SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1999
Commission File Number 1-13752
SMITH-MIDLAND CORPORATION
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(Name of Small Business Issuer in its Charter)
Delaware 54-1727060
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
P.O. Box 300, 5119 Catlett Road,
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Midland, Virginia 22728
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(Address of Principal Executive Offices) (Zip Code)
(540) 439-3266
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(Issuer's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Exchange Act:
Name of Each Exchange on
Title of Each Class Which Registered
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Common Stock, $.01 par value per share Boston Stock Exchange
Redeemable Common Stock Purchase Warrants Boston Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.01 par value per share
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(Title of Class)
Redeemable Common Stock Purchase Warrants
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(Title of Class)
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Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. ___
The Issuer's revenues for its most recent fiscal year were $14,432,749.
The aggregate market value of the shares of Common Stock, held by
non-affiliates, based upon the average of the closing bid and asked prices for
such stock on March 31, 2000, was $1,467,427. As of March 31, 2000, the Company
had outstanding 3,050,798 shares of Common Stock, $.01 par value per share.
Documents Incorporated By Reference
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None.
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PART I
FORWARD-LOOKING STATEMENTS
This Annual Report and related documents 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:
o our high level of indebtedness and ability to satisfy the
same,
o our recent significant loss under a material contract, and
the litigation arising out of that contract,
o our limited recent history of profitable operations, our
significant loss for the three months ended December 31,
1998, resulting in a loss for the year 1998, and our
significant loss for the three months ended December 31,
1999, resulting in a material reduction in the profits for
the year 1999,
o the continued availability of financing in the amounts, at
the times and on the terms required, to support our future
business and capital projects,
o the extent to which we are successful in developing,
acquiring, licensing or securing patents for proprietary
products,
o changes in economic conditions specific to any one or more
of our markets (such as the availability of public funds and
grants for construction),
o changes in general economic conditions (such as interest
rate changes),
o adverse weather which inhibits the demand for our products,
o our compliance with governmental regulations,
o the outcome of pending and future litigation,
o the delisting of our Common Stock from NASDAQ in October
1999 due to the continuing trading of the stock at prices
below $1.00 per share, and the decrease of our Net Tangible
Assets below $2,000,000,
o the other factors and information disclosed and discussed in
other sections of this report.
Investors and shareholders 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.
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Item 1. Business
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General
Smith-Midland Corporation (the "Company") invents, develops,
manufactures, markets, leases, licenses, sells, and installs a broad array of
precast concrete products for use primarily in the construction, transportation
and utilities industries. The Company's customers are primarily general
contractors and federal, state and local transportation authorities located in
the Mid-Atlantic and Northeastern regions of the United States. The Company's
operating strategy has involved producing innovative and proprietary products,
including Slenderwall(TM), a patented, lightweight, energy efficient concrete
and steel exterior wall panel for use in building construction; J-J Hooks(TM)
Highway Safety Barrier, a patented, positive-connected highway safety barrier;
Sierra Wall, a sound barrier primarily for roadside use; and Easi-Set(R)
transportable concrete buildings, also patented. In addition, the Company
produces other generic highway sound barriers, utility vaults, farm products
such as cattleguards, and water and feed troughs, and custom order precast
concrete products with various architectural surfaces.
The Company was incorporated in Delaware on August 2, 1994. Prior to a
corporate reorganization completed in October 1994, the Company conducted its
business primarily through Smith-Midland Virginia, which was incorporated in
1960 as Smith Cattleguard Company, a Virginia corporation, and which
subsequently changed its name to Smith-Midland Corporation in 1985. The
Company's principal offices are located at 5119 Catlett Road, Midland, Virginia
22728 and its telephone number is (540) 439-3266. As used in this report, unless
the context otherwise requires, the term the "Company" refers to Smith-Midland
Corporation and its subsidiaries.
Market
The Company's market primarily consists of general contractors
performing public and private construction contracts, including the construction
of commercial buildings; public and private roads and highways; airports;
municipal utilities; and federal, state, and local transportation authorities,
primarily located in the Mid-Atlantic and Northeastern states. The Company also
licenses its proprietary products to precast concrete manufacturers nationwide
and in Puerto Rico, Canada, Belgium, New Zealand, Portugal, and Spain. The
Company, in conjunction with the establishment of its Slenderwall(TM) exterior
cladding system, intends to expand the market in which it currently competes.
The Company believes that the annual market for exterior cladding in the
Mid-Atlantic and Northeast region is approximately $500 million and that the
nationwide annual market for exterior cladding products exceeds $2 billion based
upon information obtained by an independent third party.
The precast concrete products market is affected by the cyclical nature
of the construction industry. In addition, the demand for construction varies
depending upon weather conditions, the availability of financing at reasonable
interest rates, overall fluctuations in the national and regional economies,
past overbuilding, labor relations in the construction industry, and the
availability of material and energy supplies. A substantial portion of the
Company's business is derived from local, state, and federal building projects,
which are further dependent upon budgets and, in many cases, voter-approved
bonds.
.
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Products
Precast concrete products are cast at a manufacturing facility and
delivered to a site for installation, as contrasted to ready-mix concrete, which
is produced in a "batch plant," put into a mixer truck where it is mixed
thoroughly and delivered to a construction site to be poured and set at the
site. Precast concrete products are used primarily as parts of buildings or
highway structures, and may be used architecturally, as in a decorative wall of
a building, or structurally. Structural uses include building walls, frames,
floors, or roofs. The Company currently manufactures and sells a wide variety of
products for use in the construction, transportation and utility industries.
Slenderwall(TM) Lightweight Construction Panels
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Each Slenderwall(TM) system is a prefabricated, energy-efficient,
lightweight exterior cladding system that is offered as a cost-effective
alternative to the traditional, piecemeal construction of the exterior walls of
buildings. The Company's Slenderwall system combines the essential components of
a wall system into a single unit ready for interior dry wall mounting
immediately upon installation. The base design of each Slenderwall panel
consists of a galvanized or stainless steel stud frame with an exterior sheath
of approximately two-inch thick, steel-reinforced, high-density, precast
concrete, with various available architectural surfaces. The exterior concrete
sheath is attached to the interior frame by strategically placed epoxy coated
steel connectors that suspend the exterior concrete approximately one-half inch
away from the steel frame.
Slenderwall panels are approximately one-half the weight of brick walls
of equivalent size, permanence and durability. This lighter weight translates
into reduced construction costs resulting from less onerous structural and
foundation requirements as well as lower shipping costs. Additional savings
result from Slenderwall's reduced installation time and ease of erection, and
from the use of smaller cranes for installation.
The Company custom designs and manufactures each Slenderwall exterior
cladding system. The exterior of the Slenderwall systems can be produced in a
variety of attractive architectural finishes, such as concrete, exposed stone,
granite or thin brick. Management has received a positive reaction to
Slenderwall systems in the marketplace for use in new construction and
replacement projects because it is a cost-effective, efficient, and attractive
wall system. As of March 31, 2000 the Company has a backlog for Slenderwall
systems totaling approximately $1,070,000 compared to approximately $900,000 at
March 31, 1999.
Easi-Set Sierra Wall(TM)
-------------------------
The Easi-Set Sierra Wall(TM)(the "Sierra Wall") combines 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. With additional
reinforcement, the Sierra Wall can also be used as a retaining wall to retain
earth in both highway and residential construction. The Sierra Wall is typically
constructed of four-inch thick, steel-reinforced concrete panels that are
securely joined at an integral column by a tongue and groove connection system.
This tongue and groove connection system makes the Sierra Wall easy to install
and move if boundaries change or highways are relocated after the completion of
a project.
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The Company custom designs and manufactures each Sierra Wall to conform
to the specifications provided by the contractor. The width, height, strength,
and exterior finish of each wall varies depending on the terrain and
application. In addition, the Company offers increased noise abatement benefits
through the use of DuriSol(R), an optional, durable and patented
sound-absorbing, material that can be cast onto the exterior of the Sierra Wall.
In January 1996, the Company entered into a licensing agreement with DuriSol,
Inc. of Ontario, Canada, ("DuriSol") permitting the Company to utilize the
DuriSol(R) sound-absorbing technology until January 20, 1999. Under the
Company's licensing agreement with DuriSol, the Company has an exclusive license
to use DuriSol in Virginia and a right of first refusal for any new proprietary
products developed by DuriSol. The Company pays a royalty to DuriSol equal to
$.25 per square foot of product manufactured using DuriSol. Effective January 1,
1999, this agreement was extended for five years ending December 31, 2003.
The Sierra Wall is used primarily for highway projects as a noise
barrier as well as for residential purposes, such as privacy walls between
homes, security walls or windbreaks, and for industrial or commercial purposes,
such as to screen and protect shopping centers, industrial operations,
institutions or highways. The variety of available finishes enables the Company
to blend the Sierra Wall with local architecture, creating an attractive as well
as functional barrier.
Easi-Set J-J Hooks(TM) Highway Safety Barrier
---------------------------------------------
The Easi-Set J-J Hooks(TM) highway safety barrier (the "J-J Hooks
Barrier") is a crash tested and patented, positively connected, safety barrier
that the Company sells, rents, delivers, installs and licenses for use on
roadways to separate lanes of traffic, either temporarily for construction work
zone purposes or permanently for traffic control. Barriers are deemed to be
positively connected when the connectors on each end of the barrier sections are
interlocked with one another. The J-J Hooks Barriers interlock without the use
of a separate locking device. The primary advantage of a positive connection is
that a barrier with such a connection can withstand vehicle crashes at higher
speeds without separating. The Federal Highway Administration (the "FHWA") now
requires that states use only positively connected barriers which meet NCHRP350
crash test requirements.
The proprietary feature of the J-J Hooks Barrier is the design of its
positive connection. Protruding from each end of a J-J Hooks Barrier section is
a fabricated bent steel connector, rolled in toward the end of the barrier (it
resembles the letter "J" when viewed from directly above). The connector
protruding from each end of the barrier is rolled identically so that when one
end of a barrier faces the end of another, the resulting "hooks" face each
other. To connect one section of a J-J Hooks Barrier to another, a contractor
merely positions the hook of an elevated section of the barrier above the hook
of a set section and lowers the elevated section into place. The positive
connection is automatically engaged.
The Company believes that the J-J Hooks Barrier connection design is
superior to those of earlier highway safety barriers that were positively
connected through the "eye and pin" technique. Barriers incorporating this
technique have eyes or rings protruding from each end of the barrier, which must
be aligned during the setting process. Once set, a crew inserts pins through the
eyes and bolts the barrier sections together. Compared to this technique, the
J-J Hooks Barrier is easier and faster to install, and remove, requires a
smaller crew and eliminates the need for loose hardware to make the connection.
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In November 1990, the FHWA approved the J-J Hooks Barrier for use on
federally-aided highway projects following the successful completion of crash
testing based on National Cooperative Highway Research Program criteria. The J-J
Hooks Barrier has also been approved for use in state funded projects by 34
states, plus Washington, D.C. and Puerto Rico. The Company is in various stages
of the application process in 15 states and believes that approval in most of
the states will be granted; however no assurance can be given that approval will
be received from any or all of the remaining states or that such approval will
result in the J-J Hooks Barrier being used in such states. In addition, the J-J
Hooks Barrier has been approved by the appropriate authorities for use in the
countries of Spain, Belgium, Germany and Chile.
Easi-Set Precast Building and Easi-Span(TM)
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The Easi-Set Precast Building is a transportable, prefabricated,
single-story, concrete utility building designed to be adaptable to a variety of
uses ranging from housing communications operations, traffic control systems,
mechanical and electrical stations, to inventory or supply storage, restroom
facilities or kiosks. The Easi-Set Precast Building is available in a variety of
exterior finishes and in five standard sizes, or it can be custom sized. The
roof and floor of each Easi-Set Precast Building are manufactured using the
Company's patented post-tensioned system, which helps seal the buildings against
moisture. As a freestanding unit, the Easi-Set Precast Building requires no
poured foundations or footings and can be easily installed within a few hours.
After installation the building can be moved, if desired, and reinstalled in a
new location.
The Company also offers Easi-Span(TM), a line of expandable precast
concrete buildings. Easi-Span(TM) is identical to and incorporates the
technology of the Easi-Set Precast Building, but is available in larger sizes
and, through its modular construction, can be combined in varied configurations
to permit expansion capabilities.
The Company has sold its Easi-Set and Easi-Span Precast Buildings for
the following uses:
o Communications Operations -- to house fiber optics
regenerators, switching stations and microwave transmission
shelters, cellular phone sites, and cable television
repeater stations.
o Government Applications -- to federal, state and local
authorities for uses such as weather and pollution
monitoring stations; military storage, housing and
operations; park vending enclosures; rest rooms; kiosks;
traffic control systems; school maintenance and athletic
storage; airport lighting control and transmitter housing;
and law enforcement evidence and ammunition storage.
o Utilities Installations -- for electrical switching stations
and transformer housing, gas control shelters and valve
enclosures, water and sewage pumping stations, and storage
of contaminated substances or flammable materials which
require spill containment.
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o Commercial and Industrial Locations -- for electrical and
mechanical housing, cemetery maintenance storage, golf
course vending enclosures, mechanical rooms, rest rooms,
emergency generator shelters, gate houses, automobile
garages, hazardous materials storage, food or bottle
storage, animal shelters, and range houses.
Easi-Set Utility Vault
----------------------
The Company produces a line of precast concrete underground utility
vaults ranging in size from 36 to 702 cubic feet. Each Easi-Set utility vault
normally comes with a manhole opening on the top for ingress and egress and
openings around the perimeter, in accordance with the customer's specifications,
to access water and gas pipes, electrical power lines, telecommunications
cables, or other such media of transfer. The utility vaults may be used to house
equipment such as cable, telephone or traffic signal equipment, and for
underground storage. The Company also manufactures custom-built utility vaults
for special needs.
Sources of Supply
All of the raw materials necessary for the manufacture of the Company's
products are available from multiple sources. To date, the Company has not
experienced significant delays in obtaining materials and believes that it will
continue to be able to obtain required materials from a number of suppliers at
commercially reasonable prices.
Licensing
The Company presently grants licenses, through it's wholly-owned
subsidiary Easi-Set Industries, for the manufacturing and distribution rights of
certain proprietary products, such as the J-J Hooks Barrier and Easi-Set and
Easi-Span Precast Buildings, and certain non-proprietary products, such as the
Company's cattleguards, and water and feed troughs. Generally, licenses are
granted for defined geographic regions, and depending on the size, character and
location of the territory granted, the Company receives an initial one-time
license acquisition and training fee ranging from approximately $20,000 to
$50,000. License royalties vary depending on the product licensed, but the range
is typically between 4% to 6% of the sales of the licensed product. In addition,
Easi-Set Precast Building licensees normally pay the Company a flat monthly fee
for co-op advertising and promotion programs through which the Company produces
and distributes advertising materials and promotes the licensed products.
The Company has entered into 23 licensing agreements in the United
States, and has established at least one licensee in each of Puerto Rico,
Canada, Belgium, New Zealand, Portugal, and Spain and sub-licensees in Canada
and Chile.
The Company is currently negotiating several new license arrangements
and, although no assurance can be given, expects to increase its licensing
activities. The Company plans to develop a licensing program for its Slenderwall
exterior cladding system.
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Marketing and Sales
The Company uses an in-house sales force and, to a lesser extent,
independent sales representatives to market its precast concrete products
through trade show attendance, sales presentations, advertisements in trade
publications, and direct mail to end users.
The Company has also established a cooperative advertising program in
which the Company and its Easi-Set and Easi-Span licensees combine resources to
promote certain precast concrete products. Licensees pay a flat monthly fee and
the Company pays any additional amounts required to advertise the products
across the country. Although the Company advertises nationally, the Company's
marketing efforts are concentrated on the region within a 250-mile radius from
its facilities, which includes most of Virginia, Delaware, the District of
Columbia, Maryland, North Carolina, South Carolina, and parts of Pennsylvania,
New York, New Jersey and West Virginia.
The Company's sales result primarily from the submission of estimates
or proposals to general contractors who then include the estimates in their
overall bids to various government agencies, and other end users that solicit
construction contracts through a competitive bidding process. In general, these
contractors solicit and obtain their construction contracts by submitting the
most attractive bid to the party desiring the construction. The Company's role
in the bidding process is to provide estimates to the contractors desiring to
include the Company's products or services in the contractor's bid. If a
contractor who accepts the Company's bid is selected to perform the
construction, the Company provides the agreed upon products or services. In many
instances, the Company provides estimates to more than one of the contractors
bidding on a single project. The Company occasionally negotiates with and sells
directly to end-users.
Competition
The precast concrete industry is highly competitive and consists of a
few large companies and many small to mid-size companies, several of which have
substantially greater financial and other resources than the Company.
Nationally, the precast concrete market is dominated by several large companies.
However, due to the weight and costs of delivery of precast concrete products,
competition in the industry tends to be limited by geographical location and
distance from the construction site and is fragmented with numerous
manufacturers in a large local area.
The Company believes that the principal competitive factors for its
products are price, durability, ease of use and installation, speed of
manufacture and delivery time, ability to customize, FHWA and state approval,
and customer service. The Company believes that its plants in both Midland,
Virginia and Reidsville, North Carolina compete favorably with respect to each
of these factors in the Northeast and Mid-Atlantic regions of the United States.
Finally, the Company believes it offers a broad range of products that are
unique and technologically superior to competing products.
Patents and Proprietary Information
The Company holds U.S. and Canadian patents for the J-J Hooks Barrier
and the Easi-Set Precast Building, and a U.S. patent for the Slenderwall
exterior cladding system. The European patent for J-J Hooks Barrier was allowed
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in December 1997 and has been registered in eleven European countries. The
earliest of the issued patents considered material to the Company's business
expires in 2001 and a new patent, with respect to this product, was allowed
March 2, 1999 which expires in 2017. The Company also owns three U.S. registered
trademarks (Easi-Set(R), Smith Cattleguard(R), and Smith-Midland Excellence in
Precast Concrete(R)), one Canadian registered trademark (Easi-Set(R)) and
licenses the rights to another (DuriSol(R)). The Company licenses the technology
used in DuriSol(R) products pursuant to an agreement that expires on December
31, 2003.
While the Company intends to vigorously enforce its patent rights
against infringement by third parties, no assurance can be given that the
patents or the Company's patent rights will be enforceable or provide the
Company with meaningful protection from competitors or that its patent
applications will be allowed. Even if a competitor's products were to infringe
patents held by the Company, enforcing the patent rights in an enforcement
action would be very costly, and assuming the Company has sufficient resources,
would divert funds and resources that otherwise could be used in the Company's
operations. No assurance can be given that the Company would be successful in
enforcing such rights, that the Company's products or processes do not infringe
the patent or intellectual property rights of a third party, or that if the
Company is not successful in a suit involving patents or other intellectual
property rights of a third party, that a license for such technology would be
available on commercially reasonable terms, if at all.
Government Regulation
The Company frequently supplies products and services pursuant to
agreements with general contractors who have entered into contracts with federal
or state governmental agencies. The successful completion of the Company's
obligations under such contracts is often subject to the satisfactory inspection
or approval of such products and services by a representative of the contracting
agency. Although the Company endeavors to satisfy the requirements of each such
contract to which it is a party, no assurance can be given that the necessary
approval of its products and services will be granted on a timely basis or at
all and that the Company will receive any payments due to it. Any failure to
obtain such approval and payment may have a material adverse effect on the
Company's business.
The Company's operations are subject to extensive and stringent
governmental regulations including regulations related to the Occupational
Safety and Health Act (OSHA) and environmental protection. The Company believes
that it is substantially in compliance with all applicable regulations. The cost
of maintaining such compliance is not considered by the Company to be
significant.
The Company's employees in its manufacturing division operate
complicated machinery that may cause substantial injury or death upon
malfunction or improper operation. The Company's manufacturing facilities are
subject to the workplace safety rules and regulations of OSHA. The Company
believes that it is in compliance with the requirements of OSHA.
During the normal course of its operations, the Company uses and
disposes of materials, such as solvents and lubricants used in equipment
maintenance, that are classified as hazardous by government agencies that
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regulate environmental quality. The Company attempts to minimize the generation
of such waste as much as possible, and to recycle such waste where possible.
Remaining wastes are disposed of in permitted disposal sites in accordance with
applicable regulations.
A Phase I Environmental Site Assessment of the Company's Midland
facility was completed in January, 1997. Only two minor recommendations were
made as a result of the survey. These were addressed and corrected.
In the event that the Company is unable to comply with the OSHA or
environmental requirements, the Company could be subject to substantial
sanctions, including restrictions on its business operations, monetary liability
and criminal sanctions, any of which could have a material adverse effect upon
the Company's business.
Employees
As of March 31, 2000, the Company had 116 full-time and 4 part-time
employees, 95 of which are located at the Company's Midland facility, and 25 of
which are located at the Company's facility located in Reidsville, North
Carolina. Of the 120 employees, 9 are executive officers or managers, 5 are
responsible for sales and marketing, 91 are in manufacturing, and 15 are
administrative personnel. None of the Company's employees are represented by
labor organizations and the Company is not aware of any activities seeking such
organization. The Company considers its relationships with its employees to be
satisfactory.
Item 2. Description of Properties
-------------------------
Facilities
The Company operates two manufacturing facilities. The primary
manufacturing operations are conducted in a 44,000 square foot manufacturing
plant on approximately 22 acres of land in Midland, Virginia, of which
approximately 19 acres are owned by the Company and three acres are leased from
Rodney I. Smith, the Company's President, at an annual rental rate of $6,000.
This area houses two concrete mixers and one concrete blender. The plant also
includes two environmentally controlled casting areas, two batch plants, a form
fabrication shop, a welding and metal fabrication facility, a carpentry shop,
and a quality control center. The Company's Midland facility also includes a
large storage yard for inventory and stored materials.
The Company completed a 16,000 square foot manufacturing building on
its Midland property during the first quarter of 1999 and, in view of the
additional capacity, discontinued performing a portion of its concrete pouring
and curing processes on uncovered, outdoor manufacturing areas. Such outdoor
processing was adversely affected by wet or cold weather and bringing these
operations under roof significantly increased production capacity and
efficiency.
In addition, the Company carries out administration, research and
development, sales and marketing, and licensing operations in a 4,500 square
foot office building located on its Midland property. The Company also owns 19
acres of undeveloped industrial property in Midland, not adjacent to the
manufacturing facility.
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The Company's second manufacturing facility is located in Reidsville,
North Carolina on five acres of owned land and includes an 8,000 square foot
manufacturing plant and administrative offices.
The Company believes that its present facilities are adequate for its
current needs. Substantially all of the Company's facilities and equipment were
used as collateral for a $4,000,000 twenty three year note which resulted from a
restructuring of the Company's debt in June 1998 (see "Liquidity and Capital
Resources").
Item 3. Legal Proceedings
-----------------
In late 1995, the Company filed four separate informal claims with the
Maryland State Contractor Board of Appeals. These claims totaled approximately
$502,000 for damages and costs incurred as a result of specification, policy and
operating changes to contracts primarily instituted by the State of Maryland,
including the then newly issued "Noise Barrier Acceptance Criteria," all of
which were undertaken after the award of the contracts and after unit production
in accordance with the contracts was virtually complete. In 1996, the Company
filed additional claims against the State of Maryland related to the same
contracts in the amount of $578,500 which brought the amount of the total claims
to $1,080,500. In early 1996, the Company received several counterclaims from
the State of Maryland. The Company has considered the counterclaims in
estimating the recoverability of its claims and certain trade accounts
receivable and approximately $270,100 of the total contract claim was included
in trade accounts receivable at December 31, 1998. The Company settled two of
the claims during 1999 and collected approximately $186,000. The balance due on
the one remaining claim by the Company of $76,500 was fully reserved at December
31, 1999.
In late 1998 the Company filed suit in the circuit court of Lake
County, Illinois against Trapani Construction Company ("Trapani") & L. J.
Sheridan & Company, as agent for the owner, for the enforcement of a mechanic's
lien and the recovery of approximately $120,000 representing the balance due on
a contract entered into by the Company to manufacture and install Slenderwall
Panels at the Hawthorn Place Medical Center II in Libertyville, Illinois. Work
on that building has been completed, approved and accepted by Trapani and the
owner. Trapani withheld payment on this project because the Company refused to
proceed with a renovation project to reclad Medical Center I, a second building
at the same site which was part of the original contract, without a change order
to cover incremental costs anticipated as a result of alleged inaccurate
specifications supplied by Trapani. The suit is currently in discovery. The
Company believes that it can collect a portion of the balance due, and
established reserves of approximately $80,000 on this claim.
In 1998, the Company began work on a contract to renovate the Bradley
Hall building (the "Bradley Hall project") at Rutgers University ("Rutgers").
The Bradley Hall project, which was completed in October 1999, involved the
design, production, and installation of Slenderwall(TM) panels by the Company.
While executing the Bradley Hall project, the original structure was found to be
not structurally sufficient to support the installation of the Slenderwall(TM)
panels as originally designed. This lead to cost overruns relating to re-design
of the panels, production of the panels with additional steel and reinforcing,
and installation costs. In that the Company was suffering losses on the project
and was unable to fund its commitments, in January 1999, the Company entered
into an agreement with Seacoast Builders Corporation ("Seacoast"), the prime
contractor for the project. Pursuant to the agreement, Seacoast agreed to
finance the cost of labor and small tools for the balance of the installation
phase of the project commencing January 13, 1999, (ii) the Company remained
responsible for the other services and materials required for the project,
including provision of the Slenderwall(TM) system, (iii) the Company was
required to reimburse Seacoast out of payments due the Company for Seacoast's
expenses plus 10% for overhead, and (iv) the Company remained liable for cost
overruns for which the Company was originally responsible for (the "Seacoast
12
<PAGE>
Agreement"). The cost overruns over the course of the entire project totaled
approximately $1.6 million and the total loss to the Company on the job, before
recovery on any claims by the Company, totaled approximately $1.45 million,
which has been booked in its entirety as of December 31, 1999. Seacoast has
filed claims in 1999 on the Company's behalf, in the amount of $1.1 million. All
conditions for claim recognition have been satisfied and as of December 31, 1999
and 1998, $497,000 and $400,000 of the contract claim was included in accounts
receivable. The Company believes that, based on prior experience in claims
settlement, it will ultimately collect the recorded claim receivable.
On February 15, 2000, Seacoast filed a suit in New Jersey Superior
Court in Monmouth County against Rutgers, Grad Associates, P.A., the architect
for the Bradley Hall project, and the Company. With respect to the Company,
Seacoast alleges, among other things, that the Company failed to pay Seacoast
$1,141,571 invoiced to the Company pursuant to the Seacoast agreement, that the
Company failed to pay sub-contractors and suppliers, and that the Company did
not complete all of the work and obligations required for the project. Seacoast
has indicated that it has withheld $386,753 from the Company to offset the
amount it alleges is due and owing from the Company. Seacoast claims that the
Company is liable to it with respect to all of the matters indicated above, as
well as any liquidated damages that may be assessed against Seacoast by Rutgers.
The actual amount of damages sought by Seacoast against the Company are not
specified. The Company has denied that it has any liability to Seacoast, and
asserts, among other things, it dutifully performed the work required of it
until such time as conditions beyond its control interfered with, frustrated,
and interrupted its performance. Moreover, the Company has asserted that the
conditions under which it was to perform its obligations related to the Bradley
Hall project materially changed. The Company has counterclaimed against Seacoast
in an amount in excess of $1,126,955 for Seacoast's failure to pay the Company
for the additional work performed by it. In addition, the Company has filed a
third party complaint against Sky-Lift Corporation ("Sky-Lift"), the initial
subcontractor responsible for installation of the Slenderwall(TM) panels. The
Company had entered into a sub-subcontract with Sky-Lift for the installation of
hardware required to attach the Slenderwall(TM) building panels and the erection
of the Slenderwall(TM) building panels. The Company has asserted that Sky-Lift
abandoned its work on the project causing the Company to sustain damages in
excess of $1,000,000, for which the Company is seeking damages. The Company also
seeks indemnification from Sky-Lift for any damages that may be found to be
owing by the Company to Seacoast.
The Company also separately commenced a suit, in October 1999, against
Sky-Lift in the Supreme Court of New York, County of Westchester. The complaint
essentially covers the same matters as described in the third party action
disclosed in the immediately preceding paragraph.
On June 7, 1999, Construction Services, Inc. ("CSI"), the second
subcontractor responsible for installation of the Slenderwall(TM) panels, filed
a complaint against the Company in the United States District Court for the
District of New Jersey. CSI alleges that it properly performed its work and that
the Company, without cause, terminated CSI. CSI is seeking in excess of $150,000
for work performed, equipment/materials supplied and lost profits on the
uncompleted portion of the work. The Company and CSI have reached an agreement
in principle to settle the suit for $75,000, payable in a combination of cash
and a note from the Company.
13
<PAGE>
On March 6, 2000, AmQuip Corporation ("AmQuip"), an equipment leasing
company, brought a suit against Seacoast, the Company, and Safeco Insurance
Company of America, the surety on a payment and performance bond for the Bradley
Hall project. AmQuip alleges that it provided goods and services requested by
the Company with respect to the Bradley Hall project, but was never paid. AmQuip
is seeking $42,853 from the Company with respect to this claim.
The Company is not presently involved in any other litigation of a
material nature.
Item 4. Submission of Matters to Vote of Security Holders
-------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of the year ended December 31, 1999, through the solicitation of
proxies or otherwise.
14
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
---------------------------------------------------------------------
The Company's Common Stock has traded on the Boston Stock Exchange
("BSE") under the symbol "SMC" since December 13, 1995. The Company's Common
Stock also trades on the OTC Bulletin Board System under the symbol "SMID".
Trading of the publicly held securities of the Company was transferred from the
Nasdaq SmallCap Market to the OTC Bulletin Board in October 1999 because the
Company was no longer in compliance with Nasdaq's $1.00 minimum bid price
requirement. The Company was also not in compliance with Nasdaq's net tangible
asset requirement (minimum of $2,000,000). As of March 31, 2000, there were
approximately 48 record holders of the Company's Common Stock. Management
believes there are approximately 500 beneficial owners of the Company's Common
Stock.
The following table sets forth the high and low bid prices for the
Company's Common Stock for the periods indicated. Such quotations represent
interdealer quotations without adjustment for retail markups, markdowns or
commissions and may not represent actual transactions.
Bid
---
High Low
---- ---
1998
First Quarter $ 1 11/16 $ 3/4
Second Quarter $ 1 11/16 $ 1
Third Quarter $ 1 1/4 $ 1 1/16
Fourth Quarter $ 1 1/16 $ 5/8
1999
First Quarter $ 1 1/8 $ 9/16
Second Quarter $ 1 1/16 $ 1/2
Third Quarter $ 1 1/16 $ 9/16
Fourth Quarter $ 1 $ 3/8
The stockholders of the Company have approved an amendment of the
Company's Certificate of Incorporation to affect a one-for-three, one-for-two,
three-for-five, two-for-three or three-for-four reverse stock split of the
Common Stock of the Company, but as of the date of this report, the Board of
Directors has taken no action in this regard. The reverse stock split was
contemplated as a means of retaining the Company's listing on the Nasdaq
SmallCap Market.
Dividends
The Company has not paid dividends on its Common Stock since its
inception and has no intention of paying any dividends to its stockholders in
the foreseeable future. The Company currently intends to reinvest earnings, if
any, in the development and expansion of its business. The declaration of
dividends in the future will be at the election of the Board of Directors and
15
<PAGE>
will depend upon earnings, capital requirements and financial position of the
Company, general economic conditions and other pertinent factors. The Company's
current loan agreement with First International Bank prohibits the payment of
dividends to stockholders without the bank's prior written consent, except for
dividends paid in shares of the Company's Common Stock.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company (including the Notes thereto)
included elsewhere in this report.
General
The Company generates revenues primarily from the sale, shipping,
licensing, leasing and installation of precast concrete products for the
construction, utility and farming industries. The Company's operating strategy
has involved producing innovative and proprietary products, including
Slenderwall(TM), a patent-pending, lightweight, energy efficient concrete and
steel exterior wall panel for use in building construction; J-J Hooks(TM)
Highway Safety Barrier, a patented, positive-connected highway safety barrier;
Sierra Wall, a sound barrier primarily for roadside use; and transportable
concrete buildings. In addition, the Company produces utility vaults, farm
products such as cattleguards, and water and food troughs, and custom order
precast concrete products with various architectural surfaces.
In 1998, the Company began work on a contract to renovate the Bradley
Hall building at Rutgers University (the "Bradley Hall project"). This project,
which was completed in October 1999, involved the design, production, and
installation of Slenderwall panels by the Company. While executing the Bradley
Hall project, the original structure was found to be not structurally sufficient
to support the installation of the Slenderwall panels as originally designed.
This lead to cost overruns relating to re-design of the panels, production of
the panels with additional steel and reinforcing, and installation costs.
Management estimates that the cost overruns to the Company for the project are
approximately $1.6 million and estimates that the total loss on the job before
recovery on any claims by the Company is approximately $1.45 million, which has
been booked in its entirety as of December 31, 1999. In 1999, the general
contractor filed claims on the Company's behalf in the amount of $1.1 million.
As of December 31, 1999, $497,000 of the contract claim has been included in
accounts receivable, of which $97,000 was recorded as income in 1999 versus
$400,000 in 1998. The Company is currently involved in litigation over this
matter, and there can be no assurance that the loss will not exceed the $1.45
million estimate or that the Company will be able to collect any of its claim.
The Company believes that, based on prior experience in claims settlement, it
will ultimately collect the recorded claim receivable.
Results of Operations
Year ended December 31, 1999 compared to the year ended December 31,
1998
The Company's operations for 1999 resulted in net income of $42,275 or
$0.01 per share, representing an increase in net income of $826,158 when
compared to the loss in 1998 of $(783,883), or $(0.26) per share.
16
<PAGE>
Total revenue for 1999 was comparable to 1998 with $14,432,749 recorded
in 1999, and $14,434,178 in 1998. Total product sales decreased by $571,873, or
5% to $11,843,379 in 1999, compared to $12,415,252 in 1998. The decrease in
product sales was due to lower sales volume of soundwall products which was
partially offset by increases in Slenderwall, architectural products, and
building sales. Unit prices have not changed significantly. Shipping and
installation revenue increased to $2,589,370 in 1999 from $2,018,926 in 1998, an
increase of $570,444, or 28%, attributable to an increase in the number and size
of installation contracts.
Royalty revenue increased from $264,178 in 1998 to $326,239 in 1999, an
increase of $62,061, or 23%. The increase was attributed to an increase in
royalty fees earned on production of Easi-Set(R) barrier and start-up fees from
new licensees. Start-up fees increased from $15,000 in 1998 to $53,123 in 1999,
an increase of $38,123.
Total cost of goods sold for 1999 was $11,185,901 compared to
$12,015,760 in 1998, a decrease of $829,859. Total cost of goods sold as a
percentage of total revenue decreased to 78% in 1999 from 83% in 1998. The
percentage decrease primarily resulted from the reduction in the current year's
addition to the Company's accrued estimated total loss on the Bradley Hall
project and no new significant 1999 loss jobs. (see "General" in this Section).
General and administrative expenses increased $149,924, or 7%, to
$2,386,862 in 1999 from $2,236,938 in 1998. The increase was the result of
higher expenses relating to professional fees and depreciation.
Selling and marketing expenses in 1999 were lower compared to 1998 by
$95,371 or 14%. Total selling and marketing expenses were $583,500 in 1999
compared with $678,871 in 1998. The decrease was due primarily to a temporary
reduction in staff, lower commissions paid to outside sales people, and
reductions in the expenditures for dues and subscriptions.
Interest expense and loan fees remained relatively constant at $543,770
in 1999 from $541,161 in 1998. Although the Company had higher average levels of
debt outstanding in 1999, the weighted average interest rate on the outstanding
debt was lower. In addition, in 1998 the Company incurred expense as a result of
the early retirement of several capital leases.
As a result of cumulative net operating loss ("NOL") carryforwards of
approximately $2,941,000 available to the Company as of January 1, 1999, no
income tax expense was recorded for 1999. The Company does not expect to incur
income tax expense for 2000 due to the NOL carryforwards.
Liquidity and Capital Resources
The Company has financed its capital expenditures, operating
requirements and growth to date primarily with proceeds from operations, and
bank and other borrowings. The Company had $4,675,544 of indebtedness at
December 31, 1999, of which $228,025 was scheduled to mature within twelve
months.
In June 1998, the Company successfully restructured substantially all
of its debt into one $4,000,000 note with First International Bank ("FIB"),
formerly the First National Bank of New England, headquartered in Hartford,
Connecticut. The Company closed on this loan on June 25, 1998. The Company
obtained a twenty three year term on this note at 1.5% above prime, secured by
equipment and real estate. The term of the note dramatically improved the
Company's current debt ratio and debt service. Current debt decreased from
17
<PAGE>
$2,199,228 at December 31, 1997 to $228,025 at December 31, 1999. In addition to
paying off existing debt of approximately $3.0 million, the Company received
approximately $832,000 in restricted funds, to be used only for plant expansion
and new equipment. The loan is guaranteed in part by the U.S. Department of
Agriculture Rural Business-Cooperative Service's loan guarantee. Under the terms
of the note, the Company's unfinanced fixed asset expenditures are limited to
$300,000 per year for a five year period. In addition, FIB will permit chattel
mortgages on purchased equipment not to exceed $200,000 on an annual basis so
long as the Company is not in default. The Company was also granted a $500,000
operating line of credit by FIB. This commercial revolving promissory note,
which carries a variable interest rate of 1% above prime was renewed in May
1999, and now has a maturity date of May 1, 2000. The Company has agreed with
the FIB to extend the line of credit upon its extended maturity date. On
December 20, 1999, the Company secured an additional term loan of $500,000 from
FIB. The term loan is payable in monthly installments over a five year period
and carries an interest rate of 1.75% above prime. The term loan was used to pay
down the line of credit, which further improved the Company's current debt
ratio.
At December 31, 1999, the Company had cash totaling $374,190 with no
balance left in restricted cash, compared to cash totaling $207,661 and
restricted cash in the amount of $387,462, at December 31, 1998. During 1999,
the Company used $24,713 in cash (net) to pay down debt in its financing
activities, and $551,033 in its investing activities, primarily for the funding
of the 16,000 square foot plant addition (see "Item 2. Description of Properties
- - Facilities"). The Company's operating activities provided $354,813 in cash.
Capital spending decreased to $537,073 in 1999, from $1,237,689 in
1998, as the Company completed construction on the new production facility. The
restricted funds were used early in 1999 to complete the new facility. The
Company continues work on a new engineering building and expects to incur
additional capital costs in 2000 of approximately $62,100. No other significant
cash commitments are anticipated and planned expenditures for 2000 are limited
as stated above, by the FIB loan agreement.
As a result of the Company's debt burden, the Company is especially
sensitive to changes in the prevailing interest rates. Increases in such
interest rates may materially and adversely affect the Company's ability to
finance its operations either by increasing the Company's cost to service its
current debt, or by creating a more burdensome refinancing environment.
The Company's cash flow from operations is affected by production
schedules set by contractors, which generally provide for payment 45 to 75 days
after the products are produced. This payment schedule has resulted in liquidity
problems for the Company because it must bear the cost of production for its
products before it receives payment. In addition, the Company's cash flow has
been significantly affected by the loss on the Bradley Hall project. Although no
18
<PAGE>
assurance can be given, the Company believes that anticipated cash flow from
operations with improved project management on jobs, and existing credit
facilities will be sufficient to finance the Company's operations for at least
the next 12 months. In the event cash flow from operations and existing credit
facilities are not adequate to support operations, the Company is currently
investigating alternative sources of short-term financing, for which there can
be no assurance of obtaining.
The Company did not experience any interruptions in business or
operations on or around January 1, 2000. In addition, the costs incurred in the
preparation for the year 2000 did not have a significant impact on the Company's
cash flow or results of operations.
Seasonality
The Company services the construction industry primarily in areas of
the United States where construction activity is inhibited by adverse weather
during the winter. As a result, the Company experiences reduced revenues from
December through February and realizes the substantial part of its revenues
during the other months of the year. The Company typically experiences lower
profits, or losses, during the winter months, and must have sufficient working
capital to fund its operations at a reduced level until the spring construction
season. The failure to generate or obtain sufficient working capital during the
winter may have a material adverse effect on the Company.
Inflation
To date, management believes that the Company's operations have not
been materially affected by inflation.
Recent Accounting Pronouncements
In June 1998, The Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments" ("SFAS 133"). SFAS 133, as amended, is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. SFAS 133 requires
that an entity recognize all derivatives as either assets or liabilities and
measure those instruments at fair market value. Presently the Company does not
use derivative instruments either in hedging activities or as investments.
Accordingly, the Company believes that adoption of SFAS 133 will have no impact
on its financial position or results of operations.
19
<PAGE>
Item 7. Financial Statements
--------------------
The following financial statements are filed as part of this report:
Page
----
Report of Independent Certified Public Accountants....................... F-3
Consolidated Balance Sheets as of December 31, 1999 and 1998............. F-4
Consolidated Statements of Operations for the years ended December 31,
1999 and 1998 ......... ............................................. F-5
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1999 and 1998 ......................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1999 and 1998 ........................................................ F-7
Summary of Significant Accounting Policies............................... F-9
Notes to Consolidated Financial Statements .............................. F-12
Item 8. Changes In and Disagreements With Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
Not Applicable.
20
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
-------------------------------------------------------------
Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------
<TABLE>
<CAPTION>
Director Or
Executive
Name Age Officer Since Position
- ---- --- ------------- --------
<S> <C> <C> <C>
Rodney I. Smith 61 1970 Chief Executive Officer, President
And Chairman of the Board of
Directors
Ashley B. Smith 37 1994 Vice President of Sales and
Marketing and Director
Wesley A. Taylor 52 1994 Vice President of Administration
and Director
Andrew G. Kavounis 74 1995 Director
Guy M. Schuch 51 1999 Chief Operating Officer
Smith Midland Corp. (Virginia)
Robert E. Albrecht, Jr. 49 2000 Chief Financial Officer
</TABLE>
Background
The following is a brief summary of the background of each Director,
executive officer and key employee of the Company:
Rodney I. Smith. Chairman of the Board of Directors, Chief Executive Officer and
President. Rodney I. Smith co-founded the Company in 1960 and became its
President and Chief Executive Officer in 1965. He has served on the Board of
Directors and has been its Chairman since 1970. Mr. Smith is the principal
developer and inventor of the Company's proprietary and patented products. Mr.
Smith is the past President of the National Precast Concrete Association. Mr.
Smith has served on the Board of Trustees of Bridgewater College in Bridgewater,
Virginia, since 1986.
Ashley B. Smith. Vice President of Sales and Marketing and Director. Ashley B.
Smith has served as Vice President of Sales and Marketing of the Company since
1990 and as a Director since December 1994. Mr. Smith holds a Bachelor of
Science degree in Business Administration from Bridgewater College. Mr. Ashley
B. Smith is the son of Mr. Rodney I. Smith.
Wesley A. Taylor. Vice President of Administration and Director. Wesley A.
Taylor has served as Vice President of Administration of the Company since 1989
and as a Director since December 1994, and previously held positions as
Controller and Director of Personnel and Administration. Mr. Taylor holds a
Bachelor of Arts degree from Northwestern State University.
21
<PAGE>
Andrew Kavounis. Director. Andrew Kavounis has served as a Director of the
Company since December 1995. Mr. Kavounis was President of Core Development Co.,
Inc., a privately held construction and development concern from 1991 until he
retired in 1995. From 1989 to 1991, Mr. Kavounis was the Executive Vice
President of the Leadership Group, a Maryland based builder and developer. Prior
to that time, Mr. Kavounis spent 37 years as an executive at assorted
construction and development companies, which included a position as the
National Vice President of Ryland Homes, a privately held company, in which
capacity he was directly responsible for the construction of 17,000 homes
annually, nationwide. Mr. Kavounis received a Bachelor of Science degree in
Chemical Engineering from Presbyterian College, a Bachelor of Science degree in
Civil and Mechanical Engineering from Wofford College, and a Master's degree in
Business Administration from the University of South Carolina.
Guy M. Schuch. Chief Operating Officer, Smith Midland Corp.(Virginia). Mr.
Schuch has served as Chief Operating Officer of Smith-Midland (Virginia), the
Company's primary operating subsidiary, since joining the Company in May, 1999.
Mr. Schuch was Production Manager for Southdown Corporation, a manufacturer of
cement, from 1995 to 1998 and was a Plant Manager for LaFarge Corporation, a
manufacturer of cement, from 1979 to 1995. Mr. Schuch holds a Master of Science
degree in Industrial Engineering from Stanford University, and a Bachelor of
Science degree in Mechanical Engineering from the Arts et Metiers School of
Engineering in Paris, France.
Robert E. Albrecht, Jr. Chief Financial Officer. Mr. Albrecht Joined the Company
as Controller in August 1999 and has served as Chief Financial Officer of the
Company since January 1, 2000. Prior to joining the Company, Mr. Albrecht was
CFO and Controller of Omega World Travel, Inc., a travel agency, from 1994 to
1999. Mr. Albrecht is a Certified Public Accountant and holds a Bachelor of Arts
degree in Accounting from the College of William and Mary.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) ("Section 16(a)") of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), requires executive officers and Directors and
persons who beneficially own more than ten percent (10%) of the Company's Common
Stock to file initial reports of ownership on Form 3 and reports of changes in
ownership on Form 4 with the Securities and Exchange Commission (the
"Commission") and any national securities exchange on which the Corporation's
securities are registered.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the executive officers and Directors,
the Company believes that all Section 16(a) filing requirements applicable to
its executive officers, Directors and greater than ten per cent (10%) beneficial
owners were satisfied, except for the Form 3 and Form 4 filings due for the
following transactions, which filings are currently being prepared:
Form 4 for Bernard Patriacca for the Nov. 5, 1997 grant of
non-qualified stock options, Form 3 for Thomas J. Deserable due upon
appointment as Chief Operating Officer of Smith-Midland Virginia and
for the August 4, 1998 grant of incentive stock options.
22
<PAGE>
Item 10. Executive Compensation.
-----------------------
The following table sets forth the compensation paid by the Company for
services rendered for the last three completed fiscal years to the sole
executive officer of the Company and its subsidiaries (the "named executive
officer"), whose cash compensation exceeded $100,000 during 1999:
<TABLE>
<CAPTION>
|---------------------------------------------------------------------------------------------------------------------|
| | Annual Compensation | Long Term Compensation |
|-------------------------|---------------------------------------------|----------------------|----------------------|
| | | | |
| | | Awards | Payouts |
|-------------------------|----------|-----------|----------|-----------|-----------|----------|-----------|----------|
| | | | | | |Securities| | |
| | | | | Other | | Under- | | All |
| Name and | | | | Annual |Restricted | lying | | Other |
| Principal | | | | Compen- | Stock | Options | LTIP | Compen- |
| Position | Year | Salary | Bonus | sation | Awards | SARs | Payouts | Sation |
| | | $ | $ | $ | $ | (#) | $ | $ |
|-------------------------|----------|-----------|----------|-----------|-----------|----------|-----------|----------|
| | | | | | | | | |
| <S> | <C> | <C> | <C> | <C> | <C> | <C> | <C> | <C> |
| Rodney I. Smith | 1999 | 156,825 | 54,500 | - | - | 20,000 | - | - |
| President, Chief | 1998 | 175,000 | 54,500 | - | - | 20,000 | - | - |
| Executive Officer | 1997 | 170,503 | 81,500 | - | - | - | - | - |
| and Chairman of the | | | | | | | | |
| Board. | | | | | | | | |
|---------------------------------------------------------------------------------------------------------------------|
</TABLE>
Compensation of Directors
All non-employee Directors receive $500 per meeting as compensation for
their services as Directors and are reimbursed for expenses incurred in
connection with the performance of their duties. All employee Directors, except
Rodney I Smith, receive $250 per meeting as compensation for their services and
are reimbursed for expenses incurred in connection with the performance of their
duties. Rodney I. Smith receives no compensation as a Director, but is
reimbursed for expenses incurred in connection with the performance of his
duties as a Director.
23
<PAGE>
Option Grants in Last Fiscal Year
The following table summarizes option grants during 1999 to the named
executive officer:
<TABLE>
<CAPTION>
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees in or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
---- ----------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
Rodney I. Smith........... 20,000 22.73% 0.5625 12/28/07
Aggregated Option Exercises in Last Fiscal Year and Year-End Option Values
<CAPTION>
Shares Number of
Acquired Shares Underlying Value of Unexercised
on Value Unexercised Options In-the-Money Options
Exercise Realized at Fiscal Year End (#) at Fiscal Year-End ($)(1)
---------------------------- ----------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Rodney I. Smith... --- --- 6,833 33,167 --- ---
</TABLE>
- ------------
(1) Value is based on the closing sales price of the Company's Common Stock on
December 31, 1999 ($0.5625), the last trading day of 1999, less the option
exercise price. All per share prices of the options held by Mr. Smith equal or
exceed $0.5625.
Employment Agreement
The Company has entered into an employment agreement with Mr. Rodney I.
Smith, which provides for an annual base salary of $175,000. The present term of
the agreement continues until December 31, 2000, and is thereafter automatically
renewed for successive one-year periods unless Mr. Smith or the Company gives
the other party three months prior written notice of non-renewal. Bonuses and
salary increases may be granted by the Compensation Committee of the Board of
Directors, as it so determines from time to time. Mr. Smith voluntarily reduced
his annual base salary by 22.5% effective March 8, 1999 through August 23, 1999.
Mr. Smith also is entitled to receive benefits offered to the Company's
employees generally. If terminated without cause, Mr. Smith is entitled to
receive as severance pay an amount equal to twenty-four (24) months of his base
salary, less taxes, other required withholdings and any amounts owed to the
Company, payable in accordance with the Company's standard payroll procedures.
In addition, the employment agreement precludes Mr. Smith from competing with
the Company during his employment and for at least one year thereafter, and from
disclosing confidential information. The Company is the owner of and the
beneficiary of three key person life insurance policies on Mr. Smith totaling
$1,400,000.
24
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
---------------------------------------------------------------
The following table sets forth, as of March 26, 2000, certain
information concerning ownership of the Company's Common Stock by (i) each
person known by the Company to own of record or be the beneficial owner of more
than five percent (5%) of the Company's Common Stock, (ii) each of the Company's
Directors and Executive Officers, and (iii) all Directors and Executive Officers
as a group. Except as otherwise indicated, the Stockholders listed in the table
have sole voting and investment powers with respect to the shares indicated.
Name and Address of Number of Shares Percentage of
Beneficial Owner(1) Beneficially Owned(2) of Class
- ------------------- --------------------- --------
Rodney I. Smith (3)(4)(5) 620,131 20.23
Ashley B. Smith (3)(4)(6) 98,867 3.23
Wesley A. Taylor (7) 8,450 *
Andrew Kavounis (8) 3,000 *
All directors, executive officers and
key employees as a group (6 persons)
(2)(3)(4)(5)(6)(7)(8) 730,448 23.73
- -----------------------
* Less than 1%
(1) The address for each of Messrs. Rodney I. Smith, Ashley B. Smith, Taylor,
Kavounis, Schuch and Albrecht is c/o Smith-Midland Corporation, P.O. Box
300, 5119 Catlett Road, Midland, Virginia 22728.
(2) Pursuant to the rules and regulations of the Securities and Exchange
Commission, shares of Common Stock that an individual or group has a right
to acquire within 60 days pursuant to the exercise of options or warrants
are deemed to be outstanding for the purposes of computing the percentage
ownership of such individual or group, but are not deemed to be outstanding
for the purpose of computing the percentage ownership of any other person
shown in the table.
(3) Rodney I. Smith and Ashley B. Smith are father and son, respectively. Each
of Rodney I. Smith and Ashley B. Smith disclaims beneficial ownership of
the other's shares of Common Stock.
(4) Does not include an aggregate of 77,972 shares of Common Stock held by
Matthew Smith, and Roderick Smith, sons of Rodney I. Smith, and brothers of
Ashley B. Smith, and 112,713 shares held by Merry Robin Bachetti, sister of
Rodney I. Smith and aunt of Ashley B. Smith, for which each of Rodney I.
Smith and Ashley B. Smith disclaims beneficial ownership.
(5) Includes 100,000 shares of Common Stock that have been deposited into an
irrevocable trust (the "Trust") for the benefit of Hazel Smith, the income
beneficiary of the Trust and former wife of Rodney I. Smith, and mother of
Mr. Smith's children. Mr. Smith is the trustee of the Trust and, as such,
may vote the shares, as he deems fit. Includes options to purchase 6,833
shares of Common Stock of the Company exercisable at $1.00 per share.
(6) Includes options to purchase 9,250 shares of Common Stock of the Company
exercisable at $1.00 per share.
(7) Includes options to purchase 8,450 shares of Common Stock of the Company
exercisable at $1.00 per share.
(8) Includes options to purchase 3,000 shares of Common Stock of the Company
exercisable at $1.00 per share.
25
<PAGE>
Item 12. Certain Relationships and Related Transactions.
-----------------------------------------------
At December 31, 1999, the Company owned an unsecured note for
approximately $638,347 receivable from Mr. Rodney I. Smith, the Company's
President and majority shareholder, with a seven year term accruing interest at
a rate of 6% per annum. During 1996, $102,300 of the note was reduced for the
Company's purchase of 40,920 common shares from Mr. Smith. On December 31, 1997,
the terms of the note were changed to call for annual payments of $45,948
beginning on December 31, 1998 and continuing through maturity on December 31,
2002. Payments for the years 1998 and 1999 have been made. During 1999, the note
was increased by $20,776 for additional borrowings. Total interest income on
this note was approximately $39,000 and $37,600 for the years ended December 31,
1999 and 1998, respectively.
On July 15, 1999, the Company entered Stock Subscription Agreements
with each of Rodney I. Smith and Guy M. Schuch, the Chief Operating Officer of
Smith-Midland Virginia, the primary operating subsidiary of the Company.
Pursuant to these agreements, Mr. Smith agreed to purchase 142,857 shares of
common stock and Mr. Schuch agreed to purchase 328,571 shares of common stock of
the Company for $.70 per share, or an aggregate of $330,000. The agreements were
contingent upon the Company maintaining its listing on Nasdaq, a condition which
was not met. As of the date of this report, no action has been taken to
effectuate these purchase transactions.
Item 13. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits.
(1) The following exhibits are filed herewith:
Exhibit
No.
- -------
1 Continuation of Exclusive License Agreement between DuriSol Resources,
Inc. and Smith-Midland Corporation, with an effective date of January
1, 1999, dated May 3, 1999.
2 First National Bank of New England Commercial Loan Agreement dated
December 20, 1999.
3 First National Bank of New England Commercial Term Promissory Note
dated December 20, 1999.
27 Financial Data Schedule
(2) The following exhibits were filed as part of the Company's
Quarterly Report on Form 10-QSB for the quarter ended June
30, 1998 and are incorporated herein by reference:
26
<PAGE>
Exhibit
No. Title
- ------- -----
1 First National Bank of New England Loan Agreement
2 First National Bank of New England Loan Note
(3) The following exhibits were filed as part of the Company's
Annual Report on Form 10-KSB for the year ended December 31,
1997 and are incorporated herein by reference:
Exhibit
No. Title
- ------- -----
10c Promissory Note from Rodney I. Smith to the Company, dated as of
December 31, 1997.
(4) The following exhibits were filed as part of the Company's
Annual Report on Form 10-KSB for the year ended December 31,
1995 and are incorporated herein by reference.
Exhibit
No. Title
- ------- -----
21 List of Subsidiaries of the Company.
(5) The following exhibits were filed as part of the Company's
Form SB-2 Registration Statement (No. 33-89312) declared
effective by the Commission on December 13, 1995 and are
incorporated herein by reference:
Exhibit
No. Title
- ------- -----
3a Certificate of Incorporation, as amended.
3b Bylaws, as amended.
4b Specimen Common Stock Certificate.
4c Form of Public Warrant Agreement, including Specimen Redeemable Common
Stock Purchase Warrant.
4d Form of Warrant Agreement between the Company, Network 1 Financial
Securities, Inc. and First Hanover Securities, Inc., including Form of
Underwriter's Warrant Certificate.
10a Employment Agreement between the Company and Rodney I. Smith.
27
<PAGE>
10r Lease Agreement between the Company and Rodney I. Smith.
10t Collateral Assignment of Letters Patent between the Company and Rodney
I. Smith.
10u Form of License Agreement between the Company and its Licensee.
10w 1994 Stock Option Plan.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K to report the de-listing
of its securities from the Nasdaq Smallcap Market on October 8, 1999.
28
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SMITH-MIDLAND CORPORATION
Date: April 14, 2000 By: /s/ Rodney I. Smith
-------------------
Rodney I. Smith, President
(principal executive officer)
By: /s/ Robert E. Albrecht, Jr.
---------------------------
Robert E. Albrecht, Jr., CFO
(principal finance and accounting
officer)
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant in the capacities and on
the dates indicated.
Name Capacity Date
- ---- -------- ----
/s/ Rodney I. Smith Director April 14, 2000
- ----------------------------------
Rodney I. Smith
/s/ Wesley A. Taylor Director April 14, 2000
- ----------------------------------
Wesley A. Taylor
/s/ Ashley Smith Director April 14, 2000
- ----------------------------------
Ashley Smith
/s/ Andrew Kavounis Director April 14, 2000
- ----------------------------------
Andrew Kavounis
29
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors
Smith-Midland Corporation
Midland, Virginia
We have audited the accompanying consolidated balance sheets of Smith-Midland
Corporation and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Smith-Midland
Corporation and subsidiaries at December 31, 1999 and 1998, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
BDO Seidman, LLP
Richmond, Virginia
April 5, 2000
F-3
<PAGE>
<TABLE>
<CAPTION>
December 31, 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Assets (Note 2)
<S> <C> <C>
Current assets
Cash $ 374,190 $ 207,661
Accounts receivable (Note 6)
Trade - billed, (less allowance for doubtful
accounts of $323,474 and $262,000) 3,557,938 3,824,012
Trade - unbilled 123,332 199,108
Inventories
Raw materials 493,979 522,468
Finished goods 1,013,958 989,745
Prepaid expenses and other assets 46,656 116,034
- --------------------------------------------------------------------------------------------------------------------
Total current assets 5,610,053 5,859,028
- --------------------------------------------------------------------------------------------------------------------
Property and equipment, net (Note 1) 2,608,145 2,449,566
- --------------------------------------------------------------------------------------------------------------------
Other assets
Cash - restricted - 387,462
Notes receivable, officer (Note 3) 638,347 624,387
Other 317,845 246,058
- --------------------------------------------------------------------------------------------------------------------
Total other assets 956,192 1,257,907
- --------------------------------------------------------------------------------------------------------------------
$ 9,174,390 $ 9,566,501
====================================================================================================================
<PAGE>
Smith-Midland Corporation
and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
December 31, 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of notes payable (Note 2) $ 228,025 $ 573,104
Accounts payable - trade 1,690,853 2,177,884
Accrued expenses and other liabilities (Note 6) 1,324,021 1,115,118
Customer deposits 172,914 306,255
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities 3,415,813 4,172,361
Notes payable - less current maturities (Note 2) 4,350,644 4,020,661
Notes payable - related parties (Note 3) 96,875 104,696
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 7,863,332 8,297,718
- --------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 5 and 6)
- --------------------------------------------------------------------------------------------------------------------
Stockholders' equity
Preferred stock, $.01 par value; authorized 1,000,000
shares, none outstanding - -
Common stock, $.01 par value; authorized 8,000,000
shares; 3,085,718 issued and outstanding 30,857 30,857
Additional paid-in capital 3,450,085 3,450,085
Accumulated deficit (2,067,584) (2,109,859)
- --------------------------------------------------------------------------------------------------------------------
1,413,358 1,371,083
Treasury stock, at cost, 40,920 shares (102,300) (102,300)
- --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,311,058 1,268,783
- --------------------------------------------------------------------------------------------------------------------
$ 9,174,390 $ 9,566,501
====================================================================================================================
See accompanying summary of accounting policies
and notes to consolidated financial statmements.
F-4
<PAGE>
Smith-Midland Corporation
and Subsidiaries
Consolidated Statements of Operations
<CAPTION>
Year Ended December 31, 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Revenue $14,432,749 $ 14,434,178
Cost of goods sold 11,185,901 12,015,760
- --------------------------------------------------------------------------------------------------------------------
Gross profit 3,246,848 2,418,418
- --------------------------------------------------------------------------------------------------------------------
Operating expenses
General and administrative expenses 2,386,862 2,236,938
Selling expenses 583,500 678,871
- --------------------------------------------------------------------------------------------------------------------
Total operating expenses 2,970,362 2,915,809
- --------------------------------------------------------------------------------------------------------------------
Operating income (loss) 276,486 (497,391)
- --------------------------------------------------------------------------------------------------------------------
Other income (expense)
Royalties 326,239 264,178
Interest expense and loan fees (543,770) (541,161)
Interest income (Note 3) 68,603 63,616
Other, net (85,283) (73,125)
- --------------------------------------------------------------------------------------------------------------------
Total other income (expense) (234,211) (286,492)
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 42,275 $ (783,883)
====================================================================================================================
Basic and diluted income (loss) per share $ .01 $ (.26)
====================================================================================================================
Weighted average common shares outstanding 3,044,798 3,044,798
====================================================================================================================
See accompanying summary of accounting policies
and notes to consolidated financial statmements.
F-5
<PAGE>
Smith-Midland Corporation
and Subsidiaries
Consolidated Statements of Stockholders' Equity
<CAPTION>
Additional
Common Paid-In Accumulated Treasury
Stock Capital Deficit Stock Total
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 $30,857 $3,450,085 $(1,325,976) $(102,300) $2,052,666
Net loss - - (783,883) - (783,883)
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 30,857 3,450,085 (2,109,859) (102,300) 1,268,783
Net income - - 42,275 - 42,275
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $30,857 $3,450,085 $(2,067,584) $(102,300) $1,311,058
=====================================================================================================================
See accompanying summary of accounting policies
and notes to consolidated financial statmements.
F-6
<PAGE>
Smith-Midland Corporation
and Subsidiaries
Consolidated Statements of Cash Flows
Year Ended December 31, 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Cash received from customers $14,967,497 $ 14,203,657
Cash paid to suppliers and employees (14,052,234) (13,955,985)
Interest paid (543,770) (540,695)
Other (16,680) 8,267
- --------------------------------------------------------------------------------------------------------------------
Net cash provided (absorbed) by operating activities 354,813 (284,756)
- --------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Purchases of property and equipment (537,073) (1,237,689)
Repayments (advances) on officer note receivable (13,960) 8,085
- --------------------------------------------------------------------------------------------------------------------
Net cash absorbed by investing activities (551,033) (1,229,604)
- --------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Proceeds from borrowings 677,157 4,642,275
Repayments of borrowings (692,253) (3,007,177)
Repayments on borrowings - related parties, net (9,617) (10,902)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided (absorbed) by financing activities (24,713) 1,624,196
- --------------------------------------------------------------------------------------------------------------------
Decrease (increase) in cash - restricted 387,462 (190,485)
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 166,529 (80,649)
Cash, beginning of year 207,661 288,310
- --------------------------------------------------------------------------------------------------------------------
Cash, end of year $ 374,190 $ 207,661
====================================================================================================================
continued...
F-7
<PAGE>
Smith-Midland Corporation
and Subsidiaries
Consolidated Statements of Cash Flows
(continued)
<CAPTION>
Year Ended December 31, 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Reconciliation of net income (loss) to net cash
provided (absorbed) by operating activities
Net income (loss) $ 42,275 $ (783,883)
Adjustments to reconcile net income (loss) to net cash
provided (absorbed) by operating activities
Depreciation and amortization 380,290 319,185
(Increase) decrease in
Accounts receivable - billed 266,074 (569,019)
Accounts receivable - unbilled 75,776 211,050
Inventories 4,276 (83,203)
Prepaid expenses and other assets (2,409) (212,848)
Increase (decrease) in
Accounts payable - trade (487,031) 433,757
Accrued expenses and other liabilities 208,903 544,425
Customer deposits (133,341) (144,220)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided (absorbed) by operating activities $ 354,813 $ (284,756)
====================================================================================================================
See accompanying summary of accounting policies
and notes to consolidated financial statmements.
</TABLE>
F-8
<PAGE>
Smith-Midland Corporation
and Subsidiaries
Summary of Significant Accounting Policies
- --------------------------------------------------------------------------------
Nature of Business The Company develops, manufactures, licenses,
sells and installs precast concrete products
for the construction, transportation and
utilities industries primarily in the
Mid-Atlantic region.
Principles of The accompanying consolidated financial
Consolidation statements include the accounts of
Smith-Midland Corporation and its
wholly-owned subsidiaries (the "Company").
All material intercompany accounts and
transactions have been eliminated in
consolidation.
Inventories Inventories are stated at the lower of cost,
using the first-in, first-out (FIFO) method,
or market.
Property and Property and equipment is stated at cost.
Equipment Expenditures for ordinary maintenance and
repairs are charged to income as incurred.
Costs of betterments, renewals, and major
replacements are capitalized. At the time
properties are retired or otherwise disposed
of, the related cost and allowance for
depreciation are eliminated from the accounts
and any gain or loss on disposition is
reflected in income.
Depreciation is computed using the
straight-line method over the following
estimated useful lives:
Years
-----------------------------------------
Buildings 10-33
Trucks and automotive equipment 3-10
Shop machinery and equipment 3-10
Land improvements 10-15
Office equipment 3-10
Income Taxes The Company utilizes the asset and liability
method of accounting for income taxes. Under
the asset and liability method, deferred tax
assets and liabilities are recognized for the
future tax consequences attributable to
differences between the financial statement
carrying amounts of existing assets and
liabilities and their respective tax bases.
Deferred tax assets and liabilities are
measured using enacted tax rates expected to
apply to taxable income in the years in which
those temporary differences are expected to
be recovered or settled. The effect on
deferred tax assets and liabilities of a
change in tax rates is recognized in income
in the period that includes the enactment
date.
F-9
<PAGE>
Smith-Midland Corporation
and Subsidiaries
Summary of Significant Accounting Policies
(continued)
- --------------------------------------------------------------------------------
Revenue Recognition The Company recognizes revenue on the sale of
its standard precast concrete products at
shipment date, including revenue derived from
any projects to be completed under short-term
contracts. Installation services for precast
concrete products, leasing and royalties are
recognized as revenue as they are earned on
an accrual basis. Licensing fees are
recognized under the accrual method unless
collectibility is in doubt, in which event
revenue is recognized as cash is received.
Certain sales of Soundwall and Slenderwall
concrete products are recognized upon
completion of units produced under long-term
contracts. When necessary, provisions for
estimated losses on these contracts are made
in the period in which such losses are
determined. Changes in job performance,
conditions and contract settlements which
affect profit are recognized in the period in
which the changes occur. An amount equal to
contract costs attributable to claims is
included in revenues when realization is
probable and the amount can be reliably
estimated. Unbilled trade accounts receivable
represents revenue earned on units produced
and not yet billed.
Risks and Uncertainties The Company sells products to highway
contractors operating under government funded
highway programs and other customers and
extends credit based on an evaluation of the
customer's financial condition, generally
without requiring collateral. Exposure to
losses on receivables is principally
dependent on each customer's financial
condition. The Company monitors its exposure
to credit losses and maintains allowances for
anticipated losses.
Due to inclement weather, the Company may
experience reduced revenues from December
through February and may realize the
substantial part of its revenues during the
other months of the year.
Fair Value of The estimated fair value of financial
Financial Instruments instruments approximates their carrying
amounts as of December 31, 1999 and 1998. The
estimated fair value of long term debt is
based on current rates offered to the Company
for debt of the same maturities.
Estimates The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make
estimates and assumptions that affect the
reported amounts of assets and liabilities at
the date of the financial statements and the
reported amounts of revenues and expenses
during the reporting period. Actual results
could differ from those estimates.
F-10
<PAGE>
Smith-Midland Corporation
and Subsidiaries
Summary of Significant Accounting Policies
(continued)
- --------------------------------------------------------------------------------
Earnings (Loss) Earnings per share is based on the weighted
Per Share average number of shares of common stock and
dilutive common stock equivalents
outstanding. Basic earnings per share is
computed by dividing income available to
common shareholders by the weighted average
number of common shares outstanding for the
period. Diluted earnings per share reflects
the potential dilution of securities that
could share in earnings of an entity. The
Company had no securities which had a
dilutive effect on earnings per share for the
years ended December 31, 1999 and 1998.
Long-Lived Assets The Company follows the guidance for
accounting for asset impairment set forth in
Statement of Financial Accounting Standards
No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and For
Long-Lived Assets to Be Disposed Of." SFAS
121 requires that long-lived assets and
certain intangibles to be held and used by an
entity be reviewed for impairment when events
or changes in circumstances indicate that the
carrying amount may not be recoverable. In
addition, SFAS 121 requires long-lived assets
and certain intangibles to be disposed of to
be reported at the lower of carrying amount
or fair value less costs to sell. The Company
reviews the carrying values of its long-lived
and identifiable intangible assets for
possible impairment whenever events or
changes in circumstances indicate that the
carrying amount of assets may not be
recoverable based on undiscounted estimated
future operating cash flows. As of December
31, 1999, the Company has determined no
impairment has occurred.
Recent Accounting In June 1998, the Financial Accounting
Pronouncements Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for
Derivative Instruments" ("SFAS 133"). SFAS
133, as amended, is effective for all fiscal
quarters of fiscal years beginning after June
15, 2000. SFAS 133 establishes accounting and
reporting standards for derivative
instruments and for hedging activities. SFAS
133 requires that an entity recognize all
derivatives as either assets or liabilities
and measure those instruments at fair market
value. Presently, the Company does not use
derivative instruments either in hedging
activities or as investments. Accordingly,
the Company believes that adoption of SFAS
133 will have no impact on its financial
position or results of operations.
F-11
<PAGE>
Smith-Midland Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
1. Property and Property and equipment consist of the following:
Equipment
<CAPTION>
December 31, 1999 1998
-----------------------------------------------------------------------
<S> <C> <C>
Land and land improvements $ 589,441 $ 568,660
Buildings 1,792,197 1,012,840
Machinery and equipment 5,227,067 5,325,917
Rental equipment 73,539 39,240
Construction in progress 72,632 562,092
-----------------------------------------------------------------------
7,754,876 7,508,749
Less: accumulated depreciation 5,146,731 5,059,183
-----------------------------------------------------------------------
$ 2,608,145 $ 2,449,566
-----------------------------------------------------------------------
At December 31, 1999, the Company had an
engineering building in progress, which is
expected to be completed in 2000. The cost to
complete the engineering building is
estimated to be $62,100.
2. Notes Payable Notes payable consist of the following:
<CAPTION>
December 31, 1999 1998
--------------------------------------------------------------------------------------------
Note payable to individual, maturing December
2001; with monthly payments of $1,003 of
principal and interest, interest
at 12%; collateralized by certain vehicles. $ 21,317 $ -
Note payable to First International Bank,
maturing June 2021; with monthly payments of
$37,087 of principal and interest, interest
at prime plus 1.5% (10% at December 31,
1999); collateralized by
principally all assets of the Company. 3,906,716 3,979,245
F-12
<PAGE>
Smith-Midland Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
- --------------------------------------------------------------------------------
<CAPTION>
2. Notes Payable December 31, 1999 1998
(continued) -------------------------------------------------------------------------------------------
Note payable to First International Bank,
maturing January 1, 2005; with monthly
payments of $10,658 of principal and interest
at prime plus 1.75% (10.25% at December 31,
1999); collateralized by blanket lien on
company assets. $ 500,000 $
-
Line of credit with First International Bank,
maturing May 1, 2000; interest payable
monthly at prime plus 1% (9.5% at December
31, 1999); collateralized by accounts
receivable and inventory. - 425,000
Installment notes and capitalized leases
collateralized by certain machinery and
equipment maturing at various dates,
primarily August 2001 through October 2003,
with interest at 7.25% through 8.25%. 130,636 169,520
Unsecured note payable due on demand, with
interest at 14%. 20,000 20,000
---------------------------------------------------------------------------------------------
4,578,669 4,593,765
Less current maturities 228,025 573,104
---------------------------------------------------------------------------------------------
$ 4,350,644 $ 4,020,661
=============================================================================================
</TABLE>
F-13
<PAGE>
Smith-Midland Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
- --------------------------------------------------------------------------------
2. Notes Payable During 1998, the Company restructured
(continued) substantially all its debt with First
International Bank. The Company obtained a
$4,000,000 twenty-three year term note at
prime plus 1.5% and paid off existing debt at
that time of approximately $3,000,000. The
remaining proceeds are being used for plant
expansion and the purchase of equipment. The
loan is guaranteed in part by the U.S.
Department of Agriculture Rural Business -
Cooperative Services. The Company was also
granted a $500,000 line of credit and an
additional $500,000 term note. The loan
agreement includes certain restrictive
covenants, which require the Company to
maintain minimum levels of tangible net worth
and limits total outstanding indebtedness.
The Company was in compliance with these
restrictive covenants at December 31, 1999.
The $500,000 line of credit is due
contractually within the next fiscal year.
Management has shown the ability to refinance
and/or extend its debt in prior years, and
has agreed with the bank to extend this debt
as it becomes due in May 2000. There were no
outstanding borrowings on the line of credit
at December 31, 1999.
The aggregate amounts of notes payable
maturing in each of the next five years and
thereafter are as follows:
Year Ending December 31, Amount
---------------------------------------------
2000 $ 228,025
2001 207,804
2002 197,972
2003 214,675
2004 219,217
Thereafter 3,510,976
---------------------------------------------
$4,578,669
---------------------------------------------
3. Related Party The Company currently leases three and one
Transactions half acres of its Midland, Virginia property
from its President, on a month-to-month
basis, as additional storage space for the
Company's finished work product. The lease
agreement calls for minimum annual rent of
$6,000.
Notes payable - related parties are
unsecured, with no specified maturity date
(but no earlier than January 1, 2001) and
bear interest at 10%. Total interest expense
related to these notes was $8,500 and $10,500
for the years ended December 31, 1999 and
1998, respectively.
F-14
<PAGE>
Smith-Midland Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
- --------------------------------------------------------------------------------
3. Related Party The Company has an unsecured note receivable
Transactions from its President and majority stockholder
(continued) with a seven- year term bearing interest at
6%. The terms of the note call for annual
principal and interest payments of $45,948,
beginning on December 31, 1998, and
continuing through maturity. During 1999, the
note was increased by $20,776 for additional
borrowings. Total interest income on this
note was approximately $39,000 and $37,600
for the years ended December 31, 1999 and
1998, respectively.
As of December 31, 1999 and 1998, the Company
was the beneficiary of individual life
insurance policies on the life of the
President with a total cash surrender value
of approximately $162,000 and $148,000,
respectively. Borrowings of approximately
$134,000 and $117,000 were outstanding
against the cash surrender value at December
31, 1999 and 1998.
4. Income Taxes There was no provision for income taxes in
1999 or 1998 due to the existence of net
operating losses.
The provision for income taxes differs from
the amount determined by applying the federal
statutory tax rate to pre-tax income as a
result of the following:
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998
----------------------------------------------------------------------------------------------
Amount Percent Amount Percent
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income taxes at statutory rate $ 14,000 34% $(273,000) (34)%
Increase (decrease) in taxes
resulting from:
Increase in valuation
allowance - - 261,000 30
Other (14,000) 34 12,000 4
----------------------------------------------------------------------------------------------
$ - -% $ - -%
==============================================================================================
</TABLE>
F-15
<PAGE>
Smith-Midland Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
- --------------------------------------------------------------------------------
<TABLE>
4. Income Taxes Deferred tax assets (liabilities) are as follows:
(continued)
<CAPTION>
December 31, 1999 1998
-------------------------------------------------------------------------
<S> <C> <C>
Depreciation $ (80,000) $ (44,600)
Provision for doubtful accounts 129,000 102,000
Vacation accrued 34,000 41,000
Deferred income 9,000 9,000
Operating loss carryforwards 1,106,000 1,176,000
-------------------------------------------------------------------------
Net deferred tax asset 1,198,000 1,283,400
Deferred tax asset valuation allowance (1,198,000) (1,283,400)
-------------------------------------------------------------------------
$ - $ -
=========================================================================
</TABLE>
At December 31, 1999, the Company had
approximately $2,765,000 of net operating
loss carryforwards with expiration dates
through December 31, 2018.
5. Employee Benefit The Company has a 401(k) retirement plan (the
Plans "Plan") covering substantially all employees.
Participants may contribute up to 10% of
their compensation to the Plan. The Company
contributes 25% of the participant's
contribution, up to 1% of the participant's
compensation, as a matching contribution.
Total contributions for the years ended
December 31, 1999 and 1998 were $13,631 and
$6,465, respectively.
The Company has a profit sharing plan which
provides for employee bonuses based upon the
Company's results of operations. No payments
were made during the years ended December 31,
1999 and 1998.
6. Commitments a) The Company has an employment agreement
and with its President which provides for
Contingencies an annual salary of up to $175,000. The
term of the agreement expires December
31, 2000, and is thereafter
automatically renewed for successive
one year periods, unless written notice
for non-renewal is given. The President
is also entitled to receive benefits
offered to the Company's other
employees, and certain severance
benefits if the Company terminates the
employment agreement without cause. In
addition, the employment agreement
precludes the President from disclosing
confidential information and from
competing with the Company during each
year of his employment and for at least
one year thereafter.
F-16
<PAGE>
Smith-Midland Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
- --------------------------------------------------------------------------------
6. Commitments b) On August 5, 1994, the Board of
and Directors and Stockholders of the
Contingencies Company adopted the 1994 Stock Option
(continued) Plan (the "1994 Plan") which allows the
Company to grant options to employees,
officers, directors and consultants to
purchase shares of the Company's Common
Stock. Options granted under the plan
may be either Incentive Stock Options
or Non-Qualified Stock Options.
Incentive Stock Options may be granted
only to employees of the Company, while
Non-qualified options may be issued to
non-employee directors, consultants,
and others, as well as to employees of
the Company. The maximum aggregate
number of shares which may be granted
shall not exceed 280,000 shares of the
Company's Common Stock. The following
tables summarize activity of the Plan
and the stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Weighted
Average Vested
Exercise Options and
Price Outstanding Exercisable
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1997 $1.96 54,450 31,483
Granted 1.00 61,975 -
Forfeited 1.00 (5,000) (1,333)
Vested - - 10,149
---------------------------------------------------------------------------------------------
Balance, December 31, 1998 1.47 111,425 40,299
Granted .56 88,000 -
Forfeited 1.00 (13,150) (4,182)
Vested - - 27,403
---------------------------------------------------------------------------------------------
Balance, December 31, 1999 $1.07 186,275 63,520
=============================================================================================
<CAPTION>
Options Outstanding Options Exercisible
----------------------------------------- -------------------------
Weighted Average
Number of Remaining Contractual Number
Exercise Prices Shares Life (Years) of Shares
---------------------------------------------------------------------------------------------
$0.56 88,000 8 -
$1.00 78,275 6.7 43,520
$3.50 20,000 6.5 20,000
---------------------------------------------------------------------------------------------
186,275 7.3 63,520
=============================================================================================
</TABLE>
F-17
<PAGE>
<PAGE>
Smith-Midland Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
- --------------------------------------------------------------------------------
6. Commitments The Company has adopted Statement of
and Contingencies Financial Accounting Standards No. 123,
(continued) Accounting for Stock-Based Compensation
("SFAS 123"). SFAS 123 establishes
alternative methods of accounting and
disclosure for employee stock-based
compensation arrangements. The Company has
elected to use the intrinsic value method of
accounting as prescribed by Accounting
Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related
Interpretations, for stock options granted to
the Company's employees. This method does not
result in the recognition of compensation
expense when employee stock options are
granted if the exercise price of the option
equals or exceeds the fair market value of
the stock at the date of grant.
If the provisions of SFAS 123 had been
adopted, the effect on 1999 and 1998
earnings (loss) would have been as
follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------------------------------------------------------
<S> <C> <C>
Net earnings (loss):
Reported $42,275 $(783,883)
Proforma 10,595 (816,010)
Basic and diluted earnings (loss) per share:
Reported $.014 $(.26)
Proforma .003 (.27)
</TABLE>
For purposes of computing the proforma
amounts indicated above, the fair value
of each option on the date of grant is
estimated using the Black-Scholes
option pricing model with the following
assumptions: no dividend yield,
expected volatility of 50%, risk-free
interest rate of 6.43% (5.27% for 1998)
and expected lives of five to six
years. Substantially all options become
vested and exercisable evenly over a
five year period. The weighted average
fair value of options granted during
the years ended December 31, 1999 and
1998 was $.36 and $.52, respectively.
F-18
<PAGE>
Smith-Midland Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
- --------------------------------------------------------------------------------
6. Commitments c) In 1999, the Company, through the
and Contingencies general contractor, filed claims, in
(continued) the amount of approximately $1,100,000
for damages and cost overruns incurred
as a result of engineering and design
flaws on a project to renovate a
building at Rutgers University
("Rutgers"). Specifically, after the
Company commenced the Rutgers project,
the Company found that the original
structure was not structurally
sufficient to support the panels as
originally designed. The cost overruns
relate to re-designing panels,
producing panels with additional steel
reinforcement, and erection of the
panels on the structure. The general
contractor filed suit against the
Company, Rutgers, and the architect on
the project, for damages. While the
actual damages were not specified,
based upon the pleadings, the general
contractor is seeking in excess of
$700,000 in damages from the Company.
The Company filed a countersuit against
the general contractor for damages in
excess of $1,100,000. The Company also
filed suit against Skylift Corporation,
the Company's subcontractor, initially
responsible for installation of
construction panels, for damages in
excess of $1,000,000. The Company has
approximately $950,000 due to the
general contractor included in accrued
expenses at December 31, 1999.
The Company's outside counsel has
provided the Company with an opinion
that a legal basis exists for a claim
against the general contractor and
Rutgers. All conditions for claim
recognition have been satisfied, and as
of December 31, 1999 and 1998,
approximately $497,000 and $400,000 of
the potential $1,200,000 contract claim
is included in trade accounts
receivable, as such amounts are
probable (subject to negotiations and
legal proceedings). The Company
believes that, based on prior
experience in claims settlement, it
will ultimately collect the recorded
claim receivable.
d) In late 1995, the Company filed four
separate informal claims totalling
$502,000 for damages and costs incurred
as a result of specification, policy
and operating changes to contracts
primarily instituted by the state of
Maryland, including the newly issued
"Noise Barrier Acceptance Criteria",
which occurred after the award of the
contracts and after unit production in
accordance with the contracts was
virtually complete. These claims were
increased to approximately $1,081,000
at December 31, 1996.
F-19
<PAGE>
Smith-Midland Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
- --------------------------------------------------------------------------------
6. Commitments All conditions for claim recognition
and Contingencies were satisfied, and approximately
(continued) $270,000 of the total contract claims
were included in trade accounts
receivable, as such amounts were
probable, at December 31, 1998. The
Company settled two of these claims
during 1999 and collected approximately
$186,000. The balance due on one
remaining claim in the amount of
$76,500 is fully reserved as of
December 31, 1999.
e) In late 1998, the Company filed suit in
the circuit court of Lake County,
Illinois against Trapani Construction
Company ("Trapani") & L. J. Sheridan &
Company, as agent for the owner, for
the enforcement of a mechanic's lien
and the recovery of approximately
$120,000 representing the balance due
on a contract entered into by the
Company to manufacture and install
Slenderwall Panels at the Hawthorn
Place Medical Center II in
Libertyville, Illinois. Work on that
building has been completed, approved
and accepted by Trapani and the owner.
Trapani withheld payment on this
project because the Company refused to
proceed with a renovation project to
reclad Medical Center I, a second
building at the same site which was
part of the original contract, without
a change order to cover incremental
costs anticipated as a result of
alleged inaccurate specifications
supplied by Trapani. The suit is
currently in discovery. The Company
believes that it can collect a portion
of the balance due, and established
reserves of approximately $80,000 on
the claim.
f) On March 2, 1999, the Company received
notification from the NASDAQ SmallCap
Market ("NASDAQ") that the Company had
failed to meet certain market criteria,
and might be subject to delisting if
compliance could not be achieved.
Specifically, the Company's Common
Stock had fallen below the minimum
standard of $1.00 per share. According
to NASDAQ, the Company's Common Stock
must trade above $1.00 per share for at
least ten consecutive days within the
90 day period ended June 2, 1999 to
comply with the minimum bid price
requirement. In addition, the Company
was not in compliance with the Net
Tangible Asset requirement of
$2,000,000. Due to the Company's
noncompliance, in October 1999, trading
of the Company's common stock was
transferred to the OTC Bulletin Board.
F-20
CONTINUATION OF
EXCLUSIVE LICENCE AGREEMENT
BETWEEN
DURISOL RESOURCE INC.
AND
SMITH-MIDLAND CORPORATION
THIS AGREEMENT is made on the 1st day of January 1999
BETWEEN: DURISOL RESOURCE INC.,
67 Frid Street
Hamilton, Ontario, Canada
L8P 4M3
hereinafter referred to as ('the Licensor') of the one part
and Smith-Midland Corporation
P.O. Box 300
Midland, Virginia 22728
USA
hereinafter referred to as ('the Licensee') of the second part.
WHEREAS
By an Agreement dated January 20, 1990, DURISOL INTERNATIONAL CORP. has granted
an Exclusive Licence to the Licensor for the Patents, Know-How and technology
owned by Durisol International Corp. in relation to the manufacturing process
for producing the Wood Concrete and lightweight concrete described in Schedule 1
hereto ('the Durisol process').
The Licensor granted an Exclusive Sub-Licence ending January 22, 1999 for a
Field of Use in the Territory for all the Patents and Know-How licensed to the
Licensor by Durisol International Corp. along with certain ancillary rights as
set out herein to the Licensee in return for the licence fee and royalties
payable as set out herein;
The Licensor wishes to extend the Exclusive Sub-License for a further five year
period under the same conditions set out for the previous three years ending
January 22, 1999, except for the minor modifications set out in clauses 1.2,
1.10, 1.11, 2.1, 4, 6.1, 6.2, 11, 17, Schedule 2, Schedule 3.
1
<PAGE>
NOW THEREFORE IT HAS BEEN AGREED as follows:
1. DEFINITIONS
1.1 'The Territory' means the States of Virginia, and The District of
Columbia.
1.2 'The Field of Use' means the use of the Patents and the Know-How in
the construction of transportation and outdoor applications in the
Territory, specifically excluding Durisol facade panels, floor forms,
etc.
1.3 'The Patents' means all or any of the Patent(s) in relation to the
Durisol Products or the Invention granted to anyone in the Durisol
Group during the life of this Agreement and not limited to those
patents in existence at the date hereof, short particulars of which
are set out in Schedule 3 hereto.
1.4 'The Durisol Group' means Durisol International Corp., any or all of
the licensee(s) of the Patents, Know-How and/or the Invention, or the
Licensor and/or any of the aforementioned entities, officers,
directors, shareholders, agents, associates or nominees.
1.5 'The Know-How' means all information, knowledge, experience, formulae,
data processes drawings and designs howsoever or wheresoever arising
concerning the Patents, the Durisol Products and/or the Invention in
the possession, custody or control of the Durisol Group; including
also the results of all tests (and results) on the Durisol Products in
the possession or under the control of the Licensor or any member of
the Durisol Group ("The Test Data");
1.6 'The Invention' means the Patents, the Know-How, The Durisol Process
and all aspects of the manufacture of the Durisol Products including
without limitations:
1.6.1 The composition of the Durisol Products, raw materials,
auxiliary materials, and binders actually in use in the Durisol
Factories around the world or in any other factory or facility
licensed by Durisol International Corp. as well as basic
materials not yet utilized on an industrial scale, but tested
in the laboratory, for example raw materials such as vegetable
substances of various kinds and shapes, including wood from
European, North American, Mexican, South American and other
origins broken down in various ways, and the corresponding
treatment for mineralization and for compatibility with cement
or similar binders or similar materials.
1.6.2 The arrangement of the factory and the nature of the
manufacturing equipment for the manufacture of the Durisol
Products;
2
<PAGE>
1.6.3 Applications worldwide in which Durisol Products are used as an
ingredient or in which the method of manufacturing Durisol
Products are used.
1.6.4 The Durisol Products at present on the market as well as those
designed and developed but no longer marketed or not yet
exploited.
1.7 'Improvement' means:
(i) any invention developed or acquired with free right of disposal
by any member of the Durisol Group and used commercially by any
member of the Durisol Group during the life of this Agreement
the use of which in the Territory without a licence under any
patent or patent application would be an infringement thereof;
and/or
(ii) any change in the invention and/or the Durisol Products which
has been developed or acquired with free rights of disposal by
any member of the Durisol Group and used commercially by any
member of the Durisol Group during the life of this Agreement
which makes the Invention and/or the Durisol Products more
efficient or adaptable or enables the Invention to be
manufactured marketed or sold more cheaply or efficiently.
PROVIDED THAT where the context so admits, 'improvement' shall
include any invention or change in the Invention and/or the
Durisol Products made, developed or acquired by the Licensee or
any sub-licensee.
1.8 'The Durisol Products' means all or any of the Products currently made
or developed for use in the future which apply to the Field of Use.
1.9 'The Head Licence Agreement' means the Licence Agreement dated January
20, 1990 and made between Durisol International Corp. and the
Licensor.
1.10 'The Consent Agreement' means the Agreement between Durisol
International Corp. and the Licensor made the 31st day of December
1998 whereby Durisol International Corp. approves of the terms and
provisions of the Agreement.
1.11 'The Effective Date of the Agreement' means the date on which this
Agreement is made as indicated on Page 1 of this agreement.
1.12 'Exclusive' means in respect of a licence or right granted hereunder
that the grantor may not itself exercise that licence or right and may
not authorize any other person to use or assign that licence or right.
3
<PAGE>
1.13 'Person(s)' includes any person firm or company or group of persons or
unincorporated body.
1.14 'The Parties' means the Licensor and Licensee.
1.15 'Quarter Year' and 'Quarter' shall mean the three month period ending
on 31 March, 30 June, 30 September and 31 December in each year.
1.16 The singular includes the plural and vice versa where the context so
admits or requires and references to 'the Licensor' or 'the Licensee'
shall include their respective employees and agents.
2. WARRANTIES BY THE PARTIES
A. The Licensor hereby warrants and declares that:
2.1 There are no outstanding assignments, licences, obligations, charges
or agreements either written oral or implied and either valid or
invalid which are made under the Head Licence Agreement or whatsoever
which are inconsistent with this Agreement;
2.2 To the best of its knowledge and belief:
1) the Invention does not infringe any third party's patent or
other intellectual property right whether registerable or not
in the Territory; and
2) the use by the Licensee of the Know-How (or disclosure by the
Licensor to the Licensee of the Know-How) will not breach any
obligation of confidence or secrecy imposed by or owed to a
third party.
2.3 The disclosure or use of the Know-How will enable the Licensee or its
nominee to manufacture and market the Invention and the Durisol
Products in the Territory.
2.4 The Know-How to be disclosed to the Licensee will be a full and
complete disclosure of all the Know-How and the Test Data in its
possession custody power or control in relation to the Invention and
the Durisol Products relating to the Field of Use.
2.5 It will prosecute any patent application pending in the US Patent
Office and use its reasonable endeavours to overcome any patent
opposition or objections or official actions thereby arising.
4
<PAGE>
2.6 There is no litigation, arbitration, claim (apart from claims arising
to adjust ordinary business transactions), governmental or other
proceeding, or investigation pending, threatened or in prospect or
any basis therefore known to the Licensor against the Licensor or
affecting any of the business, properties or assets of the Licensor.
2.7 There are no licences, liens or security interests in the Territory
outstanding in respect of the rights granted herein.
2.8 It has good and marketable title to the Patents and the inventors are
the true and only inventors of the Patents.
2.9 It is not aware of any matter or prior art that would invalidate any
of the patents.
B. The Licensee warrants and declares that:
2.10 It will provide a marketing plan within three (3) months of the date
of this Agreement and update it on a regular basis and will use its
best endeavours to achieve the objectives in the marketing plan.
C. The parties hereby warrant to each other:
2.11 They have the full right power an authority to enter into and perform
this Agreement and that the signatory to this Agreement is properly
and duly authorized to sign respectively for and on behalf of each
Party.
2.12 No consent of, or declaration of filing with, any federal, state,
municipal or other governmental authority is required for the
execution, delivery or performance of this Agreement or any part of
it.
2.13 No consent of any party to any contract, agreement, lease, licence, or
other instrument to which the Licensor or the Licensee is a party or
to which any of their respective properties or assets are subject is
required for the execution, delivery or performance of this Agreement
(except the consent of DIC under the Head Licence Agreement); and the
execution, delivery, and performance of this Agreement will not
conflict with, or (with or without the giving of notice or the passage
of time or both) entitle any party to terminate or call a default
under any such contract, agreement, lease, licence or other instrument
or contravene any provision of the Articles of Incorporation or
by-laws of any of the parties, or conflict with or result in a breach
of any law, order of judgment, decree or regulation binding on any of
the parties, or to which any of its properties or assets are subject.
5
<PAGE>
2.14 The representations and warranties made by the Parties under this
Agreement are made as of the Effective Date of this Agreement and
cover all conduct of the Parties and those persons signing on
behalf of them up to that date.
3. GRAND CLAUSE
3.1 The Licensor hereby grants to the Licensee an Exclusive Licence
under the Patents to make use sell and deal in the Invention and
the Durisol Products in the Territory and in the Field of Use on
the terms and conditions of this Agreement provided that this
Licence shall be deemed to be a Licence under any and all
patent(s) in relation to the Invention granted to any member of
the Durisol Group during the life of this Agreement.
3.2 The Licensor hereby grants to the Licensee the exclusive right to
use develop and exploit the Know-How for the Invention and
the Improvements in the Territory and in the Fields of Use on the
terms and conditions of this Agreement.
3.3 The Licensee is hereby granted a non-exclusive right to use in
the Territory the USA Registered Trademark 'Durisol' (Number
440,075) in the ownership of DIC.
4. PROVIDED FURTHER THAT nothing in this Agreement shall entitle the Licensee
to exercise the rights granted outside the Territory without the prior
consent of the Licensor and the Licensee shall refrain from all activity
connected with Durisol Products and the Invention outside the Territory and
shall not without prior consent of the Licensor, either directly or
indirectly, offer, sell or deliver any of the Durisol Products outside the
Territory.
5. RESPONSIBILITIES OF THE LICENSEE
SMC shall actively and exclusively promote the sale and use of Durisol for
absorptive Noise Barriers and shall be responsible under the License to
provide:
(a) All plant, equipment and forms necessary to manufacture Durisol
Products in sufficient quantities to satisfy the orders achieved
in the Territory without recourse to importing Durisol Products
from the Licensor's facilities in Canada or elsewhere;
(b) The sales force for marketing and selling Durisol Products in the
Territory;
(c) Local advertising and promotion;
6
<PAGE>
(d) All information required in obtaining state and local approvals,
including all required testing not presently completed or in
progress; and
(e) To manufacture Durisol Products in strict compliance with the
standards established by DRI with respect to component materials,
mix designs and placement, compaction and curing.
6. FEES AND ROYALTIES
6.1 LUMP SUM ROYALTY
The Licensee paid to the Licensor a lump sum for the transfer of the
Know-How hereunder of US $25,000 (twenty five thousand) paid in
installments.
6.2 ROYALTY FEE BASED ON SALES
6.2.1 The Licensee agrees to pay to the Licensor Royalties calculated
in accordance with Schedule 2 hereof ('the Royalty') provided
that the Licensee shall pay a minimum royalty as follows:
(a) in the year ending 31 December 1999, US $25,000 (twenty five
thousand US Dollars), and
(b) in each year thereafter US $25,000 (twenty-five thousand US
Dollars) during the term of this Agreement. Royalties paid in
excess of the annual minimum in the current year and
immediate year before except as noted in Clause 6.2.1 (c)
shall be applied to the minimum requirements of the following
year. In one of the above years the minimum Royalty may be
reduced to US $12,500 (twelve thousand five hundred US
Dollars) if market conditions fail to produce the specified
minimum Royalty.
(c) Royalties due up to and including December 31, 1998 shall be
paid up in full and not be entitled to carry over to future
years.
Provided that any shortfall between the minimum royalty payable
hereunder and the Licence Fee shall be paid within 60 days after
the 31 December in any year.
6.2.2 The Licensee shall keep full and complete records showing the
basis upon which the Royalty is calculated and make available for
inspection at the Licensee's premises.
7
<PAGE>
6.2.3 At the end of each Quarter Year or as soon as possible
thereafter, the Licensee shall submit a report to the Licensor on
the amount of Durisol Products manufactured by the Licensee
and/or any sub-licensee during that Quarter Year.
6.2.4 No License Fee shall be payable to the Licensor by the Licensee
for sales made by the Licensee to persons, firms or corporations
who fail to pay the Licensee for any Durisol Products sold to
them by the Licensee, provide that the Licensee shall make all
reasonable effort to collect such accounts. The License Fee shall
be payable on a cash receipt basis.
6.2.5 The Licensee shall account for the License Fee at the end of each
Quarter Year and shall pay the License Fee to the Licensor within
60 days after that date in each quarter into a designated bank
account of the Licensor in Canada.
6.2.6 The conversion and transfer of License Fee is the sole
responsibility of the Licensee, and the Licensee's obligations
for payment of the License Fee shall cease as soon as they are
freely available for the Licensor in Canada in Canadian Dollars,
less any tax or other charges imposed in the United States of
America.
6.2.7 The Licensee shall not make any deduction from the License Fee in
respect of any claim which the Licensee alleges against the
Licensor and the Licensee shall, unless requested to do so by any
Government or other authority refrain from blocking, impounding
or obstructing payment of the Royalty or taking any measures
which would prevent the Licensor from receiving the entire and
undiminished amount of the Royalty.
7. KNOW-HOW DISCLOSURE
In consideration of the payment of US $25,000 (twenty-five thousand U.S.
Dollars) set out in Clause 6.1 hereof, the Licensor hereby agrees to
disclose to the Licensee all the Know-How and Test Data relating to the
Invention, and in consideration of the payment set out in Clauses 6.2
hereof agrees to transfer Know-How and Test Data as it arises in the
Durisol Group throughout the life of this Agreement.
8. TECHNOLOGY TRANSFER AND TRAINING
8.1 In addition to Clause 7 hereof the Licensor agrees that it will perform
the following continuing services for the benefit of the Licensee:
8.1.1 The Licensor shall provide training in Mitchell, Ontario at
Durisol Materials Limited's plant or at other locations
appropriate to the products licensed for up to four (4) engineers
8
<PAGE>
designated by the Licensee. Wages, transportation, board, room
and premiums for accident and sickness insurance of such
engineers shall be the responsibility of the Licensee. The
engineers will be trained in all aspects of Durisol Products
related to the Field of Use. The duration and location of the
training will be mutually agreed.
8.1.2 For initial mobilization of equipment and startup and thereafter
whenever the Licensee shall encounter difficulties in
establishing, maintaining or operating its plants or in producing
Durisol Products or in manufacturing Durisol Products according
to the Know-How or Patents the Licensor shall, at the request of
the Licensee, send one or more specialists to the Licensee's or
any sub-licensee's plant or plants to instruct assist and advise
the Licensee in order to meet and overcome any such difficulties
and to the extent permitted by the development of the work, to
recommend corrective measures. The travelling costs connected
with the sending of such specialists by the Licensor (including
wages) shall be borne exclusively by the Licensee. During the
entire period spent in the Licensee's Territory the Licensee
shall pay for each specialist a daily engineering fee equal to US
$500.00 (five hundred U.S. Dollars). The travel expenses and
accommodation costs paid by the Licensor in respect of the period
spent in the Licensee's Territory by such specialists shall be
repaid by the Licensee. For the sake of simplicity the accounting
shall be done at the end of each month.
8.1.3 The Licensor shall, at the Licensee's request, prepare or check
the Licensee's projects and plans for the commissioning of a
state of the art plant to manufacture components for Durisol
Products, the costs of such work to be debited to and paid by the
Licensee according to the rates set forth in Paragraph 8.1.2. The
Licensor shall not be responsible in any way for mistakes in
drawings and instructions checked by the Licensee. The Licensee
alone shall be responsible for all measures taken or to be taken
in connection with the putting of their plant into operation, the
manufacture of the Durisol Products and their utilisation in the
Durisol Process according to the Invention.
8.2 The Licensee shall be the employer of its employees during the entire
period of any training under this clause and shall accept the risks
attendant on this capacity, and the Licensee further accepts to provide
at its cost all necessary insurance arising therefrom including
workmen's compensation insurance.
8.3 The Licensor shall use its best endeavours to provide full and
comprehensive training facilities in all aspects of Durisol Products.
Further, all advice given to the Licensee shall be given by competent
and fully trained and experienced specialists in Durisol Products and
the manufacture thereof.
9
<PAGE>
9. IMPROVEMENTS
9.1 LICENSOR'S IMPROVEMENT
In the event that the Licensor shall at any time during the currency of
this Agreement devise discover or acquire rights in any Improvement the
Licensor shall to the extent that it is not prohibited by law promptly
notify the Licensee in writing giving details thereof and shall provide
to the Licensee such information and explanations as the Licensee may
reasonably require to be able to utilize the same. Information so
provided shall be deemed to be provided on the same terms as those
applicable to the Know-How agreed to be provided under Clauses 3.2 and
7 above. In any case where the Licensor obtains a Patent in respect of
such Improvement the Licensor shall grant a licence to the Licensee of
the same scope as the licence agreed to be provided under Clause 3.1
hereof and on the same terms as to royalty as set out herein.
9.2 LICENSEE'S IMPROVEMENTS
In the event that the Licensee or any sub-licensee shall at any time
devise, discover or acquire rights in any Improvement the Licensee
shall to the extent that it is not prohibited by law promptly notify
the Licensor in writing giving details thereof and provide to the
Licensor such information or explanation as the Licensor may reasonably
require to be able effectively to utilize the same. The rights and/or
property so arising shall be vested in the Licensee who shall grant
royalty free licenses to any member of the Durisol Group for so long as
such member remain a member of the Durisol Group. Nothing in the
foregoing shall affect the Licensee's right to grant sub-licences in
respect of such an Improvement in the Territory in accordance with
Clause 4 hereof. The Licensee shall have the right to file a Patent or
Patents in any country in the world on any Improvement which relates to
any development made by the Licensee or any sub-licensee to the
Invention. Rights in such improvements outside the Territory shall be
assigned to the Licensor. The Licensor will reimburse the Licensee for
all expenses associated with patent applications assigned to the
Licensor.
10. INSPECTION
10.1 The Parties shall have the right at all times, subject to any competent
or other lawful prohibitions and restrictions, to inspect or cause to
be inspected all factories, laboratories, equipment, warehouses and
manufacturing plants of the Licensee and any member of the Durisol
Group within the Territory.
10
<PAGE>
10.2 The Licensor shall have the right to inspect or cause to be inspected
all Job Sites in which Durisol Products or the Invention are to be
utilised in the Territory.
10.3 The Licensee shall at all times supply the Licensor with all reasonable
information concerning the activities of the Licensee or any
sub-licensee under this Agreement.
11. OPTION
The Licensor shall not grant any licence or other right to use the Patents
and/or Know-How in the Territory for any purpose outside the Field of Use
unless the Licensor shall first have offered to grant such a licence to the
Licensee by notice in writing ('the Offer Notice') on terms not less
favourable than those offered to any third party and the Licensee has failed
to accept those terms in writing within 30 days of receipt of the Offer
Notice in which event the Licensor may grant a licence to a third party
within 90 days of the rejection by the Licensee provided that such a licence
is on the same terms and conditions offered to the Licensee.
It is noted that building related products such as wall forms, roof planks,
floor forms and facade panels are excluded.
12. INFRINGEMENT AND THIRD PARTY CLAIMS
In the event that any right licensed under this Agreement is infringed by
and third part of a third party claims that the Licence granted hereunder is
infringing a right (whether a right under a patent, trademark or otherwise)
vested in a third party, the Parties shall confer upon the steps to be taken
and the divisions, if any, of the legal costs that my be incurred.
13. CONFIDENTIALITY
The Parties shall keep secret and confidential all or any information
communicated between them under this Agreement which contains trade secrets
or consists in information not publicly available or which is specifically
marked 'Confidential'. Disclosure by the Licensee shall be on a 'need to
know' basis and all appropriate safeguards to protect confidentiality shall
be taken at all times. Each of the Parties shall be responsible for the
observance of secrecy on the part of its management, employees, workmen,
agents and other persons connected with it in any way.
11
<PAGE>
14. TERMINATION
14.1 Either the Licensor or the Licensee may terminate this Agreement
forthwith on written notice in any of the following circumstances:
14.1.1 If the other party commits a material breach of this Agreement
and where capable of remedy has not taken steps to remedy the
breach within 60 days of notice from the other party; or
14.1.2 If either party ceases to carry on business as a going concern,
is unable to pay its debts as they fall due, or shall make any
composition with its creditors, or any distress or execution
shall be levied or threatened against it, or shall go into
liquidation or have a receiver appointed in respect of all or
any of its assets or shall be amalgamated or reconstructed with
the result that the Company emanating from such amalgamation or
reconstruction shall be a different legal entity.
14.1.3 If the Licensee, by reason of supplying Durisol Products of a
quality inconsistent with the requirements of the customer or of
the Licensor, causes the good name of Durisol to be damaged
and/or the Durisol Products to be disallowed for future use by
the customer or any related or unrelated third party in the
Territory.
14.2 The Licensee may terminate this Agreement by serving notice of
termination to expire six months after receipt by the Licensor.
15. CONSEQUENCES OF TERMINATION
15.1 In the event of termination or expiration of the Agreement for whatever
reason the obligations of confidentiality in Clause 13 shall continue
in full force and effect for a period of three and a half (3 1/2) years
from the date of termination or expiration.
15.2 In the event of termination by the Licensee as a result of an event
arising in 14.1.2 befalling the Licensor the provisions of Clause 3 of
the Consent Agreement shall apply.
16. MISCELLANEOUS
16.1 WAIVER
A waiver by one part of a breach by the other of any term of this
Agreement shall not prevent the
12
<PAGE>
subsequent enforcement of the term and shall not be deemed a waiver of
any subsequent breach.
16.2 SEVERANCE AND PUBLIC POLICY RESTRICTIONS
If any provision of this Agreement is declared void or unenforceable by
any judicial or administrative authority, this shall not in an of
itself nullify the remaining provisions of this Agreement. Always
provided that the cancellation of such provision does not substantially
alter the economic interest of either party in the continued
performance of this Agreement.
16.3 ENTIRE AGREEMENT
This Agreement together with the Consent Agreement, the Term Sheet of
Proposed Sub-Licence Agreement between the Parties dated October 19,
1995 and the Non-Disclosure and Confidentiality Agreement as to
Invention and Patent Rights set forth the entire agreement and
understanding of the parties relating to the subject matters hereof,
and merge all prior discussions between them and all prior agreements,
memoranda of intent or understanding including oral agreements. Neither
party shall be bound by a definition, condition or representation other
than as expressly stated in these Documents or as set forth in writing
and signed by the parties to be bound.
16.4 NOTICES
Any notice to be given to either party by the other shall be in writing
and shall be served either personally or by registered or certified
mail, return receipt requested, addressed as follows:
If to Licensor: If to Licensee:
Durisol Resource Inc. Smith-Midland Corporation
67 Frid Street P.O. Box 300
Hamilton, Ontario Midland, Virginia 22728
Canada, L8P 4M3 U.S.A
Attention: President Attention: President
13
<PAGE>
16.5 NO PARTNERSHIP
Nothing in this Agreement shall constitute a partnership between the
parties hereto nor constitute one the agent of the other nor shall
either part represent themselves to any third party as the agent of the
other.
16.6 MAINTENANCE OF PATENTS
The Licensor shall subject as hereinafter mentioned during the life of
this Agreement pay all renewal fees and do all such acts and things as
may be necessary to maintain the Patents and shall produce upon written
request the receipt for such renewal fees seven days at least before
the last day for renewing the Patents and in default shall permit the
Licensee to pay the same and give appropriate credit for the cost
thereof.
16.7 NON ASSIGNMENT
Subject to Clause 11 hereof, neither party shall assign, transfer,
change, encumber or otherwise deal with the whole or any part of this
Agreement or its rights or obligations herein without the prior written
consent of the other.
16.8 DISPUTE RESOLUTION
In the event there arises a dispute between the parties as to the
interpretation or performance of any of the provisions of this
Agreement or as to matters related to but not covered by this
Agreement, the parties shall consult together in good faith to find a
mutually agreeable resolution thereof, including the use of alternate
dispute resolution procedures such as mediation, and binding or non
binding arbitration, prior to and as a condition precedent of the
filing of a suit in a court of law.
16.9 GOVERNING LAW AND JURISDICTION
This Agreement shall be governed by and construed and interpreted in
accordance with the Laws of Ontario, Canada and the parties hereby
submit to the exclusive jurisdiction of the Ontario Courts.
14
<PAGE>
16.10 HEADINGS
The headings in this Agreement are for convenience of reference only
and shall not affect its interpretation.
17. DURATION
This Agreement is effective from the Effective Date hereof and thereafter
for a period of five (5) years.
In witness whereof the Licensor and the Licensee have hereunto set their
corporate seals duly attested to by the hands of proper signing officers in that
behalf of this 3rd day of May 1999.
SIGNED for and on behalf of /s/ Hans J. Rerup
DURISOL RESOURCE INC. -----------------
in the presence of: Hans J. Rerup
President
/s/ Ashley B. Smith
- -------------------
SIGNED for and on behalf of /s/ Rodney Smith
Smith-Midland Corporation ----------------
in the present of: Rodney Smith
President
/s/ Ashley B. Smith
- -------------------
15
<PAGE>
SCHEDULE 1
THE DURISOL PROCESS
The Durisol Process is a process for producing Wood Concrete, a light weight
concrete made out of wood or vegetable fibres bound with cement giving volume
weights below 850 Kg/m(3)(Kilogrammes per cubic metre) or use in the manufacture
of inter alia building blocks, slabs and other products and materials by methods
(secret and otherwise) known by the name DURISOL and to be disclosed to the
Licensee pursuant to this Agreement.
16
<PAGE>
SCHEDULE 2
THE ROYALTY FEE
(a) SMC shall pay a Royalty fee equal to U.S. $0.25 (twenty five cents U.S.)
per face square foot of Durisol products sold in the territory.
(b) Minimum Royalties shall be as per Clause 6.2.
17
<PAGE>
SCHEDULE 3
THE PATENTS
<TABLE>
<CAPTION>
Date Number Territory Owner
<S> <C> <C> <C>
25 August 1947 2,592,345 USA Durisol International Corp.
15 August 1952 2,805,567 USA Durisol International Corp.
16 July 1968 3,393,261 USA Durisol International Corp.
20 April 1982 4,325,457 USA Durisol Materials Limited
11 April 1995 5,406,039 USA Durisol Materials Limited
3 February 1998 5,713,161 USA Durisol Materials Limited
</TABLE>
18
EXHIBIT 2
COMMERCIAL LOAN AGREEMENT
This Agreement (the "Agreement") is entered into this 20th of December,
1999 by and between First International Bank (the "Lender"), and Smith-Midland
Corporation (the "Borrower").
Borrower's request for Lender to extend to them a loan in the amount of
$500,000.00 (the "Loan") has been approved subject to the following provisions:
I. GENERAL REQUIREMENTS:
A. The Borrower shall execute all instruments and agreements as Lender
may require in order to properly document the Loan.
B. All Loan documentation shall be on terms and conditions fully
satisfactory to Lender and Lender's legal counsel.
II. THIS AGREEMENT IS SUBJECT TO:
A. Receipt by Lender of evidence that there has been no unremedied
adverse change since the date of the Borrower's application to the
Lender for the Loan (the "Application"), or since any preceding
disbursements, in the financial or any other condition of Borrower,
which would warrant withholding or not making any disbursement.
B. The representations made by Borrower in its Application, the
requirements or conditions set forth in the Application, including the
supporting documents thereto, the conditions set forth herein and any
future conditions imposed by Lender, if applicable.
III. TERMS OF LOAN:
A. Commercial Promissory Note. The Loan shall be evidenced by a
Commercial Term Promissory Note (the "Note") executed by the Borrower
to the order of the Lender upon the closing of the Loan, in the
original principal amount of $500,000.00.
B. Interest; Payments. The Note shall provide for the payment of
principal and interest upon the following terms:
The Borrower will pay principal and interest by making monthly
payments in the initial amount of $10,685.13 commencing on February 1,
2000, and continuing on the first day of each and every month
thereafter until all principal and interest and any other sums due
under the Loan shall have been paid in full. Notwithstanding the
foregoing, the entire indebtedness evidenced by the Note, including,
but not
<PAGE>
limited to, all outstanding principal and accrued and unpaid interest,
shall be due and payable in full on the Fifth anniversary date of the
Note.
The Borrower's initial monthly payments have been calculated in
accordance with the full amortization of the Loan by level monthly
payments of principal and interest over a Five (5) year period at the
interest rate applicable on the date hereof.
The Borrower's initial monthly payments have been calculated in
accordance with the full amortization of the Loan by level monthly
payments of principal and interest over a Five (5) year period at the
interest rate applicable on the date hereof.
Interest under the Loan will be charged in arrears on the unpaid
principal of the Note until the full amount of principal thereunder
has been paid. Interest shall be computed and payable monthly on the
basis of a three hundred sixty (360) day year and actual days elapsed.
Interest shall accrue on the outstanding principal amount of the Note
at a variable rate per annum of one and three quarters (1.75)
percentage points in excess of the Prime Rate, with the term "Prime
Rate" meaning the "Prime Rate" as published from time to time in the
"Money Rates" section of the Wall Street Journal, or in the event that
such rate is no longer published in the Wall Street Journal, a
comparable index or reference rate selected by the Lender or other
holder, in its sole discretions. The initial interest rate hereunder
is ten and one quarters percent (10.25%).
Upon the occurrence of an event of default under the Loan, without in
any way affecting the Lender's or other holder's right to accelerate
the Loan, the Loan shall bear interest at a rate which is two
percentage points (2.0%) per annum greater than the rate otherwise in
effect under the Loan.
In the event Borrower fails to pay any installment of principal and/or
interest within ten (10) days of when it is due and payable, without
in any way affecting the Lender's or other holder's right to
accelerate the Loan, a late charge equal to five (5) percent of such
late payment shall, at the option of the Lender or other holder, be
assessed against the Borrower.
The Borrower agrees to pay all reasonable costs, expenses and
reasonable attorneys' and other reasonable professionals' fees
incurred in any action to collect and/or enforce the Note or to
enforce, protect, preserve, defend, realize upon or foreclose any
security agreement, mortgage or other agreement, including this
Agreement, securing or relating to the Note, including without
limitation, all reasonable costs and expenses incurred in inspecting
or surveying mortgaged real estate, if any, or conducting
environmental studies or tests, or to enforce, protect, preserve,
defend or sustain the lien of said security agreement, mortgage or
other agreement or in any litigation or controversy arising from or
connected in any manner with said security agreement, mortgage or
other agreement, or the Note. Borrower further agrees to pay all
reasonable costs, expenses and reasonable attorneys' and other
reasonable professionals' fees incurred by the Lender or any other
holder in connection with any
2
<PAGE>
"workout" or default resolution negotiations involving legal counsel
or other professionals and further in connection with any
re-negotiation or restructuring of the indebtedness evidenced by the
Note. Any such costs, expenses and/or fees remaining unpaid after
demand therefor, may, at the discretion of the Lender or any other
holder, be added to the principal amount of the indebtedness evidenced
by the Note.
All payments shall be made to the Lender at its office at 280 Trumbull
Street, Hartford, Connecticut 06103, or at a different place if
required by Lender or other holder.
All payments received by the Lender, at the option of the Lender,
shall be applied first to any outstanding charges and expenses
incurred by the Lender in connection with the Note or any documents
executed in connection with the Note, then to any unpaid and accrued
interest and finally to the outstanding principal due under the Note.
The Borrower agrees that the interest shall accrue at the foregoing
rate on the unpaid balance before and after maturity, by acceleration
or otherwise.
The Borrower may prepay the Loan in part or in full at any time,
however, there will be a prepayment penalty as follows: 3% of the
principal prepayment amount in year 1, 2% of the principal prepayment
amount in year 2 and 1% of the principal prepayment amount in year 3.
Thereafter, the Loan may be prepaid in part or in full, at any time,
without penalty or premium upon 21 days prior written notice to
Lender. Failing such prior notice, the Borrower shall pay to Lender a
prepayment penalty equal to 21 days interest on the principal amount
prepaid. Any amounts prepaid shall be applied first to interest and
other charges accrued in connection with the Loan to the date of
prepayment and then to principal. Notwithstanding the above, the
prepayment penalty shall not be assessed on prepayments required by
the Lender from the proceeds of any casualty insurance, condemnation
proceeds or the proceeds of any life insurance policy.
C. Use of Proceeds of Loan:
1. Approximately $100,000.00 to construct interior tenant
improvements of a new office building.
2. Approximately $400,000.00 to pay down the current revolving line
of credit with Lender.
D. Collateral:
1. A blanket lien on the business assets of the Borrower.
3
<PAGE>
IV. CONDITIONS PRECEDENT TO CLOSING:
The Borrower must fulfill the following conditions precedent before or
concurrently with the closing of the Loan:
A. The Lender shall have received all duly executed documentation which
governs, secures and/or evidences the Loan as may be required by, and
upon terms and conditions fully satisfactory to, the Lender and its
legal counsel (collectively, the "Financing Agreements"). Said
Financing Agreements include, without limitation, the following:
1. This Agreement.
2. Note drawn to the Lender's order in the form of Exhibit A
attached hereto.
3. Security Agreement (the "Security Agreement") covering all
business assets of the Borrower.
4. UCC-1 Financing Statements for each jurisdiction that may be
necessary or that the Lender deems desirable in order to
perfect and protect the security interests granted under the
Security Agreement.
5. UCC-3 Termination Statements for each jurisdiction that may be
necessary or that the Lender may deem desirable in order to
terminate the liens and security interests in favor of any
creditors.
6. Certified copies of all corporate action (in form and substance
satisfactory to the Lender) taken by the Borrower to authorize
the execution, delivery and performance of this Agreement, the
Note and the other Financing Agreements, and the borrowings to
made hereunder or thereunder, together with such other papers
as the Lender or its counsel may require.
B. The Lender shall have received evidence satisfactory to it of hazard
insurance for the benefit of the Lender regarding the business assets
which are collateral for the Loan. Hazard policies regarding business
assets must name the Lender as Loss Payee. Combined or blanket
policies must name the Lender as Loss Payee. Copies of the mortgagee
or loss payee endorsements shall have been provided to Lender. The
insurance certificate must provide for ten (10) days notice to Lender
prior to cancellation. If any business premises of the Borrower are
located in a designated flood zone, federal flood insurance is
required. Flood insurance premiums shall be current as of closing and
escrowed by the Lender going forward.
All such insurance shall be written by a company or companies
acceptable to the Lender, and licensed to do business in Virginia.
Such policies of insurance shall be satisfactory to the Lender as to
form, substance and amount. All such policies shall
4
<PAGE>
be in an amount sufficient to prevent the Borrower from becoming a
co-Insurer thereunder.
C. The Lender shall have received an opinion of counsel to the Borrower
that the Borrower is duly organized, formed and/or incorporated, and
in good standing under the laws of the state of incorporation or
organization; have due corporate or membership and legal authority and
power to borrow or guaranty in accordance with the Financing
Agreements; that all Financing Agreements have been validly
authorized, executed and delivered; and that the Financing Agreements,
once delivered, recorded and filed, will be enforceable against the
Borrower in accordance with the terms thereof, and that such Financing
Agreements will not violate or be in conflict with or constitute a
default under any other contractual or judicial obligations, or be in
conflict with the organizational documents or any other agreement of
Borrower; and that there are no outstanding or threatened litigation,
contingent liabilities, administrative, or other proceedings, the
outcome of which could materially and adversely affect the collateral,
or the ability of the Borrower to perform its obligations under the
Financing Agreements.
D. Lender shall be in receipt of satisfactory evidence that all
applicable taxes have been paid by Borrower.
V. FINANCIAL COVENANTS:
The Borrower hereby agrees and covenants that, for the term of the Loan:
A. The Borrower shall not assume, guarantee, endorse or otherwise become
liable upon the obligations of any person or entity.
B. Borrower agrees that it will not authorize or issue additional shares
of its capital stock, or sell, transfer, or redeem any of its
outstanding shares of corporate stock without the prior written
consent of Lender.
VI. EVENTS OF DEFAULT AND REMEDIES:
A. The occurrence of any of the following conditions or events shall
constitute a default (an "Event of Default") under this Agreement:
1. any failure by the Borrower to pay as and when due and payable
any interest on or principal of or other sum payable under the
Note which default is not cured 15 days from the date such sums
were due time being strictly of the essence; or
2. any failure by the Borrower to pay as and when due and payable
any other sums to be paid by the Borrower to the Lender under
this Agreement which
5
<PAGE>
default is not cured within 15 days from the date such sums
were due time being strictly of the essence; or
3. title to any collateral granted to secure the Loan is or
becomes unsatisfactory to the Lender by reason of any lien,
charge, encumbrance, title condition or exception (including
without limitation, any mechanic's, materialman's or similar
statutory or common law lien or notice thereof), and such
matter causing title to be or become unsatisfactory is not
cured or removed (including by bonding) within twenty (20) days
after notice thereof from the Lender to the Borrower; or
4. any failure by the Borrower to duly observe or perform any
term, covenant, condition or agreement contained in this
Agreement or in any of the other Financing Agreements which
failure continues after any applicable notice on grace periods;
or
5. any representation or warranty made or deemed to be made by or
on behalf of the Borrower in this Agreement or in any of the
other Financing Agreements, or in any report, certificate,
financial statement, document or other instrument delivered
pursuant to or in connection with this Agreement or any of the
other Financing Agreements, shall prove to have been false or
incorrect in any material respect upon the date of when made
or deemed to be made or repeated; or
6. any dissolution, termination, partial or complete liquidation,
merger or consolidation, or insolvency of the Borrower, or any
sale, transfer or other disposition of all or substantially all
of the assets of the Borrower, other than as permitted under
the terms of this Agreement; or
7. any suit or proceeding shall be filed against the Borrower
which, if adversely determined, would have a materially adverse
affect on the ability of the Borrower to perform each and every
one of its obligations under and by virtue of this Agreement
and the other Financing Agreements, for which a bond has not
been provided by the Borrower to the satisfaction of the Lender
within ten (10) business days of the filing of any such suit or
proceeding; or
8. any change in the legal or beneficial ownership of the
Borrower; or
9. any failure by the Borrower to pay at maturity, or within any
applicable period of grace, any obligation for borrowed money
or credit received, or any failure to observe or perform any
material term, covenant or agreement contained in any agreement
by which it is bound, evidencing or securing borrowed money or
credit received for such period of time as would permit
(assuming the giving of appropriate notice if required) the
holder or holders
6
<PAGE>
thereof or any obligations issued thereunder to accelerate the
maturity thereof; or
10. the Borrower shall file a voluntary petition in bankruptcy
under Title 11 of the United States Code, or an order for
relief shall be issued against the Borrower in any involuntary
petition in bankruptcy under Title 11 of the United States
Code, or the Borrower shall file any petition or answer seeking
or acquiescing in any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief for
itself under any present or future federal, state or other law
or regulation relating to bankruptcy, insolvency or other
relief of debtors, or the Borrower shall seek or consent to or
acquiesce in the appointment of any custodian, trustee,
receiver, conservator or liquidator of the Borrower, or of all
or any substantial part of its respective property, or the
Borrower shall make an assignment for the benefit of creditors,
or the Borrower shall fail generally to pay its debts as such
debts become due, or the Borrower shall give notice to any
Governmental Authority or body of insolvency or pending
insolvency or suspension of operations; or
11. a court of competent jurisdiction shall enter any order,
judgment or decree approving a petition filed against the
Borrower seeking any reorganization, arrangement, composition,
readjustment, liquidation or similar relief under any present
or future Federal, state or other law or regulation relating to
bankruptcy, insolvency or other relief for debtors, or
appointing any custodian, trustee, receiver, conservator or
liquidator of all or any substantial part of its property or;
12. any uninsured final judgment in excess of $25,000 shall be
rendered against the Borrower and shall remain in force,
undischarged, unsatisfied and unstayed, for more than thirty
(30) days, whether or not consecutive or;
13. service of process is made upon the Lender seeking to attach or
garnish by mesne or trustee process any funds of Borrower which
are on deposit with the Lender; or
14. any of the Financing Agreements shall be canceled, terminated,
revoked or rescinded otherwise than in accordance with the
terms thereof or with the express prior approval of the Lender,
or any action at law, suit in equity or other legal proceeding
to cancel, revoke or rescind any of the Financing Agreements
shall be commenced by or on behalf of the Borrower which is a
party thereto or any of their respective members, managers,
stockholders, officers, directors, partners or beneficiaries,
or any court or any other governmental or regulatory authority
or agency of competent jurisdiction shall make a determination
that, or issue a judgment, order, decree or ruling
7
<PAGE>
to the effect that, any one or more of the Financing Agreements
is illegal, invalid or unenforceable in accordance with the
terms thereof; or
15. the Borrower shall be indicted for a federal crime, a
punishment for which could include the forfeiture of any of its
assets; or
16. there shall be any material adverse change in the assets,
liabilities, condition (financial, operating or otherwise) or
business of the Borrower; or
17. if, at any time, the Lender believes in good faith that the
prospect of payment of any obligation or the performance of any
agreement of the Borrower is impaired, or there is such a
change in the assets, liabilities, condition (financial,
operating or otherwise) or business of the Borrower as the
Lender believes in good faith increases its risk of
non-collection; or
18. any "default" or any "Event of Default", as those terms may be
defined in any of the other Financing Agreements, shall occur.
19. a default under any obligation or indebtedness owed by the
Borrower or any guarantor to the Lender under any Loan Document
or otherwise, or to any other lender, regardless of when
created or whether secured or unsecured.
B. Acceleration. If any one or more of the foregoing Events of Default
shall occur, all unpaid principal of and accrued interest on the Note,
together with all other amounts owing under this Agreement and the
other Financing Agreements, shall automatically, at the option of the
Lender, be immediately due and payable, notwithstanding anything to
the contrary contained in the other Financing Agreements, without
presentment, protest, demand or other notice of any kind.
C. Waivers. The Borrower hereby waives to the extent not prohibited by
applicable law (a) all presentments, demands for performance, notices
of nonperformance (except to the extent required by the provisions
hereof or of any of the other Financing Agreements), protests and
notices of dishonor, (b) any requirement of diligence or promptness on
the Lender's part in the enforcement of its rights (but not
fulfillment of its obligations) under the provisions of this Agreement
or any of the other Financing Agreements, and (c) any and all notices
of every kind and description which may be required to be given by any
statute or rule of law and any defense of any kind which the Borrower
may now or hereafter have with respect to its liability under this
Agreement or under any of the other Financing Agreements.
D. Setoff. Regardless of the adequacy of any collateral for the Loan or
other means of obtaining repayment of the Loan, any deposits (general
or specific, time or demand, provisional or final, regardless of
currency, maturity, or the branch of the Lender where such deposits
are held), balances or other sums credited by or due from the Lender
to the Borrower and any securities or other property of the Borrower
in the
8
<PAGE>
possession of the Lender may, at any time and from time to time,
without notice to the Borrower or compliance with any other condition
precedent now or hereafter imposed by statute, rule of law, or
otherwise (all of which are hereby expressly waived) be applied to or
setoff against the payment of the Loan and any and all other
liabilities, direct, or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising, of the Borrower to the
Lender, in such manner as the Lender in its sole and absolute
discretion may determine, and the Borrower hereby grants the Lender a
continuing security interest in such deposits, balances or other
sums for the payment and performance of the Loan.
E. Other Remedies. If any one or more of the foregoing Events of Default
shall have occurred, and whether or not the Lender shall have
accelerated the maturity of the Loan pursuant to Section VIII B
hereof, the Lender may proceed to protect and enforce its rights and
remedies under this Agreement, the Note or any of the other Financing
Agreements by suit in equity, action at law or other appropriate
proceeding, whether for the specific performance of any covenant or
agreement contained in this Agreement and the other Financing
Agreements or any instrument pursuant to which the Loan is evidenced,
including as permitted by applicable law the obtaining of the ex parte
appointment of a receiver, and, if any amount owed to the Lender shall
have become due, by declaration or otherwise, proceed to enforce the
payment thereof or any other legal or equitable right of the Lender.
No remedy conferred upon the Lender or the holder of the Note in this
Agreement or in any of the other Financing Agreements is intended to
be exclusive of any other remedy and each and every remedy shall be
cumulative and shall be in addition to every other remedy given
hereunder or thereunder or now or hereafter existing at law or in
equity or by statute or any other provision of law.
VII. MISCELLANEOUS PROVISIONS:
A. Books, Records, and Reports:
1. Borrower will at all times keep proper books of account in a
manner reasonably satisfactory to Lender. Borrower hereby authorizes Lender to
make or cause to be made, at Borrower's expense and in such manner and at such
times as Lender may require, (a) inspections and audits of any books, records
and papers in the custody or control of Borrower or others, relating to
Borrower's financial or business conditions, including the making of copies
thereof and extracts therefrom, and (b) inspections and appraisals of any of
Borrower's assets.
2. Promptly upon the Lender's request, the Borrower shall deliver
to Lender such documentation and information about the Borrower's financial
condition, business and/or operations as the Lender may, at any time and from
time to time, request, including without limitation, the following:
9
<PAGE>
(a) Annual fiscal year end independent CPA reviewed financial
statements of Borrower, prepared in accordance with generally
accepted accounting principles, and corporate tax returns for
the twelve (12) month period ending December 31, and annually
thereafter (no later than 3 months following the expiration of
any such period).
(b) Quarterly management-prepared financial statements for Borrower.
(c) Copies of federal and state tax returns within 30 days of the
filing thereof.
(d) Tax Returns for Borrower.
For purposes of this section, CPA audited financial statements shall
include balance sheet, income statement, cash flow statement and all
supporting footnotes and schedules (to include cost of goods sold);
management prepared financial statements shall include income
statement and balance sheet.
3. Borrower hereby authorizes all Federal, State, and municipal
authorities to furnish reports of examinations, records, and other
information from reports, returns, files and records of such
authorities upon request therefor by Lender.
B. Intentionally Deleted.
C. Business Organization. Borrower shall not in any way alter its form of
business organization, or sell its business or all or substantially all
of the Borrower's assets which are collateral for the Loan, except in
the ordinary course of business, without the prior written consent of
Lender.
D. Expenses. The Borrower agrees to pay all reasonable out-of-pocket
expenses, costs, fees, charges, expenses and reasonable attorneys' and
other professionals' fees and expenses incurred by the Lender in
connection with the preparation of this Agreement, the Note, and all
other Financing Agreements, and any amendments or supplements hereto
and thereto, and all expenses (including reasonable fees and expenses
of Lender's or other holder's counsel) incidental to the collection of
monies due hereunder or thereunder and in any way connected with,
involving or related to the preservation, enforcement, protection or
defense of this Agreement, the Note, and/or the Financing Agreements,
the collateral for this Loan, and the rights and remedies hereunder or
thereunder.
E. Amendments and Waivers. Neither this Agreement, the Note, the
Financing Agreements, nor any term, covenant or condition hereof or
thereof may be changed,
10
<PAGE>
waived, discharged, modified or terminated except by a writing executed
by the parties hereto or thereto. No course of dealing between the
Borrower and the Lender or its employees shall be effective to change,
modify or discharge any provision of this Agreement or to constitute a
waiver of any event of default under the Loan.
F. Transfer of Lender's Interest. The Borrower hereby agrees that the
Lender, in its sole discretion, may freely sell, assign or otherwise
transfer participations, portions, co-lender interests or other
interests in all or any portion of the indebtedness, liabilities or
obligations arising in connection with or in any way related to the
financing transactions of which this Agreement is a part. In the event
of any such transfer, the transferee may, in the Lender's sole
discretion, have and enforce all the rights, remedies and privileges of
the Lender. The Borrower consents to the release by the Lender to any
potential transferee of any and all information (including without
limitation, financial information) pertaining to the Borrower as the
Lender, in its sole discretion, may deem appropriate.
G. Waivers
1. Prejudgment Remedy, Etc. THE BORROWER ACKNOWLEDGES THAT THE LOAN
EVIDENCED HEREBY IS A COMMERCIAL TRANSACTION AND WAIVES ITS RIGHT
TO NOTICE AND HEARING ALLOWED BY ANY STATE OR FEDERAL LAW WITH
RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE LENDER MAY DESIRE TO
USE, AND FURTHER WAIVES ALL RIGHTS TO REQUEST THAT THE LENDER POST A
BOND, WITH OR WITHOUT SURETY, TO PROTECT THE BORROWER OR ANY
ENDORSER, GUARANTOR OR SURETY OF THE LOAN AGAINST DAMAGES THAT MAY
BE CAUSED BY ANY PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY LENDER.
THE BORROWER FURTHER WAIVES DILIGENCE, DEMAND, PRESENTMENT FOR
PAYMENT, NOTICE OF NONPAYMENT, PROTEST AND NOTICE OF ANY RENEWALS OR
EXTENSIONS.
2. Jury Waiver. THE BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY COURT
IN ANY SUIT, ACTION OR PROCEEDING ON ANY MATTER ARISING IN
CONNECTION WITH OR IN ANY WAY RELATED TO THE FINANCING TRANSACTIONS
OF WHICH THIS AGREEMENT IS A PART AND/OR THE ENFORCEMENT OF ANY OF
THE LENDER'S RIGHTS, INCLUDING WITHOUT LIMITATION, TORT CLAIMS.
3. Voluntary Nature of Waivers. THE BORROWER ACKNOWLEDGES THAT IT MAKES
THE FOREGOING WAIVERS IN SUBSECTIONS 1 AND 2 ABOVE, KNOWINGLY,
WILLINGLY, WITHOUT DURESS
11
<PAGE>
AND VOLUNTARILY AND ONLY AFTER CONSIDERATION OF THE RAMIFICATIONS OF
SUCH WAIVERS WITH ITS ATTORNEY.
H. Notices. All notices, requests, demands or other communications
required by this Agreement shall be made in writing, and unless
otherwise specifically provided herein, shall be deemed to have been
duly given when delivered by hand or mailed first class mail postage
prepaid, or, in the case of telecopy or facsimile notice, when
transmitted, answer back received, addressed as follows, or to such
other address as either party may designate in writing:
If to the Lender:
280 Trumbull Street
Hartford, CT 06103
Attn: Documentation Department
If to the Borrower:
Smith-Midland Corporation
5119 Catlett Road
Midland, Virginia 22728
Attn: Rodney I. Smith
I. Section Headings, Severability. Section and subsection headings have
been inserted herein for convenience only and shall not be construed as
part of this Agreement. Every provision of this Agreement, the Note and
the Financing Agreements is intended to be severable; if any term or
provision of this Agreement, the Note, or the Financing Agreements
shall be invalid, illegal or unenforceable for any reason whatsoever,
the validity, legality and enforceability of the remaining provisions
hereof or thereof shall not in any way be affected or impaired thereby.
J. Governing Law. This Agreement, the Note and the Financing Agreements,
and all transactions, assignments and transfers hereunder and
thereunder, and all the rights of the parties, shall be governed as to
validity, construction, enforcement and in all other respects by the
laws of the United States of America, and to the extent not pre-empted
thereby, by the laws of the Commonwealth of Virginia (but not its
conflicts of law provisions). The Borrower agrees that the Courts of
the Commonwealth of Virginia or the United States District Court for
the District of Virginia shall have jurisdiction to hear and determine
any claims or disputes pertaining to the financing transactions of
which this Agreement is a part and/or to any matter arising or in any
way related to this Agreement or the Financing Agreements and the
Borrower expressly submits and consents in advance to such jurisdiction
in any action or proceeding.
12
<PAGE>
K. Parties Affected. This Agreement shall be binding upon Borrower and
Borrowers' successors and assigns and upon Guarantors and Guarantors'
successors, assigns and/or personal representatives. The terms and
conditions of this Agreement shall survive the closing and shall not be
merged into the Financing Agreements notwithstanding any provisions to
the contrary contained herein. Whenever used herein, the singular
number shall include the plural, the plural the singular, and the use
of the masculine, feminine, or neuter gender shall include all genders.
Where there is more than one party referred to collectively, all
representations, warranties and covenants shall be joint and several.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date first written above intending
to be under seal.
LENDER:
FIRST INTERNATIONAL BANK
By: /s/ Mitchell Smith Date: 12/20, 1999
------------------- -------
Mitchell Smith
Vice-President
Borrower hereby agrees to the conditions imposed herein and further agrees that
the terms and conditions herein are for the benefit of, and may be enforced by
Lender. This Agreement and any amendments hereto constitute the Agreement
between Lender and Borrower.
BORROWER:
SMITH-MIDLAND CORPORATION
By: /s/ Rodney I. Smith [SEAL] Date: 12-20, 1999
-------------------- -------
Name: Rodney I. Smith
Title: President
13
<PAGE>
STATE OF MARYLAND *
* to wit:
COUNTY OF BALTIMORE *
I HEREBY CERTIFY that on this 20TH day of December, 1999, before me, the
undersigned Notary Public of the Baltimore County personally appeared Rodney
Smith and acknowledged Rodney I. Smith to be President of Smith-Midland
Corporation, a Virginia corporation, and that he as duly authorized President
being authorized to do so, executed the foregoing instrument for the purposes
therein contained by signing the name of SMITH-MIDLAND by Rodney I. Smith as
President.
IN WITNESS MY Hand and Notarial Seal.
/s/ Patricia A. Davis (SEAL)
----------------------------
My Commission Expires:
PATRICIA A. DAVIS, NOTARY
COMMISSION EXPIRES 6/22/02
14
EXHIBIT 3
FIRST INTERNATIONAL BANK
COMMERCIAL TERM PROMISSORY NOTE
-------------------------------
$500,000.00 U.S. December 20, 1999
Baltimore, Maryland
FOR VALUE RECEIVED, the undersigned, Smith-Midland Corporation, having a
principal place of business in Midland, Virginia (collectively, the "Borrower"),
promises to pay (jointly and severally, if more than one) to the order of FIRST
INTERNATIONAL BANK ("Lender"), at its office at 280 Trumbull Street, Hartford,
Connecticut or at such other place as the holder hereof (including Lender,
hereinafter referred to as "Holder"), may designate, the sum of Five Hundred
Thousand and 00/00 Dollars ($500,000.00), together with interest on the unpaid
balance of this Note beginning as of the date hereof, before or after maturity
or judgment, at the per annum rate set forth below, which interest rate shall be
computed daily and payable monthly in arrears on the basis of a three hundred
sixty (360) day year and actual days elapsed, together with all taxes levied or
assessed on this Note or the debt evidenced hereby against the Holder, and
together with all reasonable costs, expenses and reasonable attorneys' and other
reasonable professionals' fees incurred in any action to collect and/or enforce
this Note or to enforce, protect, preserve, defend, realize upon or foreclose
any security agreement, mortgage or other agreement securing or relating to this
Note, including without limitation, all reasonable costs and expenses incurred
in inspecting or surveying mortgage real estate, if any, or conducting
environmental studies or tests, or to enforce, protect, preserve, defend or
sustain the lien of said security agreement, mortgage or other agreement or in
any litigation or controversy arising from or connected in any manner with said
security agreement, mortgage or other agreement, or this Note. Borrower further
agrees to pay all reasonable costs, expenses and reasonable attorneys' and other
reasonable professionals' fees incurred by the Holder in connection with any
"workout" or default resolution negotiations involving legal counsel or other
professionals and further in connection with any re-negotiation or restructuring
of the indebtedness evidenced by this Note. Any such costs, expenses and/or fees
remaining unpaid after demand therefor, may, at the discretion of the Holder,
be added to the principal amount of the indebtedness evidence by this Note.
This Note has been executed and delivered subject to the following terms
and conditions:
1. REPAYMENT TERM AND MATURITY. The Borrower will pay principal and interest by
making monthly payments in the amount of $10,685.13 commencing on February
1, 2000 and continuing on the FIRST day of each and every month thereafter until
all principal and interest and any other sums due hereunder have been paid in
full. Notwithstanding the foregoing, the entire indebtedness evidenced by this
Note, including, but not limited to, all outstanding principal and accrued and
unpaid interest, shall be due and payable in full on the Fifth (5th) anniversary
date of this Note.
The Borrower's initial monthly payments have been calculated in accordance with
the full amortization of the loan evidenced by this Note by level monthly
payments of principal and interest over a Five (5) year period at the interest
rate applicable on the date hereof. On each Adjustment
<PAGE>
Date (as herein defined), the amount of the monthly payments will be adjusted so
as to provide for the full amortization of the then outstanding principal at the
interest rate established at each Adjustment Date in level monthly payments of
principal and interest over the remaining term of the original Five (5) year
amortization period.
All payments received by the Holder, at the option of the Holder, shall be
applied first to any outstanding charges and expenses incurred by the Holder in
connection with this Note or any documents executed in connection with this
Note, then to any unpaid and accrued interest and finally to the outstanding
principal due under this Note. The Borrower agrees that the interest shall
accrue at the foregoing rate on the unpaid balance before and after maturity, by
acceleration or otherwise.
2. INTEREST. Interest shall accrue on the outstanding principal amount of this
Note at a variable rate per annum of one and three quarters (1.75) percentage
points in excess of the Prime Rate, with the term, "Prime Rate" meaning the
"Prime Rate" as published from time to time in the "Money Rates" section of The
Wall Street Journal, or in the event that such rate is no longer published in
The Wall Street Journal, a comparable index or reference rate selected by the
Lender or other holder, in its sole discretion. The Prime Rate may not
necessarily be the Lender's lowest or best rate. The initial interest rate
hereunder is ten and one quarter (10.25%) percent.
The interest rate may be adjusted on the FIRST day of MARCH and on the FIRST day
of each and every month thereafter (or the following business day in the event
that such date falls on a Saturday, Sunday or holiday) until all sums due under
the Loan are paid in full without notice of demand (each such day being referred
to as an "Adjustment Date"), which rate shall remain in effect until the
succeeding Adjustment Date.
Upon the occurrence of an event of default hereunder, without in any way
affecting the Lender's or other Holder's right to accelerate this Note, this
Note shall bear interest at a rate which is two percentage points (2.0%) per
annum greater than the rate otherwise in effect hereunder.
3. LAWFUL INTEREST. Notwithstanding any provisions of this Note, it is the
understanding and agreement of the Borrower and Holder that the maximum rate of
interest to be paid by Borrower to the Holder shall not exceed the highest or
the maximum rate of interest permissible to be charged by a commercial lender
such as Lender to a commercial borrower such as Borrower under the laws of the
Commonwealth of Virginia. Any amounts paid in excess of such rate shall be
considered to have been payments in reduction of principal.
4. LATE CHARGE. In the event Borrower fails to pay any installment of principal
and/or interest within ten (10) days of when it is due and payable, without in
any way affecting the Holder's right to accelerate this Note, a late charge
equal to five (5) percent of such late payment shall, at the option of Holder,
be assessed against Borrower.
2
<PAGE>
5. PREPAYMENTS. The Borrower may prepay the loan evidenced by this Note in part
or in full at any time, however, there will be a prepayment penalty during the
first three (3) years as follows: 3% of the principal prepayment amount in Year
1, 2% of the principal prepayment amount in Year 2, and 1% of the principal
prepayment amount in Year 3. Thereafter, the loan evidenced by this Note may be
prepaid in part or in full, at any time, without penalty or premium upon
twenty-one (21) days prior written notice to the Holder. Any amounts prepaid
shall be applied first to interest and other charges accrued in connection with
the Loan to the date of prepayment and then to principal. Notwithstanding the
above, the prepayment penalty shall not be assessed on prepayments required by
the Lender from the proceeds of any casualty insurance, condemnation proceeds on
the proceeds of any life insurance policy.
6. FINANCIAL INFORMATION. Promptly upon Holder's request, Borrower shall deliver
to Holder such documentation and information about the Borrower's financial
condition, business and/or operations as Holder may, at any time and from time
to time, request, including without limitation, such books, records and reports
as may be required under the Commercial Loan Agreement between Borrower and
Lender of even date herewith (the "Commercial Loan Agreement"; capitalized terms
used in this Note and not otherwise defined shall have the meanings assigned in
the Commercial Loan Agreement).
7. EVENTS OF DEFAULT. The Borrower agrees that the occurrence of any Event of
Default under the Commercial Loan Agreement shall constitute an Event of Default
hereunder, and that if any Event of Default shall occur under the Commercial
Loan Agreement or under any other Financing Agreement, then, upon the happening
of any such event, the entire indebtedness with accrued interest thereon and any
other sums due under this Note, shall, at the option of the Holder, become
immediately due and payable without presentment or demand for payment, notice of
non-payment, protest or any other notice or demand of any kind, all of which are
expressly waived by the Borrower. Failure to exercise such option shall not
constitute a waiver of the right to exercise the same in the event of any
subsequent default.
8. LIEN AND RIGHT OF SETOFF. The Borrower hereby grants the Holder a lien and
right of setoff for all Borrower's liabilities upon and against all the
deposits, credits, collateral and property of the Borrower, now or hereafter in
the possession or control of the Holder or in transit to it. Holder may, at any
time, apply or set off the same, or any part thereof, to any liability of the
Borrower whether or not matured or demanded.
9. NO WAIVER. No delay or omission by Holder in exercising any rights hereunder,
nor failure by the Holder to insist upon the strict performance by Borrower of
any terms and provisions herein shall operate as or be deemed to be a waiver of
such right, any other right hereunder, or any terms and provisions herein, and
the Holder shall retain the right thereafter to insist upon strict performance
by the Borrower of any and all terms and provisions of this Note or any document
securing the repayment of this Note. No waiver of any right shall be effective
unless in writing and
3
<PAGE>
signed by Holder, nor shall a waiver on one occasion be constituted as a bar to,
or waiver of, any such right on any future occasion.
10. PREJUDGMENT REMEDY AND OTHER WAIVERS. BORROWER ACKNOWLEDGES THAT THE LOAN
EVIDENCED BY THIS NOTE IS A COMMERCIAL TRANSACTION AND WAIVES BORROWER'S RIGHTS
TO NOTICE AND HEARING, OR THE ESTABLISHMENT OF A BOND, WITH OR WITHOUT SURETY,
ALLOWED BY ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH
HOLDER MAY DESIRE TO USE, AND FURTHER WAIVES DILIGENCE, DEMAND, PRESENTMENT FOR
PAYMENT, NOTICE OF NONPAYMENT, PROTEST AND NOTICE OF PROTEST, AND NOTICE OF ANY
RENEWALS OR EXTENSIONS OF THIS NOTE, AND ALL RIGHTS UNDER ANY STATUTE OF
LIMITATIONS. THE BORROWER ACKNOWLEDGES THAT BORROWER MAKES THESE WAIVERS
KNOWINGLY AND VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER EXTENSIVE CONSIDERATION
OF THE RAMIFICATIONS OF THIS WAIVER. THE BORROWER FURTHER ACKNOWLEDGES THAT THE
LENDER HAS NOT AGREED WITH OR REPRESENTED TO BORROWER OR ANY OTHER PARTY HERETO
THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.
11. JURY WAIVER. THE BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY COURT AND IN
ANY SUIT, ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN
ANY WAY RELATED TO THE FINANCING TRANSACTION OF WHICH THIS NOTE IS A PART AND/OR
THE ENFORCEMENT OF ANY OF YOUR RIGHTS AND REMEDIES, INCLUDING WITHOUT
LIMITATION, TORT CLAIMS. THE BORROWER ACKNOWLEDGES THAT BORROWER MAKES THIS
WAIVER KNOWINGLY AND VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER EXTENSIVE
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER. THE BORROWER FURTHER
ACKNOWLEDGES THAT THE LENDER HAS NOT AGREED WITH OR REPRESENTED TO BORROWER OR
ANY OTHER PARTY HERETO THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY
ENFORCED IN ALL INSTANCES.
12. CONFESSION OF JUDGMENT.
4
<PAGE>
13. JOINT AND SEVERAL LIABILITY. References in this Note to the Borrower in the
singular shall include the plural, and if Borrower consists of more than one
person, the liability of each Borrower shall be joint and several.
14. ACKNOWLEDGEMENT OF COPY, USE OF PROCEEDS. The Borrower acknowledges receipt
of a copy of this Note and attests that the proceeds of this Note are to be used
for general commercial purposes and that no part of such proceeds will be used,
in whole or in part, for the purpose of purchasing or carrying any "margin
security" as such term is defined in Regulation U of the Board of Governors of
the Federal Reserve System.
15. MISCELLANEOUS. The provisions of this Note shall be binding upon the heirs,
executors, administrators, successors and assigns of Borrower and shall inure to
the benefit of Holder, its successors and assigns. If any provision of this Note
shall, to any extent, be held invalid or unenforceable, then only such provision
shall be deemed ineffective and the remainder of this Note shall not be
affected. Borrower acknowledges and agrees that Holder shall have the right to
report any delinquencies, defaults and/or losses incurred by Holder hereunder to
any credit agency, bureau or service. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Virginia (but not
its conflicts of law provisions).
BORROWER
Witness: SMITH-MIDLAND CORPORATION
Hilary J. O'Connor By /s/ Rodney I. Smith
- ------------------ ----------------------
Name: Rodney I. Smith
-------------------
Title: President
------------------
5
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 374,190
<SECURITIES> 0
<RECEIVABLES> 4,004,744
<ALLOWANCES> 323,474
<INVENTORY> 1,507,937
<CURRENT-ASSETS> 5,610,053
<PP&E> 7,754,877
<DEPRECIATION> 5,146,732
<TOTAL-ASSETS> 9,174,390
<CURRENT-LIABILITIES> 3,415,813
<BONDS> 0
0
0
<COMMON> 30,857
<OTHER-SE> 1,280,201
<TOTAL-LIABILITY-AND-EQUITY> 9,174,390
<SALES> 14,432,749
<TOTAL-REVENUES> 14,742,308
<CGS> 11,185,901
<TOTAL-COSTS> 14,156,263
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 543,770
<INCOME-PRETAX> 42,275
<INCOME-TAX> 0
<INCOME-CONTINUING> 42,275
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,275
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
