As filed with the Securities and Exchange Commission on August 20, 1999
================================================================================
Registration No. _________
SECURITIES AND EXCHANGE COMMISSION
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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SMITH-MIDLAND CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 54-1727060
(State or other jurisdiction of (I.R.S. Employer Indentificate No.)
incorporation or organization)
Route 28, P.O. BOX 300, Midland, Virginia, 22728 - (540) 439-3266
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Rodney I. Smith, President
Smith-Midland Corporation
Route 28, P.O. Box 300
Midland, Virginia 22728
(540) 439-3266
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy to:
Gary T. Moomjian, Esq.
Kaufman & Moomjian, LLC
50 Charles Lindbergh Boulevard - Suite 206
Mitchel Field, New York 11553
(516) 222-5100
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Proposed Maxium
Maximum Aggregate Amount of
Title of Each Class Amount to be Offering Price Offering Registration
of Securities to be Registered Registered per Security Price Fee
<S> <C> <C> <C> <C> <C> <C>
Common Stock, par value $.01 per 1,385,718 $.60 $831,431 --
share (1)
Common Stock, par value $.01 per 100,000 $5.425 $542,500 --
share(2)
Redeemable Warrants, each to 100,000 $.155 $15,500 --
purchase one share of Common
Stock(2)
Common Stock, par value $.01 per 100,000 $.60 $60,000 --
share(3)
Common Stock, par value $.01 per 200,000 $1.00 $200,000 $56.60
share (4)
Total Registration Fee $56.60
<FN>
- -- Filing fee not required. Previously registered and included herein pursuant
to Rule 429.
(1) Issuable upon exercise of publicly traded Redeemable Warrants.
(2) Issuable upon exercise of warrants granted to the underwriters of the
Company's initial public offering of securities. This Registration
Statement also relates to the resale of these securities by the holders
thereof or their transferees.
(3) Issuable upon exercise of the Redeemable Warrants underlying the
Underwriters' Warrants. This Registration Statement also relates to the
resale of these securities by the holders thereof or their transferees.
(4) Represents shares of Common Stock underlying warrants issued to designees
of Network I Financial Securities, Inc. pursuant to a financial advisory
agreement with the Company and relates to the resale of the Network
I Shares by the holders thereof or their transferees.
</FN>
</TABLE>
Pursuant to Rule 416 of the Securities Act of 1933, this Registration
Statement also relates to such additional indeterminate number of shares of
Common Stock and Redeemable Warrants as may become issuable by reason of stock
splits, dividends and similar adjustments, in accordance with the antidilution
provisions of the warrants underlying the Redeemable Warrants, the Underwriters'
Warrants and the Network I Warrants.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 20, 1999
PRELIMINARY PROSPECTUS
SMITH-MIDLAND CORPORATION
1,785,718 Shares of Common Stock
and
100,000 Redeemable Warrants to Purchase Common Stock
This Prospectus is part of a Registration Statement filed by Smith-Midland
Corporation with the Securities and Exchange Commission using the "shelf"
registration process. The Registration Statement covers 1,385,718 shares of
Common Stock of the Company issuable upon exercise of publicly-traded redeemable
common stock purchase warrants of the Company. Each Redeemable Warrant entitles
the registered holder thereof to purchase one share of Common Stock at a price
of $.60 at any time through and including December 12, 2000. The exercise price
per share of the Redeemable Warrants was lowered to $.60 from $4.00 effective on
the date of this Prospectus.
This Prospectus also relates to 100,000 shares of Common Stock and 100,000
Redeemable Warrants underlying warrants originally issued to Network I Financial
Securities, Inc. and LCP Capital Corp. (formerly First Hanover Securities,
Inc.), the underwriters of our initial public offering in December of 1995.
100,000 shares of Common Stock issuable upon exercise of the Redeemable Warrants
underlying the Underwriters' Warrants are also being registered herein. The
Underwriters' Warrants to purchase Common Stock are exercisable at $5.425 per
share, and the Underwriters' Warrants to purchase Redeemable Warrants are
exercisable at $.155 per warrant.
This Prospectus also relates to 200,000 shares of Common Stock underlying
warrants issued to designees of Network I Financial Securities, Inc. pursuant to
a financial advisory agreement with the Company. The Network I Warrants are
exercisable at $1.00 per share of Common Stock and expire on January 14, 2002.
The estimated proceeds, after our expenses, from the exercise of all of the
Redeemable Warrants, the Underwriters' Warrants and the Network I Warrants is
$1,549,860. Included in expenses is a solicitation fee of five (5%) percent (up
to $41,572) which will be required to be paid to Network I Financial Securities,
Inc., in certain circumstances.
The Common Stock and Redeemable Warrants are currently traded on the NASDAQ
SmallCap Market under the symbols "SMIDC" and "SMIWC," respectively, and are
listed on the Boston Stock Exchange under the symbols "SMM" and "SMM/W"
respectively. On August 18, 1999, the last sales price for the Common Stock and
the Redeemable Warrants, as reported by NASDAQ, was $.75 per share and $.34375
per Redeemable Warrant, respectively.
------------------
The Securities offered in this Prospectus involve a high degree of risk.
You should carefully read and consider the "Risk Factors," commencing one
page 8, for information that should be considered in determining
whether to purchase any of the securities.
------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
The date of this Prospectus is _____________, 1999
<PAGE>
TABLE OF CONTENTS
Where You Can Find More Information. . . . . . . . . . . . . . . . . . . . . .3
Forward-looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . .4
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Recent Events. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
The Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Selling Securityholders. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . 21
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS AND IN ANY ACCOMPANYING PROSPECTUS SUPPLEMENT. NO
ONE HAS BEEN AUTHORIZED TO PROVIDE YOU WITH DIFFERENT INFORMATION.
THE SECURITIES ARE NOT BEING OFFERED IN ANY JURISDICTION WHERE THE OFFER IS
NOT PERMITTED.
YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR ANY
PROSPECTUS SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE
FRONT OF SUCH DOCUMENTS.
2
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Government Filings. We are subject to the information reporting
requirements of the Securities Exchange Act of 1934, as amended. As such, we
file annual, quarterly and special reports, proxy statements and other documents
with the Securities and Exchange Commission. These reports, proxy statements and
other documents may be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, NW,
Washington, D.C. 20549 and at the SEC's regional offices located at Seven World
Trade Center, Suite 1300, New York, New York 10048 and at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60601-2511. You may also
obtain copies of such material by mail from the public reference facilities of
the SEC's Washington, D.C. offices, at prescribed rates. Please call the SEC at
1-800-SEC-0330 for further information on their public reference facilities. In
addition, the SEC maintains a Worldwide Web site that contains reports, proxy
and information statements and other information regarding companies, including
the Company, that file electronically with the SEC at the address
"http://www.sec.gov."
Stock Market. The Common Stock and Redeemable Warrants are listed on The
Nasdaq SmallCap Market and the Boston Stock Exchange. Material filed by the
Company can also be inspected and copied at the offices of NASDAQ at 1735 K
Street, N.W., Washington, D.C. 20006, and the Boston Stock Exchange, at One
Boston Place, Boston, Massachusetts 02108.
The Company. We will provide you without charge, upon your request, a copy
of any or all reports, proxy statements and other documents filed by us with the
SEC, as well as any or all of the documents incorporated by reference in this
Prospectus or the Registration Statement (other than exhibits to such documents
unless such exhibits are specifically incorporated by reference into such
documents). Requests for such copies should be directed to:
Smith-Midland Corporation
Route 28, P.O. Box 300
Midland, Virginia 22728
Attn: Theodore D. Pennington
Telephone number: (540) 439-3266
Information Incorporated by Reference. The SEC allows us to "incorporate by
reference" the information we file with the SEC, which means that:
- incorporated documents are considered part of this Prospectus,
- we can disclose important information to you by referring you to
those documents and,
- information that we file after the date of this Prospectus with the
SEC will automatically update and supersede information contained in
this Prospectus and the Registration Statement.
The Company incorporates by reference the documents listed below and any
future filings the Company will make with the SEC under Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act until this Offering has been completed:
1. Our Annual Report on Form 10-KSB, for the year ended December 31,
1998;
2. Our Quarterly Report on Form 10-QSB, for the fiscal quarter ended
March 31, 1999;
3. Our Quarterly Report on Form 10-QSB, for the fiscal quarter ended
June 30, 1999; and
4. The description of the Common Stock, the Underwriters' Warrants and
the Redeemable Warrants contained in our Registration Statement
on Form SB-2, declared effective on December 13, 1995, including any
amendment(s) or report(s) filed for the purpose of updating such
description.
3
<PAGE>
FORWARD-LOOKING STATEMENTS
This Prospectus and the documents incorporated by reference into this
Prospectus include "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. Forward- looking
statements involve known and unknown risks, uncertainties and other factors
which could cause the Company's actual results, performance (financial or
operating) or achievements expressed or implied by such forward looking
statements not to occur or be realized. Such forward looking statements
generally are based upon the Company's best estimates of future results,
performance or achievement, based upon current conditions and the most recent
results of operations. Forward-looking statements may be identified by the use
of forward-looking terminology such as "may," "will," "expect," "believe,"
"estimate," "anticipate," "continue," or similar terms, variations of those
terms or the negative of those terms. Potential risks and uncertainties include,
among other things, such factors as:
- the possible delisting of our Common Stock from Nasdaq due to the
continuing trading of the stock price below $1.00 per share and/or
the book value of our Net Tangible Assets continuing to remain
below $2,400,000,
- our high level of indebtedness and ability to satisfy the same, as
well as our sensitivity to possible increasing interest rates,
- our recent substantial discontinuance of, and significant loss under,
a material contract,
- our limited history of profitable operations and our recent
significant loss for the year ended December 31, 1998,
- the continued availability of financing in the amounts, at the times
and on the terms required to support our future business and capital
projects,
- the extent to which we are successful in developing, acquiring,
licensing or securing patents for proprietary products,
- changes in economic conditions specific to any one or more of our
markets (such as the availability of public funds and grants for
construction),
- changes in general economic conditions (such as interest rate
changes),
- adverse weather which inhibits the demand for our products,
- our compliance with governmental regulations,
- the outcome of pending and future litigation,
- unforeseen operational difficulties and financial losses due to year
2000 computer problems, and
- the other factors and information disclosed and discussed under
"Risk Factors" and in other sections of this Prospectus.
Investors should carefully consider such risks, uncertainties and other
information, disclosures and discussions which contain cautionary statements
identifying important factors that could cause actual results to differ
materially from those provided in the forward-looking statements. We undertake
no obligation to publicly update or revise any forward- looking statements,
whether as a result of new information, future events or otherwise.
4
<PAGE>
THE COMPANY
Smith-Midland Corporation ("we," "us" or the "Company") develops,
manufactures, markets and installs a variety of precast concrete products for
use primarily in the construction, transportation and utilities industries. Our
customers are primarily general contractors and federal, state and local
transportation authorities located in the Mid- Atlantic and Northeastern regions
of the United States. We also license our products to precast concrete
manufacturers nationwide and in Puerto Rico, Canada, Belgium, Chile and Spain.
Our products are used for residential housing; commercial buildings; public and
private roads and highways; airports; municipal utilities; and federal, state
and local transportation authorities.
We manufacture and sell a variety of products, most of which can be custom
designed, finished and fabricated to suit a variety of our clients' needs and
demands. Slenderwall lightweight construction panels are prefabricated, energy-
efficient panels that consist of a galvanized or stainless steel stud frame with
an exterior sheath of steel-reinforced, high-density, precast concrete, with an
exterior cladding system. This system combines the essential components of a
wall system into a single unit ready for interior dry wall mounting immediately
upon installation. The Easi-Set Sierra Wall products combine the strength and
durability of precast concrete with a variety of finishes to provide an
effective and attractive sound and sight barrier for use around residential,
industrial and commercial properties and alongside highways. The Easi-Set Sierra
Wall can also be used as a retaining wall to retain earth in both highway and
residential construction. The Easi-Set J-J Hooks highway safety barrier is a
patented, positively connected, safety barrier which has been approved for
federally aided projects by the Federal Highway Administration for use on
roadways to separate lanes of traffic. Easi-Set Precast Buildings are
transportable, prefabricated, single-story, concrete utility buildings designed
to be adaptable to a variety of uses ranging from housing communications or
utility operatus and traffic control systems, to inventory or supply storage and
restroom facilities. The Easi-Span system incorporates the technology of the
Easi-Set Precast Building, but is available in larger sizes and is designed to
have expansion capabilities. Finally, the Easi-Set Utility Vaults are precast
concrete underground utility vaults ranging in size from 36 to 702 cubic feet
which are designed in accordance with the customer's specifications and most
often used to access water and gas pipes, electrical power lines,
telecommunications cables, traffic signal equipment and for underground storage.
We also produce and sell other generic highway sound barriers, utility vaults
and farm products such as cattleguards and water and feed troughs. These
products are manufactured in either of our manufacturing facilities which are
located in Midland, Virginia and Reidsville, North Carolina.
Our products are primarily marketed through an in-house sales force and, to
a lesser extent, independent sales representatives. We have also established a
cooperative advertising program in which we and our licensees combine resources
to promote certain products. Although we advertise nationally, our marketing
efforts are concentrated in the geographic area close to our facilities, which
includes most of Virginia, Delaware, Maryland, North Carolina, South Carolina,
and parts of Pennsylvania, New York, New Jersey and West Virginia. We also
sometimes grant licenses, usually limited to a defined geographic region,
through our wholly-owned subsidiary Easi-Set Industries, Inc., for the
manufacturing and distribution rights of many of our proprietary products and
certain non-proprietary products. License royalties vary depending on the
product licensed, but the range is typically between 4% to 6% of the sales of
the licensed product.
The market for our products is highly competitive and affected by the
cyclical nature of the construction industry which varies depending on a number
of factors such as weather conditions, availability of financing at reasonable
rates, overall fluctuations in national and regional economies, past
overbuilding , labor relations and the availability of material and energy
supplies. Much of our business is derived from government projects, which are
further dependent on budgets, government policy and, in many cases,
voter-approved bonds.
We have recently completed construction of a new manufacturing facility, and
are currently constructing a new engineering and storage facility, on our
Midland, Virginia property. A portion of the proceeds of this Offering is
anticipated to be used towards the cost of completion of the engineering and
storage facility.
The Company was originally formed in 1960 in Virginia and was reorganized as
a Delaware corporation in 1994. Our principal executive offices are located at
Route 28, P.O. Box 300, Midland, Virginia 22728; telephone number (540)
439-3266. We maintain a website at www.smithmid.com. Unless the context
otherwise requires, all references herein to
5
<PAGE>
the "Company," "we," or "our" includes Smith-Midland Corporation and its
wholly-owned subsidiaries, including 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, on a consolidated basis.
RECENT EVENTS
The Company has recently been notified by the NASDAQ that it may delist our
securities from NASDAQ based upon the decline of the average bid price per share
of the Common Stock to below $1.00 and the decrease of our net tangible assets
to below $2,000,000. We have presented a plan to the NASDAQ listing
qualifications panel which was designed to achieve compliance with these NASDAQ
requirements and the NASDAQ panel has permitted a continued listing on a
conditional basis. We have been granted until October 15, 1999 to fully comply
with all applicable NASDAQ listing qualification rules, including raising our
net tangible assets over $2,400,000 and having our Common Stock achieve a
closing bid price per share of at least $1.00 for 10 consecutive days. There can
be no assurance that we will be able to achieve these criteria.
In July of 1999, Rodney I. Smith, the Company's President and Chief
Executive Officer, and Guy M. Schuch, the Chief Operating Officer of the
principal operating subsidiary of the Company, have subscribed to purchase from
the Company 142,857 and 328,571 shares of Common Stock, respectively, for a
selling price per share of $.70, or an aggregate of $330,000. Pursuant to NASDAQ
regulations, any sale of more than 25,000 shares to officers and directors must
be approved by the shareholders of the Company and said subscriptions are
expected to be submitted for shareholder approval at the Company's upcoming
Annual Meeting of Shareholders. Such sale, by agreement of the parties, is
subject to both shareholder approval and the Company achieving continued listing
on NASDAQ. Accordingly, in the event such private transaction is accepted, (i)
Mr. Rodney Smith will beneficially own 756,155 shares of Common Stock, or 21.5%
of the Company's issued and outstanding shares of Common Stock, assuming that no
warrants or options are exercised, and (ii) Mr. Guy Schuch will beneficially own
328,571 shares of Common Stock, or 9.3% of the Company's issued and outstanding
shares of Common Stock, assuming that no warrants or options are exercised.
6
<PAGE>
THE OFFERING
Securities Offered . . . . 1,385,718 shares of Common Stock issuable upon
exercise of 1,385,718 Redeemable Warrants; 100,000
shares of Common Stock and 100,000 Redeemable
Warrants underlying the Underwriters' Warrants, as
well as 100,000 shares of Common Stock issuable upon
exercise of the Redeemable Warrants underlying the
Underwriters' Warrants; and 200,000 shares of Common
Stock underlying the Network I Warrants. (1)
Shares of Common Stock
Outstanding
Before Offering . . .3,044,798 (2)
After Offering. . . .4,830,516, (2)(3)
Redeemable Warrants. . Includes all of the Company's redeemable common
stock purchase warrants and the Redeemable Warrants
underlying the Underwriters' Warrants. 1,150,000
Redeemable Warrants are publicly traded and have been
issued pursuant to our Initial Public Offering.
100,000 Redeemable Warrants are issuable upon
exercise of the Underwriters' Warrants. Additionally,
235,718 Redeemable Warrants were originally issued
to, but are no longer held by, certain investors
in our bridge private placements in 1994 and 1995.
The exercise price of the Redeemable Warrants have
recently been reduced from $4.00 per share to $.60
per share effective as of the date of this
Prospectus, are subject to adjustment in certain
circumstances and expire on December 12, 2000. The
Redeemable Warrants are redeemable by us at a price
of $.10 per warrant at any time on 30 days prior
written notice to the registered holders of the
Redeemable Warrants provided that the average closing
bid price per share of the Common Stock on the NASDAQ
exceeds $.90 per share for a period of 20 consecutive
trading days, ending not more than 15 days prior to
the date of any redemption notice. The Redeemable
Warrants will be exercisable until the close of
business on the day preceding the date fixed for
redemption.
Underwriters' Warrants . .Includes warrants originally issued to Network I and
First Hanover in connection with their acting as
underwriters of our Initial Public Offering in 1995.
The Underwriters' Warrants can be exercised into an
aggregate of 100,000 shares of Common Stock at an
exercise price of $5.425 per share, and 100,000
Redeemable Warrants at an exercise price of $.155 per
Redeemable Warrant. The terms of the Underwriters'
Warrants are subject to anti-dilutive adjustment. See
"Selling Securityholders" and "Description of Capital
Stock."
Network I Warrants . . . .The Network I Warrants entitle the holders thereof to
purchase an aggregate of 200,000 shares of Common
Stock at an exercise price of $1.00 per share, subject
to adjustment in certain circumstances. The Network I
Warrants are not subject to redemption by the Company
and expire at the close of business on January 14,
2002.
Estimated Net Proceeds . .$1,549,860
Use of Proceeds. . . . . .Partial repayment of indebtedness, completion of
engineering and storage facility and working capital
and general corporate purposes.
NASDAQ Symbols . . . . . .Common Stock - SMIDC
Redeemable Warrants - SMIWC
Boston Stock Exchange
Symbols. . . . . . . . . Common Stock - SMM
Redeemable Warrants - SMM/W
- ------------------
(1) This Prospectus also relates to the resale of these securities by the
holders thereof or their transferees.
(2) Does not include an aggregate of up to 280,000 shares of Common Stock
issuable under the Company's 1994 stock option plan.
(3) Assumes the exercise of all the Redeemable Warrants, Underwriters' Warrants
and Network I Warrants.
7
<PAGE>
RISK FACTORS
The securities offered in this Prospectus are speculative and involve a
high degree of risk. Only those persons able to lose their entire investment
should purchase any of the securities. Prior to making an investment decision,
you should carefully read this Prospectus and consider, along with other matters
referred to herein, the following risk factors.
Our Significant Debt Requires Substantial Principal and Interest Payments and is
Secured by Certain Assets
We have a high level of indebtedness and, as a result, have significant
obligations to repay principal and to pay interest on our debt. At June 30,
1999, our outstanding debt was approximately $4,732,052 which includes
borrowings under both our 23 year term bank credit facility with First
International Bank ("FIB"), formerly the First National Bank of New England,
which had a balance of $3,941,860, and our revolving line of credit with FIB
with a credit limit of $500,000. This indebtedness is secured by our equipment
and real estate and a $1,000,000 face-value life insurance policy on the life of
Rodney I. Smith, the Company's President. Under the terms of the FIB term loan:
(i) our cash fixed asset expenditures are limited to $300,000 per year for a
five year period, and (ii) debt for purchased equipment may not exceed $200,000
annually.
Our high level of indebtedness has important consequences to our
Shareholders, such as:
- we must use a substantial portion of our cash flow from operations
to pay our debt service obligations,
- we are more sensitive to a downturn in general economic conditions
and changes in our industry,
- our ability to respond to market conditions (including our ability to
make capital expenditures) or to meet our contractual or financial
obligations may be limited,
- we are subject to restrictive financial and operating covenants
that could limit our ability to conduct our business, or allocate
funds for certain specific purposes,
- we may have a higher level of indebtedness than our competitors, and
- we may be limited in our ability to obtain additional financing to
fund our growth strategy, working capital, capital expenditures, debt
service requirements or other purposes.
Our FIB term loan has a 23 year term and matures on June 25, 2021. Our
revolving credit loan with FIB has a one year term, was renewed in July and
matures on May 1, 2000. We must make the following monthly interest and/or
principal payments in accordance with these loans:
- monthly amortization payments of approximately $39,057, consisting
of interest and principal on the remaining balance of our term
loan, calculated based on the prime interest rate plus 1.5%,
- monthly payments of approximately $3,875, consisting of interest
only on the remaining balance of our revolving credit loan,
calculated based on the prime interest rate plus 1%, and
- repayment of all remaining principal and interest under our
$500,000 revolving credit loan on or before May 1, 2000. The
revolving credit loan may not be renewed by FIB if interest or
principal payments are not made on a timely basis.
Additionally, the Federal Reserve Bank has recently increased interest
rates and has indicated that it is prepared to raise rates in the future. Our
high level of indebtedness leaves us highly sensitive to increasing interest
rates which may further adversely affect our revenues and profitability.
We Have Incurred a Significant Loss Under a Material Contract Which We May Not
Be Able to Recoup
In January 1999, we discontinued, in substantial part, the provision of
services as a subcontractor for a project to renovate a university building,
Bradley Hall, within the State of New Jersey. Among other things, we are
required to supply and install our Slenderwall product on the building. Our
involvement in the project began in 1998. As the job progressed, we suffered
significant losses due to cost overruns resulting from engineering and design
flaws. We currently estimate that the Bradley Hall Project, which is expected to
be completed in the third quarter of 1999, will
8
<PAGE>
produce a loss of approximately $1,455,000, $1,366,000 of which loss had
been accrued as of June 30, 1999. Because we were continuing to suffer losses on
the project and unable to continue to timely fund our ongoing commitments, we
entered into an agreement with the prime contractor for the project pursuant to
which: (i) the prime contractor agreed to finance the cost of labor and small
tools for the balance of the installation phase of the project from January 13,
1999 until March 15, 1999, the then estimated date for completion of the
project, (ii) we remained responsible for other services and materials required
for the project, including provision of our Slenderwall System, (iii) we are
required to reimburse the prime contractor, out of payments due us for its
expenses described above plus 10% for overhead, (iv) we remain liable for cost
overruns that we were originally responsible for, and (v) the prime contractor
may terminate this arrangement at any time, and, in such event, we will be
obligated to complete the project in accordance with the original subcontract.
Under such agreement, the Company currently owes the prime contractor $843,000.
The Company plans to file claims for which notification has been made and, as of
June 30, 1999, $497,000 of the total estimated $1.49 million contract claim has
been included in accounts receivable. There can be no assurance that the project
will be completed as contemplated, that we will have the resources to pay the
prime contractor, that our loss will not exceed the $1.46 million dollar
estimate or that we will be able to collect or enforce a claim. The losses
suffered under the Bradley Hall project have had a significant negative effect
on our cash position.
We Suffered Losses for the Year in 1995, 1996 and 1998
Our ability to sustain and increase our revenue levels and net income
depends upon our ability to secure additional financing such as that
contemplated by this offering. We suffered net losses of $1,529,429 and $298,465
for the years ended December 31, 1995 and 1996, respectively, and due primarily
to the Bradley Hall project, we suffered a loss for the year ended December 31,
1998 of $783,883. While we achieved net income of $207,760 for the first six
months of 1999, there can be no assurance that we will remain profitable in the
future.
We Will Have Future Capital Requirements and the Availability of Additional
Financing is Uncertain
At June 30, 1999, our cash was $352,448. If expenditures required to
achieve our plans are greater than projected or if we are unable to generate
adequate cash flow from the sales of our products and/or our services, we will
need additional capital. We have no commitments or arrangements to obtain any
additional funding, other than the possible exercise of the Redeemable Warrants,
and we may not be able to obtain such additional funding, if the need should
arise. The unavailability or timing of any financing could prevent or delay the
continued development and marketing of our services and may require curtailment
of our operations. Our failure to raise funds when needed could have a material
adverse effect on our business.
Our Net Tangible Assets Have Declined to Below $2,000,000 and the Average Bid
Price for our Common Stock has Decreased to Under $1.00 Which May Result in our
Securities Being Delisted from the NASDAQ System
In order to maintain listing on NASDAQ, generally, among other things, a
company must maintain $2,000,000 in total Net Tangible Assets (assets less both
liabilities and goodwill) and a $1,000,000 market value of the public float. In
addition, continued inclusion requires two market makers and a minimum bid price
of $1.00 per share. These maintenance standards may also be increased by NASDAQ.
The Company has recently been notified by the NASDAQ that it may delist our
securities from NASDAQ based upon the decline of the bid price per share
of the Common Stock to below $1.00 and the decrease of our net tangible assets
to below $2,000,000. We have presented a plan to the NASDAQ listing
qualifications panel which was designed to achieve compliance with these NASDAQ
requirements and the NASDAQ panel has permitted a continued listing on a
conditional basis. We have been granted until October 15, 1999 to fully comply
with all applicable NASDAQ listing qualification rules, including raising our
net tangible assets over $2,400,000 and having our Common Stock achieve an
average closing bid price per share of at least $1.00 for 10 consecutive days.
The proceeds of this Offering, and the private offering of Common Stock to
Messrs. Smith and Schuch or other financing, and/or significant earnings from
operations in the near term, will be required to achieve compliance with the Net
Tangible Asset standard. There can be no assurance that we will be able to
achieve these criteria.
9
<PAGE>
In the event our securities are de-listed from NASDAQ, you may be affected
in any one or more of the following ways:
- our securities will have to trade on a non-NASDAQ, less efficient
"over-the-counter" market,
- fewer investment banks will be able to make markets in our securities
which will cause a decline in the trading price of the securities,
- you may also find it more difficult to dispose of, or obtain accurate
quotations as to the market value of, our securities,
- the securities may no longer be eligible for sale in certain
jurisdictions without other available exemptions, the securities
may become very illiquid,
- the Common Stock may become considered a "penny stock," as defined by
the SEC, thus imposing certain suitability requirements for potential
inventors and additional stringent disclosure and sales practice
requirements and restrictions by the brokers or dealers who wish to
trade the Common Stock.
The additional burdens imposed upon broker-dealers by such requirements may
discourage them from effecting transactions in the Common Stock and Redeemable
Warrants, which could severely limit the liquidity of the Common Stock and
Redeemable Warrants and the ability of purchasers in this Offering to sell the
Common stock and Redeemable Warrants in the secondary market.
We Are Sensitive to the Recent Increase in Interest Rates, and Potential Future
Increases in Interest Rates Which Will Adversely Affect Our Monthly Debt
Expenses and Profits
Our substantial debt burden, the interest on which is directly determined
by the prevailing prime interest rate, makes us especially sensitive to changes
in the prevailing interest rates. Fluctuations in such interest rates may
materially and adversely affect our ability to finance our operations either by
increasing the cost of servicing our current debt, or by creating a more
burdensome refinancing environment, if interest rates should increase. Interest
rates also substantially and directly affect the ability of our potential
clients to secure financing for new construction projects.
The Federal Reserve Bank increased interest rates in June and recently
indicated that it is prepared to increase rates again in the future should
economic signs warrant a change.
Our Business is Characterized By Seasonal Fluctuations
Prior to 1999, a substantial portion of our concrete pouring and curing
processes were on uncovered, outdoor manufacturing areas. In the past, during
the winter months, inclement weather often caused a slowdown or cessation of
these outdoor production activities, thereby reducing our production capacity.
To mitigate this, in March of 1999, we completed building an additional
manufacturing facility at our Midland, Virginia location which brought these
operations indoors and increased our annual manufacturing capacity. In addition,
we service the construction industry primarily in areas of the United States
where construction activity is inhibited by adverse weather during the winter.
As a result, we can experience reduced revenues from December through February
and depend on our revenues realized during the other months of the year. We
often experience lower profits, or losses, during the winter months and must
have sufficient working capital to fund our operations at a reduced level until
the spring construction season.
We Face a High Level of Competition Which May Adversely Affect Results of
Operations
The market for our products is highly competitive and characterized by:
- competitive bidding for government as well as private contracts and
subcontracting work,
- the availability of government or private funding for commercial
buildings or residential housing developments, public and private
roads and highways and municipal utilities,
- evolving industry standards,
- domination by several large companies with resources that are
substantially greater than our own,
- labor relations in the construction industry,
10
<PAGE>
- cross and collateral marketing of products by two or more companies,
- alliances between companies and/or contractors and subcontractors,
- a cyclical construction industry that may be dependent on
uncontrollable factors such as the weather and interest rates,
- rapid changes in customer requirements and increasing customer
demands,
- cycles in the construction industry that are highly dependent and
influenced by national and regional economies, and
- the availability of raw materials and energy supplies.
As a result, our success depends upon our ability to continue to:
- timely and efficiently acquire, license or develop and introduce our
existing as well as new products that take advantage of technological
advances and efficiencies,
- successfully bid for, secure and maintain government and private
contracting as well as subcontracting work,
- maintain satisfactory labor relations,
- timely respond to new customer requirements and demands,
- license our proprietary products to precast concrete manufactures
nationwide and in certain foreign countries, and
- generate enough revenues during the summer months to offset lower
revenues caused by inclement weather during the winter.
To the extent one or more of our competitors introduce products that better
address customer requirements, or are less expensive than our products, our
business could be adversely affected. We may not be successful in developing and
marketing our existing products or new products or incorporating new technology
on a timely basis. If we are unable to timely develop and introduce new
products, or enhance existing products, in response to changing market
conditions or customer requirements or demands, our business and results of
operations could be materially and adversely affected.
Although we have a number of ongoing development projects and have
completed a new manufacturing facility which is used to conduct indoors,
manufacturing activities that were previously conducted outdoors, the following
risks still exist:
- development, manufacture and/or delivery of our products may not
be completed successfully or on time,
- we may not have adequate funding or may experience unanticipated
costs with respect to these projects, and
- enhancements to our products may not keep pace with broadening market
requirements.
The dominant position of certain large cement manufacturing and
construction supply companies provide these companies with a range of
competitive advantages, including the ability to fund larger projects and
utilize their greater resources to achieve a dominant position in new product
and geographic markets. Because of the economies of scale that some of these
competitors have achieved, they may also be able to produce products that are
competitive to ours and at lower costs and may be able to offer faster
completion time for their services.
Our Business Depends, In Part, on Government Funding of Construction Projects
Federal and state government highway programs and financing for such
programs have been and are expected to continue to be, a major source of our
revenues. Many of our products are purchased by highway contractors operating
under government funded highway projects that generally involve competitive
bidding. No assurance can be given as to the continuance or level of federal or
state government funding for highway programs, or that our products will be
designated for installation in connection with these projects. We may be
adversely affected by decreases in levels of government highway funding or
changes to government highway programs.
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<PAGE>
We believe that competition will continue to intensify in the future and
that new, cost efficient product introductions and other actions by competitors,
such as the entry into new geographic markets, could materially and adversely
affect our competitive position.
We Face the Risk of Litigation
Competitors and potential competitors may resort to litigation as a means
of competition. Any litigation which involves us, whether as plaintiff or
defendant, regardless of the outcome, may result in substantial costs and
expenses to us and significant diversion of effort by our administrative and
management personnel. In the event of an adverse result in any such litigation,
we could be required to:
- pay damages including consequential damages that my not be easily
foreseeable,
- expend funds and resources in repairing, refurbishing, replacing or
removing our products,
- expend significant resources to develop non-infringing technology and
cease the use of any infringing technologies, and
- obtain licenses to the technology which may be the subject of the
litigation on terms not advantageous to us.
There can be no assurance that we would be successful in such development,
that any such licenses would be available and/or that we would have available
funds sufficient to satisfy any cash awards.
We are also claimants in various litigations wherein we are seeking to
collect certain accounts receivables. These accounts receivables have already
been reserved and are reflected as part of our current assets in our Balance
Sheet as at June 30, 1999. Currently, the maximum amount in dispute and in
litigation, which we may not recover, is $280,000. The Company also has plans to
file claims related to the Bradley Hall project in which a portion ($497,000) is
included in accounts receivable. Additionally, whether these amounts are
recovered or not, there are costs associated with litigation that may not be
recovered.
There Can Be No Assurance that Our Proprietary Technology Can Be Adequately
Protected
We hold U.S. and Canadian patents for our Easi-Set J-J Hooks highway safety
barrier and Easi-Set Precast Building transportable concrete buildings and have
a U.S. patent for our Slenderwall exterior cladding system. The Easi-Set J-J
Hooks patent was granted in Europe in December 1997 and has been registered in
eleven European countries. We also own U.S. trademarks on Easi-Set and
Smith-Cattleguard . We currently license Durisol and the Durisol technology for
"sound-proofing" our Easi-Set Sierra Wall products, and are dependent thereon.
Our license to use the Durisol technology, subject to the terms and conditions
of the license agreement, expires on December 31, 2003. No assurance can be
given that the patent for which an application has been filed or any patents
that have been or may be granted in the future will be enforceable or provide
meaningful protection from competitors. In addition, the laws of some foreign
countries do not protect proprietary rights to as great extent as do the laws of
the U.S. Even if a competitor's products were to infringe on patents we hold,
enforcing our rights in an infringement action would be costly.
In addition, no assurance can be given that our products or processes will
not infringe any patents or other intellectual property rights of third parties.
If our products or processes do infringe the rights of third parties, no
assurance can be given that we will be able to obtain a license from the
intellectual property owner on commercially reasonable terms or at all.
12
<PAGE>
We Are Subject to Significant Government Regulation
We frequently supply products and services pursuant to agreements with
general contractors who have entered into contracts with federal or state
governmental agencies. The successful completion of our obligations under these
contracts is often subject to the satisfactory inspection or approval of such
products and services by a representative of the contracting agency. Although we
endeavor to satisfy the requirements of each such contract to which we are a
party, no assurance can be given that the necessary approval of our products and
services will be granted on a timely basis or at all and that we will receive
any payments due to us. Any failure to obtain such approval and payment may have
a material adverse effect on our business.
Employees in our manufacturing plants operate complicated machinery that
can cause substantial injury or death upon malfunction or improper operation.
Additionally, during the normal course of our operations, we use and dispose of
materials such as solvents or lubricants used in machinery, that are classified
as hazardous by government agencies that regulate environmental quality. Our
operations are subject to extensive and stringent regulation by federal, state
and local governmental and regulatory authorities, including regulation relating
to the Occupational Safety and Health Act ("OSHA") and environmental protection.
No assurance can be given that we are, or in the future will be, able to comply
with, or continue to comply with, current or future OSHA or other governmental
regulations in every jurisdiction in which we conduct or will conduct business
operations without substantial cost or interruption of operations, or that any
present or future federal, state or local regulations may not restrict our
present and possible future activities. If we are unable to comply with such
requirements, we could be subject to substantial sanctions, including
restrictions on our business operations, monetary liability and criminal
sanctions, any of which could have a material adverse effect upon our business.
We Are Dependent Upon Our President and Chief Executive Officer
Our success is dependent on the efforts and abilities of Rodney I. Smith,
our President and Chief Executive Officer. Mr. Smith is employed by the Company
under an employment agreement expiring on December 31, 1999. This employment
agreement includes non-disclosure and non-competition provisions. The loss of
Mr. Smith's services could have a material adverse effect on our business.
Currently, we are the beneficiaries of two "key-man" life insurance policies on
Mr. Smith's life. The aggregate face value of said insurance policies is
$200,000. Additionally, FIB has been assigned any possible proceeds of a
$1,000,000 policy on the life of Mr. Smith towards repayment of the FIB term
loan. The terms of our FIB term loan further restricts the purchase of any life
insurance from business income or assets without the approval of FIB.
Broad Discretion as to Use of Proceeds
Management has substantial discretion in the use of the net proceeds of
this Offering. Although we intend to use such proceeds to, among other things,
repay debt, complete the construction of our engineering and storage facility,
support our operations, purchase raw material and/or finance inventory and
accounts receivable, no assurance can be given that all or any of such proceeds
will be used for such purposes. Accordingly, our management will have broad
discretion with respect to the expenditure of a significant portion of the
net proceeds. See "Use of Proceeds."
There Are a Substantial Number of Shares Eligible for Future Sale
Upon exercise of all of the Redeemable Warrants, the Underwriters' Warrants
and the Network I Warrants, we will have outstanding 4,830,516 shares of Common
Stock and no Redeemable Warrants, not including certain shares subscribed for by
Messrs. Rodney Smith and Guy Schuch. The 1,785,718 shares of Common Stock
underlying all of the Redeemable Warrants, the Network I Warrants and the
Underwriters' Warrants will be freely tradeable without restriction (or the
resale will be registered by virtue of the Registration Statement of which this
Prospectus is a part) under the Securities Act, unless acquired by "affiliates"
of the Company as that term is defined in the Securities Act.
13
<PAGE>
In general, under Rule 144, subject to the satisfaction of certain other
conditions, a person, including an affiliate of the Company, who has
beneficially owned restricted shares of Common Stock for at least one year is
entitled to sell, within any three-month period, a number of shares that
does not exceed the greater of 1% of the total number of outstanding shares
of the same class, or if the Common Stock is quoted on NASDAQ or a stock
exchange, the average weekly trading volume during the four calendar weeks
preceding the sale. A person who presently is not and who has not been an
affiliate of the Company for at least two years is entitled to sell such shares
under Rule 144 without regard to any of the volume limitations described
above. Of our outstanding shares of Common Stock, 703,915 shares are held by
officers and directors of the Company, all of which are eligible for resale
pursuant to Rule 144 with the restricted volume limitations. These shares
do not include an aggregate of 471,428 shares of Common Stock subscribed to
by Messrs. Smith and Schuch and issuable subject to shareholder approval and
continued NASDAQ listing.
No prediction can be made as to the effect, if any, that sales of shares of
Common Stock or the availability of such shares for sale will have on the market
prices prevailing from time to time. Nevertheless, the possibility that
substantial amounts of Common Stock may be sold in the public market may
adversely affect prevailing market prices for the Common Stock and could impair
our ability to raise capital in the future through the sale of equity
securities.
We May Redeem the Redeemable Warrants
We may redeem the Redeemable Warrants at any time at a redemption price of
$.10 per Redeemable Warrant, upon 30 days prior written notice, provided that
the average closing bid price of the Common Stock, for a period of 20
consecutive trading days ending not more than 15 days prior to the date of the
redemption notice, exceeds 150% of the exercise price (initially $.90, subject
to adjustment) of the Redeemable Warrants per share. Redemption of the
Redeemable Warrants could force the holders to exercise the Redeemable Warrants
and pay the exercise price at a time when it may be disadvantageous for the
holders to do so, to sell the Redeemable Warrants at the then current market
price when they might otherwise wish to hold the Redeemable Warrants or to
accept the redemption price, which is likely to be substantially less than the
market value of the Redeemable Warrants at the time of redemption. The failure
of any of the warrants to be exercised upon a call for redemption would have a
substantial effect on this Offering and the use of proceeds of this Offering and
will cause the redemption of these Redeemable Warrants by us. See "Description
of Capital Stock - Redeemable Warrants."
A Current Prospectus and State Blue Sky Registration is Required to
Exercise Redeemable Warrants
Although the Redeemable Warrants were not knowingly sold to purchasers in
jurisdictions in which they are not registered or otherwise qualified for sale,
purchasers may have purchased, or may in the future purchase, Redeemable
Warrants in the aftermarket or may have moved, or in the future may move, to
jurisdictions in which the shares of Common Stock issuable upon exercise of the
Redeemable Warrants are not so registered or qualified during the period that
the Redeemable Warrants are exercisable. In this event, we may be unable to
issue shares of Common Stock to those persons desiring to exercise their
Redeemable Warrants unless and until the shares of Common Stock could be
registered or qualified for sale in the jurisdictions in which such purchasers
reside, or unless an exemption to such qualification exists in such
jurisdiction. No assurance can be given as to our ability to effect any required
registration or qualification of the Common Stock in any jurisdiction. See
"Description of Capital Stock - Redeemable Warrants" and "Plan of Distribution."
Arbitrary Determination of Exercise Price
The exercise prices of the Redeemable Warrants, the Underwriters' Warrants
and the Network I Warrants have been determined by negotiations between us, each
of the Underwriters of our initial public offering and Network I Financial
Securities, Inc. and are not necessarily related to our asset value, net worth
or other established criteria of value.
Management Maintains a High Degree of Control
The executive officers and directors of the Company beneficially own
approximately 23.8% of the shares of Common Stock eligible to vote and
therefore have a significant influence on the vote to elect the members of the
Board
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<PAGE>
of Directors and with respect to the outcome of any issues which may be
subject to a vote of our shareholders. Additionally, upon approval by the
shareholders of the subscription agreements for 142,857 and 328,571 shares of
Common Stock by Messrs. Smith and Schuch, respectively, and acceptance thereof,
executive officers and directors of the Company will beneficially own
approximately 33.9% of the shares of Common Stock.
Our Stock Prices are Subject to Volatility
The market for the Common Stock and the Redeemable Warrants is highly
volatile. The trading price of the Common Stock and Redeemable Warrants could be
subject to wide fluctuations in response to, among other things:
- the award of, or loss of, government or private construction
contracts,
- the cyclical nature of the construction industry in general,
- quarterly variations in operating and financial results,
- announcements of technological innovations or new products by us
or our competitors,
- changes in prices of ours or our competitors' products and services,
and
- changes in our revenue and revenue growth rates.
Statements or changes in opinions, ratings or earnings estimates made by
brokerage firms or industry analysts relating to the market in which we do
business or relating to us could result in an immediate and adverse effect on
the market price of the Common Stock and the Redeemable Warrants. In addition,
the stock market has from time to time experienced extreme price and volume
fluctuations which have particularly affected the market price for the
securities of many small-cap companies, such as ours, and which often have been
unrelated to the operating performance of these companies. These broad market
fluctuations may adversely affect the market price of the Common Stock.
Certain Provisions of Delaware Law and Our Certificate of Incorporation Have
Potential Anti-Takeover Effects
Certain provisions of Delaware law and of our Certificate of Incorporation
and By-Laws could make more difficult a merger, tender offer, or proxy contest
involving us, even if such events could be beneficial to the interests of our
Shareholders. These provisions include:
- Section 203 of the Delaware General Corporation Law,
- the requirement a majority of the Shareholders entitled to vote
thereon approve certain transactions, and
- the existence of "blank check" preferred stock that may be issued
by our Board of Directors without Shareholder approval on such terms
as the Board may determine.
The rights of the holders of Common Stock are subject to, and may be
adversely affected by, the rights of the holders of up to 1,000,000 shares of
Preferred Stock, that may be issued in the future in one or more series. No
shares of Preferred Stock are currently issued or outstanding. The terms of any
Preferred Stock issued may be determined by the Board of Directors without
further action by the Shareholders and may include voting rights, preferences as
to rights, dividends, liquidation, conversion and redemption rights and sinking
fund provisions. Moreover, although the ability to issue other classes of
preferred stock may provide flexibility in connection with possible acquisitions
and other corporate purposes, such issuance may make it more difficult for a
third party to acquire, or may discourage a third party from acquiring, a
majority of our voting stock. These provisions could limit the price that
certain investors might be willing to pay in the future for shares of Common
Stock. See "Description of Capital Stock."
Our Directors' Liability is Limited
Our Certificate of Incorporation provides that our directors will not be
held liable to the Company or our Shareholders for monetary damages upon breach
of a director's fiduciary duty, except for (a) any breach of the director's duty
of loyalty to us or our Shareholders; (b) acts that are not in good faith or
involve intentional misconduct; (c) any transaction where the directors received
an improper benefit; and (d) as otherwise required by law.
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<PAGE>
No Dividends Paid by the Company
We have never paid any cash dividends on the Common Stock and we do not
anticipate paying any dividends in the foreseeable future.
Substantial Amounts of Additional Shares May be Issued Without Shareholder
Approval
As of the date of this Prospectus, we have an aggregate of 3,044,798 shares
of Common Stock outstanding. In addition, as of the date of this Prospectus, we
have an additional (a) aggregate of 280,000 shares of Common Stock issuable upon
the exercise of stock options granted or available for grant under our 1994
Stock Option Plan and (b) an aggregate of 1,785,718 shares of Common Stock which
are offered herein and issuable upon exercise of the Redeemable Warrants, the
Underwriters' Warrants and the Network I Warrants. All of such shares may be
issued without any action or approval by our Shareholders. Although there are no
other material present plans, agreements, commitments or undertakings with
respect to the issuance of additional shares of Common Stock or securities
convertible into any such shares by the Company, other than in connection with
the exercise of outstanding stock options and warrants, any shares issued would
further dilute the percentage ownership of the Company held by our Shareholders.
See "Description of Capital Stock."
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<PAGE>
USE OF PROCEEDS
In the event that all of the Redeemable Warrants, the Underwriters'
Warrants and the Network I Warrants are exercised, the net proceeds to the
Company hereby are estimated at approximately $1,549,860, after deducting
expenses in connection with the warrant redemption, solicitation fees (payable
to Network I) and filing of this Prospectus estimated at $99,572. However, there
can be no assurance that any of the above mentioned warrants will be exercised.
Such net proceeds, if any, are expected to be expended as follows:
<TABLE>
<CAPTION>
Approximate
Percentage of
Application of Proceeds Dollar Amount Net Proceeds
- ----------------------- ------------- -------------
<S> <C> <C>
Completion of Engineering and
Storage Facility (1). . . . . . . . . $ 90,000 5.8%
Repayment of Indebtedness (2). . . . . . 500,000 32.3%
Working capital and general corporate
purposes. . . . . . . . . . . . . . . 959,860 61.9%
---------- -------
Total. . . . . . . . . . . . . . . $1,549,860 100.0%
<FN>
- ----------
(1) Represents the estimated cost associated with the completion, supplying
and making completely operational the engineering and storage facility
currently under construction on our site in Midland, Virginia.
(2) Represents the estimated balance of the Company's revolving credit loan
with FIB that will be repaid from the proceeds of this Offering. The
revolving credit loan bears interest at a rate of 1% over prime and matures
on May 1, 2000. Once this revolving debt is repaid and has a zero balance
for a period of 30 days, we may re- borrow under this facility. We expect
to re-borrow and utilize such proceeds for working capital and general
corporate purposes.
</FN>
</TABLE>
Network I Financial Securities, Inc. is entitled to solicitation fees equal
to five (5%) percent of the exercise price of the Redeemable Warrants exercised,
the potential maximum of which is $41,572. See "Plan of Distribution."
The above represents the proceeds of this Offering assuming that all
Redeemable Warrants as well as the Underwriters' Warrants and the Network I
Warrants are exercised. The Underwriters' Warrants to purchase Common Stock are
exercisable at a price well above the market price, as such it is likely that
they will not be exercised in the near term and may expire unexercised. In
addition, the Network I Warrants are currently exercisable at a price per share
above the current market price of the Common Stock. In the event that the
Underwriters' Warrants to purchase Common Stock are not exercised, and other
warrants are exercised, the net proceeds will be $1,007,359.
The foregoing represents the Company's estimate of its use of the net proceeds
of this Offering based on current planning and business, industry and economic
conditions, and the Company's future revenues and expenditures. The proposed
application of the net proceeds is subject to changes as market and financial
conditions and other opportunities that may be presented to the Company may
dictate. The costs required to open and make fully operational the Company's new
Midland engineering and storage facility may vary depending upon such factors as
unexpected labor costs and significant rise in the cost of raw building
materials. Accordingly, in the event the Company's estimates as to the costs
required to open, operate and maintain the facility prove to be inaccurate, the
Company may be forced to pursue additional financing and/or utilize working
capital in addition to the net proceeds of this Offering allocated for the
completion of the facility.
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<PAGE>
In the event less than the maximum proceeds are raised, the Company intends to
allocate such amount as is necessary in order to repay the revolving credit loan
with FIB prior to allocating funds for other uses. In all other respects, the
Company will allocate the proceeds of this Offering to the same uses and in the
approximate same proportions as if the maximum proceeds were raised.
To the extent that the net proceeds are not immediately required for the
purposes described above, they may be invested principally in either U.S.
government securities, short-term certificates of deposit, money market funds or
other short-term interest-bearing investments.
The Company will not receive any of the proceeds from the sale of the Common
Stock by the Selling Securityholders or by any of the holders who exercised
their warrants.
DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock and does not
anticipate paying cash dividends in the foreseeable future. The Company
currently intends to retain any future earnings for reinvestment in its
business. Any future determination to pay cash dividends will be at the
discretion of the Board of Directors and will be dependent upon the Company's
financial condition, results of operations, capital requirements and other
relevant factors.
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<PAGE>
SELLING SECURITYHOLDERS
The Company has agreed to register all of the shares of Common Stock and
Redeemable Warrants underlying the Underwriters' Warrants, the shares of Common
Stock issuable upon exercise of the Redeemable Warrants underlying the
Underwriters' Warrants, as well as all of the shares of Common Stock underlying
the Network I Warrants, under the Securities Act of 1933 and to pay all of the
expenses in connection with such registration and sale of Common Stock (other
than underwriting discounts and selling commissions and the fees and expenses of
counsel and other advisors to the Selling Securityholders). A portion of the
Underwriters' Warrants have been assigned to designees of LCP Capital Corp. and
Network I Financial Securities, Inc., the underwriters of the Company's initial
public offering, and all of the Network I Warrants have been assigned to
designees of Network I Financial Securities, Inc. Except as noted below, none of
the Selling Securityholders has had any material relationship with the Company
or any of its affiliates within the past three years. The Company will not
receive any proceeds from the sale of any of the securities by the Selling
Securityholders, except for the exercise price, if any, paid in connection with
the exercise of the Underwriters' Warrants, the Redeemable Warrants underlying
the Underwriters' Warrants and the Network I Warrants. See "Plan of
Distribution."
The following table sets forth certain information with respect to the present
record and beneficial ownership of the securities of the Company owned by all
Selling Securityholders.
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership
Of Common Stock
Ownership Prior Amount After Sale of the
To Sale Offered Hereby Securities
----------------------------------- ------------------------ --------------------
Redeemable Network I Redeemable
Selling Securityholder Shares Warrants Warrants Shares Warrants Number Percent
- ---------------------- ------ ---------- --------- ------ ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LCP Capital Corp. 50,000 (1) 25,000 (2) 0 50,000 (1) 25,000 (2) 0 0
William Heming 10,000 (3) 0 10,000 10,000 (3) 0 0 0
Richard W. Hunt 70,600 (4) 11,500 (5) 47,500 70,500 (4) 11,500 (5) 100 *
William R. Hunt, Jr. 70,500 (4) 11,500 (5) 47,500 70,500 (4) 11,500 (5) 0 0
John C. Kawas 12,500 (6) 6,250 (7) 0 12,500 (6) 6,250 (7) 0 0
Ira B. Newman 12,500 (6) 6,250 (7) 0 12,500 (6) 6,250 (7) 0 0
Michael Simineri 12,500 (6) 6,250 (7) 0 12,500 (6) 6,250 (7) 0 0
Charles S. Stoffers 12,500 (6) 6,250 (7) 0 12,500 (6) 6,250 (7) 0 0
Damon Testaverde 204,250 (8) 27,000 (9) 95,000 149,000 (8) 27,000 (9) 55,250 1.8
<FN>
- ----------
* Less than 1%.
(1) Includes 25,000 shares of Common Stock underlying Underwriters'
Warrants and 25,000 shares of Common Stock issuable upon exercise of
the Redeemable Warrants underlying the Underwriters' Warrants.
(2) Includes of 25,000 Redeemable Warrants issuable upon exercise of the
Underwriters' Warrants.
(3) Includes 10,000 shares of Common Stock underlying Network I Warrants.
The Network I Warrants were issued pursuant to a financial advisory
agreement, dated January 14, 1999, between a division of Network I
Financial Securities, Inc. and the Company.
19
<PAGE>
(4) Includes 11,500 shares of Common Stock underlying Underwriters'
Warrants, 11,500 shares of Common Stock issuable upon exercise of the
Redeemable Warrants underlying the Underwriters' Warrants and 47,500
shares of Common Stock underlying the Network I Warrants.
(5) Includes 11,500 Redeemable Warrants issuable upon exercise of the
Underwriters' Warrants.
(6) Includes 6,250 shares of Common Stock underlying the Underwriters'
Warrants and 6,250 shares of Common Stock issuable upon exercise of the
Redeemable Warrants underlying the Underwriters' Warrants.
(7) Includes 6,250 Redeemable Warrants issuable upon exercise of the
Underwriters' Warrants.
(8) Includes 27,000 shares of Common Stock underlying the Underwriters'
Warrants, 27,000 shares of Common Stock issuable upon exercise of the
Redeemable Warrants underlying the Underwriters' Warrants and 95,000
shares of Common Stock underlying the Network I Warrants.
(9) Includes 27,000 Redeemable Warrants issuable upon exercise of the
Underwriters' Warrants.
</FN>
</TABLE>
Additionally, an aggregate of 1,385,718 shares of Common Stock may be
issued upon exercise of 1,385,718 publicly traded Redeemable Warrants. Of these
Redeemable Warrants, 235,718 were issued to certain investors in the Company's
bridge private placements in 1994 and 1995. All of the Redeemable Warrants
issued in the private placements have been registered and sold by their
respective holders pursuant to a prior registration statement (or an exemption
from the registration requirements) and may thus be publicly traded.
PLAN OF DISTRIBUTION
Of the securities covered by this Prospectus, 100,000 shares of Common
Stock and 100,000 Redeemable Warrants are issuable upon exercise of the
Underwriters' Warrants, 100,000 shares of Common Stock are issuable upon
exercise of the Redeemable Warrants underlying the Underwriters' Warrants,
1,385,718 shares of Common Stock are issuable upon exercise of the remaining
Redeemable Warrants, and 200,000 shares of Common Stock are issuable upon
exercise of the Network I Warrants. This Prospectus also covers the resale by
the holders of the securities underlying the Underwriters' Warrants and the
Network I Warrants. From time to time, one or more of the holders of the
securities offered herein may pledge, hypothecate or grant a security interest
in some or all of the shares of Common Stock, Underwriters' Warrants, Redeemable
Warrants and Network I Warrants, and the pledgees, secured parties or persons to
whom such shares have been hypothecated shall, upon foreclosure in the event of
default, be deemed to be the holders of the securities for purposes hereof.
The shares of Common Stock underlying each of the Redeemable Warrants,
the Underwriters' Warrants and the Network I Warrants, and the Redeemable
Warrants underlying the Underwriters' Warrants, may be offered for the account
of the holder or holders from time to time, as market conditions permit on
NASDAQ, or on the Boston Stock Exchange, or otherwise, through ordinary
brokerage transactions, in negotiated transactions, at fixed prices which may be
changed, at market prices prevailing at the time of sale, at prices related to
such prevailing market prices, or at negotiated prices. The holders may effect
such transactions by selling shares to or through appropriately registered
broker-dealers, and all such broker-dealers may receive compensation in the form
of discounts, concessions or commissions from the holders and/or the purchasers
of the securities for whom such broker-dealers may act as agent or to whom they
sell as principal, or both (which compensation as to a particular broker-dealer
might be in excess of customary commissions). The aforementioned methods of sale
described above may not be all-inclusive.
Any broker-dealer acquiring securities in the over-the-counter market
from the holders may sell the securities either directly, in its normal
market-making activities, through or to other brokers on a principal or agency
basis or to its customers. Any such sales may be at prices then prevailing in
the over- the-counter market, at prices related to such prevailing market prices
or at negotiated prices to its customers or a combination of such methods. Such
broker-dealers that act in connection with the sale of the shares hereunder
might be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act of 1933, as amended; any commissions received by them and any
profit on the resale of shares as principal might be deemed to be underwriting
discounts and commissions under the Securities Act of 1933. Any such
commissions, as well as other expenses of the holders and applicable transfer
taxes, are payable by such parties, as the case may be.
20
<PAGE>
Pursuant to the Underwriters' Warrant Agreement entered into by the
Company and the Underwriters in connection with the Company's Initial Public
Offering in December of 1995, the Company has agreed to indemnify the holders of
the securities underlying the Underwriters' Warrants against certain
liabilities, including liabilities under the Securities Act. The Company has
further agreed to pay to Network I a fee of five (5%) percent of the aggregate
exercise price of each solicitized Redeemable Warrant exercised, subject to the
rules and regulations of the NASD with regard to such fees. However, Network I
will not be entitled to the warrant solicitation fee if (i) the market price of
Common Stock at the time of exercise is lower than the exercise price of the
Redeemable Warrants; (ii) the Redeemable Warrants are held in any discretionary
account; (iii) disclosure of compensation arrangements is not made, in addition
to the disclosure provided in this Prospectus, in documents provided to holders
of the Redeemable Warrants at the time of exercise; (iv) the exercise of
Redeemable Warrants is unsolicited by Network I or (v) the solicitation of
exercise of the Redeemable Warrants was in violation of Rule 10b-6 promulgated
under the Exchange Act.
The Common Stock offered hereby upon the exercise of the Redeemable
Warrants, the Underwriters' Warrants and the Network I Warrants, and the
Redeemable Warrants offered hereby upon the exercise of the Underwriters'
Warrants, will be issuable in accordance with the terms of the respective
warrants. Among other things, all of the warrants provide that, upon surrender
at the Company's principal offices of an certificate evidencing any of the
warrants, with the annexed form to exercise the warrant duly executed, together
with payment of the exercise price of the warrants so exercised, the registered
holder of any warrant (or assignee) will be entitled to receive a certificate
for the shares of Common Stock or Redeemable Warrants so purchased.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock currently consists of 8,000,000
shares of Common Stock, par value $.01 per share ("Common Stock"), and 1,000,000
shares of Preferred Stock, par value $.01 per share ("Preferred Stock").
Common Stock
As of the date of this Prospectus, there were 3,044,798 shares of
Common Stock outstanding. As of July 1999, there were approximately 52
Shareholders of record of Common Stock (this does not include shares held in
"street name"). The Common Stock is currently listed on the NASDAQ SmallCap
Market under the trading symbol "SMIDC" and also traded on the Boston Stock
Exchange under the symbol "SMM." Holders of Common Stock do not have
subscription, redemption, conversion or preemptive rights. Each share of
Common Stock is entitled to participate pro rata in distribution upon
liquidation, subject to the rights of holders of Preferred Stock (if any), and
to one vote on all matters submitted to a vote of Shareholders. The holders of
Common Stock may receive cash dividends as declared by the Board of Directors
out of funds legally available therefor, subject to the rights of any holders
of Preferred Stock.
Holders of Common Stock are entitled to elect all directors of the
Company subject to the rights of the holders of Preferred Stock (if any). The
Board of Directors consists of a maximum of five members, each of which serves
for a term of one year. At each annual meeting of the shareholders all of the
directors are elected. The holders of Common Stock do not have cumulative voting
rights.
Preferred Stock
The Board of Directors is authorized by the Company's Certificate of
Incorporation to issue up to 1,000,000 shares of one or more series of Preferred
Stock. No shares of Preferred Stock have been designated or authorized for
future issuance by the Board, and the Company has no present plans to issue any
such shares. In the event that the Board does issue any shares of Preferred
Stock, it may exercise its discretion in establishing the terms of such
Preferred Stock. In the exercise of such discretion, the Board may determine the
voting rights, if any, of the series of Preferred Stock being issued, which
could include the right to vote separately or as a single class with the Common
Stock and/or other series of Preferred Stock; to have more or less voting power
per share than that possessed by the Common Stock or other series of Preferred
Stock; and to vote on certain specified matters presented to the Shareholders or
on all of such
21
<PAGE>
matters or upon the occurrence of any specified event or condition. Upon
liquidation, dissolution or winding up of the Company, the holders of Preferred
Stock may be entitled to receive preferential cash distributions fixed by the
Board of Directors when creating the particular series thereof before the
holders of the Common Stock are entitled to receive anything. Preferred Stock
authorized by the Board could be redeemable or convertible into shares of any
other class or series of stock of the Company.
The issuance of Preferred Stock by the Board could adversely affect the
rights of holders of the Common Stock by, among other things, establishing
preferential dividends, liquidation rights or voting powers. The issuance of
Preferred Stock could be used to discourage or prevent efforts to acquire
control of the Company through the acquisition of shares of Common Stock.
Redeemable Warrants
The Redeemable Warrants include an aggregate of 1,385,718
publicly-traded redeemable Common Stock purchase warrants to purchase Common
Stock at an exercise price of $.60 per share, as well as 100,000 Redeemable
Warrants which are issuable upon exercise of the Underwriters' Warrants. The
Redeemable Warrants are immediately exercisable and expire on December 12, 2000.
The Redeemable Warrants all have the same terms and are redeemable by the
Company at $.10 per Redeemable Warrant, upon 30 days prior written notice,
provided that the average closing bid price of the Common Stock, for 20
consecutive trading days ending not more than 15 days prior to the date of the
redemption notice, exceeds 150% of the exercise price (currently $.90, subject
to adjustment) of the Redeemable Warrants per share. In the event of redemption,
the Redeemable Warrants expire at the close of business on the business day
prior to the date fixed for redemption by the Company. The Redeemable Warrants
are currently trading on NASDAQ under the trading symbol SMIWC and also on the
Boston Stock Exchange under the symbol SMM/W.
Underwriters' Warrants
The Underwriters' Warrants are exercisable immediately and include
warrants to purchase 100,000 shares of Common Stock and 100,000 Redeemable
Warrants. The Underwriters' Warrants to purchase Common Stock are exercisable at
a price of $5.425 per share subject to adjustment and expire on December 12,
2000. The Underwriters' Warrants to purchase the Redeemable Warrants are
exercisable at a price of $.155 per warrant. The Underwriters' Warrants were
originally issued to Network I and LCP Capital Corp. in connection with
underwriting services provided by Network I Financial Securities, Inc. and LCP
Capital Corp. as underwriters of the Company's Initial Public Offering in
December of 1995. Some of the Underwriters' Warrants have been assigned to
various Selling Securityholders. The Underwriters' Warrants are subject to
adjustment pursuant to certain anti-dilution provisions contained therein.
Network I Warrants
The Network I Warrants include an aggregate of 200,000 warrants, each
warrant to purchase one share of Common Stock at an exercise price of $1.00. The
Network I Warrants are exercisable immediately, expire on January 14, 2002 and
were issued to designees of Network I Finaicial Services, Inc. as compensation
for consulting and financial services pursuant to a financial advisory
agreement dated January 14, 1999. The Network I Warrants are not redeemable by
the Company. The Network I Warrants are subject to adjustment in their exercise
price and the number of shares of Common Stock issuable upon exercise in
certain circumstances, including in the event of a stock dividend,
recapitalization, reorganization, merger or consolidation of the Company.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Common Stock is American
Securities Transfer & Trust, Incorporated, Denver, Colorado.
22
<PAGE>
EXPERTS
The financial statements and schedules incorporated by reference in this
Prospectus have been audited by BDO Seidman, LLP, independent certified public
accountants, to the extent and for the periods set forth in their report
incorporated by reference in reliance upon such report given upon the authority
of said firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for
the Company by Kaufman & Moomjian, LLC, Mitchel Field, New York.
23
<PAGE>
================================================================================
No person has been authorized in connection with the offering made hereby to
give any information or to make any representation not contained in this
prospectus and, if given or made, such information or representation must not be
relied upon as having been authorized by the Company, any Selling Securityholder
or any other person. This Prospectus does not constitute an offer to sell or a
solicitation of any offer to buy any of the securities offered hereby to any
person or by anyone in any jurisdiction in which it is unlawful to make such
offer or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, except as otherwise contemplated by the rules and regulations
of the Securities and Exchange Commission, create any implication that the
information contained herein is correct as of any date subsequent to the date
hereof.
------------------------------
================================================================================
<PAGE>
================================================================================
1,785,718
Shares of
COMMON STOCK
and
REDEEMABLE WARRANTS TO
PURCHASE
100,000
Shares of
COMMON STOCK
SMITH-MIDLAND CORPORATION
-------------------
PROSPECTUS
-------------------
-------------, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The estimated expenses of the distribution, all of which are to be borne by
the Registrant, are as follows: *
SEC Registration Fee . . . . . . . . . . . . . . . . . . . . . $ 56.60
Blue Sky Fees and Expenses . . . . . . . . . . . . . . . . . . 7,500.00
Accounting Fees and Expenses . . . . . . . . . . . . . . . . . 15,000.00
Legal Fees and Expenses. . . . . . . . . . . . . . . . . . . . 32,000.00
Printing and Engraving . . . . . . . . . . . . . . . . . . . . 2,000.00
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . 1,443.40
Total . . . . . . . . . . . . . . . . . . . . . . . . . . $ 58,000.00
- ----------
*Excludes a solicitation fee of five (5%) percent of the exercise price of the
Redeemable Warrants exercised, the potential maximum of which is $41,572.
Item 15. Indemnification of Directors and Officers.
Under the provisions of the Certificate of Incorporation and By-Laws of the
Registrant, each person who is or was a director or officer of Registrant shall
be indemnified by the Registrant as of right to the full extent permitted or
authorized by the General Corporation Law of Delaware. Under such law, to the
extent that such person is successful on the merits of defense of a suit or
proceeding brought against such person by reason of the fact that such person is
a director or officer of the Registrant, such person shall be indemnified
against expenses (including attorneys' fees) reasonably incurred in connection
with such action. If unsuccessful in defense of a third-party civil suit or a
criminal suit is settled, such a person shall be indemnified under such law
against both (1) expenses (including attorneys' fees) and (2) judgments, fines
and amounts paid in settlement if such person acted in good faith and in a
manner such person reasonably believed to be in, or not opposed to, the best
interests of the Registrant, and with respect to any criminal action, had no
reasonable cause to believe such person's conduct was unlawful. If unsuccessful
in defense of a suit brought by or in the right of the Registrant, or if such
suit is settled, such a person shall be indemnified under such law only against
expenses (including attorneys' fees) incurred in the defense or settlement of
such suit if such person acted in good faith and in a manner such person
reasonably believed to be in, or not opposed to, the best interests of the
Registrant except that if such a person is adjudicated to be liable in such suit
for negligence or misconduct in the performance of such person's duty to the
Registrant, such person cannot be made whole even for expenses unless the court
determines that such person is fairly and reasonably entitled to be indemnified
for such expenses.
II-I
<PAGE>
Item 16. Exhibits.
Number Description
- ------ -----------
4.1 Specimen Common Stock Certificate. (Incorporated by reference to
Exhibit 4b to the Company's Registration Statement on Form SB-2
(Commission File Number: 33-89312) declared effective with the
Commission on December 13, 1995.)
4.2 Specimen of Redeemable Common Stock Purchase Warrant and Form of
Public Warrant Agreement. (Incorporated by reference to Exhibit 4c
to the Registration Statement.)
4.3 Form of Warrant Agreement among the Company, Network 1 Financial
Securities, Inc. and LCP Capital Corp., including Form of
Underwriters' Warrant Certificate (Incorporated by reference to
Exhibit 4d to the Company's Registration Statement.)
4.4 Form of Warrant to purchase 200,000 shares of Common Stock, issued to
designees of Network I Financial Securities, Inc.*
5 Opinion and consent of Kaufman & Moomjian, LLC.
10 Financial Advisory Agreement, dated January 14, 1999, between the
Company and a division of Network I Financial Securities, Inc.
23.1 Consent of BDO Seidman, LLP.
23.2 Consent of Kaufman & Moomjian, LLC. (Included in legal opinion filed
as Exhibit 5)
24 Powers of Attorney (set forth on the signature page of this
Registration Statement on Form S-3.)
- -------------
* To be filed by amendment.
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to any of the provisions
described under Item 15 above, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission (the "Commission")
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities,
a post-effective amendment to this Registration Statement to:
(a) include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b) reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; notwithstanding the forgoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in the volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
Registration Statement; and
II-2
<PAGE>
(c) Include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
provided, however, the undertakings set forth in clauses (1)(a) and (1)
(b) above shall not apply if the information required to be included in
a post-effective amendment by such clauses is contained in periodic
reports filed with or furnished to the Commission by the Registrant
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), that are incorporated by reference
in the Registration Statement.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering; and
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the termination of the Offering.
The Registrant hereby further undertakes that it will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act as part of this Registration Statement as
of the time the Commission declared it effective; and
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the Registration
Statement, and that offering of such securities at that time as the initial
bona fide offering of those securities.
The Registrant hereby further undertakes that, for purposes of determining
liability under the Securities Act, each of the Registrant's annual report
pursuant to section 13(a) or section 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Exchange Act) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The Registrant hereby further undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Midland, State of Virginia, this 20th day of August,
1999.
SMITH MIDLAND CORPORATION
By: /s/ Rodney I. Smith
-------------------------------------
Rodney I. Smith
President and Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed on August 20, 1999 by the following
persons in the capacities indicated. Each person whose signature appears below
constitutes and appoints Rodney I. Smith with full power of substitution,
his/her true and lawful attorney-in-fact and agent to do any and all acts and
things in his/her name and on his/her behalf in his/her capacities indicated
below which he may deem necessary or advisable to enable Smith-Midland
Corporation to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with this Registration Statement including specifically, but not
limited to, power and authority to sign for him/her in his/her name in the
capacities stated below, any and all amendments (including post-effective
amendments) thereto, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in such connection, as fully to all intents and purposes as
we might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue thereof.
/s/ Rodney I. Smith President, Chief Executive Officer, Chairman of
- ----------------------------- the Board and Director (Principal Executive
Rodney I. Smith Officer)
/s/ Theodore D. Pennington Vice President - Finance, Chief Financial
- ----------------------------- Officer (Principal Financial Officer)
Theodore D. Pennington
/s/ Ashley B. Smith Director
- -----------------------------
Ashley B. Smith
/s/ Wesley A. Taylor Director
- -----------------------------
Wesley A. Taylor
Director
- -----------------------------
Andrew Kavounis
II-4
<PAGE>
Exhibit Index
Number Description
- ------ -----------
4.1 Specimen Common Stock Certificate. (Incorporated by reference to
Exhibit 4b to the Company's Registration Statement on Form SB-2
(Commission File Number: 33-89312) declared effective with the
Commission on December 13, 1995.)
4.2 Specimen of Redeemable Common Stock Purchase Warrant and Form of
Public Warrant Agreement. (Incorporated by reference to Exhibit 4c
to the Registration Statement.)
4.3 Form of Warrant Agreement among the Company, Network 1 Financial
Securities, Inc. and LCP Capital Corp., including Form of
Underwriters' Warrant Certificate (Incorporated by reference to
Exhibit 4d to the Company's Registration Statement.)
4.4 Form of Warrant to purchase 200,000 shares of Common Stock, issued to
designees of Network I Financial Securities, Inc.*
5 Opinion and consent of Kaufman & Moomjian, LLC.
10 Financial Advisory Agreement, dated January 14, 1999, between the
Company and a division of Network I Financial Securities, Inc.
23.1 Consent of BDO Seidman, LLP.
23.2 Consent of Kaufman & Moomjian, LLC. (Included in legal opinion filed
as Exhibit 5)
24 Powers of Attorney (set forth on the signature page of this
Registration Statement on Form S-3.)
- -------------
* To be filed by amendment.
KAUFMAN & MOOMJIAN, LLC
Attorneys at Law
50 Charles Lindbergh Boulevard - Suite 206
Mitchel Field, New York 11553
Telephone: (516) 222-5100
Facsimile: (516) 222-5110
Internet: kaufmanseclaw.com
August 20, 1999
Smith-Midland Corporation
P.O. Box 300
Midland, Virginia 22728
Re: Smith-Midland Corporation
Registration Statement on Form S-3
Dear Sirs/Madams:
We have acted as counsel for Smith-Midland Corporation, a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended, of an aggregate of 1,385,718 shares of
common stock, par value $.01 per share, of the Company ("Common Stock"),
issuable upon exercise of publicly traded redeemable common stock purchase
warrants of the Company ("Redeemable Warrants"); 100,000 shares of Common Stock
and 100,000 Redeemable Warrants underlying warrants ("Underwriters' Warrants")
originally issued to certain underwriters in connection with the Company's
Initial Public Offering and the 100,000 shares of Common Stock issuable upon
exercise of the Redeemable Warrants underlying the Underwriters' Warrants; and
200,000 shares of Common Stock underlying warrants ("Network I Warrants") issued
pursuant to a certain financial advisory agreement, dated January 14, 1999, by
and between a division of Network I Financial Securities, Inc. and the Company.
In this regard, we have participated in the preparation of a Registration
Statement on Form S-3 (the "Registration Statement") relating to the Redeemable
Warrants, Underwriters' Warrants, Network I Warrants and the Common Stock and
Redeemable Warrants issuable upon exercise of each of the respective warrants.
We are of the opinion that the Common Stock and the Redeemable
Warrants underlying the Underwriters' Warrants, when issued and sold in
accordance with the Registration Statement and the related Prospectus and the
terms of the relevant above-mentioned warrants, will be legally issued, fully
paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Registration Statement and in the Prospectus included therein.
Very truly yours,
/s/ Kaufman & Moomjian, LLC
Kaufman & Moomjian, LLC
THE DAMON GROUP
580 Oakdale Street
Staten Island, N.Y. 10312
Telephone (718) 317-7746 Fax (718) 966-9711
Smith-Midland Corporation 1/14/99
Route 28 PO Box 300
Midland, Va. 22728
Attn: Rodney I. Smith
Dear Mr. Smith,
This letter sets forth the basis on which The Damon Group ("Damon") is engaged
by Smith-Midland Corporation (the "Company") to act as its financial advisor for
a one year period commencing on the date hereof.
1. Performance of Services
Damon shall provide the following services:
(a) Damon will work with the Company's staff to develop financial
strategies and plans that will enhance overall corporate
performance.
(b) Damon will assist the Company in analyzing candidates for
providing business loans to the Company by helping to gather
financial information and utilizing its contacts and sources of
information to develop as complete a financial profile as
possible.
(c) Damon will help to evaluate and target other financial
opportunities and evaluate desirability of further action.
(d) Damon will assist the Company with public relations and
shareholder relations.
2. Financing
Should the Company require additional capital in order to finance a specific
project, and wish to raise these funds through an issue of equity or debt, the
Company may request Damon to serve as its investment advisor for said purpose
and Damon shall consider serving in such capacity on terms and conditions, and
for such compensation as shall be mutually agreed upon.
3. Compensation for Services
In consideration for the services detailed in Section 1 hereof, the Company
agrees to issue Damon or designee 200,000 warrants exercisable at $1.00 per
share for a period of three years from the date of this agreement. Such warrants
shall include normal anti-dilution privileges and rights to include these
warrants in any future registration statements filed by the Company.
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Also if the Company or any of its affiliates acquire, by means of merger,
consolidation, joint venture, exchange offer, purchase of stock or assets or
other transactions, an entity as a result of submissions or introductions made
by Damon during the period of this Agreement, or if the Company or any of its
affiliates is so acquired, or if the Company uses the services of Damon in
conducting or assisting in the negotiations in structuring a transaction with
any party, the Company shall pay Damon, or cause Damon to be paid, at the
closing of said transaction, a transaction fee to be negotiated prior to the
time of such transaction.
4. Indemnification
The company shall indemnify and hold harmless Damon, its officers, directors,
employees and agents from and against all claims, damages, obligations and
liabilities whatsoever (including reasonable attorney's fees) arising from its
engagement hereunder other than resulting from Damon's willful misconduct or
gross negligence.
5. Termination
This Agreement may be terminated after nine months by either party at the end of
any subsequent calendar month. The terminating party shall give written notice
to the other party at least fifteen days prior to such termination. However, all
200,000 warrants issued to Damon will remain in their possession.
6. Entire Agreement
This agreement sets forth the entire understanding of the parties relating to
the subject matter hereof, and supersedes and cancels any prior communications,
understandings, and agreements between the parties. This agreement cannot be
modified or changed, nor can any of its provisions be waived, except in writing
signed by all parties.
7. Governing Law
This Agreement shall be governed by the laws of the State of New York. The
parties hereto agree to submit to the jurisdiction of the Supreme Court of the
State of New York for the determination of any dispute arising pursuant to this
Agreement or in any action to enforce the terms hereof.
Please confirm that the foregoing is in accordance with your understanding by
signing and returning to us the duplicate of this letter attached hereto
whereupon this letter shall become a binding agreement between us, enforceable
in accordance with its terms.
Very truly yours, Accepted And Agreed To:
The Damon Group Smith-Midland Corporation
By: /s/ Damon D. Testaverde By: /s/ Rodney I. Smith
Damon D. Testaverde Rodney I. Smith
President Chief Executive Officer
Consent of Independent
Certified Public Accounts
Smith-Midland Corporation
Midland, VA
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated April 12,
1999, relating to the consolidated financial statements and schedules of
Smith-Midland Corporation appearing in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1998.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Richmond, VA
August 19, 1999
