<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EX-CHANGE ACT
OF 1934.
For the fiscal year ended December 31, 1997
-------------------------------------------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from _________ to _______
Commission file number 0-22375
American Stone Industries, Inc.
- -------------------------------------------------------------------------------
(Name of Small Business Issuer in Its Charter)
Delaware 13-3704099
- -------------------------------- --------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) (Identification No.)
8705 Quarry Road, Amherst, Ohio 44001
- ----------------------------------------- ------------------
(Address of Principal Executive Offices) (Zip Code)
(440) 986-4501
- ------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
N/A N/A
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value per share
- -------------------------------------------------------------------------------
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days. Yes X No
<PAGE> 2
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $2,178,800.
----------------
The aggregate market value of the Common Stock held by non-affiliates
of the Registrant as of March 16, 1998 was approximately $1,705,037, computed on
the basis of the last reported sale price per share ($2.25) of such stock on the
Nasdaq Bulletin Board. For purposes of this information, shares of Common Stock
which were owned beneficially by executive officers, Directors and persons who
may be deemed to own 10% or more of the outstanding Common Stock were deemed to
be held by affiliates. This determination of affiliate status is not necessarily
a conclusive determination for other purposes.
The number of shares of the Registrant's Common Stock outstanding as of
March 16, 1998 was 1,631,364.
DOCUMENTS INCORPORATED BY REFERENCE
Form 10-KSB Reference Documents
- --------------------- ---------
Part III (Items 10, 11, 12 and 13) Portions of the Registrant's
Definitive Proxy Statement to be
used in connection with its Annual
Meeting of Stockholders to be held
on May 20, 1998.
Except as otherwise stated, the information contained in this Form
10-KSB is as of December 31, 1997.
<PAGE> 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General.
American Stone Industries, Inc. ("ASI" or the "Company") is a
holding company that conducts its business through its two wholly-owned
subsidiaries American Stone Corporation ("ASC") and Tyrrell Stone Design, Ltd.
("Tyrrell"). ASC quarries, purchases and sells stone for use in the building
construction industry. Tyrrell provides design services to architects and stone
processing centers. ASC produces two types of natural stone: (1) dimensional
stone, which is natural stone that is cut to size as specified in architectural
designs and is primarily used as architectural accents to buildings, although
dimensional stone is also used for funeral monuments, landscape and ornamental
objects; and (2) construction stone, which is natural stone primarily used for
road base, back fill and erosion control.
The Company was incorporated in the State of Delaware on
November 11, 1992 as Viva Designs U.S.A., Inc. The Company at that time was a
distributor of a line of jewelry and fragrances. Beginning in 1994 and until a
business combination in August 1995, ASI was a distributor of medical equipment
in the United States. In conjunction with the 1995 business combination, the
medical equipment distributorship business was transferred to a related party.
On August 9, 1995, the Company changed its name to American Stone Industries,
Inc. Concurrent with the 1995 business combination, ASI became a holding company
that conducts business through ASC and Tyrrell.
American Stone Corporation.
ASC is a Delaware corporation, which was incorporated in 1992.
ASC accounts for about 74% of the Company's revenue, and about 84% of its
assets. The balance of the assets are cash and other liquid assets owned by ASI
and Tyrrell. ASC acquired the operating assets of Cleveland Quarries, L.P. in
February 1996, and thereafter began operating the 145-year old quarry situated
near Amherst, Ohio known as the "Cleveland Sandstone Quarries" (the "Cleveland
Quarries"). Consisting of an estimated 300,000,000 cubic feet of reserve
deposits located on over 1,000 acres of ASC-owned property, management of the
Company ("Management") believes, based upon various industry reports and surveys
since the initial discovery in 1853, that the Cleveland Quarries are among the
World's largest sandstone quarries.
The Business of ASC.
ASC quarries, purchases and markets sandstone and manages the
operation of the Cleveland Quarries. The Cleveland Quarries produce sandstone,
which is known in the industry as "Berea Sandstone." For more than 100 years,
sandstone from the Cleveland Quarries has been utilized throughout Ohio, the
United States and Canada in such products as the following:
<PAGE> 4
<TABLE>
<CAPTION>
Facility/
Building Location Date
----------- ----------- ------
<S> <C> <C>
The John Hancock Building Boston, Mass. (U.S.A.) 1948
U.S. Post Office Cleveland, Ohio (U.S.A.) 1934
Parliament Building Ottawa, Ontario (Canada) 1865
(rebuilt 1917)
City Hall Buffalo, New York (U.S.A.) 1930
U.S. Bankruptcy Court Little Rock, Ark. (U.S.A.) 1918
Oberlin College Campus Oberlin, Ohio (U.S.A.) 1885-1943
Osgood Hall -- Law courts of Toronto, Ontario (Canada) 1857
Upper Canada
NHL Hockey Hall of Fame Toronto, Ontario (Canada) 1885
County Courthouse Savannah, Ga. (U.S.A.) 1889
St. James Cathedral Toronto, Ontario (Canada) 1853
University of Pennsylvania Philadelphia, Penn. (U.S.A.) 1874-1910
</TABLE>
Berea Sandstone has been used in the construction of numerous
additional facilities over the past 100 years, including government buildings,
banks, churches and prestigious private residential dwellings throughout the
United States and Canada. One of the most current personal residences of note is
that of Mr. William Gates in Seattle, Washington.
Industry Structure.
All natural stone products go through several stages prior to
final consumption. The various stages can be defined as follows: (1) Quarrying,
which is the extraction of large blocks of stone; (2) Primary Processing, which
involves sawing the large blocks into smaller blocks or large slabs; (3)
Secondary Processing, which is the conversion of smaller blocks or slabs into
finished product; and (4) Installation, which involves assembling and installing
finished product. ASC owns and operates its own quarries. ASC is also a primary
processor, as the Company owns and operates its own slabbing mills. In addition,
the Company has its own secondary processing mill. All three processes are
performed at the Company's South Amherst location in Ohio.
2
<PAGE> 5
BLOCKS ARE TURNED BLOCKS ARE TURNED INTO
INTO SLABS TO MAKE SMALLER BLOCKS TO MAKE
------------------ ----------------------
Table Tops Coping
Tile Cut Stone
Patio Stone Grindstones
Garden Stone Curbing
Sills Building Stone
Step Treads Breakwater
House Ashlar Laboratory Samples
Landscape Pieces
Companies operate in diverse ways within the natural stone
industry. They are usually involved in more than one of these disciplines.
Companies operating at the ends of the process, (i.e., the quarrying and
installation) tend to locate geographically. Quarry operations locate where the
raw material is found and installers operate in the area in which the finished
product is to be installed. Primary processors often locate at or near the
quarries. For this reason, the same company is often involved in both the quarry
and primary processing segment. Similarly, secondary processors locate at or
near the installers' premises. Therefore, companies that do installation are
also usually capable of secondary processing. Management believes that few
companies operate in all segments of the industry.
The primary and secondary processing segments are the most
mechanized and therefore the most capital intensive. The machinery can be very
sophisticated and very expensive. There have been major advancements in quarry
technology, and these operations are also becoming very capital intensive. These
expenses have been a bar to entry into these segments of the industry for many
and, for those that have failed to keep up, it has been a factor creating
adverse consequences.
This change is evidenced by a new phenomenon in the industry.
Raw blocks of stone are being shipped from North America to processing centers
located in Italy, and the final product is returned to North America for
installation. Transportation is strictly limited to water and road, but the
portion of the final product cost attributable to transportation has steadily
fallen as the cost of processing has risen. The rising cost of processing has
only been offset by the efficiencies of modern machinery. Management believes
that the processing centers can compete internationally, if they are as
sophisticated as those in Italy, and benefit from some of the other cost saving
elements available to the industry today.
Even though a large portion of the labor component of the
processing has been eliminated, labor continues to be a problem in Italy. The
processing segment can benefit even further in an inexpensive labor pool
location; however, most third-world or underdeveloped countries offering
inexpensive labor pools also lack the sophisticated labor pool that is necessary
3
<PAGE> 6
to maintain and operate the equipment. This is one of the reasons processing
centers still locate in countries like Italy, Germany and Japan.
Another important element in the cost of processing with
modern machinery has been access to a continuous source of fresh water. This
element will become increasingly more important as water jet technology emerges.
Through its various on-site wells, Management believes that ASC would be assured
access to a continuous source of fresh water.
Industry Production.
Based upon an August 1995 report prepared for the Company by
Industrial Mineral Facts (the "IMF Report"), the annual world production of raw
dimensional stone (Quarry stage) is estimated at 34,000,000 metric tons or about
12,600,000 cubic meters. After primary and secondary processing, the total
quantity of finished dimensional stone products is approximately 20,000,000 tons
(59% yield), representing approximately 370,000,000 equivalent square meters.
The United States' share of worldwide production of dimensional stone is
approximately 4% and is produced by about 160 companies, operating over 250
quarries in 35 states. The United States and the North American continent, in
general, are large importers of finished dimensional stone products. In
addition, 6,000,000 tons of ornamental stone are also produced. It is estimated
that the dimensional stone industry could reach 500,000,000 equivalent square
meters by the year 2000, a rate of growth of 5 to 6% annually. Approximately 80%
of dimensional stone product is used by the building and construction
industries, while the remaining 20% is consumed by the funeral monument,
landscape and ornamental objects industries.
Worldwide production and consumption of raw dimensional stone,
as provided in the IMF Report, are illustrated on the following table:
PRODUCTION/CONSUMPTION
By Country
000 tons
<TABLE>
<CAPTION>
Country Production Consumption
- ---------- ------------- ----------------
<S> <C> <C>
Italy 7,500 8,200
Spain 3,500 3,350
China 2,300 1,400
Greece 1,750 1,700
S. Korea 1,600 1,500
</TABLE>
4
<PAGE> 7
<TABLE>
<S> <C> <C>
India 1,500 700
U.S.A 1,500 1,500
Portugal 1,300 1,150
Brazil 1,250 700
France 1,250 1,400
Benelux 750 800
S. Africa 750 100
Germany 700 1,000
Japan 500 1,700
Taiwan 300 1,350
Others 8,600 8,500
</TABLE>
Marketing Structure.
The market for dimensional stone products is served by many
more companies than those involved in production and installation. They include
government agencies, distributors, marketing agencies, architectural and
engineering firms and designers. The company that has the closest contact with
the final consumer is often most responsible for the sale of stone products.
These other companies are often more important to the stone producer than the
stone itself. The illustration below indicates how many layers are potentially
between the end-user and the companies involved in the four levels of the stone
industry. The additional layers between end-user and producer require a
sophisticated marketing department capable of dealing with these companies. The
marketing department may use in-house employees for estimating and drafting
functions or form strategic alliances with outside companies that perform these
functions.
5
<PAGE> 8
QUARRY TO END-USER
Quarry
-------
Secondary Processor Primary Processor
------------------- -----------------
Installer
-----------
General Contractor
------------------
Architect Distributor
--------- ------------
Designer
--------
Purchasing Agent
----------------
End-User
--------
Market Size.
THERE ARE FOUR MAJOR GEOGRAPHICAL
MARKETS FOR FINISHED DIMENSIONAL STONE PRODUCTS:
- -----------------------------------------------
* Europe 8,500,000 Tons
* United States 1,200,000 Tons
* Far East 3,500,000 Tons
* Middle East 450,000 Tons
Source: IMF Report
Per the IMF Report, these four regions consume at least 70% of
the world's production of raw and finished dimensional stone products. Outside
of Saudi Arabia, the countries with the greatest consumption per capita of
dimensional stone are Greece, Italy, Spain and Portugal. These four countries,
which account for approximately 2% of the world's population, consume over 30%
of all dimensional stone products. Per capita consumption in these four
countries is four-fold that of Japan and ten-fold that of the United States. In
these
6
<PAGE> 9
countries stone products are used both in commercial construction and in housing
while, in countries such as Japan and the United States, dimensional stone is
primarily used in commercial buildings.
According to the IMF Report, total United States dimensional
stone consumption reached $3,200,000,000 in 1989. Major market areas in the
United States include New York, Dallas, Chicago, Southern California and
Florida. In North America, the markets for natural stone are highly dependent on
construction activity. While the commercial market continues to form as
construction start-ups increase in strategic sectors (i.e., finance, technology,
leisure and healthcare) increasing demand in natural stone products in
renovation and restoration work serve to fortify and strengthen burgeoning
market demand.
Sandstone Market.
The worldwide market for dimensional sandstone products is
estimated to be approximately 700,000 tons, based upon the IMF Report. The
United States and Canada produce approximately 28% of this total. Specific
figures including conglomerate are available for the state of Ohio as follows.
According to the IMF Report, sandstone and conglomerate
production was 2,053,855 tons in 1993. Total sales were 1,933,259 tons, of which
crushed sandstone and conglomerate accounted for 1,894,761 tons and dimensional
stone accounted for 38,498 tons. Ohio ranks seventh nationally in production of
all dimensional stone, but ranks first in the production of sandstone
dimensional stone. Construction stone is used primarily for glass sand, foundry
sand, silica flour, and construction. Dimensional stone is used primarily for
rough construction purposes. Sandstone production in Ohio accounts for 6.7% of
Ohio's total stone production.
For the period from 1994 to 1997, the Company's annual
production of natural stone was as follows:
Raw dimensional stone:
---------------------- (tons)
1994 2,700
1995 3,970
1996 8,460
1997 9,566
Management currently intends to target the following segments
after expanding the sales of its Berea Sandstone:
7
<PAGE> 10
Building Stone:
---------------
- Slabs Curb Strips Ashlar Landscaping
- Sills Benchstone Patio Stone Tile
- Steps Wallstone Cutstone
Specialty Products:
-------------------
- Cores (Oil & Gas Research) Grindstones
- Breakwater Stone Ornamental
Construction Materials:
-----------------------
- Crushed Stone Bank Run / Rip Rap
- Sand
Employees.
ASC has approximately 50 full-time employees, of which about
45 are hourly. The average hourly wage of the quarry personnel is less than ten
dollars per hour. The quarries are situated in geographic regions that have a
large labor pool, and Management does not believe that securing additional labor
will be difficult or expensive. In Management's opinion, ASC has a positive
relationship with its employees.
Competition.
ASC competes in the natural dimensional stone market. More
specifically, ASC competes against limestones and other sandstones. ASC's two
biggest competitors consist of Briar Hill Stone Co. (Glenmont, OH -- about 50
employees) and Indiana Limestone Company (Bedford, IN -- about 50 employees). As
a practical matter, when submitting proposals to provide Berea Sandstone to
larger commercial sites, ASC is in competition with quarries throughout the
United States and abroad.
ASC intends to compete within this environment utilizing a
strategy which embodies the following:
- Ownership of what Management believes to be
one of the largest sandstone reserves in the
world, which assures that ASC has access to
the raw material;
- Access to a large supply of fresh water
through various on-site wells, which will
assist in the conversion to diamond
technology;
8
<PAGE> 11
- A strategic geographic location from which
the Company can serve about 66% of the
domestic United States market within a 500
mile radius from the quarries;
- Low cost of raw materials; and
- Low cost provider, which is attributable, in
part, to ASC's access to a large labor pool.
Marketing by ASC.
The marketing of ASC products from Ohio is primarily done
through an in-house salaried sales staff. In addition, ASC is represented by 22
distributors who deal directly with the end-user by purchasing products from ASC
at discounted rates and selling them to the end-user at a markup.
The Company's historical market has been the United States and
Canada. Within the United States, the Midwest and Northeast regions have
traditionally accounted for more than 80% of the sales in the United States.
Sales on the West Coast (especially in Seattle) have been increasing. In Canada,
sales have occurred almost exclusively in the Provinces of Ontario and British
Columbia. The Company's objective is to develop a world-wide market with primary
emphasis upon the warmer weather sections of the United States. Costs of
transportation become more relevant when the construction site is more than 500
miles from the quarries.
Business Strategy of ASC.
ASC intends to expand its current market and financial base
through a business strategy that focuses on:
- Dedication to the core business of ASC,
i.e., the Cleveland Quarries;
- Development of ancillary assets, i.e., the
sale, lease or joint venture of surplus or
nonessential lands; and
- Selective acquisition of compatible assets
or businesses.
In addition, ASC is investigating additional sources of
capital in order to upgrade and modernize its quarry operations as called for
over time and to centralize the marketing, administration and business
facilities, thereby expanding and enhancing these functions as well as the core
operations of estimating, drafting and design.
9
<PAGE> 12
Backlog.
As of December 31, 1997, ASC's backlog of orders was $551,942,
as compared to a backlog of $250,000 for the period ending December 31, 1996.
The Company is careful not to generate too large of a backlog of orders to
assure that commitments can be fulfilled and to avoid supply problems.
In order to reduce the backlog of orders, the Company has
hired new stone cutters for its finishing shop (Plant 3) and has purchased and
installed a Natale Parma Lathe to turn balusters and columns and a Gaspari
Menotti Gang Saw to increase slab production.
In the opinion of Management, the increase in the Company's
backlog is a positive reflection of Management's action to stimulate incremental
marketing efforts, particularly among new distributors of products in Michigan,
Connecticut, Ohio, and Pennsylvania in the United States and Ontario, British
Columbia, and Quebec in Canada.
Seasonality.
ASC's sales are cyclical in nature. Historically, the
Company's sales have been highest during the second and third quarters, which
usually account for more than 70% of the fiscal year's sales. The first quarter
typically has the lowest sales due to inclement weather in the Northern Ohio
region and the difficulty of operating a quarry in such an environment. Fourth
quarter sales are typically less than sales for the third quarter, reflecting
the delivery schedules of building contractors.
Intellectual Property/Proprietary Rights.
ASC owns intellectual property and does not license any such
rights to others. ASC copyrights its marketing materials, but such copyrights
are not deemed to have any significant value in the marketplace.
Except as noted above, ASC does not own or license any
proprietary rights.
Regulation.
ASC's operations are subject to a variety of statutes, rules
and regulations, which are applicable to any business operating in the United
States. These statutes, rules and regulations range from record keeping (e.g.,
the duty to maintain tax-related records for specific time periods as required
by the Internal Revenue Code of 1986, as amended) to employment (e.g., the duty
to comply with the Equal Employment Opportunity Act of 1972).
Due to its quarry operations, ASC is also subject to certain
more specific statutes, rules and regulations, the most significant of which
include:
10
<PAGE> 13
- Mines Safety and Health Act ("MSHA"), which mandates
certain safety rules and regulations governing mining
operations.
- Occupational Safety and Health Act of 1970 ("OSHA"),
which requires that the Company provide its employees with
a safe workplace.
- Resource Conservation and Recovery Act of 1976 ("RCRA"),
which prohibits the transportation and/or disposal of
"hazardous waste" except pursuant to certain standards.
- The Department of Transportation, which adopts
regulations governing the safe transportation of goods
over interstate highways.
In the opinion of Management, ASC is in compliance with all
applicable regulations. Material changes in these regulations or the adoption of
new regulations could materially impact upon the operations of ASC.
Research and Development.
In the fiscal years ended December 31, 1997 and 1996, there
were no research and development expenses.
Methods Of Distribution And Costs Of Transportation.
All of the stone is shipped via flatbed truck. The current
trucking rate is approximately $0.19/100 miles/cubic foot. This allows the
Company to ship to 2/3 of the population of the United States and Canada at an
average of $.50 per cubic foot. Customers are generally charged for shipping.
Customs duties between Canada and the United States are minimal.
Tyrrell Stone Design.
ASI agreed to acquire Tyrrell in February 1996 and closed the
acquisition on May 23, 1996 in exchange for 20,000 shares (200,000 shares prior
to the May 1997 reverse stock split) of Common Stock, $.001 par value per share
(the "Common Stock"), of the Company. In accordance with the share purchase
agreement, the value assigned for the shares was the closing price on the date
of acquisition, or $8.00 ($.80 per share prior to the May 1997 reverse stock
split) per share. Tyrrell, as a wholly-owned subsidiary of ASI, provides sales
in Canada as the Canadian arm of the Company.
Tyrrell provides design drawings to architects and stone
processing centers throughout North America. Through this acquisition, ASC has
expanded the scope and magnitude of services that it can offer to customers and
has become more involved in the design
11
<PAGE> 14
phase of projects, thereby being in a position to suggest the use of Berea
Sandstone as part of a project.
The revenue of Tyrrell is limited to job bills. Tyrrell has
four full-time employees. All work is performed in Toronto, Canada. For the
twelve months ending December 31, 1997, Tyrrell's revenue was approximately 26%
of the aggregate revenue of ASC.
Tyrrell owns no assets (other than desktop computers and other
office equipment), intellectual property or proprietary licenses. Competition in
the design arena is diversified and intense. As a practical matter, it is not
anticipated that Tyrrell will be a significant contributor of revenue for ASC,
but the services available through Tyrrell will assist ASC in marketing its
products and servicing the needs of its customers.
Material Developments.
The Company acquired ASC in August 1995. As a result of this
transaction, TMT Masonry, Ltd., the former parent of ASC, received shares
representing approximately fifty-five percent (55%) of the Company's outstanding
Common Stock, thereby effecting a change in control of the Company.
In February 1996, ASC purchased all inventories, real estate,
equipment, intangible assets, rights in leases, and all other operational items
of Cleveland Quarries, L.P., in exchange for cash, the assumption of certain
liabilities, and certain other consideration. The total purchase price was
$2,320,259. In negotiating this purchase price, Management took into
consideration, among other things: (1) the benefit to the Company of acquiring
title to the quarries owned by Cleveland Quarries, L.P.; (2) the potential
economic benefits to the Company of securing title to these assets, especially
the land and reserves of stone; and (3) the value of the assets to be acquired.
At the time of the transaction, the General Partner of Cleveland Quarries, L.P.
was Slate and Stone Corporation of America, Ltd., which held a 1.0% interest in
the limited partnership. The two limited partners were Walter Molnar (9.9%) and
ASC (89.1%).
In August 1996, the Company issued 400,000 shares of its
Common Stock (4,000,000 prior to the May 1997 reverse stock split), representing
25% of the Company's total voting power, to Roulston Venture Partners, Ltd. The
sale provided the Company with working capital and access to a Board of
Directors of sophisticated business people.
In August 1996, the Company entered into an Interim Management
Agreement (the "IM Agreement") with numerous Canadian individuals and entities.
Pursuant to the IM Agreement, the Company was retained as co-manager of
Stoklosar Marble Quarries, Limited, an Ontario Canada corporation. The IM
Agreement was executed in anticipation of the acquisition of Stoklosar by ASI
and was intended to provide ASI with an opportunity to become familiar with the
Stoklosar quarries prior to any acquisition. Subsequent to the execution of the
IM Agreement, the Company advanced $200,000 to defray Stoklosar-related expenses
during the period from September through December 1996. The money was repaid
together with interest computed at 3.75%, which was the bond rate in Canada in
December 1996.
12
<PAGE> 15
In September 1996, the Company executed a share purchase
agreement (the "September 1996 Agreement") with various Canadian individuals and
entities. Pursuant to the September 1996 Agreement, the Company was to purchase
100% of the issued and outstanding common shares of two Canadian entities, one
of which owned Stoklosar. Mr. Gasparini's father was an investor/creditor of one
of the selling parties. In October 1996, the Company's Board of Directors
declined to ratify the September 1996 Agreement. Accordingly, that transaction
did not close. Mr. Gasparini requested and received leave of the Board to pursue
this acquisition separately.
In December 1996, Mr. Gasparini and others completed their
purchase of the two Canadian entities (including Stoklosar) (hereinafter
referred to as the "Final Stoklosar Transaction"). The parties to the Final
Stoklosar Transaction agreed that the purchaser of the common shares (a newly
formed Ontario corporation identified as "1211769 Ontario, Ltd.") has assumed
all of the Company's obligations under the IM Agreement.
The Company has executed a separate agreement to confirm that
it fully complied with the terms of the IM Agreement. In addition, Messrs.
Gasparini and Costantino agreed to indemnify, defend and hold harmless the
Company from all claims arising out of the IM Agreement through the execution of
an Indemnification Agreement, which was ratified by the Company's Board of
Directors in March 1997.
ITEM 2. DESCRIPTION OF PROPERTY.
ASC owns two separate parcels of land in the Counties of
Lorain and Erie, Ohio. The property contains both dimensional and construction
stone. On the basis of the reserve estimates obtained by the previous owner of
Cleveland Quarries, L.P., Management has reached certain conclusions regarding
the Company's reserves.
From approximately 1960 to 1992 the reserves of Cleveland
Quarries, L.P. have been estimated by the then owner (Stancorp), which drilled
samples of Berea Sandstone on the Company-owned properties. The volume of Berea
Sandstone has been estimated on the basis of the length, width and depth of
quarry holes. There are currently more than 600,000 square feet of exposed
quarry face. At this time, the quarry is more than 60 feet deep and 120 feet in
length. In 1996, one section (360' x 120') was prepared for finishing and this
section is expected to last about eight years at current projected sales rates.
Based upon the exposed quarry face and the depth of Berea Sandstone as evidenced
by quarry holes, Management estimates that the total reserves are adequate to
meet the needs of the Company for more than 100 years at current projected sales
rates.
In summary, Management projects that the property has a total
estimated dimensional stone reserve of 336 million cubic feet. In fiscal 1997,
the Company extracted 133,797 cubic feet of dimensional stone and sold 67,282
cubic feet. In fiscal 1996, the Company extracted 133,062 cubic feet of
dimensional stone and sold 51,160 cubic feet.
13
<PAGE> 16
The parcel in Erie County is in Birmingham Township, and is
strictly a quarry operation. Dimensional stone reserve estimates were projected
to be 126 million cubic feet based on a deposit of at least 30 acres indicated
by topographic studies. The Birmingham Quarry yields both Gray and Buff
Sandstone with a higher compressive strength than that of the quarries located
in the main parcel. The main parcel is in Amherst Township (Lorain County) and
is the site of numerous quarries, the mills and offices. The main parcel fronts
the Ohio State Turnpike approximately twenty minutes west of downtown Cleveland.
The Company estimates that the property contains 210 million cubic feet of
dimensional stone and 21 million cubic feet of construction stone. Many of the
quarries on this section of land are currently unused and dormant. The same
stone that has been used in thousands of applications around the country is
still available for renovation, restoration and expansion of existing buildings.
All of the properties have permits for use as quarries and all permits are in
good standing. The Birmingham property also contains a supply of natural gas
which is leased to a local utility.
The following is a list of the main buildings on the property:
<TABLE>
<CAPTION>
MILL # SIZE S.F. YEAR BUILT CURRENT USE FUTURE USE
------ --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
3 18,175 1946 Processing Processing
6 45,000 1923 Storage Gang Sawing
7 4,490 1955 Storage Carving
8 44,165 1926 Gang Sawing Processing
Office & Showroom 11,305 1900 Office & Showroom Office & Showroom
</TABLE>
ASC's ownership of the two parcels in Ohio is subject to a
mortgage between ASC and FirstMerit Bank, N.A. in the principal amount of
$1,250,000 to secure borrowings under a line of credit of up to $750,000 and a
promissory note in the amount of $500,000.
Equipment.
ASC's equipment consists of saws, cranes, trucks, tow motors,
grinders, stone cutting equipment and haul tools. Older equipment is in the
process of being overhauled, upgraded and replaced with new equipment.
ITEM 3. LEGAL PROCEEDINGS.
None.
14
<PAGE> 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Stockholders of the Company was held on
November 26, 1997. At the Annual Meeting, the Company's Stockholders elected the
following persons to serve as Directors of the Company for terms of one year or
until their successors are duly elected and qualified. Votes were cast as
follows:
FOR AGAINST ABSTAIN
--- ------- -------
Enzo Constantino 1,012,903 -- 380
Glen Gasparini 1,012,913 -- 370
Jacquita K. Hauserman 1,012,803 -- 480
Michael J. Meier 1,012,913 -- 370
Timothy I. Panzica 1,012,913 -- 370
Thomas H. Roulston II 1,012,913 -- 370
For a description of the bases used in tabulating the
above-referenced votes, see the Company's definitive Proxy Statement used in
connection with the Annual Meeting of Stockholders on November 26, 1997.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.*
The executive officers are elected each year and serve at the
pleasure of the Board of Directors. The following is a list of the executive
officers of the Company as of March 16, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Enzo Constantino 35 Enzo Constantino has served as Treasurer of the Company and as a Director
since 1996. Mr. Constantino has been Secretary and Treasurer of TMT since 1994.
Prior to joining TMT, Mr. Constantino was the controller of Daicon Contractors, a
general contractor located in Toronto, Ontario, from 1989 to 1994, and the cost
accounting manager for Canada Packers, a meat processor located in Toronto,
Ontario, from 1983 to 1989.
Michael J. Meier 43 Michael J. Meier has served as Secretary of the Company and as a Director since
1996. Mr. Meier has been Vice President, Chief Financial Officer, Secretary and
Treasurer of Defiance, Inc. since 1990. Defiance, Inc. is a supplier of tooling
systems, testing services, specialty anti-friction bearings and
precision-machined products to the U.S. transportation industry, with
headquarters in Cleveland, Ohio.
David Tyrrell 36 David Tyrrell has served as President and Chief Executive
</TABLE>
15
<PAGE> 18
<TABLE>
<S> NAME AGE <C> POSITION
---- --- --------
Officer of the Company since November 21, 1997 and as President of ASC since
February 7, 1996. Mr. Tyrrell was the Owner and Operator of Tyrrell from 1990 to
1996. From 1993 to 1996, Mr. Tyrrell was an Independent Sales Representative for
Owen Sound Ledgerock.
</TABLE>
* The information under this Item 4A is furnished pursuant to
Instruction 3 to Item 401(b) of Regulation S-K.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is currently traded in the
over-the-counter market via the "Bulletin Board" maintained through the National
Association of Securities Dealers, Inc. ("NASD"). At the Annual Meeting of
Stockholders held on November 22, 1996, the stockholders adopted a Resolution
which authorized the Company's Board of Directors to effectuate up to a single
one for ten reverse stock split of any and all issued and outstanding shares of
Common Stock of the Company. A reverse stock split occurred at the ratio of one
new share of Common Stock for each ten shares of Common Stock outstanding. The
reverse stock split was effective May 30, 1997. Prior to the reverse stock
split, the trading symbol was "ASTI." As of May 30, 1997 (the date of the
reverse stock split), the trading symbol was changed to "AMST."
The following quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions. The quotations are adjusted to reflect the one-for-ten reverse
stock split on May 30, 1997.
<TABLE>
<CAPTION>
Year Ended December 31, 1996 High Bid Low Bid
- ---------------------------- -------- -------
<S> <C> <C>
First Quarter............................. $7.20 $3.4375
Second Quarter............................ 11.25 5.00
Third Quarter............................. 7.50 3.00
Fourth Quarter............................ 7.1875 3.75
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
Year Ended December 31, 1997 High Bid Low Bid
- ---------------------------- -------- -------
<S> <C> <C>
First Quarter............................. $8.750 $4.375
Second Quarter............................ 16.250 3.750
Third Quarter............................. 5.250 3.125
Fourth Quarter............................ 5.50 1.750
</TABLE>
As of March 23, 1998, there were approximately 124 holders of
record of the Common Stock of the Company. The Company has paid no dividends on
the Common Stock and it is the Company's present intention to reinvest earnings
internally to finance the expansion of its business. The Company's ability to
pay dividends is directly related to the Company's future profitability and need
for capital to support growth.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
COMPANY OVERVIEW
- ----------------
Set forth below is a discussion of the principal factors that
affected the Company's results of operations during each of the two most recent
fiscal periods. This discussion should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto included elsewhere in
this report.
RESULTS OF OPERATIONS
- ---------------------
TOTAL REVENUE
- -------------
Total revenue increased by $475,656, or by 27.9%, from
$1,702,551 in 1996 to $2,178,207 in 1997. The increase is, in most part, a
result of the installation of new equipment, streamlined product processing, and
ongoing development and implementation of a new marketing strategy.
Revenues were at levels that would only provide modest profit
in any year. Even with decreased expenses in 1997, sales must also increase to
achieve a healthy profit margin. Sales and marketing efforts have been stepped
up and new agents and distributors have been added. Inventory levels have
increased, employees have been hired and trained, new equipment has been
purchased and is currently being installed to further increase capacity.
Additionally, the quarry crew has doubled and a new section of Quarry 7 has been
cleared, with quarrying having commenced in November 1997.
17
<PAGE> 20
GROSS PROFIT
- ------------
Gross profit increased by $31,441, or almost 4% from $729,014
in 1996 to $760,455 in 1997. The gross margin decreased from 43% in 1996 to 35%
in 1997. This decrease in gross margin is primarily the result of the hiring of
new employees and increased labor expenses associated with activities required
to upgrade antiquated processing facilities. These activities included repairs,
major maintenance, new equipment installation, training and administration.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative expenses ("SG&A")
decreased by $131,666, or 15.5% from $851,163 in 1996 to $719,497 in 1997. As a
percentage of total revenue, SG&A decreased by 18.7%. SG&A as a percentage of
total revenue decreased primarily as a result of the placement of an
infrastructure to facilitate sales and marketing. Management expects SG&A to
remain constant with an additional increase in sales volume.
INTEREST INCOME
- ---------------
Net interest expense for fiscal 1997 was approximately
$46,135, compared with $73,432 for fiscal 1996. The decrease in the interest
expense was attributable primarily to decreased borrowing under the Company's
credit agreement.
NET INCOME
Based on the foregoing, net income of the Company for fiscal
1997 was $7,106, compared with a loss of $190,426 for fiscal 1996.
CASH FLOW AND LIQUIDITY
- -----------------------
The Company's primary source of liquidity is the Company's
line of credit under an agreement between the Company and FirstMerit Bank, N.A.
(the "Credit Agreement"). The Credit Agreement provides for maximum borrowings
of $750,000, with interest payable monthly at a rate equivalent to the prime
lending rate (8.5% and 8.25% at December 31, 1997 and 1996, respectively).
Borrowings under the Credit Agreement are secured by substantially all real
estate, inventory and equipment of the Company. The outstanding balance at
December 31, 1997 and 1996 was $350,000 and $600,000 respectively.
Cash flow activity for fiscal 1997 and 1996 is presented in
the Consolidated Statements of Cash Flows. During fiscal 1997, cash in the
amount of $448,000 was used in operating activities primarily to build up
inventory and for working capital purposes.
Management believes that the Company does not currently have
and is not expected to have within the next 12 calendar months any cash flow or
liquidity problems. Management believes that the Company is not in default with
respect to any note, loan, lease or
18
<PAGE> 21
other indebtedness or financing agreement. The Company is not subject to any
unsatisfied judgments, liens, or settlement obligations; however, there are
accrued, unpaid and delinquent property taxes which are being brought current
pursuant to a five-year payment plan with the applicable County.
FORWARD-LOOKING STATEMENTS
- --------------------------
The Company is making this statement in order to satisfy the
"safe harbor" provisions contained in the Private Securities Litigation Reform
Act of 1995. This Annual Report on Form 10-KSB includes forward-looking
statements relating to the business of the Company. Forward-looking statements
contained herein or in other statements made by the Company are made based on
Management's expectations and beliefs concerning future events impacting the
Company and are subject to uncertainties and factors relating to the Company's
operations and business environment, all of which are difficult to predict and
many of which are beyond the control of the Company, that could cause actual
results of the Company to differ materially from those matters expressed in or
implied by forward-looking statements. The Company believes that the following
factors, among others, could affect its future performance and cause actual
results of the Company to differ materially from those expressed in or implied
by forward-looking statements made by or on behalf of the Company; (a) general
economic, business and market conditions; (b) competition; (c) the success of
advertising and promotional efforts; (d) trends within the building construction
industry; (e) the existence or absence of adverse publicity; (f) changes in
relationships with the Company's major customers or in the financial condition
of those customers; and (g) the adequacy of the Company's financial resources
and the availability and terms of any additional capital.
YEAR 2000
- ----------
Many existing computer programs use only two digits to
identify a year in the date field. These programs were designed and developed
without considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous results by
or at the Year 2000. The Year 2000 issue affects virtually all companies and
organizations. Although the Company believes that it is Year 2000 compliant,
there can be no assurance that coding errors or other defects will not be
discovered in the future. Furthermore, there can be no assurance that the
Company's suppliers, creditors, customers and financial service organizations
may not be adversely affected by the Year 2000 issue and as a result, there can
be no assurance as to the impact of the year 2000 issue on the Company.
ITEM 7. FINANCIAL STATEMENTS.
The following pages contain the Financial Statements and
Supplementary Data as specified by Item 7 of Form 10-KSB.
19
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of American Stone Industries, Inc. and Subsidiaries
Amherst, Ohio
We have audited the consolidated balance sheets of American Stone
Industries, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
related statements of operations, stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Stone Industries,
Inc. and Subsidiaries as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Hobe & Lucas
------------------
Hobe & Lucas
Independence, Ohio
January 30, 1998
F-1
<PAGE> 23
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
DECEMBER 31, 1997 AND 1996
--------------------------
ASSETS
------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 144,443 $ 983,713
Accounts receivable, net allowance for
doubtful accounts of $9,967 - 1997 and
$5,479 - 1996 462,703 287,628
Prepaid expenses 37,112 36,713
Inventory 797,758 431,810
----------- ----------
Total current assets 1,442,016 1,739,864
----------- ----------
Property, Plant and Equipment, Net 2,107,823 2,015,143
----------- ----------
Other Assets
Intangibles, Net of amortization 196,334 204,492
Restricted cash 11,116 10,900
Notes receivable - 39,886
Deposits 4,000 1,000
----------- -----------
211,450 256,278
---------- ----------
$3,761,289 $4,011,285
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank line of credit $ 350,000 $ 600,000
Current portion of notes payable 126,480 68,007
Accounts payable 441,372 373,422
Accrued and withheld payroll
and payroll taxes 27,388 75,703
Accrued liabilities 146,665 181,140
----------- ----------
Total Current Liabilities 1,091,905 1,298,272
----------- ----------
Long Term Liabilities
Notes payable 36,728 87,463
----------- ----------
Stockholders' equity
Common stock, $.01 par value
20 million shares authorized 1,631,364 - 1997
and 1,631,364 - 1996 (16,313,628 prior to the May,
1997 reverse stock split) shares issued and
outstanding 16,314 16,314
Additional paid-in capital 3,562,860 3,562,860
Accumulated deficit (946,518) (953,624)
----------- ----------
2,632,656 2,625,550
----------- ----------
$3,761,289 $4,011,285
========== ==========
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE> 24
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Sales $ 2,178,207 $ 1,702,551
Cost of goods sold 1,417,752 973,537
----------- -----------
Gross profit 760,455 729,014
----------- -----------
Selling and administrative expenses 719,497 851,163
----------- -----------
Income (loss) from operations 40,958 (122,149)
----------- -----------
Other Income (Expense)
Interest income 17,183 11,655
Interest expense (46,135) (73,432)
----------- -----------
(28,952) (61,777)
----------- -----------
Income (loss) before provision for income taxes 12,006 (183,926)
Provision for income taxes 4,900 6,500
----------- -----------
Net income (loss) $ 7,106 $ (190,426)
=========== ===========
Net income (loss) per Common Share $ .00 $ (.12)
=========== ===========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 25
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional Total
Issued Paid-In Accumulated Stockholders'
Shares Par Value Capital Deficit Equity
------ --------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 14,591,828 $14,592 $777,249 $(763,198) $ 28,643
Loan reclassified to additional
paid-in-capital - - 748,345 - 748,345
Additional issue of common
stock during 1996 1,721,800 1,722 2,037,266 - 2,038,988
Net Loss - - - (190,426) (190,426)
-------------- --------- ------------ --------- ----------
Balance,
December 31, 1996 16,313,628 16,314 3,562,860 (953,624) 2,625,550
Shares retired in ten to one
reverse stock split effective
May 30, 1997 (14,682,265) - - - -
Net Income - - - 7,106 7,106
-------------- --------- ------------ ----------- ------------
Balance, December 31, 1997 1,631,363 $16,314 $3,562,860 $(946,518) $2,632,656
============== ========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 26
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net Income (Loss) $ 7,106 $ (190,426)
--------- -----------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation, amortization and depletion 118,659 74,655
Gain on sale of equipment (14,145) --
Changes in assets and liabilities:
Increase in accounts receivable (175,075) (189,644)
Increase in inventory (365,948) (301,254)
Increase in prepaid expenses (399) (36,713)
(Decrease) Increase in payables and accrued liabilities (14,840) 313,372
Other, net (3,216) (10,900)
--------- -----------
Total Adjustments (454,964) (150,484)
--------- -----------
Net Cash Used in Operating Activities (447,858) (340,910)
--------- -----------
Cash Flows from Investing Activities:
Proceeds from notes receivable 39,886 77,174
Proceeds from sale of equipment 99,939 --
Purchase of property, plant and equipment (288,975) (550,484)
--------- -----------
Net Cash Used in Investing Activities (149,150) (473,310)
--------- -----------
Cash Flows from Financing Activities:
Net borrowings (repayment) under line of credit
arrangements (250,000) (143,466)
Proceeds from long term debt 72,460 994,763
Repayment of long term debt (64,722) (567,525)
Proceeds from issuance of common stock -- 1,500,000
--------- -----------
Net Cash (Used In) Provided by Financing Activities (242,262) 1,783,772
--------- -----------
Net (Decrease) Increase in Cash and Cash Equivalents (839,270) 969,552
Cash and Cash Equivalents at Beginning of Year 983,713 14,161
--------- -----------
Cash and Cash Equivalents at End of Year $ 144,443 $ 983,713
========= ===========
Supplemental Disclosure of Cash Flows
Information:
Interest paid $ 43,000 $ 70,000
Taxes paid $ -- $ --
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 27
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
-------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
Supplemental disclosures of non-cash investing and financing activities:
During the year ended December 31, 1996 the Company issued 20,000 shares
(200,000 shares prior to the May, 1997 reverse stock split) of common stock
valued at $160,000 for 100% of the outstanding stock of Tyrrell Stone Design,
Ltd.
In 1996 the Company issued 152,200 shares (1,522,000 shares prior to the May,
1997 reverse stock split) of common stock as payment of $1,127,333 of
outstanding debt of the Company.
Additionally, in 1996 the Company entered into a capital lease for equipment
valued at $145,250.
See notes to consolidated financial statements
F-6
<PAGE> 28
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1997 AND 1996
--------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
This summary of significant accounting policies of American Stone
Industries, Inc., (hereinafter "ASI" or the "Company") is presented to assist in
understanding the financial statements. The financial statements and notes are
representations of the Company's Management, which is responsible for their
integrity and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the financial statements.
USE OF ESTIMATES
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires Management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
HISTORY AND BUSINESS ACTIVITY
- -----------------------------
American Stone Industries, Inc. (a Delaware corporation) is a
publicly-held company whose stock is traded on the OTC Bulletin Board. ASI is a
holding company which conducts business through its wholly owned subsidiaries,
American Stone Corporation ("ASC") and Tyrrell Stone Design, Ltd. ("Tyrrell").
ASC purchases and sells stone for use in the building construction industry.
Tyrrell, a Canadian company, acts as the Company's Canadian sales office and
provides design drawings to architects.
Prior to February 1, 1996, ASC was a holding company with an 89.1%
ownership interest in Cleveland Quarries, L.P. ("CQ") of Amherst, Ohio.
Cleveland Quarries, L.P. was the owner and operator of the Berea Sandstone
Quarries which mines stone predominantly for the building stone market with
several specialty areas making up the balance.
On February 1, 1996 ASC merged all inventories, real estate, equipment,
intangible assets, and all rights in leases, contracts, and all other
operational items of Cleveland Quarries L.P. and began operating the Berea
Sandstone Quarries. At that point, Cleveland Quarries, L.P. ceased operations
and liquidated.
On May 23, 1996, the Company acquired all of the outstanding shares of
Tyrrell Stone Design, Ltd. in exchange for 20,000 shares (200,000 shares prior
to the May, 1997 reverse stock split) of common stock.
F-7
<PAGE> 29
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
DECEMBER 31, 1997 AND 1996
--------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
- ---------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT - AT COST
- ---------------------------------------
Property, plant and equipment at December 31, 1997 and 1996 consisted of:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land $ 449,493 $ 450,544
Buildings and improvements 806,594 793,778
Equipment 856,814 811,356
Computers 21,942 14,100
Vehicle 2,500 2,500
Construction in progress 129,542 --
---------- ----------
2,266,885 2,072,278
Less: Accumulated depreciation 159,062 57,135
---------- ----------
Net property, plant and equipment $2,107,823 $2,015,143
========== ==========
</TABLE>
Depletion is being calculated based on management's estimate of sandstone
reserves. There is no engineer's estimate available for such reserves. Depletion
amounted to $1,051 and $700 for the year ended December 31, 1997 and 1996,
respectively.
The cost of depreciable property is being depreciated over the estimated
useful lives of the assets using the straight-line method for financial
reporting. Depreciation expense was $109,455 and $67,878 for the year ended
December 31, 1997 and 1996, respectively.
Construction in progress represents costs incurred to date for the
purchase and installation of a gang saw with a estimated cost of $500,000.
Routine maintenance and repairs are charged to operations when incurred.
Expenditures which materially increase value or extend lives are capitalized.
PRINCIPLES OF CONSOLIDATION
- ---------------------------
The accompanying financial statements include the accounts of American Stone
Industries, Inc. and its wholly-owned subsidiary American Stone Corporation
(including the merged and consolidated financial statements of CQ) for the year
ended December 31, 1997 and 1996, and of Tyrrell Stone Design, Ltd. for the year
ended December 31, 1997 and for the period from the date of acquisition, May 23,
1996, through December 31, 1996.
F-8
<PAGE> 30
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
DECEMBER 31, 1997 AND 1996
--------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
- ---------------------------------------------------------------
CASH AND CASH EQUIVALENTS
- -------------------------
For purposes of financial reporting, the Company considers all
highly-liquid debt instruments purchased with an original maturity date of three
months or less to be cash equivalents.
INTANGIBLES
- -----------
Goodwill is being amortized on the straight-line method over a twenty and
thirty year period. Other intangible assets, including trademarks are amortized
over their economic lives. Amortization expense for the year ended December 31,
1997 and 1996 is $8,158 and $6,025, respectively. At December 31, 1997 and 1996,
intangibles are net of accumulated amortization of $15,219 and $7,061,
respectively.
CONCENTRATION OF CREDIT RISK
- ----------------------------
Financial instruments, which potentially subject the Company to
concentration of credit risk, principally consist of accounts receivable. The
Company's policies do not require collateral to support customer accounts
receivables.
INCOME PER COMMON SHARE
- -----------------------
Income per common share is based on the weighted average number of shares
outstanding which was 1,631,363 and 1,570,921 (15,709,213 prior to the May, 1997
reverse stock split) for the years ended December 31, 1997 and 1996,
respectively.
The exercise of stock options do not result in material dilution.
INVENTORY
- ---------
The inventories which consist of sandstone are stated at the lower of
first-in, first-out (FIFO) cost or market.
RESTRICTED CASH
- ---------------
The Company's certificates of deposit are assigned to the Ohio Department
of Natural Resources Division of Reclamation.
RECLASSIFICATIONS
- -----------------
Certain accounts related to the prior year have been reclassified to
conform to the current year presentation.
F-9
<PAGE> 31
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
DECEMBER 31, 1997 AND 1996
--------------------------
NOTE 2 - BUSINESS COMBINATION AND ACQUISITIONS
- ----------------------------------------------
On May 23, 1996, the Company acquired all of the outstanding shares of
Tyrrell Stone Design, Ltd. in exchange for 20,000 shares (200,000 shares prior
to the May, 1997 reverse stock split) of common stock. This acquisition was
accounted for as a purchase, and as a result, excess cost over fair market value
of $156,729 is being amortized over thirty years. Under purchase method
accounting, balances and results of operations of the Company have been included
in the accompanying consolidated financial statements from the date of the
transaction, May 23, 1996. Proforma results of operations (assuming the business
combination had been effected at the beginning of the year ended December 31,
1996) are not presented since Tyrrell was incorporated in 1996 and the impact is
not material.
<TABLE>
<CAPTION>
NOTE 3 - NOTES RECEIVABLE - EMPLOYEES
- --------------------------------------- 1997 1996
---- ----
<S> <C> <C> <C>
7%, secured by real estate mortgage,
due in monthly installments of $310
including interest, final payment due
August, 2000; the note was
repaid in 1997. $ - $38,716
Non-interest bearing, unsecured, due in
weekly installments of $25, final payment
due August, 1997 - 1,170
------- -------
Total notes receivable $ - $39,886
======= =======
</TABLE>
NOTE 4 - STOCKHOLDERS' EQUITY
- -----------------------------
Effective May 30, 1997, all stockholders of record received one share of
stock for every ten shares of stock held.
During April and May, 1996, the Company issued 134,600 shares (1,346,000
shares prior to the May, 1997 reverse stock split) of unrestricted common stock
to Georgia Capital Corporation in satisfaction of $334,951 of indebtedness
including cash advances made to the Company during 1996 and 1995.
During February 1996, the Company issued 6,000 shares (60,000 shares
prior to the May, 1997 reverse stock split) of unrestricted common stock to
consultants in satisfaction of $15,000 payable for consulting services rendered.
In May, 1996, the Company issued 11,600 shares (116,000 shares prior to
the May, 1997 reverse stock split) of unrestricted common stock to Terrazzo
Mosaic & Tile Ltd. in satisfaction of $29,037 of indebtedness of the Company.
In May, 1996, the Company acquired all of the outstanding shares of
Tyrrell Stone Design Ltd. in exchange for 20,000 shares (200,000 shares prior to
the May, 1997 reverse stock split) of the Company.
F-10
<PAGE> 32
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
DECEMBER 31, 1997 AND 1996
--------------------------
NOTE 4 - STOCKHOLDERS' EQUITY (Continued)
- -----------------------------------------
In August, 1996, TMT Masonry, Ltd. returned 400,000 shares (4,000,000
shares prior to the May, 1997 reverse stock split) which were immediately
reissued to Roulston Ventures Limited Partnership for $1,500,000.
Suncrest Management Services, S.A. ("Suncrest") has an option to purchase
25,000 shares of the Company's common stock at $2.50 per share (250,000 at .25
per shares prior to the May, 1997 reverse stock split). The option expires
August 8, 1998. The options were issued in 1995 as part of a debt cancellation
agreement.
At December 31, 1997, the Company has outstanding stock options to an
officer totaling 25,000 shares at $5.00 per share (250,000 shares at $0.50 per
share prior to the May, 1997 reverse stock split) which were awarded in
February, 1997 at the then fair market value of the shares. These options expire
in February, 2000. No options were exercised during 1997 and 1996.
NOTE 5 - LINE OF CREDIT
- -----------------------
The Company has a line of credit with maximum borrowings of $750,000. The
note provides for borrowing with interest payable monthly at a rate equivalent
to the bank's prime lending rate (8.5% and 8.25% at December 31, 1997 and 1996,
respectively). The debt agreement contains certain restrictive terms and
covenants. The Company was in compliance with its covenants at December 31, 1997
and 1996. The debt is secured by substantially all real estate, inventory, and
equipment of the Company. The outstanding balance at December 31, 1997 and 1996
was $350,000 and $600,000, respectively.
<TABLE>
<CAPTION>
NOTE 6 - LONG TERM DEBT
- ------------------------ 1997 1996
---- ----
<S> <C> <C>
9%, note payable to bank with maximum borrowings of $500,000 advances to
date of $72,460, interest only until March, 1998 then payable in monthly
installments of $10,407 including interest, final payment due February,
2003, secured by substantially all real estate inventory and equipment of
the Company. $ 72,460 $ -
9.4%, secured by equipment, payable in
monthly installments of $378 including
interest, final payment due June, 1998 2,388 6,330
9.9%, secured by equipment, payable in
monthly installments of $356 including
interest, final payment due January, 1998 897 4,390
</TABLE>
F-11
<PAGE> 33
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
DECEMBER 31 1997
----------------
NOTE 6 - LONG TERM DEBT (CONTINUED)
- -----------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
12.13%, secured by equipment, payable in
monthly installments of $1,567 including
interest, final payments due July, 1997 - 10,584
8.31%, secured by equipment, payable in
monthly installments of $4,675 including
interest, final payment due September, 1999 87,463 134,166
-------- --------
163,208 155,470
Less: Current Portion 126,480 68,007
-------- --------
$ 36,728 $ 87,463
======== ========
</TABLE>
Following is a summary of future maturities of long term debt as of
December 31, 1997:
1998 $126,480
1999 36,728
2000 and thereafter -
--------
$163,208
========
NOTE 7- FAIR VALUE OF FINANCIAL STATEMENTS
- ------------------------------------------
The carrying amounts of cash, accounts receivable, accounts payable, and
long-term debt approximate the fair value reported in the balance sheet. The
fair value of long-term debt is based on current rates at which the Company
could borrow funds with similar remaining maturities.
NOTE 8 - FINANCIAL REPORTING FOR SEGMENTS OF THE COMPANY
- --------------------------------------------------------
The Company and its subsidiaries operated predominantly in one industry,
the design, quarrying and cutting of sandstone primarily used in the
construction industry.
Following is the information regarding the Company's continuing
operations by geographic location. Transfers between geographic areas are
accounted for on a cost plus profit margin basis.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net sales, including geographic transfers
United States $1,847,268 $1,591,550
Canada 574,804 153,583
Geographic transfers (243,865) (42,582)
----------- -----------
$2,178,207 $1,702,551
========== ==========
</TABLE>
F-12
<PAGE> 34
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
DECEMBER 31, 1997 AND 1996
--------------------------
NOTE 8 - FINANCIAL REPORTING FOR SEGMENTS OF THE COMPANY (CONTINUED)
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Income (Loss) from operations:
United States $ 31,801 $ 14,359
Canada 9,157 (136,508)
----------- -----------
Income (Loss) from operations 40,958 (122,149)
Interest expense (46,135) (73,432)
Interest income 17,183 11,655
----------- -----------
Income (Loss) from operations before income taxes $ 12,006 $ (183,926)
=========== ===========
Identifiable assets:
United States $ 3,632,246 $ 3,763,844
Canada 129,043 247,411
----------- -----------
$ 3,761,289 $ 4,011,285
=========== ===========
NOTE 9- INCOME TAXES
- --------------------
Income taxes on continuing operations include the following:
1997 1996
----------- -----------
Canadian:
Currently payable $ 4,900 $ 6,500
Deferred -- --
----------- -----------
Total $ 4,900 $ 6,500
=========== ===========
</TABLE>
F-13
<PAGE> 35
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
DECEMBER 31, 1997 AND 1996
--------------------------
NOTE 9 - INCOME TAXES (CONTINUED)
- ---------------------------------
A reconciliation of the effective tax rate with the statutory U.S.
income tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996
--------- --------
% of % of
Pretax Pretax
Income Income Income Amount
------ ------ ------ -------
<S> <C> <C> <C> <C>
Income
- ------
Income taxes per
statement of income $4,900 76% 6,500 4%
Tax rate differences resulting from:
Income taxes applicable to
Canadian income at rate
different from U.S. rate (4,900) (76)% (6,500) (4)%
Income (loss) for financial reporting
purpose without tax expense or
benefit. Utilization of loss carry-
forward (unavailable for carryback
against prior income taxes paid) 4,082 34% (62,535) (34)%
------- -- -------- ---
Income taxes at statutory rate $ 4,082 34% $(62,535) (34)%
======= == ======== ===
</TABLE>
For United States tax purposes, the Company has available at December 31,
1997, unused operating loss carryforwards that may be applied against future
taxable income and that expire as follows:
Amount of Unused Operating Expiration During Year Ended
Loss Carryforwards December 31,
$ 48,000 2007
1,553,000 2008
480,000 2009
773,000 2010
190,000 2012
----------
$3,044,000
==========
Future United States taxes may also be reduced by a capital loss carryforwards
of approximately $59,000 which expire in 2000. Utilization of the net operating
loss and capital loss carryforwards is contingent upon the Company having
sufficient taxable income and capital gains, in the future.
F-14
<PAGE> 36
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
DECEMBER 31, 1997 AND 1996
--------------------------
NOTE 9 - INCOME TAXES (CONTINUED)
- ---------------------------------
The Company's deferred tax assets and liabilities at December 31, 1997
and 1996 consist of:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax asset $1,035,000 $427,000
Valuation allowance (958,000) (427,000)
Deferred tax liability (77,000) -
----------- ---------
$ - $ -
=========== ==========
</TABLE>
Deferred taxes are provided for temporary differences in deducting
expenses for financial statement and tax purposes. The principal source for
deferred tax assets are different methods for recovering depreciation and net
operating loss and capital loss carryforwards. No deferred taxes are reflected
in the balance sheet at December 31, 1997 and 1996 due to a valuation allowance.
As of December 31, 1997 and 1996, the Company recognized an $531,000 and
$332,000 increase in the valuation allowance.
NOTE 10 - RELATED PARTY TRANSACTIONS
- ------------------------------------
During the year ended December 31, 1996 the Company paid a total of
$22,233 for expenses such as stationery and business supplies through TMT
Masonry, Ltd., an affiliated company. At December 31, 1996, accounts payable to
TMT Masonry, Ltd. totaled $9,735, and were satisfied in the ordinary course of
business.
In February 1996, the Company began utilizing office space of TMT
Masonry, Ltd., an affiliated company, for $700 per month on a month to month
basis.
In November 1997, the Company entered into an agreement with a company,
of which a board member is the executive vice president, to construct a
foundation for a new gang saw. The total contract is for $62,142 of which
$35,000 was completed and invoiced as of December 31, 1997. The contract was
completed in 1998.
F-15
<PAGE> 37
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
On September 26, 1996, the Board of Directors appointed,
subject to stockholder approval, Hobe & Lucas to replace Horton & Company as the
Company's independent accountants. The stockholders approved the change in
independent auditors at the November 22, 1996 Annual Meeting of Stockholders.
There were no disagreements with the former accountants on any matter of
accounting principals or practices, or auditing scope or procedure, nor did the
former accountant's report contain any adverse opinion or disclaimer of opinion.
The decision to change accountants was made as a matter of convenience because
the Company relocated its principal place of business from Toronto to Amherst,
Ohio, and the former accountants are located in New Jersey.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information required by this Item 9 as to the Directors of
the Company is incorporated herein by reference to the information set forth
under the caption "Election of Directors" in the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held on May 20, 1998,
since such Proxy Statement will be filed with the Securities and Exchange
Commission not later than 120 days after the end of the Company's fiscal year
pursuant to Regulation 14A. Information required by this Item 9 as to the
executive officers of the Company is included as Item 4A of Part I of this
Annual Report on Form 10-KSB as permitted by Instruction 3 to Item 401(b) of
Regulation S-K. Information required by Item 405 of Regulation S-K is
incorporated by reference to the information set forth under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
May 20, 1998.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this Item 10 is incorporated by
reference to the information set forth under the caption "Executive
Compensation" in the Company's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on May 20, 1998, since such Proxy Statement will be
filed with the Securities and Exchange Commission not later than 120 days after
the end of the Company's fiscal year pursuant to Regulation 14A.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item 11 is incorporated by
reference to the information set forth under the caption "Common Stock
Ownership" in the Company's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 20, 1998, since such Proxy Statement will be
filed with the Securities and Exchange Commission not later than 120 days after
the end of the Company's fiscal year pursuant to Regulation 14A.
20
<PAGE> 38
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item 12 is incorporated by
reference to the information set forth under the caption "Certain Relationships
and Related Party Transactions" in the Company's definitive Proxy Statement for
the Annual Meeting of Stockholders to be held on May 20, 1998, since such Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after the end of the Company's fiscal year pursuant to Regulation
14A.
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.
(a) Exhibits
Reference is made to the Exhibit Index set forth
herein beginning at page E-1.
(b) Reports on Form 8-K.
None.
21
<PAGE> 39
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AMERICAN STONE INDUSTRIES, INC.
By: /s/ David Tyrrell
-------------------------------------------------
David Tyrrell, President and
Chief Executive Officer
Date: March 30, 1998
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
By: /s/ David Tyrrell
-------------------------------------------------
David Tyrrell, President and
Chief Executive Officer (Principal Executive
Officer)
Date: March 30, 1998
By: /s/ Enzo Constantino
-------------------------------------------------
Enzo Constantino, Treasurer and Director
(Principal Accounting Officer and Principal
Financial Officer)
Date: March 30, 1998
By: /s/ Thomas H. Roulston II
-------------------------------------------------
Thomas H. Roulston II, Chairman
of the Board
Date: March 30, 1998
By: /s/ Glen Gasparini
-------------------------------------------------
Glen Gasparini, Director
Date: March 30, 1998
By: /s/ Jacquita K. Hauserman
-------------------------------------------------
Jacquita K. Hauserman, Director
Date: March 30, 1998
By: /s/ Michael J. Meier
-------------------------------------------------
Michael J. Meier, Secretary and Director
Date: March 30, 1998
By: /s/ Timothy I. Panzica
-------------------------------------------------
Timothy I. Panzica, Director
Date: March 30, 1998
<PAGE> 40
<TABLE>
<CAPTION>
EXHIBIT INDEX
Sequential
Exhibit Number Description of Document Page
-------------- ----------------------- ----
<S> <C> <C>
3.1 Certificate of Incorporation of the Company, dated November 13, 1992
(A)
3.2 Certificate of Amendment of the Certificate of Incorporation of the Company,
dated March 9, 1993 (A)
3.3 Certificate of Amendment of the Certificate of Incorporation of the Company,
dated December 14, 1993 (A)
3.4 Certificate for Renewal and Revival of Charter, dated May 31, 1994
(A)
3.5 Certificate of Amendment of the Certificate of Incorporation of the Company,
dated August, 1995 (A)
3.6 By-laws of the Company (A)
10.1 Business Loan Agreement between American Stone Corporation and First
National Bank of Ohio, dated September 13, 1996 (A)
10.2 Amendment to Loan Agreement between American Stone Corporation and First
National Bank of Ohio, dated February 26, 1997
(A)
10.3 Employment Agreement between American Stone Corporation and David Tyrrell,
dated February 7, 1996* (A)
10.4 Asset Purchase Agreement between American Stone Corporation and Cleveland
Quarries L.P., dated February 1, 1996
(A)
10.5 Amendment to and Restatement of Asset Purchase Agreement, dated December 10,
1996 (A)
10.6 Indemnification Agreement between Cleveland Quarries, L.P., Slate and Stone
Corporation of America, and American Stone Corporation, dated December 20,
1996 (A)
10.7 Share Purchase Agreement between David Tyrrell and the Company, dated May
22, 1996* (A)
10.8 Stock Purchase Agreement between the Company and Roulston Ventures Limited
Partnership, dated August 27, 1996
</TABLE>
E-1
<PAGE> 41
<TABLE>
<CAPTION>
Sequential
Exhibit Number Description of Document Page
-------------- ----------------------- ----
<S> <C> <C>
(A)
10.9 Share Purchase Option Agreement between TMT Masonry, Ltd., Roulston Ventures
Limited Partnership, and the Company
(A)
10.10 Interim Management Agreement between Robert Graham Nash, William Purvis
Houston, E. Victor Artuso, Nicholls Investments, Inc.
(A)
10.11 Indemnification Agreement between Cleveland Quarries, L.P., Slate and Stone
Corporation of America and American Stone Corporation, adopted by the Board
of Directors of American Stone Corporation in March, 1997
(B)
10.12 No Default Confirmation Certificate between the Company, 112769 Ontario
Limited, Nicholls Investments, Inc., Grenville Aggregate Specialties
Limited, 237894 Ontario Limited, and Stoklosar Marble Quarries Limited
(B)
10.13 Share Purchase Option Agreement between TMT Masonry, Ltd., Roulston Ventures
Limited Partnership, and the Company, dated November 22, 1996
(B)
10.14 Business Loan Agreement between American Stone Corporation and FirstMerit
Bank, N.A. dated November 10, 1997
10.15 Modification of Mortgage between American Stone Corporation and FirstMerit
Bank, N.A., dated November 10, 1997
10.16 Modification of Mortgage between American Stone Corporation and FirstMerit
Bank, N.A., dated November 10, 1997
10.17 Commercial Security Agreement between American Stone Corporation and
FirstMerit Bank, N.A., dated November 10, 1997
21.2 Subsidiaries of Registrant
27.1 Financial Data Schedule
<FN>
- ----------------------
* Management contract or compensatory plan or arrangement.
(A) Incorporated herein by reference to the appropriate exhibit to the
Company's registration statement on Form 10-SB filed on April 11, 1997.
(B) Incorporated herein by reference to the appropriate exhibit to the
Company's quarterly report on Form 10-QSB for the period ended March
31, 1997.
</TABLE>
E-2
<PAGE> 1
EXHIBIT 10.14
THIS BUSINESS LOAN AGREEMENT BETWEEN AMERICAN STONE CORPORATION ("BORROWER") AND
FIRSTMERIT BANK, N.A. ("LENDER") IS MADE AND EXECUTED ON THE FOLLOWING TERMS AND
CONDITIONS. BORROWER HAS RECEIVED PRIOR COMMERCIAL LOANS FROM LENDER OR HAS
APPLIED TO LENDER FOR A COMMERCIAL LOAN OR LOANS AND OTHER FINANCIAL
ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY EXHIBIT OR
SCHEDULE ATTACHED TO THIS AGREEMENT. ALL SUCH LOANS AND FINANCIAL
ACCOMMODATIONS, TOGETHER WITH ALL FUTURE LOANS AND FINANCIAL ACCOMMODATIONS FROM
LENDER TO BORROWER, ARE REFERRED TO IN THIS AGREEMENT INDIVIDUALLY AS THE "LOAN"
AND COLLECTIVELY AS THE "LOANS." BORROWER UNDERSTANDS AND AGREES THAT: (a) IN
GRANTING, RENEWING, OR EXTENDING ANY LOAN, LENDER IS RELYING UPON BORROWER'S
REPRESENTATIONS, WARRANTIES, AND AGREEMENTS, AS SET FORTH IN THIS AGREEMENT; (b)
THE GRANTING, RENEWING, OR EXTENDING OF ANY LOAN BY LENDER AT ALL TIMES SHALL BE
SUBJECT TO LENDER'S SOLE JUDGMENT AND DISCRETION; AND (c) ALL SUCH LOANS SHALL
BE AND SHALL REMAIN SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS OF THIS
AGREEMENT.
TERM. This Agreement shall be effective as of NOVEMBER 3, 1997, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
AGREEMENT. The word "Agreement" means this Business Loan Agreement, as this
Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
BORROWER. The word "Borrower" means American Stone Corporation. The word
"Borrower" also includes, as applicable, all subsidiaries and affiliates of
Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
CASH FLOW. The words "Cash Flow" mean net income after taxes, and exclusive
of extraordinary gains and income, plus depreciation and amortization.
COLLATERAL. The word "Collateral" means and includes without limitation all
property and assets granted as collateral security for a Loan, whether real
or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.
DEBT. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
<PAGE> 2
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
GRANTOR. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all Borrowers
granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without limitation
all Loans, together with all other obligations, debts and liabilities of
Borrower to Lender, or any one or more of them, as well as all claims by
Lender against Borrower, or any one or more of them; whether now or
hereafter existing, voluntary or involuntary, due or not due, absolute or
contingent, liquidated or unliquidated; whether Borrower may be liable
individually or jointly with others; whether Borrower may be obligated as a
guarantor, surety, or otherwise; whether recovery upon such Indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such Indebtedness may be or hereafter may become otherwise
unenforceable.
LENDER. The word "Lender" means FirstMerit Bank, N.A., its successors and
assigns.
LIQUID ASSETS. The words "Liquid Assets" mean Borrower's cash on hand plus
Borrower's readily marketable securities.
LOAN. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics, warehousemen,
or carriers, or other like liens arising in the ordinary course of business
and securing obligations which are not yet delinquent; (d) purchase money
liens or purchase money security interests upon or in any property acquired
or held by Borrower in the ordinary course of business to secure
indebtedness outstanding on the date of this Agreement or permitted to be
incurred under the paragraph of this Agreement titled
<PAGE> 3
"Indebtedness and Liens"; (e) liens and security interests which, as of the
date of this Agreement, have been disclosed to and approved by the Lender
in writing; and (f) those liens and security interests which in the
aggregate constitute an immaterial and insignificant monetary amount with
respect to the net value of Borrower's assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
SUBORDINATED DEBT. The words "Subordinated Debt" mean indebtedness and
liabilities of Borrower which have been subordinated by written agreement
to indebtedness owed by Borrower to Lender in form and substance acceptable
to Lender.
TANGIBLE NET WORTH. The words "Tangible Net Worth" mean Borrower's total
assets excluding all intangible assets (i.e., goodwill, trademarks,
patents, copyrights, organizational expenses, and similar intangible items,
but including leaseholds and leasehold improvements) less total Debt.
WORKING CAPITAL. The words "Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current liabilities.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions set
forth in this Agreement and in the Related Documents.
LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory to
Lender the following documents for the Loan: (a) the Note, (b) Security
Agreements granting to Lender security interests in the Collateral, (c)
Financing Statements perfecting Lender's Security
<PAGE> 4
Interests; (d) evidence of insurance as required below; and (e) any other
documents required under this Agreement or by Lender or its counsel,
including without limitation any guaranties described below.
BORROWER'S AUTHORIZATION. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and the
Related Documents, and such other authorizations and other documents and
instruments as Lender or its counsel, in their sole discretion, may
require.
PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document.
REPRESENTATIONS AND WARRANTIES. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
NO EVENT OF DEFAULT. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Ohio and is
validly existing and in good standing in all states in which Borrower is
doing business. Borrower has the full power and authority to own its
properties and to transact the businesses in which it is presently engaged
or presently proposes to engage. Borrower also is duly qualified as a
foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws
or code of regulations, or any agreement or other instrument binding upon
Borrower or (b) any law, governmental regulation, court decree, or order
applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date
<PAGE> 5
of the most recent financial statement supplied to Lender. Borrower has no
material contingent obligations except as disclosed in such financial
statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
PROPERTIES. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and as
accepted by Lender, and except for property tax liens for taxes not
presently due and payable, Borrower owns and has good title to all of
Borrower's properties free and clear of all Security Interests, and has not
executed any security documents or financing statements relating to such
properties. All of Borrower's properties are titled in Borrower's legal
name, and Borrower has not used, or filed a financing statement under, any
other name for at least the last five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. Except as disclosed to and
acknowledged by Lender in writing, Borrower represents and warrants that:
(a) During the period of Borrower's ownership of the properties, there has
been no use, generation, manufacture, storage, treatment, disposal, release
or threatened release of any hazardous waste or substance by any person on,
under, about or from any of the properties. (b) Borrower has no knowledge
of, or reason to believe that there has been (i) any use, generation,
manufacture, storage, treatment, disposal, release, or threatened release
of any hazardous waste or substance on, under, about or from the properties
by any prior owners or occupants of any of the properties, or (ii) any
actual or threatened litigation or claims of any kind by any person
relating to such matters. (c) Neither Borrower nor any tenant, contractor,
agent or other authorized user of any of the properties shall use,
generate, manufacture, store, treat, dispose of, or release any hazardous
waste or substance on, under, about or from any of the properties; and any
such activity shall be conducted in compliance with all applicable federal,
state, and local laws, regulations, and ordinances, including without
limitation those laws, regulations and ordinances described above. Borrower
authorizes Lender and its agents to enter upon the properties to make such
inspections and tests as Lender may deem appropriate to determine
compliance of the properties with this section of the Agreement. Any
inspections or tests made by Lender shall be at Borrower's expense and for
Lender's purposes only and shall not be construed to create any
responsibility or liability on the part of Lender to Borrower or to any
other person. The representations and warranties contained herein are based
on Borrower's due diligence in investigating the properties for hazardous
waste and hazardous substances. Borrower hereby (a) releases and waives any
future claims against Lender for indemnity or contribution in the event
Borrower becomes liable for cleanup or other costs under any such laws, and
(b) agrees to indemnify and hold harmless Lender against any and all
claims, losses, liabilities,
<PAGE> 6
damages, penalties, and expenses which Lender may directly or indirectly
sustain or suffer resulting from a breach of this section of the Agreement
or as a consequence of any use, generation, manufacture, storage, disposal,
release or threatened release occurring prior to Borrower's ownership or
interest in the properties, whether or not the same was or should have been
known to Borrower. The provisions of this section of the Agreement,
including the obligation to indemnify, shall survive the payment of the
Indebtedness and the termination or expiration of this Agreement and shall
not be affected by Lender's acquisition of any interest in any of the
properties, whether by foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower may
have any liability complies in all material respects with all applicable
requirements of law and regulations, and (i) no Reportable Event nor
Prohibited Transaction (as defined in ERISA) has occurred with respect to
any such plan, (ii) Borrower has not withdrawn from any such plan or
initiated steps to do so, (iii) no steps have been taken to terminate any
such plan, and (iv) there are no unfunded liabilities other than those
previously disclosed to Lender in writing.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at P.O. Box 261, Amherst, OH 44001. Unless Borrower
has designated otherwise in writing this
<PAGE> 7
location is also the office or offices where Borrower keeps its records
concerning the Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make
such information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and agrees
that Lender, without independent investigation, is relying upon the above
representations and warranties in making the above referenced Loan to
Borrower. Borrower further agrees that the foregoing representations and
warranties shall be continuing in nature and shall remain in full force and
effect until such time as Borrower's Indebtedness shall be paid in full, or
until this Agreement shall be terminated in the manner provided above,
whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in no
event later than ninety (90) days after the end of each fiscal year,
Borrower's balance sheet and income statement for the year ended, compiled
by a certified public accountant satisfactory to Lender, and, as soon as
available, but in no event later than ten (10) days after the end of each
month, Borrower's balance sheet and profit and loss statement for the
period ended, prepared and certified as correct to the best knowledge and
belief by Borrower's chief financial officer or other officer or person
acceptable to Lender. All financial reports required to be provided under
this Agreement shall be prepared in accordance with generally accepted
accounting principles, applied on a consistent basis, and certified by
Borrower as being true and correct.
ADDITIONAL INFORMATION. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables and payables,
inventory schedules, budgets, forecasts, tax returns, and other reports
with respect to Borrower's financial condition and business operations as
Lender may request from time to time.
<PAGE> 8
FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and
ratios:
TANGIBLE NET WORTH. Maintain a minimum Tangible Net Worth of not less
than $2,100,000.00 and increasing by $50,000.00 annually.
NET WORTH RATIO. Maintain a ratio of Total Liabilities to Tangible
Net Worth of less than 1.00 to 1.00.
OTHER RATIO. Maintain a ratio of MINIMUM DEBT SERVICE COVERAGE (NET
INCOME + DEPRECIATION)/(CMLTD + CM CAPITAL LEASES) OF 1.00 TO 1.00.
Except as provided above, all computations made to determine
compliance with the requirements contained in this paragraph shall be
made in accordance with generally accepted accounting principles,
applied on a consistent basis, and certified by Borrower as being
true and correct.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with
respect to Borrower's properties and operations, in form, amounts,
coverages and with insurance companies reasonably acceptable to
Lender. Borrower, upon request of Lender, will deliver to Lender from
time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will
not be cancelled or diminished without at least ten (10) days' prior
written notice to Lender. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be
impaired in any way by any act, omission or default of Borrower or
any other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest for the Loans,
Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
GUARANTIES. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, executed by the guarantor named
below, on Lender's forms, and in the amount and under the conditions
spelled out in those guaranties.
GUARANTOR AMOUNT
--------- ------
AMERICAN STONE CORPORATION -
CANADA DBA TYRRELL STONE DESIGN LTD. $500,000.00
<PAGE> 9
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income, or profits, prior to the
date on which penalties would attach, and all lawful claims that, if
unpaid, might become a lien or charge upon any of Borrower's properties,
income, or profits. Provided however, Borrower will not be required to pay
and discharge any such assessment, tax, charge, levy, lien or claim so long
as (a) the legality of the same shall be contested in good faith by
appropriate proceedings, and (b) Borrower shall have established on its
books adequate reserves with respect to such contested assessment, tax,
charge, levy, lien, or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies,
liens and claims and will authorize the appropriate governmental official
to deliver to Lender at any time a written statement of any assessments,
taxes, charges, levies, liens and claims against Borrower's properties,
income, or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of
any event which constitutes an Event of Default under this Agreement or
under any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations, including
without limitation, compliance with the Americans With Disabilities Act and
with all minimum funding standards and other requirements of ERISA and
other laws applicable to Borrower's employee benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party to
permit Lender free access to such records at all reasonable times and to
provide Lender with copies of any records it may request, all at Borrower's
expense.
<PAGE> 10
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds
with a certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations
and warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects
with all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part
of any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless
such environmental activity is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal, state or local
governmental authorities; shall furnish to Lender promptly and in any event
within thirty (30) days after receipt thereof a copy of any notice,
summons, lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with any
environmental activity whether or not there is damage to the environment
and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in, or
encumber any of Borrower's assets, or (c) sell with recourse any of
Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c) pay
any dividends on Borrower's stock (other than dividends payable in its
stock), provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or would result
from the payment of dividends, if Borrower is a "Subchapter S Corporation"
(as defined in the Internal Revenue Code of 1986, as amended), Borrower may
pay cash dividends on its stock to its shareholders from time to time in
amounts necessary to enable the shareholders to pay income taxes and make
estimated income tax payments to
<PAGE> 11
satisfy their liabilities under federal and state law which arise solely
from their status as Shareholders of a Subchapter S Corporation because of
their ownership of shares of stock of Borrower, or (d) purchase or retire
any of Borrower's outstanding shares or alter or amend Borrower's capital
structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money or
assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender; or (e) Lender in good faith deems itself insecure, even
though no Event of Default shall have occurred.
GUARANTOR FINANCIAL INFORMATION. The Guarantors shall provide the Bank with
Federal tax returns on an annual basis.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due
on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
<PAGE> 12
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time
and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any collateral securing the Indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on or
of any of Borrower's deposit accounts with Lender. However, this Event of
Default shall not apply if there is a good faith dispute by Borrower or
Grantor, as the case may be, as to the validity or reasonableness of the
claim which is the basis of the creditor or forfeiture proceeding, and if
Borrower or Grantor gives Lender written notice of the creditor or
forfeiture proceeding and furnishes reserves or a surety bond for the
creditor or forfeiture proceeding satisfactory to Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability
under, any Guaranty of the Indebtedness. Lender, at its option, may, but
shall not be required to, permit the Guarantor's estate to assume
unconditionally the obligations arising under the guaranty in a manner
satisfactory to Lender, and, in doing so, cure the Event of Default.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHT TO CURE. If any default, other than a Default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been given
a notice of a similar default within the preceding twelve (12) months, it
may be cured (and no Event of Default will have occurred) if Borrower or
Grantor, as the case may be, after receiving written notice from Lender
demanding cure of such default: (a) cures the default within fifteen (15)
days; or (b) if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
<PAGE> 13
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate and, at Lender's option, all
Indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's rights
and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect Lender's
right to declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY
LENDER IN THE STATE OF OHIO. IF THERE IS A LAWSUIT, BORROWER AGREES UPON
LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF CUYAHOGA
COUNTY, THE STATE OF OHIO. LENDER AND BORROWER HEREBY WAIVE THE RIGHT TO
ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER
LENDER OR BORROWER AGAINST THE OTHER. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Borrower under
this Agreement shall be joint and several, and all references to Borrower
shall mean each and every Borrower. This means that each of the persons
signing below is responsible for ALL obligations in this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation whatsoever,
to any one or more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any other matter relating
to the Loan, and Borrower hereby waives any rights to privacy it may have
with respect to such matters. Borrower additionally waives any and all
notices of sale of participation interests, as well as all notices of any
repurchase of such participation interests. Borrower also agrees that the
purchasers of any such participation interests will be considered
<PAGE> 14
as the absolute owners of such interests in the Loans and will have all the
rights granted under the participation agreement or agreements governing
the sale of such participation interests. Borrower further waives all
rights of offset or counterclaim that it may have now or later against
Lender or against any purchaser of such a participation interest and
unconditionally agrees that either Lender or such purchaser may enforce
Borrower's obligation under the Loans irrespective of the failure or
insolvency of any holder of any interest in the Loans. Borrower further
agrees that the purchaser of any such participation interests may enforce
its interests irrespective of any personal claims or defenses that Borrower
may have against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. Lender may pay someone else to help collect the Loans
and to enforce this Agreement, and Borrower will pay that amount. This
includes, subject to any limits under applicable law, Lender's attorneys'
fees and Lender's legal expenses, whether or not there is a lawsuit,
including attorneys' fees for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any
court costs, in addition to all other sums provided by law.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mail, first class, postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above. Any party may change its address for notices under
this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
To the extent permitted by applicable law, if there is more than one
Borrower, notice to any Borrower will constitute notice to all Borrowers.
For notice purposes, Borrower will keep Lender informed at all times of
Borrower's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. It feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
<PAGE> 15
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, or between Lender and any
Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent in subsequent instances where such consent is required,
and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
<PAGE> 16
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
NOVEMBER 10, 1997.
BORROWER:
AMERICAN STONE CORPORATION
BY: /S/ DAVID TYRRELL
------------------------
DAVID TYRRELL, PRESIDENT
LENDER:
FIRSTMERIT BANK, N.A.
BY: /S/ LAWRENCE ALLEN
------------------------
AUTHORIZED OFFICER
<PAGE> 1
EXHIBIT 10.15
MODIFICATION OF MORTGAGE
THIS MODIFICATION OF MORTGAGE IS DATED NOVEMBER 10, 1997, BETWEEN AMERICAN STONE
CORPORATION (REFERRED TO BELOW AS "GRANTOR"), WHOSE ADDRESS IS P.O. BOX 261,
AMHERST, OH 44001; AND FIRSTMERIT BANK, N.A. (REFERRED TO BELOW AS "LENDER"),
WHOSE ADDRESS IS 123 WEST PROSPECT AVENUE, CLEVELAND, OH 44115.
MORTGAGE. Grantor and Lender have entered into a mortgage dated September 13,
1996 (the "Mortgage") recorded in Lorain County, State of Ohio as follows:
RECORDED BY U.S. TITLE IN VOLUME 1367, PAGES 64 THROUGH 76 IN THE
LORAIN COUNTY RECORDER'S OFFICE.
REAL PROPERTY DESCRIPTION. The Mortgage covers the following described real
property (the "Real Property") located in Lorain County, State of Ohio:
SEE "EXHIBIT A" ATTACHED.
The Real Property or its address is commonly known as STATE ROUTE 113, AMHERST,
OH 44001. The Real Property tax identification number is 05-00-093-000-019,
05-00-094-102-024, 05-00-091-101-014, 05-00-092-000-018, 05-00-008-000-009,
05-00-009-000-092, 01-00-057-000-012 and 01-00-072-000-013.
MODIFICATION. Grantor and Lender hereby modify the Mortgage as follows:
INCREASE PRINCIPAL AMOUNT TO 1,250,000.00.
CONTINUING VALIDITY. Except as expressly modified above, the terms of the
original Mortgage shall remain unchanged and in full force and effect. Consent
by Lender to this Modification does not waive Lender's right to require strict
performance of the Mortgage as changed above nor obligate Lender to make any
future modifications. Nothing in this Modification shall constitute a
satisfaction of the promissory note or other credit agreement secured by the
Mortgage (the "Note"). It is the intention of Lender to retain as liable all
parties to the Mortgage and all parties, makers and endorsers to the Note,
including accommodation parties, unless a party is expressly released by Lender
in writing. Any maker or endorser, including accommodation makers, shall not be
released by virtue of this Modification. If any person who signed the original
Mortgage does not sign this Modification, then all persons signing below
acknowledge that this Modification is given conditionally, based on the
representation to Lender that the non-signing person consents to the changes and
provisions of this Modification or otherwise will not be released by it. This
waiver applies not only to any initial extension or modification, but also to
all such subsequent actions.
<PAGE> 2
EACH GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS MODIFICATION OF
MORTGAGE, AND EACH GRANTOR AGREES TO ITS TERMS.
GRANTOR:
AMERICAN STONE CORPORATION
BY: /s/ DAVID TYRRELL
---------------------------------------
DAVID TYRRELL, PRESIDENT
SIGNED, ACKNOWLEDGED AND DELIVERED IN THE PRESENCE OF:
X /s/ LAWRENCE ALLEN
---------------------------------------
WITNESS
X
WITNESS
LENDER:
FIRSTMERIT BANK, N.A.
BY: /s/ LAWRENCE ALLEN
---------------------------------------
AUTHORIZED OFFICER
<PAGE> 1
EXHIBIT 10.16
MODIFICATION OF MORTGAGE
THIS MODIFICATION OF MORTGAGE IS DATED NOVEMBER 10, 1997, BETWEEN AMERICAN STONE
CORPORATION (REFERRED TO BELOW AS "GRANTOR"), WHOSE ADDRESS IS P.O. BOX 261,
AMHERST, OH 44001; AND FIRSTMERIT BANK, N.A. (REFERRED TO BELOW AS "LENDER"),
WHOSE ADDRESS IS 123 WEST PROSPECT AVENUE, CLEVELAND, OH 44115.
MORTGAGE. Grantor and Lender have entered into a mortgage dated September 13,
1996 (the "Mortgage") recorded in Erie County, State of Ohio as follows:
RECORDED BY U.S. TITLE IN VOLUME 298, PAGES 677 THROUGH 684 IN THE
ERIE COUNTY RECORDER'S OFFICE.
REAL PROPERTY DESCRIPTION. The Mortgage covers the following described real
property (the "Real Property") located in Erie County, State of Ohio:
SEE "EXHIBIT A" ATTACHED.
The Real Property or its address is commonly known as BIRMINGHAM QUARRY,
FLORENCE, OHIO. The Real Property tax identification number is 07-00152-000,
07-0153-000 and 07-00154-000.
MODIFICATION. Grantor and Lender hereby modify the Mortgage as follows:
INCREASE PRINCIPAL AMOUNT TO 1,250,000.00.
CONTINUING VALIDITY. Except as expressly modified above, the terms of the
original Mortgage shall remain unchanged and in full force and effect. Consent
by Lender to this Modification does not waive Lender's right to require strict
performance of the Mortgage as changed above nor obligate Lender to make any
future modifications. Nothing in this Modification shall constitute a
satisfaction of the promissory note or other credit agreement secured by the
Mortgage (the "Note"). It is the intention of Lender to retain as liable all
parties to the Mortgage and all parties, makers and endorsers to the Note,
including accommodation parties, unless a party is expressly released by Lender
in writing. Any maker or endorser, including accommodation makers, shall not be
released by virtue of this Modification. If any person who signed the original
Mortgage does not sign this Modification, then all persons signing below
acknowledge that this Modification is given conditionally, based on the
representation to Lender that the non-signing person consents to the changes and
provisions of this Modification or otherwise will not be released by it. This
waiver applies not only to any initial extension or modification, but also to
all such subsequent actions.
<PAGE> 2
EACH GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS MODIFICATION OF
MORTGAGE, AND EACH GRANTOR AGREES TO ITS TERMS.
GRANTOR:
AMERICAN STONE CORPORATION
BY: /S/ DAVID TYRRELL
--------------------------
DAVID TYRRELL, PRESIDENT
SIGNED, ACKNOWLEDGED AND DELIVERED IN THE PRESENCE OF:
X /S/ LAWRENCE ALLEN
--------------------------
WITNESS
X
--------------------------
WITNESS
LENDER:
FIRSTMERIT BANK, N.A.
BY: /S/ LAWRENCE ALLEN
--------------------------
AUTHORIZED OFFICER
<PAGE> 1
EXHIBIT 10.17
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN AMERICAN STONE
CORPORATION (REFERRED TO BELOW AS "GRANTOR"); AND FIRSTMERIT BANK, N.A.
(REFERRED TO BELOW AS "LENDER"). FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO
LENDER A SECURITY INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS AND
AGREES THAT LENDER SHALL HAVE THE RIGHTS STATED IN THIS AGREEMENT WITH RESPECT
TO THE COLLATERAL, IN ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY
LAW.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
AGREEMENT. The word "Agreement" means this Commercial Security
Agreement, as this Commercial Security Agreement may be amended or
modified from time to time, together with all exhibits and schedules
attached to this Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described
property of Grantor, whether now owned or hereafter acquired, whether
now existing or hereafter arising, and wherever located:
ALL INVENTORY, ACCOUNTS, EQUIPMENT AND GENERAL INTANGIBLES
In addition, the word "Collateral" includes all the following, whether
now owned or hereafter acquired, whether now existing or hereafter
arising, and wherever located:
(a) All attachments, accessions, accessories, tools, parts,
supplies, increases, and additions to and all replacements of
and substitutions for any property described above.
(b) All products and produce of any of the property described
in this Collateral section.
(c) All accounts, general intangibles, instruments, rents,
monies, payments, and all other rights, arising out of a sale,
lease, or other disposition of any of the property described
in this Collateral section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property
described in this Collateral section, whether in the form of a
writing, photograph, microfilm, microfiche, or electronic
media, together with all of Grantor's right, title, and
<PAGE> 2
interest in and to all computer software required to utilize,
create, maintain, and process any such records or data on
electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
GRANTOR. The word "Grantor" means American Stone Corporation, its
successors and assigns.
GUARANTOR. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced
by the Note, including all principal and interest, together with all
other indebtedness and costs and expenses for which Grantor is
responsible under this Agreement or under any of the Related Documents.
LENDER. The word "Lender" means FirstMerit Bank, N.A., its successors
and assigns.
NOTE. The word "Note" means the note or credit agreement dated November
10, 1997, in the principal amount of $500,000.00 from American Stone
Corporation to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of and substitutions
for the note or credit agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such
financing statements and to take whatever other actions are requested
by Lender to perfect and continue Lender's security interest in the
Collateral. Upon request of Lender, Grantor will deliver to Lender any
and all of the documents evidencing or constituting the Collateral, and
Grantor will note Lender's interest upon any and all chattel paper if
not delivered to Lender for possession by Lender. Grantor hereby
appoints Lender as its irrevocable attorney-in-fact for the purpose of
executing any documents necessary to perfect or to continue the
security interest granted in this Agreement. Lender may at any time,
and without further authorization from Grantor, file a carbon,
photographic or other reproduction of any financing statement or of
this Agreement for use as a financing statement. Grantor will reimburse
Lender for all expenses for the perfection and the continuation of the
perfection of Lender's security interest in the Collateral. Grantor
2
<PAGE> 3
promptly will notify Lender before any change in Grantor's name
including any change to the assumed business names of Grantor.
NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its certificate or articles of incorporation and bylaws or
code of regulations do not prohibit any term or condition of this
Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral
have authority and capacity to contract and are in fact obligated as
they appear to be on the Collateral. At the time any account becomes
subject to a security interest in favor of Lender, the account shall be
a good and valid account representing an undisputed, bona fide
indebtedness incurred by the account debtor, for merchandise held
subject to delivery instructions or theretofore shipped or delivered
pursuant to a contract of sale, or for services theretofore performed
by Grantor with or for the account debtor; there shall be no setoffs or
counterclaims against any such account; and no agreement under which
any deductions or discounts may be claimed shall have been made with
the account debtor except those disclosed to Lender in writing.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will
deliver to Lender in form satisfactory to Lender a schedule of real
properties and Collateral locations relating to Grantor's operations,
including without limitation the following: (a) all real property owned
or being purchased by Grantor; (b) all real property being rented or
leased by Grantor; (c) all storage facilities owned, rented, leased, or
being used by Grantor; and (d) all other properties where Collateral is
or may be located. Except in the ordinary course of its business,
Grantor shall not remove the Collateral from its existing locations
without the prior written consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the
extent the Collateral consists of intangible property such as accounts,
the records concerning the Collateral) at Grantor's address shown
above, or at such other locations as are acceptable to Lender. Except
in the ordinary course of its business, including the sales of
inventory, Grantor shall not remove the Collateral from its existing
locations without the prior written consent of Lender. To the extent
that the Collateral consists of vehicles, or other titled property,
Grantor shall not take or permit any action which would require
application for certificates of title for the vehicles outside the
State of Ohio, without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or
accounts collected in the ordinary course of Grantor's business,
Grantor shall not sell, offer to sell, or otherwise transfer or dispose
of the Collateral. While Grantor is not in default under this
Agreement, Grantor may sell inventory, but only in the ordinary course
of its business
3
<PAGE> 4
and only to buyers who quality as a buyer in the ordinary course of
business. A sale in the ordinary course of Grantor's business does not
include a transfer in partial or total satisfaction of a debt or any
bulk sale. Grantor shall not pledge, mortgage, encumber or otherwise
permit the Collateral to be subject to any lien, security interest,
encumbrance, or charge, other than the security interest provided for
in this Agreement, without the prior written consent of Lender. This
includes security interests even if junior in right to the security
interests granted under this Agreement. Unless waived by Lender, all
proceeds from any disposition of the Collateral (for whatever reason)
shall be held in trust for Lender and shall not be commingled with any
other funds; provided however, this requirement shall not constitute
consent by Lender to any sale or other disposition. Upon receipt,
Grantor shall immediately deliver any such proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing
statement covering any of the Collateral is on file in any public
office other than those which reflect the security interest created by
this Agreement or to which Lender has specifically consented. Grantor
shall defend Lender's rights in the Collateral against the claims and
demands of all other persons.
COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require,
and insofar as the Collateral consists of accounts and general
intangibles, Grantor shall deliver to Lender schedules of such
Collateral, including such information as Lender may require, including
without limitation names and addresses of account debtors and agings of
accounts and general intangibles. Insofar as the Collateral consists of
inventory and equipment, Grantor shall deliver to Lender, as often as
Lender shall require, such lists, descriptions, and designations of
such Collateral as Lender may require to identify the nature, extent,
and location of such Collateral. Such information shall be submitted
for Grantor and each of its subsidiaries or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not
commit or permit damage to or destruction of the Collateral or any part
of the Collateral. Lender and its designated representatives and agents
shall have the right at all reasonable times to examine, inspect, and
audit the Collateral wherever located. Grantor shall immediately notify
Lender of all cases involving the return, rejection, repossession, loss
or damage of or to any Collateral; of any request for credit or
adjustment or of any other dispute arising with respect to the
Collateral; and generally of all happenings and events affecting the
Collateral or the value or the amount of the Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon
this Agreement, upon any promissory note or notes evidencing the
Indebtedness, or upon any of the other Related Documents. Grantor may
withhold any such payment or may elect to contest any lien if Grantor
is in good faith conducting an appropriate proceeding to contest the
obligation to pay and so long as Lender's interest in the Collateral is
not jeopardized in Lender's sole opinion. If
4
<PAGE> 5
the Collateral is subjected to a lien which is not discharged within
fifteen (15) days, Grantor shall deposit with Lender cash, a sufficient
corporate surety bond or other security satisfactory to Lender in an
amount adequate to provide for the discharge of the lien plus any
interest, costs, attorneys' fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. In any contest
Grantor shall defend itself and Lender and shall satisfy any final
adverse judgment before enforcement against the Collateral. Grantor
shall name Lender as an additional obligee under any surety bond
furnished in the contest proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply
promptly with all laws, ordinances, rules and regulations of all
governmental authorities, now or hereafter in effect, applicable to the
ownership, production, disposition, or use of the Collateral. Grantor
may contest in good faith any such law, ordinance or regulation and
withhold compliance during any proceeding, including appropriate
appeals, so long as Lender's interest in the Collateral, in Lender's
opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the
Collateral never has been, and never will be so long as this Agreement
remains a lien on the Collateral, used for the generation, manufacture,
storage, transportation, treatment, disposal, release or threatened
release of any hazardous waste or substance, as those terms are defined
in the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.
("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986,
Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable
state or Federal laws, rules, or regulations adopted pursuant to any of
the foregoing. The terms "hazardous waste" and "hazardous substance"
shall also include, without limitation, petroleum and petroleum
by-products or any fraction thereof and asbestos. The representations
and warranties contained herein are based on Grantor's due diligence in
investigating the Collateral for hazardous wastes and substances.
Grantor hereby (a) releases and waives any future claims against Lender
for indemnity or contribution in the event Grantor becomes liable for
cleanup or other costs under any such laws, and (b) agrees to indemnify
and hold harmless Lender against any and all claims and losses
resulting from a breach of this provision of this Agreement. This
obligation to indemnify shall survive the payment of the Indebtedness
and the satisfaction of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain
all risks insurance, including without limitation fire, theft and
liability coverage together with such other insurance as Lender may
require with respect to the Collateral, in form, amounts, coverages and
basis reasonably acceptable to Lender and issued by a company or
companies reasonably acceptable to Lender. Grantor, upon request of
Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without
at least ten (10) days' prior written notice to Lender and not
including any disclaimer of the insurer's liability for failure to give
such a notice. Each insurance
5
<PAGE> 6
policy also shall include an endorsement providing that coverage in
favor of Lender will not be impaired in any way by any act, omission or
default of Grantor or any other person. In connection with all policies
covering assets in which Lender holds or is offered a security
interest, Grantor will provide Lender with such loss payable or other
endorsements as Lender may require. If Grantor at any time fails to
obtain or maintain any insurance as required under this Agreement,
Lender may (but shall not be obligated to) obtain such insurance as
Lender deems appropriate, including if it so chooses "single interest
insurance," which will cover only Lender's interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender
of any loss or damage to the Collateral. Lender may make proof of loss
if Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed
Collateral, Lender shall, upon satisfactory proof of expenditure, pay
or reimburse Grantor from the proceeds for the reasonable cost of
repair or restoration. If Lender does not consent to repair or
replacement of the Collateral, Lender shall retain a sufficient amount
of the proceeds to pay all of the Indebtedness, and shall pay the
balance to Grantor. Any proceeds which have not been disbursed within
six (6) months after their receipt and which Grantor has not committed
to the repair or restoration of the Collateral shall be used to prepay
the Indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be
created by monthly payments from Grantor of a sum estimated by Lender
to be sufficient to produce, at least fifteen (15) days before the
premium due date, amounts at least equal to the insurance premiums to
be paid. It fifteen (15) days before payment is due, the reserve funds
are insufficient, Grantor shall upon demand pay any deficiency to
Lender. The reserve funds shall be held by Lender as a general deposit
and shall constitute a non-interest-bearing account which Lender may
satisfy by payment of the insurance premiums required to be paid by
Grantor as they become due. Lender does not hold the reserve funds in
trust for Grantor, and Lender is not the agent of Grantor for payment
of the insurance premiums required to be paid by Grantor. The
responsibility for the payment of premiums shall remain Grantor's sole
responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following:
(a) the name of the insurer; (b) the risks insured; (c) the amount of
the policy; (d) the property insured; (e) the then current value on the
basis of which insurance has been obtained and the manner of
determining that value; and (f) the expiration date of the policy. In
addition, Grantor shall upon request by Lender (however not more often
than annually) have an independent appraiser satisfactory to Lender
determine, as applicable, the cash value or replacement cost of the
Collateral.
6
<PAGE> 7
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest in
such Collateral. Until otherwise notified by Lender, Grantor may collect any of
the Collateral consisting of accounts. At any time and even though no Event of
Default exists, Lender may exercise its rights to collect the accounts and to
notify account debtors to make payments directly to Lender for application to
the Indebtedness. If Lender at any time has possession of any Collateral,
whether before or after an Event of Default, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral if
Lender takes such action for that purpose as Grantor shall request or as Lender,
in Lender's sole discretion, shall deem appropriate under the circumstances, but
failure to honor any request by Grantor shall not of itself be deemed to be a
failure to exercise reasonable care. Lender shall not be required to take any
steps necessary to preserve any rights in the Collateral against prior parties,
nor to protect, preserve or maintain any security interest given to secure the
Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (I) the term of any applicable insurance policy or (II) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when
due on the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any
other term, obligation, covenant or condition contained in this
Agreement or in any of the Related Documents or in any other agreement
between Lender and Grantor.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other
7
<PAGE> 8
agreement, in favor of any other creditor or person that may materially
affect any of Borrower's property or Borrower's or any Grantor's
ability to repay the Loans or perform their respective obligations
under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement,
the Note or the Related Documents is false or misleading in any
material respect, either now or at the time made or furnished.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any collateral documents to create a valid and perfected security
interest or lien) at any time and for any reason.
INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a
receiver for any part of Grantor's property, any assignment for the
benefit of creditors, any type of creditor workout, or the commencement
of any proceeding under any bankruptcy or insolvency laws by or against
Grantor.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral
securing the Indebtedness. This includes a garnishment of any of
Grantor's deposit accounts with Lender. However, this Event of Default
shall not apply if there is a good faith dispute by Grantor as to the
validity or reasonableness of the claim which is the basis of the
creditor or forfeiture proceeding and if Grantor gives Lender written
notice of the creditor or forfeiture proceeding and deposits with
Lender monies or a surety bond for the creditor or forfeiture
proceeding, in an amount determined by Lender, in its sole discretion,
as being an adequate reserve or bond for the dispute.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor
dies or becomes incompetent. Lender, at its option, may, but shall not
be required to, permit the Guarantor's estate to assume unconditionally
the obligations arising under the guaranty in a manner satisfactory to
Lender, and, in doing so, cure the Event of Default.
ADVERSE CHANGE. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of
the Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHT TO CURE. If any default, other than a Default on Indebtedness, is
curable and if Grantor has not been given a prior notice of a breach of
the same provision of this Agreement, it may be cured (and no Event of
Default will have occurred) if Grantor, after Lender sends written
notice demanding cure of such default, (a) cures the default within
8
<PAGE> 9
fifteen (15) days; or (b), if the cure requires more than fifteen (15)
days, immediately initiates steps which Lender deems in Lender's sole
discretion to be sufficient to cure the default and thereafter
continues and completes all reasonable and necessary steps sufficient
to produce compliance as soon as reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Ohio Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to
pay, immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender
all or any portion of the Collateral and any and all certificates of
title and other documents relating to the Collateral. Lender may
require Grantor to assemble the Collateral and make it available to
Lender at a place to be designated by Lender. Lender also shall have
full power to enter upon the property of Grantor to take possession of
and remove the Collateral. If the Collateral contains other goods not
covered by this Agreement at the time of repossession, Grantor agrees
Lender may take such other goods, provided that Lender makes reasonable
efforts to return them to Grantor after repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof
in its own name or that of Grantor. Lender may sell the Collateral at
public auction or private sale. Unless the Collateral threatens to
decline speedily in value or is of a type customarily sold on a
recognized market, Lender will give Grantor reasonable notice of the
time after which any private sale or any other intended disposition of
the Collateral is to be made. The requirements of reasonable notice
shall be met if such notice is given at least ten (10) days before the
time of the sale or disposition. All expenses relating to the
disposition of the Collateral, including without limitation the
expenses of retaking, holding, insuring, preparing for sale and
selling the Collateral, shall become a part of the Indebtedness
secured by this Agreement and shall be payable on demand, with
interest at the Note rate from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender
shall have the following rights and remedies regarding the appointment
of a receiver: (a) Lender may have a receiver appointed as a matter of
right, (b) the receiver may be an employee of Lender and may serve
without bond, and (c) all fees of the receiver and his or her attorney
shall become part of the Indebtedness secured by this Agreement and
shall be payable on demand, with interest at the Note rate from date of
expenditure until repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from
the Collateral. Lender may at any
9
<PAGE> 10
time in its discretion transfer any Collateral into its own name or
that of its nominee and receive the payments, rents, income, and
revenues therefrom and hold the same as security for the Indebtedness
or apply it to payment of the Indebtedness in such order of preference
as Lender may determine. Insofar as the Collateral consists of
accounts, general intangibles, insurance policies, instruments, chattel
paper, choses in action, or similar property, Lender may demand,
collect, receipt for, settle, compromise, adjust, sue for, foreclose,
or realize on the Collateral as Lender may determine, whether or not
indebtedness or Collateral is then due. For these purposes, Lender may,
on behalf of and in the name of Grantor, receive, open and dispose of
mail addressed to Grantor; change any address to which mail and
payments are to be sent, and endorse notes, checks, drafts, money
orders, documents of title, instruments and items pertaining to
payment, shipment, or storage of any Collateral. To facilitate
collection, Lender may notify account debtors and obligors on any
Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the
Collateral, Lender may obtain a judgment against Grantor for any
deficiency remaining on the Indebtedness due to Lender after
application of all amounts received from the exercise of the rights
provided in this Agreement. Grantor shall be liable for a deficiency
even if the transaction described in this subsection is a sale of
accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and
remedies of a secured creditor under the provisions of the Uniform
Commercial Code, as may be amended from time to time. In addition,
Lender shall have and may exercise any or all other rights and remedies
it may have available at law, in equity, or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor under this Agreement,
after Grantor's failure to perform, shall not affect Lender's right to
declare a default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment
to this Agreement shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration
or amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and
accepted by Lender in the State of Ohio. If there is a lawsuit, Grantor
agrees upon Lender's request to submit to the jurisdiction of the
courts of the State of Ohio. Lender and Grantor hereby waive
10
<PAGE> 11
the right to any jury trial in any action, proceeding, or counterclaim
brought by either Lender or Grantor against the other. This Agreement
shall be governed by and construed in accordance with the laws of the
State of Ohio.
ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's
legal expenses, incurred in connection with the enforcement of this
Agreement. Lender may pay someone else to help enforce this Agreement,
and Grantor shall pay the costs and expenses of such enforcement. Costs
and expenses include Lender's attorneys' fees and legal expenses
whether or not there is a lawsuit, including attorneys' fees and legal
expenses for bankruptcy proceedings (and including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Grantor also shall pay all court
costs and such additional fees as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or define
the provisions of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Grantor under
this Agreement shall be joint and several, and all references to
Grantor shall mean each and every Grantor. This means that each of the
persons signing below is responsible for all obligations in this
Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective
when actually delivered or when deposited with a nationally recognized
overnight courier or deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be
given at the address shown above. Any party may change its address for
notices under this Agreement by giving formal written notice to the
other parties, specifying that the purpose of the notice is to change
the party's address. To the extent permitted by applicable law, if
there is more than one Grantor, notice to any Grantor will constitute
notice to all Grantors. For notice purposes, Grantor will keep Lender
informed at all times of Grantor's current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and
lawful attorney-in-fact, irrevocably, with full power of substitution
to do the following: (a) to demand, collect, receive, receipt for, sue
and recover all sums of money or other property which may now or
hereafter become due, owing or payable from the Collateral; (b) to
execute, sign and endorse any and all claims, instruments, receipts,
checks, drafts or warrants issued in payment for the Collateral; (c) to
settle or compromise any and all claims arising under the Collateral,
and, in the place and stead of Grantor, to execute and deliver its
releases and settlement for the claim; and (d) to file any claim or
claims or to take any action or institute or take part in any
proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary
or advisable. This power is given as security for the Indebtedness, and
the authority hereby
11
<PAGE> 12
conferred is and shall be irrevocable and shall remain in full force
and effect until renounced by Lender.
SEVERABILITY. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible,
any such offending provision shall be deemed to be modified to be
within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and all
other provisions of this Agreement in all other respects shall remain
valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender.
No delay or omission on the part of Lender in exercising any right
shall operate as a waiver of such right or any other right. A waiver by
Lender of a provision of this Agreement shall not prejudice or
constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Grantor, shall constitute a waiver of any of Lender's rights
or of any of Grantor's obligations as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in
the sole discretion of Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED NOVEMBER 10,
1997.
GRANTOR:
AMERICAN STONE CORPORATION
BY: /S/ DAVID TYRRELL
------------------------------
DAVID TYRRELL, PRESIDENT
LENDER:
FIRSTMERIT BANK, N.A.
BY: /S/ LAWRENCE ALLEN
------------------------------
AUTHORIZED OFFICER
12
<PAGE> 1
EXHIBIT 21.2
SUBSIDIARIES OF REGISTRANT
As of March 15, 1998, the following entities were subsidiaries of
American Stone Industries, Inc.:
1. American Stone Corporation, a Delaware corporation, which does business
as "American Stone Corporation" and "Cleveland Quarries."
2. Tyrrell Stone Design, Ltd., an Ontario, Canada corporation, which does
business as "Tyrrell Stone Design."
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 144,443
<SECURITIES> 0
<RECEIVABLES> 472,670
<ALLOWANCES> 9,967
<INVENTORY> 797,758
<CURRENT-ASSETS> 1,442,016
<PP&E> 2,266,885
<DEPRECIATION> 159,062
<TOTAL-ASSETS> 3,761,289
<CURRENT-LIABILITIES> 1,091,905
<BONDS> 0
0
0
<COMMON> 16,314
<OTHER-SE> 2,616,342
<TOTAL-LIABILITY-AND-EQUITY> 3,761,289
<SALES> 2,178,207
<TOTAL-REVENUES> 2,195,390
<CGS> 1,417,752
<TOTAL-COSTS> 719,497
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,135
<INCOME-PRETAX> 12,006
<INCOME-TAX> 4,900
<INCOME-CONTINUING> 7,106
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,106
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
