U. S. 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 quarter year ended Commission File Number
June 30, 1998 1-13752
SMITH-MIDLAND CORPORATION
(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)
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 August 15, 1998, the Company had outstanding 3,044,798 shares
of Common Stock, $.01 par value per share.
<PAGE>
SMITH-MIDLAND CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER
Item 1. Financial Statements
Consolidated Balance Sheets; 2
June 30, 1998 (Unaudited);
and December 31, 1997 (Unaudited)
Consolidated Statements of Operations 3
(Unaudited); Three months ended
June 30, 1998 and 1997
Consolidated Statements of Operations 4
(Unaudited); Six months ended
June 30, 1998 and 1997
Consolidated Statements of Cash Flows 5
(Unaudited); Three months ended
June 30, 1998 and 1997
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
<PAGE>
PART I - Financial Information
Item 1. Financial Statements
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
Assets 1998 1997
------- --------
<S> <C>
Current assets:
Cash and cash equivalents $276,096 $ 288,310
Accounts receivable:
Trade - billed, less allowances for doubtful accounts of
$247,878 and $231,304 3,402,736 3,254,993
Trade - unbilled 433,822 410,158
Inventories:
Raw materials 518,979 486,583
Finished goods 1,140,822 942,427
Prepaid expenses and other assets 279,724 69,801
Total current assets 6,052,179 5,452,272
Property and equipment, net 1,660,802 1,531,062
----------- -----------
Other assets:
Cash - restricted 1,066,762 196,977
Note receivable, officer 648,446 632,472
Other 173,314 79,443
-------------- -------------
Total other
assets 1,888,522 908,892
- --------- -------------- -------------
Total Assets $9,601,503 $7,892,226
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of notes payable $ 50,280 $2,199,228
Accounts payable -- trade 2,102,146 1,744,127
Accrued expenses and other liabilities 645,498 570,693
Customer deposits 449,912 450,474
------------ ------------
Total current liabilities 3,247,836 4,964,522
Notes payable -- less current maturities 4,017,147 759,440
Notes payable -- related parties 109,348 115,598
------------ ------------
Total Liabilities 7,374,331 5,839,560
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 3,044,798 and 3,044,798 30,857 30,857
Additional capital 3,450,085 3,450,085
Treasury Stock (102,300) (102,300)
Retained earnings (deficit) (1,151,470) (1,325,976)
----------- ------------
Total Stockholders' Equity 2,227,172 2,052,666
----------- ------------
Total Liabilities and Stockholders' Equity $9,601,503 $7,892,226
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1998 1997
------------ -----------
<S> <C>
Revenue $3,401,412 $3,537,513
Cost of goods sold 2,643,833 2,596,299
---------- ---------
Gross profit 757,579 941,214
----------- ----------
Operating expenses:
General and administrative expenses 368,696 577,409
Selling expenses 171,866 116,306
----------- ------------
Total operating expenses 540,562 693,715
----------- -------------
Operating income 217,017 247,499
----------- ------------
Other income (expense):
Royalties 23,994 44,525
Interest expense (136,172) (93,219)
Interest income 15,825 24,811
Other (9,078) (19,306)
---------- ----------
Total other income (expense) (105,431) (43,189)
Income (loss) before income taxes 111,586 204,310
Income tax expense (benefit) -- --
----------- -----------
Net income (loss) $ 111,586 $ 204,310
========== ===========
Net income (loss) per share $ .04 $ .07
============= ===========
Weighted average common shares outstanding 3,044,798 3,044,798
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
------------ -----------
<S> <C>
Revenue $ 6,428,072 $5,618,303
Cost of goods sold 4,858,896 4,149,837
---------- ---------
Gross profit 1,569,176 1,468,466
------------- -----------
Operating expenses:
General and administrative expenses 936,507 1,054,087
Selling expenses 321,282 291,872
----------- ------------
Total operating expenses 1,257,789 1,345,959
---------- ------------
Operating income 311,387 122,507
----------- ------------
Other income (expense):
Royalties 62,445 80,164
Interest expense (230,229) (197,233)
Interest income 26,998 26,453
Other 3,905 11,144
----------- -----------
Total other income (expense) (136,881) (79,472)
Income before income taxes 174,506 43,035
Income tax expense (benefit) -- --
------------ ------------
Net income $ 174,506 $ 43,035
============ ============
Net income (loss) per share $ .06 $ .01
============= ============
Weighted average common shares outstanding 3,044,798 3,044,798
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
----------- ----------
<S> <C>
Cash flows from operating activities:
Cash received from customers $ 6,318,548 $4,929,504
Cash paid to suppliers and employees (6,058,687) (4,632,418)
Interest paid (230,229) (197,233)
Other 14,929 15,437
-------------- --------------
Net cash provided (absorbed) by operating activities 44,561 115,290
-------------- --------------
Cash flows from investing activities:
Purchases of property and equipment (289,499) (275,620)
Decrease (increase) in officer note receivable -- 2,000
Decrease (increase) in related party Receivables (6,250) --
Decrease (increase) in restricted
cash (869,785) --
Net cash absorbed by investing activities (1,165,534) (273,620)
Cash flows from financing activities:
Proceeds from bank borrowings 4,037,167 166,700
Repayments of bank borrowings (2,928,408) (329,011)
Net cash provided (absorbed) by financing activities 1,108,759 (162,311)
----------- ------------
Net increase (decrease) in cash and cash equivalents (12,214) (320,641)
Cash and cash equivalents at beginning of period 288,310 438,079
------------ ----------
Cash and cash equivalents at end of period $ 276,096 $ 117,438
============ ===========
Reconciliation of net income (loss) to net cash provided (absorbed) by operating
activities:
Net income (loss) $ 174,506 $ 43,035
Adjustments to reconcile net income (loss) to net cash
provided (absorbed) by operating activities:
Depreciation and amortization 159,759 216,074
Decrease (increase) in other assets (93,871) (19,013)
Decrease (increase) in:
Accounts receivable - billed (147,743) (780,301)
Accounts receivable - unbilled (23,664) (326,995)
Inventories (230,791) 19,703
Prepaid expenses and other assets (225,897) 57,731
Increase (decrease) in:
Accounts payable - trade 358,019 378,001
Accrued expenses and other liabilities 74,805 188,722
Customer deposits (562) 338,333
---------- -----------
Net cash provided (absorbed) by operating activities $ 44,561 $ 115,290
============= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statement
5
<PAGE>
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 1998
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 Smith-Midland Corporation's Annual
Report on Form 10-KSB, for the year ended December 31, 1997.
In the opinion of management of Smith-Midland Corporation (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- and six-month periods ended June 30, 1998
and 1997.
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 Company's accompanying consolidated financial statements include the
accounts of Smith-Midland Corporation, a Delaware 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
inter-company accounts and transactions have been eliminated in consolidation.
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the 1998 presentation.
Inventories
Inventories are stated at the lower of cost, using the first-in, first-out
(FIFO) method, or market.
6
<PAGE>
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.
Depreciation is computed using the straight-line method over the following
estimated useful lives:
Years
Buildings............................................. 10-33
Trucks and automotive equipment....................... 3-10
Shop machinery and equipment.......................... 3-10
Land improvements..................................... 10-30
Office equipment...................................... 3-10
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- and six-month periods
ended June 30, 1998 and 1997, as the Company does not expect to incur income tax
expense for fiscal year 1998 and did not incur income tax expense in fiscal year
1997.
Revenue Recognition
The Company primarily recognizes revenue on the sale of its standard
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 soundwall 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.
7
<PAGE>
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.
Net Income (Loss) Per Share
Net Income (Loss) per share is calculated based on net income and the
weighted average number of shares of common stock outstanding during the period.
8
<PAGE>
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
SlenderwallTM, a patent-pending, lightweight, energy efficient concrete and
steel exterior wall panel for use in building construction; J-J HooksTM 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 feed troughs, and custom order precast concrete
products with various architectural surfaces.
This Form 10-QSB contains forward-looking statements which involve risks
and uncertainties. The Company's actual results may differ significantly from
the results discussed in the forward-looking statements and the results for the
three and six months ended June 30, 1998 are not necessarily indicative of the
results for the Company's operations for the year ending December 31, 1998.
Factors that might cause such a difference include, but are not limited to,
product demand, the impact of competitive products and pricing, capacity and
supply constraints or difficulties, general business and economic conditions,
the effect of the Companies accounting policies and other risks detailed in the
Company's Annual Report, Form 10-KSB and other filings with the Securities and
Exchange Commission.
Results of Operations
Three months ended June 30, 1998 compared to the three months ended June 30,
1997
For the three months ended June 30, 1998, the Company had total revenue of
$3,401,412 compared to total revenue of $3,537,513 for the three months ended
June 30, 1997, a decrease of $136,101 or 4%. Total product sales were $2,986,406
for the three months ended June 30, 1998 compared to $3,163,570 for the same
period in 1997, a decrease of $177,164 or 6%. The decrease resulted from the
unusually high volume in soundwall sales enjoyed in 1997 during the same period.
Soundwall sales in the second quarter of 1997 were approximately $1,694,300. vs.
$1,482,400 for the same period this year. Shipping and installation revenue was
$535,153 for the three months ended June 30, 1998 and $373,943 for the same
period in 1997, an increase of $161,210, or 43%. The increase was attributable
to the high shipping volume of stored materials primarily soundwall
manufactured, invoiced, and paid for in prior periods.
9
<PAGE>
Total cost of goods sold for the three months ended June 30, 1998 was
$2,643,833, an increase of $47,534, or 2% from $2,596,299 for the three months
ended June 30, 1997. The increase was primarily the result of the learning curve
associated with the shift to manufacturing our Slenderwall(TM) product. The
production of this architectural precast panel product has placed new demands on
our production and engineering departments calling for tighter controls and the
development of new innovative techniques and production processes. This is an on
going necessary investment in our future and we are meeting these challenges
daily while trying to contain the costs. Total cost of goods sold, as a
percentage of total revenue, increased to 78% for the three months ended June
30, 1998, from 73% for the three months ended June 30, 1997 primarily due to the
same reason just stated. Management anticipates that these increased costs will
continue for the balance of the year. The construction of, and move into, an
additional manufacturing facility at the Midland, Virginia, plant will
perpetuate some of these costs. When this facility is up and operational there
should be new economies and efficiencies that will help to offset the costs of
this current learning curve.
For the three months ended June 30, 1998, the Company's general and
administrative expenses decreased $208,713 to $368,696 from $577,409 during the
same period in 1997. The 36% decrease was attributed in part, to a vacancy in
the controller position since April resulting in reduced salary and related
expenses and in part to reduced legal, professional, and consulting fees this
year vs. last year during this period. The Company is searching for a new
controller so those expenses will soon return.
Selling expenses for the three months ended June 30, 1998 increased $55,560
to $171,866 from $116,306 for the three months ended June 30, 1997, resulting
from increased cost of marketing the Slenderwall(TM) product, and increases in
wage and commission expense.
The Company's operating income for the three months ended June 30, 1998 was
$217,017, compared to operating income of $247,499 for the three months ended
June 30, 1997, a decrease of $30,482. The reduced operating income resulted
primarily from the decreased revenue and increased cost of goods sold explained
above.
Royalty income totaled $23,994 for the three months ended June 30, 1998,
compared to $44,525 for the same three months in 1997. The decrease of $20,531,
or 46%, was mostly due to a credit given reversing previously invoiced royalties
of approximately $15,500.00.
Interest expense was $136,172 for the three months ended June 30, 1998,
compared to $93,219 for the three months ended June 30, 1997. The increase of
$42,953, or 46%, was primarily due to the pay off of leases as a result of our
debt restructuring which is discussed in the "Liquidity and Capital Resources"
section of this report. (See page 13)
Net income was $111,586 for the three months ended June 30, 1998,
compared to net income of $204,310 for the same period in 1997. Net income per
share for the current three month period was $.04 compared to net income
per share of $.07 for the three months ended June 30, 1997.
10
<PAGE>
Six months ended June 30, 1998 compared to the six months ended June 30, 1997
For the six months ended June 30, 1998, the Company had total revenue of
$6,428,072 compared to total revenue of $5,618,303 for the six months ended June
30, 1997, an increase of $809,769 or 14%. Total product sales were $5,554,378
for the six months ended June 30, 1998 compared to $4,950,903 for the same
period in 1997, an increase of $603,475 or 12%. The increase resulted from
management's effort to keep the sales backlog at a level that will insure
consistent factory utilization and profitability. This effort, coupled with a
good first quarter revenue resulted in an improved six month benchmark. Shipping
and installation revenue was $873,694 for the six months ended June 30, 1998 and
$667,400 for the same period in 1997, an increase of $206,294, or 31%. The
increase is attributable to strong shipping activity in both the first and
second quarters of this year and the increase in 1998 sales volume over 1997.
Total cost of goods sold for the six months ended June 30, 1998 was
$4,858,896, an increase of $709,059, or 17% from $4,149,837 for the six months
ended June 30, 1997. The increase was primarily the result of increased revenue
and increased cost of goods sold as a percentage of revenue. Total cost of goods
sold, as a percentage of total revenue, increased to 76% for the six months
ended June 30, 1998, from 74% for the six months ended June 30, 1997 primarily
due to the increased cost experienced this quarter, as explained in the
quarterly results section of this report above.
For the six months ended June 30, 1998, the Company's general and
administrative expenses decreased $117,580 to $936,507, from $1,054,087 during
the same period in 1997. The decrease was attributed to the decreased second
quarter expenses explained above, offset slightly by increases in general and
administrative expenses in the first quarter of this year.
Selling expenses for the six months ended June 30, 1998 increased $29,410
to $321,282 from $291,872 for the six months ended June 30, 1997, resulting from
increased wage and commissions expense and increases in advertising and
marketing expenses.
The Company's operating income for the six months ended June 30, 1998 was
$311,387, compared to operating income of $122,507 for the six months ended June
30, 1997, an increase of $188,880, or 154%. The improved operating income
resulted primarily from a 3.1% positive first quarter in 1998 vs. a loss in the
first quarter of 1997, coupled with a 6.4% positive second quarter.
Royalty income totaled $62,445 for the six months ended June 30, 1998,
compared to $80,164 for the same six months in 1997. The decrease of $17,719, is
largely due to a credit given for previously invoiced royalties of approximately
$15,500.
Interest expense was $230,229 for the six months ended June 30, 1998,
compared to $197,233 for the six months ended June 30, 1997. The increase of
$32,996, or 17%, was primarily due to the pay off of leases as part of our debt
11
<PAGE>
restructuring detailed in the "Liquidity and Capital Resources" section of this
report. (See page 13)
Net income was $174,506 for the six months ended June 30, 1998, compared to
net income of $43,035 for the same period in 1997. Net income per share for the
current six month period was $.06 compared to net income per share of $.01 for
the six months ended June 30, 1997.
12
<PAGE>
Liquidity and Capital Resources
The Company has financed its capital expenditures, operating requirements
and growth to date primarily with proceeds from its initial public offering
("IPO") and subsequent over-allotment, bank and other borrowings, and the sale
of stock to and loans from its principal stockholders.
The Company had $4,176,775 of indebtedness at June 30, 1998, of which
$50,280 was scheduled to mature within twelve months. The Company has
successfully restructured all of its debt with the exception of one small auto
loan, into one note with The First National Bank of New England, headquartered
in Hartford, Connecticut. The Company closed on this loan on June 25, 1998. The
Company obtained a twenty three year term at 1.5% above prime on this note
secured by equipment and real estate. The term of the note dramatically improved
our current debt ratios with current debt decreasing from $2,330,091 to $50,280,
and the term improves our cash flow. In addition to paying off all existing debt
of approximately $3,000,000, we received approximately $1,000,000, for plant
expansion and new equipment. The loan is guaranteed in part by the U.S.
Department of Agriculture Rural Business-Cooperative Service's loan guarantee.
The Company was also granted a $500,000, operating line of credit by First
National Bank of New England. This line will be used to assist day to day
operating needs.
Other Comments
The Company has formed a team to address the effect of the year 2000 on the
Company's data processing systems and operations. The Company has not completed
its assessment, but expects that the costs incurred in the preparation for the
year 2000 will not have a significant impact on the Company's cash flow or
results of operations. The Company is currently planning to send questionnaires
to its suppliers and customers to ensure that they are taking steps to be year
2000 compliant. However, if the Company and third parties upon which it relies
are unable to address this issue in a timely manner, it could result in a
material financial risk to the Company. In order to assure this does not occur,
the Company plans to devote all resources required to resolve any significant
year 2000 issues in a timely manner.
13
<PAGE>
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 reducing the Company's production capacity. However, The
Company is in the process of building an additional manufacturing facility at
its Midland, Virginia, location that will bring these operations inside and out
of the weather correcting this problem. 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 traditionally 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. However, as of the date
of this filing, the Company's backlog is approximately $6.1 million, of
approximately which $2.2 million represents firm contracts for Slenderwall(TM)
and architectural pre-cast concrete products. The majority of the projects
relating to this backlog are contracted to be constructed in 1998.
Management believes that the Company's operations have not been materially
affected by inflation.
14
<PAGE>
PART II - Other Information
Item 1. Legal Proceedings. None
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. None.
Item 6. Exhibits and Reports on Form 8-K.
A. The following Exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit No. Title
<S> <C>
1 First National Bank of New England Loan Agreement
2 First National Bank of New England Loan Note
27 Financial Data Schedule
</TABLE>
B. Report on Form 8-K. None.
15
<PAGE>
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: August 15, 1998 By: /s/ Rodney I. Smith
-----------------------
Rodney I. Smith
Chairman of the Board,
Chief Executive Officer and President
(principal executive officer)
Date: August 15, 1998 By: /s/ Robert V. McElhinney
----------------------------
Robert V. McElhinney
Vice President of Finance,
Chief Financial Officer
(principal financial officer)
16
LOAN AGREEMENT
(LENDER)
FIRST NATIONAL BANK OF NEW ENGLAND
12020 Sunrise Valley Drive, Suite 270
Reston, VA 20191
AND
(BORROWER)
SMITH-MIDLAND CORPORATION
5119 Catlett Road
Midland, VA 22728
AND
(GUARANTORS)
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
Midland Advertising & Design, Inc., a Virginia corporation
Your request for First National Bank of New England ("LENDER") to extend a loan
in the amount of $4,000,000 with a United States Department of Agriculture Rural
Business-Cooperative Service (f/k/a Farmers Home Administration, hereafter
referred to as "Agency") 80.00% Guarantee has been approved subject to the
following provisions:
1. Requirements:
(a) The Borrower shall pay a guaranty fee of 2% of the amount guaranteed
prior to the disbursement of the loan.
(b) The Borrower shall execute all instruments and agreements as Lender
may require in order to document the loan, including:
1. Promissory Note;
2. Commercial Loan Financial Condition Affidavits;
3. Mortgage Deed;
4. Guarantee Agreement;
5. Assignment of Lease with Right to Reassignment of Lease;
6. Lessors Agreement;
7. Environmental Indemnity Agreement;
8. Security Agreements;
9. UCC-1 financing statements;
<PAGE>
10. Any such other instruments and agreements as Lender or Lender's
counsel may require in connection herewith.
2. This Authorization is subject to:
(a) Receipt by Lender of evidence that there has been no unremedied
adverse change since the date of application, or since any of the
preceding disbursements, in the financial or any other condition of
Borrower or Guarantors, which would warrant withholding or not
making any such disbursement or any further disbursement.
(b) The representations made by Borrower in its loan application, the
requirements or conditions set forth in Lender's application form,
including the supporting documents thereto, the conditions set forth
herein and any future conditions imposed by Lender (with prior
Agency approval).
3. Terms of Loan:
(a) Repayment term, interest rate(s) and maturity.
NOTE PAYABLE: The undersigned will pay principal and interest by
making payments in the initial amount of $37,087.27 on the first
day of each month beginning on August 1, 1998. The undersigned
will make these payments until they have paid in full all
principal and interest and any other sums due hereunder.
Notwithstanding the foregoing, the entire indebtedness evidenced
by this Note, including, but not limited to, all outstanding
principal and accrued and unpaid interest, shall be due and
payable in full on the twenty-third (23th) anniversary date of
this Note.
The undersigned's initial monthly payments shall be calculated in
accordance with the full amortization of the loan evidenced by
this Note by level monthly payments of principal and interest
over a twenty-three (23) year period at the interest rate
applicable on the date hereof. On each Adjustment Date (as
herein defined), the amount of the monthly payments will be
adjusted so as to provide for the full amortization of the then
outstanding principal at the interest rate established at each
Adjustment Date in level monthly payments of principal and
interest over the remaining term of the original twenty-three
(23) year amortization period.
Interest Rate
<PAGE>
Interest shall accrue on the outstanding principal amount of this Note at
a per annum rate of one and one-half (1.50%) percentage points above
the Prime Rate on a floating basis. The initial interest rate
hereunder is ten (10.0%) percent. On October 1, 1998 and on the
first day of each, January, April, July, and October thereafter
until all sums due hereunder are paid in full (each being referred
to as an "Adjustment Date"), the interest rate on the unpaid
principal balance hereunder shall be adjusted, without notice or
demand, to a per annum rate of one and one-half percentage points
above the Prime Rate in effect on the applicable Adjustment Date (or
the following business day in the event that such Adjustment Date
falls on a Saturday, Sunday or holiday), which such rate shall
remain in effect until the succeeding Adjustment Date. Interest
hereunder shall be computed on a daily basis and on the basis of a
Three Hundred Sixty (360) day year and a thirty (30) day month. The
undersigned further agrees to pay all taxes levied or assessed on
this Note or the debt evidenced hereby against the holder of this
Note, and further agrees to pay all costs, expenses and attorneys'
fees incurred in any action to collect this Note or to defend,
protect, preserve, or realize upon or foreclose any mortgage or
security agreement securing this Note or to protect, defend,
preserve, foreclose or sustain the lien of said mortgage or security
agreement or in any litigation or controversy arising from or
connected with said mortgage, security agreement, or this Note. As
used herein, "Prime Rate" shall mean the lowest New York prime rate
as set forth in the money rate section of the Wall Street Journal
(or in any successor publication).
In the event of prepayment, the Borrower will pay a penalty of 5% of
the prepayment amount in year 1, 4% in year 2, 3% in year 3, 2%
inyear 2, and 1% in year 5. The Borrower may prepay the loan in part
or in full in years 6-23 without penalty, provided three weeks prior
written notice is given to Lender.
Holder should give written notice to the undersigned of each increase or
decrease in the interest (and change in installment amount, if
applicable) within thirty days after the effective date of each rate
adjustment; however, the fluctuation of the interest rate is not
contingent on whether the notice is given.
If the undersigned shall be in default in payment due on the
indebtedness herein and the Agency purchases its guaranteed
portion of said indebtedness, the rate of interest on both the
guaranteed and unguaranteed portions herein shall become fixed at
the rate in effect as of the date of default. If the undersigned
shall not be in default in payment when Agency purchases its
guaranteed portion, the rate of interest on both the guaranteed
and unguaranteed portions herein shall be fixed at the rate in
effect as of the date of purchase by Agency.
All payments received by the Lender, at the option of the Lender, shall
be applied first to any outstanding charges and expenses incurred by
the Lender in connection with this Note or any documents executed in
connection with this Note, then to any unpaid and accrued interest
and finally to the outstanding principal due under the Note. The
<PAGE>
undersigned agrees that the interest shall accrue at the foregoing
rate on unpaid balance before and after maturity, by acceleration or
otherwise.
The Borrower hereby grants to the Lender and Holder hereof a lien and
right of set-off for all of the Borrower's liabilities to Lender or
Holder upon and against all of the Borrower's deposits, credits, and
other property now owned or hereafter in the possession or control
of Lender or Holder or in transit to. The Lender or Holder may at
any time may apply the same or any part thereof to any of the
Borrower's liabilities to Lender or Holder, whether or not matured
at the time of such application, at any time after the occurrence of
an "Event of Default" under the loan documents executed in
connection herewith.
Borrower agrees to pay a late charge equal to 5% of the payment amount due
if such payment is not received within ten days of the due date.
Funds received from the borrower will be applied first to interest
to the date of receipt, then to principal and then to the late fee.
The Borrower agrees that, in addition to other events of default stated
in the Note or related loan documents, each of the following shall
constitute an "event of default" under the Note:
1. Failure of Borrower or any Guarantor to pay or perform any of
Borrower's or Guarantor's liabilities or obligations to
Lender.
2. If Borrower or any Guarantor of any obligation of Borrower to
Lender or Holder shall be in default under any security
agreement, mortgage or other agreement governing, securing or
relating to this Loan.
(b) Use of Proceeds of Loan as follows (show specific uses for which
loan is authorized):
1. Approximately $2,895,376 for debt refinance to various
creditors as identified in Schedule A
2. Approximately $500,000 for building improvements
3. Approximately $409,000 for equipment
4. Approximately $195,624 for working capital and closing costs.
5. Balance, if any, to pay closing costs and working capital.
NOTE: DISBURSEMENT OF LOAN PROCEEDS SHALL BE BY TWO PARTY CHECKS (PAYABLE TO
BORROWER AND VENDOR, OR TO BORROWER AND CREDITOR), TO ASSURE THAT USE OF
PROCEEDS COMPLIES WITH THIS LOAN AUTHORIZATION.
<PAGE>
(c) Collateral:
1. First mortgage on land and buildings located at 5119 Catlett
Drive, Midland VA.
2. First mortgage on 19.1 acres of raw land located at south Side
of Route 28, Midland VA.
3. First mortgage on land and buildings located at 1088 NC 65,
Reidsville, N.C.
4. Title Insurance in the amount of the loan and in form and
content satisfactory to Lender shall be obtained for all
mortgages and shall not contain any mechanics' lien or survey
exceptions.
5. A first security interest in all machinery and equipment,
including power driven machinery and equipment (including
titled motor vehicles), furniture and fixtures, leasehold
improvements, and general intangibles now owned, to be
acquired with loan proceeds or hereafter acquired together
with all replacements thereof, all attachments,
accessories, parts and tools belonging thereto or for use
in connection therewith and proceeds of the same.
UCC SEARCH BEFORE AND AFTER RECORDING REQUIRED.
----------------------------------------------
6. A second security interest in all accounts receivable and
inventory now owned, to be acquired with loan proceeds
or hereafter acquired together with all replacements
thereof, all attachments, accessories, parts and tools
belonging thereto or for use in connection therewith and
proceeds of the same subject only to a first security
interest held by First National Bank of New England having
an approximate unpaid balance of $500,000
UCC SEARCH BEFORE AND AFTER RECORDING REQUIRED
------------------------------------------------
7. The unlimited corporate gurantees of 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 secured by first
security interests in all machinery and equipment,
including power driven machinery and equipment (excluding
titled motor vehicles), furniture and fixtures, leasehold
improvements, and general intangibles now owned, to be
acquired with loan proceeds or hereafter acquired together
with all replacements thereof, all attachments,
accessories, parts and tools belonging thereto or for use
in connection therewith and proceeds of the same and
second security interests in all accounts receivable
and inventory now owned, to be acquired with loan
proceeds or hereafter acquired together with all
replacements thereof, all attachments, accessories, parts
and tools belonging thereto or for use in connection
therewith and proceeds of the same subject only to a first
security interest held by First National Bank of New
England having an approximate unpaid balance of $500,000
UCC SEARCH BEFORE AND AFTER RECORDING REQUIRED
----------------------------------------------
<PAGE>
8. Assignment of life insurance with acknowledgment of home
office on Rodney Smith in the amount of $1,000,000 which
shall be decreasing term or existing permanent type
insurance. Original policy to be retained by Lender. No
additional life insurance is to be purchased from business
income or assets without prior written approval of Agency.
Proceeds from life insurance policies shall be applied at
the time of death to repay the outstanding balance for the
following loans: (a) $4,000,000 Agency term loan; (b)
$500,000 Lender line of credit.
Note: Assignment of life insurance shall be by an absolute
assignment properly acknowledged by home office of
insurer. Lender shall not be named as beneficiary of the
policy.
9. Monthly tax escrow to be collected for all mortgaged
properties equal to 1/12th of the annual real estate tax
obligation.
4. To further induce Lender to make and Agency to guarantee this Loan, Lender
and Agency impose the following conditions:
(a) Execution of all documents required in Item 1 above.
(b) Reimbursable Expenses - Borrower will, on demand, reimburse Lender
for any and all expenses incurred, or which may be hereafter
incurred, by Lender from time to time in connection with or by
reason of Borrower's application for and the making and
administration of the Loan.
(c) Books, Records, and Reports - Corporate Borrower will at all times
keep proper books of account in a manner satisfactory to Lender
and/or Agency. Corporate Borrower hereby authorizes Lender or Agency
to make or cause to be made, at Corporate Borrower's expense and in
such manner and at such times as Lender or Agency may require, (a)
inspections and audits of any books, records and papers in the
custody or control of Corporate Borrower or others, relating
<PAGE>
to Corporate Borrower's financial or business conditions,
including the making of copies thereof and extracts therefrom,
and (b) inspections and appraisals of any of Corporate Borrower's
assets. At a minimum, Lender will require an annual examination
to be conducted at Corporate Borrowers headquarters. Such
examination will inspect the books and records of the Corporate
Borrower and the collateral of the Lender. Corporate Borrower
will furnish to Lender and AGENCY for the twelve (12) month
period ending December 31, 1998 and annually thereafter (no later
than 3 months following the expiration of any such period) and at
such other times and in such form as Lender may prescribe,
Corporate Borrower's independent CPA-prepared audit-quality
consolidated financial statements including Balance Sheet, Profit
and Loss Statement, Cash Flow Statement, and supplemental
schedules of Cost of Goods Sold and Operating Expenses.
Corporate Borrower will submit to Lender quarterly prepared
financial statements prepared by management. Corporate Borrower
hereby authorizes all Federal, State, and municipal authorities
to furnish reports of examinations, records, and other
information from reports, returns, files and records of such
authorities upon request therefor by Lender or Agency.
(d) Borrower shall not execute any contracts for management consulting
services without prior approval of Lender and Agency.
(e) Distributions and Compensation - Borrower will not, without the
prior written consent of Lender or Agency (a) if Borrower is
a corporation, declare or pay any dividend or make any distribution
upon its capital stock, or purchase or retire any of its capital
stock, or consolidate or merge with any other company, or give any
preferential treatment, make any advance, directly or
indirectly, by way of loan, gift, bonus, or otherwise, to any
company directly or indirectly, controlling or affiliated with or
controlled by Borrower, or any other company, or to any officer,
director or employee of Borrower, or of any such company, (b) if
Borrower is a partnership or individual make any distribution of
assets of the business of Borrower, other than reasonable
compensation for services, or give any preferential treatment,
make any advance, directly or indirectly, by way of loan, gift,
bonus, or otherwise, to any partner or any of its employees, or to
any company directly or indirectly controlling or affiliated with
or controlled by Borrower, or any other company.
(f) Other Provisions:
1. Corporate Borrower shall not in any way alter its form of
business organization without the prior written consent of
Lender.
2. Prior to the first disbursement Lender shall be in receipt of
satisfactory evidence that all applicable taxes have been paid
and all zoning regulations and all licensing regulations have
been complied with.
<PAGE>
INSURANCE PROVISIONS
3. Borrower shall provide and maintain hazard insurance on all
Real Estate mortgaged to lender in such amounts and for such
coverage as shall be satisfactory in all respects to Lender.
Said insurance shall be maintained for the life of the loan.
Policy coverage on real property shall designate Lender as
mortgagee under a standard or New York mortgage clause and shall
provide a minimum to ten (10) days written notice to Lender of
cancellation.
4. Prior to first disbursement, the lender must be in receipt of
evidence of the kind described below from an
independent authoritative source which is sufficient to indicate
to the lender that the properties are not in special flood
hazard areas (SFHA). Property is defined as the asset(s) financed
as a part of the AGENCY financial assistance and/or other
collateral deemed necessary by the field office. If such
evidence is not provided to the lender, the borrower must
obtain, and maintain, a Standard Flood Insurance Policy
(SFIP) or other appropriate special flood hazard insurance in
amounts and coverages equal to the lesser of (1) the insurable
value of the property or (2) the maximum amount of coverage
available. Borrower can show that special flood hazard
insurance has been acquired by submitting a copy of the policy
or providing evidence of premium payment for the appropriate
coverage to a licensed insurance agent. Borrower will not be
eligible for either any future disaster assistance or AGENCY
business loan assistance if the special flood hazard insurance
is not maintained as stipulated herein throughout the entire
term of this loan.
As evidence that the properties are not located within a special
flood hazard area subject to flooding, mudslides or erosions, the
lender may rely on a determination of special flood hazard area
status by the borrower's property & casualty insurance company,
real estate appraiser, title insurance company, a local government
Agency or other authoritative source acceptable to Agency which
would ordinarily have knowledge of the special flood hazard area
status for the properties.
5. Borrower and Gurantors shall provide and maintain hazard
insurance on all business personal property in such amounts and
for such coverage as shall be satisfactory in all respects
to lender. Said insurance shall be maintained for the life of
the loan. Policy coverage on personal property shall
designate Lender as loss payee under a standard lender's loss
payable clause and shall provide a minimum of 10 days written
notice to lender prior to cancellation.
<PAGE>
STANDBY PROVISIONS
6. Standby Agreement of Smith-Midland Corporation, covering the
total amount of Borrower's indebtedness to related parties in
the amount of $116,000
REAL ESTATE PROVISIONS
7. Prior to first disbursement on this loan, Lender to have
satisfactory evidence that all real estate taxes have been
paid.
CORPORATION PROVISIONS
8. Corporate Requirements of SMITH-MIDLAND CORPORATION, :
Prior to first disbursement on this loan, SMITH-MIDLAND CORPORATION,
to provide Lender with:
a) Resolution of Board of Directors
b) Certificate of Good Standing from the Secretary of State's
Office.
c) Affidavit of Secretary of Corporation listing names
of Stockholders and numbers of shares owned by each to be the
same as set forth in the loan application.
Borrower agrees that it will not authorize nor issue additional
shares of its capital stock, nor sell, transfer, or redeem any
of its outstanding shares of corporate stock without the prior
written consent of Lender.
<PAGE>
9. Corporate Requirements of Smith-Midland Corporation, a
Virginia corporation.:
Prior to first disbursement on this loan, Smith-Midland Corporation,
a Virginia corporation to provide Lender with:
a) Resolution of Board of Directors
b) Certificate of Good Standing from the Secretary of
State's Office.
c) Affidavit of Secretary of Corporation listing names of
Stockholders and numbers of shares owned by each to be
the same as set forth in the loan application.
Guarantor agrees that it will not authorize nor issue additional
shares of its capital stock, nor sell, transfer, or redeem any
of its outstanding shares of corporate stock without the prior
written consent of Lender.
10. Corporate Requirements Easi-Set Industries, Inc., a Virginia
corporation.:
Prior to first disbursement on this loan, Easi-Set Industries,
Inc., a Virginia corporation. to provide Lender with:
a) Resolution of Board of Directors
b) Certificate of Good Standing from the Secretary of
State's Office.
c) Affidavit of Secretary of Corporation listing names of
Stockholders and numbers of shares owned by each to be
the same as set forth in the loan application.
Guarantor agrees that it will not authorize nor issue additional
shares of its capital stock, nor sell, transfer, or redeem any
of its outstanding shares of corporate stock without the prior
written consent of Lender.
11. Corporate Requirements Smith-Carolina Corporation, a North
Carolina corporation:
<PAGE>
Prior to first disbursement on this loan Smith-Carolina Corporation,
a North Carolina corporation to provide Lender with:
a) Resolution of Board of Directors
b) Certificate of Good Standing from the Secretary of State's
Office.
c) Affidavit of Secretary of Corporation listing names of
Stockholders and numbers of shares owned by each to be the
same as set forth in the loan application.
Guarantor agrees that it will not authorize nor issue additional
shares of its capital stock, nor sell, transfer, or redeem any
of its outstanding shares of corporate stock without the prior
written consent of Lender.
12. Corporate Requirements Concrete Safety Systems, Inc., a
Virginia corporation:
Prior to first disbursement on this loan Concrete Safety Systems,
Inc., a Virginia corporation to provide Lender with:
a) Resolution of Board of Directors
b) Certificate of Good Standing from the Secretary of State's
Office.
c) Affidavit of Secretary of Corporation listing names of
Stockholders and numbers of shares owned by each to be the
same as set forth in the loan application.
Guarantor agrees that it will not authorize nor issue additional
shares of its capital stock, nor sell, transfer, or redeem any
of its outstanding shares of corporate stock without the prior
written consent of Lender.
13. Corporate Requirements Midland Advertising & Design, Inc., a
Virginia corporation:
<PAGE>
Prior to first disbursement on this loan Midland Advertising &
Design, Inc., a Virginia corporation to provide Lender with:
a) Resolution of Board of Directors
b) Certificate of Good Standing from the Secretary of State's
Office.
c) Affidavit of Secretary of Corporation listing names of
Stockholders and numbers of shares owned by each to be the
same as set forth in the loan application.
Guarantor agrees that it will not authorize nor issue additional
shares of its capital stock, nor sell, transfer, or redeem any
of its outstanding shares of corporate stock without the prior
written consent of Lender.
14. Borrower agrees to comply with all existing and future state and
federal regulations governing the handling, storage and use
of any and all hazardous, toxic, or otherwise regulated,
substances or materials; and further covenants that he will
permit no such materials or substances or by-products or
wastes thereof, to be permanently stored at the facility,
and that borrower will operate the facility in such a
manner that the site will remain free of contaminating
materials, wastes, by products or substances.
15. Borrower agrees to comply with all existing and future state and federal
regulations governing the maintenance and emplacement of
underground storage tanks and further covenants that borrower
will permit no petroleum base waste or hazardous waste to be
stored at the site, and that he will operate the business in
such a manner that the site will remain free of such
contamination waste.
MISCELLANEOUS PROVISIONS
16. Unfinanced fixed asset expenditures are limited to $300,000 per annum for
a five year period.
17. Tangible net worth of Borrower shall be at least 10% of tangible assets
upon closing the $4,000,000 loan and shall be evidenced by a
proforma balance sheet prepared by a CPA.
18. Corporate Borrower's debt to net worth ratio, as defined under generally
accepted accounting principles, shall not exceed 4.00x at
12/31/97, 3.75x at 12/31/98, and 3.50x at 12/31/99 and
annually thereafter, measured annually based on the Borrower's
12/31 fiscal year end CPA-audited financial statements.
19. Corporate Borrower shall maintain minimum working capital, as defined
under generally accepted accounting principles, of at least $1
(i.e. positive working capital), measured annually based on
the Borrower's 12/31 fiscal year end CPA-audited financial
statements.
<PAGE>
20. Corporate Borrower's current ratio, as defined under generally accepted
accounting principles, shall be at least 1.0x, measured
annually based on the Borrower's 12/31 fiscal year end
CPA-audited financial statements.
21. Borrower will not, prior to payment in full of the indebtedness
evidenced by the Note, without prior written consent of the
holder of the Note, pledge, mortgage or otherwise cause or
permit to be encumbered in any manner whatsoever any of
Borrower's property or assets, whether then owned or
thereafter acquired. However, the holder of the Note will
permit Chattel Mortgages on purchased equipment not to
exceed $200,000 on an annual basis so long as the Borrower
is not in default of any of its obligations.
22. Total Annual salaries or drawings by Rodney Smith including bonuses,
commissions or other compensation, shall be limited to
$350,000, with annual increases not to exceed 20%, provided
that Smith-Midland Corporation reports a net profit.
23. During the term of the Loan, the Borrower shall not assume or agree to
pay any debt, liability, or obligation of others.
24. Opinion Letter of Borrower's Counsel.
5. Parties Affected - This Agreement shall be binding upon Borrower and
Borrower's successors and assigns. No provision stated herein shall be
waived without the prior written consent of Agency. The Loan shall be
administered as provided in the Guaranty Agreement. The terms and
conditions of this Authorization and Loan Agreement shall survive the Loan
Closing and shall not be merged into the Loan Documentation
notwithstanding any provisions to the contrary contained herein.
FIRST NATIONAL BANK OF NEW ENGLAND
- ------------------------------------------------------------------------------
By Mark Korman, Vice President Date
Borrower hereby agrees to the conditions imposed herein and further agrees that
the terms and conditions herein are for the benefit of, and may be enforced by,
Lender and Agency. This Authorization and Loan Agreement and amendments
constitute the Loan Agreement between Lender and Borrower.
<PAGE>
- ------------------------------------------------------------------------------
SMITH-MIDLAND CORPORATION, Title Date
- ------------------------------------------------------------------------------
Smith-Midland Corporation, a Virginia corporation Title Date
- ------------------------------------------------------------------------------
Easi-Set Industries, Inc., a Virginia corporation Title Date
- ------------------------------------------------------------------------------
Smith-Carolina Corporation, a North Carolina
corporation. Title Date
- ------------------------------------------------------------------------------
Concrete Safety Systems, Inc., a Virginia corporation Title Date
- ------------------------------------------------------------------------------
Midland Advertising & Design, Inc., a Virginia
corporation Title Date
NOTE: Corporate applicants must execute Authorization in corporate name, by duly
authorized officer, and seal must be affixed and duly attested; partnership
applicants must execute in firm name, together with signature of a General
Partner.
<PAGE>
- ------------------------------------------------------------------------------
INSTRUCTIONS: INDICATE THE PARAGRAPHS BEING CERTIFIED AND AGREED TO BY
HAVING THE OBLIGOR INITIAL NEXT TO THE APPROPRIATE PARAGRAPHS, PRIOR TO
SIGNING.
- ------------------------------------------------------------------------------
CERTIFICATION AND LOAN AGREEMENT
The United States Department of Agriculture Rural Business Cooperative
Service (f/k/a/ Farmers Home Administration) ("Agency") in order to induce FIRST
NATIONAL BANK OF NEW ENGLAND ("Lender") to make a guaranteed Loan ("Loan") to
SMITH-MIDLAND CORPORATION, a Delaware corporation ("Borrower"), and in
consideration therefor, Borrower and (if applicable)___________N/A
________________ ("Operating Company"), SMITH-MIDLAND CORPORATION,
a Virginia corporation, SMITH-CAROLINA CORPORATION, a North Carolina
corporation, EASI-SET INDUSTRIES, INC., a Virginia corporation, CONCRETE SAFETY
SYSTEMS, INC., a Virginia corporation, and MIDLAND ADVERTISING & DESIGN, INC., a
Virginia corporation, the guarantors of the Loan (collectively, the
"Guarantors") (the Borrower, Operating Company, if applicable and the Guarantors
are singularly or collectively, "Obligor") hereby certifies to, and agrees and
covenants with, the Lender and the Agency and their respective successors and
assigns, as follows:
I. CERTIFICATIONS
The Obligor hereby certifies:
____a. Adverse Change - That there has been no material adverse change in
Obligor's financial condition, organization, operations or fixed assets
or mortgaged real estate since the date the Loan application was
signed.
____b. [INTENTIONALLY DELETED]
____c. Current Taxes - That Obligor is current on all federal, state and local
taxes, including, but not limited to, income taxes, payroll taxes, real
estate taxes and sales taxes.
____d. Environmental - that:
1) At the time Obligor submitted the Loan application, Obligor was in
material compliance with all local, state and federal environmental
laws and regulations pertaining to environmental contamination;
2) Obligor has complied, and will continue to comply, with these laws
and regulations;
3) Obligor has no knowledge of any environmental contamination of any
real or personal property pledged as collateral of the Loan which
violates any such laws and regulations (other than what was
disclosed in connection with the Environmental Investigation of the
Virginia and North Carolina properties performed by EMG, dated
March 18 and March 26, 1998);
4) Obligor assumes full responsibility for all costs incurred in any
clean-up of environmental contamination and agrees to indemnify and
hold harmless Lender and the Agency against payment of any such
costs (Lender or Agency may require Obligor to execute a separate
indemnification agreement);
5) Until full repayment of Loan, Obligor will promptly notify Lender
and the Agency if it knows, suspects or believes there may be any
environmental contamination in or around the real property securing
the Loan, or if Obligor and/or such property are subject to any
investigation or enforcement action by any Governmental agency
pertaining to any environmental contamination of the property.
____e. Bankruptcy - That no petition in bankruptcy has been filed by, or to
the undersigneds' knowledge, against the Obligor or any Guarantor of
the Loan as of the date hereof.
____f. Liens - That within the preceding thirty (30) days, neither the Obligor
nor any Guarantor of the Loan has granted a security interest in any of
the collateral given as security for the Loan, nor has the Obligor or
any such Guarantor suffered the imposition of any involuntary and/or
judicial liens or encumbrances upon the loan collateral.
____g. Legal Proceedings - That there are no pending, or to the undersigneds'
knowledge, threatened legal proceedings to which the Obligor or any
Guarantor is a party, or to which the loan collateral or mortgaged real
estate are subject, nor any contingent liabilities of the Obligor or
any Guarantor which will adversely affect the transactions contemplated
in connection with the Loan, except as may be disclosed in the Loan
application or in an addendum hereto.
____h. Obligations - That the financial obligations of the Obligor and each
Guarantor of the Loan are current and not in material default. Obligor
and any such Guarantor are not in material default under any current
agreement or obligations binding upon Obligor or any such Guarantor,
and the Loan will not violate or be in conflict with or constitute a
default under any guaranty, obligation or agreement to which Obligor or
any Guarantor are bound.
____i. No Breach - That neither the execution and delivery of the Loan
agreements, the consummation of the transactions contemplated
thereby, nor the fulfillment of or compliance with the terms and
conditions of such agreements is prevented by, limited by, or
conflicts with or results in a breach of the terms, conditions or
provisions of any restriction or any evidence of indebtedness,
agreement or instrument of whatever nature to which Obligor or any
Guarantor are now a party or by which Obligor or any Guarantor are
bound, or constitutes a default under any of the foregoing.
____j. Mechanics Liens - That within the last ninety (90) days, including
the date hereof, no person, firm or corporation has furnished any
labor, services or materials in connection with the construction or
repair of any buildings or improvements on any of the mortgaged real
estate, or on any adjoining property of the mortgagor, the
obligations for which have not been paid, and that no person, firm
or corporation is entitled to any mechanic's lien on said mortgaged
real estate.
___k. Execution - That all parties to the Loan agreements have executed the
documents freely and voluntarily, after due examination and study of
the terms and conditions thereof, for good and fair consideration
received by them as of the date of execution.
____l. Capacity - That no party to the Loan agreements is presently under
legal, physical, mental or contractual disability, so as to be
prohibited from, or incapable of, consummating the Loan transaction
and/or performing their obligations and duties in accordance with the
terms and provisions of the Loan agreements.
____m. Mortgaged Premises - That the mortgagor of any mortgaged real estate
has good and indefeasible right, title and interest in fee simple in
and to the premises, and that all necessary governmental permits and
approvals for the present use thereof, including, without limitation,
subdivision and occupancy approval, have been obtained.
____n. Legal Representation - That at the time of the closing, the undersigned
was not represented by the Law Firm of Updike, Kelly & Spellacy, P.C.
or Tydings & Rosenberg LLP nor any agent or representative thereof, nor
did they pay any fee or compensation to the Law Firm of Updike, Kelly &
Spellacy, P.C. or Tydings & Rosenberg LLP for personal representation
in this transaction.
____o. [INTENTIONALLY DELETED].
____p. Taxpayer Identification Numbers - That the correct taxpayer
identification numbers for the undersigned are as follows:
NAME TAXPAYER I.D. NO.
Smith-Midland Corporation, a 54-0881620
Virginia corporation
Smith-Carolina Corporation, a 56-1173767
North Carolina corporation
Concrete Safety Systems, Inc., a 54-1043335
Virginia corporation
Easi-Set Industries, Inc., a 54-1086270
Virginia corporation
Midland Advertising & Design, Inc. 54-1396603
A Virginia corporation
____q. Commercial Transaction - That the Loan is a commercial transaction, and
the documents delivered to the Lender in connection with the Loan,
including, without limitation, the Note, the Deed(s) of Trust and
Security Agreement, are executed and delivered as part of a commercial
transaction.
____r. ERISA - That the Obligor and each Subsidiary or Affiliate of Obligor is
in compliance in all material respects with all applicable provisions
of the Employee Retirement Income Security Act of 1974 ("ERISA"), as it
may be amended from time to time.
____s. Organization - That Smith-Midland Corporation, Easi-Set Industries,
Inc., Concrete Safety Systems, Inc. and Midland Advertising &
Design, Inc. are corporations duly organized under the laws of the
Commonwealth of Virginia with a principal place of business at 5119
Catlett Road, Midland, Virginia 20728; that Smith-Midland
Corporation, the Borrower, is a corporation organized under the laws
of the State of Delaware with a principal place of business at 5119
Catlett Road, Midland, Virginia 20728; and that Smith-Carolina
Corporation is a corporation duly organized under the laws of the
State of North Carolina with a principal place of business at 1088
Highway 85, Reidsville, North Carolina 27320.
That _______N/A___________ is a partnership duly organized under the
laws of the State of ______N/A__________ with a principal place of
business _________N/A_____________.
That _______N/A___________ is a limited liability company duly
organized under the laws of the State of ______N/A__________ with a
principal place of business at __________N/A_______________.
____t. Other
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
II. AFFIRMATIVE COVENANTS
The Obligor shall, and hereby agrees and covenants to:
____a. Reimbursable Expenses - Reimburse Lender for expenses incurred in
the making and administration of the Loan.
____b. Books, Records and Reports -
(i) Keep proper books of account in a manner satisfactory to
Lender;
(ii) Furnish year-end statements to Lender within ________ (__) days
(if not filled in then one hundred twenty (120) days) of fiscal
year end;
(iii) Furnish additional financial statements or reports whenever
Lender requests them;
(iv) Allow Lender and/or the Agency to:
(A) Inspect and audit books, records and papers relating to
Obligor's financial or business condition; and
(B) Inspect and appraise any of Obligor's assets; and
(C) Allow all government authorities to furnish reports of
examinations, or any records pertaining to Obligor, upon
request by Lender or the Agency.
____c. [INTENTIONALLY DELETED]
____d. American-Made Products - To the extent feasible, purchase only
American-made equipment and products with the proceeds of the Loan.
____e. Taxes - Pay all federal, state and local taxes, including, without
limitation, income, payroll, real estate and sales taxes of the
Obligor's business when they come due.
____f. Occupancy - Occupy, at all times during the term of the Loan, at least
51% of the total square footage and 100% of the renovated square
footage of rentable property. Obligor certifies that it will not use
Loan proceeds to improve or renovate any of the space leased to third
parties.
____g. Other Documents - Provide Lender with all additional certifications,
documents or other information Lender is required to obtain from
Obligor or any third party pursuant to the Authorization issued by the
Agency to Lender in connection with the Loan (the "Authorization");
____h. Execution - Execute a note and any other documents required by
Lender;
____i. Compliance with Authorization - Do everything necessary for Lender
to comply with the terms and conditions of the Authorization,
including, without limitation, acquire and maintain for the term of
the Loan all insurance required by the Lender for such amounts and
in such forms as the Lender may require, including, without
limitation, real estate hazard insurance, personal property hazard
insurance, flood insurance, life insurance and liability insurance.
Any and all such policies shall contain all endorsements or special
clauses as may be required by the Authorization.
____j. Other -
___________________________NONE______________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
III. NEGATIVE COVENANTS
The Obligor shall not, without Lender's prior written consent:
_____a. Distributions - Make any distribution of company assets that will
adversely affect the financial condition of the Obligor.
_____b. Ownership Changes - Change the ownership structure or interests in
the Obligor during the term of the Loan.
_____c. Transfer of Assets - Sell, lease, pledge, encumber (except by purchase
money liens on property acquired after the date of the Note), or
otherwise dispose of any of Obligor's property or assets, except in the
ordinary course of business.
_____d. Fixed Asset Limitation - Acquire by purchase or lease agreement any
fixed assets totaling more than $500,000 in any year with no more than
$300,000 for unfinanced expenditures for a five year period, and
$200,000 for financed expenditures.
_____e. Location Limitation - Acquire by purchase or by lease any additional
locations.
_____f. Limitation on Compensation - Give annual increases to compensation of
corporate officers in excess of five percent (5%). No increases may be
made unless a profit was earned in the most recent fiscal year and
Borrower is in compliance with the terms and conditions of this
Agreement.
_____g. Other
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
IV. MISCELLANEOUS
_____a. The terms and conditions hereof shall be binding upon each and every
Obligor and shall inure to the benefit of the Lender and its successors
and assigns.
_____b. The terms and conditions hereof shall survive the closing of the Loan.
_____c. If any Obligor fails to abide by any of the agreements and/or
covenants contained herein or in the Authorization (as it applies to
any such Obligor), and/or if any of the certifications made herein
proves at any time to be incorrect or untrue, it shall constitute an
event of default under the documents evidencing, securing and/or
governing the Loan, immediately entitling the Lender to any and all
rights and remedies it may have thereunder, including without
limitation, the right to accelerate all sums due under the Loan.
This Certification and Loan Agreement is executed under seal this 25
day of June, 1998.
WITNESS/ATTEST: BORROWER:
SMITH-MIDLAND CORPORATION, a Delaware
corporation
/s/ Wesley A. Taylor By: /s/ Rodney I. Smith [SEAL]
- ----------------------------- ------------------------------------
Name: Wesley A. Taylor Name: Rodney I. Smith
Title: President
WITNESS/ATTEST: GUARANTOR:
SMITH-MIDLAND CORPORATION,
a Virginia corporation
By: /s/ Rodney I. Smith [SEAL]
----------------------------
Name: Rodney I. Smith
Title: President
EASI-SET INDUSTRIES, INC.,
a Virginia corporation
By: /s/ Rodney I. Smith [SEAL]
----------------------------
Name: Rodney I. Smith
Title: Chairman of the Board
<PAGE>
SMITH-CAROLINA CORPORATION,
a North Carolina corporation
By: /s/ Rodney I. Smith [SEAL]
----------------------------
Name: Rodney I. Smith
Title: President
CONCRETE SAFETY SYSTEMS, INC.,
a Virginia corporation
By: /s/ Rodney I. Smith [SEAL]
----------------------------
Name: Rodney I. Smith
Title: President
MIDLAND ADVERTISING & DESIGN, INC.,
a Virginia corporation
By: /s/ Rodney I. Smith [SEAL]
----------------------------
Name: Rodney I. Smith
Title: President
<PAGE>
COMMONWEALTH OF VIRGINIA )
) to wit:
CITY OF RICHMOND )
--------
The foregoing instrument was acknowledged before me in my jurisdiction
aforesaid, this 25th day of June, 1998 by Rodney I. Smith, President of
SMITH-MIDLAND CORPORATION, a Delaware corporation, on behalf of the corporation.
[NOTARIAL SEAL] /s/ Denise K. Kein
--------------------------
Notary Public
My Commission Expires: June 30, 1999
---------------
* * *
COMMONWEALTH OF VIRGINIA )
) to wit:
CITY OF RICHMOND )
--------
The foregoing instrument was acknowledged before me in my jurisdiction
aforesaid, this 25th day of June, 1998 by Rodney I. Smith, President of
SMITH-MIDLAND CORPORATION, a Virginia corporation, on behalf of the corporation.
[NOTARIAL SEAL] /s/ Denise D. Kein
-----------------------------
Notary Public
My Commission Expires: June 30, 1999
----------------
<PAGE>
COMMONWEALTH OF VIRGINIA )
) to wit:
CITY OF RICHMOND )
--------
The foregoing instrument was acknowledged before me in my jurisdiction
aforesaid, this 25th day of June, 1998 by Rodney I. Smith, Chairman of the Board
of EASI-SET INDUSTRIES, INC., a Virginia corporation, on behalf of the
corporation.
[NOTARIAL SEAL] Denise D. Kein
-------------------------
Notary Public
My Commission Expires: June 30, 1999
-------------
* * *
COMMONWEALTH OF VIRGINIA )
) to wit:
CITY OF RICHMOND )
I, a Notary Public of the County and State aforesaid, certify that Wesley
A. Taylor personally appeared before me this day and acknowledged that he is
Secretary of Smith-Carolina Corporation, a North Carolina corporation, and that
by authority duly given and as an act of the corporation, the foregoing
instrument was signed in its name by its President, sealed with its corporate
seal and attested by him as its Secretary.
Witness my hand and official stamp or seal, this 25th day of June, 1998.
[NOTARIAL SEAL] /s/ Denise D. Kein
------------------------
Notary Public
My Commission Expires: June 30, 1999
---------------
<PAGE>
COMMONWEALTH OF VIRGINIA )
) to wit:
CITY OF RICHMOND )
The foregoing instrument was acknowledged before me in my jurisdiction
aforesaid, this 25th day of June, 1998 by Rodney I. Smith, President of CONCRETE
SAFETY SYSTEMS, INC., a Virginia corporation, on behalf of the corporation.
[NOTARIAL SEAL] /s/ Denise D. Kein
--------------------------
Notary Public
My Commission Expires: June 30, 1999
-------------
* * *
COMMONWEALTH OF VIRGINIA )
) to wit:
CITY OF RICHMOND )
The foregoing instrument was acknowledged before me in my jurisdiction
aforesaid, this 25th day of June, 1998 by Rodney I. Smith, President of MIDLAND
ADVERTISING & DESIGN, INC., a Virginia corporation, on behalf of the
corporation.
[NOTARIAL SEAL] /s/ Denise D. Kein
--------------------------------------
Notary Public
My Commission Expires: June 30, 1999
-------------
FIRST NATIONAL BANK OF NEW ENGLAND
COMMERCIAL REVOLVING PROMISSORY NOTE
$500,000 June 25, 1998
Richmond, Virginia
[Insert Location of Execution]
ON DEMAND, FOR VALUE RECEIVED, the undersigned, SMITH-MIDLAND CORPORATION,
a Delaware corporation (individually and, if more than one, collectively, the
"Borrower"), promises to pay (jointly and severally, if more than one) to the
order of First National Bank of New England ("Lender"), at its office at One
Commercial Plaza, Hartford, Connecticut or at such other place as the holder
hereof (including Lender, hereinafter referred to as "Holder"), may designate,
the principal sum of Five Hundred Thousand Dollars ($500,000) or the aggregate
unpaid principal amount of all advances made by the Holder to the Borrower under
the terms hereinafter set forth, whichever is less, in lawful money of the
United States and to pay interest on the unpaid balance of this Note beginning
as of the date hereof, before or after maturity or judgment (but subject to the
default rate of interest set forth below) at the per annum rate set forth in
Paragraph 2 below, which interest rate shall be computed daily and payable
monthly in arrears on the basis of a Three Hundred Sixty (360) day year and the
actual days elapsed, together with all taxes levied or assessed on this Note or
the debt evidenced hereby against the Holder, and together with all costs,
expenses and attorneys' and other professionals' fees incurred in any action to
collect and/or enforce this Note or to enforce, protect, preserve, defend,
realize upon or foreclose any security agreement, mortgage or other agreement
securing or relating to this Note, including without limitation, all costs and
expenses incurred in inspecting or surveying mortgaged real estate, if any, or
conducting environmental studies or tests, or to enforce, protect, preserve,
defend or sustain the lien of said security agreement, mortgage or other
agreement or in any litigation or controversy arising from or connected in any
manner with said security agreement, mortgage or other agreement, or this Note.
Borrower further agrees to pay all costs, expenses and attorneys' and other
professionals' fees incurred by Holder in connection with any "workout" or
default resolution negotiations involving legal counsel or other professionals
and further in connection with any re-negotiation or restructuring of the
indebtedness evidenced by this Note. Any such costs, expenses and/or fees
remaining unpaid after demand therefor, may, at the discretion of the Holder, be
added to the principal amount of the indebtedness evidenced by this Note.
This Note has been executed and delivered subject to the following terms
and conditions:
1. Advances.
a) Definitions. As used in this Paragraph 1 and otherwise in this
Note, the following terms shall have the following meanings:
i) "Acceptable Accounts" means an account receivable or accounts
receivable of Borrower due not more than ninety (90) days
from the date set forth on the original invoice evidencing
such account receivable, arising from the absolute sale of
goods by Borrower in which Borrower had the sole and
complete ownership or the performance of services by
Borrower in the ordinary course of its business, which
conforms to the warranties set forth in subparagraph 1(d)
below, and which:
A) is not an account receivable of a person or entity
obligated to Borrower upon such account receivable (an
"Account Debtor") which has suspended business, made a
general assignment for the benefit of creditors,
committed any act of insolvency, or filed or have had
filed against it any petition under any bankruptcy law
or any other law or laws for the relief of debtors;
B) is not an account receivable which: (1) is
subject to any setoff, counterclaim, defense,
allowance or adjustment other than discounts for prompt
payment shown on the invoice or to any dispute,
objection or complaint by the Account Debtor
concerning its liability on the account receivable and
the goods, the sale of which gave rise to the
account receivable, have not been returned,
rejected, lost or damaged; (2) arises from a sale or
<PAGE>
sales to an affiliate, parent, or subsidiary of
the Borrower; (3) is the obligation of a Account
Debtor located in a foreign country; and (4)
arises from a contract containing a prohibition
against assigning or granting a security interest
therein; and
C) is not an account receivable which Holder, in its sole
discretion, shall notify the Borrower as being
ineligible for an advance.
ii) "Acceptable Equipment" means all equipment and machinery of
the Borrower which Holder, in its sole discretion, shall
notify the Borrower as being eligible for an advance.
iii) "Acceptable Inventory" means all inventory of the Borrower
consisting of raw materials, work-in-progress and finished
goods which are held by or on behalf of the Borrower for
sale or lease and which is: (A) in first class condition
and salable through normal trade channels; (B) new and
unused; (C) owned by the Borrower and subject to no
lien, security interest, charge or other encumbrance
whatsoever, except those of Lender, if any; and (D) not
of a class which Holder, in its sole discretion, shall
notify the Borrower as being ineligible for an advance.
iv) "Maximum Permitted Amount" means an amount equal to the
lesser of: (A) $500,000, or (B) the sum of: (1)
seventy-five percent (75%) of the net balance due on
Acceptable Accounts; PLUS (B)(i) fifty percent (50%) of
the lesser of the cost or market value of Acceptable
Inventory consisting of finished goods, and (ii) fifty
percent (50%) of the lesser of the cost or market value of
Acceptable Inventory consisting of raw materials; LESS (C) a
set aside of $1,175,000.
v) "Termination Date" means May 1, 1999, as such date may be
extended, in writing from time to time, in the Holder's sole
and absolute discretion.
b) Procedure for Advances, Payment. Within the limits of the
Maximum Permitted Amount, so long as Borrower is in compliance
with all of the terms and conditions of this Note and no Event of
Default (as defined in Paragraph 8 hereof) has occurred and no
condition exists which would constitute an Event of Default but
for the giving of notice or passage of time, or both, and so long as
Holder has not demanded payment of any outstanding advances made
hereunder, Borrower may request, and Lender may make, in its sole
discretion, advances hereunder from time to time until the
Termination Date in the aggregate principal amount not
exceeding at any one time outstanding the Maximum Permitted
Amount; provided that in the third quarter of each calendar year
during the term of this Note, there shall be no borrowings or
reborrowings and no outstanding principal under this Note for
at least thirty (30) consecutive days. Whenever Borrower desires
an advance, Borrower shall notify the Lender (which notice
shall be irrevocable) by telex, telecopy or telephone of the
proposed borrowing. Such notice (each, a "Notice of Borrowing")
shall specify the date of the proposed borrowing and the amount
to be borrowed. Each Notice of Borrowing must be received by
Lender no later than 11:00 a.m., Hartford, Connecticut time on the
day such borrowing is requested. Each Notice of Borrowing shall be
immediately followed by a written confirmation thereof by the
Borrower and, if requested by Holder, a written certificate in
form, scope and substance satisfactory to Holder and signed by
the chief financial officer and president of the Borrower which
shall set forth in sufficient detail Borrower's calculation of
the Maximum Permitted Amount as described in subparagraph
1(a)(iv)(B) above, if applicable, provided that if such written
confirmation differs in any respect from the action taken by the
Lender, the records of the Lender shall control absent manifest
error. Advances and payments on this Note may be evidenced by
borrowing certificates, a grid (if any) attached to this Note or
similar certificates or documents, or by an internal ledger
account of Holder. The Borrower agrees that the amount shown on
said borrowing certificates, grid or similar certificate or
internal ledger account of Holder as outstanding from time to
time shall, in the absence of manifest error, be conclusive of
the amount owing to the Holder pursuant to this Note. ALL
ADVANCES HEREUNDER, TOGETHER WITH ACCRUED AND UNPAID INTEREST
AND ANY OTHER AMOUNTS DUE HEREUNDER, SHALL BE DUE AND PAYABLE ON
DEMAND, AND IF DEMAND IS NOT SOONER MADE, ON THE TERMINATION DATE,
at which time Borrower shall have no ability to request, and
<PAGE>
option, debit principal, interest, fees, costs and expenses
due and payable hereunder to any of Borrower's accounts
maintained with Holder on each date any such amount is due and
payable.
c) Holder Discretion. Nothing herein shall be construed to
require Holder to make advances hereunder and nothing herein
shall prohibit Holder from lending in excess of the Maximum
Permitted Amount or from raising or lowering the percentages of
advances against Acceptable Accounts, Acceptable Inventory
and/or Acceptable Equipment, it being agreed and understood by
Borrower that all advances hereunder shall be at Holder's sole
discretion and shall not establish a pattern or custom binding
upon Holder.
d) Accounts Receivable Warranties. Borrower represents and
warrants to Holder that: (i) each Acceptable Account is or, at
the time it comes into existence will be, a true and correct
statement of: (A) the bona fide indebtedness of the applicable
Account Debtor; and (B) the amount of the account for merchandise
sold and delivered to, or for services performed for and accepted
by, such Account Debtor, net of any charges, adjustments, discounts
or other reductions whatsoever; and (ii) at the time of each
borrowing hereunder, there are and, to the best of the
Borrower's knowledge after due investigation, will be no
defenses, counterclaims, discounts or setoffs that may be
asserted against Acceptable Accounts.
2. Interest. Interest on each advance made hereunder shall accrue as follows
(SELECT ONE AND COMPLETE):
[ ] at a fixed rate of percent ( ) per annum.
[x] at a variable rate per annum of one (1.00) percentage points in excess of
the Prime Rate, with the term "Prime Rate" meaning the "Prime Rate" as
published from time to time in the "Money Rates" section of The Wall
Street Journal in the most recent edition preceding the time of any
interest rate determination, or in the event that such rate is no longer
published in The Wall Street Journal, a comparable index or reference rate
selected by Holder, in its sole discretion. The Prime Rate may not
necessarily be the Lender's lowest or best rate. Any change in the
interest rate because of a change in the Prime Rate shall become effective
immediately, without notice or demand, on the date any change in the Prime
Rate occurs.
If not sooner demanded, interest shall be due and payable monthly in
arrears beginning on July 1, 1998 and continuing on the first day of each
and every month thereafter until the entire indebtedness evidenced by this
Note has been fully and finally paid. Upon demand for payment of any
advance made hereunder or the occurrence of an Event of Default, without
in any way affecting the Holder's right to accelerate this Note, this Note
shall bear interest at a rate equal to the rate otherwise in effect
hereunder.
3. Lawful Interest. Notwithstanding any provisions of this Note, it is the
understanding and agreement of the Borrower and Holder that the maximum
rate of interest to be paid by Borrower to the Holder shall not exceed the
highest or the maximum rate of interest permissible to be charged by a
commercial lender such as Lender to a commercial borrower such as Borrower
under the laws of the Commonwealth of Virginia. Any amounts paid in excess
of such rate shall be considered to have been payments in reduction of
principal.
4. Additional Payments. If Holder shall deem applicable to this
Note (including, in each case, any borrowed and any unused portion
thereof) or any advance made hereunder, any requirement of any law of
the United States of America, any regulation, order, interpretation,
ruling, official directive or guideline (whether or not having the force
of law) of the Board of Governors of the Federal Reserve System, the
Comptroller of the Currency, the Federal Deposit Insurance Corporation
or any other board or governmental or administrative agency of the
United States of America which shall impose, increase, modify or
make applicable to this Note or any advance made hereunder, or
cause this Note or any advance made hereunder to be included in any
reserve, special deposit, calculation used in the computation of
regulatory capital standards, assessment or other requirement which
imposes on Holder any cost that is attributable to the maintenance
thereof, then, and in each such event, Borrower shall promptly pay
Holder, upon its demand, such amount as will compensate Holder for any
such cost, which determination may be based upon the Holder's
reasonable allocation of the aggregate of such costs resulting from
any such events. In the event any such cost is a continuing cost,
a fee payable to Holder may be imposed upon Borrower periodically
for so long as any such cost is deemed applicable by Holder, in an
amount determined by Holder to be necessary to compensate Holder for
any such cost, which determination may be based upon the Holder's
reasonable allocation of the aggregate of such costs resulting from any
such events. The determination by Holder of the existence and amount
of any such cost shall, in the absence of manifest error, be conclusive.
5. Late Charge. In the event Borrower fails to pay any installment interest
when it is due and payable, without in any way affecting the Holder's
right to make demand for payment of or otherwise accelerate this Note, a
late charge equal to the late payment plus interest thereon at the rate
otherwise in effect hereunder shall, at the option of Holder, be assessed
against Borrower.
6. Mandatory and Optional Prepayments.
a) The Borrower shall immediately, without notice or demand, make a
prepayment on account of the advances made hereunder on any date on
which the aggregate principal amount outstanding of all advances
made hereunder exceeds the Maximum Permitted Amount in an amount
equal to the amount of such excess, together with accrued interest
to the date of such prepayment on the advance or advances, or any
portion thereof, being prepaid.
b) The Borrower may prepay the unpaid principal balance of this Note,
in whole or in part, at any time without penalty or premium. Any and
all such prepayments shall be applied first to interest accrued to
the date of prepayment and then to the principal balance.
7. Financial Information. Promptly upon Holder's request, Borrower
shall deliver to Holder such documentation and information about the
Borrower's financial condition, business and/or operations as Holder
may, at any time and from time to time, request, including without
limitation, business and/or personal financial statements, copies of
federal and state income tax returns and all schedules thereto, aging
reports of Borrower's accounts receivable and accounts payable and a
listing of Borrower's inventory and equipment, all of which shall be in
form, scope and content satisfactory to Holder, in its sole discretion.
8. Events of Default. Notwithstanding the demand nature of the indebtedness
evidenced by this Note, which shall at all times be payable on demand, the
Borrower agrees that each of the following shall constitute an "Event of
Default" hereunder:
a) Failure of Borrower to pay or perform any of Borrower's liabilities
or obligations to Holder (whether under this Note or otherwise and
whether now existing or hereafter incurred), including without
limitation, any installment of interest or any other sum due
hereunder, when due to be paid or performed; or
b) Failure of Borrower to pay any advance hereunder on demand; or
c) Failure of Borrower to observe, perform or comply with any covenant,
agreement or duty contained in this Note; or
<PAGE>
d) If Borrower or any guarantor of any obligation of the Borrower to
Holder shall be in default under any security agreement or other
agreement governing, securing or relating to this Note; or
e) If any representation or warranty made by the Borrower or any
guarantor of any obligation of the Borrower to Holder, including
without limitation, any representation or warranty contained herein,
or any statement, certificate or other data furnished by any of them
in connection herewith, proves at any time to be incorrect or untrue
in any material respect; or
f) Institution of or consent to proceedings, or the taking of any
action in furtherance of, or the entry of any order or decree of a
court of competent jurisdiction with respect to any of the
following:
i) Bankruptcy, insolvency or reorganization, readjustment,
arrangement, composition or similar relief as to Borrower or
any guarantor of any obligation of the Borrower to Holder
under federal or state bankruptcy or insolvency statutes or
related laws,
ii) Appointment of a receiver, liquidator, trustee or assignee in
bankruptcy or insolvency as to Borrower or any guarantor of
any obligation of the Borrower to Holder or a substantial part
of their respective properties, or
iii) Assignment of the Borrower or any guarantor of any obligation
of the Borrower to Holder for the benefit of creditors, the
winding up or liquidation of the affairs of the Borrower or
such guarantor, or the admission of Borrower or such guarantor
in writing of its inability to pay its debts; or
g) The death, dissolution, liquidation, insolvency (the term
"insolvency" shall mean either a negative tangible net worth or an
inability to pay its debts as they mature) or termination of legal
existence of Borrower or any guarantor of any obligation of the
Borrower to Holder; or
h) The service of any process upon the Holder seeking to attach or
garnish by mesne or trustee process any funds of Borrower or of any
guarantor of any obligation of the Borrower to Holder which are on
deposit with the Holder; or
i) The failure by Borrower or any guarantor of any obligation of the
Borrower to Holder to pay or perform any indebtedness or obligation
owed to any third party, or if any such other indebtedness or
obligation shall be accelerated; or
j) If there shall be any material adverse change in the assets,
liabilities, condition (financial, operating or otherwise) or
business of the Borrower or any guarantor of any obligation of the
Borrower to Holder; or
k) If, at any time, the Holder believes in good faith that the prospect
of payment of any obligation or the performance of any agreement of
the Borrower or any guarantor of any obligation of the Borrower to
Holder is impaired, or there is such a change in the assets,
liabilities, condition (financial, operating or otherwise) or
business of the Borrower or any such guarantor as the Holder
believes in good faith increases its risk of non-collection.
<PAGE>
Upon the occurrence of any Event of Default, all advances outstanding
hereunder, together with accrued interest thereon and any other sums due
under this Note, shall, at the option of the Holder, become immediately
due and payable, and any obligation of the Holder to make advances
hereunder shall terminate, at the option of the Bank, all of the foregoing
without presentment or demand for payment, notice of non-payment, protest
or any other notice or demand of any kind, all of which are expressly
waived by the Borrower. Failure to exercise such option shall not
constitute a waiver of the right to exercise the same in the event of any
subsequent default.
9. Lien and Right of Setoff. The Borrower hereby grants the Holder a lien and
right of setoff for all Borrower's liabilities upon and against all the
deposits, credits, collateral and property of the Borrower, now or
hereafter in the possession or control of the Holder or in transit to it.
Holder may, at any time, apply or set off the same, or any part thereof,
to any liability of the Borrower whether or not matured or demanded.
10. No Waiver. No delay or omission by Holder in exercising any
rights hereunder, nor failure by the Holder to insist upon the strict
performance by Borrower of any terms and provisions herein shall operate
as or be deemed to be a waiver of such right, any other right
hereunder, or any terms and provisions herein, and the Holder shall
retain the right thereafter to insist upon strict performance by the
Borrower of any and all terms and provisions of this Note or any document
securing the repayment of this Note. No waiver of any right shall be
effective unless in writing and signed by Holder, nor shall a waiver on
one occasion be constituted as a bar to, or waiver of, any such right on
any future occasion.
11. Prejudgment Remedy and Other Waivers. BORROWER HEREBY REPRESENTS
AND WARRANTS TO LENDER THAT THE LOAN IS A COMMERCIAL OR BUSINESS LOAN
UNDER THE LAWS OF THE COMMONWEALTH OF VIRGINIA, NEGOTIATED BY LENDER
AND BORROWER AND THEIR RESPECTIVE ATTORNEYS AT ARMS LENGTH. BORROWER
WARRANTS AND REPRESENTS THAT BORROWER IS A BUSINESS OR COMMERCIAL
ORGANIZATION AND THAT THE LOAN EVIDENCED HEREBY WAS MADE AND TRANSACTED
SOLELY FOR BUSINESS OR INVESTMENT PURPOSES AND/OR THAT THE AMOUNTS
ADVANCED OR TO BE ADVANCED UNDER THIS NOTE AND EVIDENCED HEREBY ARE
BEING MADE TO AND RECEIVED BY THE BORROWER FOR THE PURPOSE OF ACQUIRING
OR CARRYING ON BUSINESS, PROFESSIONAL OR COMMERCIAL ACTIVITY OR
INVESTMENT AS AN OWNER, AND THAT SUCH AMOUNTS ARE IN EXCESS OF FIVE
THOUSAND AND NO/100THS DOLLARS ($5,000). TO THE EXTENT PERMITTED BY LAW,
BORROWER WAIVES ANY RIGHTS IT MAY HAVE TO NOTICE AND HEARING WITH
RESPECT TO ANY PREJUDGMENT REMEDY WHICH HOLDER MAY DESIRE TO USE, AND
FURTHER WAIVES ALL RIGHTS TO REQUEST THAT HOLDER POST A BOND, WITH OR
WITHOUT SURETY, TO PROTECT BORROWER AGAINST DAMAGES THAT MAY BE CAUSED BY
ANY PREJUDGEMENT REMEDY SOUGHT OR OBTAINED BY HOLDER. Borrower waives
diligence, demand, presentment for payment, notice of nonpayment,
protest and notice of protest, and notice of any renewals or extensions
<PAGE>
of this Note, and all rights under any statute of limitations. THE
BORROWER ACKNOWLEDGES THAT BORROWER MAKES THESE WAIVERS KNOWINGLY AND
VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER EXTENSIVE
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER. THE BORROWER
FURTHER ACKNOWLEDGES THAT THE LENDER HAS NOT AGREED WITH OR REPRESENTED
TO BORROWER OR ANY OTHER PARTY HERETO THAT THE PROVISIONS OF THIS
PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
12. Jury Waiver. TO THE EXTENT PERMITTED BY LAW, THE BORROWER AND THE
LENDER HEREBY WAIVE TRIAL BY JURY IN ANY COURT AND IN ANY SUIT, ACTION OR
PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY
RELATED TO THE FINANCING TRANSACTIONS OF WHICH THIS NOTE IS A PART
AND/OR THE ENFORCEMENT OF ANY OF THEIR RESPECTIVE RIGHTS AND REMEDIES,
INCLUDING WITHOUT LIMITATION, TORT CLAIMS. THE BORROWER AND THE LENDER
EACH MAKE THIS WAIVER KNOWINGLY AND VOLUNTARILY, WITHOUT DURESS AND
ONLY AFTER EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF THIS
WAIVER. THE BORROWER FURTHER ACKNOWLEDGES THAT THE LENDER HAS NOT
AGREED WITH OR REPRESENTED TO BORROWER OR ANY OTHER PARTY HERETO
THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN
ALL INSTANCES.
13. Joint and Several Liability. References in this Note to the Borrower in
the singular shall include the plural, and if Borrower consists of more
than one person, the liability of each Borrower shall be joint and
several.
14. Acknowledgment of Copy, Use of Proceeds. The Borrower acknowledges receipt
of a copy of this Note and attests that the proceeds of this Note are to
be used for general commercial purposes and that no part of such proceeds
will be used, in whole or in part, for the purpose of purchasing or
carrying any "margin security" as such term is defined in Regulation U of
the Board of Governors of the Federal Reserve System.
15. Miscellaneous. The provisions of this Note shall be binding upon the
heirs, executors, administrators, successors and assigns and shall inure
to the benefit of Holder, its successors and assigns. If any provision of
this Note shall, to any extent, be held invalid or unenforceable, then
only such provision shall be deemed ineffective and the remainder of this
Note shall not be affected. Borrower acknowledges and agrees that Holder
shall have the right to report any delinquencies, defaults and/or losses
incurred by Holder hereunder to any credit agency, bureau or service. This
Note shall be governed by and construed in accordance with the laws of the
Commonwealth of Virginia (but not its conflicts of law provisions).
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed by
its President, thereunto duly authorized, in its name, under its seal, and on
its behalf the day and year first written above.
WITNESS/ATTEST: SMITH-MIDLAND CORPORATION, a
Delaware corporation
/s/ Wesley A. Taylor By: /s/ Rodney I. Smith [SEAL]
- -------------------------------- --------------------------------
Name: Wesley A. Taylor Name: Rodney I. Smith
Title: Secretary Title: President
<PAGE>
PROMISSORY NOTE
$4,000,000 June 25, 1998
Richmond, Virginia
FOR VALUE RECEIVED, SMITH-MIDLAND CORPORATION, a Delaware corporation (the
"Maker"), promises to pay to the order of FIRST NATIONAL BANK OF NEW ENGLAND,
(or its successors and assigns) (collectively, the "Lender"), the principal sum
of FOUR MILLION AND 00/100 DOLLARS ($4,000,000) plus all accrued but unpaid
interest thereon, at the rate(s) hereinafter set forth, on the unpaid principal
balance hereof from time to time, from the date of this Promissory Note (the
"Note") until the date the entire principal sum hereof has been paid in full.
Said interest and principal shall be payable as set forth as follows:
1. Repayment Terms.
(a) The undersigned will pay principal and interest by making
payments in the initial amount of Thirty Seven Thousand Eighty Seven and 27/100
Dollars ($37,087.27) on the first day of each month beginning on August 1, 1998.
The undersigned will make these payments until they have paid in full all
principal and interest and any other sums due hereunder. Notwithstanding the
foregoing, the entire indebtedness evidenced by this Note, including, but not
limited to, all outstanding principal and accrued and unpaid interest, shall be
due and payable in full on the twenty-third (23rd) anniversary date of this
Note.
(b) The undersigned's initial monthly payments shall be calculated
in accordance with the full amortization of the loan evidenced by this Note by
level monthly payments of principal and interest over a twenty-three (23) year
period at the interest rate applicable on the date hereof. On each Adjustment
Date (as herein defined), the amount of the monthly payments will be adjusted so
as to provide for the full amortization of the then outstanding principal at the
interest rate established at each Adjustment Date in level monthly payments of
principal and interest over the remaining term of the original twenty-three (23)
year amortization period.
(c) Interest shall accrue on the outstanding principal amount of
this Note at a per annum rate of one and one-half (1.50%) percentage points
above the Prime Rate on a floating basis. The initial interest rate hereunder is
ten (10.0%) percent. On October 1, 1998 and on the first day of each, January,
April, July, and October thereafter until all sums due hereunder are paid in
full (each being referred to as an "Adjustment Date"), the interest rate on the
unpaid principal balance hereunder shall be adjusted, without notice or demand,
to a per annum rate of one and one-half (1.50) percentage points above the Prime
Rate in effect on the applicable Adjustment Date (or the following business day
in the event that such Adjustment Date falls on a Saturday, Sunday or holiday),
which such rate shall remain in effect until the succeeding Adjustment Date.
Interest hereunder shall be computed on a daily basis and on the basis of a
Three Hundred Sixty (360) day year and a thirty (30) day month. The undersigned
further agrees to pay all taxes levied or assessed on this Note or the debt
evidenced hereby against the holder of this Note, and further agrees to pay all
costs, expenses and attorneys' fees incurred in any action to collect this Note
or to defend, protect, preserve or realize upon or foreclose any mortgage or
<PAGE>
security agreement securing this Note or to protect, defend, preserve, foreclose
or sustain the lien of said mortgage or security agreement or in any litigation
or controversy arising from or connected with said mortgage, security agreement,
or this Note. As used herein, "Prime Rate" shall mean the lowest New York prime
rate as set forth in the money rate section of the Wall Street Journal (or in
any successor publication).
(d) In the event of prepayment, the Maker will pay a penalty of five
percent (5%) of the prepayment amount in year one (1), four percent (4%) in year
two (2), three percent (3%) in year three (3), two percent (2%) in year four
(4), and one percent (1%) in year five (5). The Maker may prepay the loan in
part or in full in years six (6) through twenty-three (23) without penalty,
provided three (3) weeks prior written notice is given to Lender.
(e) Lender shall give written notice to the undersigned of each increase
or decrease in the interest (and change in installment amount, if applicable)
within thirty days after the effective date of each rate adjustment; however,
the fluctuation of the interest rate is not contingent on whether the notice is
given.
(f) If the undersigned shall be in default in payment due on the
indebtedness herein and the United States Department of Agriculture Rural
Business - Cooperative Service (f/k/a/ Farmers Home Administration) ("Agency")
purchases its guaranteed portion of said indebtedness, the rate of interest on
both the guaranteed and unguaranteed portions herein shall become fixed at the
rate in effect as of the date of default. If the undersigned shall not be in
default in payment when Agency purchases its guaranteed portion, the rate of
interest on both the guaranteed and unguaranteed portions herein shall be fixed
at the rate in effect as of the date of purchase by Agency.
(g) All payments received by the Lender, at the option of the Lender,
shall be applied first to any outstanding charges and expenses incurred by the
Lender in connection with this Note or any documents executed in connection with
this Note, then to any unpaid and accrued interest and finally to the
outstanding principal due under this Note. The undersigned agrees that the
interest shall accrue at the foregoing rate on unpaid balance before and after
maturity, by acceleration or otherwise.
(h) The Maker hereby grants to the Lender and any holder of this Note a
lien and right of set-off for all of the Maker's liabilities to Lender or holder
upon and against all of the Maker's deposits, credits, and other property now
owned or hereafter in the possession or control of Lender or holder or in
transit to. The Lender or holder may at any time apply the same or any part
thereof to any of the Maker's liabilities to Lender or holder, whether or not
matured at the time of such application, at any time after the occurrence of an
"Event of Default" under the loan documents executed in connection herewith.
(i) Maker agrees to pay a late charge equal to five percent (5%) of the
payment amount due if such payment is not received within ten (10) days of the
due date. Funds received from the Maker will be applied first to interest to the
date of receipt, then to principal and then to the late fee.
(j) The Maker agrees that, in addition to other events of default stated
in this Note or related loan documents, each of the following shall constitute
an "event of default" under this Note:
<PAGE>
1) Failure of Maker or any guarantor to pay or perform any of
Maker's or guarantor's liabilities or obligations to Lender.
2) If Maker or any guarantor of any obligation of Maker to Lender or
holder shall be in default under any security agreement, mortgage or other
agreement governing, securing or relating to this Loan.
2. Security for Note. This Note is secured by (a) Security Agreement of
even date herewith executed and delivered by Maker in favor of Lender (the
"Maker's Security Agreement"), (b) unlimited guarantee of Smith-Midland
Corporation, a Virginia corporation, secured by two (2) Deeds of Trust with
respect to certain real properties situate in Midland, Virginia, as more
particularly described in said Deeds of Trust; (c) unlimited guarantee of
Smith-Carolina Corporation, a North Carolina corporation, secured by a Deed of
Trust with respect to certain real property situate in Reidsville, North
Carolina, as more particularly described in said Deed of Trust; (d) unlimited
guarantee of Easi-Set Industries, Inc., secured by a Security Agreement of even
date herewith; (e) unlimited guarantee of Concrete Safety Systems, Inc., secured
by a Security Agreement of even date herewith; (f) unlimited guarantee of
Midland Advertising & Design, Inc., secured by a Security Agreement of even date
herewith; and (g) any other instrument now or hereafter executed by Maker
(singly or jointly with another person or persons) in favor of Lender which in
any manner constitutes additional security for this Note (all of the foregoing
documents and/or instruments, including this Note, the Maker's Security
Agreement, the Deeds of Trust and are herein collectively referred to as the
"Loan Documents"). All of the terms, covenants, conditions and provisions of the
other Loan Documents are hereby incorporated in and made a part of this Note to
the same extent as if herein set forth in full.
3. Obligations. As used herein, "Obligations" means all obligations,
indebtedness, liabilities, guaranties, covenants and duties owing by Maker to
Lender, under the Loan Documents, other Security Agreements or the loan
documents of even date herewith in connection with that certain $500,000 loan by
Lender to Maker, and any renewals, extensions and modifications thereof,
together with any now or hereafter existing indebtedness of the Maker to the
Lender whatsoever. "Obligor" means the Maker and all endorsers, guarantors and
sureties of any Obligation. As security for the full and timely repayment of the
Obligations, in addition to any collateral under the Maker's Security Agreement
or under any note, assignment or other document now existing or hereafter
executed by the Maker and/or any other person with respect to any of the
Obligations, the Maker, subject to the terms of the Maker's Security Agreement,
hereby grants to the Lender a security interest in all monies, bank deposits or
credits held by the Lender for or owed by the Lender to the Maker, and, in the
event of default hereunder beyond any applicable notice and cure periods, such
monies, deposits or credits may be set off and applied to the payment of any
Obligations.
4. Default. The Maker shall be in default hereunder on the occurrence of
any of the following: (a) non-payment of any portion of any Obligation when due
and payable; (b) any material warranty, representation or statement made or
furnished to the Lender by or on behalf of the Maker proving to have been
incorrect when made or furnished; (c) the existence of any event of default
under the terms of any of the Loan Documents, or any note, guaranty or other
document now existing or hereafter executed by the Maker (singly or jointly with
another person or persons) and (or in favor of) the Lender; (d) the existence of
<PAGE>
any event of default under the terms of any instrument or writing evidencing a
debt of the Maker to someone other than the Lender which remains uncured beyond
any applicable notice and cure periods; (e) loss, theft, substantial damage,
destruction or transfer or encumbrance without fair value in return of any of
the Maker's assets; (f) any Obligor (i) admitting in writing its insolvency or
its inability to pay its debts generally as they mature, (ii) making a general
assignment for the benefit of creditors, (iii) commencing a case under or
otherwise seeking to take advantage of any bankruptcy, reorganization,
insolvency, readjustment of debt, dissolution or liquidation law, statute or
proceeding, (iv) by any act indicating its consent to, approval of or
acquiescence in any such proceeding or the appointment of any receiver of or
trustee for it or a substantial part of its property, or, in the absence of any
such consent, approval or acquiescence, suffering any such receivership,
trusteeship or proceeding to continue undismissed for a period of thirty (30)
days in the case of any such appointment, and sixty (60) days in the case of any
such other proceeding, after such appointment or institution of such other
proceeding, as the case may be, or (v) becoming a voluntary debtor in any case
under any chapter of the United States Bankruptcy Code; (g) any Obligor
defaulting (beyond any applicable notice and cure periods) under the terms of
the guarantee, security or other agreement executed, or which may hereafter be
executed, in connection with the Obligation(s); (h) judgment against, or
attachment of property of any Obligor; (i) dissolution, merger, consolidation,
liquidation or reorganization of any Obligor; or (j) failure of Lender to
realize upon proceeds of Assignment of Life Insurance Policy as Collateral on
the life of Rodney I. Smith executed in connection with this Note.
5. Remedies Upon Default. Upon the occurrence of any event of default, the
Lender, at its option, may declare any or all Obligations immediately due and
payable without further notice, presentation, demand of payment or protest,
which are hereby expressly waived by every Obligor. The Lender's rights and
remedies hereunder and under any security or other agreements by and between the
Maker and the Lender are cumulative, and recourse to one shall not constitute a
waiver of others.
6. Address for Payments. All payments made hereunder shall be paid in
lawful money of the United States of America at the office of Lender at One
Commercial Plaza, Hartford, Connecticut 06103, or at such other place as the
Lender or any other holder of this Note may at any time or from time to time
designate in writing to the Maker.
7. Severability. If any part of this Note is declared invalid or
unenforceable, such invalidity or unenforceability shall not affect the
remainder of this Note, which shall continue in full force and effect. Any
provision that is invalid or unenforceable in any application shall remain in
full force and effect as to valid applications. In this Note, the term "person"
shall include an individual, a corporation, an association, a partnership, a
trust and any other legal entity.
8. Notices. All notices which are required or permitted hereunder shall be
given in the same manner as specified in the Security Agreement.
9. Governing Law. This Note is intended as a contract under and shall be
construed and enforced in accordance with the laws of the Commonwealth of
Virginia or the laws of the United States of America, when and where applicable,
as Lender may elect.
<PAGE>
10. Time of Essence. Time is of the essence of this Note.
11. Authority. The party executing this Note for and on behalf of Maker
warrants and represents that he/she is the President of Maker and has full power
and authority to bind Maker for the uses and purposes as in this Note contained.
12. Compliance with Laws. Maker and Lender mutually agree that nothing
herein contained, nor any transaction related thereto, shall be construed or
shall so operate either presently or prospectively to require Maker to make any
payment or do any act contrary to law, but if any clause and provision herein
contained shall otherwise so operate to invalidate this Note, in whole or in
part, then such clauses and provisions only shall be held for naught as though
not herein contained and this clause shall override and control, it being the
intention of Maker and Lender that this Note and all documents evidencing or
securing the indebtedness evidenced hereby shall in all ways comply with
applicable law, and proper adjustment shall automatically be made accordingly.
13. Maximum Rate of Interest. Notwithstanding anything herein or in the
other Loan Documents to the contrary, it is not the intention of Lender to
charge or collect any interest which would result in a rate of interest being
charged which is in excess of the maximum rate, if any, now permitted by law for
this transaction to be charged; and in the event that any sum in excess of such
maximum rate of interest is paid or charged, the same shall be deemed to have
been a prepayment of principal when paid, without premium or penalty, and all
payments made thereafter shall be appropriately applied to interest and
principal to give effect to such maximum rate, and after such application, any
excess shall be immediately refunded to Maker. If, during the term of this Note,
the maximum rate of interest, if any, now permitted by law for this transaction
to be charged should be increased, then for so long as such increase is in
effect, the applicable maximum rate permitted to be charged as referred to in
the immediately preceding sentence shall be deemed to be such increased rate. If
such maximum rate of interest, if any, now permitted by law to be charged for
this transaction should be eliminated so that there would be no such maximum
rate, then, for purposes of this loan, there shall thereafter be no maximum rate
limiting the amount that can be charged.
14. Waivers.
(a) Maker hereby waives and renounces, for itself and all its
successors and assigns, all right to the benefit of any moratorium,
reinstatement, marshalling, forbearance, valuation, stay, extension, redemption,
appraisement, exemption and homestead now provided or which hereafter may be
provided by the Constitution and laws of the United States of America and of any
state thereof, as to itself and in and to all of its property, real and
personal, against the enforcement and collection of the Obligations evidenced by
this Note.
(b) Presentment for payment, demand, protest and notice of demand,
notice of dishonor and notice of nonpayment and all other notices are hereby
waived by Maker.
<PAGE>
15. Joint and Several Liability. Maker, all endorsers hereof and all
others who may become liable for all or any part of the Obligations agree hereby
to be jointly and severally bound, and they jointly and severally waive and
renounce, to the extent permitted by law, any and all exemption rights and the
benefit of all valuation and appraisement privileges as against this debt or any
renewal or replacement thereof. Maker expressly consents to any extension of
time, release of any party liable for the Obligations, release of any of the
security of this Note, acceptance of other security therefor or any other
indulgence or forbearance whatsoever. Any such extension, release, indulgence or
forbearance may be made without notice to said party and without in any way
affecting the personal liability of such party.
16. No Novation. No failure to accelerate the debt evidenced hereby by
reason of default hereunder, acceptance of a past-due installment or indulgence
granted from time to time shall be construed (a) as a novation of this Note or
as a reinstatement of the indebtedness evidenced hereby or as a waiver of such
right of acceleration or of the right of Lender thereafter to insist upon strict
compliance with the terms of this Note, or (b) to prevent the exercise of any
such right of acceleration or any other right granted hereunder or by the laws
of the Commonwealth of Virginia. Maker hereby expressly waives the benefit of
any statute or rule of law or equity now provided, or which may hereafter be
provided, which would produce a result contrary to or in conflict with the
foregoing. No extension of time for the payment of this Note or any installment
due hereunder, made by agreement with any person now or hereafter liable for the
payment of this Note, shall operate to release, discharge, modify, change or
affect the original liability of Maker under this Note, either in whole or in
part, unless Lender agrees otherwise in writing. This Note may not be modified
orally, but only by an agreement in writing signed by the party against whom
enforcement of such waiver, change, modification or discharge is sought.
17. Waiver of Trial by Jury. TO THE EXTENT PERMITTED BY LAW MAKER AND
LENDER EACH HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT
OF OR IN ANY WAY PERTAINING TO THIS NOTE AND/OR ANY OF THE OTHER DOCUMENTS
EVIDENCING OR SECURING THE DEBT TRANSACTION EVIDENCED HEREBY. THIS WAIVER IS
KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY MAKER AND LENDER, AND MAKER AND
LENDER HEREBY REPRESENT TO EACH OTHER THAT NO ORAL OR WRITTEN STATEMENTS HAVE
BEEN MADE BY ANY PARTY TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY
MODIFY OR NULLIFY ITS STATED EFFECT. MAKER FURTHER REPRESENTS THAT IT HAS BEEN
REPRESENTED BY INDEPENDENT COUNSEL, SELECTED OF ITS OWN FREE WILL, IN THE
SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER AND THAT IT HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH SUCH COUNSEL.
18. Acknowledgments by Maker. Maker hereby acknowledges that (a) Maker and
its shareholders are knowledgeable borrowers of commercial funds, (b) they and
their attorneys fully understand the effect of the above provisions, (c) Lender
<PAGE>
would not make the loan evidenced hereby without such provisions and (d) such
loan is negotiated by Lender and Maker and their respective attorneys at arms
length. The foregoing representations and warranties are made with the intent
that the Lender and any subsequent holder of this Note may rely thereon.
19. Business or Commercial Organization. MAKER HEREBY REPRESENTS AND
WARRANTS TO LENDER THAT THE LOAN IS A COMMERCIAL OR BUSINESS LOAN UNDER THE LAWS
OF THE COMMONWEALTH OF VIRGINIA, NEGOTIATED BY LENDER AND MAKER AND THEIR
RESPECTIVE ATTORNEYS AT ARMS LENGTH. MAKER WARRANTS AND REPRESENTS THAT MAKER IS
A BUSINESS OR COMMERCIAL ORGANIZATION AND THAT THE LOAN EVIDENCED HEREBY WAS
MADE AND TRANSACTED SOLELY FOR BUSINESS OR INVESTMENT PURPOSES AND/OR THAT THE
AMOUNTS ADVANCED OR TO BE ADVANCED UNDER THIS NOTE AND EVIDENCED HEREBY ARE
BEING MADE TO AND RECEIVED BY THE MAKER FOR THE PURPOSE OF ACQUIRING OR CARRYING
ON BUSINESS, PROFESSIONAL OR COMMERCIAL ACTIVITY OR INVESTMENT AS AN OWNER, AND
THAT SUCH AMOUNTS ARE IN EXCESS OF FIVE THOUSAND AND NO/100THS DOLLARS ($5,000).
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Maker has caused this Note to be executed by its
President, thereunto duly authorized, in its name, under its seal, and on its
behalf the day and year first written above.
WITNESS/ATTEST: SMITH-MIDLAND CORPORATION,
a Delaware corporation
/s/ Wesley A. Taylor By: /s/ Rodney I. Smith
__________________________ ----------------------
Name: Wesley A. Taylor Name: Rodney I. Smith
Title: Secretary Title: President
[CORPORATE SEAL]
CERTIFICATION
THIS IS TO CERTIFY that this is the Promissory Note described in and
secured by that certain Security Agreement, bearing even date herewith, from the
Maker of this Note to David M. Baroody, Trustee, conveying certain property
(described in said Security Agreement) situate in the Commonwealth of Virginia,
said Security Agreement and this Promissory Note having been executed in my
presence.
/s/ Barbara H. Medlin
----------------------------
Notary Public
My Commission Expires: 6-30-2000
__________
[NOTARIAL SEAL]
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000924719
<NAME> SMITH MIDLAND CORPORATION
<CURRENCY> DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 0.0001
<CASH> 276,096
<SECURITIES> 0
<RECEIVABLES> 3,402,736
<ALLOWANCES> 433,822
<INVENTORY> 1,659,801
<CURRENT-ASSETS> 6,052,179
<PP&E> 1,660,802
<DEPRECIATION> 79,714
<TOTAL-ASSETS> 9,601,503
<CURRENT-LIABILITIES> 3,247,836
<BONDS> 0
0
0
<COMMON> 30,857
<OTHER-SE> 2,196,315
<TOTAL-LIABILITY-AND-EQUITY> 9,601,503
<SALES> 6,428,072
<TOTAL-REVENUES> 6,521,420
<CGS> 4,858,896
<TOTAL-COSTS> 6,116,685
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 230,229
<INCOME-PRETAX> 174,506
<INCOME-TAX> 0
<INCOME-CONTINUING> 174,506
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 174,506
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
