<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 24, 1997
REGISTRATION NO. 333-33685
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ROCK OF AGES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3281 030153200
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
772 GRANITEVILLE ROAD
GRANITEVILLE, VERMONT 05654
(802) 476-3121
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
KURT M. SWENSON
PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD OF DIRECTORS
ROCK OF AGES CORPORATION
772 GRANITEVILLE ROAD
GRANITEVILLE, VERMONT 05654
(802) 476-3121
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
Copies of Communications to:
<TABLE>
<S> <C>
KENT A. COIT, ESQ. JORGE L. FREELAND, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP GREENBERG TRAURIG HOFFMAN LIPOFF ROSEN & QUENTEL, P.A.
ONE BEACON STREET 1221 BRICKELL AVENUE
BOSTON, MASSACHUSETTS 02108 MIAMI, FLORIDA 33131
(617) 573-4800 (305) 579-0500
(617) 573-4822 (FAX) (305) 579-0717 (FAX)
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Class A Common Stock, par value $.01 per share............ $60,030,000 $18,191
============================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended, and
includes 435,000 shares of Class A Common Stock that may be purchased by the
Underwriters pursuant to an overallotment option.
(2) The total amount of the registration fee is $18,191, of which $17,273 has
already been paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 24, 1997
PROSPECTUS
LOGO
2,900,000 Shares
Rock of Ages Corporation
Class A Common Stock
------------------------
Of the 2,900,000 shares of Class A Common Stock, par value $.01 per share,
of Rock of Ages Corporation, a Delaware corporation ("Rock of Ages" or the
"Company"), offered hereby, 2,606,101 shares are being sold by the Company and
293,899 shares are being sold by certain stockholders of the Company (the
"Selling Stockholders"). The Company will not receive any of the proceeds from
the sale of Class A Common Stock by the Selling Stockholders. See "Principal and
Selling Stockholders."
The capital stock of the Company consists of Class A Common Stock and Class
B Common Stock (collectively, the "Common Stock"). The two classes are
substantially identical, except that the Class A Common Stock is entitled to one
vote per share and the Class B Common Stock is entitled to ten votes per share
on all matters, including the election of directors, and the Class B Common
Stock is convertible into Class A Common Stock and converts automatically upon a
transfer to any person other than a permitted transferee. Upon consummation of
this offering, holders of Class B Common Stock will hold approximately 92% of
the voting power of the outstanding shares of Common Stock. See "Description of
Capital Stock."
Prior to this offering, there has been no public market for the Class A
Common Stock. It is currently estimated that the initial public offering price
of the Class A Common Stock will be between $16.00 and $18.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price of the Class A Common Stock. Application has
been made for listing of the Class A Common Stock on the Nasdaq National Market
under the symbol "ROAC."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===========================================================================================================
PROCEEDS TO
PROCEEDS TO SELLING
PRICE TO PUBLIC UNDERWRITING COMPANY(2) STOCKHOLDERS
DISCOUNTS AND
COMMISSIONS(1)
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Per Share.............................. $ $ $ $
- -----------------------------------------------------------------------------------------------------------
Total(3)............................... $ $ $ $
===========================================================================================================
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses estimated at $1.5 million, which are payable by
the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
435,000 additional shares of Class A Common Stock on the same terms and
conditions as the Class A Common Stock offered hereby solely to cover
overallotments, if any. If the option is exercised in full, the total Price
to Public, total Underwriting Discounts and Commissions and total Proceeds
to Company will be $ , $ and $ , respectively. See
"Underwriting."
------------------------
The shares of Class A Common Stock are offered by the Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
other conditions, including the right of the Underwriters to withdraw, cancel,
modify or reject any order in whole or in part. It is expected that delivery of
the shares will be made on or about , 1997 at the offices of
Raymond James & Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida.
RAYMOND JAMES & ASSOCIATES, INC.
The date of this Prospectus is , 1997
<PAGE> 3
[THE CRAFTSMAN PAINTING BY NORMAN ROCKWELL]
[PICTURES OF MEMORIALS AND THE
MEMORIAL MANUFACTURING PROCESS]
"THE CRAFTSMAN" BY NORMAN ROCKWELL
COMMISSIONED BY THE COMPANY IN 1957 AND ON DISPLAY AT THE COMPANY'S HEADQUARTERS
IN GRANITEVILLE, VERMONT
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING BIDS AND PURCHASES,
SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and historical and pro forma financial statements and notes thereto
appearing elsewhere in this Prospectus. Unless otherwise indicated, the
information in this Prospectus assumes that (i) the Underwriters' over-allotment
option has not been exercised and (ii) the Reorganization and the Acquisitions
(as such terms are defined herein) have occurred. As used in this Prospectus,
unless the context indicates otherwise, the term the "Company" or "Rock of Ages"
refers to Rock of Ages Corporation after giving effect to the Reorganization and
the Acquisitions, and its consolidated subsidiaries and their respective
predecessors.
THE COMPANY
Rock of Ages, founded in 1885, is an integrated granite quarrier,
manufacturer and distributor whose principal product is granite memorials used
primarily in cemeteries. The Company believes that it is the largest quarrier,
manufacturer and distributor of finished granite memorials and granite blocks
for memorial use in North America, based on revenues. The Company owns and
operates 13 active quarry properties and 13 manufacturing and sawing facilities
in North America, principally in Vermont, Georgia and the Province of Quebec.
The Company markets and distributes its memorials on a wholesale basis to
approximately 2,124 independent memorial retailers in the United States and
Canada, including approximately 495 independent authorized Rock of Ages
retailers that are the primary outlet for the Company's branded memorials. The
Company recently entered into a definitive agreement to acquire one of the
largest of its authorized independent retailers, which will provide the Company
with 17 owned retail outlets and mark the Company's first significant entry into
retailing. The Company's memorials are marketed under the names Rock of Ages
Sealmark and Colorcraft, as well as several private labels. The Company believes
the Rock of Ages trademark is one of the oldest and best known brand names in
the granite memorialization industry.
THE DEATH CARE INDUSTRY AND GRANITE MEMORIALIZATION
The death care industry has traditionally been comprised of three principal
segments: (i) ceremony and tribute, generally in the form of a funeral or
memorial service; (ii) disposition of remains, either through burial or
cremation; and (iii) memorialization, generally through monuments, markers or
inscriptions. A majority of death care industry operators consist of small,
family-owned businesses. The International Cemetery and Funeral Association
estimates that in the United States there are approximately 23,000 active
cemeteries, 9,500 of which are commercial (as opposed to religious, family,
fraternal, military or municipal) cemeteries. At the end of 1996, publicly held
death care companies ("consolidators") owned less than 5% of such active
cemeteries, approximately 890, or less than 10%, of such commercial cemeteries
and less than 12% of the estimated 22,800 funeral homes in the United States.
The death care industry has certain attractive fundamental characteristics,
including highly fragmented ownership, significant barriers to entry created by
local heritage, community presence and tradition, and stable, predictable
demand. Generally, the granite memorialization industry shares certain of these
characteristics. However, the granite memorialization industry and its principal
areas (i.e., quarrying, manufacturing and retailing) have certain distinguishing
characteristics that the Company believes create attractive opportunities. These
characteristics include: (i) different times and points of sale than most other
death care products or services, with sales of granite memorials traditionally
taking place some time after the funeral service and at an independent retailer
rather than at a funeral home or cemetery; (ii) fragmented groups of both
manufacturers of granite memorials (approximately 140 mostly family-owned firms)
and independent memorial retailers (according to Monument Builders of North
America, approximately 3,000 of such retailers are located outside funeral homes
and cemeteries) in North America; (iii) concentration of memorial grade granite
deposits and granite memorial manufacturers in limited geographic areas in North
America; (iv) significant barriers to entry to quarrying memorial grade granite,
including the limited number of known commercially exploitable memorial grade
granite deposits, high capital costs and stringent environmental and other
permitting requirements; (v) significant barriers to entry to the manufacturing
of granite memorials, including the high capital cost to establish and operate a
memorial grade granite manufacturing facility and
3
<PAGE> 5
the difficulty of attracting the requisite highly skilled work force; and (vi)
the personalization, permanence and visibility of upright granite memorials,
which distinguish them from most other death care products and services.
The Company believes the U.S. granite memorialization industry, excluding
communal interments such as community mausoleums and columbariums, had in excess
of $1.0 billion in retail sales in 1996. In 1996, on a pro forma basis giving
effect to the Acquisitions as if they occurred on January 1, 1996, wholesale
sales of the Company's granite memorials were approximately $41.4 million, which
the Company believes accounted for approximately 12% of total wholesale sales of
granite memorials in North America.
BUSINESS STRATEGY
Rock of Ages believes it is well-positioned to capitalize on the industry
characteristics described above, and seeks to establish a dominant position in
the granite memorialization industry. The Company intends both to improve the
efficiency of its existing operations and to expand its business significantly.
The principal elements of the Company's operating and growth strategies are
summarized below.
Operating Strategy. The Company pursues an operating strategy that
includes the following key elements:
- Providing, primarily through its own quarrying and manufacturing
operations, a complete line of high quality granite memorials covering
all price points and major color varieties. The Company believes it is
the only industry participant with both quarrying and manufacturing
operations in three of the four principal granite memorial producing
regions of North America.
- Enhancing operational efficiencies through the continued integration of
acquired quarriers and manufacturers and the rationalization of its sales
and distribution efforts.
- Increasing advertising and promotion of the Rock of Ages brands,
including the flagship Rock of Ages Sealmark and Colorcraft brands, in
order to heighten consumer awareness and increase sales of the Company's
products.
Growth Strategy. The Company seeks to expand the scope and profitability
of its operations by implementing a growth strategy that includes forward
vertical integration into retailing, thereby enabling the Company to move closer
to the ultimate customer. The principal elements of this strategy include the
following:
- Acquiring independent granite memorial retailers in selected markets in
order to develop an integrated network of owned Rock of Ages retailers
and thereby capture the higher margins that have historically existed at
the retail level.
- Increasing sales to independent retailers that are current customers and
expanding its independent retailer customer base. During the last two
years, principally through acquisitions of quarriers and manufacturers,
the Company has increased the number of independent retailers to which it
sells its products from approximately 495 in 1995 to approximately 2,124
in 1997.
- Pursuing strategic alliances with funeral home and cemetery owners,
including consolidators, to supply granite memorials to or through them,
in order to increase both pre-need and at-need sales of granite
memorials.
4
<PAGE> 6
RECENT AND CONCURRENT ACQUISITIONS
The Company's primary means of implementing its growth strategy to date has
been through acquisitions, beginning with the acquisition on December 31, 1995
of Lawson Granite Company and Anderson-Friberg Company, each based in Barre,
Vermont. These acquisitions helped expand the Company's manufacturing capacity
and distribution base, while also broadening its granite memorial product line
to include more non-branded granite memorials at lower price points than the
Company's then-existing product line. The Company has recently taken further
steps to implement its growth strategy by acquiring one, and entering into a
definitive agreement to acquire another, significant granite quarrier and
memorial manufacturer in Elberton, Georgia, which is the largest of the four
principal granite producing regions in North America. The Company has also
entered into a definitive agreement to acquire a major memorial retailer that
the Company believes is one of the largest independent memorial retailers in the
United States. The Company believes that these acquisitions and the continued
implementation of the other elements of its operating and growth strategies will
enable it to: (i) expand overall industry sales of granite memorials, which
heretofore have been actively marketed to consumers primarily only on an at-need
basis and in a limited manner; (ii) increase its share of the granite memorial
market by offering a complete product line with strong brand names through
distribution channels that more directly reach the consumer; and (iii) increase
both its relative and total profitability both by enhancing operational
efficiencies and by capturing some of the higher margins that have historically
existed at the retail level. The Company's recent and pending acquisitions are
briefly described below.
Keystone. In June 1997, the Company acquired the successor to Keystone
Memorials, Inc. ("Keystone"), the largest granite memorial manufacturer in
Elberton, Georgia (the "Keystone Acquisition"), which included Keystone's 50%
ownership interest in (i) Southern Mausoleums, Inc., a manufacturer of granite
mausoleums in Elberton, Georgia ("SMI"); and (ii) three granite quarrying
companies operating six granite quarries located in Georgia, Pennsylvania, North
Carolina, South Carolina and Oklahoma (collectively, the "Quarry Companies"). In
connection with the Keystone Acquisition, the Company issued 263,441 shares of
Class B Common Stock and assumed or incurred $2.7 million of indebtedness of
Keystone.
C&C. In June 1997, the Company entered into a definitive agreement to
acquire Childs & Childs Granite Company, Inc. and a related company ("C&C," and,
together with the Quarry Companies, SMI and Keystone, the "Elberton Companies"),
which the Company believes is the second largest manufacturer of granite
memorials in Elberton, Georgia, and the remaining 50% of the Quarry Companies
and SMI owned by the stockholders of C&C (the "C&C Acquisition" and, together
with the Keystone Acquisition, the "Elberton Acquisitions"). It is currently
anticipated that the C&C Acquisition will close concurrently with the
consummation of this offering. The Elberton Acquisitions will establish the
Company as the largest granite memorial manufacturer in Elberton, Georgia, which
is the largest granite producing area in North America, and will give the
Company a substantially broader product line and enhanced distribution
capabilities in the southern United States. The purchase price payable for C&C
is $6.6 million in cash and $200,000 in shares of Class A Common Stock (valued
at the initial public offering price) and approximately $780,000 to repay
outstanding indebtedness of C&C. Upon the closing of the C&C Acquisition, the
Company will assume $5.5 million of indebtedness of the Quarry Companies and
SMI.
Keith. The Company's first significant entry into memorial retailing was
initiated in July 1997, when the Company entered into a definitive agreement to
acquire (the "Keith Acquisition", and, together with the Elberton Acquisitions,
the "Acquisitions") substantially all of the assets and liabilities of Keith
Monument Co. and its affiliated companies (collectively, "Keith Monument"). It
is currently anticipated that the Keith Acquisition will close concurrently with
the consummation of this offering. Keith Monument, founded in 1867, has been an
authorized Rock of Ages retailer for more than 50 years. The Company believes
that Keith Monument is one of the largest retailers of granite memorials in the
United States. Upon the closing of the Keith Acquisition, John E. Keith, a
principal owner and the president of Keith Monument with over thirty years of
experience in granite memorial retailing, will head the Company's retailing
operations. Mr. Keith will oversee the implementation of the Company's strategy
to significantly expand its retail operations both through other acquisitions of
retailers and by pursuing strategic alliances with funeral home and cemetery
owners, including consolidators. The purchase price payable for Keith Monument
is $16.4 million, consisting
5
<PAGE> 7
of $13.1 million in cash, $1.5 million in shares of Class A Common Stock (valued
at the initial public offering price) and $1.8 million to repay outstanding
indebtedness of Keith Monument asumed by the Company. See "Business -- Recent
and Concurrent Acquisitions" and "Business -- Marketing and Distribution;
Retailing."
The Company's principal executive offices are located at 772 Graniteville
Road, Graniteville, Vermont 05654 and its telephone number is (802) 476-3121.
THE OFFERING
Class A Common Stock offered..... 2,900,000 shares, of which 2,606,101 shares
are being offered by the Company and
293,899 shares are being offered by the
Selling Stockholders.
Common Stock to be outstanding
after the offering(1)............ 3,000,000 shares of Class A Common Stock
3,469,540 shares of Class B Common Stock
Use of proceeds.................. The net proceeds to the Company of this
offering will be used to fund the C&C
Acquisition and the Keith Acquisition, and
to repay indebtedness under the Company's
existing credit facilities, including
indebtedness assumed in connection with the
Keystone Acquisition. See "Use of
Proceeds."
Proposed Nasdaq National Market
symbol........................... "ROAC"
- ---------------
(1) Excludes 862,500 shares of Class B Common Stock issuable upon the exercise
of outstanding stock options (with a weighted average exercise price of
$3.31 per share) granted under the Company's 1994 Amended and Restated Stock
Plan (the "1994 Plan") and 383,252 shares of Class A Common Stock issuable
upon the exercise of options to be granted in connection with the
Acquisitions and to two non-employee directors who will assume their
positions upon consummation of the offering (with an exercise price equal to
the initial public offering price). See "Certain Relationships and Related
Transactions." The rights of holders of the two classes of Common Stock are
substantially identical, except that (a) the Class A Common Stock is
entitled to one vote per share and the Class B Common Stock is entitled to
ten votes per share on all matters, including the election of directors; and
(b) the Class B Common Stock is convertible into Class A Common Stock at the
option of the holder and automatically upon a transfer to any person other
than a Permitted Transferee, as defined herein. See "Description of Capital
Stock."
6
<PAGE> 8
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents (i) summary historical consolidated financial
data of the Company as of the dates and for the periods indicated and (ii)
summary pro forma combined and condensed financial data of the Company as of the
dates and for the periods indicated giving effect to the events described in the
"Unaudited Pro Forma Combined and Condensed Financial Data" included elsewhere
herein as though they had occurred on the dates indicated therein. The summary
pro forma combined and condensed financial data are not necessarily indicative
of operating results or financial position that would have been achieved had
these events been consummated on the date indicated and should not be construed
as representative of future operating results or financial position. The summary
historical consolidated and pro forma combined and condensed financial data
should be read in conjunction with the historical consolidated financial
statements and related notes thereto of the Company and the historical financial
statements and related notes thereto of Keystone, C&C, the Quarry Companies, SMI
and Keith Monument, with the "Unaudited Pro Forma Combined and Condensed
Financial Statements" and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PRO FORMA(1)
HISTORICAL ----------------------------------
----------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
----------------------------- ------------------ ------------ ------------------
1994 1995 1996 1996 1997(2) 1996 1996 1997
------- ------- ------- ------- ------- ------------ ------- -------
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STATEMENT OF OPERATIONS DATA:
Net revenues..................... $34,188 $33,088 $44,669 $19,943 $20,767 $ 73,774 $33,710 $35,253
Gross profit..................... 10,094 10,449 13,406 5,256 5,205 22,294 9,016 9,853
Selling, general and
administrative expenses........ 6,049 6,453 9,131 4,649 4,328 15,254 7,338 7,352
------- ------- ------- ------- ------- ------------ ------- -------
Income from operations........... 4,045 3,996 4,275 607 877 7,040 1,678 2,501
Interest expense................. 1,653 1,678 1,723 934 866 1,065 573 565
Other expense.................... -- 564 -- -- -- -- -- --
Income (loss) before provision
(benefit) for income taxes..... 2,392 1,754 2,552 (327) 11 5,975 1,105 1,936
Provision (benefit) for income
taxes.......................... 577 358 643 (82) 3 1,625 301 527
------- ------- ------- ------- ------- ------------ ------- -------
Net income (loss)................ 1,815 1,396 1,909 (245) 8 4,350 804 1,409
======= ======= ======= ======= ======= ============ ======= =======
Net income (loss) per share...... .47 .35 .46 (.06) .00 .64 .12 .20
Weighted average number of shares
outstanding(3)................. 3,900 4,017 4,106 4,106 4,326 6,759 6,759 7,032
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
--------------------------
PRO FORMA AS
ACTUAL ADJUSTED(4)
------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................................ $ 192 $ 2,833
Working capital.......................................................................... 13,232 18,545
Total assets............................................................................. 57,768 86,942
Long-term debt, less current maturities.................................................. 13,897 5,419
Total stockholders' equity............................................................... 19,832 57,414
</TABLE>
- ---------------
(1) For information regarding the pro forma adjustments made to the Company's
historical financial data, see "Unaudited Pro Forma Combined and Condensed
Financial Data."
(2) Does not include the results of operations of Keystone which was acquired as
of June 28, 1997.
(3) Includes 362,500 shares of Common Stock issuable upon the exercise of
outstanding stock options granted December 31, 1996 and deemed to be
outstanding for all periods, an additional 275,000 shares subject to options
outstanding granted in 1994 and subsequent periods and 225,000 shares
subject to options granted in January, 1996 (and included in 1996 and
subsequent periods). See Note 9 to the Company's audited financial
statements included elsewhere in this Prospectus.
(4) Gives effect to the Reorganization and the consummation of the C&C
Acquisition and the Keith Acquisition as if they had occurred on June 30,
1997, as adjusted to reflect the sale of 2,606,101 shares of Class A Common
Stock offered hereby by the Company (at an initial public offering price of
$17.00 per share) and after deducting underwriting discounts and commissions
and estimated offering expenses payable by the Company, the receipt of the
net proceeds therefrom and the application of such net proceeds as described
in "Use of Proceeds." See "Business -- Recent and Concurrent Acquisitions,"
"Certain Relationships and Related Transactions" and "Use of Proceeds."
7
<PAGE> 9
RISK FACTORS
Prospective investors should carefully consider all of the information set
forth in this Prospectus, including the risk factors set forth below.
RISKS RELATING TO ACQUISITIONS
The Company's growth will depend in large part on its ability to acquire
additional retailers, manage expansion, control costs in its operations and
consolidate acquisitions into existing operations. The Company will have to
review acquired operations, management infrastructure and systems and financial
controls, and make any appropriate adjustments or complete reorganizations.
Unforeseen capital and operating expenses, or other difficulties, complications
and delays frequently encountered in connection with the expansion and
integration of acquired operations could inhibit the Company's growth. The full
benefits of a significant acquisition will require the integration of
operational, administrative, finance, sales and marketing organizations, as well
as the coordination of common sales and marketing efforts and the implementation
of appropriate operational, financial and management systems and controls. This
will require substantial attention from the Company's senior management team.
The diversion of management attention required by the acquisition and
integration of multiple companies, as in the case of the Acquisitions, as well
as other difficulties that may be encountered in the transition and integration
process, could have an adverse effect on the revenue and operating results of
the Company. There can be no assurance that the Company will identify suitable
acquisition candidates, that acquisitions will be consummated on acceptable
terms or that the Company will be able to successfully integrate the operations
of any acquisition.
The Company's ability to continue to grow through the acquisition of
additional companies will also be dependent upon the availability of suitable
candidates, the Company's ability to attract and retain competent management,
and the availability of capital to complete the acquisitions. See
"Business -- Business Strategy." The Company intends to finance acquisitions
through a combination of its available cash resources, bank borrowings and, in
appropriate circumstances, the issuance of equity and/or debt securities.
Acquiring additional companies will have a significant effect on the Company's
financial position, and could cause substantial fluctuations in the Company's
quarterly and yearly operating results. Also, acquisitions are likely to result
in the recording of significant goodwill and intangible assets on the Company's
financial statements, the amortization of which would reduce reported earnings
in subsequent years. In connection with the Acquisitions, for example, the
Company expects to record an annual non-cash amortization charge to pre-tax
earnings of approximately $300,000 in each of the next forty years.
In addition, in connection with the Acquisitions, the Company has executed
acquisition agreements that have limitations on indemnification and no security
for indemnification obligations. Moreover, the former owners of the businesses
sold to the Company pursuant to the Acquisitions have or will become executive
officers of the Company upon the consummation of the Acquisitions. Consequently,
the Company may have little or no recourse against the prior owners of the
companies acquired in the Acquisitions in the event a breach of a representation
or warranty or covenant in such acquisition agreements. Any material
misrepresentations, omissions or breaches of covenants could have a material
adverse effect on the Company's business, financial condition or results of
operations.
RELATIONSHIPS WITH RETAILERS
The Company's granite memorials have historically been sold to consumers by
independent retailers. Accordingly, the Company is dependent on its independent
retailers for the successful distribution of its products to the ultimate
customer. The Company has no control over the independent retailers' operations,
including such matters as retail price, advertising and marketing. Two important
components of the Company's growth strategy are to acquire retailers and pursue
strategic alliances with funeral homes and cemetery owners, including
consolidators. The implementation of these elements of the Company's strategy
may be construed by the Company's existing independent retailers as an effort to
compete with them, which could adversely affect their relationship with the
Company and cause them to decrease or cease their purchases of the Company's
products. In addition, the granite memorial retail industry is characterized by
8
<PAGE> 10
significant barriers to entry created by local heritage, community presence and
tradition. Consequently, the Company could experience difficulty replacing a
retailer or entering the retail market itself in the event of a loss of a
retailer. There can be no assurance that the Company will be able to maintain
its existing relationships or establish new relationships with its independent
retailers as it enters the retail market. Disruption in the Company's
relationships with independent retailers would have a material adverse effect on
the Company's business, financial condition or results of operations.
NO RETAIL EXPERIENCE
A key component of the Company's growth strategy and the purpose of the
Keith Acquisition is for the Company to enter the retail market for granite
memorials. The Company has no prior significant retail experience, and,
accordingly, is subject to the numerous risks of entering a new business. Such
risks include, among others, unanticipated operating problems, lack of
experience and significant competition from existing and new retailers. There
can be no assurance that the Company will be able to conduct retail operations
profitably.
RELIANCE ON KEY PERSONNEL
The Company's operations and the implementation of its operating and growth
strategies, such as integration of the Acquisitions, are management intensive.
The Company is substantially dependent upon the abilities and continued efforts
of Kurt M. Swenson, the Company's Chairman, President and Chief Executive
Officer, and the Company's other senior management. The Company's implementation
of its retail operating and growth strategies will be substantially dependent on
the abilities and efforts of John E. Keith, who will head the Company's retail
operations. The Company's business is also dependent on its ability to continue
to attract and retain a highly skilled quarrying and manufacturing workforce,
including stone cutters, sand blasters, sculptors and other skilled artisans.
The loss of the services of Mr. Swenson or Mr. Keith, other members of the
Company's senior management or other highly skilled personnel could have a
material adverse effect on the Company's business, financial condition or
results of operations. The Company will enter into employment agreements with
its principal executive officers prior to consummation of the offering. The
Company does not maintain key person life insurance policies on its key
personnel, except for policies with respect to Mr. Swenson and Mr. Keith in the
amounts of $2.0 million and $300,000, respectively. The Company is or will be
the sole beneficiary of these policies. See "Management -- Employment
Agreements."
COMPETITION
The granite memorial industry is highly competitive. The Company competes
with other granite quarriers and manufacturers in the sale of granite blocks on
the basis of price, color, quality, geographic proximity, service, design
availability and availability of supply. All of the Company's colors of granite
are subject to competition from granite blocks of similar color supplied by
quarriers located throughout the world.
There are approximately 140 manufacturers of granite memorials in North
America. There are also manufacturers of granite memorials in India, South
Africa, China and Portugal who sell finished memorials in North America. The
Company competes based upon price, breadth of product line and design
availability as well as production capabilities and delivery options. The
Company's quarrying and manufacturing competitors include both domestic and
international companies, some of which may have greater financial, technical,
manufacturing, marketing and other resources than the Company. Additionally,
foreign competitors of the Company may have access to lower cost labor and
better commercial deposits of memorial grade granite, and may be subject to less
restrictive regulatory requirements than the Company. Companies in South Africa,
India, China and Portugal manufacture and export finished granite memorials into
North America.
The competition for retail sales of granite memorials is also intense and
is based on price, quality, service, design availability and breadth of product
line. Competitors include funeral home and cemetery owners, including
consolidators, which have greater financial resources than the Company as well
as approximately 3,000 independent retailers of granite memorials located
outside of cemeteries and funeral homes. There can be no assurance that domestic
or foreign competition will not have a material adverse effect on the Company's
business, financial condition or results of operations. See
"Business -- Competition."
9
<PAGE> 11
SEASONALITY; VARIABILITY OF QUARTERLY RESULTS
Historically, the Company's operations have experienced certain seasonal
patterns. Generally, the Company's net sales are highest in the third quarter
and lowest in the first quarter of each year due primarily to weather.
Cemeteries in northern regions generally do not accept granite memorials during
winter months when the ground is frozen because they cannot be properly set. The
Company typically closes certain of its Vermont and Canadian quarries during
these months because of increased operating costs attributable to adverse
weather conditions. The Company has historically incurred an aggregate net loss
during the first six months of each calendar year. The Company's operating
results may vary materially from quarter to quarter due to, among other things,
acquisitions, changes in product mix and limitations on the timing of price
increases, making quarterly year-to-year comparisons less meaningful. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonality."
CREMATION TRENDS
There is an increasing trend toward cremation in the United States.
According to the Cremation Association of North America ("CANA"), cremation was
used in approximately 22% of the deaths in the United States in 1996, compared
to approximately 10% in 1980, and CANA expects this rate to rise to 29% by 2010.
To the extent increases in cremation rates result in decreases in
memorialization rates, this decrease could have a material adverse effect on the
Company's business, financial condition or results of operations.
MEMORIALIZATION TRENDS
The Company's business is subject to the risk that memorialization rates
may decline over time. Certain cemeteries have in the past and may in the future
limit the use of granite memorials as a memorialization option. To the extent
that general memorialization rates or the willingness of cemeteries to accept
granite memorials declines, this decline could have a material adverse effect on
the Company's business, financial condition or results of operations.
EFFECT OF CONSUMER SPENDING
The success of the Company's operations depends to a significant extent
upon a number of factors relating to discretionary consumer spending, including
economic conditions affecting disposable consumer income such as employment,
business conditions, taxation and interest rates. There can be no assurance that
consumer spending will not be affected by adverse economic conditions, thereby
adversely affecting the Company's business, financial condition or results of
operations.
OPERATING RISKS
The Company's quarry and manufacturing operations are subject to numerous
risks and hazards inherent in those industries, including among others,
unanticipated surface or underground conditions, varying memorial grade granite
recovery rates due to natural cracks and other imperfections in granite
quarries, equipment failures, accidents and worker injuries, labor issues,
weather conditions and events, unanticipated transportation costs and price
fluctuations. As a result, actual costs and expenditures, production quantities
and delivery dates, as well as revenues, may differ materially from those
anticipated, which could have a material adverse effect on the Company's
business, financial condition or results of operations.
RISK OF INTERNATIONAL OPERATIONS
The Company derived approximately 28.9% of its revenues in fiscal 1996 from
sales outside the United States, with approximately 16.9% of revenues in fiscal
1996 from sales in Canada by the Company's Canadian subsidiaries. In prior years
such percentage represented by international sales has been higher. Foreign
sales are subject to numerous risks, including currency conversion risks,
limitations (including taxes) on the repatriation of earnings, slower and more
difficult accounts receivable collection and greater complication and expense in
complying with foreign laws.
10
<PAGE> 12
CYCLICAL NATURE OF ANCILLARY PRODUCT SALES
The markets for the Company's industrial precision products, which include
machine base and surface plates that are utilized in the automotive, aeronautic,
computer, machine tool, optical, precision grinding and inspection industries,
and granite press rolls used in the manufacture of paper, are subject to
substantial cyclical variations. Accordingly, sales of these products may
decline significantly upon a downturn in, or as a result of uncertainties
regarding future economic conditions that generally affect, such industries. No
assurance can be given that changes in the industries to which the Company sells
its precision products will not adversely affect the Company's business,
financial condition or results of operations.
CONTROL BY CERTAIN STOCKHOLDERS
Upon consummation of this offering and the Acquisitions, Kurt M. Swenson
and his brother, Kevin C. Swenson, will collectively have 56.3% of the total
voting power of all outstanding shares of Common Stock, and will therefore be in
a position to control the outcome of most corporate actions requiring
stockholder approval, including the election of directors and the approval of
transactions involving a change in control of the Company. See "Principal and
Selling Stockholders" and "Description of Capital Stock."
REGULATORY MATTERS
The Company's quarry and manufacturing operations are subject to
substantial regulation by federal and state governmental statutes and agencies,
including the federal Occupational Safety and Health Act ("OSHA"), the Mine
Safety and Health Administration and similar state and Canadian authorities. The
Company's operations are also subject to extensive laws, and regulations
administered by the United States Environmental Protection Agency (the "EPA")
and similar state and Canadian authorities, for the protection of the
environment, including but not limited to those relating to air and water
quality, solid and hazardous waste handling and disposal. These laws and
regulations may require parties to fund remedial action or to pay damages
regardless of fault. Environmental laws and regulations may also impose
liability with respect to divested or terminated operations even if the
operations were divested or terminated many years ago. In addition, current and
future environmental or occupational health and safety laws, regulations or
regulatory interpretations may require significant expenditures for compliance,
which could require the Company to modify or curtail its operations. The Company
cannot predict the effect of such laws, regulations or regulatory
interpretations on its business, financial condition or results of operations.
While the Company expects to be able to continue to comply with existing
environmental and occupational health and safety laws and regulations, any
material non-compliance could have a material adverse affect on the Company's
business, financial condition or results of operations. See
"Business -- Regulation."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial amount of Class A Common Stock in the public market
following this offering could adversely affect the market price of the Class A
Common Stock. Upon completion of this offering and the C&C Acquisition and the
Keith Acquisition, the Company will have 6,469,540 shares of Common Stock
(6,904,540 shares if the Underwriter's over-allotment option is exercised in
full) outstanding (assuming an initial public offering price of $17.00 per
share). In addition, an aggregate of 1,500,000 shares of Common Stock will be
reserved for issuance to employees and directors of the Company under the 1994
Plan, 1,245,752 of which shares are currently, or will upon consummation of this
offering be, subject to outstanding options. See "Shares Eligible for Future
Sale." As of the date of this Prospectus, such options will be vested and
immediately exercisable with respect to 327,500 shares of Common Stock, all of
which shares issued upon such exercise would be eligible for resale subject to
compliance with Rule 701 and to the "lock-up" agreements with Raymond James &
Associates, Inc. described below, if applicable. The 2,900,000 shares of Class A
Common Stock (3,335,000 shares if the Underwriter's over-allotment option is
exercised in full) offered hereby will be freely tradable in the United States
without restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act"), unless purchased or held by "affiliates" (as
such term is defined under the Securities Act) of the Company. All shares of
Class B Common Stock outstanding upon completion of the offering will be
"restricted securities" within the meaning of Rule 144 under the
11
<PAGE> 13
Securities Act ("Rule 144") and will not be eligible for resale to the public
pursuant to Rule 144 until the first anniversary of the consummation of the
offering.
The Company, its executive officers and directors, and holders of more than
2% of the Common Stock prior to the consummation of the offering, have agreed
with Raymond, James & Associates, Inc. not to sell, offer to sell, contract to
sell, pledge or otherwise dispose of or transfer any shares of Common Stock, or
any securities convertible into or exchangeable or exercisable for, or any
rights to purchase or acquire, Common Stock for a period of 180 days following
the date of this Prospectus without the prior written consent of Raymond James &
Associates, Inc., other than, in the case of the Company, the issuance of
options to purchase Common Stock or shares of Common Stock issuable upon the
exercise thereof, issuances of Common Stock in connection with the C&C
Acquisition and the Keith Acquisition and other issuances of capital stock of
the Company in connection with other acquisitions, provided such shares of
Common Stock issued upon the exercise of options and such shares of capital
stock issued in connection with any such other acquisitions shall not be
transferable prior to the end of the aforesaid 180-day period. Raymond James &
Associates, Inc. may, in its sole discretion and at any time without notice,
release all or any portion of the shares subject to such lock-up agreements. See
"Shares Eligible for Future Sale" and "Underwriting."
NO PRIOR MARKET FOR CLASS A COMMON STOCK; OFFERING PRICE
Prior to this offering, there has been no public market for the Class A
Common Stock, and there can be no assurance that an active trading market will
develop or, if developed, that such market will be sustained. The initial public
offering price of the Class A Common Stock will be determined through
negotiations between the Company and the representative of the Underwriters. In
addition, the Company believes that factors such as quarterly fluctuations in
the financial results of the Company, as well as developments that affect the
Company's industry in general, the overall economy and the financial markets
could cause the price of the Class A Common Stock to fluctuate substantially.
ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation and By-laws contain certain
provisions that may have the effect of discouraging, delaying or preventing a
change in control of the Company or unsolicited acquisition proposals that a
stockholder might consider favorable. Certain of these provisions: (i) grant ten
votes per share to each share of Class B Common Stock; (ii) divide the Board of
Directors into three classes, each of which will have a different three-year
term; (iii) provide that the stockholders may remove directors from office only
for cause and by a supermajority vote; (iv) provide that special meetings of the
stockholders may be called only by the Board of Directors or certain Company
officers and not by stockholders; (v) establish certain advance notice
procedures for nomination of candidates for election as directors and for
stockholder proposals to be considered at annual stockholders' meetings; and
(vi) authorize the issuance of preferred stock with such designation, rights and
preferences as may be determined, from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without stockholder approval,
to issue preferred stock with dividend, liquidation, conversion, voting or other
rights that could materially adversely affect the voting power or other rights
of, or be dilutive to, the holders of the Company's Common Stock. Certain of
these provisions, as well as certain provisions of Delaware corporation law, may
have the effect of discouraging, delaying or preventing a change in control of
the Company or unsolicited acquisition proposals. See "Description of Capital
Stock -- Antitakeover Effects of Provisions of the Charter and By-Laws and of
Delaware Law."
DILUTION
Investors purchasing shares of Class A Common Stock in this offering will
experience immediate and substantial dilution in net tangible book value per
share of $10.17 (assuming an initial public offering price of $17.00 per share).
See "Dilution."
DIVIDENDS
The Company intends to retain its cash for the continued development of its
business and currently does not intend to pay cash dividends on the Common Stock
in the foreseeable future. See "Dividend Policy."
12
<PAGE> 14
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements relating to,
among other things, future results of operations, growth plans, sales, capital
requirements and general industry and business conditions applicable to the
Company. These forward-looking statements are based largely on the Company's
current expectations and are subject to a number of risks and uncertainties.
Actual results could differ materially from those implied by these
forward-looking statements. Important factors to consider in evaluating such
forward-looking statements include changes in external competitive market
factors, changes in the Company's business strategy or an inability to execute
its strategy due to unanticipated changes in the Company's industry or the
economy in general and various competitive factors that may prevent the Company
from competing successfully in existing or new markets. In light of these risks
and uncertainties, many of which are described in further detail above, there
can be no assurance that the forward-looking statements contained in this
Prospectus will in fact be realized.
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Class A Common
Stock offered by the Company hereby are estimated to be approximately $39.7
million (approximately $46.6 million if the Underwriters' over-allotment option
is exercised in full), assuming an initial public offering price of $17.00 per
share, after deducting estimated underwriting discounts and commissions and
offering expenses.
Of the net proceeds to the Company from this offering, (i) approximately
$7.4 million will be used to fund the C&C Acquisition, consisting of $6.6
million in cash purchase price and approximately $780,000 to repay outstanding
indebtedness of C&C; (ii) approximately $5.4 million will be used to repay
outstanding indebtedness of the Quarry Companies and SMI; (iii) $14.9 million
will be used to fund the Keith Acquisition, consisting of $13.1 million in cash
purchase price and $1.8 million to repay outstanding indebtedness of Keith
Monument assumed by the Company; and (iv) approximately $11.4 million will be
used to repay indebtedness outstanding under certain of the Company's existing
credit facilities, consisting of $2.7 million assumed or incurred in connection
with the Keystone Acquisition and the balance of which was incurred for prior
acquisitions, plant improvement and working capital. Such indebtedness under
such existing credit facilities matures on various dates in 1998 and 1999, and
bears interest at various rates per annum ranging from prime plus .25% to prime
plus 1.25%. The maturity dates and interest rates of the indebtedness to be
repaid by the Company in connection with the C&C Acquisition and Keith
Acquisition are: (i) for the indebtedness of C&C, maturity dates of May and
November 1998 and interest rates ranging from prime plus 1.00% to 9.00%; (ii)
for the indebtedness of the Quarry Companies and SMI, maturity dates of May 1997
and June 2000 and interest rates ranging from prime plus .45% to 10.50%; and
(iii) for the indebtedness of Keith Monument, a maturity date of March 2004 and
an interest rate of 9.00%. See "Business -- Recent and Concurrent Acquisitions."
The Company has received a commitment letter for a new $50 million credit
facility, subject to the consummation of the offering. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." The Company intends to use its
increased borrowing capacity resulting from the intended debt repayment to
finance the Company's expansion, including possible acquisitions, and for
working capital and general corporate purposes. Although management regularly
reviews acquisition prospects that would augment or complement the Company's
existing operations, including the Company's retailing operations, the Company
does not presently have any agreement with respect to any acquisition, other
than the C&C Acquisition and the Keith Acquisition.
The Company will not receive any proceeds from the sale of Class A Common
Stock offered by the Selling Stockholders.
DIVIDEND POLICY
The Company does not anticipate paying cash dividends in the foreseeable
future, but intends to retain any future earnings for reinvestment in its
business. Any future determination to pay cash dividends will be at the
discretion of the Board of Directors and will be dependent upon the Company's
financial condition, results of operations, restrictions contained in credit
agreements, capital requirements and such other factors as the Board of
Directors deems relevant.
14
<PAGE> 16
CAPITALIZATION
The following table sets forth the borrowings under lines of credit,
current portion of long-term debt and capitalization of the Company at June 30,
1997, (i) on a historical basis and (ii) pro forma as adjusted to give effect to
the Reorganization, the C&C Acquisition and Keith Acquisition as if they had
occurred on June 30, 1997, and to reflect the sale by the Company of 2,606,101
shares of Class A Common Stock offered hereby (at an assumed public offering
price of $17.00 per share) and after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company and the
application of the estimated net proceeds thereof as described in "Use of
Proceeds." This table should be read in conjunction with the historical
financial statements and pro forma combined and condensed financial data and the
notes thereto included elsewhere in this Prospectus. See also "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-------------------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Borrowings under lines of credit................................... $ 8,668 $ 8,668
Current portion of long-term debt.................................. 2,844 355
========== ==========
Long-term debt, net of current portion............................. $ 13,897 $ 5,419
Stockholders' equity:
Preferred Stock, par value $.01 per share; 2,500,000 shares
authorized, none outstanding; none outstanding pro forma as
adjusted...................................................... -- --
Class A Common Stock, par value $.01 per share; 30,000,000 shares
authorized, none outstanding; 3,000,000 shares outstanding pro
forma as adjusted(1)(2)....................................... -- 30
Class B Common Stock, par value $.01 per share; 15,000,000 shares
authorized, 3,763,439 shares outstanding; 3,469,540 shares
outstanding pro forma as adjusted(3).......................... 38 35
Additional paid-in capital....................................... 9,174 50,557
Retained earnings................................................ 10,675 6,847
Other............................................................ (55) (55)
---------- -------- --
Total stockholders' equity.................................... 19,832 57,414
---------- -------- --
Total capitalization..................................... $ 33,729 $ 62,833
========== ==========
</TABLE>
- ---------------
(1) Does not include an aggregate of 862,500 shares of Class B Common Stock
(which are convertible on a share-for-share basis into Class A Common Stock)
issuable upon the exercise of outstanding options outstanding under the 1994
Plan and an aggregate of 383,252 shares of Class A Common Stock issuable
upon the exercise of options to be granted under the 1994 Plan in connection
with the Acquisitions and to two non-employee directors who will assume
their positions upon consummation of the offering.
(2) The pro forma as adjusted number includes the concurrent conversion of
293,899 shares of Class B Common Stock into Class A Common Stock and sale
thereof by the Selling Stockholders. See "Principal and Selling
Stockholders."
(3) Does not include an aggregate of 862,500 shares of Class B Common Stock
(which are convertible on a share-for-share basis into Class A Common Stock)
issuable upon the exercise of outstanding options outstanding under the 1994
Plan. See "Management -- Incentive Plans."
15
<PAGE> 17
DILUTION
The net tangible book value of the Company as of June 30, 1997 was $17.7
million, or $4.71 per share of Common Stock. Net tangible book value per share
is determined by dividing total tangible assets less total liabilities of the
Company by the total number of outstanding shares of Common Stock. After giving
effect to the sale of the 2,606,101 shares of Class A Common Stock offered by
the Company hereby (assuming an initial public offering price of $17.00 per
share), after deducting the estimated underwriting discount and estimated
expenses to be paid by the Company and the application of the estimated net
proceeds as set forth in "Use of Proceeds," the pro forma net tangible book
value of the Company at June 30, 1997 would have been $43.5 million or $6.83 per
share. This represents an immediate increase in net tangible book value of $2.12
per share to existing stockholders and an immediate dilution of $10.17 per share
to new investors. The following table illustrates this dilution per share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................... $17.00
Net tangible book value per share as of June 30, 1997............... $4.71
Increase in net tangible book value per share attributable to new
investors........................................................ 2.12
Pro forma net tangible book value per share after the offering........ 6.83
------
Dilution per share to new investors................................... $10.17
======
</TABLE>
16
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated historical financial data presented below under
the captions "Statement of Operations Data" and "Balance Sheet Data" for and as
of the end of each of the years in the five-year period ended December 31, 1996
are derived from the consolidated financial statements of the Company, which
financial statements have been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The selected consolidated historical financial
data for and as of the end of the six month periods ended June 30, 1996 and 1997
have been derived from unaudited consolidated financial statements which, in the
opinion of management, reflect all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial information for such
periods and as of such dates. The consolidated historical results for the six
months ended June 30, 1996 and 1997 are not necessarily indicative of results
for a full fiscal year. The consolidated financial statements as of December 31,
1995 and 1996 and for each of the years in the three-year period ended December
31, 1996, and the auditors' report thereon and as of June 30, 1997 and for the
six months ended June 30, 1996 and 1997, are included elsewhere in this
Prospectus. The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements of the Company, including
the notes thereto, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," appearing elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997(2)
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Manufacturing....................................... $18,383 $17,485 $17,299 $17,793 $32,586 $14,827 $15,278
Quarrying........................................... 15,457 13,522 16,889 15,295 12,083 5,116 5,489
------- ------- ------- ------- ------- ------- -------
Total net revenues................................ 33,840 31,007 34,188 33,088 44,669 19,943 20,767
Gross profit:
Manufacturing....................................... 4,008 2,489 4,050 4,345 8,248 3,603 3,640
Quarrying........................................... 6,474 4,294 6,044 6,104 5,158 1,653 1,565
------- ------- ------- ------- ------- ------- -------
Total gross profit................................ 10,482 6,783 10,094 10,449 13,406 5,256 5,205
Selling, general and administrative expenses.......... 7,377 6,851 6,049 6,453 9,131 4,649 4,328
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations......................... 3,105 (68) 4,045 3,996 4,275 607 877
Interest expense...................................... 1,622 1,505 1,653 1,678 1,723 934 866
Other expenses........................................ -- 2,376 -- 564 -- -- --
Income (loss) before provision (benefit) for income
taxes............................................... 1,483 (3,949) 2,392 1,754 2,552 (327) 11
Provision (benefit) for income taxes.................. 58 (31) 577 358 643 (82) 3
------- ------- ------- ------- ------- ------- -------
Net income (loss)..................................... $ 1,425 $(3,638) $ 1,815 $ 1,396 $ 1,909 $ (245) $ 8
======= ======= ======= ======= ======= ======= =======
Net income (loss) per share........................... .38 (.96) .47 .35 .46 (.06) .00
Weighted average number of shares outstanding(3)...... 3,783 3,783 3,900 4,017 4,106 4,106 4,326
PRO FORMA STATEMENT OF OPERATIONS DATA(1):
Income before provision for income taxes.............. $ 5,975 $ 1,105 $ 1,936
Provision for income taxes............................ 1,625 301 527
------- ------- -------
Net income............................................ 4,350 804 1,409
======= ======= =======
Net income per share.................................. .64 .12 .20
Weighted average number of shares outstanding(3)...... 6,759 6,759 7,032
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
----------------------------------------------- --------------
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 95 $ 92 $ 394 $ 1,995 $ 763 $ 192
Working capital........................................... 8,478 7,605 13,668 13,691 13,286 13,232
Total assets.............................................. 40,810 37,179 42,529 48,101 47,995 57,768
Total long-term debt, net of current maturities........... 13,067 13,162 16,655 14,657 13,054 13,897
Total stockholders' equity................................ 12,528 8,849 10,686 15,479 17,371 19,832
</TABLE>
- ---------------
(1) For information regarding the pro forma adjustments made to the Company's
historical financial data, see "Unaudited Pro Forma Combined and Condensed
Financial Data."
(2) Does not include the results of operations of Keystone which was acquired as
of June 28, 1997.
(3) Includes shares of Common Stock issuable upon the exercise of outstanding
stock options granted under the 1994 Plan, as described in Note 1(n) to the
Company's audited financial statements included elsewhere in this
Prospectus, and excludes 263,441 shares of Class B Common Stock issued on
June 30, 1997 pursuant to the Keystone Acquisition.
17
<PAGE> 19
UNAUDITED PRO FORMA COMBINED AND CONDENSED FINANCIAL DATA
The following unaudited pro forma combined and condensed statements of
operations for the year ended December 31, 1996 and for the six months ended
June 30, 1997 and 1996 reflect the consolidated historical accounts of the
Company for those periods, adjusted to give pro forma effect to the
Reorganization, the Acquisitions and this offering, as if such transactions had
occurred on January 1, 1996. The following unaudited pro forma combined and
condensed balance sheet as of June 30, 1997 reflects the consolidated historical
accounts of the Company as of that date, adjusted to give pro forma effect to
the Reorganization, the C&C Acquisition and the Keith Acquisition and this
offering, as if such transactions had occurred on June 30, 1997.
The unaudited pro forma financial data and accompanying notes should be
read in conjunction with the Consolidated Financial Statements of the Company
and the related notes as well as the financial statements and related notes of
Keystone, C&C, the Quarry Companies, SMI and Keith Monument, all of which are
included elsewhere in this Prospectus. The Company believes that the assumptions
used in the following statements provide a reasonable basis on which to present
the pro forma financial data. The pro forma financial data is provided for
informational purposes only and should not be construed to be indicative of the
Company's financial condition or results of operations had the transactions and
events described above been consummated on the dates assumed and are not
intended to project the Company's financial condition on any future date or
results of operations for any future period.
18
<PAGE> 20
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARRY OFFERING
KEITH COMPANIES & ADJUSTMENTS PRO FORMA PRO FORMA
COMPANY C&C MONUMENT SMI (A) ADJUSTMENTS AS ADJUSTED
------- ------ -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents........ $ 192 $ 160 $1,783 $ 838 $39,710 $ (39,850)(A),(E) $ 2,833
Trade receivables, net........... 11,249 753 1,003 1,149 14,154
Due from affiliates.............. 5,375 192 49 (192) (3,690)(E),(F),(G) 1,734
Inventories...................... 13,374 1,141 1,192 611 202(E) 16,520
Current portion of notes
receivable-related party....... 90 (90)(E)
Current portion of notes
receivable-other............... 29 29
Deferred tax assets.............. 467 10 477
Other current assets............. 837 21 98 174 1,130
------- ------ -------- ----------- ----------- ----------- -----------
Total current assets........... 31,494 2,267 4,254 2,580 39,710 (43,428) 36,877
------- ------ -------- ----------- ----------- ----------- -----------
Net property, plant and
equipment........................ 21,230 989 1,393 4,784 5,816(E),(F) 34,212
Other assets:
Cash surrender value of life
insurance, net................. 959 4 164 1,127
Notes receivable-related party,
excluding current portion...... 401 (401)(E)
Notes receivable-other, excluding
current portion................ 16 16
Goodwill, net.................... 1,731 825 1,806 9,349(E),(F) 13,711
Covenant not-to-compete.......... 388 (388)(E)
Debt issuance costs, net......... 89 (89)(B)
Organization costs, net.......... 190 (89)(C) 101
Deferred tax assets.............. 543 (369) 174
Intangible pension asset......... 93 93
Investments in and advances to
affiliated company............. 1,408 824 (2,033)(F) 199
Other investments................ 31 319 350
Other............................ 209 (127)(E) 82
------- ------ -------- ----------- ----------- ----------- -----------
Total other assets............. 5,044 828 2,322 1,437 6,222 15,853
------- ------ -------- ----------- ----------- ----------- -----------
Total assets............... $57,768 $4,084 $7,969 $ 8,801 $39,710 $ (31,390) $86,942
======== ====== ========== ============ =========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Borrowings under lines of
credit......................... 8,668 8,668
Current installments of long-term
debt........................... 2,844 278 648 (3,415)(A),(E) 355
Accounts payable................. 2,066 148 96 656 (301)(F) 2,665
Accrued expenses................. 2,358 85 629 12 (72)(E) 3,012
Dividends payable................ 86 86
Income taxes payable............. 131 (16) 115
Current portion of deferred
income......................... 400 400
Customer deposits................ 1,795 845 391 3,031
------- ------ -------- ----------- ----------- ----------- -----------
Total current
liabilities.............. 18,262 233 1,918 1,707 (3,788) 18,332
------- ------ -------- ----------- ----------- ----------- -----------
Long-term debt, excluding current
installments................... 13,897 786 1,840 5,446 (16,550)(A),(D),(G) 5,419
Deferred compensation............ 3,566 3,566
Deferred income, excluding
current portion................ 200 200
Accrued pension cost............. 1,504 1,504
Accrued postretirement benefit
cost........................... 507 507
------- ------ -------- ----------- ----------- ----------- -----------
Total liabilities.......... 37,936 1,019 3,758 7,153 (20,338) 29,528
------- ------ -------- ----------- ----------- ----------- -----------
Stockholders' equity:
Common stock..................... 38 21 180 5,502 39,710 (4,003)(D),(F) 41,448
Additional paid-in capital....... 9,174 9,174
Retained earnings................ 10,675 3,044 4,037 (3,854) (7,055)(B),(C),(F) 6,847
Treasury stock................... (6) 6(F)
Cumulative translation
adjustment..................... (55) (55)
------- ------ -------- ----------- ----------- ----------- -----------
Total stockholders' equity..... 19,832 3,065 4,211 1,648 39,710 (11,052) 57,414
------- ------ -------- ----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity..... $57,768 $4,084 $7,969 $ 8,801 $39,710 $ (31,390) $86,942
======== ====== ========== ============ =========== =========== ==========
</TABLE>
19
<PAGE> 21
- ---------------
The Unaudited Pro Forma Combined Balance Sheet as of June 30, 1997 gives effect
to the Reorganization and the consummation of the C&C Acquisition and the Keith
Acquisition as if they had occurred on June 30, 1997 as follows:
<TABLE>
<S> <C> <C>
(A) Reflects this offering and the application of the proceeds
therefrom as follows:
Issuance of the stock.............................................. $44,304
Expenses for issuance of the stock................................. (4,594)
-------
Net proceeds....................................................... 39,710
Cash paid to sellers............................................... (19,212)
Cash paid to retire sellers debt................................... (2,263)
Retirement of debt assumed......................................... (6,186)
Retirement of current installments of long-term debt............... (2,674)
Retirement of long-term debt....................................... (8,858)
-------
Remaining proceeds................................................. 517
(B) Reflects the elimination of debt issuance costs.................... (89)
(C) Reflects the elimination of prior organization costs............... (89)
(D) Represents the Acquisitions:
</TABLE>
<TABLE>
<CAPTION>
KEITH
C&C MONUMENT TOTAL
------- -------- -------
<S> <C> <C> <C> <C>
Cash paid to sellers......................... $ 6,137 $13,075 $19,212
Stock issued to sellers...................... 200 1,500 1,700
Cash paid to retire sellers debt............. 463 1,800 2,263
Bank debt assumed(1)......................... 6,186 -- 6,186
------ ------ -------
Total purchase price(1)...................... $12,986 $16,375 $29,361
====== ====== =======
(E) The Acquisitions are accounted for under the purchase method of accounting in
accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations." The purchase price is allocated first to the tangible and
identifiable assets and liabilities of the acquired companies based upon
preliminary estimates of their fair market values, with the remainder allocated to
goodwill:
</TABLE>
<TABLE>
<CAPTION>
KEITH
C&C MONUMENT TOTAL
------- -------- -------
<S> <C> <C> <C> <C>
Net purchase price........................... $ 6,800 $16,375 $23,175
Book value of net assets on June 30, 1997.... 3,065 4,211 7,276
Net assets excluded or eliminated at
Acquisition............................. (929) (710) (1,639)
------ ------
Book value of tangible net assets
acquired................................... 2,136 3,501 5,637
------ ------
Increase in basis............................ $ 4,664 $12,874 $17,538
====== ======
Allocation of increase in basis:
Increase in inventory value to convert LIFO
to fair value........................... -- 202 202
Step-up basis of property, plant and
equipment to fair market value............. 4,342 1,014 5,356
Increase in goodwill......................... 322 11,658 11,980
------ ------
$ 4,664 $12,874 $17,538
====== ======
(F) Reflects the elimination of investments in and advances between C&C, the Quarry
Companies and SMI pursuant to purchase accounting.
(G) Includes the elimination of $3,340,000 due from Swenson Granite Company, Inc., an
affiliate, assumed by the Company during the Reorganization and the assumption of a
$310,000 note payable that was the obligation of Swenson Granite Company, Inc.
prior to the Reorganization.
</TABLE>
--------------------
(1) Includes the assumption of the total debt of the Quarry Companies and
SMI of $5.4 million in conjunction with the acquisition of the
remaining 50% that was not acquired pursuant to the Keystone
Acquisition.
20
<PAGE> 22
UNAUDITED PRO FORMA COMBINED AND CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------
ELBERTON KEITH PRO FORMA PRO FORMA
COMPANY COMPANIES(F) MONUMENT ADJUSTMENTS AS ADJUSTED
------- ------------ -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Manufacturing.................................. $32,586 $ 16,446 $ (150)(A) $48,882
Quarrying...................................... 12,083 5,545 17,628
Retailing...................................... $7,264 7,264
------ ------ ----- ------ ------
Total net revenues........................... 44,669 21,991 7,264 (150) 73,774
Gross profit:
Manufacturing.................................. 8,248 2,116 10,364
Quarrying...................................... 5,158 1,814 126(B) 7,098
Retailing...................................... 4,832 4,832
------ ------ ----- ------ ------
Total gross profit........................... 13,406 3,930 4,832 126 22,294
Selling, general and administrative expenses..... 9,131 2,868 3,713 (458)(C) 15,254
------ ------ ----- ------ ------
Income from operations........................... 4,275 1,062 1,119 584 7,040
------ ------ ----- ------ ------
Interest expense................................. 1,723 643 (1,301)(D) 1,065
Income before provision (benefit) for income
taxes.......................................... 2,552 419 1,119 1,885 5,975
Provision (benefit) for income taxes............. 643 156 (24) 850(E) 1,625
------ ------ ----- ------ ------
Net income....................................... $1,909 $ 263 $1,143 $ 1,035 $ 4,350
====== ====== ===== ====== ======
Net income per share............................. .64
Weighted average number of shares outstanding.... 6,759
</TABLE>
- ---------------
The Unaudited Pro Forma Combined and Condensed Statement of Operations for the
year ended December 31, 1996 gives effect to the Reorganization and the
consummation of the C&C Acquisition and the Keith Acquisition as if they had
occurred on January 1, 1996 as follows:
<TABLE>
<S> <C>
(A) To eliminate intercompany sales........................................................... $ (150)
(B) Reflects the closure of the Caprice quarry................................................ 126
(C) Reflects the following:
Reversal of debt issuance costs....................................................... (70)
Reversal of organization costs........................................................ (33)
Amortization of goodwill.............................................................. 300
Reduction in salary expense........................................................... (620)
Selling, general and administrative expenses related to the Caprice quarry closure.... (35)
-----
(458)
(D) Reflects the elimination of interest expense.............................................. (1,301)
</TABLE>
(E) Reflects the net additional income tax provision as a result of the
above adjustments, at an effective tax rate of 27.2%, and provides for
income tax expense for companies previously taxed as Subchapter S
corporations.
(F) Following is a summary of the Elberton Companies operations for the year
ended December 31, 1996:
<TABLE>
<CAPTION>
QUARRY
COMPANIES &
SMI C&C KEYSTONE TOTAL
----------- ------ -------- -------
<S> <C> <C> <C> <C>
Net revenues:
Manufacturing...................................... $ 1,257 $5,885 $9,304 $16,446
Quarrying.......................................... 5,545 -- -- 5,545
Retailing.......................................... -- -- -- --
------- ------- -------- --------
Total net revenues........................... 6,802 5,885 9,304 21,991
Gross profit:
Manufacturing...................................... 219 1,132 765 2,116
Quarrying.......................................... 1,814 -- -- 1,814
Retailing.......................................... -- -- -- --
--------- ------- ------- --------
Total gross profit........................... 2,033 1,132 765 3,930
Selling, general and administrative expenses......... 1,280 669 919 2,868
--------- ------- ------- --------
Income (loss) from operations........................ 753 463 (154) 1,062
--------- ------- ------- --------
Interest expense..................................... 462 65 116 643
Income (loss) before provision (benefit) for income
taxes.............................................. 291 398 (270) 419
Provision (benefit) for income taxes................. 156 -- -- 156
--------- ------- ------- --------
Net income (loss).................................... $ 135 $ 398 $ (270) $ 263
========= ========= ========= ==========
</TABLE>
21
<PAGE> 23
UNAUDITED PRO FORMA COMBINED AND CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------
ELBERTON KEITH PRO FORMA PRO FORMA
COMPANY COMPANIES(F) MONUMENT ADJUSTMENTS AS ADJUSTED
------- ------------ -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Manufacturing................................ $15,278 $8,365 $ (150)(A) $23,493
Quarrying.................................... 5,489 2,912 8,401
Retailing.................................... $3,359 3,359
------ ------ ----- ------ ------
Total net revenues......................... 20,767 11,277 3,359 (150) 35,253
Gross profit:
Manufacturing................................ 3,640 993 4,633
Quarrying.................................... 1,565 1,209 175(B) 2,949
Retailing.................................... 2,271 2,271
------ ------ ----- ------ ------
Total gross profit......................... 5,205 2,202 2,271 175 9,853
Selling, general and administrative expenses... 4,328 1,370 1,883 (229)(C) 7,352
------ ------ ----- ------ ------
Income from operations......................... 877 832 388 404 2,501
Interest expense............................... 866 389 (690)(D) 565
Income before provision for income taxes....... 11 443 388 1,094 1,936
Provision for income taxes..................... 3 524(E) 527
------ ------ ----- ------ ------
Net income..................................... $ 8 $ 443 $ 388 $ 570 $ 1,409
====== ====== ===== ====== ======
Net income per share........................... .20
Weighted average number of shares
outstanding.................................. 7,032
</TABLE>
- ---------------
The Unaudited Pro Forma Combined and Condensed Statement of Operations for the
six months ended June 30, 1997 gives effect to the Reorganization and the
consummation of the C&C Acquisition and the Keith Acquisition as if they had
occurred on January 1, 1997 as follows:
<TABLE>
<S> <C>
(A) To eliminate intercompany sales.............................................................. $ (150)
(B) Reflects the closure of the Caprice quarry................................................... 175
(C) Reflects the following:
Reversal of debt issuance costs.............................................................. (35)
Reversal of organization costs............................................................... (17)
Amortization of goodwill..................................................................... 150
Reduction in salary expense.................................................................. (310)
Selling, general and administrative expenses related to the Caprice quarry closure........... (17)
----
(229)
(D) Reflects the elimination of interest expense................................................. (690)
</TABLE>
(E) Reflects the net additional income tax provision as a result of the
above adjustments, at an effective tax rate of 27.2%, and provides for
income tax expense for companies previously taxed as Subchapter S
corporations.
(F) Following is a summary of the Elberton Companies operations for the six
months ended June 30 , 1997:
<TABLE>
<CAPTION>
QUARRY
COMPANIES &
SMI C&C KEYSTONE TOTAL
--------------- ------ -------- ------
<S> <C> <C> <C> <C>
Net revenues:
Manufacturing......................................... $ 649 $3,061 $4,654 $8,365
Quarrying............................................. 2,912 -- -- 2,912
Retailing............................................. -- -- -- --
------- ------- ------ -------
Total net revenues.............................. 3,561 3,061 4,654 11,277
Gross profit:
Manufacturing......................................... 129 679 186 993
Quarrying............................................. 1,209 -- -- 1,209
Retailing............................................. -- -- -- --
------- ------- ------- -------
Total gross profit.............................. 1,338 679 186 2,202
Selling, general and administrative expenses............ 634 375 361 1,370
--------- ------- -------- -------
Income (loss) from operations........................... 704 304 (175) 832
--------- ------- -------- -------
Interest expense........................................ 201 35 154 389
--------- -------- -------- -------
Income (loss) before provision for income taxes......... 503 269 (329) 443
Provision for income taxes.............................. -- -- -- --
--------- ------- -------- -------
Net income.............................................. $ 503 $ 269 $ (329) $ 443
========= ========= ========= =======
</TABLE>
22
<PAGE> 24
UNAUDITED PRO FORMA COMBINED AND CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------
ELBERTON KEITH PRO FORMA PRO FORMA
COMPANY COMPANIES(F) MONUMENT ADJUSTMENTS AS ADJUSTED
------- ------------ -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Manufacturing.............................. $14,827 $ 8,050 $ (80)(A) $22,797
Quarrying.................................. 5,116 2,985 8,101
Retailing.................................. $2,812 2,812
------ ------ ----- ------ ------
Total net revenues....................... 19,943 11,035 2,812 (80) 33,710
Gross profit:
Manufacturing.............................. 3,603 936 4,539
Quarrying.................................. 1,653 937 64(B) 2,654
Retailing.................................. 1,823 1,823
------ ------ ----- ------ ------
Total gross profit....................... 5,256 1,873 1,823 64 9,016
Selling, general and administrative
expenses................................... 4,649 1,376 1,545 (233)(C) 7,338
------ ------ ----- ------ ------
Income from operations....................... 607 497 278 297 1,678
------ ------ ----- ------ ------
Interest expense............................. 934 340 (701)(D) 573
Income (loss) before provision (benefit) for
income taxes............................... (327) 157 278 998 1,105
Provision (benefit) for income taxes......... (82) 383(E) 301
------ ------ ----- ------ ------
Net income (loss)............................ $ (245) $ 157 $ 278 $ 615 $ 804
====== ====== ===== ====== ======
Net income per share......................... .12
Weighted average number of shares
outstanding................................ 6,759
</TABLE>
- ---------------
The Unaudited Pro Forma Combined and Condensed Statement of Operations for the
six months ended June 30, 1996 gives effect to the Reorganization and the
consummation of the C&C Acquisition and the Keith Acquisition as if they had
occurred on January 1, 1996 as follows:
<TABLE>
<S> <C>
(A) To eliminate intercompany sales.................................................................. $ (80)
(B) Reflects the closure of the Caprice quarry....................................................... 64
(C) Reflects the following:
Reversal of debt issuance costs.................................................................. (35)
Reversal of organization costs................................................................... (17)
Amortization of goodwill......................................................................... 150
Reduction in salary expense...................................................................... (310)
Selling, general and administrative expenses related to the Caprice quarry closure............... (21)
------
(233)
(D) Reflects the elimination of interest expense..................................................... (701)
(E) Reflects the net additional income tax provision as a result of the above adjustments, at an effective tax
rate of 27.2%, and provides for income tax expense for companies previously taxed as Subchapter S
corporations.
(F) Following is a summary of the Elberton Companies operations for the six months ended June 30, 1996:
</TABLE>
<TABLE>
<CAPTION>
QUARRY
COMPANIES &
SMI C&C KEYSTONE TOTAL
--------------- ------ -------- -----------
<S> <C> <C> <C> <C>
Net revenues:
Manufacturing..................................... $ 574 $2,861 $4,615 $ 8,050
Quarrying......................................... 2,985 -- -- 2,985
Retailing......................................... -- -- -- --
--------- ------- ------- --------
Total net revenues.......................... 3,559 2,861 4,615 11,035
Gross profit:
Manufacturing..................................... 51 599 286 936
Quarrying......................................... 937 -- -- 937
Retailing......................................... -- -- -- --
--------- ------- ------- --------
Total gross profit.......................... 988 599 286 1,873
Selling, general and administrative expenses........ 646 300 430 1,376
--------- ------- ------- --------
Income (loss) from operations....................... 342 299 (144) 497
========= ========= ======== ==========
Interest expense.................................... 236 35 69 340
Income (loss) before provision for income taxes..... 106 264 (213) 157
Provision for income taxes.......................... -- -- -- --
--------- ------- ------- --------
Net income.......................................... $ 106 $ 264 $ (213) $ 157
========= ========= ========= ==========
</TABLE>
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Rock of Ages, founded in 1885, is an integrated quarrier, manufacturer and
distributor of granite and products manufactured from granite. The quarry
division sells granite both to the manufacturing division and to outside
manufacturers, as well as to distributors in Europe and Japan. The manufacturing
division's principal product is granite memorials used primarily in cemeteries,
although it also manufactures some specialized granite products for industrial
applications. The Company owns and operates 13 active quarry properties and 12
manufacturing and sawing facilities in North America, principally in Vermont,
Georgia, and the Province of Quebec. The Company markets and distributes its
memorials on a wholesale basis to approximately 2,124 independent memorial
retailers in the United States and Canada, including approximately 495
independent authorized Rock of Ages retailers that are the primary outlet for
the Company's branded memorials. The Company recently entered into a definitive
agreement to acquire one of the largest of its authorized independent retailers,
which will provide the Company with 17 owned retail outlets and mark the
Company's first significant entry into retailing. The Company's memorials are
marketed under the names of Rock of Ages Sealmark and Colorcraft, as well as
several private labels. The Company believes that the Rock of Ages trademark is
one of the oldest and best known brand names in the granite memorialization
industry.
Prior to 1996, the Company's quarrying and manufacturing operations were
concentrated in Vermont and Quebec, and its manufacturing division produced
primarily high-end branded memorials that were distributed to a relatively small
percentage of the independent memorial retailers in North America. During the
past 20 months, the Company has begun to implement a strategy that involves: (i)
significantly expanding the breadth of its product offerings to include
memorials covering all price points and major color varieties; (ii) increasing
its distribution base; and (iii) vertically integrating forward into the retail
distribution channel in order to move closer to the ultimate memorial customer.
The steps taken by the Company so far in this regard have enabled it to increase
manufacturing revenues from $17.8 million in 1995 to $32.6 million in 1996
($48.9 million in 1996 on a pro forma basis), and to increase its distribution
base from 495 independent retailers in 1995 to approximately 2,124 in 1997
including 17 Company-owned outlets. More importantly, these steps have
positioned the Company favorably to capitalize on the opportunities to
significantly expand its sales and profitability in the granite memorialization
industry.
The Company's primary means of implementing its growth strategy to date has
been through acquisitions, beginning with the acquisitions on December 31, 1995
of Lawson Granite Company and Anderson-Friberg Company, each based in Barre,
Vermont. These acquisitions helped expand the Company's manufacturing capacity
and distribution base, while also broadening its granite memorial product line
to include more non-branded granite memorials at lower price points than the
Company's then-existing product line. In addition, the Company has recently
taken further steps to implement its growth strategy through (i) the Keystone
Acquisition, pursuant to which the Company acquired on June 30, 1997 the largest
granite memorial manufacturer in Elberton, Georgia, and (ii) the execution of
agreements to consummate the C&C Acquisition, pursuant to which the Company will
acquire C&C, which the Company believes is the second-largest granite memorial
manufacturer in Elberton. The Elberton Acquisitions will establish the Company
as the largest granite memorial manufacturer in Elberton, Georgia, which is the
largest granite producing area in North America and will give the Company a
substantially broader product line, greater manufacturing capacity and enhanced
distribution capabilities in the southern United States.
The Company's first significant entry into memorial retailing was initiated
in July 1997, when the Company entered into a definitive agreement to acquire
Keith Monument. It is currently anticipated that the Keith Acquisition will
close concurrently with the consummation of this offering. Keith Monument,
founded in 1867, has been an authorized Rock of Ages retailer for more than 50
years. The Company believes that Keith Monument is one of the largest retailers
of granite memorials in the United States. Upon the closing of the Keith
Acquisition, John E. Keith, a principal owner and the president of Keith
Monument with over 30 years of experience in granite memorial retailing, will
head the Company's retailing operations. Mr. Keith
24
<PAGE> 26
will oversee the implementation of the Company's strategy to significantly
expand its retail operations both through other acquisitions of retailers and by
pursuing strategic alliances with funeral home and cemetery owners, including
consolidators.
The Company records revenues from both manufacturing and quarrying.
Manufacturing revenues are recorded when the finished product is shipped from
Company facilities to an outside customer. The granite quarried by the Company
is sold both to outside customers and used by the Company's manufacturing
division. During 1996, 68.6% of the granite quarried by the Company was sold to
outside customers. The Company records revenue and gross profit related to the
sale of granite sold to an outside customer when the granite is shipped from the
Company's quarry. The Company does not record a sale, nor does the Company
record gross profit, at the time granite is transferred to the Company's
manufacturing division. The Company records revenue and gross profit related to
internally transferred granite only after the granite is manufactured into a
finished product and sold to an outside customer.
The following table sets forth certain historical statement of operations
data as a percentage of net revenues with the exception of manufacturing gross
profit and quarrying gross profit, which are shown as a percentage of
manufacturing revenues and quarrying revenues, respectively.
<TABLE>
<CAPTION>
SIX MONTHS
FOR THE YEARS ENDED ENDED
DECEMBER 31, JUNE 30,
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Manufacturing.................................. 50.6 53.8 72.9 74.3 73.6
Quarrying...................................... 49.4 46.2 27.1 25.7 26.4
----- ----- ----- ----- -----
Total....................................... 100.0 100.0 100.0 100.0 100.0
Gross profit
Manufacturing.................................. 23.4 24.4 25.3 24.3 23.8
Quarrying...................................... 35.8 39.9 42.7 32.3 28.5
Combined gross profit.......................... 29.5 31.6 30.0 26.4 25.1
Selling, general and administrative expenses..... 17.7 19.5 20.4 23.3 20.8
Income from operations........................... 11.8 12.1 9.6 3.0 4.2
Interest expense................................. 4.8 5.1 3.9 4.7 4.2
Income (loss) before provision (benefit) for
income taxes................................... 7.0 5.3 5.7 (1.6) 0.1
Provision (benefit) for income taxes............. 1.7 1.1 1.4 (0.4) 0.0
Net income (loss)................................ 5.3 4.2 4.3 (1.2) 0.0
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenues for the six months ended June 30, 1997 increased 4.1% to $20.8
million from $19.9 million for the six months ended June 30, 1996. This increase
was partly attributable to an increase in manufacturing revenues of $500,000 due
to a greater number of memorial units sold. Although quarry revenues from the
North American market experienced a slight decline during the period ended June
30, 1997, quarry revenues increased by a net $400,000 as a result of increased
exports to Asia.
Gross profit for the six months ended June 30, 1997 remained unchanged at
$5.2 million compared to gross profit for the six months ended June 30, 1996.
The gross profit percentage fell slightly to 25.1% for the six months ended June
30, 1997 from 26.4% for the six months ended June 30, 1996 but was offset by
higher sales volumes during the most recent period. The gross profit margin in
manufacturing declined during the six months ended June 30, 1997 as a result of
a slight shift in the product mix toward lower margin products. The decrease in
the quarry gross profit margin for the six months ended June 30, 1997 was a
result of a shift in product mix toward lower-margin exports.
Selling, general and administrative expenses for the six months ended June
30, 1997 decreased 6.9% to $4.4 million from $4.6 million for the six months
ended June 30, 1996. As a percentage of sales, selling,
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<PAGE> 27
general and administrative expenses decreased to 20.8% from 23.3% for the prior
six month period. This decrease during the most recent period compared to the
prior period resulted from cost savings as a result of the integration of
acquisitions consummated during 1996.
Interest expense for the six month period ended June 30, 1997 decreased to
$866,000 from $934,000 for the six month period ended June 30, 1996. The
reduction in interest expense was the result of reduced borrowing levels during
the most recent period.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995.
Revenues for the fiscal year ended December 31, 1996 increased 35.0% to
$44.7 million from $33.1 million for the year ended December 31, 1995. This
growth was attributable to an increase of $3.9 million in revenues from existing
operations and an increase of $10.9 million in revenues from acquired
manufacturing operations. This increase was offset by a decrease in quarry
revenues as a result of the Company's acquisition of two manufacturers that had
previously been significant customers and a $1.7 million decrease in quarry
sales due to reduced exports to Japan and other Asian markets.
Gross profit for 1996 compared to 1995 increased 28.3% to $13.4 million
from $10.4 million in 1995. The higher total gross profit reflects an increase
of $2.5 million from acquired manufacturing operations and an increase of $1.4
million from existing manufacturing operations. This increase was partly offset
by reduced gross profit of $900,000 from quarrying operations due to lower
revenue. The gross profit percentage fell slightly to 30.0% in 1996 from 31.6%
in 1995 as a result of sales from the lower margin products of the acquired
manufacturing operations. The lower gross margin in 1996 compared to 1995 was
offset slightly by higher margins in the quarry operations due to a price
increase that went into effect during 1996. Although gross profit margins in
both manufacturing and quarrying increased for 1996 compared to 1995, the total
gross profit margin declined as a result of the lower margin manufacturing
business accounting for a higher percentage of total Company revenues.
Selling, general and administrative expenses for 1996 increased 41.5% to
$9.1 million from $6.5 million in 1995. As a percentage of net sales, selling,
general and administrative expenses for 1996 increased to 20.4% from 19.5% in
1995. This increase resulted primarily from increased personnel expense
necessary to support a higher rate of growth in memorial manufacturing and
increased acquisition activity.
Interest expense for 1996 remained unchanged from 1995 at $1.7 million.
Income taxes as a percent of earnings before taxes increased from 20.4% to
25.2% in 1996. Although the Company was in an alternative minimum tax position
for Federal tax purposes, the Company paid higher state taxes as a result of its
income level exceeding the Company's depletion allowances. In 1995, the Company
was in an alternative minimum tax position for Federal taxes and paid only a
nominal amount of state taxes as a result of the magnitude of its depletion
allowances.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994.
Revenues for 1995 decreased 3.2% to $33.1 million from $34.2 million for
the fiscal year ended December 31, 1994. The decrease was attributable to a $1.6
million reduction in quarry sales from reduced exports to Japan and other Asian
markets. This decrease was slightly offset by a $500,000 increase in
manufacturing sales.
Gross profit for 1995 increased 3.5% to $10.4 million from $10.1 million in
1994. The increase was the result of an improvement in the gross profit
percentage to 31.6% in 1995 from 29.5% in 1994. The improved gross margin was in
part a reflection of manufacturing volume increases and changes in the Company's
marketing and pricing strategies to deemphasize lower margin customers.
Additionally, gross profit margins increased as a result of unit cost reductions
in the Company's quarry operations.
Selling, general and administrative expenses for 1995 increased 6.7% to
$6.5 million from $6.0 million in 1994. As a percentage of net revenue, selling,
general and administrative expenses for 1995 increased to 19.5%
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<PAGE> 28
from 17.7% in 1994. This increase resulted primarily from expenses related to
the employee savings and profit sharing plan which was established during fiscal
1995.
Interest expense, net for 1995 remained unchanged at $1.7 million from
1994.
Income taxes as a percent of earnings before taxes decreased from 24.1% in
1994 to 20.4% in 1995. The decrease was the result of a lower level of taxable
income in 1995 which resulted in the Company being in an alternative minimum tax
position for Federal income tax purposes. During 1994, the Company was still in
an alternative minimum tax position but had a higher level of taxable income
which exceeded its depletion allowance for state income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. The Company considers liquidity to be its ability to meet its
long and short-term cash requirements. Historically the Company has met these
requirements primarily from cash generated by operating activities and periodic
borrowings under commercial credit facilities. The Company's recent and pending
acquisitions have increased its requirements for external sources of liquidity,
and the Company anticipates that this trend will continue as it further
implements its growth strategy.
Six Months Ended June 30, 1997. For the six months ended June 30, 1997 net
cash used in operating activities was $3.0 million. The six month period results
were primarily attributable to increases in trade receivables and amounts due
from affiliates. Net cash used in investing activities was $1.7 million for the
six month period. The results were primarily attributable to purchase of
property, plant and equipment. Net cash provided by financing activities was
$4.1 million for the six month period. The results were primarily attributable
to borrowings under lines of credit that were partially offset by principal
payments on long-term debt.
Year Ended December 31, 1996. For 1996, net cash provided by operating
activities was $3.9 million. 1996 results were driven primarily by cash provided
by a decrease in trade receivables which were partially offset by an increase in
inventories and receivables due from affiliates. Net cash used in investing
activities was $1.8 million primarily for the purchase of property, plant and
equipment. Net cash used in financing activities was $3.3 million used primarily
for principal repayments on long-term debt, offset by increased borrowings under
lines of credit.
Capital Resources. As of June 30, 1997, the Company had $6.6 million
outstanding and approximately $2.9 million available under its revolving credit
facility with CIT Group -- Business Credit Inc. ("CIT"). The interest rate on
this facility as of such date was 9.5%, based on a formula of prime plus 1%. In
addition, the Company had outstanding a term loan payable to CIT in the
principal amount of $13.6 million, bearing interest at 9.75% based on prime plus
1.25%. The term loan has a final maturity of January 1, 1999, with amortization
requirements of $500,000 per quarter. As of June 30, 1997, the Company had
approximately $1.8 million of indebtedness outstanding under credit facilities
assumed in connection with the Keystone Acquisition, with maturities in 1997,
1998 and 1999 and interest of up to 9.75% per annum (the "Keystone
Indebtedness"). The Company intends to apply a portion of the net proceeds of
the offering toward repayment of outstanding amounts under its credit facility
and term loan with CIT and the Keystone Indebtedness, and has received a
commitment letter for a new $50 million credit facility subject to consummation
of the offering, borrowings under which will be used to repay all remaining
amounts outstanding under the existing credit facility with CIT. As of June 30,
1997, the Company also had $2.1 million outstanding and no availability under a
demand revolving line of credit with the Royal Bank of Canada. The interest rate
on this facility as of such date was 6.25% based on a formula of Canadian prime
plus .75%. The Company's primary need for capital will be to maintain and
improve its manufacturing and quarrying facilities and to finance acquisitions
as part of its growth strategy. The Company has $3.7 million budgeted for
capital expenditures in 1997, of which it had spent $1.6 million through June
30, 1997. The Company believes that the combination of cash flow from
operations, its existing credit facilities, the proceeds of this offering, and
the new credit facility it expects to put in place will be sufficient to fund
its operations for at least the next twelve months.
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SEASONALITY
Historically, the Company's operations have experienced certain seasonal
patterns. Generally the Company's net sales have been highest in the third
quarter and lowest in the first quarter of each year due primarily to weather.
Cemeteries in northern areas generally do not accept granite memorials during
winter months when the ground is frozen because they cannot be properly set. The
Company typically closes certain of its Vermont and Canadian quarries during
these months because of increased operating costs attributable to adverse
weather conditions. The Company has historically incurred a net loss during the
first six months of each calendar year. However, the Company believes that the
variability of its operating results on a quarterly basis will be lessened as
its operations become more geographically dispersed.
INFLATION
The Company believes that the relatively moderate rates of inflation
experienced in recent years have not had a significant effect on its results of
operations.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 128, Earnings Per Share, will require a different calculation of
earnings per share and will require a restatement in all prior periods. This
will be effective for periods ending after December 15, 1997.
SFAS No. 130, Reporting Comprehensive Income, will be effective for periods
beginning after December 15, 1997.
SFAS No. 131, Disclosure About Segments of an Enterprise and Related
Information, will be effective for periods beginning after December 15, 1997.
Management does not believe that the above pronouncements will have a
material effect on the Company's financial statements.
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<PAGE> 30
THE DEATH CARE INDUSTRY AND GRANITE MEMORIALIZATION
DEATH CARE INDUSTRY OVERVIEW
The death care industry has traditionally been comprised of three principal
segments: (i) ceremony and tribute, generally in the form of a funeral or
memorial service; (ii) disposition of remains, either through burial or
cremation; and (iii) memorialization, generally through monuments, markers or
inscriptions. The death care industry is relatively stable due to predictable
death rates and demographics relating to aging and wealth. Certain
characteristics generally applicable to the death care industry are summarized
below.
Fragmented nature. Ownership in the death care industry is generally
highly fragmented. With the exception of bronze memorial suppliers (two
companies with an estimated market share of in excess of 80%) and casket
manufacturers (three companies with an estimated 60% market share), the majority
of death care operators are small, privately-owned family companies. At the end
of 1996, consolidators owned (i) less than 12% of the estimated 22,800 funeral
homes, (ii) approximately 890, or less than 10%, of the estimated 9,500
commercial cemeteries, and (iii) less than 5% of the total estimated 23,000
active cemeteries, in the United States.
Barriers to entry. Death care businesses have traditionally been
transferred to successive generations within a family and in most cases have a
heritage, community presence and tradition that act as formidable barriers for
new entrants into existing markets. Presence and tradition afford established
industry operators an important local franchise and provide the opportunity for
significant referral business.
Stability. Death rates in the United States and Canada are fairly
predictable and are expected to rise approximately 1% per year between 1996 and
2010. The general death care industry is therefore relatively stable and fairly
predictable. Business failures are generally uncommon among retailers of death
care products and services, with ownership traditionally passing from generation
to generation.
Consolidation. Consolidators are actively consolidating the funeral home
and cemetery segments of the death care industry; the Company believes this
consolidation will occur in all areas of the death care industry.
Pre-need marketing and selling. An increasing number of general death care
products and services, especially funeral products and services and cemetery
lots controlled by consolidators, are being sold prior to the time of death
("pre-need") rather than at the time of death ("at-need").
Trend toward cremation. In recent years, there has been a steady, gradual
growth in the number of families that have chosen cremation as an alternative to
traditional methods of burial. According to CANA, cremations represented
approximately 22% of the United States burial market in 1996 compared to
approximately 10% in 1980, and CANA expects this rate to rise to 29% by 2010.
Cremation rates vary dramatically by state for religious, cultural and other
reasons. Cremation is generally marketed as a less costly alternative to
interment; in addition, it is increasingly being marketed as a part of a death
care program that incorporates a traditional service and memorialization.
THE GRANITE MEMORIALIZATION INDUSTRY
General. In 1995, there were approximately 1.8 million interments in the
United States. Of these, the Company believes at least 50% were memorialized in
some sort of permanent manner. These memorializations take a number of forms,
depending on the type of interment. Individual cemetery lots typically have
granite or bronze memorials, while communal interments such as community
mausoleums, cremation niches and columbariums have a range of stone, masonry and
wood construction. The Company believes the North American granite
memorialization industry, excluding communal interments such as community
mausoleums and columbariums, is in excess of $1.0 billion in annual retail sales
in 1996.
Granite memorials are manufactured in a wide variety of sizes, designs and
colors, depending on the degree of personalization desired by the customer. The
Company believes the largest selling colors, in descending order of magnitude,
are Elberton Gray, Barre Gray, Black, Dakota Mahogany, Pink and Red, based on
the Company's sales and market information. While there are a number of standard
types of
29
<PAGE> 31
memorials, including flush grass markers and various types of upright granite
memorials, their size varies slightly from region to region.
The granite memorialization industry is comprised of three principal areas:
(i) quarrying of the granite; (ii) manufacture and wholesale distribution of the
memorials; and (iii) retail sales of the memorials. The granite memorialization
industry shares some of the fundamental characteristics of the death care
industry, including barriers to entry created by local heritage, community
presence and tradition, structural fragmentation and stable, predictable demand.
However, the granite memorialization industry and its three principal areas have
certain distinguishing characteristics that the Company believes create
attractive opportunities. These characteristics include the following:
Timing and point of sale. Unlike most death care products and services,
the purchase of granite memorials by consumers is typically separated both
physically and chronologically from the funeral planning and service process.
Granite memorials have traditionally been sold primarily through independent
monument retailers rather than at or through funeral homes or cemeteries
(approximately 3,000 of such independent memorial retailers are located outside
funeral homes and cemeteries, according to the Monument Builders of North
America). In addition, granite memorials historically have been sold some time
after the funeral or interment service.
Additional barriers to entry. As in the death care industry generally,
local heritage, community presence and tradition deter entry into the granite
memorialization industry. However, the most significant barriers to entry to the
quarrying of granite include: (i) the limited number of known commercially
exploitable memorial grade granite deposits; (ii) stringent federal, state and
local zoning and environmental laws; and (iii) substantial capital requirements.
Barriers to entry in the manufacture of granite memorials include (a) the need
to be in reasonable proximity to granite quarries producing memorial grade
granite due to the high freight costs associated with transporting granite
blocks; (b) substantial capital costs in establishing and operating a memorial
grade granite manufacturing facility; and (c) the need for highly skilled stone
cutters, sandblasters, sculptors and other skilled artisans necessary to produce
granite memorials.
Ownership structure. The granite memorialization industry is characterized
by increasing fragmentation as one moves closer to the ultimate customer. The
Company estimates that there are approximately 50 quarriers and 140
manufacturers of memorial grade granite in North America. The Company believes
that it is the largest manufacturer of memorial grade granite in North America,
based on revenues. According to the Monument Builders of North America, there
are approximately 3,000 retailers of granite memorials in North America located
outside funeral homes and cemeteries. Most of these quarrying, manufacturing and
retail businesses are privately owned and family run.
Geographic concentration and production costs. The quarrying and
manufacture of granite memorials in North America are concentrated in four
geographic areas: Barre, Vermont; Beebe, Quebec; Elberton, Georgia; and the area
encompassing Milbank, South Dakota, Cold Spring and St. Cloud, Minnesota and
Wausau, Wisconsin (known in the trade as the "Northwest"). Generally, granite
quarriers and manufacturers in each area have the strongest market shares in the
neighboring geographic regions because of the relatively high freight costs
involved in shipping granite. The low cost and low price production area is
Elberton, while the other three regions generally have similar costs and selling
prices.
Competing products. The primary competition for granite memorialization on
individual cemetery lots comes from bronze products which currently constitute
approximately one-third of the aggregate memorialization business, measured in
retail sales dollars. Bronze markers are generally flush rather than upright and
are typically offered in a limited number of styles and designs, with relatively
little opportunity for personalization. Unlike granite memorials, bronze markers
are sold primarily through cemeteries where they have traditionally been
marketed to the consumer as a lower cost alternative to granite and to the
cemeterian as a lower cost cemetery maintenance option. To a lesser extent,
marble is also used as a substitute for granite in memorialization. See
"Business -- Competition."
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OPPORTUNITIES
The Company believes that the aforementioned industry characteristics
present it with the opportunity to:
- Serve the geographically dispersed and fragmented memorial retailers by
offering a full line of granite memorials throughout North America. The
Company is the leading quarrier and manufacturer of granite memorials in
three of the four principal granite memorial producing regions of North
America. Accordingly, the Company is well positioned to provide,
primarily through its own quarrying and manufacturing operations, a
complete line of high quality, granite memorials covering all price
points and major color varieties to North American retailers and to
cemetery and funeral home owners, including consolidators.
- Capitalize on the fragmented nature of granite memorial retailing and the
Company's existing relationships with over 2,100 independent retailers by
making strategic acquisitions of independent retailers in order to build
an integrated network of owned Rock of Ages retailers and thereby capture
the higher margins that have historically existed at the retail level.
- Capitalize on the trend toward cremation by attracting consumer dollars
otherwise spent on casket and burial vault expenses. The Company believes
that with enhanced distribution capabilities, promotion, advertising and
consumer awareness of memorialization, more consumers who have elected
cremation may opt for personalized upright granite memorials.
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BUSINESS
GENERAL
Rock of Ages, founded in 1885, is an integrated granite quarrier,
manufacturer and distributor whose principal product is granite memorials used
primarily in cemeteries. The Company believes that it is the largest quarrier,
manufacturer and distributor of finished granite memorials and granite blocks
for memorial use in North America, based on revenues. The Company owns and
operates 13 active quarry properties and 13 manufacturing and sawing facilities
in North America, principally in Vermont, Georgia and the Province of Quebec.
The Company markets and distributes its memorials on a wholesale basis to
approximately 2,124 independent memorial retailers in the United States and
Canada, including approximately 495 independent authorized Rock of Ages
retailers that are the primary outlet for the Company's branded memorials. The
Company recently entered into a definitive agreement to acquire one of the
largest of its authorized independent retailers, which will provide the Company
with 17 owned retail outlets and mark the Company's first significant entry into
retailing. The Company's memorials are marketed under the names Rock of Ages
Sealmark and Colorcraft, as well as several private labels. The Company believes
the Rock of Ages trademark is one of the oldest and best known brand names in
the granite memorialization industry.
BUSINESS STRATEGY
Rock of Ages believes it is well-positioned to capitalize on the industry
characteristics described previously, and seeks to establish a dominant position
in the granite memorialization industry. The Company intends both to improve the
efficiency of its existing operations and to expand its business significantly.
The principal elements of the Company's operating and growth strategies are
summarized below.
Operating Strategy. The Company pursues an operating strategy that
includes the following key elements:
- Providing, primarily through its own quarrying and manufacturing
operations, a complete line of high quality granite memorials covering
all price points and major color varieties. The Company believes it is
the only industry participant with both quarrying and manufacturing
operations in three of the four principal granite memorial producing
regions of North America.
- Enhancing operational efficiencies through the continued integration of
acquired quarriers and manufacturers and the rationalization of its sales
and distribution efforts.
- Increasing advertising and promotion of the Rock of Ages brands,
including the flagship Rock of Ages Sealmark and Colorcraft brands, in
order to heighten consumer awareness and increase sales of the Company's
products.
Growth Strategy. The Company seeks to expand the scope and profitability
of its operations by implementing a growth strategy that includes forward
vertical integration into retailing, thereby enabling the Company to move closer
to the ultimate customer. The principal elements of this strategy include the
following:
- Acquiring independent granite memorial retailers in selected markets in
order to develop an integrated network of owned Rock of Ages retailers
and thereby capture the higher margins that have historically existed at
the retail level.
- Increasing sales to independent retailers that are current customers and
expanding its independent retailer customer base. During the last two
years, principally through acquisitions of quarriers and manufacturers,
the Company has increased the number of independent retailers to which it
sells its products from approximately 495 in 1995 to approximately 2,124
in 1997.
- Pursuing strategic alliances with funeral home and cemetery owners,
including consolidators, to supply granite memorials to or through them,
in order to increase both pre-need and at-need sales of granite
memorials.
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RECENT AND CONCURRENT ACQUISITIONS
The Company's primary means of implementing its growth strategy to date has
been through acquisitions, beginning with the acquisition on December 31, 1995
of Lawson Granite Company and Anderson-Friberg Company, each based in Barre,
Vermont. These acquisitions helped expand the Company's manufacturing capacity
and distribution base, while also broadening its granite memorial product line
to include more non-branded granite memorials at lower price points than the
Company's then-existing product line. The Company has recently taken further
steps to implement its growth strategy through the Keystone Acquisition and the
proposed C&C Acquisition and Keith Acquisition. The Company believes that these
acquisitions and the continued implementation of the other elements of its
operating and growth strategies will enable it to: (i) expand overall industry
sales of granite memorials, which heretofore have been actively marketed to
consumers primarily only on an at-need basis and in a limited manner; (ii)
increase its share of the granite memorial market by offering a complete product
line with strong brand names through distribution channels that more directly
reach the consumer; and (iii) increase both its relative and total profitability
by capturing some of the higher margins that have historically existed at the
retail level.
Keystone. In June 1997, the Company acquired Keystone, the largest
memorial manufacturer in Elberton, Georgia, including Keystone's 50% ownership
interest in each of SMI and the Quarry Companies. Keystone had revenues of $9.3
million for the year ended December 31, 1996. The Company made the Keystone
Acquisition in order to: (i) become the largest manufacturer of granite
memorials in the largest granite producing area of North America; (ii) expand
the Company's product offering to its and Keystone's customers by combining the
product lines of the two companies and thereby offering easy "one-stop-shopping"
to retailers; (iii) obtain immediate access to an expanded customer base of
independent retailers; (iv) reduce raw material and production costs for certain
granite; and (v) reduce transportation costs and enhance transportation
capabilities. In connection with the Keystone Acquisition, the Company issued
263,441 shares of Class B Common Stock and assumed or incurred $2.7 million of
indebtedness of Keystone.
C&C. In June 1997, the Company also entered into a definitive agreement to
acquire C&C, which the Company believes is the second largest manufacturer of
granite memorials in Elberton, Georgia, and the remaining 50% of each of SMI and
the Quarry Companies owned by the stockholders of C&C. It is expected that the
C&C Acquisition will close concurrently with the consummation of this offering.
C&C had revenues of $5.9 million for the year ended December 31, 1996. The
Company believes that the C&C Acquisition by itself offers many of the same
benefits that the Keystone Acquisition provides, and, in combination with the
Keystone Acquisition, solidifies the Company's position as the largest granite
memorial manufacturer in the Elberton region. The purchase price payable for C&C
is $6.6 million in cash and $200,000 in shares of Class A Common Stock (valued
at the initial public offering price) and approximately $780,000 to repay
outstanding indebtedness of C&C.
Quarry Companies and SMI. As part of the Keystone Acquisition and the C&C
Acquisition, the Company will also acquire the Quarry Companies and SMI and
assume $5.4 million of indebtedness of such companies upon the closing of the
C&C Acquisition. The Quarry Companies and SMI had sales of $6.8 million for the
year ended December 31, 1996. The Quarry Companies own and operate six quarries
located in Georgia, Pennsylvania, North Carolina, South Carolina and Oklahoma.
The Quarry Companies offer the Company an internal source of a variety of
colored granite, including American Black, Salisbury Pink, Autumn Rose and
Kershaw Pink. These colors supplement the Company's product line for both
granite memorials and mausoleums. With the acquisition of SMI, the Company will
obtain a manufacturing facility dedicated primarily to the construction of
mausoleums, which are a more expensive and higher margin product than most other
types of granite memorials.
Keith Monument. In July 1997, the Company entered into a definitive
agreement to acquire substantially all of the assets and liabilities of Keith
Monument. Keith Monument has been an authorized Rock of Ages retailer for more
than 50 years and, the Company believes, is one of the largest retailers of
granite memorials in the United States. It is expected that the Keith
Acquisition will close concurrently with the consummation of this offering.
Keith Monument had revenues of $7.8 million for the year ended June 30, 1997.
The Keith Acquisition offers the Company an immediate presence in memorial
retailing and provides
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<PAGE> 35
the Company with management expertise in the retailing sector. The purchase
price payable for Keith Monument is $16.4 million, consisting of $13.1 million
in cash, $1.5 million in shares of Class A Common Stock (valued at the initial
public offering price) and $1.8 million to repay outstanding indebtedness of
Keith Monument assumed by the Company. Upon the closing of the Keith
Acquisition, John E. Keith, a principal owner and the president of Keith
Monument with over thirty years of experience in granite memorial retailing,
will head the Company's retailing operations. Mr. Keith will oversee the
implementation of the Company's strategy to significantly expand its retail
operations both through other acquisitions of retailers and by pursuing
strategic alliances with funeral home and cemetery owners, including
consolidators.
QUARRYING AND MANUFACTURING OPERATIONS
Quarrying. The Company owns and operates 13 active quarries producing, or
has supply agreements to obtain, each of the largest selling granite memorial
colors in North America (Elberton Gray, Barre Gray, Black, Dakota Mahogany, Pink
and Red, in that order). In 1996, on a pro forma basis assuming the Acquisitions
occurred on January 1, 1996, the Company quarried in excess of 1,500,000 cubic
feet of saleable granite from its quarries in Georgia, Vermont, Pennsylvania,
North Carolina, South Carolina, Oklahoma and the Province of Quebec. The Company
estimates that its U.S. production represents approximately 19% of the total
U.S. output of dimension granite for all uses and at least 25% of the U.S.
output for memorial use. The Company believes it is the largest quarrier of
granite for memorial use in the U.S. based on quantity of output and revenues.
The Company owns a large quarry complex in Barre, Vermont and is currently
the only quarrier of Barre, Vermont gray granite. In 1996, on a pro forma basis
assuming the Acquisitions occurred on January 1, 1996, over 50% of the Company's
U.S. output came from its Barre quarries.
The Company also owns three quarries in the Elberton, Georgia area. While
most black granite for memorial use comes from Africa and India, the Company
owns a quarry in Pennsylvania that produces the largest selling black granite
for memorial use quarried in North America. The Company also owns quarries in
North Carolina and Canada that produce pink granite, and a quarry in Bethel,
Vermont that produces Bethel white granite used primarily for building purposes
outside North America.
The quarrying of granite involves three major processes. The first major
process is to prepare the granite for extraction. The initial step in this
process is to free a mass of stone from the quarry by cutting deep vertical
channels in the stone with jet channeling torches, pneumatic slot-drills or
diamond-wire saws. Next, a series of horizontal "lift" holes are drilled in the
mass. Several of the lift holes are then filled with primer cord explosives
which, after detonation, cause the granite mass to crack along the line where
the holes have been drilled and to lift the mass free from the granite below it.
Occasionally, these horizontal cuts are made with diamond wire saws. After the
granite mass has been separated, pneumatic drills are used to drill a series of
vertical holes to break the mass into large vertical pieces. Horizontal holes
are then drilled to break these pieces into standard size saw blocks, known as
"dimensioned blocks," which are typically ten feet by five feet by five feet and
weigh approximately twenty-five tons.
The second major process in quarrying granite is to extract the dimensioned
block from the quarry. Extraction involves removing the dimensioned blocks from
the quarry with very large forklifts or, in deeper quarries, with cinching
notched wire cable around the block and then hoisting the blocks with very large
derricks, or fixed cranes, or mobile cranes. These derricks range to up to 160
feet in height and up to 250 tons in lifting capacity. Most of the Company's
quarries utilize forklifts for extraction or a combination of forklifts and
fixed or mobile cranes.
The third major process is to transport the dimensioned blocks. Once lifted
from the quarry, the blocks are handled and transported by heavy duty diesel
trucks and fork lifts. These vehicles transport the blocks either to an
inventory area or directly to the manufacturer.
Much of the granite quarried is not suitable for use as a finished memorial
product due to cracks, spots, discoloration and other natural imperfections. The
amount of usable granite varies markedly from quarry to quarry. Some of the
granite not used for memorials is sold to other companies for use in buildings
and other
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<PAGE> 36
non-memorial products. Unusable stone, or "grout," is stored in areas not
expected to be quarried in the future. It is suitable for bridge piers, erosion
control and other uses but the market for this product is very limited.
The granite blocks sold by the Company are delivered to the Company's
manufacturing division as well as to other granite manufacturers in Vermont via
Company owned trucks. Blocks for delivery outside of the production areas are
delivered via common carrier. Barre, Vermont, Elberton, Georgia and Beebe,
Quebec all have at least two large regional or national trucking companies and a
number of independent truckers.
Manufacturing. The Company owns and operates 13 manufacturing and sawing
facilities in North America, principally in Vermont, Georgia and the Province of
Quebec. The Company is in the process of a $3.2 million expansion and
improvement program for its Barre and Canadian manufacturing facilities to add
50,000 square feet of space and manufacturing and sawing equipment and to
reconfigure production. In addition, the Company has ordered $600,000 of
polishing equipment for the manufacturing facilities in Elberton and anticipates
dedicating sawing equipment currently used for curb slabs to memorial slabs. The
Company believes that these improvements and operational changes will increase
memorial production significantly and allow the Company to meet its anticipated
production requirements for the near future.
The manufacture of memorials starts with quarried granite blocks, which are
sawed into slabs of varying thicknesses with computer operated diamond saws and
wire saws at Company saw plants. Once a block has been cut into slabs, the slabs
are transported to nearby manufacturing plants such as the Company's Craftsman
Center in Barre, Vermont. At the manufacturing plant, slabs are manufactured
into memorials and other products.
To manufacture a granite slab four to 12 inches thick into a memorial, the
slabs are first polished at the manufacturing plant by various automatic
polishing machines. Polished slabs are then inspected for flaws and defects and
dimensioned with a hydraulic guillotine machine. Granite is like wood in that it
splits uniformly along the grain. After dimensioning, the granite pieces are
taken to stations to be shaped by stonecutting wire saws, diamond saws and
carborundum wheels. Once shaped, memorials may be hand-carved into virtually any
desired shape. This hand carving is generally done by the Company. The final
step in memorial manufacturing is to sandblast the semi-finished memorial with a
silicon carbide abrasive which etches the desired design into the memorial. This
sandblasting step may be done by the Company or a retailer. Once complete, the
memorial is inspected and branded products are then sandblasted with the Rock of
Ages or other seal. Finished products are then crated and shipped to customers.
In addition to granite memorials, the Company also manufactures precision
industrial granite products, such as machine bases and surface plates, which are
utilized in the automotive, aeronautic, computer, machine tool, optical,
precision grinding and inspection industries, as well as granite press rolls
used in the manufacture of paper. These are small but profitable niche markets
within the granite industry with limited competition and limited growth
prospects.
The Company's granite deposits in Georgia, Vermont, Pennsylvania, North
Carolina, South Carolina, Oklahoma and the Province of Quebec are expected to
continue to meet the Company's current and anticipated raw materials needs for
many years, and the Company believes it will continue to have access to adequate
quantities of other granite at competitive prices.
The Company has entered into a Supply and Distribution Agreement with
Missouri Red Quarries, Inc., the owner of Keystone immediately prior to the
Keystone Acquisition ("Missouri Red"), and G. Thomas Oglesby, Jr., who controls
Missouri Red (the "Missouri Red Supply Agreement"), and a Supply and
Distribution Agreement with Keystone Granite Company, Inc., an affiliate of
Missouri Red ("KGCI"), and Missouri Red (the "Keystone Supply Agreement", and,
together with the Missouri Red Supply Agreement, the "Supply Agreements"). Under
the Missouri Red Supply Agreement, Missouri Red has agreed, for a 20-year term,
to supply the Company at specified prices with the Company's requirements of
Missouri Red granite blocks for memorial use, and has appointed the Company as
its exclusive distributor to buy and sell all grades of Missouri Red granite for
memorial use in the specified territory. The Company has agreed to purchase
certain minimum annual amounts of Missouri Red granite blocks, and such supply
arrangements are exclusive for memorial use so long as the Company purchases
certain minimum amounts of Missouri Red
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<PAGE> 37
granite blocks within specified periods of time, provided that in any event the
Company has a first priority to purchase all monumental grade Missouri Red
granite quarried by Missouri Red during the term of the Missouri Red Supply
Agreement. The terms of the Keystone Supply Agreement are substantially similar
to the Missouri Red Supply Agreement, including the 20-year term, except that
the Keystone Supply Agreement applies to KGCI granite blocks, any other granite
blocks quarried at the KGCI quarries and Topaz granite blocks (collectively,
"Topaz") and the Company has agreed to purchase all monumental grade Topaz
produced by KGCI during the term of the Keystone Supply Agreement. Should the
Company fail to purchase the specified minimum quantity of Topaz, then KGCI has
the right to sell to others subject to the Company's right to supply priority.
\Pursuant to the Supply Agreements, the Company has a right of refusal with
respect to any sale of the quarries, land, buildings or equipment, or the stock
of, Missouri Red or KGCI outside the Oglesby family. The Company also has a
mutual supply agreement (the "Dakota Agreement") with Dakota Granite Company
("Dakota Granite"), whereby Dakota Granite has agreed to supply the Company with
its requirements for Dakota Mahogany blocks, slabs and finished monuments, and
the Company has agreed to supply Dakota Granite with its requirements for Barre
Gray blocks, slabs and finished monuments, and each party has agreed to purchase
such requirements exclusively from the other. The Dakota Agreement is terminable
by either party upon 180-days prior notice.
Other significant raw materials which the Company uses in its manufacturing
operations include industrial diamond segments for saw blades and wires and
abrasives. There are a number of sources for these raw materials and the Company
believes it will continue to have access to adequate quantities of such
materials at competitive prices.
The Company had manufacturing backlogs of $13,833,000 as of June 30, 1997
and $14,386,000 as of June 30, 1996. These backlogs occurred in the normal
course of business. The Company does not have a material backlog in its
quarrying operations.
As noted above, regional and national trucking companies are readily
available to deliver granite memorials. Also, the Company owns eight trucks for
delivery of finished memorials to customers. In addition, as a result of the
Acquisitions, the Company will be able to ship full truckload quantities of
memorials from Barre to Elberton and back via dedicated trucks, which the
Company believes will improve the efficiency of national delivery of its
products. As a result, the Company believes it will have a significant
competitive cost advantage in the transportation of memorials.
The Company does not normally maintain a significant inventory of finished
manufactured products in anticipation of future orders. Approximately 75% of the
Company's orders are delivered within two to twelve weeks, as is customary in
the granite memorial industry. The Company does accumulate inventory of granite
blocks from September through December in preparation for the winter months when
its northern quarries are inactive. During the winter months, the Company offers
a special payment plan to granite block customers ordering in December by giving
90-day payment terms. Additionally, any orders for granite memorials placed
after September 1st but before February 1st may receive special payment terms
allowing payment on the following June 1st. The Company is entitled to make
delivery at its discretion no later than April of the following year. The winter
payment terms accounted for approximately $2 million in Company sales in 1996.
MARKETING AND DISTRIBUTION; RETAILING
The Company is best known for its granite memorials. Rock of Ages produces
each of the standard types of memorials, including flush grass markers and
various types of upright memorials, and is recognized for its ability to
manufacture highly personalized granite memorials designed to meet the specific
needs of individual customers. For example, the Company has built a full size
granite replica of a Mercedes Benz for a customer.
Rock of Ages currently sells its granite memorial products to an estimated
2,124 independent memorial retailers in North America. Its flagship brands
bearing the Rock of Ages seal are sold only to approximately 495 independent
authorized Rock of Ages retailers who have written supply agreements with the
Company. These branded Rock of Ages memorials are made of the highest quality
granite available and are guaranteed in perpetuity to the customer and the
cemetery against defects in the granite (including discoloration) or
workmanship. The Company believes its warranty is the strongest in the memorial
industry.
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<PAGE> 38
The Company generally limits the number of retailers authorized to sell
branded Rock of Ages products in any geographic region. The Company seeks to
select as its authorized retailers large and well-established companies that can
provide high levels of design assistance, personalization and high quality
sandblast carving and lettering, as well as the service of setting the memorial
in the cemetery.
Authorized retailer agreements may be terminated by either the Company or
the retailer upon 30 days' notice. Under these agreements, the authorized
retailer is free to purchase granite memorials from any source, but the Company
expects its authorized retailers to promote the Rock of Ages brand and purchase
reasonable quantities of its branded and unbranded granite memorials annually.
Most authorized Rock of Ages retailers purchase both branded and lower-priced
unbranded memorials from the Company. The Company also supplies private label
and unbranded granite memorials not bearing the various Rock of Ages seals to a
large number of other retailers.
The Company's growth strategy principally involves vertically integrating
forward into retailing. Pursuant to the Keith Acquisition, the Company will
acquire what it believes is one of the largest retailers of granite memorials in
the United States. Upon the closing of the Keith Acquisition, John E. Keith, a
principal owner and president of Keith Monument with over 30 years experience in
granite memorial retailing, will head the Company's retailing operations. Mr.
Keith will oversee the implementation of the Company's strategy to significantly
expand its retail operations both through other acquisitions of other
independent retailers and by pursuing strategic alliances with funeral home and
cemetery owners, including consolidators. While the Company currently supplies a
limited amount of granite memorials to funeral homes and cemetery owners,
including consolidators, the Company has not yet established a strategic
alliance with any such group.
The Company will seek to acquire well established full service granite
memorial retailers with experienced personnel and strong market share in their
marketing region, including both its existing authorized Rock of Ages retailers
and other independent retailers. All owned retailers will be positioned as Rock
of Ages retailers and will offer Rock of Ages branded products as well as other
brands provided by the Company. The Company recognizes that certain of its
customers, including both authorized Rock of Ages retailers and its other
retailers, will prefer to remain as independently owned retailers or may not be
viable acquisition targets for the Company due to price, size, location or other
reasons.
The Company believes the opportunity to become a part of an integrated
quarrier, manufacturer and retailer of granite memorials promoting Rock of Ages
branded memorials will be an attractive option for many granite memorial
retailers who are currently customers of the Company. Likewise, the Company
believes its improved knowledge of the retail market gained from owning
retailers and the presence of John E. Keith, a prominent memorial retailer, as
an officer and director will help it to better serve and be more responsive to
the needs of its customers who remain independently owned. Since most
independent retailers have competed with Rock of Ages authorized retailers for
many years, the Company believes that the establishment of an owned Rock of Ages
retail network through acquisition of existing granite memorial retail outlets
should not disrupt the market in a fashion that would occur if a new entrant to
the market entered the business or a manufacturer established new outlets
instead of acquiring existing outlets.
COMPETITION
The granite memorial industry is highly competitive. The Company competes
with other granite quarriers and manufacturers in the sale of granite blocks on
the basis of price, color, quality, geographic proximity, service, design
availability and availability of supply. All of the Company's colors of granite
are subject to competition from granite blocks of similar color supplied by
quarriers located throughout the world.
There are approximately 140 manufacturers of granite memorials in North
America. There are also manufacturers of granite memorials in India, South
Africa, China and Portugal who sell finished memorials in North America. The
Company competes based upon price, breadth of product line and design
availability as well as production capabilities and delivery options. The
Company's quarrying and manufacturing competitors include both domestic and
international companies, some of which may have greater financial, technical,
manufacturing, marketing and other resources than the Company. Additionally,
foreign competitors of the Company may have access to lower cost labor and
better commercial deposits of certain colors of memorial
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<PAGE> 39
grade granite, and may be subject to less restrictive regulatory requirements
than the Company. Companies in South Africa, India, China and Portugal
manufacture and export finished granite memorials into North America. See "Risk
Factors -- Competition."
The competition for retail sales of granite memorials is also intense and
is based on price, quality, service, design availability and breadth of product
line. Competitors include funeral home and cemetery owners, including
consolidators, which have greater financial resources than the Company as well
as approximately 3,000 independent retailers of granite memorials located
outside funeral homes and cemeteries. See "Risk Factors -- Relationships with
Retailers".
PATENTS, TRADEMARKS AND LICENSES
The Company holds a number of domestic and foreign patents, trademarks and
copyrights, including the original registered trademark "Rock of Ages" which the
Company first registered in 1914. The Company believes the loss of a single
patent, trademark or copyright, other than the "Rock of Ages" trademarks, would
not have a material adverse effect on the Company's business, financial
condition or results of operations.
EMPLOYEES
As of September 22, 1997, the Company had approximately 580 employees.
After the consummation of the C&C Acquisition and the Keith Acquisition, the
Company will have approximately 795 employees. The Company believes its
relationship with its employees is good. A significant number of the Company's
employees in Barre and Canada are represented by one of two labor unions. Some
of the Company's employees in Elberton are also represented by a union. The
Company has recently entered into collective bargaining agreements with its
employees in Barre which are scheduled to expire in 2000, and the Company's
collective bargaining agreements with its employees in Canada are scheduled to
expire in 1999.
PROPERTIES
Following consummation of the Acquisitions, the Company will own the
following quarry and manufacturing properties:
<TABLE>
<CAPTION>
PROPERTY FUNCTION
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
VERMONT
Barre
Quarry Properties
E. L. Smith Quarry................................ Quarrying of dimensional Barre Gray granite blocks
Adam-Pirie Quarry................................. Quarrying of dimensional Barre Gray granite blocks
Manufacturing Properties
Associated Saw Plant.............................. Slabbing of granite blocks
Rock of Ages Manufacturing Plant.................. Manufacturing of memorials
Press Roll Production Plant....................... Manufacturing of granite press rolls
Rock of Ages Saw Plant #1......................... Slabbing of granite blocks
Lawson Production Plant........................... Slabbing of granite blocks and memorials production
facility
Bethel
Quarry Properties
Bethel Quarry..................................... Quarrying of dimensional Bethel White granite blocks
GEORGIA
Madison County
Quarry Properties
Royalty/Berkeley Quarries......................... Quarrying of dimensional Royalty Blue and Berkeley Blue
granite blocks
Oglethorpe County
Caprice Quarry.................................... Quarrying of dimensional Caprice Blue blocks
Millstone Quarry.................................. Quarrying of dimensional Millstone Gray
</TABLE>
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<TABLE>
<CAPTION>
PROPERTY FUNCTION
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Elberton
Manufacturing Properties
Southern Mausoleum Plant.......................... Manufacturing of memorials
Keystone Memorials Plant.......................... Manufacturing of memorials
Keywest Plant..................................... Manufacturing of memorials
Childs & Childs Plant............................. Manufacturing of memorials
CANADA
Stanstead, Quebec
Quarry Properties
Stanstead Quarry.................................. Quarrying of dimensional Stanstead Gray granite blocks
Guenette, Quebec
Quarry Properties
Laurentian Quarry................................. Quarrying of dimensional Laurentian Rose granite blocks
Beebe Plain, Quebec
Manufacturing Properties
Rock of Ages Manufacturing Plant.................. Manufacturing of memorials
Adru Manufacturing Plant.......................... Manufacturing of memorials
PENNSYLVANIA
St. Peters
Quarry Properties
American Black Quarry............................. Quarrying of dimensional black granite blocks
Manufacturing Properties
Saw Plant......................................... Slabbing of granite blocks
NORTH CAROLINA
Salisbury
Quarry Properties
Salisbury Pink Quarry............................. Quarrying of dimensional Salisbury Pink granite blocks
Manufacturing Properties
Carolina Plant.................................... Manufacturing of flush and granite under bronze markers
OKLAHOMA
Mill Creek
Quarry Properties
Autumn Rose Quarry................................ Quarrying of dimensional Autumn Rose granite blocks
SOUTH CAROLINA
Kershaw County
Quarry Properties
Kershaw Quarry.................................... Quarrying of dimensional Kershaw granite blocks
Lancaster County
Quarry Properties
Coral Gray Quarry................................. Quarrying of dimensional Coral Gray granite blocks
</TABLE>
In addition, upon consummation of the Keith Acquisition, the Company will
own or lease 17 retail outlets and a sandblasting facility in Kentucky.
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The following table sets forth certain information relating to the
Company's quarry properties. Each of the quarries listed below: (i) is owned by
the Company (other than the Kershaw quarry, which is leased with 40 years
remaining on the lease); (ii) is an open-pit quarry; (iii) contains granite that
is suitable for extraction as dimension granite for memorial or other use; (iv)
is serviced by electricity provided by local utility companies (other than the
Bethel quarry which is serviced by internal generators); and (v) has adequate
and modern extraction and other equipment. The Company presently has no
exploration plans in place.
<TABLE>
<CAPTION>
TOTAL NET SALEABLE NET SALEABLE
APPROXIMATE DATE ORIGINAL COST RECOVERABLE RECOVERABLE
OF COMMENCEMENT PRIOR OWNER, MEANS OF OF RESERVES(1) RESERVES
QUARRY OF OPERATIONS (DATE ACQUIRED) ACCESS EACH PROPERTY (CUBIC FEET) (YEARS)(2)
- ------------------- ----------------- ----------------------- ----------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
E.L. Smith......... 1880 E.L. Smith Quarry Co. Paved road $ 7,562,676 2,460,000,000 4,920
(1948)
Adam-Pirie......... 1880 J.K. Pirie Quarry Paved road $ 4,211,363 985,000,000 6,560
(1955)
Bethel............. 1900 Woodbury Granite Dirt road $ 174,024 76,665,000 383
Company, Inc. (1957)
Royalty/Berkeley... 1923 Coggins Granite (1991) Paved road $ 2,794,500 6,695,000 67
Millstone.......... 1985 Coggins Granite (1991) Paved road $ 1,195,900 5,663,000 56
Caprice............ 1968 Caprice Blue Quarry Paved road $ 0 No estimate No estimate
Inc.(1997)
Stanstead.......... 1920 Brodies Limited and Paved road $ 505,453 32,670,000 217
Stanstead Granite
Company (1960)
Laurentian......... 1944 Brodies Limited (1960) Paved road $ 860,115 3,920,000 52
American Black..... 1973 Pennsylvania Granite Paved road $ 2,900,000 14,701,000 98
Inc. (1997)
Salisbury.......... 1918 Pennsylvania Granite Paved road $ 3,886,592 19,602,000 87
Inc. (1997)
Autumn Rose........ 1969 Autumn Rose Quarry Inc. Paved road $ 200,000 735,000 21
(1997)
Kershaw............ 1955 Pennsylvania Granite Paved road $ 200,000 635,000 22
Inc. (1997)
Coral Gray......... 1955 Pennsylvania Granite Paved road $ 200,000 No estimate No estimate
Inc. (1997)
</TABLE>
- ---------------
(1) Net saleable reserves are based on internal Company estimates, except for
the reserves for the E.L. Smith, Adam-Pirie and Bethel quarries, which are
based on independent assessments by CA Rich Consultants, Inc.
(2) Based on internal Company estimates using current production levels.
The estimates of saleable reserves of the Company are based on historical
quarry operations, workable reserves in the existing quarries and immediately
adjacent areas, current work force sizes and current demand. While quarry
operations decrease the granite deposits, the size of the granite deposits in
which the Company's quarries are located are large and extend well beyond
existing working quarry perimeters. The Company has historically expanded quarry
perimeters or opened other quarries in the deposit as necessary to utilize
reserves and the Company has adequate acreage for expansions as and when
necessary. Most of the Company's quarries have operating histories dating back
50 or more years. The Company has no reason to believe that it will deplete its
granite reserves at any time in the foreseeable future.
Dimension granite is not considered a valuable mineral or commodity such as
gold, nor is it traded on any commodities exchange. The prices charged by the
Company to third parties for granite blocks depend on the characteristics of
(such as color) and costs to quarry each granite block. The price per cubic foot
currently charged by the Company for its granite blocks is generally comparable
to other granite suppliers and typically does not exceed $30.
REGULATION
The Company's quarry and manufacturing operations are subject to
substantial regulation by federal and state governmental statutes and agencies,
including OSHA, the Mine Safety and Health Administration and similar state and
Canadian authorities. The Company's operations are also subject to extensive
laws, and regulations administered by the EPA and similar state and Canadian
authorities for the protection of the
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environment, including but not limited to those relating to air and water
quality, solid and hazardous waste handling and disposal. These laws and
regulations may require parties to fund remedial action or to pay damages
regardless of fault. Environmental laws and regulations may also impose
liability with respect to divested or terminated operations even if the
operations were divested or terminated many years ago. In addition, current and
future environmental or occupational health and safety laws, regulations or
regulatory interpretations may require significant expenditures for compliance
which could require the Company to modify or curtail its operations. The Company
cannot predict the effect of such laws, regulations or regulatory
interpretations on its business, financial condition, results of operations.
While the Company expects to be able to continue to comply, in all material
respects, with existing laws and regulations, any material non-compliance could
have a material adverse affect on the Company's business, financial condition
and results of operations.
LEGAL MATTERS
The Company is a party to legal proceedings that arise from time to time in
the ordinary course of its business. While the outcome of these proceedings
cannot be predicted with certainty, management does not expect these matters to
have a material adverse effect on the Company.
The Company carries insurance with coverages that it believes to be
customary in its industry. Although there can be no assurance that such
insurance will be sufficient to protect the Company against all contingencies,
management believes that its insurance protection is reasonable in view of the
nature and scope of the Company's operations.
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<PAGE> 43
MANAGEMENT
DIRECTORS AND OFFICERS
Certain information concerning directors, executive officers and other
officers of the Company is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS(1)
George R. Anderson........................ 57 Senior Vice President, Chief Financial
Officer, Treasurer, Director
James L. Fox(2)........................... 45 Director
Peter A. Friberg.......................... 46 Senior Vice President -- Memorial Sales,
Director
Mark A. Gherardi.......................... 39 Senior Vice President -- Barre and Canada
Manufacturing Operations, Director
Jon M. Gregory............................ 48 President -- Quarry Division, Director
John E. Keith(2).......................... 50 President -- Retail Division, Director
Richard C. Kimball........................ 57 President -- Memorials Division, Vice
Chairman of the Board of Directors
G. Thomas Oglesby, Jr. ................... 51 President -- Keystone Division, Director
Kurt M. Swenson........................... 52 President and Chief Executive Officer,
Chairman of the Board of Directors
Charles M. Waite.......................... 64 Director
Fredrick E. Webster, Jr.(2)............... 59 Director
OTHER OFFICERS
Robert Otis Childs, III(2)................ 38 President -- C&C Division
Albert Gherardi, Jr. ..................... 61 Vice President -- Facilities Management
Edward E. Haydon.......................... 57 Senior Vice President -- National Accounts
Manager
John R. Monson............................ 56 Secretary and General Counsel
George T. Oglesby, III.................... 27 Vice President -- Keystone Division
Gerald E. Parrott......................... 48 Vice President -- Precision Products
</TABLE>
- ---------------
(1) Each officer serves for a term of one year.
(2) Messrs. Childs, Fox, Keith and Webster will assume their respective
positions upon consummation of this offering.
George R. Anderson has been the Senior Vice President, Chief Financial
Officer and a director of the Company since 1984. Mr. Anderson joined the
Company in 1969 as the Chief Accountant and subsequently held the positions of
Controller and Treasurer. He has been a director of the Barre Granite
Association and a trustee of the Granite Group Insurance Trust and the Barre
Belt Multi-Employer Pension Plan. Mr. Anderson's term as a director will expire
in 1999.
Robert Otis Childs, III will become, upon consummation of the C&C
Acquisition, President -- C&C Division. Since 1983, Mr. Childs has been Vice
President for Marketing of C&C. He has been President and a member of the Board
of Directors of the American Monument Association, and is the President-elect
and a director of the Manufacturers and Wholesalers Division of the Monument
Builders of North America.
James L. Fox. Since 1989, Mr. Fox has been Executive Vice President and
General Manager of First Data Investor Services Group, a division of First Data
Corporation. Mr. Fox's term as a director of the Company will expire in 1999.
Peter A. Friberg has been Senior Vice President -- Memorial Sales, of the
Company since 1996 and a director of the Company since January 1996. From 1975
to 1995, Mr. Friberg co-owned and co-managed the Anderson-Friberg Company, a
memorial manufacturing company, in Barre, Vermont, serving as President
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<PAGE> 44
from 1991 to 1995. From 1991 to 1993, Mr. Friberg was President of the Barre
Granite Association. Mr. Friberg's term as a director of the Company will expire
in 1998.
Albert Gherardi, Jr. has been Vice President, Facilities Management of the
Company since 1996. Prior to 1996, Mr. Gherardi held various positions over a
40-year period with Lawson Granite Company, a memorials company that the Company
acquired in 1996. Albert Gherardi, Jr. is the father of Mark A. Gherardi.
Mark A. Gherardi has been Senior Vice President, Barre and Canada
Manufacturing Operations and a director of the Company since 1996. Prior to
1996, Mr. Gherardi held various sales and production positions over a 20-year
period with Lawson Granite Company. Mr. Gherardi's term as a director of the
Company will expire in 1998. Mark Gherardi is the son of Albert Gherardi, Jr.
Jon M. Gregory has been President -- Quarry Division since 1993 and has
been a director of the Company since 1995. Since joining the Company in 1975,
Mr. Gregory has served in various positions including Senior Vice President of
the Memorials Division, Manager of Manufacturing and line production supervisor.
Mr. Gregory's term as a director of the Company will expire in 1998.
Edward E. Haydon has been Senior Vice President -- National Accounts
Manager since 1996 and President of Rock of Ages Canada, Inc. since 1985. In
addition, Mr. Haydon was also Senior Vice President, Memorial Operations from
1991 to 1993. Mr. Haydon is also a Director of the Canadian Stone Association,
and a Trustee of the Manufacturers and Wholesalers Division of Monument Builders
of North America.
John E. Keith will become, upon consummation of the Keith Acquisition, the
President -- Retail Division and a director of the Company. Mr. Keith has been
an owner of and President of Keith Monument since 1989. From 1965 to 1989, Mr.
Keith held various officer positions with Keith Monument. Mr. Keith's term as a
director of the Company will expire in 2000.
Richard C. Kimball has been President -- Memorials Division, and Vice
Chairman of the Board of Directors since 1993 and a director of the Company
since 1986. Prior to joining the Company, Mr. Kimball served as a director,
principal and President of The Bigelow Company, Inc., a strategic planning and
investment banking firm from 1972 until 1993. Mr. Kimball's current term as a
director of the Company will expire in 2000.
John R. Monson has been Secretary of the Company since 1984 and General
Counsel of the Company since August, 1996. Since 1974, Mr. Monson has been a
partner, director and member of Wiggin & Nourie, P.A., a law firm located in
Manchester, New Hampshire that has represented the Company since 1984.
G. Thomas Oglesby, Jr. became the President -- Keystone Division and a
director of the Company in connection with the consummation of the Keystone
Acquisition in June 1997. Since 1982, Mr. Oglesby has been President of Keystone
Memorials Inc. Mr. Oglesby was a member of the Board of Directors and served
four separate terms as President of the Elberton Granite Association from 1979
until 1996. He is a director of the American Monument Association and the
Manufacturers and Wholesalers Division of the Monument Builders of North
America. He is the father of George T. Oglesby, III. Mr. Oglesby's current term
as a director of the Company will expire in 1999.
George T. Oglesby, III was elected Vice President -- Keystone Division in
connection with the consummation of the Keystone Acquisition in June 1997. Since
1992, Mr. Ogelsby has held various sales and management positions with Keystone
Memorials Inc. He is a member of the Board of Directors of the Elberton Granite
Association.
Gerald E. Parrott has been Vice President -- Precision Products since 1992.
From 1976 to 1992 he was Chief Engineer of the Company.
Kurt M. Swenson has been the President and Chief Executive Officer and
Chairman of the Board of Directors of the Company since 1984. Mr. Swenson has
been the Chief Executive Officer and a director of Swenson Granite Company, Inc.
since 1974. He is also a director of the American Monument Association, the
Funeral and Memorial Information Council, the National Building Granite
Quarriers Association and Group Polycor International. Mr. Swenson is also a
director and the President of the StonExpo Federation and a
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<PAGE> 45
trustee of the Manufacturers and Wholesalers' Division of Monument Builders of
North America. Mr. Swenson's current term as a director of the Company will
expire in 2000.
Charles M. Waite has been a director of the Company since 1985. Since 1989,
Mr. Waite has been managing partner of Chowning Partners, a financial consulting
firm that provides consulting services to New England companies. Mr. Waite's
current term as a director will expire in 2000.
Fredrick E. Webster, Jr., Ph.D. has been a Professor of Management at the
Amos Tuck School of Business Administration of Dartmouth College since 1965. He
is also a management consultant and lecturer. Dr. Webster serves as a director
of Vermont Public Radio and the American Marketing Association. He is also a
member of the Corporation of Mary Hitchcock Memorial Hospital. Mr. Webster's
term as a director will expire in 1999.
COMMITTEES OF THE BOARD OF DIRECTORS
The principal function of the Audit Committee, which, upon consummation of
this offering, will consist of Messrs. Fox and Waite, is to endeavor to assure
the integrity and adequacy of financial statements issued by the Company. It is
intended that the Audit Committee will review internal auditing systems and
procedures as well as the activities of the public accounting firm performing
the external audit.
The principal function of the Compensation Committee, which, upon
consummation of this offering, will consist of Messrs. Fox, Waite and Webster,
is to review periodically the suitability of the remuneration arrangements
(including benefits) for the executive officers of the Company and to administer
the 1994 Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, the Compensation Committee of the Board of Directors was
comprised of Kurt Swenson, Guy A. Swenson, Jr. and Charles M. Waite. During his
1996 service on the Compensation Committee, Mr. Swenson was the President and
Chief Executive Officer of the Company and Mr. Swenson participated in all
compensation decisions, including those related to his own compensation.
COMPENSATION OF DIRECTORS
Directors who are not also officers of the Company are paid annual
directors' retainers of $5,000, and $250 for each meeting of the Board,
including committee meetings. Directors are also eligible for stock option
grants under the 1994 Plan.
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<PAGE> 46
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the Chief
Executive Officer of the Company and each of the four other most highly
compensated executive officers of the Company (the "Named Executive Officers")
for the year ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ---------------------
-------------------- SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION(1)
- --------------------------------- ----- --------- -------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
Kurt M. Swenson.................. 1996 $304,320 $15,220 12,500 $ 1,050
President, Chief Executive
Officer, Chairman of the Board
of Directors
Richard C. Kimball............... 1996 $204,360 $14,000 12,500 $ 1,050
President -- Memorials
Division, Vice Chairman of the
Board of Directors
George R. Anderson............... 1996 $154,440 $10,500 25,000 $ 1,050
Senior Vice President, Chief
Financial Officer, Director
Jon M. Gregory................... 1996 $153,360 $10,500 50,000 $ 1,050
President -- Quarry Division,
Director
Mark A. Gherardi................. 1996 $140,040 $12,500 75,000 --
Senior Vice President -- Barre
and Canada Manufacturing
Operations, Director
</TABLE>
- ---------------
(1) In each case, represents a matching contribution under the Company's 401K
plan.
STOCK OPTION GRANTS
The following table sets forth certain information concerning grants of
stock options made during the year ended December 31, 1996 by the Company to the
Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL
------------------------------------------------------- RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(4)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED(1) FISCAL YEAR(2) PER SHARE(3) DATE 5% 10%
- ---------------------------- ---------- -------------- ------------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kurt M. Swenson............. 12,500 2.1% $ 4.12 12/31/01 $ 14,229 $ 31,441
Richard C. Kimball.......... 12,500 2.1% $ 3.74 12/31/01 12,916 28,541
George R. Anderson.......... 25,000 4.3% $ 3.74 12/31/01 25,832 59,083
Jon M. Gregory.............. 50,000 8.5% $ 3.74 12/31/01 51,665 114,165
Mark A. Gherardi............ 75,000 12.8% $ 3.59 01/01/01 74,389 164,380
</TABLE>
- ---------------
(1) The options represent the right to acquire Class B Common Stock, which is
convertible on a share-for-share basis into Class A Common Stock.
(2) Based on an aggregate of 587,500 options granted to employees and directors
of the Company in fiscal 1996, including the Named Executive Officers.
(3) The exercise price of each option was equal to the fair market value of the
Common Stock on the date of grant as determined by the Board of Directors.
(4) These amounts represent certain assumed annual rates of appreciation
calculated from the exercise price, as required by the rules of the
Securities and Exchange Commission. Actual gains, if any, on stock option
exercises and Common Stock holdings are dependent
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<PAGE> 47
on the future performance of the Common Stock. There can be no assurance
that the amounts reflected in the table will be the actual amounts achieved.
The following table sets forth information concerning the fiscal year-end
value of unexercised options held at December 31, 1996 by each of the Named
Executive Officers, using the exercise price of options granted in December,
1996 as the fiscal year-end value per share of Common Stock. Each of the stock
options set forth below represents the right to acquire Class B Common Stock.
During 1996, no stock options were exercised by any of the Named Executive
Officers. The Company has not granted any stock appreciation rights.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, 1996 IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1996
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Kurt M. Swenson............................... 62,500 50,000 $ 66,000 $ 44,000
Richard C. Kimball............................ 47,500 40,000 60,300 40,200
George R. Anderson............................ 35,000 40,000 40,200 26,800
Jon M. Gregory ............................... 25,000 50,000 20,100 13,400
Mark A. Gherardi.............................. 15,000 60,000 2,250 9,000
</TABLE>
PENSION PLANS
The Company maintains a qualified pension plan (the "Pension Plan"), and
non-qualified salary continuation agreements (the "Salary Continuation
Agreements") for certain executive officers of the Company. The Company's
Pension Plan is noncontributory and provides benefits based upon length of
service and final average earnings. Generally, employees age 21 with one year of
continuous service are eligible to participate in the retirement plan. The
annual pension benefits shown for the qualified plan assume a participant
attains age 65 during 1997 and retires immediately. The Employee Retirement
Income Security Act of 1974 places limitations on the compensation used to
calculate pensions and on pensions which may be paid under federal income tax
qualified plans, and some of the amounts shown on the following table may exceed
the applicable limitations. Such limitations are not currently applicable to the
Salary Continuation Agreements.
The following table shows the total estimated annual retirement benefits
payable upon normal retirement under the Pension Plan for the Named Executive
Officers at the specified executive remuneration and years of continuous
service.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
FINAL AVERAGE
COMPENSATION 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
---------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000.................... $ 39,492 $ 52,656 $ 65,820 $ 78,984 $ 78,984
$150,000.................... $ 47,742 $ 63,656 $ 79,570 $ 95,484 $ 95,484
$175,000.................... $ 55,992 $ 74,656 $ 93,320 $111,984 $111,984
$200,000.................... $ 64,242 $ 85,656 $107,070 $128,484 $128,484
$225,000.................... $ 72,492 $ 96,656 $120,820 $144,984 $144,984
$250,000.................... $ 80,742 $107,656 $134,570 $161,484 $161,484
$275,000.................... $ 88,992 $118,656 $148,320 $177,984 $177,984
$300,000.................... $ 97,242 $129,656 $194,484 $194,484 $194,484
$325,000.................... $105,492 $140,656 $175,820 $210,984 $210,984
$350,000.................... $113,742 $151,656 $189,570 $227,484 $227,484
$375,000.................... $121,992 $162,656 $203,320 $243,984 $243,984
</TABLE>
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<PAGE> 48
These calculations are based on the retirement formula in effect as of
December 31, 1996, which provides an annual life annuity at age 65 equal to 1.8%
of a participant's final five-year average compensation (excluding bonus) plus
.4% of a participant's final five-year average compensation in excess of Social
Security Covered Compensation times years of service to a maximum of 30 years.
Estimated years of continuous service for each of the Named Executive Officers,
as of December 31, 1996 and rounded to the full year, are: Mr. G. Anderson, 28
years; Mr. J. Gregory, 21 years; Mr. M. Gherardi, 16 years; Mr. R. Kimball, 4
years; and Mr. K. Swenson, 13 years.
In addition, the Company's Salary Continuation Agreements provide for
supplemental pension benefits to certain executive officers of the Company,
including the Named Executive Officers. The following table sets forth the
supplemental pension benefits for the Named Executive Officers.
<TABLE>
<CAPTION>
ANNUAL
TOTAL YEARS RETIREMENT
ANNUAL BASE OF SERVICE BENEFIT
NAME COMPENSATION AT AGE 65 AT AGE 65
------------------------------------------------ ------------ ----------- ----------
<S> <C> <C> <C>
M. Gherardi..................................... $140,000 27 $ 22,680
G. Anderson..................................... $154,440 35 $ 32,432
R. Kimball...................................... $204,360 12 $ 24,523
K. Swenson...................................... $304,320 26 $ 87,036
J. Gregory...................................... $153,360 39 $ 35,886
</TABLE>
These calculations are based on individual Salary Continuation Agreements,
which provide a 100% joint and survivor annuity at age 65 equal to a percentage,
ranging from .6% to 1.1%, of a participant's highest annual base compensation
times full years of service. The percentage range has been determined by the
Board of Directors. There is no compensation increases assumed in these
calculations.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Kurt M. Swenson
(the "Swenson Employment Agreement") for retention of his services as President
and Chief Executive Officer of the Company. The term of the Swenson Employment
Agreement commences on the date of consummation of the offering (the
"Commencement Date") and continues until the fifth anniversary thereof, provided
that on the third and each subsequent anniversary of the Commencement Date such
term will automatically be extended for one additional year, unless, not later
than ninety days prior to the expiration of the term, the Company or Mr. Swenson
gives notice that the term will not be extended. The Swenson Employment
Agreement provides for continued payment of salary and benefits over the
remainder of the term if Mr. Swenson's employment is terminated by the Company
without Cause (as defined in the Swenson Employment Agreement) or as a result of
death or disability or by Mr. Swenson for Good Reason (as defined in the Swenson
Employment Agreement). The Swenson Employment Agreement also provides for a lump
sum payment to Mr. Swenson equal to the sum of (i) accrued but unpaid salary,
and a prorated bonus amount equal to the greater of the largest annual bonus
paid to Mr. Swenson during the prior three years and the annual bonus payable in
respect of the most recently completed fiscal year (the "Highest Annual Bonus"),
through the date of termination and (ii) three times the sum of (A) his then
annual salary and (B) Highest Annual Bonus, and for continuation of benefits for
three years, if Mr. Swenson's employment is terminated by the Company (other
than for Cause, death or disability) during the twelve-month period following,
or prior to but in connection with, or by Mr. Swenson during the twelve-month
period following, a Change in Control (as defined in the Swenson Employment
Agreement). In the event of such a termination, Mr. Swenson may elect in lieu of
the lump sum payment described above, to receive in a lump sum or over the then
remaining term of the Swenson Employment Agreement, an amount equal to the total
amount he would have been entitled to receive if his employment had been
terminated by the Company Without Cause or by Mr. Swenson for Good Reason. If
any payment or distribution by the Company to or for the benefit of Mr. Swenson
under the Swenson Employment Agreement would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
Mr. Swenson with respect to such excise tax, then Mr. Swenson will
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<PAGE> 49
generally be entitled to receive an additional payment such that after payment
by Mr. Swenson of all taxes, Mr. Swenson retains an amount of the additional
payment equal to the excise tax imposed.
The Company has entered into an employment agreement with G. Thomas
Oglesby, Jr. and George T. Oglesby, III and will enter into employment
agreements with each of Robert Otis Childs, III, John E. Keith and Roy H. Keith,
Jr. (such persons, together with G. Thomas Oglesby, Jr., being referred to as
the "Acquisition Executives" and such employment agreements with the Acquisition
Executives being referred to collectively as the "Acquisition Employment
Agreements"), upon consummation of the C&C Acquisition and Keith Acquisition.
The Acquisition Employment Agreement with Mr. Oglesby provides for an initial
five-year term commencing on June 27, 1997, and each of the other Acquisition
Employment Agreements provides, in effect, for an initial five-year term
commencing on the date of the offering. Pursuant to the Acquisition Employment
Agreements, the Executives will hold the respective positions listed for such
persons under "Management -- Directors and Officers". The Acquisition Employment
Agreements provide for benefits of the type generally provided to key executives
of the Company, and for continued payment of salary and benefits over the
remainder of the term if the Executive's employment is terminated by the Company
without Cause. The Acquisition Employment Agreements and related undertakings
generally prohibit the Executives from competing with the Company during the
term of employment and for two years thereafter, and contain customary
confidentiality provisions in favor of the Company. In addition, the Acquisition
Employment Agreements of G. Thomas Oglesby, Jr. and John E. Keith provide that,
so long as they remain employed under their respective Acquisition Employment
Agreements, they will be nominated for election to the Board of Directors of the
Company, subject to certain conditions. The Company will also enter into
employment agreements with Richard C. Kimball, George R. Anderson, Jon Gregory
and Edward E. Haydon (the "Officer Employment Agreements"), effective upon
consummation of this offering. The Officer Employment Agreements will contain
substantially the same terms as the Acquisition Employment Agreements, except
that they will not include any right to be nominated for election to the
Company's Board of Directors.
In connection with the acquisitions of Lawson Granite Company and the
Anderson Friberg Company, the Company on January 1, 1996 entered into five-year
employment agreements (the "Lawson-AFCO Employment Agreements") with Peter
Friberg, Albert Gherardi, Jr., Mark Gherardi and Paula Plante (the "Lawson-AFCO
Employees") providing for the employment of such persons in their current
positions. The Lawson-AFCO Employment Agreements contain substantially the same
terms as the Acquisition Employment Agreements except that they provide for
certain severance payments upon certain conditions occurring.
INCENTIVE PLAN
1994 Amended and Restated Stock Plan. Under the 1994 Plan, 1,500,000
shares of Common Stock have been reserved for issuance to officers, directors,
employees and consultants of the Company and its subsidiaries. Awards under the
1994 Plan made by the Board of Directors prior to the consummation of this
offering will be satisfied in shares of Class B Common Stock and awards made
under the 1994 Plan made on or after that date will be satisfied in shares of
Class A Common Stock. As of the date of this Prospectus, options for 862,500
shares of Class B Common Stock have been granted and were outstanding under the
1994 Plan and no such options have been exercised. Options for 383,252 shares of
Class A Common Stock will be granted in connection with the Acquisitions and to
two non-employee directors who will assume their positions upon consummation of
this offering. In addition, as of the date of this Prospectus, options to
acquire 254,248 shares of Class A Common Stock remained available for future
issuance under the 1994 Plan. Under the terms of the 1994 Plan, "incentive stock
options" ("ISOs") within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), "nonqualified stock options" or options which
do not qualify as ISOs ("NQSOs"), awards of Common Stock, and opportunities to
make direct purchases, of Common Stock ("Awards") may be granted by the Board of
Directors to employees (including officers and directors who are employees),
directors and consultants of the Company, except that ISOs may be granted only
to persons who are employees of the Company at the time the ISOs are granted.
Initially, each ISO will be exercisable over a period, determined by the
Board of Directors in its discretion, not to exceed ten years from the date of
grant, as required by the Code. In addition, in the case of an ISO granted to an
individual who, at the time such ISO is granted, owns shares of capital stock of
the
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<PAGE> 50
Company representing more than ten percent of the total combined voting power of
all classes of stock of the Company, the exercise period for an ISO may not
exceed five years from the date of grant. Options may be exercisable during the
exercise period at such times, in such amount, in accordance with such terms and
conditions, and subject to such restrictions as are set forth in the option
agreement evidencing the grant of such options. The Board of Directors generally
has the right to accelerate the exercisability of any options granted under the
1994 Plan which would otherwise be unexercisable. Upon certain consolidations or
mergers, the board of directors of any entity assuming the obligations of the
Company may make equitable adjustments to the options, accelerate the
exercisability of options or terminate them in exchange for a cash payment.
The 1994 Plan shall expire at the end of the day on November 20, 2004,
except with respect to options or Awards outstanding on such date. The Board of
Directors may terminate the 1994 Plan sooner at any time or amend the Plan at
any time, subject to the terms of the 1994 Plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") provides that no director of the Company shall
be personally liable to the Company or to any stockholder for monetary damages
arising out of such director's breach of fiduciary duty, except to the extent
that the elimination or limitation of liability is not permitted by the Delaware
General Corporation Law. The Delaware General Corporation Law, as currently in
effect, permits charter provisions eliminating the liability of directors for
breach of fiduciary duty, except that such charter provisions may not eliminate
or limit the liability of directors for: (i) any breach of the director's duty
of loyalty to a corporation or its stockholders; (ii) any acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law; (iii) any payment of a dividend or approval of a stock purchase or other
transaction that is illegal under Section 174 of the Delaware General
Corporation Law; or (iv) any transaction from which the director derived an
improper personal benefit. A principal effect of this provision of the
Certificate of Incorporation is to limit or eliminate the potential liability of
the Company's directors for monetary damages arising from any breach of their
duty of care, unless the breach involves one of the four exceptions described in
clauses (i) through (iv) of the immediately preceding sentence.
The Certificate of Incorporation and the Company's By-laws further provide
for the indemnification of the Company's directors and officers to the fullest
extent permitted by Section 145 of the Delaware General Corporation Law,
including circumstances in which indemnification is otherwise discretionary.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
At the present time, there is no pending litigation or proceeding involving
any director, officer, employee or agent of the Company in which indemnification
will be required or permitted. The Company is not aware of any threatened
litigation or proceeding which may result in a claim for such indemnification.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the closing of the offering, the Company will effect a
reorganization (the "Reorganization") as follows: (i) the reincorporation merger
of Rock of Ages Corporation, a Vermont corporation and the immediate predecessor
to the Company ("ROA Vermont"), with and into a newly-formed Delaware
corporation, with the Company surviving as a Delaware corporation (the
"Reincorporation Merger"), which occurred on August 12, 1997, whereby the Class
A and Class B Common Stock was created and each outstanding share of common
stock of ROA Vermont was converted into one half of a share of Class B Common
Stock; (ii) the merger of Swenson Granite Company ("Swenson Granite") with and
into the Company, with the Company as the surviving corporation (the "Swenson
Merger"), in which Swenson Granite's stockholders will receive 1,618.123 shares
of Class B Common Stock for each share of Swenson Granite capital stock held by
them; and (iii) immediately prior to the Swenson Merger, Swenson Granite will
distribute its curb and landscaping business (essentially all of its operating
assets and operating liabilities) to its stockholders (the "Swenson Granite
Distribution") through a pro rata distribution of all of the member
49
<PAGE> 51
interests in a newly formed limited liability company to be named Swenson
Granite Company LLC ("Swenson LLC"). Following the Swenson Granite Distribution
and prior to the Swenson Merger, the sole asset of Swenson Granite will be its
93% stock interest in the Company and its only liabilities will be an
intercompany payable to the Company and a note payable described below. Kurt M.
Swenson and his brother Kevin C. Swenson own in the aggregate approximately
60.6% of Swenson Granite. Robert Pope, a security holder of more than five
percent of the Class B Common Stock of the Company, will become President and
Chief Executive Officer of Swenson LLC following the Swenson Granite
Distribution.
Swenson Granite is a party to certain financing agreements of the Company
with CIT and is a co-maker and/or guarantor of all indebtedness of the Company
due to CIT. See "Management's Discussion and Analysis -- Liquidity and Capital
Resources". Upon consummation of the Swenson Granite Distribution and the
offering, Swenson LLC will be released by CIT as a party, co-maker and/or
guarantor of the Company's indebtedness to CIT, and the Company will remain
liable with respect thereto. As of June 30, 1997, the Company carried on its
books approximately $4.6 million due from Swenson Granite with respect to
borrowings by the Company under these credit facilities and advanced by the
Company to Swenson Granite. Of this amount, approximately $3.3 million will not
be assumed or repaid by Swenson LLC in connection with the Swenson Granite
Distribution and will remain an obligation of the Company. The balance of
approximately $1.3 million, together with any net advances from the Company to
Swenson Granite from and after June 30, 1997 to the date of the Swenson Granite
Distribution and the consummation of the offering, will be repaid by Swenson LLC
to the Company on or before December 31, 1997.
In connection with the Company's acquisition of Lawson Granite Company and
Anderson Friberg Company in December 1995, Swenson Granite is obligated under
certain notes and agreements related thereto (the "Lawson-Anderson Friberg
Obligations"). Except for certain employment agreement and other obligations to
Robert F. Pope (the "Pope Obligations"), the Chief Operating Officer of Swenson
Granite who, effective upon the Swenson Granite Distribution, will become
President and Chief Executive Officer of Swenson LLC, none of the
Lawson-Anderson Friberg Obligations, including but not limited to a note payable
to Paula Plante in the amount of $310,000, will be assumed by Swenson LLC and
will become direct obligations of the Company as a result of the Swenson Merger.
The Company will indemnify Swenson LLC with respect to such obligations, other
than the Pope Obligations as to which Mr. Pope will release, and Swenson LLC
will provide an indemnity to, Swenson Granite and the Company.
Swenson LLC will own two granite quarries, one in Concord, New Hampshire
and other in Woodbury, Vermont. Both have been owned by Swenson Granite for more
than 40 years. The Company anticipates that it will continue to purchase
Woodbury granite from Swenson LLC at the same price Swenson LLC charges its
landscape manufacturing operations. The Company expects that it will continue to
be able to purchase all of the excess output of the Woodbury quarry (beyond that
required by Swenson LLC for its curb and landscaping operations) for resale for
both memorial and other uses. Because of the proximity of the Woodbury quarry to
Barre, Vermont, the Company has provided, and expects to continue to provide,
certain maintenance services and equipment to the Woodbury quarry. Both the
Company and Swenson LLC will have the right to terminate these services at any
time and the Company will have no obligation to purchase or continue to purchase
Woodbury granite from Swenson LLC. The Company's sales of Woodbury granite
provided by Swenson Granite represented 1.8% of 1996 sales of the Company (1.1%
assuming the Acquisitions occurred as of January 1, 1996). The Company believes
these arrangements with Swenson LLC are as favorable, or more favorable, than
would be available from an unrelated party for comparable granite blocks.
It is expected that, effective upon the Swenson Granite Distribution,
ongoing pension liabilities under the Pension Plan (which is sponsored jointly
by the Company and Swenson Granite) in respect of the employees of Swenson
Granite will be assumed by Swenson LLC, and appropriate assets, determined in
accordance with applicable law, will be transferred from the Pension Plan to a
pension plan established by Swenson LLC. It is anticipated that in connection
with the Swenson Granite Distribution, the 401(k) accounts of Swenson Granite
employees who participate in 401(k) plans jointly sponsored by the Company and
Swenson Granite will remain in a jointly sponsored plan since each employee's
account is fully funded and vested as each contribution is made.
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<PAGE> 52
Upon consummation of the Swenson Granite Distribution, Kurt M. Swenson, the
Company's Chairman and Chief Executive Officer, will own approximately 30% of
all outstanding member interests of Swenson LLC. Mr. Swenson, who has served as
Chairman of the Board and Chief Executive Officer of Swenson Granite since 1974,
will resign as President, Chief Executive Officer of Swenson Granite, effective
upon the consummation of the Swenson Granite Distribution. However, Mr. Swenson
will continue to serve as a non-officer Chairman of the Board of Swenson LLC,
but will have no involvement with the day to day operations of Swenson LLC.
Neither Mr. Swenson nor any other officer of the Company, will receive salary,
bonus, expenses or other compensation from Swenson LLC except for any pro rata
share of earnings attributable to their ownership interest.
In connection with the Keystone Acquisition, the Company entered into the
Supply Agreements with Missouri Red and KGCI. See "Business -- Quarrying and
Manufacturing Operations". G. Thomas Oglesby, Jr. is the sole owner of Missouri
Red and the trustee of a trust for the benefit of his mother and others which
hold 100% of KGCI. G. Thomas Oglesby, Jr. is an officer of the Company. The
Company believes the terms and conditions of the Supply Agreements are as
favorable as would be available from unrelated suppliers. Also in connection
with the Keystone Acquisition, the Company agreed to grant to G. Thomas Oglesby,
Jr. and George T. Oglesby, III, principal owners and officers of Keystone,
options under the 1994 Plan to purchase 75,000 shares and 50,000 shares,
respectively, at an exercise price per share equal to the initial public
offering price per share of the Class A Common Stock. See "Management --
Directors and Officers."
In connection with the C&C Acquisition, the Company has agreed to grant to
Robert Otis Childs, III, one of the principal owners of C&C, an option under the
1994 Plan to purchase 75,000 shares of Class A Common Stock at an exercise price
per share equal to the initial public offering price per share of the Class A
Common Stock. See "Management -- Directors and Officers."
In connection with the Keith Acquisition, the Company agreed to (i) enter
into a five year triple net lease agreement with John E. Keith, who will become
an officer and director of the Company upon consummation of the Keith
Acquisition, and Roy Keith, Jr., the principal owners of Keith Monument, for
office buildings and retail locations containing 28,000 square feet at an annual
rent of $120,000; and (ii) grant to John E. Keith and Roy Keith, Jr. options
under the 1994 Plan to purchase an aggregate of 125,000 shares of Class A Common
Stock at an exercise price per share equal to the initial public offering price
per share of the Class A Common Stock. See "Management -- Directors and
Officers."
Upon consummation of the offering, the Company will grant to each of James
L. Fox and Frederick E. Webster, Jr., each of whom will become non-employee
directors of the Company at that time, options under the 1994 Plan to purchase
29,126 shares of Class A Common Stock at an exercise price per share equal to
the initial public offering price per share of the Class A Common Stock.
The Company has adopted a policy pursuant to which any future transaction
with one of its officers, directors or affiliates will be on terms no less
favorable to the Company than could be obtained from unrelated third parties and
will be approved by a majority of the disinterested members of the Board of
Directors.
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<PAGE> 53
PRINCIPAL AND SELLING STOCKHOLDERS
The following tables set forth certain information as to the beneficial
ownership of the Common Stock as of September 22, 1997, and as adjusted to
reflect the sale of 2,900,000 shares of Class A Common Stock offered hereby, by
(i) each person known by the Company to be the beneficial owner of 5% or more of
Common Stock; (ii) each director of the Company; (iii) each of the executive
officers of the Company; (iv) all directors and executive officers as a group;
and (v) each Selling Stockholder. Unless otherwise indicated, the Company
believes all persons listed have sole voting power and sole investment power
with respect to the shares shown.
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED SHARES OF BENEFICIALLY OWNED
PRIOR TO OFFERING(2) CLASS A AFTER OFFERING(2)
NAME AND ADDRESS OF --------------------- COMMON STOCK -------------------
BENEFICIAL OWNER(1) NUMBER PERCENT TO BE SOLD NUMBER PERCENT
- ---------------------------------------- --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Kurt M. Swenson(3)+..................... 1,143,989 27.6 -- 1,143,989 16.5
Kevin C. Swenson(4)..................... 1,061,489 25.6 -- 1,061,489 15.3
Mark A. Gherardi(5)+.................... 277,573 6.7 -- 277,573 4.0
Missouri Red Quarries, Inc.(6).......... 263,441 6.4 -- 263,441 3.8
G. Thomas Oglesby, Jr.(7)+.............. 263,441 6.4 -- 278,441 4.0
George T. Oglesby, III(8)............... -- * -- 10,000 *
Peter A. Friberg(9)+.................... 206,375 5.0 -- 206,375 3.0
Robert L. Pope(10)...................... 206,375 5.0 -- 206,375 3.0
Richard C. Kimball(11)+................. 91,626 2.2 -- 91,626 1.3
George R. Anderson(12)+................. 74,126 1.8 -- 74,126 1.1
Jon M. Gregory(13)+..................... 54,126 1.4 -- 59,126 *
Charles M. Waite+....................... 29,126 * -- 29,126 *
John E. Keith(14)+...................... -- * -- 100,735 1.5
James L. Fox(14)+....................... -- * -- 5,825 *
Frederick E. Webster, Jr.(14)+.......... -- * -- 5,825 *
Guy A. Swenson, III(15)................. 48,544 1.2 32,000 16,544 *
Guy A. Swenson, Jr. (15)................ 45,307 1.1 30,307 15,000 *
Peter B. Moore(15)...................... 40,453 1.0 8,000 32,453 *
John D. Swenson(15)..................... 32,362 * 27,362 5,000 *
George M. Karnedy....................... 29,126 * 26,126 3,000 *
Christian P. Swenson(15)................ 24,272 * 17,272 7,000 *
Jeanette Swenson Sumner Trust (15)...... 19,417 * 18,417 1,000 *
Melvin A. Friberg Irrevocable Trust for
the benefit of Andrew C. Friberg(9)... 12,945 * 12,945 -- *
Melvin A. Friberg Irrevocable Trust for
the benefit of Lindsay S.
Friberg(9)............................ 12,945 * 12,945 -- *
Melvin A. Friberg Irrevocable Trust for
the benefit of Elizabeth F.
Pope(10).............................. 12,945 * 12,945 -- *
Melvin A. Friberg Irrevocable Trust for
the benefit of Gregory J. Pope(10).... 12.945 * 12,945 -- *
Melvin A. Friberg Irrevocable Trust for
the benefit of Michael R. Pope(10).... 12,945 * 12,945 -- *
Melvin A. Friberg Irrevocable Trust for
the benefit of Joseph Yalicki......... 12,945 * 12,945 -- *
Carolyn Friberg(9)...................... 9,709 * 9,709 -- *
Merilyn Friberg(9)...................... 9,709 * 9,709 -- *
Sally S. Friberg(9)..................... 9,709 * 9,709 -- *
Nancy F. Pope(10)....................... 9,709 * 9,709 -- *
Susan S. Vogelsang(15).................. 9,709 * 200 9,509 *
</TABLE>
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<PAGE> 54
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED SHARES OF BENEFICIALLY OWNED
PRIOR TO OFFERING(2) CLASS A AFTER OFFERING(2)
NAME AND ADDRESS OF --------------------- COMMON STOCK -------------------
BENEFICIAL OWNER(1) NUMBER PERCENT TO BE SOLD NUMBER PERCENT
- ---------------------------------------- --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Carl Yalicki............................ 9,709 * 9,709 -- *
J. Malcolm Swenson...................... 8,091 * 8,000 91 *
All directors and executive officers as
a group (11 persons).................. 2,145,382 51.7 -- 2,272,767 32.8
</TABLE>
- ---------------
+ Executive Officer and/or Director
* Less than 1%
(1) The business address of each director, executive officer and 5% stockholder
of the Company is c/o Rock of Ages Corporation, 772 Graniteville Road,
Graniteville, Vermont 05654.
(2) The listed persons hold Class B Common Stock except as otherwise specified.
Shares of Class B Common Stock held by the Selling Stockholders will
automatically convert into Class A Common Stock on a share-for-shares basis
upon the sale by the Selling Stockholders of such shares pursuant to the
offering.
(3) Includes (i) 82,500 shares subject to stock options exercisable within 60
days and (ii) 18,750 shares held by a trust for the benefit of the children
of Kurt M. Swenson of which John R. Monson is the sole trustee. Mr. Monson
is Secretary and General Counsel to the Company. Mr. Swenson disclaims any
voting power or beneficial interest in the 18,750 shares held by the trust.
Kurt M. Swenson is the brother of Kevin C. Swenson.
(4) Includes 18,750 shares held by a trust for the benefit of the children of
Kevin C. Swenson of which John R. Monson is the sole trustee. Mr. Swenson
disclaims any voting power or beneficial interest in these shares. Kevin C.
Swenson is the brother of Kurt M. Swenson.
(5) Includes 30,000 shares subject to currently exercisable stock options.
(6) Missouri Red Quarries, Inc. is 100% owned by G. Thomas Oglesby, Jr. who is
its President and the sole director of Missouri Red Quarries, Inc.
(7) Includes 263,441 shares owned by Missouri Red Quarries, Inc. Common Stock
Beneficially Owned After Offering also includes 15,000 shares of Class A
Common Stock subject to options which will be granted and exercisable upon
consummation of the offering. G. Thomas Oglesby, Jr. is the father of
George T. Oglesby, III.
(8) Represents shares of Class A Common Stock subject to stock options that
will be granted and exercisable upon consummation of the offering.
(9) Includes 30,000 shares subject to currently exercisable options. Excludes
25,890 shares held by trusts established by Melvin A. Friberg for the
benefit of his children of which Peter A. Friberg is Trustee and 9,709
owned by each of his wife, sister and mother all listed as Selling
Stockholders. Mr. Friberg disclaims any beneficial interest in such shares
being sold.
(10) Includes 30,000 shares subject to currently exercisable options. Excludes
38,835 shares held by trusts established by Melvin A. Friberg for the
benefit of his children of which Robert L. Pope is Trustee and 9,709 shares
held by his wife all listed as Selling Stockholders. Mr. Pope disclaims any
beneficial interest in such shares being sold.
(11) Includes 62,500 shares subject to currently exercisable stock options.
(12) Includes 45,000 shares subject to currently exercisable stock options.
(13) Includes 30,000 shares subject to currently exercisable stock options.
(14) Represents shares of Class A Common Stock subject to stock options that
will be granted and exercisable upon consummation of the offering. Also
includes 88,235 shares of Class A Common Stock to be issued to National
Memorial Corporation in connection with the Keith Acquisition. Mr. Keith is
the president and a 50% owner of National Memorial Corporation.
(15) The listed holder, or beneficiaries of the listed trusts are relatives of
Kurt M. Swenson and his brother Kevin C. Swenson.
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<PAGE> 55
DESCRIPTION OF CAPITAL STOCK
The following summarizes the material terms of the capital stock of the
Company.
GENERAL
The authorized capital stock of the Company consists of 30,000,000 shares
of Class A Common Stock, par value $.01 per share, 3,000,000 shares of which
will be issued and outstanding upon the consummation of this offering (assuming
an initial offering price of $17.00 per share); 15,000,000 shares of Class B
Common Stock, par value $.01 per share, 3,469,540 shares of which will be issued
and outstanding upon consummation of this offering; and 2,500,000 shares of
Preferred Stock, par value $.01 per share, none of which will be outstanding
upon consummation of this offering. As of September 22, 1997 there were
3,763,441 shares of Class B Common Stock outstanding, all of which were held by
Swenson Granite and Missouri Red, no shares of Class A Common Stock outstanding
and no shares of Preferred Stock outstanding.
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
The shares of Class A Common Stock and Class B Common Stock are
substantially identical, except for voting rights and certain conversion rights,
as described below.
Voting Rights. Each share of Class A Common Stock entitles the holder to
one vote on each matter submitted to a vote of the Company's stockholders and
each share of Class B Common Stock entitles the holder to ten votes on each such
matter, in each case including the election of directors. Except as required by
applicable law, holders of the Class A Common Stock and Class B Common Stock
will vote together as a single class on all matters submitted to a vote of the
stockholders. Neither the Class A Common Stock nor the Class B Common Stock has
cumulative voting rights. See "Risk Factors -- Control by Existing Stockholders"
and "Anti-Takeover Effects of Certain Provisions of the Charter and By-laws and
of Delaware Law."
Any action that can be taken at a meeting of the stockholders may be taken
by written consent in lieu of the meeting if the Company receives consents
signed by stockholders having the minimum number of votes that would be
necessary to approve the action at a meeting at which all shares entitled to
vote on the matter were present. This could permit the holders of Class B Common
Stock to take all actions required to be taken by the stockholders without
providing the other stockholders the opportunity to vote or raise other matters
at a meeting.
Dividends. Holders of Class A Common Stock and Class B Common Stock are
entitled to receive dividends at the same rate if and when declared by the Board
of Directors out of funds legally available therefor, subject to the dividend
and liquidation rights of any Preferred Stock that may be issued and
outstanding.
If a dividend or distribution payable in Class A Common Stock is made on
the Class A Common Stock, the Company must also make a pro rata and simultaneous
dividend or distribution on the Class B Common Stock payable in shares of either
Class A Common Stock or Class B Common Stock. Conversely, if a dividend or
distribution payable in Class B Common Stock is made on the Class B Common
Stock, the Company must also make a pro rata and simultaneous dividend or
distribution on the Class A Common Stock payable solely in shares of Class A
Common Stock.
Conversion. Class A Common Stock has no conversion rights. Class B Common
Stock will be convertible into Class A Common Stock, in whole or in part, at any
time and from time to time at the option of the holder on the basis of one share
of Class A Common Stock for each share of Class B Common Stock converted. Each
share of Class B Common Stock will also automatically convert into one share of
Class A Common Stock upon transfer to any person or entity other than a
"Permitted Transferee." For this purpose, a Permitted Transferee is (i) a spouse
or lineal descendant of any person duly holding shares of Class B Common Stock
(a "Qualified Holder") and any spouse of such lineal descendant (all such
spouses and lineal descendants, collectively, "Family Members"), (ii) the
trustee of a trust for the sole benefit of a Qualified Holder or Family Member,
(iii) a partnership comprised exclusively of Qualified Holders or Family members
or other entity wholly owned by Qualified Holders or Family Members, or (iv) the
executor, administrator or
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<PAGE> 56
personal representative of the estate of a Qualified Holder or Family Member, or
the guardian or conservator of a Qualified Holder or any Family Member who has
been adjudged disabled by a court of competent jurisdiction.
Liquidation. In the event of liquidation of the Company, after payment of
the debts and other liabilities of the Company and after making provision for
the holders of Preferred Stock, if any, the remaining assets of the Company will
be distributable ratably among the holders of the Class A Common Stock and Class
B Common Stock treated as a single class.
Other Provisions. The holders of shares of the Common Stock are not
entitled to preemptive rights. Neither the Class A Common Stock nor the Class B
Common Stock may be subdivided or combined in any manner unless the other class
is subdivided or combined in the same proportion.
PREFERRED STOCK
The Board of Directors may, without further action by the Company's
stockholders, from time to time, direct the issuance of shares of Preferred
Stock in series and may, at the time of issuance, determine the rights,
preferences and limitations of each series. Satisfaction of any dividend
preferences of outstanding shares of Preferred Stock would reduce the amount of
funds available for the payment of dividends on shares of Common Stock. Holders
of shares of Preferred Stock may be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding-up of the Company before
any payment is made to the holders of shares of Common Stock. Under certain
circumstances, the issuance of shares of Preferred Stock may render more
difficult or tend to discourage a merger, tender offer or proxy contest, the
assumption of control by a holder of a large block of the Company's securities
or the removal of incumbent management. The Board of Directors, without
stockholder approval, may issue shares of Preferred Stock with voting and
conversion rights which could adversely affect holders of shares of Common
Stock. Upon consummation of the offering, there will be no shares of Preferred
Stock outstanding, and the Company has no present intention to issue any shares
of Preferred Stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CHARTER AND BY-LAWS AND OF DELAWARE
LAW
Charter and By-Laws
The Certificate of Incorporation and the By-laws, together with certain
provisions of Delaware law, contain certain provisions that could discourage
potential takeover attempts and make more difficult the acquisition of a
substantial block of the Common Stock. The Certificate of Incorporation provides
for a Board of Directors that is divided into three classes. The directors in
Class I hold office until the first annual meeting of stockholders following
this offering, the directors in Class II hold office until the second annual
meeting of stockholders following this offering, and the directors in Class III
hold office until the third annual meeting of stockholders following this
offering (or, in each case, until their successors are duly elected and
qualified or until their earlier resignation, removal from office for cause or
death), and, after each such election, the directors in each such class will
then serve in succeeding terms of three years and until their successors are
duly elected and qualified. The classification system of electing directors, the
ability of stockholders to remove directors only for cause (and only upon a
two-thirds vote) and the inability of stockholders to call a special meeting may
tend to discourage a third party from making a tender offer or otherwise
attempting to obtain control of the Company and may maintain the incumbency of
the Board of Directors, as the classification of the Board of Directors and such
other provisions generally increase the difficulty of, or may delay, replacing a
majority of the directors. In addition, such classification system and such
other provisions may be amended only upon an 85% stockholder vote.
The Certificate of Incorporation authorizes the directors to issue, without
stockholder approval, shares of Preferred Stock in one or more series and to fix
the voting powers, designations, preferences and relative, participating,
optional or other special rights (and the qualifications, limitations or
restrictions of such preferences and rights) of the shares of each such series.
The Certificate of Incorporation and By-laws provide that special meetings of
the Company's stockholders may be called only by the Chairman of the Board, (if
there is one), or the President, any Vice President, (if there is one), the
Secretary or any Assistant Secretary,
55
<PAGE> 57
(if there is one), and shall be called by any such officer at the written
request of a majority of the directors. The By-laws also provide that
nominations for directors may not be made by stockholders at any annual or
special meeting thereof unless the stockholder intending to make a nomination
notifies the Company of its intentions a specified number of days in advance of
the meeting and furnishes to the Company certain information regarding itself
and the intended nominee. The By-laws also require a stockholder to provide to
the Secretary of the Company advance notice of business to be brought by such
stockholder before any annual or special meeting of stockholders as well as
certain information regarding such stockholder and others known to support such
proposal and any material interest they may have in the proposed business. These
provisions could delay stockholder actions that are favored by the holders of a
majority of the outstanding stock of the Company until the next stockholders'
meeting.
Delaware Anti-Takeover Statute
The Company is subject to Section 203 of the Delaware General Corporation
Law which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the time that such stockholder became an
interested stockholder, unless: (i) prior to such time, the board of directors
of the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) at or subsequent
to such time, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least two-thirds of the outstanding
voting stock which is not owned by the interested stockholder. The application
of Section 203 may limit the ability of stockholders to approve a transaction
that they may deem to be in their best interests.
In general, Section 203 defines "business combination" to include: (i) any
merger or consolidation involving the corporation and the interested
stockholder; (ii) any sale, transfer, pledge or other disposition of 10% or more
of the assets of the corporation to or with the interested stockholder; (iii)
subject to certain exceptions, any transaction which results in the issuance or
transfer by the corporation of any stock of the corporation to the interested
stockholder; (iv) any transaction involving the corporation which has the effect
of increasing the proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder; or (v) the receipt
by the interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an "interested stockholder" as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person associated with, affiliated with or
controlling or controlled by such entity or person.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
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<PAGE> 58
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering and the C&C Acquisition and Keith
Acquisition, the Company will have 6,469,540 shares of Common Stock (6,904,540
shares if the Underwriters' over-allotment option is exercised in full)
outstanding. The 2,900,000 shares of Class A Common Stock (3,335,000 shares if
the Underwriters' over-allotment option is exercised in full) offered hereby
will be freely tradable in the United States without restriction or further
registration under the Securities Act, unless purchased or held by "affiliates"
(as such term is defined in Rule 144) of the Company. All 3,469,540 shares of
Class B Common Stock outstanding upon completion of this offering and 100,000
shares of Class A Common Stock to be issued pursuant to the C&C Acquisition and
the Keith Acquisition (assuming an initial public offering price of $17 per
share) will be "restricted securities" within the meaning of Rule 144 (the
"Restricted Shares").
Restricted Shares may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rules 144 or 701
promulgated under the Securities Act, which are summarized below. Sales of the
Restricted Shares in the public market, or the availability of such shares for
sale, could adversely affect the market price of the Class A Common Stock. Of
the 3,569,540 Restricted Shares, 263,441 shares will be eligible for sale in the
public market pursuant to Rule 144 after June 30, 1998. The remaining 3,306,099
Restricted Shares will be eligible for sale in the public market pursuant to
Rule 144 upon the first anniversary of the consummation of the offering. In
addition, 459,150 shares of Common Stock that are reserved for issuance pursuant
subject to vested options granted pursuant to the 1994 Plan will be available
for sale 90 days after the Effective Date, subject to compliance with Rule 701
and the lock-up agreements described below, if applicable.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least one year would be entitled to sell within any three-month period a number
of shares that does not exceed the greater of: (i) one percent of the number of
shares of Common Stock then outstanding (which will equal approximately 30,000
shares of Class A Common Stock and 34,695 shares of Class B Common Stock
immediately after this offering); or (ii) the average weekly reported trading
volume during the four calendar weeks preceding the filing of a Form 144 with
respect to such sale. Sales under Rule 144 are also subject to certain manner of
sale provisions and notice requirements and to the availability of current
public information about the Company. Under Rule 144(k), a person who is not
deemed to have been an affiliate of the Company at any time during the 90 days
preceding a sale, and who has beneficially owned the shares proposed to be sold
for at least two years, is entitled to sell such shares without complying with
the manner of sale, public information, volume limitation or notice provisions
of Rule 144.
In general, under Rule 701, beginning 90 days after the Effective Date,
certain shares issued upon the exercise of options granted by the Company prior
to the date of this Prospectus will also be available for sale in the public
market. Any employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits
affiliates and non-affiliates to sell their Rule 701 shares under Rule 144
without complying with the holding period requirements of Rule 144. Rule 701
further provides that non-affiliates may sell such shares in the public market
in reliance on Rule 144 without having to comply with the public information,
volume limitation or notice provisions of Rule 144. In both cases, a holder of
Rule 701 shares is required to wait until 90 days after the date of this
Prospectus before selling such shares in the public market.
An aggregate of 1,500,000 shares of Common Stock will be reserved for
issuance to employees and directors of the Company pursuant to the 1994 Plan.
Currently, 862,500 shares of Class B Common Stock are issuable under existing
options granted to employees pursuant to the 1994 Plan. In addition, upon
consummation of the offering, options exercisable for a total of 383,252 shares
of Class A Common Stock will be granted under the 1994 Plan to employees in
connection with the Acquisitions and to two new directors. After consummation of
the offering, the Company intends to file one or more registration statements on
Form S-8 with respect to shares of Common Stock issuable under the 1994 Plan.
See "Management -- Incentive Plan." Shares covered by any such registration
statement will be eligible for sale in the public market upon the effectiveness
of such registration statement (which occurs immediately upon filing), subject
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<PAGE> 59
to the limitations of Rule 144 that are applicable to affiliates and to the
lock-up agreements described below, if applicable. Upon the expiration of the
lock-up agreements, 399,650 shares of Common Stock subject to vested options
granted pursuant to the 1994 Plan will be available for public sale, subject to
effectiveness of such a registration statement with respect to such shares or
compliance with Rule 701.
The Company, and the executive officers and directors and holders of more
than 2% of the Common Stock have agreed with Raymond, James & Associates, Inc.
not to sell, offer to sell, contract to sell, pledge or otherwise dispose of or
transfer any shares of Common Stock, or any securities convertible into or
exchangeable or exercisable for or any rights to purchase or acquire Common
Stock for a period of 180 days following the date of this Prospectus without the
prior written consent of Raymond James & Associates, Inc., other than, in the
case of the Company, the issuance of options to purchase Common Stock or shares
of Common Stock issuable upon the exercise thereof, issuances of Common Stock in
connection with the C&C Acquisition and the Keith Acquisition and other
issuances of capital stock in connection with other acquisitions, provided such
shares of Common Stock issued upon the exercise of options and such shares of
capital stock issued in connection with any such other acquisitions shall not be
transferable prior to the end of the aforesaid 180-day period. Raymond James &
Associates, Inc. may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to lock-up agreements.
Prior to the offering, there has been no market for the Class A Common
Stock. No predictions can be made of the effect, if any, that market sales of
shares of Class A Common Stock or the availability of such shares for sale will
have on the market price prevailing from time to time. Nevertheless, sales of
significant amounts of Class A Common Stock could adversely affect the
prevailing market price of Class A Common Stock, as well as impair the ability
of the Company to raise capital through the issuance of additional equity
securities.
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<PAGE> 60
CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following is a general summary of certain United States federal income
and estate tax consequences of the purchase, ownership, sale or other taxable
disposition of the Class A Common Stock by any person or entity other than (a) a
citizen or resident of the United States, (b) a corporation created or organized
in or under the laws of the United States or of any state thereof and (c) a
person or entity otherwise subject to United States federal income taxation on
income from sources outside the United States (a "non-U.S. Holder"). This
summary does not address all United States federal tax considerations that may
be relevant to non-U.S. Holders in light of their particular circumstances or to
certain non-U.S. Holders that may be subject to special treatment under United
States federal income or estate tax laws. This summary is based upon the
Internal Revenue Code of 1986, as amended, existing, temporary and proposed
regulations promulgated thereunder and administrative and judicial decisions,
all of which are subject to change, possibly with retroactive effect. In
addition, this summary does not address the effect of any state, local or
foreign tax laws. Each prospective purchaser of the Class A Common Stock should
consult its tax advisor with respect to the tax consequences of purchasing,
owning and disposing of the Class A Common Stock.
DIVIDENDS
Dividends paid to a non-U.S. Holder of Class A Common Stock generally will
be subject to a withholding of United States federal income tax at a 30% rate
(or such lower rate as may be specified by an applicable income tax treaty)
unless the dividend is effectively connected with the conduct of a trade or
business of the non-U.S. Holder within the United States in which case the
dividend will be taxed at ordinary federal income tax rates. If the non-U.S.
Holder is a corporation, such effectively connected income may also be subject
to an additional "branch profits tax." A non-U.S. Holder may be required to
satisfy certain certification requirements in order to claim treaty benefits or
otherwise claim a reduction of, or exemption from, the withholding described
above.
SALE OR OTHER DISPOSITION OF CLASS A COMMON STOCK
A non-U.S. Holder generally will not be subject to United States federal
income tax in respect of any gain recognized on the sale or other taxable
disposition of Class A Common Stock unless (i) the gain is effectively connected
with the conduct of a trade or business of the non-U.S. Holder within the United
States, (ii) in the case of a non-U.S. Holder who is an individual and holds the
Class A Common Stock as a capital asset, the holder is present in the United
States for 193 or more days in the taxable year of the disposition and the gain
is considered derived from sources within the United States, (iii) the non-U.S.
Holder is subject to tax pursuant to the provisions of United States federal
income tax law applicable to certain United States expatriates or (iv) the
Company is or has been during certain periods preceding the disposition a "U.S.
real property holding corporation" for United States federal income tax purposes
and certain other requirements are met. The Company does not believe that it has
ever been, or is likely to become, a U.S. real property holding corporation.
ESTATE TAX
Class A Common Stock owned or treated as owned by an individual non-U.S.
Holder at the time of death will be includible in the individual's gross estate
for United States federal estate tax purposes, unless an applicable treaty
provides otherwise, and may be subject to United States federal estate tax.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Dividends. United States backup withholding tax generally will not apply to
dividends paid on the Class A Common Stock to a non-U.S. Holder at an address
outside the United States. The Company must report annually to the Internal
Revenue Service and to each nonU.S. Holder the amount of dividends paid to, and
the tax withheld with respect to, such holder, regardless of whether any tax was
withheld. This information may also be made available to the tax authorities in
the non-U.S. Holder's country of residence.
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<PAGE> 61
Sale or Other Disposition of Class A Common Stock. Upon the sale or other
taxable disposition of Class A Common Stock by a non-U.S. Holder to or through a
United States office of a broker, the broker must backup withhold at a rate of
31% and report the sale to the Internal Revenue Service, unless the holder
certifies its non-U.S. Holder status under penalties of perjury or otherwise
establishes an exemption. Upon the sale or other taxable disposition of Class A
Common Stock by a non-U.S. Holder to or through the foreign office of a United
States broker, or a foreign broker with a certain relationship to the United
States, the broker must report the sale to the Internal Revenue Service (but not
backup withhold) unless the broker has documentary evidence in its files that
the seller is a non-U.S. Holder and/or certain other conditions are met or the
holder otherwise establishes an exemption. Amounts withheld under the backup
withholding rules generally are allowable as a refund or credit against a
non-U.S. Holder's United States federal income tax liability, if any, provided
that the required information is furnished to the Internal Revenue Service on a
timely basis.
Proposed Regulations. The Department of the Treasury has issued proposed
Treasury regulations concerning the non-U.S. Holder certification procedures
regarding U.S. withholding tax on certain amounts paid to non-U.S. persons,
which generally are proposed to be effective with respect to payments made after
December 31, 1998. Prospective investors should consult their tax advisors
concerning the effect, if any, of the adoption of such proposed Treasury
regulations on an investment in the Class A Common Stock.
60
<PAGE> 62
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), through their representative
Raymond James & Associates, Inc. (the "Representative"), have severally agreed
to purchase from the Company and the Selling Stockholders the following
respective numbers of shares of Class A Common Stock at the public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Raymond James & Associates, Inc. .........................................
---------
Total........................................................... 2,900,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Class A Common
Stock offered hereby are subject to approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all shares of Class A Common Stock offered hereby (other than those
covered by the over-allotment option described below) if any such shares are
purchased.
The Underwriters, through the Representative, propose to offer part of the
shares of Class A Common Stock directly to the public at the public offering
price set forth on the cover page of this Prospectus and part of the shares to
certain dealers at a price that represents a concession not in excess of $
per share under the public offering price. The Underwriters may allow, and such
dealers may re-allow, a concession not in excess of $ per share to certain
other dealers. The Representative has advised the Company that the Underwriters
do not intend to confirm sales to any accounts over which they exercise
discretionary authority.
The Company has granted the Underwriters an option exercisable not later
than 30 days after the date of this Prospectus, to purchase up to an aggregate
of 435,000 additional shares of Class A Common Stock, at the public offering
price, less the underwriting discounts and commissions set forth on the cover
page of this Prospectus. To the extent that the Underwriters exercise such
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage thereof as the number of shares of Class A
Common Stock to be purchased by it shown in the above table bears to the total
shown, and the Company will be obligated, pursuant to the option, to sell such
shares to the Underwriters. The Underwriters may exercise their option only to
cover over-allotments made in connection with the sale of the shares of Class A
Common Stock offered hereby. If purchased, the Underwriters will sell such
additional shares on the same terms as those on which the shares are being
offered.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against, or to contribute to, losses arising out of certain
liabilities in connection with this offering, including liabilities under the
Securities Act.
At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, up to 250,000 shares of Class A Common Stock
to be sold and offered hereby by the Company to certain employees and customers
of the Company and other persons. The number of shares of Class A Common Stock
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares which are not orally
confirmed for purchase within one day of the pricing of the offering will be
offered by the Underwriters to the general public on the same terms as the other
shares offered hereby. Certain individuals purchasing reserved shares may be
required to agree not to sell, offer or otherwise dispose of any shares of Class
A Common Stock for a period of 180 days after the date of this Prospectus.
61
<PAGE> 63
The Company, its executive officers and directors, and holders of more than
2% of the Common Stock prior to the consummation of the offering, have agreed
not to sell, offer to sell, contract to sell, pledge or otherwise dispose of or
transfer any shares of Common Stock, or any securities convertible into or
exchangeable or exercisable for, or any rights to purchase or acquire, Common
Stock for a period of 180 days following the date of this Prospectus without the
prior written consent of Raymond James & Associates, Inc., other than, in the
case of the Company, the issuance of options to purchase Common Stock or shares
of Common Stock issuable upon the exercise thereof, issuances of Common Stock in
connection with the C&C Acquisition and the Keith Acquisition and other
issuances of capital stock of the Company in connection with other acquisitions,
provided such shares of Common Stock issued upon the exercise of options and
such shares of capital stock issued in connection with any such other
acquisitions shall not be transferable prior to the end of the aforesaid 180-day
period. Raymond James & Associates, Inc. may, in its sole discretion and at any
time without notice, release all or any portion of the shares subject to such
lock-up agreements.
Prior to this offering, there has been no public market for the Class A
Common Stock of the Company. The initial public offering price the Class A
Common Stock was determined by negotiation between the Company and the
Representative. Among the factors considered in such negotiations were
prevailing market conditions, the value of publicly traded companies believed to
be comparable to the Company, the results of operations of the Company in recent
periods, estimates of the business potential of the Company, the present state
of the Company's development and other factors deemed relevant.
The Representative, acting on behalf of the Underwriters, may over-allot
the shares offered hereby and, during the course of this offering, may engage in
stabilizing and syndicate short covering and may impose a penalty bid on members
of the offering syndicate. Over-allotment involves sales of shares in excess of
the total number being offered, thereby creating a syndicate short position.
Stabilizing involves a bid by the syndicate to purchase shares in the open
market at a specified price, which may not exceed the public offering price and
may be decreased but not increased. Syndicate short covering involves open
market purchases of shares to cover all or a portion of the syndicate short
position created by over-allotments. A penalty bid permits the Representative to
reclaim selling concessions from a syndicate member when shares sold by that
member in the offering are purchased by the Representative in the open market to
cover a syndicate short position or pursuant to a stabilizing bid. All of these
activities may cause the market price of the Class A Common Stock to be higher
than otherwise might be the case in the absence of these activities. These
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
The foregoing includes a summary of certain principal terms of the
Underwriting Agreement and does not purport to be complete. Reference is made to
the copy of the Underwriting Agreement that is on file as an exhibit to the
Registration Statement on Form S-1 (the "Registration Statement") under the
Securities Act and filed by the Company with the Commission with respect to the
shares of Class A Common Stock offered hereby, of which this Prospectus is a
part.
LEGAL MATTERS
The validity of the issuance of the shares of Class A Common Stock offered
hereby will be passed upon for the Company by Skadden, Arps, Slate, Meagher &
Flom LLP, Boston, Massachusetts. Certain legal matters will be passed upon for
the Underwriters by Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A.,
Miami, Florida.
EXPERTS
The audited financial statements of the Company, the audited financial
statements of Keystone, the audited financial statements of C&C, and the audited
financial statements of Keith Monument, have been included herein and in the
Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent auditors, as of the dates and for the periods indicated in their
reports appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing. The audited financial statements of the
Quarry Companies and SMI have been included herein and in the Registration
Statement in reliance upon
62
<PAGE> 64
the report of Greene and Company, L.L.P., independent certified public
accountants as of the dates and for the periods indicated in their reports
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company filed with the Commission the Registration Statement under the
Securities Act with respect to the shares of Class A Common Stock being offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made. Statements made in this Prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily
complete; with respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description thereof.
The Registration Statement and the exhibits and schedules thereto may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and will also be available for inspection and copying at the regional
offices of the Commission located at 7 World Trade Center, New York, New York
10048 and at Northwestern Atrium Center, 500 West Madison Street (Suite 1400),
Chicago, Illinois 60661. Copies of such material may also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Additionally, the Commission
maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission at (http://www.sec.gov). Upon consummation of this offering,
the Company will become subject to the information requirements of the Exchange
Act, and in accordance therewith will be required to file periodic reports and
other information with the Commission.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements.
63
<PAGE> 65
INDEX TO FINANCIAL STATEMENTS
ROCK OF AGES CORPORATION
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Independent Auditors' Report......................................................... F-3
Consolidated Balance Sheets at December 31, 1995 and 1996 and June 30, 1997
(unaudited)........................................................................ F-4
Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and
1996 and the six months ended June 30, 1996 and 1997 (unaudited)................... F-6
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1994, 1995 and 1996 and the six months ended June 30, 1997 (unaudited)............. F-7
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996 and the six months ended June 30, 1996 and 1997 (unaudited)................... F-8
Notes to Consolidated Financial Statements........................................... F-10
CHILDS & CHILDS GRANITE CO., INC.,
C & C GRANITE CO., INC., QUARRY COMPANIES AND SMI
Independent Auditors' Report......................................................... F-23
Combined Balance Sheet as of May 31, 1997............................................ F-24
Combined Statement of Operations for the Eleven-Month Period ended May 31, 1997...... F-25
Combined Statement of Stockholders' Equity for the Eleven-Month Period ended May 31,
1997............................................................................... F-26
Combined Statement of Cash Flows for the Eleven-Month Period ended May 31, 1997...... F-27
Notes to Combined Financial Statements............................................... F-28
KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI
Independent Auditors' Report......................................................... F-31
Combined Balance Sheet as of April 30, 1997 and July 31, 1997 (unaudited)............ F-32
Combined Statement of Operations for the Ten-Month Period ended April 30, 1997 and
the Three-Month Periods ended July 31, 1996 and 1997 (unaudited)................... F-33
Combined Statement of Stockholder's Deficit for the Ten-Month Period ended April 30,
1997 and the Three-Month Period ended July 31, 1997 (unaudited).................... F-34
Combined Statement of Cash Flows for the Ten-Month period ended April 30, 1997 and
the Three-Month Periods ended July 31, 1996 and 1997 (unaudited)................... F-35
Notes to Combined Financial Statements............................................... F-36
KEITH MONUMENT COMPANIES
Independent Auditors' Report......................................................... F-41
Combined Balance Sheets as of June 30, 1996 and 1997................................. F-42
Combined Statements of Operations for the Years ended June 30, 1995, 1996 and 1997... F-43
Combined Statements of Stockholders' Equity for the Years ended June 30, 1995, 1996
and 1997........................................................................... F-44
Combined Statements of Cash Flows for the Years ended June 30, 1995, 1996 and 1997... F-45
Notes to Combined Financial Statements............................................... F-46
</TABLE>
F-1
<PAGE> 66
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
PENNSYLVANIA GRANITE CORPORATION
Independent Auditors' Report on Financial Statements................................. F-54
Consolidated Balance Sheets as of May 31, 1997 and April 30, 1997.................... F-55
Consolidated Statement of Operations and Accumulated Deficit for the Eleven Months
ended May 31, 1997................................................................. F-56
Consolidated Statement of Operations and Accumulated Deficit for the Ten Months ended
April 30, 1997..................................................................... F-57
Consolidated Statement of Cash Flows for the Eleven Months ended May 31, 1997........ F-58
Consolidated Statement of Cash Flows for the Ten Months ended April 30, 1997......... F-59
Notes to Consolidated Financial Statements........................................... F-60
PENNSYLVANIA GRANITE CORPORATION
Independent Auditors' Report on Financial Statements................................. F-65
Consolidated Balance Sheet as of June 30, 1996....................................... F-66
Consolidated Statement of Operations and Accumulated Deficit for the Year ended
June 30, 1996...................................................................... F-67
Consolidated Statement of Cash Flows for the Year ended June 30, 1996................ F-68
Notes to Consolidated Financial Statements........................................... F-69
CAPRICE BLUE QUARRY, INC.
Independent Auditors' Report on Financial Statements................................. F-74
Balance Sheets as of May 31, 1997 and April 30, 1997................................. F-75
Statement of Operations and Accumulated Deficit for the Eleven Months ended May 31,
1997............................................................................... F-76
Statement of Operations and Accumulated Deficit for the Ten Months ended April 30,
1997............................................................................... F-77
Statement of Cash Flows for the Eleven Months ended May 31, 1997..................... F-78
Statement of Cash Flows for the Ten Months ended April 30, 1997...................... F-79
Notes to Financial Statements........................................................ F-80
AUTUMN ROSE QUARRY, INC.
Independent Auditors' Report on Financial Statements................................. F-83
Balance Sheets as of May 31, 1997 and April 30, 1997................................. F-84
Statement of Operations and Accumulated Deficit for the Eleven Months ended May 31,
1997............................................................................... F-85
Statement of Operations and Accumulated Deficit for the Ten Months ended April 30,
1997............................................................................... F-86
Statement of Cash Flows for the Eleven Months ended May 31, 1997..................... F-87
Statement of Cash Flows for the Ten Months ended April 30, 1997...................... F-88
Notes to Financial Statements........................................................ F-89
SOUTHERN MAUSOLEUMS, INC.
Independent Auditors' Report......................................................... F-93
Balance Sheets as of May 31, 1997 and April 30, 1997................................. F-94
Statement of Operations and Accumulated Deficit for the Eleven Months ended May 31,
1997............................................................................... F-95
Statement of Operations and Accumulated Deficit for the Ten Months ended April 30,
1997............................................................................... F-96
Statement of Cash Flows for the Eleven Months ended May 31, 1997..................... F-97
Statement of Cash Flows for the Ten Months ended April 30, 1997...................... F-98
Notes to Financial Statements........................................................ F-99
</TABLE>
F-2
<PAGE> 67
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Rock of Ages Corporation:
We have audited the accompanying consolidated balance sheets of Rock of
Ages Corporation and Subsidiaries as of December 31, 1995 and 1996 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Rock of Ages
Corporation and Subsidiaries as of December 31, 1995 and 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
Burlington, Vermont /s/ KPMG Peat Marwick LLP
March 24, 1997, except as to
Note 13 which is as of
August 12, 1997
F-3
<PAGE> 68
ROCK OF AGES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JUNE 30,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 1,994,534 $ 763,056 $ 191,855
Trade receivables, less allowance for doubtful
accounts of $445,627 in 1995 and $564,242 in
1996........................................... 10,757,049 8,525,463 11,248,648
Due from affiliates............................... 2,292,677 3,584,644 5,375,181
Inventories (note 2).............................. 10,110,107 11,323,613 13,374,103
Deferred tax assets (note 6)...................... 270,071 419,871 467,161
Other current assets.............................. 190,755 322,216 837,308
----------- ----------- -----------
Total current assets........................... 25,615,193 24,938,863 31,494,256
----------- ----------- -----------
Property, plant and equipment:
Granite reserves and development costs............ 6,747,993 7,045,644 7,045,644
Land.............................................. 1,937,132 1,981,230 2,151,084
Buildings and land improvements................... 8,028,757 8,661,575 8,850,364
Machinery and equipment........................... 18,548,026 19,331,762 21,616,857
Furniture and fixtures............................ 13,329 13,270 208,722
Construction-in-process........................... 208,239 372,028 1,955,824
----------- ----------- -----------
35,483,476 37,405,509 41,828,495
Less accumulated depreciation, depletion and
amortization................................... 17,306,340 18,809,535 20,598,189
----------- ----------- -----------
Net property, plant and equipment.............. 18,177,136 18,595,974 21,230,306
----------- ----------- -----------
Other assets:
Cash surrender value of life insurance, net of
loans of $95,412 in 1995 and 1996.............. 752,007 917,137 959,478
Goodwill, less accumulated amortization of $30,450
in 1996........................................ 1,779,113 1,748,663 1,730,663
Debt issuance costs, less accumulated amortization
of $229,976 in 1995 and $104,040 in 1996....... 157,019 123,293 88,683
Organization costs, less accumulated amortization
of $26,688 in 1995 and $63,961 in 1996......... 72,644 212,799 189,985
Deferred tax assets (note 6)...................... 763,862 597,576 543,176
Intangible pension asset (note 8)................. 0 93,418 93,418
Investments in and advances to affiliated
companies (note 5)............................. 378,614 217,953 1,407,760
Other investments, at cost which approximates
market......................................... 109,119 59,366 30,948
Other............................................. 296,333 489,734 0
----------- ----------- -----------
Total other assets............................. 4,308,711 4,459,939 5,044,111
----------- ----------- -----------
Total assets (notes 3 and 4).............. $48,101,040 $47,994,776 $57,768,673
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 69
ROCK OF AGES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JUNE 30,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under lines of credit (note 3)......... $ 2,579,859 $ 3,500,437 $ 8,667,627
Current installments of long-term debt (note 4)... 4,096,813 2,081,481 2,844,419
Accounts payable.................................. 1,929,388 1,693,144 2,066,541
Accrued expenses.................................. 1,668,822 1,969,976 2,357,840
Income taxes payable.............................. 397,409 466,711 131,149
Current portion of deferred income................ 400,000 400,000 400,000
Customer deposits................................. 851,673 1,541,602 1,794,819
----------- ----------- -----------
Total current liabilities................. 11,923,964 11,653,351 18,262,395
Long-term debt, excluding current installments (note
4)................................................ 14,656,514 13,054,399 13,896,615
Deferred compensation (note 8)...................... 3,232,094 3,504,090 3,566,431
Deferred income, excluding current portion.......... 800,000 400,000 200,000
Accrued pension cost (note 8)....................... 1,504,512 1,504,512 1,504,512
Accrued postretirement benefit cost (note 8)........ 504,750 506,938 506,938
----------- ----------- -----------
Total liabilities......................... 32,621,834 30,623,290 37,936,891
----------- ----------- -----------
Commitments (note 7)
Stockholders' equity:
Preferred stock -- $.01 par value;
2,500,000 shares authorized
No shares issued or outstanding
Common Stock -- Class A, $.01 par value;
30,000,000 shares authorized
No shares issued or outstanding
Common stock -- Class B, $.01 par value;
15,000,000 shares authorized
3,500,000 shares issued and outstanding
in 1995 and 1996............................... 35,000 35,000 37,634
Additional paid-in capital........................ 5,593,843 5,593,843 9,211,641
Retained earnings................................. 9,827,918 11,736,082 10,675,378
Cumulative translation adjustment................. 22,445 6,561 (55,237)
----------- ----------- -----------
Total stockholders' equity................ 15,479,206 17,371,486 19,831,782
----------- ----------- -----------
Total liabilities and stockholders'
equity.................................. $48,101,040 $47,994,776 $57,768,673
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 70
ROCK OF AGES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------------- -----------------------
1994 1995 1996 1996 1997
----------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues........................ $34,187,749 33,087,783 44,668,851 19,943,096 20,767,426
Cost of revenues.................... 24,094,198 22,638,804 31,262,530 14,686,791 15,562,135
----------- ---------- ---------- ---------- ----------
Gross profit.............. 10,093,551 10,448,979 13,406,321 5,256,305 5,205,291
Selling, general and administrative
expenses.......................... 6,048,890 6,453,425 9,131,459 4,649,628 4,327,952
----------- ---------- ---------- ---------- ----------
Income from operations.... 4,044,661 3,995,554 4,274,862 606,677 877,339
----------- ---------- ---------- ---------- ----------
Other expenses:
Interest expense.................. 1,652,895 1,678,178 1,723,355 933,684 866,064
Early retirement plan expense
(note 8)....................... -- 563,857 -- -- --
----------- ---------- ---------- ---------- ----------
Total other expenses...... 1,652,895 2,242,035 1,723,355 933,684 866,064
----------- ---------- ---------- ---------- ----------
Income (loss) before
provision (benefit) for
income taxes............ 2,391,766 1,753,519 2,551,507 (327,007) 11,275
Provision (benefit) for income taxes
(note 6).......................... 576,485 358,021 643,343 (82,452) 2,843
----------- ---------- ---------- ---------- ----------
Net income (loss)......... $ 1,815,281 1,395,498 1,908,164 (244,555) 8,432
=========== ========== ========== ========== ==========
Net income (loss) per share......... $ .47 .35 .46 (.06) .00
Weighted average number of common
shares outstanding................ 3,899,897 4,017,257 4,105,912 4,105,912 4,326,287
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 71
ROCK OF AGES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
ISSUED AND
OUTSTANDING
SHARES OF
CLASS B CLASS B ADDITIONAL CUMULATIVE TOTAL
COMMON COMMON PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS ADJUSTMENT EQUITY
----------- ------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993...... 3,500,000 $35,000 2,212,044 6,617,139 (15,467) 8,848,716
Net income...................... -- -- -- 1,815,281 -- 1,815,281
Cumulative translation
adjustment.................... -- -- -- -- 22,142 22,142
--------- ------- --------- --------- ------- ----------
Balance at December 31, 1994...... 3,500,000 35,000 2,212,044 8,432,420 6,675 10,686,139
Net income...................... -- -- -- 1,395,498 -- 1,395,498
Acquisitions (note 12).......... -- -- 3,381,799 -- -- 3,381,799
Cumulative translation
adjustment.................... -- -- -- -- 15,770 15,770
--------- ------- --------- --------- ------- ----------
Balance at December 31, 1995...... 3,500,000 35,000 5,593,843 9,827,918 22,445 15,479,206
Net income...................... -- -- -- 1,908,164 -- 1,908,164
Cumulative translation
adjustment.................... -- -- -- -- (15,884) (15,884)
--------- ------- --------- --------- ------- ----------
Balance at December 31, 1996...... 3,500,000 35,000 5,593,843 11,736,082 6,561 17,371,486
Net income...................... -- -- -- 8,432 -- 8,432
Dividends (note 13)............. -- -- -- (1,069,136) -- (1,069,136)
Acquisition (note 13)........... 263,441 2,634 3,575,564 -- -- 3,582,798
Cumulative translation
adjustment.................... -- -- -- -- (61,798) (61,798)
--------- ------- --------- --------- ------- ----------
Balance at June 30, 1997.......... 3,763,441 $37,634 9,211,641 10,675,378 (55,237) 19,831,782
========= ======= ========= ========= ======= ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE> 72
ROCK OF AGES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss).............. $ 1,815,281 1,395,498 1,908,164 (244,555) 8,432
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation, depletion and
amortization.............. 1,399,028 1,413,336 1,846,298 1,049,466 984,841
Decrease (increase) in cash
surrender value of life
insurance................. 26,068 71,132 (165,130) (82,565) (42,341)
Loss (gain) on sale of
property, plant and
equipment................. (319,917) (45,063) (5,500) (3,389) 20,004
Loss (equity) in income of
affiliated companies...... (134,264) 43,156 160,661 134,434 19,019
Deferred taxes.............. 79,967 (131,676) 16,486 (152,452) 7,110
Changes in assets and
liabilities:
Decrease (increase) in
trade receivables...... (1,524,444) (1,727,154) 2,231,586 2,046,113 (1,269,760)
Decrease (increase) in due
from affiliates........ (421,630) 378,885 (1,291,967) (1,416,988) (1,319,007)
Decrease (increase) in
inventories............ 2,148,792 243,979 (1,081,430) (1,686,701) (918,391)
Increase in other current
assets................. (4,022) (36,783) (131,461) (391,593) (497,668)
Decrease (increase) in
intangible pension
asset.................. (178,630) 481,366 (93,418) -- --
Decrease (increase) in
other assets........... 184,454 101,365 (193,401) (762,900) 19,779
Increase (decrease) in
accounts payable....... 499,742 (205,627) (236,244) 477,197 (22,375)
Increase in accrued
expenses............... 733,651 85,493 301,154 515,851 224,869
Increase (decrease) in
income taxes payable... 541,354 (290,090) 69,302 (136,775) (298,374)
Increase in customer
deposits............... 5,918 228,447 689,929 266,453 253,217
Increase (decrease) in
deferred
compensation........... (14,706) 9,264 271,996 73,565 62,341
Decrease in deferred
income................. (400,000) (400,000) (400,000) (200,000) (200,000)
Increase in accrued
pension cost........... 86,700 29,912 2,188 -- --
Increase in accrued
postretirement benefit
cost................... 9,345 10,811 -- 45,000 --
---------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) operating
activities........... 4,532,687 1,656,251 3,899,213 (469,839) (2,968,304)
---------- ---------- ---------- ---------- ----------
Cash flows from investing
activities:
Purchases of property, plant
and equipment............... (502,918) (896,447) (1,648,505) (883,593) (1,589,953)
Proceeds from sale of property,
plant and equipment......... 751,866 70,836 14,476 11,000 --
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 73
ROCK OF AGES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Increase in investments in and
advances to affiliates...... -- -- -- -- (171,020)
Decrease (increase) in other
investments................. 1,927 (53,933) 49,753 10,897 28,418
Acquisitions, net of cash
acquired.................... -- 2,642 (238,310) -- 73,256
---------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) investing
activities........... 250,875 (876,902)( 1,822,586) (861,696) (1,659,299)
---------- ---------- ---------- ---------- ----------
Cash flows from financing
activities:
Net borrowings (repayments)
under lines of credit....... (3,062,646) 2,454,269 920,578 2,401,628 5,167,190
Increase in debt issuance
costs....................... (190,027) (2,569) (36,415) (36,415) --
Increase in organization
costs....................... (97,565) (1,766) (172,689) (172,689) --
Proceeds from long-term debt... -- -- 122,082 -- --
Principal payments on long-term
debt........................ (1,145,802) (1,644,533) (4,126,635) (2,376,882) (1,048,990)
---------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) financing
activities........... (4,496,040) 805,401 (3,293,079) (184,358) 4,118,200
---------- ---------- ---------- ---------- ----------
Effect of exchange rate changes
on cash........................ 14,498 16,176 (15,026) (32,665) (61,798)
---------- ---------- ---------- ---------- ----------
Net increase (decrease)
in cash and cash
equivalents.......... 302,020 1,600,926 (1,231,478) (1,548,558) (571,201)
Cash and cash equivalents,
beginning of period............ 91,588 393,608 1,994,534 1,994,534 763,056
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents, end of
period......................... $ 393,608 1,994,534 763,056 445,976 191,855
========== ========== ========== ========== ==========
Supplemental cash flow
information:
Cash paid during the period
for:
Interest.................... $ 1,780,181 1,678,178 1,520,420 933,684 866,064
Income taxes................ 150,150 711,299 742,626 168,983 351,155
</TABLE>
Supplemental non-cash investing and financing activities:
See Note 12 for non-cash activities relating to the acquisitions.
In 1994, $3,663,747 in borrowings under lines of credit was refinanced as
long-term debt.
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Acquisitions:
Assets acquired................ $ -- 9,186,561 625,416 -- 6,807,521
Liabilities assumed and
issued...................... -- (5,449,882) (387,106) -- (3,224,723)
Capital contributed............ -- (3,381,799) -- -- --
Common stock issued............ -- -- -- -- (3,582,798)
---------- ---------- ---------- ---------- ----------
Cash paid...................... -- 354,880 238,310 -- --
Less cash acquired............. -- (357,522) -- -- (73,256)
---------- ---------- ---------- ---------- ----------
Net cash paid for
(received from)
acquisitions......... $ -- (2,642) 238,310 -- (73,256)
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 74
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Rock of Ages Corporation, together with its wholly-owned subsidiaries (the
"Company"), Rock of Ages Canada, Inc., Royalty Granite Corporation, Rock of Ages
International, and Associated Memorials, Inc. is an integrated quarrier,
manufacturer and distributor of granite and products manufactured from granite.
The quarry division sells granite both to the manufacturing division and to
outside manufacturers, as well as to distributors in Europe and Japan. The
manufacturing division's principal product is granite memorials used primarily
in cemeteries, although it also manufactures some specialized granite products
for industrial applications. Manufacturing revenues were approximately 50%, 60%
and 60% of total revenues in 1994, 1995 and 1996 respectively, with the balance
being quarry revenues. Foreign revenues represented approximately 44.9%, 40.7%
and 28.9% of total revenues in 1994, 1995 and 1996, respectively.
(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
(b) Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with a maturity of three months or less to
be cash equivalents.
(c) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
(d) Depreciation, Depletion and Amortization
Property, plant and equipment are stated at cost. Depreciation is
calculated using the straight-line and declining balance methods, based upon the
following estimated useful lives:
<TABLE>
<S> <C>
Buildings and land improvements........................ 5 to 40 years
Machinery and equipment................................ 3 to 20 years
Furniture and fixtures................................. 5 to 12 years
</TABLE>
Depreciation expense amounted to $1,281,415, $1,253,186 and $1,659,160 in
1994, 1995 and 1996, respectively.
Cost depletion and amortization of granite reserves and development costs
is provided by charges to operations based on cubic feet produced in relation to
estimated reserves of the property. Cost depletion and amortization charged to
operations amounted to $71,010, $69,338 and $54,013 in 1994, 1995 and 1996,
respectively.
(e) Foreign Currency Translation
The Company translates the accounts of its foreign subsidiary in accordance
with Statement of Financial Accounting Standards No. 52, under which all assets
and liabilities are translated at the rate of exchange in effect at year end.
Revenue and expense accounts are translated using weighted average exchange
rates in effect during the year. Gains or losses from foreign currency
translation are charged to "cumulative translation adjustment" which is included
in stockholders' equity in the accompanying consolidated balance sheets.
F-10
<PAGE> 75
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(f) Income Taxes
The Company files its Federal income tax returns on a consolidated basis.
Rock of Ages Canada, Inc. is responsible for income taxes in Canada.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(g) Goodwill
Goodwill was recorded in 1995 as a result of two acquisitions (see Note 12)
and is being amortized over 40 years using the straight-line method.
Amortization expense amounted to $30,450 in 1996. The Company assesses the
recoverability of this intangible asset by determining whether the amortization
of the goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation. The amount
of goodwill impairment, if any, is measured based on projected discounted future
operating cash flows using a discount rate reflecting the Company's average cost
of funds. The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
(h) Debt Issuance Costs
Debt issuance costs are amortized using the straight-line method over the
term of the related borrowing. Amortization expense amounted to $40,603, $70,124
and $70,141 in 1994, 1995 and 1996, respectively.
(i) Organization Costs
Organization costs are amortized using the straight-line method over 60
months. Amortization expense amounted to $6,000, $20,688 and $32,534 in 1994,
1995 and 1996, respectively.
(j) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of the Statement did not have a material impact on the Company's
financial position, results of operations, or liquidity.
(k) Deferred Income
Deferred income represents revenues received in 1992 in relation to a
distribution agreement. Revenue is being recognized over six years beginning in
1993, per the terms of the agreement.
F-11
<PAGE> 76
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(l) Revenue Recognition
The manufacturing division recognizes revenue upon shipment of finished
orders. The quarry division recognizes revenue upon sales order at which time
ownership passes to the customer although the block may not be shipped until a
later date.
(m) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to use estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
(n) Stock-Based Employee Compensation
The Company uses the intrinsic value based method per APB Opinion No. 25,
Accounting for Stock Issued to Employees, for all of its stock-based employee
compensation arrangements.
(o) Net Income Per Share
Net income per share is computed by dividing earnings available for common
shares by the weighted average number of common shares outstanding during each
year. Common stock equivalent shares are not included in the per share
calculations where the effect of their inclusion would be antidilutive.
(p) Interim Consolidated Financial Statements
The consolidated financial statements for the six months ended June 30,
1996 and 1997 are unaudited but, in the opinion of management, include all
normal, recurring adjustments necessary for a fair presentation of results for
these interim periods. The results of operations for the interim periods are not
necessarily indicative of trends or results expected for a full year.
(2) INVENTORIES
Inventories consist of the following at December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Raw materials..................................... $ 6,994,078 7,065,320
Work-in-process................................... 1,304,347 1,694,671
Finished goods and supplies....................... 1,811,682 2,563,622
----------- -----------
$10,110,107 11,323,613
=========== ===========
</TABLE>
(3) LINES OF CREDIT
The Company and an affiliate, Swenson Granite Company, Inc., may be
advanced up to a maximum of $9,500,000 under the terms of line of credit
agreements with a lending institution, based on percentages of eligible accounts
receivable and eligible inventory. The line of credit arrangements expire August
1999 and bear interest at the Chemical Bank prime rate plus 1%, and are secured
by substantially all assets of the Company. Amounts outstanding as of December
31, 1995 and 1996 were $1,179,859 and $1,779,124, respectively.
F-12
<PAGE> 77
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) LINES OF CREDIT -- (CONTINUED)
Effective November 30, 1995, Rock of Ages Canada, Inc. entered into a line
of credit agreement with a lending institution. Under the terms of this
agreement, a maximum of approximately $2,400,000 may be advanced based on
percentages of eligible accounts receivable, eligible inventory, and tangible
fixed assets. The line of credit agreement will be reviewed at least annually
for any revisions to the agreement, bears interest at the prime rate plus 3/4%,
and is secured by substantially all assets of the subsidiaries. Amounts
outstanding as of December 31, 1995 and 1996 were $1,400,000 and $1,721,313,
respectively.
(4) LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1996 consists of the following:
<TABLE>
<CAPTION>
1995 1996
----------- ----------
<S> <C> <C>
Note payable -- bank, interest at Chemical Bank prime plus
1 1/4%, payable in quarterly installments of $100,000
with the final installment of $2,500,000 due October
1998, secured by substantially all assets of the
Company.................................................. $ 3,600,000 3,200,000
Note payable -- bank, interest at Chemical Bank prime plus
1 1/4%, payable in quarterly installments of $400,000
with the final installment of $8,400,000 due January
1999, secured by substantially all assets of the
Company.................................................. 13,010,384 11,410,385
Notes payable -- bank, interest at prime plus 1%,
unsecured, paid in full in January 1996.................. 1,320,622 --
Note payable -- Small Business Administration, interest at
10.147%, secured by property, plant and equipment, paid
in full in January 1996.................................. 327,230 --
Note payable -- VEDA, interest at 4%, unsecured, paid in
full in January 1996..................................... 118,233 --
Note payable -- Dutton, interest at 6%, payable in monthly
principal and interest payments of $674, unsecured, due
December 2003............................................ 51,280 46,130
Note payable -- Friberg, interest at 8%, unsecured, paid in
full in April 1996....................................... 325,578 --
Note payable -- bank, interest at lender's operational rate
plus 1%, payable in monthly installments of $3,649 plus
interest, due April 2004, secured by property with a net
book value of $336,330 at December 31, 1996.............. -- 321,068
Note payable -- bank, interest at 10.5%, payable in monthly
principal and interest installments of $1,216, due March
2000, secured by machinery with a net book value of
$39,792 at December 31, 1996............................. -- 40,012
Note payable -- bank, interest at prime plus 1.5%, payable
in monthly installments of $608 plus interest, due
November 2001, secured by property with a net book value
of $40,193 at December 31, 1996.......................... $ -- 35,269
</TABLE>
F-13
<PAGE> 78
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) LONG-TERM DEBT -- (CONTINUED)
<TABLE>
<CAPTION>
1995 1996
----------- ----------
<S> <C> <C>
Obligation under capital lease, interest at 7.99%, payable
in monthly installments of $1,680 plus interest, due
December 2000, secured by equipment with a cost and
accumulated depreciation of $95,731 and $1,595,
respectively, at December 31, 1996....................... -- 83,016
----------- ----------
18,753,327 15,135,880
Less current installments.................................. 4,096,813 2,081,481
----------- ----------
Long-term debt, excluding current installments............. $14,656,514 13,054,399
=========== ==========
</TABLE>
All bank-related obligations are guaranteed by an affiliate, Swenson
Granite Company, Inc.
Future maturities of the December 31, 1996 long-term debt are as follows:
<TABLE>
<CAPTION>
OBLIGATION OTHER
UNDER LONG-TERM
YEAR ENDED DECEMBER 31: CAPITAL LEASE DEBT
----------------------------------------------------------- ------------- ----------
<S> <C> <C>
1997.................................................. $ 20,163 2,067,444
1998.................................................. 20,163 4,468,983
1999.................................................. 20,163 1,670,669
2000.................................................. 41,337 6,671,596
2001.................................................. -- 56,810
Thereafter............................................ -- 117,362
-------- ----------
101,826 15,052,864
==========
Interest included in obligation under capital lease........ 18,810
--------
$ 83,016
========
</TABLE>
The financing agreements with banks contain various restrictive covenants
with respect to the maintenance of financial ratios, capital additions, and
other items. As of December 31, 1996 all covenants have been complied with or
waived by the banks.
(5) INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES
Investments in and advances to affiliated companies, accounted for under
the equity method, at December 31, 1995 and 1996 consists of a 50% equity
interest in Rock of Ages of Asia of $378,613 and $217,953, respectively.
The Company's equity (loss) in the income of Rock of Ages Asia was
$134,264, $(43,156) and $(160,661), in 1994, 1995 and 1996, respectively. Sales
to Rock of Ages Asia were $3,911,195, $2,997,845 and $592,100 in 1994, 1995 and
1996, respectively. Accounts receivable from Rock of Ages Asia was $2,221,824,
$2,327,054 and $769,354 as of December 31, 1994, 1995 and 1996, respectively.
See note 13.
F-14
<PAGE> 79
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) INCOME TAXES
A summary of components of the provision for income taxes for the years
ended December 31, 1994, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Current............................................ $496,518 $381,719 $626,857
Deferred........................................... 79,967 (23,698) 16,486
-------- -------- --------
Total.................................... $576,485 $358,021 $643,343
======== ======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1995 and 1996 are presented below:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Accrued pension, accrued postretirement benefit cost and
deferred compensation.................................. $ 903,743 $ 890,941
Allowance for doubtful accounts........................... 79,096 94,920
Accrued expenses.......................................... 60,224 86,120
Deferred income........................................... 326,400 217,600
Inventories, principally due to additional costs
inventoried for tax purposes pursuant to the Tax Reform
Act of 1986............................................ 211,634 237,279
Other assets.............................................. 297,426 374,789
---------- ----------
Total gross deferred tax assets................... 1,878,523 1,901,649
Less valuation allowance.......................... (482,241) (495,877)
---------- ----------
Total net deferred tax assets..................... 1,396,282 1,405,772
---------- ----------
Deferred tax liabilities:
Quarry development........................................ (309,176) (375,445)
Other liabilities......................................... (53,173) (12,880)
---------- ----------
Total gross deferred tax liabilities.............. (362,349) (388,325)
---------- ----------
Net deferred tax assets........................... $1,033,933 $1,017,447
========== ==========
</TABLE>
The reconciliation of differences between the statutory U.S. federal income
tax rate and the Company's effective tax rate follows:
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
U.S. statutory rate......................................... 34.0% 34.0% 34.0%
State taxes................................................. 5.9 6.0 6.1
Valuation allowance change.................................. (5.3) -- --
Other....................................................... (10.5) (19.6) (14.9)
----- ----- -----
Effective tax rate.......................................... 24.1% 20.4% 25.2%
===== ===== =====
</TABLE>
SFAS No. 109 requires a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized. Management believes that
it is more likely than not that the results of future operations will generate
sufficient taxable income to realize the net deferred tax assets.
F-15
<PAGE> 80
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) LEASES
The Company has several noncancellable operating leases for vehicles and
equipment which expire over the next four years. Rental expense for operating
leases was $118,211, $164,467 and $161,607 during 1994, 1995 and 1996,
respectively.
Future minimum lease payments under noncancellable operating leases (with
initial or remaining lease terms in excess of one year) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31:
----------------------------------------------------------
<S> <C>
1997...................................................... $149,763
1998...................................................... 134,777
1999...................................................... 105,008
2000...................................................... 37,989
--------
$427,537
========
</TABLE>
The Company also acts as the lessor of various parcels of land. Rental
income was $28,841, $32,182 and $32,210 in 1994, 1995 and 1996, respectively.
Future minimum rentals to be received under noncancellable leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31:
----------------------------------------------------------
<S> <C>
1997...................................................... $ 22,950
1998...................................................... 19,950
1999...................................................... 19,575
2000...................................................... 16,950
2001...................................................... 16,200
Thereafter................................................ 44,550
--------
$140,175
========
</TABLE>
(8) PENSION AND RETIREMENT PLANS
Pension Plans -- Non-Union
The Company has a defined benefit pension plan which covers all salaried
employees of the Company and its affiliate, Swenson Granite Company, Inc. who
have attained age 21 and have completed one year of service. Employees with five
or more years of service are entitled to pension benefits beginning at normal
retirement age (65) equal to 1.8% of average compensation times years of
credited service. Maximum number of years of credited service is equal to 30
years.
The Company makes contributions in such amounts and at such times as it
shall determine in accordance with an established funding method and policy,
which is consistent with plan objectives and the requirements of the Employee
Retirement Income Security Act of 1974 (ERISA). The Company's contributions for
the year ended December 31, 1994, 1995 and 1996 were based on the minimum
funding requirements of ERISA.
Plan assets consist of marketable securities and an unallocated insurance
contract.
F-16
<PAGE> 81
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) PENSION AND RETIREMENT PLANS -- (CONTINUED)
Net periodic pension cost for the Company's defined benefit pension plan
for the years ended December 31, 1995 and 1996, charged to operations in the
accompanying consolidated statements of operations, excluding the expense
incurred as a result of the early retirement window described below, consisted
of the following:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Service cost-benefits attributable to service during the
period.................................................. $ 222,485 $ 392,429
Interest cost on projected benefit obligation............. 881,644 1,042,864
Return on plan assets..................................... (1,660,367) (1,342,269)
Net amortization and deferral............................. 1,149,127 776,636
----------- -----------
Net periodic pension cost................................. $ 592,889 $ 869,660
=========== ===========
</TABLE>
Assumptions used by the Company in the determination of pension plan
information consisted of the following as of December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Discount rate.......................................................... 7.25% 7.25%
Rate of increase in compensation levels................................ 5.50% 5.50%
Expected long-term rate of return on plan assets....................... 9.00% 9.00%
</TABLE>
The following table sets forth the funded status of the plan and amounts
recognized in the accompanying consolidated balance sheets at December 31, 1995
and 1996:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligation including vested benefits of $10,760,173 in
1995 and $11,654,986 in 1996.......................... $(11,087,582) $(12,225,920)
============ ============
Actuarial present value of projected benefit
obligation............................................ (12,845,942) (15,045,099)
Plan assets at fair value............................... 9,901,354 11,296,553
------------ ------------
Projected benefit obligation in excess of plan assets... (2,944,588) (3,748,546)
Unrecognized net gain from past experience different
from that assumed and the effects of changes in
assumptions........................................... (500,947) (899,363)
Unrecognized net prior service cost..................... 865,707 2,209,852
Unrecognized net obligation............................. 1,075,316 933,545
------------ ------------
Accrued pension cost.................................... $ (1,504,512) $ (1,504,512)
============ ============
</TABLE>
Effective November 1, 1995 the Company offered an early retirement window
for eligible employees. As a result, the Company recognized a curtailment loss
of $563,857 which has been charged to other expenses in the accompanying
consolidated statement of operations.
Postretirement Benefits
In addition to providing pension benefits, the Company and its affiliate,
Swenson Granite Company, Inc. (Swenson) have sponsored a defined benefit
postretirement health care plan for early retirees. No other Company employees
or retirees are eligible to participate in the plan. The Company and Swenson
also sponsor defined benefit postretirement group life insurance plans for union
and non-union employees. The death benefit provided to union retirees is $6,000;
the death benefit provided to non-union retirees is 0.75 times the retiree's
salary on the date of retirement (capped at $60,000). Included in selling,
general and administrative
F-17
<PAGE> 82
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) PENSION AND RETIREMENT PLANS -- (CONTINUED)
expenses of the Company is its share of the net periodic postretirement benefit
costs of $219,428, $194,719 and $188,076 for the years ended December 31, 1994,
1995 and 1996, respectively.
Net periodic postretirement benefit costs for the Company and its affiliate
for the years ended December 31, 1994, 1995 and 1996 consisted of the following:
<TABLE>
<CAPTION>
POSTRETIREMENT POSTRETIREMENT
1994 MEDICAL LIFE INSURANCE TOTAL
---------------------------------------------- -------------- -------------- --------
<S> <C> <C> <C>
Service cost-benefits attributable to service
during the period........................... $ -- $ 14,728 $ 14,728
Interest cost on accumulated postretirement
benefit obligation.......................... 49,000 99,079 148,079
Net amortization and deferral................. 37,625 66,053 103,678
------- ------- -------
Net periodic postretirement benefit cost...... $ 86,625 $179,860 $266,485
======= ======= =======
1995
Service cost-benefits attributable to service
during the period........................... $ -- $ 12,559 $ 12,559
Interest cost on accumulated postretirement
benefit obligation.......................... 35,677 98,599 134,276
Net amortization and deferral................. 24,410 66,053 90,463
------- ------- -------
Net periodic postretirement benefit cost...... $ 60,087 177,211 237,298
======= ======= =======
1996
Service cost-benefits attributable to service
during the period........................... $ -- $ 20,308 $ 20,308
Interest cost on accumulated postretirement
benefit obligation.......................... 22,096 106,150 128,246
Net amortization and deferral................. 9,878 66,053 75,931
------- ------- -------
Net periodic postretirement benefit cost...... $ 31,974 $192,511 $224,485
======= ======= =======
</TABLE>
The amounts recognized in the accompanying consolidated balance sheets as
of December 31, 1995 and 1996, representing the Company's share of the funded
status of the plans, were $504,750 and $506,938, respectively. The following
table sets forth the funded status for the Company and its affiliate as of
December 31, 1995 and 1996:
<TABLE>
<CAPTION>
POSTRETIREMENT POSTRETIREMENT
1995 MEDICAL LIFE INSURANCE TOTAL
-------------------------------------------- -------------- -------------- -----------
<S> <C> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees.................................. $ (429,652) $ (1,048,213) $(1,477,865)
Fully eligible active plan participants... -- (148,911) (148,911)
Other active plan participants............ -- (181,823) (181,823)
--------- ---------- ----------
Accumulated postretirement benefit
obligation in excess of plan assets....... (429,652) (1,378,947) (1,808,599)
Unrecognized transition obligation.......... 73,231 1,188,952 1,262,183
Unrecognized net (gain)/loss from past
experience different from that assumed.... (22,012) 16,184 (5,828)
--------- ---------- ----------
Accrued postretirement benefit cost......... $ (378,433) $ (173,811) $ (552,244)
========= ========== ==========
</TABLE>
F-18
<PAGE> 83
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) PENSION AND RETIREMENT PLANS -- (CONTINUED)
<TABLE>
<CAPTION>
POSTRETIREMENT POSTRETIREMENT
MEDICAL LIFE INSURANCE TOTAL
-------------- -------------- -----------
<S> <C> <C> <C>
1996
Accumulated postretirement benefit
obligation:
Retirees.................................. $ (285,441) $ (1,094,623) $(1,380,064)
Fully eligible active plan participants... -- (193,450) (193,450)
Other active plan participants............ -- (219,676) (219,676)
--------- ---------- ----------
Accumulated postretirement benefit
obligation in excess of plan assets....... (285,441) (1,507,749) (1,793,190)
Unrecognized transition obligation.......... 48,821 1,122,899 1,171,720
Unrecognized net (gain)/loss from past
experience different from that assumed.... (79,047) 133,080 54,033
--------- ---------- ----------
Accrued postretirement benefit cost......... $ (315,667) $ (251,770) $ (567,437)
========= ========== ==========
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of the accumulated postretirement benefit obligation was 7.25% and
7.5% as of December 31, 1995 and 1996, respectively.
For measurement purposes, a 9% rate of increase in the per capita cost of
covered health care benefits was assumed for 1996 and was assumed to gradually
decrease to 4% over the next 6 years. An increase in the assumed health care
cost trend rates of 1 percentage point in each year would result in an increase
in the postretirement medical plan accumulated postretirement benefit obligation
as of December 31, 1996 of $9,846 and the aggregate of the service and the
interest cost components of the postretirement medical plan net periodic
postretirement benefit cost for 1996 would increase by $687.
Union Employee Plans
Union employees participate in a multi-employer defined benefit pension
plan. The Company contributes amounts as required by the union contract. At the
present time, there is not sufficient information to accurately determine the
Company's share of the liability for unfunded vested benefits of the plan. If
the Company terminated its operations or withdrew from the plan, it would be
required, under federal law, to accelerate funding of its proportionate share of
the plan's unfunded vested benefits. The amount charged to operations in the
accompanying consolidated statements of operations was $284,591, $456,470 and
$713,738 in 1994, 1995 and 1996, respectively.
Deferred Compensation Plans
The Company has deferred compensation agreements with certain employees
under a salary continuation plan. Generally, the terms of the plan provides for
specified monthly payments to the employee or the beneficiary for a 15-year
period beginning at the employee's retirement, disability or death. In certain
cases, the plan also provides for minimum payments in the event of termination
other than retirement, disability or death.
Net periodic deferred compensation cost, charged to operations in the
accompanying consolidated statements of operations, under the plan for the years
ended December 31, 1994, 1995 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Service cost earned during the period.............. $ 33,635 $ 13,369 $ 56,108
Interest cost on projected benefit obligation...... 87,457 87,876 98,386
Net amortization and deferral...................... 18,761 18,761 31,392
-------- -------- --------
Net periodic deferred compensation cost............ $139,853 $120,006 $185,886
======== ======== ========
</TABLE>
F-19
<PAGE> 84
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) PENSION AND RETIREMENT PLANS -- (CONTINUED)
The following table sets forth the funded status of the plan as of December
31, 1995 and 1996 and amounts recognized in the accompanying consolidated
balance sheets as of December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Actuarial present value of projected benefit obligation... $(1,159,113) $(1,445,083)
Plan assets at fair value................................. -- --
----------- ----------
Projected benefit obligation in excess of plan assets..... (1,159,113) (1,445,083)
Unrecognized net gain from past experience different from
that assumed and the effect of changes in assumptions... (57,128) (17,589)
Unrecognized net obligation............................... 41,205 36,736
Unrecognized prior service obligation..................... 90,121 251,873
Adjustment required to recognize minimum liability........ (570) (183,418)
----------- ----------
Deferred compensation..................................... $(1,085,485) $(1,357,481)
=========== ==========
</TABLE>
The assumed rate of return used in determining the value of accumulated
plan benefits was 7.25% and 7.5% for the years ended December 31, 1995 and 1996,
respectively.
The Company also has deferred compensation agreements with former
stockholders of Lawson Granite Company and a former stockholder of
Anderson-Friberg Company which are not covered under the Company's salary
continuation plan. Total annual payments of $224,000 begin in 2000 and end at
various dates through 2020. The present value of these payments was $2,146,609
as of December 31, 1995 and 1996, which is included in deferred compensation in
the consolidated balance sheets.
Savings and Profit Sharing Plan
The Company has a defined contribution savings plan under Section 401(k) of
the Internal Revenue Code for employees whose employment is not governed by a
collective bargaining agreement and who have completed one year of service. The
Company's contribution was $12,088, $19,804 and $27,587 in 1994, 1995 and 1996,
respectively.
The Company has a defined contribution savings plan under Section 401(k) of
the Internal Revenue Code for employees covered by a collective bargaining
agreement who have completed one year of service. The Company's contribution was
$7,257, $13,830 and $24,362 in 1994, 1995 and 1996, respectively.
(9) STOCK-BASED EMPLOYEE COMPENSATION
Under the terms of the Amended and Restated 1994 Stock Plan, 1,500,000
options were reserved for issuance to key employees to purchase equivalent
shares of common stock at exercise prices ranging from $2.40 to $4.12. The
options granted have a five year term and vest at 20% per year over this period.
The following table sets forth the stock option transactions for the years
ended December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
----------- ----------------
<S> <C> <C>
Outstanding, December 31, 1993, 1994 and 1995............ 275,000 $ 2.49
Granted, January 2, 1996............................... 225,000 3.59
Granted, December 31, 1996............................. 362,500 3.75
------- -----
Outstanding, December 31, 1996........................... 862,500 3.31
======= =====
Exercisable, December 31, 1996........................... 282,500 2.99
Weighted average remaining contractual life.............. 3.4 years
</TABLE>
F-20
<PAGE> 85
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) STOCK-BASED EMPLOYEE COMPENSATION -- (CONTINUED)
The Company has adopted the disclosure-only provisions of Statement of
Financial Standards No. 123, Accounting for Stock-Based Compensation.
Accordingly, no compensation cost has been recognized for stock options granted
under the plan during 1996 as the options were all granted at exercise prices
which equaled the fair value at the date of the grant. There were no awards
granted during 1995 and 1994. Had compensation cost for the Company's stock
option plan been determined based on the fair value at the grant date for awards
during 1996 consistent with the provisions of SOFAS No. 123, the Company's net
income would have been reduced to the pro forma amount indicated below:
<TABLE>
<S> <C>
Net income, as reported.................................. $1,908,164
Net income, pro forma.................................... 1,798,619
Net income per share, pro forma.......................... $ .44
</TABLE>
Pro forma net income reflects only options granted in 1996. Therefore, the
full impact of calculating compensation cost for stock options under SFAS No.
123 is not reflected in the pro forma net income amounts presented because
compensation cost is reflected over the options' vesting periods and
compensation cost for options granted prior to January 1, 1995 is not
considered.
The fair value of each option grant is estimated on the date of the grant
using the Minimum Value Method with the following weighted-average assumptions
used for grants in 1996: risk-free interest rate of 6%; dividend yield of $0;
and expected lives of five (5) years.
(10) RELATED PARTY TRANSACTIONS
The Company is related, through common ownership, to Swenson Granite
Company, Inc. (Swenson). The Company paid a management fee of $632,000,
$912,000, $936,000 in 1994, 1995 and 1996, respectively. Sales to Swenson were
$0, $0 and $729,611 and purchases from Swenson were $0, $0 and $197,047 in 1994,
1995 and 1996, respectively.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About the
Fair Value of Financial Instruments", requires disclosure of information about
the fair value of certain financial instruments for which it is practicable to
estimate that value. For purposes of the following disclosure the fair value of
a financial instrument is the amount at which the instrument could be exchanged
in a current transaction between willing parties other than in a forced sale or
liquidation. Management has determined that the carrying values of its financial
assets and liabilities approximate fair value at December 31, 1996.
(12) ACQUISITIONS
Effective December 31, 1995 Swenson Granite Company purchased all of the
outstanding stock of Lawson Granite Company and Anderson-Friberg Company. The
aggregate cost of these acquisitions was $5,715,288 made up of 463 shares of
Swenson stock valued at $3,381,799, a $310,000 note payable, $354,880 in cash
paid in 1996, and $2,146,609 in deferred compensation arrangements. Accordingly,
the purchase price was allocated to the assets acquired and liabilities assumed
based upon their respective fair values. This treatment resulted in $1,779,113
of cost in excess of net assets acquired, or goodwill, and was accounted for
under the purchase method. The net assets from the acquisition were contributed
by Swenson to the Company.
The following unaudited pro forma information has been prepared assuming
that the acquisitions occurred at the beginning of the periods presented. The
pro forma information is presented for information purposes only and is not
necessarily indicative of what would have occurred if the acquisitions had been
made as of those dates.
F-21
<PAGE> 86
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) ACQUISITIONS -- (CONTINUED)
<TABLE>
<CAPTION>
(UNAUDITED) YEARS ENDED
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Net revenues...................................... $43,689,296 $41,199,480
Net income........................................ 1,842,046 1,462,688
Net income per share.............................. .47 .36
</TABLE>
The Company also acquired certain assets and assumed certain liabilities of
Adru Granite, Inc. for $238,310 in 1996. The results of operations were not
material in relation to the Company's consolidated results of operations.
(13) SUBSEQUENT EVENTS
On June 27, 1997 the Company dividended assets of $1,069,136 to Swenson
Granite Company, Inc.
On June 30, 1997 the Company acquired all of the outstanding stock of KSMG,
a successor to Keystone Memorials, Inc. for 263,441 shares of the Company's
stock which was accounted for under the purchase method. The fair market value
of KSMG on the date of acquisition was $3,582,798. As of June 30, 1997
investments in and advances to affiliated companies included Keystone's share of
its investment in and advances to four Quarry Companies and Southern Mausoleums,
Inc.
The following unaudited pro forma information has been prepared assuming
that the acquisitions occurred at the beginning of the periods presented. The
pro forma information is presented for information purposes only and is not
necessarily indicative of what would have occurred if the acquisitions had been
made as of those dates.
<TABLE>
<CAPTION>
(UNAUDITED)
---------------------------
YEAR
ENDED SIX MONTHS
DECEMBER ENDED
31, JUNE 30,
1996 1997
----------- -----------
<S> <C> <C>
Net revenues...................................... $53,972,546 $25,415,687
Net income (loss)................................. 1,711,447 (285,625)
Net income (loss) per share....................... .42 (.07)
</TABLE>
On August 12, 1997, pursuant to the reincorporation merger of Rock of Ages
Corporation, a Vermont corporation and the immediate predecessor to the Company
("ROA Vermont") with and into a newly-formed Delaware corporation, with the
Company surviving as a Delaware corporation, (i) the Company authorized
30,000,000 shares of $.01 par value Class A Common Stock, 15,000,000 shares of
$.01 par value Class B Common Stock, and 2,500,000 shares of $.01 par value
Preferred Stock and (ii) each outstanding share of common stock of ROA Vermont
was converted into one half of a share of Class B Common Stock of the Company.
As of August 12, 1997, no shares of Class A Common or Preferred Stock had been
issued. The Common Stock outstanding and weighted average shares outstanding for
all periods presented have been adjusted for the new stock capitalization.
F-22
<PAGE> 87
INDEPENDENT AUDITORS' REPORT
The Board of Directors,
Childs & Childs Granite Company, Inc.
and C & C Granite Company, Inc.:
We have audited the accompanying combined balance sheet of Childs & Childs
Granite Company, Inc., C & C Granite Company Inc., the Quarry Companies and
Southern Mausoleums, Inc. (SMI) as of May 31, 1997, and the related combined
statements of operations, stockholders' equity, and cash flows for the eleven-
month period ended May 31, 1997. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audit. We did not
audit the financial statements of the Quarry Companies (Caprice Blue Quarry,
Inc.; Autumn Rose Quarry, Inc.; and Pennsylvania Granite Corporation, including
its wholly-owned subsidiary, Carolina Quarries, Inc.) or SMI. The Company's
combined investment in and advances to the Quarry Companies and SMI at May 31,
1997 was $540,184 and its equity in the earnings of the Quarry Companies and SMI
was $128,839 for the eleven-month period ended May 31, 1997. The financial
statements of the Quarry Companies and SMI were audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it relates to the
amounts included for the Quarry Companies and SMI, is based solely on the
reports of the other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit and the reports of the other auditors provides a
reasonable basis for our opinion.
In our opinion, based on our audit and the reports of the other auditors,
the combined financial statements referred to above present fairly, in all
material respects, the financial position of Childs & Childs Granite Company,
Inc., C & C Granite Company, Inc., the Quarry Companies and SMI at May 31, 1997,
and the results of their operations and their cash flows for the eleven-month
period ended May 31, 1997 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Atlanta, Georgia
July 18, 1997
F-23
<PAGE> 88
CHILDS & CHILDS GRANITE COMPANY, INC.,
C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI
COMBINED BALANCE SHEET
MAY 31, 1997
<TABLE>
<S> <C>
ASSETS (NOTE 5)
Current assets:
Cash........................................................................... $ 113,486
Trade accounts receivable, less allowance for doubtful accounts of $134,000.... 1,055,833
Inventories (note 2)........................................................... 1,136,298
----------
Total current assets........................................................ 2,305,617
----------
Investments in and advances to affiliated companies (note 4)..................... 540,184
Property, plant, and equipment:
Land........................................................................... 15,000
Buildings...................................................................... 480,115
Machinery and equipment........................................................ 1,050,767
Trucks, autos, and trailers.................................................... 357,319
Furniture and fixture.......................................................... 45,310
----------
1,948,511
Less accumulated depreciation.................................................. 945,953
----------
Net property, plant, and equipment.......................................... 1,002,558
----------
$3,848,359
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (note 5)..................................... $ 412,185
Trade accounts payable......................................................... 128,887
Trade accounts payable-affiliates (note 4)..................................... 170,290
Due to stockholders............................................................ 23,909
Accrued wage related costs..................................................... 37,318
----------
Total current liabilities................................................... 772,589
Long-term debt, less current portion (note 5).................................... 500,000
----------
Total liabilities........................................................... 1,272,589
----------
Stockholders' equity:
Common stock (note 6).......................................................... 22,500
Quarry Companies' and SMI's capital............................................ 348,184
Retained earnings.............................................................. 2,205,086
----------
Total stockholders' equity.................................................. 2,575,770
----------
Commitment and contingency (notes 5 and 7).......................................
----------
$3,848,359
==========
</TABLE>
See accompanying notes to combined financial statements.
F-24
<PAGE> 89
CHILDS & CHILDS GRANITE COMPANY, INC.,
C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI
COMBINED STATEMENT OF OPERATIONS
FOR THE ELEVEN-MONTH PERIOD ENDED MAY 31, 1997
<TABLE>
<S> <C>
Net revenues..................................................................... $5,606,364
Cost of goods sold (including purchases from the Quarry Companies of
$1,009,448) -- (note 4)........................................................ 4,592,884
----------
Gross profit........................................................... 1,013,480
Selling, general, and administrative expenses.................................... 701,325
----------
Operating income....................................................... 312,155
----------
Other income (expense):
Interest expense............................................................... (58,758)
Finance charge income.......................................................... 28,322
Miscellaneous income........................................................... 2,033
----------
Net other expense...................................................... (28,403)
----------
Income before equity in earnings of investees.......................... 283,752
Equity in earnings of investees (note 4)......................................... 128,839
----------
Net income............................................................. $ 412,591
==========
</TABLE>
See accompanying notes to combined financial statements.
F-25
<PAGE> 90
CHILDS & CHILDS GRANITE COMPANY, INC.,
C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE ELEVEN-MONTH PERIOD ENDED MAY 31, 1997
<TABLE>
<CAPTION>
QUARRY
COMPANIES' TOTAL
COMMON AND SMI'S RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Balance at June 30, 1996...................... $22,500 $ 219,345 $2,269,711 $ 2,511,556
Distributions to stockholders............... -- -- (348,377) (348,377)
Net income.................................. -- 128,839 283,752 412,591
------- -------- ---------- ----------
Balance at May 31, 1997....................... $22,500 $ 348,184 $2,205,086 $ 2,575,770
======= ======== ========== ==========
</TABLE>
See accompanying notes to the combined financial statements.
F-26
<PAGE> 91
CHILDS & CHILDS GRANITE COMPANY, INC.,
C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI
COMBINED STATEMENT OF CASH FLOWS
FOR THE ELEVEN-MONTH PERIOD ENDED MAY 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income.................................................................... $ 412,591
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation............................................................... 144,638
Equity in earnings of Quarry Companies and SMI............................. (128,839)
Changes in operating assets and liabilities:
Trade accounts receivable................................................ (213,089)
Inventories.............................................................. (57,466)
Prepaid expenses......................................................... 57,561
Trade accounts payable, trade accounts payable-affiliates, and accrued
costs................................................................... 96,690
---------
Net cash provided by operating activities............................. 312,086
---------
Cash flows from investing activities:
Additions to property, plant, and equipment................................... (31,768)
Increase in cash surrender value.............................................. (56,008)
---------
Net cash used in investing activities................................. (87,776)
---------
Cash flows from financing activities:
Proceeds from long-term debt.................................................. 912,185
Payments on long-term debt.................................................... (814,377)
Distributions to stockholders................................................. (234,000)
---------
Net cash used in financing activities................................. (136,192)
---------
Net change in cash.................................................... 88,118
Cash at beginning of period..................................................... 25,368
---------
Cash at end of period........................................................... $ 113,486
=========
Supplemental disclosure of cash flow information -- cash paid during the period
for interest.................................................................. $ 62,545
=========
Supplemental disclosure of noncash investing and financing activities -- the
Company distributed the cash surrender value of certain life insurance
policies to the Company's stockholders which amounted to...................... $ 114,377
=========
</TABLE>
See accompanying notes to the combined financial statements.
F-27
<PAGE> 92
CHILDS & CHILDS GRANITE COMPANY, INC.,
C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI
NOTES TO COMBINED FINANCIAL STATEMENTS
MAY 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Childs & Childs Granite Company, Inc. is a manufacturer of granite
monuments and memorials in Elberton, Georgia. The three stockholders of Childs &
Childs Granite Company, Inc. collectively own C & C Granite Company, Inc., which
is a trucking company that primarily delivers products to Childs & Childs
Granite Company, Inc.'s customers. Additionally, the three stockholders of
Childs & Childs Granite Company, Inc. collectively own a 50% interest in the
Quarry Companies (Caprice Blue Quarry, Inc.; Autumn Rose Quarry, Inc.; and
Pennsylvania Granite Corporation, including its wholly owned subsidiary,
Carolina Quarries, Inc.) which operate six granite quarries in five states and
Southern Mausoleum, Inc. (SMI), a mausoleum manufacturing plant. Net revenues
are to various retail monument customers throughout the United States.
(b) Basis of Presentation
The combined financial statements include the financial statements of
Childs & Childs Granite Company, Inc.; C & C Granite Company, Inc.; and the 50%
ownership in the aforementioned three Quarry Companies and SMI owned by the
three stockholders of Childs & Childs Granite Company, Inc. (collectively, the
"Company"). Childs & Childs Granite Company, Inc., the Quarry Companies and SMI
have been combined using historical costs as a result of the common ownership.
The Quarry Companies and SMI are accounted for under the equity method.
All significant intercompany balances and transactions have been eliminated
in combination.
(c) Cash Equivalents
For purposes of the combined statement of cash flows, the Company considers
all highly liquid debt instruments with original maturities of three months or
less to be cash equivalents. At May 31, 1997, the Company owned no cash
equivalents.
(d) Inventories
Inventories are stated at the lower of cost or market (net realizable
value). Cost is determined using the first-in, first-out (FIFO) method for all
inventories.
(e) Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is provided
over the estimated useful lives of the assets on a straight-line basis.
Property, plant, and equipment are depreciated over the following estimated
useful lives:
<TABLE>
<CAPTION>
YEARS
<S> <C>
Buildings.................................................... 39
Machinery and equipment...................................... 12
Vehicles..................................................... 5
Office equipment............................................. 5 to 7
</TABLE>
F-28
<PAGE> 93
CHILDS & CHILDS GRANITE COMPANY, INC.,
C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(f) Income Taxes
The stockholders of the Company have elected to have the earnings of the
Company taxed under the S Corporation provisions of the Internal Revenue Code.
Under the S Corporation provisions, the income taxes of the Company are the
responsibility of the stockholders for Federal and state income tax purposes.
Accordingly, no income tax provision or income tax balances have been recorded
by the Company.
(g) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this statement did not have a material impact on the Company's
financial position, results of operations, or liquidity.
(h) Revenue Recognition
Revenue is recognized upon shipment of goods.
(i) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(2) INVENTORIES
The components of inventories are as follows:
<TABLE>
<S> <C>
Raw materials............................................ $ 896,816
Work in process.......................................... 56,629
Finished goods........................................... 182,853
----------
Total inventories.............................. $1,136,298
==========
</TABLE>
(3) FAIR VALUE OF FINANCIAL INSTRUMENTS
For cash, trade accounts receivables, trade accounts payables, trade
accounts payable-affiliates, due to stockholders, and accrued wage related
costs, the carrying amounts approximate fair value because of the short maturity
of these instruments.
The carrying value of long-term debt approximates fair value due to the
variable interest of these instruments using a discounted cash flow analysis.
F-29
<PAGE> 94
CHILDS & CHILDS GRANITE COMPANY, INC.,
C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(4) INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES
Investments in affiliated companies consist of the three stockholders' 50%
of the common stock of each of the Quarry Companies and SMI. Summary unaudited
financial information for the Quarry Companies and SMI as of and for the
eleven-month period ended May 31, 1997 is as follows:
<TABLE>
<CAPTION>
CAPRICE AUTUMN
BLUE ROSE PENNSYLVANIA
QUARRY SMI QUARRY GRANITE TOTAL
--------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Current assets.............. $ 25,169 $ 611,297 $ 85,413 $ 1,887,749 $ 2,609,628
Noncurrent assets........... 277,301 288,514 1,530,708 5,476,508 7,573,031
--------- --------- --------- --------- ---------
Total assets...... $ 302,470 $ 899,811 $1,616,121 $ 7,364,257 $10,182,659
========= ========= ========= ========= =========
Current liabilities......... $ 200,443 $ 587,554 $ 171,684 $ 5,097,809 $ 6,057,490
Noncurrent liabilities...... 797,511 590,242 1,511,181 529,868 3,428,802
Stockholders' equity
(deficit)................. (695,484) (277,985) (66,744) 1,736,580 696,367
--------- --------- --------- --------- ---------
Total liabilities
and
stockholders'
equity
(deficit)....... $ 302,470 $ 899,811 $1,616,121 $ 7,364,257 $10,182,659
========= ========= ========= ========= =========
Net revenues................ $ 183,569 $1,225,396 $ 325,533 $ 6,725,009 $ 8,459,507
Gross profit (loss)......... (234,920) 244,123 (29,267) 1,657,346 1,637,282
Net earnings (loss)......... $(254,707) $ 126,185 $ (78,525) $ 464,725 $ 257,678
========= ========= ========= ========= =========
</TABLE>
In addition, the Company has advances to the Quarry Companies and SMI
totaling $192,000 at May 31, 1997.
Childs & Childs Granite Co., Inc. purchases a substantial portion of its
raw granite from the Quarry Companies. Such purchases amounted to $1,009,448 for
the eleven-month period ended May 31, 1997. Individually, the purchases from
each Quarry Company are as follows:
<TABLE>
<S> <C>
Caprice Blue Quarry...................................... $ 158,657
Autumn Rose Quarry....................................... 84,608
Pennsylvania Granite..................................... 766,183
----------
Total.......................................... $1,009,448
==========
</TABLE>
At May 31, 1997, the Company's 50% interest in the cumulative losses of the
Quarry Companies and SMI amounted to $(928,927).
(5) LONG-TERM DEBT
Long-term debt at May 31, 1997 consists of the following:
<TABLE>
<S> <C>
Borrowings under line of credit, interest at 9.00%,
payable monthly, principal due November 1998............ $500,000
Borrowings under line of credit, interest at prime plus 1%
(9.5% at May 31, 1997) payable quarterly beginning
August 1997, principal due May 1998..................... 412,185
--------
Total long-term debt............................ 912,185
Less current portion...................................... 412,185
--------
Long-term debt, less current portion............ $500,000
========
</TABLE>
F-30
<PAGE> 95
CHILDS & CHILDS GRANITE COMPANY, INC.,
C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(5) LONG-TERM DEBT -- (CONTINUED)
The aggregate maturities of long-term debt for each of the two years
subsequent to May 31, 1997 are as follows: 1998, $412,185 and 1999, $500,000.
Childs & Childs Granite Co., Inc. has two lines of credit with a bank for a
total of $1,000,000, of which $912,185 was outstanding at May 31, 1997. The
lines of credit are secured by substantially all of the assets of Childs and
Childs Granite Co., Inc. The lines of credit may be prepaid at any time without
penalty.
(6) COMMON STOCK
At May 31, 1997, the par value and the authorized shares of common stock of
Childs & Childs Granite Co., Inc. were $100 and 5,000, respectively. In
addition, 210 shares were issued and outstanding.
At May 31, 1997, the par value and the authorized shares of common stock of
C & C Granite Co., Inc. were $100 and 5,000, respectively. In addition, 15
shares were issued and outstanding.
(7) SUBSEQUENT EVENT
On June 28, 1997, Rock of Ages Corporation entered into a definitive
agreement with the shareholders of the Company to purchase all of the
outstanding stock of the Company.
F-31
<PAGE> 96
INDEPENDENT AUDITORS' REPORT
The Board of Directors,
Keystone Memorials, Inc.:
We have audited the accompanying combined balance sheet of Keystone
Memorials, Inc., the Quarry Companies and Southern Mausoleums, Inc. (SMI) as of
April 30, 1997, and the related combined statements of operations, stockholder's
deficit, and cash flows for the ten-month period ended April 30, 1997. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit. We did not audit the financial
statements of the Quarry Companies (Caprice Blue Quarry, Inc.; Autumn Rose
Quarry, Inc.; or Pennsylvania Granite Corporation and its subsidiary, Carolina
Quarries, Inc.) or SMI. The Company's combined investment in and advances to the
Quarry Companies and SMI at April 30, 1997 was $585,010 and its equity in the
earnings of the Quarry Companies and SMI was $55,787 for the ten-month period
ended April 30, 1997. The financial statements of the Quarry Companies and SMI
were audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the amounts included for the Quarry Companies
and SMI, is based solely on the reports of the other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit and the reports of the other auditors provides a
reasonable basis for our opinion.
In our opinion, based on our audit and the reports of the other auditors,
the combined financial statements referred to above present fairly, in all
material respects, the financial position of Keystone Memorials, Inc., the
Quarry Companies and SMI at April 30, 1997, and the results of their operations
and their cash flows for the ten-month period ended April 30, 1997 in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Atlanta, Georgia
July 25, 1997
F-32
<PAGE> 97
KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
APRIL 30, JULY 31,
1997 1997
---------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS (NOTE 6)
Current assets:
Cash equivalents.................................................. $ 35,883 $ 174,596
Trade accounts receivable, less allowance for doubtful accounts of
$1,282,000 at April 30 and July 31, 1997....................... 1,626,474 1,425,780
Due from employees................................................ 14,790 14,562
Prepaid expenses.................................................. 62,040 85,331
Inventories (note 2).............................................. 1,532,099 1,662,465
---------- ----------
Total current assets........................................... 3,271,286 3,362,734
---------- ----------
Investments in and advances to affiliated companies (note 4)........ 585,010 439,997
Property, plant, and equipment:
Land.............................................................. 272,977 272,977
Buildings......................................................... 906,882 906,882
Machinery and equipment........................................... 3,293,562 3,252,032
Trucks, autos, and trailers....................................... 718,778 738,096
Furniture and fixtures............................................ 195,452 195,452
---------- ----------
5,387,651 5,365,439
Less accumulated depreciation..................................... 2,682,924 2,747,234
---------- ----------
Net property, plant, and equipment............................. 2,704,727 2,618,205
---------- ----------
$6,561,023 $ 6,420,936
========== ==========
LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY
Current liabilities:
Current portion of long-term debt (note 6)........................ $ 844,419 $ 1,828,116
Bank overdraft.................................................... 70,921 --
Trade accounts payable............................................ 522,088 337,053
Trade accounts payable-affiliates................................. 3,689,509 411,103
Accrued expenses.................................................. 171,464 172,879
---------- ----------
Total current liabilities...................................... 5,298,401 2,749,151
Long-term debt, less current portion (note 6)....................... 1,745,649 775,974
---------- ----------
Total liabilities......................................... 7,044,050 3,525,125
---------- ----------
Stockholder's (deficit) equity:
Common stock, $100 par value. Authorized 100 shares; issued and
outstanding 100 shares......................................... 10,000 10,000
Additional paid-in capital (note 8)............................... -- 3,285,054
Quarry Companies and SMI's capital................................ 275,132 332,752
Accumulated deficit............................................... (768,159) (731,995)
---------- ----------
Total stockholder's (deficit) equity...................... (483,027) 2,895,811
Commitments and contingencies (notes 5 and 6).......................
---------- ----------
$6,561,023 $ 6,420,936
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-33
<PAGE> 98
KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE-MONTH
TEN-MONTH PERIOD ENDED
PERIOD ENDED JULY 31,
APRIL 30, -------------------------
1997 1996 1997
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Net revenues.......................................... $7,537,876 $2,321,977 $2,449,525
Cost of goods sold (including purchases from
affiliated companies of $761,923 and related parties
of $848,822 for the ten-month period ended April 30,
1997) -- (notes 4 and 8)............................ 6,723,718 2,169,643 2,170,555
---------- ---------- ----------
Gross profit................................ 814,158 152,334 278,970
Selling, general, and administrative expenses......... 1,093,782 369,038 260,449
---------- ---------- ----------
Operating (loss) income..................... (279,624) (216,704) 18,521
---------- ---------- ----------
Other income (expense):
Interest expense.................................... (186,401) (39,636) (27,580)
Finance charge income............................... 92,955 35,465 24,881
Gain on sales of property and equipment............. 40,207 -- 20,342
---------- ---------- ----------
Total other (expense) income................ (53,239) (4,171) 17,643
---------- ---------- ----------
(Loss) income before equity in earnings of
Quarry Companies and SMI and income
taxes..................................... (332,863) (220,875) 36,164
Equity in earnings of Quarry Companies and SMI (note
4).................................................. 55,787 182,215 57,620
---------- ---------- ----------
(Loss) income before income taxes........... (277,076) (38,660) 93,784
Income taxes (note 7)................................. -- -- --
---------- ---------- ----------
Net (loss) income........................... $ (277,076) $ (38,660) $ 93,784
========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-34
<PAGE> 99
KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI
COMBINED STATEMENT OF STOCKHOLDER'S (DEFICIT) EQUITY
FOR THE TEN-MONTH PERIOD ENDED APRIL 30, 1997
AND THE THREE-MONTH PERIOD ENDED JULY 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
QUARRY TOTAL
ADDITIONAL COMPANIES' STOCKHOLDER'S
COMMON PAID-IN AND SMI'S ACCUMULATED (DEFICIT)
STOCK CAPITAL CAPITAL DEFICIT EQUITY
------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1996.................. $10,000 -- 219,345 (435,296) (205,951)
Net income (loss)....................... -- -- 55,787 (332,863) (277,076)
------- ------- -------- --------
Balance at April 30, 1997................. 10,000 -- 275,132 (768,159) (483,027)
Net income.............................. -- -- 57,620 36,164 93,784
Conversion to capital (note 8).......... -- 3,285,054 -- -- 3,285,054
------- ------- -------- --------
Balance at July 31, 1997 (unaudited)...... $10,000 3,285,054 332,752 (731,995) 2,895,811
======= ======= ======== ========
</TABLE>
See accompanying notes to the combined financial statements.
F-35
<PAGE> 100
KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
TEN-MONTH
PERIOD THREE-MONTH PERIOD
ENDED ENDED JULY 31,
APRIL 30, -----------------------
1997 1996 1997
---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities (note 8):
Net (loss) income................................... $ (277,076) $ (38,660) $ 93,784
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation..................................... 297,023 93,740 84,652
Gain on sales of property, plant, and
equipment...................................... (40,207) -- (20,342)
Equity in earnings of Quarry Companies and SMI... (55,787) (182,215) (57,620)
Changes in operating assets and liabilities:
Trade accounts receivable and due from
employees................................... (190,647) 416,447 200,922
Inventories.................................... (59,243) 89,629 (130,366)
Prepaid expenses............................... 33,258 (9,218) (23,291)
Trade accounts payable, trade accounts payable-
affiliates, and accrued expenses............ 172,684 29,824 (116,972)
---------- -------- --------
Net cash (used in) provided by operating
activities................................ (119,995) 399,547 30,767
---------- -------- --------
Cash flows from investing activities (note 8):
Additions to property, plant, and equipment......... (172,670) (118,362) (37,788)
Proceeds from sales of property, plant, and
equipment........................................ 185,000 -- --
(Increase) decrease in advances to affiliated
companies........................................ (121,998) 39,422 202,633
---------- -------- --------
Net cash (used in) provided by investing
activities................................ (109,668) (78,940) 164,845
---------- -------- --------
Cash flows from financing activities (note 8):
Increase (decrease) in bank overdraft............... 70,921 -- (70,921)
Proceeds from long-term debt........................ 1,013,458 -- 51,946
Payments on long-term debt.......................... (979,972) (79,303) (37,924)
---------- -------- --------
Net cash provided by (used in) financing
activities................................ 104,407 (79,303) (56,899)
---------- -------- --------
Net change in cash equivalents.............. (125,256) 241,304 138,713
Cash equivalents at beginning of period............... 161,139 43,615 35,883
---------- -------- --------
Cash equivalents at end of period..................... $ 35,883 $ 284,919 $ 174,596
========== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest......................................... $ 186,401 $ 39,636 $ 27,580
========== ======== ========
Income taxes..................................... $ -- $ -- $ --
========== ======== ========
</TABLE>
See accompanying notes to the combined financial statements.
F-36
<PAGE> 101
KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI
NOTES TO COMBINED FINANCIAL STATEMENTS
APRIL 30, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Keystone Memorials, Inc. is a manufacturer of granite monuments and
memorials in Elberton, Georgia. Additionally, the sole stockholder of Keystone
Memorials, Inc. owns a 50% interest in three Quarry Companies (Caprice Blue
Quarry, Inc.; Autumn Rose Quarry, Inc.; and Pennsylvania Granite Corporation,
including its wholly owned subsidiary, Carolina Quarries, Inc.) which operate
six granite quarries in five states and Southern Mausoleum, Inc. (SMI), a
mausoleum manufacturing plant. Net revenues are to various retail monument
customers throughout the United States.
(b) Basis of Presentation
The combined financial statements include the financial statements of
Keystone Memorials, Inc., and its 50% ownership in three Quarry Companies and
SMI owned by the sole stockholder of Keystone Memorials, Inc. (collectively, the
"Company"). Keystone Memorials, Inc., Quarry Companies and SMI have been
combined using historical costs as a result of the common ownership. The Quarry
Companies and SMI are accounted for under the equity method.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for the fair presentation of the
unaudited condensed financial statements of the Company as of and for the three
months ended July 31, 1996 and 1997 have been included.
(c) Cash Equivalents
For purposes of the combined statement of cash flows, the Company considers
all highly liquid debt instruments with original maturities of three months or
less to be cash equivalents. At April 30, 1997, the cash equivalents consisted
of $35,883 invested in a money market account.
(d) Inventories
Inventories are stated at the lower of cost or market (net realizable
value). Cost is determined using the first-in, first-out (FIFO) method for all
inventories.
(e) Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is provided
over the estimated useful lives of the assets on a straight-line basis.
Property, plant, and equipment are depreciated over the following estimated
useful lives:
<TABLE>
<CAPTION>
YEARS
------
<S> <C>
Buildings.................................................... 39
Machinery and equipment...................................... 12
Vehicles..................................................... 5
Office equipment............................................. 5 to 7
</TABLE>
(f) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(g) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in
F-37
<PAGE> 102
KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this statement did not have a material impact on the Company's
financial position, results of operations, or liquidity.
(h) Revenue Recognition
Revenue is recognized upon shipment of goods.
(i) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(2) INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
APRIL 30, JULY 31,
1997 1997
---------- -----------
(UNAUDITED)
<S> <C> <C>
Raw materials....................................... $ 791,570 $ 815,493
Work in process..................................... 154,017 156,825
Finished goods...................................... 586,512 690,147
---------- ----------
Total inventories......................... $1,532,099 $ 1,662,465
========== ==========
</TABLE>
(3) FAIR VALUE OF FINANCIAL INSTRUMENTS
For cash equivalents, trade accounts receivables, due from employees, bank
overdraft, trade accounts payables, trade accounts payable-affiliates, and
accrued expenses, the carrying amounts approximate fair value because of the
short maturity of these instruments.
The carrying value of long-term debt approximates fair value based on
discounted cash flow analyses.
F-38
<PAGE> 103
KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(4) INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES
Investments in affiliated companies consists of the sole stockholder's 50%
of the common stock of each of the Quarry Companies and SMI. Summary unaudited
financial information for the Quarry Companies and SMI is as follows:
<TABLE>
<CAPTION>
TEN-MONTH PERIOD ENDED APRIL 30, 1997
-------------------------------------------------------------------
CAPRICE AUTUMN ROSE PENNSYLVANIA
BLUE QUARRY SMI QUARRY GRANITE TOTAL
----------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Current assets.............. $ 17,557 $ 610,406 $ 91,700 $ 1,774,381 $ 2,494,044
Noncurrent assets........... 279,247 292,488 1,534,118 5,454,693 7,560,546
-------- -------- ---------- ---------- -----------
Total assets...... $ 296,804 $ 902,894 $1,625,818 $ 7,229,074 $10,054,590
======== ======== ========== ========== ===========
Current liabilities......... $ 231,976 $ 632,922 $ 178,070 $ 4,994,908 $ 6,037,876
Noncurrent liabilities...... 749,409 605,748 1,512,690 579,868 3,447,715
Stockholders' equity
(deficit)................. (684,581) (335,776) (64,942) 1,654,298 568,999
-------- -------- ---------- ---------- -----------
Total liabilities
and
stockholders'
equity
(deficit)....... $ 296,804 $ 902,894 $1,625,818 $ 7,229,074 $10,054,590
======== ======== ========== ========== ===========
Net revenues................ $ 164,197 $1,073,646 $ 294,495 $ 6,076,004 $ 7,608,342
Gross profit (loss)......... (226,437) 174,251 (31,007) 1,401,663 1,318,470
Net income (loss)........... $ (243,804) $ 68,394 $ (76,723) $ 382,443 $ 130,310
======== ======== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED JULY 31, 1996
------------------------------------------------------------------
CAPRICE AUTUMN ROSE PENNSYLVANIA
BLUE QUARRY SMI QUARRY GRANITE TOTAL
----------- ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Net revenues................. $ 23,678 $319,195 $ 81,507 $ 2,290,528 $2,714,908
Gross profit (loss).......... (25,759) 46,115 (39,147) 675,829 657,038
Net income (loss)............ $ (34,594) $ (5,476) $ (55,206) $ 459,706 $ 364,430
-------- -------- -------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED JULY 31, 1997
------------------------------------------------------------------
CAPRICE AUTUMN ROSE PENNSYLVANIA
BLUE QUARRY SMI QUARRY GRANITE TOTAL
----------- ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Net revenues................. $ 45,075 $428,875 $ 71,263 $ 1,758,703 $2,303,916
Gross profit (loss).......... (7,732) 139,434 (1,902) 269,446 399,246
Net income (loss)............ $ (14,808) $ 92,035 $ (12,300) $ 50,313 $ 115,240
-------- -------- -------- ---------- ----------
</TABLE>
In addition, the Company has advances to the Quarry Companies and SMI
totaling $300,510 at April 30, 1997.
Keystone Memorials, Inc. purchases a substantial portion of its raw granite
from the Quarry Companies and SMI. Such purchases amounted to $761,923 for the
ten-month period ended April 30, 1997. Intercompany profits of $9,368 have been
eliminated in combination. Individually, the purchases from each of the Quarry
Companies and SMI are as follows:
<TABLE>
<S> <C>
Caprice Blue Quarry....................................... $ 21,297
Southern Mausoleums....................................... 31,597
Autumn Rose Quarry........................................ 62,068
Pennsylvania Granite...................................... 646,961
--------
$761,923
========
</TABLE>
Keystone Memorials, Inc. sold various property and equipment to
Pennsylvania Granite for $109,000 for the ten-month period ended April 30, 1997.
At April 30, 1997, the Company's 50% interest in the cumulative losses of
the Quarry Companies and SMI amounted to $(992,611).
F-39
<PAGE> 104
KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(5) LEASES
The Company has several noncancelable operating leases, primarily for
office equipment, that expire over the next three years. Rental expense for the
operating leases (except those with lease terms of a month or less that were not
renewed) during the ten-month period ending April 30, 1997 was $4,000.
Future minimum lease payments under noncancelable operating leases with
initial or remaining lease terms in excess of one year as of April 30, 1997 are
$13,000 over the next three years.
(6) LONG-TERM DEBT
Long-term debt at April 30, 1997 consists of the following:
<TABLE>
<S> <C>
9.75% note payable in monthly installments of $7,840,
including interest, with final payment of $484,708, due
June 1999.............................................. $ 568,688
9.75% note payable in monthly installments of $4,035,
including interest, with final payment of $249,962, due
June 1999.............................................. 293,083
Borrowings under line of credit, interest at prime plus
.25% (8.75% at April 30, 1997) payable monthly,
principal due May 1998................................. 945,243
Non-interest bearing note payable to former owner which
is the estate of the relative of the sole
stockholder............................................ 783,054
----------
Total long-term debt........................... 2,590,068
Less current portion..................................... 844,419
----------
Long-term debt, excluding current portion...... $1,745,649
==========
</TABLE>
The aggregate maturities of long-term debt for each of the three years
subsequent to April 30, 1997 are as follows: 1998, $844,419; 1999, $1,012,866;
and 2000, $732,783.
Keystone Memorials, Inc. has a line of credit with a bank for a total of
$1,000,000, of which $945,243, was outstanding at April 30, 1997. The line of
credit is secured by substantially all of the assets of Keystone Memorials, Inc.
The line of credit may be prepaid at any time without penalty.
Keystone Memorials, Inc. also has two financing notes used to finance
various equipment. These notes are paid on a monthly basis, with the final
payments due in June 1999. These notes are secured by the equipment they are
financing.
(7) INCOME TAXES
Income taxes for the ten-month period ended April 30, 1997 differed from
the amounts computed by applying the U.S. federal income tax rate of 34% to loss
before income taxes as a result of the following:
<TABLE>
<S> <C>
Computed "expected" tax benefit.......................... $ (94,206)
Increase (reduction) in income taxes resulting from:
Change in the beginning-of-the-year balance of the
valuation allowance for deferred tax assets
allocated to income taxes........................... 108,060
State and local income taxes, net of federal income tax
benefit............................................. (15,683)
Other, net............................................. 1,829
---------
$ --
=========
</TABLE>
F-40
<PAGE> 105
KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(7) INCOME TAXES -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at April 30,
1997 are presented below.
<TABLE>
<S> <C>
Deferred tax assets:
Accounts receivable principally due to allowance for
doubtful accounts................................... $ 499,980
Inventories, principally due to additional costs
inventoried for tax purposes pursuant to the Tax
Reform Act of 1986.................................. 72,150
Accruals not deductible until paid..................... 21,648
Investments in affiliated companies, principally due to
undistributed losses of affiliated companies........ 387,118
Net operating loss carryforwards....................... 253,422
Other.................................................. 4,801
---------
Total gross deferred tax assets................ 1,239,119
Less valuation allowance............................... 821,555
---------
Net deferred tax assets........................ 417,564
---------
Deferred tax liability -- property, plant, and equipment,
principally due to differences in depreciation......... (417,564)
---------
Net deferred taxes............................. $ --
=========
</TABLE>
The change in the income tax valuation allowance for the ten-month period
ended April 30, 1997 was $108,060.
At April 30, 1997, the Company has net operating loss carryforwards for
federal income tax purposes of $649,800 which are available to offset future
federal taxable income, if any, through 2012. Such net operating loss
carryforwards may not be utilized subsequent to the acquisition (see note 9).
(8) RELATED PARTY TRANSACTIONS
The sole stockholder of the Company has an ownership interest in two
quarries that sell raw granite to the Company on a routine basis. Total
purchases from these related parties for the ten-month period ended April 30,
1997 was $848,822. Also, the Company sold various machinery and equipment to one
of the quarries for $76,000 for the ten-month period ended April 30, 1997 and
exchanged machinery for $60,000 of trade accounts payable-affiliates for the
three-month period ended July 31, 1997 (unaudited).
As part of the acquisition of the Company by Rock of Ages Corporation
("Rock of Ages") (see note 9), the two related quarries converted $3,285,054 of
trade accounts payable-affiliates and notes payable into additional paid-in
capital.
(9) SUBSEQUENT EVENT
On June 30, 1997, a successor to the Company was acquired by Rock of Ages
in exchange for 263,441 shares of common stock of Rock of Ages. A total of
$3,273,856, included in trade accounts payable-affiliates and $11,198 included
in notes payable, were not included in this transaction.
F-41
<PAGE> 106
INDEPENDENT AUDITORS' REPORT
The Boards of Directors
Keith Monument Companies:
We have audited the accompanying combined balance sheets of Keith Monument
Companies (the "Companies") as of June 30, 1997 and 1996, and the related
combined statements of operations, stockholders' equity, and cash flows for each
of the years in the three-year period ended June 30, 1997. These combined
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Keith Monument
Companies as of June 30, 1997 and 1996, and the results of their operations and
their cash flows for each of the years in the three-year period ended June 30,
1997 in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Louisville, Kentucky
August 8, 1997
F-42
<PAGE> 107
KEITH MONUMENT COMPANIES
COMBINED BALANCE SHEETS
JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $1,866,496 $1,783,346
Accounts receivable, less allowance for doubtful accounts of
$124,500....................................................... 834,237 1,002,527
Current portion of notes receivable (note 4):
Related party.................................................. 63,145 89,876
Other.......................................................... 39,525 28,738
Inventories (note 2).............................................. 664,100 1,192,364
Prepaid expenses and other current assets......................... 77,474 98,210
Prepaid income taxes (note 7)..................................... 26,300 16,400
Deferred income taxes (note 7).................................... 9,900 10,300
---------- ----------
Total current assets........................................... 3,581,177 4,221,761
Property, plant and equipment, net (notes 3 and 5).................. 977,386 1,393,261
Notes receivable, excluding current portion (note 4):
Related party..................................................... 468,346 401,406
Other............................................................. 26,580 15,775
Due from related party.............................................. 48,870 48,870
Investments......................................................... 304,046 319,434
Cash surrender value of life insurance.............................. 148,956 164,329
Covenants not to compete, less accumulated amortization of $45,000
and $83,022, respectively (note 9)................................ 105,000 387,861
Goodwill, less accumulated amortization of $13,982 (note 9)......... -- 824,940
Other assets........................................................ 237,853 209,199
---------- ----------
$5,898,214 $7,986,836
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (note 5)..................... $ -- $ 277,921
Trade accounts payable............................................ 31,818 96,964
Accrued expenses.................................................. 493,602 630,137
Dividends payable................................................. 141,303 85,825
Customer deposits................................................. 964,324 844,895
---------- ----------
Total current liabilities...................................... 1,631,047 1,935,742
Long-term debt, excluding current maturities (note 5)............... -- 1,840,562
Deferred income taxes (note 7)...................................... 27,200 --
---------- ----------
Total liabilities......................................... 1,658,247 3,776,304
---------- ----------
Commitments and contingencies (note 8)..............................
Stockholders' equity (note 6):
Common stock...................................................... 179,700 179,700
Retained earnings................................................. 4,066,267 4,036,832
Treasury stock.................................................... (6,000) (6,000)
---------- ----------
Total stockholders' equity................................ 4,239,967 4,210,532
---------- ----------
$5,898,214 $7,986,836
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-43
<PAGE> 108
KEITH MONUMENT COMPANIES
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net revenues........................................... $7,041,748 $6,781,005 $7,810,831
Cost of goods sold..................................... 2,133,608 2,048,600 2,531,797
---------- ---------- ----------
Gross profit................................. 4,908,140 4,732,405 5,279,034
Selling, general and administrative expenses........... 3,940,554 3,854,739 4,208,996
---------- ---------- ----------
Operating income............................. 967,586 877,666 1,070,038
Interest income........................................ 98,856 148,582 172,300
Other income........................................... 81,295 93,521 71,633
Other expense.......................................... (23,251) (23,502) (85,328)
---------- ---------- ----------
Income before income taxes................... 1,124,486 1,096,267 1,228,643
Income tax expense (benefit) (note 7).................. 11,000 2,600 (23,650)
---------- ---------- ----------
Net income................................... $1,113,486 $1,093,667 $1,252,293
========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-44
<PAGE> 109
KEITH MONUMENT COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON RETAINED TREASURY
STOCK EARNINGS STOCK TOTAL
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Balance at June 30, 1994...................... $179,700 4,230,074 (6,000) 4,403,774
Net income.................................. -- 1,113,486 -- 1,113,486
Dividends................................... -- (1,207,237) -- (1,207,237)
-------- ---------- ------ ----------
Balance at June 30, 1995...................... 179,700 4,136,323 (6,000) 4,310,023
Net income.................................. -- 1,093,667 -- 1,093,667
Dividends................................... -- (1,163,723) -- (1,163,723)
-------- ---------- ------ ----------
Balance at June 30, 1996...................... 179,700 4,066,267 (6,000) 4,239,967
Net income.................................. -- 1,252,293 -- 1,252,293
Dividends................................... -- (1,281,728) -- (1,281,728)
-------- ---------- ------ ----------
Balance at June 30, 1997...................... $179,700 4,036,832 (6,000) 4,210,532
======== ========== ====== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-45
<PAGE> 110
KEITH MONUMENT COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $1,113,486 $1,093,667 $1,252,293
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation.......................................... 131,295 104,203 117,072
Amortization.......................................... 15,000 30,000 52,004
(Gain) loss on sale of property, plant and
equipment........................................... (4,044) 7,433 25,349
Deferred income taxes................................. (1,900) (1,800) (27,600)
(Increase) decrease in accounts receivable............ 27,061 306,879 (168,290)
(Increase) decrease in inventories.................... (37,649) 24,952 41,914
(Increase) decrease in prepaid expenses and other
current assets...................................... 24,768 104,627 (20,736)
(Increase) decrease in prepaid income taxes........... 14,400 (26,300) 9,900
(Increase) decrease in other assets................... (20,269) (161,091) 28,654
Increase (decrease) in trade accounts payable......... (85,882) (18,784) 65,146
Increase (decrease) in accrued expenses............... 5,524 (20,162) 136,535
Increase (decrease) in income taxes payable........... 12,709 (12,709) --
Increase (decrease) in customer deposits.............. (43,356) 254,593 (119,429)
---------- ---------- ----------
Net cash provided by operating activities........ 1,151,143 1,685,508 1,392,812
---------- ---------- ----------
Cash flows from investing activities:
Decrease in notes receivable............................. 75,579 91,223 61,801
Additions to property, plant and equipment............... (74,562) (142,857) (195,701)
Proceeds from sale of property, plant and equipment...... 11,400 28,105 25,905
(Increase) decrease in investments....................... (13,306) 92,635 (15,388)
Increase in cash surrender value of life insurance....... (11,172) (23,070) (15,373)
Cash paid for covenant not to compete.................... (150,000) -- --
---------- ---------- ----------
Net cash provided by (used in) investing
activities..................................... (162,061) 46,036 (138,756)
---------- ---------- ----------
Cash flows from financing activities --
Cash dividends paid...................................... (1,255,494) (1,192,264) (1,337,206)
---------- ---------- ----------
Net increase (decrease) in cash.................. (266,412) 539,280 (83,150)
Cash and cash equivalents at beginning of year............. 1,593,628 1,327,216 1,866,496
---------- ---------- ----------
Cash and cash equivalents at end of year................... $1,327,216 $1,866,496 $1,783,346
========== ========== ==========
Supplemental cash flow information --
Cash (paid) refunded for income taxes.................... $ 14,026 $ (23,517) $ --
========== ========== ==========
Supplemental schedule of noncash investing and financing
activities --
Note receivable for sale of building and land............ $ -- $ 36,000 $ --
========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-46
<PAGE> 111
KEITH MONUMENT COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Keith Monument Companies (the Companies) are engaged in a single line of
business of the engraving and selling of memorials, primarily to customers in
the Commonwealth of Kentucky.
(b) Principles of Combination
The combined financial statements include the following Kentucky
corporations, all affiliated through common ownership and control of
substantially all of the issued and outstanding shares of common stock of the
Companies by Messers. John E. Keith and Roy H. Keith, Jr., and their families:
Keith Monument Company, National Memorial Corporation, Riehm-Gerlack Monument
Company, Inc., Keith Lettering & Setting Corporation, Glasgow Monument Company,
Inc. and Snyder Corporation. Keith Monument Company is a wholly-owned subsidiary
of Keith National Corporation, a Kentucky corporation also controlled by
Messers. Keith. All significant intercompany balances and transactions have been
eliminated in the combined financial statements.
(c) Cash Equivalents
Cash equivalents of $415,283 and $321,572 at June 30, 1996 and 1997,
respectively, consist primarily of money market funds and certificates of
deposit with an initial term of less than three months. For purposes of the
statements of cash flows, the Companies consider all short-term highly liquid
investments with original maturities of three months or less to be cash
equivalents. Cash and certificates of deposit are insured by the Federal Deposit
Insurance Corporation (FDIC) up to $100,000. The Companies had bank balances
exceeding individual FDIC insurance limits by $1,184,665 at June 30, 1997.
(d) Accounts Receivable and Revenue Recognition
The Companies recognize revenue upon the setting of the memorial. In
certain instances, the Companies may enter into agreements with their customers
which provide for extended payment terms, generally up to two years from either
the date of setting of the memorial or, in certain instances, upon the
settlement of an estate. Customer deposits and prepayments are recorded as a
liability and recognized as revenue upon the setting of the memorial. Finance
charges are recognized when received.
The Companies do not require collateral or other security on accounts
receivable. The credit risk on accounts is controlled by requiring significant
deposits and monitoring procedures.
(e) Notes Receivable
Notes receivable are recorded at cost, less the related allowance for
impaired notes receivable, if necessary. Management, considering current
information and events regarding the borrowers' ability to repay their
obligations, considers a note to be impaired when it is probable that the
Companies will be unable to collect all amounts due according to the contractual
terms of the note agreement. When a loan is considered to be impaired, the
amount of the impairment is measured based on the present value of expected
future cash flows discounted at the notes effective interest rate. No impairment
losses are estimated to exist at June 30, 1996 and 1997.
(f) Inventories
Inventories consist primarily of memorials purchased for resale or for
display purposes, and are stated at the lower of cost or market. Cost is
determined using the last-in, first-out method (LIFO) for all inventories
F-47
<PAGE> 112
KEITH MONUMENT COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
except those acquired from Lexington Granite Company, Inc. (which were acquired
March 31, 1997, see note 9) for which cost is determined using the first-in,
first-out method (FIFO).
(g) Property, Plant and Equipment and Depreciation
Property, plant and equipment are stated at cost. Depreciation on plant and
equipment is calculated on various accelerated methods over the estimated useful
lives of the assets as follows:
<TABLE>
<S> <C>
Buildings and improvements............................ 10 to 30 years
Machinery, equipment, furniture and fixtures.......... 5 to 10 years
Vehicles.............................................. 4 to 10 years
</TABLE>
(h) Investments
Investments consist of certificates of deposit with initial terms of six
years with maturities through 1999. Certificates of deposit are valued at cost
plus accrued interest, which approximates fair value. The Companies had
certificates of deposits exceeding individual FDIC insurance limits (see note
1(c)) by $224,118 at June 30, 1997.
(i) Covenants Not to Compete
Covenants not to compete are amortized on a straight-line basis over five
to ten years, the lives of the covenants.
(j) Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over 15 years, the
expected periods to be benefited. The Companies assess the recoverability of
this intangible asset by determining whether the amortization of the goodwill
balance over its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Companies' average cost of
funds. The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
(k) Income Taxes
National Memorial Corporation, Riehm-Gerlack Monument Company, Inc., Keith
Lettering & Setting Corporation, Glasgow Monument Company, Inc. and Snyder
Corporation have elected to be taxed as Small Business Corporations for Federal
and state income tax purposes. Therefore, no provision for Federal and state
income taxes has been made in the combined financial statements for those
companies since such taxes are the responsibility of the stockholders.
Keith Monument Company has elected to be taxed as a C Corporation.
Accordingly, income taxes are accounted for under the asset and liability method
for Keith Monument Company. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
F-48
<PAGE> 113
KEITH MONUMENT COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(l) Use of Estimates
Management of the Companies has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from these estimates.
(m) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Companies adopted the provisions of Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, on July 1, 1996. This Statement requires
that long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Adoption of this Statement did not have
a material impact on the Companies' financial position, results of operations,
or liquidity.
(n) Fair Value of Financial Instruments
Various methods and assumptions were used by the Companies in estimating
their fair value disclosures for significant financial instruments. Fair values
of cash equivalents, accounts and notes receivable, investments, trade accounts
payable, accrued expenses and customer deposits approximate their carrying
amount because of the short maturity of those instruments. The fair value of
long-term debt is based on the present value of the underlying cash flows
discounted at the current estimated borrowing rates available to the Companies.
The fair value of the Companies' long-term debt at June 30, 1997 approximates
the carrying value.
(2) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Memorials accounted for under the FIFO
method.................................... $ -- $ 577,672
Memorials accounted for under the LIFO
method.................................... 865,821 860,903
LIFO reserve................................ (201,721) (246,211)
---------- ----------
$ 664,100 $1,192,364
========== ==========
</TABLE>
During 1996 and 1997, LIFO inventory layers were reduced. The impact of
charging lower inventory costs prevailing in previous years to cost of goods
sold in 1996 and 1997 was not significant.
F-49
<PAGE> 114
KEITH MONUMENT COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Land........................................ $ 297,557 $ 521,462
Buildings and improvements.................. 880,454 1,084,032
Machinery, equipment, furniture and
fixtures.................................. 336,122 364,005
Vehicles.................................... 499,125 478,537
---------- ----------
2,013,258 2,448,036
Less accumulated depreciation............... 1,035,872 1,054,775
---------- ----------
$ 977,386 $1,393,261
========== ==========
</TABLE>
(4) NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
GMMC, Inc., an affiliated company, $200,000
dated April 26, 1993, receivable in
semi-annual installments of $13,443
commencing October 26, 1993 with a final
receipt due on April 26, 2003, at a 6%
rate of interest, secured by a first
mortgage on real estate................... $ 151,855 $ 133,814
GMMC, Inc., an affiliated company, $500,000
dated April 26, 1993, receivable in
semi-annual installments of $33,608
commencing October 26, 1993 with a final
receipt due on April 26, 2003, at a 6%
rate of interest, secured by a first
mortgage on real estate................... 379,636 357,468
Others...................................... 66,105 44,513
-------- --------
Total notes receivable............ 597,596 535,795
Less current portion........................ 102,670 118,614
-------- --------
Notes receivable, excluding
current portion................. $ 494,926 $ 417,181
======== ========
</TABLE>
F-50
<PAGE> 115
KEITH MONUMENT COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(5) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1997
--------- ----------
<S> <C> <C>
Lexington Granite Company, Inc., $1,797,600
dated March 31, 1997, payable in annual
installments of $256,800 plus interest
commencing March 31, 1998 with a final
payment due on March 31, 2004, at a 9%
rate of interest.......................... $ -- $1,797,600
David DeMarcus, $500,000 covenant not to
compete dated March 31, 1997, payable in
annual installments of $50,000 commencing
March 31, 1998 with a final payment due
March 31, 2007, with no interest stated,
imputed interest at 9%.................... -- 320,883
--------- ----------
Total long-term debt.............. -- 2,118,483
Less current maturities..................... -- 277,921
--------- ----------
Long-term debt, excluding current
maturities...................... -- $1,840,562
========= ==========
</TABLE>
The Lexington Granite Company, Inc. note and interest are secured by
certain assets of Keith & Keith Partnership, a related party, and National
Memorial Corporation.
Long-term debt matures as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30
---------------------------------------------------------
<S> <C>
1998..................................................... $ 277,921
1999..................................................... 279,821
2000..................................................... 281,893
2001..................................................... 284,152
2002..................................................... 286,613
Thereafter............................................... 708,083
----------
$ 2,118,483
==========
</TABLE>
(6) STOCKHOLDERS EQUITY
Common stock at June 30, 1996 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
SHARES
SHARES ISSUED AND
COMPANY PAR/STATED VALUE AUTHORIZED OUTSTANDING AMOUNT
- ------------------------------------------- --------------------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Keith Monument Company..................... Par value of $100 1,500 1,320 $132,000
National Memorial Corporation.............. Stated value of $10 1,000 1,000 10,000
Riehm-Gerlack Monument
Company, Inc. ........................... Par value of $100 1,000 95 9,500
Keith Lettering & Setting Corporation...... Par value of $100 500 60 6,000
Glasgow Monument Company, Inc. ............ Stated value of $150 160 60 9,000
Snyder Corporation......................... Stated value of $60 1,000 220 13,200
===== =====
--------
$179,700
========
</TABLE>
All of the above shares of stock are voting shares.
F-51
<PAGE> 116
KEITH MONUMENT COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(6) STOCKHOLDERS EQUITY -- (CONTINUED)
Treasury stock consists of the cost of shares purchased from shareholders
of Keith Lettering & Setting Corporation and Snyder Corporation in the amounts
of $4,000 (2 shares) and $2,000 (20 shares), respectively.
National Memorial Corporation also has authorized 1,000 shares of no par
value Class A Preferred Stock and 10,000 shares of no par value Class B
Preferred Stock. None of these shares were issued on June 30, 1996 or 1997.
The dividends represent distributions of Small Business Corporations.
(7) INCOME TAXES
Income tax expense (benefit) is attributable only to Keith Monument Company
and consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- --------
<S> <C> <C> <C>
Year ended June 30, 1995:
U.S. Federal...................... $10,400 $ (1,425) $ 8,975
State and local................... 2,500 (475) 2,025
------ ------- --------
$12,900 $ (1,900) $ 11,000
====== ======= ========
Year ended June 30, 1996:
U.S. Federal...................... $ 3,300 $ (1,350) $ 1,950
State and local................... 1,100 (450) 650
------ ------- --------
$ 4,400 $ (1,800) $ 2,600
------ ------- --------
Year ended June 30, 1997:
U.S. Federal...................... $ 2,700 $(20,700) $(18,000)
State and local................... 1,250 (6,900) (5,650)
------ ------- --------
$ 3,950 $(27,600) $(23,650)
------ ------- --------
</TABLE>
Income tax expense (benefit) was $11,000, $2,600 and ($23,650) for the
years ended June 30, 1995, 1996 and 1997, respectively, and differed from the
amounts computed by applying the U.S. Federal income tax rate of 35% to Keith
Monument Company pretax income (loss) as a result of the following:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Computed "expected" tax expense
(benefit)........................ $ 19,593 $ 11,005 $(33,696)
Increase (reduction) in income
taxes resulting from:
State and local income taxes, net
of federal income tax
benefit....................... 2,911 1,635 (5,006)
Other, net....................... (11,504) (10,040) 15,052
-------- -------- --------
$ 11,000 $ 2,600 $(23,650)
======== ======== ========
</TABLE>
F-52
<PAGE> 117
KEITH MONUMENT COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(7) INCOME TAXES -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portion of the deferred tax assets (liabilities) at June 30, 1996 and 1997 are
presented below.
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to
allowances for doubtful accounts.......... $ 5,800 $ 5,800
Compensated absences, principally due to
accrual for financial reporting
purposes.................................. 2,000 2,000
Other........................................ 2,100 2,500
------- ------
Total gross deferred tax assets...... 9,900 10,300
Less valuation allowance..................... -- --
------- ------
Net deferred tax assets.............. $ 9,900 $ 10,300
------- ------
Deferred tax liabilities:
Deferred income from affiliated companies.... (27,200) --
------- ------
Net deferred tax asset (liability)... $(17,300) $ 10,300
======= ======
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers
projected future taxable income and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and projections
for future taxable income over the periods which the deferred tax assets are
deductible, management believes it is more likely than not Keith Monument
Company will realize the benefits of these deductible differences.
(8) COMMITMENTS AND CONTINGENT LIABILITIES
The Companies have entered into certain leases, all of which will expire by
1999. Certain of such leases are with related parties. Such leases are
classified as operating leases and will require cash outflows as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30
-------------------------------------------------------
<S> <C>
1998................................................... $66,500
1999................................................... 17,000
-------
$83,500
-------
</TABLE>
The Companies are in the process of negotiating with Keith and Keith
Partnership, an entity controlled by Messrs. John E. Keith and Roy H. Keith,
Jr., for a lease of land and buildings associated with the purchase of Lexington
Granite Company, Inc. (see note 9). The monthly lease amount will be $10,000.
The lease term has not yet been finalized.
Rent expense was $75,635, $75,692 and $93,398 for 1995, 1996 and 1997,
respectively, of which $51,515, $50,772 and $80,772, respectively, was with
related parties.
The Companies sponsor two defined contribution profit sharing plans, which
cover substantially all employees. Contributions to the plans are based on a
percentage of employees' compensation. Such expenses amounted to $297,073,
$304,572 and $303,869 in 1995, 1996 and 1997, respectively.
F-53
<PAGE> 118
KEITH MONUMENT COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(8) COMMITMENTS AND CONTINGENT LIABILITIES -- (CONTINUED)
In the ordinary course of business, the Companies are subject to
environmental matters. Management provides for such matters when they are
probable and can be reasonably estimated. Management is of the opinion there are
no existing matters which would have a material impact on the Companies'
financial condition or results of operations.
In the ordinary course of business, the Companies are subject to litigation
matters. Management provides for such matters when they are probable and can be
reasonably estimated. Management is of the opinion there are no existing matters
which would have a material impact on the Companies' financial condition or
results of operations.
The Companies participate in the Safety Association Fund (the Fund), a
workers' compensation self-insurance fund organized pursuant to the regulations
of the Commonwealth of Kentucky -- Department of Workers' Claims. The Companies
are charged premiums for workers' compensation based on rates determined by the
Fund. While significant judgmental factors are included in the determination of
these premiums, management of the Companies believes the amounts paid are
adequate to provide for all existing known and incurred but not reported cases,
and retroactive adjustments, if any, from the Fund would not have a material
impact on the Companies' financial condition or results of operations.
(9) ACQUISITION
On March 31, 1997, National Memorial Corporation acquired certain assets of
Lexington Granite Company, Inc. for a note payable in the amount of $1,797,600
(see note 5). The acquisition has been accounted for as a purchase, with the
results of operations of Lexington Granite Company, Inc. included in the
combined results of operations of the Companies since April 1, 1997. The
purchase price was allocated as follows:
<TABLE>
<S> <C>
Inventories.............................................. $ 570,178
Land..................................................... 300,000
Equipment and machinery.................................. 88,500
Goodwill................................................. 838,922
----------
$1,797,600
==========
</TABLE>
In addition, the previous owner of Lexington Granite Company, Inc. entered
into a ten-year covenant not to compete with National Memorial Corporation for
$500,000, payable $50,000 per year for ten years with no interest rate. The
covenant not to compete has been recorded at its net present value using a 9%
discount rate (see note 5).
Pro forma results, giving effect to interest, amortization, rent, salary
and commissions, as if the acquisition had occurred on July 1, 1995 are as
follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Net revenues................................ $8,273,000 $9,021,000
---------- ----------
Net income.................................. $1,009,000 $1,225,000
---------- ----------
</TABLE>
(10) SUBSEQUENT EVENT
On July 30, 1997, Messrs. John E. Keith and Roy H. Keith, Jr. and the
Companies entered into a definitive agreement with Rock of Ages Corporation
("Rock of Ages"), whereby Rock of Ages will purchase substantially all of the
assets and assume substantially all of the liabilities of the Companies for
$16,375,000 in cash and shares of Class A common stock, the number of shares to
be determined pursuant to a formula
F-54
<PAGE> 119
KEITH MONUMENT COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(10) SUBSEQUENT EVENT -- CONTINUED
defined in the agreement. The purchase price includes an amount of $1,797,600 to
be used to repay the Companies' long-term debt to Lexington Granite Company,
Inc. (see note 5) at the closing date of the purchase. Rock of Ages is currently
planning an initial public offering, and the sale of the Companies is expected
to occur concurrently with the consummation of the offering.
F-55
<PAGE> 120
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS
To the Board of Directors
Pennsylvania Granite Corporation
St. Peters, Pennsylvania
We have audited the accompanying consolidated balance sheets of
Pennsylvania Granite Corporation and subsidiary as of May 31, 1997 and April 30,
1997, and the related consolidated statements of operations and accumulated
deficit, and cash flows for the eleven months and ten months then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to in the first paragraph
present fairly, in all material respects, the financial position of Pennsylvania
Granite Corporation and subsidiary as of May 31, 1997 and April 30, 1997, and
the results of their operations and their cash flows for the eleven months and
ten months then ended in conformity with generally accepted accounting
principles.
/s/ GREENE AND COMPANY, L.L.P.
--------------------------------------
GREENE AND COMPANY, L.L.P.
Anderson, South Carolina
July 22, 1997
F-56
<PAGE> 121
PENNSYLVANIA GRANITE CORPORATION
CONSOLIDATED BALANCE SHEETS
MAY 31, 1997 AND APRIL 30, 1997
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalent.......................................... $ 432,487 $ 402,432
Trade receivables, less allowance for doubtful accounts of
$13,495........................................................ 457,327 453,609
Trade receivables -- affiliates................................... 661,348 616,645
Employee receivables.............................................. 120 70
Inventory -- finished goods....................................... 244,751 220,347
Prepaid taxes..................................................... 2,109 4,040
Prepaid expenses.................................................. 86,107 73,738
Deposits.......................................................... 3,500 3,500
---------- ----------
Total current assets...................................... 1,887,749 1,774,381
---------- ----------
Property and equipment, net......................................... 2,273,052 2,297,914
---------- ----------
Other assets:
Advances to affiliates............................................ 941,489 873,989
Intangibles, net.................................................. 2,261,967 2,282,790
---------- ----------
Total other assets............................................. 3,203,456 3,156,779
---------- ----------
Total assets.............................................. $7,364,257 $7,229,074
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................. $ 503,185 $ 483,839
Accounts payable -- affiliates.................................... 196,529 192,058
Accrued interest.................................................. 20,794 10,877
Accrued expenses.................................................. 14,837 22,608
Income taxes payable.............................................. 155,720 82,000
Deferred income taxes............................................. 279,000 261,000
Notes payable..................................................... 3,927,744 3,942,526
---------- ----------
Total current liabilities................................. 5,097,809 4,994,908
---------- ----------
Long-term liabilities -- advances from affiliates................... 529,868 579,868
---------- ----------
Stockholders' equity:
Common stock, no par value. Authorized 1,950 shares; 1,740 shares
issued and outstanding......................................... 2,500,500 2,500,500
Accumulated deficit............................................... (763,920) (846,202)
---------- ----------
Total stockholders' equity..................................... 1,736,580 1,654,298
---------- ----------
Total liabilities and stockholders' equity................ $7,364,257 $7,229,074
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-57
<PAGE> 122
PENNSYLVANIA GRANITE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE ELEVEN MONTHS ENDED MAY 31, 1997
<TABLE>
<S> <C>
Net revenues (including revenues to affiliates of $1,526,022)................... $ 6,725,009
Cost of goods sold (including purchases from affiliates of $99,997)............. 5,067,663
-----------
Gross profit.................................................................... 1,657,346
Selling and administrative expenses (including fees paid to affiliates of
$55,278)...................................................................... 619,257
-----------
Operating income................................................................ 1,038,059
-----------
Other (income) expense:
Interest expense.............................................................. 343,601
Finance charges............................................................... (1,982)
Interest income............................................................... (10,350)
Rental income................................................................. (3,935)
-----------
Total other expense................................................... 327,334
-----------
Income before income taxes...................................................... 710,725
Income taxes.................................................................... 246,000
-----------
Net income...................................................................... 464,725
Accumulated deficit, July 1, 1996............................................... (1,228,645)
-----------
Accumulated deficit, May 31, 1997............................................... $ (763,920)
===========
</TABLE>
See accompanying notes to financial statements.
F-58
<PAGE> 123
PENNSYLVANIA GRANITE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE TEN MONTHS ENDED APRIL 30, 1997
<TABLE>
<S> <C>
Net revenues (including revenues to affiliates of $1,323,006)................... $ 6,076,004
Cost of goods sold (including purchases from affiliates of $97,776)............. 4,674,341
-----------
Gross profit.................................................................... 1,401,663
Selling and administrative expenses (including fees paid to affiliates of
$49,767)...................................................................... 569,950
-----------
Operating income................................................................ 831,713
-----------
Other (income) expense:
Interest expense.............................................................. 312,223
Finance charges............................................................... (1,879)
Interest income............................................................... (10,139)
Rental income................................................................. (3,935)
-----------
Total other expense................................................... 296,270
-----------
Income before income taxes...................................................... 535,443
Income taxes.................................................................... 153,000
-----------
Net income...................................................................... 382,443
Accumulated deficit, July 1, 1996............................................... (1,228,645)
-----------
Accumulated deficit, April 30, 1997............................................. $ (846,202)
===========
</TABLE>
See accompanying notes to financial statements.
F-59
<PAGE> 124
PENNSYLVANIA GRANITE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE ELEVEN MONTHS ENDED MAY 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income..................................................................... $ 464,725
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization................................................................ 207,426
Depletion................................................................... 24,078
Depreciation................................................................ 296,646
Deferred income taxes....................................................... 61,000
(Increase) decrease in assets:
Trade receivables......................................................... (157,215)
Employee receivables...................................................... 1,083
Inventory................................................................. (114,021)
Prepaid taxes............................................................. 1,673
Prepaid expenses.......................................................... 36,682
Increase (decrease) in liabilities:
Accounts payable.......................................................... 215,322
Accrued interest.......................................................... 20,794
Accrued expenses.......................................................... (71,114)
Income taxes payable...................................................... 155,720
----------
Net cash provided by operating activities.............................. 1,142,799
----------
Cash flows used in investing activities -- purchase of property and equipment.... (230,572)
----------
Cash flows from financing activities:
Payments on notes payable...................................................... (318,908)
Advances to affiliates......................................................... (611,500)
----------
Net cash used in financing activities.................................. (930,408)
----------
Net decrease in cash and cash equivalents........................................ (18,181)
Cash and cash equivalents, July 1, 1996.......................................... 450,668
----------
Cash and cash equivalents, May 31, 1997.......................................... $ 432,487
==========
Supplemental disclosures of cash flows information -- cash paid for interest..... $ 343,601
==========
</TABLE>
See accompanying notes to financial statements.
F-60
<PAGE> 125
PENNSYLVANIA GRANITE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE TEN MONTHS ENDED APRIL 30, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income..................................................................... $ 382,443
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization................................................................ 188,569
Depletion................................................................... 22,112
Depreciation................................................................ 268,523
Deferred income taxes....................................................... 43,000
(Increase) decrease in assets:
Trade receivables......................................................... (108,795)
Employee receivables...................................................... 1,133
Inventory................................................................. (89,617)
Prepaid taxes............................................................. (258)
Prepaid expenses.......................................................... 49,052
Increase (decrease) in liabilities:
Accounts payable.......................................................... 191,506
Accrued interest.......................................................... 10,877
Accrued expenses.......................................................... (63,344)
Income taxes payable...................................................... 82,000
----------
Net cash provided by operating activities.............................. 977,201
----------
Cash flows used in investing activities -- purchase of property and equipment.... (227,311)
----------
Cash flows used in financing activities:
Payments on notes payable...................................................... (304,126)
Advances to affiliates......................................................... (494,000)
----------
Net cash used in financing activities.................................. (798,126)
----------
Net decrease in cash and cash equivalents........................................ (48,236)
Cash and cash equivalents, July 1, 1996.......................................... 450,668
----------
Cash and cash equivalents, April 30, 1997........................................ $ 402,432
==========
Supplemental disclosures of cash flows information -- cash paid for interest..... $ 312,223
==========
</TABLE>
See accompanying notes to financial statements.
F-61
<PAGE> 126
PENNSYLVANIA GRANITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997 AND APRIL 30, 1997
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented
to assist in understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management, who is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
Nature of Business
The Company quarries granite dimensional blocks for monuments, industrial
surface plates and building materials in Pennsylvania and North and South
Carolina. These products are sold nationwide and in Europe.
Use of Estimates
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents. The Company has a money market account in the amount of
$266,887 at May 31, 1997 and $66,703 at April 30, 1997.
Trade Receivables
The Company accounts for uncollectible trade receivables on the reserve
method.
Inventory
Inventory of quarry product is valued at the lower of average cost or
market. Average cost is the cost to quarry, which includes direct labor and
overhead.
Revenue Recognition
Revenue is recognized upon shipment of goods.
See accountants' report.
F-62
<PAGE> 127
PENNSYLVANIA GRANITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Property and Equipment
Property and equipment are stated at acquisition cost as of October 12,
1988, and cost for additions thereafter. Depreciation is computed under the
straight-line method for financial reporting purposes over the following
estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings............................................ 10-40
Trucks and automobiles............................... 3-7
Machinery and equipment.............................. 3-10
Office fixtures and equipment........................ 3-10
</TABLE>
Major renewals and betterments are added to the property accounts while
maintenance and repairs are charged against earnings as incurred.
Intangibles
Amortization is computed under the straight-line method for financial
reporting purposes over the following estimated useful lives:
<TABLE>
<S> <C>
Goodwill........................................... 18 1/2-40
Organization costs................................. 5
Loan costs......................................... 5
Overburden removal................................. 15
Covenant not to compete............................ 5
</TABLE>
Depletion of mineral deposits is computed using cost depletion for
financial reporting purposes.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or recognized in income in the period that includes the enactment
date.
Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefitted. The Company assesses the recoverability of this
intangible asset by determining whether the amortization of the goodwill balance
over its remaining life can be recovered through undiscounted future operating
cash flows of the acquired operation. The amount of goodwill impairment, if any,
is measured based on projected discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds. The assessment of
the recoverability of goodwill will be impacted if estimated future operating
cash flows are not achieved.
See accountants' report.
F-63
<PAGE> 128
PENNSYLVANIA GRANITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this statement did not have a material impact on the Company's
financial position, results of operations, or liquidity.
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
----------- -----------
<S> <C> <C>
Land.............................................. $ 721,570 $ 721,570
Buildings......................................... 477,955 477,955
Trucks and automobiles............................ 181,331 181,331
Machinery and equipment........................... 4,719,544 4,716,283
Office fixtures and equipment..................... 61,819 61,819
----------- -----------
6,162,219 6,158,958
Accumulated depreciation.......................... (3,889,167) (3,861,044)
----------- -----------
$ 2,273,052 $ 2,297,914
=========== ===========
</TABLE>
Depreciation expense for the eleven months ended May 31, 1997 and the ten
months ended April 30, 1997 was $296,646 and $268,523, respectively.
NOTE C -- INTANGIBLES
Intangibles consist of the following:
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
----------- -----------
<S> <C> <C>
Goodwill.......................................... $ 2,883,628 $ 2,884,511
Organization costs................................ 36,990 37,262
Mineral deposits.................................. 540,162 540,162
Loan costs........................................ 24,711 24,711
Overburden removal................................ 150,204 150,204
Covenant not to compete........................... 300,000 300,000
----------- -----------
3,935,695 3,936,850
Accumulated amortization and depletion............ (1,673,728) (1,654,060)
----------- -----------
$ 2,261,967 $ 2,282,790
=========== ===========
</TABLE>
See accountants' report.
F-64
<PAGE> 129
PENNSYLVANIA GRANITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- INTANGIBLES -- (CONTINUED)
Amortization and depletion expense for the eleven months ended May 31, 1997
were $207,426 and $24,078, respectively.
Amortization and depletion expense for the ten months ended April 30, 1997
were $188,569 and $22,112, respectively.
NOTE D -- NOTES PAYABLE
Notes Payable are as follows:
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
----------- -----------
<S> <C> <C>
Bank mortgage, payable $19,092 monthly (principal
and interest at 9 1/2%) with a maturity date of
October 1998; the mortgage balance is secured by
substantially all of the Company's assets and
guarantees by the stockholders. ................ $ 1,590,843 $ 1,597,291
Bank mortgage, payable $8,334 monthly plus
interest at prime plus 1 1/2% with a maturity
date of October 1998; secured by substantially
all of the Company's assets and guarantees by
the stockholders. .............................. 1,050,117 1,058,451
Bank mortgage, payable $25,000 monthly (principal
and interest at prime plus 0.45%) with a
maturity date of May 1997; the mortgage balance
is secured by substantially all of the
subsidiary's assets and guarantees by the
stockholders. Principal and accrued interest
were paid in full on July 2, 1997. ............. 1,286,784 1,286,784
---------- ----------
3,927,744 3,942,526
Current portion................................... (3,927,744) (3,942,526)
---------- ----------
$ -- $ --
========== ==========
</TABLE>
In regard to the term loans, the Company has agreed to maintain proper
financial records and statements and to maintain certain financial ratios
pertaining to its net worth, working capital, debt coverage, etc. The Company
has not met these requirements for the periods ended May 31, 1997 and April 30,
1997, and the bank has decided not to waive the requirements. Therefore, all
notes payable have been classified as current.
NOTE E -- RELATED-PARTY TRANSACTIONS
The Company is affiliated with numerous other companies through common
control and stock ownership. The stockholders and other joint venture companies
have made unsecured non-interest bearing advances to the Company for working
capital purposes.
See accountants' report.
F-65
<PAGE> 130
PENNSYLVANIA GRANITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- INCOME TAX MATTERS
A summary of the provision for income taxes is as follows:
<TABLE>
<CAPTION>
APRIL
MAY 31, 30,
1997 1997
-------- --------
<S> <C> <C>
Current................................................ $185,000 $110,000
Deferred............................................... 61,000 43,000
-------- --------
Provision for Income Taxes................... $246,000 $153,000
======== ========
</TABLE>
The net deferred tax liability on the balance sheet includes the following
components:
<TABLE>
<CAPTION>
APRIL
MAY 31, 30,
1997 1997
-------- --------
<S> <C> <C>
Deferred tax liabilities arising from:
Accelerated methods of depreciation for tax.......... $136,000 $137,000
Tax depletion on quarry.............................. 26,000 26,000
Alternative minimum tax.............................. 129,000 129,000
Deferred tax assets arising from:
Allowance for bad debts.............................. (5,000) (5,000)
Inventory adjustments (Section 263(a))............... (7,000) (6,000)
Net operating loss carryovers........................ -- (8,000)
Investment tax credit carryovers..................... -- (12,000)
-------- --------
Net deferred tax liability................... $279,000 $261,000
======== ========
</TABLE>
The Company has unused net operating losses and investment tax credits
available for carryforward to offset future taxable income and tax liabilities
for income tax reporting purposes which expire as follows:
<TABLE>
<CAPTION>
NET
YEARS ENDING OPERATING TAX
SEPTEMBER 30, LOSS CREDITS
-------------------------------------------------------- --------- -------
<S> <C> <C>
1999.................................................. $ -- $ 6,992
2000.................................................. -- 12,483
2001.................................................. -- 9,831
2006.................................................. 10,375 --
2007.................................................. 6,302 --
2008.................................................. 3,964 --
------- -------
$20,641 $29,306
======= =======
</TABLE>
NOTE G -- CONCENTRATION OF CREDIT RISK
All of the Company's cash funds are located in financial institutions that
are insured by the FDIC for up to $100,000. The amounts in excess of this limit
at May 31, 1997 and April 30, 1997 are $166,887 and $187,949, respectively.
Sales to two major customers represented 56% of total revenues for both the
eleven and ten months ended May 31, 1997 and April 30, 1997. Trade accounts
receivable from major customers represented 40% and 62% of total trade accounts
receivable as of May 31, 1997 and April 30, 1997, respectively.
NOTE H -- SUBSEQUENT EVENTS
Subsequent to the date of these financial statements, the Company joined in
a merger with its affiliates and other unrelated granite companies.
See accountants' report.
F-66
<PAGE> 131
PENNSYLVANIA GRANITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held
for trading purposes. The Company estimates that the fair value of all financial
instruments at May 31, 1997 and April 30, 1997 does not differ materially from
the aggregate carrying values of its financial instruments recorded in the
accompanying balance sheets. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. Considerable judgement is necessarily required in
interpreting market data to develop the estimates of fair value, and
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.
See accountants' report.
F-67
<PAGE> 132
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS
To the Board of Directors
Pennsylvania Granite Corporation
St. Peters, Pennsylvania
We have audited the accompanying consolidated balance sheet of Pennsylvania
Granite Corporation and subsidiary as of June 30, 1996, and the related
consolidated statements of operations and accumulated deficit, and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to in the first paragraph
present fairly, in all material respects, the financial position of Pennsylvania
Granite Corporation and subsidiary as of June 30, 1996, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ GREENE AND COMPANY, L.L.P.
--------------------------------------
GREENE AND COMPANY, L.L.P.
Anderson, South Carolina
July 22, 1997
F-68
<PAGE> 133
PENNSYLVANIA GRANITE CORPORATION
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 450,668
Trade receivables, less allowance for doubtful accounts of $13,495............ 634,240
Trade receivables -- affiliates............................................... 327,220
Employee receivables.......................................................... 1,203
Inventory -- finished goods................................................... 130,730
Prepaid taxes................................................................. 3,782
Prepaid expenses.............................................................. 122,789
Deposits...................................................................... 3,500
----------
Total current assets.................................................. 1,674,132
----------
Property and equipment, net..................................................... 2,339,126
----------
Other assets:
Advances to affiliates........................................................ 489,989
Intangibles, net.............................................................. 2,493,471
----------
Total other assets......................................................... 2,983,460
----------
Total assets.......................................................... $ 6,996,718
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 393,970
Accounts payable -- affiliates................................................ 90,421
Accrued expenses.............................................................. 85,952
Deferred income taxes......................................................... 218,000
Notes payable................................................................. 4,246,652
----------
Total current liabilities............................................. 5,034,995
----------
Long-term liabilities -- advances from affiliates............................... 689,868
----------
Stockholders' equity:
Common stock, no par value, 1,950 shares authorized, 1,740 shares issued
and outstanding............................................................ 2,500,500
Accumulated deficit........................................................... (1,228,645)
----------
Total stockholders' equity................................................. 1,271,855
----------
Total liabilities and stockholders' equity............................ $ 6,996,718
==========
</TABLE>
See accompanying notes to financial statements.
F-69
<PAGE> 134
PENNSYLVANIA GRANITE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C>
Net revenues (including sales to affiliates of $1,772,844)...................... $ 7,528,511
Cost of goods sold (including purchases from affiliates of $57,029)............. 6,244,640
-----------
Gross profit.................................................................... 1,283,871
Selling and administrative expenses (including fees paid to affiliates of
$54,269)...................................................................... 589,172
-----------
Operating income................................................................ 694,699
-----------
Other (income) expense:
Interest expense.............................................................. 409,255
Loss from judgment............................................................ 62,104
Other income.................................................................. (32,591)
Interest income............................................................... (7,763)
Rental income................................................................. (3,000)
Gain on sale of equipment..................................................... (1,656)
Finance charges............................................................... (1,478)
-----------
Total other expense................................................... 424,871
-----------
Income before income tax........................................................ 269,828
Income tax...................................................................... (72,000)
-----------
Net income...................................................................... 341,828
Accumulated deficit, beginning of year.......................................... (1,002,250)
Distributions................................................................... (568,223)
-----------
Accumulated deficit, end of year................................................ $(1,228,645)
===========
</TABLE>
See accompanying notes to financial statements.
F-70
<PAGE> 135
PENNSYLVANIA GRANITE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income..................................................................... $ 341,828
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization................................................................ 226,283
Depreciation................................................................ 289,155
Depletion................................................................... 24,783
Deferred income taxes....................................................... (72,000)
Gain on sale of equipment................................................... (1,656)
(Increase) decrease in assets:
Trade receivables......................................................... (24,649)
Employee receivables...................................................... (756)
Inventory................................................................. 60,600
Prepaid taxes............................................................. 2,521
Prepaid expenses.......................................................... 61,631
Deposits.................................................................. 10,938
Increase (decrease) in liabilities:
Accounts payable.......................................................... (8,632)
Accrued expenses.......................................................... 61,135
--------
Net cash provided by operating activities.............................. 971,181
--------
Cash flows used in investing activities:
Purchase of fixed assets....................................................... (220,759)
Sale of equipment -- proceeds.................................................. 41,000
--------
Net cash used in investing activities.................................. (179,759)
--------
Cash flows used in financing activities:
Distributions to stockholders.................................................. (568,223)
Payments on notes payable...................................................... (384,480)
Advances from affiliates....................................................... 683,800
Advances to affiliates......................................................... (385,000)
--------
Net cash used in financing activities.................................. (653,903)
--------
Net increase in cash and cash equivalents........................................ 137,519
Cash and cash equivalents at beginning of year................................... 313,149
--------
Cash and cash equivalents at end of year......................................... $ 450,668
========
Supplemental disclosure of cash flow information -- cash paid for interest....... $ 409,255
========
</TABLE>
See accompanying notes to financial statements.
F-71
<PAGE> 136
PENNSYLVANIA GRANITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented
to assist in understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management, who is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
Nature of Business
The Company quarries granite dimensional blocks for monuments, industrial
surface plates and building materials in Pennsylvania and North and South
Carolina. These products are sold nationwide and in Europe.
Use of Estimates
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Intangibles
Amortization is computed under the straight-line method for financial
reporting purposes over the following estimated useful lives:
<TABLE>
<S> <C>
Goodwill........................................... 18 1/2-40
Organization costs................................. 20
Loan costs......................................... 5
Overburden removal................................. 15
Covenant not to compete............................ 5
</TABLE>
Depletion of mineral deposits is computed using cost depletion for
financial reporting purposes.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or recognized in income in the period that includes the enactment
date.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents. The Company has a money market account in the amount of
$352,014 at June 30, 1996.
See accountants' report.
F-72
<PAGE> 137
PENNSYLVANIA GRANITE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Trade Receivables
The Company accounts for uncollectible trade receivables on the reserve
method.
Inventory
Inventory of quarry product is valued at the lower of average cost or
market. Average cost is the cost to quarry, which includes direct labor and
overhead.
Revenue Recognition
Revenue is recognized upon shipment of goods.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. The fair
value of the Company's assets approximates the carrying cost at the balance
sheet dates.
Property and Equipment
Property and equipment are stated at acquisition cost as of October 12,
1988, and cost for additions thereafter. Depreciation is computed under the
straight-line method for financial reporting purposes over the following
estimated useful lives:
<TABLE>
<S> <C>
Buildings........................................... 10-40
Trucks and automobiles.............................. 3-7
Machinery and equipment............................. 3-10
Office fixtures and equipment....................... 3-10
Overburden removal.................................. 15
</TABLE>
Major renewals and betterments are added to the property accounts while
maintenance and repairs are charged against earnings as incurred.
Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefitted. The Company assesses the recoverability of this
intangible asset by determining whether the amortization of the goodwill balance
over its remaining life can be recovered through undiscounted future operating
cash flows of the acquired operation. The amount of goodwill impairment, if any,
is measured based on projected discounted future operating cash
See accountants' report.
F-73
<PAGE> 138
PENNSYLVANIA GRANITE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
flows using a discount rate reflecting the Company's average cost of funds. The
assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved.
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<S> <C>
Land........................................................... $ 701,570
Buildings...................................................... 433,955
Trucks and automobiles......................................... 181,331
Machinery and equipment........................................ 4,561,674
Office fixtures and equipment.................................. 53,117
-----------
5,931,647
Accumulated depreciation....................................... (3,592,521)
-----------
$2,339,126
===========
</TABLE>
Depreciation expense for the year ended June 30, 1996 was $289,155.
NOTE C -- INTANGIBLES
Intangibles consist of the following:
<TABLE>
<S> <C>
Goodwill........................................................ $ 2,893,345
Organization costs.............................................. 39,982
Mineral deposits................................................ 540,162
Loan costs...................................................... 24,711
Overburden removal.............................................. 150,204
Covenant not to compete......................................... 300,000
-----------
3,948,404
Accumulated amortization and depletion.......................... (1,454,933)
-----------
$ 2,493,471
===========
</TABLE>
Amortization and depletion expense for the year ended June 30, 1996 was
$226,283 and $24,783, respectively.
NOTE D -- NOTES PAYABLE
Notes payable are as follows:
See accountants' report.
F-74
<PAGE> 139
PENNSYLVANIA GRANITE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- NOTES PAYABLE -- (CONTINUED)
<TABLE>
<S> <C>
Bank mortgage, payable $25,000 monthly (principal and interest
at prime + 0.45%) with a maturity date of May, 1997; the
mortgage balance is secured by substantially all of the
subsidiary's assets and guarantees by the stockholders........ $ 1,440,571
Bank mortgage, payable $19,092 monthly (principal and interest
at 9 1/2%) with a maturity date of October 1998; the mortgage
balance is secured by substantially all of the Company's
assets and guarantees by the stockholders..................... $ 1,664,290
Bank mortgage, payable $8,334 monthly plus interest at prime
plus 1 1/2% with a maturity date of October 1998; secured by
substantially all of the Company's assets and guarantees by
the stockholders.............................................. 1,141,791
-----------
4,246,652
Current portion................................................. (4,246,652)
-----------
$ 0
===========
</TABLE>
In regard to the term loans, the Company has agreed to maintain proper
financial records and statements and to maintain certain financial ratios
pertaining to its net worth, working capital, debt coverage, etc. The Company
has not met these requirements for the year ended June 30, 1996 and the bank has
decided not to waive the requirements. Therefore, the entire notes payable
balance must be classified as current.
NOTE E -- RELATED-PARTY TRANSACTIONS
The Company is affiliated with numerous other companies through common
control and stock ownership. The stockholders and other joint venture companies
have made unsecured non-interest bearing advances to the Company for working
capital purposes.
NOTE F -- INCOME TAX MATTERS
A summary of the provision for income taxes is as follows:
<TABLE>
<S> <C>
Current........................................................... $ 0
Deferred.......................................................... (72,000)
--------
Provision (benefit) for income taxes.................... $(72,000)
========
</TABLE>
The net deferred tax liability on the balance sheet includes the following
components:
<TABLE>
<S> <C>
Deferred tax liabilities arising from:
Accelerated methods of depreciation for tax..................... $134,000
Tax depletion on quarry......................................... 32,000
Alternative minimum tax......................................... 121,000
Deferred tax assets arising from:
Allowance for bad debts......................................... (6,000)
Inventory adjustments (Section 263(a)).......................... (7,000)
Net operating loss carryovers................................... (45,000)
Investment tax credit carryovers................................ (11,000)
--------
Net deferred tax liability.............................. $218,000
========
</TABLE>
See accountants' report.
F-75
<PAGE> 140
PENNSYLVANIA GRANITE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- INCOME TAX MATTERS -- (CONTINUED)
The Company has unused net operating losses and investment tax credits
available for carryforward to offset future taxable income and tax liabilities
for income tax reporting purposes which expire in the following tax years:
<TABLE>
<CAPTION>
NET OPERATING LOSS TAX CREDITS
------------------ -----------
<S> <C> <C>
1999............................................ $ 0 $ 6,992
2000............................................ 0 12,483
2001............................................ 0 9,831
2006............................................ 104,786 0
2007............................................ 6,302 0
2008............................................ 3,964 0
-------- -------
$115,052 $29,306
======== =======
</TABLE>
NOTE G -- CONCENTRATION OF CREDIT RISK
Cash accounts are insured by the FDIC for up to $100,000. Amount in excess
of insured limits was approximately $252,014 at June 30, 1996.
Sales to two major customers represented 54% of total revenues for the year
ended June 30, 1996. Trade accounts receivable from major customers represented
72% of total trade accounts receivable as of June 30, 1996.
NOTE H -- SUBSEQUENT EVENTS
Subsequent to the date of these financial statements, the Company joined in
a merger with its affiliates and other unrelated granite companies.
NOTE I -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held
for trading purposes. The Company estimates that the fair value of all financial
instruments at June 30, 1996 does not differ materially from the aggregate
carrying values of its financial instruments recorded in the accompanying
balance sheets. The estimated fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies. Considerable judgement is necessarily required in interpreting
market data to develop the estimates of fair value, and accordingly, the
estimates are not necessarily indicative of the amounts that the Company could
realize in a current market exchange.
See accountants' report.
F-76
<PAGE> 141
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS
To the Board of Directors
Caprice Blue Quarry, Inc.
Elberton, Georgia
We have audited the accompanying balance sheets of Caprice Blue Quarry,
Inc. (an "S" corporation) as of May 31, 1997 and April 30, 1997, and the related
statements of operations and accumulated deficit, and cash flows for the eleven
months and ten months then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to in the first paragraph
present fairly, in all material respects, the financial position of Caprice Blue
Quarry, Inc. as of May 31, 1997 and April 30, 1997, and the results of its
operations and its cash flows for the eleven months and ten months then ended in
conformity with generally accepted accounting principles.
/s/ GREENE AND COMPANY, L.L.P.
--------------------------------------
GREENE AND COMPANY, L.L.P.
Anderson, South Carolina
July 22, 1997
F-77
<PAGE> 142
CAPRICE BLUE QUARRY, INC.
BALANCE SHEETS
MAY 31, 1997 AND APRIL 30, 1997
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................... $ 1,525 $ 370
Trade receivables.................................................. 3,782 380
Trade receivables -- affiliates.................................... 4,112 2,794
Employee receivables............................................... 1,144 1,295
Inventory -- finished goods........................................ 13,550 10,022
Prepaid expenses................................................... 1,056 2,696
--------- ---------
Total current assets....................................... 25,169 17,557
--------- ---------
Property and equipment, net.......................................... 81,898 83,376
--------- ---------
Other assets:
Intangibles, net................................................... 168,103 169,166
Advances to affiliates............................................. 27,300 26,705
--------- ---------
Total other assets.............................................. 195,403 195,871
--------- ---------
Total assets............................................... $ 302,470 $ 296,804
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Bank overdraft..................................................... $ 0 $ 5,616
Accounts payable................................................... 18,470 9,493
Accounts payable -- affiliates..................................... 123,620 158,586
Accrued expenses................................................... 2,592 3,004
Current portion of long-term debt.................................. 55,761 55,277
--------- ---------
Total current liabilities.................................. 200,443 231,976
--------- ---------
Long-term liabilities:
Long-term debt, less current portion............................... 45,636 50,534
Advances from affiliates........................................... 483,000 430,000
Advances from stockholders......................................... 268,875 268,875
--------- ---------
Total long-term liabilities................................ 797,511 749,409
--------- ---------
Stockholders' deficit:
Common stock, $10 par value. Authorized 100,000 shares; 240 shares
issued and outstanding.......................................... 2,400 2,400
Additional paid-in capital......................................... 121 121
Accumulated deficit................................................ (698,005) (687,102)
--------- ---------
Total stockholders' deficit..................................... (695,484) (684,581)
--------- ---------
Total liabilities and stockholders' deficit................ $ 302,470 $ 296,804
========= =========
</TABLE>
See accompanying notes to financial statements.
F-78
<PAGE> 143
CAPRICE BLUE QUARRY, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE ELEVEN MONTHS ENDED MAY 31, 1997
<TABLE>
<S> <C>
Net revenues (including revenues to affiliates of $176,562)...................... $ 183,569
Cost of goods sold (including purchases from affiliates of $104,659)............. 418,489
---------
Gross loss....................................................................... (234,920)
Selling and administrative expenses (including fees paid to affiliates of
$4,601)........................................................................ 10,768
---------
Operating loss................................................................... (245,688)
---------
Other (income) expense:
Rent income.................................................................... (2,973)
Interest expense............................................................... 11,992
---------
Total other expense.................................................... 9,019
---------
Net loss......................................................................... (254,707)
Accumulated deficit, July 1, 1996................................................ (443,298)
---------
Accumulated deficit, May 31, 1997................................................ $(698,005)
=========
</TABLE>
See accompanying notes to financial statements.
F-79
<PAGE> 144
CAPRICE BLUE QUARRY, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE TEN MONTHS ENDED APRIL 30, 1997
<TABLE>
<S> <C>
Net revenues (including revenues to affiliates of $160,592)...................... $ 164,197
Cost of goods sold (including purchases from affiliates of $104,292)............. 390,634
---------
Gross loss....................................................................... (226,437)
Selling and administrative expenses (including fees paid to affiliates of
$4,234)........................................................................ 8,636
---------
Operating loss................................................................... (235,073)
---------
Other (income) expense:
Rental income.................................................................. (2,378)
Interest expense............................................................... 11,109
---------
Total other expense.................................................... 8,731
---------
Net loss......................................................................... (243,804)
Accumulated deficit, July 1, 1996................................................ (443,298)
---------
Accumulated deficit, April 30, 1997.............................................. $(687,102)
=========
</TABLE>
See accompanying notes to financial statements.
F-80
<PAGE> 145
CAPRICE BLUE QUARRY, INC.
STATEMENT OF CASH FLOWS
FOR THE ELEVEN MONTHS ENDED MAY 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss....................................................................... $(254,707)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation................................................................ 21,303
Depletion................................................................... 9,651
(Increase) decrease in assets:
Trade receivables......................................................... (7,126)
Employee receivables...................................................... (533)
Advances to affiliates.................................................... (2,973)
Inventory................................................................. (13,550)
Prepaid expenses.......................................................... 790
Increase (decrease) in liabilities:
Accounts payable.......................................................... 78,718
Accrued expenses.......................................................... 1,758
---------
Net cash used in operating activities.................................. (166,669)
---------
Cash flows used in investing activities -- purchases of machinery and
equipment...................................................................... (21,586)
---------
Cash flows from financing activities:
Payments on notes payable...................................................... (45,577)
Advances from affiliates....................................................... 234,000
---------
Net cash provided by financing activities.............................. 188,423
---------
Net increase in cash............................................................. 168
Cash, July 1, 1996............................................................... 1,357
---------
Cash, May 31, 1997............................................................... $ 1,525
=========
Supplemental disclosure of cash flow information -- cash paid for interest....... $ 11,992
=========
</TABLE>
See accompanying notes to financial statements.
F-81
<PAGE> 146
CAPRICE BLUE QUARRY, INC.
STATEMENT OF CASH FLOWS
FOR THE TEN MONTHS ENDED APRIL 30, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss....................................................................... $(243,804)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation................................................................ 19,824
Depletion................................................................... 8,588
(Increase) decrease in assets:
Trade receivables......................................................... (2,407)
Employee receivables...................................................... (683)
Advances to affiliates.................................................... (2,378)
Inventory................................................................. (10,022)
Prepaid expenses.......................................................... (850)
Increase (decrease) in liabilities:
Accounts payable.......................................................... 104,708
Accrued expenses.......................................................... 2,170
---------
Net cash used in operating activities.................................. (124,854)
---------
Cash flows from investing activities -- purchases of fixed assets................ (21,586)
---------
Cash flows from financing activities:
Increase in bank overdraft..................................................... 5,616
Payments on notes payable...................................................... (41,163)
Advances from affiliates....................................................... 181,000
---------
Net cash provided by financing activities.............................. 145,453
---------
Net decrease in cash............................................................. (987)
Cash, July 1, 1996............................................................... 1,357
---------
Cash, April 30, 1997............................................................. $ 370
=========
Supplemental disclosure of cash flow information -- cash paid for interest....... $ 11,109
=========
</TABLE>
See accompanying notes to financial statements.
F-82
<PAGE> 147
CAPRICE BLUE QUARRY, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997 AND APRIL 30, 1997
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented
to assist in understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management, who is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
Nature of Business
The Company quarries granite blocks in northeast Georgia for sale to
customers nationwide.
Use of Estimates
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Basis of Accounting
Assets, liabilities, revenues, and expenses are recognized on the accrual
method of accounting.
Inventory
Inventories are stated at lower of cost or market with cost being
determined using average cost.
Revenue Recognition
Revenue is recognized upon shipment of goods.
Property and Equipment
Property and equipment are stated at acquisition cost. Depreciation is
computed under the accelerated method for financial reporting purposes over the
following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Vehicles.............................................. 3-7
Machinery and equipment............................... 3-10
</TABLE>
Major renewals and betterments are added to the property accounts while
maintenance and repairs are charged against earnings as incurred.
Intangibles
Intangibles consist of mineral rights which are depleted using cost
depletion.
Income Taxes
The Company with the consent of its stockholders has elected to be an "S"
Corporation under the Internal Revenue Code. Instead of paying corporate income
taxes the stockholders of an "S" Corporation are
See accountants' report.
F-83
<PAGE> 148
CAPRICE BLUE QUARRY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
taxed individually on their proportionate share of the Company's taxable income.
Therefore, no provision or liability for federal income taxes has been included
in these financial statements.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. The fair
value of the Company's assets approximates the carrying cost at the balance
sheet dates.
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
--------- ---------
<S> <C> <C>
Land................................................. $ 43,000 $ 43,000
Vehicles............................................. 18,635 18,635
Machinery and equipment.............................. 318,087 318,087
--------- ---------
379,722 379,722
Accumulated depreciation............................. (297,824) (296,346)
--------- ---------
$ 81,898 $ 83,376
========= =========
</TABLE>
Depreciation expense for the eleven months ended May 31, 1997 was $21,303.
Depreciation expense for the ten months ended April 30, 1997 was $19,825.
NOTE C -- INTANGIBLES
Intangibles consist of the following:
<TABLE>
<CAPTION>
APRIL
MAY 31, 30,
1997 1997
-------- --------
<S> <C> <C>
Mineral rights......................................... $240,000 $240,000
Accumulated depletion.................................. (71,897) (70,834)
-------- --------
$168,103 $169,166
======== ========
</TABLE>
Depletion expense for the eleven months ended May 31, 1997 was $9,651.
Depletion expense for the ten months ended April 30, 1997 was $8,588.
See accountants' report.
F-84
<PAGE> 149
CAPRICE BLUE QUARRY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- NOTES PAYABLE
Notes payable are as follows:
<TABLE>
<CAPTION>
APRIL
MAY 31, 30,
1997 1997
-------- --------
<S> <C> <C>
Bank loan, payable $5,297 monthly (principal and
interest at 10 1/2%) with a maturity date of February
1999; the loan is secured by the Company's
inventory............................................ $101,397 $105,811
Current portion........................................ (55,761) (55,277)
-------- --------
$ 45,636 $ 50,534
======== ========
</TABLE>
The following is a schedule of maturities of notes payable at May 31, 1997
and April 30, 1997:
<TABLE>
<CAPTION>
APRIL
MAY 31, 30,
1997 1997
-------- --------
<S> <C> <C>
1998................................................... $ 55,761 $ 55,277
1999................................................... 45,636 50,534
-------- --------
$101,397 $105,811
======== ========
</TABLE>
NOTE E -- RELATED-PARTY TRANSACTIONS
The Company is affiliated with numerous other companies through common
control and stock ownership. The stockholders and other joint venture companies
have made unsecured non-interest bearing advances to the Company for working
capital purposes.
The Company classifies advances payable to affiliates as long-term based
upon the intent of the parties.
NOTE F -- CONCENTRATION OF CREDIT RISK
All of the Company's cash funds are located in financial institutions that
are insured by the FDIC for up to $100,000. There are no amounts in excess of
this limit at May 31, 1997 and April 30, 1997.
NOTE G -- SUBSEQUENT EVENT
Subsequent to the date of these financial statements, the Company joined in
a merger with its affiliates and other unrelated granite companies. As of the
effective date of the merger, the Company's election to be an "S" corporation
under the Internal Revenue Code will terminate.
NOTE H -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held
for trading purposes. The Company estimates that the fair value of all financial
instruments at May 31, 1997 and April 30, 1997, does not differ materially from
the aggregate carrying values of its financial instruments recorded in the
accompanying balance sheets. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. Considerable judgment is necessarily required in
interpreting market data to develop the estimates of fair value, and
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.
See accountants' report.
F-85
<PAGE> 150
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS
To the Board of Directors
Autumn Rose Quarry, Inc.
Ada, Oklahoma
We have audited the accompanying balance sheets of Autumn Rose Quarry, Inc.
as of May 31, 1997 and April 30, 1997, and the related statements of operations
and accumulated deficit, and cash flows for the eleven months and ten months
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to in the first paragraph
present fairly, in all material respects, the financial position of Autumn Rose
Quarry, Inc. as of May 31, 1997 and April 30, 1997, and the results of its
operations and its cash flows for the eleven months and ten months then ended in
conformity with generally accepted accounting principles.
/s/ GREENE AND COMPANY, L.L.P.
--------------------------------------
GREENE AND COMPANY, L.L.P.
Anderson, South Carolina
July 22, 1997
F-86
<PAGE> 151
AUTUMN ROSE QUARRY, INC.
BALANCE SHEETS
MAY 31, 1997 AND APRIL 30, 1997
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................................. $ 8,291 $ 4,864
Trade receivables................................................. 8,535 19,456
Trade receivables -- affiliates................................... 22,830 18,943
Employee receivables.............................................. 155 280
Inventory -- finished goods....................................... 45,602 45,094
Prepaid expenses.................................................. 0 3,063
---------- ----------
Total current assets...................................... 85,413 91,700
---------- ----------
Property and equipment, net......................................... 174,066 176,757
---------- ----------
Other assets:
Intangibles, net.................................................. 1,351,362 1,352,081
Deposits.......................................................... 5,280 5,280
---------- ----------
Total other assets............................................. 1,356,642 1,357,361
---------- ----------
Total assets.............................................. $1,616,121 $1,625,818
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.................................................. $ 207 $ 7,707
Accounts payable -- due to affiliates............................. 8,923 8,238
Accrued expenses.................................................. 5,525 5,096
Current portion of long-term debt................................. 157,029 157,029
---------- ----------
Total current liabilities................................. 171,684 178,070
---------- ----------
Long-term liabilities:
Long-term debt, less current portion.............................. 505,681 521,690
Advances from affiliates.......................................... 605,500 591,000
Advances from stockholders........................................ 400,000 400,000
---------- ----------
Total long-term liabilities............................... 1,511,181 1,512,690
---------- ----------
Stockholders' deficit:
Common stock, $100 par value. Authorized 1,000,000 shares; 60
shares issued and outstanding.................................. 6,000 6,000
Additional paid-in capital........................................ 44,000 44,000
Accumulated deficit............................................... (116,744) (114,942)
---------- ----------
Total stockholders' deficit.................................... (66,744) (64,942)
---------- ----------
Total liabilities and stockholders' deficit............... $1,616,121 $1,625,818
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-87
<PAGE> 152
AUTUMN ROSE QUARRY, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE ELEVEN MONTHS ENDED MAY 31, 1997
<TABLE>
<S> <C>
Net revenues (including revenues to affiliates of $168,059)...................... $ 325,533
Cost of goods sold............................................................... 354,800
---------
Gross loss....................................................................... (29,267)
Selling and administrative expenses (including fees paid to affiliates of
$3,685)........................................................................ 25,392
---------
Operating loss................................................................... (54,659)
---------
Other (income) expense:
Interest expense............................................................... 21,249
Loss on disposal of equipment.................................................. 2,930
Finance charge income.......................................................... (313)
---------
Total other expense.................................................... 23,866
---------
Net loss......................................................................... (78,525)
Accumulated deficit, July 1, 1996................................................ (38,219)
---------
Accumulated deficit, May 31, 1997................................................ $(116,744)
=========
</TABLE>
See accompanying notes to financial statements.
F-88
<PAGE> 153
AUTUMN ROSE QUARRY, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE TEN MONTHS ENDED APRIL 30, 1997
<TABLE>
<S> <C>
Net revenues (including revenues to affiliates of $149,426)...................... $ 294,495
Cost of goods sold............................................................... 325,502
---------
Gross loss....................................................................... (31,007)
Selling and administrative expenses (including fees paid to affiliates of
$3,318)........................................................................ 23,589
---------
Operating loss................................................................... (54,596)
---------
Other (income) expense:
Interest expense............................................................... 19,482
Loss on disposal of equipment.................................................. 2,930
Finance charge income.......................................................... (285)
---------
Total other expense.................................................... 22,127
---------
Net loss......................................................................... (76,723)
Accumulated deficit, July 1, 1996................................................ (38,219)
---------
Accumulated deficit, April 30, 1997.............................................. $(114,942)
=========
</TABLE>
See accompanying notes to financial statements.
F-89
<PAGE> 154
AUTUMN ROSE QUARRY, INC.
STATEMENT OF CASH FLOWS
FOR THE ELEVEN MONTHS ENDED MAY 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss....................................................................... $ (78,525)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization................................................................ 4,392
Depreciation................................................................ 29,503
Depletion................................................................... 3,360
Loss on disposal of equipment............................................... 2,930
(Increase) decrease in assets:
Trade receivables......................................................... (24,520)
Employee receivables...................................................... 1,175
Deposits.................................................................. 1,692
Inventory................................................................. 7,253
Prepaid expenses.......................................................... 10,903
Increase (decrease) in liabilities:
Accounts payable.......................................................... (28,356)
Accrued expenses.......................................................... 3,972
---------
Net cash used in operating activities.................................. (66,221)
---------
Cash flows from financing activities:
Payments on notes payable...................................................... (146,409)
Advances from affiliates....................................................... 217,500
---------
Net cash provided by financing activities.............................. 71,091
---------
Net increase in cash............................................................. 4,870
Cash, July 1, 1996............................................................... 3,421
---------
Cash, May 31, 1997............................................................... $ 8,291
=========
Supplemental disclosure of cash flow information -- cash paid for interest....... $ 21,249
=========
</TABLE>
See accompanying notes to financial statements.
F-90
<PAGE> 155
AUTUMN ROSE QUARRY, INC.
STATEMENT OF CASH FLOWS
FOR THE TEN MONTHS ENDED APRIL 30, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss....................................................................... $ (76,723)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization................................................................ 3,993
Depreciation................................................................ 26,814
Depletion................................................................... 3,039
Loss on disposal of equipment............................................... 2,930
(Increase) decrease in assets:
Trade receivables......................................................... (31,554)
Employee receivables...................................................... 1,050
Deposits.................................................................. 1,692
Inventory................................................................. 7,761
Prepaid expenses.......................................................... 7,840
Increase (decrease) in liabilities:
Accounts payable.......................................................... (21,542)
Accrued expenses.......................................................... 3,543
---------
Net cash used in operating activities.................................. (71,157)
---------
Cash flows from financing activities:
Payments on notes payable...................................................... (130,400)
Advances from affiliates....................................................... 203,000
---------
Net cash provided by financing activities.............................. 72,600
---------
Net increase in cash............................................................. 1,443
Cash, July 1, 1996............................................................... 3,421
---------
Cash, April 30, 1997............................................................. $ 4,864
=========
Supplemental disclosure of cash flow information -- cash paid for interest....... $ 19,482
=========
</TABLE>
See accompanying notes to financial statements.
F-91
<PAGE> 156
AUTUMN ROSE QUARRY, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997 AND APRIL 30, 1997
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented
to assist in understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management, who is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
Nature of Business
The Company quarries granite blocks in northeast Oklahoma for sales to
customers nationwide.
Use of Estimates
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Basis of Accounting
Assets, liabilities, revenues, and expenses are recognized on the accrual
method of accounting.
Inventory
Inventories are stated at lower of cost or market, with cost determined
using average cost.
Revenue Recognition
Revenue is recognized upon shipment of goods.
Property and Equipment
Property and equipment are stated at acquisition cost. Depreciation is
computed under the straight-line method for financial reporting purposes over
the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings............................................. 7
Vehicles.............................................. 3-7
Machinery and equipment............................... 3-10
</TABLE>
Major renewals and betterments are added to the property accounts while
maintenance and repairs are charged against earnings as incurred.
Intangibles
Intangibles consist of loan costs, mineral rights, and overburden removal.
Amortization of the loan costs is computed using the straight-line method over
the term of the loan which is five years. Amortization of
See accountants' report.
F-92
<PAGE> 157
AUTUMN ROSE QUARRY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
overburden removal is computed using the straight-line method over ten years.
Depletion of mineral rights is computed using cost depletion.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. The fair
value of the Company's assets approximates the carrying cost at the balance
sheet dates.
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
APRIL
MAY 31, 30,
1997 1997
-------- --------
<S> <C> <C>
Land................................................... $ 40,000 $ 40,000
Buildings.............................................. 5,536 5,536
Machinery and equipment................................ 196,773 196,773
Vehicles............................................... 2,613 2,613
-------- --------
244,922 244,922
Accumulated depreciation............................... (70,856) (68,165)
-------- --------
$174,066 $176,757
======== ========
</TABLE>
Depreciation expense for the eleven months ended May 31, 1997 was $29,503.
Depreciation expense for the ten months ended April 30, 1997 was $26,814.
NOTE C -- INTANGIBLES
Intangibles consist of the following:
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
---------- ----------
<S> <C> <C>
Loan costs.......................................... $ 2,709 $ 2,709
Mineral rights...................................... 1,327,500 1,327,500
Overburden removal.................................. 42,500 42,500
---------- ----------
1,372,709 1,372,709
Accumulated amortization and depletion.............. (21,347) (20,628)
---------- ----------
$1,351,362 $1,352,081
========== ==========
</TABLE>
See accountants' report.
F-93
<PAGE> 158
AUTUMN ROSE QUARRY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- INTANGIBLES -- (CONTINUED)
Amortization and depletion expense for the eleven months ended May 31, 1997
were $4,392 and $3,360, respectively.
Amortization and depletion expense for the ten months ended April 30, 1997
were $3,993 and $3,039, respectively.
NOTE D -- NOTES PAYABLE
Notes payable are as follows:
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
--------- ---------
<S> <C> <C>
Bank loan, payable $5,833 principal monthly plus
9 1/2% interest with a maturity date of June 2000;
the mortgage balance is secured by substantially
all of the Company's assets and guarantees by the
shareholders. ..................................... $ 210,000 $ 215,833
Note to corporation to be paid with granite
inventory. Sales price set at $14.50 per cubic foot
per agreement of purchase and sale. ............... 452,710 462,886
--------- ---------
662,710 678,719
Current portion...................................... (157,029) (157,029)
--------- ---------
$ 505,681 $ 521,690
========= =========
</TABLE>
The following is a schedule of maturities of notes payable:
<TABLE>
<CAPTION>
APRIL
MAY 31, 30,
1997 1997
-------- --------
<S> <C> <C>
1998................................................... $157,029 $157,029
1999................................................... 162,862 162,862
2000................................................... 162,862 162,862
2001................................................... 98,696 104,529
2002................................................... 81,261 91,437
-------- --------
$662,710 $678,719
======== ========
</TABLE>
NOTE E -- RELATED-PARTY TRANSACTIONS
The Company is affiliated with numerous other companies through common
control and stock ownership. The stockholders and other joint venture companies
have made unsecured non-interest bearing advances to the Company for working
capital purposes.
The Company classifies advances payable to affiliates as long-term based
upon the intent of the parties.
NOTE F -- CONCENTRATION OF CREDIT RISK
All of the Company's cash funds are located in financial institutions that
are insured by the FDIC for up to $100,000. There are no amounts in excess of
this limit at May 31, 1997 and April 30, 1997.
See accountants' report.
F-94
<PAGE> 159
AUTUMN ROSE QUARRY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- SUBSEQUENT EVENTS
Subsequent to the date of these financial statements, the Company joined in
a merger with its affiliates and other unrelated granite companies.
NOTE H -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held
for trading purposes. The Company estimates that the fair value of all financial
instruments at May 31, 1997 and April 30, 1997, does not differ materially from
the aggregate carrying values of its financial instruments recorded in the
accompanying balance sheets. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. Considerable judgment is necessarily required in
interpreting market data to develop the estimates of fair value, and
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.
NOTE I -- INCOME TAXES
The Company is taxed as a corporation under the Internal Revenue Code. For
federal income tax purposes, approximately $430,727 of net operating loss
carryforwards exist to offset future taxable income. These carryforwards begin
to expire in 2009. No tax benefit has been reported in the accompanying
financial statements, however, because the Company believes that the
carryforwards will expire unused. Accordingly, the $146,000 tax benefit of the
cumulative carryforwards has been offset by evaluation allowance of the same
amount.
See accountants' report.
F-95
<PAGE> 160
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS
To the Board of Directors
Southern Mausoleums, Inc.
Elberton, Georgia
We have audited the accompanying balance sheets of Southern Mausoleums,
Inc. (an "S" corporation) as of May 31, 1997 and April 30, 1997, and the related
statements of operations and accumulated deficit, and cash flows for the eleven
months and ten months then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to in the first paragraph
present fairly, in all material respects, the financial position of Southern
Mausoleums, Inc. as of May 31, 1997 and April 30, 1997, and the results of its
operations and its cash flows for the eleven months and ten months then ended in
conformity with generally accepted accounting principles.
/s/ GREENE AND COMPANY, L.L.P.
--------------------------------------
GREENE AND COMPANY, L.L.P.
Anderson, South Carolina
July 22, 1997
F-96
<PAGE> 161
SOUTHERN MAUSOLEUMS, INC.
BALANCE SHEETS
MAY 31, 1997 AND APRIL 30, 1997
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 223,242 $ 237,934
Cash -- restricted................................................. 7,115 6,265
Trade receivables (less allowance for doubtful accounts of $25,539
and $25,162).................................................... 26,443 32,529
Trade receivables -- affiliates.................................... 42,576 40,613
Inventory.......................................................... 302,272 280,759
Prepaid expenses................................................... 9,649 12,306
--------- ---------
Total current assets....................................... 611,297 610,406
--------- ---------
Property and equipment, net.......................................... 270,445 274,355
--------- ---------
Other assets:
Intangibles, net................................................... 2,088 2,152
Deposits........................................................... 3,885 3,885
Advances to affiliates............................................. 12,096 12,096
--------- ---------
Total other assets.............................................. 18,069 18,133
--------- ---------
Total assets............................................... $ 899,811 $ 902,894
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................................... $ 45,159 $ 49,234
Accrued expenses................................................... 19,478 25,084
Current portion of long-term debt.................................. 157,068 156,267
Customer deposits.................................................. 365,849 402,337
--------- ---------
Total current liabilities.................................. 587,554 632,922
--------- ---------
Long-term liabilities:
Long-term debt, less current portion............................... 271,588 280,472
Advances from affiliates........................................... 36,489 36,489
Accounts payable -- affiliates..................................... 252,154 258,776
Advances from stockholders......................................... 30,011 30,011
--------- ---------
Total long-term liabilities................................ 590,242 605,748
--------- ---------
Stockholders' deficit:
Common stock, $10 par value. Authorized 100,000 shares; 120 shares
issued and outstanding.......................................... 1,200 1,200
Accumulated deficit................................................ (279,185) (336,976)
--------- ---------
Total stockholders' deficit..................................... (277,985) (335,776)
--------- ---------
Total liabilities and stockholders' deficit................ $ 899,811 $ 902,894
========= =========
</TABLE>
See accompanying notes to financial statements.
F-97
<PAGE> 162
SOUTHERN MAUSOLEUMS, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE ELEVEN MONTHS ENDED MAY 31, 1997
<TABLE>
<S> <C>
Net revenues (including revenues to affiliates of $47,912)....................... $1,225,396
Cost of goods sold (including purchases from affiliates of $261,501)............. 981,273
----------
Gross profit..................................................................... 244,123
Selling and administrative expenses (reduced by fees charged to affiliates of
$63,565)....................................................................... 80,993
----------
Operating income................................................................. 163,130
----------
Other (income) expense:
Interest expense............................................................... 40,640
Finance charge income.......................................................... (1,482)
Interest income................................................................ (2,213)
----------
Total other expense.................................................... 36,945
----------
Net income....................................................................... 126,185
Accumulated deficit, July 1, 1996................................................ (405,370)
----------
Accumulated deficit, May 31, 1997................................................ $ (279,185)
==========
</TABLE>
See accompanying notes to financial statements.
F-98
<PAGE> 163
SOUTHERN MAUSOLEUMS, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE TEN MONTHS ENDED APRIL 30, 1997
<TABLE>
<S> <C>
Net revenues (including revenues to affiliates of $46,368)....................... $1,073,646
Cost of goods sold (including purchases from affiliates of $232,842)............. 899,395
----------
Gross profit..................................................................... 174,251
Selling and administrative expenses (reduced by fees charged to affiliates of
$57,319)....................................................................... 71,471
----------
Operating income................................................................. 102,780
----------
Other (income) expense:
Interest expense............................................................... 37,135
Finance charge income.......................................................... (760)
Interest income................................................................ (1,989)
----------
Total other expense.................................................... 34,386
----------
Net income....................................................................... 68,394
Accumulated deficit, July 1, 1996................................................ (405,370)
----------
Accumulated deficit, April 30, 1997.............................................. $ (336,976)
==========
</TABLE>
See accompanying notes to financial statements.
F-99
<PAGE> 164
SOUTHERN MAUSOLEUMS, INC.
STATEMENT OF CASH FLOWS
FOR THE ELEVEN MONTHS ENDED MAY 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income..................................................................... $ 126,185
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization................................................................ 696
Depreciation................................................................ 51,724
(Increase) decrease in assets:
Trade receivables......................................................... 7,304
Related party receivables................................................. (10,596)
Inventory................................................................. (102,264)
Prepaid expenses.......................................................... 1,744
Increase (decrease) in liabilities:
Accounts payable.......................................................... (42,662)
Accrued expenses.......................................................... 22,799
Customer deposits......................................................... 224,367
---------
Net cash provided by operating activities.............................. 279,297
---------
Cash flows used in investing activities -- purchase of property and equipment.... (1,628)
---------
Cash flows from financing activities:
Payments on notes payable...................................................... (78,282)
Loan proceeds.................................................................. 5,000
---------
Net cash used in financing activities.................................. (73,282)
---------
Net increase in cash and cash equivalents........................................ 204,387
Cash and cash equivalents, July 1, 1996.......................................... 25,970
---------
Cash and cash equivalents, May 31, 1997.......................................... $ 230,357
=========
Supplemental disclosure of cash flow information -- cash paid for interest....... $ 41,262
=========
</TABLE>
See accompanying notes to financial statements.
F-100
<PAGE> 165
SOUTHERN MAUSOLEUMS, INC.
STATEMENT OF CASH FLOWS
FOR THE TEN MONTHS ENDED APRIL 30, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income...................................................................... $ 68,394
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization................................................................. 633
Depreciation................................................................. 47,814
(Increase) decrease in assets:
Trade receivables.......................................................... 3,181
Related party receivables.................................................. (10,596)
Inventory.................................................................. (80,754)
Prepaid expenses........................................................... (913)
Increase (decrease) in liabilities:
Accounts payable........................................................... (46,347)
Accrued expenses........................................................... 42,789
Customer deposits.......................................................... 260,855
--------
Net cash provided by operating activities............................... 285,056
--------
Cash flows used in investing activities -- purchase of property and equipment..... (1,628)
--------
Cash flows from financing activities:
Payments on notes payable....................................................... (70,199)
Loan proceeds................................................................... 5,000
--------
Net cash used in financing activities................................... (65,199)
--------
Net increase in cash and cash equivalents......................................... 218,229
Cash and cash equivalents, July 1, 1996........................................... 25,970
--------
Cash and cash equivalents, April 30, 1997......................................... $244,199
========
Supplemental disclosure of cash flow information -- cash paid for interest........ $ 38,243
========
</TABLE>
See accompanying notes to financial statements.
F-101
<PAGE> 166
SOUTHERN MAUSOLEUMS, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997 AND APRIL 30, 1997
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented
to assist in understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management, who is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
Nature of Business
The Company saws and polishes granite into dimensional blocks for mausoleum
assembly at a plant located in northeast Georgia. The completed mausoleums are
sold nationwide.
Use of Estimates
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Basis of Accounting
Assets, liabilities, revenues, and expenses are recognized on the accrual
method of accounting.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents. The Company has a money market account in the amount of
$179,767 at May 31, 1997 and $104,543 at April 30, 1997.
Trade Receivables
The Company accounts for uncollectible trade receivables on the reserve
method.
Inventory
Inventories are stated at lower of cost or market, with cost determined as
follows:
<TABLE>
<S> <C>
Finished goods....................... First-in first-out (FIFO) method
Materials and work in process........ Average cost
</TABLE>
Revenue Recognition
Revenue is recognized upon shipment of goods.
See accountants' report.
F-102
<PAGE> 167
SOUTHERN MAUSOLEUMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Property and Equipment
Property and equipment are stated at acquisition cost. Depreciation is
computed under the straight-line method for financial reporting purposes over
the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Buildings........................................................... 31 1/2
Building improvements............................................... 31 1/2
Vehicles............................................................ 5
Machinery and equipment............................................. 2 1/2 - 7
Office fixtures and equipment....................................... 7
</TABLE>
Major renewals and betterments are added to the property accounts while
maintenance and repairs are charged against earnings as incurred.
Intangibles
Intangibles consist of start-up costs and loan costs. Amortization of the
intangibles is computed using the straight-line method over terms ranging from
five years for start-up costs to six years for loan costs.
Income Taxes
The Company with the consent of its stockholders has elected to be an "S"
Corporation under the Internal Revenue Code. Instead of paying corporate income
taxes the stockholders of an "S" Corporation are taxed individually on their
proportionate share of the Company's taxable income. Therefore, no provision or
liability for federal income taxes has been included in these financial
statements.
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
--------- ---------
<S> <C> <C>
Land................................................. $ 20,105 $ 20,105
Land improvements.................................... 7,180 7,180
Buildings............................................ 180,945 180,945
Building improvements................................ 11,904 11,904
Vehicles............................................. 3,208 3,208
Machinery and equipment.............................. 342,559 342,559
Office fixtures and equipment........................ 41,119 41,119
--------- ---------
607,020 607,020
Accumulated depreciation............................. (336,575) (332,665)
--------- ---------
$ 270,445 $ 274,355
========= =========
</TABLE>
Depreciation expense for the eleven months ended May 31, 1997 was $51,724.
Depreciation expense for the ten months ended April 30, 1997 was $47,814.
See accountants' report.
F-103
<PAGE> 168
SOUTHERN MAUSOLEUMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- NOTES PAYABLE
Notes payable are as follows:
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
--------- ---------
<S> <C> <C>
Bank loan, payable $11,100 monthly (principal and
interest at prime + 1%) with a maturity date of
February 2000; the mortgage balance is secured by
substantially all of the Company's assets and
guarantees by the stockholders. ................... $ 373,656 $ 381,739
Individual, payable on demand at 10% interest.
Principal and accrued interest were paid in full on
June 27, 1997. .................................... 55,000 55,000
--------- ---------
428,656 436,739
Current portion...................................... (157,068) (156,267)
--------- ---------
$ 271,588 $ 280,472
========= =========
</TABLE>
The following is a schedule of maturities of notes payable due as of:
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
-------- ---------
<S> <C> <C>
1998........................................... $157,068 $ 156,267
1999........................................... 112,200 111,320
2000........................................... 159,388 169,152
-------- --------
$428,656 $ 436,739
======== ========
</TABLE>
NOTE D -- RELATED-PARTY TRANSACTIONS
The Company is affiliated with numerous other companies through common
control and stock ownership. The stockholders and other joint venture companies
have made unsecured non-interest bearing advances to the Company for working
capital purposes.
Accounts payable to affiliates are classified as long-term liabilities
based upon the intent of the related parties.
NOTE E -- CONCENTRATION OF CREDIT RISK
The Company's cash is located in a single financial institution. Cash
accounts are insured by the FDIC for up to $100,000. Amounts in excess of
insured limits were approximately $79,767 at May 31, 1997 and $57,391 at April
30, 1997.
Sales to a major customer represented 44% of total revenues for both the
eleven and ten months ended May 31, 1997 and April 30, 1997. There were no
outstanding trade accounts receivable from the Company's major customer at May
31, 1997 and April 30, 1997.
NOTE F -- SUBSEQUENT EVENTS
Subsequent to the date of these financial statements, the Company joined in
a merger with its affiliates and other unrelated granite companies. As of the
effective date of the merger, the Company's election to be an "S" corporation
under the Internal Revenue Code will terminate.
See accountants' report.
F-104
<PAGE> 169
SOUTHERN MAUSOLEUMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- RESTRICTED CASH
Restricted cash balances at May 31, 1997 and April 30, 1997 were $7,115 and
$6,265, respectively. These cash balances are employee savings accounts and are
restricted for that purpose.
NOTE H -- INVENTORY
Inventory consisted of the following as of:
<TABLE>
<CAPTION>
MAY 31, APRIL 30,
1997 1997
-------- ---------
<S> <C> <C>
Materials.............................................. $165,858 $ 154,169
Work in process........................................ 76,836 71,303
Finished goods......................................... 59,578 55,287
-------- --------
$302,272 $ 280,759
======== ========
</TABLE>
NOTE I -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held
for trading purposes. The Company estimates that the fair value of all financial
instruments at May 31, 1997 and April 30, 1997, does not differ materially from
the aggregate carrying values of its financial instruments recorded in the
accompanying balance sheets. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. Considerable judgment is necessarily required in
interpreting market data to develop the estimates of fair value, and
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.
See accountants' report.
F-105
<PAGE> 170
DESCRIPTION OF ARTWORK ON INSIDE BACK COVER:
[Map showing locations of Independent Retailers of Rock of Ages products,
Manufacturing locations, Quarry locations and Corporate headquarters.]
<PAGE> 171
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THOSE SPECIFICALLY OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 8
Use of Proceeds..................... 14
Dividend Policy..................... 14
Capitalization...................... 15
Dilution............................ 16
Selected Consolidated Financial
Data.............................. 17
Unaudited Pro Forma Combined and
Condensed Financial Data.......... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 24
The Death Care Industry and Granite
Memorialization................... 29
Business............................ 32
Management.......................... 42
Certain Relationships and Related
Transactions...................... 49
Principal and Selling
Stockholders...................... 52
Description of Capital Stock........ 54
Shares Eligible for Future Sale..... 57
Certain United States Tax
Consequences to Non-United States
Holders........................... 59
Underwriting........................ 61
Legal Matters....................... 62
Experts............................. 62
Available Information............... 63
Index to Financial Statements....... F-1
</TABLE>
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A
COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION
OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
2,900,000 SHARES
LOGO
ROCK OF AGES CORPORATION
COMMON STOCK
---------------------
PROSPECTUS
---------------------
RAYMOND JAMES &
ASSOCIATES, INC.
, 1997
======================================================
<PAGE> 172
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate (except for the Securities and Exchange
Commission Registration Fee) of the fees and expenses all of which are payable
by the Company, other than any underwriting discounts and commissions, in
connection with the registration and sale of the securities being registered:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee...................... $ 18,191
National Association of Securities Dealers, Inc. Filing Fee.............. 6,200
Nasdaq National Market Listing Fee....................................... 20,000
Transfer Agent and Registrar Fees and Expenses........................... 10,000
Blue Sky Fees and Expenses............................................... 5,000
Legal Fees and Expenses.................................................. 700,000
Accounting Fees and Expenses............................................. 550,000
Printing, Engraving and Mailing Expenses................................. 150,000
Miscellaneous............................................................ 40,609
----------
Total.......................................................... $1,500,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102 of the Delaware General Corporation Law, as amended, allows a
corporation to eliminate the personal liability of directors of a corporation to
the corporation or its stockholders for monetary damages for a breach of
fiduciary duty as a director, except where the director breached his duty of
loyalty, failed to act in good faith, engaged in intentional misconduct or
knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of Delaware corporate law or obtained an improper
personal benefit.
Section 145 of the Delaware General Corporation Law, as amended, provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation), by reason of the
fact that he is or was a director, officer, employee or agent of the corporation
or is or was serving at its request in such capacity in another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
Article Ninth of the Registrant's Amended and Restated Certificate of
Incorporation provides for elimination of directors' personal liability and
indemnification as follows:
"(Nine) No director shall be personally liable to the Corporation or
any of its stockholders for monetary damages for breach of fiduciary duty
as a director, except to the extent such exemption from liability or
limitation thereto is not permitted under the DGCL as the same exists or
may hereafter be amended. If the DGCL is amended hereafter to authorize the
further elimination or limitation of the liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited
to the fullest extent authorized by the DGCL, as so amended. Any repeal or
modification of this Article NINTH shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such
repeal or modification with respect to acts or omissions occurring prior to
such repeal or modification."
II-1
<PAGE> 173
In addition, Article VIII of the By-Laws of the Registrant provides for
indemnification of officers and directors of the Company and certain other
persons against liabilities and expenses incurred by any of them in certain
stated proceedings and under certain stated conditions.
Section 9 of the Underwriting Agreement between the Company and the
Representative provides for indemnification by the Company of the
Representative, the Underwriters and each person, if any, who controls the
Representative or any Underwriter, against certain liabilities under the
Securities Act. The Underwriting Agreement also provides that the Representative
and the Underwriters shall similarly indemnify the Company, its directors,
officers, and controlling person, as set forth therein.
The Registrant has purchased directors' and officers' liability insurance
which would indemnify the directors and officers of the Company against damages
arising out of certain kinds of claims which might be made against them based on
their negligent acts or omissions while acting in their capacity as such.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information is furnished with regard to all securities sold
by the Company within the past three years which were not registered under the
Securities Act.
1. As of June 27, 1997, Rock of Ages Quarries, Inc., a predecessor of the
Company ("ROAQ"), and Royalty Granite Corporation, a wholly owned subsidiary of
the Company, entered into an Agreement and Plan of Reorganization (the "Keystone
Agreement") with KSGM, Inc. ("KSGM") and Missouri Red Quarries, Inc. ("Missouri
Red") pursuant to which, effective June 28, 1997, KSGM was merged with and into
Rock of Ages Corporation, a Vermont corporation and the immediate predecessor of
the Company ("ROA Vermont"), and all outstanding shares of capital stock of KSGM
were converted into 526,882 shares (263,441 shares after giving effect to the
1-for-2 reverse stock pursuant to the merger of ROA Vermont with and into the
Company as described in 5. below) of common stock of ROA Vermont, which shares
were issued to Missouri Red, as the sole stockholder of KSGM (the "Keystone
Merger Shares"). The issuance of the Keystone Merger Shares was not registered
under the Securities Act in reliance on the exemption provided by Section 4(2)
thereof as a transaction by an issuer not involving any public offering in that
(i) the Keystone Merger Shares were issued to a single entity (Missouri Red)
that, at the time of entering into the Keystone Agreement, represented to the
Company that it was an "accredited investor" and that it was acquiring the
Keystone Merger Shares solely for investment for its own account and not with a
view toward the resale or distribution thereof, (ii) at that time the Company
provided written disclosure to Missouri Red stating, and Missouri Red
acknowledged, that the Keystone Merger Shares were not registered under the Act
and would be subject to certain restrictions on transfer, (iii) the Company
placed a restricted share legend to such effect on the certificates representing
the Keystone Merger Shares and (iv) the Company did not engage in any general
solicitation or advertising in connection with entering into the Keystone
Agreement.
2. As of June 27, 1997, ROAQ entered into a Stock Purchase Agreement with
Robert Otis Childs, Jr., Robert Otis Childs, III, and Timothy Carroll Childs
(the "C&C Agreement"), pursuant to which the Company will issue to Robert Otis
Childs, III, contemporaneously with the consummation of the offering, $200,000
in shares of Class A Common Stock (valued at the initial public offering price
per share) (the "Childs Shares") as a portion of the consideration payable in
connection with the C&C Acquisition. The issuance of the Childs Shares will not
be registered under the Securities Act in reliance on the exemption provided by
Section 4(2) thereof as a transaction by an issuer not involving any public
offering in that (i) the Childs Shares will be issued to a single investor who,
at the time of entering into the C&C Agreement, represented to the Company that
he was an "accredited investor" and that he would be acquiring the Childs Shares
solely for investment for his own account and not with a view toward the resale
or distribution thereof, (ii) at that time the Company provided written
disclosure to Robert Otis Childs, III stating, and Robert Otis Childs, III
acknowledged, that the Childs Shares will not be registered under the Act and
will be subject to certain restrictions on transfer, (iii) the Company will
place a restricted share legend to such effect on the certificate(s)
representing the Childs Shares and (iv) the Company did not engage in any
general solicitation or advertising in connection with entering into the C&C
Agreement.
II-2
<PAGE> 174
3. Effective June 27, 1997, ROA Vermont merged with and into ROAQ and ROAQ
changed its name to Rock of Ages Corporation. In connection therewith, each
outstanding share of Class A Common Stock of ROAQ was converted into 72.8347276
shares of Common Stock of ROAQ ("ROAQ Shares"). The ROAQ Shares were not
registered under the Securities Act in reliance on the exemption provided by
Section 3(a)(9) thereof with respect to securities exchanged by the issuer with
its existing security-holders exclusively in that only the shares of Class A
Common Stock held by existing shareholders of ROAQ were converted into and
exchanged for Common Stock and no commission or other remuneration was paid or
given directly or indirectly in connection with such exchange of shares.
4. As of July 30, 1997, ROA Vermont entered into an Asset Purchase
Agreement with Keith Monument (the "Keith Agreement"), pursuant to which the
Company will issue to Keith Monument, contemporaneously with the consummation of
the offering, $1.5 million in shares of Class A Common Stock (valued at the
initial public offering price per share) (the "Keith Monument Shares") as a
portion of the consideration payable in connection with the Keith Acquisition.
The issuance of the Keith Monument Shares will not be registered under the
Securities Act in reliance on the exemption provided by Section 4(2) thereof as
a transaction by an issuer not involving any public offering in that (i) the
Keith Monument Shares will be issued to a single entity (Keith Monument
Corporation) that at the time of entering into the Keith Agreement represented
to the Company that it was an "accredited investor" and that it would be
acquiring the Keith Monument Shares solely for investment for its own account
and not with a view toward the resale or distribution thereof, (ii) at that time
the Company provided written disclosure to Keith Monument Corporation stating,
and Keith Monument Corporation acknowledged, that the Keith Monument Shares will
not be registered under the Act and will be subject to certain restrictions on
transfer, (iii) the Company will place a restricted share legend to such effect
on the certificate(s) representing the Keith Monument Shares and (iv) the
Company did not engage in any general solicitation or advertising in connection
with entering into the Keith Agreement.
5. Effective August 12, 1997, ROA Vermont became a Delaware corporation
pursuant to a reincorporation merger (the "Reincorporation Merger"). In the
Reincorporation Merger, each outstanding share of ROA Vermont was converted into
one half of one share of Class B Common Stock of the Company. In connection
therewith, an aggregate of 3,763,441 shares of Class B Common Stock of the
Company were issued (the "Reincorporation Merger Shares"). The issuance of the
Reincorporation Merger Shares was not registered under the Securities Act in
reliance on the exemption provided by Section 4(2) thereof as a transaction by
an issuer not involving any public offering in that (i) the Reincorporation
Merger Shares were issued to two entities (Swenson Granite and Missouri Red)
that represented to the Company that they were "accredited investors" and were
acquiring the Reincorporation Merger Shares solely for investment for their own
accounts and not with a view toward the resale or distribution thereof, (ii) the
Company provided written disclosure to such entities stating, and such entities
acknowledged, that the Reincorporation Merger Shares would not be registered
under the Act and would be subject to certain restrictions on transfer, (iii)
the Company placed a restricted share legend to such effect on the certificates
representing the Reincorporation Merger Shares and (iv) the Company did not
engage in any general solicitation or advertising in connection with the
issuance of the Reincorporation Merger Shares pursuant to the Reincorporation
Merger.
6. On August 13, 1997, the Company entered into an Agreement and Plan of
Merger and Reorganization with Swenson Granite Company, Inc., Kurt M. Swenson
and Kevin C. Swenson (the "Swenson Merger Agreement"), pursuant to which,
immediately prior to consummation of the offering, each share of Swenson Granite
Company, Inc. will be converted into 1,618.23 shares of Class B Common Stock of
the Company (the "Reorganization Merger Shares"). The issuance of the
Reorganization Merger Shares will not be registered under the Securities Act in
reliance on the exemption provided by Section 4(2) thereof as a transaction by
an issuer not involving any public offering in that (i) the Reorganization
Merger Shares will be issued to less than thirty-five shareholders of Swenson
Granite Company, Inc. who, in order to receive such shares will be required by
the terms of the Swenson Merger Agreement to represent to the Company that (A)
they are an "accredited investor" or have engaged a "purchaser representative"
to act on their behalf, (B) they will be acquiring the Reorganization Merger
Shares for investment only and not with a view to any public distribution
thereof, (C) they understand that the Reorganization Merger Shares will not be
registered under the Act and
II-3
<PAGE> 175
will be subject to certain restrictions on transfer, and (D) if they are not an
"accredited investor," they, either alone or together with their purchaser
representative, have such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and rights of an
investment in the Reorganization Merger Shares, (ii) the Company will place a
restricted share legend on the certificates representing the Reorganization
Merger Shares, (iii) the Company did not engage in any general solicitation or
advertising in connection with entering into the Swenson Merger Agreement and
(iv) the issuance of the Reorganization Merger Shares will otherwise comply with
Rule 506 under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<C> <S>
1. Form of Underwriting Agreement by and between the Company and Raymond James &
Associates,
2.1* Agreement and Plan of Reorganization dated as of June 27, 1997 by and among Rock
of Ages Quarries, Inc., to be known as Rock of Ages Corporation, KSGM, Inc.,
Royalty Granite Corporation and Missouri Red Quarries, Inc.
2.2* Stock Purchase Agreement dated as of June 27, 1997 by and among Rock of Ages
Quarries, Inc., to be known as Rock of Ages Corporation, Robert Otis Childs, Jr.,
Robert Otis Childs, III and Timothy Carroll Childs
2.3* Asset Purchase Agreement dated as of July 30, 1997 by and among the Company, John
E. Keith, Roy H. Keith, Jr., Glasgow Monument Co., Inc., Keith Lettering and
Setting Corporation, Keith Monument Company, National Memorial Corporation,
Riehm-gerlack Monument Co., and the Snyder Corporation.
2.4* Agreement and Plan of Merger and Reorganization dated as of August 13, 1997 by and
among Rock of Ages Corporation, Swenson Granite Company, Inc., Kurt M. Swenson and
Kevin C. Swenson
3.1* Form of Amended and Restated Certificate of Incorporation of the Company
3.2* By-laws of the Company
4. Specimen Certificate representing the Class A Common Stock
5.** Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the
Company, regarding the legality of the shares of Class A Common Stock
10.1* Rock of Ages Corporation Amended and Restated 1994 Stock Plan
10.2 Employment Agreement of Kurt M. Swenson
10.3* Employment Agreement of Paula Plante
10.4* Employment Agreement of Peter Friberg
10.5* Employment Agreement of Albert Gherardi, Jr.
10.6* Employment Agreement of Mark Gherardi
10.7* Form of Acquisition Employment Agreement with G. Thomas Oglesby, Jr., George T.
Oglesby, III, Robert Otis Childs, III, John E. Keith and Roy H. Keith
10.8 Form of Officer Employment Agreement with each of Richard C. Kimball, George R.
Andersen, Jon M. Gregory and Edward E. Haydon
10.9*+ Supply and Distribution Agreement dated as of June 27, 1997 by and among Keystone
Granite Company, Inc., the Estate of George T. Oglesby, Sr., Rock of Ages
Corporation and Missouri Red Quarries, Inc.
10.10*+ Supply and Distribution Agreement dated as of June 27, 1997 by and among Missouri
Red Quarries, Inc., George T. Oglesby, Jr. and Rock of Ages Corporation.
10.11*+ Letter Agreement dated as of July 25, 1997 between Rock of Ages Corporation and
Dakota Granite Company
10.12* Stock Subscription Agreement and Continuity of Interest Agreement dated June 27,
1997 between Rock of Ages Corporation and Missouri Red Quarries, Inc.
10.13* Stock Subscription Agreement dated as of July 30, 1997 between Rock of Ages
Corporation and National Memorial Corporation
10.14* Stock Subscription Agreement dated as of June 27, 1997 between Rock of Ages
Corporation and Robert Otis Childs, III
</TABLE>
II-4
<PAGE> 176
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<C> <S>
10.15* Form of Salary Continuation Agreement
10.16* Salary Continuation Agreement dated January 3, 1996 between Rock of Ages
Corporation and Mark Gherardi
10.17* Salary Continuation Agreement dated January 3, 1997 between Rock of Ages
Corporation and Melvin Friberg
10.18 Form of Custody Agreement and Power of Attorney
10.19 Financing Agreement dated as of August 25, 1994 between the CIT Group/Business
Credit, Inc. and Rock of Ages Corporation
10.20 Credit Facility dated as of June 25, 1997 between Royal Bank of Canada and Rock of
Ages Canada Inc., Rock of Ages Quarries Inc. and Rock of Ages Canada Inc.
10.21 Commitment Letter dated as of September 14, 1997, between CIT Group/Business
Credit, Inc. and Rock of Ages Corporation.
10.22 Letter Agreement dated as of September 19, 1997, by and among Rock of Ages
Corporation, Richard Campbell, Robert Otis Childs, III, Timothy Carrol Childs.
11.* Statement re: computation of per share earnings
21.* Subsidiaries of the Company
23.1** Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5)
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of KPMG Peat Marwick LLP
23.4 Consent of KPMG Peat Marwick LLP
23.5 Consent of KPMG Peat Marwick LLP
23.6 Consent of Greene and Company, L.L.P.
23.7 Consent of Greene and Company, L.L.P.
23.8 Consent of Greene and Company, L.L.P.
23.9 Consent of Greene and Company, L.L.P.
23.10* Consent of Frederick E. Webster
23.11* Consent of John E. Keith
23.12* Consent of James L. Fox
23.13* Consent of CA Rich Consultants, Inc.
24.* Power of Attorney (set forth on the signature page of this Registration Statement)
27. Financial Data Schedule
</TABLE>
- ---------------
* Previously filed
** To be filed by amendment.
+ Confidential treatment requested as to certain portions of this exhibit.
Omitted portions have been filed separately with the Securities and Exchange
Commission.
(b) Financial Statement Schedules:
<TABLE>
<S> <C>
Schedule II -- Valuation and Qualifying Accounts and Reserves......... S-1
</TABLE>
All other schedules for which provision is made by the applicable
accounting regulation of the Commission are not required under the related
instructions or are inapplicable, and therefore have been omitted.
II-5
<PAGE> 177
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to its Restated Articles of Incorporation, By-Laws, by
agreement or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance on Rule 430A and contained in a
form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or Rule 497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To provide to the Underwriters at the closing specified in the
Underwriting Agreement, certificates in such denominations and registered
in such names as required by the Underwriters to permit prompt delivery to
each purchaser.
II-6
<PAGE> 178
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Barre, Vermont on September 22, 1997.
ROCK OF AGES CORPORATION
By: /s/ KURT M. SWENSON
------------------------------------
Name: Kurt M. Swenson
Title: President, Chief Executive
Officer and Chairman of the Board
of Directors
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on September 22, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- ---------------------------------------------------
<C> <S>
KURT M. SWENSON President, Chief Executive Officer and Chairman of
- ---------------------------------------- the Board of Directors (Principal Executive
Kurt M. Swenson Officer)
* Senior Vice President, Chief Financial Officer,
- ---------------------------------------- Treasurer and Director (Principal Financial
George R. Anderson Officer)
* Vice Chairman and President, Memorials Division,
- ---------------------------------------- and Director
Richard C. Kimball
* President, Quarry Division and Director
- ----------------------------------------
Jon M. Gregory
* Senior Vice President, Barre and Canada
- ---------------------------------------- Manufacturing Operations and Director
Mark A. Gherardi
President, Keystone Memorials, Inc. and Director
- ----------------------------------------
G. Thomas Oglesby, Jr.
* Senior Vice President -- Memorial Sales, Director
- ----------------------------------------
Peter A. Friberg
* Director
- ----------------------------------------
Charles M. Waite
*By: /s/ KURT M. SWENSON
- ----------------------------------------
Kurt M. Swenson
Attorney-in-fact
</TABLE>
II-7
<PAGE> 179
ROCK OF AGES CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. E COL. F
- ------------------------------------------------------ ---------- ---------- ---------- ----------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- ------------------------------------------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Allowances for possible losses on accounts
receivable....................................... $446 $181 $ 63 $564
Year ended December 31, 1995
Allowances for possible losses on accounts
receivable....................................... $464 $ 62 $ 80 $446
Year ended December 31, 1994
Allowances for possible losses on accounts
receivable....................................... $378 $216 $130 $464
</TABLE>
S-1
<PAGE> 180
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<S> <C>
1. Form of Underwriting Agreement by and between the Company and Raymond James &
Associates,
2.1* Agreement of Merger and Plan of Reorganization dated as of June 27, 1997 by and
among Rock of Ages Quarries, Inc., to be known as Rock of Ages Corporation, KSGM,
Inc., Royalty Granite Corporation and Missouri Red Quarries, Inc.
2.2* Stock Purchase Agreement dated as of June 27, 1997 by and among Rock of Ages
Quarries, Inc., to be known as Rock of Ages Corporation, Robert Otis Childs, Jr.,
Robert Otis Childs, III and Timothy Carroll Childs
2.3* Asset Purchase Agreement dated as of July 30, 1997 by and among the Company, John
E. Keith, Roy H. Keith, Jr., Glasgow Monument Co., Inc., Keith Lettering and
Setting Corporation, Keith Monument Company, National Memorial Corporation,
Riehm-gerlack Monument Co., and the Snyder Corporation.
2.4* Agreement and Plan of Merger and Reorganization dated as of August 13, 1997 by and
among Rock of Ages Corporation, Swenson Granite Company, Inc., Kurt M. Swenson and
Kevin C. Swenson
3.1* Form of Amended and Restated Certificate of Incorporation of the Company
3.2* By-laws of the Company
4. Specimen Certificate representing the Class A Common Stock
5.** Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the
Company, regarding the legality of the shares of Class A Common Stock
10.1* Rock of Ages Corporation Amended and Restated 1994 Stock Plan
10.2 Employment Agreement of Kurt M. Swenson
10.3* Employment Agreement of Paula Plante
10.4* Employment Agreement of Peter Friberg
10.5* Employment Agreement of Albert Gherardi, Jr.
10.6* Employment Agreement of Mark Gherardi
10.7* Form of Acquisition Employment Agreement with G. Thomas Oglesby, Jr., George T.
Oglesby, III, Robert Otis Childs, III, John E. Keith and Roy H. Keith
10.8 Form of Officer Employment Agreement with each of Richard C. Kimball, George R.
Andersen, Jon M. Gregory and Edward E. Haydon
10.9*+ Supply and Distribution Agreement dated as of June 27, 1997 by and among Keystone
Granite Company, Inc., the Estate of George T. Oglesby, Sr., Rock of Ages
Corporation and Missouri Red Quarries, Inc.
10.10*+ Supply and Distribution Agreement dated as of June 27, 1997 by and among Missouri
Red Quarries, Inc., George T. Oglesby, Jr. and Rock of Ages Corporation.
10.11*+ Letter Agreement dated as of July 25, 1997 between Rock of Ages Corporation and
Dakota Granite Company
10.12* Stock Subscription Agreement and Continuity of Interest Agreement dated June 27,
1997 between Rock of Ages Corporation and Missouri Red Quarries, Inc.
10.13* Stock Subscription Agreement dated as of July 30, 1997 between Rock of Ages
Corporation and National Memorial Corporation
10.14* Stock Subscription Agreement dated as of June 27, 1997 between Rock of Ages
Corporation and Robert Otis Childs, III
</TABLE>
<PAGE> 181
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<S> <C>
10.15* Form of Salary Continuation Agreement
10.16* Salary Continuation Agreement dated January 3, 1996 between Rock of Ages
Corporation and Mark Gherardi
10.17* Salary Continuation Agreement dated January 3, 1997 between Rock of Ages
Corporation and Melvin Friberg
10.18 Form of Custody Agreement and Power of Attorney
10.19 Financing Agreement dated as of August 25, 1994 between the CIT Group/Business
Credit, Inc. and Rock of Ages Corporation
10.20 Credit Facility dated as of June 25, 1997 between Royal Bank of Canada and Rock of
Ages Canada Inc., Rock of Ages Quarries Inc. and Rock of Ages Canada Inc.
10.21 Commitment Letter dated as of September 14, 1997, between CIT Group/Business
Credit, Inc. and Rock of Ages Corporation.
10.22 Letter Agreement dated as of September 18, 1997, by and among Rock of Ages
Corporation, Richard Campbell, Robert Otis Childs, III, Timothy Carrol Childs.
11.* Statement re: computation of per share earnings
21.* Subsidiaries of the Company
23.1** Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5)
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of KPMG Peat Marwick LLP
23.4 Consent of KPMG Peat Marwick LLP
23.5 Consent of KPMG Peat Marwick LLP
23.6 Consent of Greene and Company, L.L.P.
23.7 Consent of Greene and Company, L.L.P.
23.8 Consent of Greene and Company, L.L.P.
23.9 Consent of Greene and Company, L.L.P.
23.10* Consent of Frederick E. Webster
23.11* Consent of John E. Keith
23.12* Consent of James L. Fox
23.13* Consent of CA Rich Consultants, Inc.
24.* Power of Attorney (set forth on the signature page of this Registration Statement)
27. Financial Data Schedule
</TABLE>
- ---------------
* Previously filed
** To be filed by amendment.
+ Confidential treatment requested as to certain portions of this exhibit.
Omitted portions have been filed separately with the Securities and Exchange
Commission.
<PAGE> 1
Exhibit 1
__________ SHARES
ROCK OF AGES CORPORATION
CLASS A COMMON STOCK
--------------------
UNDERWRITING AGREEMENT
St. Petersburg, Florida
, 1997
Raymond James & Associates, Inc.
As Representative of the Several Underwriters
c/o Raymond James & Associates, Inc.
880 Carillon Parkway
St. Petersburg, Florida 33716
Ladies and Gentlemen:
Rock of Ages Corporation, a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
an aggregate of _________ shares of Class A Common Stock, $.01 par value per
share (the "Common Stock"), of the Company, to the several Underwriters named in
Schedule I hereto (the "Underwriters"), and certain stockholders of the Company
named in Schedule II hereto (the "Selling Stockholders") propose, subject to the
terms and conditions stated herein, to sell to the Underwriters an aggregate of
_______ shares of the Common Stock (such _________ aggregate shares to be sold
by the Company and the Selling Stockholders are hereinafter referred to as the
"Firm Shares"). In addition, the Company has agreed to sell to the Underwriters,
upon the terms and conditions set forth herein, up to an additional ________
shares (the "Additional Shares") of the Common Stock to cover over-allotments by
the Underwriters, if any. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "Shares."
The Company and the Selling Stockholders wish to confirm as follows their
agreement with you and the other several Underwriters, on whose behalf you are
acting, in connection with the several purchases of the Shares from the Company
and the Selling Stockholders.
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has prepared
and filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-1 (File No. 333-_____), including a
prospectus subject to completion, relating to the Shares. Such registration
statement, as amended at the time when it becomes effective and as thereafter
amended by post-effective amendment, is referred to in this Agreement as the
"Registration Statement." The prospectus in the form included in the
Registration Statement, or, if the prospectus included in the Registration
Statement omits information in reliance upon Rule 430A under the Act and such
information is included in a prospectus filed with the Commission pursuant to
Rule 424(b) under the Act or as part of a post-effective amendment to the
Registration Statement after the Registration Statement becomes effective, the
prospectus as so filed, is referred to in this Agreement as the "Prospectus." If
the Company elects to rely on Rule 434 under the
1
<PAGE> 2
Act, all references to the Prospectus shall be deemed to include, without
limitation, the form of prospectus and the term sheet contemplated by Rule 434,
taken together, provided to the Underwriters by the Company in reliance on Rule
434 under the Act (the "Rule 434 Prospectus"). If the Company files another
registration statement with the Commission to register a portion of the Shares
pursuant to Rule 462(b) under the Act (the "Rule 462 Registration Statement"),
then any reference to "Registration Statement" herein shall be deemed to include
the registration statement on Form S-1 (File No. 333-_____) and the Rule 462
Registration Statement, as each such registration statement may be amended
pursuant to the Act. The prospectus subject to completion in the form included
in the Registration Statement at the time of the initial filing of such
Registration Statement with the Commission and as such prospectus is amended
from time to time until the date of the Prospectus are collectively referred to
in this Agreement as the "Prepricing Prospectus."
2. AGREEMENTS TO SELL AND PURCHASE. The Company and the Selling
Stockholders (in accordance with Schedule II hereof) hereby agree, severally and
not jointly, to sell the Firm Shares to the Underwriters and, upon the basis of
the representations, warranties and agreements of the Company and the Selling
Stockholders herein contained and subject to all the terms and conditions set
forth herein, each Underwriter agrees, severally and not jointly, to purchase
from the Company and the Selling Stockholders at a purchase price of $_____ per
Share (the "purchase price per Share"), the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto (or such number of
Firm Shares as adjusted pursuant to Section 11 hereof).
The Company hereby also agrees to sell to the Underwriters, and upon the
basis of the representations, warranties and agreements of the Company and the
Selling Stockholders herein contained and subject to all the terms and
conditions set forth herein, the Underwriters shall have the right for 30 days
from the date of the Prospectus to purchase from the Company up to _______
Additional Shares at the purchase price per Share for the Firm Shares. The
Additional Shares may be purchased solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the Firm
Shares. If any Additional Shares are to be purchased, each Underwriter,
severally and not jointly, agrees to purchase the number of Additional Shares
(subject to such adjustments as you may determine to avoid fractional shares)
which bears the same proportion to the total number of Additional Shares to be
purchased by the Underwriters as the number of Firm Shares set forth opposite
the name of such Underwriter in Schedule I hereto (or such number of Firm Shares
as adjusted pursuant to Section 11 hereof) bears to the total number of Firm
Shares.
3. TERMS OF PUBLIC OFFERING. The Company and the Selling Stockholders
have been advised by you that the Underwriters propose to make a public offering
of their respective portions of the Shares as soon after the Registration
Statement and this Agreement have become effective as in your judgment is
advisable and initially to offer the Shares upon the terms set forth in the
Prospectus.
4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery to the
Underwriters of the Firm Shares and payment therefor shall be made at the
offices of Raymond James & Associates, Inc., 880 Carillon Parkway, St.
Petersburg, Florida, at 10:00 a.m., St. Petersburg, Florida time, on
___________, 1997 (the "Closing Date"). The place of closing for the Firm Shares
and the Closing Date may be varied by agreement between the Representatives and
the Company.
Delivery to the Underwriters of and payment for any Additional Shares to
be purchased by the Underwriters shall be made at the offices of Raymond James &
Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida, at 10:00 a.m.,
St. Petersburg, Florida time, on such date or dates (the "Additional Closing
Date") (which may be the same as the Closing Date but shall in no event be
earlier than the Closing Date nor earlier than three nor later than ten business
days after the giving of the notice hereinafter referred to) as shall be
specified in a written notice from you on behalf of the Underwriters to the
Company of the Underwriters' determination to purchase a number, specified in
such notice, of Additional Shares. Such notice may be given to the Company by
you at any time within 30 days after the date of the Prospectus. The place of
closing for the Additional Shares and the Additional Closing Date may be varied
by agreement between you and the Company.
2
<PAGE> 3
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 1:00 p.m., St. Petersburg, Florida time, not later
than the second full business day preceding the Closing Date or the Additional
Closing Date, as the case may be. Such certificates shall be made available to
you in St. Petersburg, Florida for inspection and packaging not later than 9:30
a.m., St. Petersburg, Florida time, on the business day immediately preceding
the Closing Date or the Additional Closing Date, as the case may be. The
certificates evidencing the Firm Shares and any Additional Shares to be
purchased hereunder shall be delivered to you on the Closing Date or the
Additional Closing Date, as the case may be, against payment of the purchase
price therefor by certified or official bank check or checks payable in New York
Clearing House (next day) funds. Payment for the Firm Shares sold by the Company
hereunder shall be delivered by the Representatives to the Company, and payment
for the Shares sold by the Selling Stockholders hereunder shall be delivered by
the Representatives to the "Custodian" (as defined in the last paragraph of
Section 7 hereof).
5. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company covenants and
agrees with the several Underwriters as follows:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendments thereto to become effective, if
it has not already become effective, and will advise you promptly and, if
requested by you, will confirm such advice in writing (i) when the
Registration Statement has become effective and when any post-effective
amendment thereto becomes effective, (ii) if Rule 430A under the Act is
employed, when the Prospectus has been timely filed pursuant to Rule
424(b) under the Act, (iii) of any request by the Commission for
amendments or supplements to the Registration Statement, any Prepricing
Prospectus or the Prospectus or for additional information, (iv) of the
issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement or of the suspension of qualification of
the Shares for offering or sale in any jurisdiction or the initiation of
any proceeding for such purposes and (v) within the period of time
referred to in Section 5(e) below, of any change in the Company's
condition (financial or other), business, prospects, properties, net
worth or results of operations, or of any other event that comes to the
attention of the Company, that results in the Registration Statement or
the Prospectus (as then amended or supplemented) containing an untrue
statement of a material fact or omitting to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading in any material respect, or of the necessity to amend or
supplement the Prospectus (as then amended or supplemented) to comply
with the Act or any other law. If at any time the Commission shall issue
any stop order suspending the effectiveness of the Registration
Statement, the Company will make every reasonable effort to obtain the
withdrawal or lifting of such order at the earliest possible time. If the
Company elects to rely on Rule 434 under the Act, the Company will
provide the Underwriters with copies of the form of Rule 434 Prospectus
(including copies of a term sheet that complies with the requirements of
Rule 434 under the Act), in such number as the Underwriters may
reasonably request, and file with the Commission in accordance with Rule
424(b) of the Act the form of Prospectus complying with Rule 434(b)(2) of
the Act before the close of business on the first business day
immediately following the date hereof. If the Company elects not to rely
on Rule 434 under the Act, the Company will provide the Underwriters with
copies of the form of Prospectus, in such number as the Underwriters may
reasonably request, and file with the Commission such Prospectus in
accordance with Rule 424(b) of the Act before the close of business on
the first business day immediately following the date hereof.
(b) The Company will furnish to you, without charge, two signed
duplicate originals of the Registration Statement as originally filed
with the Commission and of each amendment thereto, including financial
statements and all exhibits thereto, and will also furnish to you,
without charge, such number of conformed copies of the Registration
Statement as originally filed and of each amendment thereto as you may
reasonably request.
3
<PAGE> 4
(c) The Company will not file any Rule 462 Registration
Statement or any amendment to the Registration Statement or make any
amendment or supplement to the Prospectus unless (A) you shall have
previously been advised thereof and given a reasonable opportunity to
review such filing, amendment or supplement, and (B) you have not
reasonably objected to such filing, amendment or supplement after being
so advised.
(d) Prior to the execution and delivery of this Agreement, the
Company has delivered or will deliver to you, without charge, in such
quantities as you have requested or may hereafter reasonably request,
copies of each form of the Prepricing Prospectus. The Company consents to
the use, in accordance with the provisions of the Act and with the
securities or Blue Sky laws of the jurisdictions in which the Shares are
offered by the several Underwriters and by dealers, prior to the date of
the Prospectus, of each Prepricing Prospectus so furnished by the
Company.
(e) As soon after the execution and delivery of this Agreement
as is practicable and thereafter from time to time for such period as in
the reasonable opinion of counsel for the Underwriters a prospectus is
required by the Act to be delivered in connection with sales by any
Underwriter or a dealer, and for so long a period as you may request for
the distribution of the Shares, the Company will deliver to each
Underwriter and each dealer, without charge, as many copies of the
Prospectus (and of any amendment or supplement thereto) as they may
reasonably request. The Company consents to the use of the Prospectus
(and of any amendment or supplement thereto) in accordance with the
provisions of the Act and with the securities or Blue Sky laws of the
jurisdictions in which the Shares are offered by the several Underwriters
and by all dealers to whom Shares may be sold, both in connection with
the offering and sale of the Shares and for such period of time
thereafter as the Prospectus is required by the Act to be delivered in
connection with sales by any Underwriter or dealer. If at any time prior
to the later of (i) the completion of the distribution of the Shares
pursuant to the offering contemplated by the Registration Statement or
(ii) the expiration of prospectus delivery requirements with respect to
the Shares under Section 4(3) of the Act and Rule 174 thereunder, any
event shall occur that in the judgment of the Company or in the opinion
of counsel for the Underwriters is required to be set forth in the
Prospectus (as then amended or supplemented) or should be set forth
therein in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary to supplement or amend the Prospectus to comply with the Act or
any other law, the Company will forthwith prepare and, subject to
Sections 5(a) and 5(c) hereof, file with the Commission and use its best
efforts to cause to become effective as promptly as possible an
appropriate supplement or amendment thereto, and will furnish to each
Underwriter who has previously requested Prospectuses, without charge, a
reasonable number of copies thereof.
(f) The Company will cooperate with you and counsel for the
Underwriters in connection with the registration or qualification of the
Shares for offering and sale by the several Underwriters and by dealers
under the securities or Blue Sky laws of such jurisdictions as you may
reasonably designate and will file such consents to service of process or
other documents as may be reasonably necessary in order to effect and
maintain such registration or qualification for so long as required to
complete the distribution of the Shares; provided that in no event shall
the Company be obligated to qualify to do business in any jurisdiction
where it is not now so qualified or to take any action which would
subject it to general service of process in suits, other than those
arising out of the offering or sale of the Shares, in any jurisdiction
where it is not now so subject. In the event that the qualification of
the Shares in any jurisdiction is suspended, the Company shall so advise
you promptly in writing.
(g) The Company will make generally available to its security
holders a consolidated earnings statement (in form complying with the
provisions of Rule 158), which need not be audited, covering a
twelve-month period commencing after the effective date of the
Registration Statement and the Rule 462 Registration Statement, if any,
and ending not later than 15 months thereafter, as soon as
4
<PAGE> 5
practicable after the end of such period, which consolidated earnings
statement shall satisfy the provisions of Section 11(a) of the Act.
(h) During the period ending five years from the date hereof,
the Company will furnish to you and, upon your request, to each of the
other Underwriters, (i) as soon as available, a copy of each proxy
statement, quarterly or annual report or other report of the Company
mailed to stockholders or filed with the Commission, the National
Association of Securities Dealers, Inc. (the "NASD") or The Nasdaq Stock
Market or any securities exchange and (ii) from time to time such other
information concerning the Company as you may reasonably request.
(i) If this Agreement shall terminate or shall be terminated
after execution pursuant to any provision hereof (except pursuant to a
termination under Section 11 hereof) or if this Agreement shall be
terminated by the Underwriters because of any inability, failure or
refusal on the part of the Company or the Selling Stockholders to perform
in all material respects any agreement herein or to comply in all
material respects with any of the terms or provisions hereof or to
fulfill in all material respects any of the conditions of this Agreement,
the Company agrees to reimburse you and the other Underwriters for all
out-of-pocket expenses (including travel expenses and reasonable fees and
expenses of counsel for the Underwriters but excluding wages and salaries
paid by you) reasonably incurred by you in connection herewith.
(j) The Company will apply the net proceeds from the sale of
the Shares to be sold by it hereunder in accordance in all material
respects with the statements under the caption "Use of Proceeds" in the
Prospectus.
(k) If Rule 430A under the Act is employed, the Company will
timely file the Prospectus pursuant to Rule 424(b) under the Act.
(l) For a period of 180 days after the date of the Prospectus
first filed pursuant to Rule 424(b) under the Act, without your prior
written consent, the Company will not, directly or indirectly, issue,
sell, offer or contract to sell or otherwise dispose of or transfer any
shares of Common Stock or securities convertible into or exchangeable or
exercisable for shares of Common Stock (collectively, "Company
Securities") or any rights to purchase Company Securities, except (i) to
the Underwriters pursuant to this Agreement, (ii) pursuant to and in
accordance with the Company's 1994 Stock Option Plan referenced in the
Registration Statement under the caption "Management -- Incentive Plans,"
(iii) in connection with the Keith Acquisition and the C&C Acquisition
(each as defined in the Registration Statement), or (iv) up to ___ shares
of Common Stock issued no earlier than 30 days after the date hereof and
only in connection with the Company's acquisition of businesses, the
owners of which have agreed in writing with the Representative not to
directly or indirectly sell, offer or contract to sell or otherwise
dispose of or transfer any Company Securities until the expiration of 180
days after the Prospectus was first filed pursuant to Rule 424(b).
(m) Prior to the Closing Date or the Additional Closing Date,
as the case may be, the Company will furnish to you, as promptly as
possible, copies of any unaudited interim consolidated financial
statements of the Company and its subsidiaries for any period subsequent
to the periods covered by the financial statements appearing in the
Prospectus.
(n) The Company will comply with all provisions of any
undertakings contained in the Registration Statement.
(o) The Company will not at any time, directly or indirectly
take any action designed, or which might reasonably be expected to cause
or result in, or which will constitute, stabilization or
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<PAGE> 6
manipulation of the price of the shares of Common Stock to facilitate the
sale or resale of any of the Shares.
(p) The Company will use its best efforts to qualify or
register its Common Stock for sale in non-issuer transactions under (or
obtain exemptions from the application of) the Blue Sky laws of each
state where necessary to permit market making transactions and secondary
trading, and will comply with such Blue Sky laws and will continue such
qualifications, registrations and exemptions in effect for a period of
five years after the date hereof.
(q) The Company will timely file with the National Association
of Securities Dealers Automated Quotation National Market System
("NASDAQ/NMS") all documents and notices required by the NASDAQ/NMS of
companies that have or will issue securities that are traded in the
over-the-counter market and quotations for which are reported by the
NASDAQ/NMS.
(r) The Company will file with the Commission such reports on
Form SR as may be required pursuant to Rule 463 under the Act.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Underwriter on the date hereof, and shall be
deemed to represent and warrant to each Underwriter on the Closing Date and the
Additional Closing Date, that:
(a) The Company satisfies all of the requirements of the Act
for use of Form S-1 for the offering of Shares contemplated hereby. Each
Prepricing Prospectus included as part of the Registration Statement as
originally filed or as part of any amendment or supplement thereto, or
filed pursuant to Rule 424(a) under the Act, complied when so filed in
all material respects with the provisions of the Act, except that this
representation and warranty does not apply to statements in or omissions
from such Prepricing Prospectus (or any amendment or supplement thereto)
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by or on behalf of any
Underwriter through you expressly for use therein. The Commission has not
issued any order preventing or suspending the use of any Prepricing
Prospectus.
(b) The Registration Statement (including any Rule 462
Registration Statement), in the form in which it becomes effective and
also in such form as it may be when any post-effective amendment thereto
shall become effective, and the Prospectus, and any supplement or
amendment thereto when filed with the Commission under Rule 424(b) under
the Act, will comply in all material respects with the provisions of the
Act and will not at any such times contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading,
except that this representation and warranty does not apply to statements
in or omissions from the Registration Statement or the Prospectus (or any
amendment or supplement thereto) made in reliance upon and in conformity
with information relating to any Underwriter furnished to the Company in
writing by or on behalf of any Underwriter through you expressly for use
therein.
(c) The capitalization of the Company is and will be as set
forth in the Prospectus as of the date set forth therein. All the
outstanding shares of Common Stock of the Company have been, and as of
the Closing Date will be, duly authorized and validly issued, are fully
paid and nonassessable and are free of any preemptive or similar rights;
except as set forth in the Prospectus, the Company is not a party to or
bound by any outstanding options, warrants, or similar rights to
subscribe for, or contractual obligations to issue, sell, transfer or
acquire, any of its capital stock or any securities convertible into or
exchangeable for any of such capital stock; the Shares to be issued and
sold to the Underwriters by the Company hereunder have been duly
authorized and, when issued and delivered to the Underwriters against
payment therefor in accordance with the terms, claims, encumbrances, or
defects in title; hereof, will be validly issued, fully paid and
nonassessable and free of any preemptive or similar rights; the capital
stock of the Company
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<PAGE> 7
conforms to the description thereof in the Registration Statement and the
Prospectus (or any amendment or supplement thereto). The form of
certificates for the Shares conform to the requirements of the Delaware
General Corporation Law (the "DGCL").
(d) Each of the Company and its subsidiaries is a corporation
duly incorporated and validly existing as a corporation in good standing
under the laws of the state of its incorporation with full power and
authority to own, lease and operate its properties and to conduct its
business as presently conducted and as described in the Registration
Statement and the Prospectus (and any amendment or supplement thereto),
and is duly registered and qualified to conduct its business and is in
good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure to so register or qualify does
not have a material adverse effect on the condition (financial or other),
business, properties, net worth, results of operations or prospects of
the Company and its subsidiaries taken as a whole (a "Material Adverse
Effect").
(e) The issued shares of capital stock of each of the Company's
subsidiaries have been duly authorized and validly issued, are fully paid
and nonassessable and are owned by the Company, directly or indirectly,
free and clear of any security interests, liens, encumbrances, equities
or claims. The Company does not have any subsidiaries and does not own a
material interest in or control, directly or indirectly, any other
corporation, partnership, joint venture, association, trust or other
business organization, except those subsidiaries set forth in Exhibit 21
to the Registration Statement.
(f) There is no legal or governmental proceeding, action, suit,
inquiry, proceeding or investigation pending by or before any court or
governmental or other regulatory or administrative agency or commission
or, to the best knowledge of the Company, threatened, against the Company
or its subsidiaries or to which the Company or its subsidiaries or any of
their properties are subject, (i) that is required to be described in the
Registration Statement or the Prospectus (or any amendment or supplement
thereto) and are not described as required by the Act; or (ii) which
might individually or in the aggregate prevent the transactions
contemplated by this Agreement. There are no agreements, contracts,
indentures, leases or other instruments that are required to be described
in the Registration Statement or the Prospectus (or any amendment or
supplement thereto) or to be filed as an exhibit to the Registration
Statement that are not described or filed as required by the Act. All
such contracts to which the Company or any of its subsidiaries is a party
have been duly authorized, executed and delivered by the Company or the
applicable subsidiary, constitute valid and binding agreements of the
Company or the applicable subsidiary and are enforceable against the
Company or the applicable subsidiary in accordance with the terms
thereof, and neither the Company or the applicable subsidiary, nor to the
best of the Company's knowledge, any other party, is in breach of or
default in any material respect under any of such contracts.
(g) Neither the Company nor any of its subsidiaries is (i) in
violation of its articles of incorporation or bylaws; (ii) in violation
of any law, ordinance, administrative or governmental rule or regulation
applicable to the Company or any of its subsidiaries or of any decree of
any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries, except to the extent such violation
or violations would not have a Material Adverse Effect or in default in
the performance of any obligation, agreement or condition contained in
(i) any bond, debenture, note or any other evidence of indebtedness, or
(ii) any agreement, indenture, lease or other instrument to which the
Company or any of its subsidiaries is a party or by which any of their
properties may be bound (except to the extent to any default referred to
in this clause (iii) would not have a Material Adverse Effect); and there
does not exist any state of facts which constitutes an event of default
on the part of the Company or any of its subsidiaries as defined in such
documents or which, with notice or lapse of time or both, would
constitute such an event of default.
(h) The Company's execution and delivery of this Agreement and
the performance by the Company of its obligations under this Agreement
has been duly and validly authorized by the Company,
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<PAGE> 8
and this Agreement has been duly executed and delivered by the Company,
and this Agreement constitutes a valid and legally binding agreement of
the Company, enforceable against the Company in accordance with its
terms, except to the extent enforceability may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or other
similar laws relating to or affecting enforcement of creditors' rights
generally or by general equitable principles, whether considered in a
proceeding at law or in equity, and, rights to indemnification and
contribution hereunder may be limited by federal or state securities laws
or the public policy underlying such laws.
(i) Neither the issuance and sale of the Shares, the execution,
delivery or performance of this Agreement by the Company nor the
consummation by the Company of the transactions contemplated hereby or
thereby (i) requires any consent, approval, authorization or other order
of or registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency or official
(except such as may be required for the registration of the Shares under
the Act and compliance with the securities or Blue Sky laws of various
jurisdictions, all of which will be, or have been, effected in accordance
with this Agreement and except for the NASD's clearance of the
underwriting terms of the offering contemplated hereby as required under
the NASD's Rules of Fair Practice), (ii) conflicts with or will conflict
with or constitutes or will constitute a breach of, or a default under,
the articles of incorporation or bylaws of the Company or any agreement,
indenture, lease or other instrument to which the Company or any of its
subsidiaries is a party or by which any of its properties may be bound,
(iii) violates any statute, law, regulation, ruling, filing, judgment,
injunction, order or decree applicable to the Company or any of its
subsidiaries or any of their properties, or (iv) results in the creation
or imposition of any lien, charge or encumbrance upon any property or
assets of the Company.
(j) No holder of securities of the Company has rights to the
registration of any securities of the Company as a result of or in
connection with the filing of the Registration Statement or the
consummation of the transactions contemplated hereby that have not been
satisfied or heretofore waived in writing.
(k) KPMG Peat Marwick LLP and Green & Co., the certified public
accountants who have certified the financial statements filed as part of
the Registration Statement and the Prospectus (or any amendment or
supplement thereto), are independent public accountants as required by
the Act.
(l) The financial statements and pro forma financial
information, together with related schedules and notes, included in the
Registration Statement and the Prospectus (and any amendment or
supplement thereto), present fairly the financial position, results of
operations and changes in financial position of the Company and its
consolidated subsidiaries on the basis stated in the Registration
Statement at the respective dates or for the respective periods to which
they apply; such statements and related schedules and notes have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as disclosed
therein; and the other financial and statistical information and data set
forth in the Registration Statement and Prospectus (and any amendment or
supplement thereto) is, in all material respects, accurately presented
and, to the extent applicable prepared on a basis consistent with such
financial statements and the books and records of the Company. No other
financial statements or schedules are required to be included in the
Registration Statement.
(m) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement thereto to the extent
required), subsequent to the respective dates as of which such
information is given in the Registration Statement and the Prospectus (or
any amendment or supplement thereto), (i) neither the Company nor any of
its subsidiaries has incurred any liabilities or obligations, indirect,
direct or contingent, or entered into any transaction which is not in the
ordinary course of business and is material to the Company and its
subsidiaries taken as a whole; (ii) neither the Company nor any of its
subsidiaries has sustained any material loss or interference with its
business or properties from fire, flood,
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<PAGE> 9
windstorm, accident or other calamity, whether or not covered by
insurance; (iii) neither the Company nor any of its subsidiaries has paid
or declared any dividends or other distributions with respect to its
capital stock, other than pursuant to the Reorganization (as defined in
the Prospectus) and the Company is not in default under the terms of any
class of capital stock of the Company or any outstanding debt
obligations; (iv) there has not been any change in the authorized or
outstanding capital stock of the Company or any material change in the
indebtedness of the Company (other than in the ordinary course of
business); and (v) there has not been any change which has, or any
development involving or which may reasonably be expected to involve a
potential future change which would have, a Material Adverse Effect.
(n) Each of the Company and its subsidiaries has, or upon the
consummation of the C&C Acquisition and the Keith Acquisition (as such
terms are defined in the Prospectus) will have, good and marketable title
to all property (real and personal) described in the Prospectus as being
owned by it, free and clear of all liens, claims, security interests or
other encumbrances except (i) such as are described in the financial
statements included in, or elsewhere in, the Prospectus or (ii) such as
are not materially burdensome and do not interfere in any material
respect with the use of the property or the conduct of the business of
the Company. All property (real and personal) held under lease by the
Company and its subsidiaries is held by it under valid, subsisting and
enforceable leases with only such exceptions as in the aggregate are not
materially burdensome and do not interfere in any material respect with
the conduct of the business of the Company.
(o) The Company has not distributed and will not distribute any
offering material in connection with the offering and sale of the Shares
other than the Prepricing Prospectus, the Prospectus, or other offering
material, if any, as permitted by the Act.
(p) The Company has not taken, directly or indirectly, any
action which constituted, or any action designed, or which might
reasonably be expected to cause or result in or constitute, under the Act
or otherwise, stabilization or manipulation of the price of any security
of the Company to facilitate the sale or resale of the Shares or for any
other purpose.
(q) The Company is not an "investment company," an "affiliated
person" of, or "promoter" or "principal underwriter" for an investment
company within the meaning of the Investment Company Act of 1940, as
amended.
(r) Each of the Company and its subsidiaries has or upon
consummation of the C&C Acquisition and the Keith Acquisition will have
all permits, licenses, franchises, approvals, consents and authorizations
of governmental or regulatory authorities (hereinafter "permit" or
"permits") as are necessary to own its properties and to conduct its
business in the manner described in the Prospectus, subject to such
qualifications as may be set forth in the Prospectus, except where the
failure to have obtained any such permit has not and will not have a
Material Adverse Effect; each of the Company and its subsidiaries has
fulfilled and performed in all material respects all of its obligations
with respect to each such permit and no event has occurred which allows,
or after notice or lapse of time would allow, revocation or termination
of any such permit or result in any other material impairment of the
rights of the holder of any such permit, subject in each case to such
qualification as may be set forth in the Prospectus; and, except as
described in the Prospectus, such permits contain no restrictions that
are materially burdensome to the Company.
(s) Each of the Company and its subsidiaries has complied and
will comply with wage and hour determinations issued by the U.S.
Department of Labor under the Service Contract Act of 1965 and the Fair
Labor Standards Act in paying its employees' salaries, fringe benefits,
and other compensation for the performance of work or other duties in
connection with contracts with the U.S. government, except where the
failure to comply has not had and will not have a Material Adverse
Effect. Each of the Company has complied and will comply in all material
respects with the terms of all certifications and
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<PAGE> 10
representations made to the U.S. government in connection with the
submission of any bid or proposal or any contract. The Company has
complied and will comply with the requirements of the American with
Disabilities Act of 1990, the Family and Medical Leave Act of 1993, the
Employee Retirement Income Security Act, the Civil Rights Act of 1964
(Title VII), as amended, the Age Discrimination in Employment Act and
other applicable federal and state employment and labor laws, except
where the failure to comply has not had and will not have a Material
Adverse Effect.
(t) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's
general or specific authorizations; and (iv) the recorded accountability
for assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(u) Neither the Company nor any of its subsidiaries has,
directly or indirectly, at any time during the past five years (i) made
any unlawful contribution to any candidate for political office, or
failed to disclose fully any contribution in violation of law, or (ii)
made any payment to any federal, state or foreign governmental official,
or other person charged with similar public or quasi-public duties (other
than payments required or permitted by the laws of the United States or
any jurisdiction thereof or applicable foreign jurisdictions.)
(v) Each of the Company and its subsidiaries has obtained all
required permits, licenses, and other authorizations, if any, which are
required under federal, state, local and foreign statutes, ordinances and
other laws relating to pollution or protection of the environment,
including laws relating to emissions, discharges, releases, or threatened
releases of pollutants, contaminants, chemicals, or industrial,
hazardous, or toxic materials or wastes into the environment (including,
without limitation, ambient air, surface water, ground water, land
surface, or subsurface strata) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport,
or handling of pollutants, contaminants, chemicals, or industrial,
hazardous, or toxic materials or wastes, or any regulation, rule, code,
plan, order, decree, judgment, injunction, notice, or demand letter
issued, entered, promulgated, or approved thereunder ("Environmental
Laws"), except where the failure to obtain any such permit, license or
other authorization has not resulted in and will not result in a Material
Adverse Effect. Each of the Company and its subsidiaries is in compliance
with all terms and conditions of all required permits, licenses, and
authorizations, except to the extent the failure to be so in compliance
would not have Material Adverse Effect, and are also in compliance with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables contained in the
Environmental Laws, except to the extent the failure to be so in
compliance would not have Material Adverse Effect. There is no pending
or, to the best knowledge of the Company after due inquiry, threatened
civil or criminal litigation, notice of violation, or administrative
proceeding relating in any way to the Environmental Laws (including but
not limited to notices, demand letters, or claims under the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), the Emergency Planning and Community Right
to Know Act of 1986, as amended ("EPCRA"), the Clean Air Act, as amended
("CAA"), or the Clean Water Act, as amended ("CWA") and similar federal,
foreign, state, or local laws) involving the Company or any of its
subsidiaries which is reasonably likely to result in a Material Adverse
Effect. There have not been and there are not any past, present, or
foreseeable future events, conditions, circumstances, activities,
practices, incidents, actions, or plans which may interfere with or
prevent continued compliance, or which may give rise to any common law or
legal liability, or otherwise form the basis of any claim, action,
demand, suit, proceeding, hearing, study, or investigation, based on or
related to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling, or the emission, discharge,
release, or threatened release into the environment, of
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<PAGE> 11
any pollutant, contaminant, chemical, or industrial, hazardous, or toxic
material or waste, including, without limitation, any liability arising,
or any claim, action, demand, suit, proceeding, hearing, study, or
investigation which may be brought, under RCRA, CERCLA, EPCRA, CAA, CWA
or similar federal, foreign, state or local laws which is reasonably
likely to result in a Material Adverse Effect.
(w) The Company owns and has full right, title and interest in
and to, or has valid licenses to use, each trade name, trademark or
service mark under which the Company conducts all or any part of its
business, and the Company has created no lien or encumbrance on, or
granted any right or license with respect to, any such trade name,
trademark or service mark except to the extent that any such lack of
ownership or possession, or the existence of any such lien, encumbrance,
right or license would not have a Material Adverse Effect; there is no
claim pending against the Company with respect to any trade name,
trademark or service mark and the Company has not received notice or
otherwise become aware that any trade name, trademark or service mark
which it uses or has used in the conduct of its business infringes upon
or conflicts with the rights of any third party.
(x) All offers, sales, conversions and redemptions of the
Company's capital stock and other securities through the date hereof were
made in compliance with the Act and all other applicable state and
federal laws or regulations, except to the extent any noncompliance would
not have a Material Adverse Effect.
(y) The Shares have been duly authorized for trading on the
NASDAQ/NMS under the symbol "ROAC," subject to notice of issuance of the
Shares being sold by the Company, and upon consummation of the offering
contemplated hereby the Company will be in compliance with the
designation and maintenance criteria applicable to Nasdaq National Market
issuers.
(z) All federal, state, local and foreign tax returns required
to be filed by or on behalf of the Company and its subsidiaries (and
their predecessors) with respect to all periods ended prior to the date
of this Agreement have been filed (or are the subject of valid extension)
with the appropriate federal, state, local and foreign authorities and
all such tax returns, as filed, are accurate in all material respects.
All federal, state, local and foreign taxes (including estimated tax
payments) required to be shown on all such tax returns or claimed to be
due from or with respect to the business of the Company and its
subsidiaries (and their predecessors) have been paid or reflected as a
liability on the financial statements of the Company for appropriate
periods, except for those taxes or claims therefor which are being
contested by the Company in good faith and for which appropriate reserves
are reflected in the Company's financial statements. The Company's
liability for federal, state, local or foreign taxes resulting from the
transactions described under "Certain Transactions" in the Registration
Statement will not exceed $_____. All deficiencies asserted as a result
of any federal, state, local or foreign tax audits have been paid or
finally settled and no issue has been raised in any such audit which, by
application of the same or similar principles, reasonably could be
expected to result in a proposed deficiency for any other period not so
audited. There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any federal, state, local or
foreign tax return for any period. On the Closing Date, and Additional
Closing Date, if any, all stock transfer and other taxes which are
required to be paid in connection with the sale of the shares to be sold
by the Company to the Underwriters will have been fully paid by the
Company and all laws imposing such taxes will have been complied with.
(aa) Except as set forth in the Prospectus, there are no
transactions with "affiliates" (as defined in Rule 405 promulgated under
the Act) or any officer, director or security holder of the Company
(whether or not an affiliate) which are required by the Act and the
applicable rules and regulations thereunder to be disclosed in the
Registration Statement.
(bb) The Company has preserved the written agreement of each of
the Company's executive officers and directors, each stockholder holding
more than two percent (2%) of the Common Stock
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<PAGE> 12
immediately prior to the date hereof and each of the Selling Stockholders
not to (i) directly or indirectly selling, offering or contracting to
sell or otherwise dispose of or transfer any shares of Company Securities
owned or controlled by such persons now or hereafter or any rights to
purchase Company Securities for a period of 180 days after the date of
the Prospectus first filed pursuant to Rule 424(b) under the Act (the
"Restriction Period"), without your prior written consent, or (ii)
exercise or seek to exercise or effectuate in any manner any rights of
any nature that such persons have or may hereafter have to require the
Company to register under the Act any such person's sale, transfer or
other disposition of any Company Securities or other securities of the
Company held by any such persons, or to otherwise participate as a
selling securityholder in any manner in any registration effected by the
Company under the Act, including the registration to which this Agreement
relates, before the expiration of the Restriction Period.
(cc) All of the following transactions (collectively, the
"Company Transactions") have occurred prior to the date hereof:
(i) The Company has merged with and into Rock of Ages
Quarries, Inc., a Vermont corporation, with Rock of Ages Quarries,
Inc. as the surviving corporation, which changed its name to Rock
of Ages Corporation;
(ii) Rock of Ages Quarries Canada, a __________
corporation, merged with and into Rock of Ages Canada Inc., a
__________ corporation, with Rock of Ages Canada Inc. as the
surviving corporation;
(iii) the capital stock of Royalty Granite Corporation
(Georgia), a Georgia corporation, was contributed by Swenson
Granite Company, Inc., a New Hampshire corporation ("Swenson"), to
the Company;
(iv) (A) Rock of Ages Canada Inc. transferred the shares
of Norgranite, Inc., a __________ corporation, to Group Polycor
International, a ____________ corporation, for nominal
consideration and dividended to the Company the shares of Group
Polycor International, and (B) the Company dividended such shares
and a [granite memorial manufacturing] plant in Barre, Vermont
acquired from Anderson-Friberg Co., Inc. and certain equipment
contained therein to Swenson;
(v) the Company purchased all of the shares of capital
stock of Rock of Ages Asia, a ____________ corporation, owned by
Quarry Capital Limited, a Bermuda ____________, for $______ in
cash;
(vi) (A) the Company acquired KSM, Inc., a Georgia
corporation ("KSM") and the successor to Keystone Memorials, Inc.,
a ___________ corporation, pursuant to a merger of KSM with and
into the Company with the Company as the surviving corporation;
all outstanding shares of KSM capital stock are converted into
526,882 shares of the Company's Common Stock, which were issued to
Missouri Red Quarries, Inc., a Georgia corporation ("Missouri
Red") and the sole shareholder of KSM, (B) the Company contributed
to Royalty Granite Corporation (Georgia) substantially all of the
assets and liabilities of KSM, including 50% of the issued and
outstanding capital stock of each of Southern Mausoleum, Inc., a
Georgia corporation, Pennsylvania Granite Corporation, a
Pennsylvania corporation, Caprice Blue Quarry, Inc., Georgia
corporation, and Autumn Rose Quarry, Inc., a Georgia corporation
(collectively, the "Quarry Companies"), and (C) Royalty Granite
Corporation (Georgia) changed its name to Keystone Memorials,
Inc.; and
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<PAGE> 13
(vii) the Company has effected a reincorporation merger
with and into a newly formed wholly-owned subsidiary of the
Company, incorporated under the laws of the State of Delaware,
with the wholly-owned subsidiary surviving and renamed as Rock of
Ages Corporation.
7. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
of the Selling Stockholders hereby severally represents and warrants to each
Underwriter on the date hereof (except as otherwise set forth herein), and shall
be deemed to severally represent and warrant to each Underwriter on the Closing
Date and the Additional Closing Date, that:
(a) Such Selling Stockholder has full right, power and
authority to enter into this Agreement and the Power of Attorney and
Custody Agreement, and to sell, assign, transfer and deliver the Shares
to be sold by such Selling Stockholder hereunder.
(b) This Agreement and the Power of Attorney and Custody
Agreement have been duly authorized, executed and delivered by such
Selling Stockholder and this Agreement and the Power of Attorney and
Custody Agreement constitute the valid and binding agreements of such
Selling Stockholder enforceable against such Selling Stockholder in
accordance with their respective terms, except to the extent
enforceability may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors' rights generally or by general
equitable principles, whether considered in a proceeding at law or in
equity, and further that rights to indemnify and contribution hereunder
may be limited by federal or state securities laws or the public policy
underlying such laws; the performance of this Agreement and the Power of
Attorney and Custody Agreement and the consummation of the transactions
contemplated herein and therein will not result in a breach or violation
of any of the terms or provisions of, or constitute a default under, any
statute, indenture, mortgage, deed of trust, voting trust agreement, note
agreement, lease or other agreement or instrument to which such Selling
Stockholder is a party or by which such Selling Stockholder or such
Selling Stockholder's properties are bound, or under any order, rule or
regulation of any court or governmental agency or body applicable to such
Selling Stockholder or the business or property of such Selling
Stockholder.
(c) Such Selling Stockholder has, and immediately prior to the
Closing Date (and the Additional Closing Date, if any) such Selling
Stockholder will have, valid and marketable title to the Shares to be
sold by such Selling Stockholder hereunder, free and clear of all liens,
encumbrances, equities, stockholder agreements, voting trusts or claims
of any nature whatsoever, and, upon delivery of such Shares and payment
therefor pursuant hereto, valid and marketable title to such Shares, free
and clear of all liens, encumbrances, equities, stockholder agreements,
voting trusts or claims of any nature whatsoever (other than those
arising by or through the Underwriters), will pass to the several
Underwriters.
(d) Such Selling Stockholder will not, for a period of 180 days
after the date of the Prospectus first filed pursuant to Rule 424(b)
under the act (the "Restriction Period"), (i) directly or indirectly,
sell, offer or contract to sell, or otherwise dispose of or transfer any
shares of Company Securities owned or controlled by such Selling
Stockholder now or hereafter or any rights to purchase Company
Securities, without the Representative's prior written consent, or (ii)
exercise or seek to exercise or effectuate in any manner any rights of
any nature that such persons have or may hereafter have to require the
Company to register under the Act any such person's sale, transfer or
other disposition of any Company Securities or other securities of the
Company held by any such persons, or to otherwise participate as a
selling securityholder in any manner in any registration effected by the
Company under the Act, including the registration to which this Agreement
relates, before the expiration of the Restriction Period.
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(e) Such Selling Stockholder has not taken, and will not take,
directly or indirectly, any action designed to or which has constituted
nor which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Shares.
(f) No consent, approval, authorization or order of, or any
filing or declaration with, any court or governmental agency or body is
required to be made or obtained by such Selling Stockholder in connection
with the execution and delivery by such Selling Stockholder of this
Agreement or the Power of Attorney and Custody Agreement or for the
consummation by such Selling Stockholder of the transactions on his part
contemplated herein or in the Power of Attorney and Custody Agreement or
the sale and delivery of the Shares to be sold by such Selling
Stockholders hereunder, except such as have been obtained under the Act
and such as may be required under state securities or Blue Sky laws or
the by-laws and rules of the NASD in connection with the purchase and
distribution by the Underwriters of the Shares to be sold by the Selling
Stockholder.
(g) The information with respect to such Selling Stockholder
contained in the Registration Statement, the Prepricing Prospectus and
the Prospectus (as amended or supplemented, if the Company shall have
filed with the Commission any amendment or supplement thereto) does not
contain any untrue statement of a material fact or, to such Selling
Stockholder's knowledge, omit to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading.
(h) The Selling Stockholder has not distributed and will not
distribute any Prepricing Prospectus, the Prospectus or any other
offering material in connection with the offering and sale of the Shares,
other than with your prior written consent and as permitted by the Act.
(i) On the Closing Date, and on the Additional Closing Date, if
any, all stock transfer and other taxes (other than income taxes) which
are required to be paid in connection with the sale and transfer of the
Shares to be sold by the Selling Stockholder to the several Underwriters
hereunder will have been fully paid for by such Selling Stockholder and
all laws imposing such taxes will have been fully complied with.
In order to document the Underwriters' compliance with the reporting and
withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982
with respect to the transactions herein contemplated, the Selling Stockholders
severally agree to deliver to you at least two days prior to the Closing Date a
properly completed and executed United States Treasury Department Form W-9 (or
other applicable form or statement specified by Treasury Department regulations
in lieu thereof).
Each of the Selling Stockholders represents and warrants that
certificates in negotiable form representing all of the Shares to be sold by
such Selling Stockholder hereunder (or shares of Swenson Granite Company, Inc.
that will be converted into such shares as part of the Reorganization) have been
placed in custody under a Power of Attorney and Custody Agreement in the form
heretofore furnished to you, duly executed and delivered by such Selling
Stockholder to [THE COMPANY'S TRANSFER AGENT,] as custodian (the "Custodian"),
and that pursuant to such Power of Attorney and Custody Agreement such Selling
Stockholder has duly appointed _________________ and ____________________ as
such Selling Stockholder's attorneys-in-fact (the "Attorneys-in-Fact") with
authority to execute and deliver this Agreement on behalf of such Selling
Stockholder, to determine the purchase price to be paid by the Underwriters to
the Selling Stockholders as provided in Section 2 hereof, to authorize the
delivery of the Shares to be sold by such Selling Stockholder hereunder or
otherwise to act on behalf of such Selling Stockholder in connection with the
transactions contemplated by this Agreement and the Power of Attorney and
Custody Agreement. Each of the Selling Stockholders specifically agrees that the
Shares represented by the certificates held in custody for such Selling
Stockholders under the Power of Attorney and Custody Agreement are subject to
the interest of the Underwriters hereunder, and that the arrangements made by
such Selling Stockholder for such custody, and the appointment by such Selling
Stockholder of the Attorneys-in-Fact pursuant to the Power
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<PAGE> 15
of Attorney and Custody Agreement, are to that extent irrevocable. Each of the
Selling Stockholders specifically agrees that the obligations of such Selling
Stockholders hereunder shall not be terminated by operation of law, whether by
the death or incapacity of any individual Selling Stockholder or, in the case of
an estate or trust, by the death or incapacity of any executor or trustee or the
termination of such estate or trust, or in the case of a partnership or
corporation, by the dissolution of such partnership or corporation, or by the
occurrence of any other event. If any individual Selling Stockholder or any
executor or trustee should die or become incapacitated, or if any such estate or
trust shall be terminated, or if any such partnership or corporation should be
dissolved, or if any other such event should occur before the delivery of the
Shares hereunder, certificates representing the Shares shall be delivered by or
on behalf of the Selling Stockholders in accordance with the terms and
conditions of this Agreement and the Power of Attorney and Custody Agreement,
and actions taken by the Attorneys-in-Fact pursuant to the Power of Attorney and
Custody Agreement shall be as valid as if such death, incapacity, termination,
dissolution or other event had not occurred, regardless of whether or not the
Custodian, the Attorneys-in-Fact, or any of them, shall have received notice of
such death, incapacity, termination, dissolution or other event.
8. EXPENSES. Whether or not the transactions contemplated hereby are
consummated or this Agreement becomes effective or is terminated, the Company
will pay or cause to be paid the following: (i) the fees, disbursements and
expenses of the Company's counsel and accountants in connection with the
registration of the Shares under the Act and all other expenses in connection
with the preparation, printing and filing of the Registration Statement and the
Prospectus and amendments and supplements thereto and the mailing and delivering
of copies thereof and of any Prepricing Prospectus to the Underwriters and
dealers; (ii) the printing and delivery (including, without limitation, postage,
air freight charges and charges for counting and packaging) of such copies of
the Registration Statement, the Prospectus, each Prepricing Prospectus, the Blue
Sky memoranda, the Power of Attorney and Custody Agreement, the Master Agreement
Among Underwriters, this Agreement, the Selected Dealers Agreement and all
amendments or supplements to any of them as may be reasonably requested for use
in connection with the offering and sale of the Shares; (iii) all expenses in
connection with the qualification of the Shares for offering and sale under
state securities laws or Blue Sky laws, including the reasonable attorneys' fees
and out-of-pocket expenses of the counsel for the Underwriters in connection
therewith; (iv) the filing fees incident to securing any required review by the
NASD of the terms of the sale of the Shares and the reasonable fees and
disbursements of the Underwriters' counsel relating thereto; (v) the cost of
preparing stock certificates; (vi) the costs and charges of any transfer agent
or registrar; (vii) the cost of the tax stamps, if any, in connection with the
issuance and delivery of the Shares to the respective Underwriters; (viii) all
other fees, costs and expenses referred to in Item 25 of the Registration
Statement, (ix) the transportation, lodging, graphics and other expenses
incidental to the Company's preparation for and participation in the "roadshow"
for the offering contemplated hereby, and (x) all other costs and expenses
incident to the performance of the obligations of the Company hereunder which
are not otherwise specifically provided for in this Section 8. Notwithstanding
the foregoing, in the event that the proposed offering is terminated for the
reasons set forth in Section 5(i) hereof, the Company agrees to reimburse the
Underwriters as provided in Section 5(i).
9. INDEMNIFICATION AND CONTRIBUTION. Subject to the limitations in
this paragraph below, the Company and the Selling Stockholders severally but not
jointly, agree to indemnify and hold harmless you and each other Underwriter,
the directors, officers, employees and agents of each Underwriter, and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") from and against any and all losses, claims, damages,
liabilities and expenses, including, without limitation, reasonable costs of
investigation and attorneys' fees and expenses (collectively, "Damages") arising
out of or based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in any Prepricing Prospectus or in the Registration
Statement or the Prospectus or in any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except to the extent that any such Damages arise out of or are based upon an
untrue statement or omission or alleged untrue statement or omission which has
been made therein or omitted therefrom in reliance upon and in conformity with
the information furnished in writing to the Company by or on behalf of any
Underwriter through you expressly for
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<PAGE> 16
use in connection therewith, or (ii) any inaccuracy in or breach of the
representations and warranties of the Company or the Selling Stockholders
contained herein or any failure of the Company or the Selling Stockholders to
perform their respective obligations hereunder or under law; PROVIDED, HOWEVER,
that (A) the indemnity agreement of each Selling Stockholder contained in this
paragraph shall apply only with respect to Damages arising out of or based upon
any such untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information furnished by
such Selling Stockholder in writing to the Company expressly for use in or in
connection with the Registration Statement and the offering contemplated
thereby, or arising out of or based upon any such inaccuracy or breach of such
Selling Stockholder's representations and warranties contained herein or any
failure of such Selling Stockholder to perform his or its obligations hereunder
or under law, and (B) with respect to any untrue statement or omission made in
any Prepricing Prospectus, the indemnity agreement contained in this paragraph
shall not inure to the benefit of any Underwriter (or to the benefit of any
person controlling such Underwriter) from whom the person asserting any such
losses, claims, damages or liabilities purchased the Shares concerned if both
(y) a copy of the Prospectus was not sent or given to such person at or prior to
the written confirmation of the sale of such Shares to such person as required
by the Act, and (z) the untrue statement or omission in the Prepricing
Prospectus was corrected in the Prospectus. Notwithstanding anything in this
Section 9, in no event shall any Selling Stockholder's obligation under this
Section 9 exceed the total net proceeds from the offering received by such
Selling Stockholder (computed without deduction for any income taxes); it being
agreed that the Company shall bear the balance.
In addition to its other obligations under this Section 9, the Company
and the Selling Stockholders agree that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any inaccuracy in the
representations and warranties of the Company or any Selling Stockholder herein
or failure to perform their obligations hereunder, all as set forth in this
Section 9, they will reimburse each Underwriter on a quarterly basis for all
reasonable legal or other out-of-pocket expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Company's or any Selling Stockholder's
obligation to reimburse each Underwriter for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, each Underwriter shall promptly return
it to the person(s) from whom it was received, together with interest compounded
daily determined on the basis of the base lending rate announced from time to
time by Chase Manhattan Bank, N.A. (the "Prime Rate"). Any such interim
reimbursement payments which are not made to the Underwriters within 30 days of
a request for reimbursement shall bear interest at the Prime Rate from the date
of such request.
If any action or claim shall be brought against any Underwriter or any
person controlling any Underwriter in respect of which indemnity may be sought
against the Company or any Selling Stockholder, such Underwriter or such
controlling person shall promptly notify in writing the party(s) against whom
indemnification is being sought (the "indemnifying party" or "indemnifying
parties"), and such indemnifying party(s) shall assume the defense thereof,
including the employment of counsel reasonably acceptable to such Underwriter or
such controlling person and payment of all fees and expenses. Such Underwriter
or any such controlling person shall have the right to employ separate counsel
in any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Underwriter or such
controlling person unless (i) the indemnifying party(s) has (have) agreed in
writing to pay such fees and expenses, (ii) the indemnifying party(s) has (have)
failed to assume the defense and employ counsel reasonably acceptable to the
Underwriter or such controlling person or (iii) the named parties to any such
action (including any impleaded parties) include both such Underwriter or such
controlling person and the indemnifying party(s), and such Underwriter or such
controlling person shall have been advised by its counsel in writing that one or
more legal defenses may be available to the Underwriter which may not be
available to the Company, or that representation of such indemnified party and
any indemnifying party(s) by the same counsel would be inappropriate under
applicable standards of professional conduct (whether or not such representation
by the same counsel has been proposed) due to actual or potential differing
interests between them (in which case the indemnifying party(s) shall not have
the right to assume the defense of such action on behalf of
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<PAGE> 17
such Underwriter or such controlling person (notwithstanding its (their)
obligation to bear the fees and expenses of such counsel)). It is understood,
however, that the indemnifying parties shall, in connection with any one such
action, suit or proceeding or separate but substantially similar or related
actions, suits or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of only one separate firm of attorneys (in addition to any local
counsel) at any time for all such Underwriters and controlling persons not
having actual or potential differing interests. The indemnifying party(s) shall
not be liable for any settlement of any such action effected without its (their)
written consent, but if settled with such written consent, or if there be a
final judgment for the plaintiff in any such action, the indemnifying party(s)
agrees to indemnify and hold harmless any Underwriter and any such controlling
person from and against any loss, claim, damage, liability or expense by reason
of such settlement or judgment, but in the case of a judgment only to the extent
stated in the immediately preceding paragraph.
Each Underwriter agrees, severally and not jointly, to indemnify and hold
harmless the Company, its directors, its officers who sign the Registration
Statement, and any person who controls the Company within the meaning of Section
15 of the Act or Section 20 of the Exchange Act and the Selling Stockholders, to
the same extent as the foregoing indemnity from the Company and the Selling
Stockholders to each Underwriter, but only with respect to information furnished
in writing by or on behalf of such Underwriter through you expressly for use in
the Registration Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto. If any action or claim shall be brought or
asserted against the Company, any of its directors, any such officers, or any
such controlling person or the Selling Stockholders based on the Registration
Statement, the Prospectus or any Prepricing Prospectus, or any amendment or
supplement thereto, and in respect of which indemnity may be sought against any
Underwriter pursuant to this paragraph, such Underwriter shall have the rights
and duties given to the Company and the Selling Stockholders by the preceding
paragraph (except that if the Company shall have assumed the defense thereof
such Underwriter shall not be required to do so, but may employ separate counsel
therein and participate in the defense thereof, but the fees and expenses of
such counsel shall be at such Underwriter's expense), and the Company, its
directors, any such officers, and any such controlling persons and the Selling
Stockholders shall have the rights and duties given to the Underwriters by the
immediately preceding paragraph.
In addition to its other obligations under this Section 9, each
Underwriter severally agrees that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in this Section 9 which relates to information furnished to the
Company in writing by or on behalf of the Underwriters through you expressly for
use in the Registration Statement, it will reimburse the Company (and, to the
extent applicable, each officer, director, controlling person or Selling
Stockholder) on a quarterly basis for all reasonable legal or other
out-of-pocket expenses incurred in connection with investigating or defending
any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Underwriters' obligation to reimburse the Company (and, to
the extent applicable, each officer, director, controlling person or Selling
Stockholder) for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Company (and, to the extent applicable, each officer, director,
controlling person or Selling Stockholder) shall promptly return it to the
Underwriters together with interest, compounded daily, determined on the basis
of the Prime Rate. Any such interim reimbursement payments which are not made to
the Company within 30 days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request.
If the indemnification provided for in this Section 9 is unavailable or
insufficient for any reason whatsoever to an indemnified party under the first
or fourth paragraph of this Section 9 in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then an indemnifying party, in lieu
of indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities or expenses (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Stockholders on the
one hand and the Underwriters on the other hand
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from the offering of the Shares or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company and the Selling Stockholders on the one
hand and the Underwriters on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company and the Selling Stockholders bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus; provided that, in the
event that the Underwriters shall have purchased any Additional Shares
hereunder, any determination of the relative benefits received by the Company
and the Selling Stockholders or the Underwriters from the offering of the Shares
shall include the net proceeds (before deducting expenses) received by the
Company and the Selling Stockholders, and the underwriting discounts and
commissions received by the Underwriters, from the sale of such Additional
Shares, in each case computed on the basis of the respective amounts set forth
in the notes to the table on the cover page of the Prospectus. The relative
fault of the Company and the Selling Stockholders on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company and the Selling Stockholders on the one hand or by the
Underwriters on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company, the Selling Stockholders and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 9 was
determined by a pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities and expenses referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 9, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price of the Shares underwritten by it and distributed to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 9 are several in proportion to the respective numbers of Firm Shares set
forth opposite their names in Schedule I hereto (or such numbers of Firm Shares
increased as set forth in Section 11 hereof) and not joint.
The indemnity, contribution and reimbursement agreements contained in
this Section 9 and the representations and warranties of the Company and the
Selling Stockholders, respectively, set forth in this Agreement shall remain
operative and in full force and effect, regardless of (i) any investigation made
by or on behalf of any Underwriter or any person controlling any Underwriter,
the Company, its directors or officers or any person controlling the Company or
the Selling Stockholders, (ii) acceptance of any Shares and payment therefor
hereunder and (iii) any termination of this Agreement. A successor to any
Underwriter or any person controlling any Underwriter, or to the Company, its
directors or officers, or any person controlling the Company or the Selling
Stockholders, shall be entitled to the benefits of the indemnity, contribution
and reimbursement agreements contained in this Section 9.
It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in the second and fifth paragraphs
of this Section 9, including the amounts of any requested reimbursement payments
and the method of determining such amounts, shall be settled by arbitration
conducted pursuant to the Code of Arbitration Procedure of the NASD. Any such
arbitration must be commenced by service of a written demand for arbitration or
written notice of intention to arbitrate, therein electing the arbitration
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tribunal. In the event the party demanding arbitration does not make such
designation of an arbitration tribunal in such demand or notice, then the party
responding to said demand or notice is authorized to do so. Such an arbitration
would be limited to the operation of the interim reimbursement provisions
contained in the second and fifth paragraphs of this Section 9, and would not
resolve the ultimate propriety or enforceability of the obligation to reimburse
expenses which is created by the provisions of the second and fifth paragraphs
of this Section 9.
10. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations
of the Underwriters to purchase the Firm Shares hereunder are subject to the
following conditions:
(a) The Registration Statement shall have become effective not
later than 5:30 p.m., New York City time, on the date hereof, or at such later
date and time as shall be consented to in writing by you, and all filings
required by Rules 424(b), 430A and 462 under the Act shall have been timely
made.
(b) You shall be reasonably satisfied that since the respective
dates as of which information is given in the Registration Statement and
Prospectus, (i) there shall not have been any change in the capital stock (other
than pursuant to the consummation of the Company Transactions as described in
Section 6(dd) hereof and the Prospectus) of the Company or any material change
in the indebtedness (other than in the ordinary course of business) of the
Company, (ii) except as set forth or contemplated by the Registration Statement
or the Prospectus, no material oral or written agreement or other transaction
shall have been entered into by the Company which is not in the ordinary course
of business or which could reasonably be expected to result in a material
reduction in the future earnings of the Company, (iii) no loss or damage
(whether or not insured) to the property of the Company shall have been
sustained which had or could reasonably be expected to have a Material Adverse
Effect, (iv) no legal or governmental action, suit or proceeding affecting the
Company or any of its properties which is material to the Company and its
subsidiaries taken as a whole or which affects or could reasonably be expected
to affect the transactions contemplated by this Agreement shall have been
instituted or threatened, and (v) there shall not have been any change in the
condition (financial or otherwise), business, management, results or operations
or prospects of the Company having a Material Adverse Effect which makes it
impractical or inadvisable in your judgment to proceed with the public offering
or purchase the Shares as contemplated hereby.
(c) You shall have received on the Closing Date (and the
Additiona l Closing Date, if any) an opinion of Skadden, Arps, Slate, Meagher &
Flom LLP, as counsel for the Company, dated the Closing Date, satisfactory to
you and your counsel, to the effect that:
(i) The Company has been duly incorporated and is
validly existing and in good standing under the laws of the State
of Delaware, with the corporate power and authority to own, lease
and operate its properties and to conduct its business as
described in the Registration Statement and the Prospectus (and
any amendment or supplement thereto), and is duly registered or
otherwise qualified to conduct its business as a foreign
corporation and is in good standing under the laws of the states
listed in the Officer's Certificate to be attached to such
counsel's opinion (the "Officer's Certificate").
(ii) Each of the subsidiaries is a corporation validly
existing in good standing under the laws of the jurisdiction of
its organization, with full corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Registration Statement and the Prospectus (and
any amendment or supplement thereto); and is duly registered and
qualified to conduct its business and is in good standing as a
foreign corporation under the laws of the states listed in the
Officer's Certificate; and all of the outstanding shares of
capital stock of each of the subsidiaries have been duly
authorized and validly issued, and are fully paid and
nonassessable, and are owned by the Company directly, or
indirectly through one of the other subsidiaries, free and clear
of any perfected security interest, or to the best knowledge of
such
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counsel after reasonable inquiry, any other security interest,
lien, adverse claim, equity or other encumbrance.
(iii) The authorized and the outstanding capital stock of
the Company conforms in all respects to the description thereof
contained in the Prospectus under the captions "Capitalization"
and "Description of Capital Stock." Except as set forth in the
Prospectus, to the best of such counsel's knowledge, the Company
is not a party to or bound by any outstanding options, warrants or
similar rights to subscribe for, or contractual obligations to
issue, sell, transfer or acquire, any of its capital stock or any
securities convertible into or exchangeable for any of such
capital stock.
(iv) All shares of capital stock of the Company
outstanding prior to the issuance of the Shares to be issued and
sold by the Company hereunder, have been duly authorized and
validly issued, and are fully paid and nonassessable and are free
of any statutory preemptory rights or preemptory rights in the
Company's charter or bylaws or, to the best knowledge of such
counsel, similar rights that entitle or will entitle any person to
acquire any shares upon the issuance thereof by the Company.
(v) The Shares to be issued and sold to the Underwriters
by the Company and the Selling Stockholders hereunder have been
duly authorized and, when issued and delivered to the Underwriters
against payment therefor in accordance with the terms hereof, such
Shares will be validly issued, fully paid and nonassessable and
free and clear of all liens, claims and encumbrances.
(vi) The form of certificates for the Shares conforms in
all material respects to the requirements of the Delaware General
Corporation Law.
(vii) The Registration Statement has become effective
under the Act and, to the best knowledge of such counsel, no stop
order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose are pending
before or contemplated by the Commission.
(viii) The Company has the requisite corporate power and
corporate authority to enter into this Agreement and to issue,
sell and deliver the Shares to be sold by it to the Underwriters
as provided herein, and this Agreement has been duly authorized,
executed and delivered by the Company and is a valid, legal and
binding agreement of the Company enforceable against the Company
in accordance with its terms, except to the extent enforceability
may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors' rights generally or by general
equitable principles, and except to the extent enforceability of
the provisions relating to indemnity and contribution for
liabilities under the Act may be limited by or under the Act.
(ix) Neither the Company nor any of the subsidiaries is
in violation of its certificate of incorporation or bylaws, and,
to the best knowledge of such counsel, the Company is not in
default in the performance of any obligation, agreement or
condition contained in any agreement that is an exhibit to the
Registration Statement where the default would have, individually
or in the aggregate, a Material Adverse Effect.
(x) Neither the offer, sale or delivery of the Shares,
the execution, delivery or performance of this Agreement,
compliance by the Company with all provisions hereof nor
consummation by the Company of the transactions contemplated
hereby (A) conflicts or will conflict with or constitutes or will
constitute a breach of, or a default under, the certificate of
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<PAGE> 21
incorporation or bylaws of the Company or any agreement that is an
exhibit to the Registration Statement, (B) creates or will result
in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company, or (C) violates or
will result in any violation of any existing law, statute,
regulation, ruling (assuming compliance with all applicable state
securities and Blue Sky laws), judgment, injunction, order or
decree which is known to such counsel and applicable to the
Company or any of its properties.
(xi) No consent, approval, authorization or other order
of, or registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency or
official is required on the part of the Company (except such as
have been obtained under the Act or such as may be required under
state securities or Blue Sky laws governing the purchase and
distribution of the Shares) for the valid issuance and sale of the
Shares to the Underwriters under this Agreement.
(xii) The Registration Statement and the Prospectus and
any supplements or amendments thereto (except for the financial
statements and the notes thereto and the schedules and other
financial and statistical data included therein, as to which such
counsel need not express any opinion) comply as to form in all
material respects with the requirements of the Act. Without
limiting the generality of the foregoing, any Rule 434 Prospectus
conforms in all material respects with the requirements of Rule
434 under the Act.
(xiii) To the best knowledge of such counsel, (A) there are
no legal or governmental proceedings pending or threatened
against the Company or to which the Company or any of its
properties is subject, that are required to be described in the
Registration Statement or Prospectus (or any amendment or
supplement thereto) that are not described as required therein,
and (B) there are no agreements, contracts, indentures, leases or
other instruments that are required to be described in the
Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement that are not described or
filed as required, as the case may be.
(xiv) To the best knowledge of such counsel, the Company
is not in violation of any law, ordinance, administrative or
governmental rule or regulation applicable to the Company or of
any decree of any court or governmental agency or body having
jurisdiction over the Company except where such violation does not
and will not have a Material Adverse Effect.
(xv) To the best knowledge of such counsel, the Company
has such permits, licenses, franchises, approvals, consents and
authorizations of governmental or regulatory authorities
("Permits"), as are necessary for the Company to own its
properties and to conduct its business in the manner described in
the Prospectus, except where the failure to have such Permits
would not individually or in the aggregate have a Material Adverse
Effect.
(xvi) Such counsel has reviewed all agreements, contracts,
indentures, leases or other documents or instruments described or
referred to in the Registration Statement and the Prospectus
(other than routine contracts entered into by the Company for the
purchase of materials or the sale of products entered into in the
normal course of business, although such counsel has reviewed the
forms of such routine contracts), and such agreements, contracts
(and forms of contracts), indentures, leases or other documents or
instruments are fairly summarized or disclosed in all material
respects therein, and filed as exhibits thereto as required, and
such counsel does not know, after reasonable inquiry, of any
agreements, contracts, indentures, leases or other documents or
instruments required to be so summarized or disclosed or filed
which have not been so summarized or disclosed or filed.
21
<PAGE> 22
(xvii) The Company is not an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter"
for, an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended.
In rendering such opinion, counsel may rely, to the extent they
deem such reliance proper, as to matters of fact upon certificates of officers
of the Company and of government officials, provided that counsel shall state
their belief that they and you are justified in relying thereon. Copies of all
such certificates shall be furnished to you and your counsel on the Closing
Date.
In rendering such opinion, in each case where such opinion is
qualified by "the best knowledge of such counsel" or "known to such counsel,"
such counsel may rely as to matters of fact upon certificates of executive and
other officers and employees of the Company as you and such counsel shall deem
are appropriate and such other procedures as you and such counsel shall mutually
agree; provided, however, in each such case, such counsel shall state that it
has no knowledge contrary to the information contained in such certificates or
developed by such procedures and knows of no reason why you should not
reasonably rely upon the information contained in such certificates or developed
by such procedures. Such counsel may state in such opinion that its knowledge is
limited to the knowledge of its attorneys and other representatives and
employees that have given attention to the Company's matters.
In addition to the opinion set forth above, such counsel shall state that
during the course of their participation in the preparation of the Registration
Statement and the Prospectus and the amendments thereto, nothing has come to the
attention of such counsel which has caused them to believe or given them reason
to believe that the Registration Statement or the Prospectus or any amendment
thereto (except for the financial statements and other financial and statistical
information contained therein or omitted therefrom as to which no opinion need
be expressed), at the date thereof, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that the Registration
Statement or the Prospectus as of the date of the opinion (except as aforesaid),
contains an untrue statement of a material fact or omits to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(d) You shall have received on the Closing Date (and the
Additional Closing Date, if any) the opinion of Skadden, Arps, Slate,
Meagher & Flom LLP, as counsel for the Selling Stockholders, dated the
Closing Date (and the Additional Closing Date, if any) in form and
substance satisfactory to you, to the effect that:
(i) This Agreement, and the Power of Attorney and
Custody Agreement have been duly authorized, executed and
delivered by or on behalf of each of the Selling Stockholders and
constitute valid and binding agreements of such Selling
Stockholder enforceable in accordance with their respective terms,
except to the extent enforceability may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or
other similar laws relating to or affecting enforcement of
creditors' rights generally or by general equitable principles
(regardless of whether enforcement is sought in equity or at law);
and the performance of this Agreement, the Power of Attorney and
Custody Agreement and the consummation of the transactions herein
and therein contemplated will not result in a breach or violation
of any of the terms or provisions of, or constitute a default
under, any statute, indenture, mortgage, deed of trust, voting
trust agreement, note agreement, lease or other agreement or
instrument of which such counsel is aware and to which such
Selling Stockholder is a party or by which such Selling
Stockholder or its properties are bound, or any order, rule or
regulation, known to such counsel of any court or governmental
agency or body applicable to such Selling Stockholders or the
business or property of such Selling Stockholders.
22
<PAGE> 23
(ii) No consent, approval, authorization or order has
been or is required for the consummation by the Selling
Stockholders of the transactions contemplated by this Agreement,
and the Power of Attorney and Custody Agreement in connection with
the sale of the Shares to be sold by each of the Selling
Stockholders hereunder, except consents, approvals, authorizations
or orders which have been duly obtained and are in full force and
effect, such as have been obtained under the Act and such as may
be required under state securities or Blue Sky laws in connection
with the purchase and distribution of such Shares by the
Underwriters.
(iii) Immediately prior to the Closing Date, each Selling
Stockholder was the sole registered owner of the Shares to be sold
by such Selling Stockholder under this Agreement. Assuming the
Underwriters acquired their interest in the Shares to be sold by
the Selling Stockholders in good faith and without notice of any
adverse claim within the meaning of Section 8-302 of the Uniform
Commercial Code as in effect in the State of Massachusetts, upon
delivery of the Underwriters in the State of Massachusetts of
certificates representing the shares that are endorsed to the
Underwriters or endorse in blank, the Underwriters will acquire
all rights of the Selling Stockholders in the Shares free of any
adverse claims within the meaning of Section 8-302.
In rendering such opinion, such counsel may rely upon a
certificate of the Selling Stockholders as to matters of fact (i) with
respect to ownership of and liens, encumbrances, equities or claims on
the Shares sold by the Selling Stockholders, and (ii) with respect to any
agreements, mortgages, deeds of trust, voting trusts, notes, leases or
other instruments, provided that such counsel shall state that they
believe that both you and they are justified in relying upon such
certificates.
(e) You shall have received on the Closing Date an opinion of
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., as counsel
for the Underwriters, dated the Closing Date with respect to the issuance
and sale of the Firm Shares, the Registration Statement and other related
matters as you may reasonably request, and the Company and its counsel
shall have furnished to your counsel such documents as they may
reasonably request for the purpose of enabling them to pass upon such
matters.
(f) You shall have received letters addressed to you and dated
the date hereof and the Closing Date from the firms of KPMG Peat Marwick
LLP and Green & Co., independent certified public accountants,
substantially in the forms heretofore approved by you.
(g) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall be pending or, to the knowledge of the Company, shall be
threatened or contemplated by the Commission at or prior to the Closing
Date; (ii) no order suspending the effectiveness of the Registration
Statement or the qualification or registration of the Shares under the
securities or Blue Sky laws of any jurisdiction shall be in effect and no
proceeding for such purpose shall be pending or, to the knowledge of the
Company, threatened or contemplated by the Commission or the authorities
of any jurisdiction; (iii) any request for additional information on the
part of the staff of the Commission or any such authorities shall have
been complied with to the satisfaction of the staff of the Commission or
such authorities; (iv) after the date hereof no amendment or supplement
to the Registration Statement or the Prospectus shall have been filed
unless a copy thereof was first submitted to you and you did not object
thereto in good faith; and (v) all of the representations and warranties
of the Company and the Selling Stockholders contained in this Agreement
shall be true and correct in all respects on and as of the date hereof
and on and as of the Closing Date as if made on and as of the Closing
Date, and you shall have received a certificate, dated the Closing Date
and signed by the chief executive officer and the chief financial officer
of the Company (or such other officers as are acceptable to you) to the
effect set forth in this Section 10(g) and in Sections 10(b) and 10(h)
hereof.
23
<PAGE> 24
(h) The Company shall not have failed in any material respect
at or prior to the Closing Date to have performed or complied with any of
its agreements herein contained and required to be performed or complied
with by it hereunder at or prior to the Closing Date.
(i) You shall have received a certificate, dated on and as of
the Closing Date, by or on behalf of each Selling Stockholder to the
effect that as of such Closing Date such Selling Stockholders
representations and warranties in this Agreement are true and correct as
if made on and as of such Closing Date, and that such Selling Stockholder
has performed all such Selling Stockholder's obligations and satisfied
all the conditions on such Selling Stockholder's part to be performed or
satisfied at or prior to the Closing Date.
(j) The Company and the Selling Stockholders shall have
furnished or caused to have been furnished to you such further
certificates and documents as you shall have reasonably requested.
(k) At or prior to the Closing Date, you shall have received
the written commitment of each of the Company's officers and directors,
and each of the persons and entities listed on EXHIBIT A hereto, not to
(i) directly or indirectly sell, offer or contract to sell, or otherwise
dispose of or transfer any shares of Common Stock or securities of the
Company convertible into or exchangeable or exercisable for Common Stock
(collectively, "Company Securities") owned or controlled by such persons
now or hereafter or any rights to purchase Company Securities, for a
period of 180 days after the date of the Prospectus first filed pursuant
to Rule 424(b) under the Act (the "Restriction Period"), without your
prior written consent, or (ii) exercise or seek to exercise or effectuate
in any manner any rights of any nature that such persons have or may
hereafter have to require the Company to register under the Act any such
person's sale, transfer or other disposition of any Company Securities or
other securities of the Company held by any such persons, or to otherwise
participate as a selling securityholder in any manner in any registration
effected by the Company under the Act, including the registration to
which this Agreement relates, before the expiration of the Restriction
Period.
(l) At or prior to the effective date of the Registration
Statement, you shall have received a letter from the Corporate Financing
Department of the NASD confirming that such Department has determined to
raise no objections with respect to the fairness or reasonableness of the
underwriting terms and arrangements of the offering contemplated hereby.
(m) The Company shall have acquired all of the outstanding
capital stock of both Childs & Childs Granite Company, Inc., a Georgia
corporation, and C&C Granite Company, Inc., a Georgia corporation
(collectively, "Childs & Childs"), and the remaining 50% of the issued
and outstanding capital stock of the Quarry Companies not acquired from
KSM in exchange for (1) aggregate cash consideration of $6,800,000, (2)
shares of Common Stock having an aggregate value of $200,000 based on the
price at which the Common Stock is sold to the public by the
Underwriters, (3) the repayment of all of the indebtedness of the Quarry
Companies attributable to Childs & Childs and (4) the issuance of an
option to purchase [75,000] shares of Common Stock at an exercise price
equal to the price at which the Common Stock is sold to the public by the
Underwriters.
(n) (A) the Company shall have acquired substantially all of
the assets of Keith National Corporation, a ____________ corporation, and
[certain of its affiliated companies] (collectively, "Keith Monument") in
exchange for (1) shares of Common Stock having an aggregate value of
$1,500,000 based upon the price at which the Common Stock is sold to the
public by the Underwriters, (2) aggregate cash consideration of
$14,875,000, less indebtedness payable by Keith Monument, and (3) the
issuance of options to purchase [125,000] shares of Common Stock at an
exercise price equal to the price at which the Common Stock is sold to
the public by the Underwriters, and (B) the Company shall have entered
into five-year employment agreements with each of John Keith and Roy
Keith, Jr. to serve as ___________ and ____________, respectively;
24
<PAGE> 25
(o) Swenson shall have merged with and into the Company with
the Company as the surviving corporation.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
in form and substance to you and your counsel.
The several obligations of the Underwriters to purchase Additional Shares
hereunder are subject to the satisfaction on and as of the Additional Closing
Date of the conditions set forth in this Section 10, except that, if the
Additional Closing Date is other than the Closing Date, the certificates,
opinions and letters referred to in paragraphs (c) through (i) shall be dated as
of the Additional Closing Date and the opinions called for by paragraphs (c) and
(d) shall be revised to reflect the sale of Additional Shares.
If any of the conditions hereinabove provided for in this Section 10
shall not have been satisfied when and as required by this Agreement, this
Agreement may be terminated by you by notifying the Company of such termination
in writing or by telegram at or prior to such Closing Date, but you shall be
entitled to waive any of such conditions.
11. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become effective
upon the later of (a) the execution and delivery hereof by the parties hereto,
and (b) release of notification of the effectiveness of the Registration
Statement by the Commission; provided, however, that the provisions of Sections
8 and 9 shall at all times be effective.
If any one or more of the Underwriters shall fail or refuse to purchase
Firm Shares which it or they have agreed to purchase hereunder, and the
aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than one-tenth
of the aggregate number of the Firm Shares, each non-defaulting Underwriter
shall be obligated, severally, in the proportion which the number of Firm Shares
set forth opposite its name in Schedule I hereto bears to the aggregate number
of Firm Shares set forth opposite the names of all non-defaulting Underwriters
or in such other proportion as you may specify in the Agreement Among
Underwriters, to purchase the Firm Shares which such defaulting Underwriter or
Underwriters agreed, but failed or refused to purchase. If any Underwriter or
Underwriters shall fail or refuse to purchase Firm Shares and the aggregate
number of Firm Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Firm Shares and arrangements satisfactory
to you, the Company and the Selling Stockholders for the purchase of such Firm
Shares are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter, the
Company or the Selling Stockholders. In any such case which does not result in
termination of this Agreement, either you or the Company and the Selling
Stockholders shall have the right to postpone the Closing Date, but in no event
for longer than seven (7) days, in order that the required changes, if any, in
the Registration Statement and the Prospectus or any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any such default
of any such Underwriter under this Agreement.
12. TERMINATION OF AGREEMENT. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company or the Selling Stockholders by notice to the Company
and the Selling Stockholders, if prior to the Closing Date or the Additional
Closing Date (if different from the Closing Date and then only as to the
Additional Shares), as the case may be, (i) trading in the Company's Common
Stock shall have been suspended by the Commission or the NASDAQ/NMS, (ii)
trading in securities generally on the New York Stock Exchange, American Stock
Exchange or NASDAQ/NMS shall have been suspended or materially limited, or
minimum or maximum prices shall have been generally established on such
exchange, or additional material governmental restrictions, not in force on the
date of this Agreement, shall have
25
<PAGE> 26
been imposed upon trading in securities generally by any such exchange or by
order of the Commission or any court or other governmental authority, (iii) a
general moratorium on commercial banking activities shall have been declared by
either federal or New York State authorities or (iv) there shall have occurred
any outbreak or escalation of hostilities or other international or domestic
calamity, crisis or change in political, financial or economic conditions or
other material event the effect of which on the financial markets of the United
States is such as to make it, in your good faith judgment, impracticable or
inadvisable to market the Shares or to enforce contracts for the sale of the
Shares. Notice of such cancellation shall be promptly given to the Company and
its counsel by telegraph, telecopy or telephone and shall be subsequently
confirmed by letter.
13. INFORMATION FURNISHED BY THE UNDERWRITERS. The Company
acknowledges that (i) the paragraph immediately following footnote (3) on the
cover page of the Prospectus, and (ii) the third and seventh paragraphs under
the caption "Underwriting" in any Prepricing Prospectus and in the Prospectus,
constitute the only information furnished by or on behalf of the Underwriters
through you or on your behalf as such information is referred to in Sections
6(a), 6(b) and 9 hereof.
14. MISCELLANEOUS. Except as otherwise provided in Sections 5 and 12
hereof, notice given pursuant to any of the provisions of this Agreement shall
be in writing and shall be delivered (i) if to the Company or Selling
Stockholders, to the office of the Company at 772 Graniteville Road,
Graniteville, Vermont 05654, Attention: Kurt M. Swenson, Chief Executive Officer
(with copy to Skadden, Arps, Slate, Meagher & Flom LLP,; Attention: Kent A.
Coit, Esq. One Beacon Street, Boston, Massachusetts 02108), or (ii) if to you,
as Representatives of the Underwriters, to Raymond James & Associates, Inc., 880
Carillon Parkway, St. Petersburg, Florida 33716, Attention: John Forney, Vice
President (with copy to Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A.,
1221 Brickell Avenue, Miami, Florida 33131, Attention: Jorge L. Freeland, Esq.).
This Agreement has been and is made solely for the benefit of the several
Underwriters, the Company, its directors and officers, and the other controlling
persons referred to in Section 9 hereof, the Selling Stockholders and their
respective successors and assigns, to the extent provided herein, and no other
person shall acquire or have any right under or by virtue of this Agreement.
Neither of the terms "successor" and "successors and assigns" as used in this
Agreement shall include a purchaser from you of any of the Shares in his status
as such purchaser.
15. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be governed by
and construed in accordance with the laws of the State of Massachusetts without
reference to choice of law principles thereunder.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
This Agreement shall be effective when, but only when, at least one
counterpart hereof shall have been executed on behalf of each party hereto.
The Company, the Selling Stockholders and the Underwriters each hereby
irrevocably waive any right they may have to a trial by jury in respect to any
claim based upon or arising out of this Agreement or the transactions
contemplated hereby.
26
<PAGE> 27
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Stockholders and the several Underwriters.
Very truly yours,
ROCK OF AGES CORPORATION
By:
-----------------------------------
Kurt M. Swenson
Chief Executive Officer
SELLING STOCKHOLDERS
By:
------------------------------------
Attorney-in-Fact
As Attorney-in-Fact acting on behalf of
each of the Selling Stockholders named in
Schedule II to this Agreement.
CONFIRMED as of the date first above
mentioned, on behalf of itself and the
other several Underwriters named in
Schedule I hereto.
By:
--------------------------------------
John Forney
Vice President
27
<PAGE> 28
EXHIBIT A
---------
<PAGE> 29
SCHEDULE I
NUMBER OF
NAME FIRM SHARES
- ----------------------------------------------------------------- -----------
Raymond James & Associates, Inc.
--------------------------------
_________________ -----------------------------------------------
_________________ -----------------------------------------------
_________________ -----------------------------------------------
_________________ -----------------------------------------------
_________________ -----------------------------------------------
_________________ -----------------------------------------------
TOTAL
-----------------------------------------------------------
<PAGE> 30
SCHEDULE II
FIRM SHARES ADDITIONAL SHARES TOTAL SHARES
----------- ----------------- ------------
COMPANY
------------------------
SELLING STOCKHOLDERS
________________-------------
________________-------------
________________-------------
________________-------------
________________-------------
________________-------------
________________-------------
________________------------- ___________ _________________ ____________
________________-------------
TOTAL: =========== ================= ============
<PAGE> 1
EXHIBIT 4.1
[Horizontally Set Certificate]
[ROCK OF AGES Logo] (R)
NUMBER SHARES
A
ROCK OF AGES CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CLASS A COMMON STOCK SEE REVERSE FOR CERTAIN DEFINITIONS
$.01 PAR VALUE
- --------------------------------------------------------------------------------
This Certifies That CUSIP 772632 10 5
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NONASSESSABLE SHARES OF THE CLASS A COMMON STOCK OF
ROCK OF AGES CORPORATION
(hereinafter called the "Corporation") transferable on the books of the
Corporation by said owner in person or by duly authorized attorney, upon
surrender of this certificate properly endorsed. This certificate and the shares
represented hereby are issued and shall be held subject to all the provisions of
the Certificate of Incorporation and all amendments thereto, copies of which are
on file at the office of the Transfer Agent, and the holder hereof, by
acceptance of this certificate, consents to and agrees to be bound by all of
said provisions. This certificate is not valid unless countersigned and
registered by the Transfer Agent and Registrar.
Witness, the facsimile seal of the Corporation and by facsimile the
signatures of its duly authorized officers.
Dated:
ROCK OF AGES CORPORATION
CORPORATE
/s/ John R. Monson SEAL /s/ Kurt M. Swenson
1997
SECRETARY DELAWARE PRESIDENT
[Set on Side]
Countersigned and Registered:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, NEW YORK) Transfer Agent
and Registrar
By:
Authorized Signature
<PAGE> 2
ROCK OF AGES CORPORATION
The Corporation will furnish without charge to each stockholder who so requests,
a statement of the powers, designations, preferences and relative,
participating, optional, or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ____________Custodian__________
(Cust) (Minor)
TEN ENT -- as tenants by the entireties under Uniform Gifts to Minors
Act____________________________
JT TEN -- as joint tenants with right of (State)
survivorship and not as tenants
in common
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received ______________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
- --------------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated
------------------------------
------------------------------------------------
NOTICE:THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
--------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM)
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 10.2
FORM OF SWENSON EMPLOYMENT AGREEMENT
------------------------------------
THIS AGREEMENT is made as of this day of
, 1997 by and between ROCK OF AGES CORPORATION, a
Delaware corporation with a principal place of business at 369 North State
Street, Concord, New Hampshire 03301 ("ROAC" or the "Company"), and Kurt M.
Swenson ("Executive"), an individual residing at 336 Putney Hill Road,
Hopkinton, New Hampshire 03229.
ROAC wishes to employ Executive as President and Chief Executive
Officer (the "Position"), and Executive wishes to accept such employment,
subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing, and the covenants
and agreements of the parties herein contained, ROAC and Executive agree as
follows:
1. EMPLOYMENT.
(a) ROAC agrees to employ Executive in the Position, and
Executive accepts employment in the Position, reporting directly to the Board of
Directors of ROAC (the "Board"). As President and Chief Executive Officer,
Executive shall oversee and direct the operations of ROAC, and perform such
other duties consistent with the responsibilities of President and Chief
Executive Officer as the Board shall determine.
2. TERM. The employment of Executive by ROAC hereunder will commence
on the date (the "Commencement Date") of the consummation of ROAC's initial
public offering (the "IPO") and end on the fifth anniversary of the Commencement
Date, unless extended or sooner terminated as hereinafter provided (the "Term").
Commencing with the third anniversary of the Commencement Date, the Term shall
automatically be extended, on each anniversary of the Commencement Date, for an
additional twelve (12) months from the then current expiration date of the Term,
unless either the Executive or the Company provide written notice to the other
party electing not to extend the Term, such notice to be provided at least 90
days prior to the applicable anniversary date.
3. COMPENSATION.
(a) BASE SALARY. During the Term, ROAC shall pay Executive an
annual base salary ("Base Salary") not less than $310,320 or such higher rate
as may from time to time be determined by the Board,
<PAGE> 2
payable in equal monthly installments, or as otherwise required by law. The Base
Salary may be increased from time to time and, if so increased, shall not
thereafter be decreased. Executive's Base Salary will be reviewed by the Board
not less often than annually during the Term.
(b) BONUS. Executive may also be awarded a bonus or bonuses from
time to time during the Term at such time and in such amounts as the Board may
determine in its sole discretion.
(c) EXPENSES. Executive shall be entitled to receive prompt
reimbursement for all reasonable and customary expenses incurred by Executive
during the Term in connection with his services hereunder, including, without
limitation, all travel and living expenses while away from home on business or
at the request of and in the service of ROAC, provided that such expenses are
incurred and accounted for in accordance with policies and procedures
established by ROAC.
(d) EQUITY BASED AWARDS. During the Term, Executive may be
granted such stock, options or other equity based awards, on such terms, as the
Board may determine in its sole discretion.
4.FRINGE BENEFITS. During the Term, Executive shall be entitled to
participate in such fringe benefits as, from time to time, may be applicable to
ROAC's other executive officers, subject to the terms and conditions of such
fringe benefit plans, including without limitation the following fringe
benefits:
(i) medical and major medical health insurance, paid for by
ROAC;
(ii) life insurance paid for by ROAC equal to one and
one-half (1 1/2) times Executive's Base Salary (capped at $280,000 while
Executive is employed hereunder and at $60,000 during retirement);
(iii) participation in ROAC's qualified 401(k) profit
sharing plan pursuant to the terms thereof;
(iv) participation in ROAC's qualified defined benefits
Salaried Employees Pension Plan pursuant to the terms thereof;
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(v) the use of an automobile comparable to the automobiles
provided to other executive officers of ROAC and payment by ROAC of the costs of
operation and maintenance of the automobile; and
(vi) vacation in accordance with ROAC's employee policies,
in effect from time to time.
5. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Executive's employment hereunder
shall terminate automatically upon the Executive's death. If the Company
determines in good faith that Disability of the Executive has occurred (pursuant
to the definition of Disability set forth below), it may give to Executive
written notice in accordance with Section 15(d) of this Agreement of its
intention to terminate Executive's employment hereunder. In such event,
Executive's employment hereunder shall terminate effective on the 30th day after
receipt of such notice by the Executive (the "Disability Effective Date"),
provided that, within the 30 days after such receipt, the Executive shall not
have returned to full-time performance of the Executive's duties. For purposes
of this Agreement, "Disability" shall mean the absence of the Executive from the
Executive's duties with the Company on a full-time basis for 180 consecutive
business days as a result of incapacity due to mental or physical illness which
is determined to be total and permanent by a physician selected by the Company
or its insurers and acceptable to the Executive or the Executive's legal
representative.
(b) TERMINATION FOR CAUSE. Subject to Section 5(e), ROAC may
terminate the employment of Executive hereunder at any time for Cause. For
purposes of this Agreement, "Cause" shall mean:
(i) the willful failure of the Executive to perform
substantially the Executive's duties with the Company (other than any such
failure resulting from incapacity due to physical or mental illness), which
failure is not cured within 30 days after a written demand for substantial
performance is delivered to the Executive by the Board which specifically
identifies the manner in which the Board believes
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that the Executive has not substantially performed the Executive's duties,
or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct, which is materially and demonstrably injurious
to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without a reasonable belief that the
Executive's action or omission was in the best interests of the Company.
(c) GOOD REASON. Executive shall be entitled to terminate
his employment hereunder for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 1(a) of this Agreement, or any
other action by the Company which results in a diminution in such position,
authority, duties or responsibilities;
(ii) any failure by the Company to comply with any of the
provisions of Sections 3 or 4 of this Agreement or any other provision
hereof requiring a payment or provision of a benefit to the Executive,
other than an isolated, insubstantial and inadvertent failure not occurring
in bad faith and which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at
any office or location other than the Company's executive offices on the
date hereof in Concord, New Hampshire or any office or location less than
35 miles from such location, or the Company's requiring the Executive to
travel on Company business to a substantially greater extent than required
immediately prior to the date hereof;
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(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
(v) any failure by the Company to comply with and satisfy
Section 14(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive.
(d) NO LIABILITY FOR TERMINATION BY EXECUTIVE. Nothing in
this Agreement shall restrict the Executive from terminating his employment with
the Company hereunder (including without limitation in connection with a Change
in Control (as defined herein)), and no such termination by the Executive shall
be deemed a breach of this Agreement.
(e) NOTICE OF TERMINATION.
(i) Any termination of the Executive's employment
hereunder by the Company for Cause or by the Executive shall be effected by
Notice of Termination to the other party hereto given in accordance with
Section 15(d) of this Agreement. For purposes of this Agreement, a "Notice
of Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment
under the provision so indicated and (iii) if the Date of Termination (as
defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than thirty days after
the giving of such notice). The failure by the Executive or the Company to
set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right
of the Executive or the Company, respectively, hereunder or preclude the
Executive or the Company, respectively from asserting such fact or
circumstances in enforcing the Executive's or the Company's rights
hereunder.
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(ii) Any Notice of Termination for Cause must be given
within sixty (60) days of the Board learning of the event(s) or
circumstance(s) which the Board believes constitute(s) Cause. Prior to any
Notice of Termination for Cause being given (and prior to any termination
for Cause being effective), the Executive shall be entitled to a hearing
before the Board at which he may, at his election, be represented by
counsel and at which he shall have a reasonable opportunity to be heard.
Such hearing shall be held on not less than fifteen days prior written
notice to the Executive stating the Board's intention to terminate the
Executive for Cause and stating in detail the particular event(s) or
circumstance(s) which the Board believes constitute(s) Cause for
termination.
(f) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment hereunder is terminated by the Company for Cause or by
the Executive, the date of receipt of the Notice of Termination or any later
date specified therein, as the case may be, subject, in the case of termination
by the Company, for Cause, to the Company's compliance with Section 5(e)(ii);
(ii) if the Executive's employment hereunder is terminated by the Company other
than for Cause or Disability, the Date of Termination shall be the date on which
the Company notifies the Executive of such termination; and (iii) if the
Executive's employment hereunder is terminated by reason of the Executive's
death or Disability, the Date of Termination shall be the date of death of the
Executive or the Disability Effective Date, as the case may be.
6. EFFECT OF TERMINATION OF EMPLOYMENT.
(a) IN CONNECTION WITH A CHANGE IN CONTROL. In the event of any
termination of Executive's employment hereunder (x) by the Company (other than a
termination due to the Executive's death, Disability or for Cause) within 12
months after a Change in Control, or prior to a Change in Control if it is
reasonably demonstrated by the Executive that such termination of employment (1)
was at the request of a third party who has taken steps reasonably calculated to
effect a Change in Control or (2) otherwise arose in connection with or in
anticipation of a Change in Control, or (y) by the Execu-
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tive for any reason or no reason within 12 months after a Change in Control:
(i) the Company shall pay to the Executive a lump sum in
cash within 5 business days after the Date of Termination the aggregate of
the following amounts:
A. the sum of (1) the Executive's Base Salary through the Date of
Termination to the extent not theretofore paid, (2) the product of (x) the
higher of (I) the highest annual cash bonus paid to the Executive in the last
three fiscal years prior to the Date of Termination or (II) the amount of any
annual bonus payable but not yet paid, if any, including any bonus or portion
thereof which has been earned but deferred (and annualized for any fiscal year
consisting of less than twelve full months or during which the Executive was
employed for less than twelve full months), in respect of the most recently
completed fiscal year during the Term (the "Annualized Unpaid Bonus Amount"; the
higher of (I) and (II) being referred to as the "Highest Annual Bonus") and (y)
a fraction, the numerator of which is the number of days in the current fiscal
year through the Date of Termination, and the denominator of which is 365 (the
"Pro Ration Fraction") and (3) any compensation previously deferred by the
Executive (together with any accrued interest or earnings thereon), excluding
amounts payable under the Salary Continuation Agreement between the Company and
the Executive (the "Salary Continuation Agreement"), and any accrued vacation
pay, in each case to the extent not theretofore paid (the sum of the amounts
described in clauses (1), (2), and (3) being hereinafter referred to as the
"Highest Accrued Obligations"), and
B. the amount equal to the product of (1) three and (2) the sum
of (x) the Executive's Base Salary and (y) the Highest Annual Bonus.
(ii) for 36 months after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
benefits to the Executive and/or the Executive's family at least equal to
those which would have been provided to them in accordance with the plans,
programs, practices and policies described in Section 4 of this Agreement
if the Executive's
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employment had not been terminated or, if more favorable to the Executive,
as in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies and their families,
provided, however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare benefits under
another employer-provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive
for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until
36 months after the Date of Termination and to have retired on the last day
of such period; and
(iii) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to receive
under any plan, program, policy or practice or contract or agreement of the
Company and its affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
For purposes of this Agreement, a "Change in Control" shall mean:
(i) The acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) after the
Commencement Date of 30% or more of either (A) the then-outstanding shares of
common stock of the Company (the "Outstanding Company Common Stock") or (B) the
combined voting power of the then-outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of this
paragraph (i), the following acquisitions shall not constitute a Change in
Control: (1) any acquisition directly from the Company, (2) any acquisition by
the Company, (3) any acquisition
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<PAGE> 9
by any employee benefit plan (or related trust) sponsored or maintained by the
Company or by any corporation controlled by the Company, (4) any acquisition
pursuant to a transaction which satisfies the criteria set forth in clauses (A),
(B) and (C) of paragraph (iii) below, or (5) any acquisition by the Executive or
his siblings, any Permitted Transferee (as defined in the Company's Amended and
Restated Certificate of Incorporation as in effect on the Commencement Date) of
the Executive or such siblings, any Person controlled by any such Person(s) or
any group of which any such Person is a member (any of the Persons described in
this clause (5) being referred to as an "Excluded Person"); or
(ii) Individuals who, as of the Commencement Date constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director after
the Commencement Date whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(iii) Consummation by the Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company, other than with or to an Excluded Person (a "Business
Combination"), in each case, unless, following such Business Combination, (A)
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of, respectively, the
then-outstanding shares of common stock and the combined voting power of the
then-outstanding voting securities entitled to vote generally in the election of
directors, of the corporation or other entity resulting from such Business
Combination (which as used in this paragraph (iii) shall include, without
limitation, a corporation or other entity which as a result of such transaction
owns the Company or all or substantially all
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of the Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be,
immediately prior to such Business Combination (B) no Person (excluding any
Excluded Person, any corporation or other entity resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company or
such corporation or other entity resulting from such Business Combination)
beneficially owns, directly or indirectly, 30% or more of, respectively, the
then outstanding shares of common stock of the corporation or other entity
resulting from such Business Combination, or the combined voting power of the
then-outstanding voting securities of such corporation or other entity and (C)
at least half of the members of the board of directors or other governing body
of the corporation or other entity resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(iv) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company, unless such transaction was initiated
by an Excluded Person.
Notwithstanding the foregoing, if the Executive is entitled to receive
the lump sum payment provided for in this Section 6(a), he may elect, by notice
to the Company prior to receipt of such payment, to receive in lieu of such lump
sum payment, either (i) a lump sum payment equal to the total amount which the
Executive would be entitled to receive hereunder if his employment hereunder was
terminated by the Company without Cause or by the Executive for Good Reason or
(ii) the amount referred to in clause (i) immediately above, paid over the
remainder of the Term (without regard to the termination of the Executive's
employment hereunder) as provided in Section 6(d).
(b) DEATH OR DISABILITY. If Executive's employment is terminated
because of Executive's death or Disability, Executive shall be entitled to (i)
payment in cash in a lump sum of an amount equal to the sum of (A) the
Executive's Base Salary through the Date of Termination to the extent not
theretofore paid, (B) the product of (1) the Annualized Unpaid Bonus Amount and
(2) the Pro Ration Fraction, and (C) any compensation previously
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deferred by the Executive (together with any accrued interest or earnings
thereon) and any accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in (A), (B) and (C) being
referred to as the "Accrued Obligations"), payable within 30 days of the Date of
Termination, (ii) payment of the Executive's Base Salary for the remainder of
the Term (without regard to such termination) and (iii) timely payment and
provision of Other Benefits.
(c) CAUSE; OTHER THAN FOR GOOD REASON. If Executive's employment
hereunder is terminated for Cause or is voluntarily terminated by the Executive,
excluding such a termination for Good Reason, as of the Date of Termination the
Company shall have no further obligations to the Executive hereunder other than
for Accrued Obligations which shall be paid in a lump sum within 30 days of the
Date of Termination, and the timely payment or provision of Other Benefits.
(d) VOLUNTARY TERMINATION BY THE COMPANY OR BY THE EXECUTIVE FOR
GOOD REASON. If Executive's employment hereunder is terminated by ROAC without
Cause or by Executive for Good Reason, then subject to Section 6(a), Executive
shall be entitled to (i) payment in cash in a lump sum of the Highest Accrued
Obligations, payable within 30 days of the Date of Termination, (ii) payment of
the Executive's Base Salary for the remainder of the Term (without regard to
such termination) and (iii) timely payment and provision of Other Benefits.
7. NONEXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor shall anything herein
limit or otherwise affect such rights as the Executive may have under any such
plan, program, policy or practice, or any contract or agreement with the Company
or any of its affiliated companies, including without limitation the Salary
Continuation Agreement. Amounts which are vested benefits or which the Executive
is otherwise entitled to receive under any plan, policy, practice or program of,
or any contract or agreement with, the Company or any of its affiliated
companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract or agreement,
except as explicitly modified by this Agreement.
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8. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive (under this Agreement or otherwise) or others. In no event shall the
Executive be obligated to seek other employment or take any other action by way
of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and such amounts shall not be reduced whether or
not the Executive obtains other employment. The Company agrees to pay as
incurred, to the full extent permitted by law, all legal, accounting and other
fees and expenses (including, without limitation, of expert witnesses) which the
Executive may reasonably incur (i) as a result of any contest (regardless of the
outcome thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Code"), (ii) in connection with the negotiation and preparation of
this Agreement and (iii) in connection with the Executive's performance of his
obligations under Section 9(c).
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event that it shall be determined that any
payment or distribution by the Company to or for the benefit of Executive
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 9) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code, or any interest or penalties are
incurred by Executive with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by Executive
of all taxes (including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income
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taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, Executive retains an amount of the
Gross-Up Payment equal to the amount of Excise Tax imposed upon the Payments;
provided, however, that if Executive would not receive, after taking into
account all such payments (including the Gross-Up Payment), a net after tax
benefit of at least $50,000 (taking into account both income taxes and any
Excise Tax) as compared to the net after-tax proceeds to the Executive resulting
from an elimination of the Gross-Up Payment and a reduction of the Payments to
an amount (the "Reduced Amount") such that the receipt of the Payments would not
give rise to any Excise Tax, then no Gross-Up Payment shall be paid and the
Payments, in the aggregate, will be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by KPMG Peat
Marwick LLP or such other certified public accounting firm as may be designated
by the Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to ROAC and Executive within 15 business days of the receipt
of notice from the Executive that there has been a Payment, or such earlier time
as is requested by ROAC. In the event of a conflict of interest, the Executive
shall appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be paid solely by ROAC. Any Gross-Up Payment, as determined pursuant
to this Section 9, shall be paid by ROAC to the Executive within five days of
the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon ROAC and the Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by ROAC should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that ROAC exhausts its remedies pursuant to Section 9(c)
and the Executive thereafter is required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the Under-
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payment that has occurred and any such Underpayment shall be promptly paid by
ROAC to or for the benefit of the Executive.
(c) The Executive shall notify ROAC in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
ROAC of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than thirty business days after the Executive is
informed in writing of such claim and shall apprise ROAC of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the thirty-day period
following the date on which he gives such notice to ROAC (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If ROAC notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(i) give ROAC any information reasonably requested by ROAC
and available to the Executive relating to such claim;
(ii) take such action in connection with contesting such
claim as ROAC shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by ROAC;
(iii) cooperate with ROAC in good faith in order
effectively to contest such claim; and
(iv) permit ROAC to participate in any proceedings relating
to such claim;
provided, however, that ROAC shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in connection with such
contest and shall indemnify and hold the Executive harmless, on an after-tax
basis, for any Excise Tax or income tax (including interest and penalties with
respect thereto) imposed as a result of such representation and payment of costs
and expenses. Without limitation of the foregoing provisions of this Section
9(c), ROAC shall control all proceedings taken in connection with such contest
and, at its sole option, may pursue or forgo any and all administrative
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appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct the Executive
to pay the tax claimed and sue for a refund or to contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as ROAC shall determine;
provided, however, that if ROAC directs the Executive to pay such claim and sue
for a refund, ROAC shall advance the amount of such payment to the Executive, on
an interest-free basis and shall indemnify and hold the Executive harmless, on
an after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, ROAC's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and the Executive
shall be entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced
by ROAC pursuant to Section 9(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to ROAC's
complying with the requirements of Section 9(c) promptly pay to ROAC the amount
of such refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an amount
advanced by ROAC pursuant to Section 9(c), a determination is made that the
Executive shall not be entitled to any refund with respect to such claim and
ROAC does not notify the Executive in writing of its intent to contest such
denial of refund prior to the expiration of 30 days after such determination,
then such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
10. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge
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or data relating to the Company or any of its affiliated companies, and their
respective businesses, which shall have been obtained by the Executive during
the Executive's employment by the Company or any of its affiliated companies and
which shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this Agreement).
After termination of the Executive's employment with the Company, the Executive
shall not, without the prior written consent of the Company or as may otherwise
be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts or
benefits otherwise payable or to be provided to the Executive under this
Agreement.
11. NON-SOLICITATION OF EMPLOYEES, CLIENTS AND CUSTOMERS. During the
Term, and for the period, if any, of Executive's non-competition covenant set
forth in Section 12 hereof following the termination of the Executive's
employment hereunder, Executive agrees not to, on his own behalf or on behalf of
any other Person, directly or indirectly, solicit or induce any client,
customer, employee or sales representative of Company, or of any of the
Company's direct or indirect subsidiaries, affiliates, parent or their
respective successors and assigns (the "ROAC Corporate Group"), to stop doing
business with or to leave any of said companies for any reason whatsoever or to
hire any of their employees.
12. NON-COMPETITION. The Company and the Executive acknowledge that
(i) the Company and the ROAC Corporate Group are currently engaged in the
business of quarrying, manufacturing, marketing and selling granite memorials
and other granite products at wholesale and at retail (herein referred to as the
"Restricted Business", it being understood and agreed, however, that "Restricted
Business" shall not include the curb and landscape business of Swenson Granite
(as defined herein) substantially as conducted on the Commencement Date), (ii)
the Company and the ROAC Corporate Group are engaged in the Restricted Business
in all of the states of the United States and in all of the provinces of Canada
(the territory of all such states and provinces is referred to herein as the
"Restricted Territory") and (iii) the Company has entered into this Agreement
with the Executive to secure the Executive's services in order to expand and
grow the Restricted Business in the Restricted Territory. Accordingly,
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as a material and essential inducement to the Company to enter into this
Agreement and in consideration of Company's agreements with the Executive
hereunder, the Executive agrees that during the Term and, if the Executive's
employment hereunder is terminated due to the Executive's Disability, by the
Company for Cause or by the Executive other than for Good Reason pursuant to
Section 5(c) and other than in connection with a Change in Control as
contemplated by Sections 5(d) and 6(a), then, subject to the further provisions
of this Section 12, for a period of two (2) years after the Date of Termination,
the Employee will not, in the Restricted Territory, directly or indirectly, in
any manner whatsoever:
(a) compete with Company, its successor and assigns, or the ROAC
Corporate Group, its successors and assigns, in the Restricted Business;
(b) engage in the Restricted Business, except as an employee of the
Company or the ROAC Corporate Group;
(c) have any ownership interest in (other than the ownership of less
than five percent (5%) of the ownership interests of a company whose stock
or other ownership interests are publicly traded) any business entity which
engages, directly or indirectly, in the Restricted Business in the
Restricted Territory except for any ownership interest owned by the
Executive during the Term, and after termination of Executive's employment
hereunder, in the Company, any member of the ROAC Corporate Group or
Swenson Granite Company, Inc. and its successors and assigns ("Swenson
Granite");
(d) contract, subcontract, work for, solicit work from, solicit
Company or ROAC Corporate Group employees for, or solicit customers for,
advise or become affiliated with, any business entity which engages in the
Restricted Business in the Restricted Territory except as an employee of
Company or of the ROAC Corporate Group; or
(e) lend money or provide anything of value to any entity which
engages in the Restricted Business in the Restricted Territory.
The term "compete" as used in this Section 12 means engage in competition,
directly or indirectly, either as
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<PAGE> 18
an owner (except as permitted above), agent, member, consultant, partner, sole
proprietor, stockholder, or any other ownership form or other capacity; provided
that "compete" shall not include the Executive, and nothing contained herein
shall prohibit the Executive from, (i) continuing to have an ownership interest
in Swenson Granite, (ii) serving on Swenson Granite's Board of Directors or
equivalent governing body (including as the Chairman thereof) as a non-employee
member thereof so long as, during the Term, the Executive has no material
involvement in the day-to-day management or affairs of Swenson Granite, or (iii)
serving as an employee, officer or director of, or consultant to, Swenson
Granite after the Date of Termination so long as during the period of such
service, if the Executive's non-competition covenant set forth in this Section
12 is in effect, Swenson Granite is not engaged in the Restricted Business.
While the restrictions as set forth herein are considered by the parties
hereto to be reasonable in all circumstances, it is recognized that any one or
more of such restrictions might fail for unforeseen reasons. Accordingly, it is
hereby agreed and declared that if any of such restrictions shall be adjudged to
be void as unreasonable in all circumstances for the protection of the Company
and the ROAC Corporate Group and their interests, but would be valid if part of
the wording thereof were deleted, the period thereof reduced, or the range of
activities or area dealt with reduced in scope, such restrictions shall apply
with the minimum modification as may be necessary to make them valid and
effective, while still affording to Company and the ROAC Corporate Group the
maximum amount of protection contemplated thereby.
The Executive represents that he has carefully reviewed the non-competition
covenants set forth in this Section 12 and has determined that these covenants
will not impose undue hardship, financial or otherwise, on the Executive; that
its Restrictive Territory and duration will not impose a hardship on the
Executive; that it protects Company's and the ROAC Corporate Group's legitimate
interests in their investment in the Executive and their Restricted Business;
and that in the Executive's opinion the Executive not being able to compete in
the Restrictive Territory for the duration of this covenant will not be
injurious to the public interest.
The Executive agrees that breach of his covenants in this Section 12 will
cause irreparable harm to Company and the ROAC Corporate Group.
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<PAGE> 19
13. LOYALTY. During the Term, Employee shall devote his full time and
best efforts to the performance of his employment under this Agreement. During
the Term, Employee shall not at any time or place whatsoever, either directly or
indirectly, engage in the Restricted Business or any other profession or active
business to any extent whatsoever, except on, pursuant to or as permitted by the
terms of this Agreement, or with the prior written consent of Company. Employee
agrees that he will not, while employed hereunder, do any unlawful acts or
engage in any unlawful habits or usages which injure, directly or indirectly,
Company and its business or the ROAC Corporate Group and its businesses.
14. SUCCESSORS.
(a) This Agreement is personal to the Executive and, without the
prior written consent of the Company, shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's heirs and
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, recapitalization or otherwise) to
all or substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid.
15. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties
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<PAGE> 20
hereto or their respective successors and legal representatives.
(b) The descriptive headings of the several sections of this
Agreement are inserted for convenience of reference only and shall not control
or affect the meaning or construction of any of the provisions hereof.
(c) If any provision of this Agreement shall be held invalid or
unenforceable according to law, such provision shall be deemed modified to the
extent necessary to bring it within the legal requirements. Any such invalidity
or unenforceability shall not affect the remaining provisions of this Agreement,
and such remaining provisions shall continue in full force and effect.
(d) Any notice or other communication required or permitted under
this Agreement shall be in writing and shall be deemed to have been duly given
(i) upon hand delivery, or (ii) on the third day following delivery to the U.S.
Postal Service as certified or registered mail, return receipt requested and
postage prepaid, or (iii) on the first day following delivery to a nationally
recognized United States overnight courier service for next business day
delivery, fee prepaid, return receipt or other confirmation of delivery
requested, or (iv) when telecopied or sent by facsimile transmission if an
additional notice is also delivered under (i), (ii) or (iii) above within three
days thereafter. Any such notice or communication shall be directed to a party
at its address (or facsimile number) set forth below or at such other address
(or facsimile number) as may be designated by a party in a notice given to all
other parties hereto in accordance with the provisions of this Section.
To ROAC:
--------
Rock of Ages Corporation
369 North State Street
Concord, New Hampshire 03302
Attention: Chairman of the Compensation
Committee of the Board of Directors
Facsimile: (603) 225-4801
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<PAGE> 21
with copies to:
John R. Monson, Esquire
Wiggin & Nourie, P.A
20 Market Street
Post Office Box 808
Manchester, New Hampshire 03105-0808
Facsimile: (603) 623-8442; and
Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street
31st Floor
Boston, Massachusetts 02108-3194
Attention: Kent A. Coit, Esq.
Facsimile: (617) 573-4822
To the Executive:
-----------------
Kurt M. Swenson
336 Putney Hill Road
Hopkinton, New Hampshire 03229
Facsimile: (603) 225-4801
(e) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(f) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including, without
limitation the right of the Executive to terminate employment following a Change
in Control pursuant to Section 5(a) or for Good Reason pursuant to Section 5(c)
of this Agreement, shall not be deemed to be a waiver of such provision or right
or any other provision or right of this Agreement.
(g) This Agreement contains all of the terms agreed upon by the
parties with respect to the subject matter hereof and supersedes all prior
agreements, representations and warranties of the parties as to the subject
matter hereof.
(h) This Agreement may be amended, or any provision of this
Agreement may be waived, provided that
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<PAGE> 22
any such amendment or waiver will be binding on the party against which such
amendment or waiver is sought to be enforced only if such amendment or waiver is
set forth in a writing executed by such party.
(i) This Agreement may be executed in counterparts, each of which
shall be deemed an original but which together shall constitute a single
instrument.
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<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
---------------------------
Kurt M. Swenson
ROCK OF AGES CORPORATION
By:
------------------------
Name:
Title:
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<PAGE> 1
FORM OF EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of the _____ day of ___________, 1997, by and
among ROCK OF AGES CORPORATION, a Delaware corporation, with a principal place
of business at 369 North State Street, Concord, NH 03301 ("Company"), and
_________________ ("Employee") residing at ________________________________
_________________.
FACTUAL BACKGROUND:
1. Company wishes to employ Employee, initially as President of its
Memorials Division reporting to the President of the Company, with principal
responsibility for national memorial and other granite product manufacturing and
for national and international sales and marketing of the Company's granite
products (the "Position") and with such other duties and responsibilities, and
such other or different positions, as Company may assign to Employee; and
Employee wishes to accept such employment subject to the terms and conditions of
this agreement.
2. Company and its affiliates and subsidiaries manufacture granite
memorials and other granite products, perform services related thereto, and
market such products and services at wholesale and retail in the United States
and in various foreign countries (Company's "Business") and have accumulated
valuable and confidential information including trade secrets and know-how
relating to technology, manufacturing procedures, formulas, machines, marketing
plans, sources of supply, business strategies and other business records.
3. The agreement by Employee to enter into the covenants contained
herein is a condition precedent to the continued employment of Employee in the
Position, Employee acknowledges the same and that his execution of this
agreement are express conditions of his employment; and that said covenants are
given as material consideration for such employment and the other benefits
conferred upon him by this agreement.
4. As used herein the term "Company" shall refer to Company and where
applicable to any direct or indirect subsidiary or affiliate of Company for
which Employee may from time to time be performing services under this
agreement.
<PAGE> 2
NOW, THEREFORE, in consideration of such employment and other valuable
consideration, receipt of which is hereby acknowledged, the parties thereto
agree as follows:
1. EMPLOYMENT. Company agrees to employ Employee, and Employee accepts
employment in the Position, initially reporting to the President of Company, all
upon the terms and conditions hereinafter set forth.
2. DUTIES AND POLICIES.
(a) DUTIES. The Employee agrees to devote his full time and
best efforts to his employment duties in the Position or, subject to the rights
of Company in the second sentence of this Section 2(a), in such other position
to which Employee is assigned during the Term (as hereinafter defined), and to
such other duties as may be assigned to him from time to time by Company.
Company reserves the right in its sole discretion to request Employee to perform
no duties for it under this agreement from time to time or at any time for such
periods of time during the Term as it in its sole discretion may determine and
in the event Company takes such action, Employee will thereafter not be eligible
for any further increases in his Annual Base Salary or for any bonuses until
Company requests, if ever, Employee return to active work.
(b) POLICIES. Employee agrees to abide by the policies, rules,
regulations or usages applicable to Employee as established by Company from time
to time and provided to Employee in writing.
3. TERM. The employment of Employee by ROAC hereunder will commence on
the date (the "Commencement Date") of the consummation of Company's initial
public offering and end on the fifth anniversary of the Commencement Date,
unless extended or sooner terminated as hereinafter provided (the "Term").
4. COMPENSATION. For all services to be rendered by Employee in any
capacity hereunder, the Company shall pay Employee the following:
(a) SALARY. The Company shall pay Employee an annual salary of
Two Hundred Ten Thousand Three Hundred Sixty Dollars ($210,360.00) less
withholding and other taxes required by federal and state law (the "Annual Base
Salary"), payable in equal monthly installments, or as otherwise required by
law. Employee shall be eligible to receive increases in Employee's Annual Base
Salary pursuant to periodic salary reviews consistent with Company's corporate
policies; it being understood such increases are not guaranteed, but are subject
to Employee's job performance and the determination
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<PAGE> 3
by Company's Board of Directors, in its sole discretion, to award salary
increases to Employee.
(b) BONUS. Employee may also be awarded a bonus or bonuses
from time to time during the Term in such amounts and at such time, if any, as
the Company's Board of Directors may determine, in its sole discretion.
(c) STANDARDS. Company agrees that the standards to be used by
its Board of Directors in awarding salary increases and bonuses to Employee will
be the same standards used by the Board of Directors of Company in awarding the
same to its executive officers.
5. FRINGE BENEFITS. During the term of this agreement, Employee shall
be entitled to participate in such fringe benefits as, from time to time, may be
applicable to the Company's similarly situated executive employees, subject to
the terms and conditions of such fringe benefit plans and to the following
fringe benefits so long as the same may be maintained by the Company:
(i) Family medical and major medical health
insurance, paid for by Company;
(ii) Life Insurance paid for by Company equal to one
and one-half (1 1/2) times Employee's Annual Base Salary
(capped at $280,000 while working and $60,000 during
retirement);
(iii) Participation in Company's qualified 401(k)
profit sharing plan pursuant to the terms thereof;
(iv) Participation in Company's qualified defined
benefit Salaried Employees Pension Plan pursuant to the terms
thereof;
(v) Participation in Company's long term disability
insurance plan pursuant to the terms thereof;
(vi) The use of an automobile comparable to the
automobiles provided to other executive officers of Company
and payment by Company of the costs of operation and
maintenance of the automobile; and
(vii) Vacation in accordance with Company's employee
policies, in effect from time to time.
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<PAGE> 4
Fringe benefits provided to Employee will, in addition, generally be
not less advantageous to Employee than those provided by Company to its
executive employees. Fringe benefits as used in this Section do not include cash
compensation, stock options or other compensation.
6. TERMINATION.
(a) TERMINATION BECAUSE OF DEATH OR TOTAL DISABILITY. This
agreement will terminate automatically upon the date of Employee's death or
Total Disability. The Employee shall be deemed to have incurred a Total
Disability:
(i) if Company maintains a long term disability
policy in effect for the benefit of Employee, on the date when
the Employee shall have received total disability benefits
under said policy for a period of six (6) months;
(ii) if no such long term disability insurance policy
is in effect, on the date when the Employee suffers from a
physical or mental disability of such magnitude and effect
that the Employee is unable to perform the essential functions
of Employee's assigned position with or without reasonable
accommodation and such disability continues during a period of
twelve (12) continuous or noncontinuous months within the
eighteen (18) month period beginning on the first day of the
month in which the first day of disability occurs;
(iii) if Employee illegally uses drugs and, as a
result, performance of his duties and/or employment with
Company is in any way impaired; or
(iv) on the date when Employee receives more than 12
weeks of payments under the Social Security Act because of
determination by the Social Security administration that
Employee is totally disabled.
Total Disability as set forth in subsections (ii) or (iii) above shall be deemed
to have occurred upon the written certification to Company thereof by the
Employee's personal physician, which certification may be requested in writing
by Company. If the Employee does not have a personal physician or refuses to
consult with his personal physician, Company may select a licensed New Hampshire
physician, board-certified in internal medicine or family practice, at
Employee's cost, to examine the Employee, which physician shall, for purposes
hereof, be deemed to be the Employee's personal physician; provided, that if the
Employee refuses to be examined by this deemed personal physician
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<PAGE> 5
within thirty (30) days after the physician's appointment by Company, then the
Employee may at Company's election be conclusively presumed to have become
Totally Disabled as of the close of such thirty (30) day period. If Company
disagrees with the opinion of the Employee's personal physician, then Company
may select a second licensed, board-certified New Hampshire physician, at
Company's cost, to examine the Employee. If said two (2) physicians disagree as
to whether Employee is Totally Disabled, then the personal physician and this
second physician shall then select a third licensed, board-certified New
Hampshire physician, with the cost of this third physician to be split between
Employee and Company, to examine the Employee. Upon examination of the Employee
by the three (3) physicians, each physician shall render an opinion with respect
to the condition of the Employee in regards to his Total Disability, and the
opinion of a majority of the physicians shall be binding upon all parties.
(b) TERMINATION WITHOUT CAUSE. Company shall not have the
right to terminate this agreement and Employee's employment under this agreement
except for a Termination With Cause (as defined in Section 6(c) below).
(c) TERMINATION WITH CAUSE. Company may terminate this
agreement and the employment of the Employee at any time with cause and without
further notice upon the occurrence of any of the following events: (i)
abandonment by Employee of, or chronic, habitual or continuous failure by
Employee to perform, over a period of thirty (30) or more days, Employee's
duties as an Employee hereunder or violation of any of Employee's covenants or
agreements under this agreement; (ii) embezzlement or other theft of the
property of Company, of the ROAC Corporate Group or of any predecessor to the
Company or to the ROAC Corporate Group (collectively, the "Predecessors"), or
the commission of other criminal activity against Company, ROAC Corporate Group
or any of the Predecessors or their employees, agents and customers; or (iii)
conviction of a crime which the Company's Board of Directors reasonably
determines will have or has had a material adverse affect on the reputation,
business and/or financial affairs of Company or the ROAC Corporate Group (any
such termination is herein sometimes referred to as a "Termination With Cause"
or as "Terminated With Cause"). In the event that Employee's employment is
Terminated With Cause or Employee resigns in lieu of such termination, Employee
shall only be entitled to be paid any expenses he has incurred prior to the
termination and for which he is entitled to reimbursement hereunder, and such
pro-rated salary as he may have earned up to the date of termination.
(d) TERMINATION BY THE EMPLOYEE. Employee may resign from
employment at any time for any reason and terminate this agreement by giving
thirty (30) days' written notice to Company (any such termination is herein
sometimes referred to as a "Voluntary Termination") of such intention. In such
event, Company may, in its
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<PAGE> 6
discretion, permit the Employee to work through the notice period or accept the
Employee's immediate resignation. In the event of a Voluntary Termination,
Employee shall not be entitled to payment of any further compensation or
benefits, under the terms of this agreement.
7. ROAC CORPORATE GROUP. Company and its direct and indirect
subsidiaries, affiliates, parent and successors and assigns are sometimes herein
sometimes referred to as the "ROAC Corporate Group."
8. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Employee acknowledges
that during his employment, he has, and will in the future continue to, become
fully familiar with all aspects of the Company's Businesses and the ROAC
Corporate Group's businesses and will obtain access to confidential and
proprietary information relating to such businesses. Employee understands,
agrees and covenants that such information is valuable and Employee has no
property interest in it. Therefore, Employee covenants and agrees that during
his employment with Company and the ROAC Corporate Group and thereafter Employee
will not use, disclose, communicate or divulge such information to any person
not employed by Company and the ROAC Corporate Group or use such information
except as may be necessary to perform his duties as an Employee under this
agreement. Employee's obligations in this section shall survive the expiration
of the Term of this agreement and/or termination of Employee's employment under
this agreement for any reason whatsoever.
9. NON-SOLICITATION OF EMPLOYEES, CLIENTS AND CUSTOMERS. During the
Term of this agreement and for the period of Employee's non-competition covenant
set forth in Section 11 hereof, following the termination this agreement,
Employee agrees not to, on his own behalf or on behalf of any other person,
corporation, firm or entity, directly or indirectly, solicit or induce any
client, customer, employee or sales representative of Company or the ROAC
Corporate Group to stop doing business with or to leave any of said companies
for any reason whatsoever or to hire any of said companies' employees.
10. RETURN OF PROPERTY. Upon termination or nonrenewal of this
agreement for any reason, Employee agrees to immediately return all Company and
ROAC Corporate Group property, whether confidential or not, without keeping any
copies or excerpts thereof, including, but not limited to, computers, printers,
customer lists, samples, product information, financial information, price
lists, marketing materials, keys, credit cards, automobiles, technical data,
research, blueprints, trade secrets information, and all confidential or
proprietary information.
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<PAGE> 7
11. NON-COMPETITION COVENANT BY EMPLOYEE. Company and the Employee
agree that Company is currently engaged in the business of quarrying,
manufacturing, marketing and selling granite memorials and other granite
products at wholesale and at retail (herein referred to as the "Restricted
Business") and Company and the ROAC Corporate Group are engaged in the
Restricted Business in all of the states of the United States and in all of the
provinces of Canada (herein the territory of all such states and provinces is
referred to as the "Restricted Territory") and has hired the Employee to expand
and grow the Restricted Business in the Restricted Territory. Accordingly, as a
material and essential inducement to Company to hire the Employee and in
consideration of Company's agreements with the Employee under this agreement,
Employee agrees that during the Term of this agreement and, if this agreement is
terminated for any reason, lapses, is not renewed for any reason, or Employee is
not employed by Company after the end of the Term hereof for any reason, for a
period equal to two (2) years thereafter, unless this agreement in terminated
within the first two (2) years of the Term hereof, in which case for the period
of four (4) years thereafter, Employee will not, in the Restricted Territory,
directly or indirectly, in any manner whatsoever:
(a) compete with Company, its successor and assigns, or the
ROAC Corporate Group, its successors and assigns, in the Restricted
Business;
(b) engage in the Restricted Business, except as an employee
of Company or the ROAC Corporate Group;
(c) have any ownership interest in (other than the ownership
of less than five percent (5%) of the ownership interests of a company
whose stock or other ownership interests are publicly traded) any
business entity which engages, directly or indirectly, in the
Restricted Business in the Restricted Territory except for any
ownership interest owned by Employee during the Term of this agreement,
and after termination of this agreement, in the Company or in Swenson
Granite Company LLC;
(d) contract, subcontract, work for, solicit work from,
solicit Company or ROAC Corporate Group employees for, or solicit
customers for, advise or become affiliated with, any business entity
which engages in the Restricted Business in the Restricted Territory
except as an employee of Company or of the ROAC Corporate Group; or
(e) lend money or provide anything of value to any entity
which engages in the Restricted Business in the Restricted Territory.
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<PAGE> 8
The term "compete" as used in this Section 11 means engage in
competition, directly or indirectly, either as an owner, agent, member,
consultant, partner, sole proprietor, stockholder, or any other ownership form
or other capacity.
While the restrictions as set forth herein and in Section 9 are
considered by the parties hereto to be reasonable in all circumstances, it is
recognized that any one or more of such restrictions might fail for unforeseen
reasons. Accordingly, it is hereby agreed and declared that if any of such
restrictions shall be adjudged to be void as unreasonable in all circumstances
for the protection of Company and the ROAC Corporate Group and their interests,
but would be valid if part of the wording thereof were deleted, the period
thereof reduced, or the range of activities or area dealt with reduced in scope,
such restrictions shall apply with the minimum modification as may be necessary
to make them valid and effective, while still affording to Company and the ROAC
Corporate Group the maximum amount of protection contemplated thereby.
Employee represents that he has carefully reviewed Employee's
restrictive non-competition covenant set forth in this Section 11 and his
non-solicitation covenant in Section 9 and has determined that these covenants
will not impose undue hardship, financial or otherwise, on Employee; that their
Restrictive Territory and duration will not impose a hardship on Employee; that
they protect Company's and the ROAC Corporate Group's legitimate interests in
their investment in Employee and their Restricted Business; and that in
Employee's opinion Employee not being able to compete in the Restrictive
Territory for the duration of this covenant will not be injurious to the public
interest.
Employee agrees that Employee's breach of his covenants in Sections 8,
9, 10 and 11 will cause irreparable harm to Company and the ROAC Corporate
Group.
12. LOYALTY. Employee shall devote his full time and best efforts to
the performance of his employment under this agreement. During the term of this
agreement, Employee shall not at any time or place whatsoever, either directly
or indirectly, engage in the Restricted Business or any other profession or
active business to any extent whatsoever, except on or pursuant to the terms of
this agreement, or with the prior written consent of Company. Employee agrees
that he will not, while this agreement is in effect, do any unlawful acts or
engage in any unlawful habits or usages which injure, directly or indirectly,
Company and its Business or the ROAC Corporate Group and its businesses. Company
agrees that if it exercises its rights in Section 2(a) hereof to have Employee
perform no duties for it, then during such period of time during the Term as
Employee is so not performing his duties, Employee may engage in other
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<PAGE> 9
employment which does not violate the non-competition covenant in Section 11 and
his other covenants in Sections 8, 9, 10 and 12 of this agreement.
13. GOVERNING LAW, JURISDICTION AND VENUE. This agreement shall be
governed by and construed in accordance with the laws of the State of New
Hampshire; and any actions brought pertaining to the same shall lie only in the
Merrimack County Superior Court, New Hampshire, or the U.S. District Court for
the District of New Hampshire, in said State all of which are the sole and
exclusive forums for any actions or claims by the parties to this agreement and
each party hereto consents to the jurisdiction of, and venue in, said courts in
any action brought by another party hereto and agrees that no claims or actions
relating to any matter hereunder will be brought by them in any other courts of
said State, any other state or any other country.
14. HEADINGS. The descriptive headings of the several sections of this
agreement are inserted for convenience of reference only and shall not control
or affect the meanings or construction of any of the provisions hereof.
15. SEVERABILITY AND VIOLATION OF LAWS. If any provision of this
agreement shall be held invalid or unenforceable according to law, such
provision shall be modified to the extent necessary to bring it within the legal
requirements. Any such invalidity or unenforceability shall not affect the
remaining provisions of this agreement, and such remaining provisions shall
continue in full force and effect.
16. SPECIFIC PERFORMANCE. The Employee hereby agrees and stipulates
that it would be impossible to measure in monetary terms the damages which would
be suffered by Company in the event of any breach by Employee of Sections 8, 9,
10, 11, 12, 13 and 16 of this agreement. Therefore, if either party hereto shall
institute any action in equity to enforce such sections of this agreement, it is
agreed that the other party hereto waives any claim or defense that the
plaintiff has an adequate remedy at law, and the other party hereto agrees that
the plaintiff is entitled to specific performance of such terms of the
agreement.
17. NOTICES. Any notice or other communication required or permitted
under this agreement shall be in writing and shall be deemed to have been duly
given (i) upon hand delivery, or (ii) on the third day following delivery to the
U.S. Postal Service as certified or registered mail, return receipt requested
and postage prepaid, or (iii) on the first day following delivery to a
nationally recognized United States overnight courier service for next business
day delivery with fee prepaid or (iv) when telecopied or sent by facsimile
transmission if an additional notice is also given under (i), (ii) or (iii)
above within three days thereafter. Any such notice or communication shall be
directed to a
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<PAGE> 10
party at its address set forth below or at such other address as may be
designated by a party in a notice given to all other parties hereto in
accordance with the provisions of this Section.
FOR THE COMPANY:
Mr. Kurt M. Swenson
Chairman of the Board, President and Chief Executive Officer
Rock of Ages Corporation
369 North State Street
Concord, NH 03301
Telephone: (603) 225-8397
Telecopy: (603) 225-4801
with a copy to:
John R. Monson, Esquire
Wiggin & Nourie, P.A.
20 Market Street
P. O. Box 808
Manchester, NH 03105-0808
Telephone: (603) 669-2211
Telecopy: (603) 623-8442
FOR THE EMPLOYEE:
with a copy to:
18. ASSIGNMENT. The rights and obligations of Company together with its
obligations and all of the Employee's covenants and agreements hereunder may be
assigned by Company to any third party by operation of law or by contractual
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<PAGE> 11
assignment; and upon such assignment Company shall be relieved of all of its
obligations, agreements, duties and covenants hereunder. The rights and
obligations of the Employee under this agreement are not assignable.
19. COMPLETE AND ENTIRE AGREEMENT. This agreement contains all of the
terms agreed upon by the parties with respect to the subject matter hereof and
supersedes all prior agreements, representations and warranties of the parties
as to the subject matter hereof.
20. AMENDMENTS. This agreement may be amended, or any provision of the
agreement may be waived, provided that any such amendment or waiver will be
binding on the parties only if such amendment or waiver is set forth in a
writing executed by all parties hereto. The waiver by any party hereto of a
breach of any provision of this agreement shall not operate or be construed as a
waiver of any other breach.
21. TERMINATION OF OTHER EMPLOYMENT AGREEMENTS. In consideration of the
terms and conditions of this agreement, on the Commencement Date, Company and
Employee agree that all other agreements relating to Employee's employment
between them, or between Employee and any of the Predecessors, will be
terminated and thereafter be null, void and of no further force and effect and
each party hereto releases the other from any claims, obligations or duties
either party hereto had or might have had under all other such agreements.
22. SURVIVAL. Sections 8, 9, 10, 11, 12, 13, 15, 16, 17, 21 and 22
shall survive expiration of the Term of this agreement and/or termination of
Employee's employment under this agreement.
- 11 -
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this agreement,
all as of the date first written above.
WITNESS: ROCK OF AGES CORPORATION
______________________________ By: ___________________________________
Kurt M. Swenson,
Chairman of the Board, President
and Chief Executive Officer
WITNESS:
______________________________ ________________________________________
Employee
- 12 -
<PAGE> 1
Exhibit 10.18
-----------------------------
(Name of Selling Stockholder)
CUSTODY AGREEMENT AND POWER OF ATTORNEY
for Sale of Common Stock of
ROCK OF AGES CORPORATION
Kurt M. Swenson
George R. Anderson
AS ATTORNEYS-IN-FACT
c/o Rock of Ages Corporation
369 North State Street
Concord, New Hampshire 03301
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Gentlemen:
Rock of Ages Corporation, a Delaware corporation (the
"Company"), the undersigned and certain other stockholders of Swenson Granite
Company, Inc., a New Hampshire corporation ("Swenson"), (the undersigned and
such other stockholders being hereinafter referred to as the "Selling
Stockholders") propose to sell certain shares of Common Stock, $.01 par value
per share, of the Company ("ROA Common Stock") to Raymond James & Associates,
Inc. (the "Underwriter") for distribution under a Registration Statement on Form
S-1 (the "Registration Statement") to the public at a price and on terms to be
hereafter determined. It is understood that at this time there is no commitment
on the part of the Underwriter to purchase any shares of ROA Common Stock and no
assurance that an offering of ROA Common Stock will take place. The shares of
ROA Common Stock which the undersigned proposes to sell to the Underwriter
pursuant to the Underwriting Agreement hereinafter mentioned are referred to
herein as the "ROA Shares." The merger of Swenson with and into the Company,
with the Company as the surviving corporation (the "Merger"), is a condition
precedent to the sale of the ROA Shares to the Underwriter pursuant to the
Underwriting Agreement. The ROA Shares are to be issued to the undersigned
pursuant to the Merger in exchange for shares of the Common Stock, $10.00 par
value per share, of Swenson ("Swenson Common Stock") currently held by the
undersigned. The shares of Swenson Common Stock which are delivered by the
undersigned to the Company in exchange for the ROA Shares pursuant to the Merger
are referred to herein as the "Swenson Shares." As provided in the Underwriting
Agreement, the ROA Shares will constitute a portion of the "Firm Shares" and/or
"Additional Shares" to be sold pursuant to the Underwriting Agreement.
<PAGE> 2
1. Appointment and Powers of Attorneys-in-Fact.
-------------------------------------------
A. The undersigned hereby irrevocably constitutes and appoints
Kurt M. Swenson and George R. Anderson (the "Attorneys-in-Fact"), and each of
them, as its, his or her agent and attorney-in-fact, with full power of
substitution, with respect to all matters arising in connection with the Merger
and the public offering and sale of the ROA Shares, including, but not limited
to, the power and authority on behalf of the undersigned to do or cause to be
done any of the following things:
(i) in connection with the Merger, deliver the
Swenson Shares and certificates representing them to the Company, including the
execution of stock powers and other instruments, and receive the ROA Shares and
certificates representing them in exchange therefor;
(ii) negotiate, determine and agree upon (a) the
price at which the ROA Shares will be initially offered to the public by the
Underwriter pursuant to the Underwriting Agreement, as hereinafter defined, (b)
the underwriting discount with respect to the ROA Shares, and (c) the price at
which the ROA Shares will be sold to the Underwriter by the undersigned pursuant
to the Underwriting Agreement;
(iii) prepare, execute and deliver an Underwriting
Agreement (the "Underwriting Agreement"), substantially in the form of the draft
dated __________, 1997, delivered to the undersigned herewith, receipt of which
is acknowledged, but with such insertions, changes, additions or deletions as
the Attorneys-in-Fact shall approve (which may include a decrease, but not an
increase, in the number of shares of ROA Common Stock to be sold by the
undersigned), such approval to be conclusively evidenced by the execution and
delivery of the Underwriting Agreement by an Attorney-in-Fact, including the
making of all representations and agreements provided in the Underwriting
Agreement to be made by, and the exercise of all authority thereunder vested in,
the undersigned;
(iv) sell, assign, transfer and deliver the ROA
Shares to the Underwriter pursuant to the Underwriting Agreement and deliver to
the Underwriter certificates for the ROA Shares so sold, including the execution
of stock powers and other instruments;
(v) to make, execute, acknowledge and deliver
all such other (a) contracts, orders, receipts, notices, requests,
instructions, certificates, letters and other writings, including, without
limitation, representations to the United States Securities and Exchange
Commission (the "SEC") concerning the reasons for the sale of the shares by the
undersigned, familiarity with the Registration Statement, and the absence of
material adverse information concerning the Company; (b) communications,
assurances and requests for acceleration of the effective date of the
Registration Statement to the SEC; (c) amendments to the Underwriting
Agreement; and (d) certificates to be delivered by the undersigned pursuant to
the Underwriting Agreement; and in general to do such other things and to take
such further action as the Attorneys-in-Fact, in their sole and absolute
discretion, may consider necessary or proper in connection with or to carry out
the contemplated sale of the ROA Shares to the Underwriter;
(vi) to make, execute, acknowledge, verify and
file on behalf of the undersigned, applications, consents to service of process
and such other undertakings or reports
2
<PAGE> 3
as may be required by law with the state commissions or officers administering
state securities laws, and, without limiting the generality of the foregoing, to
execute and file an application for qualification of the Shares and a consent to
the service of process on behalf of the undersigned pursuant to applicable
provisions of applicable law, as fully as could the undersigned if personally
present and acting.
(vii) instruct the Company and the Custodian, as
hereinafter defined, on all matters pertaining to the Merger and the sale of the
ROA Shares and delivery of certificates therefor;
(viii) provide, in accordance with the Underwriting
Agreement, for the payment of expenses of the offering and sale of the ROA
Common Stock covered by the Registration Statement;
(ix) otherwise take all actions and do all things
necessary or proper, required, contemplated or deemed advisable or desirable by
the Attorneys-in-Fact in their discretion, including the execution and delivery
of any documents, and generally act for and in the name of the undersigned with
respect to the Merger and the sale of the ROA Shares to the Underwriter and the
reoffering of the ROA Shares by the Underwriter as fully as could the
undersigned if then personally present and acting; and
(x) appoint a new Custodian if the Custodian is
unable to perform its obligations under this Custody Agreement and Power of
Attorney (the "Agreement"), including any amendment of this Agreement.
B. Each Attorney-in-Fact may act alone in exercising the
rights and powers conferred on the Attorneys-in-Fact by this Custody Agreement
and Power of Attorney, and the act of any Attorney-in-Fact shall be the act of
the Attorneys-in-Fact. Each Attorney-in-Fact is hereby empowered to determine,
in his or her sole and absolute discretion, the time or times when, the purposes
for which, and the manner in which, any power herein conferred upon the
Attorneys-in-Fact shall be exercised.
C. The Custodian, the Underwriter, the Company and all
other persons dealing with the Attorneys-in-Fact as such may rely and act upon
any writing believed in good faith to be signed by one or more of the
Attorneys-in-Fact.
D. The Attorneys-in-Fact shall not receive any
compensation for their services rendered hereunder.
3
<PAGE> 4
2. Appointment of Custodian; Deposit of Shares.
-------------------------------------------
A. In connection with and to facilitate the Merger and
the sale of the ROA Shares to the Underwriter, the undersigned hereby appoints
American Stock Transfer & Trust Company as custodian (the "Custodian") and
herewith deposits with the Custodian one or more certificates for Swenson Common
Stock which represent not less than the total number of Swenson Shares which
will be delivered by the undersigned in exchange for the number of ROA Shares to
be sold by the undersigned to the Underwriter, which numbers are set forth on
Schedule I hereto. Each such certificate so deposited is in negotiable and
proper deliverable form endorsed in blank with the signature of the undersigned
thereon guaranteed by an eligible guarantor institution which is a participant
in a Securities Transfer Association recognized program, including any
commercial bank or trust company in the United States or by a member firm of the
New York Stock Exchange that is such an eligible guarantor, or is accompanied by
a duly executed stock power or powers in blank, bearing the signature of the
undersigned so guaranteed. The Custodian is hereby authorized and directed,
subject to the instructions of the Attorneys-in-Fact, (a) to hold in custody the
certificate or certificates deposited herewith and the certificates received in
exchange therefor pursuant to the Merger (or replacement certificates therefor),
(b) to deliver the certificate or certificates deposited hereunder (or
replacement certificate(s) therefor) to or at the direction of the
Attorneys-in-Fact for delivery to the Company in accordance with the terms of
the Merger, (c) to deliver the certificate or certificates received in
connection with the Merger (or replacement certificate(s) therefor) to or at the
direction of the Attorneys-in-Fact in accordance with the terms of the
Underwriting Agreement and (d) to return to the undersigned new certificate(s)
for the shares of ROA Common Stock represented by any certificate received in
connection with the Merger which are not sold pursuant to the Underwriting
Agreement.
B. Until the Swenson Shares have been delivered to the
Company in exchange for the ROA Shares in accordance with the Merger, the
undersigned shall retain all rights of ownership with respect to the Swenson
Shares deposited hereunder, including the right to vote and to receive all
dividends and payment thereon, except the right to retain custody of or dispose
of such Swenson Shares, which right is subject to this Agreement. Until the
Shares have been delivered to the Underwriter against payment therefor in
accordance with the Underwriting Agreement, the undersigned shall retain all
rights of ownership with respect to the ROA Shares deposited hereunder,
including the right to vote and to receive all dividends and payment thereon,
except the right to retain custody of or dispose of such ROA Shares, which right
is subject to this Agreement and the Underwriting Agreement.
C. If a controversy arises between two or more of the
Selling Stockholders, or between any of the Selling Stockholders and any other
person, as to whether or not or to whom the Custodian shall deliver the
certificates for the ROA Shares or the Swenson Shares or any funds held by it,
or as to any other matter arising out of or relating hereto or to the property
held by the Custodian hereunder or as to the interpretation of this Agreement
regarding the duties or obligations of the Custodian hereunder, the Custodian
shall not be required to determine the same and need not make any delivery of
the property or any portion thereof but may retain it, subject to the provisions
of Section 6.B., below, until the rights of the parties to the dispute shall
have finally been determined by agreement or by final order of a court of
competent jurisdiction; provided, however, that the time for appeal for any such
final order shall
4
<PAGE> 5
have expired without an appeal having been made. The Custodian shall deliver the
property or any portion thereof within 15 days after it has received written
notice of any such agreement or final order (accompanied by an affidavit that
the time for appeal has expired without an appeal having been made) in
accordance with the terms of the final agreement or order. The Custodian shall
be entitled to assume that no such controversy has arisen unless it has received
a written notice that such a controversy has arisen which refers specifically to
this Agreement and identifies by name and address the adverse claimants to the
controversy.
D. The Custodian will acknowledge in writing to the
undersigned receipt by physical delivery of any certificates representing the
undersigned's ROA Shares or Swenson Shares, as the case may be, when such
certificates are received.
3. MERGER. The Attorneys-in-Fact are hereby authorized and
directed to deliver or cause the Custodian to deliver certificates for the
Swenson Shares to the Company, pursuant to the Merger, against delivery to the
Attorneys-in-Fact for the account of the undersigned of the certificates
representing the ROA Shares. The Attorneys-in-Fact are authorized, on behalf of
the undersigned, to accept and acknowledge receipt of the certificates
representing the ROA Shares and shall promptly deposit such certificates with
the Custodian.
4. Sale of Shares; Remitting Net Proceeds.
--------------------------------------
A. The Attorneys-in-Fact are hereby authorized and
directed to deliver or cause the Custodian to deliver certificates for the ROA
Shares to the Underwriter, as provided in the Underwriting Agreement, against
delivery to the Attorneys-in-Fact for the account of the undersigned of the
purchase price of the ROA Shares, which purchase price shall be net of
underwriting discounts and commissions, at the time and in the funds specified
in the Underwriting Agreement. The Attorneys-in-Fact are authorized, on behalf
of the undersigned, to accept and acknowledge receipt of the payment of such
purchase price for the ROA Shares and shall promptly deposit such proceeds with
the Custodian or such other bank or financial institution designated by the
undersigned. After receiving payment for expenses as provided below, the
Custodian shall promptly remit to the undersigned its, his or her share of the
proceeds.
B. Before any proceeds of the sale of the ROA Shares are
remitted to the undersigned, the Company shall have paid to the Custodian and
the Attorneys-in-Fact amounts equal to the undersigned's proportionate share of
all of their respective fees and expenses for the performance of their
obligations under this Agreement. After payment of such fees and expenses by the
Company, the Custodian will remit to the undersigned the purchase price for the
ROA Shares.
5. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The undersigned
represents and warrants to, and agrees with, the other Selling Stockholders, the
Company, the Attorneys-in-Fact and the Custodian as follows:
A. The undersigned has full legal right, power and
authority to enter into and perform this Agreement. The undersigned agrees to
deliver to the Attorneys-in-Fact such additional documentation as the
Attorneys-in-Fact, or either of them, or the Company, the
5
<PAGE> 6
Custodian or any of their respective counsel may request to effectuate or
confirm compliance with any of the provisions hereof or of the Underwriting
Agreement. If the undersigned is acting as a fiduciary, officer, partner or
agent, the undersigned is enclosing with this Agreement certified copies of the
appropriate instruments pursuant to which the undersigned is authorized to act
hereunder. If the undersigned is an individual and is married, the undersigned
is enclosing with this Agreement a duly completed and executed consent of his or
her spouse, in the form attached to this Agreement as Annex A.
B. The undersigned will promptly notify the
Attorneys-in-Fact of any development that would make any representation and
warranty to be made by the undersigned as a Selling Stockholder contained in the
Underwriting Agreement untrue.
C. The undersigned has reviewed the Registration
Statement, including the preliminary prospectus included therein, and (i) the
undersigned has no knowledge of any material adverse information with regard to
the current and prospective operations of the Company or its subsidiaries except
as disclosed in such preliminary prospectus, (ii) the information contained in
such preliminary prospectus with respect to the undersigned is true and correct,
and (iii) to the best of the knowledge and belief of the undersigned, such
preliminary prospectus does not contain any misstatement of a material fact or
omit to state any material fact required to be stated therein or any information
necessary to make the statements therein not misleading.
D. The undersigned is not directly or indirectly an
affiliate of or associated with any member of the National Association of
Securities Dealers, Inc.
E. The undersigned will not sell, offer to sell, solicit
an offer to buy, contract to sell, grant any option to purchase or otherwise
transfer or dispose of any shares of ROA Common Stock or Swenson Common Stock,
or any securities convertible into or exercisable or exchangeable for shares of
ROA Common Stock or Swenson Common Stock, for a period of 180 days after the
date of the Prospectus (as defined in the Underwriting Agreement), except as
permitted by Section 2 of the Underwriting Agreement.
F. The undersigned agrees to deliver to the
Attorneys-in-Fact such documentation as the Attorneys-in-Fact, the Company or
the Selling Stockholders or any of their respective counsel may reasonably
request in order to effectuate any of the provisions hereof or of the
Underwriting Agreement, all of the foregoing to be in form and substance
satisfactory in all respects to the Attorneys-in-Fact.
G. The undersigned has, and at the time of delivery of
the Swenson Shares pursuant to the Merger (the "Merger Date") will have, valid,
marketable title to the Swenson Shares, and will have on the Merger Date full
legal right and power to sell, transfer and deliver such Swenson Shares, and all
authorizations and approvals required by law with respect thereto and with
respect to the undersigned's right and power to make the representations and
warranties set forth herein and in the Underwriting Agreement will have been
obtained; and upon delivery of the Swenson Shares in exchange for the ROA
Shares, the undersigned will have valid, marketable title thereto, free and
clear of all liens, security interests, encumbrances, equities and claims
whatsoever.
6
<PAGE> 7
H. The consummation of the transactions contemplated by
this Agreement and the fulfillment of the terms hereof will not result in a
breach of any of the terms or provisions of, or constitute a default under, any
agreement, indenture or other instrument to which the undersigned is a party or
by which the undersigned is bound, or any statute or ruling, decree, judgment,
order or regulation now in effect of any governmental authority having
jurisdiction over the undersigned or its, his or her property.
I. The undersigned has not taken and will not take,
directly or indirectly, any action designed to, or that might reasonably be
expected to, cause or result in stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the ROA Common
Stock pursuant to the distribution contemplated by the Underwriting Agreement;
and, other than as permitted under the Act, the undersigned has not and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
J. Until payment in full for the Shares has been
received by the Attorneys-in-Fact from the Underwriter, or until the
Underwriting Agreement or this Agreement have been terminated, the undersigned
agrees and acknowledges that the undersigned will not have the right or power to
sell, transfer, pledge, hypothecate, grant liens on, deal with or contract with
respect to, the ROA Shares, the Swenson Shares or any interest therein.
K. When the Registration Statement covering the ROA
Shares becomes effective, the parts thereof that provide information
specifically relating to the undersigned will not contain any untrue statement
of material fact or omit to state any material fact required to be stated
therein or any information necessary to make the statements therein not
misleading. For purposes of rendering any opinion pursuant to the Underwriting
Agreement, Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden Arps") may rely on
the certifications, representations, warranties and statements of the
undersigned set forth in this Agreement or in any other document delivered by or
on behalf of the undersigned in connection with the registration or sale of the
ROA Shares, as if such certifications, representations, warranties and
statements were set forth in a separate certificate directed to Skadden Arps at
and as of the Closing Date. The foregoing representations, warranties and
agreements are made for the benefit of, and may be relied upon by, the other
Selling Stockholders, the Attorneys-in-Fact, the Company, the Custodian and
their respective representatives, agents and counsel and are in addition to, and
not in limitation of, the representations, warranties and agreements of the
Selling Stockholders in the Underwriting Agreement.
6. Irrevocability of Instruments; Termination of this Agreement.
------------------------------------------------------------
A. This Agreement, the deposit of the ROA Shares and the
Swenson Shares pursuant hereto and all authority hereby conferred, is granted,
made and conferred subject to and in consideration of (i) the interests of the
Attorneys-in-Fact, the Underwriter, the Company and the other Selling
Stockholders who may become parties to the Underwriting Agreement in and for the
purpose of completing the transactions contemplated hereunder and by the
Underwriting Agreement and (ii) the completion of the registration of ROA Common
Stock pursuant to the Registration Statement, the Merger and the other acts of
the above-mentioned parties from the date hereof to and including the execution
and delivery of the Underwriting Agreement in anticipation of the sale of ROA
Common Stock, including the ROA Shares, to the
7
<PAGE> 8
Underwriter; and the Attorneys-in-Fact are hereby further vested with an estate,
right, title and interest in and to the ROA Shares and the Swenson Shares
deposited herewith for the purpose of irrevocably empowering and securing to
them authority sufficient to consummate said transactions. Accordingly, this
Agreement shall be irrevocable and shall remain in full force and effect unless
the Underwriter (i) terminates the Underwriting Agreement prior to the closing
of the sale of ROA Shares on the Closing Date, or (ii) does not purchase the
Firm Shares prior to December 31, 1997. The undersigned further agrees that this
Agreement shall not be terminated by operation of law or upon the occurrence of
any event whatsoever, including the death, disability or incompetence of the
undersigned or any other Selling Stockholder or, if the undersigned or any other
Selling Stockholder is not a natural person, upon any dissolution, winding up,
distribution of assets or other event affecting the legal existence of the
undersigned or such Selling Stockholder. If any event referred to in the
preceding sentence shall occur, whether with or without notice thereof to the
Attorneys-in-Fact, the Underwriter or any other person, the Attorneys-in-Fact
shall nevertheless be authorized and empowered to deliver and deal with the ROA
Shares and the Swenson Shares deposited under this Agreement in accordance with
the terms and provisions of the Underwriting Agreement and this Agreement as if
such event had not occurred.
B. If the sale of the Firm Shares contemplated by the
Underwriting Agreement is not completed by December 31, 1997, this Agreement
shall terminate (without affecting any lawful action of the Attorneys-in-Fact or
the Custodian prior to such termination), and the Attorneys-in-Fact shall cause
the Custodian to return to the undersigned all certificates for the ROA Shares
or the Swenson shares, as the case may be, deposited hereunder, but only after
the Custodian and the Attorneys-in-Fact have received payment of the
undersigned's proportionate share of all of their respective fees and expenses
for the performance of their obligations hereunder.
7. LIABILITY AND INDEMNIFICATION OF THE ATTORNEYS-IN-FACT AND
CUSTODIAN. The Attorneys-in-Fact and the Custodian assume no responsibility or
liability to the undersigned or to any other person, other than to deal with the
ROA Shares, the Swenson Shares, the proceeds from the sale of the ROA Shares and
any other shares of ROA Common Stock or Swenson Common Stock deposited with the
Custodian pursuant to the terms of this Agreement in accordance with the
provisions hereof. The undersigned hereby agrees to indemnify and hold harmless
the Attorneys-in-Fact and the Custodian, and their respective officers, agents,
successors, assigns and personal representatives with respect to any act or
omission of or by any of them in good faith in connection with any and all
matters contemplated by this Agreement or the Underwriting Agreement.
8
<PAGE> 9
8. Interpretation.
--------------
A. The representations, warranties and agreements of the
undersigned contained herein shall survive the sale and delivery of the ROA
Shares and the termination of this Agreement.
B. The validity, enforceability, interpretation and
construction of this Agreement shall be determined in accordance with the laws
of the State of Massachusetts applicable to contracts made and to be performed
within the State of Florida and this Agreement shall inure to the benefit of,
and be binding upon, the undersigned and the undersigned's heirs, executors,
administrators, successors and assigns, as the case may be.
C. Wherever possible each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any such provision shall be prohibited by or invalid
under applicable law, it shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
D. The use of the masculine gender in this Agreement
includes the feminine and neuter, and the use of the singular includes the
plural, wherever appropriate.
IN WITNESS WHEREOF, the undersigned has executed this Custody
Agreement and Power of Attorney this ___ day of _________, 1997.
Selling Stockholder
--------------------------------------------
Signature of Selling Stockholder (Please sign exactly as your name appears on
Guaranteed by: your stock certificate(s).)
Name and address to which notices and funds
shall be sent.
--------------------------------------------
(NAME)
--------------------------------------------
(STREET)
--------------------------------------------
(CITY) (STATE) (ZIP)
9
<PAGE> 10
(NOTE: The signature must be guaranteed by a commercial bank or trust company in
the United States or by a member firm of the New York Stock Exchange or other
eligible guarantor institution which is a participant in a Securities Transfer
Association recognized program.)
ACCEPTED by the Attorneys-in-Fact
as of the date above set forth:
ACCEPTED by the Custodian
as of the date above set forth:~
_____________________________ AMERICAN STOCK TRANSFER & TRUST
[Attorney-in-Fact] COMPANY
_____________________________ By:
[Attorney-in-Fact] Name:
Title:
SEE THE ATTACHED INSTRUCTIONS
10
<PAGE> 11
INSTRUCTIONS
(For completing the Custody Agreement and Power of Attorney)
A. You have been sent six copies of the Custody
Agreement and Power of Attorney (the "Agreement"). Please complete and return
five copies of the Agreement and stock certificate(s) as set forth in paragraph
D below. A fully executed copy of the Agreement will be returned to you; a fully
executed copy of the Agreement and your stock certificate(s) will be retained by
the Custodian; and a fully executed copy of the Agreement will be delivered to
the Attorneys-in-Fact and to the Underwriter and the Company.
B. Complete Schedule I attached hereto.
C. Each copy of the Agreement and each stock certificate
or stock power deposited hereunder must be executed by you with your signature
on the Agreement and the stock certificate(s) or the accompanying stock power
guaranteed by a commercial bank or trust company in the United States or any
broker which is a member firm of the New York Stock Exchange or other eligible
guarantor institution which is a participant in a Securities Transfer
Association recognized program. Please sign the stock certificate(s) or stock
power and the Agreement exactly as your name appears on your stock
certificate(s).
D. Endorsed stock certificate(s) or stock certificate(s)
with stock powers attached along with all five executed copies of the completed
Agreement should be promptly returned by hand delivery or by certified mail
appropriately insured to:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attention: Susan Salber
If sent through the mail, it is recommended that the certificate(s) not be
endorsed, but an executed stock power be sent under separate cover from the
certificate(s).
E. If any certificate that you submit represents a
greater number of Swenson Shares than the number of Swenson Shares that
corresponds to the number of ROA Shares which you agree to sell pursuant to the
Underwriting Agreement [(including any Additional Shares which you agree to
sell)], the Custodian will cause to be delivered to you in due course, but not
earlier than ten days after the closing for the purchase of Firm Shares by the
Underwriter [(or ten days after the final closing for Additional Shares, if the
ROA Shares are subject to the Underwriter's overallotment option)], a
certificate for the excess number of shares of ROA Common Stock.
F. Please contact Rock of Ages Corporation and Skadden,
Arps, Slate, Meagher & Flom LLP at the respective addresses and to the attention
of the appropriate persons as set forth in Section 14 of the Underwriting
Agreement, if any information or representation included in the foregoing
Agreement or the Underwriting Agreement should change, or if you
11
<PAGE> 12
become aware of any new information, at any time prior to termination of the
period referred to in Section 12 of the Underwriting Agreement.
-----------------------------
(Name of Selling Stockholder)
SCHEDULE I
Certificate(s) for Shares of Common Stock of
SWENSON GRANITE COMPANY, INC.
deposited under
Custody Agreement and Power of Attorney
Number of Shares of
Number of Shares of Swenson Swenson Common Stock
Certificate Common Stock Represented from this Certificate To
Number by Certificate Be Sold*
- --------------------------------------------------------------------------------
- ----------- --------------------- -------------------
- ----------- --------------------- -------------------
- ----------- --------------------- -------------------
- ----------- --------------------- -------------------
- ----------- --------------------- -------------------
- ----------- --------------------- -------------------
Total: ___________________
*If fewer than all shares represented by a certificate are to be sold, indicate
below, if desired for income tax purposes, the date of purchase or purchase
price of the particular shares to be sold.
12
<PAGE> 13
ANNEX A
Instruction: See Section 4, paragraph A, of the CUSTODY AGREEMENT AND POWER OF
ATTORNEY.
CONSENT OF SPOUSE
-----------------
I am the spouse of ___________________. On behalf of myself,
my heirs, legatees, and assigns, I hereby join in and consent to the terms of
the foregoing Custody Agreement and Power of Attorney and agree to the sale of
the shares of Common Stock of Rock of Ages Corporation, to be issued pursuant to
the Merger referred to in the Custody Agreement and Power of Attorney in
exchange for Common Stock of Swenson Granite Company, Inc. registered in the
name of my spouse or otherwise registered, which my spouse proposes to sell, or
to agree to sell, pursuant to the Underwriting Agreement referred to in the
Custody Agreement and Power of Attorney.
Dated: ____________, 1997
-------------------------------
(Signature of Spouse)
Print Name:
13
<PAGE> 1
EXHIBIT 10.19
FINANCING AGREEMENT
-------------------
THE CIT GROUP/BUSINESS CREDIT, INC.
(AS LENDER)
AND
ROCK OF AGES QUARRIES, INC.
AND
SWENSON GRANITE COMPANY, INC.
AND
ROYALTY GRANITE CORPORATION
(as Borrowers)
DATED: AUGUST 25, 1994
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TABLE OF CONTENTS
Page
----
SECTION 1. Definitions ................................................. 3
SECTION 2. Conditions Precedent ........................................ 11
SECTION 3. Revolving Loans ............................................. 13
SECTION 4. Term Loan ................................................... 16
SECTION 5. Letters of Credit ........................................... 17
SECTION 6. Collateral .................................................. 19
SECTION 7. Representations, Warranties and Covenants ................... 22
SECTION 8. Interest, Fees and Expenses ................................. 31
SECTION 9. Powers ...................................................... 32
SECTION 10. Events of Default and Remedies .............................. 33
SECTION 11. Termination ................................................. 35
SECTION 12. Miscellaneous ............................................... 36
EXHIBIT
- -------
Exhibit A - Form of Promissory Note
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<PAGE> 3
THE CIT GROUP/BUSINESS CREDIT, INC., a New York corporation, (hereinafter
"CITBC") with offices located at 1211 Avenue of the Americas New York, New York
10036, is pleased to confirm the terms and conditions under which CITBC shall
make a term loan and revolving loans, advances and other financial
accommodations to ROCK OF AGES QUARRIES, INC., a Vermont Corporation (herein
"ROA Quarries"), having a principal place of business at Main Street,
Graniteville, Vermont 05654; SWENSON GRANITE COMPANY, INC., a New Hampshire
Corporation (herein "Swenson"), having a principal place of business at 369
North State Street, Concord, New Hampshire 03301; and ROYALTY GRANITE
CORPORATION, a Georgia corporation (herein "Royalty"), having a principal place
of business at SR 294 Berkley Quarry Road, Carlton, Georgia 30627 (ROA Quarries,
Swenson and Royalty are hereafter individually referred to as "Company" and
collectively referred to as the "Companies").
WHEREAS, ROA Quarries, Swenson and Royalty have entered into written
arrangements to enhance their operations, reduce operating costs, increase
efficiencies and increase sales;
WHEREAS, ROA Quarries will provide centralized financial and cash management
services and centralized cash disbursement and payables services to Swenson and
Royalty;
WHEREAS, CITBC currently finances Swenson and Royalty (the "Existing Financing")
and which Existing Financing will be terminated and replaced, in part, by this
financing arrangement;
NOW, THEREFORE, in consideration of the mutual conditions and agreements set
forth in this Financing Agreement, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, CITBC and each of
the Companies hereby agree as follows:
SECTION 1. DEFINITIONS
ACCOUNTS shall mean all of each Company's now existing and future: (a) accounts
receivable, (whether or not specifically listed on schedules furnished to
CITBC), and any and all instruments, documents, contract rights, chattel paper,
general intangibles, including, without limitation, all accounts created by or
arising from each Company's sales of goods or rendition of services to its
customers, and all accounts arising from sales or rendition of services made
under any Company's trade names or styles, or through any of a Company's
divisions; (b) unpaid seller's rights (including rescission, replevin,
reclamation and stoppage in transit) relating to the foregoing or arising
therefrom; (c) rights to any goods represented by any of the foregoing,
including rights to returned or repossessed goods; (d) reserves and credit
balances arising hereunder; (e) guarantees or collateral for any of the
foregoing; (f) insurance policies or rights relating to any of the foregoing;
and (g) cash and non-cash proceeds of any and all the foregoing.
ANNIVERSARY DATE shall mean the date occurring five (5) years from the date
hereof and the same date in every year thereafter.
ANNUM shall mean a year consisting of three hundred and sixty (360) days.
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AVAILABILITY shall mean at any time of determination the excess of the sum of a)
Eligible Accounts Receivable multiplied by the percentage provided for in clause
(a) of paragraph 1 of Section 3 of this Financing Agreement and b) Eligible
Inventory multiplied by the percentage provided for in clause (b) of paragraph 1
of Section 3 of this Financing Agreement over the sum of x) the outstanding
aggregate amount of all Obligations (other than the Term Loan) and y) the
Availability Reserve.
AVAILABILITY RESERVE shall mean, at any time of determination, the then
outstanding amount of all Letters of Credit.
BUSINESS DAY shall mean any day on which both CITBC and Chemical Bank are open
for business.
CAPITAL EXPENDITURES for any period shall mean the aggregate of all expenditures
of the Companies during such period that in conformity with GAAP are required to
be included in or reflected by the property, plant or equipment or similar fixed
asset account reflected in the balance sheets of the Companies.
CAPITAL LEASE shall mean any lease of property (whether real, personal or mixed)
which, in conformity with GAAP, is accounted for as a capital lease or a Capital
Expenditure on the balance sheets of the Companies.
CHEMICAL BANK RATE shall mean the rate of interest per annum announced by
Chemical Bank from time to time as its prime rate in effect at its principal
office in the City of New York. (The prime rate is not intended to be the lowest
rate of interest charged by Chemical Bank to its borrowers).
COLLECTERAL shall mean all present and future Accounts, Equipment, Inventory,
Documents of Title, General Intangibles and Real Estate of the Company.
COLLATERAL MANAGEMENT FEE shall mean the sum of $1,000.00 which shall be paid to
CITBC in accordance with paragraph 8 of Section 8 hereof to offset the expenses
and costs of CITBC in connection with record keeping, periodic examinations,
analyzing and evaluating the Collateral.
CONSOLIDATED BALANCE SHEET shall mean a consolidated balance sheet of the
Companies and their consolidated subsidiaries eliminating all inter-company
transactions and prepared in accordance with GAAP.
CONSOLIDATING BALANCE SHEET shall mean a Consolidated Balance Sheet plus
individual balance sheets for the Companies and their subsidiaries showing all
eliminations of inter-company transactions and prepared in accordance with GAAP
and including a balance sheet for EACH Company exclusively.
CURRENT ASSETS shall mean, wherever used throughout this Financing Agreement,
those assets of the Companies, which in accordance with GAAP, are classified as
"current".
CURRENT LIABILITIES shall mean, wherever used throughout this Financing
Agreement, those liabilities of the Companies, which in accordance with GAAP,
are classified as "current", provided, however, that notwithstanding GAAP, the
Revolving Loans and the current portion of Permitted Indebtedness shall be
considered "current liabilities".
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<PAGE> 5
CUSTOMARILY PERMITTED LIENS shall mean
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(a) liens of local or state authorities for franchise or other like taxes
provided the aggregate amounts of such liens shall not exceed $100,000.00 in the
aggregate at any one time;
(b) statutory liens of landlords and liens of carriers, warehousemen,
mechanics, materialmen and other like liens imposed by law, created in the
ordinary course of business and for amounts not yet due (or which are being
contested in good faith by appropriate proceedings or other appropriate actions
which are sufficient to prevent imminent foreclosure of such liens) and with
respect to which adequate reserves or other appropriate provisions are being
maintained in accordance with GAAP;
(c) deposits made (and the liens thereon) in the ordinary course of
business (including, without limitation, security deposits for leases, surety
bonds and appeal bonds) in connection with workers' compensation, unemployment
insurance and other types of social security benefits or to secure the
performance of tenders, bids, contracts (other than for the repayment or
guarantee of borrowed money or purchase money obligations), statutory
obligations and other similar obligations arising as a result of progress
payments under government contracts; and
(d) easements (including, without limitation, reciprocal easement
agreements and utility agreements), encroachments, minor defects or
irregularities in title, variations and other restrictions, charges or
encumbrances (whether or not recorded) affecting the Real Estate and which are
listed in Schedule B of the title insurance policies delivered to CITBC
herewith.
DEFAULT shall mean any event specified in Section 10 hereof, whether or not any
requirement for the giving of notice, the lapse of time, or both, or any other
condition, event or act, has been satisfied.
DEFAULT RATE OF INTEREST shall mean a rate of interest per annum equal to the
sum of: a) two and one-half percent (2 1/2%) and b) the Chemical Bank Rate,
which CITBC shall be entitled to charge on all Obligations due CITBC by the
Companies to the extent provided in paragraph 2 of Section 10 of this Financing
Agreement.
DEPOSITORY ACCOUNT shall mean those accounts owned by CITBC and designated for
the deposit of proceeds of Collateral.
DOCUMENTATION FEE shall mean i) the sum of $7,500.00 intended to compensate
CITBC for the use of CITBC's in-house Legal Department and facilities in
documenting, in whole or in part, the initial transaction solely on behalf of
CITBC, exclusive of Out-of-Pocket Expenses, and ii) CITBC's standard fees
relating to any and all modifications, waivers, releases, amendments or
additional collateral with respect to this Financing Agreement, the Collateral
and/or the Obligations.
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<PAGE> 6
DOCUMENTS OF TITLE shall mean all present and future warehouse receipts, bills
of lading, shipping documents, chattel paper, instruments and similar documents,
all whether negotiable or not and all goods and Inventory relating thereto and
all cash and non-cash proceeds of the foregoing.
EARLY TERMINATION DATE shall mean the date on which ROA Quarries terminates this
Financing Agreement or the Line of Credit which date is prior to the first
Anniversary Date.
EARLY TERMINATION FEE shall: i) mean the fee CITBC is entitled to charge in the
event ROA Quarries terminates the Line of Credit or this Financing Agreement on
a date prior to the first Anniversary Date; and ii) be determined by calculating
the average daily loan balance under the Revolving Loan for the period from the
date of this Financing Agreement to the Early Termination Date and multiplying
that number by one percent (1%) per annum for the number of days from the Early
Termination Date to the first Anniversary Date.
EBIT shall mean, in any period, all earnings of the Companies before all
interest and tax obligations of the Companies for said period, determined in
accordance with GAAP.
EVENT(S) OF DEFAULT shall have the meaning provided for in Section 10 of this
Financing Agreement.
ELIGIBLE ACCOUNTS RECEIVABLE shall mean, in the aggregate, the gross amount of
each Company's accounts receivable provided, however, that in each instance the
accounts receivable conform to the warranties contained herein and at all times
continue to be acceptable to CITBC in the exercise of its reasonable business
judgment, less, without duplication, the sum of: a) any returns, discounts,
claims, credits and allowances of any nature (whether issued, owing, granted or
outstanding) and b) reserves for: i) sales to the United States of America or
to any agency, department or division thereof; ii) foreign sales other than
sales x) secured by stand-by letters of credit (in form and substance
satisfactory to CITBC) issued or confirmed by, and payable at, banks having a
place of business in the United States of America and payable in United States
currency, or y) to customers residing in Canada provided such sales otherwise
comply with all of the other criteria for eligibility hereunder, are payable in
United States currency and such sales do not exceed $3,000,000.00 in the
aggregate at any one time; iii) accounts that remain unpaid more than the
greater of a) ninety (90) days from invoice date or b) sixty (60) days from due
date but in no event more than one hundred and eighty (180) days from invoice
date; iv) contras; v) sales to any Company, any subsidiary, or to any company
affiliated with a Company in any way other than sales to any foreign company
(other than ROA Canada) affiliated with a Company or ROA provided such sales x)
are on terms no less beneficial to the Company than sales to companies not
affiliated with the Company and y) are secured by stand-by letters of credit
issued or confirmed by, and payable at, banks having a place of business in the
United States and payable in United States currency; vi) bill and hold (deferred
shipment) or consignment sales; vii) sales to any customer which is a)
insolvent, b) the debtor in any bankruptcy, insolvency, arrangement,
reorganization, receivership or similar proceedings under any federal or state
law, c) negotiating, or has called a meeting of its creditors for purposes of
negotiating, a compromise of its debts or d) financially unacceptable to CITBC
or has a credit rating unacceptable to CITBC; viii) all sales to any customer if
fifty percent (50%) or more of either x) all outstanding invoices or y) the
aggregate dollar amount of all outstanding invoices, are unpaid more than the
greater of a) ninety (90) days from invoice date or b) sixty (60) days from due
date but in no event more than
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<PAGE> 7
one hundred and eighty (180) days from invoice date; ix) any other reasons
deemed necessary by CITBC in its reasonable business judgment and which are
customary either in the commercial finance industry or in the lending practices
of CITBC; and x) an amount representing, historically, returns, discounts,
claims, credits and allowances.
ELIGIBLE INVENTORY shall mean, in the aggregate, the gross amount of each
Company's Inventory provided, however, that in each instance the Inventory
conforms to the warranties contained herein and which at all times continue to
be acceptable to CITBC in the exercise of its reasonable business judgment less
any work-in-process, goods not present in the United States of America, goods
returned or rejected by customers of a Company, other than goods that are
undamaged and resalable in the normal course of business, goods to be returned
to the suppliers of a Company, goods in transit to third parties (other than to
agents or warehouses of a Company) and less any reserves required by CITBC in
its reasonable discretion for special order goods, market value declines and
bill and hold (deferred shipment) or consignment sales.
EQUIPMENT shall mean all present and hereafter acquired machinery, equipment,
furnishings and fixtures, and all additions, substitutions and replacements
thereof, wherever located, together with all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto and all proceeds
of whatever sort.
FIXED CHARGE COVERAGE RATIO shall mean, for any period of computation, a ratio
determined by dividing the sum of x) EBIT, y) depreciation and z) amortization
of General Intangibles by the sum of i) all interest expense on Permitted
Indebtedness, ii) cash capital expenditures, iii) principal repaid on the Term
Loan and iv) taxes paid or accrued.
ERISA shall mean the Employee Retirement Income Security Act or 1974, as amended
from time to time and the rules and regulations promulgated thereunder from time
to time.
GAAP shall mean generally accepted accounting principles in the United States of
America as in effect on the date of this Financing Agreement.
GENERAL INTANGIBLES shall have the meaning set forth in the Uniform Commercial
Code as in effect in the State of New York and shall include, without
limitation, all present and future right, title and interest in and to all
tradenames, trademarks (together with the goodwill associated therewith),
patents, licenses (other than licenses which are not assignable and for which
consents to any assignment have not been obtained), customer lists, distribution
agreements, supply agreements and tax refunds, together with all monies and
claims for monies now or hereafter due and payable in connection with any of the
foregoing or otherwise, and all cash and non-cash proceeds thereof.
GUARANTORS shall mean i) the Companies, ii) ROA, iii) Kurt M. Swenson, and iv)
Kevin C. Swenson and v) ROA Canada.
INDEBTEDNESS shall mean, without duplication, all liabilities, contingent or
otherwise, which are any of the following: (a) obligations in respect of
borrowed money or for the deferred purchase price of property,
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<PAGE> 8
services or assets, other than Inventory, or (b) lease obligations which, in
accordance with GAAP, have been, or which should be, capitalized.
INTEREST EXPENSE shall mean, in the aggregate, the total interest obligations
(paid or accrued) of the Companies determined in accordance with GAAP on a basis
consistent with the latest audited statements of the Companies.
INVENTORY shall mean all of each Company's present and hereafter acquired
merchandise, inventory and goods, and all additions, substitutions and
replacements thereof, wherever located, together with all goods and materials
used or usable in manufacturing, processing, packaging or shipping same, in all
stages of production--from raw materials through work-in-process to finished
goods--and all proceeds thereof of whatever sort.
ISSUING BANK shall mean the bank issuing Letters of Credit for a Company.
LETTERS OF CREDIT shall mean all letters of credit issued with the assistance of
CITBC by the Issuing Bank for or on behalf of a Company.
LETTER OF CREDIT GUARANTY shall mean the guaranty or obligation delivered by
CITBC to the Issuing Bank of a Company's reimbursement obligation under the
Issuing Bank's Reimbursement Agreement, Application for Letter of Credit or
other like document.
LETTER OF CREDIT GUARANTY FEE shall mean the fee CITBC may charge under
paragraph 3 of Section 8 of this Financing Agreement for: i) issuing the Letter
of Credit Guaranty or ii) otherwise aiding a Company in obtaining Letters of
Credit.
LEVERAGE RATIO shall mean the ratio determined by dividing Total Liabilities by
Net Worth.
LINE OF CREDIT shall mean the commitment of CITBC to make loans and advances
pursuant to Section 3 of this Financing Agreement and to assist the Companies in
obtaining Letters of Credit under Section 4 of this Financing Agreement in an
amount equal to $4,000,000.00.
LINE OF CREDIT FEE shall: i) mean the fee due CITBC at the end of each month for
the Line of Credit, and ii) be determined by multiplying the difference between
the Line of Credit, and the average daily Revolving Loans for said month by
one-quarter of one percent (1/4 of 1%) per annum TIMES the number of days in
said month.
LOAN FACILITY FEE shall mean the fee payable to CITBC in accordance with, and
pursuant to, the provisions of paragraph 7 of Section 8 of this Financing
Agreement.
MANDATORY PREPAYMENT shall: i) mean the amount by which the Companies must
prepay the Term Loan on or before the 90th day after the end of the Companies'
fiscal year and which payment shall not be subject to
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the Prepayment Premium; and ii) be determined as set forth in Section 4,
paragraph 6 of this Financing Agreement.
NET WORTH shall mean assets in excess of liabilities, determined in accordance
with GAAP, on a consistent basis with the latest audited statements.
OBLIGATIONS shall mean all loans and advances made or to be made by CITBC to a
Company or to others for a Company's account; any and all indebtedness and
obligations which may at any time be owing by the Companies to CITBC howsoever
arising, whether now in existence or incurred from time to time hereafter;
whether secured by pledge, lien upon or security interest in any Company's
assets or property or the assets or property of any other person, firm, entity
or corporation; whether such indebtedness is absolute or contingent, joint or
several, matured or unmatured, direct or indirect and whether a Company is
liable to CITBC for such indebtedness as principal, surety, endorser, guarantor
or otherwise. Obligations shall also include indebtedness owing to CITBC by the
Companies under this Financing Agreement or under any other agreement or
arrangement now or hereafter entered into between the Companies and CITBC;
indebtedness or obligations incurred by, or imposed on, CITBC as a result of
environmental claims (other than as a result of actions of CITBC) arising out of
any Company's operations, premises or waste disposal practices or sites; a
Company's liability to CITBC as maker or endorser on any promissory note or
other instrument for the payment of money; a Company's liability to CITBC under
any instrument of guaranty or indemnity, or arising under any guaranty,
endorsement or undertaking which CITBC may make or issue to others for any
Company's account, including any accommodation extended with respect to
applications for Letters of Credit, CITBC's acceptance of drafts or CITBC's
endorsement of notes or other instruments for any Company's account and benefit.
OPERATING LEASES shall mean all leases of property (whether real, personal or
mixed) other than Capital Leases.
OUT-OF-POCKET EXPENSES shall mean all of CITBC's present and future reasonable
expenses incurred relative to this Financing Agreement, whether incurred
heretofore or hereafter, which expenses shall include, without being limited to,
the cost of record searches, all costs and expenses incurred by CITBC in opening
bank accounts, depositing checks, receiving and transferring funds, and any
charges imposed on CITBC due to "insufficient funds" of deposited checks and
CITBC's standard fee relating thereto, any amounts paid by CITBC, incurred by or
charged to CITBC by the Issuing Bank under the Letter of Credit Guaranty or a
Company's Reimbursement Agreement, Application for Letter of Credit or other
like document which pertain either directly or indirectly to such Letters of
Credit, and CITBC's standard fees relating to the Letters of Credit and any
drafts thereunder, reasonable local counsel fees, title insurance premiums, real
estate survey costs, the Georgia General Intangible Tax, fees and taxes relative
to the filing of financing statements, costs of preparing and recording
mortgages/deeds of trust against the Real Estate and all expenses, costs and
fees set forth in paragraph 3 of Section 10 of this Financing Agreement.
PERMITTED ENCUMBRANCES shall mean: i) liens expressly permitted, or consented
to, by CITBC; ii) Purchase Money Liens; iii) Customarily Permitted Liens; iv)
liens granted CITBC by the Companies; v) liens of judgment creditors provided
such liens do not exceed, in the aggregate, at any time, $100,000.00 (other than
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liens bonded or insured to the reasonable satisfaction of CITBC); and vi) liens
for taxes not yet due and payable or which are being diligently contested in
good faith by any Company by appropriate proceedings and which liens are not x)
other than with respect to Real Estate, senior to the liens of CITBC or y) for
taxes due the United States of America.
PERMITTED INDEBTEDNESS, shall mean: i) current indebtedness maturing in less
than one year and incurred in the ordinary course of business for raw materials,
supplies, equipment, services, taxes or labor; ii) the indebtedness secured by
the Purchase Money Liens; iii) indebtedness of any Company which is unsecured
and subordinated to the prior payment and satisfaction of the Obligations due
CITBC by the Companies by means of a subordination agreement in form and
substance satisfactory to CITBC; iv) indebtedness arising under the Letters of
Credit and this Financing Agreement; v) deferred taxes and other expenses
incurred in the ordinary course of business; and vi) other indebtedness existing
on the date of execution of this Financing Agreement and listed in the most
recent financial statement delivered to CITBC or otherwise disclosed to CITBC in
writing or which is not material to the financial condition of the Companies.
PREPAYMENT PREMIUM shall: i) mean the amount due CITBC upon a voluntary
prepayment, in whole or in part, of the Term Loan, prior to the first
Anniversary Date, provided, however, that no such Prepayment Premium shall be
due if the proceeds for such prepayment are derived solely from x) Surplus Cash,
y) sales of Equipment and/or Real Estate or z) the public or private placement
of the stock or subordinated and unsecured notes of a Company provided a) the
Financing Agreement is not terminated and b) CITBC continues to be the primary
lender of the Companies notwithstanding such prepayment, and ii) be computed by
multiplying the amount so prepaid by one and one-half percent (1 1/2%) if the
prepayment occurs prior to the first Anniversary Date.
PROMISSORY NOTE shall mean the note, in the form of Exhibit A attached hereto,
delivered by the Companies to CITBC to evidence the Term Loan pursuant to, and
repayable in accordance with, the provisions of Section 4 of this Financing
Agreement.
PURCHASE MONEY LIENS shall mean liens on any item of Equipment acquired after
the date of this Financing Agreement provided that i) each such lien shall
attach only to the property to be acquired, ii) a description of the property so
acquired is furnished to CITBC, and iii) the debt incurred in connection with
such acquisitions shall not exceed, in the aggregate, $250,000.00 in any fiscal
year.
Real Estate shall mean the fee and/or leasehold interests in the real property
which have been, or will be, encumbered, mortgaged, pledged or assigned to CITBC
or its designee.
REVOLVING LOANS shall mean the loans and advances made, from time to time, to or
for the account of the Companies, or any one of them, by CITBC pursuant to
Section 3 of this Financing Agreement.
ROA shall mean Rock of Ages Corporation, a Vermont corporation.
ROA CANADA shall mean Rock of Ages Canada Quarries Inc., a corporation formed
under the federal laws of Canada.
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ROA FINANCING AGREEMENT shall mean the Financing Agreement, of even date
herewith, between ROA and CITBC.
SURPLUS CASH shall mean for any fiscal year the sum of i) EBIT, ii) depreciation
and iii) other non-cash charges less the sum of a) all interest obligations paid
or due CITBC by the Companies, b) the amount of principal repaid CITBC on the
Term Loan, c) capital expenditures of the Companies, and d) all federal, state
and local tax obligations of the Companies.
Term Loan shall mean the term loan in the principal amount of $15,400,000.00
made by CITBC pursuant to, and repayable in accordance with, the provisions of
Section 4 of this Financing Agreement.
TOTAL LIABILITIES shall mean, in the aggregate, the total liabilities of the
Companies, determined in accordance with GAAP, on a basis consistent with the
latest audited statements of the Companies.
WORKING CAPITAL shall mean Current Assets in excess of Current Liabilities.
SECTION 2. CONDITIONS PRECEDENT
The obligation of CITBC to make loans hereunder is subject to the
satisfaction of, or waiver of, immediately prior to or concurrently with the
making of such loans, the following conditions precedent:
a) LIEN SEARCHES - CITBC shall have received tax, judgment and Uniform
Commercial Code searches satisfactory to CITBC for all locations presently
occupied or used by the Companies.
b) CASUALTY INSURANCE - The Companies shall have delivered to CITBC
evidence satisfactory to CITBC that casualty insurance policies listing CITBC as
loss payee or mortgagee, as the case may be, are in full force and effect, all
as set forth in Section 7, paragraph 5 of this Financing Agreement.
c) MORTGAGES/DEEDS OF TRUST - The Companies shall have executed and
delivered to either CITBC or an agent of CITBC or of a title insurance company
acceptable to CITBC such mortgages and deeds of trust as CITBC may reasonably
require to obtain first liens on. the Real Estate.
d) UCC FILINGS - Any documents (including without limitation, financing
statements) required to be filed in order to create, in favor of CITBC, a first
and exclusive perfected security interest in the Collateral with respect to
which a security interest may be perfected by a filing under the Uniform
Commercial Code shall have been properly filed in each office in each
jurisdiction required in order to create in favor of CITBC a perfected lien on
the Collateral. CITBC shall have received acknowledgement copies of all such
filings (or, in lieu thereof, CITBC shall have received other evidence
satisfactory to CITBC that all such filings have been made); and CITBC shall
have received evidence that all necessary filing fees and all taxes or other
expenses related to such filings have been paid in full.
e) TITLE INSURANCE POLICIES - CITBC shall have received, in respect of
each mortgage or deed of trust, a new or updated mortgagee's title policy or
marked-up unconditional binder for such insurance substantially similar to those
delivered to CITBC in connection with the Existing Financing. Each such policy
shall (i) be in an amount satisfactory to CITBC; (ii) insure that the mortgage
or deed of trust insured thereby creates a valid first lien on the property
covered by such mortgage or deed of trust, free and clear of all defects and
encumbrances except those x) acceptable to CITBC or y) currently listed in the
title policies delivered to
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CITBC in connection with the Existing Financing; (iii) name CITBC as the insured
thereunder; and (iv) contain such endorsements and effective coverage as CITBC
currently has in the title policies delivered to CITBC in connection with the
Existing Financing, including, without limitation, the revolving line of credit
endorsement. CITBC shall also have received evidence that all premiums in
respect of such policies have been paid and that all charges for mortgage
recording taxes, if any, shall have been paid.
f) SURVEYS - CITBC and the title insurance company issuing each policy
referred to in the immediately preceding paragraph (each a "TITLE INSURANCE
Company") shall have received copies of the currently existing maps or plats of
a perimeter or boundary of the site of each of the properties covered by the
mortgages or deeds of trust.
g) EXAMINATION & VERIFICATION - CITBC shall have completed, to the
satisfaction of CITBC, an examination and verification of the Accounts,
Inventory, books and records of each Company.
h) GUARANTIES - The Guarantors shall have executed and delivered to CITBC
guaranties, in form acceptable to CITBC, guaranteeing all present and future
Obligations of the Companies to CITBC.
i) OPINIONS - Counsel for the Companies shall have delivered to CITBC
opinions satisfactory to CITBC opining, inter alia, that, subject to the i)
filing, priority and remedies provisions of the Uniform Commercial Code, ii) the
provisions of the Bankruptcy Code, insolvency statutes or other like laws, iii)
the equity powers of a court of law and iv) such other matters as may be agreed
upon with CITBC: a) the Guaranty of the Guarantors is valid, binding and
enforceable according to its terms; b) all documents of each Company are x)
valid, binding and enforceable according to their terms, y) are duly authorized
and z) do not violate any terms, provisions, representations or covenants in the
charter or by-laws of any Company or, to the best knowledge of such counsel, of
any loan agreement, mortgage, deed of trust, note, security or pledge agreement
or indenture to which any Company is a signatory or by which any Company or its
assets are bound.
j) PLEDGE AGREEMENT - Kurt M. Swenson and Kevin C. Swenson shall x)
execute and deliver to CITBC an unconditional pledge, as additional security for
the Obligations, of certain personal assets, in form acceptable to CITBC, having
a then face value of not less than $1,800,000.00 and y) deliver to CITBC the
additional security with, to the extent applicable, executed stock powers and/or
endorsements. ROA shall x) execute and deliver to CITBC i) an unconditional
pledge, as additional security for the Obligations, of all of the issued and
outstanding capital stock of ROA Canada and ii) blank stock powers for each
stock certificate so pledged and y) deliver to CITBC the original stock
certificates so pledged.
k) ADDITIONAL DOCUMENTS - The Companies shall have executed and delivered
to CITBC all loan documents necessary to consummate the lending arrangement
contemplated between the Companies and CITBC.
1) BOARD RESOLUTION - CITBC shall have received a copy of the resolutions
of the Board of Directors of each Company authorizing the execution, delivery
and performance of (i) this Financing Agreement, and (ii) any related
agreements, in each case certified by the Secretary or Assistant Secretary of
the applicable Company, together with a certificate of the Secretary or
Assistant Secretary of each Company as to the incumbency and signature of the
officers of the Company executing this Financing Agreement and any certificate
or other documents to be delivered by it pursuant hereto, together with evidence
of the incumbency of such Secretary or Assistant Secretary.
m) CORPORATE ORGANIZATION - CITBC shall have received (i) a copy of the
Certificate of Incorporation of each Company certified by the Secretary of State
of its incorporation, and (ii) a copy of the By-Laws (as
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amended through the date hereof) of each Company certified by the Secretary or
Assistant Secretary of the Company.
n) OFFICER'S CERTIFICATE - CITBC shall have received an executed
Officer's Certificate of each Company, satisfactory in form and substance to
CITBC, certifying that (i) the representations and warranties contained herein
are true and correct in all material respects on and as of the date hereof; (ii)
each Company is in compliance with all of the terms and provisions set forth
herein; and (iii) no Event of Default, or any event which, with the giving of
notice or the passage of time or both would constitute an Event of Default, has
occurred.
o) ABSENCE OF DEFAULT - No Default, Event of Default or material adverse
change in the financial condition, business, prospects, profits, operations or
assets of any Company shall have occurred.
p) LEGAL RESTRAINTS/LITIGATION - At the date of execution of this
Financing Agreement, there shall be no x) litigation, investigation or
proceeding (judicial or administrative) pending or threatened against any
Company, or its assets, by any agency, division or department of any county,
city, state or federal government arising out of this Financing Agreement, y)
injunction, writ or restraining order restraining or prohibiting the
consummation of the financing arrangements contemplated under this Financing
Agreement or z) any suit, action, investigation or proceeding (judicial or
administrative) pending or threatened against any Company, or its assets, which,
in the opinion of CITBC, if adversely determined could have a material adverse
effect on the business, operation, assets, financial condition or Collateral of
any Company.
q) DISBURSEMENT AUTHORIZATION - ROA Quarries shall have delivered to
CITBC all information necessary for CITBC to issue wire transfer instructions on
behalf of the Companies for the initial and subsequent loans and/or advances to
be made under this Agreement including, but not limited to, disbursement
authorizations in form acceptable to CITBC.
Upon the execution of this Financing Agreement and the initial disbursement of
loans hereunder, all of the above Conditions Precedent shall have been deemed
satisfied except as the Companies and CITBC shall otherwise agree herein or in a
separate writing.
SECTION 3. REVOLVING LOANS
1. CITBC agrees, subject to the terms and conditions of this Financing
Agreement from time to time, and within x) the Availability and y) the Line of
Credit, but subject to CITBC's right to make "overadvances", to make loans and
advances to ROA Quarries to and for the benefit of the Companies on a revolving
basis (i.e. subject to the limitations set forth herein, the Companies may,
through ROA Quarries, borrow, repay and re-borrow Revolving Loans). Such loans
and advances shall be in amounts up to: a) eighty percent (80%) of the
outstanding Eligible Accounts Receivable, in the aggregate, of the Companies,
and b) fifty percent (50%) of the value of Eligible Inventory, in the aggregate,
of the Companies as determined at the lower of cost or market, provided,
however, that in no event may advances under this clause b exceed $2,000,000.00
in the aggregate at any one time. All requests for loans and advances must be
received by an officer of CITBC no later than 1:00 p.m., New York time, of the
Business Day on which such loans and advances are required. Should CITBC for any
reason honor requests for advances in excess of the limitations set forth
herein, such advances shall be considered "overadvances" and shall be made in
CITBC's sole discretion, subject to any additional terms CITBC deems necessary.
No single advance or overadvance hereunder may be outstanding more than
thirty-six (36) months from the date of such advance.
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2. In furtherance of the continuing assignment and security interest in
each Company's Accounts, each Company will, upon the creation of Accounts,
execute and deliver to CITBC in such form and manner as CITBC may reasonably
require, solely for CITBC's convenience in maintaining records of collateral,
such confirmatory schedules of Accounts as CITBC as were submitted to CITBC
under the Existing Financing, and such other appropriate reports designating,
identifying and describing the Accounts as CITBC may reasonably require. In
addition, upon CITBC's request, each Company shall provide CITBC with copies of
agreements with, or purchase orders from, that Company's customers, and copies
of invoices to customers, proof of shipment or delivery and such other
documentation and information relating to said Accounts and other collateral as
CITBC may reasonably require. Failure to provide CITBC with any of the foregoing
shall in no way affect, diminish, modify or otherwise limit the security
interests granted herein. Each Company hereby authorizes CITBC to regard that
Company's printed name or rubber stamp signature on assignment schedules or
invoices as the equivalent of a manual signature by that Company's authorized
officers or agents.
3. Each Company hereby represents and warrants that: each Account is
based on an actual and bona fide sale and delivery of goods or rendition of
services to customers, made by a Company in the ordinary course of business; the
goods and inventory being sold and the Accounts created are the exclusive
property of the Company so selling the inventory, and are not and shall not be
subject to any lien, consignment arrangement, encumbrance, security interest or
financing statement whatsoever, other than the Permitted Encumbrances; the
invoices evidencing such Accounts are in the name of the Company so selling the
inventory; and the customers of that Company have accepted the goods or
services, owe and are obligated to pay the full amounts stated in the invoices
according to their terms, without dispute, offset, defense, counterclaim or
contra, except for disputes and other matters arising in the ordinary course of
business of which a Company advised CITBC pursuant to paragraph 5 of this
Section 3. Each Company confirms to CITBC that any and all taxes or fees
relating to its business, its sales, the Accounts or goods relating thereto, are
its sole responsibility and that same will be paid by the Companies when due and
that none of said taxes or fees represent a lien on or claim against the
Accounts. Each Company also warrants and represents that it is a duly and
validly existing corporation and is qualified in all states where the failure to
so qualify would have an adverse effect on the business of such Company or the
ability of such Company to enforce collection of Accounts due from customers
residing in that state. Each Company agrees to maintain such books and records
regarding Accounts as CITBC may reasonably require and agrees that the books and
records of such Company will reflect CITBC's interest in the Accounts. All of
the books and records of each Company will be available to CITBC at normal
business hours, including any records handled or maintained for the Company by
any other company or entity.
4. Until CITBC has advised a Company to the contrary after the occurrence
of an Event of Default, each Company may, and will, enforce, collect and receive
all amounts owing on the Accounts for CITBC's benefit and on CITBC's behalf, but
at the expense of such Company. Such privilege shall terminate automatically
upon the institution by or against any Company of any proceeding under any
bankruptcy or insolvency law or, at the election of CITBC, upon the occurrence
of any other Event of Default and until such Event of Default is waived. Any
checks, cash, notes or other instruments or property received with respect to
any Accounts shall be held by the Company in trust for CITBC, separate from its
own property and funds, and immediately turned over to CITBC with proper
assignments or endorsements by deposit to the Depository
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Accounts. All amounts received by CITBC in payment of Accounts will be credited
to the loan account upon CITBC's receipt of "collected funds" at CITBC's bank
account in New York, New York on the Business Day of receipt if received no
later than 1:00 pm or on the next succeeding Business Day if received after
1:00 pm. No checks, drafts or other instrument received by CITBC shall
constitute final payment to CITBC unless and until such instruments have
actually been collected.
5. Each Company agrees to notify CITBC promptly of any matters materially
affecting the value, enforceability or collectibility of any material Account
and of all material customer disputes, offsets, defenses, counterclaims,
returns, rejections and all reclaimed or repossessed merchandise or goods. Each
Company agrees to issue credit memoranda promptly (with duplicates to CITBC upon
request after the occurrence of an Event of Default) upon accepting material
returns or granting material allowances, and may continue to do so until CITBC
has notified such Company that an Event of Default has occurred and that all
future credits or allowances are to be made only after CITBC's prior written
approval. Upon the occurrence of an Event of Default and until such time as such
Event of Default is waived and on notice from CITBC, each Company agrees that
all returned, reclaimed or repossessed merchandise or goods shall be set aside
by such Company, marked with CITBC's name and held by such Company for CITBC's
account as owner and assignee.
6. In order to utilize the collective borrowing powers of the Companies
in the most efficient and economical manner, and in order to facilitate the
handling of the accounts of the Companies on CITBC's books, the Companies have
requested CITBC, and CITBC has agreed, to handle the accounts of all Companies
on CITBC's books on a combined basis, in accordance with the following
provisions: (i) in lieu of maintaining separate accounts on CITBC'S books in the
name of each of the Companies, CITBC shall maintain a single account under the
name: Rock of Ages Quarries, Inc. (herein the "Collective Loan Account"); ii)
loans and advances made by CITBC to, or for, any of the Companies will be
charged to the Collective Loan Account, along with all charges and expenses
under this Financing Agreement; (iii) the Collective Loan Account will be
credited with all amounts received by CITBC from any of the Companies or from
others for the account of any Company including all amounts received by CITBC in
accordance with the terms of paragraph 4 hereof and as provided in this
Financing Agreement; iv) each month CITBC will render to ROA Quarries to and for
the benefit of the Companies one extract of the combined Collective Loan
Account, which shall be deemed to be an account stated as to each of the
Companies and which will be deemed correct and accepted by all of the Companies
unless ROA Quarries has forwarded to CITBC a written statement of exceptions
within thirty (30) days after such extract, or any corrected extract; v) it is
expressly understood and agreed by each of the Companies that CITBC shall have
no obligation to account separately to any of the Companies; vi) requests for
loans and advances may be made by any of the Companies and CITBC is hereby
authorized and directed to accept, honor and rely on such instructions and
requests, subject to the limitation and provisions set forth in this Financing
Agreement; vii) it is expressly understood and agreed by each of the Companies
that CITBC shall have no responsibility to inquire into the correctness of the
apportionment, allocation, or disposition of (A) any loans and advances made to
any of the Companies or (B) any of CITBC's expenses and charges relating
thereto; viii) all loans and advances are made for the collective benefit of the
Companies; ix) the Companies jointly and severally unconditionally guarantee to
CITBC the prompt payment in full of (A) all loans and advances made and to be
made by CITBC to any of them under this Financing Agreement, as well as (B) all
other Obligations of the Companies
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to CITBC and hereby expressly confirm in all respects the guarantees executed by
each of the Companies in CITBC's favor of even date herewith (the "Guarantees"),
as more fully set therein; x) all Collateral assigned to CITBC by any of the
Companies and any other collateral security now or hereafter given to CITBC by
any of the Companies, shall secure all loans and advances made by CITBC to, or
for, any Company, and shall be deemed to be pledged to CITBC as security for any
and all other Obligations of the Companies to CITBC as set forth under this
Financing Agreement, the Guarantees, or any other agreements between CITBC and
any Company; and xi) it is understood that the handling of the account of the
Companies in a combined fashion, as more fully set forth herein, is done solely
as an accommodation to the Companies and at their request, and that CITBC shall
incur no liability to the Companies as a result of such combination. To induce
CITBC to do so, and in consideration thereof, each Company hereby agrees to
indemnify CITBC and hold CITBC harmless against any and all liability, expense,
loss or claim of damage or injury, except for any liability, injury, expense,
loss or claim of damages arising by reason of CITBC's negligence or misconduct,
made against CITBC by any Company or by any third party whosoever, arising from
or incurred by reason of (A) CITBC handling the accounts of the Companies as
herein provided, (B) CITBC relying on any instructions of any of the Companies,
or (c) any other reasonable action taken by CITBC in accordance with this
paragraph 6 of Section 3 of this Financing Agreement. In no event shall prior
recourse to any Accounts or other security granted to or by any Company be a
prerequisite to CITBC's right to demand payment of any Obligation. Further, it
is understood that CITBC shall have no obligation whatsoever to perform in any
respect any Company's contracts or obligations relating to the Accounts. The
foregoing request was made because the Companies are engaged in an integrated
operation that requires financing on a basis permitting the availability of
credit from time to time to each of the Companies as required for the continued
successful operation of each Company and the integrated operation. Each Company
expects to derive benefit, directly or indirectly, from such availability since
the successful operation of each Company is dependent on the continued
successful performance of the functions of the integrated group.
SECTION 4. TERM LOAN
1. Each Company hereby agrees to execute and deliver to CITBC the
Promissory Note, in the form of Exhibit A attached hereto, to evidence the Term
Loan to be extended by CITBC. Each Company shall be jointly and severally liable
for the Term Loan.
2. Upon receipt of such Promissory Note, CITBC hereby agrees to extend to
the Companies the Term Loan in the principal amount of $15,400,000.00.
3. The principal amount of the Term Loan shall be repaid CITBC by the
Companies by: i) one (1) principal installment of $500,000.00 due and payable on
September 1, 1994; ii) one (1) principal installment of $500,000.00 due and
payable on the first Business Day of October, 1994; iii) four (4) equal
quarterly principal installments of $300,000.00 each on the first Business Day
of January, April, July and October of 1995; iv) twelve (12) equal quarterly
principal installments of $400,000.00 each on the first Business Day of each
January, April, July and October of 1996, 1997 and 1998, followed by v) one (1)
installment of $8,400,000.00 on the first Business Day of January, 1999.
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4. In the event this Financing Agreement or the Line of Credit is
terminated by either CITBC or ROA Quarries for any reason whatsoever, the Term
Loan shall become due and payable on the effective date of such termination
notwithstanding any provision to the contrary in the Promissory Note or this
Financing Agreement.
5. The Companies may prepay at any time, at their option, in whole or in
part, the Term Loan, provided that on each such prepayment, the Companies shall
pay: i) accrued interest on the principal so prepaid to the date of such
prepayment and ii) the Prepayment Premium, if any.
6. In the event the Companies have, on a consolidated basis, Surplus Cash
in any fiscal year, commencing with the fiscal year beginning January 1, 1995,
in excess of $250,000.00, the Companies must make a Mandatory Prepayment of the
Term Loan by an amount equal to fifty percent (50%) of said Surplus Cash in
excess of $250,000.00.
7. Each prepayment shall be applied to the then last maturing
installments of principal of the Term Loan.
8. ROA Quarries, on behalf of each Company, hereby authorizes CITBC to
charge the Collective Loan Account with the amount of all amounts due under this
Section 4 as such amounts become due. Each Company confirms that any charges
which CITBC may so make to the account as herein provided will be made as an
accommodation to the Companies and solely at CITBC's discretion.
SECTION 5. LETTERS OF CREDIT
In order to assist a Company in establishing or opening Letters of Credit
with an Issuing Bank to cover the purchase of Inventory, Equipment or otherwise,
the Company has requested CITBC to join in the applications for such Letters of
Credit, and/or guarantee payment or performance of such Letters of Credit and
any drafts or acceptances thereunder through the issuance of the Letters of
Credit Guaranty, thereby lending CITBC's credit to the Company and CITBC has
agreed to do so. These arrangements shall be handled by CITBC subject to the
terms and conditions set forth below.
1. The amount, purpose and extent of the Letters of Credit and changes or
modifications thereof by the Company and/or the Issuing Bank of the terms and
conditions thereof shall in all respects be subject to the prior approval of
CITBC provided however that: a) in no event may the aggregate amount of all such
outstanding Letters of Credit exceed, in the aggregate, at any one time
$2,000,000.00, and b) the Letter of Credit and all documentation in connection
therewith shall be in form and substance satisfactory to the applicable Company,
CITBC and the Issuing Bank.
2. CITBC shall have the right, without notice to the applicable Company,
to charge the Collective Loan Account with the amount of any and all
indebtedness, liability or obligation of any kind incurred by CITBC under the
Letters of Credit Guaranty at the earlier of a) payment by CITBC under the
Letters of Credit Guaranty, or b) the termination of this Financing Agreement.
Any amount charged to the Collective Loan
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Account shall be deemed a Revolving Loan hereunder and shall incur interest at
the rate provided in Section 8, paragraph 1 of this Financing Agreement.
3. Each Company unconditionally indemnifies CITBC and holds CITBC
harmless from any and all loss, claim or liability incurred by CITBC arising
from any transactions or occurrences relating to Letters of Credit established
or opened hereunder, the collateral relating thereto and any drafts or
acceptances thereunder, and all Obligations thereunder, including any such loss
or claim due to any errors or omission, negligence or misconduct by, or any
action taken by, any Issuing Bank, other than for any such loss, claim or
liability arising out of the negligence or misconduct by CITBC under the Letters
of Credit Guaranty. Each Company's unconditional obligation to CITBC hereunder
shall not be modified or diminished for any reason or in any manner whatsoever,
other than as set forth in the prior sentence. Each Company agrees that any
charges incurred by, or imposed on, CITBC by the Issuing Bank shall be
conclusive on CITBC and may be charged to the Collective Loan Account.
4. CITBC shall not be responsible for: the existence, character, quality,
quantity, condition, packing, value or delivery of the goods purporting to be
represented by any documents; any difference or variation in the character,
quality, quantity, condition, packing, value or delivery of the goods from that
expressed in the documents; the validity, sufficiency or genuineness of any
documents or of any endorsements thereon, even if such documents should in fact
prove to be in any or all respects invalid, insufficient, fraudulent or forged;
the time, place, manner or order in which shipment is made; partial or
incomplete shipment, or failure or omission to ship any or all of the goods
referred to in the Letters of Credit or documents; any deviation from
instructions; delay, default, or fraud by the shipper and/or anyone else in
connection with the Collateral or the shipping thereof; or any breach of
contract between the shipper or vendors and the Company.
5. Each Company agrees that any action taken by CITBC, if taken in good
faith, or any action taken by any Issuing Bank, under or in connection with the
Letters of Credit, the guarantees, the drafts or acceptances, or the Collateral,
shall be binding on each Company and shall not put CITBC in any resulting
liability to any Company. In furtherance thereof, CITBC shall have, subject to
paragraph 6 below, the full right and authority to clear and resolve any
questions of non-compliance of documents; to give any instructions as to
acceptance or rejection of any documents or goods; to execute any and all
steamship or airways guaranties (and applications therefore), indemnities or
delivery orders; to grant any extensions of the maturity of, time of payment
for, or time of presentation of, any drafts, acceptances, or documents; and to
agree to any amendments, renewals, extensions, modifications, changes or
cancellations of any of the terms or conditions of any of the applications,
Letters of Credit, drafts or acceptances; all in CITBC's sole name, and the
Issuing Bank shall be entitled to comply with and honor any and all such
documents or instruments executed by or received solely from CITBC, all without
any notice to or any consent from any Company.
6. Without CITBC's express consent and endorsement in writing, each
Company agrees: a) not to execute any and all applications for steamship or
airway guaranties, indemnities or delivery orders; to grant any extensions of
the maturity of, time of payment for, or time of presentation of, any drafts,
acceptances or documents; or to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of any
of the applications, Letters of Credit, drafts or acceptances; and b) after the
occurrence of an Event of Default which is not waived by CITBC, not to i) clear
and resolve any
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questions of non-compliance of documents, or ii) give any instructions as to
acceptances or rejection of any documents or goods.
7. Each Company agrees that any necessary import, export or other
licenses or certificates for the import or handling of the Collateral will have
been promptly procured; all foreign and domestic governmental laws and
regulations in regard to the shipment and importation of the Collateral, or the
financing thereof will have been promptly and full complied with; and any
certificates in that regard that CITBC may at any time request will be promptly
furnished. In this connection, each Company warrants and represents that it has
no knowledge that any shipments made under any such Letters of Credit are not in
accordance with the laws and regulations of the countries in which the shipments
originate and terminate, or are prohibited by any such laws and regulations.
Each Company assumes all risk, liability and responsibility for, and agrees to
pay and discharge, all present and future local, state, federal or foreign
taxes, duties, or levies. Any embargo, restriction, laws, customs or regulations
of any country, state, city, or other political subdivision, where such
Collateral is or may be located, or wherein payments are to be made, or wherein
drafts may be drawn, negotiated, accepted, or paid, shall be solely the
Company's risk, liability and responsibility.
8. Upon any payments made to the Issuing Bank under the Letter of Credit
Guaranty, CITBC shall acquire by subrogation, any rights, remedies, duties or
obligations granted or undertaken by such Company to the Issuing Bank in any
application for Letters of Credit, any standing agreement relating to Letters of
Credit or otherwise, all of which shall be deemed to have been granted to CITBC
and apply in all respects to CITBC and shall be in addition to any rights,
remedies, duties or obligations contained herein.
SECTION 6. COLLATERAL
1. As security for the prompt payment in full of all loans and advances
made and to be made to, or for the benefit of, the Companies from time to time
by CITBC pursuant hereto, as well as to secure the payment in full of the other
Obligations, each Company hereby pledges and grants to CITBC a continuing
general lien upon and security interest in all of its:
(a) present and hereafter acquired Inventory;
(b) present and hereafter acquired Equipment;
(c) present and future Accounts;
(d) present and future Documents of Title;
(e) present and future General Intangibles; and
(f) Real Estate.
2. The security interests granted hereunder shall extend and attach to:
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(a) All Collateral which is presently in existence and which is owned by
any Company or in which any Company has any interest, whether held by such
Company or others for its account, and, if any Collateral is Equipment, whether
such Company's interest in such Equipment is as owner or lessee or conditional
vendee;
(b) All Equipment whether the same constitutes personal property or
fixtures, including, but without limiting the generality of the foregoing, all
dies, jigs, tools, benches, tables, accretions, component parts thereof and
additions thereto, as well as all accessories, motors, engines and auxiliary
parts used in connection with or attached to the Equipment; and
(c) All Inventory and any portion thereof which may be returned,
rejected, reclaimed or repossessed by either CITBC or any Company from a
Company's customers, as well as to all supplies, goods, incidentals, packaging
materials, labels and any other items which contribute to the finished goods or
products manufactured or processed by any Company, or to the sale, promotion or
shipment thereof.
3. Each Company agrees to safeguard, protect and hold all Inventory for
CITBC's account and make no disposition thereof except in the regular course of
the business of such Company as herein provided. Until CITBC has given such
Company notice to the contrary, as provided for below, any Inventory may be sold
and shipped by such Company to its customers in the ordinary course of such
Company's business, for cash or on open account and on terms currently being
extended by such Company to its customers, provided that all proceeds of all
sales (including cash, accounts receivable, checks, notes, instruments for the
payment of money and similar proceeds) are forthwith transferred, endorsed, and
turned over and delivered to CITBC in accordance with paragraph 4 of Section 3
of this Financing Agreement. CITBC shall have the right to withdraw this
permission at any time upon the occurrence of an Event of Default and until such
time as such Event of Default is waived in which event no further disposition
shall be made of the Inventory by any Company without CITBC's prior written
approval. Sales of Inventory in which a lien upon, or security interest in,
Inventory is retained by the Company shall be made by such Company only with the
approval of CITBC, and the proceeds of such sales shall not be commingled with
such Company's other property, but shall be segregated, held by such Company in
trust for CITBC as CITBC's exclusive property, and shall be delivered
immediately by such Company to CITBC in the identical form received by such
Company by deposit to the Depository Accounts. Upon the sale, exchange, or other
disposition of Inventory, as herein provided, the security interest in such
Company's Inventory provided for herein shall, without break in continuity and
without further formality or act, continue in, and attach to, all proceeds,
including any instruments for the payment of money, accounts receivable,
contract rights, documents of tide, shipping documents, chattel paper and all
other cash and non-cash proceeds of such sale, exchange or disposition. As to
any such sale, exchange or other disposition, CITBC shall have all of the rights
of an unpaid seller, including stoppage in transit, replevin, rescission and
reclamation.
4. Each Company agrees at its own cost and expense to keep the Equipment
in as good and substantial repair and condition as the same is now or at the
time the lien and security interest granted herein shall attach thereto,
reasonable wear and tear excepted, making any and all repairs when and where
necessary. Each Company also agrees to safeguard, protect and hold all Equipment
for CITBC's account and make no disposition thereof unless such Company first
obtains the prior written approval of CITBC. Any sale, exchange or other
disposition of any Equipment shall only be made by a Company with the prior
written
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approval of CITBC, and the proceeds of any such sales shall not be commingled
with such Company's other property, but shall be segregated, held by such
Company in trust for CITBC as CITBC's exclusive property, and shall be delivered
immediately by such Company to CITBC in the identical form received by such
Company by deposit to the Depository Accounts to be applied first to the then
last maturity installments of principal of the Term Loan and then, after payment
in full of the Term Loan, to payment of the Revolving Loans. Upon the sale,
exchange, or other disposition of the Equipment, as herein provided, the
security interest provided for herein shall, without break in continuity and
without further formality or act, continue in, and attach to, all proceeds,
including any instruments for the payment of money, accounts receivable,
contract rights, documents of title, shipping documents, chattel paper and all
other cash and non-cash proceeds of such sales, exchange or disposition. As to
any such sale, exchange or other disposition, CITBC shall have all of the rights
of an unpaid seller, including stoppage in transit, replevin, rescission and
reclamation. Notwithstanding anything hereinabove contained to the contrary, the
Companies may sell, exchange or otherwise dispose of obsolete Equipment or
Equipment no longer needed in a Company's operations, provided, however, that
(a) the then book value of the Equipment so disposed of does not exceed
$200,000.00 in the aggregate in any fiscal year and (b) the proceeds of such
sales or dispositions are delivered to CITBC in accordance with the foregoing
provisions of this paragraph.
5. The rights and security interests granted to CITBC hereunder are to
continue in full force and effect, notwithstanding the termination of this
Financing Agreement or the fact that the Collective Loan Account maintained on
the books of CITBC may from time to time be temporarily in a credit position,
until the final payment in full to CITBC of all Obligations and the termination
of this Financing Agreement. Any delay, or omission by CITBC to exercise any
right hereunder, shall not be deemed a waiver thereof, or be deemed a waiver of
any other right, unless such waiver be in writing and signed by CITBC. A waiver
on any one occasion shall not be construed as a bar to or waiver of any right or
remedy on any future occasion.
6. To the extent that the Obligations are now or hereafter secured by any
assets or property other than the Collateral or by the guarantee, endorsement,
assets or property of any other person, then CITBC shall have the right in its
sole discretion to determine which rights, security, liens, security interests
or remedies CITBC shall at any time pursue, foreclose upon, relinquish,
subordinate, modify or take any other action with respect to, without in any way
modifying or affecting any of them, or any of CITBC's rights hereunder.
7. Any reserves or balances to the credit of any Company and any other
property or assets of any Company in the possession of CITBC may be held by
CITBC as security for any Obligations and applied in whole or partial
satisfaction of such Obligations when due but shall be returned to the
applicable Company on request unless an Event of Default has occurred and has
not been waived. The liens and security interests granted herein and any other
lien or security interest CITBC may have in any other assets of any Company,
shall secure payment and performance of all now existing and future Obligations.
CITBC may in its discretion charge any or all of the Obligations to the
Collective Loan Account when due.
8. This Financing Agreement and the obligation of each Company to perform
all of the covenants and obligations hereunder are further secured by a
mortgage, deed of trust or assignment on the Real Estate.
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<PAGE> 22
9. Each Company shall give to CITBC from time to time such mortgage, deed
of trust or assignment on the Real Estate or real estate acquired after the date
hereof as CITBC shall require to obtain a valid first lien thereon subject only
to those exceptions of title as set forth in future title insurance policies
that are satisfactory to CITBC.
10. Each Company shall give to CITBC, and/or shall cause the appropriate
party to give to CITBC, from time to time such pledge or security agreements
with respect to General Intangibles and capital stock of ROA Canada as CITBC
shall require to obtain valid first liens thereon.
SECTION 7. REPRESENTATIONS, WARRANTIES AND COVENANTS
1. Each Company hereby warrants and represents and/or covenants that on a
consolidated basis i) the fair value of the Companies' assets exceeds the book
value of the Companies' liabilities; ii) the Companies are generally able to pay
their debts as they become due and payable; and iii) the Companies do not have
unreasonably small capital to carry on their business as currently conducted
absent extraordinary and unforeseen circumstances. Each Company further warrants
and represents that except for the Permitted Encumbrances, the security
interests granted herein constitute and shall at all times constitute the first
and only liens on the Collateral; that, except for the Permitted Encumbrances,
each Company is or will be at the time additional Collateral is acquired by it,
the absolute owner of the Collateral with full right to pledge, sell, consign,
transfer and create a security interest therein, free and clear of any and all
claims or liens in favor of others; that each Company will at its expense
forever warrant and, at CITBC's request, defend the same from any and all claims
and demands of any other person other than the holders of the Permitted
Encumbrances; that each Company will not grant, create or permit to exist, any
lien upon or security interest in the Collateral, or any proceeds thereof, in
favor of any other person other than the holders of the Permitted Encumbrances;
and that the Equipment does not comprise a part of the Inventory of each Company
and that the Equipment is and will only be used by each Company in its business
and will not be held for sale or lease, or removed from its premises, or
otherwise disposed of by each Company without the prior written approval of
CITBC except as otherwise permitted in paragraph 4 of Section 6 of this
Financing Agreement.
2. Each Company agrees to maintain books and records pertaining to the
Collateral in such detail, form and scope as the Companies are currently keeping
them as of the date hereof. Each Company agrees that CITBC or its agents may
enter upon such Company's premises at any time during normal business hours, and
from time to time, for the purpose of inspecting the Collateral, and any and all
records pertaining thereto. Each Company agrees to afford CITBC prior written
notice of any change in the location of any Collateral (other than a temporary
change in the location of mobile Equipment) other than to locations, that as of
the date hereof, are known to CITBC and at which CITBC has filed financing
statements and otherwise fully perfected its liens thereon. Each Company is also
to advise CITBC promptly, in sufficient detail, of any material adverse change
relating to the type, quantity or quality of the Collateral or to the security
interests granted to CITBC therein.
3. Each Company agrees to: execute and deliver to CITBC, from time to
time, solely for CITBC's convenience in maintaining a record of the Collateral,
such written statements, and schedules as CITBC may reasonably require,
designating, identifying or describing the Collateral pledged to CITBC
hereunder. The
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<PAGE> 23
Company's failure, however, to promptly give CITBC such statements or schedules
shall not affect, diminish, modify or otherwise limit CITBC's security interests
in the Collateral.
4. Each Company agrees to comply with the requirements of all state and
federal laws in order to grant to CITBC valid and perfected first security
interests in the Collateral, subject only to the Permitted Encumbrances. CITBC
is hereby authorized by each Company to file any financing statements coveting
the Collateral whether or not such Company's signature appears thereon. Each
Company agrees to do whatever CITBC may reasonably request, from time to time,
by way of: filing notices of liens, financing statements, amendments, renewals
and continuations thereof; cooperating with CITBC's custodians; keeping
Inventory records; transferring proceeds of Collateral to CITBC's possession;
and performing such further acts as CITBC may reasonably require in order to
effect the purposes of this Financing Agreement.
5.(a) Each Company agrees to maintain insurance on the Real Estate,
Equipment and Inventory under such policies of insurance, with such insurance
companies, in such reasonable amounts and covering such insurable risks as are
at all times reasonably satisfactory to CITBC and as to Inventory specifically,
as is customary in such Company's business. All policies covering the Real
Estate, Equipment and Inventory are, subject to the fights of any holders of
Permitted Encumbrances holding claims senior to CITBC, to be made payable to
CITBC, in case of loss, under a standard non-contributory "mortgagee", "lender"
or "secured party" clause and are to contain such other provisions as CITBC may
require to fully protect CITBC's interest in the Real Estate, Inventory and
Equipment and to any payments to be made under such policies. All original
policies or true copies thereof are to be delivered to CITBC, premium prepaid,
with the loss payable endorsement in CITBC's favor, and shall provide for not
less than ten (10) days prior written notice to CITBC of the exercise of any
fight of cancellation. At any Company's request, or if any Company fails to
maintain such insurance, CITBC may arrange for such insurance, but at such
Company's expense and without any responsibility on CITBC's part for: obtaining
the insurance, the solvency of the insurance companies, the adequacy of the
coverage, or the collection of claims. Upon the occurrence of an Event of
Default which is not waived, CITBC shall, subject to the rights of any holders
of Permitted Encumbrances holding claims senior to CITBC, have the sole fight,
in the name of CITBC or any Company, to file claims under any insurance
policies, to receive, receipt and give acquittance for any payments that may be
payable thereunder, and to execute any and all endorsements, receipts, releases,
assignments, reassignments or other documents that may be necessary to effect
the collection, compromise or settlement of any claims under any such insurance
policies.
(b)(i) In the event of any loss or damage by fire or other casualty,
insurance proceeds relating to Inventory shall first reduce the Revolving Loan
and then the Term Loan;
ii) In the event any part of a Company's Real Estate or Equipment is
damaged by fire or other casualty and the insurance proceeds for such damage or
other casualty (the "Proceeds") is less than or equal to $100,000.00, CITBC
shall promptly apply such Proceeds to reduce the Revolving Loan;
iii) As long as an Event of Default has not occurred (which is not
waived), the Company suffering a casualty loss has sufficient business
interruption insurance to replace the lost profits of any of such Company's
facilities, and the Proceeds are in excess of $100,000.00, such Company may
elect (by delivering
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<PAGE> 24
written notice to CITBC) to replace, repair or restore such Real Estate or
Equipment to substantially the equivalent condition prior to such fire or other
casualty as set forth herein. If such Company does not, or cannot, elect to use
the Proceeds as set forth above, CITBC may, subject to the fights of any holders
of Permitted Encumbrances holding claims senior to CITBC, apply the Proceeds to
the payment of the Obligations in such manner and in such order as CITBC may
reasonably elect; and
iv) If the Company suffering a casualty loss elects to use the Proceeds
for the repair, replacement or restoration of any Real Estate or Equipment, and
there is then no Event of Default, i) proceeds of insurance on Equipment and
Real Estate in excess of $100,000.00 will be applied to the reduction of the
Revolving Loans and ii) CITBC may set up a reserve against Availability for an
amount equal to the proceeds referred to in clause i) hereof. The reserve will
be reduced dollar-for-dollar upon receipt of non-cancelable executed purchase
orders, delivery receipts or contracts for the replacement, repair or
restoration of Equipment or the Real Estate and disbursements in connection
therewith. Prior to the commencement of any restoration, repair or replacement
of Real Estate, such Company shall provide CITBC with a restoration plan and a
total budget certified by an independent third party experienced in construction
costing. If there are insufficient Proceeds to cover the cost of restoration as
so determined, such Company shall be responsible for the amount of any such
insufficiency, prior to the commencement of restoration and shall demonstrate
evidence of such before the reserve will be reduced. Completion of restoration
shall be evidenced by a final, unqualified certification of the design architect
employed, if any; an unconditional Certificate of Occupancy, if applicable; such
other certification as may be required by law; or if none of the above is
applicable, a written good faith determination of completion by such Company
(herein collectively the "Completion"). Upon Completion, any remaining reserve
against Availability as established hereunder will be automatically released.
6. Each Company agrees to pay, when due, all taxes, assessments, claims
and other charges (herein "taxes") lawfully levied or assessed upon any Company
or the Collateral and if such taxes remain unpaid after the date fixed for the
payment thereof unless such taxes are being diligently contested in good faith
by such Company by appropriate proceedings or if any lien shall be claimed
thereunder x) for taxes due the United States of America or y) which in CITBC's
opinion might create a valid obligation having priority over the rights granted
to CITBC herein, CITBC may, on such Company's behalf, pay such taxes, and the
amount thereof shall be an Obligation secured hereby and due to CITBC on demand.
7. Each Company: (a) agrees to comply with all material acts, rules,
regulations and orders of any legislative, administrative or judicial body or
official, which the failure to comply with would have a material and adverse
impact on the Collateral, or any material part thereof, or on the operation of
any Company's business, provided that a Company may contest any acts, rules,
regulations, orders and directions of such bodies or officials in any reasonable
manner which will not, in CITBC's reasonable opinion, materially and adversely
effect CITBC's rights or priority in the Collateral; (b) agrees to comply with
all environmental statutes, acts, rules, regulations or orders as presently
existing or as adopted or amended in the future, applicable to the ownership
and/or use of its real property and operation of its business, which the failure
to comply with would have a material and adverse impact on the Collateral, or
any material part thereof, or on the operation of the business of such Company.
Each Company hereby indemnifies CITBC and agrees to defend and hold CITBC
harmless from and against any and all loss, damage, claim, liability, injury or
expense which CITBC may sustain or incur (other than as a result of actions of
CITBC) in connection with:
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<PAGE> 25
any claim or expense asserted against CITBC as a result of any environmental
pollution, hazardous material or environmental clean-up of any Company's real
property; or any claim or expense which results from any Company's operations
(including, but not limited to, any Company's off-site disposal practices) and
each Company further agrees that this indemnification shall survive termination
of this Financing Agreement as well as the payment of all Obligations or amounts
payable hereunder; and (c) shall not be deemed to have breached any provision of
this paragraph 7 if (i) the failure to comply with the requirements of this
paragraph 7 resulted from good faith error or innocent omission, and (ii) a
Company promptly commences and diligently pursues a cure of such breach and such
cure is eventually, within a reasonable time based upon the circumstances and
the amount of work required, completed.
8. Until termination of the Financing Agreement and payment and
satisfaction of all Obligations due hereunder, each Company agrees that, unless
CITBC shall have otherwise consented in writing, ROA Quarries will, and if it
does not do so, then any Company will, furnish to CITBC, within ninety-five (95)
days after the end of each fiscal year of the Companies, an audited Consolidated
Balance Sheet and an audited Consolidating Balance Sheet as at the close of such
year, and statements of profit and loss, cash flow and reconciliation of surplus
of the Companies and all subsidiaries for such year, audited by independent
public accountants selected by ROA Quarries and satisfactory to CITBC; and
within thirty (30) days after the end of each month x) a Consolidated Balance
Sheet as at the end of such period and statements of profit and loss, cash flow
and surplus of the Companies and all subsidiaries for such period and y) a
financial covenant compliance report, in each instance, certified by an
authorized financial or accounting officer of ROA Quarries; and from time to
time, such further information regarding the business affairs and financial
condition of the Companies, or any one of them, as CITBC may reasonably request,
including without limitation annual cash flow projections in form satisfactory
to CITBC. Each financial statement required hereunder must be accompanied by an
officer's certificate, signed by the President, Vice President, Controller, or
Treasurer, pursuant to which any one such officer must certify to the best of
such officer's knowledge that: (i) the financial statement(s) fairly and
accurately represent(s) the Companies' financial condition at the end of the
particular accounting period, as well as the Companies' operating results during
such accounting period, subject to year-end audit adjustments; (ii) during the
particular accounting period: (x) there has been no Default or Event of Default
under this Financing Agreement, provided, however, that if any such officer has
knowledge that any such Default or Event of Default, has occurred during such
period, the existence of and a detailed description of same shall be set forth
in such officer's certificate; and (y) no Company has received any notice of
cancellation with respect to its property insurance policies; and (iii) the
exhibits attached to such financial statement(s) constitute detailed
calculations showing compliance with all financial covenants contained in this
Financing Agreement.
9. The Companies shall maintain, on an aggregate basis, at all times
during the periods below, a Net Worth of not less than:
<TABLE>
<CAPTION>
Period Net Worth
------ ---------
<S> <C>
a) For the quarter commencing July 1, 1994
and ending September 30, 1994 $3,000,000.00
</TABLE>
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<PAGE> 26
<TABLE>
<S> <C>
b) For the period commencing October 1, 1994
and ending December 30, 1994 $3,000,000.00
c) As of December 31, 1994 $3,546,000.00
d) For the quarter commencing January 1, 1995
and ending March 31, 1995 $2,700,000.00
e) For the quarter commencing April 1, 1995
and ending June 30, 1995 $3,345,000.00
t) For the quarter commencing July 1, 1995
and ending September 30, 1995 $4,245,000.00
g) For the period commencing October 1, 1995
and ending December 30, 1995 $4,245,000.00
h) As of December 31, 1995 $4,757,000.00
i) For the quarter commencing January 1, 1996
and ending March 31, 1996 $4,000,000.00
j) For the quarter commencing April 1, 1996
and ending June 30, 1996 $4,550,000.00
k) For the quarter commencing July 1, 1996
and ending September 30, 1996 $5,450,000.00
1) For the period commencing October 1, 1996
and ending December 30, 1996 $5,450,000.00
m) As of December 31, 1996 $6,517,000.00
n) For the quarter commencing January 1, 1997
and ending March 31, 1997 $5,800,000.00
o) For the quarter commencing April 1, 1997
and ending June 30, 1997 $6,315,000.00
p) For the quarter commencing July 1, 1997
and ending September 30, 1997 $7,215,000.00
</TABLE>
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<PAGE> 27
<TABLE>
<S> <C>
q) For the period commencing October 1, 1997 and ending December 30, 1997
$7,215,000.00
r) As of December 31, 1997 $8,087,000.00
s) For the quarter commencing January 1, 1998
and ending March 31, 1998 $7,300,000.00
t) For the quarter commencing April 1, 1998
and ending June 30, 1998 $7,885,000.00
u) For the quarter commencing July 1, 1998
and ending September 30, 1998 $8,785,000.00
v) For the period commencing October 1, 1998
and ending December 30, 1998 $8,735,000.00
w) As of December 31, 1998 $9,586,000.00
x) At all times on and after January 1, 1999 $9,000,000.00
</TABLE>
10. Until termination of the Financing Agreement and payment and
satisfaction of all Obligations due hereunder, each Company agrees that, without
the prior written consent of CITBC, except as otherwise herein provided, the
Companies, or any one of them, will not:
A. Mortgage, assign, pledge, transfer or otherwise permit any lien, charge,
security interest, encumbrance or judgment, (whether as a result of a
purchase money or title retention transaction, or other security
interest, or otherwise) to exist on any of its assets or goods, whether
real, personal or mixed, whether now owned or hereafter acquired, except
for the Permitted Encumbrances;
B. Incur or create any Indebtedness other than the Permitted Indebtedness;
C. Borrow any money on the security of a Company's Collateral from sources
other than CITBC;
D. Sell, lease, assign, transfer or otherwise dispose of i) Collateral,
except as otherwise specifically permitted by this Financing Agreement,
or ii) either all or substantially all of a Company's assets which do not
constitute Collateral;
E. Merge, consolidate or otherwise alter or modify its corporate name,
principal place of business, structure, status or existence, or enter
into or engage in any operation or activity materially different from
that presently being conducted by the Company;
F. Assume, guarantee, endorse, or otherwise become liable upon the
obligations of any person, firm, entity or corporation, except by the
endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business;
G. Declare or pay any dividend of any kind on, or purchase, acquire, redeem
or retire, any of the capital stock or equity interest, of any class
whatsoever, whether now or hereafter outstanding provided, however, that
the Companies may i) declare and pay dividends on their capital stock to
enable
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<PAGE> 28
Swenson to pay the income taxes due as a result of the filing of a
unitary or consolidated tax return on which the Companies' income is
reflected and ii) redeem the capital stock owned by its shareholders,
other than Kurt M. Swenson and Kevin C. Swenson provided x) no Event of
Default is then in existence or will have occurred after giving effect to
such redemptions and y) the aggregate amount of all such redemptions
under this clause ii does not exceed $200,000.00 in the aggregate in any
fiscal year;
H. Make any advance or loan to, or any investment in, any firm, entity,
person or corporation in excess of $100,000.00 in the aggregate in any
fiscal year other than obligations issued by, or guaranteed by, the
United States of America or any agency or department thereof; or
I. Permit ROA Canada to i) incur any debts, indebtedness or obligations
other than the Permitted Indebtedness or ii) mortgage, pledge, assign,
transfer, hypothecate or permit any lien to attach to any of its assets
other than the Permitted Encumbrances.
11. Without the prior written consent of CITBC, the Companies will not:
a) enter into any Operating Lease if after giving effect thereto the aggregate
obligations with respect to Operating Leases of the Companies during any fiscal
year would exceed $250,000.00 or b) contract for, purchase, make expenditures
for, lease pursuant to a Capital Lease or otherwise incur obligations with
respect to Capital Expenditures (whether subject to a security interest or
otherwise) during any fiscal year in the aggregate amount in excess of:
a) $600,000.00 for the fiscal year ending December 31, 1994;
b) $900,000.00 for the fiscal year ending December 31, 1995;
c) $900,000.00 for the fiscal year ending December 31, 1996;
d) $900,000.00 for the fiscal year ending December 31, 1997, and for each
fiscal year thereafter.
12. The Companies shall maintain, on an aggregate basis, at all times
during the particular periods below, Working Capital of not less than:
<TABLE>
<CAPTION>
Period WORKING CAPITAL
- ------ ---------------
<S> <C>
a) For the quarter commencing July 1, 1994
and ending September 30, 1994 $3,580,000.00
b) For the period commencing October 1, 1994
and ending December 30, 1994 $3,880,000.00
c) As of December 31, 1994 $4,600,000.00
d) For the quarter commencing January 1, 1995
and ending March 31, 1995 $3,600,000.00
e) For the quarter commencing April 1, 1995
and ending June 30, 1995 $3,600,000.00
</TABLE>
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<PAGE> 29
<TABLE>
<S> <C>
f) For the quarter commencing July 1, 1995
and ending September 30, 1995 $3,700,000.00
g) For the period commencing October 1, 1995
and ending December 30, 1995 $4,000,000.00
h) As of December 31, 1995 $4,595,000.00
i) For the quarter commencing January 1, 1996
and ending March 31, 1996 $3,500,000.00
j) For the quarter commencing April 1, 1996
and ending June 30, 1996 $3,500,000.00
k) For the quarter commencing July 1, 1996
and ending September 30, 1996 $3,900,000.00
1) For the period commencing October 1, 1996
and ending December 30, 1996 $4,500,000.00
m) As of December 31, 1996 $5,100,000.00
n) For the quarter commencing January 1, 1997
and ending March 31, 1997 $4,000,000.00
o) For the quarter commencing April 1, 1997
and ending June 30, 1997 $4,000,000.00
p) For the quarter commencing July 1, 1997
and ending September 30, 1997 $5,000,000.00
q) For the period commencing October 1, 1997
and ending December 30, 1997 $5,000,000.00
r) As of December 31, 1997 $5,436,000.00
s) For the quarter commencing January 1, 1998
and ending March 31, 1998 $4,400,000.00
t) For the quarter commencing April 1, 1998
and ending June 30, 1998 $4,400,000.00
</TABLE>
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<PAGE> 30
<TABLE>
<S> <C>
u) For the quarter commencing July 1, 1998
and ending September 30, 1998 $4,735,000.00
v) For the period commencing October 1, 1998
and ending December 30, 1998 $5,335,000.00
w) As of December 31, 1998 $5,856,000.00
x) At all times on and after January 1, 1999 $5,800,000.00
</TABLE>
13. The Companies shall maintain, on an aggregate basis, at the end of
each fiscal year a Fixed Charge Coverage Ratio of at least:
<TABLE>
<CAPTION>
FISCAL YEAR RATIO
- ----------- -----
<S> <C>
For the fiscal year ending
December 31, 1994 .85 to 1
For the fiscal year ending
December 31, 1995 .92 to 1
For the fiscal year ending
December 31, 1996 and for each
fiscal year thereafter 1 to 1
</TABLE>
14. Intentionally Omitted.
15. The Companies shall maintain, on an aggregate basis, at all times
during each of the following fiscal years a Leverage Ratio of not more than:
<TABLE>
<CAPTION>
FISCAL YEAR RATIO
- ----------- -----
<S> <C>
For the fiscal year ending
December 31, 1994 5.96 to 1
For the fiscal year ending
December 31, 1995 4.18 to 1
For the fiscal year ending
December 31, 1996 2.99 to 1
For the fiscal year ending
December 31, 1997 2.19 to 1
For the fiscal year ending
December 31, 1998 and for each 1.66 to 1
fiscal year thereafter.
</TABLE>
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<PAGE> 31
16. ROA Quarries and/or Swenson shall maintain life insurance on: a) Kurt M.
Swenson and b) Kevin C. Swenson, each in the amount of $2,000,000.00 and an
assignment to CITBC of all rights under the aforesaid life insurance policy as
additional collateral for Obligations.
17. Each Company agrees to advise CITBC in writing of: a) all expenditures
(actual or anticipated) in excess of $100,000.00 for x) environmental clean-up,
y) environmental compliance or z) environmental testing and the impact of said
expenses on the Working Capital; and b) any notices a Company receives from any
local, state or federal authority advising the Company of any environmental
liability (real or potential) stemming from the Company's operations, its
premises, its waste disposal practices, or waste disposal sites used by a
Company and to provide CITBC with copies of all such notices if so required.
18. Without the prior written consent of CITBC, each Company agrees that it
will not enter into any transaction, including, without limitation, any
purchase, sale, lease, loan or exchange of property with any subsidiary or
affiliate provided, however that a Company may sell to, or purchase Inventory
from, any other Company, ROA Canada, or ROA provided such transactions are x)
conducted on an arms length basis and y) on terms no less beneficial to the
Company than the Company would have obtained from an entity that was not
relating to the Company.
SECTION 8. INTEREST, FEES AND EXPENSES
1. Interest on the Revolving Loan shall be payable monthly as of the end of
each month and shall be an amount equal to eight and three-quarters percent (8
3/4%) per annum on the average of the net balances owing by the Companies to
CITBC in the Collective Loan Account at the close of each day during such month.
This rate of interest is based on the seven and three-quarters percent (7 3/4%)
per annum Chemical Bank Rate as of August 17, 1994. In the event of any change
in said Chemical Bank Rate, the rate hereunder shall change, as of the first of
the month following any change, so as to remain one percent (1%) above the
Chemical Bank Rate. The rate hereunder shall be calculated based on a 360-day
year. CITBC shall be entitled to charge the Collective Loan Account at the rate
provided for herein when due until all Obligations have been paid in full.
2. Interest on the Term Loan shall be payable monthly as of the end of each
month on the unpaid balance or on payment in full prior to maturity in an amount
equal to nine percent (9%) per annum. The rate of interest is based upon the
seven and three-quarters percent (7 3/4%) per annum Chemical Bank Rate as of
August 17, 1994. In the event of any change in said Chemical Bank Rate, the rate
hereunder shall change, as of the first of the month following any change, so as
to remain one and one-quarter percent (1 1/4%) above the Chemical Bank Rate. The
rate hereunder shall be calculated based on a 360 day year. CITBC shall be
entitled to charge the Collective Loan Account at the rate provided for herein
when due until all Obligations have been paid in full.
3. In consideration of the Letter of Credit Guaranty of CITBC, the Companies
shall pay CITBC the Letter of Credit Guaranty Fee which shall be an amount equal
to one and one-quarter percent (1 1/4%) per annum, payable monthly, on the face
amount of each Letter of Credit less the amount of any and all amounts
previously drawn under the Letter of Credit.
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<PAGE> 32
4. Any charges, fees, commissions, costs and expenses charged to CITBC for a
Company's account by any Issuing Bank in connection with or arising out of
Letters of Credit issued pursuant to this Financing Agreement or out of
transactions relating thereto will be charged to the Collective Loan Account in
full when charged to or paid by CITBC and when made by any such Issuing Bank
shall be conclusive on CITBC.
5. The Companies shall reimburse or pay CITBC, as the case may be, for: i)
all Out-of-Pocket Expenses of CITBC and b) any applicable Documentation Fee.
6. Upon the last Business Day of each month, commencing with August 31,
1994, the Companies shall pay CITBC the Line of Credit Fee.
7. To induce CITBC to enter into this Financing Agreement and to extend to
the Companies the Revolving Loan and the Term Loan, the Companies shall pay to
CITBC a Loan Facility Fee in the amount of $25,000.00 payable upon execution of
this Financing Agreement.
8. Upon the date of execution of this Financing Agreement and on the first
Business Day of each month thereafter, the Companies shall pay to CITBC the
Collateral Management Fee.
9. The Companies shall pay CITBC's standard charges for, and the fees and
expenses of, the CITBC personnel used by CITBC for reviewing the books and
records of any Company and for verifying, testing protecting, safeguarding,
preserving or disposing of all or any part of the Collateral provided, however,
that the foregoing shall not be payable until the occurrence of an Event of
Default if the Companies are paying a Collateral Management Fee.
10. Each Company hereby authorizes CITBC to charge the Collective Loan
Account with CITBC with the amount of all payments due hereunder as such
payments become due. Each Company confirms that any charges which CITBC may so
make to the Collective Loan Account as herein provided will be made as an
accommodation to the Company and solely at CITBC's discretion.
SECTION 9. POWERS
Each Company hereby constitutes CITBC or any person or agent CITBC may
designate as its attorney-in-fact, at each Company's cost and expense, to
exercise all of the following powers, which being coupled with an interest,
shall be irrevocable until all of the Obligations to CITBC have been paid in
full:
(a) To receive, take, endorse, sign, assign and deliver, all in the name of
CITBC or any Company, any and all checks, notes, drafts, and other documents or
instruments relating to the Collateral;
(b) To receive, open and dispose of all mail addressed to any Company and to
notify postal authorities to change the address for delivery thereof to such
address as CITBC may designate;
(c) To request from customers indebted on Accounts at any time, in the name
of CITBC or any Company or that of CITBC's designee, information concerning the
amounts owing on the Accounts;
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<PAGE> 33
(d) To transmit to customers indebted on Accounts notice of CITBC's interest
therein and to notify customers indebted on Accounts to make payment directly to
CITBC; and
(e) To take or bring, in the name of CITBC or any Company, all steps,
actions, suits or proceedings deemed by CITBC necessary or desirable to enforce
or effect collection of the Accounts.
Notwithstanding anything hereinabove contained to the contrary, the powers
set forth in (b), (d) and (e) above may only be exercised after the occurrence
of an Event of Default and until such time as such Event of Default is waived.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
1. Notwithstanding anything hereinabove to the contrary, CITBC may terminate
this Financing Agreement immediately upon the occurrence of any of the following
(herein "Events of Default"):
a) cessation of the business of a Company or the calling of a meeting of the
creditors of any Company for purposes of compromising the debts and
obligations of any Company;
b) the failure of any Company to generally meet debts as they mature;
c) the commencement by any Company of any bankruptcy, insolvency,
arrangement, reorganization, receivership or similar proceedings under
any federal or state law;
d) the commencement against any Company of any bankruptcy, insolvency,
arrangement, reorganization, receivership, or similar proceedings under
any federal or state law, provided, however, that such Default shall not
be deemed an Event of Default if such is dismissed within sixty (60) days
from the date of commencement;
e) material breach by any Company of any warranty, representation or
covenant contained herein (other than those otherwise referred to in this
paragraph 1) or in any other written agreement between any Company or
CITBC, provided that such Default by any Company of any of the
warranties, representations or covenants referred in this clause shall
not be deemed to be an Event of Default unless and until such Default
shall remain unremedied or uncured to CITBC's satisfaction for a period
of thirty (30) days from the date of such breach;
f) breach by any Company of any warranty, representation or covenant of
Section 3, Paragraphs 3 (other than the third sentence of paragraph 3)
and 4; Section 6, Paragraphs 3 and 4 (other than the first sentence of
paragraph 4); Section 7, Paragraphs 1,5,6, and 9 through 16;
g) failure of any Company to pay any of the Obligations within five (5)
business days of the due date thereof, provided that nothing contained
herein shall prohibit CITBC from charging such amounts to the Collective
Loan Account on the due date thereof;
h) the Companies, on a consolidated basis, sustain a loss in any fiscal
year, as determined in accordance with GAAP in effect as of the date of
this Financing Agreement, in excess of $500,000.00;
i) any Company shall i) engage in any "prohibited transaction" as defined in
ERISA, ii) have any "accumulated funding deficiency" as defined in ERISA,
iii) have any Reportable Event as defined in ERISA, iv) terminate any
underfunded Plan, as defined in ERISA or v) be engaged in any proceeding
in which the Pension Benefit Guaranty Corporation shall seek appointment,
or is appointed, as trustee or administrator of any Plan, as defined in
ERISA, and with respect to this sub-paragraph i such event
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<PAGE> 34
or condition x) remains uncured for a period of ninety (90) days from
date of occurrence and y) could, in the reasonable opinion of CITBC,
subject such Company to any tax, penalty or other liability material to
the business, operations or financial condition of the Company;
j) the occurrence of any Event of Default under the ROA Financing Agreement;
k) Kurt M. Swenson ceases for any reason whatsoever (other than as a result
of death) to be actively engaged in the management of the Companies or
the stock of i) Swenson presently held by Kurt M. Swenson and/or members
of his family; ii) ROA Quarries or Royalty Granite presently held by
Swenson, is transferred other than to i) Kurt M. Swenson, or ii) Kevin C.
Swenson or iii) members of their families or iv) trusts for the benefit
of their families.
i) the occurrence of any default or event of default which is not cured
within any applicable grace period or waived under any instrument or
agreement evidencing any other Indebtedness having a then principal
balance in excess of $250,000.00 and which default or event of default
gives the holder of such Indebtedness a then right to accelerate such
Indebtedness.
2. Upon the occurrence of a Default and/or an Event of Default, at the
option of CITBC, all loans and advances provided for in paragraph 1 of Section 3
of this Financing Agreement shall be thereafter in CITBC's sole discretion and
the obligation of CITBC to make revolving loans and/or open Letters of Credit
shall cease unless such Default is cured to CITBC's satisfaction or such Event
of Default is waived, and at the option of CITBC upon the occurrence of an Event
of Default: i) all Obligations shall become immediately due and payable; ii)
CITBC may charge the Default Rate of Interest on all then outstanding or
thereafter incurred Obligations in lieu of the interest provided for in
paragraphs one and two of Section 8 of this Financing Agreement provided a)
CITBC has given the Companies written notice of the Event of Default, provided,
however, that no notice is required if the Event of Default is the Event of
Default listed in paragraph l(c) or l(d) of this Section 10 and b) the Companies
have failed to cure the Event of Default within ten (10) days after x) CITBC
deposited such notice in the United States mail or y) the occurrence of the
Event of Default listed in paragraph l(c) or l(d) of this Section 10; and iii)
CITBC may immediately terminate this Financing Agreement upon notice to ROA
Quarries to and for the benefit of the Companies, provided, however, that no
notice of termination is required if the Event of Default is the Event of
Default listed in paragraph 1(c) or l(d) of this Section 10. The exercise of any
option is not exclusive of any other option which may be exercised at any time
by CITBC. A Default Rate of Interest shall cease as soon as CITBC waives the
Event of Default giving rise to the Default Rate of Interest. In the event the
Default Rate of Interest is charged as a result of a breach or violation of
paragraphs 9 and 12 through 15 of Section 7 of this Financing Agreement, the
Default Rate of Interest shall cease as soon as the Companies demonstrate on the
next succeeding test date that they have not breached or violated the covenants
applicable for said test date and that there is not another outstanding Event of
Default.
3. Immediately upon the occurrence of any Event of Default, CITBC may to the
extent permitted by law: (a) remove from any premises where same may be located
any and all documents, instruments, files and records, and any receptacles or
cabinets containing same, relating to the Accounts, or CITBC may use, at any
Company's expense, such of a Company's personnel, supplies or space at any
Company's places of business or otherwise, as may be necessary to properly
administer and control the Accounts or the handling of collections and
realizations thereon; (b) bring suit, in the name of any Company or CITBC, and
generally shall have all other fights respecting said Accounts, including,
without limitation, the right to: accelerate or
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<PAGE> 35
extend the time of payment, settle, compromise, release in whole or in part, any
amounts owing on any Accounts and issue credits in the name of any Company or
CITBC; (c) sell, assign and deliver the Collateral and any returned, reclaimed
or repossessed merchandise, with or without advertisement, at public or private
sale, for cash, on credit or otherwise, at CITBC's sole option and discretion,
and CITBC may bid or become a purchaser at any such sale, free from any right of
redemption, which right is hereby expressly waived by each Company; (d)
foreclose the security interests created herein by any available judicial
procedure, or to take possession of any or all of the Inventory and Equipment
without judicial process, and to enter any premises where any Inventory and
Equipment may be located for the purpose of taking possession of or removing the
same; and (e) exercise any other fights and remedies provided in law, in equity,
by contract or otherwise. CITBC shall have the right, without notice or
advertisement, to sell, lease, or otherwise dispose of all or any part of the
Collateral whether in its then condition or after further preparation or
processing, in the name of any Company or CITBC, or in the name of such other
party as CITBC may designate, either at public or private sale or at any
broker's board, in lots or in bulk, for cash or for credit, with or without
warranties or representations, and upon such other terms and conditions as CITBC
in its sole discretion may deem advisable, and CITBC shall have the right to
purchase at any such sale. If any Inventory and Equipment shall require
rebuilding, repairing, maintenance or preparation, CITBC shall have the right,
at its option, to do such of the aforesaid as is necessary, for the purpose of
putting the Inventory and Equipment in such saleable form as CITBC shall deem
appropriate. Each Company agrees, at the request of CITBC, to assemble the
Inventory and Equipment and to make it available to CITBC at the premises of a
Company where then located and to make available to CITBC the premises and
facilities of any Company for the purpose of CITBC's taking possession of,
removing or putting the Inventory and Equipment in saleable form. However, if
notice of intended disposition of any Collateral is required by law, it is
agreed that ten (10) days notice shall constitute reasonable notification and
full compliance with the law. The net cash proceeds resulting from CITBC's
exercise of any of the foregoing rights (after deducting all reasonable charges,
costs and expenses, including reasonable attorneys' fees) shall be applied by
CITBC to the payment of the Obligations, whether due or to become due, in such
order as CITBC may elect, and each Company shall remain liable to CITBC for any
deficiencies, and CITBC in turn agrees to remit to ROA Quarries to and for the
benefit of the Companies or their successors or assigns, any surplus resulting
therefrom. The enumeration of the foregoing rights is not intended to be
exhaustive and the exercise of any right shall not preclude the exercise of any
other rights, all of which shall be cumulative. The mortgage, deed of trust or
assignment on the Real Estate shall govern the fights and remedies of CITBC
thereto.
SECTION 11. TERMINATION
Except as otherwise permitted herein, CITBC may terminate this Financing
Agreement and the Line of Credit only as of an Anniversary Date and then only by
giving ROA Quarries at least sixty (60) days prior written notice of
termination. Notwithstanding the foregoing CITBC may terminate the Financing
Agreement immediately upon the occurrence of an Event of Default, provided,
however, that if the Event of Default is the event listed in paragraph l(c) or
l(d) of Section 10 of this Financing Agreement, CITBC may regard the Financing
Agreement as terminated and notice to that effect is not required. This
Financing Agreement, unless terminated as herein provided, shall automatically
continue from Anniversary Date to Anniversary Date. ROA Quarries, on behalf of
the Companies, may terminate this Financing Agreement and the Line of Credit at
any time upon sixty (60) days' prior written notice to CITBC, provided, however,
that
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<PAGE> 36
if such termination is prior to the first Anniversary Date, the Companies pay to
CITBC, immediately on demand, an Early Termination Fee and the Prepayment
Premium, if applicable. In the event CITBC terminates this Financing Agreement
for any reason whatsoever, no Early Termination Fee and/or Prepayment Premium
shall be due and payable. All Obligations shall become due and payable as of any
termination hereunder or under Section 10 hereof and, pending a final
accounting, CITBC may withhold any balances in the Collective Loan Account
(unless supplied with an indemnity satisfactory to CITBC) to cover all of the
Obligations, whether absolute or contingent. All of CITBC's rights, liens and
security interests shall continue after any termination until all Obligations
have been paid and satisfied in full.
SECTION 12. MISCELLANEOUS
1. Each Company hereby waives diligence, demand, presentment and protest and
any notices thereof as well as notice of nonpayment. No delay or omission of
CITBC or the Companies to exercise any right or remedy hereunder, whether before
or after the happening of any Event of Default, shall impair any such right or
shall operate as a waiver thereof or as a waiver of any such Event of Default.
No single or partial exercise by CITBC or the Companies of any right or remedy
precludes any other or further exercise thereof, or precludes any other right or
remedy.
2. This Financing Agreement and the documents executed and delivered in
connection therewith constitute the entire agreement between the Companies and
CITBC; supersede and terminate any prior agreements, including, but not limited
to, the Existing Financing; can be changed only by a writing signed by the
Companies and CITBC; and shall bind and benefit the Companies and CITBC and
their respective successors and assigns.
3. In no event shall any Company, upon demand by CITBC for payment of any
indebtedness relating hereto, by acceleration of the maturity thereof, or
otherwise, be obligated to pay interest and fees in excess of the amount
permitted by law. Regardless of any provision herein or in any agreement made in
connection herewith, CITBC shall never be entitled to receive, charge or apply,
as interest on any indebtedness relating hereto, any amount in excess of the
maximum amount of interest permissible under applicable law. If CITBC ever
receives, collects or applies any such excess, it shall be deemed a partial
repayment of principal and treated as such; and if principal is paid in full,
any remaining excess shall be refunded to ROA Quarries to and for the benefit of
the Companies. This paragraph shall control every other provision hereof and of
any other agreement made in connection herewith.
4. If any provision hereof or of any other agreement made in connection
herewith is held to be illegal or unenforceable, such provision shall be fully
severable, and the remaining provisions of the applicable agreement shall remain
in full force and effect and shall not be affected by such provision's
severance. Furthermore, in lieu of any such provision, there shall be added
automatically as a part of the applicable agreement a legal and enforceable
provision as similar in terms to the severed provision as may be possible.
5. THE COMPANIES AND CITBC ACKNOWLEDGE THAT THE FINANCIAL COVENANTS ARE
BASED ON GAAP AS IN EFFECT ON THE DATE OF THIS FINANCING AGREEMENT. FURTHERMORE,
WITH RESPECT TO THE FINANCIAL COVENANTS, FINANCIAL STATEMENTS AND COVENANT
COMPLIANCE TESTING, NOTWITHSTANDING ANY CHANGES IN GAAP, ARE TO BE PREPARED,
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<PAGE> 37
OR TESTED, AS THE CASE MAY BE, IN ACCORDANCE WITH GAAP AS IN EFFECT ON THE DATE
OF THIS FINANCING AGREEMENT. SHOULD SUBSEQUENT CHANGES IN GAAP IMPOSE AN UNDUE
BURDEN ON THE COMPANIES TO REPORT AND/OR TEST IN ACCORDANCE WITH GAAP AS IN
EFFECT ON THE DATE HEREOF, THEN EACH OF CITBC AND THE COMPANIES AGREE THAT THEY
WILL REASONABLY, DILIGENTLY AND IN GOOD FAITH ATTEMPT TO RENEGOTIATE THE
AFORESAID COVENANTS, PROVIDED, HOWEVER, THAT UNTIL SUCH TIME AS THE COVENANTS
ARE SO AMENDED, THE COMPANIES WILL REPORT AND/OR TEST, AS THE CASE MAY BE, IN
ACCORDANCE WITH GAAP AS IN EFFECT ON THE DATE HEREOF.
6. EACH COMPANY AND CITBC EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN
ANY ACTION OR PROCEEDING ARISING OUT OF THIS FINANCING AGREEMENT. EACH COMPANY
HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO SERVICE OF
PROCESS BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED.
7. Except as otherwise herein provided, any notice or other communication
required hereunder shall be in writing, and shall be deemed to have been validly
served, given or delivered when hand delivered or sent by facsimile, or three
days after deposit in the United State mails, with proper first class postage
prepaid and addressed to the party to be notified as follows:
(A) if to CITBC, at:
The CIT Group/Business Credit, Inc.
1211 Avenue of the Americas
New York, NY 10036
Facsimile No. (212) 536-1295
Attn: Regional Manager
(B) if to any Company at:
Rock of Ages Quarries, Inc.
care of Swenson Granite Company, Inc.
369 North State Street
Concord, NH 03301
Attn: President
or to such other address as any party may designate for itself by like notice.
8. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS FINANCING AGREEMENT
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
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<PAGE> 38
IN WITNESS WHEREOF, the parties hereto have caused this Financing Agreement
to be executed, agreed to, accepted and delivered in New York, New York by their
proper and duly authorized officers as of the date set forth above.
THE CIT GROUP/BUSINESS CREDIT, INC.
By /s/ James Conheeney
---------------------------
Vice President
ROCK OF AGES QUARRIES. INC.
By /s/ Kurt M. Swenson /s/ John R. Monson (Seal)
--------------------------- -------------------------------
Title: President Assistant Secretary
SWENSON GRANITE COMPANY, INC.
By /s/ Kurt M. Swenson /s/ John R. Monson (Seal)
--------------------------- -------------------------------
Title: President Assistant Secretary
ROYALTY GRANITE COMPANY
By /s/ Kurt M. Swenson /s/ John R. Monson (Seal)
--------------------------- -------------------------------
Title: President Assistant Secretary
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<PAGE> 1
[ROYAL BANK LOGO] ROYAL BANK
EXHIBIT 10.20
- --------------------------------------------------------------------------------
DENIS BARRETTE ROYAL BANK OF CANADA
Senior Account Manager Place Ville Marie
Business Banking Centre
1 Place Ville Marie
Montreal, Quebec H3C 3E9
[ROCK OF AGES CANADA INC. SEAL]
Tel.: (514)874-5524
Fax: (514) 874-3896
Rock of Ages Canada Inc.
4 Rock of Ages Street [ROCK OF AGES CANADA INC. SEAL]
P.O. Box 60
Beebe, Quebec
J0B 1E0
ATTENTION: MR. E.E. HAYDON, PRESIDENT
- -------------------------------------
Dear Sir:
SUBJECT: CONFIRMATION OF CREDIT FACILITIES
- ------------------------------------------
Further to our recent discussions, we are pleased to confirm your credit
facilities subject to the following terms and conditions:
LENDER: Royal Bank of Canada (the "Bank")
BORROWER: 1) Rock of Ages Canada Inc. ("Borrower 1")
2) Rock of Ages Quarries Canada Inc. ("Borrower 2")
3) Rock of Ages Canada Inc. ("Borrower 3") (company
to be created further to the merger of
Borrowers 1) and 2) and the name change of
Borrower 2)).
(individually a "Borrower" and collectively the
"Borrowers")
CREDIT FACILITIES: SEGMENT (1-10): Up to $2,450,000 credit available by
way of one or more of the following methods:
a) Variable-rate loans in Canadian dollars.
b) Variable-rate loans in U.S. dollars.
SEGMENT (1-20): Up to $100,000 Foreign Exchange
Risk. The Risk amount to be determined by the Bank
at its sole discretion on a transaction basis.
SEGMENT (1-30): Up to $10,000 Visa expense accosts.
.../2
<PAGE> 2
1) ROCK OF AGES CANADA INC.
2) ROCK OF AGES QUARRIES CANADA INC.
3) ROCK OF AGES CANADA INC. PAGE 2
CREDIT FACILITIES:
(Cont'd) SEGMENT (1-40): $45,000 - 5-year term loan.
SEGMENT (1-50): $1,050,000. - Direct leasing.
SEGMENT (1-60): $250,000. - Temporary Operating
loans (maturing August 1st 1997)
TOTAL UTILIZED UNDER SEGMENTS 1-10) AND 1-20) SHOULD
NOT EXCEED $2,450,000.
SEGMENT (2-10): Up to $800,000 credit available by
way of one or more of the following methods:
a) Variable-rate loans in Canadian dollars.
b) Variable-rate loans in U.S. dollars.
SEGMENT (2-20): Up to $50,000 Foreign Exchange Risk.
The risk amount is determined by the Bank at its
sole discretion and on a transaction basis.
SEGMENT (2-30): Up to $10,000 Visa expense accounts.
TOTAL UTILIZED UNDER SEGMENTS 2-10) AND 2-20) SHOULD
NOT EXCEED $800,000.
SEGMENT (3-10): Up to $3,500,000 credit available by
way of one or more of the following methods:
a) Variable-rate loans in Canadian dollars.
b) Variable-rate loans in U.S. dollars.
SEGMENT (3-20): Up to $150,000 Foreign Exchange
Risk. The risk amount is determined by the Bank at
its sole discretion and on a transaction basis.
SEGMENT (3-30): Up to $20,000 Visa expense accounts.
SEGMENT (3-40): $45,000 - 5-year term loan.
SEGMENT (3-50): $1,050,000. - Direct leasing.
TOTAL UTILIZED UNDER SEGMENTS 3-10) AND 3-20) SHOULD
NOT EXCEED $3,500,000.
BORROWERS 1,2 AND 3 NOT TO EXCEED $4,615,000.
.../3
<PAGE> 3
1) ROCK OF AGES CANADA INC.
2) ROCK OF AGES QUARRIES CANADA INC.
3) ROCK OF AGES CANADA INC. PAGE 3
CURRENCY: All dollar amounts stated herein refer to Canadian
funds unless otherwise specified.
When used herein, the expression "U.S. dollars"
means the lawful money of the United States of
America in same-day immediately available funds.
To calculate the credit available in U.S. dollars or
the total borrowings outstanding, the Bank currently
uses a conversion rate of 1.35 Canadian dollar for
1.00 U.S. dollar. The Bank may change this rate at
any time at its discretion and the consequences of
this change take effect immediately. If, as a result
of a change, the total borrowings outstanding exceed
the credit available, the Borrower must, on demand,
make the reimbursement required to keep within
established limits.
PURPOSES: Segments (1-10), (1-30), (2-10), (2-30), (3-10) and
(3-30):
-Financing general operations.
SEGMENTS (1-20), (2-20) AND (3-20):
-Foreign exchange hedging.
SEGMENTS (1-40) AND (3-40):
-Financing the purchase of a property adjacent to
the production plant.
SEGMENTS (1-50) AND (3-50):
-Equipment financing on new saw and buffer.
SEGMENT (1-60):
-Temporary operating loans for peak period.
MARGIN: BORROWER 1) - SEGMENT 1-10
--------------------------
The aggregate of loans and preferred claims are not
to exceed:
a) 50% of the lesser of the cost and the
realizable value of the Borrower's rough and
finished inventory (excluding supplies) and
25(cent)% of work in process free from any
prior encumbrances and excluding any
identifiable unpaid inventory within 30 days
(the result will be included up to $1,000M,
increased to $2,000M until segment (1-60) is
outstanding); plus
b) 75% of the value of the Borrower's good trade
accounts receivable free from any prior
encumbrances, excluding:
- the total amount of any account
receivable of which any portion is due
for more than 120 days with some
discretion left to the account manager
on special circumstances; and
- accounts receivable due by persons
affiliated with the Borrower (within the
meaning of the CANADA BUSINESS
CORPORATIONS ACT); plus
c) 40% of the net book value of the Borrower's
tangible fixed assets (excluding the fixed
assets pledged to the BFD).
.../4
<PAGE> 4
1) ROCK OF AGES CANADA INC.
2) ROCK OF AGES QUARRIES CANADA INC.
3) ROCK OF AGES CANADA INC. PAGE 4
MARGIN: (Cont'd) BORROWER 2) - SEGMENT 2-10
--------------------------
The aggregate of loans and preferred claims are not
to exceed:
a) 50% of the lesser of the cost and the
realizable value of the Borrower's rough and
finished inventory (excluding supplies) and
25% of work in process free from any prior
encumbrances and excluding any identifiable
unpaid inventory delivered within 30 days
(the result will be included up to $500M);
plus
b) 75% of the value of the Borrower's good trade
accounts receivable free from any prior
encumbrances, excluding:
- the total amount of any account
receivable of which any portion is due
for more than 120 days with some
discretion left to the account manager
on special circumstances; and
- accounts receivable due by persons
affiliated with the Borrower (within
the meaning of the CANADA BUSINESS
CORPORATIONS ACT); plus
c) 40% of the net book value of the Borrower's
tangible fixed assets.
(Any undermargin under Borrowers 1) and 2) to be
covered by any excess margin from either Borrower).
BORROWER 3) - SEGMENT 3-10:
--------------------------
The aggregate of loans and preferred claims are not
to exceed:
a) 50% of the lesser of the cost and the
realizable value of the Borrower's rough and
finished inventory (excluding supplies) and
25% of work in process free from any prior
encumbrances and excluding any identifiable
unpaid inventory delivered within 30 days
(the result will be included up to $2,500M);
plus
b) 75% of the value of the Borrower's good trade
accounts receivable free from any prior
encumbrances, excluding:
- the total amount of any account
receivable of which any portion is due
for more than 120 days with some
discretion left to the account manager
on special circumstances; and
- accounts receivable due by persons
affiliated with the Borrower (within
the meaning of the CANADA BUSINESS
CORPORATIONS ACT); plus
c) 40% of the net book value of the Borrower's
tangible fixed assets.
.../5
<PAGE> 5
1) ROCK OF AGES CANADA INC.
2) ROCK OF AGES QUARRIES CANADA INC.
3) ROCK OF AGES CANADA INC. PAGE 5
INTEREST RATES: SEGMENTS (1-10) - Prime Rate + 3/4% per annum
AND (2-10): - US Base Rate + 3/4% per annum
SEGMENT (1-40): - Prime Rate + 1 1/2%
SEGMENT (1-50): - Standard Leasing rates
SEGMENT (1-60): - Prime Rate + 1%
- US Base Rate + 1%
SEGMENT (3-10): - Prime Rate + 3/4%
- US Base Rate + 3/4%
SEGMENT (3-40): - Prime Rate + 1 1/2%
SEGMENT (3-50): - Standard Leasing rates
The expression "Prime Rate" means the annual rate of
interest announced by the Bank from time to time as
its reference rate then in effect for determining
interest rates on Canadian dollar commercial loans
made by the Bank in Canada.
The expression "U.S. Base Rate" means the annual
rate of interest announced by the Bank from time to
time as its reference rate then in effect for
determining interest rates on U.S. dollar commercial
loans made by the Bank in Canada.
The Borrower shall pay outstanding accrued interest
monthly on the date fixed by the Bank. Interest
shall be calculated on the daily principal balance
at the aforementioned annual interest rates based on
the actual number of calendar days elapsed during
the period in which interest is calculated, divided
by 365. The annual rates of interest, which
correspond to the rates calculated as aforesaid, are
the rates so determined multiplied by the actual
number of days in a calendar year and divided by
365. Outstanding interest payable bears interest at
the rate of interest applicable to the relative loan
and is payable on demand. Interest is payable in the
same currency as the relative loan.
FEES: An annual standby fee of 1/4% shall be calculated
daily on the unused portion of the loans under
segments (1-10) and (2-10). For segment (3-10), the
standby fee will apply only further to cancellation
of segments (1-10) and (2-10). The accrued amount of
this fee is payable monthly.
.../6
<PAGE> 6
61) ROCK OF AGES CANADA INC.
2) ROCK OF AGES QUARRIES CANADA INC.
3) ROCK OF AGES CANADA INC. PAGE 6
FEES: (Cont'd) A non-refundable fee of $9,000. will be payable upon
acceptance of this confirmation of credit facility
which will cover the worked involved with the annual
review and the corporate restructuring asked for.
LEGAL COSTS: All legal costs, fees and expenses incurred by the
Bank or on its behalf for establishing the credit
facilities and related documentation, including
security documentation, are for the account of the
Borrower and payable on demand.
REPAYMENT: SEGMENTS (1-10), (1-30), {2-10), (2-30), (3-10)
-----------------------------------------------
AND (3-30):
----------
-Repayment in full on demand.
SEGMENTS (1-20), (2-20) AND (3-20):
----------------------------------
- Upon maturity of each contract.
SEGMENTS (1-40) AND (3-40):
--------------------------
- 53 months remaining on term loans (originally a
60-month term) reducing $833.33 per month + int.
SEGMENTS (1-50) AND (3-50):
--------------------------
- 4-year direct leasing.
SEGMENT (1-60):
--------------
- Maturing August 1st, 1997.
COLLATERAL SECURITY: Borrower 1)
----------
a) Assignment under Section 427 of the BANK ACT
(Canada) covering (for example, raw
materials, goods in process, finished
products and supplies of the Borrower)
insured for a sufficient amount; policies
must be lodged with and losses made payable
to the Bank.
b) Deed of Moveable Hypothec coveting the
universality of present and future debts and
all others assets of the Borrower with
priority of rank to the BFD in reference to a
specific property and to specific equipment
that were previously owned by Andru Granite
Inc.
c) General Assignment of Book Debts registered
in Ontario for the Borrower and any other
province where sales are to be made.
d) Guarantee and Postponement of Claim for
$500,000. signed by Rock of Ages Quarries
Canada Inc. supported by a directors'
resolution.
.../7
<PAGE> 7
1) ROCK OF AGES CANADA INC.
2) ROCK OF AGES QUARRIES CANADA INC.
3) ROCK OF AGES CANADA INC. PAGE 7
COLLATERAL SECURITY: Borrower 1) (Cont'd)
-----------
e) Deed of Immoveable Hypothec, 2nd rank for
Labelle location, on all of the land and
buildings of the Borrower.
f) Deed of Immoveable Hypothec, 2nd rank for
Standstead location), on all of the land and
buildings of the borrower.
g) Deed of Immoveable Hypothec, 1st rank of
hypothec given by Rock of Ages Canada in the
amount of $2,450,000 for all the land and
buildings.
h) Postponement of Claim from Rock of Ages
Corporation.
i) Deed of Immoveable Hypothec of 1st rank on
the property located at 21 Main, Beebe,
Quebec.
Borrower 2)
-----------
a) Assignment under Section 427 of the BANK ACT
(Canada) covering (for example, raw
materials, goods in process, finished
products and supplies of the Borrower)
insured for a sufficient amount; policies
must be lodged with and losses made payable
to the Bank.
b) Deed of Moveable Hypothec covering the
universality of present and future debts and
all others assets of the Borrower.
c) General Assignment of Book Debts registered
in Ontario for the Borrower and any other
province where sales are to be made.
d) Deed of Immoveable Hypothec on all of the
land and buildings of the Borrower.
e) Deed of Immoveable Hypothec, 1st rank
Standstead location, on all the land and
buildings of the Borrower.
f) Post Claim from Rock of Ages Quarries Inc.
.../8
<PAGE> 8
1) ROCK OF AGES CANADA INC.
2) ROCK OF AGES QUARRIES CANADA INC.
3) ROCK OF AGES CANADA INC. PAGE 8
COLLATERAL SECURITY: Borrower 3)
-----------
a) Assignment under Section 427 of the BANK ACT
(Canada) covering (for example, raw
materials, goods in process, finished
products and supplies of the Borrower)
insured for a sufficient amount; policies
must be lodged with and losses made payable
to the Bank.
b) Deed of Moveable Hypothec covering the
universality of present and future debts and
all others assets of the Borrower with
priority of rank to the BFD in reference to
a specific property and to specific equipment
that were previously owned by Adru Granite
Inc.
c) General Assignment of Book Debts registered
in Ontario for the Borrower and any other
province where sales are to be made.
d) Deed of Immoveable Hypothec, 1st rank of
hypothec for all the land, buildings
including the Labelle and Standstead
locations plus the property located at 21
Main, Beebe, Quebec.
e) Post Claim from Rock of Ages Corporation.
COVENANTS: The Borrowers covenant with the Bank as follows:
ON A COMBINED BASIS FOR BORROWERS (1) AND (2) AND
FOR (3) AFTER (1) AND (2) ARE CANCELLED:
a) To maintain a minimum current ratio (current
assets to current liabilities) of 1.4:1.
For the purposes of this calculation, "current
assets" means inventory, accounts receivables, cash,
term deposits and prepaid expenses; "current
liabilities" means direct operating loans owing to
the Bank and other lenders, accounts payable and
accrued charges, including outstanding cheques, the
portion of the term debt due within one year and all
income taxes payable.
b) To maintain a maximum total liabilities/
tangible net worth ratio not in excess of
1.75:1. (to include in the tangible net
worth, a 50% value of the book value of the
"Carrieres Norgranite Inc. Investment").
For the purposes of this calculation, "tangible net
worth" is made up of capital stock, additional
paid-in capital, retained earnings and formally
postponed debts, excluding intangible assets,
leasehold improvements, loans to affiliates and
investments in subsidiaries.
c) Any shortfall at year-end is to be covered by
the parent companies within 90 days following
the year-end.
.../9
<PAGE> 9
1) ROCK OF AGES CANADA INC.
2) ROCK OF AGES QUARRIES CANADA INC.
3) ROCK OF AGES CANADA INC. PAGE 9
COVENANTS:
(Cont'd) d) The Borrowers will not lend nor guarantee any sum to
third parties without the prior written approval of
the Bank.
e) The Borrower will deliver to the Bank such financial
and other information as the Bank may reasonably
require, including:
(i) Audited annual financial statements within 90
days of fiscal year-end of each borrower;
(ii) Combined financial statements of borrowers
(1) and (2) within 90 days of fiscal
year-end;
(iii) Internal financial statements within 20 days
of each month-end of each borrower;
(iv) Combined internal financial statements of
borrowers (1) and (2) within 20 days of each
month-end;
(v) Budget including capital expenditures of
borrowers (1), (2) and (3) within 90 days of
last fiscal year-end;
(vi) Detailed listing of the aged accounts
receivable and inventory confirmation for
borrowers (1), (2) (3) within 20 days of
each month-end;
(vii) Audited financial statements within 120 days
of fiscal year-end for Swenson Granite
Company Inc. (1996 to be forwarded to the
Bank by July 31, 1997).
(iv) TO BE ELIMINATED UPON CANCELLATION OF
BORROWERS (1) AND (2).
f) The Borrower will promptly pay, when due, all income
and other taxes payable.
g) The Borrower agrees to remit, as prescribed under
the INCOME TAX ACT (Canada), the TAXATION ACT
(Quebec) and any other applicable fiscal
legislation, all deductions and withholdings made by
the Borrower, as they fall due and to notify the
Bank immediately upon failure to do so.
All above covenants shall remain in force for the
benefit of the Bank regardless of the date advances
are made or security taken.
.../10
<PAGE> 10
1) ROCK OF AGES CANADA INC.
2) ROCK OF AGES QUARRIES CANADA INC.
3) ROCK OF AGES CANADA INC. PAGE 10
COVENANTS:
(Cont'd) Note: In respect of credit facilities repayable on
---- demand, compliance by the Borrower with the
above covenants does not affect nor limit the
Bank's right to demand full repayment of the
facilities at its discretion and at any time,
such covenants being an indication of what must
be complied with for the Bank to favourably
consider, without any obligation, to maintain a
business relationship with the Borrower.
PROVISIONS REGARDING a) The Borrower declares to the Bank that as of
THE ENVIRONMENT: date hereof:
- it fully complies with environmental
protection laws, regulations, bylaws and
other requirements applicable to its
property and activities;
- it has obtained the environmental
protection certificates, approvals,
permits, authorizations and orders
required for the use of its property and
for carrying out its activities, if
applicable;
- no notice, demand, ordinance, lawsuit or
complaint was brought against it
concerning environmental protection;
- to its knowledge, there is no
circumstance which may give rise to the
revocation of the aforesaid
certificates, approvals, permits,
authorizations and orders or to the
issue of a notice, demand, ordinance,
lawsuit or complaint as aforesaid,
except for those that it fully disclosed
to the Bank in writing.
b) The Borrower shall comply strictly and in all
respects with the requirements of environmental
protection laws, regulations, bylaws and other
requirements applicable to its property and
activities and shall notify the Bank immediately
in the event of any release or discovery of any
contaminant upon, under, over or within its
property or any contiguous real property or any
real property on or near which a contaminant
could reasonably be anticipated to be released
that may affect its property and activities. The
Borrower shall promptly forward to the Bank
copies of all notices, permits, orders, demands
or other documents and reports in connection
with any release or the presence of any
contaminant or any matters relating to
environmental protection laws or otherwise as
they affect its property and activities.
.../11
<PAGE> 11
1) ROCK OF AGES CANADA INC.
2) ROCK OF AGES QUARRIES CANADA INC.
3) ROCK OF AGES CANADA INC. PAGE 11
PROVISIONS REGARDING
THE ENVIRONMENT:
(Cont'd) c) The Borrower shall provide the Bank, upon demand
and at the Borrower's expense, with all the
information that the Bank may reasonably require
regarding the environmental situation of the
Borrower, notably concerning the Borrower's
activities, moveable and immoveable property,
and all contiguous property to its properties,
if applicable, including an environmental audit
report prepared by an environmental engineering
firm acceptable to the Bank. It will be
reasonable for the Bank to periodically request
from the Borrower a confirmation that the
statements regarding the environment contained
herein are still true and that as of the date of
such confirmation, no event occurred that may
affect in any way its property and activities
insofar as environmental protection is
concerned.
d) The Borrower shall allow the Bank and its agents
access to its property or to any information
regarding its property or activities to enable
the Bank to assess the risk that the Borrower's
environmental situation represents to the Bank,
to anticipate its effect or to take corrective
action.
e) The Borrower shall indemnify and hold the Bank
harmless against and from any and all claims,
suits, actions, damages, costs, judgments or
other expenses sustained or incurred by the Bank
either in the exercise of the rights conferred
on the Bank herein, or as beneficiary of
security against the property of the Borrower,
or under any other circumstance relating to
environmental protection affecting the
Borrower's property and activities.
INDEMNITY: If, in the opinion of the Bank, the Bank is now or
becomes subject to, or if there is a change in:
a) any reserve or similar requirement against the
assets of the Bank, deposits made with or for
the account of, credit extended by, or any
acquisition of funds for the extension of credit
by, the Bank;
b) any reserve or similar requirement with respect
to all or any part of the credit used by the
Borrower hereunder or any unused portion of the
credit facilities;
c) taxation, or the basis of taxation, of any
payments due to the Bank hereunder (except for
taxes on the overall net income of the Bank);
.../12
<PAGE> 12
1) ROCK OF AGES CANADA INC.
2) ROCK OF AGES QUARRIES CANADA INC.
3) ROCK OF AGES CANADA INC. PAGE 12
INDEMNITY:
(Cont'd) d) any requirement relating to capital adequacy; or
e) any other condition prescribed by law or by the
interpretation thereof by competent authority,
or any other condition, whether or not having
the force of law, with which financial
institutions carrying on business in Canada are
or were generally complying;
which in the sole determination of the Bank, causes:
(i) an additional cost with respect to the
credit facilities,
(ii) a reduction in the revenues derived
therefrom, or
(iii) a reduction in the effective return
hereunder or on the Bank's capital to a
level below that which the Bank could
have otherwise achieved (using any
reasonable averaging and attribution
method),
then, in any such event, the Borrower shall pay to the
Bank, on demand, the amount which the Bank considers
sufficient to compensate that additional cost, reduction
in revenues, or reduction in rate of return. Absent
manifest error, the amount established by the Bank shall
be conclusive.
EVENTS OF DEFAULT: Without limiting its right to demand at any time payment
of sums which are payable on demand, the Bank may, to
the extent permitted by and in compliance with
applicable law, immediately terminate the right of the
Borrower to make further borrowings under the credit
facilities, and demand immediate payment of all sums
owing thereunder, including accrued interest, and
realize on all or any portion of the security granted in
its favor, upon the occurrence of any of the following
events:
a) failure by the Borrower to pay the principal,
interest or any other amount when due;
b) failure by the Borrower to observe or satisfy
any covenant, condition or provision in this
agreement or in any other agreement with the
Bank, or in any security document established in
favor of the Bank;
c) if the Borrower becomes insolvent, files a
notice of intention to make a proposal to its
creditors under the Bankruptcy and Insolvency
Act, is declared bankrupt, makes an assignment
of its property for the benefit of its
creditors, or makes a bulk sale of any part of
its assets without the prior consent of the
Bank;
d) if any step is taken with respect to a
compromise or arrangement with the creditors of
the Borrower, or to have the Borrower declared
bankrupt or wound up, or if a receiver is
appointed with respect to any part of the
property encumbered by security in favor of the
Bank, or if any encumbrancer takes possession of
any part of the Borrower's assets;
.../13
<PAGE> 13
1) ROCK OF AGES CANADA INC.
2) ROCK OF AGES QUARRIES CANADA INC.
3) ROCK OF AGES CANADA INC. PAGE 13
EVENTS OF DEFAULT:
(Cont'd) e) if in the opinion of the Bank, there occurs:
(i) a material adverse change in the
Borrower's financial condition;
(ii) an unacceptable change in the ownership
of the capital stock of the Borrower;
(iii) the Borrower is subject to legal
proceedings detrimental to its affairs;
f) the breach of any law, regulation, bylaw or
requirement whether federal, provincial,
municipal, or otherwise, concerning pollution of
the environment, toxic materials, or other
environmental hazards, or public health and
safety, affecting any of the Borrower's property
or activities.
Upon a demand for payment, whether or not pursuant to an
event of default as aforesaid, the Borrower shall also
pay to the Bank the aggregate face value of all bankers'
acceptances and letters of guarantee or of credit which
are unmatured or unexpired, as an anticipated discharge
of the Borrower's obligation to indemnify the Bank in
respect thereto.
EVIDENCE OF
INDEBTEDNESS: If loans and transactions pertaining to the credit
facilities are not evidenced by promissory notes or
other debt instruments, or by any other agreement with
the Bank, the books and records of the Bank's unit or
office in charge of the credit facilities, in which are
kept the accounts and statements showing the principal
amounts owing, interest thereon, fees and other sums due
by the Borrower, and recorded the transactions
pertaining to the credit facilities, shall, in the
absence of manifest error, constitute conclusive
evidence of the Borrower's indebtedness hereunder and of
such transactions.
The Bank shall maintain on the books of its unit of
account, accounts and records evidencing the outstanding
principal amount of the loan of the Bank to the Customer
under this Loan Facility together with any interest in
respect thereof. The Bank shall maintain a record of the
amount of the balance, each advance, and each payment of
principal and interest on account of the loan. The
Bank's accounts and records constitute in the absence of
manifest error PRIMA FACIE evidence of the indebtedness
of the Customer to the Bank under this Loan Facility.
1) if such position or net position is a credit in
favour of the Customer, the Bank will apply the
amount of such credit or any part thereof,
rounded to the nearest $10,000. as a repayment
of the Loan Facility, and the Bank will debit
the Account with the amount of such repayment,
and
.../14
<PAGE> 14
1) ROCK OF AGES CANADA INC.
2) ROCK OF AGES QUARRIES CANADA INC.
3) ROCK OF AGES CANADA INC. PAGE 14
EVIDENCE OF
INDEBTEDNESS:
(Cont'd) 2) if such position or net position is a debit in
favour of the Bank, the Bank will make an
advance under the Loan Facility of such amount,
rounded to the nearest $10,000. as is required
to place the Account in such credit or net
credit position as has been agreed between the
Customer and the Bank from time to time.
provided that at no time shall the balance owing
exceed the amount of the Loan Facility.
CONDITION
PRECEDENT: Credit Facilities under Borrower 3) will only be
available when all facilities under Borrowers 1) and 2)
are fully reimbursed and cancelled to the Bank's
satisfaction.
REVIEW: The Bank may, at any time, revise the conditions
applicable to the credit facilities and withdraw their
availability, their availability. It is the Bank's
practice to review credit facilities at least once
annually. Unless the Borrower is in default, the
conditions applicable to a term loan granted prior to
the review or the withdrawal shall be maintained.
GOVERNING LAW: This agreement shall be governed by the laws in force in
the province of Quebec.
We trust the foregoing is satisfactory to you and request that you indicate your
acceptance by signing and returning the duplicate of this letter on or before
July 11, 1997.
Yours truly,
ROYAL BANK OF CANADA
/s/ Denis Barrette
- ---------------------------------
Denis Barrette
Senior Account Manager
READ AND ACCEPTED ON THIS 2 DAY OF JULY 1997
ROCK OF AGES CANADA INC.
By: /s/ By: /s/
--------------------------------- ---------------------------------
Title: DIR. FINANCE Title: COMPTABLE
.../15
<PAGE> 15
1) ROCK OF AGES CANADA INC.
2) ROCK OF AGES QUARRIES CANADA INC.
3) ROCK OF AGES CANADA INC. PAGE 15
ROCK OF AGES QUARRIES CANADA INC.
By: /s/ YVES BROUSSEAU By: /s/ GUY DROUIN
--------------------------------- ---------------------------------
Title: DIR. FINANCE Title: COMPTABLE
ROCK OF AGES CANADA INC. (NEW STRUCTURE)
By: /s/ By: /s/
--------------------------------- ---------------------------------
Title: DIR. FINANCE Title: COMPTABLE
<PAGE> 1
Exhibit 10.21
THE CIT GROUP/BUSINESS CREDIT
1211 Avenue of the Americas
New York, New York 10036
(212) 536-1200
September 14, 1997
Mr. Kurt Swenson
Rock of Ages Corporation
369 North State Street
Concord, NH 03301
Dear Kurt:
It is with pleasure that I provide you with this commitment letter for the
financing of the Rock of Ages Corporation (ROA) subsequent to the closing of
ROA's public offering. In connection therewith, The CIT Group/Business Credit,
Inc. (the "Lender") is pleased to inform you that we have approved a secured
committed credit facility to ROA in the amount of $50,000,000.00 ("Line of
Credit"), consisting of, and subject to, the following:
REVOLVING LINE OF CREDIT
1. A revolving Line of Credit (the "Revolving Line of Credit") evidenced
by a Financing Agreement ("Agreement") providing for revolving
advances ("Revolving Loans") up to the lesser of (a) $25,000,000.00 or
(b) the sum of (i) seventy five percent (75.0%) of eligible accounts
receivable plus (ii) fifty percent (50.0%) of eligible inventory.
LETTER OF CREDIT SUBLINE
2. Within the Revolving Line of Credit the Lender will assist ROA in
opening documentary letters of credit for the importation of inventory
and
<PAGE> 2
Mr. Kurt Swenson
September 14, 1997
Page 2
standby letters of credit, all in an amount not to exceed $3,000,000
in the aggregate at any one time. All letters of credit shall be
reserved from availability.
ACQUISITION TERM LOAN
3. The Agreement will also provide for a series of term loans not to
exceed $25,000,000 in the aggregate to ROA ("Acquisition Line of
Credit") subject to the fulfillment of each of the following
conditions: a) each advance under the Acquisition Line of Credit (each
an "Acquisition Loan" and collectively the "Acquisition Loans") must
be utilized exclusively for the purchase of distributors of granite
memorials, granite quarries, manufacturers and/or retailers of
granite products: b) no Acquisition Loan may be less than
$1,000,000.00; c) ROA must give thirty (30) days prior written notice
of intent to draw down each Acquisition Loan; d) each Acquisition Loan
will be disbursed concurrent with an acquisition; e) no more than
two (2) Acquisition Loans per calendar quarter; provided that you may
combine several acquisitions within your request for any Acquisition
Loan; f) all Acquisition Loans shall be due and payable in full upon
any termination of the Agreement; g) the structure of the acquisition
must be acceptable to the Lender; h) assets must be acquired free and
clear of liens concurrent with an acquisition; i) ROA must give the
Lender liens on the assets so acquired; j) the Lender must be given
thirty (30) days notice to conduct a review of the assets and the
business which review must be reasonably satisfactory to the Lender;
k) at the Lender's request ROA must furnish to the Lender an ap-
praisal of the equipment and real estate and an environmental review
of a proposed acquisition target and l) all Acquisition Loans will
amortize as follows: the principal amount of each Acquisition Loan
shall be repaid in quarterly installments on each March 31, June 30,
September 30 and December 31 of each year commencing
<PAGE> 3
Mr. Kurt Swenson
September 14, 1997
Page 3
for each Acquisition Loan on the last day of the first full quarter
after such Acquisition Loan is made (with the portion of the
amortization schedule attributable to each such advance based upon a
seven (7) year repayment schedule) with a final installment of the
remaining principal amount outstanding, payable on September 30, 2002,
provided that at your election a portion of such Acquisition Loans not
to exceed $12,500,000 in the aggregate shall not amortize and shall be
due and payable in full on September 30, 2002.
Amounts repaid on an Acquisition Loan may not be reborrowed. The
Acquisition Loans shall be subject to the Prepayment Premium described
in paragraph 10.
TERM
4. The Agreement shall have an initial term of five years with automatic
annual renewals thereafter (each year an "Anniversary Date") unless
terminated by the Lender on the fifth Anniversary Date or any
subsequent Anniversary Date and then only upon sixty (60) days prior
notice. The Acquisition Loans shall be due and payable in full upon
any termination of the Agreement.
INTEREST RATES AND FEES
5. Interest and Fees will be computed and payable monthly per the
following grids:
PRICING GRID #1
<TABLE>
<CAPTION>
Premium Over Premium
Funded Debt to The Chase Over Unused Line Letter of Credit
Net Worth Manhattan Rate LIBOR Fee Fee
--------- -------------- ----- --- ---
<S> <C> <C> <C> <C>
1.00 to 1.50 (.25) 2.25 $50,000 per annum 1.250
<1.00 (.50) 1.75 $50,000 per annum 1.125
</TABLE>
<PAGE> 4
Mr. Kurt Swenson
September 14, 1997
Page 4
PRICING GRID #2
<TABLE>
<CAPTION>
Premium
Funded Debt to Reference Rate Over Unused Line Letter of Credit
Net Worth Plus Over LIBOR Plus Fee* Fee
--------- --------- ---------- ---- ---
<S> <C> <C> <C> <C>
1.00 to 2.50 .25 2.75 0.??5 1.500
.75 to 1.00 0 2.50 0.??5 1.375
.50 to .75 (.25) 2.00 0.250 1.250
.25 < .50 (.50) 1.75 0.250 1.125
< .25 (.50) 1.50 0.??0 1.125
</TABLE>
Pricing Grid #2 will go into effect in the event the Lender has not sold down
the Loans to $25,000,000 within 120 days after closing of the Agreement. The
grid will become effective on the first day of the month following the 120th
day.
Lender will use all reasonable efforts among a group of at least five potential
participants or co-lenders, otherwise acceptable to the Lender, to find a
participant or co-lender agreeable to price grid #1. ROA will, if requested by
Lender, assist Lender in selling down the loans by meeting with potential
participants or co-lenders to explain ROA's business and its prospects.
The Chase Manhattan Bank Rate is the rate of interest per annum
announced by Chase Manhattan Bank from time to time as its prime rate
in effect at its principal office in the City of New York. Such rate
is not intended to be the lowest rate charged by Chase Manhattan Bank
to its borrowers. ROA may elect to use Libor provided i) ROA gives the
Lender three business days prior notice of such election and ii) there
is then no unwaived or uncured default under the Agreement. In no
event may ROA have more than four (4) Libor elections at any one time.
Upon ROA's election of a Libor option,
<PAGE> 5
Mr. Kurt Swenson
September 14, 1997
Page 5
ROA shall i) specify a one, two, three or six month Libor period and
ii) pay the Lender a $500 processing fee upon the effective date of
such Libor election.
6. The Line of Credit Fee, payable at the end of each month, based on the
above grid will be computed on the difference between the sum of i)
the Revolving Line of Credit and ii) the Acquisition Line of Credit
and the sum of (i) the average daily Revolving Loan balance due the
Lender, (ii) the average daily balance of outstanding letters of
credit; and iii) the principal amount of the Acquisition Loans on the
dates of disbursement.
7. A Collateral Management Fee of $12,000 per year will be charged i)
under Pricing Grid #1 only when Funded Debt to Net Worth exceeds 1.50
to 1; ii) at all times under pricing Grid #2.
8. A $25,000 Loan Facility Fee, payable at closing which amount includes
a documentation fee for the use of the Lender's Legal Department and
its facilities in documenting the proposed transaction.
9. A Syndication Fee of up to $125,000 payable to participant.
10. ROA may terminate the Agreement at any time. However, should ROA
terminate the Agreement prior to the fifth Anniversary Date, the
Lender shall earn an Early Termination Fee determined by multiplying
the average daily Revolving Loan balance during the term of the
Agreement by i) 1% if the termination date is on or before the first
Anniversary Date; ii) .50% if the termination date is after the
first Anniversary Date but on/or before the second Anniversary Date;
and iii) .25% if the termination date is after the second Anniversary
Date but prior to the fifth Anniversary Date.
<PAGE> 6
Mr. Kurt Swenson
September 14, 1997
Page 6
11. The Borrower may prepay at any time, in whole in part, the Acquisition
Loans. Should ROA so prepay an Acquisition Loan in conjunction with
ROA's termination of the Agreement, the Lender shall earn a Prepayment
Premium determined by multiplying the amount so prepaid by one per-
cent (1%), provided, however, no Prepayment Premium shall be due if
such prepayment is within six (6) months before the fifth Anniver-
sary Date.
COLLATERAL
12. To secure the obligation due the Lender by ROA, ROA will grant the
Lender a first and exclusive lien on all of ROA's present and future
accounts receivable, inventory, trademarks, patents, general
intangibles, equipment, and real estate (owned) and stock in any
subsidiary.
COVENANTS
13. The Agreement will contain such warranties, representations, covenants
and events of default as are customary for financing transactions
of this type. ROA will provide to the Lender, among other things,
monthly interim financial statements. The year-end statements must be
certified by an independent public accountant mutually acceptable to
the Borrower and the Lender.
CONDITIONS OF CLOSING
14. The foregoing is furnished as a means of affording ROA a guide to, and
an outline of, the material terms and conditions of the commitment.
Moreover, you appreciate that the foregoing is subject to:
(a) successful completion of an initial public offering of ROA's
common stock generating net proceeds of at least $35,000,000.00;
<PAGE> 7
Mr. Kurt Swenson
September 14, 1997
Page 7
(b) the execution and delivery of appropriate legal documentation
which must be satisfactory in form and substance to ROA and Lender and
to their respective counsels;
(c) the Lender's satisfaction with the financial condition of ROA
and an updated examination of the books and records of ROA;
(d) the absence of any material adverse change in the financial
condition, business, prospects, profitability, assets or operations of
ROA. It is understood and agreed that any adverse change in the terms,
conditions, assumptions or projections supplied to the Lender by the
ROA and on which the Lender based its decision to issue this letter
may, in the Lender's reasonable business discretion, be construed by
the Lender as a material adverse change; and
(e) the Lender's receipt of, and satisfaction with, a 12 month Cash
Budget Projection.
OUT OF POCKET EXPENSES
15. The Borrower shall reimburse the Lender (whether or not this
transaction is consummated) for out-of-pocket costs and expenses
(including reasonable fees and expenses of outside legal counsel)
incurred in connection with the Agreement, including, but not
limited to, those incurred by the Lender in connection with the
preparation, execution and closing of this financing transaction, and
the perfection of liens and security interests.
COMMITMENT FEE
16. To induce the Lender to issue this commitment letter, please remit a
non-refundable commitment fee in the amount of $5,000.00 (the
"Commitment Fee") which will be refunded only upon consummation of the
proposed financing transaction.
<PAGE> 8
Mr. Kurt Swenson
September 14, 1997
Page 8
We each hereby expressly waive any right to trial by jury of any claim, action
or cause of action arising under this letter, any transaction related hereto, or
any other instrument, document or agreement executed or delivered in connection
herewith, whether sounding in contract, tort or otherwise.
This letter (a) embodies the entire agreement and understanding between the
parties hereto with respect to the subject matter of this letter and supersedes
all prior agreements, commitments, arrangements, negotiations or understandings,
whether oral or written, of the parties with respect thereto, and (b) can be
changed only by a writing signed by each of the parties hereto and shall bind
and benefit each of such parties and their respective successors and assigns.
If the foregoing is acceptable to you, please so indicate by signing and
returning to us the enclosed copy of this letter together with your check to our
order in the amount of the Commitment Fee not later than the close of business
on September 22, 1997. If not accepted by you as herein provided, this
commitment shall expire at the close of business on September 22, 1997. If
acceptable, the financing facility offered herein will expire at the close of
business December 31, 1997 unless the documents contemplated hereunder have been
fully executed. Upon our receipt from you of an executed copy of this letter
together with a check for said Commitment Fee, we will sign below to confirm our
acceptance and return a fully executed copy to you. We welcome the opportunity
to work with you on this transaction and we hope to hear from you
<PAGE> 9
Mr. Kurt Swenson
September 14, 1997
Page 9
soon. Should you have any questions or comments, please feel free to contact us
at anytime.
Very truly yours,
THE CIT GROUP/BUSINESS
CREDIT, INC.
By: /s/ James Coheeney
------------------------
Title: Vice President
Read and Agreed to this __ day of September, 1997;
Rock of Ages Corporation
By: /S/ Kurt M. Swenson
- --------------------------------
Title: President
THE CIT GROUP/BUSINESS
CREDIT, INC.
By:
------------------------
Title:
<PAGE> 1
Exhibit 10.22
WIGGIN & NOURIE, P.A.
20 Magnet Street
P.O. Box 606
Manchester, NH 03105-0808
September 19, 1997
Richard Campbell, Esq.
Phelps & Campbell, Esq.
313 Heard Street, P.O. Drawer 1056
Elberton, GA 30635-1056
Dear Richard:
The purpose of this letter is to confirm our discussions concerning
Article VI, Sections 6.1(b) and (c) of the Stock Purchase Agreement dated June
27, 1997 by and among Rock of Ages Quarries, Inc. (to be known as Rock of Ages
Corporation), Robert Otis Childs, Jr., Robert Otis Childs, III, Timothy Carroll
Childs and Bernita Y. Childs (the "Stock Purchase Agreement"). Upon our review
of the referenced Sections of the Stock Purchase Agreement we noticed several
scriveners errors in them which do not reflect the intent of the parties to the
Stock Purchase Agreement. Specifically, the date September 1, 1997 appearing in
the second line of Section 6.1(b) and in the first and second lines of Section
6.1(c) should have been the "Closing Date," the section numbers in the second
line of Section 6.1(b) should, instead of referring to Section 3.1 or 3.3 have
referred to Sections "5.1 or 5.3" and the section numbers in the second line of
Section 6.1(c) should, instead of referring to Sections 3.2 or 3.3, have
referred to Sections "5.2 or 5.3."
We have both discussed the above matters with our clients who are
parties to the Stock Purchase Agreement. They have confirmed that the
corrections set forth above were their intent which was not accurately
transcribed in the drafting of the Stock Purchase Agreement
<PAGE> 2
Richard Campbell, Esq.
September 19, 1997
Page 2
by our offices and have authorized us to correct these scriveners errors and
insert a page reflecting the corrections in the Stock Purchase Agreement. Each
of our clients have signed this letter in order to indicat their agreement to
the above matters and both our office and your office have signed this letter to
indicate that these changes are being made to correct scriveners errors made by
us and for no other reason.
Very truly yours,
/s/ John R. Monson
----------------------
John R. Monson
JRM/cmv
Enclosure
CONFIRMED AND AGREED:
PHELPS & CAMPBELL
By: /s/ Richard C. Campbell
--------------------------------
Richard C. Campbell
CONFIRMED AND AGREED: CONFIRMED AND AGREED:
ROCK OF AGES CORPORATION F/K/A/
/s/ Robert Otis Childs, Jr. ROCK OF AGES QUARRIES, INC.
- -----------------------------------
Robert Otis Childs, Jr.
/s/ Robert Otis Childs, III By: /s/ Kurt M. Swenson
- ----------------------------------- ----------------------------------
Robert Otis Childs, III Kurt M. Swenson and CEO
/s/ Timothy Carroll Childs
- -----------------------------------
Timothy Carroll Childs
/s/ Bernita Y. Childs
- -----------------------------------
Bernita Y. Childs
<PAGE> 1
Exhibit 23.2
The Board of Directors,
Rock of Ages Corporation:
The audits referred to in our report dated March 24, 1997, except as to Note 13
which is as of August 12, 1997, included the related financial statement
schedules as of December 31, 1996, and for each of the years in the three-year
period ended December 31, 1996, included in the registration statement (or
incorporated by reference in the registration statement). These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits. In our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the registration statement.
/s/ KPMG Peat Marwick LLP
------------------------------
KPMG Peat Marwick LLP
Burlington, VT
September 18, 1997
<PAGE> 1
Exhibit 23.3
The Board of Directors,
Keystone Memorials, Inc.:
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the registration statement.
/s/ KPMG Peat Marwick LLP
------------------------------
KPMG Peat Marwick LLP
Atlanta, GA
September 18, 1997
<PAGE> 1
Exhibit 23.4
The Board of Directors,
Childs & Childs Granite Company, Inc.
and C&C Granite Company, Inc.:
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the registration statement.
/s/ KPMG Peat Marwick LLP
------------------------------
KPMG Peat Marwick LLP
Atlanta, GA
September 18, 1997
<PAGE> 1
Exhibit 23.5
The Boards of Directors
Keith Monument Companies:
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
------------------------------
KPMG Peat Marwick LLP
Louisville, KY
September 18, 1997
<PAGE> 1
Exhibit 23.6
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Southern Mausoleums, Inc.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the registration statement - amendment
#1.
/s/ Greene and Company, L.L.P.
-------------------------------------
Greene and Company, L.L.P.
Anderson, South Carolina
September 22, 1997
<PAGE> 1
Exhibit 23.7
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Autumn Rose Quarry, Inc.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the registration statement - amendment
#1.
/s/ Greene and Company, L.L.P.
-------------------------------------
Greene and Company, L.L.P.
Anderson, South Carolina
September 22, 1997
<PAGE> 1
Exhibit 23.8
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Caprice Blue Quarry, Inc.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the registration statement - amendment
#1.
/s/ Greene and Company, L.L.P.
-------------------------------------
Greene and Company, L.L.P.
Anderson, South Carolina
September 22, 1997
<PAGE> 1
================================================================================
Exhibit 23.9
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Pennsylvania Granite Corporation
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the registration statement - amendment
#1.
/s/ Greene and Company, L.L.P.
-------------------------------------
Greene and Company, L.L.P.
Anderson, South Carolina
September 22, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS OF ROCK OF AGES CORPORATION AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM S-1 REGISTRATION STATEMENT.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<EXCHANGE-RATE> 1 1
<CASH> 763 192
<SECURITIES> 0 0
<RECEIVABLES> 8,525 11,249
<ALLOWANCES> 564 575
<INVENTORY> 11,324 13,374
<CURRENT-ASSETS> 24,939 31,494
<PP&E> 37,406 41,828
<DEPRECIATION> 18,810 20,598
<TOTAL-ASSETS> 47,995 57,768
<CURRENT-LIABILITIES> 11,653 18,262
<BONDS> 0 0
0 0
0 0
<COMMON> 35 38
<OTHER-SE> 17,336 19,794
<TOTAL-LIABILITY-AND-EQUITY> 47,995 57,768
<SALES> 44,669 20,767
<TOTAL-REVENUES> 44,669 20,767
<CGS> 31,263 15,562
<TOTAL-COSTS> 31,263 15,562
<OTHER-EXPENSES> 9,131 4,328
<LOSS-PROVISION> 181 75
<INTEREST-EXPENSE> 1,723 866
<INCOME-PRETAX> 2,552 11
<INCOME-TAX> 643 3
<INCOME-CONTINUING> 1,909 8
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,909 8
<EPS-PRIMARY> .46 0
<EPS-DILUTED> 0 0
</TABLE>
