-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Kh3YPl9NiJWUbWau24uccQcygEdHAUFtfpat5iPRZ74+5+eY0kK9vPbDrlhtRp7o PgB4hN5+Ox8DnDFpFUirbA== 0000899243-02-001620.txt : 20020515 0000899243-02-001620.hdr.sgml : 20020515 20020515140335 ACCESSION NUMBER: 0000899243-02-001620 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEADOW VALLEY CORP CENTRAL INDEX KEY: 0000934749 STANDARD INDUSTRIAL CLASSIFICATION: WATER, SEWER, PIPELINE, COMM AND POWER LINE CONSTRUCTION [1623] IRS NUMBER: 880328443 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25428 FILM NUMBER: 02650644 BUSINESS ADDRESS: STREET 1: 4411 S 40TH ST STREET 2: STE D-11 CITY: PHOENIX STATE: AZ ZIP: 85040 BUSINESS PHONE: 6024375400 MAIL ADDRESS: STREET 1: 4411 S 40TH ST STREET 2: STE D-11 CITY: PHOENIX STATE: AZ ZIP: 85040 10-Q 1 d10q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2002 Commission File No 0-25428 MEADOW VALLEY CORPORATION (Exact name of registrant as specified in its charter) Nevada 88-0328443 (State or other Jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 4411 South 40th Street, Suite D-11 Phoenix, Arizona 85040 (602) 437-5400 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings requirements for the past 90 days. Yes [X] No [ ] Number of shares outstanding of each of the registrant's classes of common stock as of April 30, 2002: Common Stock, $.001 par value 3,559,938 shares MEADOW VALLEY CORPORATION INDEX REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2002 PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statements of Operations (Unaudited) - Three Months Ended March 31, 2002 and March 31, 2001 3 Condensed Consolidated Balance Sheets - As of March 31, 2002 (Unaudited) and December 31, 2001 4 Condensed Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended March 31, 2002 and March 31, 2001 5 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 3. Quantitative and Qualitative Disclosure About Market Risk 18 PART II. OTHER INFORMATION Item 1. Legal Proceedings 18 Item 6. Exhibits and Reports on Form 8-K 20
2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements MEADOW VALLEY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended March 31, --------------------------------------- 2002 2001 ------------------ ----------------- Revenue $ 35,005,133 $ 35,353,537 Cost of revenue 33,362,759 35,162,933 ------------------ ----------------- Gross profit 1,642,374 190,604 General and administrative expenses 1,528,277 1,738,681 ------------------ ----------------- Income (loss) from operations 114,097 (1,548,077) ------------------ ----------------- Other income (expense): Interest income 25,652 62,571 Interest expense (101,338) (80,544) Other expense (5,920) (61,726) ------------------ ----------------- (81,606) (79,699) ------------------ ----------------- Income (loss) before income taxes 32,491 (1,627,776) Income tax benefit (expense) (12,184) 610,417 ------------------ ----------------- Net income (loss) $ 20,307 $ (1,017,359) ================== ================= Basic net income (loss) per common share $ 0.01 $ (0.29) ================== ================= Diluted net income (loss) per common share $ 0.01 $ (0.29) ================== ================= Basic weighted average common shares outstanding 3,559,938 3,559,938 ================== ================= Diluted weighted average common shares outstanding 3,559,938 3,559,938 ================== =================
3 MEADOW VALLEY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31, 2002 2001 ------------------ ------------------ Assets: (Unaudited) Current Assets: Cash and cash equivalents $ 321,473 $ 2,228,506 Restricted cash 2,101,459 2,401,548 Accounts receivable, net 22,923,434 21,377,904 Prepaid expenses and other 276,610 404,780 Inventory 3,274,282 3,365,750 Costs and estimated earnings in excess of billings on uncompleted contracts 6,061,046 5,294,054 ------------------ ------------------ Total Current Assets 34,958,304 35,072,542 Property and equipment, net 15,840,588 15,267,791 Assets held for sale 3,501,092 3,213,484 Deferred tax asset 1,957,923 1,957,923 Refundable deposits 55,110 55,110 Mineral rights and pit development, net 532,402 533,608 Claims receivable 5,968,026 5,968,026 Other assets 80,558 80,558 ------------------ ------------------ Total Assets $ 62,894,003 $ 62,149,042 ================== ================== Liabilities and Stockholders' Equity: Current Liabilities: Accounts payable $ 24,380,105 $ 27,025,984 Accrued liabilities 2,340,328 1,811,998 Notes payable 2,362,712 1,685,634 Obligations under capital leases 1,113,047 1,118,055 Income tax payable 12,184 - Billings in excess of costs and estimated earnings on uncompleted contracts 6,990,256 4,625,657 ------------------ ------------------ Total Current Liabilities 37,198,632 36,267,328 Deferred tax liability 2,718,734 2,718,734 Notes payable, less current portion 9,558,636 9,484,479 Obligations under capital leases, less current portion 2,683,388 2,964,195 ------------------ ------------------ Total Liabilities 52,159,390 51,434,736 ------------------ ------------------ Commitments and contingencies Stockholders' Equity: Preferred stock-$.001 par value; 1,000,000 shares authorized, none issued and outstanding - - Common stock-$.001 par value; 15,000,000 shares authorized, 3,559,938 issued and outstanding 3,601 3,601 Additional paid-in capital 10,943,569 10,943,569 Capital adjustments (799,147) (799,147) Retained earnings 586,590 566,283 ------------------ ------------------ Total Stockholders' Equity 10,734,613 10,714,306 ------------------ ------------------ Total Liabilities and Stockholders' Equity $ 62,894,003 $ 62,149,042 ================== ==================
4 MEADOW VALLEY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, -------------------------------------- 2002 2001 ------------------ ---------------- Increase (Decrease) in Cash and Cash Equivalents: Cash flows from operating activities: Cash received from customers $ 35,051,290 $ 30,432,046 Cash paid to suppliers and employees (36,446,783) (33,316,446) Interest received 25,652 62,571 Interest paid (101,338) (80,544) ------------------ ---------------- Net cash used in operating activities (1,471,179) (2,902,373) ------------------ ---------------- Cash flows from investing activities: Decrease (increase) in restricted cash 300,089 (354) Proceeds from sale of property and equipment 89,424 65,634 Purchase of property and equipment (33,442) (112,966) Purchase of mineral rights and pit development - 41,417 ------------------ ---------------- Net cash provided by (used in) investing activities 356,071 (6,269) ------------------ ---------------- Cash flows from financing activities: Proceeds received from note payable - 2,004,126 Repayment of notes payable (506,110) (364,909) Repayment of capital lease obligations (285,815) (273,873) ------------------ ---------------- Net cash provided by (used in) financing activities (791,925) 1,365,344 ------------------ ---------------- Net decrease in cash and cash equivalents (1,907,033) (1,543,298) Cash and cash equivalents at beginning of period 2,228,506 1,822,598 ------------------ ---------------- Cash and cash equivalents at end of period $ 321,473 $ 279,300 ================== ================
5 MEADOW VALLEY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Unaudited)
Three Months Ended March 31, ------------------------------------- 2002 2001 ----------------- ---------------- Increase (Decrease) in Cash and Cash Equivalents (Continued): Reconciliation of Net Income (Loss) to Net Cash Used in Operating Activities: Net Income (Loss) $ 20,307 $ (1,017,359) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 685,651 640,257 Gain on sale of property and equipment (57,484) (3,554) Allowance for doubtful accounts 30,973 42,226 Changes in Operating Assets and Liabilities: Accounts receivable (1,576,503) (3,562,692) Prepaid expenses and other 128,170 67,061 Inventory (194,535) (63,168) Income tax receivable - (610,417) Costs and estimated earnings in excess of billings on uncompleted contracts (766,992) (1,636,199) Refundable deposits - 31,731 Accounts payable (2,645,879) 2,796,911 Accrued liabilities 528,330 112,376 Income tax payable 12,184 - Billings in excess of costs and estimated earnings on uncompleted contracts 2,364,599 300,454 ----------------- ---------------- Net cash used in operating activities $ (1,471,179) $ (2,902,373) ================= ================
6 MEADOW VALLEY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Description of Business: Nature of Corporation: Meadow Valley Corporation (the "Company") was organized under the laws of the State of Nevada on September 15, 1994. The principal business purpose of the Company is to operate as the holding company of Meadow Valley Contractors, Inc. ("MVCI") and Ready Mix, Inc. ("RMI"). MVCI is a general contractor, primarily engaged in the construction of structural concrete highway bridges and overpasses, and the paving of highways and airport runways in the states of Nevada, Arizona and Utah. RMI manufactures and distributes ready mix concrete in the Las Vegas, NV and Phoenix, AZ metropolitan areas. Formed by the Company, RMI commenced operations in 1997. Liquidity: The Company incurred income (loss) from operations for the three months ended March 31, 2002 and 2001 of $20,307 and $(1,017,359) and has used cash in operating activities of $(1,471,179) and $(2,902,373) for the three months ended March 31, 2002 and 2001. In order to improve working capital, the Company executed a definite agreement on March 22, 2002 to sell certain pit assets to United Metro Materials Inc. ("United Metro"). On May 9, 2002, the Company closed the transaction with United Metro. The transaction was for a sale price of $3,000,000 subject to a $250,000 hold-back that may be paid within the next twenty-four months if sales volumes, measured in tons of materials sold, meet or exceed a stipulated minimum amount. In addition, within seven days of closing, the ending inventory of finished product will be measured and paid for and is expected to be between $1.0 and $1.5 million. After deduction of the hold-back amount and approximately $212,000 of debt paid off by United Metro, the net cash received by the Company in conjunction with this transaction, depending upon final inventory quantities, will range from $3.5 to $4.0 million. United Metro also assumed approximately $1.5 million in operating lease obligations. Accordingly, $3,501,092 of assets consisting primarily of inventory and equipment, have been classified as assets held for sale on the accompanying 2002 balance sheet. During 2002, the Company may also consider the disposal of other assets as a means to increase working capital. In addition, the Company has engaged the services of AMG Financing Capital, Inc. to find potential sources of financing to meet future financial obligations. Should the Company not be able to sell other assets or raise additional financing to generate sufficient cash flows from operations, management of the Company will need to develop alternative strategies that may ultimately impact the operations and financial condition of the Company. 2. Presentation of Interim Information: The amounts included in this report are unaudited; however, in the opinion of management, all adjustments necessary for a fair statement of results for the stated periods have been included. These adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as permitted by SEC rules and regulations. It is suggested that these condensed consolidated financial statements be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001 under the Securities Exchange Act of 1934 as filed with the Securities and Exchange Commission. The results of operations for the three months ended March 31, 2002 are not necessarily indicative of operating results for the entire year. 7 MEADOW VALLEY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3. Revenue and Cost Recognition: Revenues and costs from fixed-price and modified fixed-price construction contracts are recognized for each contract on the percentage-of-completion method, measured by the percentage of costs incurred to date to the estimated total direct costs. Direct costs include, among other things, direct labor, field labor, equipment rent, subcontracting, direct materials and direct overhead. General and administrative expenses are accounted for as period costs and are, therefore, not included in the calculation of the estimates to complete construction contracts in progress. Project losses are provided in the period in which such losses are determined, without reference to the percentage-of-completion. As contracts can extend over one or more accounting periods, revisions in costs and earnings estimated during the course of the work are reflected during the accounting period in which the facts that required such revision become known. Claims for additional contract revenue are recognized only to the extent that contract costs relating to the claim have been incurred and evidence provides a legal basis for the claim. As of March 31, 2002, the total amount of claims that have been submitted or soon-to-be submitted was approximately $44,016,324. Of that sum, the Company's portion of the claims total was approximately $27,454,956 and the balance of $16,561,368 pertains to prime contractor or subcontractors' claims. Total claim amounts reported by the Company in its filings are approximate and are subject to revision as final documentation progresses. Accordingly, the approximate total claim amount is now $44,016,324 of which $27,454,956 pertains to the Company and the balance of $16,561,368 applies to subcontractors or the prime contractor. This revised approximation of total claim amount compares to previously reported amounts of $54,407,238, $29,396,539 and $25,010,699 respectively. Relative to the aforementioned claims, the Company has recorded $7,754,448 in claim revenue to offset costs incurred to-date on the claims. In the accompanying March 31, 2002 balance sheet, claims receivable in the amount of $5,968,026 has been recorded in connection with claims filed. In addition, the Company has also recorded approximately $1,817,831 for unpaid quantities, unpaid change orders, and pending change orders in advance of receipt. Although the Company believes these amounts represent a reasonably conservative posture, any claims proceeds and payments for previously unpaid quantities, unpaid change orders and pending change orders ultimately paid to the Company less than $9,572,279 will reduce net income. Conversely, a payment for those same items in excess of $9,572,279 will increase net income. 4. Recent Accounting Pronouncements: In June 2001, the Financial Accounting Standard Board finalized FASB Statements No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that the Company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142, the Company reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141. SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that the Company identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and to the intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS 142 requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of SFAS 142. 8 MEADOW VALLEY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. Recent Accounting Pronouncements (Continued): SFAS 143, Accounting for Asset Retirement Obligations, was issued in June 2001 and is effective for fiscal years beginning after June 15, 2002. SFAS 143 requires that any legal obligation related to the retirement of long-lived assets be quantified and recorded as a liability with the associated asset retirement cost capitalized on the balance sheet in the period it is incurred when a reasonable estimate of the fair value of the liability can be made. SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, was issued in August 2001 and is effective for fiscal years beginning after December 15, 2001. SFAS 144 provides a single, comprehensive accounting model for impairment and disposal of long-lived assets and discontinued operations. The adoption of SFAS 141, SFAS 142 and SFAS 144 did not have a material effect on the Company's financial statements. The Company does not anticipate the adoption of SFAS 143 to have a material effect on the Company's financial statements. 5. Notes Payable: Summary of first quarter additions to notes payable and its balance at March 31, 2002: Note payable, interest rate at 6.65%, with monthly payments of $25,515, due 1/18/05, collateralized by equipment $ 788,686 Note payable, interest rate at 6.9%, with monthly payments of $10,238, due 3/1/05, collateralized by equipment 323,720 Note payable, interest rate at 7.9%, with monthly payments of $3,496, due 2/10/04, collateralized by equipment 77,891 Note payable, interest rate at 0%, with monthly payments of $1,344, due 2/7/03, collateralized by equipment 13,441 ----------------- 1,203,738 Less: current portion (419,709) ----------------- $ 784,029 =================
Following are maturities of the above long-term debt for each of the next 3 years: 2003 $ 419,709 2004 427,667 2005 356,362 ----------------- $ 1,203,738 =================
9 MEADOW VALLEY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. Line of Credit: In July 2000, the Company entered into a revolving loan agreement ("line of credit"). Under the terms of the agreement, the Company may borrow up to $7,000,000 at Chase Manhattan Bank's prime, plus .25% through December 31, 2001 at which time the line of credit was to convert to a term agreement requiring monthly principal and interest payments through December 31, 2005. The line of credit is collateralized by all of the Company's assets. Under the terms of the line of credit, the Company is required to maintain a certain level of tangible net worth. In addition, the Company is also required to maintain a ratio of total debt to tangible net worth. As of March 31, 2002, the Company was not in compliance with the tangible net worth covenant, but was in compliance with the ratio of total debt to tangible net worth. Effective March 2002, the Company amended the line of credit agreement. Under the terms of the amended agreement, the interest rate increased to Chase Manhattan Bank's prime, plus 1.5% through January 1, 2003 at which time the line of credit converts to a term agreement requiring monthly principal and interest payments through December 31, 2006. In connection with the amendment, the Company obtained a waiver from non-compliance with the tangible net worth covenant for the period from December 31, 2001 to January 1, 2003. As of March 31, 2002, the Company had withdrawn the entire $7,000,000 from the line of credit. 7. Statement of Cash Flows: Non-Cash Investing and Financing Activities: The Company recognized investing and financing activities that affected assets, liabilities, and equity, but did not result in cash receipts or payments. These non-cash activities are as follows: During the three months ended March 31, 2002, the Company financed the purchase of equipment in the amount of $1,257,345. 8. Litigation and Claim Matters: The Company is a party to legal proceedings in the ordinary course of its business. With the exception of those matters detailed below, the Company believes that the nature of these proceedings (which generally relate to disputes between the Company and its subcontractors, material suppliers or customers regarding payment for work performed or materials supplied) are typical for a construction firm of its size and scope, and no other pending proceedings are material to its financial condition. The following proceedings represent matters that may become material and have already been or may soon be referred to legal counsel for further action: Requests for Equitable Adjustment to Construction Contracts. The Company has or - ----------------------------------------------------------- will make claims as described below on the following contracts: (1) Five contracts with the New Mexico State Highway and Transportation Department - The approximate total value of claims on these projects is $24,880,927 of which approximately $21,204,824 is on behalf of MVCI and the balance of $3,676,103 is on behalf of the prime contractor or subcontractors. The primary issues are changed conditions, plan errors and omissions, contract modifications and associated delay costs. In addition, the projects were not completed within the adjusted contract time because of events giving rise to the claims. The prosecution of the claims will include the appropriate extensions of contract time to offset any potential liquidated damages. (2) Clark County, Nevada - The approximate total value of claims on this project is $19,135,397 of which approximately $12,885,265 is on behalf of subcontractors. The primary issues are changed conditions, plan errors and omissions, contract modifications and associated delay costs. 10 MEADOW VALLEY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. Litigation and Claim Matters (Continued): The above claims combined total approximately $44,016,324. Of that sum, the Company's portion of the claims total approximately $27,454,956 and the balance of $16,561,368 pertains to prime contractor or subcontractors' claims. Total claim amounts reported by the Company in its filings are approximate and are subject to revision as final documentation progresses. Accordingly, the approximate total claim amount is now $44,016,324 of which $27,454,956 pertains to the Company and the balance of $16,561,368 applies to subcontractors or the prime contractor. This revised approximation of total claim amount compares to previously reported amounts of $54,407,238, $29,396,539 and $25,010,699 respectively. Relative to the aforementioned claims, the Company has recorded approximately $7,754,448 in claim revenue to offset costs incurred to-date on the claims. In addition, the Company has also recorded approximately $1,817,831 for unpaid quantities, unpaid change orders, and pending change orders in advance of receipt. Although the Company believes these amounts represent a reasonably conservative posture, any claims proceeds and payments for previously unpaid quantities, unpaid change orders and pending change orders ultimately paid to the Company less than $9,572,279 will reduce net income. Conversely, a payment for those same items in excess of $9,572,279 will increase net income. Lawsuits Filed Against Meadow Valley Contractors, Inc. or Meadow Valley - ----------------------------------------------------------------------- Corporation - ----------- (1) Innovative Construction Systems, Inc. ("ICS"), District Court, Clark County, NV - ICS was a subcontractor to MVCI on several projects. ICS failed to make payments of payroll, pension fund contributions and other taxes for which the Internal Revenue Service garnished any future payments due ICS on MVCI projects. As a result, ICS failed to supply labor to perform its work and defaulted on its subcontracts. MVCI terminated the ICS subcontracts and performed the work with MVCI personnel. ICS alleges it was wrongfully terminated and is asserting numerous claims for damages. ICS claims against MVCI total approximately $15,000,000. The Company does not believe ICS' claims have merit and intends to vigorously defend against these claims and will eventually seek to recover the damages ICS has caused the Company through its failure to perform. (2) Independent from, but related to the ICS issue, the Nevada State Labor Commissioner ("Commission") filed a lawsuit against MVCI to seek payment from MVCI, as the prime contractor, for wages and fringes owed but not paid by ICS, MVCI's subcontractor. The Commission seeks payment of approximately $452,921 in alleged unpaid wages and fringe benefits. Prior to the filing of the complaint by the Commission, MVCI was attempting to reach settlement as the Company believes that its liabilities are less than the $452,921 being sought by the Commission. Accordingly, the Company intends to defend itself against the excessive assessment of liability and seek to reduce the liability. (2) AnA Enterprises, LLC ("AnA"), District Court, Clark County, NV - AnA supplied equipment to MVCI on a project under terms of a variety of agreements. AnA is suing MVCI for non-payment. MVCI has counter-sued for cost overruns deemed to be the responsibility of AnA. AnA's suit against MVCI is for approximately $3,245,289. MVCI's countersuit against AnA is for approximately $2,000,000. AnA has also filed a complaint on two other projects completed in 1997 where they were a subcontractor to MVCI in the same jurisdiction in the amount of approximately $715,000 for changed conditions. The Company does not believe AnA's claims have merit and intends to vigorously defend against these claims. (3) Progressive Contracting Inc. ("PCI"), District Court, Clark County, NV - PCI was a subcontractor to MVCI on a project where there is a dispute with the owner regarding delays to the project. PCI claims they were damaged by these delays in an amount in excess of $300,000. The Company believes that under the terms of the contract with PCI they are only entitled to compensation for the delays if MVCI is compensated by the owner. MVCI has submitted PCI's claims to the owner and they are included in the total claim amount. (4) The Company is defending a claimed preference in connection with a payment made to it by an insurance company in the approximate amount of $100,000. The Company believes that the payment is not a preference, and is vigorously defending the action. 11 MEADOW VALLEY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. Litigation and Claim Matters (Continued): (5) The Company and all of its directors were served with a civil complaint by Silver State Materials Corp. ("Silver State") and Cyrus Spurlino (collectively "Plaintiffs"). The complaint primarily alleges that the Company's October 1995 Registration Statement on Form S-1 was misleading in stating that the Company's directors were elected on a staggered basis because the Company's Bylaws, providing for such staggered term, were not so amended until April 1997, and that such amendment was not filed with the Securities and Exchange Commission. The complaint seeks (i) to terminate all of the Company's directors for cause, (ii) to elect a new Board of Directors, (iii) to cause the Company to enact amended and restated bylaws, (iv) for monetary damages in an undisclosed amount, (v) for interest, fees and costs, and (vi) for such other relief as the District Court may deem appropriate. The Company believes that the complaint is without merit and intends to vigorously defend it. On December 17, 2001, the Company and the Plaintiffs stipulated to an open extension of time for the Company to respond to the complaint as the Company and the Plaintiffs were engaged in settlement discussions that included the possible sale of the Ready Mix, Inc. ("RMI") subsidiary. NRS 78.416(2) prohibits the Company from selling more than 5 percent or more of the aggregate market value of all its assets to an interested stockholder. Due to this restriction, the Company's board of directors concluded that the transaction would not be in the best interests of the Company or its shareholders. The Plaintiffs continue to threaten litigation (as an interested stockholder), against the Company's board attempting to pressure the Company to sell RMI or its assets. As of this filing, the extension of time to respond to the complaint remains open and the Plaintiffs have not filed an amended complaint, but it appears that anything short of selling RMI and buying back the Plaintiff's stock will likely result in further legal action against the Company. 9. Subsequent Events: In April 2002, the Company refinanced 8 mixer trucks for $266,160. The note payable obligation has an interest rate of 9%, with monthly payments of $12,069, and is due March 15, 2004 In April 2002, the Company completed the compilation of final documentation supporting the claim against the New Mexico State Highway and Transportation Department for the contract on the Alamogordo Relief Route, Phase II, NM project No. SP-4916(202). In May 2002, the Company completed the compilation of final documentation supporting the claim against the New Mexico State Highway and Transportation Department for the contract on the Alamogordo Relief Route, Phase IA, NM project No. SP-4916(200). Having now submitted final documentation to the state, claims receivable will increase in the second quarter by $1,786,422. On May 9, 2002, the Company closed the transaction with United Metro Materials Inc. ("United Metro") to sell certain pit assets in Prescott, Arizona. The transaction was for a sale price of $3,000,000 subject to a $250,000 hold-back that may be paid within the next twenty-four months if sales volumes, measured in tons of materials sold, meet or exceed a stipulated minimum amount. In addition, within seven days of closing, the ending inventory of finished product will be measured and paid for and is expected to be between $1.0 and $1.5 million. After deduction of the hold-back amount and approximately $212,000 of debt paid off by United Metro, the net cash received by the Company in conjunction with this transaction, depending upon final inventory quantities, will range from $3.5 to $4.0 million. United Metro also assumed approximately $1.5 million in operating lease obligations. On May 1, 2002, the Company announced that its aggregate bonding capacity had been reduced to $75 million until such time as its working capital improved. On May 14, 2002, the Company announced that its aggregate bonding capacity had been increased to approximately $100 million, based upon the merits of each individual project as determined between the Company and its bonding company. 12 MEADOW VALLEY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 10. Segment Information: The Company manages and operates two segments, construction services and construction materials. The construction services segment provides construction services to a broad range of public and some private customers primarily in the western states of Arizona, Nevada and Utah. Through this segment, the Company performs heavy civil construction such as the construction of bridges and overpasses, channels, roadways, highways and airport runways. The construction materials segment manufactures and distributes ready mix concrete and sand and gravel products in the Las Vegas, NV and Phoenix, AZ markets. Material customers include concrete subcontractors, prime contractors, homebuilders, commercial and industrial property developers, pool builders and homeowners. The construction materials segment operates out of two locations in the Las Vegas, NV vicinity, one location in the Moapa, NV vicinity and two locations in the Phoenix, AZ vicinity.
Three Months Ended March 31, ------------------------------------------------------------------- (dollars in thousands) 2002 2001 ------------------------------- ------------------------------- Construction Construction Services Materials Services Materials ------------- ------------- ------------- ------------- Gross revenue $ 26,629 $ 9,259 $ 29,022 $ 6,829 Intercompany revenue - 883 - 498 Cost of revenue 25,803 8,443 28,875 6,786 Interest income 22 4 56 6 Interest expense 63 38 45 36 Depreciation and amortization 424 261 443 197 Income (loss) before taxes (283) 315 (1,172) (456) Income tax benefit (expense) 106 (118) 440 171 Net income (loss) (177) 197 (732) (285) Total assets 48,128 14,766 45,652 13,360
There are no differences in accounting principals between the segments. All centrally incurred costs are allocated to the construction services segment. Intercompany revenue is eliminated at cost to arrive at consolidated revenue and cost of revenue. 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General The following is management's discussion and analysis of certain significant factors affecting the Company's financial position and operating results during the periods included in the accompanying condensed consolidated financial statements. Except for the historical information contained herein, the matters set forth in this report are forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially. The Company disclaims any intent or obligation to update these forward-looking statements. The Company's backlog (anticipated revenue from the uncompleted portions of awarded projects) was approximately $63.5 million at March 31, 2002, compared to approximately $84.0 million at March 31, 2001. At March 31, 2002, the Company's backlog included approximately $55 million of work that is scheduled for completion during 2002. Accordingly, revenue in the future will be significantly reduced if the Company is unable to obtain substantial new projects in 2002. Revenue on uncompleted fixed price contracts is recorded under the percentage-of-completion method of accounting. The Company begins to recognize revenue on its contracts when it first accrues direct costs. Contracts often involve work periods in excess of one year and revisions in cost and profit estimates during construction are reflected in the accounting period in which the facts that require the revisions become known. Losses on contracts, if any, are provided in total when determined, regardless of the percent complete. Claims for additional contract revenue are recognized only to the extent that contract costs relating to the claim have been incurred and evidence provides a legal basis for the claim. As of March 31, 2002, the total amount of claims that have been submitted or soon-to-be submitted was approximately $44,016,324. Of that sum, the Company's portion of the claims total was approximately $27,454,956 and the balance of $16,561,368 pertains to prime contractor or subcontractors' claims. Total claim amounts reported by the Company in its filings are approximate and are subject to revision as final documentation progresses. Accordingly, the approximate total claim amount is now $44,016,324 of which $27,454,956 pertains to the Company and the balance of $16,561,368 applies to subcontractors or the prime contractor. This revised approximation of total claim amount compares to previously reported amounts of $54,407,238, $29,396,539 and $25,010,699 respectively. Relative to the aforementioned claims, the Company has recorded approximately $7,754,448 in claim revenue to offset costs incurred to-date on the claims. In the accompanying March 31, 2002 balance sheet, claims receivable in the amount of $5,968,026 has been recorded in connection with claims filed. In addition, the Company has also recorded approximately $1,817,831 for unpaid quantities, unpaid change orders, and pending change orders in advance of receipt. Although the Company believes these amounts represent a reasonably conservative posture, any claims proceeds and payments for previously unpaid quantities, unpaid change orders and pending change orders ultimately paid to the Company less than $9,572,279 will reduce net income. Conversely, a payment for those same items in excess of $9,572,279 will increase net income. 14 Results of Operations The following table sets forth, for the three months ended March 31, 2002 and 2001, certain items derived from the Company's Condensed Consolidated Statements of Operations expressed as a percentage of revenue. Three Months Ended March 31, ----------------------------- 2002 2001 ------------ ------------ Revenue 100.0% 100.0% Gross profit 4.7% 0.5% General and administrative expenses 4.4% 4.9% Interest income 0.1% 0.2% Interest expense -0.3% -0.2% Other expense 0.0% -0.2% Income (loss) before income taxes 0.1% -4.6% Income tax benefit (expense) 0.0% 1.7% Net income (loss) 0.1% -2.9% Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001 Revenue and Backlog. Revenue for the three months ended March 31, 2002 ("interim 2002") was $35.0 million compared to $35.4 million for the three months ended March 31, 2001 ("interim 2001"). The decrease in revenue was the result of a $2.4 million decrease in construction services, offset by a $2.0 million increase in revenue generated from construction materials production and manufacturing sold to non-affiliates. Backlog decreased 25% to $63.5 million at March 31, 2002 from $84.0 million at March 31, 2001. Revenue may be impacted in any one period by the backlog at the beginning of the period. Gross Profit. Consolidated gross profit increased to $1.6 million for interim 2002 from $.2 million for interim 2001 and consolidated gross margin, as a percent of revenue, increased to 4.7% in interim 2002 from .5% in interim 2001. Gross profit from construction services increased to $.8 million in interim 2002 from $.1 million in interim 2001 and the gross profit margin increased to 3.1% from .5% in the respective periods. The increase in the construction services gross profit was the result of increased profit recognition related to several projects nearing completion at March 31, 2002. Gross profit margins are affected by a variety of factors including construction delays and difficulties due to weather conditions, availability of materials, the timing of work performed by other subcontractors and the physical and geological condition of the construction site. Gross profit from construction materials increased to $.8 million in interim 2002 from $.04 million in interim 2001 and the gross profit margin increased to 9.7% from .6% in the respective periods. The improved performance for the construction materials segment during interim 2002 is the result of a 32% increase in revenue from interim 2001 that results from the expansion of construction materials operations. General and Administrative Expenses. General and administrative expenses decreased to $1.5 million for interim 2002 from $1.7 million for interim 2001. The decrease resulted primarily from a $.1 million reduction of general and administrative expenses related to various employee incentive plans and a decrease of $.1 million in legal expenses. Interest Income and Expense. Interest income for interim 2002 decreased to $.03 million from $.06 million for interim 2001 resulting primarily from a decrease in invested cash reserves. Interest expense for interim 2002 increased to $.1 million from $.08 million for interim 2001, due primarily to the Company borrowing on the line of credit. Net Income (Loss). Net income (loss) was $.02 million in interim 2002 as compared to a net loss of $(1.0) million for interim 2001. 15 Liquidity and Capital Resources The Company's primary need for capital has been to finance growth in its core business as a heavy construction contractor and its expansion into the construction materials business. Historically, the Company's primary source of cash has been from operations. The following table sets forth for the three months ended March 31, 2002 and 2001, certain items from the condensed consolidated statements of cash flows.
Three Months Ended March 31, -------------------------------------- 2002 2001 ----------------- ---------------- Cash Flows Used in Operating Activities $ (1,471,179) $ (2,902,373) Cash Flows Provided by (Used in) Investing Activities 356,071 (6,269) Cash Flows Provided by (Used in) Financing Activities (791,925) 1,365,344
Recently cash has been consumed by the costs incurred on contracts for which claim compensation is being sought and the start-up costs of the construction materials expansion. Accordingly, during the year ended December 31, 2000, the Company entered into a revolving loan agreement ("line of credit"). Under the terms of the agreement, the Company may borrow up to $7,000,000 at Chase Manhattan Bank's prime, plus 0.25% through December 31, 2001 at which time the line of credit was to convert to a term agreement requiring monthly principal and interest payments through December 31, 2005. The line of credit is collateralized by all of the Company's assets. Under the terms of the line of credit, the Company is required to maintain a certain level of tangible net worth. In addition, the Company is also required to maintain a ratio of total debt to tangible net worth. As of March 31, 2002, the Company was not in compliance with the tangible net worth covenant, but was in compliance with the ratio of total debt to tangible net worth. Effective March 2002, the Company amended the line of credit agreement. Under the terms of the amended agreement, the interest rate increased to Chase Manhattan Bank's prime, plus 1.5% through January 1, 2003 at which time the line of credit converts to a term agreement requiring monthly principal and interest payments through December 31, 2006. In connection with the amendment, the Company obtained a waiver from non-compliance with the tangible net worth covenant for the period from December 31, 2001 to January 1, 2003. As of March 31, 2002, the Company had withdrawn the entire $7,000,000 from the line of credit. Cash used in operating activities during interim 2002 amounted to $1.5 million, primarily the result of an increase in accounts receivable of $1.6 million and a decrease in accounts payable of $2.7 million, offset, in part, by an increase in net billings in excess of costs of $1.6 million, depreciation and amortization of $.7 million and an increase in accrued liabilities of $.5 million. Cash used in operating activities during interim 2001 amounted to $2.9 million, primarily the result of a increase in accounts receivable of $3.6 million, an increase in income tax receivable of $.6 million, a decrease in net billings in excess of costs of $1.3 million, a net loss of $1.0 million, offset, in part, by an increase in accounts payable of $2.8 million and depreciation and amortization of $.6 million. Cash provided by investing activities during interim 2002 amounted to $.4 million related primarily to a decrease in restricted cash of $.3 million and proceeds from the sale of property and equipment in the amount of $.1 million. Cash used in investing activities during interim 2001 amounted to approximately $6,000 related primarily to the purchase of property and equipment of $.1 million, offset by proceeds from the sale of property and equipment in the amount of $.06 million and an increase of pit development of $.04 million. Cash used in financing activities during interim 2002 amounted to $.8 million related primarily to the repayment of notes payable and capital lease obligations of $.8 million. 16 Cash provided by financing activities during interim 2001 amounted to $1.4 million related primarily to the proceeds received from the line of credit of $2.0 million, offset by the repayment of notes payable and capital lease obligations of $.6 million. Recent Accounting Pronouncements In June 2001, the Financial Accounting Standard Board finalized FASB Statements No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that the Company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142, the Company reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141. SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that the Company identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and to the intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS 142 requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of SFAS 142. SFAS 143, Accounting for Asset Retirement Obligations, was issued in June 2001 and is effective for fiscal years beginning after June 15, 2002. SFAS 143 requires that any legal obligation related to the retirement of long-lived assets be quantified and recorded as a liability with the associated asset retirement cost capitalized on the balance sheet in the period it is incurred when a reasonable estimate of the fair value of the liability can be made. SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, was issued in August 2001 and is effective for fiscal years beginning after December 15, 2001. SFAS 144 provides a single, comprehensive accounting model for impairment and disposal of long-lived assets and discontinued operations. The adoption of SFAS 141, SFAS 142 and SFAS 144 did not have a material effect on the Company's financial statements. The Company does not anticipate the adoption of SFAS 143 to have a material effect on the Company's financial statements. 17 Item 3. Quantitative and Qualitative Disclosure About Market Risk Market risk generally represents the risk that losses may occur in the values of financial instruments as a result of movements in interest rates, foreign currency exchange rates and commodity prices. The Company does not have foreign currency exchange rate and commodity price market risk. Interest Rate Risk - From time to time the Company temporarily invests its cash and restricted cash in interest-bearing securities issued by high-quality issuers. The Company's management monitors risk exposure to monies invested in securities of any one financial institution. Due to the short time the investments are outstanding and their general liquidity, these instruments are classified as cash equivalent in the consolidated balance sheet and do not represent a material interest rate risk to the Company. The Company's primary market risk to exposure for changes in interest rates relates to the Company's long-term debt obligations. The Company manages its exposure to changing interest rates principally through the use of a combination of fixed and floating rate debt. PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is a party to legal proceedings in the ordinary course of its business. With the exception of those matters detailed below, the Company believes that the nature of these proceedings (which generally relate to disputes between the Company and its subcontractors, material suppliers or customers regarding payment for work performed or materials supplied) are typical for a construction firm of its size and scope, and no other pending proceedings are material to its financial condition. The following proceedings represent matters that may become material and have already been or may soon be referred to legal counsel for further action: Requests for Equitable Adjustment to Construction Contracts. The Company has or - ----------------------------------------------------------- will make claims as described below on the following contracts: (1) Five contracts with the New Mexico State Highway and Transportation Department - The approximate total value of claims on these projects is $24,880,927 of which approximately $21,204,824 is on behalf of MVCI and the balance of $3,676,103 is on behalf of the prime contractor or subcontractors. The primary issues are changed conditions, plan errors and omissions, contract modifications and associated delay costs. In addition, the projects were not completed within the adjusted contract time because of events giving rise to the claims. The prosecution of the claims will include the appropriate extensions of contract time to offset any potential liquidated damages. (2) Clark County, Nevada - The approximate total value of claims on this project is $19,135,397 of which approximately $12,885,265 is on behalf of subcontractors. The primary issues are changed conditions, plan errors and omissions, contract modifications and associated delay costs. The above claims combined total approximately $44,016,324. Of that sum, the Company's portion of the claims total approximately $27,454,956 and the balance of $16,561,368 pertains to prime contractor or subcontractors' claims. Total claim amounts reported by the Company in its filings are approximate and are subject to revision as final documentation progresses. Accordingly, the approximate total claim amount is now $44,016,324 of which $27,454,956 pertains to the Company and the balance of $16,561,368 applies to subcontractors or the prime contractor. This revised approximation of total claim amount compares to previously reported amounts of $54,407,238, $29,396,539 and $25,010,699 respectively. Relative to the aforementioned claims, the Company has recorded approximately $7,754,448 in claim revenue to offset costs incurred to-date on the claims. In addition, the Company has also recorded approximately $1,817,831 for unpaid quantities, unpaid change orders, and pending change orders in advance of receipt. Although the Company believes these amounts represent a reasonably conservative posture, any claims proceeds and payments for previously unpaid quantities, unpaid change orders and pending change orders ultimately paid to the Company less than $9,572,279 will reduce net income. Conversely, a payment for those same items in excess of $9,572,279 will increase net income. 18 Lawsuits Filed Against Meadow Valley Contractors, Inc. or Meadow Valley - ----------------------------------------------------------------------- Corporation - ----------- (1) Innovative Construction Systems, Inc. ("ICS"), District Court, Clark County, NV - ICS was a subcontractor to MVCI on several projects. ICS failed to make payments of payroll, pension fund contributions and other taxes for which the Internal Revenue Service garnished any future payments due ICS on MVCI projects. As a result, ICS failed to supply labor to perform its work and defaulted on its subcontracts. MVCI terminated the ICS subcontracts and performed the work with MVCI personnel. ICS alleges it was wrongfully terminated and is asserting numerous claims for damages. ICS claims against MVCI total approximately $15,000,000. The Company does not believe ICS' claims have merit and intends to vigorously defend against these claims and will eventually seek to recover the damages ICS has caused the Company through its failure to perform. (2) Independent from, but related to the ICS issue, the Nevada State Labor Commissioner ("Commission") filed a lawsuit against MVCI to seek payment from MVCI, as the prime contractor, for wages and fringes owed but not paid by ICS, MVCI's subcontractor. The Commission seeks payment of approximately $452,921 in alleged unpaid wages and fringe benefits. Prior to the filing of the complaint by the Commission, MVCI was attempting to reach settlement as the Company believes that its liabilities are less than the $452,921 being sought by the Commission. Accordingly, the Company intends to defend itself against the excessive assessment of liability and seek to reduce the liability. (2) AnA Enterprises, LLC ("AnA"), District Court, Clark County, NV - AnA supplied equipment to MVCI on a project under terms of a variety of agreements. AnA is suing MVCI for non-payment. MVCI has counter-sued for cost overruns deemed to be the responsibility of AnA. AnA's suit against MVCI is for approximately $3,245,289. MVCI's countersuit against AnA is for approximately $2,000,000. AnA has also filed a complaint on two other projects completed in 1997 where they were a subcontractor to MVCI in the same jurisdiction in the amount of approximately $715,000 for changed conditions. The Company does not believe AnA's claims have merit and intends to vigorously defend against these claims. (3) Progressive Contracting Inc. ("PCI"), District Court, Clark County, NV - PCI was a subcontractor to MVCI on a project where there is a dispute with the owner regarding delays to the project. PCI claims they were damaged by these delays in an amount in excess of $300,000. The Company believes that under the terms of the contract with PCI they are only entitled to compensation for the delays if MVCI is compensated by the owner. MVCI has submitted PCI's claims to the owner and they are included in the total claim amount. (4) The Company is defending a claimed preference in connection with a payment made to it by an insurance company in the approximate amount of $100,000. The Company believes that the payment is not a preference, and is vigorously defending the action. (5) The Company and all of its directors were served with a civil complaint by Silver State Materials Corp. ("Silver State") and Cyrus Spurlino (collectively "Plaintiffs"). The complaint primarily alleges that the Company's October 1995 Registration Statement on Form S-1 was misleading in stating that the Company's directors were elected on a staggered basis because the Company's Bylaws, providing for such staggered term, were not so amended until April 1997, and that such amendment was not filed with the Securities and Exchange Commission. The complaint seeks (i) to terminate all of the Company's directors for cause, (ii) to elect a new Board of Directors, (iii) to cause the Company to enact amended and restated bylaws, (iv) for monetary damages in an undisclosed amount, (v) for interest, fees and costs, and (vi) for such other relief as the District Court may deem appropriate. The Company believes that the complaint is without merit and intends to vigorously defend it. On December 17, 2001, the Company and the Plaintiffs stipulated to an open extension of time for the Company to respond to the complaint as the Company and the Plaintiffs were engaged in settlement discussions that included the possible sale of the Ready Mix, Inc. ("RMI") subsidiary. NRS 78.416(2) prohibits the Company from selling more than 5 percent or more of the aggregate market value of all its assets to an interested stockholder. Due to this restriction, the Company's board of directors concluded that the transaction would not be in the best interests of the Company or its shareholders. The Plaintiffs continue to threaten litigation (as an interested stockholder), against the Company's board attempting to pressure the Company to sell RMI or its assets. As of this filing, the extension of time to respond to the complaint remains 19 open and the Plaintiffs have not filed an amended complaint, but it appears that anything short of selling RMI and buying back the Plaintiff's stock will likely result in further legal action against the Company. Item 6. Exhibits and Reports on Form 8-K a. Exhibits: 10.187 Security Agreement with Key Equipment Finance, a Division of Key Corporate Capital Inc. b. Reports on Form 8-K: The Company filed a Form 8-K during the three months ended March 31, 2002. 20 SIGNATURE Pursuant to the requirements of the Securities and Exchange Act as of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MEADOW VALLEY CORPORATION (Registrant) By /s/ Bradley E. Larson ------------------------------------------- Bradley E. Larson President and Chief Executive Officer By /s/ Nicole R. Smith ------------------------------------------- Nicole R. Smith Principal Accounting Officer 21 EX-10.187 3 dex10187.txt SECURITY AGREEMENT WITH KEY EQUIPMENT EXHIBIT 10.187 C#:18009 L#:17204 Ls#:FLP0011391 [LOGO] Promissory Note ________________________________________________________________________________ $266,160.00 Funding Date:____________________/_____(Year) FOR VALUE RECEIVED, READY MIX, INC., a Nevada corporation ("Maker"), promises to pay to the order of Key Equipment Finance, a Division of Key Corporate Capital Inc., ("Holder"), the sum of $266,160.00 in lawful money of the United States of America (the "Principal"), with interest thereon as hereafter provided ("Interest"), to be paid in the manner set forth herein. This Note is executed pursuant to that certain security agreement (the "Security Agreement") dated as of April 15, 2002 between Maker and Holder. Capitalized terms used herein without definition shall have the meaning given them in the Security Agreement. 1. Interest Rate; Place of Payment. Interest on the balance of the Principal ------------------------------- outstanding on this Note shall accrue from the Funding Date of this Note and shall be due and payable at a fixed rate of nine percent (9.00%) per annum (the "Interest Rate"). Interest shall be calculated on the basis of a 360-day year consisting of twelve 30-day months. Payment of the Principal and Interest hereunder shall be made to Holder at 66 South Pearl Street, Post Office Box 1865, Albany, NY 12207-1865, or at such other place as Holder may designate from time to time in writing. Holder reserves the right to require payment on this Note to be made by wired federal funds or other immediately available funds. 2. Repayment Terms. The Principal and Interest shall be due and payable in --------------- twenty four (24) consecutive monthly installments payable in advance, each in an amount equal to $12,068.93 commencing and payable on the Funding Date and on the same day of each month thereafter. In addition, Maker will pay a late payment charge of five percent (5%) of any payment due hereunder that is not paid on or before the date due hereunder. 3. Security. Payment of the Principal and Interest hereunder, and the -------- performance and observance by Maker of all agreements, covenants and provisions contained herein, is secured by a first priority security interest in the Collateral. 4. Prepayment. Except as contemplated by clause (3) of section 10 of the ---------- Security Agreement, Maker may not prepay, in whole or in part, the principal outstanding hereunder; provided, however, that Maker may prepay, in whole but -------- ------- not in part, the principal outstanding hereunder by paying to Holder such outstanding principal, together with all accrued and unpaid interest thereon, plus a prepayment premium ("Prepayment Premium") equal to five percent (5%) of such outstanding principal. 5. Transfer or Assignment. Holder may at any time assign or otherwise transfer ---------------------- or negotiate this Note in whole or in part, without any notice to Maker. The rights and obligations of Maker may not be assigned or delegated. 6. Application of Payments. Prior to an Event of Default, each payment ----------------------- received on this Note shall be applied first to all costs of collection, then to unpaid late payment charges (if any) and Prepayment Premium (if any) hereunder, then to Interest as of the payment due date and the balance, if any, to the outstanding Principal as of the date received. Upon the occurrence, and during the continuance, of an Event of Default, any payments in respect of the Secured Obligations and any proceeds of the Collateral when received by Holder in cash or its equivalent, will be applied first to costs of collection and, thereafter, in reduction of the Secured Obligations in such order and manner as Holder may direct in its sole discretion, and Maker irrevocably waives the right to direct the application of such payments and proceeds and acknowledges and agrees that Holder shall have the continuing and exclusive right to apply any and all such payments and proceeds in the Holder's sole discretion, notwithstanding any entry to the contrary upon any of its books and records. 7. Events of Default. (a) Maker shall be in default if any of the following ----------------- happens (an "Event of Default"): (1) Maker fails to make any installment of the Principal or Interest, or any other payment due and owing, under this Note within ten (10) days after the same becomes due and payable; or (2) Maker fails to perform any other obligation required to be performed by Maker under this Note, the Security Agreement or any of the other Loan ________________________________________________________________________________ Page 1 of 3 Documents for thirty (30) days after written notice from Holder of such failure; or (3) any representation, warranty or other statement by or on behalf of Maker in connection with this Note is false or misleading in any material respect; or (4) an Event of Default has occurred and is continuing under the Security Agreement. (b) Notwithstanding anything to the contrary contained herein, upon the occurrence of an Event of Default, Holder may declare the entire outstanding balance of the Principal, together with all accrued and unpaid Interest thereon, immediately due and payable without notice or demand which amounts shall, together with all other sums due hereunder, accrue interest from such acceleration until the date of actual payment at the Default Rate (provided, however, that should there occur an Event of Default, and if a voluntary or involuntary petition under the United States Bankruptcy Code is filed by or against Maker while such default remains uncured, the entire outstanding balance of the Principal automatically shall be accelerated and due and payable with interest thereon at the Default Rate), and Holder may exercise any and all of its remedies hereunder, under the other Loan Documents and under Applicable Law. The remedies of Holder provided herein, in the Security Agreement and under Applicable Law shall be cumulative and concurrent and may be pursued singly, successively or concurrently at the sole discretion of Holder and may be exercised as often as occasion therefor shall occur. The failure to exercise, or any delay in the exercise of, any right or remedy shall in no event be construed as a waiver, release or exhaustion of any such remedies. 8. Collection Costs. In addition to the Principal, Interest, Prepayment ---------------- Premium (if any), and late payment charges (if any), Maker shall pay Holder on demand, and Holder shall be entitled to collect all costs and expenses of collection, including, without limitation, reasonable attorney's fees, incurred in connection with enforcement of its rights and remedies hereunder and under the other Loan Documents, the protection or realization or the Collateral or in connection with Holder's collection efforts, or in connection with any bankruptcy or other judicial proceeding, whether or not suit on this Note or any foreclosure proceeding is filed. All such costs and expenses shall be payable on demand and, until paid, shall be Secured Obligations secured by the security interest granted under the Security Agreement and all other collateral, if any, held by Holder as security for Maker's obligations under this Note. 9. Governing Law; Binding Agreement. The provisions of this Note shall be -------------------------------- binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns. THIS NOTE IS BEING DELIVERED IN THE STATE OF NEW YORK AND SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAWS PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. 10. More than One Signer. If more than one person or entity signs this Note as -------------------- a Maker, the obligations contained herein shall be deemed joint and several and all references to "Maker" shall apply both jointly and severally. 11. General. Maker represents and warrants that this Note evidences a loan for ------- business or commercial purposes. Prior to signing this Note, Maker read and understood the provisions hereof, and agrees to all terms and conditions contained herein. 12. Waiver. MAKER AND ALL ENDORSERS, SURETIES, AND GUARANTORS HEREOF HEREBY ------ JOINTLY AND SEVERALLY WAIVE PRESENTMENT FOR PAYMENT, DEMAND, NOTICE OF NON- PAYMENT OR DISHONOR, NOTICE OF INTENTION TO ACCELERATE THE MATURITY, NOTICE OF PROTEST AND PROTEST OF THIS NOTE, HOLDER AND MAKER HEREBY EACH WAIVE THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS NOTE, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION OR PROCEEDING TO WHICH HOLDER OR MAKER MAY BE PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE, INCLUDING WITHOUT LIMITATION ANY ACTION COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY, OF THIS NOTE OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER IS MADE KNOWINGLY, WILLINGLY AND VOLUNTARILY BY HOLDER AND THE MAKER WHO EACH ACKNOWLEDGE THAT NO REPRESENTATIONS HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL ________________________________________________________________________________ Page 2 of 3 BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE AND OTHER LOAN DOCUMENTS. 13. Usury; Partial Invalidity. (a) At no time shall the Interest Rate (or the ------------------------- Default Rate or other amounts paid or collected hereunder) exceed the highest rate allowed by applicable law for this type of loan. Should Holder ever collect interest at a rate that exceeds such applicable legal limit, such excess will be credited to the Principal. (b) Whenever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Note shall be prohibited by or invalid under the laws of any applicable jurisdiction, such provision, as to such jurisdiction, shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note in any other jurisdiction. 14. Notices. All notices and other communications under this Note shall be in ------- writing and shall be addressed: (a) if to Maker, 3430 E. FLAMINGO RD., SUITE 100, LAS VEGAS, NV 89121-5003; and (b) if to Holder, Key Equipment Finance, a Division of Key Corporate Capital Inc., 66 South Pearl Street, Post Office Box 1865, Albany, NY 12207-1865, Attention: Account Manager, or such other address as either party hereto shall communicate to the other party at its address specified above. All such notices and other communications shall be deemed to have been duly given if delivered by hand, overnight courier or if sent by centified mail, return receipt requested, to the party to whom such notice is intended to be given, and shall be effective upon receipt. 15. Funding Date. The Funding Date for this Note shall be the date on which ------------ Holder disburses funds hereunder. TO THE EXTENT THE FUNDING DATE IS LEFT BLANK ABOVE, OR DOES NOT REFLECT THE ACTUAL DATE THAT HOLDER DISBURSES FUNDS HEREUNDER, MAKER HEREBY AUTHORIZES HOLDER TO WRITE IN THE CORRECT DATE AT THE TIME OF DISBURSEMENT. IN WITNESS WHEREOF, Maker, intending to be legally bound, has caused this Note to be duly executed on the day and year first above written. MAKER: READY MIX, INC. X /s/ Kenneth D. Nelson --------------------- Name: KENNETH D. NELSON Title: VICE PRESIDENT STATE OF ARIZONA ) )ss.: COUNTY OF MARICOPA ) On this 3/RD/ (Day) day of May (Month), 2002 (Year), before me the subscriber personally appeared Kenneth D. Nelson, who being by me duly sworn, did depose and say; that (s)he resides at Maricopa County, State of Arizona: that (s)he is a Vice President of Ready Mix, Inc., the corporation described in and which excecuted the foregoing instrument; and that (s)he signed his/her name thereto by order of the Board of Directors of said corporation. /s/ Sujean E. Sherbon - --------------------- NOTARY PUBLIC My Commission Expires: [STAMP] June 30, 2003 ________________________________________________________________________________ Page 3 0f 3 C#:18009 L#:17204 Ls#:FLP0011391 [LOGO] Security Agreement - -------------------------------------------------------------------------------- THIS SECURITY AGREEMENT (this "Agreement" or "Security Agreement") dated as of April 15, 2002 is made by and between READY MIX, INC., a Nevada corporation having its chief executive office at 3430 E. FLAMINGO RD., SUITE 100, LAS VEGAS, NV 891215003 (the "Borrower"), and Key Equipment Finance, a Division of Key Corporate Capital Inc. and assigns, having an office at 66 South Pearl Street, Post Office Box 1865, Albany, NY 12207-1865 ("KEF"). W I T N E S S E T H: - - - - - - - - - - 1. Grant of Security Interest in the Equipment. In consideration of one or ------------------------------------------- more loans, advances or other financial accommodations at any time before, at or after the date hereof, made or extended by KEF to or for the account of the Borrower, directly or indirectly, as principal, guarantor or otherwise and to secure the prompt payment and performance in full when due, whether by lapse of time, acceleration or otherwise, of the Secured Obligations, the Borrower hereby pledges, assigns, transfers hypothecates to KEF and grants to KEF a security interest in, and acknowledges and agrees that this Agreement shall create a continuing security interest in, all of Borrower's right, title and interest in and to the Collateral. The Secured Obligations of the Borrower are absolute, irrevocable and unconditional under any and all circumstances whatsoever and shall not be subject to any right of set-off, counterclaim, deduction, defense or other right which the Borrower may have for any reason against any vendor, supplier, manufacturer, KEF or any other party. All obligations of Borrower hereunder shall survive the expiration, cancellation or other termination of this Agreement. 2. Definitions. Unless the context otherwise requires, as used in this ----------- Agreement, the following terms shall have the respective meanings indicated below and shall be equally applicable to both the singular and the plural forms thereof: "Alteration" shall have the meaning specified in Section 6 hereof. ---------- "Applicable Law" shall mean all applicable Federal, state, local and foreign -------------- laws, ordinances, judgments, decrees, injunctions, writs, rules, regulations, orders, licenses and permits of any Governmental Authority. "Authorized Signer" shall mean any officer of Borrower, set forth on an ----------------- incumbency certificate (in form and substance satisfactory to KEF) delivered by Borrower to KEF, who is authorized and empowered to execute the Loan Documents. "Certificate of Acceptance" shall mean a certificate of acceptance, in form and ------------------------- substance satisfactory to KEF, executed and delivered by Borrower in accordance with Section 3 hereof. "Collateral" shall mean the Equipment and any and all substitutions, ----------- replacements or exchanges therefor, and any and all proceeds (both cash and non- cash) receivable or received from the sale, lease, license, collection, use, exchange or other disposition of the Collateral, including insurance proceeds, thereof (including, without limitation, claims of the Borrower against third parties for Loss or Damage to any such collateral). "Collateral Schedule" shall mean each collateral schedule now or hereafter ------------------- attached hereto and made a part hereof, in substantially the form of Schedule 1 hereto. "Default" shall mean any event or condition which, with the passage of time or ------- the giving of notice, or both, would constitute an Event of Default. "Default Rate" shall mean an annual interest rate equal to the lesser of 18% or ------------ the maximum interest rate permitted by Applicable Law. "Equipment" shall mean an item or items of personal property which are described --------- on the Collateral Schedule, together with all replacement parts, additions and accessories incorporated therein or affixed thereto including. ________________________________________________________________________________ without limitation, any software that is a component or integral part of, or is included or used in connection with, any Item of Equipment, but with respect to such software, only to the extent of Borrower's interest therein, if any. "Equipment Location" shall mean the location of the Equipment, as set forth on ------------------ Schedule 1, or such other location (approved in writing by KEF) as Borrower shall from time to time specify in writing. "Event of Default" shall have the meaning specified in Section 16 hereof. ---------------- "GAAP" shall have the meaning specified in Section 22(g) hereof. ---- "Governmental Action" shall mean all authorizations, consents, approvals, ------------------- waivers, filings and declarations of any Governmental Authority, including, without limitation, those environmental and operating permits required for the ownership, lease, use and operation of the Equipment. "Governmental Authority" shall mean any foreign, Federal, state, county, ---------------------- municipal or other governmental authority, agency, board or court. "Guarantor" shall mean any guarantor of the Secured Obligations. --------- "Installment(s)" shall mean the periodic payments due to repay the Note, and, ------------- where the context hereof requires, all such additional amounts as may from time to time be payable under any provision of the Loan Documents. "Item of Equipment" shall mean each item of the Equipment. ----------------- "Liability" shall have the meaning set forth in Section 18 hereof. --------- "Loan Documents" shall mean, collectively, this Agreement, the Note, and all -------------- other documents prepared by KEF and now or hereafter executed in connection therewith. "Lien" shall mean all mortgages, pledges, security interests, liens, ---- encumbrances, claims or other charges of any kind whatsoever, except the security interest of KEF created by this Agreement. "Loss or Damage" shall mean any loss, theft, destruction, disappearance or any -------------- condemnation, expropriation or requisition of or damage to any Item of Equipment. "Note" shall mean that certain Promissory Note in the original principal amount ---- of $266,160.00 executed in connection herewith, together with any extensions, modifications, renewals, refinancings or other restructurings thereof. "Secured Obligations" means all of the following obligations of Borrower, ------------------- whether direct or indirect, absolute or contingent, matured or unmatured, originally contracted with KEF or another party, and now or hereafter owing to or acquired in any manner partially or totally by KEF or in which KEF may have acquired a participation, contracted by Borrower alone or jointly or severally: (a) any and all indebtedness, obligations, liabilities, contracts, indentures, agreements, warranties, covenants, guaranties, representations, provisions, terms, and conditions of whatever kind, now existing or hereafter arising, and however evidenced, that are now or hereafter owed, incurred or executed by Borrower to, in favor of, or with KEF (including, without limitation, those as are set forth or contained in, referred to, evidenced by, or executed with reference to the Loan Documents, any letter of credit agreements, advance agreements, indemnity agreements, guaranties, lines of credit, mortgage deeds, security agreements, assignments, pledge agreements, hypothecation agreements, instruments, and acceptance financing agreements), and including any partial or total extension, restatement, renewal, amendment, and substitution thereof or therefor; (b) any and all claims of whatever kind of KEF against Borrower, now existing or hereafter arising, including, without limitation, any arising out of or in any way connected with warranties made by Borrower to KEF in connection with any instrument purchased by KEF; and (c) any and all of KEF's fees, costs and expenses related to the foregoing. "Supplier" shall mean the manufacturer or the vendor of the Equipment, as set -------- forth on each Collateral Schedule. "Term" shall mean the term of the Note. ---- "UCC" shall have the meaning set forth in Section 16(b)(2) hereof. Where --- applicable and except as otherwise defined herein, terms used in this Agreement shall have the meaning assigned to them in the UCC. "Upgrade" shall have the meaning specified in Section 8 hereof. ------- 3. Delivery and Acceptance. Concurrently with execution of the Collateral ----------------------- Schedule hereunder, Borrower shall execute and deliver to KEF a Certificate of Acceptance for the Equipment described on such Collateral Schedule. KEF SHALL HAVE NO OBLIGATION TO ADVANCE ANY FUNDS TO BORROWER UNLESS AND UNTIL KEF SHALL HAVE RECEIVED A CERTIFICATE OF ACCEPTANCE RELATING TO THE EQUIPMENT EXECUTED BY BORROWER. Such Certificate of Acceptance shall constitute Borrower's acknowledgment that such Equipment (a) was received by Borrower, (b) is satisfactory to Borrower in all respects, ________________________________________________________________________________ Page 2 of 12 (c) is suitable for Borrower's purposes, (d) is in good order, repair and condition, (e) has been installed and operates properly, and (f) is subject to all of the terms and conditions of the Loan Documents. Borrower's execution and delivery of a Certificate of Acceptance shall be conclusive evidence as between KEF and Borrower that the Items of Equipment described therein are in all of the foregoing respects satisfactory to Borrower, and Borrower shall not assert any claim of any nature whatsoever against KEF based on any of the foregoing matters; provided, however, that nothing contained herein shall in any way bar, --------- ------- reduce or defeat any claim that Borrower may have against the Supplier or any other person (other than KEF). 4. Payments. Borrower shall pay the Note on the terms set forth therein. All -------- Installments shall be payable when due whether or not Borrower has received any additional notice that such Installments are due. All Installments shall be paid to KEF at 66 South Pearl Street, Post Office Box 1865, Albany, NY 12207-1865, or as otherwise directed by KEF in writing. 5. Location; Inspection; Labels. The Equipment shall be delivered to the ---------------------------- Equipment Location and shall not be removed therefrom without KEF's prior written consent. Borrower shall maintain possession and control of the Equipment at all times. Borrower will promptly give written notice to KEF of any change in the identity or location of any Item of Equipment which might require new filings or other action to assure continued perfection of the security interest of KEF granted hereby. The Borrower owns, and will continue to own, all Equipment Locations except as otherwise indicated on Schedule 1. KEF shall have the right to enter upon the Equipment Location and inspect the Equipment at any reasonable time. 6. Use; Alterations. Borrower shall use the Equipment only in the course of ---------------- its business commercial purposes (and shall not permanently discontinue use of the Equipment), and in compliance with Applicable Law and the requirements of any applicable insurance policies, and only in the manner for which it was designed and intended and so as to subject it only to ordinary wear and tear. Borrower shall comply with all Applicable Law with respect to the Equipment. Borrower shall immediately notify KEF in writing of any existing or threatened investigation, claim or action by any Governmental Authority in connection with any Applicable Law or Governmental Action which could adversely affect the value of the Equipment or the perfection or priority of the security interest of KEF in the Collateral. Borrower shall not make any material alterations, additions, modifications or improvements (each, an "Alteration") to the Equipment without KEF's prior written consent; provided that Borrower, at its own expense, shall make Alterations as may be required from time to time to meet the requirements of Applicable Law or Governmental Action. All such Alterations immediately, and without further act, shall be deemed to constitute Items of Equipment and fully be subject to the security interest granted to KEF hereunder. 7. Repairs and Maintenance. Borrower, at Borrower's own cost and expense, ----------------------- shall (a) keep the Equipment in good repair, operating condition and working order and in compliance with the manufacturer's specifications and Borrower's standard practices (but with respect to the latter, in no event less than industry practices). An alternate source of maintenance may be used by Borrower with KEF's prior written consent. Borrower, at its own cost and expense and within a reasonable period of time, shall replace any part of any Item of Equipment that is unfit or unavailable for use from any cause (whether or not such replacement is covered by the aforesaid maintenance agreement) with a replacement part of the same manufacture, value, remaining useful life and utility as the replaced part immediately preceding the replacement (assuming that such replaced part was in the condition required by this Agreement). Such replacement part shall be free and clear of all Liens and upon installation, attachment or incorporation in, on or into such Item of Equipment, such replacement part immediately, and without further act, shall be deemed to constitute an Item of Equipment and fully be subject to the security interest granted to KEF hereunder. If KEF repossesses the Equipment pursuant to its rights under this Agreement and at that time, in the opinion of KEF, any Item of Equipment fails to meet the standards set forth above, Borrower agrees to pay on demand all costs and expenses incurred in connection with repairing or restoring such Item of Equipment so as to meet such standards and/or assembling and delivering such Item of Equipment. ________________________________________________________________________________ Page 3 of 12 8. Equipment Upgrades/Attachments. In addition to the requirements of Section ------------------------------ ------- 6 hereof, Borrower, at its own expense, may from time to time add or install - - upgrades or attachments (each, an "Upgrade") to the Equipment; provided, that -------- such Upgrades are readily removable without causing material damage to the Equipment, and do not materially adversely affect the fair market value of the Equipment. Any such Upgrades shall be owned by Borrower, shall become subject to the security interest created by this Agreement and shall be kept free and clear of all Liens so long as attached to the Equipment. 9. Lease and Assignment. (a) WITHOUT KEF'S PRIOR WRITTEN CONSENT, BORROWER -------------------- SHALL NOT (1) ASSIGN, TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF, THE EQUIPMENT OR ANY INTEREST THEREIN, OR ASSIGN OR DELEGATE ITS RIGHTS OR OBLIGATIONS UNDER THE LOAN DOCUMENTS, OR (2) LEASE OR LEND THE EQUIPMENT TO, OR PERMIT THE EQUIPMENT TO BE USED BY, ANYONE OTHER THAN BORROWER. (b) KEF, at any time with or without notice to Borrower, may sell, transfer, grant participations in, assign and/or grant a security interest in any or all of KEF's right, title and interest in and to the Loan Documents, or in KEF's security interest in any Item of Equipment. In any such event, any such purchaser, transferee, assignee or secured party shall have and may exercise all of KEF's rights hereunder or thereunder, and BORROWER SHALL NOT ASSERT AGAINST ANY SUCH PURCHASER, TRANSFEREE, ASSIGNEE OR SECURED PARTY ANY DEFENSE, COUNTERCLAIM OR OFFSET THAT BORROWER MAY HAVE AGAINST KEF. Borrower agrees that upon written notice to Borrower of any such sale, transfer, assignment and/or security interest, Borrower shall acknowledge receipt thereof in writing and shall comply with the reasonable directions and demands of such purchaser, transferee, assignee or secured party. (c) Subject to the foregoing, all covenants and agreements contained herein shall be binding upon, and inure to the benefit of, KEF and its successors and permitted assigns and Borrower and its successors and permitted assigns. 10. Loss of or Damage to Equipment. (a) In the event of Loss or Damage to any ------------------------------ Item of Equipment, Borrower shall immediately notify KEF of same and, at the option of KEF, as specified in a notice from KEF to Borrower, Borrower shall within thirty (30) days following such Loss or Damage: (1) place such Item of Equipment in good condition and repair, in accordance with the terms hereof; (2) replace such Item of Equipment with replacement equipment (acceptable to KEF) in as good condition and repair, and with the same or better fair market value as such replaced Item of Equipment immediately preceding the Loss or Damage (assuming that such replaced Item of Equipment was in the condition required by this Agreement), which replacement equipment shall immediately, and without further act, be deemed to constitute Items of Equipment and be fully subject to this Agreement and the security interest granted to KEF as if originally pledged as Collateral hereunder and shall be free and clear of all Liens; or (3) pay to KEF any unpaid Installments and other charges due prior to the payment date specified in such notice plus an amount, with respect to an Item of Equipment, equal to the pro rata portion of the Installments attributable to such Item of Equipment under the Loan Documents after discounting such Installments to present worth as of the payment date specified in such notice on the basis of a per annum rate of discount equal to three percent (3%) from the respective dates upon which such Installments would have been paid but for the operation of this clause, together with interest on such amount at the Default Rate from the payment date specified in such notice to the date of actual payment. (b) Upon KEF's receipt of the payment required under clause (3) above, KEF shall release its security interest in such Item of Equipment. If Borrower fails to either restore or replace the Item of Equipment pursuant to clauses (1) or (2) above, respectively, Borrower shall make the payment under clause (3) above. 11. Insurance. (a) Borrower, at Borrower's own cost and expense, shall maintain --------- (1) insurance against all risks of physical loss or damage to the Equipment (which shall include theft and collision for Equipment consisting of motor vehicles, and shall not exclude loss resulting from flood or earthquake) in an amount not less than the full replacement value thereof and (2) comprehensive public liability insurance including blanket contractual liability for personal and bodily injury and property damage in an amount satisfactory to KEF. ________________________________________________________________________________ Page 4 of 12 (b) All insurance policies required hereunder shall (1) require 30 days' prior written notice to KEF of cancellation or material change in coverage (any such cancellation or change, as applicable, not being effective until the thirtieth (30th) day after the giving of such notice); (2) name "KeyCorp and its subsidiaries and affiliated companies, including Key Equipment Finance, a Division of Key Corporate Capital Inc., their successors and assigns" as sole loss payee under the property insurance policies; (3) not require contributions from other policies held by KEF; (4) waive any right of subrogation against KEF; (5) in respect of any liability of KEF; except for the insurers' salvage rights in the event of a Loss or Damage, waive the right of such insurers to set-off, to counterclaim or to any other deduction, whether by attachment or otherwise, to the extent of any monies due KEF under such policies; (6) not require that KEF pay or be liable for any premiums with respect to such insurance covered thereby; (7) be in full force and effect throughout any geographical areas at any time traversed by any Item of Equipment; and (8) contain breach of warranty provisions providing that, in respect of the interests of KEF in such policies, the insurance shall not be invalidated by any action or inaction of Borrower or any other person (other than KEF) and shall insure KEF regardless of any breach or violation of any warranty, declaration or condition contained in such policies by Borrower or by any other person (other than KEF). Prior to funding the Note, and thereafter not less than 15 days prior to the expiration dates of the expiring policies theretofore delivered pursuant to this Section, Borrower shall deliver to KEF a duplicate original of all policies (or in the case of blanket policies, certificates thereof issued by the insurers thereunder) for the insurance maintained pursuant to this Section. (c) Proceeds of insurance with respect to physical loss or damage to the Equipment shall be applied, at the option of KEF, to repair or replace the Equipment or to reduce or satisfy (as applicable) the Secured Obligations. 12. Taxes. Borrower shall pay when due any and all taxes, fees, levies, ----- imposts, duties, assessments and public and private charges levied or assessed on or with respect to the Equipment, on the use thereof, or on this Agreement or any of the other Loan Documents. 13. KEF's Right to Perform for Borrower. I Borrower fails to perform any of ----------------------------------- its obligations contained in the Loan Documents, KEF may (but shall not be obligated to) itself perform such obligations, and the amount of the reasonable costs and expenses of KEF incurred in connection with such performance, together with interest on such amount from the date paid by KEF until the date repaid by Borrower to KEF, at the Default Rate, shall be payable by Borrower to KEF upon demand. No such performance KEF shall be deemed a waiver of any rights or remedies of KEF, or be deemed to cure the default of Borrower hereunder. All such sums and amounts so expended by KEF shall be repayable by the Borrower immediately without notice or demand, shall constitute additional Secured Obligations and shall bear interest from the date said amounts are expended at the Default Rate. 14. Delinquent Payments; Interest. If Borrower fails to pay any of the ----------------------------- Installments on the date when the same becomes due, Borrower shall pay to KEF a late charge equal to five percent (5%) of such delinquent amount. Such late charge shall be payable by Borrower upon demand by KEF and shall be deemed part of the Secured Obligations. In no event shall such late charge exceed the maximum amounts permitted under Applicable Law. 15. Personal Property; Liens; Warranty of Title. The Borrower is, and will ------------------------------------------- continue to be, the sole owner of the Equipment, free from any Lien. KEF and Borrower hereby agree that the Equipment is, and shall at all times remain, personal property notwithstanding the fact that any Item of Equipment may now be, or hereafter become, in any manner affixed or attached to real property or any improvements thereon. Borrower shall at all times keep the Equipment free and clear from all Liens, and the Borrower shall obtain and deliver to KEF (to be recorded at the Borrower's expense) from each person having a Lien on any Equipment Location waivers of any Lien which such person might have or hereafter obtain or claim with respect to the Equipment. Borrower shall (a) give KEF immediate written notice of any Lien on the Collateral, (b) promptly, at Borrower's sole cost and expense, take such action as may be necessary to discharge any such Lien, and (c) indemnify and hold KEF, on an after-tax ________________________________________________________________________________ Page 5 of 12 basis, harmless from and against any loss or damage caused by any such Lien. Borrower warrants that it has good, valid and marketable title to the Equipment, and that (1) the security interest in the Collateral granted to KEF hereunder, when properly perfected by filing, shall constitute a valid and perfected first priority security interest in the Collateral and, (2) the Collateral is not subject to, and Borrower will not grant or permit to exist, any Liens or claims on or against the Collateral, whether senior, superior, junior, subordinate or equal to the security interest granted to KEF hereby, or otherwise. 16. Events of Default; Remedies. (a) As used herein, the term "Event of --------------------------- Default" shall mean any of the following events: (1) Borrower fails to pay any Installment within ten (10) days after the same shall have become due and payable; (2) Borrower or any Guarantor becomes insolvent or makes an assignment for the benefit of its creditors; (3) a receiver, trustee, conservator or liquidator of Borrower or any Guarantor or of all or a substantial part of Borrower's of such Guarantor's assets is appointed with or without the application or consent of Borrower or such Guarantor, respectively; (4) a petition is filed by or against Borrower or any Guarantor under any bankruptcy, insolvency or similar legislation; (5) Borrower or any Guarantor violates or fails to perform any provision of either the Loan Documents or any other loan, lease or credit agreement or any acquisition or purchase agreement with KEF or any other party; (6) Borrower violates or fails to perform any covenant or representation made by Borrower in the Loan Documents; (7) any representation or warranty made herein or in any of the Loan Documents, certificates, financial statements or other statements furnished to KEF (or KEF's parent, subsidiaries or affiliates) shall prove to be false or misleading in any material respect as of the date on which the same was made; (8) Borrower makes a bulk transfer of furniture, fixtures or other equipment or inventory; (9) there is a material adverse change in Borrower's or any Guarantor's financial condition; (10) Borrower merges or consolidates with any other corporation or entity, or sells, leases or disposes of all or substantially all of its assets without the prior written consent of KEF; (11) a change in control occurs in Borrower or any Guarantor; (12) the death or dissolution of Borrower or any Guarantor; (13) any of the liens created or granted hereby, or intended to be granted or created hereby, to KEF shall fail to be valid, first priority perfected liens subject to no prior or equal lien; or (14) an additional Lien attaches to the Equipment or the Equipment becomes subject to risk of seizure or forfeiture. (b) (1) Upon the occurrence of an Event of Default, KEF, at its option, may declare any or all of the Secured Obligations, including, without limitation, the Note, to be immediately due and payable, without demand or notice to Borrower or any Guarantor. The obligations and liabilities accelerated thereby shall bear interest (both before and after any judgment) until paid in full at the Default Rate. Should there occur a Default and if a voluntary or involuntary petition under the United States Bankruptcy Code is filed by or against Borrower while such Default remains uncured, the Secured Obligations automatically shall be accelerated and due and payable and interest thereon at the Default Rate automatically shall apply as of the date of the first occurrence of the Default, without any notice, demand or action of any type on the part of KEF (including any action evidencing the acceleration or imposition of the Default Rate). The fact that KEF has, prior to the filing of the voluntary or involuntary petition under the United States Bankruptcy Code, acted in a manner which is inconsistent with the acceleration and imposition of the Default Rate shall not constitute a waiver of this provision or estop KEF from asserting or enforcing KEF's rights hereunder. (2) Furthermore, upon the occurrence of an Event of Default, KEF shall have, in addition to the rights and remedies provided herein, in the other Loan Documents or by law, the rights and remedies of a secured party under the Uniform Commercial Code under the laws of the State of New York (the "UCC") (regardless of whether the UCC is the law of the jurisdiction where the rights and remedies are asserted and regardless of whether the UCC applies to the affected Collateral), and further KEF may do any one or more of the following as KEF in its sole discretion may elect, with or without judicial process or the aid and assistance of others; (a) enter and remain on any premises on which any of the Equipment may be located and, without resistance or interference by the Borrower, without liability to KEF by reason of such entry or taking possession, take possession of the Equipment, (b) prepare for sale and sell or otherwise dispose of any Equipment on any such premises, (c) require the Borrower to assemble and make available to KEF at Borrower's expense any Equipment at any place and time designated by KEF, (d) remove any Equipment from any such premises for the ________________________________________________________________________________ Page 6 of 12 purpose of effecting sale or other disposition thereof, (e) without demand and without advertisement, notice, hearing or process of law, all of which the Borrower hereby waives, at any place and time or times, sell and deliver any or all Equipment held by or for it at public or private sale, by one or more contracts, in one or more parcels, for cash, upon credit or otherwise, at such prices and upon such terms as KEF deems advisable, in its sole discretion, or (f) lease all or any portion of the Equipment on such terms and conditions as KEF in its sole discretion may determine. In addition to all other sums due KEF hereunder, the Borrower shall pay KEF all reasonable costs and expenses incurred by KEF, including reasonable attorneys' fees and court costs, in obtaining or liquidating the Collateral, in enforcing payment of Secured Obligations, or in the prosecution or defense of any action or proceeding by or against KEF or the Borrower concerning any matter arising out of or connected with the Loan Documents, the Collateral or the Secured Obligations, including without limitation any of the foregoing arising in, arising under or related to a case under the United States Bankruptcy Code. (3) Borrower's waivers regarding disposition of the equipment. IF AN EVENT OF DEFAULT OCCURS, BORROWER HEREBY WAIVES ANY DEFENSES, RIGHTS, OFFSETS OR CLAIMS AGAINST KEF ARISING OUT OF THE REPOSSESSION, RETENTION, SALE, MANNER OR METHOD OF SALE OR DISPOSITION OF ANY ITEMS OF EQUIPMENT. THE BORROWER AGREES THAT ANY REQUIREMENT OF REASONABLE NOTICE SHALL BE MET IF SUCH NOTICE IS PERSONALLY SERVED ON OR MAILED, POSTAGE PREPAID, TO THE BORROWER IN ACCORDANCE WITH THE NOTICE PROVISIONS HEREOF AT LEAST 10 DAYS BEFORE THE TIME OF SALE OR OTHER EVENT GIVING RISE TO THE REQUIREMENT OF SUCH NOTICE, KEF SHALL NOT BE OBLIGATED TO MAKE ANY SALE OR OTHER DISPOSITION OF THE EQUIPMENT REGARDLESS OF NOTICE HAVING BEEN GIVEN. KEF MAY BE THE PURCHASER AT ANY SUCH SALE. THE BORROWER HEREBY WAIVES ALL OF ITS RIGHTS OF REDEMPTION FROM ANY SUCH SALE. KEF MAY POSTPONE OR CAUSE THE POSTPONEMENT OF THE SALE OF ALL OR ANY PORTION OF THE EQUIPMENT BY ANNOUNCEMENT AT THE TIME AND PLACE OF SUCH SALE, AND SUCH SALE MAY, WITHOUT FURTHER NOTICE, BE MADE AT THE TIME AND PLACE TO WHICH THE SALE WAS SCHEDULED. NONE OF KEF'S RIGHTS OR REMEDIES HEREUNDER ARE INTENDED TO BE EXCLUSIVE OF, BUT EACH SHALL BE CUMULATIVE AND IN ADDITION TO, ANY OTHER RIGHT OR REMEDY REFERRED TO HEREUNDER OR OTHERWISE AVAILABLE TO KEF OR ITS ASSIGNS AT LAW OR IN EQUITY, AND MAY BE PURSUED SINGLY, SUCCESSIVELY OR CONCURRENTLY AT THE SOLE DISCRETION OF LENDER AND MAY BE EXERCISED AS OFTEN AS OCCASION THEREFOR SHALL OCCUR. THE FAILURE TO EXERCISE, OR ANY DELAY IN THE EXERCISE OF, ANY RIGHT OR REMEDY SHALL IN NO EVENT BE CONSTRUED AS A WAIVER, RELEASE OR EXHAUSTION OF ANY SUCH REMEDIES. NO EXPRESS OR IMPLIED WAIVER BY KEF OR ANY EVENT OF DEFAULT SHALL CONSTITUTE A WAIVER OF ANY OTHER EVENT OF DEFAULT OR A WAIVER OF ANY OF KEF'S RIGHTS UPON THE REOCCURRENCE OF ANY SUCH EVENT OF DEFAULT. (c) The Borrower hereby authorizes KEF, upon the occurrence and during the continuation of any Event of Default hereunder, at KEF's option to adjust, compromise and settle any losses under any insurance afforded, and the Borrower does hereby irrevocably constitute KEF and each of its designees, as its attorneys-in-fact, with full power and authority, upon the occurrence and during the continuation of any Event of Default hereunder, to effect such adjustment, compromise and/or settlement and to endorse any drafts drawn by an insurer of the Equipment or any part thereof and to do everything necessary to carry out such purposes and to receive and receipt for any unearned premiums due under policies of such insurance; but unless or until KEF elects to adjust, compromise or settle losses as aforesaid, such insurance proceeds shall be subject to the lien and security interest of KEF hereunder. (d) Upon the occurrence, and during the continuance, of an Event of Default hereunder, any payments in respect of the Secured Obligations and any proceeds of the Collateral, when received by KEF in cash or its equivalent, will be applied first to costs of collection and, thereafter, in reduction of the Secured Obligations in such order and manner as KEF may direct in its sole discretion, and the Borrower irrevocably waives the right to direct the application of such payments and proceeds and acknowledges and agrees that KEF shall have the continuing and exclusive right to apply any and all such payments and proceeds in KEF's sole discretion, ________________________________________________________________________________ Page 7 of 12 notwithstanding any entry to the contrary upon any of its books and records. The Borrower shall remain liable to KEF for any deficiency. Any surplus remaining after the full payment and satisfaction of the Secured Obligations shall be returned to the Borrower or to whomsoever a court of competent jurisdiction shall determine to be entitled thereto. (e) To the extent that any of the Secured Obligations are now or hereafter secured by property other than the Collateral, or by a guarantee, endorsement or property of any other person, then KEF also shall have the right to proceed against such other property, guarantee or endorsement upon the occurrence of a default hereunder, and KEF shall have the right, in its sole discretion, to determine which rights, liens, security interests or remedies KEF shall at any time pursue, relinquish, subordinate or modify, without in any way affecting the Secured Obligations or any of KEF's rights under this agreement. 17. Notices. All notices and other communications hereunder shall be in writing ------- and shall be transmitted by hand, overnight courier or certified mail (return receipt requested), postage prepaid. Such notices and other communications shall be addressed to the respective party at the address set forth above or at such other address as any party may from time to time designate by notice duly given in accordance with this Section. Such notices and other communications shall be effective upon the earlier of receipt or three (3) days after mailing if mailed in accordance with the terms of this section. 18. General Indemnification. Borrower shall pay, and shall indemnify and hold ----------------------- KEF and its directors, officers, employees, counsel, agents and advisors harmless on an after-tax basis from and against, any and all liabilities, causes of action, claims, suits, penalties, damages, losses, costs or expenses (including attorneys' fees), obligations, liabilities, demands and judgments, and Liens, of any nature whatsoever (collectively, a "Liability") arising out of or in any way related to: (a) the Loan Documents, (b) a failure to comply fully with Applicable Law and (c) Borrower's failure to perform any covenant, or breach of any representation or warranty under the Loan Documents; provided, -------- that the foregoing indemnity shall not extend to the Liabilities to the extent resulting solely from the gross negligence or willful misconduct of KEF. Borrower shall promptly deliver to KEF copies of any documents received from the United States Environmental Protection Agency or to any state, county or municipal environmental or health agency concerning the Equipment or its operation and copies of any documents submitted by Borrower or any of its subsidiaries to the United States Environmental Protection Agency or any state, county or municipal environmental or health agency concerning the Equipment or its operation. Borrower further agrees to indemnify KEF against and hold it harmless from all present and future stamp, transfer, documentary and other such taxes, levies, fees, assessments or other charges made by any jurisdiction by reason of the execution, delivery, performance and enforcement of the Loan Documents. 19. Severability; Captions. Whenever possible, each provision of this Agreement ---------------------- shall be interpreted in such manner as to be effective and valid under Applicable Law. If, however, any provision of this Agreement or any of the Loan Documents shall be prohibited or unenforceable in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform to the minimum requirements of such law, or if for any reason it is not deemed so modified, it shall be ineffective only to the extent of such prohibition or unenforceability without affecting the remaining provisions hereof, and any such prohibition or unenforceability shall not invalidate or render unenforceable such provision in any other jurisdiction. Captions are intended for convenience or reference only, and shall not be construed to define, limit or describe the scope or intent of any provisions hereof. 20. Financial and Other Data. During the Term hereof, Borrower shall furnish ------------------------ KEF (a) as soon as available, and in any event within 120 days after the last day of each fiscal year, financial statements of Borrower and each Guarantor and (b) from time to time as KEF may reasonably request, other financial reports, information or data (including federal and state income tax returns) and quarterly or interim financial statements of Borrower and each Guarantor. All such information shall be audited (or if audited information is not available, compiled or reviewed) by an independent certified public accountant. 21. [RESERVED] ________________________________________________________________________________ Page 8 of 12 22. Representations and Warranties of Borrower. Borrower represents and warrants ------------------------------------------ that: (a) Borrower is a corporation duly organized and validly existing in good standing under the laws of the state of its corporation; (b) the execution, delivery and performance of this Agreement and all related instruments and documents: (1) have been duly authorized by all necessary corporate action on the part of Borrower, (2) do not require the approval of any stockholder, partner, trustee, or holder of any obligations of Borrower except such as have been duly obtained, and (3) do not and will not contravene any law, governmental rule, regulation or order now binding on Borrower, or the charter or by-laws of Borrower, or contravene the provisions of, or constitute a default under, or result in the creation of any lien or encumbrance upon the property of Borrower under, any indenture, mortgage, contract or other agreement to which Borrower is a party or by which it or its property is bound; (c) the Loan Documents, when entered into, will constitute legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with the terms thereof; (d) there are no pending actions or proceedings to which Borrower is a party, and there are no other pending or threatened actions or proceedings of which Borrower has knowledge, before any court, arbitrator or administrative agency, which, either individually or in the aggregate, would adversely affect the financial condition of Borrower, or the ability of Borrower to perform its obligations under the Loan Documents; (e) Borrower is not in default under any obligation for the payment of borrowed money, for the deferred purchase price of property or for the payment of any installments under any lease agreement which, either individually or in the aggregate, would have the same such effect; (f) under the laws of the state(s) in which the Equipment is to be located, the Equipment consists solely of personal property and not fixtures; (g) the financial statements of Borrower (copies of which have been furnished to KEF) have been prepared in accordance with generally accepted accounting principles consistently applied ("GAAP"), and fairly present Borrower's financial condition and the results of its operations as of the date of and for the period covered by such statements, and since the date of such statements there has been no material adverse change in such conditions or operations; (h) the address stated above is the chief place of business and chief executive office, or in the case of individuals, the primary residence, of Borrower; (i) Borrower does not conduct business under a trade, assumed or fictitious name, except as set forth in Schedule 1; (j) this Agreement creates a valid first priority security interest in the Collateral securing payment and performance of the Secured Obligations and all filings and other action necessary to perfect such security interest have been taken or shall be promptly taken; (k) Borrower has filed or has caused to have been filed all Federal, state and local tax returns which, to the knowledge of Borrower, are required to be filed, and has paid or caused to have been paid all taxes as shown on such returns or on any assessment received by it, to the extent that such taxes have become due, unless and to the extent only that such taxes, assessments and governmental charges are currently contested in good faith and by appropriate proceedings by Borrower and adequate reserves therefor have been established as required under GAAP and, to the extent Borrower believes it advisable to do so, Borrower has set up reserves which are believed by Borrower to be adequate for the payment of additional taxes for years which have not been audited by the respective tax authorities; (l) except as previously disclosed in writing to KEF, neither Borrower nor any of its officers or directors (if a corporation), partners (if a partnership) or members or managers (if a limited liability corporation) has, directly or indirectly, any financial interest in the Supplier; and (m) Borrower is not in violation of any Applicable Law, the violation of which would have a material adverse effect on the conduct of its business, and Borrower has obtained any and all licenses, permits, franchises or other governmental authorizations necessary for the ownership of its properties and the conduct of its business; and (n) none of the proceeds of the loan made by KEF will be used, directly or indirectly, by Borrower for the purpose of purchasing or carrying, or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any "margin stock" within the meaning of Regulation U (12 CFR Part 221), of the Board of Governors of the Federal Reserve System (herein called "margin stock") or for any other purpose which might make the transactions contemplated herein a "purpose credit" within the meaning of Regulation U, or cause this Agreement to violate any other regulation of the Board of Governors of the Federal Reserve System or the Securities Exchange Act of 1934 or the Small Business Investment Act of 1958, as amended, or any rules or regulations promulgated under any of such statutes. 23. Further Covenants of Borrower. The Borrower further covenants and agrees ----------------------------- that it will not change its legal name, be a party to a merger, consolidation or other change in structure or use a trade name in its business ________________________________________________________________________________ Page 9 of 12 without at least 30 days' prior written notice to KEF; and shall execute and deliver to KEF (to be filed at Borrower's expense) all UCC statements as may be required by KEF in connection with such event. 24. Miscellaneous. Time is of the essence with respect to this Agreement. ANY ------------- FAILURE OF KEF TO REQUIRE STRICT PERFORMANCE BY BORROWER OR ANY WAIVER BY KEF OF ANY PROVISION HEREIN SHALL NOT BE CONSTRUED AS A CONSENT OR WAIVER OF ANY PROVISION OF THIS AGREEMENT. None of the Loan Documents may be amended except by a writing signed by KEF and Borrower. This Agreement will be binding upon KEF only if executed by a duly authorized officer or representative of KEF at KEF's principal place of business as set forth above. This Agreement and all other Loan Documents shall be executed on Borrower's behalf by Authorized Signers of Borrower. The Borrower hereby waives presentment, notice of dishonor and protest of all instruments included in or evidencing any Secured Obligations, and all other notices and demands whatsoever (except as expressly provided herein). THIS AGREEMENT IS BEING DELIVERED IN THE STATE OF NEW YORK AND SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAWS PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. 25. Jury Trial Waiver. KEF AND BORROWER HEREBY EACH WAIVE THEIR RESPECTIVE ----------------- RIGHTS TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION OR PROCEEDING TO WHICH KEF OR BORROWER MAY BE PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE, INCLUDING WITHOUT LIMITATION ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY, OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER IS MADE KNOWINGLY, WILLINGLY AND VOLUNTARILY BY KEF AND THE BORROWER WHO EACH ACKNOWLEDGE THAT NO REPRESENTATIONS HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 26. More than One Borrower. If more than one person or entity executes this ---------------------- Agreement, each of the other Loan Documents, and all addenda or other documents executed in connection herewith or therewith, as "Borrower," the obligations of "Borrower" contained herein and therein shall be deemed joint and several and all references to "Borrower" shall apply both individually and jointly. 27. Entire Agreement. This Agreement together with the other Loan Documents, ---------------- collectively constitute the entire understanding or agreement between KEF and Borrower with respect to the financing of the Equipment, and there is no understanding or agreement, oral or written, which is not set forth herein or therein. This Agreement shall not be modified except by the written agreement of KEF and Borrower. 28. Execution in Counterparts. This Agreement may be executed in any number of ------------------------- counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. ________________________________________________________________________________ Page 10 of 12 29. Power of Attorney; UCC Filings. BORROWER SHALL EXECUTE AND DELIVER TO KEF ------------------------------ CONCURRENTLY WITH THE EXECUTION OF THIS AGREEMENT, AND AT ANY TIME FROM TIME TO TIME THEREAFTER, ALL FINANCING STATEMENTS, AMENDMENTS TO FINANCING STATEMENTS, CHATTEL MORTGAGES, ASSIGNMENTS, AND ALL OTHER INSTRUMENTS, IN FORM SATISFACTORY TO KEF, AND TAKE ALL OTHER ACTION AS KEF MAY REASONABLY REQUIRE, TO PERFECT AND CONTINUE PERFECTED, MAINTAIN THE PRIORITY OF OR PROVIDE NOTICE OF KEF'S SECURITY IN THE COLLATERAL, BORROWER HEREBY APPOINTS KEF, OR ITS ASSIGNEE AND ANY OF KEF'S OR ASSIGNEE'S OFFICERS OR EMPLOYEES AS ITS TRUE AND LAWFUL ATTORNEY IN FACT, IRREVOCABLY AND COUPLED WITH AN INTEREST, TO EXECUTE AND FILE ON BEHALF OF BORROWER ALL UCC FINANCING STATEMENTS WHICH IN KEF'S SOLE DISCRETION ARE NECESSARY OR PROPER TO SECURE KEF'S INTEREST IN THE EQUIPMENT IN ALL APPLICABLE JURISDICTIONS. Borrower hereby ratifies, to the extent permitted by law, all that KEF shall lawfully and in good faith do or cause to be done by reason of and in compliance with this paragraph Lender: Borrower: Key Equipment Finance, a Division of Key Corporate READY MIX, INC. Capital Inc. By: _____________________ X /s/ Kenneth D. Nelson --------------------- Name: Name: Kenneth D. Nelson Title: Title: Vice President ________________________________________________________________________________ Page 11 of 12 COLLATERAL SCHEDULE ------------------- Schedule 1 ________________________________________________________________________________ BORROWER TRADE NAMES None ________________________________________________________________________________ DESCRIPTION OF EQUIPMENT Equipment 3430 E. Flamingo Rd., Suite 100 - --------- Location: Las Vegas, NV 89121-5003 - -------- Clark County Vendor: McNeilus Truck and Manufacturing Co. - -------
Quantity: Description: VIN or Serial No. Invoice No. - --------- ------------ ----------------- ----------- 1 1997 IHC Truck with Bridgemaster III Mixer, 2HTTWAHT7VC029174 91051 serial number 43047-09034 1 1997 IHC Truck with Bridgemaster III Mixer, 2HTTWAHT8VC027143 91051 serial number 43067-09044 1 1997 IHC Truck with Bridgemaster III Mixer, 2HTTWAHT5VC029173 91051 serial number 43029-09027 1 1997 IHC Truck with Bridgemaster III Mixer, 2HTTWAHT4VC027009 91051 serial number 42869-08953 1 1997 IHC Truck with Bridgemaster III Mixer, 2HTTWAHT6VC027013 91051 serial number 42863-08950 1 1997 IHC Truck with Bridgemaster III Mixer, 2HTTWAHT2VC027140 91051 serial number 43058-09040 1 1997 IHC Truck with Bridgemaster III Mixer, 2HTTWAHT4VC027141 91051 serial number 43069-09046 1 1997 IHC Truck with Bridgemaster III Mixer, 2HTTWATT3VC017210 91051 serial number 43087-09055
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