benefits from cost reduction measures
implemented during the prior fiscal year.
Unusual Charges
- ---------------
During the fiscal 1997 six month period, the Company recorded a $2.4
million unusual
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charge related to the proposed settlement of the securities class action and
shareholder derivative litigation. The fiscal 1996 six month period includes a
$1.5 million unusual charge.
Operating Income (Loss)
- -----------------------
The Company had operating income of $4.1 million during the fiscal 1997 six
months compared with an operating loss of $4.6 million for the fiscal 1996 six
months. The fiscal 1997 six months includes a $2.4 million unusual charge. The
increase in operating income relates to the improved gross profit margins as
well as reduced S,G&A expense.
Interest Expense
- ----------------
Interest expense totaled $1.2 million for the 1997 six months compared with
$1.4 million for the 1996 six months.
Income Tax Provision
- --------------------
The Company recorded a provision for income taxes of $1.2 million for the
fiscal 1997 six months compared to a benefit of $1.8 million for the fiscal 1996
six months. The effective tax rate for the fiscal 1997 six months was 40.5%
compared to 30.0% for the fiscal 1996 six months.
Net Income
- ----------
The Company generated net income of $1.7 million for the fiscal 1997 six
months compared to a net loss of $4.2 million for the fiscal 1996 six months.
B. LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had working capital of $38.0 million
compared to $33.8 million at March 31, 1996, an increase of $4.2 million or
12.5%. The increase is primarily the result of seasonally higher levels of
business activity. Based on its historical seasonality trends, the second
quarter is seasonally the Company's strongest.
During the six months ended September 30, 1996, cash used for operating
activities totaled $0.3 million. This is primarily the result of the $4.2
million increase in working capital discussed above.
Cash used for investing activities during the six months ended
September 30, 1996 totaled $1.5 million and included $1.0 million of net capital
expenditures and the disbursement of $0.5 million relating to the purchase of
technology rights. Cash provided by financing activities during the six months
ended September 30, 1996 totaled $2.3 million which primarily represents
additional credit line borrowings necessary to meet working capital
requirements.
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<PAGE> 14
On March 31, 1996, the Company entered into a new $37.5 million
domestic bank credit facility which consists of a three-year $32.5 million
revolver which expires on March 31, 1999 and a four-year $5 million term loan
which matures on March 31, 2000. Borrowings under the credit facility are
initially limited to borrowing base amounts as defined in the credit agreement.
The credit agreement, however, provides for the elimination of borrowing base
limitations upon the Company's achievement of certain financial ratios. The
credit agreement was amended as of October 23, 1996 to revise certain
definitions.
In addition to the domestic bank credit facility, the Company has
various smaller lines of credit with foreign banks which totaled approximately
$3 million. Total availability under the domestic and foreign credit facilities
at September 30, 1996 was approximately $12 million. The Company was in
compliance with all of its debt covenants at September 30, 1996.
As previously reported, in June 1995 the Company announced that earnings
per share for fiscal 1995 were expected to be substantially below analysts'
expectations, and in August the Company restated its previously reported results
for the second and third quarters of fiscal 1995. Securities class action
litigation and shareholder derivative litigation were commenced seeking
substantial damages from the Company and/or certain of its current and former
directors and officers. In addition, the Company is cooperating in an
investigation being conducted by the SEC. See Part II, Item 1, Legal
Proceedings. The Company is a party to indemnification agreements with the
individual defendants in the class action and shareholder derivative litigation,
and the Company is paying the reasonable expenses (including attorneys' fee) of
the individual defendants in defending such lawsuits in advance of the final
disposition of such lawsuits. The individual defendants have each furnished to
the Company a written undertaking to repay the amounts so paid if it shall
ultimately be determined that such individual defendant is not entitled to
indemnification.
On October 17, 1996, the Company reached an agreement in principle to
settle the securities class action and shareholder derivative lawsuits. The
proposed settlement is subject to certain conditions including the negotiation
and signing of a definitive settlement agreement and court approval. The total
of the proposed settlement is $6.1 million. The Company has agreed to pay $1.1
million in cash, to issue a promissory note in the amount of $0.5 million and to
pay an additional $1.4 million in cash or equity securities valued at the time
of distribution. The Company's D&O carrier has agreed to pay the balance of the
settlement amount. The Company is unable to assess at this time the impact of
the ultimate resolution of the SEC investigation.
The Company believes that cash generated by operations and amounts
available under its domestic bank credit facility and foreign lines of credit
will be sufficient to satisfy the Company's liquidity requirements through at
least fiscal 1997. This includes any cash requirements relating to the
settlement of the litigation discussed above.
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<PAGE> 15
C. EFFECT OF INFLATION AND FOREIGN CURRENCY TRANSLATION
The Company does not believe that inflation has had a significant
effect on the Company's results of operations for the periods presented.
The Company has not been significantly affected by currency
fluctuations or foreign exchange restrictions. Management believes that these
risks resulting from the Company's foreign sales are manageable.
15
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PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS
- -------
As previously reported, in June 1995 the Company announced that its
earnings per share for fiscal 1995 were expected to be substantially below
analysts' expectations, and in August 1995 the Company restated its previously
reported results for the second and third quarters of fiscal 1995. Commencing in
June 1995, six class action lawsuits were filed against the Company and certain
of its current and former directors and officers, and a shareholder derivative
action was commenced naming the Company, its current and former directors and
certain of its current and former officers as defendants.
On September 7, 1995, five of the class actions were consolidated in
the U.S. District Court for the Northern District of Ohio and styled IN RE
CORRPRO COMPANIES, INC. SECURITIES LITIGATION. On September 14, 1995, the other
class action was voluntarily dismissed. On or about September 29, 1995, an
amended and consolidated class action complaint was filed in this consolidated
proceeding on behalf of a purported class consisting of investors who purchased
the Company's common shares between June 1, 1994 and June 19, 1995.
On November 1, 1995, the Company and all other defendants filed motions
to dismiss the amended and consolidated class action complaint in its entirety,
and these motions are still pending.
In August 1995, the Company was served with a lawsuit captioned LANI
ROTHSTEIN, TRUSTEE VS. ROBERT M. GOSSETT, BARRY W. SCHADECK, JOSEPH C. OVERBECK,
JOSEPH W. ROG, DAVID H. KROON, C. RICHARD LYNHAM, ROBERT E. HODGE, ROBERT (SIC)
S. LANGOS, RICHARD HARR, DOES 1-100, AND CORRPRO COMPANIES, INC., Medina County
Common Pleas Court, Case No. 95 CIV 0522. This shareholder derivative action was
filed August 2, 1995 and served on or about August 4, 1995.
On or about October 16, 1995, the defendants filed a motion to dismiss
the shareholder derivative action referred to above in its entirety. On December
28, 1995, the motion to dismiss the shareholder derivative action was granted
without prejudice. An appeal is pending.
In addition, the Company is cooperating in an investigation being
conducted by the SEC concerning certain matters, including those described
above. Copies of documents requested by the SEC have been provided, and the
testimony of certain individuals has been taken. The Company is unable to assess
the impact of the ultimate resolution of this matter.
On October 17, 1996, the Company reached an agreement in principle to
settle the securities class action and shareholder derivative lawsuits. The
proposed settlement is subject to certain conditions including the negotiation
and signing of a definitive settlement agreement and court approval. The total
of the proposed settlement is $6.1 million. The Company has agreed to pay $1.1
million in cash, to issue a promissory note in the amount of $0.5 million and to
pay an additional $1.4 million in cash or equity securities valued at the time
of
16
<PAGE> 17
distribution. The Company's D&O carrier has agreed to pay the balance of the
settlement amount. The Company recorded a pretax charge of $2.4 million related
to the settlement in the fiscal 1997 second quarter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------
A vote by ballot was taken by the Company's shareholders at the Annual
Meeting of Shareholders of the Company held on July 24, 1996 for the election of
three directors of the Company for terms expiring in 1998. The aggregate number
of Common Shares in person or by proxy (a) voted for each nominee or (b) with
respect to which proxies were withheld for each nominee, were as follows:
<TABLE>
<CAPTION>
NOMINEES FOR WITHHELD
- -------- --- --------
<S> <C> <C>
Barry W. Schadeck 5,468,360 50,768
Warren F. Rogers 5,449,885 69,243
Walter W. Williams 5,454,367 64,761
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -------
A. EXHIBITS.
Exhibit 4.1 First Amendment to Credit Agreement, dated as of
October 23, 1996 by and among the Company, the
Lenders party thereto, and Bank One, Columbus, N A.
Exhibit 10.32 Employment Agreement effective April 1, 1996 by and
between the Company and Joseph W. Rog.
B. REPORTS ON FORM 8-K.
On October 25, 1996, the Company filed a report on Form 8-K relating to
a change in the Company's certifying accountants.
17
<PAGE> 18
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORRPRO COMPANIES, INC.
(Registrant)
Date: November 13, 1996 /s/ Joseph W. Rog
---------------------- ------------------------
Joseph W. Rog
Chairman of the Board, President
and Chief Executive Officer
/s/ Neal R. Restivo
----------------------------
Neal R. Restivo
Senior Vice President and
Chief Financial Officer
(principal financial and
accounting officer)
18
<PAGE> 1
Exhibit 4.1
FIRST AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the "Amendment") is dated as
of October 23, 1996, by and among CORRPRO COMPANIES, INC., an Ohio corporation
(the "Borrower"), the Lenders party hereto, and BANK ONE, COLUMBUS, NA, a
national banking association, as agent for the Lenders (in such capacity, the
"Agent").
RECITALS
--------
A. The Borrower, the Lenders, and the Agent entered into a Credit
Agreement, dated as of March 29, 1996 (together with all Exhibits and Schedules
thereto, the "Credit Agreement"), under which the Lenders agreed, subject to
certain conditions, to make revolving credit loans to the Borrower in an
aggregate principal amount not to exceed $32,500,000, which loans are evidenced
by the Revolving Credit Notes, and (ii) to make a term loan to the Borrower in
the aggregate amount of $5,000,000, which term loan is evidenced by Term Notes.
B. The parties desire to amend the Credit Agreement as set forth
herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. Effect of Amendment; Definitions.
---------------------------------
All terms used herein that are defined in the Credit Agreement shall
have the meanings ascribed thereto in the Credit Agreement, unless the context
otherwise requires. The Credit Agreement shall be and hereby is amended as
provided in Section 2 hereof. Except as expressly amended in Section 2 hereof,
the Credit Agreement shall continue in full force and effect in accordance with
its provisions on the date hereof. As used in the Credit Agreement, the terms
"Credit Agreement", "Agreement", "this Agreement", "herein", "hereinafter",
"hereto", "hereof", and words of similar import shall, unless the context
otherwise requires, mean the Credit Agreement as amended and modified by this
Amendment.
2. Amendments.
-----------
(A) The definition of "Borrowing Base" in Section 1.1 of the Credit
Agreement is amended by deleting from clause (c) thereof the following language:
"from the Closing Date through and including September 30, 1996 or Eight Million
Dollars ($8,000,000) on and after October 1, 1996".
(B) The definition of "EBIT" in Section 1.1 of the Credit Agreement
is amended by inserting the following clause
<PAGE> 2
immediately after the end of clause (c) thereof: "PLUS (d) any Settlement Charge
incurred by the Borrower during that period,".
(C) The definition of "Excess Cash Flow" in Section 1.1 of the Credit
Agreement is amended by deleting the phrase "(excluding any gain or loss in
respect of the Good-All Sale)" and inserting the following in lieu thereof:
"(excluding any gain or loss in respect of the Good-All Sale and any Settlement
Charge incurred by the Borrower during that period to the extent paid in cash)".
(D) The definition of "Tangible Net Worth" in Section 1.1 of the Credit
Agreement is amended by inserting the following clause immediately after the end
of clause (iii) thereof: "PLUS (iv) the Settlement Charge incurred by the
Borrower, net of any tax benefit in respect thereof,".
(E) Section 1.1 of the Credit Agreement is amended by inserting the
following definitions in alphabetical order:
"'Applicable Percentage' shall mean, for purposes of Section 2.1(a)
hereof with respect to each Lender's Pro Rata share of the Term Loan, the
following: (a) for the period from September 30, 1996, to December 30, 1996
(inclusive), seventy-five percent (75%) ; (b) for the period from December
31, 1996, to March 30, 1997 (inclusive), fifty percent (50%); (c) for the
period from March 31, 1997, to June 29, 1997 (inclusive), twenty-five
percent (25%); and (d) on and after June 30, 1997, zero percent (0%)."
"'Settlement Charge' shall mean the charges incurred by the Borrower in
accordance with the Settlement of Shareholder Actions; provided, however,
that those charges are in accordance with GAAP and that the aggregate amount
of all of those charges shall not exceed Three Million Thirty-Seven
Thousand Five Hundred Dollars ($3,037,500)."
"'Settlement of Shareholder Actions' shall mean the settlement in
respect of all of the actions, suits or proceedings set forth on Schedule
4.12 hereto; provided, however, that the terms of such settlement (including
the dismissal, with prejudice, of all those actions, suits or proceedings)
shall be approved in writing by the Required Lenders, in the exercise of
their reasonable discretion."
(F) The second sentence in Section 2.1(a) of the Credit Agreement is
amended by deleting the same and substituting the following in lieu thereof:
"A Lender shall have no obligation to make any Revolving Credit Loan to
the extent that the aggregate principal amount of such Lender's Revolving
Credit Loans at any time outstanding, together with such Lender's Pro Rata
-2-
<PAGE> 3
share of any requested Revolving Credit Loan and such Lender's Pro Rata
share of the Stated Amount of any Letter of Credit requested by the
Borrower, PLUS such Lender's Pro Rata share of the aggregate Letter of
Credit Exposure PLUS such Lender's Pro Rata share of the Applicable
Percentage of the outstanding principal of the Term Loan, would exceed the
lesser of (i) such Lender's Revolving Credit Committed Amount at such time
PLUS such Lender's Pro Rata share of the outstanding principal of the Term
Loan or (ii) such Lender's Pro Rata share of the Borrowing Base."
(G) Section 7.1(b) of the Credit Agreement is amended by deleting the
same and substituting the following in lieu thereof:
"(b) RATIO OF TOTAL LIABILITIES TO TANGIBLE NET WORTH. The Borrower
shall not permit the ratio of Total Liabilities LESS any litigation reserves
in respect the actions, suits or proceedings set forth on Schedule 4.12
hereto (including any reserves in respect of the Settlement Charge) to
Tangible Net Worth (the "Leverage Ratio") at any time to be more than 2.50
to 1.00."
(H) Section 7.3(d) of the Credit Agreement is amended by deleting the
same and substituting the following in lieu thereof:
"(d) Indebtedness incurred by the Borrower in respect of the Settlement
of Shareholder Actions, so long as such Indebtedness is not secured by a
Lien and is subordinated to the Obligations and contains such other terms
that are approved in writing by the Required Lenders, in the exercise of
their reasonable discretion;"
(I) Section 7.6 of the Credit Agreement is amended by deleting the word
"and" at the end of subsection (b), by deleting the period at the end of
subsection (c) and inserting in lieu thereof "; and", and by inserting the
following as subsection (d):
"(d) For the period of October 1, 1996 to June 30, 1997 (inclusive), so
long as no Possible Default or Event of Default has occurred and is
continuing or would be caused by or exist immediately after such Restricted
Payment, the Borrower may from time to time purchase (in cash) shares of its
capital stock (including common shares) on the open market in an aggregate
amount not to exceed the lesser of (i) One Million Four Hundred Thousand
Dollars ($1,400,000) or (ii) an amount equal to fifty percent (50%) of the
Borrower's Net Income (excluding the Settlement Charge, to the extent
included therein) for the preceding completed fiscal quarters of the fiscal
year commencing April 1, 1996, determined with reference to the financial
statements
-3-
<PAGE> 4
required to be delivered under Section 6.1(b) hereof for those fiscal
quarters.
3. Representations and Warranties; Covenants.
------------------------------------------
(A) The Borrower hereby represents and warrants that all representations
and warranties set forth in the Credit Agreement, as amended hereby, are true
and correct in all material respects, and that this Amendment has been executed
and delivered by a duly authorized officer of the Borrower and constitutes the
legal, valid and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its terms.
(B) The Borrower hereby represents and warrants that the execution,
delivery and performance by the Borrower of this Amendment and its performance
of the Credit Agreement, as amended hereby, have been authorized by all
requisite corporate action and will not (i) violate (a) any order of any court,
or any rule, regulation or order of any other agency of government, (b) the
Articles of Incorporation or the Code of Regulations (including any amendment
thereto) or any other instrument of corporate governance of the Borrower, or (c)
any provision of any indenture, agreement or other instrument to which the
Borrower is a party, or by which the Borrower or any of its properties or assets
are or may be bound; (ii) be in conflict with, result in a breach of or
constitute, alone or with due notice or lapse of time or both, a default under
any indenture, agreement or other instrument referred to in (i) (c) above; or
(iii) result in the creation or imposition of any lien, charge or encumbrance of
any nature whatsoever.
4. Miscellaneous.
--------------
(A) This Amendment shall be construed in accordance with and governed by
the laws of the State of Ohio, without reference to principles of conflict of
laws.
(B) This Amendment shall become effective upon execution and delivery
hereof by the Lenders and the Borrower. The Borrower agrees to pay on demand all
costs and expenses of the Agent, including reasonable attorneys' fees and
expenses, in connection with the preparation, execution and delivery of this
Amendment and the review of the Settlement of Shareholder Actions.
(C) The execution, delivery and performance by the Lenders and the Agent
of this Amendment shall not constitute or, except as expressly set forth herein,
be deemed to be or construed as a waiver of any right, power or remedy, or a
waiver of any provision of the Credit Agreement, or a waiver of any Possible
Default or any Event of Default. Nothing herein shall be deemed to entitle the
Borrower to a consent to, or a waiver,
-4-
<PAGE> 5
amendment, modification or other change of, any of the terms, conditions,
obligations, covenants or agreements contained in the Credit Agreement or any
other Loan Document in similar or different circumstances. This Amendment is
subject to the provisions of Section 10.3 of the Credit Agreement.
(D) This Amendment may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed an original, but all such counterparts shall
constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed and delivered this Agreement as of the date first
above written.
CORRPRO COMPANIES, INC.
By:
---------------------------------
Title:
------------------------------
BANK ONE, COLUMBUS, NA,
individually and as Agent
By:
-------------------------------
Title:
----------------------------
NATIONAL CITY BANK
By:
------------------------------
Title:
---------------------------
PNC BANK, NATIONAL ASSOCIATION
By:
-----------------------------
Title:
--------------------------
-5-
<PAGE> 1
Exhibit 10.32
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made in Medina, Ohio and
is entered into on this 23rd day of July, 1996, and effective as of April 1,
1996 by and between Corrpro Companies Inc., an Ohio corporation (the "Company"),
and Joseph W. Rog ("Executive").
WITNESSETH:
WHEREAS, the Company and Executive are parties to an Employment
Agreement dated June 11, 1993 (the "Original Employment Agreement");
WHEREAS, the parties now desire to enter into this Agreement which shall
supersede the Original Employment Agreement in its entirety.
NOW, THEREFORE, in consideration of the recitals, the mutual covenants
and agreements contained in this Agreement, and other good and valuable
consideration, the parties agree as follows:
SECTION 1 - TERM AND DUTIES.
----------------------------
(a) The Company employs Executive under this Agreement, commencing April
1, 1996 and ending on March 31, 1998 unless sooner terminated in
accordance with the provisions of this Agreement.
(b) During his employment pursuant to this Agreement, Executive shall
serve as Chairman of the Board, Chief Executive Officer and
President of the Company. The Company shall nominate Executive to
serve as a director on the Board of Directors of the Company and
shall use its best efforts to facilitate Executive's election.
Executive shall have the right to serve on the board of directors of
any newly formed holding company and subsidiary of the Company . In
these capacities, Executive will retain the right to approve, select
and/or hire employees of the Company plus have the authority to
determine and implement programs and establish direction for the
Company and shall serve at the direction of the Board of Directors
of the Company.
(c) The Company agrees that it will not, without Executive's consent,
(i) assign to Executive duties inconsistent with his current
positions, duties, responsibilities and status with the Company, or
(ii) change his titles as currently in effect, or (iii) remove him
from, or fail to re-elect him to, any of such positions, except in
connection with the termination of his employment for Good Cause (as
hereinafter defined), Disability (as hereinafter defined) or
retirement or as a result of his death or voluntary termination.
Except as so limited, the powers and duties of Executive are to be
more specifically determined and set by the Company from time to
time.
<PAGE> 2
SECTION 2 - COMPENSATION AND BENEFITS.
--------------------------------------
(a) During his employment pursuant to this Agreement, Executive shall
receive an annual base salary of Two Hundred Thirty-five Thousand
Dollars ($235,000.00) as compensation for his services to the
Company (the "Base Compensation"), such compensation to be payable
in regular installments in accordance with standard Company policy.
On or about the first day of each fiscal year of the Company during
Executive's employment pursuant to this Agreement, the Base
Compensation shall be set by the Board of Directors (or a committee
thereof designated by the Board) and in the event the Base
Compensation is adjusted, such adjusted Base Compensation (adjusted
either upward or downward) shall be payable to Executive under this
Agreement for that fiscal year.
(b) During his employment pursuant to this Agreement, and except as
otherwise expressly provided in this Agreement, Executive shall be
entitled to participate on substantially the same terms as other
Senior Level Executives (all persons with the title Vice President
and above employed by the Company) in all employee benefit and
executive benefit plans, pension plans, medical benefit plans, group
life insurance plans, hospitalization plans, or other employee
welfare plans that the Company may adopt from time to time during
Executive's employment pursuant to this Agreement, and as such plans
may be modified, amended, terminated, or replaced from time to time.
In addition, Executive shall receive such other compensation as
the Board of Directors of the Company (or a committee thereof
designated by the Board) may from time to time determine to pay
Executive whether in the form of bonuses, stock options, incentive
compensation or otherwise. The bonuses, stock options, incentive
compensation or other compensation, if any, payable to Executive
pursuant to this Section 2(b) shall be set each year by the Board of
Directors (or a committee thereof designated by the Board) at the
time Executive's Base Compensation is set pursuant to Section 2(a)
above and at such other times as the Board (or a committee thereof
designated by the Board) may determine.
(c) During his employment pursuant to this Agreement, and except as
otherwise provided in this Agreement, Executive shall be entitled to
participate on substantially the same terms and conditions as other
Senior Level Executives in all fringe benefits provided such
personnel, including but not limited to, vacation, sick pay, and
company car.
SECTION 3- TIME COMMITMENT AND PERFORMANCE. Executive shall devote
his best efforts and all of his business time, attention, and skill to the
business and the operations of the Company and shall perform his duties and
conduct himself at all times in a manner consistent with his appointment as
Chairman of the Board, Chief Executive Officer and President of the Company;
except, however, Executive may serve on corporate, civic, or charitable boards
or committees provided that he advises the Board of Directors of the Company of
all such
-2-
<PAGE> 3
service, and provided, further, that if such service shall require a substantial
commitment (as such term may be defined by the Board from time to time) by
Executive, such service must be approved in advance, in writing, by the Board,
such approval not to be unreasonably withheld.
SECTION 4 - COMPETITIVE ACTIVITY. From the effective date of this
Agreement and until the later of (i) three (3) years following the termination
of Executive's employment with the Company, or (ii) as long as Executive is
receiving payments pursuant to Section 11 hereof, Executive will not, directly
or indirectly, either for himself or on behalf of any other corporation,
partnership, person, group, or entity:
(a) enter into any contract or agreement, or own, directly or
indirectly, any interest in, or engage in or conduct in any manner
or capacity (whether as shareholder, consultant, advisor, principal,
agent, partner, officer, director, employee, or otherwise), any
business competitive with any line of business then being conducted
or planned to be conducted by the Company;
(b) attempt to divert or take away, in any manner, the business or
patronage of any customer or potential customer of the Company or
otherwise take from or deprive the Company of any business
opportunity;
(c) attempt to hire or employ, whether as an employee, agent,
independent contractor or otherwise, any employees of the Company;
or
(d) materially interfere, in any manner, with the business, trade, good
will or customers of the Company.
For purposes of this Section 4, there shall be disregarded any interest of
Executive arising solely from the ownership of less than a five percent (5%)
equity interest in a corporation whose stock is regularly traded on any national
securities exchange or regularly traded in the over-the-counter market.
SECTION 5 - PROPRIETARY INFORMATION. During his employment pursuant to
this Agreement and at any time thereafter, Executive shall not disclose, or
cause to be disclosed in any manner, to any corporation, partnership, person,
group, or entity (other than Company or its authorized employees or
representatives) or otherwise use for any purpose other than the Company's
business, any trade secrets or confidential or proprietary information of the
Company, including, but not limited to, the following:
(a) the Company's customer or prospective customer lists;
(b) information concerning the Company's promotional, pricing, or
marketing practices;
(c) the Company's business records; and
-3-
<PAGE> 4
(d) the Company's trade secrets and other confidential and proprietary
information.
Upon termination of employment under any circumstances, Executive, or his estate
or representatives, shall promptly return to the Company all property of the
Company including any and all electronic devices and related data storage
devices and shall destroy or erase any data which cannot be returned.
SECTION 6 - COMPENSATION DURING DISABILITY. Executive shall receive his
Base Compensation during the first ninety (90) business days of absence due to
Disability (as hereinafter defined) in accordance with the Company's disability
benefits provided to Senior Level Executives. The amount of benefits to be paid
by the Company to Executive under this Section 6 shall be reduced by any amount
paid or to be paid to Executive for such period under any insurance policy the
premiums for which were paid by the Company. In the event of Executive's
Disability and a determination by the Board of Directors that no reasonable
accommodations can be made, the Company may terminate Executive's employment
under this Agreement. If the Company terminates Executive's employment under
this Agreement because of Executive's Disability, the Company shall pay to
Executive the amounts, and provide to Executive the benefits, specified in
Section 10 hereof. For purposes of this Agreement, "Disability" shall mean
Executive's inability, through physical or mental illness or accident or other
cause, to perform his major and substantial duties on a full time basis as
determined by a physician hired by the Board of Directors for this purpose (the
"Company Physician"). If the physician regularly attending Executive (the
"Executive Physician") disagrees with the opinion of the Company Physician, the
Company Physician and the Executive Physician shall choose a third consulting
physician (the expense of which shall be borne by the Company), and the written
opinion of the third consulting physician shall be conclusive as to such
disability. In conjunction with this Section 6, Executive consents to such
examination, to furnish any medical information requested by any examining
physician, and to waive any applicable physician-patient privilege that may
arise because of such examination. All physicians, except the Executive
Physician, selected hereunder must be board-certified in the specialty most
closely related to the nature of the disability alleged to exist.
SECTION 7 - RESIGNATION DUE TO COMPANY FAILING TO HONOR ITS OBLIGATIONS
AND TERMINATION WITHOUT GOOD CAUSE. Anything to the contrary contained in this
Agreement notwithstanding, (i) if the Company fails to honor any of its
obligations under this Agreement, and if the Company does not cure the
determined failure within thirty (30) days after a determination of a failure in
accordance with the procedures set forth below, and if as a result Executive
resigns his employment with the Company, or (ii) the Company terminates
Executive's employment with the Company under this Agreement without Good Cause,
Executive shall be entitled to receive and the Company shall pay to Executive
the following:
(a) SALARY. Executive's Base Compensation earned through the date of
resignation or termination shall be paid within ten (10) days of the
effective date of the resignation or termination.
-4-
<PAGE> 5
(b) SEVERANCE PAYMENT. A severance payment for a period of one year
shall be paid in twelve (12) equal, consecutive monthly payments
commencing on the first day of the month following such resignation
or termination in the amount (net of any required withholdings)
equal to Executive's Base Compensation. In the event of Executive's
death prior to the receipt of all twelve (12) payments, the payments
shall continue to Executive's spouse. In the event of the spouse's
death, the payments shall continue in accordance with the terms of
Executive's Will, but in no event will more than a total of twelve
(12) payments be made.
(c) BENEFITS. Following any resignation or termination for which a
payment under Section 7(b) is owing, Executive, or his spouse and
eligible dependents in the event of Executive's death, shall
continue to participate at the expense of the Company in the same or
comparable hospital, medical, accident, disability and life
insurance benefits as he participated in immediately prior to
resignation or termination of his employment unless by law, the
terms of any insurance policy or the terms of the applicable benefit
plans, continued coverage is not permitted; provided, however, that
Executive, or his spouse and eligible dependents in the event of
Executive's death, shall pay any employee cost associated with such
benefits which would otherwise have been paid by Executive if he had
continued his employment. If because of the application of law, the
terms of any insurance policy or the terms of the applicable benefit
plans Executive cannot be covered under any benefit program referred
to above, then the Company shall pay to Executive, or his spouse and
eligible dependents in the event of Executive's death, on a regular
basis the amount which the Company would have paid for the benefit
had Executive continued to participate in the Company's group plan.
To the extent that during Executive's employment, any such benefits
were part of a program of benefits for Senior Level Executives of
the Company, generally, then any subsequent modification,
substitution, or termination of any such benefits, generally, shall
also apply to Executive and to the benefits available to Executive
pursuant to this Section 7(c). Any health insurance benefits which
are so continued will be continued to age 65.
(d) EARLY CESSATION OF BENEFITS. All benefits (other than those with
respect to which continuation is required by law) under Section 7(c)
above shall cease upon the death of Executive and his spouse.
(e) INCENTIVE PLANS. An amount equal to a full year's participation in
the short-term incentive bonus plan then in effect as provided for
in Section 2 hereof shall be paid to Executive within the time
period prescribed by such plan. In addition, any payments due
Executive under the incentive plans then in effect as provided for
in Section 2 hereof (other than any short-term incentive bonus
plans) in accordance with the terms of such plans shall be paid to
Executive within the time period prescribed by such plans.
-5-
<PAGE> 6
(f) RETIREMENT INCOME. Executive shall be paid the retirement income
provided in Section 11 hereof, payable in accordance with the
provisions of Section 11.
For purposes of this Section 7, the following procedure shall be used to
determine whether the Company has failed to honor any of its obligations under
this Agreement: (i) Executive shall submit a claim to the Company's Board of
Directors specifically identifying the nature of the failure; (ii) within thirty
(30) days of receipt of such claim, the Board of Directors shall determine
whether they agree with Executive that a failure has occurred and shall
communicate, in writing, their determination to Executive; and (iii) if
Executive disagrees with the determination of the Board of Directors, Executive,
within ten (10) days of such determination, may submit the claim to arbitration
in accordance with the provisions of Section 20 of this Agreement, such
arbitration to be completed within thirty (30) days of submission, and such
determination shall be final and binding upon the Company and Executive.
SECTION 8- TERMINATION FOR GOOD CAUSE. The Company shall have the right
to terminate Executive's employment with the Company under this Agreement for
Good Cause. As used in this Agreement, the term "Good Cause" shall mean:
(a) any act or acts by Executive resulting in, or intended to result
directly or indirectly in, significant gain or personal enrichment
to Executive at the expense of the Company;
(b) a material failure by Executive to substantially perform his duties
with the Company (other than any such failure resulting from
incapacity due to mental or physical illness), and such failure
results in demonstrably material injury to the Company;
(c) the willful, wanton or reckless failure by Executive to properly
perform his duties with the Company (other than any such failure
resulting from incapacity due to mental or physical illness); or
(d) Executive's indictment for the commission of a felony.
Executive's employment shall in no event be considered to have been terminated
by the Company for Good Cause if such termination took place as the result of
(i) bad judgment or negligence, or (ii) any act or omission reasonably believed
in good faith to have been in or not opposed to the interest of the Company.
Executive shall not be deemed to have been terminated for Good Cause unless and
until there shall have been delivered to him a copy of a resolution duly adopted
by the affirmative vote of not less than sixty percent (60%) of the entire
membership of the Board of Directors excluding Executive, if he is a member of
the Board, at a meeting of the Board (after reasonable notice to Executive and
an opportunity for him, together with his counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, Executive was
guilty of conduct set forth above in clauses (a), (b) or (c) above. However,
pending a final determination of the Board, the Board shall have the authority
to place Executive on "leave of absence status", with or without pay in the sole
discretion of the Board as determined by a majority of the Board. In the event
that the Company shall terminate
-6-
<PAGE> 7
Executive's employment under this Agreement for Good Cause, the Company shall
have no further obligation to Executive under this Agreement except to pay his
Base Compensation earned through the date of termination within ten (10) days
after the date of termination.
SECTION 9- VOLUNTARY TERMINATION OTHER THAN SECTION 7. Executive may
voluntarily terminate his employment with the Company under this Agreement,
other than as provided in Section 7 hereof, upon not less than ninety (90) days
prior written notice to the Company. In the event that Executive voluntarily
terminates his employment pursuant to this Section 9, the Company shall have no
further obligation to Executive under this Agreement except to pay his Base
Compensation earned through the date of resignation within ten (10) days after
the date of resignation. Notwithstanding the preceding sentence, Executive shall
also be paid the retirement income provided for in Section 11 hereof provided
Executive satisfies the requirements contained in Section 11.
SECTION 10- TERMINATION UPON DEATH OR DISABILITY OF EXECUTIVE.
Executive's employment under this Agreement shall terminate upon the death of
Executive or may terminate upon his Disability as provided for in Section 6
hereof. Upon such termination, Executive, his designated beneficiary, or his
personal representative shall receive the payments/benefits described below from
the Company:
(a) SALARY. Executive's Base Compensation earned through the date of
termination and a lump sum payment for any unused vacation shall be
paid within ten (10) days after the date of termination.
(b) BONUS. An amount equal to a full year's participation in the
short-term incentive bonus plans then in effect as provided for in
Section 2 hereof shall be paid within the time period prescribed by
such plan.
(c) BENEFITS . Benefits will continue for Executive's spouse and
eligible dependents in accordance with Company policy and as
required by law.
(d) INCENTIVE PLANS. Any payments due Executive under the incentive
plans then in effect as provided for in Section 2 hereof (other than
any short-term incentive bonus plan) in accordance with the terms of
such plans shall be paid within the time period prescribed by such
plan.
(e) RETIREMENT INCOME. The retirement income shall be paid as provided
in Section 11 hereof.
SECTION 11 - RETIREMENT INCOME. The Company shall provide Executive with
retirement income, with a lifetime survivor benefit to Executive's spouse, in an
amount equal to fifty percent (50%) of Executive's Base Compensation, payable on
a monthly basis, if: (a) Executive remains in the employment of the Company
through March 31, 1998; (b) Executive's employment is terminated due to
Executive's death or disability; (c) Executive's employment is terminated by the
Company without Good Cause; or (d) Executive resigns due to the Company failing
to honor its obligations as defined in Section 7 hereof. In the event of
Executive's retirement after March 31, 1998, monthly lifetime survivor
retirement payments will commence
-7-
<PAGE> 8
on the first day of the month following the earlier of (i) Executive's reaching
the age of 63-1/2, or (ii) Executive's death. In the event that Executive's
employment terminates due to death, monthly lifetime survivor retirement
payments to his spouse will commence on the first day of the month following
Executive's death. In the event that Executive's employment terminates due to
Disability, monthly lifetime survivor retirement payments will commence on the
first day of the month following the later of (i) the termination of disability
payments provided for in the first sentence of Section 6 hereof, or (ii) the
termination of benefits received by Executive from disability insurance the
premiums for which were paid by the Company . In the event that Executive's
employment terminates due to termination by the Company without Good Cause or if
Executive terminates employment due to the Company failing to honor its
obligations as defined in Section 7 hereof, monthly lifetime survivor retirement
payments will commence on the first day of the month following the termination
of the severance payments provided for in Section 7(b) hereof. As long as the
retirement payments provided for in this Section 11 are made, Executive agrees
not to compete with the Company as provided in Section 4 hereof. In the event
Executive violates any of the provisions of Section 4 hereof, the Company may
cease making the retirement payments which are provided for in this Section 11.
SECTION 12 - CHANGE IN CONTROL AND RABBI TRUST.
-----------------------------------------------
(a) If Executive's employment with the Company under this Agreement is
terminated within twelve (12) months following a change in control
(as defined below), by the Company without Good Cause, then
Executive shall receive, and the Company shall pay or provide to
Executive or his spouse, eligible dependents, and designated
beneficiaries, the termination payments and benefits provided for in
Section 7 of this Agreement; provided, however, immediately
following a change in control (as defined below), the Company shall
establish a grantor trust conforming with Revenue Procedure 92-64
("Rabbi Trust"). A copy of such Trust to be executed by the Company
is attached hereto as Exhibit A. Within ten (10) days following a
change in control, the Company shall fund the entire obligation to
Executive under this Section 12.
(b) As used herein, a "change in control" shall have occurred at any
time during Executive's employment pursuant to this Agreement, and
if any of the following shall occur:
(i) The Company is merged, consolidated, or reorganized into or
with another corporation or other Legal Person, and immediately
after such merger, consolidation, or reorganization Voting
Securities entitled to exercise a majority of the Voting Power
of the surviving or resulting corporation or other Legal Person
are not (A) Voting Securities of the Company outstanding
immediately prior to such merger, consolidation or
reorganization, or (B) securities received in exchange for such
Voting Securities of the Company.
-8-
<PAGE> 9
(ii) Any Person becomes the Beneficial Owner of Voting Securities
representing twenty percent (20%) or more of the combined
Voting Power of the Company. The change in control shall be
deemed to have occurred no later than the date on which a
report is filed on Schedule 13D or Schedule 14D-1 as
promulgated pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), disclosing that any Person has
become the Beneficial Owner of Voting Securities representing
twenty percent (20%) or more of the combined voting power of
the Company.
(iii) A "change in control" or possible "change in control" which
would be required to be disclosed in response to an item in
Form 8-K or Schedule 14A in connection with the filing of a
report or proxy statement with the Securities and Exchange
Commission pursuant to the Exchange Act, has or may have
occurred or will or may occur in the future pursuant to any
then existing contract or transaction. The change in control
will be deemed to have occurred no later than the date on which
the Company files such report or proxy statement with the
Securities and Exchange Commission disclosing the "change in
control" or possible "change in control."
(iv) During any consecutive six (6) month period commencing before
or after the date of this Agreement, individuals who at the
beginning of such six (6) month period constituted a majority
of the Board of Directors of the Company cease serving on the
Board; however, if a person ceases to serve as a director of
the Company for any reason not related to the Company (as, for
example, because of family reasons, or health reasons, or a
lack of time), then such cessation shall not be considered as a
"cessation" under this Section 12, and any replacement director
shall, for purposes of this Section 12, be treated as the same
person as the director who so ceased serving.
(c) Any reference in this Section 12 to a section of the Exchange Act, a
rule or regulation promulgated under the Exchange Act, or any
schedule, form or report promulgated under the Exchange Act or any
subdivision or item included in any of the foregoing, shall be
deemed to refer to any successor, replacement or amended section,
rule, regulation, schedule, form, report, subdivision, or item in
effect at the time a determination is made. The following words and
phrases when used in this Section 12, shall have the meanings
indicated:
-9-
<PAGE> 10
(i) PERSON shall have the meaning used in Section 1 3(d)(3) or
Section 14(d)(2) of the Exchange Act, and shall also include
all affiliates and associates of such Person as defined in Rule
12b-2 promulgated under the Exchange Act.
(ii) LEGAL PERSON means any Person other than a natural person,
including any entity which can acquire, hold and dispose of
property in its own name, a fictitious name, or in the name of
its owner or owners.
(iii) BENEFICIAL OWNER shall have the meaning defined under Rule
13d-3 promulgated under the Exchange Act, but without the sixty
(60) day limitation specified in paragraph (3)(1)(i) of said
Rule.
(iv) VOTING SECURITIES means any stock or securities entitling the
holder to exercise Voting Power.
(v) VOTING POWER means the right to vote in the election of
directors or persons serving in a similar capacity with a
corporation or other Legal Person, or if there is no board of
directors or similar body, the right to vote to retain or
dismiss the management of the Legal Person.
SECTION 13 - POST TERMINATION CONSULTING AND COOPERATION. For a period
of six (6) months following the termination of Executive's employment under this
Agreement, regardless of whether such termination is by Executive or by the
Company or whether it is with or without Good Cause, Executive, at the sole
discretion of the Company, shall provide the Company and its designated agents,
advisors, and executives with such consultation as the Company may reasonably
require up to a maximum of twenty (20) hours per week. However, Executive shall
have no consulting obligation under this Section 13 if he resigns under
circumstances which entitle him to payments under Section 7 hereof. Company
shall pay Executive an hourly rate of One Hundred Dollars ($100.00) per hour and
reimburse Executive for all reasonable expenses and out-of-pocket costs incurred
in connection with fulfilling his obligations under this Section 13. The Company
shall endeavor to schedule such consulting so that Executive's obligations under
this Section 13 to assist Company shall not unreasonably interfere with
Executive's business prospects or responsibilities to a new employer .
SECTION 14 - EXCESS PARACHUTE PAYMENT REDUCTION. Anything in this
Agreement to the contrary notwithstanding, in the event it shall be determined
that any payment or distribution by the Company to or for the benefit of
Executive (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise) (a "Payment") would be nondeductible
by the Company for Federal income tax purposes because of Section 280G of the
Internal Revenue Code and applicable regulations promulgated thereunder, then
the aggregate present value of amounts payable or distributable to or for the
benefit of Executive pursuant to this Agreement (such payments or distributions
pursuant to this Agreement
-10-
<PAGE> 11
are hereinafter referred to as "Agreement Payments") shall be reduced (but not
below zero) to the Reduced Amount. The "Reduced Amount" shall be an amount
expressed in present value which maximizes the aggregate present value of
Agreement Payments without causing any Payment to be nondeductible by the
Company because of Section 280G of the Internal Revenue Code and applicable
regulations promulgated thereunder. For purposes of this Section 14, present
value shall be determined in accordance with Section 280G(d)(4) of the Internal
Revenue Code and applicable regulations promulgated thereunder. All
determinations required to be made under this Section 14 shall be made by the
independent certified public accounting firm performing the year-end audit on
the Company (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and Executive within thirty (30) days after the
termination date or such earlier time as is requested by the Company. The
Company and Executive shall cooperate with each other and the Accounting Firm
and will provide necessary information so that the Accounting Firm may make all
such determinations. All such determinations by the Accounting Firm shall be
final and binding upon the Company and Executive. Executive shall determine
which of the Agreement Payments (or, at the election of Executive, other
payments) shall be eliminated or reduced consistent with the requirements of
this Section 14, provided that, if Executive does not make such determination
within twenty (20) days of the receipt of the calculations made by the
Accounting Firm, the Company shall elect which of the Agreement Payments shall
be eliminated or reduced consistent with the requirements of this Section 14 and
shall notify Executive promptly of such election. As a result of the uncertainty
in the application of Section 280G of the Internal Revenue Code and applicable
regulations promulgated thereunder at the time of the initial determination by
the Accounting Firm hereunder, it is possible that Agreement Payments will be
made by the Company which should not have been made ("Overpayment") or that
additional Agreement Payments will not be made by the Company which could have
been made ("Underpayment"), in each case, consistent with the calculations
required to be made hereunder. In the event that the Accounting Firm or a court
of competent jurisdiction (in a final judgment as to which the time for appeal
has lapsed or no appeal is available) determines at any time that an Overpayment
has been made, any such Overpayment shall be treated for all purposes as a loan
to Executive which Executive shall repay to the Company together with interest
at the applicable short-term Federal rate provided for in Section 1274(d)(1) of
the Internal Revenue Code, compounded semi-annually; provided, however, that no
amount shall be payable by Executive to the Company (or if paid by Executive to
the Company, such payment shall be returned to Executive) if and to the extent
such payment would not reduce the amount which is subject to taxation under
Section 4999 of the Internal Revenue Code. In the event that the Accounting Firm
or a court of competent jurisdiction (in a final judgment as to which the time
for appeal has lapsed or no appeal is available) determines at any time that an
Underpayment has occurred, any such Underpayment shall be promptly paid by the
Company to or for the benefit of Executive together with interest at the
applicable short-term Federal rate provided for in Section 1274(d)(1) of the
Internal Revenue Code, compounded semi-annually.
SECTION 15 - BREACHES AND REMEDIES. Executive acknowledges and agrees
that in the event that Executive violates the undertakings set forth in Section
4 or 5 hereof, other than in an immaterial fashion, the Company, in addition to
any other rights or remedies to which it may be entitled under law or this
Agreement, shall be entitled to enforce the provisions of Section 4 or 5 by
injunction or other equitable relief.
-11-
<PAGE> 12
SECTION 16 - SEVERABILITY. The provisions contained in this Agreement
are severable and in the event any provision shall be held to be invalid,
unenforceable or overbroad, in whole or in part, by a court of competent
jurisdiction, the remainder of such provision and of this Agreement shall not be
affected thereby and shall be given full force and effect.
SECTION 17 - NOTICES. Any notices, requests, demands, or other
communications provided for by this Agreement shall be sufficient if made in
writing delivered personally or if sent by registered or certified mail, return
receipt requested, or by overnight express courier service, to Executive at the
last address he has filed in writing with the Company or, in the case of the
Company, at its principal executive offices. Any such notice shall be deemed
delivered and effective when received in the case of personal delivery, five
days after deposit, postage prepaid, in the U.S. postal service in the case of
registered or certified mail, and on the next business day following the date of
transmittal in the case of overnight express courier service.
SECTION 18 - ENFORCEMENT COSTS ON CHANGE OF CONTROL. If Executive's
employment is terminated following a "change in control" as defined in Section
12 hereof and Executive institutes any litigation or other action in order to
secure the benefits intended to be provided Executive under this Agreement, or
if Executive is required to defend litigation or other action instituted by the
Company or any other person to declare this Agreement void or unenforceable or
to deny, diminish, or recover from Executive the benefits intended to be
provided to Executive under this Agreement, then, regardless of whether
Executive prevails, in whole or part, in the prosecution or defense of such
litigation or action, the fees and expenses of Executive's counsel shall be paid
or reimbursed to Executive by the Company upon presentation to the Company by
Executive of statements prepared by such counsel in accordance with counsel's
customary practices. As security for the payment of such enforcement expenses,
the Company agrees that upon the initiation of the litigation described in this
Section 18, the Company shall deposit into an escrow account with Bank One,
Cleveland, NA an amount equal to twenty percent (20%) of the payment claimed by
Executive pursuant to any other section, which funds shall be payable to
Executive pursuant to the terms of this Section 18. Such payment shall be in
addition to the payments due Executive pursuant to Section 12 hereof. If
Executive's legal fees and expenses actually incurred in connection with the
litigation or legal action described in this Section 18 exceed the amount
deposited in escrow, the Company shall be obligated to pay the legal fees and
expenses actually incurred by Executive.
SECTION 19 - SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the Company, its successors and assigns, and to
the benefit of Executive, his heirs and legal representatives, except that
Executive's duties to perform future services are expressly agreed to be
personal and not to be assignable or transferable .
SECTION 20 - APPLICABLE LAW, ARBITRATION AND JURISDICTION. This
Agreement shall be governed by and construed under the laws of the State of
Ohio. The parties agree that any dispute arising out of this employment
relationship except for disputes arising under Sections 4 and 5 of this
Agreement shall be determined by binding arbitration under the rules of the
American Arbitration Association, such arbitration to be conducted in Cleveland,
Ohio, or at such other location as the parties may agree. All costs of such
arbitration shall be borne equally by Executive and the Company. With respect to
disputes arising under Sections
-12-
<PAGE> 13
4 and 5 of this Agreement, Executive and the Company consent and submit
themselves to the jurisdiction of the courts of the State of Ohio.
SECTION 21 - AMENDMENT. This Agreement may be amended only in a writing
signed by both parties.
SECTION 22 - NO WAIVER. No waiver by either party at any time of any
breach by the other party of, or compliance with, any condition or provision of
this Agreement to be performed by the other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same time or any prior or
subsequent time.
SECTION 23 - HEADINGS. The headings contained in this Agreement are for
reference only and shall not affect the meaning or interpretation of any
provision of this Agreement.
SECTION 24 - PRIOR AGREEMENTS. This Agreement supersedes in all
respects all prior agreements between the parties, whether written or oral,
regarding the subject matter hereof, including, but not limited to, the Original
Employment Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
CORRPRO COMPANIES INC.
By: /s/ Robert E. Hodge
-----------------------------------------
Robert E. Hodge,
Chairman of the Compensation Committee
of the Board of Directors
"COMPANY"
/s/ Joseph W. Rog
-----------------------------------------
Joseph W. Rog
"EXECUTIVE"
-13-
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