SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT FILED PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Commission File Number
September 30, 1996 1-13752
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SMITH-MIDLAND CORPORATION
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(Name of Small Business
Issuer As Specified In Its Charter)
Delaware 54-1727060
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
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Route 28, P.O. Box 300, Midland, Virginia 22728
(Address of Principal Executive Offices, Zip Code)
(540) 439-3266
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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, 1996, the Company had outstanding 3,085,718 shares
of Common Stock, $.01 par value per share.
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SMITH-MIDLAND CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER
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Item 1. Financial Statements
Consolidated Balance Sheets; 1
September 30, 1996 (Unaudited)
and December 31, 1995 (Unaudited)
Consolidated Statements of 2
Operations (Unaudited); Three
months ended September 30, 1996 and 1995
Consolidated Statements of 3
Operations (Unaudited); Nine
months ended September 30, 1996 and 1995
Consolidated Statements of Cash Flows 4
(Unaudited); Nine months ended
September 30, 1996 and 1995
Notes to Consolidated Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
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SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
ASSETS 1996 1995
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Current assets:
Cash and cash equivalents $ 778,140 $ 938,089
Accounts receivable:
Trade -- billed, less allowances for doubtful accounts of
$225,987 and $231,367 2,754,931 2,559,796
Trade -- unbilled 253,112 101,873
Inventories:
Raw materials 463,244 482,939
Finished goods 626,157 743,205
Prepaid expenses and other assets 31,742 159,490
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Total current assets 4,907,326 4,985,392
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Property and equipment, net 1,468,819 1,430,286
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Other assets:
Officer note receivable and accrued interest receivable, net 687,398 665,474
Other 84,086 76,103
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Total other assets 771,484 741,577
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TOTAL ASSETS $7,147,629 $7,157,255
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable $2,244,113 $1,274,544
Accounts payable -- trade 1,312,822 1,603,325
Accrued expenses and other liabilities 638,874 597,480
Customer deposits 262,920 51,132
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Total current liabilities 4,458,729 3,526,481
Notes payable -- less current maturities 801,557 1,720,726
Notes payable -- related parties 116,753 116,753
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TOTAL LIABILITIES 5,377,039 5,363,960
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Stockholders' equity:
Preferred stock, $.01 par value, authorized 1,000,000 shares,
none outstanding -- --
Common stock, $.01 par value, authorized 8,000,000 shares,
issued and outstanding 3,085,718 and 2,935,718 30,857 29,357
Additional capital 3,450,085 3,055,252
Retained earnings (deficit) (1,710,352) (1,291,314)
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TOTAL STOCKHOLDERS' EQUITY 1,770,590 1,793,295
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,147,629 $7,157,255
========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
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1
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SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
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Revenue:
Net sales $2,914,155 $2,590,069
Shipping and installation income 387,301 305,787
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Total revenue 3,301,456 2,895,856
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Cost of goods sold:
Cost of goods sold -- sales 2,057,194 1,743,453
Shipping and installation expense 303,262 290,073
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Total cost of goods sold 2,360,456 2,033,526
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Gross profit 941,000 862,330
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Operating expenses:
General and administrative expenses 538,143 496,054
Selling expenses 181,606 146,178
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Total operating expenses 719,749 642,232
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Operating income 221,251 220,098
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Other income (expense):
Royalties 79,927 27,748
Interest expense (114,365) (132,255)
Interest income 16,446 13,203
Other 8,753 (54,728)
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Total other income (expense) 9,239) (146,032)
Income before income taxes 12,012 74,066
Income tax expense (benefit) -- --
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Net income $ 212,012 $ 74,066
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Net income per share $ .07 $ .04
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Weighted average common shares outstanding 3,085,718 1,821,119
========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
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2
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
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Revenue:
Net sales $7,625,417 $7,491,932
Shipping and installation income 946,820 1,221,946
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Total revenue 8,572,237 8,713,878
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Cost of goods sold:
Cost of goods sold -- sales 5,994,103 5,693,485
Shipping and installation expense 789,306 939,114
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Total cost of goods sold 6,783,409 6,632,599
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Gross profit 1,788,828 2,081,279
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Operating expenses:
General and administrative expenses 1,608,670 1,329,273
Selling expenses 513,290 387,029
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Total operating expenses 2,121,960 1,716,302
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Operating income (loss) (333,132) 364,977
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Other income (expense):
Royalties 211,572 143,033
Interest expense (357,807) (357,049)
Interest income 53,005 35,569
Other 7,324 (104,955)
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Total other income (expense) (85,906) (283,402)
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Income (loss) before income taxes (419,038) 81,575
Income tax expense (benefit) -- --
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Net income (loss) $ (419,038) $ 81,575
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Net income (loss) per share $ (.14) $ .05
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Weighted average common shares outstanding 3,076,411 1,802,382
========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
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3
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SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
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Cash flows from operating activities:
Cash received from customers $ 8,649,223 $ 7,997,851
Cash paid to suppliers and employees (8,696,514) (7,856,839)
Interest paid (357,807) (357,049)
Other 32,931 53,011
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Net cash absorbed by operating activities (372,167) (163,026)
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Cash flows from investing activities:
Purchases of property and equipment (239,989) (97,761)
Payments (borrowings) against officer note receivable 5,474 (48,827)
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Net cash absorbed by investing activities (234,515) (146,588)
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Cash flows from financing activities:
Proceeds from bank borrowings 1,104,442 685,870
Repayments of bank borrowings (1,054,042) (332,622)
Proceeds from issuance of common stock 396,333 --
Proceeds (repayments) on borrowings -- related parties, net -- (2,979)
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Net cash provided by financing activities 446,733 350,269
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Net increase (decrease) in cash (159,949) 40,655
Cash at beginning of period 938,089 110,114
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Cash at end of period $ 778,140 $ 150,769
=========== ===========
Reconciliation of net income (loss) to net cash provided by operating
activities:
Net income (loss) $ (419,038) $ 81,575
Adjustments to reconcile net income (loss) to net cash
provided (absorbed) by operating activities:
Depreciation and amortization 201,456 279,083
Decrease (increase) in other assets (35,381) (106,272)
Decrease (increase) in:
Accounts receivable -- billed (195,135) (572,339)
Accounts receivable -- unbilled (151,239) (179,274)
Inventories 136,743 (217,635)
Prepaid expenses and other assets 127,748 10,813
Increase (decrease) in:
Accounts payable -- trade (290,503) 484,613
Accrued expenses and other liabilities 41,394 106,279
Customer deposits 211,788 (49,869)
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Net cash absorbed by operating activities $ (372,167) $ (163,026)
=========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
4
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SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1996
BASIS OF PRESENTATION
As permitted by the rules of the Securities and Exchange Commission (the
"Commission") applicable to quarterly reports on Form 10-QSB, these notes are
condensed and do not contain all disclosures required by generally accepted
accounting principles. Reference should be made to the consolidated financial
statements and related notes included in the Company's Annual Report on Form
10-KSB, for the year ended December 31, 1995.
In the opinion of management of the Company, the accompanying financial
statements reflect all adjustments which were of a normal recurring nature
necessary for a fair presentation of the Company's results of operations for the
three months and nine months ended September 30, 1996 and September 30, 1995.
The results disclosed in the consolidated statements of operations are not
necessarily indicative of the results to be expected for any future periods.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Smith-Midland Corporation and its wholly owned subsidiaries, Smith-Midland
Corporation, a Virginia corporation, Easi-Set Industries, Inc., a Virginia
corporation, Smith-Carolina Corporation, a North Carolina corporation, Concrete
Safety Systems, Inc., a Virginia corporation, and Midland Advertising & Design,
Inc., a Virginia corporation. All significant intercompany accounts and
transactions have been eliminated in consolidation.
INVENTORIES
Inventories are stated at the lower of cost, using the first-in, first-out
(FIFO) method, or market.
PROPERTY AND EQUIPMENT
Property and equipment, net is stated at depreciated cost. Expenditures for
ordinary maintenance and repairs are charged to income as incurred. Costs of
betterments, renewals, and major replacements are capitalized. At the time
properties are retired or otherwise disposed of, the related cost and allowance
for depreciation are eliminated from the accounts and any gain or loss on
disposition is reflected in income.
5
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Depreciation is computed using the straight-line method over the following
estimated useful lives:
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Years
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Buildings........................................................................ 10-33
Trucks and automotive equipment.................................................. 3-10
Shop machinery and equipment..................................................... 3-10
Land improvements................................................................ 10-30
Office equipment................................................................. 3-10
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INCOME TAXES
The provision for income taxes is based on earnings reported in the
financial statements. A deferred income tax asset or liability is determined by
applying currently enacted tax laws and rates to the expected reversal of the
cumulative temporary differences between the carrying value of assets and
liabilities for financial statement and income tax purposes. Deferred income tax
expense is measured by the change in the deferred income tax asset or liability
during the year.
Effective January 1, 1993, the Company adopted SFAS 109 "Accounting for
Income Taxes." The adoption of SFAS 109 did not have a material effect on the
consolidated financial statements as the deferred tax asset related to the
Company's net operating loss carry forward has been reserved in its entirety. No
provision for income taxes has been made for the three-month and nine-month
periods ended September 30, 1996 and 1995 as the Company does not expect to
incur income tax expense for fiscal year 1996 and did not incur income tax
expense in fiscal year 1995.
REVENUE RECOGNITION
The Company primarily recognizes revenue on the sale of its precast
concrete products at shipment date, including revenue derived from any projects
to be completed under short-term contracts. Installation services for precast
concrete products, leasing and royalties are recognized as revenue as they are
earned on an accrual basis. Licensing fees are recognized under the accrual
method unless collectibility is in doubt, in which event revenue is recognized
as cash is received. Certain sales of sound wall and SlenderwallTM concrete
products are recognized upon completion of production and customer site
inspections. Provisions for estimated losses on contracts are made in the period
in which such losses are determined.
6
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ESTIMATES
The preparation of these financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses. Actual results could differ from those estimates.
INCOME PER SHARE
Income (loss) per share is calculated based on net income (loss) and the
weighted average number of shares of common stock outstanding during the period.
COMMON STOCK OFFERING
In December 1995, the Company completed an initial public offering ("IPO")
of 1,000,000 shares of common stock, $.01 par value per share (the "Common
Stock"), and 1,000,000 Redeemable Common Stock Purchase Warrants (the
"Warrants"), at a purchase price of $3.60 per share of Common Stock and Warrant
sold together. The Company realized net proceeds from the IPO of approximately
$2,618,000. In January 1996, the Company completed an overallotment of an
additional 150,000 shares of Common Stock and 150,000 Warrants for net proceeds
of approximately $396,000.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company generates revenues primarily from the sale, shipping,
licensing, leasing and installation of precast concrete products for the
construction, utility and farming industries. The Company's operating strategy
has involved producing innovative and proprietary products, including
Slenderwall(TM), a patent-pending, lightweight, energy efficient concrete and
steel exterior wall panel for use in building construction; J-J Hooks(TM)
Highway Safety Barrier, a patented, positive-connected highway safety barrier;
Sierra Wall, a sound barrier primarily for roadside use; and transportable
concrete buildings. In addition, the Company produces utility vaults, farm
products such as cattleguards, and water and food troughs, and custom order
precast concrete products with various architectural surfaces.
The results for the nine months ended September 30, 1996 are not
necessarily indicative of the results of the Company's operations that may be
expected for the year ending December 31, 1996.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1995
For the three months ended September 30, 1996, the Company had total
revenue of approximately $3,301,000 compared to total revenue of approximately
$2,896,000 for the three months ended September 30, 1995, an increase of
approximately $405,000, or 14%. Total product sales were approximately
$2,914,000 for the three months ended September 30, 1996, a $324,000 increase,
or approximately 13%, from approximately $2,590,000 for the same period in 1995.
Shipping and installation revenue increased from approximately $306,000 for the
three months ended September 30, 1995 to approximately $387,000 for the same
period in 1996, representing an increase of approximately $81,000, or 26%. The
increase in total revenue resulted primarily from increased product sales and,
to a lesser extent, from increased shipping revenues during the three months
ended September 30, 1996.
Total cost of goods sold for the three months ended September 30, 1996
increased by approximately $326,000 to approximately $2,360,000 from
approximately $2,034,000 for the three months ended September 30, 1995,
representing a 16% increase. The increase in cost of goods sold was primarily
attributed to the 13% increase in product sales and, to a lesser extent, to the
26% increase in shipping and installation revenue during the three months ended
September 30, 1996 as compared to the same period in 1995. Total cost of goods
sold, as a percentage of total revenue, increased slightly from approximately
70% for the three months ended September 30, 1995 to approximately 71% for the
three months ended September 30, 1996. Varying product mix and individual job
profitability affect the cost of goods sold as a percentage of revenue.
8
For the three months ended September 30, 1996, the Company's general and
administrative expenses increased by approximately $42,000, or 8%, to
approximately $538,000, or 16% of total revenue, from approximately $496,000, or
17% of total revenue, for the three months ended September 30, 1995. The
increase in expense was primarily the result of increased executive and
administrative compensation expense, increased legal, accounting and other
professional fees, increased bad debt expense, and increased administrative
costs associated with being a public reporting company. The decrease as a
percentage of total revenue was primarily attributed to the increase in total
revenue.
Selling expenses for the three months ended September 30, 1996 increased to
approximately $182,000 from approximately $146,000 for the three months ended
September 30, 1995, an increase of approximately $36,000, or 25%. The increase
in selling expenses was primarily attributed to an increase in advertising and
promotion expense primarily related to the sale of Slenderwall(TM) wall panel
product.
The Company's operating income for the three months ended September 30,
1996 was approximately $221,000 compared to operating income of approximately
$220,000, for the three months ended September 30, 1995, an increase of
approximately $1,000. This increase in operating income was primarily attributed
to increased gross profit on sales, offset somewhat by increased selling
expenses and increased general and administrative expenses during the 1996
period.
Royalty income increased by approximately $52,000 from approximately
$28,000 for the three months ended September 30, 1995 to approximately $80,000
for the same period in 1996. This increase was primarily due to an increase in
new licensee fees recognized by the Company during the three months ended
September 30, 1996 when compared to the same period in 1995.
Interest expense was approximately $114,000 for the three months ended
September 30, 1996, compared to approximately $132,000 for the three months
ended September 30, 1995. This decrease of approximately $18,000, or 14%, was
primarily due to a decreased level of debt outstanding during the 1996 period.
Interest income of approximately $16,000 for the three months ended
September 30, 1996 represented an increase of approximately $3,000, or 23% over
interest income of approximately $13,000 for the 1995 period. The increase in
interest income was due primarily to higher levels of cash available for
investment during the 1996 period.
The Company earned other income (net of other expenses) of approximately
$9,000 for the three months ended September 30, 1996, which represented a
positive change of approximately $64,000 from other expense (net of other
income) of approximately $55,000 for the three months ended September 30, 1995.
The increase in other income was primarily attributed to a significant decrease
in federal and state tax penalties that were incurred by the Company during the
three months ended September 30, 1995, as compared to the 1996 period.
9
The Company earned net income for the three months ended September 30, 1996
of approximately $212,000 compared to net income of approximately $74,000 for
the same period in 1995. The increase in net income of approximately $138,000
was primarily attributed to increased revenue and gross profit thereon,
increased royalty income, decreased interest expense and decreased other
expense, offset partially by increased selling expenses and increased general
and administrative expenses. The increase in net income per share from $.04 for
the three months ended September 30, 1995 to $.07 for the same period in 1996
reflected the Company's increased net income, offset somewhat by the greater
number of shares of Common Stock outstanding as a result of the Company's
initial public offering in December 1995.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
For the nine months ended September 30, 1996, the Company earned total
revenue of approximately $8,572,000 compared to total revenue of approximately
$8,714,000 for the nine months ended September 30, 1995, a decrease of
approximately $142,000, or 2%. Total product sales increased from approximately
$7,492,000 to approximately $7,625,000, representing an increase of
approximately $133,000, or 2%. Shipping and installation revenue decreased from
approximately $1,222,000 for the nine months ended September 30, 1995 to
$947,000 for the same period in 1996, representing a decrease of approximately
$275,000, or 23%. The decreased shipping and installation revenue was primarily
a result of significantly reduced installation services provided by the Company
and the presence of a major sound barrier installation job which provided
significant installation revenue during the nine months ended September 30,
1995. The decrease in total revenue was partially attributed to the severe
winter weather experienced in the Mid-Atlantic region during the first two
months of 1996 which delivered record snowfall and affected the Company's
production during the first quarter of 1996 (see "Seasonality and Inflation").
In addition, total revenue for the nine months ended September 30, 1996 was
reduced by lost production time due to approximately $210,000 in repairs and
product remakes during the nine months ended September 30, 1996 in an effort to
resolve several related contract disputes, collectively referred to as the
"Maryland Claims" (see "Part II "Other Information", Item 1 "Legal
Proceedings").
Total cost of goods sold was approximately $6,783,000 for the nine months
ended September 30, 1996, or approximately 79% as a percentage of revenue,
compared to approximately $6,633,000 for the same period in 1995, or
approximately 76% as a percentage of revenue, representing an increase of
approximately $150,000, or 2%. The increase in the Company's cost of goods sold
was due primarily to increased sales of product, which along with a 2% reduction
in net sales, was principally responsible for the increased cost as a percentage
of revenue. In addition, cost of goods sold for the nine months ended September
30, 1996 included approximately $210,000 in direct and indirect expenses as a
result of repair work and product remakes in an effort by the Company to resolve
the Maryland Claims. Varying product mix and individual job profitability also
affect the Company's cost of goods sold.
10
For the nine months ended September 30, 1996, the Company's general and
administrative expenses totaled approximately $1,609,000, or 19% of total
revenue, compared to approximately $1,329,000, or 15% of total revenue, for the
same period in 1995, representing an increase of approximately $280,000, or 21%.
The increase in expense was primarily the result of increased executive and
administrative compensation expense, increased legal, accounting and other
professional fees, increased bad debt expense, and increased administrative
costs associated with being a public reporting company.
Selling expenses for the nine months ended September 30, 1996 increased
to approximately $513,000 from approximately $387,000 for the nine months ended
September 30, 1995, representing an increase of approximately $126,000, or 33%,
which resulted primarily from an increase in compensation expense for
salespersons and increased advertising and promotion expense primarily related
to the sale of Slenderwall(TM) wall panel product.
The Company experienced an operating loss for the nine months ended
September 30, 1996 totaling approximately $333,000, compared to operating income
of approximately $365,000, for the nine months ended September 30, 1995, a
decrease of approximately $698,000. This decrease in operating income was
primarily attributed to decreased total revenue, increased cost of goods sold as
a percentage of total revenue, increased selling expenses and increased general
and administrative expenses.
Royalty income increased by approximately $69,000, or 48%, from
approximately $143,000 for the nine months ended September 30, 1995 to
approximately $212,000 for the same period in 1996. The increase was a result of
an increased number of licensees generating increased sales, primarily from the
sale by licensees of J-J Hooks(TM) Barriers.
Interest expense totaled approximately $358,000 for the nine months ended
September 30, 1996, compared to approximately $357,000 for the nine months ended
September 30, 1995. This increase of approximately $1,000 was primarily due to a
decreased level of debt outstanding during the 1996 period, more than offset by
approximately $37,000 in loan fees incurred during the 1996 period.
Interest income of approximately $53,000 for the nine months ended
September 30, 1996 represented a $17,000 increase, or 47%, over interest income
of approximately $36,000 for the same period in 1995. The increase in interest
income was due primarily to the investment, during the first quarter of 1996, of
the net proceeds from the Company's initial public offering in December 1995
(see "Liquidity and Capital Resources").
The Company earned total other income (net of other expenses) of
approximately $7,000 for the nine months ended September 30, 1996, compared to
other expenses (net of other income) of approximately $105,000 for the nine
months ended September 30, 1995, a positive change of approximately $112,000.
The increase in other income was primarily attributed to a significant decrease
in federal and state tax penalties incurred in the nine months ended September
30, 1995, as compared to the 1996 period.
11
The Company experienced a net loss for the nine months ended September 30,
1996 of approximately $419,000, compared to net income of approximately $82,000
for the same period in 1995. The decreased net income of approximately $501,000
was primarily attributed to lower total revenues, increased cost of goods sold
as a percentage of revenues, increased selling expenses and increased general
and administrative expenses. The change from net income per share of $.05 during
the nine months ended September 30, 1995, to a net loss per share of $.14 for
the same period in 1996, reflected the Company's net loss during the 1996 period
and the greater number of shares of Common Stock outstanding as a result of the
Company's initial public offering in December 1995.
LIQUIDITY AND CAPITAL RESOURCES
In December 1995, the Company completed an initial public offering ("IPO")
of 1,000,000 shares of common stock, $.01 par value per share (the "Common
Stock"), and 1,000,000 Redeemable Common Stock Purchase Warrants (the
"Redeemable Warrants"), at a purchase price of $3.60 per share of Common Stock
and Redeemable Warrant sold together. The Company realized net proceeds from the
IPO of approximately $2,618,000. In January 1996, the Company completed an
overallotment of an additional 150,000 shares of Common Stock and 150,000
Redeemable Warrants for net proceeds of approximately $396,000.
The Company has financed its capital expenditures, operating requirements
and growth to date primarily through the IPO, bank and other borrowings, and the
sale of stock to and loans from its principal stockholders.
In connection with the Maryland Claims, several parties involved in the
related contracts have made informal claims to the Company for charges due to
contract job delays and have withheld payments on a portion of the Company's
billings totaling approximately $754,000. This increase in accounts receivable
has adversely affected the Company's cash flow and its ability to pay its
suppliers on a timely basis.
For the nine months ended September 30, 1996, cash of approximately
$372,000 was absorbed by operating activities. The substantial use of cash
during this period was from an increase of billed and unbilled accounts
receivable totaling approximately of $346,000. The Company used cash of
approximately $235,000 during the first nine months of 1996 for investing
activities, primarily as a result of the purchase of and additions to property
and equipment. During the first nine months of 1996, cash totaling approximately
$447,000 was provided by financing activities, primarily as a result of the net
proceeds of the IPO of approximately $396,000, and by a net increase in borrowed
money of approximately $50,000.
12
In July 1996, the Company entered into a loan agreement with Riggs Bank,
N.A. ("Riggs") to establish a $600,000 line of credit (the "Riggs Line"). The
Riggs Line was subsequently increased to $800,000 in September 1996. Interest on
the Riggs Line currently accrues interest at Riggs' prime rate (9.75% at
September 30, 1996) plus 1.5% per annum. The Riggs Line is secured by the
Company's accounts receivable. As of September 30, 1996, the Company had
borrowed all of the funds available under the Riggs Line. Of the total proceeds
of the Riggs Line, approximately $660,000 was used by the Company to pay off
other debt, and the remaining proceeds of approximately $140,000 was used in
working capital.
As of November 12, 1996, the Company's plant in Virginia had production
backorders that totaled approximately $1,100,000. Unless successful efforts are
made to increase the Virginia plant's production backorder, management estimates
that it will be unable to keep the plant in full operating production during the
next three months. In general, the lack of adequate backlog can potentially
result in the inefficient use of the plant facility and reduced revenue levels
which can adversely impact the Company's financial performance.
The Company had approximately $2,244,000 of indebtedness at September 30,
1996, due during the next 12 months. This indebtedness is generally secured by
the assets of the Company and, in many cases, is personally guaranteed by Rodney
I. Smith, the Company's President. In the context of a forward-looking
statement, management intends to extend or refinance this debt as it becomes
due. However, no assurance can be given that the Company will be successful in
its efforts to extend or refinance its current indebtedness, or that if it is
successful in those efforts, that such extension or refinancing will be on terms
favorable to the Company. If the Company is not able to extend or refinance the
indebtedness, the Company may be subject to having its assets foreclosed upon by
certain lenders.
As a result of the Company's substantial debt burden, the Company is
especially sensitive to changes in the prevailing interest rates. Fluctuations
in such interest rates may materially and adversely affect the Company's ability
to finance its operations either by increasing the Company's cost to service its
current debt, or by creating a more burdensome refinancing environment, if
interest rates should increase.
SEASONALITY AND INFLATION
The Company performs a portion of its concrete pouring and curing processes
on uncovered, outdoor manufacturing areas. During the winter months, cold or
adverse weather causes a slowdown or cessation of these outdoor production
activities, thereby severely reducing the Company's production capacity. In
addition, the Company services the construction industry primarily in areas of
the United States where construction activity is inhibited by adverse weather
during the winter. As a result, the Company experiences reduced revenues from
December through March and realizes the substantial part of its revenues during
the other months of the year. The Company typically experiences lower profits,
or losses, during the winter months, and must have sufficient working capital to
fund its operations at a reduced level until the spring construction season.
13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In late 1995, the Company filed four separate informal claims totaling
approximately $592,000 for damages and costs incurred as a result of
specification, policy and operating changes to contracts primarily instituted by
the State of Maryland (the "Maryland Claims"). During 1996, the Company has
continued to revise the Maryland Claims to reflect claims for additional costs
incurred during 1996. Several parties involved in the related contracts have
made informal claims to the Company for charges due to contract job delays and
back-charges.
On September 24, 1996, JTE Constructors, Inc. ("JTE"), one of the parties
involved in the Maryland Claims, filed a motion for judgment against the Company
with the Circuit Court of Fairfax County, Virginia, claiming damages estimated,
but not to exceed $500,000 and related legal fees. On October 25, 1996, the
Company filed a counterclaim against JTE for damages of approximately $580,000
for breach of contract.
ITEM 2. CHANGES IN SECURITIES. None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None
ITEM 5. OTHER INFORMATION. On October 10, 1996, Scott Friberg, the Company's
Chief Financial Officer, tendered his resignation, effective November 1, 1996,
in order to pursue another opportunity. Mr. Friberg has agreed to serve as a
consultant to the Company in connection with the transition of his duties as
principal financial officer to Annette M. Somerford, the Company's Controller.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
The following Exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit No. Title
----------- -----
<C> <S>
10a Riggs Bank Loan Agreement
10b Riggs Bank Promissory Note
10c Amended and Restated Promissory Note
10d Rodney I. Smith Promissory Note
27 Financial Data Schedule
</TABLE>
During the period covered by this report, the Company filed a Current Report on
Form 8-K dated July 2, 1996, disclosing the resolution of arbitration proceeding
related to the termination of the Company's Chief Financial Officer.
14
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SMITH-MIDLAND CORPORATION
Date: November 11, 1996 By:/s/ Rodney I. Smith
----------------------
Rodney I. Smith
Chairman of the Board,
Chief Executive Officer and President
(principal executive officer)
Date: November 11, 1996 By:/s/ Annette M. Somerford
Annette M. Somerford
Controller
(principal financial officer)
15
EXHIBIT INDEX
Exhibit No. Title
10a Riggs Bank Loan Agreement
10b Riggs Bank Promissory Note
10c Amended and Restated Promissory Note
10d Rodney I. Smith Promissory Note
27 Financial Data Schedule
16
EXHIBIT 10A
RIGGS BANK LOAN AGREEMENT
Borrower: Smith-Midland Corporation, a Virginia corporation
(TIN: 54-1727060); ET. AL.
Route 28, P.O. Box 300
Midland, VA 22728
Lender: Riggs Bank N.A.
6805 Old Dominion Drive
McLean, VA 22101
==============================================
THIS LOAN AGREEMENT between Smith-Midland Corporation, a Virginia corporation
Smith-Midland Corporation, a Delaware corporation, Easi-Set Industries,Inc., a
Virginia corporation, Smith-Carolina Corporation, a North Carolina corporation,
Concrete Safety Systems, Inc., a Virginia corporation and Midland Advertising &
Design, Inc., a Virginia corporation (referred to in this Agreement individually
and collectively as "Borrower") and Riggs Bank N.A. (referred to in this
Agreement as "Lender") is made on the following terms and conditions. Borrower
has received prior commercial loans from Lender or has applied to Lender for a
commercial loan or loans and other financial accommodations, including those
which may be described on any exhibit or schedule attached to this Agreement.
All such loans and financial accommodations, together with all future loans and
financial accommodations from Lender to Borrower, are referred to in this
Agreement individually as the "Loan" and collectively as the "Loans." Borrower
understands and agrees that: (a) in granting, renewing, or extending any Loan,
Lender is relying upon Borrower's representations, warranties, and agreements,
as set forth in this Agreement; (b) the granting, renewing, or extending of any
Loan by Lender at all times shall be subject to Lender's sole judgment and
discretion; and (c) all such Loans shall be and shall remain subject to the
following terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of July 22, 1996, and shall continue
thereafter until all Indebtedness of Borrower to Lender has been performed in
full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Agreement. The word "Agreement" means this Loan Agreement, as this Loan
Agreement may be amended or modified from time to time, together with all
exhibits and schedules attached to this Loan Agreement from time to time.
Account. The word "Account" means a trade account, account receivable, or
other right to payment for goods sold or services rendered owing to
Borrower (or to a third party grantor acceptable to Lender).
Account Debtor. The words "Account Debtor" mean the person or entity
obligated upon an Account.
Advance. The word "Advance" means a disbursement of Loan funds under this
Agreement.
Borrower. The word "Borrower" means individually and collectively
Smith-Midland Corporation, a Virginia corporation, Smith-Midland
Corporation, a Delaware corporation, Easi-Set Industries,Inc., a Virginia
corporation, Smith-Carolina Corporation, a North Carolina corporation,
Concrete Safety Systems, Inc., a Virginia corporation and Midland
Advertising & Design, Inc., a Virginia corporation and all other persons
and entities signing Borrowers' Note.
Borrowing Base. The words "Borrowing Base" mean, as determined by Lender
from time to time, the lesser of (a) $600,000.00; or (b) 80.000% of the
aggregate amount of Eligible Accounts. In determining the amount of the
Borrowing Base, all Eligible Accounts of all Borrowers shall be included.
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
Collateral. The word "Collateral" means and includes without limitation all
property and assets granted as collateral security for a Loan, whether real
or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise. The
word "Collateral" includes without limitation all collateral described
below in the section titled "COLLATERAL."
Eligible Accounts. The words "Eligible Accounts" mean, at any time, all of
Borrower's Accounts which contain selling terms and conditions acceptable
17
to Lender. The net amount of any Eligible Account against which Borrower
may borrow shall exclude all returns, discounts, credits, and offsets of
any nature. Unless otherwise agreed to by Lender in writing, Eligible
Accounts do not include:
(a) Accounts with respect to which the Account Debtor is an officer,
an employee or agent of Borrower.
(b) Accounts with respect to which the Account Debtor is a subsidiary
of, or affiliated with or related to Borrower or its shareholders,
officers, or directors.
LOAN AGREEMENT Page 2
(Continued)
==============================================
(c) Accounts with respect to which goods are placed on consignment,
guaranteed sale, or other terms by reason of which the payment by the
Account Debtor may be conditional.
(d) Accounts with respect to which Borrower is or may become liable to
the Account Debtor for goods sold or services rendered by the Account
Debtor to Borrower.
(e) Accounts which are subject to dispute, counterclaim, or setoff.
(f) Accounts with respect to which the services have not been
rendered, to the Account Debtor.
(g) Accounts with respect to which Lender, in its sole discretion,
deems the creditworthiness or financial condition of the Account
Debtor to be unsatisfactory.
(h) Accounts of any Account Debtor who has filed or has had filed
against it a petition in bankruptcy or an application for relief under
any provision of any state or federal bankruptcy, insolvency, or
debtor-in-relief acts; or who has had appointed a trustee, custodian,
or receiver for the assets of such Account Debtor; or who has made an
assignment for the benefit of creditors or has become insolvent or
fails generally to pay its debts (including its payrolls) as such
debts become due.
(i) Accounts with respect to which the Account Debtor is the United
States government or any department or agency of the United States.
(j) Accounts which have not been paid in full within 90 days from the
invoice date.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
Expiration Date. The words "Expiration Date" mean the date of termination
of Lender's commitment to lend under this Agreement.
Grantor. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, and their personal representatives,
successors and assigns.
Guarantor. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness and their personal representatives,
successors and assigns.
Indebtedness. The word "Indebtedness" means and includes without limitation
all Loans, including all principal, interest and other fees, costs and
charges, if any, together with all other present and future liabilities and
obligations of Borrower, or any one or more of them, to Lender, whether
direct or indirect, matured or unmatured, and whether absolute or
contingent, joint, several, or joint and several, and no matter how the
same may be evidenced or shall arise.
Lender. The word "Lender" means Riggs Bank N.A., its successors and
assigns.
Line of Credit. The words "Line of Credit" mean the credit facility
described in the Section titled "LINE OF CREDIT" below.
Loan. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
Note. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
Permitted Liens. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
18
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics, warehousemen,
or carriers, or other like liens arising in the ordinary course of business
and securing obligations which are not yet delinquent; (d) purchase money
liens or purchase money security interests upon or in any property acquired
or held by Borrower in the ordinary course of business to secure
indebtedness outstanding on the date of this Agreement or permitted to be
incurred under the paragraph of this Agreement titled "Indebtedness and
Liens"; (e) liens and security interests which, as of the date of this
Agreement, have been disclosed to the Lender in writing; and (f) those
liens and security interests which in the aggregate constitute an
immaterial and insignificant monetary amount with respect to the net value
of Borrower's assets.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
LOAN AGREEMENT Page 3
(Continued)
==============================================
Security Agreement. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
Security Interest. The words "Security Interest" mean and include without
limitation any and all types of liens and encumbrances, whether created by
law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the aggregate
amount of such Advances outstanding at any time does not exceed the Borrowing
Base. Within the foregoing limits, Borrower may borrow, partially or wholly
prepay, and reborrow under this Agreement as follows.
Conditions Precedent to Each Advance. Lender's obligation to make any
Advance to or for the account of Borrower under this Agreement is subject
to the following conditions precedent, with all documents, instruments,
opinions, reports, and other items required under this Agreement to be in
form and substance satisfactory to Lender:
(a) Lender shall have received evidence that this Agreement and all
Related Documents have been duly authorized, executed, and delivered
by Borrower to Lender.
(b) Lender shall have received such opinions of counsel, supplemental
opinions, and documents as Lender may request.
(c) The security interests in the Collateral shall have been duly
authorized, created, and perfected with first lien priority and shall
be in full force and effect.
(d) All guaranties required by Lender for the Line of Credit shall
have been executed by each Guarantor, delivered to Lender, and be in
full force and effect.
(e) Lender, at its option and for its sole benefit, shall have
conducted an audit of Borrower's Accounts, books, records, and
operations, and Lender shall be satisfied as to their condition.
(f) Borrower shall have paid to Lender all fees, costs, and expenses
specified in this Agreement and the Related Documents as are then due
and payable.
(g) There shall not exist at the time of any Advance a condition which
would constitute an Event of Default under this Agreement, and
Borrower shall have delivered to Lender the compliance certificate
called for in the paragraph below titled "Compliance Certificate."
Making Loan Advances. Advances under the credit facility, as well as
directions for payment from Borrower's accounts, may be requested orally or
in writing by authorized persons. Lender may, but need not, require that
all oral requests be confirmed in writing. Each Advance shall be
conclusively deemed to have been made at the request of and for the benefit
of Borrower (a) when credited to any deposit account of Borrower maintained
with Lender or (b) when advanced in accordance with the instructions of an
authorized person. Lender, at its option, may set a cutoff time, after
which all requests for Advances will be treated as having been requested on
the next succeeding Business Day.
Mandatory Loan Repayments. If at any time the aggregate principal amount of
the outstanding Advances shall exceed the applicable Borrowing Base,
19
Borrower, immediately upon written or oral notice from Lender, shall pay to
Lender an amount equal to the difference between the outstanding principal
balance of the Advances and the Borrowing Base. On the Expiration Date,
Borrower shall pay to Lender in full the aggregate unpaid principal amount
of all Advances then outstanding and all accrued unpaid interest, together
with all other applicable fees, costs and charges, if any, not yet paid.
Loan Account. Lender shall maintain on its books a record of account in
which Lender shall make entries for each Advance and such other debits and
credits as shall be appropriate in connection with the credit facility.
Lender shall provide Borrower with periodic statements of Borrower's
account, which statements shall be considered to be correct and
conclusively binding on Borrower unless Borrower notifies Lender to the
contrary within thirty (30) days after Borrower's receipt of any such
statement which Borrower deems to be incorrect.
COLLATERAL. To secure payment of the Line of Credit and performance of all other
Loans, obligations and duties owed by Borrower to Lender, Borrower (and others,
if required) shall grant to Lender Security Interests in such property and
assets as Lender may require (the "Collateral"), including without limitation
Borrower's present and future Accounts and general intangibles except patents,
trademarks and licenses of the Borrower. Lender's Security Interests in the
Collateral shall be continuing liens and shall include the proceeds and products
of the Collateral, including without limitation the proceeds of any insurance.
With respect to the Collateral, Borrower agrees and represents and warrants to
Lender:
Perfection of Security Interests. Borrower agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's Security Interests in the Collateral. Upon
request of Lender, Borrower will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Borrower will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Contemporaneous with the execution of this
Agreement, Borrower will execute one or more UCC financing statements and
any similar statements as may be required by applicable law, and will file
such financing statements and all such similar statements in the
appropriate location or locations. Borrower hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue any Security Interest. Lender may at
any time, and without further
LOAN AGREEMENT Page 4
(Continued)
==============================================
authorization from Borrower, file a carbon, photograph, facsimile, or other
reproduction of any financing statement for use as a financing statement.
Borrower will reimburse Lender for all expenses for the perfection,
termination, and the continuation of the perfection of Lender's security
interest in the Collateral. Borrower promptly will notify Lender of any
change in Borrower's name including any change to the assumed business
names of Borrower. Borrower also promptly will notify Lender of any change
in Borrower's Social Security Number or Employer Identification Number.
Borrower further agrees to notify Lender in writing prior to any change in
address or location of Borrower's principal governance office or should
Borrower merge or consolidate with any other entity.
Collateral Records. Borrower does now, and at all times hereafter shall,
keep correct and accurate records of the Collateral, all of which records
shall be available to Lender or Lender's representative upon demand for
inspection and copying at any reasonable time. With respect to the
Accounts, Borrower agrees to keep and maintain such records as Lender may
require, including without limitation information concerning Eligible
Accounts and Account balances and agings.
Collateral Schedules. Concurrently with the execution and delivery of this
Agreement, Borrower shall execute and deliver to Lender a schedule of
Accounts and Eligible Accounts, in form and substance satisfactory to the
Lender. Thereafter and at such frequency as Lender shall require, Borrower
shall execute and deliver to Lender such supplemental schedules of Eligible
Accounts and such other matters and information relating to Borrower's
Accounts as Lender may request.
Representations and Warranties Concerning Accounts. With respect to the
Accounts, Borrower represents and warrants to Lender: (a) Each Account
represented by Borrower to be an Eligible Account for purposes of this
Agreement conforms to the requirements of the definition of an Eligible
Account; (b) All Account information listed on schedules delivered to
Lender will be true and correct, subject to immaterial variance; and (c)
Lender, its assigns, or agents shall have the right at any time upon
reasonable notice to Borrower and at Borrower's reasonable expense to
inspect, examine, and audit Borrower's records and to confirm with Account
Debtors the accuracy of such Accounts.
MULTIPLE BORROWERS. This Agreement has been exectuted by multiple obligors who
are referred to herein individually, collectively and interchangeably as
"Borrower." Unless specifically stated to the contrary, the word "Borrower" as
used in this Agreement, including without limitation all representations,
warranties and covenants, shall include all Borrowers. Borrower understands and
agrees that, with or without notice to Borrower, Lender may with respect to any
other Borrower (a) make one or more additional secured or unsecured loans or
otherwise extend additional credit; (b) alter, compromise, renew, extend,
accelerate, or otherwise change one or more times the time for payment or other
terms any indebtedness, including increases and decreases of the rate of
interest on the indebtedness; (c) exchange, enforce, waive, subordinate, fail or
decide not to perfect, and release any security, with or without the
substitution of new collateral; (d) release, substitute, agree not to sue, or
deal with any one or more of Borrower's sureties, endorsers, or other guarantors
on any terms or in any manner Lender may choose; (e) determine how, when and
what application of payments and credits shall be made on any indebtedness; (f)
apply such security and direct the order or manner of sale thereof, including
without limitation, any nonjudicial sale permitted by the terms of the
controlling security agreement or deed of trust, as Lender in its discretion may
determine; (g) sell, transfer, assign, or grant participations in all or any
part of the indebtedness; (h) exercise or refrain from exercising any rights
against Borrower or others, or otherwise act or refrain from acting; (i) settle
or compromise any indebtedness; and (j) subordinate the payment of all or any
part of any indebtedness of Borrower to Lender to the payment of any liabilities
which may be due Lender or others.
20
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
Organization. Borrower is comprised of corporations which are duly
organized, validly existing, and in good standing under the laws of their
respective states of incorporation and each such corporation is validly
existing and in good standing in all states in which such corporation is
doing business. Borrower has the full power and authority to own its
properties and to transact the businesses in which it is presently engaged
or presently proposes to engage. Borrower also is duly qualified as a
foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
businesses or financial condition.
Authorization. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
Financial Information. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
Properties. All of Borrower's owned properties are titled in Borrower's
legal name, and Borrower has not used, or filed a financing statement
under, any other name for at least the last three (3) years.
Hazardous Substances. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C.
LOAN AGREEMENT Page 5
(Continued)
==============================================
Section 1801, et seq., the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, et seq., or other applicable state or Federal laws,
rules, or regulations adopted pursuant to any of the foregoing. Except as
disclosed to and acknowledged by Lender in writing, Borrower represents and
warrants that: (a) During the period of Borrower's ownership of the
properties, there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any hazardous waste
or substance by any person on, under, about or from any of the properties.
(b) Borrower has no knowledge of, or reason to believe that there has been
(i) any use, generation, manufacture, storage, treatment, disposal,
release, or threatened release of any hazardous waste or substance on,
under, about or from the properties by any prior owners or occupants of any
of the properties, or (ii) any actual or threatened litigation or claims of
any kind by any person relating to such matters. (c) Neither Borrower nor
any tenant, contractor, agent or other authorized user of any of the
properties shall use, generate, manufacture, store, treat, dispose of, or
release any hazardous waste or substance on, under, about or from any of
the properties; and any such activity shall be conducted in compliance with
all applicable federal, state, and local laws, regulations, and ordinances,
including without limitation those laws, regulations and ordinances
described above. Borrower authorizes Lender and its agents to enter upon
the properties to make such inspections and tests as Lender may deem
appropriate to determine compliance of the properties with this section of
the Agreement. Any inspections or tests made by Lender shall be at
Borrower's reasonable expense and for Lender's purposes only and shall not
be construed to create any responsibility or liability on the part of
Lender to Borrower or to any other person. The representations and
warranties contained herein are based on Borrower's due diligence in
investigating the properties for hazardous waste and hazardous substances.
Borrower hereby (a) releases and waives any future claims against Lender
for indemnity or contribution in the event Borrower becomes liable for
cleanup or other costs under any such laws, and (b) agrees to indemnify and
hold harmless Lender against any and all claims, losses, liabilities,
damages, penalties, and expenses which Lender may directly or indirectly
sustain or suffer resulting from a breach of this section of the Agreement
or as a consequence of any use, generation, manufacture, storage, disposal,
release or threatened release occurring prior to Borrower's ownership or
interest in the properties, whether or not the same was or should have been
known to Borrower. The provisions of this section of the Agreement,
including the obligation to indemnify, shall survive the payment of the
Indebtedness and the termination or expiration of this Agreement and shall
not be affected by Lender's acquisition of any interest in any of the
properties, whether by foreclosure or otherwise.
Litigation and Claims. Except as disclosed in the Borrower's quarterly and
annual and current reports on Form 8-K, and as futher disclosed in schedule
A, no litigation, claim, investigation, administrative proceeding or
similar action (including those for unpaid taxes) against Borrower is
pending or threatened, and no other event has occurred which may materially
adversely affect Borrower's financial condition or properties, other than
litigation, claims, or other events, if any, that have been disclosed to
and acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided. (1994 and 1995 Federal and State income tax filings have not
been
21
made as of the date of this agreement.)
Lien Priority. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which Borrower may
have any liability complies in all material respects with all applicable
requirements of law and regulations, and (i) no Reportable Event nor
Prohibited Transaction (as defined in ERISA) has occurred with respect to
any such plan, (ii) Borrower has not withdrawn from any such plan or
initiated steps to do so, (iii) no steps have been taken to terminate any
such plan, and (iv) there are no unfunded liabilities other than those
previously disclosed to Lender in writing.
Location of Borrower's Offices and Records. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at Route 28, P.O. Box 300, Midland, VA 22728.
Unless Borrower has designated otherwise in writing this location is also
the office or offices where Borrower keeps its records concerning the
Collateral.
Information. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make
such information not misleading.
Survival of Representations and Warranties. Borrower understands and agrees
that Lender, without independent investigation, is relying upon the above
representations and warranties in extending Loan Advances to Borrower.
Borrower further agrees that the foregoing representations and warranties
shall be continuing in nature and shall remain in full force and effect
until such time as Borrower's Indebtedness shall be paid in full, or until
this Agreement shall be terminated in the manner provided above, whichever
is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
LOAN AGREEMENT Page 6
(Continued)
==============================================
Financial Records. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times and upon reasonable notice.
Financial Statements. Furnish Lender with, as soon as available, but in no
event later than one hundred twenty (120) days after the end of each fiscal
year, Borrower's balance sheet and income statement for the year ended,
reviewed by BDO Seidman or a certified public accountant reasonably
satisfactory to Lender. All financial reports required to be provided under
this Agreement shall be prepared in accordance with generally accepted
accounting principles, applied on a consistent basis, and certified by
Borrower as being true and correct.
Additional Information. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables and payables,
inventory schedules, budgets, forecasts, tax returns, and other reports
with respect to Borrower's financial condition and business operations as
Lender may reasonably request from time to time.
Insurance. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may from time to time
reasonably require with respect to Borrower's properties and operations, in
form, amounts, coverages and with insurance companies acceptable to Lender.
Borrower, upon request of Lender, will deliver to Lender from time to time
the policies or certificates of insurance in form satisfactory to Lender,
including stipulations that coverages will not be cancelled or diminished
without at least ten (10) days' prior written notice to Lender. Each
insurance policy also shall include an endorsement providing that coverage
in favor of Lender will not be impaired in any way by any act, omission or
default of Borrower or any other person. In connection with all policies
covering assets in which Lender holds or is offered a security interest for
the Loans, Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the
22
properties insured; (e) the then current property values on the basis of
which insurance has been obtained, and the manner of determining those
values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually), Borrower will
have an independent appraiser reasonably satisfactory to Lender determine,
as applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
Guaranties. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, on Lender's forms, and in the
amount and by the guarantor named below:
Guarantor Amount
--------- ------
Rodney I. Smith Unlimited
Subordination. Prior to disbursement of any Loan proceeds, deliver to
Lender a subordination agreement on Lender's forms, executed by Borrower's
creditor named below, subordinating all of Borrower's indebtedness to such
creditor, or such lesser amount as may be agreed to by Lender in writing,
and any security interests in collateral securing that indebtedness to the
Loans and security interests of Lender.
Name of Creditor Amount
---------------- ------
John W. Myers Trust, Elizabeth A. Myers Trust, $600,000
Frances M. Myers Trust, and Bernard M. Myers Trust
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
Taxes, Charges and Liens. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income, or profits, prior to the
date on which penalties would attach, and all lawful claims that, if
unpaid, might become a lien or charge upon any of Borrower's properties,
income, or profits. Provided however, Borrower will not be required to pay
and discharge any such assessment, tax, charge, levy, lien or claim so long
as (a) the legality of the same shall be contested in good faith by
appropriate proceedings, and (b) Borrower shall have established on its
books adequate reserves with respect to such contested assessment, tax,
charge, levy, lien, or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies,
liens and claims and will authorize the appropriate governmental official
to deliver to Lender at any time a written statement of any assessments,
taxes, charges, levies, liens and claims against Borrower's properties,
income, or profits.
Performance. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of
any event which constitutes an Event of Default under this Agreement or
under any of the Related Documents.
Operations. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance in all material respects
with all applicable federal, state and municipal laws,
LOAN AGREEMENT Page 7
(Continued)
==============================================
ordinances, rules and regulations respecting its properties, charters,
businesses and operations, including without limitation, compliance with
the Americans With Disabilities Act and with all minimum funding standards
and other requirements of ERISA and other laws applicable to Borrower's
employee benefit plans.
Inspection. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party to
permit Lender free access to such records at all reasonable times and to
provide Lender with copies of any records it may request, all at Borrower's
expense.
Compliance Certificate. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds
23
with a certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations
and warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
Environmental Compliance and Reports. Borrower shall comply in all material
respects with all environmental protection federal, state and local laws,
statutes, regulations and ordinances; not cause or permit to exist, as a
result of an intentional or unintentional action or omission on its part or
on the part of any third party, on property owned and/or occupied by
Borrower, any environmental activity where damage may result to the
environment, unless such environmental activity is pursuant to and in
compliance with the conditions of a permit issued by the appropriate
federal, state or local governmental authorities; shall furnish to Lender
promptly and in any event within thirty (30) days after receipt thereof a
copy of any notice, summons, lien, citation, directive, letter or other
communication from any governmental agency or instrumentality concerning
any intentional or unintentional action or omission on Borrower's part in
connection with any environmental activity whether or not there is damage
to the environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender which consent shall not be unreasonably withheld:
Indebtedness and Liens. (a) Except for trade debt incurred in the normal
course of business, individual borrowings or capital leases less than
$25,000.00 and indebtedness to Lender contemplated by this Agreement,
create, incur or assume indebtedness for borrowed money, including capital
leases, in which event Lender's consent will not be unreasonably withheld,
(b) except as allowed as a Permitted Lien, sell, transfer, mortgage,
assign, pledge, lease, grant a security interest in, or encumber any of
Borrower's assets, or (c) sell with recourse any of Borrower's accounts,
except to Lender.
Continuity of Operations. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, tranfer, or consolidate with any
other entity, change ownership, change its name, dissolve or transfer or
sell Collateral out of the ordinary course of business, (c) pay any
dividends on Borrower's stock (other than dividends payable in its stock),
provided, however that notwithstanding the foregoing, but only so long as
no Event of Default has occurred and is continuing or would result from the
payment of dividends, if Borrower is a "Subchapter S Corporation" (as
defined in the Internal Revenue Code of 1986, as amended), Borrower may pay
cash dividends on its stock to its shareholders from time to time in
amounts necessary to enable the shareholders to pay income taxes and make
estimated income tax payments to satisfy their liabilities under federal
and state law which arise solely from their status as Shareholders of a
Subchapter S Corporation because of their ownership of shares of stock of
Borrower, or (d) purchase or retire any of Borrower's outstanding shares or
alter or amend Borrower's capital structure except for increases in
authorized capital shares of Borrower.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance money or
assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, in which event, Lender's consent shall not be
unreasonably withheld, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender; or (e) Lender in good faith deems itself insecure, even
though no Event of Default shall have occurred.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the Indebtedness against
any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
24
LOAN AGREEMENT Page 8
(Continued)
==============================================
Default on Indebtedness. Failure of Borrower to make any payment when due
on the Indebtedness.
Other Defaults. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
Default in Favor of Third Parties. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time
and for any reason.
Insolvency. The dissolution or termination of Borrower's existence as a
going business, or a trustee or receiver is appointed for Borrower or for
all or a substantial portion of the assets of Borrower, or Borrower makes a
general assignment for the benefit of Borrower's creditors, or Borrower
files for bankruptcy, or an involuntary bankruptcy petition is filed
against Borrower and such involuntary petition remains undismissed for
ninety (60) days.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any collateral securing the Indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on or
of any of Borrower's deposit accounts with Lender. However, this Event of
Default shall not apply if there is a good faith dispute by Borrower or
Grantor, as the case may be, as to the validity or reasonableness of the
claim which is the basis of the creditor or forfeiture proceeding, and if
Borrower or Grantor gives Lender written notice of the creditor or
forfeiture proceeding and furnishes reserves or a surety bond for the
creditor or forfeiture proceeding satisfactory to Lender.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability
under, any Guaranty of the Indebtedness. Lender, at its option, may, but
shall not be required to, permit the Guarantor's estate to assume
unconditionally the obligations arising under the guaranty in a manner
satisfactory to Lender, and, in doing so, cure the Event of Default.
Events Affecting Co-Borrowers. Any of the preceding events occurs with
respect to any co-borrower of any of the Indebtedness or any co-borrower
dies or becomes incompetent, or revokes or disputes the validity of, or
liability under, any of the Indebtedness. Lender, at its option, may, but
shall not be required to, permit the co-borrower's estate to assume
unconditionally the obligations on the Indebtedness in a manner
satisfactory to Lender, and, in doing so, cure the Event of Default.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender reasonably believes the prospect of payment or
performance of the Indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
Right to Cure. If any default, other than a Default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been given
a notice of a similar default within the preceding twelve (12) months, it
may be cured (and no Event of Default will have occurred) if Borrower or
Grantor, as the case may be, after receiving written notice from Lender
demanding cure of such default: (a) cures the default within fifteen (15)
days; or (b) if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
Loan Advances or disbursements), and, at Lender's option, all sums owing in
connection with the Loans, including all principal, interest, and all other
fees, costs and charges, if any, will become immediately due and payable, all
without notice of any kind to Borrower, except that in the case of an Event of
Default of the type described in the "Insolvency" subsection above, such
acceleration shall be automatic and not optional. In addition, Lender shall have
all the rights and remedies provided in the Related Documents or available at
law, in equity, or otherwise. Except as may be prohibited by applicable law, all
of Lender's rights and remedies shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Borrower or of any Grantor shall not
affect Lender's right to declare a default and to exercise its rights and
remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
25
LOAN AGREEMENT Page 9
(Continued)
==============================================
Applicable Law. This Agreement shall be governed by, construed and enforced
in accordance with the laws of the Commonwealth of Virginia.
Lender and Borrower hereby waive the right to any jury trial in any action,
proceeding, or counterclaim brought by either party against the other.
(Initial Here ______RS______ )
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Borrower under
this Agreement shall be joint and several, and all references to Borrower
shall mean each and every Borrower. This means that each of the Borrowers
signing below is responsible for all obligations in this Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation whatsoever,
to any one or more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any other matter relating
to the Loan, and Borrower hereby waives any rights to privacy it may have
with respect to such matters. Borrower additionally waives any and all
notices of sale of participation interests, as well as all notices of any
repurchase of such participation interests. Borrower also agrees that the
purchasers of any such participation interests will be considered as the
absolute owners of such interests in the Loans and will have all the rights
granted under the participation agreement or agreements governing the sale
of such participation interests. Borrower further waives all rights of
offset or counterclaim that it may have now or later against Lender or
against any purchaser of such a participation interest and unconditionally
agrees that either Lender or such purchaser may enforce Borrower's
obligation under the Loans irrespective of the failure or insolvency of any
holder of any interest in the Loans. Borrower further agrees that the
purchaser of any such participation interests may enforce its interests
irrespective of any personal claims or defenses that Borrower may have
against Lender.
Costs and Expenses. Borrower agrees to pay upon demand all of Lender's
reasonable out-of-pocket expenses incurred in connection with this
Agreement or in connection with the Loans made pursuant to this Agreement.
Subject to any limits under applicable law, if Lender hires an attorney to
help enforce this Agreement or to collect any Indebtedness, Borrower agrees
to pay Lender's reasonable attorneys' fees, and all of Lender's other
reasonable collection expenses, whether or not there is a lawsuit and
including reasonable legal expenses for bankruptcy proceedings.
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimilie, and shall be effective
when actually delivered if hand delivered or when actually received if
deposited with a nationally recognized overnight courier or when actually
received if deposited as certified or registered mail in the United States
mail, first class, postage prepaid, addressed to the party to whom the
notice is to be given at the address shown above. Any party may change its
address for notices under this Agreement by giving formal written notice to
the other parties, specifying that the purpose of the notice is to change
the party's address. To the extent permitted by applicable law, if there is
more than one Borrower, notice to any Borrower will constitute notice to
all Borrowers. For notice purposes, Borrower will keep Lender informed at
all times of Borrower's current address(es).
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
Successors and Assigns. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
Survival. All warranties, representations, and agreements of Borrower in
this Agreement shall survive the making of the Loan or Loans contemplated
hereby, and shall be deemed made and redated by Borrower at the time of the
making of each disbursement of Loan proceeds.
Time Is of the Essence. Time is of the essence in the performance of this
Agreement.
Waiver. Indulgence by Lender with respect to any of the terms and
conditions of this Agreement or the failure of Lender to exercise any of
its rights under this Agreement shall not constitute a waiver thereof, and
Borrower shall remain liable for the strict performance of such terms and
conditions until this Agreement shall be terminated. No provision of this
Agreement may be waived or modified orally, but all such waivers or
modifications shall be in writing. Whenever the consent of Lender is
required under this Agreement, the granting of such consent by Lender in
one instance shall not constitute Lender's continuing consent in subsequent
instances, and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
26
LOAN AGREEMENT Page 10
(Continued)
==============================================
THIS LOAN AGREEMENT IS SIGNED, SEALED AND DELIVERED EFFECTIVE IN ALL RESPECTS AS
OF ___July 22, 1996____.
BORROWER:
Smith-Midland Corporation, a Virginia corporation
X /s/ Rodney I Smith (SEAL)
--------------------------
Authorized Officer President ATTEST: /s/ Wesley A. Taylor
---------------------------------
Secretary or Assistant Secretary
Smith-Midland Corporation, a Delaware corporation, Co-Borrower
By: /s/ Rodney I. Smith (SEAL)
-------------------------
Authorized Officer ATTEST: /s/ Rodney I. Smith
-------------------------------
Secretary or Assistant Secretary
Easi-Set Industries,Inc., a Virginia corporation, Co-Borrower
By: Ashley B. Smith (SEAL)
------------------------
Authorized Officer ATTEST: /s/ Wesley A. Taylor
--------------------------------
Secretary or Assistant Secretary
Smith-Carolina Corporation, a North Carolina corporation, Co-Borrower
By: /s/ Rodney I Smith (SEAL)
-------------------------
Authorized Officer ATTEST: s/ Wesley A.Taylor
---------------------------------
Secretary or Assistant Secretary
Concrete Safety Systems, Inc., a Virginia corporation, Co-Borrower
By: /s/ Rodney I Smith (SEAL)
-------------------------
Authorized Officer ATTEST: s/ Wesley A. Taylor
---------------------------------
Secreatry or Assistant Secretary
Midland Advertising & Design, Inc., a Virginia corporation, Co-Borrower
By: /s/ Rodney I Smith (SEAL)
-------------------------
Authorized Officer ATTEST: /s/ Rodney I Smith
---------------------------------
Secretary or Assistant Secretary
LENDER:
Riggs Bank N.A.
By:/s/ Riggs Bank N.A.
--------------------------
Authorized Officer
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.21 (c) 1996 CFI ProServices, Inc.
All rights reserved. [VA-C40 MID796.LN C8.OVL]
27
EXHIBIT 10B
RIGGS BANK PROMISSORY NOTE
Borrower: Smith-Midland Corporation, a Virginia corporation
(TIN: 54-1727060); ET. AL.
Route 28, P.O. Box 300
Midland, VA 22728
Lender: Riggs Bank N.A.
6805 Old Dominion Drive
McLean, VA 22101
==============================================
Principal Amount: $600,000.00 Initial Rate: 9.750% Date of Note: ________
PROMISE TO PAY. Smith-Midland Corporation, a Virginia corporation, Smith-Midland
Corporation, a Delaware corporation, Easi-Set Industries,Inc., a Virginia
corporation, Smith-Carolina Corporation, a North Carolina corporation, Concrete
Safety Systems, Inc., a Virginia corporation and Midland Advertising & Design,
Inc., a Virginia corporation (referred to in this Note individually and
collectively as "Borrower") jointly and severally promise to pay to Riggs Bank
N.A. ("Lender"), or order, in lawful money of the United States of America, the
principal amount of Nine Hundred Thousand & 00/100 Dollars ($600,000.00) or so
much as may be outstanding, together with interest on the unpaid outstanding
principal balance of each advance. Interest shall be calculated from the date of
each advance until repayment of each advance. PAYMENT. Borrower will pay this
loan in one payment of all outstanding principal plus all accrued unpaid
interest on July 8, 1997. In addition, Borrower will pay regular monthly
payments of accrued unpaid interest beginning August 8, 1996, and all subsequent
interest payments are due on the same day of each month after that. Interest on
this Note is computed on a 365/365 simple interest basis; that is, by applying
the ratio of the annual interest rate over the number of days in a year,
multiplied by the outstanding principal balance, multiplied by the actual number
of days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments will be
applied first to accrued unpaid interest, then to principal, and any remaining
amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is the Prime Rate as Published
in The Wall Street Journal (the "Index"). The term "Prime Rate" shall mean the
rate reported in The Wall Street Journal newspaper in its "Money Rates" column
as the Prime Rate and, if more than one rate or a range of rates are reported as
the Prime Rate, then the highest such rate, changing as and when such rate shall
change (the "Wall Street Journal Prime Rate"). If The Wall Street Journal shall
cease to publish a Prime Rate, then "Prime Rate" shall mean that rate announced
from time to time by Riggs Bank N.A. ("Riggs") as its prime rate of interest,
which rate may or may not change from time to time in Riggs' sole discretion,
Riggs having no obligation to reset the rate at any time or for any reason (the
"Riggs Prime Rate"). The "Prime Rate," as determined by either method, is not
necessarily the lowest rate charged by the Lender on loans. The Borrower further
acknowledges that with respect to all matters relevant hereto, a certificate
signed by an officer of Lender setting forth the Prime Rate in effect on any
applicable date shall be conclusive and binding. The Borrower expressly
acknowledges and agrees that (i) the Wall Street Journal Prime Rate and the
Riggs Prime Rate are independent reference rates which may or may not change at
the same time, with the same frequency, or in the same amounts, and (ii) there
is no guaranty that by using the Wall Street Journal Prime Rate as a reference
rate the interest charged on the Promissory Note will always or at any time be
less than if the Riggs Prime Rate was used as the reference rate. Lender will
tell Borrower the current Index rate upon Borrower's request. Borrower
understands that Lender may make loans based on other rates as well. The
interest rate change will not occur more often than each day. The Index
currently is 8.250% per annum. The interest rate to be applied to the unpaid
principal balance of this Note will be at a rate of 1.500 percentage points over
the Index, resulting in an initial rate of 9.750% per annum. NOTICE: Under no
circumstances will the interest rate on this Note be more than the maximum rate
allowed by applicable law.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
of accrued unpaid interest. Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the unpaid portion of the regularly scheduled payment.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents (as
defined in the loan agreement related to this Note). (d) Any representation or
statement made or furnished to Lender by Borrower or on Borrower's behalf is
false or misleading in any material respect either now or at the time made or
furnished. (e) Borrower becomes insolvent, a receiver is appointed for any part
of Borrower's property, Borrower makes an assignment for the benefit of
creditors, or any proceeding is commenced either by Borrower or against Borrower
under any bankruptcy or insolvency laws and in the case of an involuntary
bankruptcy proceeding, such proceeding is not dismissed within 60 days. (f) Any
creditor tries to take any of Borrower's property on or in which Lender has a
lien or security interest. This includes a garnishment of
<PAGE>
any of Borrower's accounts with Lender. (g) Any guarantor dies or any of the
other events described in this default section occurs with respect to any
guarantor of this Note. (h) A material adverse change occurs in Borrower's
financial condition, or Lender reasonably believes the prospect of payment or
performance of the Indebtedness is impaired. (i) Lender in good faith deems
itself insecure. If any default, other than a default in payment, is curable and
if Borrower has not been given a notice of a breach of the same provision of
this Note within the preceding twelve (12) months, it may be cured (and no event
of default will have occurred) if Borrower, after receiving written notice from
Lender demanding cure of such default: (a) cures the default within fifteen (15)
days; or (b) if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be sufficient
to cure the default and thereafter continues and completes all reasonable and
necessary steps sufficient to produce compliance as soon as reasonably
practical.
PROMISSORY NOTE Page 2
(Continued)
==============================================
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest, together with all other
applicable fees, costs and charges, if any, immediately due and payable, without
notice, and then Borrower will pay that amount. Furthermore, subject to any
limits under applicable law, upon default, Borrower also agrees to pay Lender's
reasonable attorneys' fees, and all of Lender's other reasonable collection
expenses, whether or not there is a lawsuit and including without limitation
legal expenses for bankruptcy proceedings. This Note shall be governed by,
construed and enforced in accordance with the laws of the Commonwealth of
Virginia. Lender and Borrower hereby waive the right to any jury trial in any
action, proceeding, or counterclaim brought by either party against the other.
(Initial Here ______________ )
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts. LINE OF CREDIT. This Note evidences a revolving line of
credit. Advances under this Note, as well as directions for payment from
Borrower's accounts, may be requested orally or in writing by Borrower or by an
authorized person. Lender may, but need not, require that all oral requests be
confirmed in writing. The following party or parties are authorized to request
advances under the line of credit until Lender receives from Borrower at
Lender's address shown above written notice of revocation of their authority:
Rodney I. Smith, President/CEO; and Scott J. Friberg, CFO. Borrower agrees to be
liable for all sums either: (a) advanced in accordance with the instructions of
an authorized person or (b) credited to any of Borrower's accounts with Lender.
The unpaid principal balance owing on this Note at any time may be evidenced by
endorsements on this Note or by Lender's internal records, including daily
computer print-outs. Lender will have no obligation to advance funds under this
Note if: (a) Borrower or any guarantor is in default under the terms of this
Note or any agreement that Borrower or any guarantor has with Lender, including
any agreement made in connection with the signing of this Note; (b) Borrower or
any guarantor ceases doing business or is insolvent; (c) any guarantor seeks,
claims or otherwise attempts to limit, modify or revoke such guarantor's
guarantee of this Note or any other loan with Lender; (d) Borrower has applied
funds provided pursuant to this Note for purposes other than those authorized by
Lender; or (e) Lender in good faith deems itself insecure under this Note or any
other agreement between Lender and Borrower.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Each Borrower understands and
agrees that, with or without notice to Borrower, Lender may with respect to any
other Borrower (a) make one or more additional secured or unsecured loans or
otherwise extend additional credit; (b) alter, compromise, renew, extend,
accelerate, or otherwise change one or more times the time for payment or other
terms any indebtedness, including increases and decreases of the rate of
interest on the indebtedness; (c) exchange, enforce, waive, subordinate, fail or
decide not to perfect, and release any security, with or without the
substitution of new collateral; (d) apply such security and direct the order or
manner of sale thereof, including without limitation, any nonjudicial sale
permitted by the terms of the controlling security agreements, as Lender in its
discretion may determine; (e) release, substitute, agree not to sue, or deal
with any one or more of Borrower's sureties, endorsers, or other guarantors on
any terms or in any manner Lender may choose; and (f) determine how, when and
what application of payments and credits shall be made on any other indebtedness
owing by such other borrower. Borrower and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made. If
"Borrower" consists of more than one party, the word "Borrower" as used in this
Note shall refer to any one or more of the parties comprising "Borrower," and
each of such parties shall be jointly and severally liable pursuant to this
Note.
PRIOR TO SIGNING THIS NOTE, EACH BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. EACH BORROWER
AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF
THE NOTE.
BORROWER:
Smith-Midland Corporation, a Virginia corporation
X
-------------------------------------(SEAL)
Authorized Officer
Smith-Midland Corporation, a Delaware corporation, Co-Borrower
By:
----------------------------------(SEAL)
Authorized Officer ATTEST:
--------------------------------
Secretary or Assistant Secretary
Easi-Set Industries,Inc., a Virginia corporation, Co-Borrower
By:
----------------------------------(SEAL)
Authorized Officer ATTEST:
------------------------------
Secretary or Assistant Secretary
<PAGE>
PROMISSORY NOTE Page 3
(Continued)
==============================================
Smith-Carolina Corporation, a North Carolina corporation, Co-Borrower
By:
--------------------------------(SEAL)
Authorized Officer ATTEST:
------------------------------
Secretary or Assistant Secretary
Concrete Safety Systems, Inc., a Virginia corporation, Co-Borrower
By:
--------------------------------(SEAL)
Authorized Officer ATTEST:
--------------------------------
Secreatry or Assistant Secretary
Midland Advertising & Design, Inc., a Virginia corporation, Co-Borrower
By:
--------------------------------(SEAL)
Authorized Officer ATTEST:
--------------------------------
Secretary or Assistant Secretary
ATTEST:
- ------------------------------------- ( Corporate Seal )
Secretary or Assistant Secretary
==============================================
Variable Rate. Line of Credit. LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.21
(c) 1996 CFI ProServices, Inc. All rights reserved. [VA-D20 MID796.LN C8.OVL]
EXHIBIT 10C
AMENDED AND RESTATED PROMISSORY NOTE
This Amendment to Promissory Note (this "Amendment"), is dated September ,
1996, by and between Smith-Midland Corporation, a Virginia corporation; ET. AL.
(the "Borrower"), and RIGGS BANK N.A. ("Lender").
R E C I T A L S
This Amendment is made with reference to the following facts:
A. The Borrower is indebted to Lender, which indebtedness is evidenced by
that certain Promissory Note dated July 22, 1996 in the original principal
amount of Six Hundred Thousand and No/100 Dollars ($600,000) (the "Loan"),
executed by Borrower, as maker, and payable to the order of Lender (the "Note");
and
B. The indebtedness represented by the Note is secured by, among other
things, all that collateral as more fully described in that certain Commercial
Security Agreement by and between Borrower and Lender dated July 22, 1996 (the
"Security Agreement"); and
C. Advances of monies under the Loan are governed by the terms and
conditions of that certain Business Loan Agreement (the "Loan Agreement), dated
July 22, 1996, between Borrower and Lender.
NOW, THEREFORE, in consideration of the foregoing, Borrower and Lender
hereby agree as follows:
1. The principal sum available under the Note is hereby increased by Two
Hundred Thousand Dollars ($200,000) from the current principal amount of Six
Hundred Thousand Dollars ($600,000) to Eight Hundred Thousand Dollars and No/100
($800,000).
2. An executed copy of this Amendment shall be affixed to the Note in such
a manner so as to become an integral part thereof.
3. All of the terms, covenants and conditions of the Note shall continue in
full force and effect as modified herein and are lawful and binding obligations
of the Borrower. This Amendment is not intended to be, and shall not constitute,
a substitution or novation of the Note or of any of the instruments securing the
repayment of the Note, including the Security Agreement and the Pledge
Agreements. The Borrower expressly acknowledges that the Note, as amended
hereby, shall continue to be secured by the Security Agreement and by the Pledge
Agreements.
4. Borrower hereby reaffirms the Note as amended hereby and agree that in
all respects except as explicitly modified by the terms of this Amendment that
the Note shall remain in full force and effect. Borrower hereby acknowledges and
agrees that as of the date hereof, the outstanding principal balance of the Note
is $600,000.00 and that Borrower is indebted to Lender for such amount under the
Note, together with interest accrued and accruing thereon, plus costs, fees and
expenses, as provided in the Note. Borrower hereby renews its covenant and
agreement to pay the
<PAGE>
indebtedness evidenced by the Note in accordance with the terms and provisions
thereof, as modified by this Amendment. Borrower further renews its covenant and
agreement to perform, comply with and be bound by each and every of the other
terms and provisions of the Note, as modified by this Amendment.
5. In consideration of the amendments contained herein, Borrower
represents, warrants and agrees that (i) there are no claims, defenses or
set-offs with respect to the Note, as amended by the terms of this Amendment, or
with respect to the Security Agreement, or with respect to the Pledge
Agreements, or with respect to the indebtedness evidenced or secured thereby or
with respect to the collection or enforcement of any of them, (and to the extent
any claim, set-off or defense exists, they are each hereby waived and
relinquished in their entirety), (ii) no Event of Default, as defined in the
Note, the Security Agreement, the Loan Agreement or any other document related
to either of them or the loan evidenced thereby, and no event which with the
lapse of time or the giving of notice or both would constitute such an Event of
Default, has occurred; (iii) Lender has made no representations or commitments,
oral or written, or undertaken any obligations other than as expressly set forth
in this Amendment; and (iv) the making, delivery and performance by the Borrower
of this Amendment and all instruments, documents and notes executed
contemporaneously herewith, have been duly authorized by all necessary action,
and this amendment constitutes the valid and binding obligation of the Borrower
enforceable in accordance with its terms.
6. Each and every of the terms and provisions of this Amendment shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, successors, personal representatives and assigns.
BORROWER EXPRESSLY REPRESENTS AND WARRANTS TO THE BANK THAT IT (A) READ
EACH AND EVERY PROVISION OF THIS INSTRUMENT; (B) HAS BEEN GIVEN THE OPPORTUNITY
TO HAVE THIS INSTRUMENT REVIEWED BY COMPETENT LEGAL COUNSEL OF ITS OWN CHOOSING;
AND (C) UNDERSTANDS, AGREES TO AND ACCEPTS THE PROVISIONS HEREOF.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, THIS AMENDMENT HAS BEEN EXECUTED AS OF THE DAY FIRST
ABOVE WRITTEN.
BORROWER:
SMITH-MIDLAND CORPORATION, A VIRGINIA CORPORATION
X
---------------------------------(SEAL)
AUTHORIZED OFFICER ATTEST:
---------------------------------
SECRETARY OR ASSISTANT SECRETARY
SMITH-MIDLAND CORPORATION, A DELAWARE CORPORATION, CO-BORROWER
By:
---------------------------------(SEAL)
AUTHORIZED OFFICER ATTEST:
---------------------------------
SECRETARY OR ASSISTANT SECRETARY
EASI-SET INDUSTRIES,INC., A VIRGINIA CORPORATION, CO-BORROWER
By:
---------------------------------(SEAL)
AUTHORIZED OFFICER ATTEST:
---------------------------------
SECRETARY OR ASSISTANT SECRETARY
SMITH-CAROLINA CORPORATION, A NORTH CAROLINA CORPORATION, CO-BORROWER
By:
---------------------------------(SEAL)
AUTHORIZED OFFICER ATTEST:
---------------------------------
SECRETARY OR ASSISTANT SECRETARY
CONCRETE SAFETY SYSTEMS, INC., A VIRGINIA CORPORATION, CO-BORROWER
By:
---------------------------------(SEAL)
AUTHORIZED OFFICER ATTEST:
---------------------------------
SECRETARY OR ASSISTANT SECRETARY
MIDLAND ADVERTISING & DESIGN, INC., A VIRGINIA CORPORATION, CO-BORROWER
By:
---------------------------------(SEAL)
AUTHORIZED OFFICER ATTEST:
---------------------------------
SECRETARY OR ASSISTANT SECRETARY
EXHIBIT 10D
RODNEY I. SMITH PROMISSORY NOTE
PROMISSORY NOTE
$ 720,000.00 January 2, 1996
- ------------- ---------------
FOR VALUE RECEIVED, the undersigned (the "Maker"), promises to pay to the
order of Smith-Midland Corporation, ("the Corporation"), a Delaware corporation
with its principal place of business at Route 28, P.O. Box 300 Midland, Virginia
("Payee") on or before April 1, 2003 (the "Payment Date"), the principal sum of
Seven Hundred Twenty Thousand Dollars ($720,000.00) together with interest at
the rate of 6% simple interest per annum, which interest shall be paid quarterly
beginning on June 30,1996, and thereafter on the last business day of September,
December, March, and June, and which principal sum shall be paid, annually in
accordance with Schedule 1 annexed hereto.
1. PAYMENTS OF PRINCIPAL AND INTEREST. Subject to the provisions contained
and referred to herein, the Maker shall pay the principal and interest in
accordance with Schedule 1 on or before the Payment Date. Payments may be
accepted in the formof Smith-Midland Corporation Common Stock, valued at fair
market value.
2. ALLOCATION OF PAYMENTS. All payments shall be first allocated to payment
of interest and then to payment of principal.
3. DEFAULT IN PAYMENT. For the purpose of this Note, a default shall, at
the option of the Board of Directors of the Corporation (the "Board"), be deemed
to exist if the Maker shall fail to make payment on the Payment Date described
herein for more than thirty (30) days after written notice from the Corporation.
In the event of any default described above, the Board may, at its option,
demand payment of any amount then due and payable under the terms of this Note
from the Maker as follows: Upon the occurrence and continuation past the cure
periods specified hereof of any default, the Board, at its option, upon written
notice to the Maker, may declare the unpaid principal hereof and accrued
interest thereon to be immediately due and payable without presentment, demand,
protest or further notice, all of which are hereby expressly waived, and enforce
its rights as a secured party. No course of dealing or conduct and no delay on
the part of the Payee in exercising any right hereunder shall operate as a
waiver thereof and no consent or waiver in any instance shall operate as waiver
in any other instance. To be effective, any waiver must be in writing and signed
by the Board.
4. PREPAYING. The Maker may prepay all or part of this Note at any time
without further interest or penalty.
5. SUCCESSORS AND ASSIGNS. This Note shall inure to the benefit of the
successors and assigns of the Corporation and be binding upon the Maker and his
heirs, executors, administrators, successors and assigns, provided that Payee
may not assign or transfer this Note without the prior written consent of the
Maker.
6. CONSTRUCTION. This Note shall be governed by and construed in accordance
with, the laws of the State of Virginia (without regard to the conflict of law
principles thereof).
7. WAIVERS. No waiver of any right hereunder by any party shall operate as
a waiver of any other right or of the same right with respect to any subsequent
occasion for its exercise, or of any right to damages. No waiver by any party of
any breach of the Maker's obligations hereunder shall be held to constitute a
waiver of any other breach or a continuation of the same breach. All remedies
provided by this Note are in addition to all other remedies provided by law.
This Agreement may not be amended except in a writing signed by the parties
hereto.
<PAGE>
8. UNENFORCEABILITY. If any provision of this Note shall be declared void
or unenforceable by any judicial or administrative authority, the validity of
any other provisions and of the entire Note shall not be affected thereby.
9. COUNTERPARTS. This Note may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
10. ENTIRE AGREEMENT. This Note represents the complete agreement of the
parties with respect to the transactions contemplated hereby and supersedes all
prior agreements and understandings, including but not limited to all previous
promissory notes issued by the Maker to the Payee.
Signed as of the date first written above.
By: s/s Rodney I. Smith
---------------------------
Rodney I. Smith, Maker
Agreed and Acknowledged
SMITH-MIDLAND CORPORATION
BY: /s/ Scott J. Friberg
------------------------
Payee
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-QSB
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUL-01-1996
<CASH> 778,140
<SECURITIES> 0
<RECEIVABLES> 3,008,043
<ALLOWANCES> 225,987
<INVENTORY> 1,089,401
<CURRENT-ASSETS> 4,907,326
<PP&E> 1,468,819
<DEPRECIATION> 201,456
<TOTAL-ASSETS> 7,147,629
<CURRENT-LIABILITIES> 4,458,729
<BONDS> 0
0
0
<COMMON> 30,857
<OTHER-SE> 1,739,733
<TOTAL-LIABILITY-AND-EQUITY> 7,147,629
<SALES> 2,914,155
<TOTAL-REVENUES> 3,406,582
<CGS> 2,057,194
<TOTAL-COSTS> 2,360,456
<OTHER-EXPENSES> 719,749
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114,365
<INCOME-PRETAX> 212,012
<INCOME-TAX> 0
<INCOME-CONTINUING> 212,012
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 212,012
<EPS-PRIMARY> .07
<EPS-DILUTED> 0
</TABLE>