SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 15, 2003
CORRPRO COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Ohio
(State or Other Jurisdiction of Incorporation)
001-12282 34-1422570
(Commission File Number) (I.R.S. Employer Identification No.)
1090 Enterprise Drive
Medina, OH 44256
(Address of principal executive offices, including ZIP code)
(330) 723-5082
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS AND REQUIRED FD DISCLOSURE.
EQUITY AND DEBT FINANCINGS
General
On December 15, 2003, Corrpro Companies, Inc. (the "Company") entered
into a definitive Securities Purchase Agreement (the "Purchase Agreement") with
CorrPro Investments, LLC, an entity controlled by Wingate Partners III, L.P.
("Wingate"), providing for a $13.0 million private equity investment as part of
a plan of recapitalization and refinancing of the Company. Under the terms of
the Purchase Agreement, the Company has agreed to issue and sell to Wingate,
subject to the satisfaction of certain conditions further described below, (i)
13,000 shares of the Company's newly-created Series B Cumulative Redeemable
Voting Preferred Stock, without par value ("Series B Preferred Stock"), with an
initial liquidation preference of $1,000 per share, and (ii) a warrant (the
"Warrant") to purchase up to a number of shares of the Company's common stock,
without par value ("Common Stock"), equal to 40% of the Company's fully diluted
Common Stock at an exercise price of $0.001 per share.
In connection with the equity financing, on December 15, 2003, the
Company also entered into (i) a commitment letter with CapitalSource Finance LLC
("CapitalSource"), pursuant to which CapitalSource has agreed to provide to the
Company, subject to the satisfaction of certain conditions, a $40.0 million
senior secured credit facility, consisting of a revolving credit line, a term
loan with a five-year maturity and a letter of credit sub-facility, and (ii) a
commitment letter with American Capital Strategies, Ltd. ("American Capital"),
pursuant to which American Capital has agreed to provide to the Company, subject
to the satisfaction of certain conditions, $14.0 million of senior secured
subordinated debt. In addition, American Capital will receive a warrant to
purchase up to a number of shares of Common Stock equal to 13.0% of the
Company's fully diluted Common Stock at an exercise price of $0.01 per share,
not to exceed $100 in the aggregate, and the right to appoint one director to
the Board of Directors.
The proceeds of the equity and debt financings will be used to repay
the outstanding indebtedness owed by the Company to its current lenders, a
lending group led by Bank One N.A. and The Prudential Insurance Company of
America. The Company has been operating under forbearance agreements with its
current lenders that are due to expire on January 31, 2004. These forbearance
agreements require, among other things, that the Company achieve certain
milestones with respect to the completion of a recapitalization and refinancing
plan for its outstanding indebtedness. The current lenders have consented to the
Company's execution of the Purchase Agreement and the Company has substantially
fulfilled the requirements of the forbearance agreements, subject only to the
closing of the equity and debt financings on or prior to January 31, 2004.
The terms of the equity and debt financings were unanimously approved
by the Company's Board of Directors and were negotiated on behalf of the Company
by, and recommended by, a Special Committee of the Board of Directors consisting
of three non-employee directors. The Special Committee retained financial and
legal advisors to assist in securing and negotiating proposed recapitalization
and refinancings plans for its outstanding indebtedness, and obtained a fairness
opinion from Brown Gibbons Lang & Company Securities, Inc. ("Brown Gibbons")
with respect to the terms of the equity and debt financings described herein.
Brown Gibbons had previously solicited proposals for recapitalization and
refinancings plans on behalf of the Special Committee during a period of several
months.
Immediately following the closing of the equity and debt financings,
after giving effect to the issuance of the warrants and options described
herein, it is estimated that current shareholders of the Company would hold
between 24.0% to 29.0% of the fully diluted Common Stock, depending upon
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completion of anti-dilution adjustments to certain currently outstanding
warrants issued by the Company which cannot be determined until the closing of
the equity and debt financings. As of the date hereof, the current shareholders
of the Company hold approximately 80.0% of the fully diluted Common Stock.
Purchase Agreement
The closing of the equity financing is subject to the satisfaction or
waiver of a number of closing conditions set forth in the Purchase Agreement,
including, without limitation, (i) approval of the Company's shareholders, (ii)
the absence of material adverse changes with respect to the Company prior to the
closing, (iii) the delivery of a closing fee, as discussed below, (iv) the
effectiveness of certain amendments to the Company's Amended and Restated
Articles of Incorporation and Amended and Restated Code of Regulations, (v)
completion of the sale of the Company's Middle East operations, (vi) certain
restrictions with respect to the aggregate amount of transaction costs that may
be incurred by the Company in connection with the equity and debt financings,
(vii) certain restrictions on the aggregate amount of outstanding indebtedness
of the Company as of the closing, (viii) certain restrictions on the aggregate
prepayment amount under the Company's outstanding senior notes and (ix) the
closing of definitive senior and subordinated debt financing arrangements with
CapitalSource and American Capital.
Under the terms of the Purchase Agreement, the Company has also agreed
to, among other things, (i) operate its business in the ordinary course of
business prior to the closing, (ii) hold a special meeting of its shareholders
to consider and vote upon proposals relating to the equity and debt financings
and to furnish a proxy statement to its current shareholders in connection
therewith, (iii) refrain from soliciting or encouraging offers or proposals from
persons other than Wingate prior to the closing, except as required by
applicable law, and (iv) refrain from incurring, or committing to incur, fees
and expenses under its outstanding indebtedness prior to the closing.
The Purchase Agreement also provides that Wingate may terminate the
transactions contemplated by the Purchase Agreement at any time prior to the
closing if, among other things, (i) approval of the Company's shareholders is
not received prior to March 31, 2004, (ii) the Company incurs, or commits to
incur, any prohibited fees and expenses under its outstanding indebtedness prior
to the closing, (iii) if the Company has not sold its Middle East operations
prior to March 31, 2004 or (iv) the failure by the Company to satisfy certain
financing conditions prior to the closing. If Wingate terminates the Purchase
Agreement pursuant to any of the foregoing, Wingate will be entitled to receive
a termination fee equal to the greater of (i) the amount of fees, expenses and
costs incurred by Wingate in connection with the financings plus $250,000 and
(ii) $1,250,000.
The Purchase Agreement also provides that in the event that Wingate
fails to satisfy certain conditions prior to the closing, the Company may
terminate the Purchase Agreement twenty business days after the later to occur
of (i) the approval by the Company's shareholders of the proposed transactions
and (ii) the Company's sale of its Middle East operations, in which case the
Company would not be required to pay Wingate the termination fee described
above. The Company may also terminate the Purchase Agreement, without payment of
the termination fee, with the mutual consent of Wingate or sixty days after the
later to occur of (A) the approval by the Company's shareholders of the proposed
transactions and (B) the Company's sale of its Middle East operations.
The description of the Purchase Agreement contained herein is qualified
in its entirety by reference to the terms of the Purchase Agreement filed as
Exhibit 10.1 hereto and incorporated by reference herein.
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Series B Preferred Stock
The Series B Preferred Stock would be entitled to cumulative dividends
at a rate of 13.5% per annum that would be payable by the Company, at its
option, either in cash (subject to restrictions contemplated by the debt
financing) or in additional shares of Series B Preferred Stock. In addition, the
Series B Preferred Stock would be entitled to cumulative dividends at a rate of
16.5% per annum for so long as the Company is not in compliance with an EBITDA
covenant set forth in the terms of the Series B Preferred Stock.
The Series B Preferred Stock would also be entitled to vote as a single
class with the holders of Common Stock and would initially represent 51.0% of
the voting power of the Company. The voting power of the Series B Preferred
Stock would be proportionately reduced in the event that the Company issues
additional voting securities or shares of Series B Preferred Stock no longer
remain outstanding. The Series B Preferred Stock would also be entitled to class
voting rights with respect to certain material transactions involving the
Company, including, without limitation, (i) amendments to the Company's Amended
and Restated Articles of Incorporation and/or Amended and Restated Code of
Regulations, (ii) a merger, consolidation, liquidation, dissolution, winding-up,
recapitalization or reorganization of the Company, or a sale in excess of forty
percent of the Company's assets, (iii) payments of certain dividends or
distributions on the Company's equity securities, (iv) issuances of certain
equity or debt securities of the Company and (v) certain redemptions or
repurchases of the Company's equity securities.
In addition, for so long as 40% of the shares of Series B Preferred
Stock initially issued at the closing remain outstanding, the holders of Series
B Preferred Stock would have the right to elect a majority of the members of the
Company's Board of Directors. The holders of Series B Preferred Stock would also
be entitled to designate a successor to any director elected by the holders of
Series B Preferred Stock whose office becomes vacant due to resignation, death,
retirement, disqualification or removal, whether with or without cause.
At the option of a majority of the holders of Series B Preferred Stock,
the Series B Preferred Stock would be redeemable upon the occurrence of certain
events with respect to the Company, including, without limitation, (i) any
merger, consolidation, disposition of assets or similar type of event that
constitutes a "change of control" or similar termed event under the terms of the
Company's senior and/or subordinated indebtedness, (ii) the acceleration of any
amounts due under the Company's senior and/or subordinated indebtedness, (iii)
the issuance or sale of equity securities of the Company in a public or private
offering resulting in aggregate net proceeds in excess of $20.0 million, (iv) a
liquidation, dissolution or winding-up of the Company and (v) certain bankruptcy
or insolvency events. In addition, if then permitted by the holders of the
Company's senior and subordinated indebtedness, the Series B Preferred Stock
would be redeemable at the option of a majority of the holders of Series B
Preferred Stock upon the occurrence of certain events with respect to the
Company, including, without limitation, (i) the acquisition of twenty percent or
more of the outstanding voting securities of the Company by any person or group,
(ii) a sale or other disposition of in excess of twenty percent of the assets of
the Company, or assets of the Company resulting in aggregate proceeds to the
Company in excess of $20.0 million, and (iii) the aggregate amount of
indebtedness of the Company is less than $2.0 million.
The description of the Series B Preferred Stock contained herein is
qualified in its entirety by reference to the terms of the Series B Preferred
Stock filed as Exhibit 10.2 hereto and incorporated by reference herein.
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Other Agreements
In connection with the equity and debt financings, shares of Common
Stock would be reserved for future issuance as incentive compensation for
eligible officers, employees and directors of the Company pursuant to future
option and incentive plans. The number of shares of Common Stock to be reserved
for such issuances, when combined with shares already reserved for issuance
under existing option and incentive arrangements, would represent 15.0% of the
fully diluted Common Stock, as of closing, a portion of which are anticipated to
be issued at twice the fair market value on the date of grant.
Joseph Rog is the Chairman, President and Chief Executive Officer of
the Company. Following the Closing, he will remain on the Board of Directors;
however, at the Closing, it is contemplated that he would step down as Chairman
and would thereafter, subject to the hiring of a successor, retire from his
positions as President and Chief Executive Officer. In anticipation of the
completion of the Transactions, a search has commenced for a successor President
and Chief Executive Officer. Effective on the Closing Date, the Company and Mr.
Rog will enter into a new Employment Agreement (the "New Employment Agreement")
which will expire on March 31, 2005. The New Employment Agreement will provide
that, in the event that Mr. Rog is terminated without good cause (as would be
contemplated pursuant to his retirement arrangement) prior to the expiration of
its term, the Company will pay him a severance amount equal to 24 months' base
salary, auto allowance and other benefits. Further, in the event that Mr. Rog's
employment is terminated prior to March 31, 2004, he shall also be entitled to
receive, among other things, an amount equal to a full year's participation in
the Company's annual bonus plan. The payment amounts to Mr. Rog under the New
Employment Agreement in the event of his separation from service will not be
substantially different from the Company's severance payment obligations under
his current employment agreement. All other terms of the New Employment
Agreement are substantially the same as those under his existing agreement.
Immediately following the consummation of the equity and debt
financings, it is anticipated that the Board of Directors of the Company would
be comprised of a slate consisting of nine directors consisting of Mr. Rog, five
designees appointed by Wingate, one designee appointed by American Capital, and
two current non-employee directors of the Company.
The Company has also agreed to issue the Warrant to Wingate at the
closing of the transactions contemplated by the equity and debt financings. The
Warrant has a ten-year term and contains customary anti-dilution protections for
stock issuances below fair market value.
The Company has also agreed to enter into an Investor and Registration
Rights Agreement (the "Registration Rights Agreement") with Wingate at the
closing of the transactions contemplated by the equity and debt financings.
Under the Registration Rights Agreement, the Company will agree to use its best
efforts to register under applicable federal and state securities laws the
resale of shares of Common Stock issuable to Wingate or its transferees upon
exercise of the Warrant. Under the Registration Rights Agreement, the Company
will also grant certain information rights, board observation rights and board
expansion rights to Wingate and its transferees. In addition, the Registration
Rights Agreement will provide that Wingate may not vote any shares of Common
Stock issuable upon exercise of the Warrant for so long as Wingate owns all of
the shares of Series B Preferred Stock issued at the closing of the equity and
debt financings.
The Company has also agreed to enter into a Services Agreement with
Wingate at the closing. Under the Services Agreement, the Company would pay to
Wingate and/or its designees a fee of $500,000 upon the closing of the equity
and debt financings. In addition, the Company has agreed to pay to Wingate or
its designees an annual fee of $400,000, for an initial term of eight years, in
exchange for certain services to be rendered by Wingate and its affiliates after
the closing of the equity and debt financings.
The foregoing description of the terms of the equity and debt
financings is qualified in its entirety by reference to the Company's press
release filed as Exhibit 99.1 hereto and incorporated by reference herein
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CONDITIONAL CONTINUED LISTING ON AMERICAN STOCK EXCHANGE
In an unrelated development, the Company also announced that the
American Stock Exchange ("Amex") has accepted the Company's proposed plan to
reestablish compliance with the Amex's continued listing standards. As
previously disclosed, in September 2003 the Company received notice from Amex
Staff indicating that the Company was below certain of Amex's continued listing
standards due to the Company's loss history and insufficiency of its
shareholders' equity under applicable guidelines. The Company was afforded the
opportunity to submit a plan of compliance to Amex and in October 2003 presented
its plan to the Amex. On December 4, 2003, the Amex notified the Company that it
accepted the Company's plan of compliance and granted the Company an extension
of time to regain compliance with the continued listing standards. The Company
will be subject to periodic review by the Amex Staff during the extension
period. Failure to make progress consistent with the plan or to regain
compliance with the continued listing standards by the end of the extension
period could result in the Company being delisted from the American Stock
Exchange. The Company has until March 2005 to regain compliance with the Amex
continued listing standards, subject to the Company's continued progress, as
determined by the Amex, in implementing its proposed compliance plan. The
Company's plan, as accepted by Amex, is not dependent upon the completion of the
equity and debt financings.
FORWARD-LOOKING STATEMENTS
Except for historical information, the matters discussed herein are
forward-looking statements relating to the business of the Company. The
forward-looking statements are made under the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates" or variations of
such words and similar expressions are intended to identify such forward-looking
statements. The Company believes that the following factors, among others, could
affect its future performance and cause its actual results to differ materially
from those that are expressed or implied by forward-looking statements, or
diminish the liquidity of its common shares: the Company's ability to receive
shareholder approval of the transactions described herein and, as a result
thereof, to consummate the proposed recapitalization and refinancing; the
ability to fulfill the conditions to closing and, as a result thereof, to
consummate the proposed recapitalization and refinancing; the extension,
amendment or refinancing of the Company's existing debt and the terms and timing
thereof; the Company's ability to successfully divest certain of its non-core
and international business units and the timing, terms and conditions of any
such divestitures; the ultimate outcome of the SEC's and the Australian
Securities and Investment Commission's investigation of accounting
irregularities; the impact of any litigation or regulatory process related to
the financial statement restatement process, including the filed and dismissed
class action litigation (the dismissal of which has been appealed);
qualification requirements and termination provisions relating to government
jobs; the impact of inclement weather on the Company's operations; the impact of
energy prices on the Company's and its customers' businesses; adverse
developments in pending litigation or regulatory matters; the Company's ability
to satisfy the listing and trading requirements of the AMEX (which, if not
satisfied, could result in the suspension of trading or delisting of the
Company's shares from the exchange and could diminish the liquidity of its
common shares) or any other national exchange on which its shares are or will be
listed or otherwise to provide a trading venue for its shares; and the impact of
changing global political and economic conditions. Further information
concerning factors that may affect the Company's business and performance are
set forth in the Company's filings with the Securities and Exchange Commission.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS, AND EXHIBITS
Exhibit No. Description
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10.1 Securities Purchase Agreement between Corrpro Companies, Inc.
and CorrPro Investments, LLC, dated as of December 15, 2003
("Securities Purchase Agreement").
10.2 Form of Series B Preferred Stock Terms.
99.1 Press Release dated December 16, 2003, issued by Corrpro
Companies, Inc.
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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.
Date: December 22, 2003
CORRPRO COMPANIES, INC.
By: /s/ Robert M. Mayer
---------------------------------------
Name: Robert M. Mayer
Title: Senior Vice-President and Chief
Financial Officer
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EXHIBIT LIST
Exhibit No. Description
----------- --------------------------------------------------------------
10.1 Securities Purchase Agreement between Corrpro Companies, Inc.
and CorrPro Investments, LLC, dated as of December 15, 2003
("Securities Purchase Agreement").
10.2 Form of Series B Preferred Stock Terms.
99.1 Press Release dated December 16, 2003, issued by Corrpro
Companies, Inc.
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