<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, 1998
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 12, 1998 7,804,816 Common Shares, without par value, were
outstanding.
1
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CORRPRO COMPANIES, INC.
-----------------------
INDEX
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<TABLE>
<CAPTION>
PAGE
----
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. Financial Statements
<S> <C>
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 7-11
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of 12-18
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings 19
ITEM 4. Submission of Matters to a Vote of Security Holders 19
ITEM 6. Exhibits and Reports on Form 8-K 20
</TABLE>
2
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3
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,
1998 1998
----------------- --------------
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 4,869 $ 8,687
Accounts receivable, net 45,828 38,733
Inventories 26,210 24,458
Prepaid expenses and other 11,054 9,355
Net assets held for sale 1,252 7,422
--------- ---------
Total current assets 89,213 88,655
-------- --------
Property and Equipment, net 13,590 12,510
Other Assets:
Goodwill, net 34,193 28,515
Other Assets 8,092 6,595
--------- ---------
Total other assets 42,285 35,110
-------- --------
$145,088 $136,275
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings and current portion of long-term debt $ 1,025 $ 683
Accounts payable 18,487 17,319
Accrued liabilities and other 9,222 10,113
-------- --------
Total current liabilities 28,734 28,115
-------- --------
Long-Term Debt, net of current portion 28,588 17,695
Senior Notes 30,000 30,000
Deferred Income Taxes 2,038 2,035
Commitments and Contingencies --- ---
Minority Interest 479 469
Shareholders' Equity:
Serial preferred shares --- ---
Common shares 2,248 2,245
Additional paid-in capital 50,779 50,708
Accumulated earnings 9,465 8,664
-------- --------
62,492 61,617
Accumulated other comprehensive income (1,863) 482
Common shares in treasury, at cost (5,380) (4,138)
-------- --------
Total shareholders' equity 55,249 57,961
-------- --------
$145,088 $136,275
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these balance sheets.
3
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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 For the Six
Months Ended Months Ended
September 30, September 30,
----------------------------- ------------------------------
1998 1997 1998 1997
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Engineering & construction services $29,979 $25,121 $54,804 $44,546
Product sales 20,930 23,545 40,833 39,670
------- -------- -------- --------
50,909 48,666 95,637 84,216
------- -------- -------- --------
Cost of sales:
Engineering & construction services 19,106 16,918 35,054 30,040
Product sales 15,642 17,394 30,701 29,231
------- -------- -------- --------
34,748 34,312 65,755 59,271
------- -------- -------- --------
Gross Profit 16,161 14,354 29,882 24,945
Selling, general & administrative expenses 10,394 9,725 20,047 17,416
------- -------- -------- --------
Operating income 5,767 4,629 9,835 7,529
Interest expense 957 684 1,837 1,046
------- -------- -------- --------
Income from continuing operations
before income taxes 4,810 3,945 7,998 6,483
Provision for income taxes 1,925 1,578 3,199 2,593
------- -------- -------- --------
Income from continuing operations 2,885 2,367 4,799 3,890
Discontinued operation - loss on disposal,
net of tax (3,998) -- (3,998) --
------- -------- -------- --------
Net income (loss) $(1,113) $ 2,367 $ 801 $ 3,890
======== ======== ======== ========
Earnings per share - Basic:
Income from continuing operations $ 0.37 $ 0.29 $ 0.61 $ 0.47
Discontinued operation - loss on disposal,
net of tax benefit (0.51) -- (0.51) --
------- -------- -------- --------
Net income (loss) $ (0.14) $ 0.29 $ 0.10 $ 0.47
======== ======== ======== ========
Earnings per share - Diluted:
Income from continuing operations $ 0.35 $ 0.28 $ 0.58 $ 0.46
Discontinued operation - loss on disposal,
net of tax benefit (0.48) -- (0.48) --
------- -------- -------- --------
Net income (loss) $ (0.13) $ 0.28 $ 0.10 $ 0.46
======== ======== ======== ========
Weighted average shares -
Basic 7,884 8,175 7,913 8,211
Diluted 8,252 8,456 8,309 8,454
</TABLE>
The accompanying notes to Consolidated Financial Statements are an integral part
of these statements.
4
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
September 30
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 801 $ 3,890
Adjustments to reconcile net income to net cash
used for continuing operations:
Depreciation and amortization 2,098 1,653
Deferred income taxes 21 1,411
Loss on sale of fixed assets (38) (35)
Loss on disposal of discontinued operations 3,998 --
Minority interest 22 36
Changes in assets and liabilities:
Accounts receivable (6,796) (6,080)
Inventories (904) (4,845)
Prepaid expenses and other (900) (2,285)
Accounts payable and accrued expenses (3,820) 420
Other assets 553 (69)
-------- --------
Total adjustments (5,766) (9,794)
-------- --------
Net cash used for continuing operations (4,965) (5,904)
Net cash provided by discontinued operations 113 1,359
-------- --------
Net cash used for operating activities (4,852) (4,545)
-------- --------
Cash flows from investing activities:
Additions to and disposals of property, plant and equipment (1,516) (487)
Acquisitions, net of cash acquired (7,452) (15,248)
-------- --------
Net cash used for investing activities (8,968) (15,735)
-------- --------
Cash flows from financing activities:
Long-term debt, net 11,200 7,253
Repayment of long-term debt (167) (1,043)
Repayment of short-term borrowings, net 201 (195)
Refinance of domestic credit facility -- (26,619)
Initial borrowings under new domestic credit facility -- 42,350
Net proceeds from issuance of Common Shares 50 33
Repurchase of Common Shares (1,240) (1,139)
-------- --------
Net cash provided by financing activities 10,044 20,640
-------- --------
Effect of changes in foreign currency exchange rates (42) (694)
Net decrease in cash (3,818) (334)
Cash and cash equivalents at beginning of period 8,687 3,233
-------- --------
Cash and cash equivalents at end of period $ 4,869 $ 2,899
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ 1,053 $ 1,206
Interest $ 1,496 $ 1,442
</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>
Accumulated
Common Other Common
Serial Shares Additional Compre- Shares
Preferred ($0.26 Paid-In- Accumulated hensive in
Shares Stated Value) Capital Earnings Income Treasury* Total
------------ ------------ ----------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
March 31, 1998 $ ----- $ 2,245 $ 50,708 $ 8,664 $ 482 $(4,138) $57,961
Net income ----- ----- ----- 801 ----- ----- 801
Exercise of 10 stock
options ----- 3 71 ----- ----- ----- 74
Repurchase of 121
shares of common
stock ----- ----- ----- ----- ----- (1,367) (1,367)
Issuance of 10 shares ----- ----- ----- ----- ----- 125 125
Cumulative translation
adjustment ----- ----- ----- ----- (2,345) ----- (2,345)
------- ------- -------- ------- ---------- -------- --------
September 30, 1998 $ ----- $ 2,248 $ 50,779 $ 9,465 $ (1,863) $ (5,380) $ 55,249
======= ======= ======== ======= ========== ========= ========
</TABLE>
* Shares held in treasury totaled 473 at March 31, 1998 and 584 at September 30,
1998.
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
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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 subsidiaries (the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation. Certain fiscal 1998 amounts have been reclassified to conform
with the fiscal 1999 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, 1998 are not
necessarily indicative of the results that may be expected for the fiscal year
ending March 31, 1999 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, 1998.
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 amount of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2 - ACQUISITIONS
ACQUISITION OF WILSON WALTON AUSTRALIA
Effective July 1,1998, the Company acquired certain assets and assumed
certain liabilities of the group of companies referred to as Wilson Walton
Australia ("WWA"). The purchase price was $3,849 in an all cash transaction. The
purchase agreement provides for a post-closing purchase price adjustment.
WWA provides products and services for the evaluation, design,
installation and maintenance of corrosion protection systems in Australia, New
Zealand and Papua New Guinea. The WWA business will be operated under the name
Corrpro Australia.
The acquisition of WWA has been accounted for using the purchase method
of accounting. Accordingly, the purchase price has been allocated to the net
assets acquired based upon preliminary estimates of their fair market values at
the date of acquisition. The excess of the purchase price over the estimated
fair value of net assets acquired totaled $3,760 at September 30, 1998 and is
being amortized over 40 years on a straight-line basis. The allocation was based
on preliminary estimates and is subject to revision at a later date.
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ACQUISITION OF BASCO
Effective August 1, 1998, the Company acquired all the outstanding
shares of capital stock of the BASCO group of companies ("BASCO"). The purchase
price was $3,331 in an all cash transaction. The purchase agreement provides for
post-closing purchase price adjustments.
BASCO, which is based in the United Kingdom outside London, is a
provider of corrosion protection engineering services, materials and equipment
primarily in Europe.
The acquisition of BASCO has been accounted for using the purchase
method of accounting. Accordingly, the purchase price has been allocated to the
net assets acquired based upon preliminary estimates of their fair market values
at the date of acquisition. The excess of the purchase price over the estimated
fair value of net assets acquired totaled $1,897 at September 30, 1998 and is
being amortized over 40 years on a straight-line basis. The allocation was based
on preliminary estimates and is subject to revision at a later date.
ACQUISITION OF CPS
Effective July 1, 1997, the Company acquired all the outstanding shares
of capital stock of Cathodic Protection Services Company ("CPS"). The purchase
price was $15,023 in cash which included the repayment in full of certain
indebtedness and management fees owed by CPS to its senior lenders and its
former stockholders as well as certain costs directly related to the
acquisition.
CPS, which was based in Houston, Texas, provides materials and services
for the evaluation, design, installation, and maintenance of cathodic protection
services.
The acquisition of CPS has been accounted for using the purchase method
of accounting. Accordingly, the purchase price has been allocated to the net
assets acquired based upon their fair market values at the date of acquisition.
The excess of the purchase price over the fair value of net assets acquired
totaled $7,600 and is being amortized over 40 years on a straight-line basis.
The results of CPS have been included in the Company's results since
the effective date of the acquisition. Pro forma results of operations have not
been presented as the effect of the acquisition on the Company's financial
statements were not material.
NOTE 3 - INVENTORY
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
------------- ---------
Inventories consist of the following:
<S> <C> <C>
Component parts and raw material $11,200 $10,007
Work in process 2,417 1,908
Finished goods 12,593 12,543
------ -----
$26,210 $24,458
======= =======
</TABLE>
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NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
---- ----
Property, plant and equipment consists of the following:
<S> <C> <C>
Land $ 528 $ 547
Buildings and improvements 4,656 4,545
Equipment, furniture and fixtures 17,691 15,696
------ ------
22,875 20,788
Less: Accumulated depreciation (9,285) (8,278)
------- -------
$13,590 $12,510
====== =======
</TABLE>
NOTE 5 - EARNINGS PER SHARE
In February 1997, The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." The Statement replaced the presentation of primary earnings per share
(EPS) with the presentation of basic EPS, and replaced fully diluted EPS with
diluted EPS. As required, the Company adopted SFAS 128 for the quarter ending
December 31, 1997. Fiscal 1998 results have been restated to conform with SFAS
128.
Basic EPS is computed by dividing net income for the period by the
weighted average number of shares of common shares outstanding for the period
which were 7,884 and 8,175, respectively, for the three months ending September
30, 1998 and 1997 and 7,913 and 8,211, respectively, for the six months ending
September 30, 1998 and 1997. Diluted EPS for the period has been determined by
dividing net income by the weighted average number of shares of common shares
and potential common shares outstanding for the period which were 8,252 and
8,456, respectively, for the three months ending September 30, 1998 and 1997 and
8,309 and 8,454, respectively, for the six months ending September 30, 1998 and
1997. Stock options are the only potential common shares and are considered in
the Company's diluted EPS calculations. Potential common shares are computed
using the treasury stock method.
Weighted average shares reflects the five-for-four stock split that was
effected June 19, 1998. See Note 7.
NOTE 6 - STOCK PLANS
The Company granted options to purchase 90 Common Shares at exercise
prices ranging from $10.56 to $12.80 per share under the 1997 Long-Term
Incentive Plan of Corrpro Companies, Inc. (the "1997 Option Plan") during the
six months ended September 30, 1998. During such period, the Company terminated
13 previously granted options. There were 10 options exercised at exercise
prices ranging from $1.86 to $6.93 per share during the six month period ended
September 30, 1998.
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The Company granted options to purchase 10 Common Shares at an exercise
price of $10.25 per share under the 1997 Non-Employee Directors' Stock Option
Plan.
On April 30, 1998, the Company adopted, subject to shareholder
approval, an amendment to the 1997 Option Plan increasing the number of shares
available for issuance by 300. Shareholder approval for such amendment was
obtained on July 22, 1998.
NOTE 7 - SHAREHOLDERS' EQUITY
On April 30, 1998, the Company's Board of Directors approved, subject
to shareholder approval, an amendment to the Company's Articles of Incorporation
to increase from 12,000 to 40,000 the maximum number of Common Shares that the
Company is authorized to issue. Shareholder approval for such amendment was
obtained on July 22, 1998.
On May 19, 1998, the Company announced that its Board of Directors
approved a five-for-four stock split of the Company's common shares. The stock
split was effected as a stock dividend payable on June 19, 1998 to shareholders
of record as of June 5, 1998. The stock split increased outstanding shares by
approximately 1.6 million to approximately 7.9 million. All share amounts
contained in the consolidated statements and notes thereto have been adjusted to
reflect the stock split.
NOTE 8 - REPORTING COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income". The Company was required to adopt SFAS
130 for the quarter ending June 30, 1998. All periods presented have been
restated to conform with SFAS 130.
Comprehensive income includes net income and other revenues, expenses,
gains, and losses that are excluded from net income but included as a component
of total shareholders' equity. Comprehensive loss for the quarters ended
September 30, 1998 and 1997 were $1,089 and $662, respectively, and for the six
months ended September 30, 1998 and 1997, $2,345 and $366 respectively. These
amounts are comprised of the effect of foreign currency translation adjustments
in accordance with SFAS No. 52, "Foreign Currency Translation". The accumulated
balance of foreign currency translation adjustments, excluded from net income,
is presented in the Consolidated Balance Sheet and Statement of Shareholders'
Equity as "Accumulated other comprehensive income".
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NOTE 9 - NET ASSETS HELD FOR SALE
During March 1997, the Company adopted a formal plan to sell its
Corrtherm foundry operation located in Louisiana. To date, the Company's efforts
to divest of this operation have been unsuccessful. Corrtherm is reported as a
discontinued operation and its net assets and results of operations are reported
separately in the consolidated financial statements.
As a result of the adoption of the divestiture plan, the Company
recorded a $6,000 charge ($3,960 net of the related tax benefit) in March 1997.
The charge included the estimated loss on disposal and provision for other
estimated costs to be incurred in connection with the disposal. During September
1998, the Company recorded an additional charge of $6,057 ($3,998 net of the
related tax benefit), which represented an addition to the estimated loss on
disposal.
Net assets held for sale relating to Corrtherm at September 30, 1998,
before adjustment for the estimated loss on disposal, consisted of working
capital of $4,747, net property and equipment of $6,314 and other assets of
$2,863. These amounts are offset by a reserve for the estimated loss on disposal
and provisions for other estimated costs to be incurred in connection with the
disposal. The amounts the Company will ultimately realize could differ from the
estimates.
The Company allocated interest of $0.2 million to Corrtherm for both
the three months ended September 30, 1998 and 1997, and $0.3 million for both
the six months ended September 30, 1998 and 1997, based on the estimated
proceeds to be realized from the divestiture. Revenues from Corrtherm, which are
excluded from consolidated revenues, totaled $1.7 million and $2.5 million for
the three months ended September 30, 1998 and 1997, respectively, and $3.3
million and $5.7 million for the six months ended September 30, 1998 and 1997,
respectively. The revenues included intercompany sales of $0.5 million and $1.5
million for the three months ended September 30, 1998 and 1997, respectively,
and $1.4 million and $2.2 million for the six months ended September 30, 1998
and 1997, respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This document contains certain statements that constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Factors that might affect such forward-looking
statements include the Company's mix of products and services, timing of jobs,
the availability and value of larger jobs, the impact of weather on the
Company's operations, the Company's ability to successfully integrate
acquired businesses in a timely manner, the ultimate disposition of Corrtherm,
the effect of the underground storage tank upgrade deadline and the impact of
Year 2000.
A. RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED
TO THREE MONTHS ENDED SEPTEMBER 30, 1997
REVENUES
Revenues for the fiscal 1999 second quarter totaled $50.9 million, an
increase of $2.2 million or 4.6% over the fiscal 1998 second quarter. The
current year revenues include the results of Corrpro Australia, which was
acquired effective July 1, 1998 and BASCO, which was acquired effective August
1, 1998. Excluding the impact of these two acquisitions, total revenues for the
quarter were flat as the increase in service revenues was offset by lower
product revenues.
During the fiscal 1999 second quarter, approximately 59% of the
Company's revenues related to services and 41% related to product sales. During
the fiscal 1998 second quarter, approximately 52% of the Company's revenues
related to services and 48% related to product sales.
Service revenues for the fiscal 1999 second quarter increased $4.9
million or 19.3% over the prior year period. This increase is primarily a result
of growth at the Company's domestic core businesses and its Middle East
operations. The increase in service revenues were offset, in part, by lower
revenues at the Company's Canadian operations. In the prior year, the Company's
Canadian operation worked on several large construction related contracts. The
current year business mix in Canada has shifted more to engineering-type work
which is lower in terms of revenues but generates higher gross margins.
Excluding the impact of the two acquisitions, service revenues for the quarter
increased approximately 15.5%.
A portion of the growth at the domestic core businesses relates to the
underground storage tank (UST) market. Federal law mandates that all UST's
meeting certain specified criteria must have corrosion protection systems in
place by December 22, 1998 or else they must be replaced or closed. The
corrosion protection requirement has had a favorable impact on the Company's
business as it provides such systems to the UST market. Although there can be
no assurances, the Company does not believe that the passing of the December
1998 compliance deadline will have a material impact on its results of
operations, particularly in the long term. This is based, in part, on the
Company's understanding that there will continue to be a number of
non-compliant UST's after that date.
Product revenues for the fiscal 1999 second quarter decreased $2.6
million or 11.1% over the prior years second quarter, which related largely to
the Company's European operations. The prior year product revenues included
amounts relating to several large offshore projects being completed by the
Company's European operation. These contracts expired at the end of fiscal 1998
and have not yet been completely replaced. In addition, there was a decline in
lower margin material revenues at the Company's domestic core businesses.
Excluding the impact of the two
12
<PAGE> 13
acquisitions, product revenues for the second quarter decreased approximately
17.7%.
GROSS PROFIT
The Company's gross profit for the fiscal 1999 second quarter totaled
$16.2 million (or 31.7% of revenues) compared to $14.4 million (or 29.5% of
revenues) for the fiscal 1998 second quarter. This represents an increase in
gross profit dollars of 12.6%.
Gross margins on service revenues for the fiscal 1999 second quarter
grew to 36.3% of revenues compared to 32.7% of revenues in the fiscal 1998
second quarter. The improvement in service margins was the result of a more
profitable business mix in the current-year period.
Gross margins on product revenues for the fiscal 1999 second quarter
were 25.3% of revenues versus 26.1% of revenues in the fiscal 1998 second
quarter. The lower product margins relate primarily to the Company's European
operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative ("SG&A") expense for the fiscal
1999 second quarter totaled $10.4 million (or 20.4% of revenues) compared to
$9.7 million (or 20.0% of revenues) for the fiscal 1998 second quarter, an
increase of 6.9%. Excluding the impact of the two acquisitions, operating
expenses were flat between periods.
OPERATING INCOME
Operating income for the fiscal 1999 second quarter totaled $5.8
million compared to $4.6 million for the fiscal 1998 second quarter, an increase
of 24.6%.
INTEREST EXPENSE
Interest expense totaled $1.0 million for the fiscal 1999 second
quarter compared to $0.7 million for the fiscal 1998 second quarter, an increase
of $0.3 million or 39.9%. The increase relates, in part, to increased borrowings
related to acquisitions.
INCOME TAX PROVISION
The Company recorded a provision for income taxes of $1.9 million for
the fiscal 1999 second quarter compared to a provision of $1.6 million for the
fiscal 1998 second quarter. The effective tax rate was 40.0% for both the fiscal
1999 and fiscal 1998 second quarters.
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INCOME FROM CONTINUING OPERATIONS
Income from continuing operations for the fiscal 1999 second quarter
totaled $2.9 million, or 37 cents per share (35 cents diluted), compared with
$2.4 million, or 29 cents per share (28 cents diluted) in the prior year period,
an increase of 21.9%
DISCONTINUED OPERATIONS
During the fiscal 1999 second quarter, the Company recorded a $4.0
million charge, net of tax benefit, which represented an addition to the
estimated loss on disposal of the Company's Corrtherm foundry operation in
Louisiana.
NET INCOME
As a result of the discontinued operations charge, the Company incurred
a net loss for the fiscal 1999 second quarter of $1.1 million or 14 cents per
share (13 cents diluted) as compared to net income of $2.4 million or 29 cents
per share (28 cents diluted) in the prior year period.
RESULTS OF OPERATIONS - SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO
SIX MONTHS ENDED SEPTEMBER 30, 1997
REVENUES
Revenues for the fiscal 1999 six month period totaled $95.6 million, an
increase of $11.4 million or 13.6% over the fiscal 1998 six month period. The
current year revenues include the results of Cathodic Protection Services
Company ("CPS") which was acquired effective July 1, 1997 as well as the results
of Corrpro Australia and BASCO. Excluding the impact of the three acquisitions,
management estimates that revenues increased approximately 3% during the six
month period.
During the fiscal 1999 six months, approximately 57% of the Company's
revenues related to services and 43% related to product sales. During the fiscal
1998 six months, approximately 53% of the Company's revenues related to services
and 47% related to product sales.
Revenues from services increased approximately $10.3 million or 23.0%.
This increase is primarily the result of growth at the Company's domestic core
businesses and its Middle East operations. The increase in service revenues were
offset, in part, by lower revenues at the Company's Canadian operations. In the
prior year, the Company's Canadian operation worked on several large
construction related contracts. The current year business mix in Canada has
shifted more to engineering-type work which is lower in terms of revenues but
generates higher gross margins.
A portion of the growth at the domestic core businesses relates to the
underground storage tank (UST) market. Federal law mandates that all UST's
meeting certain specified criteria must have corrosion protection systems in
place by December 22, 1998 or else they must be replaced or closed. The
corrosion protection requirement has had a favorable impact on the Company's
business as it provides such systems to the UST market. Although there can be
no assurances, the Company does not believe that the passing of the December
1998 compliance deadline will have a material impact on its results of
operations, particularly in the long term. This is based, in part, on the
Company's understanding that there will continue to be a number of
non-compliant UST's after that date.
Product revenues increased $1.2 million or 2.9%. The low growth in
product sales is related largely to the Company's European operations. The prior
year product revenues included amounts relating to several large offshore
projects being completed by the Company's European operation. These contracts
expired at the end of fiscal 1998 and have not yet been completely replaced.
GROSS PROFIT
The Company's gross profit for the fiscal 1999 six month period totaled
$29.9 million (or 31.2% of revenues) compared to $24.9 million (or 29.6% of
revenues) for the fiscal 1998 six
14
<PAGE> 15
month period. This represents an increase in gross profit dollars of 19.8%.
Gross profit related to services totaled $19.8 million (or 36.0% of
service revenues) for the fiscal 1999 six month period compared to $14.5 million
(or 32.6% of service revenues) for the fiscal 1998 six month period, an increase
in gross profit dollars of $5.2 million or 36.2%. The improvement in service
margins was the result of a more profitable business mix in the fiscal 1999 six
month period.
Gross profit related to product sales totaled $10.1 million (or 24.8%
of product revenues) for the fiscal 1999 six month period compared to $10.4
million (or 26.3% of product revenues) for the fiscal 1998 six month period, an
decrease in gross profit dollars of $0.3 million or 2.9%. The lower product
margins relate primarily to the Company's European operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
S,G&A expense for the fiscal 1999 six month period totaled $20.0
million (or 21.0% of revenues) compared to $17.4 million (or 20.7% of revenues)
for the fiscal 1998 six month period, an increase of $2.6 million or 15.1%. The
increase related primarily to the acquisitions. Excluding the impact of
acquisitions, operating expenses were flat between periods.
OPERATING INCOME
Operating income for the fiscal 1999 six month period totaled $9.8
million compared to $7.5 million for the fiscal 1998 six month period, an
increase of $2.3 million or 30.6%.
INTEREST EXPENSE
Interest expense totaled $1.8 million for the fiscal 1999 six month
period and $1.0 for the fiscal 1998 six month period, an increase of $0.8
million. The increase relates primarily to higher borrowings related to
acquisitions.
INCOME TAX PROVISION
The Company recorded a provision for income taxes of $3.2 million for
the fiscal 1999 six month period compared to a provision of $2.6 million for the
fiscal 1998 six month period. The effective tax rate was 40.0% for both the
fiscal 1999 and fiscal 1998 six month period.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations for the six month period increased
23.4% to $4.8 million, or 61 cents per share (58 cents diluted), compared with
$3.9 million, or 47 cents per share (46 cents diluted), in the prior-year
period.
15
<PAGE> 16
DISCONTINUED OPERATIONS
The Company recorded a $4.0 million charge, net of tax benefit, which
represented an addition to the estimated loss on disposal of the Company's
Corrtherm foundry operation in Louisiana.
NET INCOME
Net income totaled $0.8 million or 10 cents per share (10 cents
diluted) for the fiscal 1999 six month period as compared to net income of $3.9
million or 47 cents per share (46 cents diluted) in the prior year period.
B. LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had working capital (excluding net
assets held for sale) of $59.2 million compared to $53.1 million at March 31,
1998, an increase of $6.1 million or 11.5%. The increase is primarily the result
of seasonally higher levels of business activity. The Company's working capital
levels have historically been the highest at the end of September and lowest at
the end of March.
During the six months ended September 30, 1998, cash used for operating
activities totaled $4.9 million. This is primarily the result of the increase
in working capital discussed above. Cash used for investing activities during
the six months ended September 30, 1998 totaled $9.0 million, which included
$7.5 million related to acquisitions. Also included in cash used for investing
activities is $1.5 million related to capital expenditures. Cash provided by
financing activities during the six months ended September 30, 1998 totaled
$10.0 million, which included net borrowings of $11.2 million which were
offset, in part, by $1.2 million related to the repurchase of common shares.
The Company has domestic bank credit facility consisting of a $40
million revolver that expires in 2002. In addition, the Company has various
smaller lines of credit with foreign banks which totaled approximately $4.8
million. Total availability under the domestic and foreign credit facilities at
September 30, 1998 was approximately $16.1 million. The Company was in
compliance with all of its debt covenants at September 30, 1998.
The Company used proceeds from its domestic and foreign credit
facilities along with cash on hand to fund the WWA and BASCO acquisitions.
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 1999.
16
<PAGE> 17
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 increased foreign sales are manageable.
D. YEAR 2000 READINESS DISCLOSURE
The Company has developed plans to address possible exposures related
to the Year 2000 issue. The Company is considering the effect of Year 2000
issues on the services and products the Company provides, the processing
capabilities of the Company's computers and other internal information systems,
non-informational systems which effect the Company's operational capabilities,
and the key sources of supply of products and services to the Company. In
addition, the Company is addressing the status of its significant customers'
Year 2000 compliance.
STATE OF READINESS
The Company has identified on a preliminary basis those products and
services which could experience Year 2000 issues and expects to complete its
internal review of its services and products by the fourth quarter of fiscal
1999.
The Company is currently upgrading the software utilized by the
majority of its U.S. operations. The upgrade is being implemented for business
reasons in addition to resolving certain Year 2000 issues. Project completion is
planned for the fourth quarter of fiscal 1999. Completion of the assessment of
software utilized at other Company operations is expected by December 31, 1998.
The Company is in the process of assessing its non-informational
systems for Year 2000 compliance and expects to complete such assessment by the
fourth quarter of fiscal 1999. In addition, the Company is in the process of
communicating with its key suppliers, vendors and significant customers and
requesting information regarding the status of their own Year 2000 compliance.
The target date for this review of external suppliers, vendors and customers is
December 31, 1998.
COSTS
The total cost of upgrading and implementing the software for the
Company's U.S. operations, including but not limited to the cost of Year 2000
compliance which is not separately determinable, is currently estimated to be
in the range of $1.0 million and is not expected to have a material adverse
impact on the Company's financial position, results of operations or cash
flows. The majority of these costs will be incurred under capital projects that
will result in additional capabilities and functionality while also addressing
the Year 2000 issues. The Company is currently in the process of estimating its
other future Year 2000 costs. However, such costs are expected to be
immaterial.
17
<PAGE> 18
RISKS
If needed modifications or conversion of information and
non-information systems are not made on a timely basis, including third party
systems, or contingency plans not implemented, the Company could experience loss
of revenue from customers whose operations are disrupted, unavailability of
materials, supplies, and services from its vendors whose operations are
disrupted, and difficulty in supplying its own products and services on a timely
basis. On consolidated basis, no one customer accounts for greater than 10% of
the Company's revenue, and no one vendor supplies more than 10% of the Company's
purchases. On a regional or local basis, however, the disruption of customer and
vendor operations could more significantly adversely affect such regional or
local operations. In addition, if multiple customers or vendors experienced
disruption in their operations, the effect on the Company's consolidated results
could be materially impacted.
CONTINGENCY PLANS
At present the Company is in early stages of determining the scope of
appropriate contingency plans.
This information contains certain statements regarding the Year 2000
that constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. The Company expects that it will be
able to modify or replace the various systems effected by the Year 2000 issue in
time to avoid any material disruption to its operations; however, the dates of
completion and the costs of the project are based on management's estimates,
which were derived utilizing assumptions of future events, including the
availability of certain resources, third party modification plans and other
factors. There can be no guarantee that these estimates will be achieved, and if
the actual timing and costs differ materially from those anticipated, the
Company's financial results and financial condition could be materially
adversely affected. Management is keeping the Board of Directors informed as to
the status of the Company's Year 2000 related activities.
18
<PAGE> 19
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS
- -------
As previously reported, the Company has cooperated in an investigation by the
Securities and Exchange Commission's (the "Commission") relating to its
financial statements for the fiscal year ended March 31, 1995. In September
1998, the Company and the Commission entered into an agreement under which,
without admitting or denying the Commission's findings, the Company agreed to an
order to cease and desist from committing or causing violations of the
reporting, records, and controls requirements under the federal securities laws.
The Commission did not find any intentional misconduct by the Company and no
monetary sanctions were imposed and the investigation is concluded.
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 22, 1998 for the election of
three directors of the Company for terms expiring in 2000, to amend Article
Four of the Company's Amended and Restated Articles of Incorporation to
increase the number of authorized Common Shares for the Company, and adopt an
amendment to the 1997 Long-Term Incentive Plan of the Company to increase the
number of Common Shares reserved for issuance thereunder from 1,285,738 to
1,585,738. The aggregate number of Common Shares in person or by proxy (a) voted
for, and proxies withheld for, each nominee and (b) voted for or against each
proposal, and abstentions and broker non-votes as to each proposal were as
follows:
<TABLE>
<CAPTION>
Director Nominees For Withheld
----------------- --------- --------
<S> <C> <C> <C>
Warren F. Rogers 5,057,348 384,494
Barry W. Schadeck 5,119,310 322,532
Walter W. Williams 5,096,658 345,184
</TABLE>
<TABLE>
<CAPTION>
Abstentions
-----------
And Broker
-----------
Capitalize
Proposals For Against Non-Votes
--------- --------- --------- -----------
<S> <C> <C> <C>
Approval of an increase in the number 4,394,508 1,023,338 23,996
of authorized shares of the Company
4,371,388 1,014,580 39,146
Approval of an amendment to the 1997
Long-Term Incentive Plan
</TABLE>
19
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -------
A. Exhibit 10.1 - Employment Agreement effective October 1, 1998 by and
between the Company and Michael R. Tighe.
Exhibit 27 - Financial Data Schedule
B. There were no reports on Form 8-K filed during the quarter
20
<PAGE> 21
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 16, 1998 /s/ Joseph W. Rog
---------------------------------------
Joseph W. Rog
Chairman of the Board, President
and Chief Executive Officer
/s/ Neal R. Restivo
---------------------------------------
Neal R. Restivo
Executive Vice President and
Chief Financial Officer
(principal financial and
accounting officer)
21
<PAGE> 1
Exhibit 10.1
EMPLOYMENT AGREEMENT
--------------------
OCTOBER 1, 1998
PAGE 1 OF 11
THIS EMPLOYMENT AGREEMENT (this Agreement) is made in Medina, Ohio and
is entered into on this 29th day of September, 1998, and effective as of October
1, 1998, by and between Corrpro Companies, Inc., an Ohio corporation (the
Company), and Michael R. Tighe (Executive).
WITNESSETH:
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) TERM. The Company shall employ Executive, subject to the
provisions of this Agreement, for the period effective
October 1, 1998 and ending on March 31, 2001. This Agreement
at all times may otherwise be terminated in accordance with
the provisions of this Agreement.
(b) SUBSEQUENT TERM. Executive and the Company may, but shall be
under no obligation to, negotiate terms and conditions of
any subsequent term of employment. In the event, however,
that Executive remains in the employ of the Company after
the term of this Agreement without the parties having
entered into a new employment agreement or extending this
Agreement, then 1) the terms of this Agreement shall not be
applicable, 2) Executive shall be an employee-at-will
subject to the benefits, programs, and policies of the
Company then in effect, and 3) either party may terminate
the employment relationship at any time with or without
cause.
(c) DUTIES. During his employment pursuant to this Agreement,
Executive shall serve as Senior Vice President of Asia
Pacific and Australia of the Company, and shall be
responsible for the duties attendant to such office.
Executive shall report to the Chief Executive Officer (or
such other officer as determined by the Chief Executive
Officer), and shall be subject to the policies and
procedures adopted by the Company from time to time.
Executive agrees to serve as an officer or director of such
of the Company's subsidiaries or affiliates as the Company
may reasonably request.
(d) CHANGES IN STATUS. The Company agrees that it will not,
without Executive's consent, (i) assign to Executive duties
materially inconsistent with or which materially diminish
his current positions, authority, duties, responsibilities
and status with the Company, or (ii) materially change his
title as currently in effect, or (iii) require Executive to
perform duties which would necessitate changing his present
residence, or (iv) remove him from, or fail to re-elect him
to, any of such positions, except in connection with the
termination of his employment as provided for in this
Agreement. 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
EMPLOYMENT AGREEMENT
--------------------
OCTOBER 1, 1998
PAGE 2 OF 11
SECTION 2 - COMPENSATION AND BENEFITS.
(a) BASE SALARY. During his employment pursuant to this
Agreement, Executive shall receive an annual base salary of
One Hundred Thirty Five Thousand Dollars ($135,000) as
compensation for his services to the Company (the Base
Compensation), such compensation to be payable in regular
installments in accordance with Company policy for salaried
employees.
(b) SALARY ADJUSTMENTS. Effective as of the first day of each
fiscal year of the Company during Executive's employment
pursuant to this Agreement, the Base Compensation shall be
subject to review and a recommendation by the Chief
Executive Officer of the Company to the Board of Directors
(or its designated committee) and any adjustment shall be
subject to the approval of the Board or its designated
committee. 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; provided that any downward adjustment
shall be limited to ten percent (10%) of Base Compensation
unless the Base Compensation of all Senior Level Executives
(all persons with the title Vice President and above
employed by the Company) of the Company are similarly
affected by a reduction in excess of 10%.
(c) VACATION. Executive shall be entitled to four weeks of paid
vacation each year of this Agreement to be taken in
accordance with Company policy then in effect.
(d) ANNUAL BONUS PLAN. Executive shall be a participant in the
Company's annual bonus plan subject to the attainment of
performance objectives and other provisions of such plan as
in effect each year of this Agreement.
(e) BENEFIT PLANS. During his employment pursuant to this
Agreement, subject to eligibility and applicable employee
contributions, 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 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.
(f) FRINGE BENEFITS. 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
<PAGE> 3
EMPLOYMENT AGREEMENT
--------------------
OCTOBER 1, 1998
PAGE 3 OF 11
fringe benefits provided such personnel, such as sick pay
and company car or car allowance.
(g) EXPENSE REIMBURSEMENTS. The Company shall reimburse, in
accordance with Company policy, Executive's ordinary and
reasonable business expenses, including professional dues
and expenses, incurred in furtherance of Executive's
performance of Executive's duties under this Agreement.
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
Senior Vice President of Asia Pacific and Australia of the Company; except,
however, Executive may serve on corporate, civic, or charitable boards or
committees and manage his personal investments and affairs provided such
activities do not interfere with the performance of Executive's duties under
this Agreement and provided Executive keeps the Chief Executive Officer
reasonably informed of Executive's commitments.
SECTION 4 - COMPETITIVE ACTIVITY. From the effective date of this
Agreement and one (1) year following the later of (i) termination of Executive's
employment with the Company, or (ii) termination of any consulting agreement
which the parties may enter into immediately subsequent to termination of
Executive's employment, 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 employee of the
Company; or
(d) materially interfere, in any manner, with the business,
trade, good will, sources of supply, 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. Executive acknowledges and agrees that the restrictions contained in
this Section 4 are reasonable and
<PAGE> 4
EMPLOYMENT AGREEMENT
--------------------
OCTOBER 1, 1998
PAGE 4 OF 11
necessary for the protection of the business
interests of the Company and that such restrictions are not unduly burdensome in
scope or duration.
SECTION 5 - PROPRIETARY INFORMATION/INVENTIONS.
(a) 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 to Company employees or authorized representatives, or
in the ordinary course of business consistent with Company
policy regarding trade secrets) 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
(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.
This Section 5 shall survive the termination of this Agreement.
(b) INVENTIONS. Executive will communicate to the Company
promptly and fully and hereby assigns all of Executive's
rights in all inventions or improvements made or conceived
by Executive (alone or jointly with others) during
Executive's employment and for a period of one year
thereafter, which are along the lines of the business, work
or investigations of the Company or which result from or are
suggested by any work Executive may do for the Company.
Executive agrees that any such invention or improvement,
whether or not patentable, shall be and remain the sole and
exclusive property of the Company. Executive agrees to keep
and maintain adequate and current written records of all
such inventions or improvements at all stages thereof, which
records shall be and remain the property of the Company.
Executive agrees to take such actions and execute such
documents and instruments, including but not limited to
patent applications, as the Company requests to vest or
maintain title to such inventions or improvements in the
Company or otherwise to carry out the intent of this
agreement. There shall be excluded from the operation of
this Agreement the Executive's inventions and improvements,
patented and unpatented, which were made prior to
Executive's employment by the
<PAGE> 5
EMPLOYMENT AGREEMENT
--------------------
OCTOBER 1, 1998
PAGE 5 OF 11
Company, and which, if Executive has any such inventions,
are listed on an attached exhibit.
SECTION 6 - COMPENSATION DURING DISABILITY. Executive shall receive
his Base Compensation (net of applicable withholdings) during the first ninety
(90) business days of absence due to Disability (as hereinafter defined). In the
event of Executive's Disability and a determination by the Board of Directors
that sufficient reasonable accommodations for the Disability cannot 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 7 hereof. The amount of
benefits to be paid by the Company to Executive under this Section 6 or under
Section 7 shall be reduced by any amount paid or to be paid pursuant to Company
sponsored disability plans. 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 determination
(the ACompany 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 OR DUE TO DISABILITY.
(a) GENERALLY. Executive may resign his employment and terminate
this Agreement if the Company fails to honor its
obligations, subject to the procedures as provided in this
Section 7. The Company may terminate Executive's employment
for any reason at any time upon 30 days notice to Executive,
provided that the Company pay Executive the amounts as
determined in this Section 7. 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 (as defined in Section 8), or (iii) if
Executive's employment terminates by reason of Disability as
provided for in Section 6 hereof, Executive shall be
entitled to receive and the Company shall pay to Executive
the following:
(1) SALARY. Executive's Base Compensation earned through the
date of resignation
<PAGE> 6
EMPLOYMENT AGREEMENT
--------------------
OCTOBER 1, 1998
PAGE 6 OF 11
or termination and a lump sum payment for any unused
vacation shall be paid on or before the next regularly
scheduled pay-date after the effective date of the
resignation or termination.
(2) SEVERANCE. Severance payments for a period of one year (two
years if Executive is terminated by the Company without Good
Cause within the period three months before or twelve months
after a Change in Control as defined in EXHIBIT A) shall be
paid in consecutive periodic payments commencing on the
first pay day in the month following such resignation or
termination in the aggregate amount (net of any required
withholdings and Disability payment offsets as provided in
Section 6) equal to one year (two years if Executive is
terminated by the Company without Good Cause within the
period three months before or twelve months after a change
in Control as defined in EXHIBIT A) of Executive's Base
Compensation then in effect, provided that in the event of
Executive's death prior to the receipt of all payments, any
remaining payments shall cease to be made. During the period
which severance is payable, the Company agrees to provide,
through a group life insurance arrangement or individual
life insurance policy or otherwise, life insurance with a
death benefit at least equal to the remaining severance
payments. Upon Executive's death during the severance period
and prior to receipt of all severance payments, the death
benefit shall be payable to Executive's designated
beneficiary or, if none, to Executive's estate.
(3) BENEFITS. Following any resignation or termination for which
a payment under Section 7(a)(2) 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 for a period of twelve (12) months following such
resignation or termination in the same or comparable
hospital, medical, accident, disability and life insurance
benefits as Executive 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. Executive and eligible dependents may continue
coverage under such benefit plan for subsequent periods and
subject to applicable premium contributions, to the extent
permitted by law or by such plans. 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(a)(3).
(4) EARLY CESSATION OF BENEFITS. All benefits (other than those
with respect to which continuation is required by law) under
Section 7(a)(3) above shall cease upon the death of
Executive and his spouse.
<PAGE> 7
EMPLOYMENT AGREEMENT
--------------------
OCTOBER 1, 1998
PAGE 7 OF 11
(5) ANNUAL BONUS PLANS. An amount equal to a full year's
participation in the annual 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, (i.e. the
Executive will be paid based upon actual results as if the
Executive had been employed the full twelve months and had
received the full twelve month Base Compensation). In
addition, any payments due Executive under the incentive
plans then in effect as provided for in Section 2 hereof
(other than any annual bonus plans) in accordance with the
terms of such plans shall be paid to Executive within the
time period prescribed by such plans.
(b) PROCEDURES. 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 Executives' receipt of
such determination, may submit the claim to arbitration in accordance
with the provisions of Section 16 of this Agreement, and such
determination shall be final and binding upon the Company and
Executive.
(c) SOLE REMEDY. The payments provided in this Section 7 shall represent
the sole remedy for any claim Executive may have arising out of the
Company's failure to honor its obligations and termination without
Good Cause. The Company may condition payment of amounts due under
this Section 7 (other than payments due to Disability) upon the
receipt of a release and covenant not to sue in a form reasonably
satisfactory to the Company.
SECTION 8 - TERMINATION FOR GOOD CAUSE.
(a) GENERALLY. 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 AGood Cause shall mean:
(1) personal dishonesty within the course of employment with the
Company which evidences a want of integrity or is a breach
of trust;
(2) persistent failure to abide by reasonable rules and
regulations governing the transaction of business of the
Company as the Company's Board of Directors may from time to
time adopt or approve;
(3) persistent inattention to duties, or the commission of acts
within employment
<PAGE> 8
EMPLOYMENT AGREEMENT
--------------------
OCTOBER 1, 1998
PAGE 8 OF 11
with the Company amounting to gross negligence or willful
misconduct.
(4) misappropriation of funds or property of the Company or
committing any fraud against the Company or against any
other person or entity in the course of employment with the
Company;
(5) misappropriation of any corporate opportunity, or otherwise
obtaining personal profit from any transaction which is
adverse to the interests of the Company or to the benefits
of which the Company is entitled;
(6) The conviction of a felony; or
(7) any material violation of the terms of this Agreement.
(b) PROCEDURES. 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 a majority of the entire
membership of the Board of Directors (excluding Executive if 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 any of the conduct set forth above
in clauses (a)-(c),(e) and (g) 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.
(c) FURTHER OBLIGATIONS. In the event that the Company shall terminate
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 and unused vacation
earned through the date of termination, on or before the next
regularly scheduled pay date after termination and to perform such
other obligations as imposed by law.
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 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
and unused vacation earned through the date of resignation and to perform such
other obligations as imposed by law.
<PAGE> 9
EMPLOYMENT AGREEMENT
--------------------
OCTOBER 1, 1998
PAGE 9 OF 11
SECTION 10 - TERMINATION UPON DEATH. Executive's employment under this
Agreement shall terminate upon the death of Executive. Upon such termination,
Executive's designated beneficiary, or his personal representative shall receive
the payments/benefits described below from the Company:
(a) SALARY. Executive's unpaid Base Compensation earned through
the date of termination and a lump sum payment for any
unused vacation shall be paid on or before the next
regularly scheduled pay date after termination.
(b) BONUS. An amount equal to a full year's participation in the
annual bonus plan then in effect as provided for in Section
2(d) hereof shall be paid within the time period prescribed
by such plan (i.e. the Executive will be paid based upon
actual results as if the Executive had been employed the
full twelve months and had received the full twelve month
Base Compensation).
(c) BENEFITS. Benefits will continue for Executive's spouse and
eligible dependents in accordance with Company policy and as
required by law.
SECTION 11 - 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 11 if he resigns under
circumstances, which entitle him to payments under Section 7 hereof. Company
shall pay Executive an hourly rate of one hundred fifty dollars ($150.00) per
hour and reimburse Executive for all reasonable expenses and out-of-pocket costs
incurred in connection with fulfilling his obligations under this Section 11.
The Company shall endeavor to schedule such consulting so that Executive's
obligations under this Section 11 to assist Company shall not unreasonably
interfere with Executive's business prospects or responsibilities to a new
employer.
SECTION 12 - 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, in addition to any other
rights or remedies to which it may be entitled under law or this Agreement, the
Company shall, except as prohibited by applicable law, cease making any
severance or other payments hereunder and shall be entitled to enforce the
provisions of Section 4 or 5 by injunction or other equitable relief, without
having to prove irreparable harm or inadequacy of money damages.
SECTION 13 - 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
<PAGE> 10
EMPLOYMENT AGREEMENT
--------------------
OCTOBER 1, 1998
PAGE 10 of 11
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 14 - 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.
SECTION 15 - 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 16 - 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 settled by arbitration conducted in accordance with the rules
of conciliation and arbitration of the American Arbitration Association, such
arbitration to be conducted in Cleveland, Ohio, or at such other location as the
parties may agree. Costs of such arbitration, including Executive's attorneys
fees (to the extent such fees are reasonable), shall be borne by the Company.
With respect to disputes arising under Sections 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 17 - AMENDMENT. This Agreement may be amended only by a
written document signed by both parties.
SECTION 18 - 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 19 - 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 20 - 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
employment agreement entered into between the parties effective April 1, 1997.
SECTION 21 - RESTRICTIONS OF PAYMENTS OR PERFORMANCE. To the extent
the Company is unable to make any of the payments or perform any of the
obligations hereunder due to restrictions imposed by law, by the Company's
Articles of Incorporation or Code of Regulations, or by loan agreements or other
contracts to which the Company is or becomes party to, the Company agrees to
take such reasonable steps as are necessary to remove such restrictions. In the
event the Company is unable to remove such restrictions, Executive and the
Company shall enter into negotiations to effect
<PAGE> 11
EMPLOYMENT AGREEMENT
--------------------
OCTOBER 1, 1998
PAGE 11 of 11
reasonable alternatives. The Company's obligations shall be suspended until such
time as such restrictions are removed or such reasonable alternatives are
effected.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
CORRPRO COMPANIES, INC.
By:
--------------------------------
Its:
-------------------------------
COMPANY
-------------------------------
EXECUTIVE
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