UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997.
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from __________ to __________.
Commission File No. 333-33685
ROCK OF AGES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 030153200
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
772 GRANITEVILLE ROAD 05654
GRANITEVILLE, VERMONT (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (802) 476-3121
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Class A Common Stock, par value $0.01
(Title of Class)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicated by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
On March 25, 1998, the aggregate market value of the
voting stock (including Class B Common Stock which is
convertible on a share-for-share basis into Class A Common
Stock) held by non-affiliates of the registrant was $72,611,810.
As of March 25, 1998, there were outstanding 3,800,641 shares of
the registrant's Class A Common Stock, $0.01 par value, and
3,487,957 shares of the registrant's Class B Common Stock, $0.01
par value.
TABLE OF CONTENTS PAGE
PART I
ITEM 1. BUSINESS..........................................................3
ITEM 2. PROPERTIES.......................................................11
ITEM 3. LEGAL PROCEEDINGS................................................13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS..........13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS..............................................14
ITEM 6. SELECTED FINANCIAL DATA..........................................17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.......................23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.........................................23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.................................24
ITEM 11. EXECUTIVE COMPENSATION...........................................26
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...30
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ..................32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K..35
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULE...............................................36
SIGNATURES.......................................................66
PART I
ITEM 1. BUSINESS
GENERAL
Rock of Ages Corporation ("Rock of Ages" or the "Company")
was founded in 1885 and 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 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'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 Company actively promotes the brand name Rock of Ages and places a seal
bearing the Rock of Ages name on its top of the line branded memorials
which are warranted by a full perpetual warranty running both to the
consumer and to the cemetery where it is located.
The Company estimates that 80% or more of all granite
memorials manufactured in North America are made in one of four regions:
Barre, Vermont; Beebe, Quebec; Elberton, Georgia, and an area encompassing
Milbank, South Dakota, Cold Spring, Minnesota, and Wassau, Wisconsin known
in the industry as the "Northwest". The Company has achieved its leading
position in the granite memorial business over its more than 100 year
history primarily through acquisitions of quarries with high quality
memorial grade granite and of major granite memorial manufacturers,
principally in three of these four regions. In 1990, the Company acquired
quarry properties in the Elberton, Georgia region with a view toward
expanding its manufacturing operations to the Elberton region. While Rock
of Ages had been the largest quarrier and manufacturer in the Barre,
Vermont and Beebe, Quebec regions for some years prior to 1995, its market
share of the Barre region output of manufactured granite memorials was less
than 15%. The Company increased its market share of granite memorials
manufactured in Barre, Vermont through the acquisition on December 31, 1995
of Lawson Granite Company and Anderson-Friberg Company, each based in
Barre. These acquisitions expanded the Company's manufacturing capacity and
distribution base, and broadened its granite memorial product line to
include more non-branded granite memorials at lower price points. In 1996,
the Company acquired Adru Granite in Beebe, Quebec.
1997 ACQUISITION ACTIVITY AND INITIAL PUBLIC OFFERING
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, par value $.01 per
share, of Rock of Ages ("Class B Common Stock") and assumed $2.7 million of
indebtedness of Keystone.
In June 1997, the Company entered into a definitive agreement
to acquire, and on October 24, 1997, concurrently with the consummation of
the Company's initial public offering (the "IPO"), acquired, 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").
The Elberton Acquisitions established the Company as the largest granite
memorial manufacturer in Elberton, Georgia, which is the largest granite
producing area in North America, and gave the Company a substantially broader
product line and enhanced distribution capabilities in the southern United
States.
Having established itself as the leading producer in three of
the four regions where granite memorials are manufactured, the Company, in
July 1997, entered into a definitive agreement to acquire, and on October
24, 1997, concurrently with the consummation of the IPO, acquired (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"),
marking the Company's first significant entry into memorial retailing.
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.
John E. Keith, a principal owner and the president of Keith Monument with
over thirty years of experience in granite memorial retailing, heads the
Company's retail sales operations.
As noted above, in October 1997, concurrently with the closing
of the C&C and Keith Monument acquisitions, the Company completed its IPO,
which resulted in approximately $57,000,000 in net proceeds to the Company.
See Item 7. "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources."
GROWTH STRATEGY
The Company seeks to expand the scope and profitability of its
operations through a growth strategy that focuses on forward vertical
integration into retailing, thereby enabling the Company to move closer to
the ultimate customer. The principal elements of the growth strategy
include the following:
o Forward Vertical Integration into Retail. The Company
anticipates that it will actively acquire independent
granite memorial retailers in selected markets in North
America in order to develop an integrated network of
owned Rock of Ages retailers, thereby capturing higher
margins that have historically existed at the retail
level.
o Increased Sales at Wholesale. The Company will seek to
increase sales to independent retailers that are current
customers and to expand 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. The Elberton
Acquisitions give the Company what it believes to be the
most extensive product line in the industry.
o Strategic Alliances with Funeral Homes and Cemeteries.
The Company anticipates that it will pursue 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.
o Pre-Need Selling Program. The Company intends to initiate
an active pre-need selling program for granite memorials
at its owned retail locations and to assist its
independently owned Rock of Ages retailers in developing
similar programs. Currently, less than 10% of granite
memorials are sold pre-need.
o Brand Enhancement. The Company believes that the Rock of
Ages brand is one of the best known brand names in the
memorial industry. The Company anticipates that it will,
as a part of building its integrated network of owned
retailers, significantly increase promotion and
advertising expenditures on the Rock of Ages brand and
other proprietary brands sold at its owned retail
outlets.
o Selected Acquisitions of Quarriers and Manufacturers.
While the Company owns or controls many of the highest
quality memorial grade granite quarries in North America,
the Company will continue to explore the possibility of
acquiring selected memorial grade granite quarriers and
manufacturers in North America and internationally
to assure that it will continue to have the colors and
grades of granites sought by retail purchasers of granite
memorials in North America.
o Other Product Line Enhancements. The Company intends to
continue to expand and enhance its memorial product lines
in color, design and style. The Company's objective is to
provide a full range of granite memorials encompassing
all price points.
RECENT PROPOSED ACQUISITIONS
In February 17, 1998, the Company announced that it had entered
into separate letters of intent to acquire a number of unrelated private
companies engaged in the business of retailing granite memorials in
regions previously targeted by the Company. The companies have seventeen
sales locations in five states, and had aggregate sales in 1997 of
approximately $11 million. The aggregate purchase price for the companies
will be approximately $8.4 million, comprised of approximately $1.6
million in cash, $4.8 million of indebtedness to be assumed and/or paid
by the Company and shares of Class A Common Stock having a market value
of approximately $2.0 million as of the closing dates. One of the
transactions will include a contingent cash payout based on the
achievement of certain targeted earnings at that particular retailer.
The transactions are not conditioned upon one another, and are
expected to close shortly after the end of the first quarter. However, in
each case consummation of the acquisition is subject to various
conditions, including the negotiation and execution of definitive
agreements. Accordingly, there can be no assurance as to the completion
of the proposed transactions.
PRODUCTS
The Company's principal products may be classified into two general
product lines: quarry products and manufactured products. Both product
lines rely on natural granite as it comes from the ground with the
primary difference being the extent of the processing or manufacturing of
the granite.
Quarry Products. The principal quarry product sold by the Company
is granite blocks, the raw material of the dimension granite industry.
These blocks are extracted from quarries in various sizes through a
drilling, blasting and wire sawing process in the quarry. The range of
block sizes is large, but most manufacturers of granite memorials and
other products generally require minimum dimensions of height, width and
length to maximize the efficiency of their block sawing equipment in
meeting the required dimensions of the finished product. Granite blocks
are normally sold in heights from 2'6" to 5', widths of 3' to 5', and
lengths from 7' to 10'. These blocks weigh from 20 to 30 tons.
Granite differs from deposit to deposit by color, grade and/or
quality. Rock of Ages owns, quarries and sells blocks of (i) gray
granites from its Barre, Vermont, Elberton, Georgia, and Stanstead,
Quebec quarries, (ii) black granite from its American Black quarry in
Pennsylvania, (iii) pink granites from its Laurentian Pink quarry in
Quebec and its Salisbury Pink quarry in North Carolina, (iv) white
granite from its Bethel White quarry in Vermont, (v) brownish red granite
from its Autumn Rose quarry in Oklahoma, and (vi) grayish pink granites
from its Kershaw and Coral Gray quarries in South Carolina.
The Company sells granite blocks for memorial, building and other
uses. While each of the quarries owned by the Company sells granite for
memorial use and for building use, the output of the Bethel White quarry
and the Salisbury Pink quarry are primarily sold and used for building
granite use outside North America and the output of the other quarries is
primarily used for memorial use in North America. The Company has entered
into two exclusive supply agreements with Eurimex, a societe anonyme of
Luxembourg ("Eurimex"), whereby the Company appointed Eurimex as its
exclusive distributor outside of North America, as specified in each
agreement of Bethel White granite and of Salisbury Pink granite, in each
case for a term of six years.
Granite blocks sold by the Company in North America are sold by a
quarry sales force. The Company markets and advertises granite blocks in
various trade publications and by attending various trade shows in North
America. Outside of North America, the Company generally relies on
independent distributors who buy blocks from the Company and resell them.
This includes Rock of Ages Asia, a 50% Company owned corporation that
markets blocks in Japan.
Other quarry products include waste pieces not of a shape or size
suitable for manufacturing which are sold for rip rap for embankments,
bridge or other piers, and for other uses. In various quarries, the
Company has arrangements with crusher operators who operate on or near
the Company's quarries and sell crushed stone. The revenues and profits
of these operations are not material. The Company has no marketing and
advertising programs for these other quarry products.
Manufactured Products. The principal manufactured product of Rock
of Ages is granite memorials, which are sold to retailers of granite
memorials, including Company owned outlets, and substantially all of
which are placed in cemeteries in remembrance of the life of a person or
persons. The memorials sold by the Company encompass a wide range of
granites, including granite blocks purchased from others, as well as a
wide range of sizes, styles, shapes and price points ranging from small,
inexpensive markers set flush to the ground to very elaborate and
expensive personal mausoleums of larger sizes. The broad classifications
of granite memorials used by the industry are generally markers, hickeys,
slants, standard uprights, estate uprights, pre-assembled mausoleums and
conventional mausoleums. From time to time memorial retailers or others
order granite products such as benches, steps and other products that may
or may not be for cemetery use. These are classified by the Company as
memorial sales.
The Company is widely recognized for the very personalized granite
memorials it produces and the very large memorials it can produce. It has
made memorials as large as thirty-five feet in length from one block of
granite and a full size granite replica of a Mercedes Benz automobile.
The Company's granite memorials are sold to retailers by the
Company's memorial sales force which regularly speaks with customers by
phone and makes personal visits to customers. The Company provides
various point of sale materials to its authorized Rock of Ages dealers.
The Company also advertises in various trade publications.
The Company also manufactures certain precision granite products,
which are made along with memorials at one of the Company's Barre,
Vermont plants. These products include surface plates, machine bases,
coordinate measuring devices, and other products manufactured to exacting
dimensions. The products are sold to the manufacturers of precision
measuring devices or end users. Precision products are sold by a
precision products sales force which phones or visits customers. The
Company does little or no advertising of its precision products.
Retail. The Company's newly acquired retail operations market and
sell granite memorials directly to consumers or to funeral homes and
cemeteries. The Company currently operates 17 retail outlets in the State
of Kentucky. The granite memorials sold at retail also vary widely and
are of the same types as those manufactured by the Company. The Company's
retail operations utilize a retail sales force which markets and sells
memorials through phone calls and direct meetings with customers in their
homes, and at retail sales offices. The Company advertises and promotes
retail sales through direct mail material, yellow page listings and
newspaper advertising.
MANUFACTURING AND RAW MATERIALS
The Company quarries and manufactures granite in the United States
and Canada at the locations detailed in Item 2. "Properties." The Company
is currently consolidating its manufacturing operations in Elberton,
Georgia acquired in 1997 with a view to improving their profitability. In
1997, the Company completed additions to its manufacturing plants in
Barre, Vermont. In addition, the Company has acquired new equipment for,
and moved equipment it previously owned to, certain quarries which were
acquired in 1997. See Item 1. "Business - 1997 Acquisition Activity and
Initial Public Offering." Management believes that the Company's
manufacturing and quarrying capacity is generally sufficient to meet
anticipated production requirements for the foreseeable future. However,
the demand by manufacturers of granite outside the Company for granite
from the Company's Pennsylvania Black and Salisbury Pink quarries exceeds
current supply. While the Company is investing in equipment for these
quarries to increase output, the extent of the actual demand beyond
current output levels cannot be determined by the Company at this time,
and, accordingly the Company cannot predict whether it will be able to
meet future demand for granite from these quarries.
The most significant raw material used by the Company in its
manufacturing operations is granite blocks primarily from the Company's
quarries. The Company has an adequate supply from its quarries to supply
its manufacturing operations. The Company also purchases certain colors
of granite, primarily red and black, from other quarriers. The Company
believes there is an adequate supply of memorial granite available from
its quarries and quarries owned by others for the foreseeable future.
Other significant raw materials used by the Company include
industrial diamond segments for saw blades and wires, drill steel, drill
bits, and abrasives. There are a number of sources for these raw
materials at competitive prices.
The Company had manufacturing backlogs of $15,322,000 as of
December 31, 1997 and $13,479,000 as of December 31, 1996. These backlogs
occurred in the normal course of business. The Company does not have a
material backlog in its quarrying operations.
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 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 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.
RESEARCH AND DEVELOPMENT
The Company does not have a research and development department for
any of its products. The Company regularly conducts market research, as
well as research on new product designs and on equipment to improve the
Company's technology. These activities are not separately accounted for
as research, and the Company had no expenditures classified for financial
reporting purposes as research in 1995, 1996 or 1997.
INFORMATION SYSTEMS
The Rock of Ages Barre and Canadian information systems include the
use of stand-alone personal computers and two mid-range servers. The US
information system uses an IBM AS400 upgraded to a RISC based model 400
as its primary server with PC's and terminals attached. The Canadian
system uses a Sun 3000 server, also with terminals and PC's attached.
Both locations have a number of stand-alone PC workstations used for
administrative and production purposes.
The programs on the mid-range servers are both written in-house and
purchased. They include a customized order entry program, accounts
payable, accounts receivable and sales, production tracking and costing,
payroll, purchasing, and a number of sales and marketing inquiry
programs. The servers also include software that allow for local and
remote access by users of personal computers. The Company is in the
process of redesigning the order entry program and user interface screens
and expects to integrate the Canadian operation in the order tracking and
costing system run in the US operation in 1998. The Company also expects
that in 1998 or 1999 it will connect certain retail customers to the host
system to allow them access to intercompany e-mail, order status, order
entry, and order history.
The manufacturing and quarrying operations and retail operations
acquired in 1997 all operate on computer systems utilizing the same
industry software package provided by an outside supplier. It is expected
these systems will remain in place for most of 1998 while the Barre and
Canada systems are fully integrated and upgraded. The Barre host system
will then be integrated with the systems of the Elberton Companies and
the Keith Monuments beginning in the last quarter of 1998. The Company
has an information manager reporting to the CFO as well as an information
manager in the memorials division.
Management believes that all material computer systems used by the
Company have been or will be made "2000 compatible" and expects no
extraordinary expenses to assure that compatibility.
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 that 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 also 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.
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 1913. The Company
believes the loss of a single patent, trademark or copyright, other than
the "Rock of Ages" trademark, would not have a material adverse effect on
the Company's business, financial condition or results of operations.
EMPLOYEES
As of December 31, 1997, the Company had approximately 790
employees.
SEASONALITY
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. See Item 7. "Management's Discussion and Analysis of
Financial Conditions and Results of Operations - Seasonality."
REGULATION AND ENVIRONMENTAL COMPLIANCE
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
environment, including but not limited to those relating to air and water
quality, and 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 its operations. The Company cannot predict the effect of such
laws, regulations or regulatory interpretations on its business,
financial condition or results of operations. The Company expects to be
able to continue to comply, in all material respects, with existing laws
and regulations.
FORWARD LOOKING STATEMENTS
Certain of the information contained in this Annual Report on Form
10-K, including without limitation statements made under this Part I,
Item 1 - "Business" and Part II, Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations" which are not
historical facts, may include "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). In reviewing such information, it should be kept in
mind that the Company's actual results may differ materially from those
set forth in such forward-looking statements.
Factors and assumptions that could generally cause the Company's
actual results to differ materially from those included in the
forward-looking statements made herein include, without limitation, the
Company's ability to develop and introduce new products, the effects of
general economic conditions in the United States or abroad, the
sufficiency of the Company's production capacity to meet future demand
for its products, the Company's ability to keep pace with the
technological standards in its industry and the Company's ability to
continue to penetrate and develop new distribution channels for its
products. Other factors and assumptions not identified above were also
involved in the derivation of the forward-looking statements contained in
this Annual Report on Form 10-K, and the failure of such other
assumptions to be realized, as well as other factors, may also cause
actual results to differ materially from those projected. The Company
assumes no obligation to update these forward-looking statements to
reflect actual results or changes in factors or assumptions affecting
such forward-looking statements.
ITEM 2. PROPERTIES
The Company owns the following quarry, manufacturing and retail sales
properties:
PROPERTY FUNCTION
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 Quarrying of dimensional Royalty
Royalty/Berkeley Quarries Blue and Berkeley Blue granite
blocks
Oglethorpe County
Caprice Quarry Quarrying of dimensional Caprice
Blue blocks
Millstone Quarry Quarrying of dimensional Millstone
Gray
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 Quarrying of dimensional Stanstead
Stanstead Quarry Gray granite blocks
Guenette, Quebec
Quarry Properties Quarrying of dimensional
Laurentian Quarry 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 Quarrying of dimensional Salisbury
Salisbury Pink Quarry Pink granite blocks
Manufacturing Properties Manufacturing of flush and granite
Carolina Plant under bronze markers
OKLAHOMA
Mill Creek
Quarry Properties Quarrying of dimensional Autumn
Autumn Rose Quarry 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
KENTUCKY
Various Counties 17 owned or leased retail
outlets and a sandblast
facility
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
APPROXIMATE ORIGINAL NET
DATE COST NET SALEABLE SALEABLE
OF MEANS OF RECOVERABLE RECOVERABLE
COMMENCEMENT PRIOR OWNER OF EACH RESERVES(1) RESERVES
QUARRY OF OPERATIONS (DATE ACQUIRED) ACCESS PROPERTY (CUBIC FEET) (YEARS)(2)
------ ------------- --------------- ------ -------- ------------ ----------
<S> <C> <C> <C> <C>
E.L. Smith 1880 E.L. Smith Quarry Co. Paved $ 7,562,676 2,460,000,000 4,920
(1948) road
Adam-Pirie 1880 J.K. Pirie Quarry Paved $ 4,211,363 985,000,000 6,560
(1955) road
Bethel 1900 Woodbury Granite Dirt $ 174,024 76,665,000 383
Company, Inc. (1957) road
Royalty/Berkeley 1923 Coggins Granite (1991) Paved $ 2,794,500 6,695,000 67
road
Millstone 1985 Coggins Granite (1991) Paved $ 1,195,900 5,663,000 56
road
Caprice 1968 Caprice Blue Quarry Paved $ 0 No estimate No
Inc.(1997) road estimate
Stanstead 1920 Brodies Limited and Paved $ 505,453 32,670,000 217
Stanstead Granite road
Company
(1960)
urentian 1944 Brodies Limited (1960) Paved $ 860,115 3,920,000 52
road
American Black 1973 Pennsylvania Granite Paved $ 2,900,000 14,701,000 98
Inc. road
(1997)
Salisbury 1918 Pennsylvania Granite Paved $ 3,886,592 19,602,000 87
Inc. road
(1997)
Autumn Rose 1969 Autumn Rose Quarry Inc. Paved $ 200,000 735,000 21
(1997) road
Kershaw 1955 Pennsylvania Granite Paved $ 200,000 635,000 22
Inc. road
(1997)
Coral Gray 1955 Pennsylvania Granite Paved $ 200,000 No estimate No
Inc. road estimate
(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.
ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Except for certain matters submitted to a vote of the Company's
security holders in connection with the Reorganization prior to the IPO
(See Item 13 -- "Certain Relationships and Related Transactions"), no
matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Class A Common Stock, $.01 par value per share (the
"Class A Common Stock" and together with the Class B Common Stock, the
"Common Stock"), is traded on the Nasdaq National Market ("NASDAQ") under
the symbol "ROAC." There is currently no established public trading market
for the Class B Common Stock. The Class A Common Stock commenced public
trading on October 21, 1997. For the period October 21, 1997 through
December 31, 1997, the high and low per share sales prices for the Class A
Common Stock were $21 3/4 and $15, respectively. As of March 25, 1998,
there were approximately 124 record holders of Class A Common Stock based
upon data provided by the transfer agent for the Class A Common Stock.
The Company has not declared or paid, and 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,
capital requirements, contractual restrictions and such other factors as
the Board of Directors deems relevant.
RECENT SALES OF UNREGISTERED SECURITIES
During fiscal 1997, in connection with the Acquisitions and the
reorganization, the Company made the following sales of its securities that
were not registered under the Securities Act of 1933, as amended (the
"Securities Act") in reliance on exemptions discussed below.
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 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 split 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, effective October 24,
1997, the Company issued to Robert Otis Childs, III, 10,810 shares of Class
A Common Stock (the "Childs Shares") as a portion of the consideration
payable in connection with the C&C Acquisition. The issuance of the Childs
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 Childs shares were 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 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 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.
3. Effective June 27, 1997, Rock of Ages Corporation, a Vermont
corporation and a wholly owned subsidiary of ROAQ, 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 ("ROAQ Shares") of ROAQ
(which as noted above, in connection with the merger changed its name to
Rock of Ages Corporation). 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 issued to Keith Monument, effective October 24, 1997, 81,081
shares of Class A Common Stock (the "Keith Monument Shares") as a portion
of the consideration payable in connection with the Keith Acquisition. The
issuance of the Keith Monument 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 Keith Monument Shares were 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 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 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 Company, Inc. 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. ("Swenson
Granite"), Kurt M. Swenson and Kevin C. Swenson (the "Swenson Merger
Agreement"), pursuant to which effective October 24, 1998 the outstanding
shares of Swenson Granite were converted into an aggregate of 3,500,000
shares of Class B Common Stock (using an exchange ratio of 1,618.123 shares
of Class B Common Stock for each share of Swenson common stock) of the
Company (the "Reorganization Merger Shares"). The issuance of the
Reorganization Merger Shares were 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
Reorganization Merger Shares were issued to less than thirty-five
shareholders of Swenson Granite who, in order to receive such shares were
required by the terms of the Swenson Merger Agreement to represent to the
Company that (A) they were "accredited investors" or engaged a "purchaser
representative" to act on their behalf, (B) they acquired the
Reorganization Merger Shares for investment only and not with a view to any
public distribution thereof, (C) they understood that the Reorganization
Merger Shares were not registered under the Act and are 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 risks of an investment in the
Reorganization Merger Shares, (ii) the Company placed 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 otherwise complied with Rule
506 under the Securities Act.
USE OF IPO PROCEEDS
In the fourth quarter, the Company completed its IPO of 3,708,750
shares of Class A Common Stock. The net cash proceeds to the Company from
the IPO after deducting the underwriting discount of $4.4 million and
offering expenses of $2.0 million, were $57.1 million. See Item 7.
"Management's Discussion and Analysis of Financial Conditions and Results
of Operations - Liquidity and Capital Resources - Capital Resources."
ITEM 6. SELECTED CONSOLIDATED FINANCIAL 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, 1997 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 following
selected consolidated financial data should be read in conjunction with
Item 7 "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the Consolidated Financial Statements of the
Company, including the notes thereto, referred to in Item 8.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1993 1994 1995 1996 1997
----- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA: (U.S. $ IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenues:
<S> <C> <C> <C> <C> <C>
Quarrying $13,522 $16,889 $15,295 $12,083 $14,090
Manufacturing 17,485 17,299 17,793 32,586 38,336
Retailing 1,781
Total net revenues 31,007 34,188 33,088 44,669 54,207
Gross Profit:
Quarrying 4,294 6,044 6,104 5,158 5,606
Manufacturing 2,489 4,050 4,345 8,248 9,302
Retailing 1,198
Total gross profit 6,783 10,094 10,449 13,406 16,106
Selling, general and administrative
expenses 6,851 6,049 6,453 9,131 11,036
Income (loss) from operations (68) 4,045 3,996 4,275 5,070
Interest expense 1,505 1,653 1,678 1,723 1,576
Other expenses 2,376 564
Income(loss) before provision(benefit)
for income taxes (3,949) 2,392 1,754 2,552 3,494
Provision (benefit) for income taxes (311) 577 358 643 849
Net income (loss) ($3,638) 1,815 $ 1,396 $ 1,909 $ 2,645
======== ======= ======== ======= =======
Net income (loss) per share (0.96) 0.52 0.40 0.55 0.62
Net income (loss) per share
assuming dilution (0.96) 0.46 0.35 0.45 0.53
Weighted average number of shares
outstanding 3,500 3,500 3,500 3,500 4,290
Weighted average number of shares
outstanding assuming dilution 3,500 3,908 4,027 4,208 4,997
AS OF DECEMBER 31,
1993 1994 1995 1996 1997
----- ---- ---- ---- ----
BALANCE SHEET DATA:
Cash and cash equivalents $92 $394 $1,995 $763 $8,637
Working capital 7,605 13,668 13,691 13,286 28,998
Total assets 37,179 42,529 48,101 47,995 93,137
Long-term debt, net of current
maturities 13,162 16,655 14,657 13,054 975
Stockholders equity 8,849 10,686 15,479 17,371 77,844
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Rock of Ages, founded in 1885, is an integrated quarrier,
manufacturer, distributor and retailer 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 acquired one of the
largest of its authorized independent retailers, which provides the Company
with 17 owned retail outlets and marked 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 two years, the Company has, principally through
acquisitions has (See Item 1 "Business - General and 1997 Acquisition
Activity and Initial Public Offering") 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. As a result, the Company has increased
manufacturing revenues from $17.8 million in 1995 to $38.3 million in 1997,
and increased its distribution base from 495 independent retailers in 1995
to approximately 2,124 in 1997, including 17 Company-owned outlets.
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 C&C Acquisition,
pursuant to which the Company acquired on October 24, 1997 what 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.
In connection with the Keystone and C&C acquisitions, the Company
also acquired (i) Southern Mausoleums, Inc., a manufacturer of granite
mausoleums in Elberton, Georgia; and (ii) three granite quarrying companies
operating six granite quarries located in Georgia, Pennsylvania, North
Carolina, South Carolina and Oklahoma.
The Company's first significant entry into memorial retailing was
initiated on October 24, 1997, when the Company acquired Keith Monument.
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.
John E. Keith, a principal owner and the president of Keith Monument with
over 30 years of experience in granite memorial retailing, heads the
Company's retailing operations. Mr. Keith will participate in overseeing
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 manufacturing, quarrying and
retailing. 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 1997, 76.0% 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.
Retailing revenues are recorded when the finished monument is placed in the
cemetery.
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.
YEAR ENDED DECEMBER 31,
1995 1996 1997
----- ---- ----
STATEMENT OF OPERATIONS DATA:
Net Revenues
Quarrying 46.2% 27.1% 26.0%
Manufacturing 53.8% 72.9% 70.7%
Retailing 0.0% 0.0% 3.3%
Total net revenues 100.0% 100.0% 100.0%
Gross Profit:
Quarrying 39.9% 42.7% 39.8%
Manufacturing 24.4% 25.3% 24.3%
Retailing 0.0% 0.0% 67.3%
Total gross profit 31.6% 30.0% 29.7%
Selling, general and administrative
expenses 19.5% 20.4% 20.3%
Income from operations 12.1% 9.6% 9.4%
Interest Expense 5.1% 3.9% 2.9%
Other Expenses 1.7% 0.0% 0.0%
Income before provision for income taxes 5.3% 5.7% 6.5%
Provision for income taxes 1.1% 1.4% 1.6%
Net income 4.2% 4.3% 4.9%
===== ==== ====
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996.
Revenues for the fiscal year ended December 31, 1997 increased 21.4%
to $54.2 million from $44.7 million for the year ended December 31, 1996.
Quarrying revenues increased $2.0 million, of which $1.3 million was from
existing quarry operations due to stronger monumental markets and increased
exports to Japan. The remaining $671,000 increase was generated by acquired
quarry operations. Manufacturing revenues increased $5.7 million primarily
from the acquired operations in Elberton, Georgia, with existing operations
showing a modest increase of $285,000. The Company's retail operations,
consisting of Keith Monument which was acquired in October, 1997, accounted
for $1.8 million in revenues.
Gross profit for 1997 increased 20.1% to $16.1 million from $13.4
million in 1996. Quarrying gross profit increased $357,000 from existing
operations and $91,000 from acquired operations for a total of $448,000.
The quarry gross margin percentage fell from 42.7% in 1996 to 39.8% in
1997. This was the result of increased sales volumes from lower margin
products. In addition, the acquired quarry operations reported a gross
profit percentage of 13.6% for 1997. The acquired operations were included
for the months of November and December which are normally periods of
reduced operating margins.
Manufacturing gross profit increased by $1,054,000 from 1996,
resulting from an increase of $386,000 from existing operations due to
improved product mix plus efficiencies achieved by consolidating
manufacturing operations, and an increase of $668,000 from acquired
operations. The manufacturing gross profit percentage decreased from 25.3%
in 1996 to 24.3% in 1997. This decrease was the result of a lower gross
profit percentage from acquired operations which offset increases at
existing operations. Price increases and work force adjustments have been
implemented to improve operating margins at the acquired operations.
Retailing gross profit of $1,198,000 was included for 1997. Prior to
this the Company had no retailing presence. The gross profit percentage for
this segment was 67.3%.
Selling, general and administrative expenses for 1997 increased 20.9%
to $11.0 million from $9.1 million in 1996. Existing operations accounted
for $371,000 of the increase consisting of charges for previously deferred
organization and financing costs and settlement of a legal action, and an
increase to the provision for doubtful accounts. Acquired operations
resulted in an increase of another $1,534,000. As a percentage of net
sales, selling, general and administrative expenses for 1997 decreased to
20.3% from 20.4% in 1996.
Interest expense for 1997 decreased 8.5% to $1,576,000 from
$1,723,000 in 1996, as a result of the retirement of all existing bank
debt, with the exception of a revolving line of credit with the Royal Bank
of Canada, with the net proceeds of the IPO.
Income taxes as a percent of earnings before taxes decreased from
25.2% in 1996 to 24.3% in 1997. The Company continues to be in an
alternative minimum tax position for Federal income tax purposes. The
decrease in the effective rate resulted from Canadian income being applied
against a tax-loss carry back.
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.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. The Company considers liquidity to be adequate 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.
Year Ended December 31, 1997. For 1997, net cash used in operating
activities was $440,000. This result was primarily attributable to an
increase in inventories of $1.0 million, a decrease in accounts payable at
the acquired companies of $1.0 million, and a decrease in accrued pension
cost of $1.5 million as the Company improved the funding status of its
pension plan which will reduce its obligations going forward. Net cash used
in investing activities was $23.0 million primarily for net acquisitions of
$19.1 million and the purchase of property, plant and equipment of $4.1
million. Net cash provided by financing activities was $31.5 million. Net
proceeds from the Company's IPO of $57.1 million, discussed below, was
offset by payments on long-term debt of $23.2 million and repayments of
lines of credit of $2.2 million.
Capital Resources. In the fourth quarter, the Company completed its
IPO of 3,708,750 shares of Class A Common Stock (including 483,750 shares
subject to the Underwriter's overallotment option and 275,482 shares sold
by certain selling stockholders) at $18.50 per share, of which Raymond
James & Associates, Inc. was the managing underwriter pursuant to a
registration statement on Form S-1 (file number 333-33685), which was
declared effective on October 20, 1997, and a registration statement on
Form S-1 (file number 333-7826), which was effective on October 21, 1997.
The net cash proceeds to the Company from the IPO after deducting the
underwriting discount of $4.4 million, and offering expenses of $2.0
million, were $57.1 million. The net proceeds of the IPO were applied as
follows:
C&C Acquisition
Cash purchase price $6.4 million
Repayment of outstanding indebtedness $1.0 million
Quarry Companies and SMI
Repayment of outstanding indebtedness $4.5 million
Keith Acquisition
Cash purchase price $12.9 million
Repayment of outstanding indebtedness $ 1.9 million
Rock of Ages Corp. repayment of outstanding
indebtedness $18.5 million
Keystone Acquisition repayment of outstanding
indebtedness $ 2.6 million
Payment of long-term pension obligation $ 1.5 million
Working capital requirements $ 1.1 million
--------------
Total $50.4 million
Remaining proceeds from the IPO $ 6.7 million
==============
The remaining proceeds are currently invested in money market funds
and will be available for the Company to use in pursuing its growth
strategy.
In December 1997, the Company entered into a financing agreement with
the CIT Group/Business Credit, Inc. ("CIT"). The agreement provides for an
acquisition term loan line of credit of $25 million and a revolving credit
facility of another $25 million. As of December 31, 1997, both credit lines
were unused and available in their entirety. The interest rate under these
credit lines is based on a formula of prime less .50%. As of December 31,
1997, the Company also had $1.3 million outstanding and $1.1 million
available under a demand revolving line of credit with the Royal Bank of
Canada. The interest rate on this facility as of such date was 6.75% 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 $3.0 million budgeted for capital expenditures in 1998. The
Company believes that the combination of cash flow from operations, its
existing credit facilities, and the remaining proceeds from the IPO will be
sufficient to fund its operations for at least the next twelve months.
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. 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.
SFAS No. 132, Employer's Disclosure About Pensions and Other
Postretirement Benefits, 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The information required for this item is included in this Annual
Report on Form 10-K on Pages 34 through 63, inclusive, and is incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company believes, and it has been advised by KPMG Peat Marwick
LLP ("KPMG") that KPMG concurs with the Company's belief that during the
period of its engagement, the Company and KPMG did not have any
disagreement on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedures, which disagreement,
if not resolved to the satisfaction of KPMG, would have caused it to make
reference in connection with its report on the Company's financial
statements to the subject matter of the disagreement.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Certain information concerning directors and executive officers of the
Company is set forth below:
NAME OF DIRECTORS AND EXECUTIVE AGE POSITIONS WITH THE COMPANY
OFFICERS(1) --- AND ITS AFFILIATES
- ------------------------------- --------------------------
George R. Anderson 58 Senior Vice President,
Chief Financial Officer,
Treasurer,
Director
James L. Fox.... 46 Director
Peter A. Friberg 47 Senior Vice President --
Barre 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.... 50 President-- Rock of Ages
Memorials, LLC, Director
Richard C. Kimball 57 President -- Memorials Division,
Vice Chairman of the Board of
Directors
G. Thomas Oglesby, Jr 52 Senior Vice President --
Keystone & Childs, Inc., Director
Kurt M. Swenson 53 Chairman, President and
Chief Executive Officer
Charles M. Waite 65 Director
Frederick E. Webster, Jr. 60 Director
- ----------
(1) Each executive officer serves for a term of one year (and until
his successor is chosen and qualified).
George R. Anderson has been a 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 current term as a
director will expire in 1999.
James L. Fox has been Executive Vice President and General Manager of
First Data Investor Services Group, a division of First Data Corporation,
since 1989. Mr. Fox has been a director of the Company since October, 1997
and his current term as a director of the Company will expire in 1999.
Peter A. Friberg has been Senior Vice President -- Barre 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 from 1991 to 1995. From 1991 to 1993, Mr.
Friberg was President of the Barre Granite Association. Mr. Friberg's
current term as a director of the Company will expire in 1998.
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 current term as
a director of the Company will expire in 1998.
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 -- Memorials Division, Manager of Manufacturing and line
production supervisor. Mr. Gregory's current term as a director of the
Company will expire in 1998.
John E. Keith became President -- Rock of Ages Memorials, LLC and a
director of the Company in connection with the consummation of the Keith
Acquisition in October 1997. Prior to the Keith Acquisition, Mr. Keith had
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 current 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.
G. Thomas Oglesby, Jr. became Senior Vice President -- Keystone &
Childs, Inc. and a director of the Company in connection with the
consummation of the Elberton Acquisitions in June and October 1997. Prior
thereto, Mr. Oglesby had been President of Keystone since1982. 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. Mr.
Oglesby's current term as a director of the Company will expire in 1999.
Kurt M. Swenson has been President, Chief Executive Officer and
Chairman of the Board of Directors of the Company since 1984. Prior to the
IPO, Mr. Swenson had been the Chief Executive Officer and a director of
Swenson Granite since 1974, and currently serves as non-officer Chairman of
the Board of Swenson Granite Company, LLC, a Delaware limited liability
company engaged in the granite curb and landscaping business. He is also a
director of the American Monument Association, the Funeral and Memorial
Information Council, the National Building Granite Quarries Association and
Group Polycor International. 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.
Frederick 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 has been a director since October, 1997 and
his current term as a director will expire in 1999.
COMMITTEES OF THE BOARD OF DIRECTORS
The principal function of the Audit Committee, which consists of
Messrs. Fox, Waite and Webster, is to endeavor to assure the integrity and
adequacy of financial statements issued by the Company. The Audit Committee
reviews 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 consists
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 (as
defined herein). The 1997 bonus amounts shown in Item 11 were determined by
the Compensation Committee as constituted after October 24, 1997 (the date
of consummation of the IPO).
ITEM 11. 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, 1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -----------
------------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION(1)
<S> <C> <C> <C> <C> <C>
Kurt M. Swenson 1997 $310,320 $29,500 -0- $1,100
President, Chief Executive Officer,
Chairman of the Board of Directors
Richard C. Kimball 1997 $210,360 $26,500 -0- $1,100
President-- Memorials Division,
Vice Chairman of the Board of Directors
George R. Anderson 1997 $161,400 $18,000 -0- $1,100
Senior Vice President, Chief
Financial Officer, Director
Jon M. Gregory 1997 $160,440 $13,500 -0- $1,100
President-- Quarry Division, Director
Mark A. Gherardi 1997 $145,800 $13,500 -0- $726
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
No grants of stock options were made during the year ended December
31, 1997 by the Company to the Named Executive Officers.
The following table sets forth information concerning options to
purchase Class B Common Stock held by the Named Executive Officers. The
Class B Common Stock is convertible on a share-for-share basis into Class A
Common Stock. During 1997, 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
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1997 AT DECEMBER 31, 1997(1)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----
Kurt M. Swenson 85,000 27,500 $1,085,700 $342,550
Richard C. Kimball 65,000 22,500 844,800 284,700
George R. Anderson 50,000 25,000 641,600 307,400
Jon M. Gregory 40,000 35,000 497,200 418,300
Mark A. Gherardi 30,000 45,000 357.300 535,950
(1) These values are calculated using the $15 1/2 per share closing price
of the Class A Common Stock on NASDAQ on December 31, 1997.
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 Pension Plan.
The annual pension benefits shown for the Pension Plan assume a participant
attains age 65 during 1998 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.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
FINAL AVERAGE
COMPENSATION 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- ------------
<C> <C> <C> <C> <C> <C>
$125,000............... $ 39,382 $ 52,510 $ 65,637 $ 78,765 $ 78,765
$150,000............... $ 47,632 $ 63,510 $ 79,387 $ 95,265 $ 95,265
$175,000............... $ 55,882 $ 74,510 $ 93,137 $ 111,765 $ 111,765
$200,000............... $ 64,132 $ 85,510 $ 106,887 $ 128,265 $ 128,265
$225,000............... $ 72,382 $ 96,510 $ 120,637 $ 144,765 $ 144,765
$250,000............... $ 80,632 $ 107,510 $ 134,387 $ 161,265 $ 161,265
$275,000............... $ 88,882 $ 118,510 $ 148,137 $ 177,765 $ 177,765
$300,000............... $ 97,132 $ 129,510 $ 161,887 $ 194,265 $ 194,265
$325,000............... $ 105,382 $ 140,510 $ 175,637 $ 210,765 $ 210,765
$350,000............... $ 113,632 $ 151,510 $ 189,387 $ 227,265 $ 227,265
</TABLE>
These calculations are based on the retirement formula in effect as
of December 31, 1997, 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, 1997 and rounded to the full
year, are: Mr. G. Anderson, 29 years; Mr. J. Gregory, 22 years; Mr. M.
Gherardi, 17 years; Mr. R. Kimball, 5 years; and Mr. K. Swenson, 14 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 under their
respective Salary Continuation Agreements.
ANNUAL
TOTAL YEARS RETIREMENT
ANNUAL BASE OF SERVICE BENEFIT
NAME COMPENSATION AT AGE 65 AT AGE 65
- ---- ------------ ---------- -----------
M. Gherardi.................. $ 145,800 27 $ 23,620
G. Anderson.................. $ 161,400 35 $ 33,894
R. Kimball................... $ 210,360 12 $ 25,243
K. Swenson................... $ 310,320 26 $ 88,752
J. Gregory................... $ 160,440 39 $ 37,543
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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the period January 1, 1997 to October 24, 1997 (the date of
consummation of the IPO), the Compensation Committee of the Board of
Directors was comprised of Kurt M. Swenson, Guy A. Swenson, Jr. and Charles
M. Waite. During his 1997 service on the Compensation Committee, Kurt
Swenson was the President and Chief Executive Officer of the Company and
Kurt 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 Company's 1994 Amended and Restated Stock Plan (the "1994
Plan").
EMPLOYMENT AGREEMENTS
The Company has 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 commenced on October 24, 1997, the date of
consummation of the IPO (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 a termination related to a Change in Control,
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 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 employment agreements with G. Thomas Oglesby, Jr.,
George T. Oglesby, III, Robert Otis Childs, III, John E. Keith and Roy H.
Keith, Jr. (such persons the "Acquisition Executives" and such employment
agreements with the Acquisition Executives being referred to collectively
as the "Acquisition Employment Agreements"). The Acquisition Employment
Agreement with Mr. G. Thomas Oglesby, Jr. 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 October 24, 1997, the date of consummation of the IPO.
Pursuant to the Acquisition Employment Agreements, G. Thomas Oglesby, Jr.
and John E. Keith hold the positions listed for such persons under
"Management --Directors and Officers" and George T. Oglesby, III, Robert
Otis Childs, III and Roy H. Keith, Jr., hold the positions of Vice
President --Keystone Division, President -- C&C Division, and Vice
President -- Rock of Ages Memorials, Inc., respectively. 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 Acquisition Executive's
employment is terminated by the Company without Cause. The Acquisition
Employment Agreements and related undertakings generally prohibit the
Acquisition 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 also has employment agreements with Richard C. Kimball, George R.
Anderson and Jon M. Gregory (such persons, the "Officers" and such
employment agreements with the Officers being referred to collectively as
the "Officer Employment Agreements"), effective October 24, 1997. Pursuant
to the Officer Employment Agreements the Officers hold the respective
positions listed for such persons under "Management -- Directors and
Officers." The Officer Employment Agreements contain substantially the same
terms as the Acquisition Employment Agreements, except that they do 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 the respective positions of Senior Vice President - Barre Memorial
Sales, Vice President of Facilities Management -- Barre, Senior Vice
President -- Barre and Canada Manufacturing Operations and Office Manager -
Barre Manufacturing Facilities. Effective December 31, 1997, Mr. Albert
Gherardi, Jr. retired. 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 October
24, 1997, the date of consummation of the IPO, will be satisfied in shares
of Class B Common Stock and awards under the 1994 Plan made on or after
that date will be satisfied in shares of Class A Common Stock. As of
December 31, 1997, options for 862,500 shares of Class B Common Stock were
granted and outstanding under the 1994 Plan and no such options had
exercised. Options for 383,252 shares of Class A Common Stock were granted
in connection with the Acquisitions and to two non-employee directors who
became such upon consummation of the IPO and, as of December 31, 1997, no
such options had been exercised. In addition, as of December 31, 1997,
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 or the Compensation Committee, as applicable, 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
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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 20, 1998 certain
information with respect to the beneficial ownership of the Common Stock by
each (i) director, (ii) executive officer and (iii) beneficial owner of
more than 5% of the Company's outstanding Common Stock known to the Company
based on Securities and Exchange Commission filings and other available
information and by all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
SHARES OF CLASS B SHARES OF CLASS A
COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED
NAME AND ADDRESS OF BENEFICIAL OWNER(1) PERCENT PERCENT
NUMBER OF CLASS NUMBER OF CLASS
------ -------- ------ --------
<S> <C> <C> <C> <C>
HLM Management Co. Inc.
222 Berkeley Street
Boston, MA 02116................................ - - 308,100 7.9
IDX Life Equity (2)
IDX Tower 10
Minneapolis, MN 55440........................... - - 300,000 7.7
AMVESCAP PLC(3)
11 Devonshire Square
London, England C2M 4YR.......................... - - 232,300 6.0
John Hancock Mutual Life Insurance Company(4)
Corporate Law Division
T-55, PO Box 111
Boston, MA 02117................................ - - 220,800 5.7
Missouri Red Quarries, Inc
c/o Keystone Granite
Washington Highway
Elberta, GA 30635 .......................... 263,441 6.6 - -
Kurt M. Swenson(5)+................................. 1,108,489 27.8 - -
Kevin C. Swenson(6)................................. 1,023,489 25.7 - -
Mark A. Gherardi(7)+................................ 292,573 7.3 - -
G. Thomas Oglesby, Jr.(8)+.......................... 263,441 6.6 15,000 *
Robert L. Pope(9)................................... 221,375 5.6 - -
Peter A. Friberg (10)+.............................. 221,375 5.6 - -
Richard C. Kimball (11)+............................ 94,126 2.4 300 *
John E. Keith (12)+................................. - - 93,581 2.4
George R. Anderson(13)+............................. 79,126 2.0 - -
Jon M. Gregory(14)+................................. 69,126 1.7 - -
Charles M. Waite.................................... 29,126 * 874 *
James L. Fox(15)+................................... - - 6,825 *
Frederick E. Webster, Jr.(16)+...................... - 5,825 *
All directors and executive officers as a group
(11 persons)........................................ 2,157,382 54.1 122,405 3.2
- ---------
+ Executive Officer and/or Director
* Less than 1%
(1) The business address of each director and executive officer of
the Company is c/o Rock of Ages Corporation, 772 Graniteville
Road, Graniteville, Vermont 05654.
(2) IDX Life Equity is a subsidiary of American Express Financial
Corporation.
(3) AMVESCAP PLC is the parent company of the following subsidiaries which
share voting and dispositive power over 232,300 shares of Class A
Common Stock: AVZ, Inc., AIM Management Group Inc., AMVESCAP Group
Services, Inc., INVESCO, Inc., INVESCO North American Holdings, Inc.,
INVESCO Capital Management, Inc., INVESCO Funds Group, Inc., INVESCO
Management & Research, Inc. and INVESCO Realty. This information is
based on the Schedule 13G/A filed by AMVESCAP PLC with the Securities
and Exchange Commission on February 11, 1998.
(4) John Hancock Advisers, Inc., an indirect, wholly owned
subsidiary of John Hancock Mutual Life Insurance Company, has
beneficial ownership of 220,800 shares of Class A Common Stock.
Through their parent-subsidiary relationships, John Hancock
Subsidiaries, Inc. and The Berkeley Financial Group also have indirect
beneficial ownership of the shares owned by John Hancock Advisers,
Inc. This information is based on the Schedule 13G/A filed by John
Hancock Mutual Life Insurance Company with the Securities and Exchange
Commission on February 6, 1998.
(5) Includes 85,000 shares of Class B Common Stock subject to
currently exercisable stock options. Kurt M. Swenson is the
brother of Kevin C. Swenson.
(6) Kevin C. Swenson is the brother of Kurt M. Swenson.
(7) Includes 45,000 shares of Class B Common Stock subject to
currently exercisable stock options.
(8) The 263,441 shares of Class B Common Stock listed are owned of
record by Missouri Red Quarries, Inc. Missouri Red Quarries, Inc. is
100% owned by G. Thomas Oglesby, Jr. who is its President and sole
director. The 15,000 shares of Class A Common Stock listed are subject
to currently exercisable stock options held by Mr. Oglesby.
(9) Includes 45,000 shares of Class B Common Stock subject to
currently exercisable stock options.
(10) Includes 45,000 shares of Class B Common Stock subject to
currently exercisable stock options.
(11) Includes 65,000 shares of Class B Common Stock subject to
currently exercisable stock options.
(12) Includes 12,500 shares of Class A Common Stock subject to
currently exercisable stock options. Also includes 81,081 shares
of Class A Common Stock issued to National Memorial Corporation.
Mr. Keith is the president and a 50% owner of National Memorial
Corporation.
(13) Includes 50,000 shares of Class B Common Stock subject to
currently exercisable stock options.
(14) Includes 40,000 shares of Class B Common Stock subject to
currently exercisable stock options.
(15) All 5,825 shares of Class A Common Stock listed are subject to
currently exercisable stock options.
(16) All 5,825 shares of Class A Common Stock listed are subject to currently
exercisable stock options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1997, the Company effected a reorganization (the "Reorganization")
as follows: (i) on August 12, 1997 the reincorporation merger of Rock of
Ages Corporation, a Vermont corporation and the immediate predecessor to
the Company, with and into a newly-formed Delaware corporation, with the
Company surviving as a Delaware corporation, whereby the Class A Common
Stock and Class B Common Stock were 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) on October 23, 1997, the merger of Swenson Granite
with and into the Company, with the Company as the surviving corporation
(the "Swenson Merger"), in which Swenson Granite's stockholders received
1,618.123 shares of Class B Common Stock for each share of Swenson Granite
capital stock held by them; and (iii) on October 23, 1997, immediately
prior to the Swenson Merger, Swenson Granite distributed 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 interests in a newly
formed limited liability company named Swenson Granite Company LLC
("Swenson LLC"). Following the Swenson Granite Distribution and prior to
the Swenson Merger, the sole asset of Swenson Granite was its 93% stock
interest in the Company and its only liabilities were a $3,340,000
intercompany payable to the Company and a $310,000 note payable described
below. The Swenson Merger exchange ratio of 1,618.123 shares of Class B
Common Stock for each share of Swenson Granite Common Stock was determined
by dividing the number of outstanding shares of the Company held by Swenson
Granite at the time of the Swenson Merger by the total number of shares of
common stock of Swenson Granite outstanding at such time. In determining
this ratio, Swenson Granite and the Company sought to maintain in the
Swenson Granite shareholders as a group the same aggregate percentage
ownership of the Company as was held by Swenson Granite immediately prior
to the Swenson Merger, as well as to preserve the same ownership
proportions of such shareholders relative to one another with respect to
the Company as they held with respect to Swenson Granite immediately prior
to the Swenson Merger. Upon consummation of the Swenson Merger, the shares
of the Company held by Swenson Granite were cancelled, the Company forgave
an intercompany payable and the Company assumed a note payable. Kurt M.
Swenson, the Company's Chairman, President and Chief Executive Officer, and
his brother Kevin C. Swenson, own in the aggregate approximately 60.6% of
Swenson Granite LLC. Robert Pope, a security holder of more than five
percent of the Class B Common Stock of the Company, became President and
Chief Executive Officer of Swenson LLC following the Swenson Granite
Distribution.
Prior to the Swenson Granite Distribution, Swenson Granite was a
party to certain financing agreements of the Company with CIT and was a
co-maker and/or guarantor of all indebtedness of the Company due to 1CIT.
Upon consummation of the Swenson Granite Distribution and the IPO, Swenson
LLC was released by CIT as a party, co-maker and/or guarantor of the
Company's indebtedness to CIT, and the Company remained 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 $3.4 million was
eliminated in the Swenson Merger as noted above and the balance of
approximately $1.3 million was assumed and repaid by Swenson LLC to the
Company on December 24, 1997.
In connection with the Company's acquisition of Lawson Granite
Company and Anderson-Friberg Company in December 1995, Swenson Granite was
obligated under certain notes and agreements related thereto (the
"Lawson-Ander-son-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, became 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, were assumed by Swenson LLC and became 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 has released, and Swenson LLC has provided
an indemnity to, Swenson Granite and the Company.
Swenson LLC owns two granite quarries, one in Concord, New Hampshire
and another in Woodbury, Vermont. Both have been owned by Swenson Granite
for more than 40 years. The Company purchases 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 provides, and expects to continue to
provide, certain maintenance services and equipment to the Woodbury quarry.
Both the Company and Swenson LLC have the right to terminate these services
at any time and the Company has 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 approximately 0.6% of 1997
sales of the Company. 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.
Effective upon the Swenson Granite Distribution, ongoing pension
liabilities under the Pension Plan (which was sponsored jointly by the
Company and Swenson Granite) in respect of the employees of Swenson Granite
were assumed by Swenson LLC through its becoming a joint sponsor together
with the Company of the Pension Plan. In connection with the Swenson
Granite Distribution, the 401(k) accounts of former Swenson Granite
employees who, as of the Swenson Granite Distribution, participated in
401(k) plans jointly sponsored by the Company and Swenson Granite remained,
in a plan jointly sponsored by the Company and Swenson LLC since each
employee's account is fully funded and vested as each contribution is made.
Upon consummation of the Swenson Granite Distribution, Kurt M.
Swenson, the Company's Chairman and Chief Executive Officer, owned
approximately 30% of all outstanding member interests of Swenson LLC. Mr.
Kurt M. Swenson, who has served as Chairman of the Board and Chief
Executive Officer of Swenson Granite since 1974, resigned as President,
Chief Executive Officer of Swenson Granite, effective upon the consummation
of the Swenson Granite Distribution. However, Mr. Kurt M. Swenson continues
to serve as a non-officer Chairman of the Board of Swenson LLC, but has no
involvement with the day to day operations of Swenson LLC. Neither Mr. Kurt
M. 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. 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 (See Item 1- "Business-Manufacturing"). Also in connection with
the Keystone Acquisition, the Company agreed to grant, and granted, 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 of Class A Common Stock, respectively, at an exercise
price per share of $18.50, the initial public offering price per share of
the Class A Common Stock.
In connection with the C&C Acquisition, the Company granted 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 of $18.50, the initial public offering price per share of
the Class A Common Stock.
In connection with the Keith Acquisition, the Company (i) entered
into a five year triple net lease agreement with John E. Keith, who became
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) granted 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 of $18.50,
the initial public offering price per share of the Class A Common Stock.
See "Management -- Directors and Officers."
Upon consummation of the IPO, the Company granted to each of James L.
Fox and Frederick E. Webster, Jr., each of whom became 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 of $18.50, 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.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of or are
included in this Annual Report on Form 10-K:
1. The financial statements listed in the Index to Consolidated
Financial Statements and
Financial Statement Schedule, filed as part of this Annual
Report on Form 10-K.
2. The financial statement schedule listed in the Index to
Consolidated Financial Statements
and Financial Statement Schedule, filed as part of this
Annual Report on Form 10-K.
3. The exhibits listed in the Exhibit Index
filed as part of this Annual Report on Form
10-K.
(b) Reports on Form 8-K: No reports on Form 8-K were filed
by the Company during the last quarter of the fiscal
year ended December 31, 1997.
ROCK OF AGES CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENT AND
FINANCIAL STATEMENT SCHEDULE
Page
Independent Auditors' Report..............................................37
Consolidated Balance Sheets ................................38
Consolidated Statements of Operations.....................................40
Consolidated Statements of Stockholders' Equity...........................41
Consolidated Statements of Cash Flows.....................................42
Notes to Consolidated Financial Statements................................44
Supplementary Information:
Independent Auditors' Report on Supplementary Information......64
Schedule II - Valuation and Qualifying Accounts and Reserves...65
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Rock of Ages Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Rock of
Ages Corporation and Subsidiaries as of December 31, 1996 and 1997 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, 1997. 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, 1996 and 1997, and the
results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
February 27, 1998
Burlington, Vermont
Vt. Reg. No. 92-0000241
</TABLE>
<TABLE>
<CAPTION>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1997
Assets 1996 1997
------ ---- ----
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 763,056 8,636,860
Trade receivables, less allowance for
doubtful accounts of $564,242 in 1996
and $2,231,283 in 1997 8,525,463 12,857,282
Due from related parties 3,584,644 0
Inventories (note 2) 11,323,613 16,103,857
Deferred tax assets (note 6) 419,871 352,201
Other current assets 322,216 1,050,565
----------- -----------
Total current assets 24,938,863 39,000,765
----------- -----------
Property, plant and equipment:
Granite reserves and development costs 7,045,644 14,445,660
Land 1,981,230 3,559,210
Buildings and land improvements 8,661,575 13,147,697
Machinery and equipment 19,331,762 31,758,198
Furniture and fixtures 13,270 502,263
Construction-in-process 372,028 802,684
----------- -----------
37,405,509 64,215,712
Less accumulated depreciation, depletion
and amortization 18,809,535 27,779,698
----------- -----------
Net property, plant and equipment 18,595,974 36,436,014
----------- -----------
Other assets:
Cash surrender value of life insurance, net of loans
of $95,412 in 1996 and 1997 917,137 1,175,741
Names and reputations, less accumulated amortization
of $30,450 in 1996 and $129,363 in 1997 1,748,663 15,180,613
Debt issuance costs, less accumulated amortization
of $104,040 in 1996 and $0 in 1997 123,293 66,215
Acquisition costs, less accumulated amortization of
$63,961 in 1996 and $60,809 in 1997 212,799 349,494
Deferred tax assets (note 6) 597,576 375,904
Intangible pension asset (note 8) 93,418 0
Investment in affiliated company (note 5) 217,953 130,627
Other investments 59,366 330,127
Other 489,734 91,764
----------- -----------
Total other assets 4,459,939 17,700,485
----------- -----------
Total assets (notes 3 and 4) 47,994,776 93,137,264
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1996 1997
------------------------------------ ---- ----
Current liabilities:
<S> <C> <C>
Borrowings under lines of credit (note 3) $ 3,500,437 1,328,480
Current installments of long-term debt (note 4) 2,081,481 383,676
Trade payables 1,693,144 2,100,946
Accrued expenses 1,969,976 3,012,322
Due to related parties 0 55,442
Income taxes payable 466,711 275,171
Current portion of deferred income 400,000 400,000
Customer deposits 1,541,602 2,707,970
--------- ---------
Total current liabilities 11,653,351 10,264,007
Long-term debt, excluding current installments (note 4) 13,054,399 974,570
Deferred compensation (note 8) 3,504,090 3,527,261
Deferred income, excluding current portion 400,000 0
Accrued pension cost (note 8) 1,504,512 0
Accrued postretirement benefit cost (note 8) 506,938 527,514
------- -------
Total liabilities 30,623,290 15,293,352
---------- ----------
Commitments (note 7)
Stockholders' equity (note 9):
Preferred stock - $.01 par value;
2,500,000 shares authorized
No shares issued and outstanding
Common stock - Class A, $.01 par value;
30,000,000 shares authorized
3,800,641 shares issued and outstanding in 1997 0 38,007
Common stock - Class B, $.01 par value;
15,000,000 shares authorized
3,499,998 shares issued and outstanding in 1996
and 3,487,957 shares in 1997, convertible into
equivalent shares of Class A common stock 35,000 34,879
Additional paid-in capital 5,593,843 68,277,394
Retained earnings 11,736,082 9,661,879
Cumulative translation adjustment 6,561 (168,247)
----- ---------
Total stockholders' equity 17,371,486 77,843,912
---------- ----------
Total liabilities and stockholders' equity $ 47,994,776 93,137,264
============= ==========
</TABLE>
<TABLE>
<CAPTION>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1995, 1996 and 1997
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net revenues $ 33,087,783 44,668,851 54,207,117
Cost of revenues 22,638,804 31,262,530 38,100,903
---------- ---------- ----------
Gross profit 10,448,979 13,406,321 16,106,214
Selling, general and administrative expenses 6,453,425 9,131,459 11,035,768
--------- --------- ----------
Income from operations 3,995,554 4,274,862 5,070,446
--------- --------- ---------
Other expenses:
Interest expense 1,678,178 1,723,355 1,576,477
Early retirement plan expense (note 8) 563,857 0 0
------- - -
Total other expenses 2,242,035 1,723,355 1,576,477
--------- --------- ---------
Income before provision for income taxes 1,753,519 2,551,507 3,493,969
Provision for income taxes (note 6) 358,021 643,343 849,036
------- ------- -------
Net income $ 1,395,498 1,908,164 2,644,933
= ========= ========= =========
Net income per share $ .40 .55 .62
Net income per share - assuming dilution $ .35 .45 .53
Weighted average number of common shares outstanding 3,499,998 3,499,998 4,289,858
Weighted average number of common shares outstanding -
assuming dilution 4,026,984 4,207,825 4,997,229
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1995, 1996 and 1997
Number of Shares
Issued and Outstanding
Class A Class B
Common Common Class A Class B Additional Cumulative Total
Stock Stock Common Common Paid-In Retained Translation Stockholders'
(shares) (shares) Stock Stock Capital Earnings Adjustment Equity
------- ------- ----- ----- ------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1994 0 3,499,998 $ 0 $ 35,000 $ 2,212,044 $ 8,432,420 $ 6,675 $10,686,139
Net income 0 0 0 0 0 1,395,498 0 1,395,498
Acquisitions (note 15) 0 0 0 0 3,381,799 0 0 3,381,799
Cumulative translation
adjustment 0 0 0 0 0 0 15,770 15,770
- - - - - - ------ ----------
Balance at
December 31, 1995 0 3,499,998 0 35,000 5,593,843 9,827,918 22,445 15,479,206
Net income 0 0 0 0 1,908,164 0 1,908,164
Cumulative translation
adjustment 0 0 0 0 0 0 (15,884) (15,884)
- - - - - - -------- -----------
Balance at
December 31, 1996 0 3,499,998 0 35,000 5,593,843 11,736,082 6,561 17,371,486
Net income 0 0 0 0 0 2,644,933 0 2,644,933
Dividends 0 0 0 0 0 (1,069,136) 0 (1,069,136)
Swenson
merger (note 16) 0 0 0 0 0 (3,650,000) 0 (3,650,000)
Issuance of
stock (note 14) 3,708,750 (275,482) 37,088 (2,755) 57,088,177 0 0 57,122,510
Acquisitions (note 15) 91,891 263,441 919 2,634 5,595,374 0 0 5,598,927
Cumulative translation
adjustment 0 0 0 0 0 0 (174,808) (174,808)
- - - - - - --------- ------------
Balance at
December 31, 1997 3,800,641 3,487,957 $ 38,007 $ 34,879 $ 68,277,394 $ 9,661,879 $ (168,247) $77,843,912
========= ========= ======== ======== ============= ============= = ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements
<TABLE>
<CAPTION>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1996 and 1997
1995 1996 1997
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 1,395,498 1,908,164 2,644,933
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation, depletion and amortization 1,413,336 1,846,298 2,106,642
Decrease (increase) in cash surrender value of life insurance 71,132 (165,130) (105,713)
Gain on sale of property, plant and equipment (45,063) (5,500) (40,612)
Loss in income of affiliated company 43,156 160,661 130,341
Deferred taxes (131,676) 16,486 (79,658)
Changes in assets and liabilities:
Decrease (increase) in trade receivables (1,727,154) 2,231,586 (152,923)
Decrease (increase) in due to/from related parties 378,885 (1,291,967) 38,872
Decrease (increase) in inventories 243,979 (1,081,430) (1,034,738)
Increase in other current assets (36,783) (131,461) (376,363)
Decrease (increase) in intangible pension asset 481,366 (93,418) 93,418
Decrease (increase) in other assets 101,365 (193,401) (59,108)
Decrease in trade payables (205,627) (236,244) (996,628)
Increase (decrease) in accrued expenses 85,493 301,154 (309,864)
Increase (decrease) in income taxes payable (290,090) 69,302 (199,708)
Increase (decrease) in customer deposits 228,447 689,929 (238,225)
Increase in deferred compensation 9,264 271,996 23,171
Decrease in deferred income (400,000) (400,000) (400,000)
Increase (decrease) in accrued pension cost 29,912 2,188 (1,504,512)
Increase in accrued postretirement benefit cost 10,811 0 20,576
------ - ------
Net cash provided by (used in) operating activities 1,656,251 3,899,213 (440,099)
--------- --------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment (896,447) (1,648,505) (4,100,519)
Proceeds from sale of property, plant and equipment 70,836 14,476 136,959
Decrease (increase) in other investments (53,933) 49,753 56,340
Acquisitions, net of cash acquired 2,642 (238,310) (19,124,100)
----- --------- -----------
Net cash used in investing activities (876,902) (1,822,586) (23,031,320)
--------- ---------- -----------
Cash flows from financing activities:
Net borrowings (repayments) under lines of credit 2,454,269 920,578 (2,171,957)
Increase in debt issuance costs (2,569) (36,415) (66,215)
Increase in acquisition costs (1,766) (172,689) (234,765)
Proceeds from long-term debt 0 122,082 0
Principal payments on long-term debt (1,644,533) (4,126,635) (23,181,796)
Proceeds from issuance of common stock, net of fees 0 0 57,122,510
- - ----------
Net cash provided by (used in) financing activities 805,401 (3,293,079) 31,467,777
------- ---------- ----------
Effect of exchange rate changes on cash 16,176 (15,026) (122,554)
------ -------- ---------
Net increase (decrease) in cash and cash equivalents 1,600,926 (1,231,478) 7,873,804
Cash and cash equivalents, beginning of year 393,608 1,994,534 763,056
------- --------- -------
Cash and cash equivalents, end of year $ 1,994,534 763,056 8,636,860
=============== ========= =========
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 1,678,178 1,520,420 1,576,477
Income taxes 711,299 742,626 982,262
</TABLE>
See accompanying notes to consolidated financial statements.
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Supplemental non-cash investing and financing activities:
See Note 15 for non-cash activities relating to the acquisitions.
During 1997 the Company dividended certain assets of $1,069,136 to a
related party, converted 275,482 shares of Class B common stock into
Class A common stock, and incurred a capital lease obligation of
$555,687 in exchange for property, plant and equipment. See Note 16 for
non-cash activities relating to the Swenson merger.
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Acquisitions:
Assets acquired $ 9,186,561 625,416 40,345,902
Liabilities assumed and issued (5,449,882) (387,106) (13,271,975)
Capital contributed (3,381,799) 0 0
Common stock issued 0 0 (5,598,927)
- - ----------
Cash paid 354,880 238,310 21,475,000
Less cash acquired (357,522) 0 (2,350,900)
--------- - -----------
Net cash paid for (received from)
acquisitions $ (2,642) 238,310 19,124,100
============ ======= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1996 and 1997
(1) Summary of Significant Accounting Policies
Rock of Ages Corporation and its Subsidiaries (the Company) is an
integrated quarrier, manufacturer, wholesaler and retailer 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
retail division engraves and sells memorials and other granite
products at its various locations throughout the U.S. 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 54%, 73% and 71% of total
revenues in 1995, 1996 and 1997, respectively, with the balance
being quarry and retail revenues. Foreign revenues represented
approximately 41%, 29% and 22% of total revenues in 1995, 1996 and
1997, respectively. Revenues in Canada accounted for approximately
44%, 52% and 54% of total foreign revenues in 1995, 1996 and 1997,
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:
Buildings and land improvements 5 to 40 years
Machinery and equipment 3 to 20 years
Furniture and fixtures 5 to 12 years
Depreciation expense amounted to $1,253,186, $1,659,160 and
$1,720,810 in 1995, 1996 and 1997, respectively, which includes
depreciation related to equipment under capital leases.
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 $69,338, $54,013 and $66,906 in 1995, 1996 and
1997, 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) Income Taxes
The Company files its U.S. Federal income tax returns on a
consolidated basis. Rock of Ages Canada, Inc., a wholly-owned
subsidiary, 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.
The Company is allowed to claim percentage depletion, under IRS
Code Section 613, for tax purposes based upon income derived from
quarrying operations.
(g) Names and Reputations
Names and reputations, essentially goodwill, was recorded as a
result of acquisitions and is being amortized over 40 years
using the straight-line method. Amortization expense amounted
to $30,450 in 1996 and $98,913 in 1997.
The Company assesses the recoverability of this intangible
asset by determining whether the amortization over its
remaining life can be recovered through undiscounted future
operating cash flows of the acquired operations. The amount of
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 names and reputations 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 $70,124, $70,141 and $123,293 in 1995, 1996
and 1997, respectively.
(i) Acquisition Costs
Acquisition costs are amortized using the straight-line method
over 60 months. Amortization expense amounted to $20,688,
$32,534 and $96,720 in 1995, 1996 and 1997, respectively.
(j) Investments
Investments consists of certificates of deposit with initial
terms of six years with maturities through 1999. Certificates o
deposit are valued at cost plus accrued interest.
(k) 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.
(l) 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.
(m) 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. Neither the Class A
common stock nor the Class B common stock has cumulative voting
rights.
Conversion - Class A common stock has no conversion rights.
Class B common stock is 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, as
defined by the Company.
(n) 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. The
retailing division recognizes revenue upon the setting of the
memorial. In certain instances, the Company may enter into an
agreement with a customer which provides 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.
The Company does not require collateral or other security on
trade receivables. The credit risk on trade receivables is
controlled by requiring significant deposits. The Company
continuously monitors outstanding trade receivables.
(o) 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.
(p) 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.
(q) Net Income Per Share
Net income per share, or basic earnings per share, is computed
by dividing earnings available for common shares by the
weighted average number of common shares outstanding during
each year. Net income per share assuming dilution, or diluted
earnings per share, is computed by dividing earnings available
for common shares by the weighted average number of common
shares outstanding during each year, adjusted to include the
additional number of common shares that would have been
outstanding if the dilutive potential common shares had been
issued. Potential common shares are not included in the diluted
earnings per share calculations where the effect of their
inclusion would be antidilutive.
(r) Accounting Standards
The following accounting standards have been issued, but not
yet adopted:
"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.
"SFAS No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits", will be effective for periods
beginning after December 15, 1997.
Management does not believe that adoption of the above
pronouncements will have a material effect on the Company's
financial statements.
(2) Inventories
Inventories consist of the following at December 31, 1996 and 1997:
1996 1997
Raw materials $7,065,320 9,013,974
Work-in-process 1,694,671 2,261,444
Finished goods and supplies 2,563,622 4,828,439
--------- ---------
$ 11,323,613 16,103,857
============= ==========
(3) Lines of Credit
Under the line of credit agreements in 1996 the Company and a
related party, Swenson Granite Company, Inc., may be advanced up to
a maximum of $9,500,000 with a lending institution, based on
percentages of eligible accounts receivable and eligible inventory.
The line of credit arrangements bear interest at the Chemical Bank
prime rate plus 1%, and are secured by substantially all assets of
the Company. The amount outstanding as of December 31, 1996 was
$1,779,124. The weighted average interest rate was 9.29% in 1996 and
9.44% during 1997 when amounts remained outstanding.
On December 17, 1997 the Company renegotiated its financing with the
CIT Group/Business Credit, Inc. The agreement provides for an
acquisition term loan line of credit of $25 million and a revolving
credit facility of another $25 million.
As of December 31, 1997, both credit lines were unused and available
in their entirety. Such loans and advances shall be in amounts up to
75% of the outstanding eligible accounts receivable of the Company
and 50% of the aggregate value of eligible inventory of the Company
not to exceed $12,500,000 in the aggregate at any one time. The
acquisition term loans are limited to two per calendar quarter and
must be at least $1,000,000 each. The interest rate on this
agreement is based on a formula of prime less .50%, or at the
Company's election, the sum of 1-3/4% plus LIBOR. However, if the
Company chooses the latter option, the elections must be in
multiples of $1,000,000, and no more than four LIBOR elections may
be in effect at any one time. Fees include a one time fee of
$125,000, a line of credit fee of $4,167 per month and a collateral
management fee of $1,000 per month.
A subsidiary of the Company also has 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 subsidiary. Amounts outstanding as of December 31, 1996 and 1997
were $1,721,313 and $1,328,480, respectively. The weighted average
interest rates were 7.85% and 7.02% in 1996 and 1997, respectively.
(4) Long-Term Debt
Long-term debt at December 31, 1996 and 1997 consists of the
following:
1996 1997
---- ----
Note payable - bank, interest at
Chemical Bank prime plus 1-1/4%, paid
in full in October 1997 $ 3,200,000 0
Note payable - bank, interest at
Chemical Bank prime plus 1-1/4%, paid
in full in October 1997 11,410,385 0
Note payable - Dutton, interest at 6%,
payable in monthly principal and
interest payments of $674, unsecured,
due December 2003 46,130 40,662
Note payable - bank, interest at
lender's operational rate plus 1%, paid
in full in October 1997 321,068 0
Note payable - bank, interest at 10.5%,
paid in full in October 1997 40,012 0
Note payable - Plante, interest at
8.0%, payable in monthly payments of
$2,593 beginning February 2001,
unsecured, due January 2021 0 310,000
Note payable - bank, interest at
prime plus 1.5%, payable in
monthly installments of $582 plus
interest, due November 2001,
secured by property with a net book
value of $39,792 and $35,447
at December 31, 1996 and 1997,
respectively 35,269 26,802
Obligation under capital lease,
interest at 7.99%, payable in
monthly installments of $1,610 plus
interest, due December
2000, secured by equipment 83,016 66,096
Obligation under capital lease,
interest at 7.89%, payable in monthly
installments of $10,994, due December
2001, secured by equipment $ 0 507,139
Note payable - corporation, payable
with granite inventory at a set sales
price of $14.50 per cubic foot at
maximum sales of 1,500 cubic feet per
month 0 407,547
- -------
15,135,880 1,358,246
Less current installments 2,081,481 383,676
--------- ---------
Long-term debt, excluding current
installments $13,054,399 974,570
=========== =======
Future maturities of the December 31, 1997 long-term debt are as
follows:
Obligations Other
Under Long-Term
Year ended December 31: Capital Lease Debt
1998 $ 151,250 273,797
1999 151,250 159,701
2000 169,929 13,535
2001 203,280 18,759
2002 0 14,424
Thereafter 0 304,795
--------- -------
675,709 785,011
Interest included in obligations under
capital lease 102,474
-------
$ 573,235
==========
The cost of the equipment under capital leases was $95,731 and
$794,482 and related accumulated depreciation was $1,595 and $39,831
as of December 31, 1996 and 1997, respectively.
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, 1997 all
covenants have been complied with or waived by the banks.
(5) Investment in Affiliated Company
Investment in affiliated company, accounted for under the equity
method, at December 31, 1996 and 1997 consists of a 50% equity
interest in Rock of Ages of Asia of $217,953 and $130,627,
respectively.
The Company has recorded losses on its investment in Rock of Ages
Asia of $43,156, $160,661 and $87,326 in 1995, 1996 and 1997,
respectively. Net revenues with Rock of Ages Asia were $2,997,845,
$592,100 and $1,180,329 in 1995, 1996 and 1997, respectively. Trade
receivables due from Rock of Ages Asia was $769,354 and $1,113,549
as of December 31, 1996 and 1997, respectively.
ROCK OF AGES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Income Taxes
A summary of components of the provision for income taxes for the
years ended December 31, 1995, 1996 and 1997 is as follows:
1995 1996 1997
---- ---- ----
Current $ 381,719 626,857 922,016
Deferred (23,698) 16,486 (72,980)
------- ------ -------
Total $ 358,021 643,343 849,036
========== ======= =======
Included in income before provision for income taxes is foreign
income (loss) of $187,281, ($303,374) and $379,736 for the years
ended December 31, 1995, 1996 and 1997, respectively.
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1996 and 1997 are presented below:
1996 1997
---- ----
Deferred tax assets:
Accrued pension, accrued postretirement
benefit cost and deferred compensation $ 890,941 1,050,131
Allowance for doubtful accounts 94,920 499,980
Accrued expenses 86,120 109,766
Deferred income 217,600 111,200
Inventories, principally due to additional
costs inventoried for tax purposes pursuant
to the Tax Reform Act of 1986 237,279 410,922
Other assets 374,789 1,295,252
Total gross deferred tax assets 1,901,649 3,477,251
Less valuation allowance (495,877) (1,520,183)
--------- -----------
Total net deferred tax assets 1,405,772 1,957,068
--------- -----------
Deferred tax liabilities:
Quarry development (375,445) (412,169)
Other liabilities (12,880) (816,794)
-------- ----------
Total gross deferred tax liabilities (388,325) (1,228,963)
-------- ----------
Net deferred tax assets $ 1,017,447 728,105
========== =======
The reconciliation of differences between the statutory U.S. federal
income tax rate and the Company's effective tax rate follows:
1995 1996 1997
---- ---- ----
U.S. statutory rate 34.0% 34.0% 34.0%
State taxes 6.0 6.1 6.0
Other, primarily tax depletion (19.6) (14.9) (15.7)
--------- --------- ---------
Effective tax rate 20.4% 25.2% 24.3%
========= ========= =========
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.
(7) Leases
The Company has several noncancellable operating leases for
vehicles, equipment and office space which expire over the next five
years. Rental expense for operating leases was $164,467, $161,607
and $178,146 during 1995, 1996 and 1997, respectively.
Future minimum lease payments under noncancellable operating leases
(with initial or remaining lease terms in excess of one year) are as
follows:
Year ended December 31:
1998 $ 392,161
1999 328,322
2000 229,264
2001 177,000
2002 148,700
-------
$ 1,275,447
============
The Company also acts as the lessor of various parcels of land.
Rental income was $32,182, $32,210 and $32,133 in 1995, 1996 and
1997, respectively. Future minimum rentals to be received under
noncancellable leases are as follows:
Year ended December 31:
1998 $ 31,950
1999 31,575
2000 28,950
2001 28,200
2002 19,200
Thereafer 28,350
----------
$ 168,225
==========
(8) Pension and Retirement Plans
Pension Plans - Non-Union
The Parent Company has a defined benefit pension plan which covers
all salaried employees of the Parent Company and a related party,
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 years ended December
31, 1995, 1996 and 1997 were based on the minimum funding
requirements of ERISA. An additional contribution of $1,500,000 was
made in 1997 from net proceeds of the initial public offering.
Plan assets consist of marketable securities and an unallocated
insurance contract.
Net periodic pension cost for the Company's defined benefit pension
plan for the years ended December 31, 1995, 1996 and 1997, 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 1997
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits attributable
to service during the period $ 222,485 392,429 387,461
Interest cost on projected benefit
obligation 881,644 1,042,864 1,098,197
Return on plan assets (1,660,367) (1,342,269) (1,922,654)
Net amortization and deferral 1,149,127 776,636 1,236,331
--------- --------- ---------
Net periodic pension cost $ 592,889 869,660 799,335
= ======= ======= =======
</TABLE>
Assumptions used by the Company in the determination of pension plan
information consisted of the following as of December 31, 1996 and
1997:
1996 1997
---- ----
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%
The following table sets forth the funded status of the plan and
amounts recognized in the accompanying consolidated
balance sheets at December 31, 1996 and 1997:
1996 1997
---- ----
Actuarial present value of accumulated
benefit obligation including vested
benefits of $11,654,986 in 1996 and
$12,564,091 in 1997 $ (12,225,920) (13,180,632)
============= ============
1996 1997
---- ----
Actuarial present value of projected
benefit obligation $(15,045,099) (16,359,506)
Plan assets at fair value 11,296,553 14,670,887
----------- ----------
Projected benefit obligation in excess
of plan assets (3,748,546) (1,688,619)
Unrecognized net gain from past
experience different from that assumed
and the effects of changes in
assumptions (899,363) (1,135,787)
Unrecognized net prior service cost 2,209,852 2,032,632
Unrecognized net obligation 933,545 791,774
--------- ---------
Accrued pension cost $ (1,504,512) 0
=========== =
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 sponsors 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 also sponsors 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).
Net periodic postretirement benefit costs for the Company, included
in selling, general and administrative expenses, for the years ended
December 31, 1995, 1996 and 1997 consisted of the following:
<TABLE>
<CAPTION>
Postretirement Postretirement
1995 Medical Life Insrance Total
---- -------------- -------------- -----
<S> <C> <C> <C>
Service cost-benefits attributable to
service during the period $ 0 10,086 10,086
Interest cost on accumulated post-
retirement benefit obligation 28,141 93,356 121,497
Net amortization and deferral 0 63,136 63,136
---------- ------ ------
Net periodic postretirement benefit cost $ 28,141 166,578 194,719
========= ======= =======
1996
----
Service cost-benefits attributable to
service during the period $ 0 17,454 17,454
Interest cost on accumulated postretirement
benefit obligation 16,900 101,268 118,168
Net amortization and deferral (10,682) 63,136 52,454
------- ------- -------
Net periodic postretirement benefit cost $ 6,218 181,858 188,076
========= ======= =======
1997
----
Service cost-benefits attributable to
service during the period $ 0 13,619 13,619
Interest cost on accumulated postretirement
benefit obligation 14,306 103,570 117,876
Net amortization and deferral (6,334) 63,136 56,802
------- ------ ------
Net periodic postretirement benefit cost $ 7,972 180,325 188,297
========== ======= =======
The following table sets forth the funded status for the Company as of December 31, 1996 and 1997:
Postretirement Postretirement
1996 Medical Life Insrance Total
---- -------------- -------------- -----
Accumulated postretirement benefit
obligation:
Retirees $ (217,057) (1,063,609) (1,280,666)
Fully eligible active plan participants 0 (179,426) (179,426)
Other active plan participants 0 (193,414) (193,414)
---------- ---------- ---------
(217,057) (1,436,449) (1,653,506)
---------- ---------- ----------
Plan assets at fair value 0 0 0
- - -
Accumulated postretirement benefit
obligation in excess of plan assets (217,057) (1,436,449) (1,653,506)
Unrecognized transition obligation 0 1,073,310 1,073,310
Unrecognized net (gain)/loss from
past experience different from
that assumed (54,581) 127,839 73,258
------- --------- ---------
Accrued postretirement benefit cost $ (271,638) (235,300) (506,938)
========= ========= =========
1997
----
Accumulated postretirement benefit
obligation:
Retirees $ (172,835) (1,114,770) (1,287,605)
Fully eligible active plan participants 0 (189,763) (189,763)
Other active plan participants 0 (193,227) (193,227)
--------- --------- ---------
(172,835) (1,497,760) (1,670,595
--------- --------- ---------
Plan assets at fair value 0 0 0
- - -
Accumulated postretirement benefit
obligation in excess of plan assets (172,835) (1,497,760) (1,670,595)
Unrecognized transition obligation 0 1,010,174 1,010,174
Unrecognized net (gain)/loss from past
experience different from that assumed (45,205) 178,112 132,907
-------- --------- ----------
Accrued postretirement benefit cost $ (218,040) (309,474) (527,514)
========= ========= =========
</TABLE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted-average discount rate used in determining the actuarial
present value of the accumulated postretirement benefit obligation
was 7.5% and 7.25% as of December 31, 1996 and 1997, respectively.
For measurement purposes, a 8% rate of increase in the per capita
cost of covered health care benefits was assumed for 1997 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, 1997 of $8,344 and the aggregate of the service and the
interest cost components of the postretirement medical plan net
periodic postretirement benefit cost for 1997 would increase by
$575.
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 $456,470, $713,738 and $786,217 in
1995, 1996 and 1997, 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, 1995, 1996 and 1997 consisted
of the following:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Service cost earned during the period $ 13,369 56,108 67,366
Interest cost on projected benefit
obligation 87,876 98,386 99,859
Net amortization and deferral 18,761 31,392 30,428
------ ------ ------
Net periodic deferred compensation cost $ 120,006 185,886 197,653
========= ======= =======
</TABLE>
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the funded status of the plan as of
December 31, 1996 and 1997 and amounts recognized in the
accompanying consolidated balance sheets as of December 31, 1996 and
1997:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Actuarial present value of projected benefit obligation $ (1,445,083) (3,407,757)
Plan assets at fair value 0 0
- -
Projected benefit obligation in excess of plan assets (1,445,083) (3,407,757)
Unrecognized net gain from past experience different
from that assumed and the effect of
changes in assumptions (17,589) 102,542
Unrecognized net obligation 36,736 29,443
Unrecognized prior service obligation 251,873 2,042,542
Adjustment required to recognize minimum liability (183,418) (2,016,705)
-------- -----------
Deferred compensation $ (1,357,481) (3,249,935)
=========== ==========
</TABLE>
The assumed rate of return used in determining the value of
accumulated plan benefits was 7.5% and 7.25% for the years ended
December 31, 1996 and 1997, respectively.
The Company entered into deferred compensation agreements with three
former stockholders of acquired companies. The present value of
these payments was $2,146,609 as of December 31, 1996. In 1997 two
of the deferred compensation agreements were transferred to the
salary continuation plan and are included in the above information
regarding the plan. The present value of the remaining agreement was
$277,326 as of December 31, 1997. Total annual payments of $84,000
begin in 2001 and end in 2005.
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
$19,804, $27,587 and $35,629 in 1995, 1996 and 1997, respectively.
The Company also 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 $13,830, $24,362 and $36,674
in 1995, 1996 and 1997, respectively.
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 and
directors to purchase equivalent shares of common stock at exercise
prices ranging from $2.40 to $18.50. 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, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
Number Weighted Average
of Shares Exercise Price
--------- ----------------
<S> <C> <C>
Outstanding, December 31, 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
Granted, October 24, 1997 383,252 18.50
------- -----
Outstanding, December 31, 1997 1,245,752 $ 7.98
========= = ====
Exercisable, December 31, 1997 531,650 5.33
Weighted average remaining contractual life 2.9 years
</TABLE>
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 as the options were all
granted at exercise prices which equaled the fair market value at
the date of the grant. 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 and 1997 consistent with the provisions
of SFAS No. 123, the Company's net income would have been reduced to
the proforma amount indicated below:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Net income, as reported $ 1,908,164 2,644,933
Net income, pro forma 1,798,619 2,268,984
Net income per share, pro forma $ .51 .53
Net income per share - assuming dilution, pro forma .43 .45
</TABLE>
Pro forma net income reflects only options granted in 1996 and 1997
and is not necessarily indicative of future effects on net income.
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, 1996 is not considered.
The fair value of each option grant is estimated on the date of the
grant. Options granted prior to 1997 were valued using the Minimum
Value Method with the following weighted-average assumptions:
risk-free interest rate of 6%; dividend yield of $0; and expected
lives of five (5) years. The 1997 options were valued using the
Black-Scholes option-pricing model with the following
weighted-average assumptions: risk-free interest rate of 6%;
dividend yield of $0; expected volatility of 16%; and expected lives
of five (5) years.
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) Related Party Transactions
The Company is related, through common ownership with several
companies. The transactions with related parties, included in the
consolidated statement of operations, are as follows for the years
ended December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Revenues with related parties $ 0 729,611 840,554
Cost of revenues with related parties 0 194,047 1,231,151
Selling, general and administrative expense 912,000 936,000 750,000
</TABLE>
Amounts due to (from) related parties as of December 31, 1996 and
1997 are as follows:
1996 1997
---- ----
Due from Swenson Granite Company, Inc. $(3,584,644) (89,597)
Due from K & E Sawing Company 0 (6,000)
Due to Missouri Red Quarries 0 146,708
Due to Keystone Granite Company 0 4,331
----------- -----
$(3,584,644) 55,442
Included in operating lease obligations are noncancellable leases
for office space and a building with related parties amounting to
$177,000 per year through 2002.
(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, 1997.
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) Unaudited Quarterly Summary Information
The following is a summary of unaudited quarterly summary
information for the years ended December 31, 1996 and
1997 (in thousands, except per share data):
<TABLE>
<CAPTION>
Net Income
(Loss)
Net Income Per Share -
Net Net Income (Loss) Assuming
Revenues (Loss) Per Share Dilution
-------- ---------- ---------- ------------
1996 Quarters:
<S> <C> <C> <C> <C>
First $ 7,247 (1,371) (.39) (.33)
Second 12,696 1,126 .32 .27
Third 13,160 978 .28 .23
Fourth 11,566 1,175 .34 .28
------ ----- --- ---
Total $ 44,669 1,908 .55 .45
= ====== ===== === ===
1997 Quarters:
First $ 8,192 (978) (.28) (.23)
Second 12,575 986 .28 .23
Third (1) 16,374 833 .22 .19
Fourth (2) 17,066 1,804 .28 .26
------ ----- --- ---
Total $ 54,207 2,645 .62 .53
= ====== ===== === ===
</TABLE>
Note
The Company has historically experienced certain seasonal patterns,
primarily due to weather conditions affecting operations in Vermont
and Canada and the setting of memorials in cemeteries located in
northern regions.
(1) In the third quarter of 1997 the Company acquired Keystone.
(2) In the fourth quarter of 1997 the Company acquired Childs and Keith.
(13) Earnings Per Share
Effective December 31, 1997 the Company adopted SFAS No. 128,
Earnings per Share. This adoption resulted in the restatement of per
share information for all periods presented.
The following is a reconciliation of the numerators and denominators
of the basic and diluted earnings per share (EPS) computations for
net income for the years ended December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
Income Shares Per Share
1995 (Numerator) (Denominator) Amount
---- --------- ----------- ---------
<S> <C> <C> <C>
Basic EPS
Net income $ 1,395,498 3,499,998 .40
Effect of dilutive securities:
Stock options 526,986
Diluted EPS
Net income and assumed conversions 1,395,498 4,026,984 .35
1996
----
Basic EPS
Net income $ 1,908,164 3,499,998 .55
Effect of dilutive securities:
Stock options 707,827
Diluted EPS
Net income and assumed conversions 1,908,164 4,207,825 .45
1997
----
Basic EPS
Net income $ 2,644,933 4,289,858 .62
Effect of dilutive securities:
Stock options 707,371
Diluted EPS
Net income and assumed conversions 2,644,933 4,997,229 .53
</TABLE>
Options to purchase 383,252 shares of Class A common stock at $18.50
per share were outstanding as a result of the 1997 acquisitions but
were not included in the computation of diluted EPS because the
options' exercise price was greater than the average market price of
the common shares.
(14) Initial Public Offering
Effective October 21, 1997 the Company made an initial public
offering (IPO) of 3,225,000 shares of Class A common stock at $18.50
per share, inclusive of 275,482 shares being sold by the selling
shareholders. On November 21, 1997 the underwriters exercised their
option to purchase an additional 483,750 shares of Class A common
stock at $18.50 per share. The issuance of stock has been recorded
net of underwriting fees and other IPO expenses incurred of
$6,392,948.
(15) Acquisitions
Effective December 31, 1995 Swenson Granite Company, a predecessor
to the 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 names and reputations, and was accounted
for under the purchase method. The net assets from the acquisition
were contributed by Swenson to the Company.
On June 30, 1997 the Company acquired all of the outstanding stock
of KSGM, a successor to Keystone Memorials, Inc. for 263,441 shares
of the Company's Class B common stock which was accounted for under
the purchase method. The fair market value of KSGM on the date of
acquisition was $3,898,927. As of June 30, 1997 investment in
affiliated company included Keystone's 50% equity investment in four
Quarry Companies (QC's) and Southern Mausoleums, Inc. (SMI).
On October 24, 1997 the Company acquired Childs & Childs Granite
Company, Inc. and a related company for $6,600,000 in cash and
10,810 shares of Class A common stock at the IPO price of $18.50 per
share which was accounted for under the purchase method. The assets
acquired included the remaining 50% equity investment in four QC's
and SMI. The purchase price has been allocated to the assets
acquired and liabilities assumed based upon their respective fair
market values, resulting in $5,690,032 of cost in excess of net
assets acquired of which $4,167,254 was allocated to property, plant
and equipment with the remaining $1,522,778 to names and
reputations.
Also on October 24, 1997 the Company acquired Keith Monument Company
and its affiliated companies for $16,375,000, consisting of 81,081
shares of Class A common stock at the IPO price of $18.50 per share
and $14,875,000 in cash which was accounted for under the purchase
method. The purchase price has been allocated to the assets acquired
and liabilities assumed based upon their respective fair market
values, resulting in $13,202,181 of cost in excess of net assets
acquired of which $1,014,000 was allocated to property, plant and
equipment, $246,211 for the conversion of inventory previously
accounted for under LIFO, and the remaining $11,941,970 to names and
reputations.
Proceeds from the purchases of $100,000 and $250,000 for the Childs
and Keith acquisitions, respectively, are being held by the Company
for a period of one year per the purchase and sale agreements for
the settlement of certain conditions. These amounts are recorded as
accrued expenses as of December 31, 1997.
The following unaudited pro forma information has been prepared
assuming that the acquisitions occurred at the beginning of the
current and immediately preceding 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)
Years ended December 31,
------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net revenues $ 41,199,480 74,157,928 78,372,947
Net income 1,462,688 2,761,948 4,633,312
Net income per share .42 .79 1.08
Net income per share - assuming dilution .36 .66 .93
</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, therefore pro forma information
has not been provided.
ROCK OF AGES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(16) Reorganization/Recapitalization
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. The Common Stock outstanding and
weighted average shares outstanding for all periods presented have
been adjusted for the new stock capitalization.
Prior to the initial public offering, the Company went through a
reorganization (the "Reorganization") as follows: (i) the merger of
Swenson Granite Company, Inc. ("Swenson Granite") with and into the
Company, with the Company as the surviving corporation (the "Swenson
Merger"), in which Swenson Granite's stockholders received 1,618.123
shares of Class B Common Stock for each share of Swenson Granite
common stock (immediately prior to the Swenson Merger, a total of
2,163 shares of Swenson Granite were outstanding); and (ii)
immediately prior to the Swenson Merger, Swenson Granite distributed
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 interests in a newly formed limited liability company named
Swenson Granite Company LLC ("Swenson LLC").
Following the Swenson Granite Distribution and prior to the Swenson
Merger, the sole asset of Swenson Granite was a 93% stock interest
in the Company and its only liabilities were a $3,499,998
intercompany payable to the Company and a $310,000 note payable.
Pursuant to the Swenson Merger, the Swenson Granite stockholders
received a total of 3,500,000 shares of Class B Common Stock which
represented 93% of the Company's total shares outstanding prior to
the offering, the shares of Class B Common Stock held by Swenson
Granite were cancelled, the intercompany payable was forgiven and
the Company assumed the note payable. The minority interest in the
Company is the same both before and after the Swenson Merger. The
only effect on the Company's financial statements was a reduction in
stockholder' equity of $3,650,000. This effect is due solely to the
forgiveness of the aforesaid intercompany payable and the assumption
of the aforesaid note payable.
(17) Subsequent Event
On February 17, 1998 the Company announced that it has entered into
separate letters of intent to acquire six unrelated companies
engaged in the business of retailing granite memorials in regions
previously targeted by the Company. The six companies with 18 sales
locations in five states, had aggregate sales in 1997 of
approximately $11,200,000.
The aggregate purchase price for the six companies will be
approximately $8.4 million, comprised of approximately $1.6 million
in cash, $4.8 million of indebtedness to be assumed and/or paid by
the Company and shares of Class A common stock of the Company having
a market value of approximately $2.0 million as of the closing
dates. One of the transactions will include a contingent cash payout
based on the achievement of certain targeted earnings at that
particular retailer.
The transactions are separate and thus are not conditioned upon one
another, and are expected to close near the end of the first
quarter. However, in each case consummation of the acquisitions is
subject to various conditions, including the negotiation and
execution of definitive agreements. Accordingly, there can be no
assurance as to the completion of the proposed transactions.
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION
The Board of Directors
Rock of Ages Corporation and Subsidiaries:
Under date of February 27, 1998, we reported on the consolidated balance
sheets of Rock of Ages Corporation and subsidiaries as of December 31, 1996
and 1997, 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, 1997. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedule referred to as "Schedule
II - Valuation and Qualifying Accounts and Reserves". This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement
schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein.
February 27, 1998
Burlington, Vermont
Vt. Reg. No. 92-0000241
<TABLE>
<CAPTION>
Rock of Ages Corporation and Subsidiaries
Schedule II - Valuation and Qualifying Accounts and Reserves
Years ended December 31, 1995, 1996 and 1997
(In Thousands)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
---------
Balance at Increase Charged to Balance at
Beginning Due to Costs and End
Descriptions of Period Acquisitions Expenses Deductions of Period
1995:
<S> <C> <C> <C> <C> <C>
Allowances for doubtful
accounts $ 464 0 62 80 446
1996:
Allowances for doubtful
accounts $ 446 0 181 63 564
1997:
Allowances for doubtful
accounts $ 564 1,472 332 137 2,231
</TABLE>
See accompanying Independent Auditors' Report on Supplementary Information.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Rock of Ages Corporation
By: /s/ Kurt M. Swenson
---------------------------------------
Kurt M. Swenson
President, Chief Executive Officer
and Chairman of the Board of Directors
Date: March 31, 1998
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities indicated as of March 25, 1998.
SIGNATURE TITLE
--------- -----
/s/ Kurt M. Swenson President, Chief Executive
- ----------------------------- Officer and Chairman of the Board
Kurt M. Swenson of Directors (Principal
Executive Officer)
/s/ George R. Anderson Senior Vice President,
- ----------------------------- Chief Financial Officer,
George R. Anderson Treasurer, Director
(Principal Financial Officer and
Principal Accounting Officer)
/s/ Richard C. Kimball Vice Chairman and President,
- ---------------------------- Memorial Division, Director
Richard C. Kimball
/s/ Jon M. Gregory President, Quarry Division,
- ---------------------------- Director
Jon M. Gregory
/s/ Mark A. Gherardi Senior Vice President, Barre
- --------------------------- and Canada Manufacturing
Mark A. Gherardi Operations, Director
/s/ G. Thomas Oglesby, Jr. Senior Vice President, Keystone
- --------------------------- and Childs, Inc., Director
G. Thomas Oglesby, Jr.
/s/ Peter A. Friberg Senior Vice President, Barre
- --------------------------- Memorial Sales, Director
Peter A. Friberg
/s/ James L. Fox Director
- ---------------------------
James L. Fox
/s/ Charles M. Waite Director
- ---------------------------
Charles M. Waite
/s/ Frederick Webster Director
- ---------------------------
Frederick Webster
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
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 Caroll 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
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 and Jon M. Gregory
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, Jr. and Rock of Ages Corporation
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 June 25, 1997 between Rock of
Ages Corporation and Dakota Granite Company
10.12* Stock Subscription Agreement and Continuity of Interest
Agreement dated as of 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
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, 1996 between
Rock of Ages Corporation and Melvin Friberg
10.18* 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.
10.19 Financing Agreement dated December 17, 1997 by and between
The CIT Group/Business Credit, Inc., Rock of Ages Corporation,
Royalty Granite Corporation, Carolina Quarries, Inc.,
Pennsylvania Granite Corp., Childs & Childs Granite Company,
Inc., Southern Mausoleums, Inc. and Rock of Ages Memorials LLC
10.20 Exclusive Supply Agreement dated
as of December 17, 1992 by and between Rock of Ages
Corporation and Eurimex (portions of this exhibit have been
omitted pursuant to a request for confidential treatment)
10.21 Exclusive Supply Agreement dated as of December 8, 1997 by
and between Rock of Ages Corporation and Eurimex (portions of
this exhibit have been omitted pursuant to a request for
confidential treatment)
11.** Statement re: computation of per share earnings
21.* Subsidiaries of the Company
23. Consent of KPMG Peat Marwick LLP
27. Financial Data Schedule
- ----------------------
* Incorporated by reference to the Company's Registration Statement on
Form S-1 (Registration No. 333-33685) filed with the Securities and
Exchange Commission on August 15, 1997 and declared effective on
October 20, 1997.
** Incorporated by reference to Note (1)(q) of the Company's consolidated
financial statements (filed herewith).
EXHIBIT 10.19
FINANCING AGREEMENT
The CIT Group/Business Credit, Inc.
(as Lender and as Agent)
And
ROCK OF AGES CORPORATION
(as Borrower)
ROYALTY GRANITE CORPORATION
(as Borrower)
CAROLINA QUARRIES, INC.
(as Borrower)
PENNSYLVANIA GRANITE CORP.
(as Borrower)
CHILDS & CHILDS GRANITE COMPANY, INC.
(as Borrower)
SOUTHERN MAUSOLEUMS, INC.
(as Borrower)
ROCK OF AGES MEMORIALS LLC
(as Borrower)
Dated: December 17, 1997
TABLE OF CONTENTS
Page
SECTION 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2. Conditions Precedent . . . . . . . . . . . . . . . . . . . 12
SECTION 3. Revolving Loans . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 4. Acquisition Term Loans . . . . . . . . . . . . . . . . . . 18
SECTION 5. Letters of Credit . . . . . . . . . . . . . . . . . . . . . 19
SECTION 6. Collateral . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 7. Representations, Warranties and Covenants . . . . . . . . . 24
SECTION 8. Interest, Fees and Expenses . . . . . . . . . . . . . . . . 30
SECTION 9. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 10. Events of Default and Remedies . . . . . . . . . . . . . . 34
SECTION 11. Termination . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 12. Agreement between the Lenders . . . . . . . . . . . . . . 37
SECTION 13. Agency . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 14. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 44
EXHIBIT
EXHIBIT A - Form of Promissory Note
EXHIBIT B - Assignment and Transfer Agreement
THE CIT GROUP/BUSINESS CREDIT, INC., a New York corporation
(hereinafter "CITBC"), with offices located at 1211 Avenue of the Americas,
New York, NY 10036, the other lenders that may, on or subsequent to the
date hereof, purchase from CITBC or from another Lender a portion of
CITBC's or such other Lender's rights and obligations under this Financing
Agreement (CITBC and such other lenders each sometimes referred to
individually as a "Lender" and sometimes collectively as the "Lenders") and
CITBC as agent for the Lenders (herein the ' Agent"), are pleased to
confirm the terms and conditions under which CITBC shall make term loans
and revolving loans, advances and other financial accommodations to ROCK OF
AGES CORPORATION (herein "ROA"), a Delaware corporation with a principal
place of business at 772 Granitville Road, Barre, Vermont 05654; ROYALTY
GRANITE CORPORATION (herein "Royalty"), a Georgia corporation with a
principal place of business at SR 294, Berkley Quarry Road, Carlton,
Georgia 30627; CAROLINA QUARRIES, INC. (herein "Carolina"), a Georgia
corporation with a principal place of business at 805 Harris Granite Road,
Salisbury, North Carolina 28146; PENNSYLVANIA GRANITE CORP. (herein
"Pennsylvania"), a Pennsylvania corporation with a principal place of
business at 410 Tryhall Road, Elverson, Pennsylvania 19520; CHILDS & CHILDS
GRANITE COMPANY, INC. ("Childs"), a Georgia corporation with a principal
place of business at 1130 Hartwell Highway, Elberton, Georgia 30635;
SOUTHERN MAUSOLEUMS, INC. ("Mausoleums"), a Georgia corporation with a
principal place of business at 1167 Bowman Highway, Elberton, Georgia
30635; ROCK OF AGES MEMORIALS LLC ("Memorials"), a limited liability
company formed under the laws of Delaware with a principal place of
business at 1024 North Dixie, Elizabethtown, Kentucky 42701; and such other
subsidiaries or affiliates of the foregoing as the Lenders, by unanimous
consent, permit to become a party hereto (ROA, Royalty, Carolina,
Pennsylvania, Childs, Mausoleums and Memorials and such other permitted
parties are hereinafter sometimes referred to individually as a "Company"
and sometimes collectively referred to as the "Companies").
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 the Agent), 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.
ACQUISITION TERM LOANS shall mean those term loans made to ROA pursuant to
the provisions of Section 4 of this Financing Agreement.
ACQUISITION TERM LOAN LINE OF CREDIT shall mean the sum of $25,000,000.00.
ANNIVERSARY DATE shall mean the date occurring one (1) year from the date
hereof and the same date in every year thereafter.
ASSIGNMENT AND TRANSFER AGREEMENT shall mean the Assignment and Transfer
Agreement in the form of Exhibit B hereto.
AVAILABILITY shall mean at any time 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 Acquisition
Term Loans) of the Company 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 all of the Agent, CITBC and Chase
Manhattan 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 sheet 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.
CHASE BANK RATE shall mean 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. (The prime rate is not intended
to be the lowest rate of interest charged by Chase Manhattan Bank to its
borrowers).
COLLATERAL shall mean all present and future Accounts, Equipment,
Inventory, Documents of Title, General Intangibles and Real Estate of each
Company.
COLLATERAL MANAGEMENT FEE shall mean the sum which shall be paid to the
Agent, solely for the benefit of the Agent, in accordance with Section 8
hereof to offset the expenses and costs of the Agent in connection with
record keeping, periodic examinations, analyzing and evaluating the
Collateral.
CONSOLIDATED BALANCE SHEET shall mean a consolidated balance sheet for 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, whenever 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 through out 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".
CUSTOMARILY PERMITTED LIENS shall mean
(a) liens of local or state authorities for franchise or other like
taxes provided the aggregate amounts of such liens shall not exceed
$500,000.00 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, variation 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 the Agent 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 Chase Bank
Rate, which the Agent shall be entitled to charge the Companies on all
Obligations to the extent provided in paragraph 2 of Section 10 of this
Financing Agreement.
DEPOSITORY ACCOUNTS shall mean those accounts owned by the Agent and
designated for the deposit of proceeds of Collateral.
DOCUMENTATION FEE shall mean i) the sum of $25,000.00 intended to
compensate the Agent for the use of the Agent's in-house Legal Department
and facilities in documenting, in whole or in part, the initial
transaction, exclusive of Out-of-Pocket Expenses, and ii) the Agent'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.
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 terminates this
Financing Agreement or the Line of Credit which date is prior to the fifth
Anniversary Date.
EARLY TERMINATION FEE shall: i) mean the fee the Agent, on behalf of the
Lenders, is entitled to charge the Companies in the event ROA terminates
the Line of Credit or this Financing Agreement on a date prior to the
fifth 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 x) one percent (1%) per annum for the number of days from
the Early Termination Date to the fifth Anniversary Date if the Early
Termination Date is prior to the first Anniversary Date; y) one half of
one percent (.50%) per annum for the number of days from the Early
Termination Date to the fifth Anniversary Date if the Early Termination
Date is on or after the first Anniversary Date but prior to the second
Anniversary Date; and z) one quarter of one percent (.25%) per annum for
the number of days from the Early Termination Date to the fifth
Anniversary Date if the Early Termination Date is on or after the second
Anniversary Date but prior to the fifth Anniversary Date.
EBITDA shall mean, in any period, all earnings of the Companies before all
interest, depreciation, amortization of general intangibles, and tax
obligations of the Company for said period, determined in accordance with
GAAP.
EBITDA to Fixed Charge Ratio shall mean, at any time of determination, the
ratio determined by dividing EBITDA by Fixed Charge.
EVENT(S) OF DEFAULT shall have the meaning provided for in Section 10 of
this Financing Agreement.
ELIGIBLE ACCOUNTS RECEIVABLE shall mean the gross amount of each Company's
accounts receivable that conform to the warranties contained herein and at
all times continue to be acceptable to the Agent 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 the Agent) 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 $500,000 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 eight (180) days from invoice date; iv) contras;
v) sales to any subsidiary, or to any Company or to any company affiliated
with a Company in any way; 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
the Agent or has a credit rating unacceptable to the Agent; 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 one hundred and
eighty (180) days from invoice date; ix) any other reasons deemed necessary
by the Agent in its reasonable business judgment and which are customary
either in the commercial finance industry or in the lending practices of
the Agent; and x) an amount representing historically, returns, discounts,
claims, credits and allowances.
ELIGIBLE INVENTORY shall mean the gross amount of each Company's inventory
that conform to the warranties contained herein and which at all times
continue to be acceptable to the Agent in the exercise of its reasonable
business judgment less any work-in-process, supplies (other than raw
material), goods not present in the United States of America, goods
returned or rejected by a Company's customers other than goods that are
undamaged and resaleable in the normal course of business, goods to be
returned to a Company's suppliers, goods in transit to third parties (other
than a Company's agents or warehouses) and less any reserves required by
the Agent 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.
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.
FIXED CHARGE COVERAGE RATIO shall mean, for the relevant period, the ratio
determined by dividing (a) EBITDA for such period by (b) the sum of (i) all
interest on Indebtedness, (ii) the amount of principal repaid on the
Acquisition Term Loans, (iii) capital expenditures, determined in
accordance with GAAP, and (iv) all federal, state and local income tax paid
or due and payable.
FUNDED DEBT shall mean, at any time of determination, Permitted
Indebtedness other than the Indebtedness referred to in clauses i and v of
the definition of Permitted Indebtedness.
FUNDED DEBT TO NET WORTH RATIO shall mean, at any time of determination,
the ratio determined by dividing Funded Debt by Net Worth, all as
determined in accordance with GAAP.
GAAP shall mean generally accepted accounting principles in the United
States of America as in effect from time to time and for the period as to
which such accounting principles are to apply.
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, 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.
INDEBTEDNESS shall mean, without duplication, all liabilities, contingent
or otherwise, which are any of the following: (a) obligations in respect of
money (borrowed or otherwise) or for the deferred purchase price of
property, services or assets, other than Inventory, or (b) lease
obligations which, in accordance with GAAP, have been, or which should be
capitalized.
INTEREST COVERAGE RATIO shall mean a ratio determined as of the relevant
calculation date by dividing EBITDA by Interest Expense for the relevant
period.
INTEREST EXPENSE shall mean 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 any Company.
LETTERS OF CREDIT shall mean all letters of credit issued with the
assistance of the Agent by the Issuing Bank for or on behalf of any
Company.
LETTER OF CREDIT GUARANTY shall mean the guaranty delivered by the Agent 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 the Agent, on behalf of
the Lenders, may charge the Companies under Section 8 of this Financing
Agreement for: i) issuing the Letter of Credit Guaranty or ii) otherwise
aiding in obtaining Letters of Credit.
LEVERAGE RATIO shall mean the ratio determined by dividing Total
Liabilities by Net Worth.
LIBOR shall mean, at any time of determination, and subject to
availability, the London Interbank Offered Rate paid in London by Chase
Manhattan Bank on one month, two month, three month or six month dollar
deposits and if such rates are not otherwise available, then those rates as
published, under "Money Rates", in the New York City edition of the Wall
Street Journal or if there is no such publication or statement therein as
to Libor, then in any publication used in the New York City financial
community.
LIBOR LOAN shall mean the loans for which ROA has elected to use Libor for
interest rate computations.
LIBOR PERIOD shall mean the Libor for one month, two month, three month, or
six month dollar deposits, as selected by ROA.
LIBOR PROCESSING FEE shall mean a fee in the amount of $500.00 payable on
the effective date of the Libor Loan and payable solely to the Agent for
the account of the Agent for processing the Libor Loan.
LINE OF CREDIT shall mean the commitment of the Lenders, acting through the
Agent, to make loans and advances pursuant to Section 3 of this Financing
Agreement, to ROA for the benefit of the Companies in an amount equal to
$25,000,000.00.
LINE OF CREDIT FEE shall: i) mean the fee due the Agent, for the benefit
of the Lenders, at the end of each month for the Acquisition Term Loan
Line of Credit and the Line of Credit, and ii) be determined as set forth
in Section 8 of this Financing Agreement.
LOAN FACILITY FEE shall mean the fee payable to the Agent in accordance
with, and pursuant to, the provisions of Section 8 of this Financing
Agreement.
NET WORTH shall mean assets in excess of liabilities, and 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 the
Agent, for the account of the Lenders, to any Company or to others for a
Company's account; any and all indebtedness and obligations which may at
any time be owing by a Company in respect of this Financing Agreement,
howsoever arising, whether now in existence or incurred by a Company from
time to time hereafter; whether secured by pledge, lien upon or security
interest in any of a 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 for such indebtedness as
principal, surety, endorser, guarantor or otherwise. Obligations shall
also include indebtedness owing by any Company under this Financing
Agreement or under any other agreement or arrangement now or hereafter
entered into between a Company and the Agent on behalf of the Lenders;
indebtedness or obligations incurred by, or imposed on, the Agent or any
Lender as a result of environmental claims (other than as a result of the
Agent's actions or omissions) arising out of any Company's operations,
premises or waste disposal practices or sites; a Company's liability to the
Agent or any Lender as maker or endorser on any promissory note or other
instrument for the payment of money under this Financing Agreement; a
Company's liability to the Agent, for the account of the Lenders, under any
instrument of guaranty or indemnity, or arising under any guaranty,
endorsement or undertaking which the Agent, on behalf of the Lenders, may
make or issue to others for a Company's account, including any
accommodation extended with respect to applications for Letters of Credit,
the Agent's acceptance of drafts or the Agent's endorsement of notes or
other instruments for a 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 the Agent' s present and future
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 in
opening bank accounts, depositing checks, receiving and transferring funds,
and any charges imposed on the Agent due to ''insufficient funds" of
deposited checks and the Agent's standard fee relating thereto, any amounts
paid by the Agent, incurred by or charged to the Agent 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 the Agent 's
standard fees relating to the Letters of Credit and any drafts thereunder,
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 the Agent; ii) Purchase Money Liens; iii) Customarily
Permitted Liens; iv) liens granted the Agent by the Companies; v) liens of
judgment creditors provided such liens do not exceed, in the aggregate, at
any time, $250,000.00 (other than liens bonded or insured to the reasonable
satisfaction of the Agent); and vi) liens for taxes not yet due and payable
or which are being diligently contested in good faith by a Company by
appropriate proceedings and which liens are not x) other than with respect
to Real Estate, senior to the liens of the Agent 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 subordinated to the prior payment and satisfaction of the
Obligations by means of a subordination agreement in form and substance
satisfactory to the Agent; 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; vi) Indebtedness incurred by
the Companies with the consent of the Agent or the Required Lenders, as the
case may be; and vii) other Indebtedness existing on the date of execution
of this Financing Agreement and either x) listed in the most recent
financial statements delivered to the Agent and the Lenders or y) otherwise
disclosed to the Agent and the Lenders in writing; or z) which is not
material to the financial condition of the Companies as a whole.
PREPAYMENT PREMIUM shall: i) mean the amount due the Agent, for the benefit
of the Lenders, by the Companies upon a prepayment, solely as a result of
ROA's termination of this Financing Agreement, of any Acquisition Term
Loan, prior to the sixth month preceding the fifth Anniversary Date, and
ii) be computed by multiplying the amount so prepaid by one percent (1%).
PROMISSARY NOTE shall mean the note, in the form of Exhibit A attached
hereto, delivered by ROA to the Agent to evidence an Acquisition 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 the Agent, iii) the debt incurred in
connection with such acquisitions shall not exceed in the aggregate
$1,000,000 in any fiscal year, and iv) the debt so incurred is not under
this Financing Agreement.
REAL ESTATE shall mean any Company's fee interests in the real property
which has been, or will be, encumbered, mortgaged, pledged or assigned to
the Agent or its designee.
REQUIRED LENDERS shall mean Lenders holding at least fifty-one percent (51
%) of the outstanding loans, advances, extensions of credit to and
commitments to the Company.
REVOLVING LOANS shall mean the loans and advances made, from time to time,
to or for the account of a Company, pursuant to Section 3 of this Financing
Agreement.
SETTLEMENT DATE shall mean the date, weekly, and more frequently, at the
discretion of the Agent, upon the occurrence of an Event of Default or a
continuing decline or increase of the Revolving Loans that the Agent and
the Lenders shall settle amongst themselves so that x) the Agent shall not
have, as Agent, any money at risk and y) on such Settlement Date the
Lenders shall have a pro-rata amount of all outstanding Acquisition Term
Loans, Revolving Loans and Letters of Credit, provided that each Settlement
Date shall be a Business Day.
SYNDICATION shall mean the sale by CITBC of at least fifty percent (50%) of
the obligations and commitments hereunder to one or more lenders reasonably
acceptable to CITBC.
SYNDICATION SIDE LETTER shall mean that certain letter agreement between
the Companies, the Agent and CITBC which letter agreement shall not be
given to the Lenders until April 1, 1998 and then only if the Syndication
has not been completed by March 31, 1998.
TOTAL LIABILITIES shall mean total liabilities of the Companies determined
in accordance with GAAP, on a basis consistent with the latest audited
statements of the Company.
WORKING CAPITAL shall mean Current Assets in excess of Current Liabilities.
SECTION 2. Conditions Precedent
The obligation of the Lenders, acting through the Agent, 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 -The Agent shall have received tax, judgment and
Uniform Commercial Code searches satisfactory to the Agent for all
locations presently occupied or used by each Company.
(b) CASUALTY INSURANCE - ROA shall have delivered to the Agent
evidence satisfactory to the Agent that casualty insurance policies
listing the Agent 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 - Each Company shall have executed and
delivered to either the Agent or a designee of the Agent or of a
title insurance company acceptable to the Agent such mortgages and
deeds of trust as the Agent 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 the Agent, for the benefit of the Lenders, 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 the
Agent a perfected lien on the Collateral. The Agent shall have
received acknowledgment copies of all such filings (or, in lieu
thereof, the Agent shall have received other evidence satisfactory to
the Agent that all such filings have been made); and the Agent 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 - The Agent shall have received, in
respect of each mortgage or deed of trust, a mortgagee's title policy
or marked-up unconditional binder for such insurance consistent with
title insurance policies previously delivered by either Royalty or
ROA to CITBC. Each such policy shall (i) be in an amount satisfactory
to the Agent; (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 acceptable to the Agent; (iii) name the
Agent as the insured thereunder; and (iv) contain such endorsements
and effective coverage as the Agent may reasonably request, including
without limitation the revolving line of credit endorsement. The
Agent 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 - The Agent and the title insurance company issuing each
policy referred to in the immediately preceding paragraph 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- The Agent shall have completed to the
satisfaction of the Agent, and each Lender, an examination and
verification of the Accounts, Inventory, books and records of each
Company.
(h) INTENTIONALLY OMITTED
(i) OPINIONS - Counsel for the Companies shall have delivered to the
Agent, for the benefit of the Lenders, opinions satisfactory to the
Agent 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 the Agent, all documents of the
Companies 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 - ROA shall a) execute and deliver to the Agent,
for the benefit of the Lenders, a pledge and security agreement and
stock powers pledging to the Agent as additional collateral for the
Obligations all of the issued and outstanding stock of the Companies
(other than ROA) and, b) deliver to the Agent the stock certificates
of the Companies.
(k) ADDITIONAL DOCUMENTS - Each Company shall have executed and
delivered to the Agent all loan documents necessary to consummate the
lending arrangement contemplated herein.
(l) INTENTIONALLY OMITTED
(m) LIMITED LIABILITY COMPANY - Memorials shall deliver to Agent a
true copy of its Limited Liability Company Agreement.
(n) THE COMMITMENT LETTER - ROA has fully complied, to the reasonable
satisfaction of the Agent, with all of the terms and conditions of
the commitment letter, dated September 18, 1997, issued by CITBC to,
and accepted by, ROA.
(o) ENVIRONMENTAL REPORT - The Agent shall have received
environmental audit reports on i) all of each Company's fee
interests, and ii)each Company's waste disposal practices. The
reports must x) be satisfactory to the Agent and y) not disclose or
indicate any liability (real or potential) stemming from a Company's
premises, its operations, its waste disposal practices or waste
disposal sites used by any Company.
(p) BOARD RESOLUTION - The Agent 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 each Company as of the date
hereof, 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.
(q) CORPORATE ORGANIZATION - The Agent shall have received (i) a copy
of the Certificate of Incorporation of each Company (excluding
Memorials) certified by the Secretary of State of its incorporation,
and (ii) a copy of the By-Laws (as amended through the date hereof)
of each Company and certified by the Secretary or Assistant Secretary
of the Company.
(r) OFFICER'S CERTIFICATE - The Agent shall have received an executed
Officer's Certificate from each Company, satisfactory in form and
substance to the Agent, 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) the Company is in
compliance with all of the terms and provisions set forth herein; and
(iii) no Event of Default has occurred.
(s) 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.
(t) 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 the Company or its assets, by any agency, division or
department of any county, city, state or federal government, (y)
injunction, writ or restraining order restraining or prohibiting
consummation of the financing arrangements contemplated under this
Financing Agreement or (z), suit, action, investigation or proceeding
(judicial or administrative) pending or threatened against the
Company or its assets, which, in the opinion of the Agent, if
adversely determined could have a material adverse effect on the
business, operation, assets, financial condition or Collateral of the
Company.
(u) DISBURSEMENT AUTHORIZATION - ROA shall have delivered to the
Agent all information necessary for the Agent 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 the Agent.
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, the Agent and the Lenders shall
otherwise agree herein or in a separate writing.
SECTION 3. Revolving Loans
1. The Lenders, acting through the Agent, agree, 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 the Agent's and
the Lenders' (acting through the Agent) right to make "overadvances", to
make loans and advances to ROA, to and for the benefit of the Companies, on
a revolving basis (i.e. subject to the limitations set forth herein, the
Companies, through ROA, may borrow, repay and re-borrow Revolving Loans).
Such loans and advances shall be in amounts up to: a) seventy-five percent
(75%) of the outstanding Eligible Accounts Receivable of the Companies, and
b) fifty percent (50%) of the aggregate value of Eligible Inventory of the
Companies as determined at the lower of cost or market but in no event may
the amount of all outstanding advances under this clause b exceed
$12,500,000.00 in the aggregate at anyone time. All requests for loans and
advances must be received by an officer of the Agent no later than 1:00
p.m., New York time, of the Business Day on which such loans and advances
are required. Should the Agent 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 the Agent's sole discretion,
subject to any additional terms the Agent deems necessary.
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 the Agent in such form and manner as the
Agent may reasonably require, solely for the Agent's convenience in
maintaining records of collateral, such confirmatory schedules of Accounts
as the Agent may reasonably request, and such other appropriate reports
designating, identifying and describing the Accounts as the Agent may
reasonably require. In addition, upon the Agent's request each Company
shall provide the Agent with copies of agreements with, or purchase orders
from, the 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 the Agent may reasonably
require. Failure to provide the Agent with any of the foregoing shall in no
way affect, diminish, modify or otherwise limit the security interests
granted herein. Each Company hereby authorizes the Agent to regard that
Company's printed name or rubber stamp signature on assignment schedules or
invoices as the equivalent of a manual signature by one of the 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 its
business; the goods and inventory being sold and the Accounts created are
the exclusive property of such Company 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 the Company has advised the Agent
pursuant to paragraph 5 of this Section 3. Each Company confirms to the
Agent 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 such Company 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 the Company or the ability
of the 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 the Agent may reasonably require and agrees
that its books and records will reflect the Lenders' (acting through the
Agent) interest in the Accounts. All of the books and records of each
Company will be available to the Agent at normal business hours, including
any records handled or maintained for any Company by any other company or
entity.
4. Each Company may and will enforce, collect and receive all amounts
owing on the Accounts at the Company's expense; 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 the Agent, 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 by a Company with respect to any Accounts
shall be held by such Company in trust for the Lenders, separate from the
Company's own property and funds, and immediately turned over to the Agent
with proper assignments or endorsements by deposit to the Depository
Accounts in the Agent's name designated for such purposes. Notwithstanding
anything herein contained to the contrary, if x) there is then no Default
or Event of Default and y) the outstanding Revolving Loans are less than
$12,500,000.00 and z) Availability is at least $8,000,000.00 for five (5)
or more consecutive Business Days, then the Agent, at the request of ROA,
will advise the banks holding the Depository Accounts to remit all proceeds
of Collateral to ROA. The Agent may immediately rescind these instructions
unilaterally a) upon the occurrence of a Default or Event of Default, or b)
if the outstanding Revolving Loans aggregate $12,500,000.00 or more; or c)
if Availability is less than $8,000,000.00. All amounts received by the
Agent in payment of Accounts will be credited to the loan account upon the
Agent's receipt of "collected funds" at the Agent's bank account in New
York, New York on the Business Day of receipt if received no later than
1:00 p.m. or on the next succeeding business day if received after 1:00
p.m. No checks, drafts or other instrument received by the Agent shall
constitute final payment unless and until such instruments have actually
been collected.
5. Each Company agrees to notify the Agent 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 the Agent upon request after the occurrence of
an Event of Default) upon accepting returns or granting allowances.
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 the Agent's
books, the Companies have requested the Agent, and the Agent has agreed, to
handle the accounts of all Companies on the Agent's books on a combined
basis, in accordance with the following provisions: (i) in lieu of
maintaining separate accounts on the Agent's books in the name of each of
the Companies, the Agent shall maintain a single account under the name:
Rock of Ages Corporation (herein the "Collective Loan Account"); (ii) loans
and advances made by the Agent 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 the Agent from any of the Companies
or from others for the account of any Company including all amounts
received by the Agent in accordance with the terms of paragraph 4 hereof
and as provided in this Financing Agreement; (iv) each month the Agent will
render to ROA 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 has forwarded to the Agent a written
statement of exceptions within thirty (30) days after such extract, or any
corrected extract; (v) its is expressly understood and agreed by each of
the Companies that the Agent 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 the Agent 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 the Agent
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 the Agent'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 the Agent the prompt payment in full of (A)
all loans and advances made and to be made to any of them under this
Financing Agreement, as well as (B) all other Obligations of the Companies
hereunder; (x) all Collateral assigned by any of the Companies and any
other collateral security now or hereafter given to the Agent by any of the
Companies, shall secure all loans and advances made by the Agent to, or
for, any Company, and shall be deemed to be pledged as security for any and
all other Obligations of the Companies as set forth under this Financing
Agreement, or any other agreements between the Agent 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 neither the
Agent nor any Lender shall incur liability to the Companies as a result of
such combination. To induce the Agent and the Lenders to do so, and in
consideration thereof, each Company hereby agrees to indemnify the Agent
and each Lender and hold them 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 the Agent's
negligence or misconduct, made against the Agent by any Company or by any
third party whosoever, arising from or incurred by reason of (A) the Agent
handling the accounts of the Companies as herein provided, (B) the Agent
relying on any instructions of any of the Companies, or (C) any other
reasonable action taken by the Agent 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 the Agent's right to demand payment of any Obligation.
Further, it is understood that neither the Agent nor any Lender shall have
any 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 by 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. Acquisition Term Loans
1. Within the Acquisition Term Loan Line of Credit and upon receipt
of a Promissory Note, in the form of Exhibit A attached hereto, from the
Companies, in the amount of the Acquisition Term Loan, the Lenders, acting
through the Agent, will extend to ROA an Acquisition Term Loan, provided a)
there is then no outstanding Default under this Financing Agreement and b)
all of the conditions listed below are fulfilled to the sole but reasonable
satisfaction of the Agent and the Lenders. The conditions are as follows:
(a) Acquisition Term Loan proceeds: i) are to be used exclusively to pay
for, or reimburse a Company for, the acquisition by a Company of
distributors of granite memorials, operators of granite quarries, and
manufacturers, wholesalers and/or retailers of granite products; and ii)
will be disbursed concurrent with, or immediately after, such
acquisition, provided, however, that ROA may combine several
acquisitions into one Acquisition Term Loan.
(b) ROA must give the Agent thirty (30) days prior written notice of its
intention to enter into an Acquisition Term Loan;
(c) the Agent's and the Lenders' receipt of, and satisfaction with, a
study or review of the business so acquired;
(d) the assets acquired with the proceeds of such Acquisition Term Loan
are free and clear of all liens and encumbrances except as otherwise
permitted by the Agent;
(e) the structure of the acquisition must be reasonably satisfactory to
the Agent and the Lenders;
(f) the Agent's and the Lenders' receipt of, and satisfaction with,
appraisals and/or environmental reviews;
(g) no more than two (2) and only two (2) Acquisition Term Loans per
calendar quarter;
(h) no Acquisition Term Loan may be less than $1,000,000.00; and
(i) the Companies shall give to the Agent, for the benefit of the
Lenders, first and exclusive liens on, and security interests in, the
assets so acquired, subject only to the Permitted Encumbrances.
2. Each Acquisition Term Loan will be repaid to the Agent in equal
quarterly installments of principal computed on a seven (7) year
amortization schedule which installments shall commence on the last day of
the first full calendar quarter occurring after the quarter in which the
closing of that Acquisition Term Loan occurred and thereafter on the last
day of each calendar quarter thereafter, provided, however, that a) ROA,
upon written notice to the Agent, may elect, on or before the making of an
Acquisition Term Loan, to forego all amortization of such Acquisition Term
Loan, but further provided that the aggregate amount of all such
Acquisition Term Loans with deferred amortization may not exceed
$12,500,000.00; and b) all Acquisition Term Loans shall be due and payable
in full on the fifth Anniversary Date. To the extent repaid, Acquisition
Term Loans may not be reborrowed under this Section 4 of the Financing
Agreement.
3. In the event this Financing Agreement or the Line of Credit is
terminated by either the Agent or ROA for any reason whatsoever, the
Acquisition Term Loans 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.
4. The Companies may prepay at any time, at its option, in whole or
in part, any Acquisition 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.
5. Each prepayment shall be applied to the then last maturing
installments of principal of an Acquisition Term Loan designated by ROA and
if not so designated, then as the Agent may elect.
6. The Companies hereby authorizes the Agent 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 the
Agent may so make to its account as herein provided will be made as an
accommodation to the Company and solely at the Agent's discretion.
SECTION 5. Letters of Credit
In order to assist the Companies in establishing or opening Letters
of Credit with an Issuing Bank to cover i) the purchase of inventory or
equipment or ii) such other business purposes as a Company may so elect,
the Companies have requested the Lenders, acting through the Agent, 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 the Lenders', acting through the Agent, credit to the Companies and
the Lenders, acting through the Agent, have agreed to do so. These
arrangements shall be handled by the Agent 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 Companies and/or the Issuing Bank
of the terms and conditions thereof shall in all respects be subject to the
prior approval of the Agent in the exercise of its reasonable discretion
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
$3,000,000.00, and b) the Letter of Credit and all documentation in
connection therewith shall be in form and substance satisfactory to the
Companies, the Agent and the Issuing Bank.
2. The Agent shall have the right, without notice to any Company, to
charge the Collective Loan Account on the Agent's books with the amount of
any and all indebtedness, liability or obligation of any kind incurred by
the Agent or any Lender under the Letters of Credit Guaranty at the earlier
of a) payment under the Letters of Credit Guaranty or b) the occurrence of
an Event of Default. Any amount charged to the Collective Loan Account
shall be deemed a Revolving Loan hereunder and shall incur interest at the
rate provided in Section 8, paragraph l of this Financing Agreement.
3. Each Company unconditionally indemnifies the Agent and each Lender
and holds the Agent and each Lender harmless from any and all loss, claim
or liability incurred by the Agent and each Lender arising from any
transactions or occurrences relating to Letters of Credit established or
opened for any Company, the collateral relating thereto and any drafts or
acceptances thereunder, and all Obligations thereunder, including any such
loss or claim due to any action taken by any Issuing Bank, other than for
any such loss, claim or liability arising out of the negligence or
misconduct by the Agent and each Lender under the Letters of Credit
Guaranty. Each Company further agrees to hold the Agent and each Lender
harmless from any errors or omission, negligence or misconduct by the
Issuing Bank. Each Company's unconditional obligation to the Agent and each
Lender hereunder shall not be modified or diminished for any reason or in
any manner whatsoever, other than as a result of the Agent's and each
Lender's negligence or misconduct. Each Company agrees that any charges
incurred by the Agent and each Lender by the Issuing Bank shall be
conclusive on the Agent and each Lender and may be charged to the
Collective Loan Account.
4. Neither the Agent nor any Lender shall 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 any Company.
5. Each Company agrees that any action taken by the Agent or any
Lender, 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 the Companies
and shall not put the Agent or any Lender in any resulting liability to the
Companies. In furtherance thereof, but subject to the provisions of
paragraph 6 below, the Agent shall have 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 the Agent'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 the Agent, all without any notice to or
any consent from any Company.
6. Without the Agent'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 the Agent and/or the Required Lenders, not
to i) clear and resolve any questions of non-compliance of documents, or
ii) give any instructions as to acceptances or rejection of any documents
or good.
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 the Agent 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, and are not
prohibited by any such laws and regulations. The Companies assume all risk,
liability and responsibility for, and agree 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 the 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 risk,
liability and responsibility of the Companies.
8. Upon any payments made to the Issuing Bank under the Letter of
Credit Guaranty, the Agent shall acquire by subrogation, any rights,
remedies, duties or obligations granted or undertaken by any 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 the Agent and apply in all respects to the
Agent 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 the Lenders, acting through the Agent, pursuant hereto, as
well as to secure the payment in full of the other Obligations, each
Company hereby pledges and grants to the Agent, for the benefit of the
Lenders, 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:
(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 a
Company or others for its account, and, if any Collateral is Equipment,
whether a Company's interest in such Equipment is as owner, finance
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 the Agent 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 the Lenders' account and make no disposition thereof except in the
regular course of the business of the Company as herein provided. Each
Company will only sell Inventory to its customers in the ordinary course of
the Company's business, on open account and on terms currently being
extended by the 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 the Agent in accordance with
paragraph 4 of Section 3 of this Financing Agreement. Cash sales or sales
of Inventory in which a lien upon, or security interest in, Inventory is
retained by any Company shall be made by the Company only with the approval
of the Agent, and the proceeds of such sales or sales of Inventory for cash
shall not be commingled with such Company's other property, but shall be
segregated, held by the Company in trust for the Agent, and shall be
delivered immediately by the Company to the Agent in the identical form
received by the Company by deposit to the Depository Accounts. Upon the
sale, exchange, or other disposition of Inventory, as herein provided, the
security interest in any 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 title,
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, the Agent 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 and replacements when and where necessary. Each Company also agrees
to safeguard, protect and hold all Equipment for the Lenders' account and
make no disposition thereof unless the Company first obtains the prior
written approval of the Agent. Any sale, exchange or other disposition of
any Equipment shall only be made by a Company with the prior written
approval of the Agent, and the proceeds of any such sales shall not be
commingled with the Company's other property, but shall be segregated, held
by the Company in trust for the Agent, and shall be delivered immediately
by the Company to the Agent in the identical form received by the Company
by deposit to the Depository Accounts. 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, the Agent shall have all of the
rights of an unpaid seller, including stoppage in transit, replevin,
rescission and reclamation. Notwithstanding anything herein above 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 all such Equipment so
disposed of does not exceed $1,000,000.00 in the aggregate in any fiscal
year and (b) the proceeds of such sales or dispositions are delivered to
the Agent in accordance with the foregoing provisions of this paragraph,
except that a Company may retain and use such proceeds to purchase
forthwith replacement Equipment which the Company determines in its
reasonable business judgment to have a collateral value at least equal to
the Equipment so disposed of or sold, provided, however, that the aforesaid
right shall automatically cease upon the occurrence of an Event of Default
which is not waived.
5. The rights and security interests granted 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 the Agent may from time to time be temporarily in a credit
position, until the final payment in full of all Obligations and the
termination of this Financing Agreement. Any delay or omission by the Agent
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 the Agent and/or the Required Lenders, as the case may be. 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 the Agent shall
have the right in its sole discretion to determine which rights, security,
liens, security interests or remedies the Agent 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 the Agent'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 the Agent or
any Lender may be held 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 there is then an uncured
Default or unwaived Event of Default. The liens and security interests
granted herein and any other lien or security interest the Agent or any
Lender may have in any other assets of any Company, shall secure payment
and performance of all now existing and future Obligations. The Agent may
in its discretion charge any or all of the Obligations to the Collective
Loan Account of the Company when due.
8. This Financing Agreement and the obligation of the Companies to
perform all of their covenants and obligations hereunder are further
secured by a mortgage, deed of trust or assignment on the Real Estate.
9. Each Company shall give to the Agent from time to time such
mortgage, Uniform Commercial Code security interest, deed of trust, UCC
financing statement, or assignment on the Real Estate or the assets
acquired with the proceeds of any Revolving Loan or Acquisition Term Loan
the as the Agent shall require to obtain a valid first lien thereon subject
only to the Permitted Encumbrances.
10. Each Company shall give to the Agent, and/or shall cause the
appropriate party to give to the Agent, from time to time such pledge or
security agreements with respect to the capital stock of any subsidiary of
a Company as the Agent shall require to obtain valid first liens thereon.
SECTION 7. Representations, Warranties and Covenants
1. The Companies hereby warrant and represent and/or covenant 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
businesses as they are 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, the
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 the Company will at
its expense forever warrant and, at the Agent's request, defend the same
from any and all claims and demands of any other person other than the
Permitted Encumbrances; that the 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 the Company and that the Equipment is and will only be
used by the Company in its business and will not be held for sale or lease,
or removed from its premises, or otherwise disposed of by the Company
without the prior written approval of the Agent 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 Agent shall reasonably
require. Each Company agrees that the Agent or its agents may enter upon a
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 the Agent prior
written notice of any change in the location of any Collateral, other than
to locations, that as of the date hereof, are known to the Agent and at
which the Agent has filed financing statements and otherwise fully
perfected its liens thereon. Each Company is also to advise the Agent
promptly, in sufficient detail, of any material adverse change relating to
the type, quantity or quality of the Collateral or on the security
interests granted therein.
3. Each Company agrees to: execute and deliver to the Agent, from
time to time, solely for the Agent's convenience in maintaining a record of
the Collateral, such written statements, and schedules as the Agent may
reasonably require, designating, identifying or describing the Collateral
pledged hereunder. Any Company's failure, however, to promptly give such
statements or schedules shall not affect, diminish, modify or otherwise
limit the Agent'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 the Agent, for the benefit of the
Lenders, valid and perfected first security interests in the Collateral,
subject only to the Permitted Encumbrances. The Agent is hereby authorized
by each Company to file any financing statements covering the Collateral
whether or not a Company's signature appears thereon. Each Company agrees
to do whatever the Agent may reasonably request, from time to time, by way
of: filing notices of liens, financing statements, amendments, renewals and
continuations thereof; cooperating with the Agent's employees and agents;
keeping Inventory records; transferring proceeds of Collateral to the
Agent's possession; and performing such further acts as the Agent 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 the Agent. All
policies covering the Real Estate, Equipment and Inventory are, subject to
the rights of any holders of Permitted Encumbrances holding claims senior
to the Agent, to be made payable to the Agent, in case of loss, under a
standard non-contributory "mortgagee", "lender" or "secured party" clause
and are to contain such other provisions as the Agent may require to fully
protect the Agent'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 the Agent, premium prepaid,
with the loss payable endorsement in the Agent's favor, and shall provide
for not less than thirty (30) days prior written notice to the Agent of the
exercise of any right of cancellation. At any Company's request, or if the
Companies fail to maintain such insurance, the Agent may arrange for such
insurance, but at the Companies' expense and without any responsibility on
the Agent'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, the
Agent shall, subject to the rights of any holders of Permitted Encumbrances
holding claims senior to the Agent, have the sole right, in the name of the
Agent 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 any Acquisition Term Loan designated by the Agent;
(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, the Agent shall promptly apply such Proceeds to reduce the
outstanding balances under the Revolving Loan.
(iii) As long as an Event of Default has not occurred (which is not
waived), and the Proceeds are in excess of $100,000.00, the Companies may
elect (by delivering written notice to the Agent) 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 the
Companies do not, or cannot, elect to use the Proceeds as set forth above,
the Agent may, subject to the rights of any holders of Permitted
Encumbrances holding claims senior to the Agent, apply the Proceeds to the
payment of the Obligations in such manner and in such order as the Agent
may reasonably elect.
(iv) If the Companies elect 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)the Agent 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-cancellable
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, the Companies shall
provide the Agent with a restoration plan and a total budget therefor. If
there are insufficient Proceeds to cover the cost of restoration as so
determined, the Companies shall be responsible for the amount of any such
insuff1ciency, 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 the Company (herein collectively the
"Completion"). Upon Completion, any remaining reserve 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 unless such taxes are being diligently
contested in good faith by a Company by appropriate proceedings.
Notwithstanding the foregoing, if any lien shall be claimed thereunder x)
for taxes due the United States of America or y) which in the Agent's
opinion might create a valid obligation having priority over the rights
granted to the Agent herein, such lien shall not be a Permitted Encumbrance
and the Companies shall immediately pay such tax and remove the lien of
record. If the Companies fail to do so, then the Agent may pay such taxes,
and the amount thereof shall be an Obligation secured hereby and due 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 a 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 the Agent's reasonable opinion,
materially and adversely effect the Agent'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 the Company. Each Company
hereby indemnifies the Agent and each Lender and agrees to defend and hold
the Agent and each Lender harmless from and against any and all loss,
damage, claim, liability, injury or expense which the Agent or any Lender
may sustain or incur in connection with: any claim or expense asserted
against the Agent or any Lender 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, a 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 frame based upon the circumstances and 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 the Agent, or the Required Lenders, as the case may be, shall have
otherwise consented in writing, ROA will, and if it does not do so, than
any Company will furnish to the Agent and each Lender, within ninety (90)
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 and
satisfactory to the Agent and in such form as is then required by the
Securities and Exchange Commission; within sixty (60) days after the end of
each fiscal quarter a Consolidated Balance Sheet and Consolidating 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, certified by an
authorized financial or accounting officer of ROA; and within thirty (30)
days after the end of each month 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, certified by an
authorized financial or accounting officer of ROA; and from time to time,
such further information regarding the business affairs and financial
condition of the Companies as the Agent may reasonably request, including,
without limitation, annual cash flow projections in form satisfactory to
the Agent and the management letter from the public accountants at fiscal
year end. 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 that during the particular accounting period: (i) 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 (ii)no Company has received any notice of cancellation
with respect to its property insurance policies.
9. Intentionally Omitted.
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 the Agent or the Required Lenders, as
the case may be, 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 the Collateral from
sources other than the Lenders acting through the Agent;
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 or existence, or
enter into or engage in any operation or activity materially
different from that presently being conducted by a Company,
provided, however, that any Company, on ten (10) Business Days
prior notice to the Agent, may merge with i) any other Company
or ii) any subsidiary of a Company provided a Company is a
survivor of such merger;
F. Assume, guarantee, endorse, or otherwise become liable upon
the obligation 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 cash dividend of any kind on, or purchase,
acquire redeem or retire, for cash, any of the capital stock
or equity interest, of any class whatsoever, whether now or
hereafter outstanding, except that any Company may declare and
pay, to ROA, dividends on its capital stock to facilitate
payment of income taxes due as a result of the filing of a
unitary or consolidated tax return on which the Company income
is included;
H. Make any advance or loan to, or any investment in, any firm,
entity, person or corporation provided, however, that i) any
Company may make an advance or loan to, or an investment in,
any other Company; and ii) any Company may make an advance or
loan to, or an investment in, any affiliate or subsidiary of
any Company provided the aggregate outstanding amount of all
such loans, investments and advances under this clause ii
shall not exceed $2,500,000.00 in the aggregate at any one
time.
11. Without the prior written consent of the Required Lenders, or the
Agent, as the case may be, the Companies, or any one of them, will not
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 $1,000,000.00.
12. Intentionally Omitted
13. Intentionally Omitted
14. The Companies shall maintain at all times, on a consolidated
basis, a Fixed Charge Coverage Ratio of 1 to 1.
15. The Companies shall maintain at all times, on a consolidated
basis, a Leverage Ratio of not more than 2 to 1.
16. Intentionally Omitted
17. Intentionally Omitted
18. Each Company agrees to advise the Agent in writing of: a) all
expenditures (actual or anticipated) in excess of $150,000.00 for x)
environmental clean-up, y) environmental compliance or z) environmental
testing and the impact of said expenses on the Companies' Working Capital;
and b) any notices a Company receives from any local, state or federal
authority advising the Company of any material environmental liability
(real or potential) stemming from a Company's operations, its premises, its
waste disposal practices, or waste disposal sites used by a Company and to
provide the Agent with copies of all such notices if so required.
19. Without the prior written consent of the Agent or the Required
Lenders, as the case may be, 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 except
for transactions conducted on an arm's length basis and on terms not
materially different than the terms the Company could have obtained from an
entity unrelated to the Company.
SECTION 8. Interest, Fees and Expenses
1. Interest on the Revolving Loan and all Acquisition Term Loans
shall be payable monthly as of the end of each month and shall be an amount
equal to: a) the then Chase Bank Rate less a quarter of one percent, or, at
ROA's election, the sum of two and one-quarter percent (2 1/4%) and the
Libor, or b) subject to paragraph 3 below, if the Companies' Funded Debt to
Net Worth Ratio for the preceding fiscal quarter was less than one to one
(1 to 1), the then Chase Bank Rate less one half of one percent, or, at
ROA' s election, the sum of one and three-quarters percent ( 1 3/4 /O) and
the Libor. Interest shall be computed on a per annum basis on the average
of the net balances owing by the Companies at the close of each day during
such month. In the event of any change in said Chase Bank Rate, the rate
hereunder shall change as of the first of the month following any change;
ROA may elect to use Libor as to any new or then outstanding Revolving
Loans or Acquisition Term Loans provided x) there is then no Default or
unwaived Event of Default and y)ROA has advised the Agent of its election
to use Libor and the Libor Period selected no later than three (3) Business
Days prior to the proposed borrowing or, in the case of a Libor election
with respect to a then outstanding Revolving Loan or Acquisition Term Loan,
three (3) Business Days prior to the conversion of any then outstanding
Revolving Loans or Acquisition Term Loan to Libor Loans and z) the election
and Libor shall be effective, provided there is then no Default or unwaived
Event of Default, on the fourth Business Day following said notice. The
Libor elections must be for $1,000,000.00 or whole multiples thereof. No
more than four (4) Libor elections may be in effect at any one time. The
Agent shall be entitled to charge the Collective Loan Account i) at the
rate provided for herein when due until all Obligations have been paid in
full; ii) the Libor Processing Fee on the effective date of the Libor
Election. All rates hereunder shall be calculated based on a 360 day year.
2. Intentionally Omitted
3. At the end of each fiscal quarter ROA, and if ROA shall fail to do
so, than a Company shall deliver to the Agent and each Lender a copy of the
Companies' i) Consolidated Balance Sheet for the fiscal quarter then ended
or ii)if the fiscal year is then over, Consolidated Balance Sheet for the
fiscal year then ended. If the Companies had, on a consolidated basis, for
the preceding fiscal quarter, a Funded Debt to Net Worth Ratio that
pursuant to paragraph 1 above entitles the Companies (but subject to the
provisions of paragraph 2 of Section 10 of this Financing Agreement) to the
lower spread over the Chase Bank Rate and Libor the reduction shall be
effective provided there is no Default or Event of Default then in
existence on both i) the date of delivery to the Agent of such Consolidated
Balance Sheet and ii) the date of effectiveness of such lower spreads. The
lower spread over x) the Chase Bank Rate shall be effective on the first
day of the month following the Agent's receipt of the aforesaid
Consolidated Balance Sheet; y) Libor as to all loans which are not Libor
Loans shall be effective on the first day of the month following the
Agent's receipt of the aforesaid Consolidated Balance Sheet; and z) Libor
as to all then Libor Loans shall be effective on the day after the
expiration of a Libor Period and such the lower spread over the Chase Bank
Rate and Libor shall be prospective only and shall not be retroactive.
Failure to deliver, within sixty (60) days of the end of a fiscal quarter
or within one hundred and twenty (120) days of the end of a fiscal year,
the aforesaid Consolidated Balance Sheet shall constitute a forfeiture by
the Companies of any right to a rate reduction for the next succeeding
quarter and the Agent may charge the highest spread permitted over Libor or
the Chase Bank Rate, as applicable.
4. The Companies shall pay to the Agent, for the account of the
Lenders, such amount or amounts as shall compensate the Lenders for any
loss, costs or expense incurred by the Agent and/or the Lenders as a result
of: (i) any payment or prepayment on a date other than the last day of a
Libor Period for such Libor Loan, or (ii) any failure to borrow a Libor
Loan on the date for such borrowing specified in the relevant notice; such
compensation to include, without limitation, an amount equal to any loss or
expense suffered by the Agent and/or the Lenders during the period from the
date of receipt of such payment or prepayment or the date of such failure
to borrow to the last day of such Libor Period if the rate of interest
obtained by the Agent and/or the Lenders upon the reemployment of an amount
of funds equal to the amount of such payment, prepayment or failure to
borrow is less than the rate of interest applicable to such Libor Loan for
such Libor Period. The determination by the Agent and/or the Lenders of the
amount of any such loss or expense, when set forth in a written notice to
the Companies, containing the calculations thereof in reasonable detail,
shall be conclusive, in the absence of manifest error.
5. The Companies shall pay the Agent, for the account of the Lenders,
in consideration of the Letter of Credit Guaranty, the Letter of Credit
Guaranty Fee, payable on date of issuance of the Letter of Credit, of one
and one-quarter percent (1 1/4%) of the face amount of such Letter of
Credit, provided, however, that if the Companies' Funded Debt to Net Worth
for the preceding fiscal quarter was less than one to one (1 to 1) then the
Letter of Credit Guaranty Fee shall be 1.125% of the face amount of such
Letter of Credit.
6. Intentionally Omitted
7. Any charges, fees, commissions, costs and expenses charged to the
Agent for any 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, the Agent and
when made by any such Issuing Bank shall be conclusive on the Agent.
8. The Companies shall reimburse or pay the Agent, as the case may
be, for: i) all Out-of-Pocket Expenses of the Agent and b) any applicable
Documentation Fee.
9. Upon the last Business Day of each month, the Companies shall pay
the Agent, for the account of the Lenders, a Line of Credit Fee in the
amount of $4,167.00.
10. To induce the Lenders, other than CITBC, to enter into this
Financing Agreement and to extend to the Company the Revolving Loan and the
Acquisition Term Loans, the Companies shall pay to the Agent, for the
account of the Lenders, other than CITBC, a Loan Facility Fee in the amount
of $75,000.00 payable at the earlier of i) April 1, 1998 or ii) the date
the Syndication is completed or iii) the sale by CITBC of a portion of the
facilities provided for herein.
11. Upon the first Business Day of each month, commencing with
December 31, 1997, the Companies shall pay to the Agent, solely for the
account of the Agent, a Collateral Management Fee of $1,000.00 a month
provided, however, that the fee for such month is waived if a) the
Syndication has been completed and b) the Companies' Funded Debt to Net
Worth for the preceding fiscal quarter is less than 1.50 to 1.
12. At the end of each fiscal quarter, ROA and if ROA shall fail to
do so than a Company shall deliver to the Agent and each Lender a copy of
the Companies' i) Consolidated Balance Sheet for the fiscal quarter then
ended or ii) if the fiscal year is then over, Consolidated Balance Sheet
for the fiscal year then ended. If the Companies had, for the preceding
fiscal quarters, a Funded Debt to Net Worth Ratio that pursuant to
paragraphs 5, 6, 9 and 11 above, or the Syndication Side Letter, entitles
the Companies to lower fees the reduction shall be effective provided each
of the following conditions are met: a) there is no Default or Event of
Default then in existence on both i) the date of delivery to the Agent of
such Consolidated Balance Sheet and ii) the date of effectiveness of such
lower fees and b) the lower fees shall be prospective only and shall not be
retroactive. Failure to deliver, within sixty (60) days of the end of a
fiscal quarter or within one hundred and twenty (120) days of the end of a
fiscal year, the aforesaid Consolidated Balance Sheet shall constitute a
forfeiture by the Companies of any right to a fee reduction for the next
succeeding quarter and the Agent may charge the highest fee permitted.
13. The Companies shall pay the Agent's standard charges for, and the
fees and expenses of, the Agent's personnel for reviewing the books and
records of the Companies, or any one or more of them, 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 if the Companies are paying a Collateral Management Fee. If the
Companies are not paying a Collateral Management Fee and there is then no
Default or Event of Default, such fees and expenses shall not exceed
$6,000.00 in any calendar year, provided, however, that whether or not the
Companies are paying a Collateral Management Fee, if there is a then
Default or Event of Default then there shall be no dollar limitation on the
amount of such fees and expenses.
14. Each Company hereby authorizes the Agent to charge the Collective
Loan Account with the Agent with the amount of all payments due hereunder
as such payments become due. Each Company confirms that any charges which
the Agent may so make to the Collective Loan Account as herein provided
will be made as an accommodation to the Companies and solely at the Agent's
discretion.
SECTION 9. Powers
Each Company hereby constitutes the Agent on behalf of the Lenders or
any person or agent the Agent 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 have been paid in full:
(a) To receive, take, endorse, sign, assign and deliver, all in the name
of the Agent 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 the Agent may designate;
(c) To request from customers indebted on Accounts at any time, in the
name of the Agent or the applicable Company or that of the Agent's
designee, information concerning the amounts owing on the Account;
(d) To transmit to customers indebted on Accounts notice of the Agent's
interest therein and to notify customers indebted on Accounts to make
payment directly to the Agent for the Collective Loan Account; and
(e) To take or bring, in the name of the Agent or any Company, all
steps, actions, suits or proceedings deemed by the Agent 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, the Agent,
acting for the Lenders, 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 constitute an Event of
Default if the proceeding, case, petition or arrangement is
dismissed within sixty (60) days of such filing or
commencement;
(e) material breach by any Company of any warranty, representation
or covenant contained herein (other than those referred to in
sub-paragraph f below) or in any other written agreement
between the Agent and/or the Lenders and any Company,
provided that such Default by any Company of any of the
warranties, representations or covenants referred in this
clause e shall not be deemed to be an Event of Default unless
and until such Default shall remain unremedied to the Agent'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 15;
(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 the Agent 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; and
(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 or condition x) remains uncured for
a period of ninety (90) days from date of occurrence and y)
could, in the reasonable opinion of the Agent, subject any
Company to any tax, penalty or other liability material to the
business, operations or financial condition of any Company.
2. Upon the occurrence of a Default and/or an Event of Default, at
the option of the Agent, all loans and advances provided for in paragraph 1
of Section 3 of this Financing Agreement shall be thereafter in the Agent's
sole discretion and the obligation of the Lenders, acting through the
Agent, to make revolving loans, Acquisition Term Loans, and/or open Letters
of Credit shall cease unless such Default is cured to the Agent's
satisfaction or such Event of Default is waived, and at the option of the
Agent, or at the direction of the Required Lenders, upon the occurrence of
an Event of Default: i) all Obligations shall become immediately due and
payable; ii) the Agent may charge the Default Rate of Interest on all then
outstanding or thereafter incurred Obligations in lieu of the interest
provided for in Section 8 of this Financing Agreement provided a) the Agent
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
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) the
Agent 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) the Agent may immediately terminate this Financing Agreement
upon notice to ROA, provided, however, that no notice of termination is
required if the Event of Default is the event listed in paragraph 1 (c) or
1 (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 the Agent. A Default
Rate of Interest shall cease as soon as the Event of Default giving rise to
the Default Rate of Interest is waived. In the event the Default Rate of
Interest is charged as a result of a breach or violation of paragraphsl4 or
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, the Agent
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
the Agent 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 the Agent, and generally shall have all other rights
respecting said Accounts, including without limitation the right to:
accelerate or 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 the applicable Company or the Agent; (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 the Agent's sole option and discretion, and the Agent may bid
or become a purchaser at any such sale, free from any right of redemption,
which right is hereby expressly waived by the Companies; (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 rights and remedies provided
in law, in equity, by contract or otherwise. The Agent 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
the Agent, or in the name of such other party as the Agent 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 the Agent in
its sole discretion may deem advisable, and the Agent shall have the right
to purchase at any such sale. If any Inventory and Equipment shall require
rebuilding, repairing, maintenance or preparation, the Agent 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 the
Agent shall deem appropriate. Each Company agrees, at the request of the
Agent, to assemble the Inventory and Equipment and to make it available to
the Agent at premises of any Company where then located and to make
available to the Agent the premises and facilities of any Company for the
purpose of the Agent's taking possession of, removing or putting the
Inventory located there and Equipment located there 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 the Agent's exercise of any of the foregoing rights, (after
deducting all charges, costs and expenses, including reasonable attorneys'
fees) shall be applied by the Agent to the payment of the Obligations,
whether due or to become due, in such order as the Agent may elect, and
each Company shall remain liable to the Agent for any deficiencies, and the
Agent in turn agrees to remit to ROA or its 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
rights and remedies of the Agent thereto.
SECTION 11. Termination
Except as otherwise permitted herein, the Agent may, and shall at the
request of the Required Lenders, terminate this Financing Agreement and the
Line of Credit only as of the fifth or any subsequent Anniversary Date and
then only by giving ROA at least sixty (60) days prior written notice of
termination. Notwithstanding the foregoing, the Agent may, and shall at the
request of the Required Lenders, terminate the Financing Agreement
immediately upon the occurrence of an Event of Default, provided, however,
that if the Event of Default is an event listed in paragraph 1 (c) or 1 (d)
of Section 10 of this Financing Agreement, the Agent 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.
Notwithstanding the foregoing, ROA may terminate this Financing Agreement
and the Line of Credit at any time upon sixty (60) days' prior written
notice to the Agent, provided that the Companies pay to the Agent, for the
account of the Lenders, immediately on demand, an Early Termination Fee and
the Prepayment Premium, if applicable, provided, however, that in the event
CITBC, or an affiliate or subsidiary of CITBC, ceases to be either a Lender
or the Agent, ROA may, within sixty (60) days from the date such cessation
occurs, terminate this Financing Agreement and the Line of Credit upon
sixty (60) days prior notice to the Agent without payment of an Early
Termination Fee and/or the Prepayment Premium. All Obligations shall become
due and payable as of any termination hereunder or under Section 10 hereof
and, pending a final accounting, the Agent may withhold any balances in the
Collective Loan Account (unless supplied with an indemnity satisfactory to
the Agent) to cover all of the Obligations, whether absolute or contingent.
All of the Agent's rights, liens and security interests shall continue
after any termination until all Obligations have been paid and satisfied in
full.
SECTION 12. Agreement between the Lenders
1. a) The Agent, for the account of the Lenders, shall disburse all loans
and advances to the Companies and shall handle all collections of
Collateral and repayment of Obligations. It is understood that for
purposes of advances to the Companies and for purposes of this Section 12
the Agent is using the funds of the Agent.
b) Unless the Agent shall have been notified in writing by any Lender
prior to any advance to one or more of the Companies that such Lender will
not make the amount which would constitute its share of the borrowing on
such date available to the Agent, the Agent may assume that such Lender
shall make such amount available to the Agent on a Settlement Date and the
Agent may, in reliance upon such assumption, make available to one or more
of the Companies a corresponding amount. A certificate of the Agent
submitted to any Lender with respect to any amount owing under this
subsection shall be conclusive, absent manifest error. If such Lender's
share of such borrowing is not in fact made available to the Agent by such
Lender on the Settlement Date, the Agent shall be entitled to recover such
amount with interest thereon at the highest rate per annum applicable to
Revolving Loans hereunder, on demand, from the Companies without prejudice
to any rights which the Agent may have against such Lender hereunder.
Nothing contained in this subsection shall relieve any Lender which has
failed to make available its ratable portion of any borrowing hereunder
from its obligation to do so in accordance with the terms hereof. Nothing
contained herein shall be deemed to obligate Agent to make available to any
Company the full amount of a requested advance when the Agent has any
notice (written or otherwise) that any of the Lenders will not advance its
ratable portion thereof.
2. On the Settlement Date, the Agent and the Lenders shall each remit
to the other, in immediately available funds, all amounts necessary so as
to ensure that, as of the Settlement Date, the Lenders shall have their
proportionate share of all outstanding Obligations.
3. The Agent shall forward to each Lender, at the end of each month, a
copy of the account statement rendered by the Agent to ROA.
4. The Agent shall, after receipt of any interest and fees earned under
this Financing Agreement, promptly remit to the Lenders: a) their pro rata
portion of all fees, provided, however, that the Lenders (other than CITBC
in its role as Lender and as Agent) shall x) not share in the Collateral
Management Fee or Documentation Fees; and y) receive their share of the
Loan Facility Fee in accordance with their respective agreements with the
Agent; and b) interest computed at the applicable rate provided for in this
Financing Agreement on all outstanding amounts advanced by the Lenders on
each Settlement Date, prior to adjustment, that are subsequent to the last
remittance by the Agent to the Lenders of the Company's interest.
5. (a) Each Company acknowledges that the Lenders, with the consent of
the Agent, may sell participations in the loans and extensions of credit
made and to be made hereunder (the "Participants").Each Company further
acknowledges that in doing so, the Lenders may grant to such Participants
certain rights which would require the Participant's consent to certain
waivers, amendments and other actions with respect to the provisions of
this Financing Agreement, provided that the consent of any such Participant
shall not be required except for matters requiring the consent of all
Lenders hereunder as set forth in Section 13, Paragraph 10 hereof.
(b) Each Company authorizes each Lender to disclose to any Participant
or purchasing lender (each, a "Transferee") and any prospective Transferee
any and all financial information in such Lender's possession concerning
the Companies and their affiliates which has been delivered to such Lender
by or on behalf of any Company pursuant to this Agreement or which has been
delivered to such Lender by or on behalf of any Company in connection with
such Lender's credit evaluation of the Companies and their affiliates prior
to entering into this Agreement.
6. Each Company has made and will, from time to time, make available to
the Agent and/or the Lenders certain financial and other business
information (the "Confidential Information") relating to its business. By
their signatures hereto or to the Assignment and Transfer Agreement, the
Agent and each Lender agree to maintain the confidentiality of all
Confidential Information, and to disclose such information only (a) to
officers, directors or employees of such Agent or Lender and their legal or
financial advisors, in each case to the extent necessary to carry out this
Financing Agreement and in the case of CITBC, to The CIT Group Holdings,
Inc., The CIT Group, Inc., Chase Manhattan Bank Corporation or Dai-Ichi
Kangyo Bank, (b) to any other Person to the extent the disclosure of such
information to such Person is required in connection with the examination
of a Lender's records by appropriate authorities, pursuant to court order,
subpoena or other legal process or otherwise as required by law or
regulation, and (c) to Transferees or potential Transferees. The Lenders,
the Agent, Transferees and potential Transferees shall not be required to
maintain the confidentiality of any portion of the Confidential
Information which (a) is known by such Person or its agents, advisors or
representatives prior to disclosure or (b) becomes generally available to
the public provided that the disclosure of such Confidential Information
does not violate a confidentiality agreement of which the Transferees,
potential Transferees, the Agent or the Lender, as the case may be, has
actual knowledge.
7. Each Company hereby agrees that each Lender is solely responsible
for its portion of the Line of Credit and that neither the Agent nor any
Lender shall be responsible for, nor assume any obligations for, the
failure of any Lender to make available its portion of the Line of Credit.
Further, should any Lender refuse to make available its portion of the Line
of Credit, then another Lender may, but without obligation to do so,
increase, unilaterally, its portion of the Line of Credit in which event
the Companies are so obligated to that other Lender.
8. In the event that the Agent, the Lenders or any one of them is sued
or threatened with suit by any Company, or by any receiver, trustee,
creditor or any committee of creditors on account of any preference,
voidable transfer or lender liability issue, alleged to have occurred or
been received as a result of, or during the transactions contemplated
under, this Financing Agreement, then in such event any money paid in
satisfaction or compromise of such suit, action, claim or demand and any
expenses, costs and attorneys' fees paid or incurred in connection
therewith, whether by the Agent, the Lenders or any one of them, shall be
shared proportionately by the Lenders. In addition, any costs, expenses,
fees or disbursements incurred by outside agencies or attorneys retained by
the Agent to effect collection or enforcement of any rights in the
Collateral, including enforcing, preserving or maintaining rights under
this Financing Agreement shall be shared proportionately between and among
the Lenders to the extent not reimbursed by the Companies or from the
proceeds of Collateral. The provisions of this paragraph shall not apply
to any suits, actions, proceedings or claims that are unrelated, directly
or indirectly, to this Financing Agreement.
9. Each of the Lenders agrees with each other Lender that any money or
assets of any Company held or received by such Lender, no matter how or
when received, shall be applied to the reduction of the Obligations (to the
extent permitted hereunder) after x) the occurrence of an Event of Default
and y) the election by the Required Lenders to accelerate the Obligations.
In addition, each Company authorizes, and the Lenders shall have the right,
without notice, upon any amount becoming due and payable hereunder, to
set-off and apply against any and all property held by, or in the
possession of, such Lender the Obligations due such Lenders.
10. CITBC shall have the right at any time to assign to one or more
commercial banks, commercial finance lenders or other financial
institutions all or a portion of its rights and obligations under this
Financing Agreement (including, without limitation, its obligations under
the Line of Credit, the Revolving Loans, the Acquisition Term Loans and its
rights and obligations with respect to Letters of Credit). The initial
assignments by CITBC shall be for amounts not less than $5,000,000.00 each.
Upon execution of an Assignment and Transfer Agreement, (i) the assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such assignment,
have the rights and obligations of CITBC as the case may be hereunder and
(ii) CITBC shall, to the extent that rights and obligations hereunder have
been assigned by it pursuant to such assignment, relinquish its rights and
be released from its obligations under this Financing Agreement. Each
Company shall, if necessary, execute any documents reasonably required to
effectuate the assignments. No other Lender may assign its interest, in
whole or in part, in the loans and advances and extensions of credit
hereunder without i) the prior written consent of the Agent and the Agent
will give reasonable and good faith consideration to the opinions of ROA as
to such prospective assignee; ii) the payment to the Agent (solely for the
Agent's account) by the current or prospective Lender of a $5,000.00 fee
for processing the assignment; and (iii) if the Transferee is a Foreign
Lender (as defined in paragraph 11 below) such Foreign Lender first
complies with the provisions of paragraph 11 below. Additionally, no other
Lender shall assign such Lender's interest in the loans and advances and
extensions of credit hereunder (or any portion thereof) unless the interest
to be so assigned is not less than $5,000,000.00 or all of the such
Lender's entire interest in the loans and advances and extensions of credit
hereunder.
11. Any Lender organized under the laws of a jurisdiction outside of
the United States (a "Foreign Lender") shall deliver to Agent and ROA (i)
two valid, duly completed copies of IRS Form 1001 or 4224 or successor
applicable form, as the case may be, and any other required form,
certifying in each case that such Foreign Lender is entitled to receive
payments under this Financing Agreement without deduction or withholding of
any United States federal income taxes, or (ii) if such Foreign Lender is
not a "bank" within the meaning of Section 881 (c) (3) (A) of the Internal
Revenue Code and cannot deliver either IRS Form 1001 or 4224 pursuant to
clause (i) above, (A) a duly completed certificate of non-withholding
acceptable to ROA and the Agent in their reasonable discretion (any such
certificate, a "Tax Certificate") and (B) two valid, duly completed copies
of IRS Form W-8 or successor applicable form, as the case may be, to
establish an exemption from United States backup withholding tax. Each
such Foreign Lender shall also deliver to Agent and ROA two further copies
of said Form 1001 or 4224 or Form W-8 and a Tax Certificate, or successor
applicable forms, or other manner of required certification, as the case
may be, on or before the date that any such form expires or becomes
obsolete or otherwise is required to be resubmitted as a condition to
obtaining an exemption from a required withholding of United States of
America federal income tax or after the occurrence of any event requiring a
change in the most recent form previously delivered by it to ROA and Agent,
and such extensions or renewals thereof as may reasonably be requested by
ROA and Agent, certifying (x) in the case of a Form 1001 or 4224 that such
Foreign Lender is entitled to receive payments under this Financing
Agreement without deduction or withholding of any United States federal
income taxes, or (y) in the case of a Form W-8 and a Tax Certificate,
establishing an exemption from United States backup withholding tax.
SECTION 13. Agency
1. Each Lender hereby irrevocably designates and appoints CITBC as the
Agent for the Lenders under this Financing Agreement and any ancillary loan
documents and irrevocably authorizes CITBC as Agent for such Lender, to
take such action on its behalf under the provisions of the Financing
Agreement and all ancillary documents and to exercise such powers and
perform such duties as are expressly delegated to the Agent by the terms of
this Financing Agreement and all ancillary documents together with such
other powers as are reasonably incidental thereto. Notwithstanding any
provision to the contrary elsewhere in this Financing Agreement, the Agent
shall not have any duties or responsibilities, except those expressly set
forth herein, or any fiduciary relationship with any Lender and no implied
covenants, functions, responsibilities, duties, obligations or liabilities
shall be read into this Financing Agreement and the ancillary documents or
otherwise exist against the Agent.
2. The Agent may execute any of its duties under this Financing
Agreement and all ancillary documents by or through agents or
attorneys-in-fact and shall be entitled to the advice of counsel concerning
all matters pertaining to such duties.
3. Neither the Agent nor any of its officers, directors, employees,
agents, or attorneys-in-fact shall be (i) liable to any Lender for any
action lawfully taken or omitted to be taken by it or such person under or
in connection with the Financing Agreement and all ancillary documents
(except for its or such person's own negligence or willful misconduct), or
(ii) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by any Company or any
officer thereof contained in the Financing Agreement and all ancillary
documents or in any certificate, report, statement or other document
referred to or provided for in, or received by, the Agent under or in
connection with the Financing Agreement and all ancillary documents or for
the value, validity, effectiveness, genuineness, enforceability or
sufficiency of the Financing Agreement and all ancillary documents or for
any failure of any Company to perform its obligations thereunder. The
Agent shall not be under any obligation to any Lender to ascertain or to
inquire as to the observance or performance of any of the agreements
contained in, or conditions of, the Financing Agreement and all ancillary
documents or to inspect the properties, books or records of any Company.
4. The Agent shall be entitled to rely, and shall be fully protected in
relying, upon any note, writing, resolution, notice, consent, certificate,
affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document or conversation believed by it
to be genuine and correct and to have been signed, sent or made by the
proper person or persons and upon advice and statements of legal counsel
(including, without limitation, counsel to ROA), independent accountants
and other experts selected by the Agent. The Agent shall be fully
justified in failing or refusing to take any action under this Financing
Agreement and all ancillary documents unless it shall first receive such
advice or concurrence from all of the Lenders, or the Required Lenders, as
the case may be, as it deems appropriate or it shall first be indemnified
to its satisfaction by the Lenders against any and all liability and
expense which may be incurred by it by reason of taking or continuing to
take any such action. The Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Financing Agreement and
all ancillary documents in accordance with a request from all of the
Lenders, or the Required Lenders, as the case may be, and such request and
any action taken or failure to act pursuant thereto shall be binding upon
all the Lenders.
5. The Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default hereunder unless the Agent
has received notice from a Lender or a Company describing such Default or
Event of Default. In the event that the Agent receives such a notice, the
Agent shall promptly give notice thereof to the Lenders. The Agent shall
take such action with respect to such Default or Event of Default as shall
be reasonably directed by the Required Lenders; provided that unless and
until the Agent shall have received such direction, the Agent may in the
interim (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it
shall deem advisable and in the best interests of the Lenders.
6. Each Lender expressly acknowledges that neither the Agent nor any of
its officers, directors, employees, agents or attorneys-in-fact has made
any representations or warranties to it and that no act by the Agent
hereinafter taken, including any review of the affairs of any Company,
shall be deemed to constitute any representation or warranty by the Agent
to any Lender. Each Lender represents to the Agent that it has,
independently and without reliance upon the Agent or any other Lender and
based on such documents and information as it has deemed appropriate, made
its own appraisal of, and investigation into, the business, operations,
property, financial and other condition and creditworthiness of the
Companies and made its own decision to enter into this Financing Agreement.
Each Lender also represents that it will, independently and without
reliance upon the Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking
action under this Financing Agreement and to make such investigation as it
deems necessary to inform itself as to the business, operations, property,
financial and other condition or creditworthiness of the Companies. The
Agent, however, shall provide the Lenders with copies of all financial
statements, projections and business plans which come into the possession
of the Agent or any of its officers, employees, agents or
attorneys-in-fact.
7. The Lenders agree to indemnify the Agent in its capacity as such (to
the extent not reimbursed by any Company and without limiting the
obligation of the Companies to do so), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever (including
negligence on the part of the Agent) which may at any time be imposed on,
incurred by or asserted against the Agent in anyway relating to, or arising
out of, this Financing Agreement or any ancillary documents or any
documents contemplated by or referred to herein or the transactions
contemplated hereby or any action taken or omitted by the Agent under or in
connection with any of the foregoing; provided that no Lender shall be
liable for the payment of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting solely from the Agent's gross negligence or willful
misconduct. The agreements in this paragraph shall survive the payment of
the Obligations.
8. The Agent may make loans to, and generally engage in any kind of
business with, any Company as though the Agent were not the Agent
hereunder. With respect to its loans made or renewed by it or loan
obligations hereunder as Lender, the Agent shall have the same rights and
powers, duties and liabilities under this Financing Agreement as any Lender
and may exercise the same as though it was not the Agent and the terms
"Lender" and "Lenders" shall include the Agent in its individual
capacities.
9. The Agent may resign as Agent upon thirty (30) days' notice to the
Lenders and such resignation shall be effective upon the appointment of a
successor Agent. If the Agent shall resign as Agent, then the Lenders
shall appoint a successor agent for the Lenders whereupon such successor
agent shall succeed to the rights, powers and duties of the Agent and the
term "Agent" shall mean such successor agent effective upon its
appointment, and the former Agent's rights, powers and duties as Agent
shall be terminated, without any other or further act or deed on the part
of such former Agent or any of the parties to this Financing Agreement,
provided, however, that the Lenders shall: a) notify ROA of the successor
Agent and b) request the consent of ROA to such successor Agent, which
consent shall not be unreasonably withheld. ROA shall be deemed to have
consented to the successor Agent if the Lenders do not receive from ROA,
within ten (10) days of the Lenders' notice to ROA, a written statement of
ROA's objection to the successor Agent. Should ROA not consent and no
acceptable successor Agent is agreed upon within thirty (30) days of the
date ROA advised the Lenders of its objection to the successor Agent, then
the Lenders may appoint (without ROA's consent) another successor Agent.
After any retiring Agent's resignation hereunder as Agent the provisions of
this Section shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was Agent.
10. Notwithstanding anything contained in this Financing Agreement to
the contrary, the Agent will not, without the prior written consent of all
Lenders: a) amend the Financing Agreement to v) increase the Line of
Credit; w) reduce the interest rates; x) reduce or waive i) any fees in
which the Lenders share hereunder; or ii) the repayment of any Obligations
due the Lenders; y) extend the maturity of the Obligations; or z) alter or
amend 1 ) this Paragraph 10, 2) the definitions of Eligible Accounts
Receivable, Eligible Inventory, Collateral or Required Lenders, or the
Agent's criteria for determining compliance with such definitions of
eligibility; or 3) the rates of advance set forth in Paragraph 1 of Section
3 hereof; b) release Collateral in bulk without a corresponding reduction
in the Obligations to the Lenders, or c) intentionally make any Revolving
Loan or assist in opening any Letter of Credit hereunder if after giving
effect thereto the total of Revolving Loans and Letters of Credit hereunder
would exceed one hundred and ten percent (110%) of the maximum amount
available under Sections 3 and 4 hereof. In all other respects the Agent
is authorized to take such actions or fail to take such actions if the
Agent, in its reasonable discretion, deems such to be advisable and in the
best interest of the Lenders, including, but not limited to, the making of
an overadvance or the termination of the Financing Agreement upon the
occurrence of an Event of Default unless it is specifically instructed to
the contrary by the Required Lenders.
11. Each Lender agrees that notwithstanding the provisions of Section
11 of this Financing Agreement, any Lender may terminate this Financing
Agreement or the Line of Credit only as of the fifth or any subsequent
Anniversary Date and then only by giving the Agent ninety (90) days prior
written notice thereof. Within thirty (30) days after receipt of any such
termination notice, the Agent shall, at its option, either (i) give notice
of termination to ROA hereunder or (ii) purchase such Lender's share of the
Obligations hereunder for the full amount thereof plus accrued interest
thereon. Unless so terminated this Financing Agreement and the Line of
Credit shall be automatically extended from Anniversary Date to Anniversary
Date.
SECTION 14. 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 the Agent or any Lender 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 the
Agent or any Lender 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,
the Lenders and the Agent; supersedes any prior agreements; can be changed
only by a writing signed by the Companies, the Agent or the Required
Lenders, as applicable; and shall bind and benefit the parties thereto and
their respective successors and assigns.
3. In the event that any Lender shall have determined in the exercise
of its reasonable business judgement subsequent to the date of execution of
this Financing Agreement that any applicable law, rule, regulation or
guideline regarding capital adequacy, or change therein, or any change in
the interpretation or administration thereof, or compliance by such Lender
with any request or directive regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on such
Lender's capital as a consequence of its obligations hereunder to a level
below that which such Lender could have achieved but for such adoption,
change or compliance (taking into consideration the Lender's policies with
respect to capital adequacy) by an amount reasonably deemed by the Lender
to be material, then, from time to time, ROA shall pay no later than five
(5) Business Days following demand to such Lender such additional amount or
amounts as will compensate such Lender for such reduction. In determining
such amount or amounts, such Lender may use any reasonable averaging or
attribution methods. The protection of this paragraph 3 shall be available
to such Lenders regardless of any possible contention of invalidity or
inapplicability with respect to the applicable law, regulation or
condition. A certificate of any Lender setting forth such amount or
amounts as shall be necessary to compensate such Lender with respect to
this paragraph 3 and the calculation thereof when delivered to ROA shall be
conclusive absent manifest error. Notwithstanding anything in this
paragraph to the contrary, in the event any Lender has exercised its rights
pursuant to this paragraph, and subsequent thereto determines that the
additional amounts paid exceeds the amount which such Lender actually
required pursuant hereto, the excess, if any, shall be returned to ROA by
such Lender.
4. In the event that any applicable law, treaty or governmental
regulation, or any change therein or in the interpretation or application
thereof, or compliance by any Lender with any request or directive
(whether or not having the force of law) from any central bank or other
financial, monetary or other authority, shall:
(a) subject any Lender to any tax of any kind whatsoever with respect to
this Financing Agreement or change the basis of taxation of payments of
principal, fees, interest or any other amount payable hereunder or under
any other documents (except for changes in the rate of tax on the
overall net income of such Lender by the federal government or the
jurisdiction in which it maintains its principal office);
(b) impose, modify or hold applicable any reserve, special deposit,
assessment or similar requirement against assets held by, or deposits in
or for the account of, advances or loans by, or other credit extended
by, any office of such Lender by reason of or in respect to this
Financing Agreement including (without limitation) pursuant to
Regulation D of the Board of Governors of the Federal Reserve System; or
(c) impose on such Lender any other condition with respect to this
Financing Agreement or any other document, and the result of any of the
foregoing is to increase the cost to the Lender of making, renewing or
maintaining its loans hereunder by an amount that such Lender deems to
be material in the exercise of its reasonable business judgement or to
reduce the amount of any payment (whether of principal, interest or
otherwise) in respect of any of the loans by an amount that such Lender
deems to be material in the exercise of its reasonable business
judgement, then, in any case ROA shall pay such Lender, within five (5)
Business Days following its demand, such additional cost or such
reduction, as the case may be. The Lender shall certify the amount of
such additional cost or reduced amount to ROA and the calculation
thereof and such certification shall be conclusive absent manifest
error. Notwithstanding anything in this paragraph to the contrary, in
the event any Lender has exercised its rights pursuant to this
paragraph, and subsequent thereto determines that the additional amounts
paid exceeds the amount which the Lender actually required pursuant
hereto, the excess, if any, shall be returned to ROA by such Lender.
5. In no event shall any Company, upon demand 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, neither the Agent nor the Lenders shall 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 the Agent or any Lender 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. This paragraph shall
control every other provision hereof and of any other agreement made in
connection herewith.
6. 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.
7. The Companies, the Agent and the Lenders 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, 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 the Agent 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.
8. EACH COMPANY, EACH LENDER AND THE AGENT 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.
9. 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 the Agent or CITBC, at:
The CIT Group/Business Credit, Inc.
1211 Avenue of the Americas
New York, New York 10036
Attn: Regional Credit Manager
(B) if to any Company at:
Rock of Ages Corporation
772 Granitville Road
Barre, Vermont 05654
Attn: Chief Executive Officer
or to such other address as any Party may designate for itself by like
notice.
10. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS FINANCING
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Financing
Agreement to be executed 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.
(AS AGENT)
By \s\ James
------------------------------------
Vice President
THE CIT GROUP/BUSINESS CREDIT, INC.
(AS LENDER)
By \s\ James
-----------------------------------
Vice President
ROCK OF AGES CORPORATION
By \s\ Kurt M. Swenson
-----------------------------------
Title: President
ROYALTY GRANITE CORPORATION
By \s\ Kurt M. Swenson
-----------------------------------
Title: Chairman and Chief Executive
Officer
CAROLINA QUARRIES, INC.
By \s\ Kurt M. Swenson
-----------------------------------
Title: Chairman and Chief Executive
Officer
PENNSYLVANIA GRANITE CORP.
By \s\ Kurt M. Swenson
-----------------------------------
Title: Chairman and Chief Executive
Officer
CHILDS & CHILDS GRANITE COMPANY, INC.
By \s\ Kurt M. Swenson
-----------------------------------
Title: Chairman and Chief Executive
Officer
SOUTHERN MAUSOLEUMS, INC.
By \s\ Kurt M. Swenson
-----------------------------------
Title: Chairman and Chief Executive
Officer
ROCK OF AGES MEMORIALS LLC
By \s\ Kurt M. Swenson
-----------------------------------
Title: Chairman and Chief Executive
Officer
EXHIBIT A - ASSIGNMENT AND TRANSFER AGREEMENT
Dated: , 199
Reference is made to the Financing Agreement, dated December , 199 (as
amended, modified, supplemented and in effect from time to time, the
"Financing Agreement"), among ROCK OF AGES CORPORATION (herein "ROA"), a
Delaware corporation with a principal place of business at 772
Granitville Road, Barre, Vermont 05654; ROYALTY GRANITE CORPORATION (herein
"Royalty"), a Georgia corporation with a principal place of business at SR
294, Berkley Quarry Road, Carlton, Georgia 30627; CAROLINA QUARRIES, INC.
(herein "Carolina"), a Georgia corporation with a principal place of
business at 805 Harris Granite Road, Salisbury, North Carolina 28146;
PENNSYLVANIA GRANITE CORP. (herein "Pennsylvania"), a Pennsylvania
corporation with a principal place of business at 410 Tryhall Road,
Elverson, Pennsylvania 19520; CHILDS & CHILDS GRANITE COMPANY, INC.
("Childs"), a Georgia corporation with a principal place of business at
1130 Hartwell Highway, Elberton, Georgia 30635; SOUTHERN MAUSOLEUMS, INC.
(' Mausoleums"), a Georgia corporation with a principal place of business
at 1167 Bowman Highway, Elberton, Georgia 30635; ROCK OF AGES MEMORIALS LLC
("Memorials"), a limited liability company formed under the laws of
Delaware with a principal place of business at 1024 North Dixie,
Elizabethtown, Kentucky 42701; and such other subsidiaries or affiliates of
the foregoing as the Lenders, by unanimous consent, permit to become
parties to the Financing Agreement (herein collectively the "Companies"),
the Lenders named therein, and The CIT Group/Business Credit, Inc., as
Agent (the "Agent"). Capitalized terms used herein and not otherwise
defined shall have the meanings assigned to such terms in the Financing
Agreement. This Assignment and Transfer Agreement, between the Assignor
(as defined and set forth on Schedule 1 hereto and made a part hereof) and
the Assignee (as defined and set forth on Schedule 1 hereto and made a part
hereof) is dated as of the Effective Date (as set forth on Schedule 1
hereto and made a part hereof).
1. The Assignor hereby irrevocably sells and assigns to the Assignee
without recourse to the Assignor, and the Assignee hereby irrevocably
purchases and assumes from the Assignor without recourse to the Assignor,
as of the Effective Date, an undivided interest (the "Assigned Interest")
in and to all the Assignor's rights and obligations under the Financing
Agreement respecting those, and only those, financing facilities contained
in the Financing Agreement as are set forth on Schedule 1 (collectively,
the "Assigned Facilities" and individually, an "Assigned Facility"), in a
principal amount for each Assigned Facility as set forth on Schedule 1.
2. The Assignor (i) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with the Financing Agreement or
any other instrument, document or agreement executed in conjunction
therewith (collectively the "Ancillary Documents") or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of
the Financing Agreement, any Collateral thereunder or any of the Ancillary
Documents furnished pursuant thereto, other than that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that
such interest is free and clear of any adverse claim and (ii) makes no
representation or warranty and assumes no responsibility with respect to
the financial condition of the Companies or any guarantor or the
performance or observance by the Companies or any guarantor of any of their
respective obligations under the Financing Agreement or any of the
Ancillary Documents furnished pursuant thereto.
3. The Assignee (i) represents and warrants that it is legally
authorized to enter into this Assignment and Transfer Agreement; (ii)
confirms that it has received a copy of the Financing Agreement, together
with the copies of the most recent financial statements of the Companies,
and such other documents and information as it has deemed appropriate to
make its own credit analysis; (iii) agrees that it will, independently and
without reliance upon the Agent, the Assignor or any other Lender and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action
under the Financing Agreement; (iv) appoints and authorizes the Agent to
take such action as agent on its behalf and to exercise such powers under
the Financing Agreement as are delegated to the Agent by the terms thereof,
together with such powers as are reasonably incidental thereto; (v) agrees
that it will be bound by the provisions of the Financing Agreement and will
perform in accordance with its terms all the obligations which by the terms
of the Financing Agreement are required to be performed by it as Lender;
and (vi) if the Assignee is organized under the laws of a jurisdiction
outside the United States, attaches the forms prescribed by the Internal
Revenue Service of the United States certifying as to the Assignee's
exemption from United States withholding taxes with respect to all payments
to be made to the Assignee under the Financing Agreement or such other
documents as are necessary to indicate that all such payments are subject
to such tax at a rate reduced by an applicable tax treaty.
4. Following the execution of this Assignment and Transfer Agreement,
such agreement will be delivered to the Agent for acceptance by it and the
Companies, effective as of the Effective Date.
5. Upon such acceptance, from and after the Effective Date, the Agent
shall make all payments in respect of the Assigned Interest (including
payments of principal, interest, fees and other amounts, except as
otherwise provided in the Financing Agreement) to the Assignee, whether
such amounts have accrued prior to the Effective Date or accrue subsequent
to the Effective Date. The Assignor and Assignee shall make all
appropriate adjustments in payments for periods prior to the Effective Date
made by the Agent or with respect to the making of this assignment directly
between themselves.
6. From and after the Effective Date, (i) the Assignee shall be a party
to the Financing Agreement and, to the extent provided in this Assignment
and Transfer Agreement, have the rights and obligations of a Lender
thereunder, and (ii) the Assignor shall, to the extent provided in this
Assignment and Transfer Agreement, relinquish its rights and be released
from its obligations under the Financing Agreement.
7. THIS ASSIGNMENT AND TRANSFER AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed by their respective duly authorized officers on
Schedule 1 hereto.
SCHEDULE 1 TO ASSIGNMENT AND TRANSFER AGREEMENT
Name of Assignor:__________________________________________________________
Name of Assignee:__________________________________________________________
Effective Date of Assignment: _____________________________________, 199___
Percentage Assigned of Each
Principal Amount (or, Facility (Shown as a percentage
with respect to of aggregate original principal
Letters of Credit amount [or, with respect to
Assigned Face Amount Letters of Credit, face amount]
Facilities Assigned of all Lenders)
---------- -------------------- -------------------------------
Acquisition Term
Loans $_________________ __________%
Revolving Loans $_________________ __________%
Letter of Credit
participation
interest $_________________ __________%
Total $_________________
Fees:
Rates:
Accepted:
THE CIT GROUP/BUSINESS CREDIT, INC. (NAME OF ASSIGNOR)
AS AGENT AS ASSIGNOR
By: ______________________________ By:____________________________
Title: Vice President Title: ________________________
ROCK OF AGES CORPORATION (NAME OF ASSIGNEE)
(A "COMPANY") as Assignee
By: ______________________________ By:____________________________
Title: Vice President Title: ________________________
ROYALTY GRANITE CORPORATION PENNSYLVANIA GRANITE CORP.
(A "COMPANY") (A "COMPANY")
By:_______________________________ By:____________________________
Title: Chairman and Chief Title: Chairman and Chief
Executive Officer Executive Officer
CAROLINA QUARRIES, INC. CHILDS & CHILDS GRANITE, INC.
(A "COMPANY") (A "COMPANY")
By:_______________________________ By:____________________________
Title: Chairman and Chief Title: Chairman and Chief
Executive Officer Executive Officer
SOUTHERN MAUSOLEUMS, INC. ROCK OF AGES MEMORIALS LLC
(A "COMPANY) (A "COMPANY")
By:_______________________________ By:____________________________
Title: Chairman and Chief Title: Chairman and Chief
Executive Officer Executive Officer
EXHIBIT B
PROMISSORY NOTE
_____________, 199_
$___________.00
FOR VALUE RECEIVED, the undersigned, ROCK OF AGES CORPORATION, a Delaware
corporation, ROYALTY GRANITE CORPORATION, a Georgia corporation, CAROLINA
QUARRIES, INC., a Georgia corporation, PENNSYLVANIA GRANITE CORP., a
Pennsylvania corporation, CHILDS & CHILDS GRANITE COMPANY, INC., a
Pennsylvania corporation, SOUTHERN MAUSOLEUMS, INC., a Georgia corporation,
and ROCK OF AGES MEMORIALS LLC, a limited liability formed under the laws
of Delaware, and such other subsidiaries or affiliates of the foregoing as
the Lenders, by unanimous consent, permit to become parties to the
Financing Agreement (herein the "Companies") jointly and severally, promise
to pay to the order of THE CIT GROUP/BUSINESS CREDIT, INC. (herein the
"Agent") as Agent for itself and the other lenders that are, or may be,
pursuant to the terms of the Financing Agreement referred to below, lenders
to the Companies, at its office located at 1211 Avenue of the Americas, New
York, New York 10036, in lawful money of the United States of America and
in immediately available funds, the principal amount of ____________ Dollars
($__________.00) as follows:
____________________________________________________________________________
____________________________________________________________________________
whereof the first such installment shall be due and payable on, ____________
__________________, 199_ and subsequent installments shall be due
and payable on the first Business Day of each _____________, April, July,
October and ____________, thereafter until this Note is paid in full.
Each Company further agrees to pay interest at said office, in like money,
on the unpaid principal amount owing hereunder from time to time from the
date hereof on the date and at the rate specified in Section 8 of the
Financing Agreement referred to below (the "Financing Agreement").
If any payment on this Note becomes due and payable on a day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day, and with respect to payments of principal, interest thereon
shall be payable at the then applicable rate during such extension.
This Note is the Promissory Note referred to in the Financing Agreement,
dated December , 1997, between the Companies, the Agent and the lenders
that are now, or in the future, a party thereto, and is subject to, and
entitled to, all provisions and benefits thereof and is subject to optional
and mandatory prepayment, in whole or in part, as provided therein.
EXHIBIT 10.20
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
EXCLUSIVE SUPPLY AGREEMENT
BETWEEN:
1) Rock of Ages Corporation, a Vermont corporation, having its principal
office in the Town of Barre, P.O. Box 482, County of Washington, State
of Vermont, USA 05641 ("ROA"); and
2) Eurimex, a societe anonyme, having its principal office at 2A
Kalchesbreck, L-1852 Luxembourg ("Eurimex").
WHEREAS:
ROA is a producer of granite blocks and wishes to appoint Eurimex as its
exclusive distributor of its Bethel White granite blocks to customers which
are companies or entities which are residents in the countries of Europe
which are listed in Exhibit A attached hereto and by this reference
incorporated herein ("Territory") in order that Eurimex can promote the
sale of Bethel White granite blocks.
Eurimex has substantial experience in selling granite blocks in the
Territory and desires to become the exclusive distributor of Bethel White
granite blocks quarried by ROA and its affiliates.
ROA and Eurimex entered into a supply agreement dated August 2, 1991
("Supply Agreement") which the parties now believe it is in their mutual
best interests to terminate and to substitute this Exclusive Supply
Agreement for it.
THE FOLLOWING HAS BEEN AGREED:
1) ROA hereby appoints Eurimex as its exclusive distributor in the
Territory to promote and sell First and Second Grade Bethel White
granite rough blocks ("Bethel White Granite") all upon the terms and
conditions as set forth in this agreement. This agreement shall
become effective upon its date of execution but the term of this
agreement ("Term") shall be from January 1, 1993 through December 31,
1998.
2) The price terms for Bethel White Granite for 1993 are as set forth in
Exhibit B attached hereto and by this reference incorporated herein.
ROA agrees that the future F.O.B. quarry price will not increase more
than $*** per cubic meter per *** and an additional $*** per cubic
meter per *** thereafter during the Term, plus any actual increase
incurred by ROA for inland freight from the quarry to the port of
embarkation in North America.
3) Eurimex will pay U.S. $*** to ROA by wire transfer on December 30,
1992, for this exclusive distribution agreement. ROA understands and
agrees that Eurimex will account for this payment as additional cost
of Bethel White Granite purchased by it during the Term.
4) Eurimex agrees to purchase a minimum quantity of *** cubic meters of
first grade Bethel White Granite for each two years of the Term
commencing January 1, 1993 provided, however, that Eurimex, in order
to meet this minimum quantity requirement will be entitled to average
its purchases so that it meets this requirement if it has averaged at
least *** cubic meters per year measured after the first 2 years, the
second 2 years and the final 2 years of the Term. ROA agrees to
supply at least a guaranteed minimum amount of *** cubic meters of
first grade Bethel White Granite during each year of the Term. If ROA
fails to supply *** cubic meters of first grade in any such year ROA
will pay Eurimex an amount equal to U.S. $*** for each cubic meter in
the difference between *** cubic meters of first grade Bethel White
Granite ordered by Eurimex and the smaller number of cubic meters of
first grade Bethel White Granite shipped by ROA to Eurimex during the
years in question. For purposes of determining whether ROA has
supplied first grade Bethel White Granite blocks to Eurimex equal to
*** cubic meters in each such year blocks will be deemed to have been
supplied to Eurimex on the date they arrive at the embarkation port in
North America. ROA agrees to use its best efforts to supply Eurimex's
needs for first grade Bethel White Granite blocks in excess of ***
cubic meters per year but its failure to do so will not result in any
payment by it to Eurimex. Eurimex agrees, in order to assist ROA, in
each January of the years of 1993 through 1998, inclusive, to provide
its non-binding estimate of the number of cubic meters of Bethel White
Granite it will purchase during the year in question and in addition
to provide ROA in each such year with as much advance notice of its
purchase orders of Bethel White Granite as is possible.
5) ROA agrees for itself, and for Swenson Granite Company, Inc., ROA
Canada, Ltd., and Royalty Granite Corporation, that they will not,
directly or indirectly, sell first or second grade Bethel White
Granite blocks in the Territory nor will it sell finished jobs or
slabs of first or second grade Bethel White Granite in the Territory
without, in either case, the prior consent of Eurimex. Eurimex agrees
in consideration of ROA's agreement in the preceding sentence that it
will use its best efforts to sell first or second grade Bethel White
Granite blocks in the Territory and promote its use in finished jobs
in the Territory.
6) ROA and Eurimex agree to negotiate in good faith beginning no later
than July, 1998, for an extension of this agreement or a new agreement
under which ROA will supply Bethel White Granite to Eurimex. It is
agreed, however, by each of the parties, that the agreement in the
preceding sentence to negotiate in good faith does not obligate either
Eurimex or ROA to either extend this agreement or to enter into a new
agreement with respect to the supplying of granite by ROA to Eurimex
unless each party is satisfied as to the terms thereof and those terms
are incorporated in a written agreement executed by each of ROA and
Eurimex.
7) Eurimex agrees that this agreement does not restrict ROA and its
affiliates and brother and sister corporations, from marketing,
selling and distributing in the Territory all types and kinds of
granite other than Bethel White Granite and any other white granite.
Eurimex agrees that: (i) ROA and its affiliates and brother and sister
corporations do not currently quarry white granite except Bethel White
Granite; and (ii) none of their presently owned quarries, other than
their Bethel White quarry, are white granite quarries.
8) This agreement is governed by the substantive and procedural laws of
Luxembourg.
9) All disputes between the parties arising in connection with this
agreement shall be finally settled under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce by three
arbitrators appointed in accordance with said Rules. The arbitration
shall take place in the City of Luxembourg and the language of the
arbitration shall be English.
10) This agreement supercedes all prior agreements between the parties
hereto and is binding upon and shall inure to the benefit of the
parties hereto and their successors and permitted assigns and neither
party hereto may assign any of its rights, duties and obligations
under this agreement without the written consent of the other parties
hereto.
11) All notices required or permitted under this agreement shall be given
by telecopy and shall be deemed given when the sending party's
telecopy machine acknowledges in writing the transmission of the
notice to recipient's telecopy machine.
IN WITNESS WHEREOF, the parties hereto have executed this
agreement in five (5) originals all as of the 17th day of December, 1992.
ROCK OF AGES CORPORATION
By: /s/ Kurt M. Swenson
-----------------------------------
Kurt M. Swenson, President
EURIMEX, S.A.
By:/s/ Jean-Claude Tesch
-----------------------------------
Jean-Claude Tesch,
Managing Director
By: /s/ Nick Menne
-----------------------------------
Nick Menne, Managing Director
EXHIBIT I
TO EXCLUSIVE SUPPLY AGREEMENT
BETHEL WHITE PRICE TERMS FOR 1993
1. All prices and sales are made in U.S. dollars.
2. Payment due 30 days from date of invoice from Rock of Ages which
invoice will be sent when all blocks for a particular shipment are at
the port.
3. Price per cubic meter for 1993.
<TABLE>
<CAPTION>
Freight to
F.O.B. Quarry Montreal Port FAS Montreal
------------- ------------- ------------
<S> <C> <C> <C>
First Grade $*** per cubic meter $*** per cubic meter $*** per cubic meter
Second Grade $*** per cubic meter $*** per cubic meter $*** per cubic meter
</TABLE>
Second grade is Bethel White with waves, streaks or cloudy-gray background.
Size and number of black spots in Bethel White is not a factor requiring
the block to be graded as second grade.
EXHIBIT 10.21
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
EXCLUSIVE SUPPLY AGREEMENT
BETWEEN:
1) Rock of Ages Corp., a Delaware corporation, having its principal
quarry office in the Town of Barre, Vermont at: P.O. Box 482, County
of Washington, Town of Barre, State of Vermont, USA 05641 ("ROAC");
and
2) Eurimex, a societe anonyme, having its principal office at Rue Pierre
de Coubertin 4, L-1358 Luxembourg ("Eurimex").
WHEREAS:
ROAC is a producer of granite blocks and wishes to appoint Eurimex as its
exclusive distributor of its Salisbury Pink granite blocks to customers
which are companies or entities which are residents of countries outside of
North America ("Territory") in order that Eurimex can promote the sale of
Salisbury Pink granite blocks.
Eurimex has substantial experience in selling granite blocks in the
Territory and desires to become the exclusive distributor of Salisbury Pink
granite blocks quarried by ROAC and its affiliates.
Eurimex and Carolina Quarries, Inc., now a subsidiary of ROAC, entered into
a supply agreement dated January 21, 1997 which the parties now believe it
is in their mutual best interest to terminate and to substitute this
Exclusive Supply Agreement for it.
THE FOLLOWING HAS BEEN AGREED:
1) ROAC hereby appoints Eurimex as its exclusive distributor in the
Territory to promote and sell Salisbury Pink granite blocks all upon
the terms and conditions as set forth in this agreement. This
agreement shall become effective upon its date of execution but the
term of this agreement ("Term") shall be from February 1, 1998 through
December 31, 2003.
2) The price terms and miscellaneous criteria for Salisbury Pink granite
for 1998 are as set forth in Exhibit A attached hereto and by this
reference incorporated herein. ROAC agrees that the future F.O.B.
quarry prices through the term of this agreement will not increase
more than ***% per cubic meter per ***. Any increases in the
established allowance for inland freight to and wharfage at the port
of Savannah, as referenced in Exhibit A, will be charged directly to
Eurimex as they occur. Eurimex will be invoiced for all actual
containerization charges at the port of Savannah as well as
miscellaneous sur charges as they occur.
3) If shipments are made from any port other than Savannah, Eurimex will
be invoiced for all total actual inland freight charges, wharfage,
handling, containerization, and miscellaneous sur charges that are
incurred for delivery to the port of embarkation.
4) ROAC will make every effort to ensure that the grade of blocks listed
in Exhibit A and sold within North America are not processed for
ultimate export outside of North America, so that Eurimex can be
confident of their exclusive rights to distribute outside North
America. Eurimex and ROAC will make every effort to discuss details
of various projects to maintain open communications and to avoid
Territory disputes.
5) Eurimex agrees to purchase the following minimum quantities and ROAC
agrees to provide the same:
Year Quantity/Month Quality
---- -------------- -------
1998 (Feb. through May) *** E+
1998 (May through Dec.) *** E+
1999 through 2003 *** E+
6) Eurimex may accumulate blocks as needed in order to have sufficient
quantities for shipping. Eurimex agrees to be invoiced (fob quarry
price plus any freight or handling charges incurred) and pay for
accumulated blocks on a monthly basis if invoiced by ROAC.
7) ROAC and Eurimex agree to negotiate in good faith beginning no later
than July, 2003 for an extension of this agreement under which ROAC
will supply Salisbury Pink to Eurimex. It is agreed, however, by each
of the parties, that the agreement in the preceding sentence to
negotiate in good faith does not obligate either Eurimex or ROAC to
either extend this agreement or to enter into a new agreement unless
each party is satisfied as to the terms thereof and those terms are
incorporated in a written agreement executed by each of ROAC and
Eurimex.
8) This agreement supercedes all prior agreements between the parties
hereto and is binding upon and shall inure to the benefit of the
parties hereto and their successors and permitted assigns and neither
party hereto may assign any of its rights, duties and obligations
under this agreement without the written consent of the other parties
hereto.
9) All notices required or permitted under this agreement shall be given
by fax and shall be deemed given when the sending party's fax machine
acknowledges in writing the transmission of the notice to recipient's
fax machine.
10) This agreement is governed by the substantive and procedural laws of
Luxembourg.
11) All disputes between the parties arising in connection with this
agreement shall be finally settled under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce by three
arbitrators appointed in accordance with said Rules. The arbitration
shall take place in the City of Luxembourg and the language of the
arbitration shall be English.
12) In the event that the specific terms and conditions of this agreement
are not being met, either party may terminate the agreement at any
time upon ninety (90) days notice. The party wishing to terminate the
agreement must give written notice to the other, stating the specific
reason why notice is given for termination.
IN WITNESS WHEREOF, the parties hereto have executed this agreement in five
(5) originals as of the 8th day of December 1997.
ROCK OF AGES CORP.
By: /s/ Jon Gregory
----------------------------------
Jon Gregory
Quarry Div. President
EURIMEX, S.A.
By: /s/ Carlo Kirsch
----------------------------------
Carlo Kirsch
Managing Director
By: /s/ Christian Weiler
----------------------------------
Christian Weiler
President
EXHIBIT A
To: Exclusive supply agreement for Salisbury Pink Granite
Rock of Ages Corp. and Eurimex, S.A.
Subject: Prices and terms
1. All prices and sales are made in U.S. Dollars
2. Payment is due 30 days from the date of invoice from Rock of Ages
Corp.
3. Prices are per cubic meter
INL. FREIGHT
PRICE/M3 & WHARFAGE PRICE/M3
GRADE SIZE* FOB QUARRY SAVANNAH FOB SAVANNAH
----- ----- ---------- ------------ ------------
E+ Large $*** $*** $***
E+ Medium $*** $*** $***
Classic II Misc. $*** $*** $***
________
* E+ Large: highest quality; min. length = 8'-0"; min. rise = 4'-0"
E+ Medium: highest quality; min. length = 6'-0"; min. rise = 4'-0"
Classic II (as available) low quality; random sizes
Notes:
1. ROAC agrees that the future F.O.B. quarry prices through the term of
this agreement will not increase more than ***% per cubic meter per
***. Any increases in the established allowance for inland freight to
and wharfage at the port of Savannah, as referenced in this exhibit,
will be charged directly to Eurimex as they occur. Eurimex will be
invoiced for all actual containerization charges at the port of
Savannah as well as miscellaneous sur charges as they occur.
2. If shipments are made from any port other than Savannah, Eurimex will
be invoiced for all total actual inland freight charges, wharfage,
handling, containerization, and miscellaneous sur charges that are
incurred for delivery to the designated port of embarkation.
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Rock of Ages Corporation and Subsidiaries:
We consent to the incorporation by reference in Form S-8 (File No. 33-
45617) of our report dated February 27, 1998, with respect to the
consolidated balance sheet of Rock of Ages Corporation and Subsidiaries as
of December 31, 1997, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended,
and all related schedules, which report appears in the December 31, 1997,
annual report on Form 10-K of Rock of Ages Corporation.
KPMG Peat Marwick LLP
Burlington, Vermont
March 25, 1998
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