-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GAMHwmj0ZifJrkHQCppYDDnoSf1+Y17SsfYBcgDUJ6ODB6/+R5a+OeekTynS7moY xuk/Nuth8z8YFHRuesuK/g== 0000950135-97-003555.txt : 19970818 0000950135-97-003555.hdr.sgml : 19970818 ACCESSION NUMBER: 0000950135-97-003555 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 37 FILED AS OF DATE: 19970815 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROCK OF AGES CORP CENTRAL INDEX KEY: 0000084581 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 020212792 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-33685 FILM NUMBER: 97664298 BUSINESS ADDRESS: STREET 1: 369 NORTH STATE STREET CITY: CONCORD STATE: NH ZIP: 03301 BUSINESS PHONE: 6032258397 S-1 1 ROCK OF AGES CORPORATION FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 15, 1997 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ ROCK OF AGES CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 3281 030153200 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
772 GRANITEVILLE ROAD GRANITEVILLE, VERMONT 05654 (802) 476-3121 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ KURT M. SWENSON PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD OF DIRECTORS ROCK OF AGES CORPORATION 772 GRANITEVILLE ROAD GRANITEVILLE, VERMONT 05654 (802) 476-3121 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) Copies of Communications to: KENT A. COIT, ESQ. JORGE L. FREELAND, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP GREENBERG TRAURIG HOFFMAN LIPOFF ROSEN & QUENTEL, ONE BEACON STREET P.A. BOSTON, MASSACHUSETTS 02108 1221 BRICKELL AVENUE (617) 573-4800 MIAMI, FLORIDA 33131 (617) 573-4822 (FAX) (305) 579-0500 (305) 579-0717 (FAX)
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------------ CALCULATION OF REGISTRATION FEE
============================================================================================================ PROPOSED MAXIMUM TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------ Class A Common Stock, par value $.01 per share............ $57,000,000 $17,273.00 ============================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended, and includes shares of Class A Common Stock that may be purchased by the Underwriters pursuant to an overallotment option. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED AUGUST 15, 1997 PROSPECTUS Shares ROCK OF AGES CORPORATION Class A Common Stock ------------------------ Of the shares of Class A Common Stock, par value $.01 per share, of Rock of Ages Corporation, a Delaware corporation ("Rock of Ages" or the "Company"), offered hereby, shares are being sold by the Company and shares are being sold by certain stockholders of the Company (the "Selling Stockholders"). The Company will not receive any of the proceeds from the sale of Class A Common Stock by the Selling Stockholders. See "Principal and Selling Stockholders." The capital stock of the Company consists of Class A Common Stock and Class B Common Stock (collectively, the "Common Stock"). The two classes are substantially identical, except that the Class A Common Stock is entitled to one vote per share and the Class B Common Stock is entitled to ten votes per share on all matters, including the election of directors, and the Class B Common Stock is convertible into Class A Common Stock and converts automatically upon a transfer to any person other than a permitted transferee. Upon consummation of this offering, holders of Class B Common Stock will hold approximately % of the voting power of the outstanding shares of Common Stock. See "Description of Capital Stock." Prior to this offering, there has been no public market for the Class A Common Stock. It is currently estimated that the initial public offering price of the Class A Common Stock will be between $ and $ per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price of the Class A Common Stock. Application has been made for listing of the Class A Common Stock on the Nasdaq National Market under the symbol "ROAC." ------------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
=========================================================================================================== PROCEEDS TO PROCEEDS TO SELLING PRICE TO PUBLIC UNDERWRITING COMPANY(2) STOCKHOLDERS DISCOUNTS AND COMMISSIONS(1) - ----------------------------------------------------------------------------------------------------------- Per Share.............................. $ $ $ $ - ----------------------------------------------------------------------------------------------------------- Total(3)............................... $ $ $ $ ===========================================================================================================
(1) The Company and the Selling Stockholders have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses estimated at $ , which are payable by the Company. (3) The Company has granted the Underwriters a 30-day option to purchase up to additional shares of Class A Common Stock on the same terms and conditions as the Class A Common Stock offered hereby solely to cover overallotments, if any. If the option is exercised in full, the total Price to Public, total Underwriting Discounts and Commissions and total Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." ------------------------ The shares of Class A Common Stock are offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by them, and subject to other conditions, including the right of the Underwriters to withdraw, cancel, modify or reject any order in whole or in part. It is expected that delivery of the shares will be made on or about , 1997 at the offices of Raymond James & Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida. RAYMOND JAMES & ASSOCIATES, INC. The date of this Prospectus is , 1997 3 [MAP WITH LOCATIONS OF QUARRIES ETC. AND AUTHORIZED RETAILERS AND OTHER GRAPHICS] CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON STOCK OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING BIDS AND PURCHASES, SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 2 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and historical and pro forma financial statements and notes thereto appearing elsewhere in this Prospectus. Unless otherwise indicated, the information in this Prospectus assumes that (i) the Underwriters' over-allotment option has not been exercised and (ii) the Reorganization and the Acquisitions (as such terms are defined herein) have occurred. As used in this Prospectus, unless the context indicates otherwise, the term the "Company" or "Rock of Ages" refers to Rock of Ages Corporation after giving effect to the Reorganization and the Acquisitions, and its consolidated subsidiaries and their respective predecessors. THE COMPANY Rock of Ages, founded in 1885, is an integrated granite quarrier, manufacturer and distributor whose principal product is granite memorials used primarily in cemeteries. The Company believes that it is the largest quarrier, manufacturer and distributor of finished granite memorials and granite blocks for memorial use in North America, based on revenues. The Company owns and operates 13 active quarry properties and 12 manufacturing and sawing facilities in North America, principally in Vermont, Georgia and the Province of Quebec. The Company markets and distributes its memorials on a wholesale basis to approximately 1,835 independent memorial retailers in the United States and Canada, including approximately 495 independent authorized Rock of Ages retailers that are the primary outlet for the Company's branded memorials. The Company recently entered into a definitive agreement to acquire one of the largest of its authorized independent retailers, which will provide the Company with 17 owned retail outlets and mark the Company's first significant entry into retailing. The Company's memorials are marketed under the names Rock of Ages Sealmark and Colorcraft, as well as several private labels. The Company believes the Rock of Ages trademark is one of the oldest and best known brand names in the granite memorialization industry. THE DEATH CARE INDUSTRY AND GRANITE MEMORIALIZATION The death care industry has traditionally been comprised of three principal segments: (i) ceremony and tribute, generally in the form of a funeral or memorial service; (ii) disposition of remains, either through burial or cremation; and (iii) memorialization, generally through monuments, markers or inscriptions. A majority of death care industry operators consist of small, family-owned businesses. The International Cemetery and Funeral Association estimates that in the United States there are approximately 23,000 active cemeteries, 9,600 of which are commercial (as opposed to religious, family, fraternal, military or municipal) cemeteries. At the end of 1996, publicly held death care companies ("consolidators") owned less than 5% of such active cemeteries, approximately 890, or less than 10%, of such commercial cemeteries and less than 12% of the estimated 22,800 funeral homes, in the United States. The death care industry has certain attractive fundamental characteristics, including highly fragmented ownership, significant barriers to entry created by local heritage, community presence and tradition, and stable, predictable demand. Generally, the granite memorial industry shares certain of these characteristics. However, the granite memorial industry and its principal areas (i.e., quarrying, manufacturing and retailing) have certain distinguishing characteristics that the Company believes create attractive opportunities. These characteristics include: (i) different times and points of sale than most other death care products or services, with sales of granite memorials traditionally taking place some time after the funeral service and at an independent retailer rather than at a funeral home or cemetery; (ii) fragmented groups of both manufacturers of granite memorials (approximately 140 mostly family-owned firms) and independent memorial retailers (according to Monument Builders of North America, approximately 3,000 of such retailers are located outside funeral homes and cemeteries) in North America; (iii) concentration of memorial grade granite deposits and granite memorial manufacturers in limited geographic areas in North America; (iv) significant barriers to entry to quarrying memorial grade granite, including the limited number of known commercially exploitable memorial grade granite deposits, high capital costs and stringent environmental and other permitting requirements; (v) significant barriers to entry to the manufacturing of granite memorials, including the high capital cost to establish and operate a memorial grade granite manufacturing facility and the difficulty of 3 5 attracting the requisite highly skilled work force; and (vi) the personalization, permanence and visibility of upright granite memorials, which distinguish them from most other death care products and services. The Company believes the North American memorialization industry, excluding communal interments such as community mausoleums and columbariums, had approximately $1.5 billion in annual retail sales in 1996, approximately two-thirds of which were sales of granite memorials and approximately one-third of which were sales of bronze memorials (including granite bases under bronze), with a nominal percentage of marble and other products. In 1996, on a pro forma basis giving effect to the Acquisitions as if they occurred on January 1, 1996, wholesale sales of the Company's granite memorials were approximately $41.4 million, which the Company believes accounted for approximately 12% of total wholesale sales of granite memorials in North America. BUSINESS STRATEGY Rock of Ages believes it is well-positioned to capitalize on the industry characteristics described above, and seeks to establish a dominant position in the granite memorialization industry. The Company intends both to improve the efficiency of its existing operations and to expand its business significantly. The principal elements of the Company's operating and growth strategies are summarized below. Operating Strategy. The Company pursues an operating strategy that includes the following key elements: - Providing, primarily through its own quarrying and manufacturing operations, a complete line of high quality granite memorials covering all price points and major color varieties. The Company believes it is the only industry participant with both quarrying and manufacturing operations in three of the four principal granite memorial producing regions of North America. - Enhancing operational efficiencies through the continued integration of acquired quarriers and manufacturers and the rationalization of its sales and distribution efforts. - Increasing advertising and promotion of the Rock of Ages brands, including the flagship Rock of Ages Sealmark and Colorcraft brands, in order to heighten consumer awareness and increase sales of the Company's products. Growth Strategy. The Company seeks to expand the scope and profitability of its operations by implementing a growth strategy that includes forward vertical integration into retailing, thereby enabling the Company to move closer to the ultimate customer. The principal elements of this strategy include the following: - Acquiring independent granite memorial retailers in selected markets in order to develop an integrated network of owned Rock of Ages retailers and thereby capture the higher margins that have historically existed at the retail level. - Increasing sales to independent retailers that are current customers and expanding its independent retailer customer base. During the last two years, principally through acquisitions of quarriers and manufacturers, the Company has increased the number of independent retailers to which it sells its products from approximately 495 in 1995 to approximately 1,835 in 1997. - Pursuing strategic alliances with funeral home and cemetery owners, including consolidators, to supply granite memorials to or through them, in order to increase both pre-need and at-need sales of granite memorials. 4 6 RECENT AND CONCURRENT ACQUISITIONS The Company's primary means of implementing its growth strategy to date has been through acquisitions, beginning with the acquisition on December 31, 1995 of Lawson Granite Company and Anderson-Friberg Company, each based in Barre, Vermont. These acquisitions helped expand the Company's manufacturing capacity and distribution base, while also broadening its granite memorial product line to include more non-branded granite memorials at lower price points than the Company's then-existing product line. The Company has recently taken further steps to implement its growth strategy by acquiring one, and entering into a definitive agreement to acquire another, significant granite quarrier and memorial manufacturer in Elberton, Georgia, which is the largest of the four principal granite producing regions in North America. The Company has also entered into a definitive agreement to acquire a major memorial retailer that the Company believes is one of the largest independent memorial retailers in the United States. The Company believes that these acquisitions and the continued implementation of the other elements of its operating and growth strategies will enable it to: (i) expand overall industry sales of granite memorials, which heretofore have been actively marketed to consumers primarily only on an at-need basis and in a limited manner; (ii) increase its share of the granite memorial market by offering a complete product line with strong brand names through distribution channels that more directly reach the consumer; and (iii) increase both its relative and total profitability both by enhancing operational efficiencies and by capturing some of the higher margins that have historically existed at the retail level. The Company's recent acquisitions are briefly described below. Keystone. In June 1997, the Company acquired the successor to Keystone Memorials, Inc. ("Keystone"), the largest granite memorial manufacturer in Elberton, Georgia (the "Keystone Acquisition"), which included Keystone's 50% ownership interest in (i) Southern Mausoleums, Inc., a manufacturer of granite mausoleums in Elberton, Georgia ("SMI"); and (ii) three granite quarrying companies operating six granite quarries located in Georgia, Pennsylvania, North Carolina, South Carolina and Oklahoma (collectively, the "Quarry Companies"). C&C. In June 1997, the Company entered into a definitive agreement to acquire Childs & Childs Granite Company, Inc. and a related company ("C&C," and, together with the Quarry Companies, SMI and Keystone, the "Elberton Companies"), which the Company believes is the second largest manufacturer of granite memorials in Elberton, Georgia, and the remaining 50% of the Quarry Companies and SMI owned by the stockholders of C&C (the "C&C Acquisition" and, together with the Keystone Acquisition, the "Elberton Acquisitions"). It is currently anticipated that the C&C Acquisition will close concurrently with the consummation of this offering. The Elberton Acquisitions will establish the Company as the largest granite memorial manufacturer in Elberton, Georgia, which is the largest granite producing area in North America, and will give the Company a substantially broader product line and enhanced distribution capabilities in the southern United States. See "Business -- Recent and Concurrent Acquisitions." Keith. The Company's first significant entry into memorial retailing was initiated in July 1997, when the Company entered into a definitive agreement to acquire (the "Keith Acquisition", and, together with the Elberton Acquisitions, the "Acquisitions") substantially all of the assets and liabilities of Keith Monument Co. and its affiliated companies (collectively, "Keith Monument"). It is currently anticipated that the Keith Acquisition will close concurrently with the consummation of this offering. Keith Monument, founded in 1867, has been an authorized Rock of Ages retailer for more than 50 years. The Company believes that Keith Monument is one of the largest retailers of granite memorials in the United States. Upon the closing of the Keith Acquisition, John E. Keith, a principal owner and the president of Keith Monument with over thirty years of experience in granite memorial retailing, will head the Company's retailing operations. Mr. Keith will oversee the implementation of the Company's strategy to significantly expand its retail operations both through other acquisitions of retailers and by pursuing strategic alliances with funeral home and cemetery owners, including consolidators. See "Business -- Recent and Concurrent Acquisitions" and "Business -- Marketing and Distribution; Retailing." The Company's principal executive offices are located at 772 Graniteville Road, Graniteville, Vermont 05654 and its telephone number is (802) 476-3121. 5 7 THE OFFERING Class A Common Stock offered..... shares, of which shares are being offered by the Company and shares are being offered by the Selling Stockholders. Common Stock to be outstanding after the offering(1)............ shares of Class A Common Stock shares of Class B Common Stock Use of proceeds.................. The net proceeds to the Company of this offering will be used to fund the C&C Acquisition and the Keith Acquisition, and to repay indebtedness under the Company's existing credit facilities, including indebtedness assumed in connection with the Keystone Acquisition. See "Use of Proceeds." Proposed Nasdaq National Market symbol........................... "ROAC" - --------------- (1) Excludes 862,500 shares of Class B Common Stock issuable upon the exercise of outstanding stock options (with a weighted average exercise price of $3.31 per share) granted under the Company's 1994 Amended and Restated Stock Plan (the "1994 Plan") and 383,252 shares of Class A Common Stock issuable upon the exercise of options to be granted in connection with the Acquisitions and to two non-employee directors who will assume their positions upon consummation of the offering (with an exercise price equal to the initial public offering price). See "Certain Relationships and Related Transactions." The rights of holders of the two classes of Common Stock are substantially identical, except that (a) the Class A Common Stock is entitled to one vote per share and the Class B Common Stock is entitled to ten votes per share on all matters, including the election of directors; and (b) the Class B Common Stock is convertible into Class A Common Stock at the option of the holder and automatically upon a transfer to any person other than a Permitted Transferee, as defined herein. See "Description of Capital Stock." 6 8 SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) The following table presents (i) summary historical consolidated financial data of the Company as of the dates and for the periods indicated and (ii) summary pro forma combined and condensed financial data of the Company as of the dates and for the periods indicated giving effect to the events described in the "Unaudited Pro Forma Combined and Condensed Financial Data" included elsewhere herein as though they had occurred on the dates indicated therein. The summary pro forma combined and condensed financial data are not necessarily indicative of operating results or financial position that would have been achieved had these events been consummated on the date indicated and should not be construed as representative of future operating results or financial position. The summary historical consolidated and pro forma combined and condensed financial data should be read in conjunction with the historical consolidated financial statements and related notes thereto of the Company and the historical financial statements and related notes thereto of Keystone, C&C, the Quarry Companies, SMI and Keith Monument, with the "Unaudited Pro Forma Combined and Condensed Financial Statements" and with "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere in this Prospectus.
PRO FORMA(1) HISTORICAL ---------------------------------- ---------------------------------------------------- SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, ----------------------------- ------------------ ------------ ------------------ 1994 1995 1996 1996 1997(2) 1996 1996 1997 ------- ------- ------- ------- ------- ------------ ------- ------- STATEMENT OF OPERATIONS DATA: Net revenues..................... $34,188 $33,088 $44,669 $19,943 $20,767 73,774 33,710 35,253 Gross profit..................... 10,094 10,449 13,406 5,256 5,205 22,294 9,016 9,853 Selling, general and administrative expenses........ 6,049 6,453 9,131 4,649 4,328 15,254 7,338 7,352 ------- ------- ------- ------- ------- ------------ ------- ------- Income from operations........... 4,045 3,996 4,275 607 877 7,040 1,678 2,501 Interest expense................. 1,653 1,678 1,723 934 866 219 121 113 Other expenses................... 0 564 0 0 0 0 0 0 Income (loss) before provision (benefit) for income taxes..... 2,392 1,754 2,552 (327) 11 6,821 1,557 2,388 Provision (benefit) for income taxes.......................... 577 358 643 (82) 3 1,855 424 650 ------- ------- ------- ------- ------- ------------ ------- ------- Net income (loss)................ 1,815 1,396 1,909 (245) 8 4,966 1,133 1,738 ======= ======= ======= ======= ======= ============ ======= ======= Net income (loss) per share...... .45 .35 .45 (.06) .00 .73 .17 .26 Weighted average number of shares outstanding(3)................. 4,030 4,030 4,217 4,212 4,217 6,812 6,629 6,812
AS OF JUNE 30, 1997 -------------------------- PRO FORMA AS ACTUAL ADJUSTED(4) ------- ------------ BALANCE SHEET DATA: Cash and cash equivalents................................................................ $ 192 2,833 Working capital.......................................................................... 13,232 18,545 Total assets............................................................................. 57,501 86,675 Long-term debt, less current maturities.................................................. 13,897 687 Total stockholders' equity............................................................... 20,043 62,357
- --------------- (1) For information regarding the pro forma adjustments made to the Company's historical financial data, see "Unaudited Pro Forma Combined and Condensed Financial Data." (2) Does not include the results of operations of Keystone which was acquired as of June 30, 1997. (3) Includes shares of Common Stock issuable upon the exercise of outstanding stock options granted under the 1994 Plan, as described in Note 1(n) to the Company's audited financial statements included elsewhere in this Prospectus, and excludes 263,441 shares of Class B Common Stock issued on June 30, 1997 pursuant to the Keystone Acquisition. (4) Gives effect to the Reorganization and the consummation of the C&C Acquisition and the Keith Acquisition as if they had occurred on June 30, 1997, as adjusted to reflect the sale of shares of Class A Common Stock offered hereby by the Company (at an initial public offering price of $ per share and after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company), the receipt of the net proceeds therefrom and the application of such net proceeds as described in "Use of Proceeds." See "Business -- Recent and Concurrent Acquisitions," "Certain Relationships and Related Transactions" and "Use of Proceeds." 7 9 RISK FACTORS Prospective investors should carefully consider all of the information set forth in this Prospectus, including the risk factors set forth below. RISKS RELATING TO ACQUISITIONS The Company's growth will depend in large part on its ability to acquire additional retailers, manage expansion, control costs in its operations and consolidate acquisitions into existing operations. The Company will have to review acquired operations, management infrastructure and systems and financial controls, and make any appropriate adjustments or complete reorganizations. Unforeseen capital and operating expenses, or other difficulties, complications and delays frequently encountered in connection with the expansion and integration of acquired operations could inhibit the Company's growth. The full benefits of a significant acquisition will require the integration of operational, administrative, finance, sales and marketing organizations, as well as the coordination of common sales and marketing efforts and the implementation of appropriate operational, financial and management systems and controls. This will require substantial attention from the Company's senior management team. The diversion of management attention required by the acquisition and integration of multiple companies, as in the case of the Acquisitions, as well as other difficulties which may be encountered in the transition and integration process, could have an adverse effect on the revenue and operating results of the Company. There can be no assurance that the Company will identify suitable acquisition candidates, that acquisitions will be consummated on acceptable terms or that the Company will be able to successfully integrate the operations of any acquisition. The Company's ability to continue to grow through the acquisition of additional companies will also be dependent upon the availability of suitable candidates, the Company's ability to attract and retain competent management, and the availability of capital to complete the acquisitions. See "Business -- Business Strategy." The Company intends to finance acquisitions through a combination of its available cash resources, bank borrowings and, in appropriate circumstances, the issuance of equity and/or debt securities. Acquiring additional companies will have a significant effect on the Company's financial position, and could cause substantial fluctuations in the Company's quarterly and yearly operating results. Also, acquisitions are likely to result in the recording of significant goodwill and intangible assets on the Company's financial statements, the amortization of which would reduce reported earnings in subsequent years. In connection with the Acquisitions, for example, the Company expects to record an annual non-cash amortization charge to pre-tax earnings of approximately $300,000 in each of the next forty years. In addition, in connection with the Acquisitions, the Company has executed acquisition agreements that have limitations on indemnification and no security for indemnification obligations. Moreover, the former owners of the businesses sold to the Company pursuant to the Acquisitions have or will become executive officers of the Company upon the consummation of the Acquisitions. Consequently, the Company may have little or no recourse against the prior owners of the companies acquired in the Acquisitions in the event a breach of a representation or warranty or covenant in such acquisition agreements. Any material misrepresentations, omissions or breaches of covenants could have a material adverse effect on the Company's business, financial condition or results of operations. RELATIONSHIPS WITH RETAILERS The Company's granite memorials have historically been sold to consumers by independent retailers. Accordingly, the Company is dependent on its independent retailers for the successful distribution of its products to the ultimate customer. The Company has no control over the independent retailers' operations, including such matters as retail price, advertising and marketing. A key component of the Company's growth strategy is to acquire retailers and pursue strategic alliances with funeral homes and cemetery owners, including consolidators. Implementation of this strategy may be construed by the Company's existing independent retailers as an effort to compete with them, which could adversely affect their relationship with the Company and cause them to decrease or cease their purchases of the Company's products. In addition, the granite memorial retail industry is characterized by significant barriers to entry created by local heritage, 8 10 community presence and tradition. Consequently, the Company could experience difficulty replacing a retailer or entering the retail market itself in the event of a loss of a retailer. There can be no assurance that the Company will be able to maintain its existing relationships or establish new relationships with its independent retailers as it enters the retail market. Disruption in the Company's relationships with independent retailers would have a material adverse effect on the Company's business, financial condition or results of operations. NO RETAIL EXPERIENCE A key component of the Company's growth strategy and the purpose of the Keith Acquisition is for the Company to enter the retail market for granite memorials. The Company has no prior significant retail experience, and, accordingly, is subject to the numerous risks of entering a new business. Such risks include, among others, unanticipated operating problems, lack of experience and significant competition from existing and new retailers. There can be no assurance that the Company will be able to conduct retail operations profitably. RELIANCE ON KEY PERSONNEL The Company's operations and the implementation of its operating and growth strategies, such as integration of the Acquisitions, are management intensive. The Company is substantially dependent upon the abilities and continued efforts of Kurt M. Swenson, the Company's Chairman, President and Chief Executive Officer, and the Company's other senior management. The Company's implementation of its retail operating and growth strategies will be substantially dependent on the abilities and efforts of John E. Keith, who will head the Company's retail operations. The Company's business is also dependent on its ability to continue to attract and retain a highly skilled quarrying and manufacturing workforce, including stone cutters, sand blasters, sculptors and other skilled artisans. The loss of the services of Mr. Swenson or Mr. Keith, other members of the Company's senior management or other highly skilled personnel could have a material adverse effect on the Company's business, financial condition or results of operations. The Company will enter into employment agreements with its principal executive officers prior to consummation of the offering. See "Management -- Employment Agreements." COMPETITION The granite memorial industry is highly competitive. The Company competes with other granite quarriers and manufacturers in the sale of granite blocks on the basis of price, color, quality, geographic proximity, service, design availability and availability of supply. All of the Company's colors of granite are subject to competition from granite blocks of similar color supplied by quarriers located throughout the world. There are approximately 140 manufacturers of granite memorials in North America. There are also manufacturers of granite memorials in India, South Africa, China and Portugal who sell finished memorials in North America. The Company competes based upon price, breadth of product line and design availability as well as production capabilities and delivery options. The Company's quarrying and manufacturing competitors include both domestic and international companies, some of which may have greater financial, technical, manufacturing, marketing and other resources than the Company. Additionally, foreign competitors of the Company may have access to lower cost labor and better commercial deposits of memorial grade granite, and may be subject to less restrictive regulatory requirements than the Company. Companies in South Africa, India, China and Portugal manufacture and export finished granite memorials into North America. The competition for retail sales of granite memorials is also intense and is based on price, quality, service, design availability and breadth of product line. Competitors include funeral home and cemetery owners, including consolidators, which have greater financial resources than the Company as well as approximately 3,000 independent retailers of granite memorials located outside of cemeteries and funeral homes. No assurance can be given that domestic or foreign competition will not have a material adverse effect on the Company's business, financial condition or results of operations. See "Business -- Competition." 9 11 SEASONALITY; VARIABILITY OF QUARTERLY RESULTS Historically, the Company's operations have experienced certain seasonal patterns. Generally, the Company's net sales are highest in the third quarter and lowest in the first quarter of each year due primarily to weather. Cemeteries in northern regions generally do not accept granite memorials during winter months when the ground is frozen because they cannot be properly set. The Company typically closes certain of its Vermont and Canadian quarries during these months because of increased operating costs attributable to adverse weather conditions. The Company has historically incurred an aggregate net loss during the first six months of each calendar year. The Company's operating results may vary materially from quarter to quarter due to, among other things, acquisitions, changes in product mix and limitations on the timing of price increases, making quarterly year-to-year comparisons less meaningful. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Seasonality." CREMATION TRENDS There is an increasing trend toward cremation in the United States. According to the Cremation Association of North America ("CANA"), cremation was used in approximately 22% of the deaths in the United States in 1996, compared to approximately 10% in 1980, and CANA expects this rate to rise to 29% by 2010. To the extent increases in cremation rates result in decreases in memorialization rates, this decrease could have a material adverse effect on the Company's business, financial condition or results of operations. MEMORIALIZATION TRENDS The Company's business is subject to the risk that memorialization rates may decline over time. Certain cemeteries have in the past and may in the future limit the use of granite memorials as a memorialization option. To the extent that general memorialization rates or the willingness of cemeteries to accept granite memorials declines, this decline could have a material adverse effect on the Company's business, financial condition or results of operations. EFFECT OF CONSUMER SPENDING The success of the Company's operations depends to a significant extent upon a number of factors relating to discretionary consumer spending, including economic conditions affecting disposable consumer income such as employment, business conditions, taxation and interest rates. There can be no assurance that consumer spending will not be affected by adverse economic conditions, thereby adversely affecting the Company's business, financial condition or results of operations. OPERATING RISKS The Company's quarry and manufacturing operations are subject to numerous risks and hazards inherent in those industries, including among others, unanticipated surface or underground conditions, varying memorial grade granite recovery rates due to natural cracks and other imperfections in granite quarries, equipment failures, accidents and worker injuries, labor issues, weather conditions and events, unanticipated transportation costs and price fluctuations. As a result, actual costs and expenditures, production quantities and delivery dates, as well as revenues, may differ materially from those anticipated, which could have a material adverse effect on the Company's business, financial condition or results of operations. RISK OF INTERNATIONAL OPERATIONS The Company derived approximately 28.9% of its revenues in fiscal 1996 from sales outside the United States, with approximately 15.9% of revenues in fiscal 1996 from sales in Canada by the Company's Canadian subsidiaries. In prior years such percentage represented by international sales has been higher. Foreign sales are subject to numerous risks, including currency conversion risks, limitations (including taxes) on the repatriation of earnings, slower and more difficult accounts receivable collection and greater complication and expense in complying with foreign laws. 10 12 CYCLICAL NATURE OF ANCILLARY PRODUCT SALES The markets for the Company's industrial precision products, which include machine base and surface plates that are utilized in the automotive, aeronautic, computer, machine tool, optical, precision grinding and inspection industries, and granite press rolls used in the manufacture of paper, are subject to substantial cyclical variations. Accordingly, sales of these products may decline significantly upon a downturn in, or as a result of uncertainties regarding future economic conditions that generally affect, such industries. No assurance can be given that changes in the industries to which the Company sells its precision products will not adversely affect the Company's business, financial condition or results of operations. CONTROL BY CERTAIN STOCKHOLDERS Upon consummation of this offering and the Acquisitions, the families of Kurt M. Swenson and his brother, Kevin C. Swenson, will collectively have approximately % of the total voting power of all outstanding shares of Common Stock, and will therefore be in a position to control the outcome of most corporate actions requiring stockholder approval, including the election of directors and the approval of transactions involving a change in control of the Company. See "Principal and Selling Stockholders" and "Description of Capital Stock." REGULATORY MATTERS The Company's quarry and manufacturing operations are subject to substantial regulation by federal and state governmental statutes and agencies, including the federal Occupational Safety and Health Act ("OSHA"), the Mine Safety and Health Administration and similar state and Canadian authorities. The Company's operations are also subject to extensive laws, and regulations administered by the United States Environmental Protection Agency (the "EPA") and similar state and Canadian authorities, for the protection of the environment, including but not limited to those relating to air and water quality, solid and hazardous waste handling and disposal. These laws and regulations may require parties to fund remedial action or to pay damages regardless of fault. Environmental laws and regulations may also impose liability with respect to divested or terminated operations even if the operations were divested or terminated many years ago. In addition, current and future environmental or occupational health and safety laws, regulations or regulatory interpretations may require significant expenditures for compliance, which could require the Company to modify or curtail its operations. The Company cannot predict the effect of such laws, regulations or regulatory interpretations on its business, financial condition or results of operations. While the Company expects to be able to continue to comply with existing environmental and occupational health and safety laws and regulations, any material non-compliance could have a material adverse affect on the Company's business, financial condition or results of operations. See "Business -- Regulation." SHARES ELIGIBLE FOR FUTURE SALE Sales of a substantial amount of Class A Common Stock in the public market following this offering could adversely affect the market price of the Class A Common Stock. Upon completion of this offering and the C&C Acquisition and the Keith Acquisition, the Company will have shares of Common Stock ( shares if the Underwriter's over-allotment option is exercised in full) outstanding. In addition, an aggregate of 1,500,000 shares of Common Stock will be reserved for issuance to employees and directors of the Company under the 1994 Plan 1,245,752 of which shares are currently, or will upon consummation of this offering be, subject to outstanding options. See "Shares Eligible for Future Sale." Such options will be vested and immediately exercisable with regard to shares of Common Stock, all of which shares issued upon such exercise would be eligible for resale subject to compliance with Rule 701 and to the "lock-up" agreements with Raymond James & Associates, Inc. described below, if applicable. The shares of Class A Common Stock ( shares if the Underwriter's over-allotment option is exercised in full) offered hereby will be freely tradable in the United States without restriction or further registration under the Securities Act of 1933, as amended (the "Securities Act"), unless purchased or held by "affiliates" (as such term is defined under the Securities Act) of the Company. All shares of Class B Common Stock outstanding upon completion of the offering will be "restricted securities" within the meaning of Rule 144 under the 11 13 Securities Act ("Rule 144") and will be eligible for resale subject to compliance with Rule 144 and to the "lock-up" agreements with Raymond James & Associates, Inc. described below, if applicable. The Company, its executive officers and directors, and holders of more than 2% of the Common Stock prior to the consummation of the offering, have agreed not to sell, offer to sell, contract to sell, pledge or otherwise dispose of or transfer any shares of Common Stock, or any securities convertible into or exchangeable or exercisable for, or any rights to purchase or acquire, Common Stock for a period of 180 days following the date of this Prospectus without the prior written consent of Raymond James & Associates, Inc., other than, in the case of the Company, the issuance of options to purchase Common Stock or shares of Common Stock issuable upon the exercise thereof, issuances of Common Stock in connection with the C&C Acquisition and the Keith Acquisition and other issuances of capital stock of the Company in connection with other acquisitions, provided such shares of Common Stock issued upon the exercise of options and such shares of capital stock issued in connection with any such other acquisitions shall not be transferable prior to the end of the aforesaid 180-day period. Raymond James & Associates, Inc. may, in its sole discretion and at any time without notice, release all or any portion of the shares subject to such lock-up agreements. See "Shares Eligible for Future Sale" and "Underwriting." NO PRIOR MARKET FOR CLASS A COMMON STOCK; OFFERING PRICE Prior to this offering, there has been no public market for the Class A Common Stock, and there can be no assurance that an active trading market will develop or, if developed, that such market will be sustained. The initial public offering price of the Class A Common Stock will be determined through negotiations between the Company and the representative of the Underwriters. In addition, the Company believes that factors such as quarterly fluctuations in the financial results of the Company, as well as developments that affect the Company's industry in general, the overall economy and the financial markets could cause the price of the Class A Common Stock to fluctuate substantially. ANTI-TAKEOVER PROVISIONS The Company's Certificate of Incorporation and By-laws contain certain provisions that may have the effect of discouraging, delaying or preventing a change in control of the Company or unsolicited acquisition proposals that a stockholder might consider favorable. Certain of these provisions: (i) grant ten votes per share to each share of Class B Common Stock; (ii) divide the Board of Directors into three classes, each of which will have a different three-year term; (iii) provide that the stockholders may remove directors from office only for cause and by a supermajority vote; (iv) provide that special meetings of the stockholders may be called only by the Board of Directors or certain Company officers and not by stockholders; (v) establish certain advance notice procedures for nomination of candidates for election as directors and for stockholder proposals to be considered at annual stockholders' meetings; and (vi) authorize the issuance of preferred stock with such designation, rights and preferences as may be determined from time to time by the Board of Directors. Accordingly, the Board of Directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights that could materially adversely affect the voting power or other rights of the holders of the Company's Common Stock. Certain of these provisions, as well as certain provisions of Delaware corporation law, may have the effect of discouraging, delaying or preventing a change in control of the Company or unsolicited acquisition proposals. See "Description of Capital Stock -- Antitakeover Effects of Provisions of the Charter and By-Laws and of Delaware Law." DILUTION Investors purchasing shares of Class A Common Stock in this offering will experience immediate and substantial dilution in net tangible book value per share of $ (assuming an initial public offering price of $ per share). See "Dilution." DIVIDENDS The Company intends to retain its cash for the continued development of its business and currently does not intend to pay cash dividends on the Common Stock in the foreseeable future. See "Dividend Policy." 12 14 FORWARD-LOOKING STATEMENTS This Prospectus contains certain forward-looking statements relating to, among other things, future results of operations, growth plans, sales, capital requirements and general industry and business conditions applicable to the Company. These forward-looking statements are based largely on the Company's current expectations and are subject to a number of risks and uncertainties. Actual results could differ materially from those implied by these forward-looking statements. Important factors to consider in evaluating such forward-looking statements include changes in external competitive market factors, changes in the Company's business strategy or an inability to execute its strategy due to unanticipated changes in the Company's industry or the economy in general and various competitive factors that may prevent the Company from competing successfully in existing or new markets. In light of these risks and uncertainties, many of which are described in further detail above, there can be no assurance that the forward-looking statements contained in this Prospectus will in fact be realized. USE OF PROCEEDS The net proceeds to the Company from the sale of shares of Class A Common Stock offered by the Company hereby are estimated to be approximately $ million (approximately $ million if the Underwriters' over-allotment option is exercised in full), assuming an initial public offering price of $ per share, after deducting estimated underwriting discounts and commissions and offering expenses. Of the net proceeds to the Company from this offering, (i) approximately $7.4 million will be used to fund the C&C Acquisition, consisting of $6.6 million in cash purchase price and approximately $780,000 to repay outstanding indebtedness of C&C; (ii) approximately $5.4 million will be used to repay outstanding indebtedness of the Quarry Companies and SMI; (iii) $14.9 million will be used to fund the Keith Acquisition, consisting of $13.1 million in cash purchase price and $1.8 million to repay outstanding indebtedness of Keith Monument assumed by the Company; and (iv) approximately $16.7 million will be used to repay indebtedness outstanding under certain of the Company's existing credit facilities, consisting of $2.6 million assumed or incurred in connection with the Keystone Acquisition and the balance of which was incurred for prior acquisitions, plant improvement and working capital. Such indebtedness under such existing credit facilities matures on various dates in 1998 and 1999, and bears interest at various rates per annum ranging from prime plus .25% to prime plus 1.25%. See "Business -- Recent and Concurrent Acquisitions." The Company has received a commitment letter for a new $50 million credit facility, subject to the consummation of the offering. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." The Company intends to use its increased borrowing capacity resulting from the intended debt repayment to finance the Company's expansion, including possible acquisitions, and for working capital and general corporate purposes. Although management regularly reviews acquisition prospects that would augment or complement the Company's existing operations, including the Company's retailing operations, the Company does not presently have any agreement with respect to any acquisition, other than the C&C Acquisition and the Keith Acquisition. The Company will not receive any proceeds from the sale of Class A Common Stock offered by the Selling Stockholders. DIVIDEND POLICY The Company does not anticipate paying cash dividends in the foreseeable future, but intends to retain any future earnings for reinvestment in its business. Any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon the Company's financial condition, results of operations, restrictions contained in credit agreements, capital requirements and such other factors as the Board of Directors deems relevant. 13 15 CAPITALIZATION The following table sets forth the borrowings under lines of credit, current portion of long-term debt and capitalization of the Company at June 30, 1997, (i) on a historical basis and (ii) pro forma as adjusted to give effect to the Reorganization, the C&C Acquisition and Keith Acquisition as if they had occurred on June 30, 1997, as adjusted to reflect the sale by the Company of shares of Class A Common Stock offered hereby (at an assumed public offering price of $ per share and after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company) and the application of the estimated net proceeds thereof as described in "Use of Proceeds." This table should be read in conjunction with the historical financial statements and pro forma combined and condensed financial data and the notes thereto included elsewhere in this Prospectus. See also "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
AS OF JUNE 30, 1997 ------------------------------- PRO FORMA AS ADJUSTED -------------- ACTUAL (IN THOUSANDS) -------------- (IN THOUSANDS) Borrowings under lines of credit................................... $ 8,668 $ Current portion of long-term debt.................................. 2,844 ========== ========== Long-term debt, net of current portion............................. $ 13,897 $ Stockholders' equity: Preferred Stock, par value $.01 per share; 2,500,000 shares authorized, none outstanding; none outstanding pro forma as adjusted...................................................... Class A Common Stock, par value $.01 per share; 30,000,000 shares authorized, none outstanding; shares outstanding pro forma as adjusted(1)(2)....................................... Class B Common Stock, par value $.01 per share; 15,000,000 shares authorized, 3,763,441 shares outstanding; shares outstanding pro forma as adjusted(3).......................... 38 Additional paid-in capital....................................... 9,385 Retained earnings................................................ 10,675 Other............................................................ (55) Total stockholders' equity.................................... 20,043 ---------- -------- -- Total capitalization..................................... $ 33,940 $ ========== ==========
- --------------- (1) Does not include an aggregate of 862,500 shares of Class B Common Stock (which are convertible on a share-for-share basis into Class A Common Stock) issuable upon the exercise of outstanding options outstanding under the 1994 Plan and an aggregate of 383,252 shares of Class A Common Stock issuable upon the exercise of options to be granted under the 1994 Plan in connection with the Acquisitions and to two non-employee directors who will assume their positions upon consummation of the offering. (2) The pro forma as adjusted number includes the concurrent conversion of shares of Class B Common Stock into Class A Common Stock and sale thereof by the Selling Stockholders. See "Principal and Selling Stockholders." (3) Does not include an aggregate of 862,500 shares of Class B Common Stock (which are convertible on a share-for-share basis into Class A Common Stock) issuable upon the exercise of outstanding options outstanding under the 1994 Plan. See "Management -- Incentive Plans." 14 16 DILUTION The net tangible book value of the Company as of June 30, 1997 was $ , or $ per share of Common Stock. Net tangible book value per share is determined by dividing total tangible assets less total liabilities of the Company by the total number of outstanding shares of Common Stock. After giving effect to the sale of the shares of Class A Common Stock offered by the Company hereby (assuming an initial public offering price of $ per share), after deducting the estimated underwriting discount and estimated expenses to be paid by the Company and the application of the estimated net proceeds as set forth in "Use of Proceeds," the pro forma net tangible book value of the Company at June 30, 1997 would have been $18.4 million or $4.89 per share. This represents an immediate increase in net tangible book value of $ per share to existing stockholders and an immediate dilution of $ per share to new investors. The following table illustrates this dilution per share: Assumed initial public offering price per share...................... $ Net tangible book value per share as of June 30, 1997.............. $ Increase in net tangible book value per share attributable to new investors....................................................... Pro forma net tangible book value per share after the offering....... ------ Dilution per share to new investors.................................. $ ======
15 17 SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) The selected consolidated historical financial data presented below under the captions "Statement of Operations Data" and "Balance Sheet Data" for and as of the end of each of the years in the five-year period ended December 31, 1996 are derived from the consolidated financial statements of the Company, which financial statements have been audited by KPMG Peat Marwick LLP, independent certified public accountants. The selected consolidated historical financial data for and as of the end of the six month periods ended June 30, 1996 and 1997 have been derived from unaudited consolidated financial statements which, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial information for such periods and as of such dates. The consolidated historical results for the six months ended June 30, 1996 and 1997 are not necessarily indicative of results for a full fiscal year. The consolidated financial statements as of December 31, 1995 and 1996 and for each of the years in the three-year period ended December 31, 1996, and the auditors' report thereon and as of June 30, 1997 and for the six months ended June 30, 1996 and 1997, are included elsewhere in this Prospectus. The following selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements of the Company, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations," appearing elsewhere herein.
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, ----------------------------------------------- ----------------- 1992 1993 1994 1995 1996 1996 1997(2) ------- ------- ------- ------- ------- ------- ------- STATEMENT OF OPERATIONS DATA: Net revenues: Manufacturing....................................... $18,383 $17,485 $17,299 $17,793 $32,586 $14,827 $15,278 Quarrying........................................... 15,457 13,522 16,889 15,295 12,083 5,116 5,489 ------- ------- ------- ------- ------- ------- ------- Total net revenues................................ 33,840 31,007 34,188 33,088 44,669 19,943 20,767 Gross profit: Manufacturing....................................... 4,008 2,489 4,050 4,345 8,248 3,603 3,640 Quarrying........................................... 6,474 4,294 6,044 6,104 5,158 1,653 1,565 ------- ------- ------- ------- ------- ------- ------- Total gross profit................................ 10,482 6,783 10,094 10,449 13,406 5,256 5,205 Selling, general and administrative expenses.......... 7,377 6,851 6,049 6,453 9,131 4,649 4,328 ------- ------- ------- ------- ------- ------- ------- Income (loss) from operations......................... 3,105 (68) 4,045 3,996 4,275 607 877 Interest expense...................................... 1,622 1,505 1,653 1,678 1,723 934 866 Other expenses........................................ -- 2,376 -- 564 -- -- -- Income (loss) before provision (benefit) for income taxes............................................... 1,483 (3,949) 2,392 1,754 2,552 (327) 11 Provision (benefit) for income taxes.................. 58 (31) 577 358 643 (82) 3 ------- ------- ------- ------- ------- ------- ------- Net income (loss)..................................... $ 1,425 $(3,638) $ 1,815 $ 1,396 $ 1,909 $ (245) $ 8 ======= ======= ======= ======= ======= ======= ======= Net income (loss) per share........................... .35 (.90) .45 .35 .45 (.06) .00 Weighted average number of shares outstanding(3)...... 4,030 4,030 4,030 4,030 4,217 4,212 4,212 PRO FORMA STATEMENT OF OPERATIONS DATA(1): Income before provision for income taxes.............. 6,821 1,557 2,388 Provision for income taxes............................ 1,855 424 650 ------- ------- ------- Net income............................................ 4,966 1,133 1,738 ======= ======= ======= Net income per share.................................. .73 .17 .26 Weighted average number of shares outstanding(3)...... 6,812 6,629 6,812
AS OF DECEMBER 31, AS OF JUNE 30, ----------------------------------------------- -------------- 1992 1993 1994 1995 1996 1997 ------- ------- ------- ------- ------- -------------- BALANCE SHEET DATA: Cash and cash equivalents................................. $ 95 $ 92 $ 394 $ 1,995 $ 763 $ 192 Working capital........................................... 8,478 7,605 13,668 13,691 13,286 13,232 Total assets.............................................. 40,810 37,179 42,529 47,623 47,517 57,501 Total long-term debt, net of current maturities........... 13,067 13,162 16,655 14,657 13,054 13,897 Total stockholders' equity................................ 12,528 8,849 10,686 15,479 17,371 20,043
- --------------- (1) For information regarding the pro forma adjustments made to the Company's historical financial data, see "Unaudited Pro Forma Combined and Condensed Financial Data." (2) Does not include the results of operations of Keystone which was acquired as of June 30, 1997. (3) Includes shares of Common Stock issuable upon the exercise of outstanding stock options granted under the 1994 Plan, as described in Note 1(n) to the Company's audited financial statements included elsewhere in this Prospectus, and excludes 263,441 shares of Class B Common Stock issued on June 30, 1997 pursuant to the Keystone Acquisition. 16 18 UNAUDITED PRO FORMA COMBINED AND CONDENSED FINANCIAL DATA The following unaudited pro forma combined and condensed statements of operations for the year ended December 31, 1996 and for the six months ended June 30, 1997 and 1996 reflect the consolidated historical accounts of the Company for those periods, adjusted to give pro forma effect to the Reorganization, the Acquisitions and this offering, as if such transactions had occurred on January 1, 1996. The following unaudited pro forma combined and condensed balance sheet as of June 30, 1997 reflects the consolidated historical accounts of the Company as of that date, adjusted to give pro forma effect to the Reorganization, the C&C Acquisition and the Keith Acquisition and this offering, as if such transactions had occurred on June 30, 1997. The unaudited pro forma financial data and accompanying notes should be read in conjunction with the Consolidated Financial Statements of the Company and the related notes as well as the financial statements and related notes of Keystone, C&C, the Quarry Companies, SMI and Keith Monument, all of which are included elsewhere in this Prospectus. The Company believes that the assumptions used in the following statements provide a reasonable basis on which to present the pro forma financial data. The pro forma financial data is provided for informational purposes only and should not be construed to be indicative of the Company's financial condition or results of operations had the transactions and events described above been consummated on the dates assumed and are not intended to project the Company's financial condition on any future date or results of operations for any future period. 17 19 UNAUDITED PRO FORMA COMBINED BALANCE SHEET AS OF JUNE 30, 1997 (IN THOUSANDS)
QUARRY OFFERING KEITH COMPANIES & ADJUSTMENTS PRO FORMA PRO FORMA COMPANY C&C MONUMENT SMI (A) ADJUSTMENTS AS ADJUSTED ------- ------ -------- ----------- ----------- ----------- ----------- ASSETS: Current assets: Cash and cash equivalents.......... $ 192 $ 160 $1,783 $ 838 $ 44,442 $ (44,582)(A),(E) $ 2,833 Trade receivables, net............. 11,249 753 1,003 1,149 14,154 Due from affiliates................ 5,375 192 49 (192) (3,690)(E),(F),(G) 1,734 Inventories........................ 13,374 1,141 1,192 611 202(E) 16,520 Current portion of notes receivable-related party......... 90 (90)(E) Current portion of notes receivable-other................. 29 29 Deferred tax assets................ 467 10 477 Other current assets............... 837 21 98 174 1,130 ------- ------ -------- ----------- ----------- ----------- ----------- Total current assets............. 31,494 2,267 4,254 2,580 44,442 (48,160) 36,877 ------- ------ -------- ----------- ----------- ----------- ----------- Net property, plant and equipment.... 21,230 989 1,393 4,784 6,027(E),(F) 34,423 Other assets: Cash surrender value of life insurance, net................... 959 4 164 1,127 Notes receivable-related party, excluding current portion........ 401 (401)(E) Notes receivable-other, excluding current portion.................. 16 16 Goodwill, net...................... 1,253 825 1,806 9,349(E),(F) 13,233 Covenant not-to-compete............ 388 (388)(E) Debt issuance costs, net........... 89 (89)(B) Organization costs, net............ 190 (89)(C) 101 Deferred tax assets................ 543 (369) 174 Intangible pension asset........... 93 93 Investments in and advances to affiliated company............... 1,619 824 (2,244)(F) 199 Other investments.................. 31 319 350 Other.............................. 209 (127)(E) 82 ------- ------ -------- ----------- ----------- ----------- ----------- Total other assets............... 4,777 828 2,322 1,437 6,011 15,375 ------- ------ -------- ----------- ----------- ----------- ----------- Total assets................. $57,501 $4,084 $7,969 $ 8,801 $ 44,442 $ (36,122) $86,675 ======== ====== ========== ============ =========== =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Borrowings under lines of credit... 8,668 8,668 Current installments of long-term debt............................. 2,844 278 648 (3,415)(A),(E) 355 Accounts payable................... 2,066 148 96 656 (301)(F) 2,665 Accrued expenses................... 2,358 85 629 12 (72)(E) 3,012 Dividends payable.................. 86 86 Income taxes payable............... 131 (16) 115 Current portion of deferred income........................... 400 400 Customer deposits.................. 1,795 845 391 3,031 ------- ------ -------- ----------- ----------- ----------- ----------- Total current liabilities.... 18,262 233 1,918 1,707 (3,788) 18,332 ------- ------ -------- ----------- ----------- ----------- ----------- Long-term debt, excluding current installments..................... 13,897 786 1,840 5,446 (21,282)(A),(D),(G) 687 Deferred compensation.............. 3,088 3,088 Deferred income, excluding current portion.......................... 200 200 Accrued pension cost............... 1,504 1,504 Accrued postretirement benefit cost............................. 507 507 ------- ------ -------- ----------- ----------- ----------- ----------- Total liabilities............ 37,458 1,019 3,758 7,153 (25,070) 24,318 ------- ------ -------- ----------- ----------- ----------- ----------- Stockholders' equity: Common stock....................... 38 21 180 5,502 44,442 (4,003)(D),(F) 46,180 Additional paid-in capital......... 9,385 9,385 Retained earnings.................. 10,675 3,044 4,037 (3,854) (7,055)(B),(C),(F) 6,847 Treasury stock..................... (6) 6(F) Cumulative translation adjustment....................... (55) (55) ------- ------ -------- ----------- ----------- ----------- ----------- Total stockholders' equity....... 20,043 3,065 4,211 1,648 44,442 (11,052) 62,357 ------- ------ -------- ----------- ----------- ----------- ----------- Total liabilities and stockholders' equity....... $57,501 $4,084 $7,969 $ 8,801 $ 44,442 $ (36,122) $86,675 ======== ====== ========== ============ =========== =========== ==========
18 20 - --------------- The Unaudited Pro Forma Combined Balance Sheet as of June 30, 1997 gives effect to the Reorganization and the consummation of the C&C Acquisition and the Keith Acquisition as if they had occurred on June 30, 1997 as follows: (A) Reflects this offering and the application of the proceeds therefrom as follows: Issuance of the stock.............................................. 49,400 Expenses for issuance of the stock................................. (4,958) ------- Net proceeds....................................................... 44,442 Cash paid to sellers............................................... (19,212) Cash paid to retire sellers debt................................... (2,263) Retirement of debt assumed......................................... (6,186) Retirement of current installments of long-term debt............... (2,674) Retirement of long-term debt....................................... (13,590) ------- Remaining proceeds................................................. 517
(B) Reflects the elimination of debt issuance costs. (89) (C) Reflects the elimination of prior organization costs. (89) (D) Represents the Acquisitions:
KEITH C&C MONUMENT TOTAL ------ -------- ------ Cash paid to sellers........................... 6,137 13,075 19,212 Stock issued to sellers........................ 200 1,500 1,700 Cash paid to retire sellers debt............... 463 1,800 2,263 Bank debt assumed(1)........................... 6,186 -- 6,186 ------ ------ ------ Total purchase price(1)................... 12,986 16,375 29,361 ====== ====== ======
(E) The Acquisitions are accounted for as purchases in accordance with Accounting Principles Board Opinion No. 16, "Business Combinations". The purchase price is allocated first to the tangible and identifiable assets and liabilities of the acquired companies based upon preliminary estimates of their fair market values ("FMV"), with the remainder allocated to goodwill:
KEITH C&C MONUMENT TOTAL ------ -------- ------ Net purchase price............................. 6,800 16,375 23,175 Book value of net assets on June 30, 1997.... 3,065 4,211 7,276 Net assets excluded or eliminated at Acquisition............................... (929) (710) (1,639) ------ ------ ------ Book value of tangible net assets acquired..... 2,136 3,501 5,637 ------ ------ ------ Increase in basis.............................. 4,664 12,874 17,538 ====== ====== ====== Allocation of increase in basis: Increase in inventory value to convert LIFO to fair value............................. -- 202 202 Step-up basis of PP&E to FMV................... 4,342 1,014 5,356 Increase in goodwill........................... 322 11,658 11,980 ------ ------ ------ 4,664 12,874 17,538 ====== ====== ======
(F) Reflects the elimination of appropriate balances of C&C, Keith Monument, and the Quarry Companies & SMI pursuant to purchase accounting. (G) Includes the elimination of $3,340,000 due from Swenson Granite Company, Inc., an affiliate, assumed by the Company during the Reorganization and the assumption of a $310,000 note payable that was the obligation of Swenson Granite Company, Inc. prior to the Reorganization. -------------------- (1) Includes the assumption of the total debt of the Quarry Companies and SMI of $5.4 million in conjunction with the acquisition of the remaining 50% that was not acquired pursuant to the Keystone Acquisition. 19 21 UNAUDITED PRO FORMA COMBINED AND CONDENSED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL ----------------------------------- ELBERTON KEITH PRO FORMA PRO FORMA COMPANY COMPANIES(F) MONUMENT ADJUSTMENTS AS ADJUSTED ------- ------------ -------- ----------- ----------- STATEMENT OF OPERATIONS DATA: Net Revenues: Manufacturing.................................. $32,586 16,446 (150)(A) $48,882 Quarrying...................................... 12,083 5,545 17,628 Retailing...................................... 7,264 7,264 ------ ------ ----- ------ ------ Total net revenues........................... 44,669 21,991 7,264 (150) 73,774 Gross Profit: Manufacturing.................................. 8,248 2,116 10,364 Quarrying...................................... 5,158 1,814 126(B) 7,098 Retailing...................................... 4,832 4,832 ------ ------ ----- ------ ------ Total gross profit........................... 13,406 3,930 4,832 126 22,294 Selling, general and administrative expenses..... 9,131 2,868 3,713 (458)(C) 15,254 ------ ------ ----- ------ ------ Income from operations........................... 4,275 1,062 1,119 584 7,040 ------ ------ ----- ------ ------ Interest expense................................. 1,723 643 (2,147)(D) 219 Income before provision (benefit) for income taxes.......................................... 2,552 419 1,119 2,731 6,821 Provision (benefit) for income taxes............. 643 156 (24) 1,080(E) 1,855 ------ ------ ----- ------ ------ Net income....................................... $1,909 263 1,143 1,651 $ 4,966 ====== ====== ===== ====== ====== Net income per share............................. .73 Weighted average number of shares outstanding.... 6,812
- --------------- The Unaudited Pro Forma Combined and Condensed Statement of Operations for the year ended December 31, 1996 gives effect to the Reorganization and the consummation of the C&C Acquisition and the Keith Acquisition as if they had occurred on January 1, 1996 as follows: (A) To eliminate intercompany sales........................................................... (150) (B) Reflects the closure of Caprice Quarry.................................................... 126 (C) Reflects the following: Reversal of debt issuance costs....................................................... (70) Reversal of organization costs........................................................ (33) Amortization of goodwill.............................................................. 300 Reduction in salary expense........................................................... (620) SG&A related to Caprice Quarry closure................................................ (35) ----- (458) (D) Reflects the elimination of interest expense.............................................. (2,147)
(E) Reflects the net additional income tax provision as a result of the above adjustments, at an effective tax rate of 27.2%, and provides for income tax expense for companies previously taxed as Subchapter S corporations. (F) Following is a summary of the Elberton Companies operations for the year ended December 31, 1996:
QUARRY COMPANIES & SMI C&C KEYSTONE TOTAL ----------- ------ -------- ------- Net Revenues: Manufacturing...................................... $ 1,257 $5,885 $9,304 $16,446 Quarrying.......................................... 5,545 -- -- 5,545 Retailing.......................................... -- -- -- -- ------- ------- -------- -- -- -- --------- Total net revenues........................... 6,802 5,885 9,304 21,991 Gross Profit: Manufacturing...................................... 219 1,132 765 2,116 Quarrying.......................................... 1,814 -- -- 1,814 Retailing.......................................... -- -- -- -- ------- ------- -------- -- -- -- --------- Total gross profit........................... 2,033 1,132 765 3,930 Selling, general and administrative expenses......... 1,280 669 919 2,868 ------- ------- -------- -- -- -- --------- Income (loss) from operations........................ 753 463 (154) 1,062 ------- ------- -------- -- -- -- --------- Interest expense..................................... 462 65 116 643 Income (loss) before provision (benefit) for income taxes.............................................. 291 398 (270) 419 Provision (benefit) for income taxes................. 156 -- -- 156 ------- ------- -------- -- -- -- --------- Net income (loss).................................... $ 135 $ 398 $ (270) $ 263 ========= ========= ========= ==========
20 22 UNAUDITED PRO FORMA COMBINED AND CONDENSED STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL ------------------------------------- ELBERTON KEITH PRO FORMA PRO FORMA COMPANY COMPANIES(F) MONUMENT ADJUSTMENTS AS ADJUSTED ------- ------------ -------- ----------- ----------- STATEMENT OF OPERATIONS DATA: Net Revenues: Manufacturing................................ $15,278 8,365 (150)(A) $23,493 Quarrying.................................... 5,489 2,912 8,401 Retailing.................................... 3,359 3,359 ------ ------ ----- ------ ------ Total net revenues......................... 20,767 11,277 3,359 (150) 35,253 Gross Profit: Manufacturing................................ 3,640 993 4,633 Quarrying.................................... 1,565 1,209 175(B) 2,949 Retailing.................................... 2,271 2,271 ------ ------ ----- ------ ------ Total gross profit......................... 5,205 2,202 2,271 175 9,853 Selling, general and administrative expenses... 4,328 1,370 1,883 (229)(C) 7,352 ------ ------ ----- ------ ------ Income from operations......................... 877 832 388 404 2,501 Interest expense............................... 866 389 (1,142)(D) 113 Income before provision for income taxes....... 11 443 388 1,546 2,388 Provision for income taxes..................... 3 647(E) 650 ------ ------ ----- ------ ------ Net income..................................... $ 8 443 388 899 $ 1,738 ====== ====== ===== ====== ====== Net income per share........................... .26 Weighted average number of shares outstanding.................................. 6,812
- --------------- The Unaudited Pro Forma Combined and Condensed Statement of Operations for the six months ended June 30, 1997 gives effect to the Reorganization and the consummation of the C&C Acquisition and the Keith Acquisition as if they had occurred on January 1, 1997 as follows: (A) To eliminate intercompany sales.............................................................. (150) (B) Reflects the closure of Caprice Quarry....................................................... 175 (C) Reflects the following: Reversal of debt issuance costs.............................................................. (35) Reversal of organization costs............................................................... (17) Amortization of goodwill..................................................................... 150 Reduction in salary expense.................................................................. (310) SG&A related to Caprice Quarry closure....................................................... (17) ---- (229) (D) Reflects the elimination of interest expense................................................. (1,142)
(E) Reflects the net additional income tax provision as a result of the above adjustments, at an effective tax rate of 27.2%, and provides for income tax expense for companies previously taxed as Subchapter S corporations. (F) Following is a summary of the Elberton Companies operations for the six months ended June 30 , 1997:
QUARRY COMPANIES & SMI C&C KEYSTONE TOTAL --------------- ------ -------- ------ Net Revenues: Manufacturing......................................... $ 649 $3,061 $4,654 $8,365 Quarrying............................................. 2,912 -- -- 2,912 Retailing............................................. -- -- -- -- ------- --------- --- ------- ------- -- -- Total net revenues.............................. 11,277 3,561 3,061 4,654 Gross Profit: Manufacturing......................................... 129 679 186 993 Quarrying............................................. 1,209 -- -- 1,209 Retailing............................................. -- -- -- -- ------- --------- --- ------- ------- -- -- Total gross profit.............................. 2,202 1,338 679 186 Selling, general and administrative expenses............ 1,370 634 375 361 ------- --------- --- ------- ------- -- -- Income (loss) from operations........................... 832 704 304 (175) ------- --------- --- ------- ------- -- -- Interest expense........................................ 389 201 35 154 ------- --------- --- ------- ------- -- -- Income (loss) before provision for income taxes......... 443 503 269 (329) Provision for income taxes.............................. -- -- -- -- ------- --------- --- ------- ------- -- -- Net income.............................................. $ 443 $ 503 $ 269 $ (329) ========== ========= ========= =========
21 23 UNAUDITED PRO FORMA COMBINED AND CONDENSED STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1996 (IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL ------------------------------------- ELBERTON KEITH PRO FORMA PRO FORMA COMPANY COMPANIES(F) MONUMENT ADJUSTMENTS AS ADJUSTED ------- ------------ -------- ----------- ----------- STATEMENT OF OPERATIONS DATA: Net Revenues: Manufacturing.............................. $14,827 8,050 (80)(A) $22,797 Quarrying.................................. 5,116 2,985 8,101 Retailing.................................. 2,812 2,812 ------ ------ ----- ------ ------ Total net revenues....................... 19,943 11,035 2,812 (80) 33,710 Gross Profit: Manufacturing.............................. 3,603 936 4,539 Quarrying.................................. 1,653 937 64(B) 2,654 Retailing.................................. 1,823 1,823 ------ ------ ----- ------ ------ Total gross profit....................... 5,256 1,873 1,823 64 9,016 Selling, general and administrative expenses................................... 4,649 1,376 1,545 (233)(C) 7,338 ------ ------ ----- ------ ------ Income from operations....................... 607 497 278 297 1,678 ------ ------ ----- ------ ------ Interest expense............................. 934 340 (1,153)(D) 121 Income (loss) before provision (benefit) for income taxes............................... (327) 157 278 1,450 1,557 Provision (benefit) for income taxes......... (82) 506(E) 424 ------ ------ ----- ------ ------ Net income (loss)............................ $ (245) 157 278 944 $ 1,133 ====== ====== ===== ====== ====== Net income per share......................... .17 Weighted average number of shares outstanding................................ 6,629
- --------------- The Unaudited Pro Forma Combined and Condensed Statement of Operations for the six months ended June 30, 1996 gives effect to the Reorganization and the consummation of the C&C Acquisition and the Keith Acquisition as if they had occurred on January 1, 1996 as follows: (A) To eliminate intercompany sales.................................................................. (80) (B) Reflects the closure of Caprice Quarry........................................................... 64 (C) Reflects the following: Reversal of debt issuance costs.................................................................. (35) Reversal of organization costs................................................................... (17) Amortization of goodwill......................................................................... 150 Reduction in salary expense...................................................................... (310) SG&A related to Caprice Quarry closure........................................................... (21) ------ (233) (D) Reflects the elimination of interest expense..................................................... (1,153) (E) Reflects the net additional income tax provision as a result of the above adjustments, at an effective tax rate of 27.2%, and provides for income tax expense for companies previously taxed as Subchapter S corporations. (F) Following is a summary of the Elberton Companies operations for the six months ended June 30, 1996:
QUARRY COMPANIES & SMI C&C KEYSTONE TOTAL --------------- ----- -------- ----------- Net Revenues: Manufacturing...................................... 574 2,861 4,615 8,050 Quarrying.......................................... 2,985 -- -- 2,985 Retailing.......................................... -- -- -- -- ------ --------- --- ------- --- ------ --- Total net revenues........................... 2,861 3,559 11,035 4,615 Gross Profit: Manufacturing...................................... 51 599 286 936 Quarrying.......................................... 937 -- -- 937 Retailing.......................................... -- -- -- -- ------ --------- --- ------- --- ------ --- Total gross profit........................... 599 988 1,873 286 Selling, general and administrative expenses......... 300 646 1,376 430 ------ --------- --- ------- --- ------ --- Income (loss) from operations........................ 299 342 497 (144) ========= ========= ========== ========= Interest expense..................................... 35 236 340 69 Income (loss) before provision for income taxes...... 264 106 157 (213) Provision for income taxes........................... -- -- -- -- ------ --------- --- ------- --- ------ --- Net income........................................... 264 106 157 (213) ========= ========= ========== =========
22 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Rock of Ages, founded in 1885, is an integrated quarrier, manufacturer and distributor of granite and products manufactured from granite. The quarry division sells granite both to the manufacturing division and to outside manufacturers, as well as to distributors in Europe and Japan. The manufacturing division's principal product is granite memorials used primarily in cemeteries, although it also manufactures some specialized granite products for industrial applications. The Company owns and operates 13 active quarry properties and 12 manufacturing and sawing facilities in North America, principally in Vermont, Georgia, and the Province of Quebec. The Company markets and distributes its memorials on a wholesale basis to approximately 1,835 independent memorial retailers in the United States and Canada, including approximately 495 independent authorized Rock of Ages retailers that are the primary outlet for the Company's branded memorials. The Company recently entered into a definitive agreement to acquire one of the largest of its authorized independent retailers, which will provide the Company with 17 owned retail outlets and mark the Company's first significant entry into retailing. The Company's memorials are marketed under the names of Rock of Ages Sealmark and Colorcraft, as well as several private labels. The Company believes that the Rock of Ages trademark is one of the oldest and best known brand names in the granite memorialization industry. Prior to 1996, the Company's quarrying and manufacturing operations were concentrated in Vermont and Quebec, and its manufacturing division produced primarily high-end branded memorials that were distributed to a relatively small percentage of the independent memorial retailers in North America. During the past twenty months, the Company has begun to implement a strategy that involves: (i) significantly expanding the breadth of its product offerings to include memorials covering all price points and major color varieties; (ii) increasing its distribution base; and (iii) vertically integrating forward into the retail distribution channel in order to move closer to the ultimate memorial customer. The steps taken by the Company so far in this regard have enabled it to increase manufacturing revenues from $17.8 million in 1995 to $32.6 million in 1996 ($48.9 million in 1996 on a pro forma basis), and to increase its distribution base from 495 independent retailers in 1995 to approximately 1,835 in 1997 including 17 Company-owned outlets. More importantly, these steps have positioned the Company favorably to capitalize on the opportunities to significantly expand its sales and profitability in the granite memorialization industry. The Company's primary means of implementing its growth strategy to date has been through acquisitions, beginning with the acquisitions on December 31, 1995 of Lawson Granite Company and Anderson-Friberg Company, each based in Barre, Vermont. These acquisitions helped expand the Company's manufacturing capacity and distribution base, while also broadening its granite memorial product line to include more non-branded granite memorials at lower price points than the Company's then-existing product line. In addition, the Company has recently taken further steps to implement its growth strategy through (i) the Keystone Acquisition, pursuant to which the Company acquired on June 30, 1997 the largest granite memorial manufacturer in Elberton, Georgia, and (ii) the execution of agreements to consummate the C&C Acquisition, pursuant to which the Company will acquire C&C, which the Company believes is the second-largest granite memorial manufacturer in Elberton. The Elberton Acquisitions will establish the Company as the largest granite memorial manufacturer in Elberton, Georgia, which is the largest granite producing area in North America and will give the Company a substantially broader product line, greater manufacturing capacity and enhanced distribution capabilities in the southern United States. The Company's first significant entry into memorial retailing was initiated in July 1997, when the Company entered into a definitive agreement to acquire Keith Monument. It is currently anticipated that the Keith Acquisition will close concurrently with the consummation of this offering. Keith Monument, founded in 1867, has been an authorized Rock of Ages retailer for more than 50 years. The Company believes that Keith Monument is one of the largest retailers of granite memorials in the United States. Upon the closing of the Keith Acquisition, John E. Keith, a principal owner and the president of Keith Monument with over thirty years of experience in granite memorial retailing, will head the Company's retailing operations. Mr. Keith will 23 25 oversee the implementation of the Company's strategy to significantly expand its retail operations both through other acquisitions of retailers and by pursuing strategic alliances with funeral home and cemetery owners, including consolidators. The Company records revenues from both manufacturing and quarrying. Manufacturing revenues are recorded when the finished product is shipped from Company facilities to an outside customer. The granite quarried by the Company is sold both to outside customers and used by the Company's manufacturing division. During 1996, 68.6% of the granite quarried by the Company was sold to outside customers. The Company records revenue and gross profit related to the sale of granite sold to an outside customer when the granite is shipped from the Company's quarry. The Company does not record a sale, nor does the Company record gross profit, at the time granite is transferred to the Company's manufacturing division. The Company records revenue and gross profit related to internally transferred granite only after the granite is manufactured into a finished product and sold to an outside customer. The following table sets forth certain historical statement of operations data as a percentage of revenues with the exception of Manufacturing Gross Profit and Quarrying Gross Profit, which are shown as a percentage of Manufacturing Revenues and Quarrying Revenues, respectively.
SIX MONTHS FOR THE YEAR ENDED ENDED DECEMBER 31, JUNE 30, ------------------------- --------------- 1994 1995 1996 1996 1997 ----- ----- ----- ----- ----- Net revenues..................................... 100.0% 100.0% 100.0% 100.0% 100.0% Manufacturing.................................. 50.6 53.8 72.9 74.4 73.6 Quarrying...................................... 49.4 46.2 27.1 25.6 26.4 ----- ----- ----- ----- ----- Total....................................... 100.0 100.0 100.0 100.0 100.0 Gross Profit Manufacturing.................................. 23.4 24.4 23.8 24.3 23.9 Quarrying...................................... 35.8 39.9 42.7 32.3 28.5 Combined Gross Profit.......................... 29.5 31.6 30.0 26.4 25.1 Selling, general and administrative expenses..... 17.7 19.5 20.4 23.3 20.8 Income from operations........................... 11.8 12.1 9.6 3.0 4.2 Interest expense................................. 4.8 5.1 3.9 4.7 4.2 Income (loss) before income taxes and extraordinary items............................ 7.0 5.3 5.7 (1.6) 0.0 Provision for income taxes....................... 1.7 1.1 1.4 (0.4) 0.0 Net income (loss)................................ 5.3 4.2 4.3 (1.2) 0.0
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996 Revenue for the six months ended June 30, 1997 increased 4.1% to $20.8 million from $19.9 million for the six months ended June 30, 1996. This increase was partly attributable to an increase in manufacturing revenues of $500,000 due to a greater number of memorial units sold. Although quarry revenues from the North American market experienced a slight decline during the period ended June 30, 1997, quarry revenues increased by a net $400,000 as a result of increased exports to Asia. Gross profit for the six months ended June 30, 1997 remained unchanged at $5.2 million compared to gross profit for the six months ended June 30, 1996. The gross profit percentage fell slightly to 25.1% for the six months ended June 30, 1997 from 26.4% for the six months ended June 30, 1996 but was offset by higher sales volumes during the most recent period. The gross profit margin in manufacturing declined during the six months ended June 30, 1997 as a result of a slight shift in the product mix toward lower margin products. The decrease in the quarry gross profit margin for the six months ended June 30, 1997 was a result of a shift in product mix toward lower-margin exports. Selling, general and administrative expenses for the six months ended June 30, 1997 decreased 6.9% to $4.4 million from $4.6 million for the six months ended June 30, 1996. As a percentage of sales, selling, 24 26 general and administrative expenses decreased to 20.8% from 23.3% for the prior six month period. This decrease during the most recent period compared to the prior period resulted from cost savings as a result of the integration of acquisitions consummated during 1996. Interest expense for the six month period ended June 30, 1997 decreased to $866,000 from $934,000 for the six month period ended June 30, 1996. The reduction in interest expense was the result of reduced borrowing levels during the most recent period. YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995. Revenue for the fiscal year ended December 31, 1996 increased 35.8% to $44.7 million from $33.1 million for the year ended December 31, 1995. This growth was attributable to an increase of $3.9 million in revenues from existing operations and an increase of $10.9 million in revenues from acquired manufacturing operations. This increase was offset by a decrease in quarry revenues as a result of the Company's acquisition of two manufacturers that had previously been significant customers and a $1.7 million decrease in quarry sales due to reduced exports to Japan and other Asian markets. Gross profit for 1996 compared to 1995 increased 28.3% to $13.4 million from $10.4 million in 1995. The higher total gross profit reflects an increase of $2.5 million from acquired manufacturing operations and an increase of $1.4 million from existing manufacturing operations. This increase was partly offset by reduced gross profit of $900,000 from quarrying operations due to lower revenue. The gross profit percentage fell slightly to 30% in 1996 from 31.6% in 1995 as a result of sales from the lower margin products of the acquired manufacturing operations. The lower gross margin in 1996 compared to 1995 was offset slightly by higher margins in the quarry operations due to a price increase that went into effect during 1996. Although gross profit margins in both manufacturing and quarrying increased for 1996 compared to 1995, the total gross profit margin declined as a result of the lower margin manufacturing business accounting for a higher percentage of total Company revenues. Selling, general and administrative expenses for 1996 increased 41.5% to $9.2 million from $6.5 million in 1995. As a percentage of net sales, selling, general and administrative expenses for 1996 increased to 20.4% from 19.5% in 1995. This increase resulted primarily from increased personnel expense necessary to support a higher rate of growth in memorial manufacturing and increased acquisition activity. Interest expense for 1996 remained unchanged from 1995 at $1.7 million. Income taxes as a percent of earnings before taxes increased from 20.4% to 25.2% in 1996. Although the Company was in an alternative minimum tax position for Federal tax purposes, the Company paid higher state taxes as a result of its income level exceeding the Company's depletion allowances. In 1995, the Company was in an alternative minimum tax position for Federal taxes and paid only a nominal amount of state taxes as a result of the magnitude of its depletion allowances. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994. Revenue for 1995 decreased 3.2% to $33.1 million from $34.2 million for the fiscal year ended December 31, 1994. The decrease was attributable to a $1.6 million reduction in quarry sales from reduced exports to Japan and other Asian markets. This decrease was slightly offset by a $500,000 increase in manufacturing sales. Gross profit for 1995 increased 3.5% to $10.4 million from $10.1 million in 1994. The increase was the result of an improvement in the gross profit percentage to 31.6% in 1995 from 29.5% in 1994. The improved gross margin was in part a reflection of manufacturing volume increases and changes in the Company's marketing and pricing strategies to deemphasize lower margin customers. Additionally, gross profit margins increased as a result of unit cost reductions in the Company's quarry operations. Selling, general and administrative expenses for 1995 increased 6.7% to $6.5 million from $6.0 million in 1994. As a percentage of net revenue, selling, general and administrative expenses for 1995 increased to 19.5% 25 27 from 17.7% in 1994. This increase resulted primarily from expenses related to the employee savings and profit sharing plan which was established during fiscal 1995. Interest expense, net for 1995 remained unchanged at $1.7 million from 1994. Income taxes as a percent of earnings before taxes decreased from 24.1% in 1994 to 20.4% in 1995. The decrease was the result of a lower level of taxable income in 1995 which resulted in the Company being in an alternative minimum tax position for Federal income tax purposes. During 1994, the Company was still in an alternative minimum tax position but had a higher level of taxable income which exceeded its depletion allowance for state income tax purposes. LIQUIDITY AND CAPITAL RESOURCES Liquidity. The Company considers liquidity to be its ability to meet its long and short-term cash requirements. Historically the Company has met these requirements primarily from cash generated by operating activities and periodic borrowings under commercial credit facilities. The Company's recent and pending acquisitions have increased its requirements for external sources of liquidity, and the Company anticipates that this trend will continue as it further implements its growth strategy. Six Months Ended June 30, 1997. For the six months ended June 30, 1997 net cash used in operating activities was $3.0 million. The six month period results were primarily attributable to increases in trade receivables and amounts due from affiliates. Net cash used in investing activities was $1.7 million for the six month period. The results were primarily attributable to purchase of property, plant and equipment. Net cash provided by financing activities was $4.1 million for the six month period. The results were primarily attributable to borrowings under lines of credit that were partially offset by principal payments on long-term debt. Year Ended December 31, 1996. For 1996, net cash provided by operating activities was $3.9 million. 1996 results were driven primarily by cash provided by a decrease in trade receivables which were partially offset by an increase in inventories and receivables due from affiliates. Net cash used in investing activities was $1.8 million primarily for the purchase of property, plant and equipment. Net cash used in financing activities was $3.3 million used primarily for principal repayments on long-term debt, offset by increased borrowings under lines of credit. Capital Resources. As of June 30, 1997, the Company had $6.6 million outstanding and approximately $2.9 million available under its revolving credit facility with CIT Group -- Business Credit Inc. ("CIT"). The interest rate on this facility as of such date was 9.5%, based on a formula of prime plus 1%. In addition, the Company had outstanding a term loan payable to CIT in the principal amount of $13.6 million, bearing interest at 9.75% based on prime plus 1.25%. The term loan has a final maturity of January 1, 1999, with amortization requirements of $500,000 per quarter. As of June 30, 1997, the Company had approximately $1.8 million of indebtedness outstanding under credit facilities assumed in connection with the Keystone Acquisition, with maturities in 1997, 1998 and 1999 and interest of up to 9.75% per annum (the "Keystone Indebtedness"). The Company intends to apply a portion of the net proceeds of the offering toward repayment of outstanding amounts under its credit facility and term loan with CIT and the Keystone Indebtedness, and has received a commitment letter for a new $50 million credit facility subject to consummation of the offering, borrowings under which will be used to repay all remaining amounts outstanding under the revolving credit facility with CIT. As of June 30, 1997, the Company also had $2.1 million outstanding and no availability under a demand revolving line of credit with the Royal Bank of Canada. The interest rate on this facility as of such date was 6.25% based on a formula of Canadian prime plus .75%. The Company's primary need for capital will be to maintain and improve its manufacturing and quarrying facilities and to finance acquisitions as part of its growth strategy. The Company has $3.7 million budgeted for capital expenditures in 1997, of which it had spent $1.6 million through June 30, 1997. The Company believes that the combination of cash flow from operations, its existing credit facilities, the proceeds of this offering, and the new credit facility it expects to put in place will be sufficient to fund its operations for at least the next twelve months. 26 28 SEASONALITY Historically, the Company's operations have experienced certain seasonal patterns. Generally the Company's net sales have been highest in the third quarter and lowest in the first quarter of each year due primarily to weather. Cemeteries in northern areas generally do not accept granite memorials during winter months when the ground is frozen because they cannot be properly set. The Company typically closes certain of its Vermont and Canadian quarries during these months because of increased operating costs attributable to adverse weather conditions. The Company has historically incurred a net loss during the first six months of each calendar year. However, the Company believes that the variability of its operating results on a quarterly basis will be lessened as its operations become more geographically dispersed. INFLATION The Company believes that the relatively moderate rates of inflation experienced in recent years have not had a significant impact on its results of operations. NEW ACCOUNTING PRONOUNCEMENTS SFAS No. 128, Earnings Per Share, will require a different calculation of earnings per share and will require a restatement in all prior periods. This will be effective for periods ending after December 15, 1997. SFAS No. 130, Reporting Comprehensive Income, will be effective for periods beginning after December 15, 1997. SFAS No. 131, Disclosure About Segments of an Enterprise and Related Information, will be effective for periods beginning after December 15, 1997. Management does not believe that the above pronouncements will have a material impact on the Company's financial statements. 27 29 THE DEATH CARE INDUSTRY AND GRANITE MEMORIALIZATION DEATH CARE INDUSTRY OVERVIEW The death care industry has traditionally been comprised of three principal segments: (i) ceremony and tribute, generally in the form of a funeral or memorial service; (ii) disposition of remains, either through burial or cremation; and (iii) memorialization, generally through monuments, markers or inscriptions. The death care industry is relatively stable due to predictable death rates and demographics relating to aging and wealth. Certain characteristics generally applicable to the death care industry are summarized below. Fragmented nature. Ownership in the death care industry is generally highly fragmented. With the exception of bronze memorial suppliers (two companies with an estimated market share of in excess of 80%) and casket manufacturers (three companies with an estimated 60% market share), the majority of death care operators are small, privately-owned family companies. At the end of 1996, consolidators owned less than 12% of the estimated 22,800 funeral homes, approximately 890, or less than 10%, of the estimated 9,600 commercial cemeteries, and less than 5% of the total estimated 23,000 active cemeteries, in the United States. Barriers to entry. Death care businesses have traditionally been transferred to successive generations within a family and in most cases have a heritage, community presence and tradition that act as formidable barriers for new entrants into existing markets. Presence and tradition afford established industry operators an important local franchise and provide the opportunity for significant referral business. Stability. Death rates in the United States and Canada are fairly predictable and are expected to rise approximately 1% per year between 1996 and 2010. The general death care industry is therefore relatively stable and fairly predictable. Business failures are generally uncommon among retailers of death care products and services, with ownership traditionally passing from generation to generation. Consolidation. Consolidators are actively consolidating the funeral home and cemetery segments of the death care industry; the Company believes this consolidation will occur in all areas of the death care industry. Pre-need marketing and selling. An increasing number of general death care products and services, especially funeral products and services and cemetery lots controlled by consolidators, are being sold prior to the time of death ("pre-need") rather than at the time of death ("at-need"). Trend toward cremation. In recent years, there has been a steady, gradual growth in the number of families that have chosen cremation as an alternative to traditional methods of burial. According to CANA, cremations represented approximately 22% of the United States burial market in 1996 compared to approximately 10% in 1980, and CANA expects this rate to rise to 29% by 2010. Cremation rates vary dramatically by state for religious, cultural and other reasons. Cremation is generally marketed as a less costly alternative to interment; in addition, it is increasingly being marketed as a part of a death care program that incorporates a traditional service and memorialization. THE GRANITE MEMORIAL INDUSTRY General. In 1995, there were approximately 1.8 million interments in the United States. Of these, the Company believes approximately 50% were memorialized in some sort of permanent manner. These memorializations take a number of forms, depending on the type of interment. Individual cemetery lots typically have granite or bronze memorials, while communal interments such as community mausoleums, cremation niches and columbariums have a range of stone, masonry and wood construction. The Company believes the North American memorialization industry, excluding communal interments such as community mausoleums and columbariums, is approximately $1.5 billion in annual retail sales in 1996, approximately two-thirds of which were sales of granite memorials and approximately one-third of which were sales of bronze memorials (including granite bases under bronze), with a nominal percentage of marble and other products. Granite memorials are manufactured in a wide variety of sizes, designs and colors, depending on the degree of personalization desired by the customer. The Company believes the largest selling colors, in order of magnitude, are Elberton Gray, Barre Gray, Black, Dakota Mahogany, Pink and Red. While there are a 28 30 number of standard types of memorials, including flush grass markers and various types of upright granite memorials, their size varies slightly from region to region. The granite memorialization industry is comprised of three principal areas: (i) quarrying of the granite; (ii) manufacture and wholesale distribution of the memorials; and (iii) retail sales of the memorials. The granite memorialization industry shares some of the fundamental characteristics of the death care industry, including barriers to entry created by local heritage, community presence and tradition, structural fragmentation and stable, predictable demand. However, the granite memorial industry and its three principal areas have certain distinguishing characteristics that the Company believes create attractive opportunities. These characteristics include the following: Timing and point of sale. Unlike most death care products and services, the purchase of granite memorials by consumers is typically separated both physically and chronologically from the funeral planning and service process. Granite memorials have traditionally been sold primarily through independent monument retailers rather than at or through funeral homes or cemeteries (approximately 3,000 of such independent memorial retailers are located outside funeral homes and cemeteries, according to the Monument Builders of North America). In addition, granite memorials historically have been sold some time after the funeral or interment service. Additional barriers to entry. As in the death care industry generally, local heritage, community presence and tradition deter entry into the granite memorialization industry. However, the most significant barriers to entry to the quarrying of granite include: (i) the limited number of known commercially exploitable memorial grade granite deposits; (ii) stringent federal, state and local zoning and environmental laws; and (iii) substantial capital requirements. Barriers to entry in the manufacture of granite memorials include (a) the need to be in reasonable proximity to granite quarries producing memorial grade granite due to the high freight costs associated with transporting granite blocks; (b) substantial capital costs in establishing and operating a memorial grade granite manufacturing facility; and (c) the need for highly skilled stone cutters, sandblasters, sculptors and other skilled artisans necessary to produce granite memorials. Ownership structure. The granite memorial industry is characterized by increasing fragmentation as one moves closer to the ultimate customer. The Company estimates that there are approximately 50 quarriers and 140 manufacturers of memorial grade granite in North America. According to the Monument Builders of North America, there are approximately 3,000 retailers of granite memorials in North America located outside funeral homes and cemeteries. Most of these quarrying, manufacturing and retail businesses are privately owned and family run. Geographic concentration and production costs. The quarrying and manufacture of granite memorials in North America are concentrated in four geographic areas: Barre, Vermont; Beebe, Quebec; Elberton, Georgia; and the area encompassing Milbank, South Dakota, Cold Spring and St. Cloud, Minnesota and Wausau, Wisconsin (known in the trade as the "Northwest"). Generally, granite quarriers and manufacturers in each area have the strongest market shares in the neighboring geographic regions because of the relatively high freight costs involved in shipping granite. The low cost and low price production area is Elberton, while the other three regions generally have similar costs and selling prices. Competing products. The primary competition for granite memorialization on individual cemetery lots comes from bronze products which currently constitute approximately one-third of the aggregate memorialization business, measured in retail sales dollars. Bronze markers are generally flush rather than upright and are typically offered in a limited number of styles and designs, with relatively little opportunity for personalization. Unlike granite memorials, bronze markers are sold primarily through cemeteries where they have traditionally been marketed to the consumer as a lower cost alternative to granite and to the cemeterian as a lower cost cemetery maintenance option. To a lesser extent, marble is also used as a substitute for granite in memorialization. See "Business -- Competition." 29 31 OPPORTUNITIES The Company believes that the aforementioned industry characteristics present it with the opportunity to: - Serve the geographically dispersed and fragmented memorial retailers by offering a full line of granite memorials throughout North America. The Company is the leading quarrier and manufacturer of granite memorials in three of the four principal granite memorial producing regions of North America. Accordingly, the Company is well positioned to provide, primarily through its own quarrying and manufacturing operations, a complete line of high quality, granite memorials covering all price points and major color varieties to North American retailers and to cemetery and funeral home owners, including consolidators. - Capitalize on the fragmented nature of granite memorial retailing and the Company's existing relationships with over 1,800 independent retailers by making strategic acquisitions of independent retailers in order to build an integrated network of owned Rock of Ages retailers and thereby capture the higher margins which have historically existed at the retail level. - Capitalize on the trend toward cremation by attracting consumer dollars otherwise spent on casket and burial vault expenses. The Company believes that with enhanced distribution capabilities, promotion, advertising and consumer awareness of memorialization, more consumers who have elected cremation may opt for personalized upright granite memorials. 30 32 BUSINESS GENERAL Rock of Ages, founded in 1885, is an integrated granite quarrier, manufacturer and distributor whose principal product is granite memorials used primarily in cemeteries. The Company believes that it is the largest quarrier, manufacturer and distributor of finished granite memorials and granite blocks for memorial use in North America, based on revenues. The Company owns and operates 13 active quarry properties and 12 manufacturing and sawing facilities in North America, principally in Vermont, Georgia and the Province of Quebec. The Company markets and distributes its memorials on a wholesale basis to approximately 1,835 independent memorial retailers in the United States and Canada, including approximately 495 independent authorized Rock of Ages retailers that are the primary outlet for the Company's branded memorials. The Company recently entered into a definitive agreement to acquire one of the largest of its authorized independent retailers, which will provide the Company with 17 owned retail outlets and mark the Company's first significant entry into retailing. The Company's memorials are marketed under the names Rock of Ages Sealmark and Colorcraft, as well as several private labels. The Company believes the Rock of Ages trademark is one of the oldest and best known brand names in the granite memorialization industry. BUSINESS STRATEGY Rock of Ages believes it is well-positioned to capitalize on the industry characteristics described previously, and seeks to establish a dominant position in the granite memorialization industry. The Company intends both to improve the efficiency of its existing operations and to expand its business significantly. The principal elements of the Company's operating and growth strategies are summarized below. Operating Strategy. The Company pursues an operating strategy that includes the following key elements: - Providing, primarily through its own quarrying and manufacturing operations, a complete line of high quality granite memorials covering all price points and major color varieties. The Company believes it is the only industry participant with both quarrying and manufacturing operations in three of the four principal granite memorial producing regions of North America. - Enhancing operational efficiencies through the continued integration of acquired quarriers and manufacturers and the rationalization of its sales and distribution efforts. - Increasing advertising and promotion of the Rock of Ages brands, including the flagship Rock of Ages Sealmark and Colorcraft brands, in order to heighten consumer awareness and increase sales of the Company's products. Growth Strategy. The Company seeks to expand the scope and profitability of its operations by implementing a growth strategy that includes forward vertical integration into retailing, thereby enabling the Company to move closer to the ultimate customer. The principal elements of this strategy include the following: - Acquiring independent granite memorial retailers in selected markets in order to develop an integrated network of owned Rock of Ages retailers and thereby capture the higher margins which have historically existed at the retail level. - Increasing sales to independent retailers that are current customers and expanding its independent retailer customer base. During the last two years, principally through acquisitions of quarriers and manufacturers, the Company has increased the number of independent retailers to which it sells its products from approximately 495 in 1995 to approximately 1,835 in 1997. - Pursuing strategic alliances with funeral home and cemetery owners, including consolidators, to supply granite memorials to or through them, in order to increase both pre-need and at-need sales of granite memorials. 31 33 RECENT AND CONCURRENT ACQUISITIONS The Company's primary means of implementing its growth strategy to date has been through acquisitions, beginning with the acquisition on December 31, 1995 of Lawson Granite Company and Anderson-Friberg Company, each based in Barre, Vermont. These acquisitions helped expand the Company's manufacturing capacity and distribution base, while also broadening its granite memorial product line to include more non-branded granite memorials at lower price points than the Company's then-existing product line. The Company has recently taken further steps to implement its growth strategy through the Keystone Acquisition and the proposed C&C Acquisition and Keith Acquisition. The Company believes that these acquisitions and the continued implementation of the other elements of its operating and growth strategies will enable it to: (i) expand overall industry sales of granite memorials, which heretofore have been actively marketed to consumers primarily only on an at-need basis and in a limited manner; (ii) increase its share of the granite memorial market by offering a complete product line with strong brand names through distribution channels that more directly reach the consumer; and (iii) increase both its relative and total profitability by capturing some of the higher margins that have historically existed at the retail level. Keystone. In June 1997, the Company acquired Keystone, the largest memorial manufacturer in Elberton, Georgia, including Keystone's 50% ownership interest in each of SMI and the Quarry Companies. Keystone had revenues of $9.3 million for the year ended December 31, 1996. The Company made the Keystone Acquisition in order to: (i) become the largest manufacturer of granite memorials in the largest granite producing area of North America; (ii) expand the Company's product offering to its and Keystone's customers by combining the product lines of the two companies and thereby offering easy "one-stop-shopping" to retailers; (iii) obtain immediate access to an expanded customer base of independent retailers; (iv) reduce raw material and production costs for certain granite; and (v) reduce transportation costs and enhance transportation capabilities. In connection with the Keystone Acquisition, the Company issued 263,441 shares of Class B Common Stock and assumed or incurred $2.6 million of indebtedness. C&C. In June 1997, the Company also entered into a definitive agreement to acquire C&C, which the Company believes is the second largest manufacturer of granite memorials in Elberton, Georgia, and the remaining 50% of each of SMI and the Quarry Companies owned by the stockholders of C&C. It is expected that the C&C Acquisition will close concurrently with the consummation of this offering. C&C had revenues of $5.9 million for the year ended December 31, 1996. The Company believes that the C&C Acquisition by itself offers many of the same benefits that the Keystone Acquisition provides, and, in combination with the Keystone Acquisition, solidifies the Company's position as the largest granite memorial manufacturer in the Elberton region. The purchase price payable for C&C is $6.6 million in cash and $200,000 in shares of Class A Common Stock (valued at the initial public offering price) and approximately $780,000 to repay outstanding indebtedness of C&C. Quarry Companies and SMI. As part of the Keystone Acquisition and the C&C Acquisition, the Company will also acquire the Quarry Companies and SMI and assume $5.4 million of indebtedness of such companies. The Quarry Companies and SMI had sales of $6.8 million for the year ended December 31, 1996. The Quarry Companies own and operate six quarries located in Georgia, Pennsylvania, North Carolina, South Carolina and Oklahoma. The Quarry Companies offer the Company an internal source of a variety of colored granite, including American Black, Salisbury Pink, Autumn Rose and Kershaw Pink. These colors supplement the Company's product line for both granite memorials and mausoleums. With the acquisition of SMI, the Company will obtain a manufacturing facility dedicated primarily to the construction of mausoleums, which are a more expensive and higher margin product than most other types of granite memorials. Keith Monument. In July 1997, the Company entered into a definitive agreement to acquire substantially all of the assets and liabilities of Keith Monument. Keith Monument has been an authorized Rock of Ages retailer for more than 50 years and, the Company believes, is one of the largest retailers of granite memorials in the United States. It is expected that the Keith Acquisition will close concurrently with the consummation of this offering. Keith Monument had revenues of $7.8 million for the year ended June 30, 1997. The Keith Acquisition offers the Company an immediate presence in memorial retailing and provides the Company with management expertise in the retailing sector. The purchase price payable for Keith 32 34 Monument is $16.4 million, consisting of $13.1 million in cash, $1.5 million in shares of Class A Common Stock (valued at the initial public offering price) and $1.8 million to repay outstanding indebtedness of Keith Monument assumed by the Company. Upon the closing of the Keith Acquisition, John E. Keith, a principal owner and the president of Keith Monument with over thirty years of experience in granite memorial retailing, will head the Company's retailing operations. Mr. Keith will oversee the implementation of the Company's strategy to significantly expand its retail operations both through other acquisitions of retailers and by pursuing strategic alliances with funeral home and cemetery owners, including consolidators. QUARRYING AND MANUFACTURING OPERATIONS Quarrying. The Company owns and operates 13 active quarries producing, or has supply agreements to obtain, each of the largest selling granite memorial colors in North America (Elberton Gray, Barre Gray, Black, Dakota Mahogany, Pink and Red, in that order). In 1996, on a pro forma basis assuming the Acquisitions occurred on January 1, 1996, the Company quarried in excess of 1,500,000 cubic feet of saleable granite from its quarries in Georgia, Vermont, Pennsylvania, North Carolina, South Carolina, Oklahoma and the Province of Quebec. The Company estimates that its U.S. production represents approximately 19% of the total U.S. output of dimension granite for all uses and approximately 25% of the U.S. output for memorial use. The Company owns a large quarry complex in Barre, Vermont and is currently the only quarrier of Barre, Vermont gray granite. The Company's Barre, Vermont quarry complex is generally considered to be one of the largest granite quarry complexes in the world. In 1996, on a pro forma basis assuming the Acquisitions occurred on January 1, 1996, over 50% of the Company's U.S. output came from its Barre quarries. The Company also owns four quarries in the Elberton, Georgia area. While most black granite for memorial use comes from Africa and India, the Company owns a quarry in Pennsylvania that produces the largest selling black granite for memorial use quarried in North America. The Company also owns quarries in North Carolina and Canada that produce pink granite, and a quarry in Bethel, Vermont that produces Bethel white granite used primarily for building purposes outside North America. The quarrying of granite involves three major processes. The first major process is to prepare the granite for extraction. The initial step in this process is to free a mass of stone from the quarry by cutting deep vertical channels in the stone with jet channeling torches, pneumatic slot-drills or diamond-wire saws. Next, a series of horizontal "lift" holes are drilled in the mass. Several of the lift holes are then filled with primer cord explosives which, after detonation, cause the granite mass to crack along the line where the holes have been drilled and to lift the mass free from the granite below it. Occasionally, these horizontal cuts are made with diamond wire saws. After the granite mass has been separated, pneumatic drills are used to drill a series of vertical holes to break the mass into large vertical pieces. Horizontal holes are then drilled to break these pieces into standard size saw blocks, known as "dimensioned blocks," which are typically ten feet by five feet by five feet and weigh approximately twenty-five tons. The second major process in quarrying granite is to extract the dimensioned block from the quarry. Extraction involves removing the dimensioned blocks from the quarry with very large forklifts or, in deeper quarries, with cinching notched wire cable around the block and then hoisting the blocks with very large derricks, or fixed cranes, or mobile cranes. These derricks range to up to 160 feet in height and up to 250 tons in lifting capacity. Most of the Company's quarries utilize forklifts for extraction or a combination of forklifts and fixed or mobile cranes. The third major process is to transport the dimensioned blocks. Once lifted from the quarry, the blocks are handled and transported by heavy duty diesel trucks and fork lifts. These vehicles transport the blocks either to an inventory area or directly to the manufacturer. Much of the granite quarried is not suitable for use as a finished memorial product due to cracks, spots, discoloration and other natural imperfections. The amount of usable granite varies markedly from quarry to quarry. Some of the granite not used for memorials is sold to other companies for use in buildings and other non-memorial products. Unusable stone, or "grout," is stored in areas not expected to be quarried in the 33 35 future. It is suitable for bridge piers, erosion control and other uses but the market for this product is very limited. The granite blocks sold by the Company are delivered to the Company's manufacturing division as well as to other granite manufacturers in Vermont via Company owned trucks. Blocks for delivery outside of the production areas are delivered via common carrier. Barre, Vermont, Elberton, Georgia and Beebe, Quebec all have at least two large regional or national trucking companies and a number of independent truckers. Manufacturing. The Company owns and operates 12 manufacturing and sawing facilities in North America, principally in Vermont, Georgia and the Province of Quebec. The Company is in the process of a $3.2 million expansion and improvement program for its Barre and Canadian manufacturing facilities to add 50,000 square feet of space and manufacturing and sawing equipment and to reconfigure production. In addition, the Company has ordered $600,000 of polishing equipment for the manufacturing facilities in Elberton and anticipates dedicating sawing equipment currently used for curb slabs to memorial slabs. The Company believes that these improvements and operational changes will increase memorial production significantly and allow the Company to meet its anticipated production requirements for the near future. The manufacture of memorials starts with quarried granite blocks, which are sawed into slabs of varying thicknesses with computer operated diamond saws and wire saws at Company saw plants. Once a block has been cut into slabs, the slabs are transported to nearby manufacturing plants such as the Company's Craftsman Center in Barre, Vermont. At the manufacturing plant, slabs are manufactured into memorials and other products. To manufacture a granite slab four to twelve inches thick into a memorial, the slabs are first polished at the manufacturing plant by various automatic polishing machines. Polished slabs are then inspected for flaws and defects and dimensioned with a hydraulic guillotine machine. Granite is like wood in that it splits uniformly along the grain. After dimensioning, the granite pieces are taken to stations to be shaped by stonecutting wire saws, diamond saws and carborundum wheels. Once shaped, memorials may be hand-carved into virtually any desired shape. This hand carving is generally done by the Company. The final step in memorial manufacturing is to sandblast the semi-finished memorial with a silicon carbide abrasive which etches the desired design into the memorial. This sandblasting step may be done by the Company or a retailer. Once complete, the memorial is inspected and branded products are then sandblasted with the Rock of Ages or other seal. Finished products are then crated and shipped to customers. In addition to granite memorials, the Company also manufactures precision industrial granite products, such as machine bases and surface plates, which are utilized in the automotive, aeronautic, computer, machine tool, optical, precision grinding and inspection industries, as well as granite press rolls used in the manufacture of paper. These are small niche markets within the granite industry with limited competition and limited growth prospects. The Company's granite deposits in Georgia, Vermont, Pennsylvania, North Carolina, South Carolina, Oklahoma and the Province of Quebec are expected to continue to meet the Company's current and anticipated raw materials needs for many years, and the Company believes it will continue to have access to adequate quantities of other granite at competitive prices. The Company has entered into a Supply and Distribution Agreement with Missouri Red Quarries, Inc., the owner of Keystone immediately prior to the Keystone Acquisition ("Missouri Red"), and G. Thomas Oglesby, Jr., who controls Missouri Red (the "Missouri Red Supply Agreement"), and a Supply and Distribution Agreement with Keystone Granite Company, Inc., an affiliate of Missouri Red ("KGCI"), and Missouri Red (the "Keystone Supply Agreement", and, together with the Missouri Red Supply Agreement, the "Supply Agreements"). Under the Missouri Red Supply Agreement, Missouri Red has agreed, for a 20-year term, to supply the Company at specified prices with the Company's requirements of Missouri Red granite blocks for memorial use, and has appointed the Company as its exclusive distributor to buy and sell all grades of Missouri Red granite for memorial use in the specified territory. The Company has agreed to purchase certain minimum annual amounts of Missouri Red granite blocks, and such supply arrangements are exclusive for memorial use so long as the Company purchases certain minimum amounts of Missouri Red granite blocks within specified periods of time, provided that in any event the Company has a first priority to 34 36 purchase all monumental grade Missouri Red granite quarried by Missouri Red during the term of the Missouri Red Supply Agreement. The terms of the Keystone Supply Agreement are substantially similar to the Missouri Red Supply Agreement, including the 20-year term, except that the Keystone Supply Agreement applies to KGCI granite blocks, any other granite blocks quarried at the KGCI quarries and Topaz granite blocks (collectively, "Topaz") and the Company has agreed to purchase all monumental grade Topaz produced by KGCI during the term of the Keystone Supply Agreement. Should the Company fail to purchase the specified minimum quantity of Topaz, then KGCI has the right to sell to others subject to the Company's right to supply priority. \Pursuant to the Supply Agreements, the Company has a right of refusal with respect to any sale of the quarries, land, buildings or equipment, or the stock of, Missouri Red or KGCI outside the Oglesby family. The Company also has a mutual supply agreement (the "Dakota Agreement") with Dakota Granite Company ("Dakota Granite"), whereby Dakota Granite has agreed to supply the Company with its requirements for Dakota Mahogany blocks, slabs and finished monuments, and the Company has agreed to supply Dakota Granite with its requirements for Barre Gray blocks, slabs and finished monuments, and each party has agreed to purchase such requirements exclusively from the other. The Dakota Agreement is terminable by either party upon 180-days prior notice. Other significant raw materials which the Company uses in its manufacturing operations include industrial diamond segments for saw blades and wires and abrasives. There are a number of sources for these raw materials and the Company believes it will continue to have access to adequate quantities of such materials at competitive prices. As noted above, regional and national trucking companies are readily available to deliver granite memorials. Also, the Company owns eight trucks for delivery of finished memorials to customers. In addition, as a result of the Acquisitions, the Company will be able to ship full truckload quantities of memorials from Barre to Elberton and back via dedicated trucks, which the Company believes will improve the efficiency of national delivery of its products. As a result, the Company believes it will have a significant competitive cost advantage in the transportation of memorials. MARKETING AND DISTRIBUTION; RETAILING The Company is best known for its granite memorials. Rock of Ages produces each of the standard types of memorials, including flush grass markers and various types of upright memorials, and is recognized for its ability to manufacture highly personalized granite memorials designed to meet the specific needs of individual customers. For example, the Company has built a full size granite replica of a Mercedes Benz for a customer. Rock of Ages currently sells its granite memorial products to an estimated 1,835 independent memorial retailers in North America. Its flagship brands bearing the Rock of Ages seal are sold only to approximately 495 independent authorized Rock of Ages retailers who have written supply agreements with the Company. These branded Rock of Ages memorials are made of the highest quality granite available and are guaranteed in perpetuity to the customer and the cemetery against defects in the granite (including discoloration) or workmanship. The Company believes its warranty is the strongest in the memorial industry. The Company generally limits the number of retailers authorized to sell branded Rock of Ages products in any geographic region. The Company seeks to select as its authorized retailers large and well-established companies that can provide high levels of design assistance, personalization and high quality sandblast carving and lettering, as well as the service of setting the memorial in the cemetery. Authorized retailer agreements may be terminated by either the Company or the retailer upon 30 days' notice. Under these agreements, the authorized retailer is free to purchase granite memorials from any source, but the Company expects its authorized retailers to promote the Rock of Ages brand and purchase reasonable quantities of its branded and unbranded granite memorials annually. Most authorized Rock of Ages retailers purchase both branded and lower-priced unbranded memorials from the Company. The Company also supplies private label and unbranded granite memorials not bearing the various Rock of Ages seals to a large number of other retailers. The Company's growth strategy principally involves vertically integrating forward into retailing. Pursuant to the Keith Acquisition, the Company will acquire what it believes is one of the largest retailers of granite 35 37 memorials in the United States. Upon the closing of the Keith Acquisition, John E. Keith, a principal owner and president of Keith Monument with over 30 years experience in granite memorial retailing, will head the Company's retailing operations. Mr. Keith will oversee the implementation of the Company's strategy to significantly expand its retail operations both through other acquisitions of other independent retailers and by pursuing strategic alliances with funeral home and cemetery owners, including consolidators. The Company will seek to acquire well established full service granite memorial retailers with experienced personnel and strong market share in their marketing region, including both its existing authorized Rock of Ages retailers and other independent retailers. All owned retailers will be positioned as Rock of Ages retailers and will offer Rock of Ages branded products as well as other brands provided by the Company. The Company recognizes that certain of its customers, including both authorized Rock of Ages retailers and its other retailers, will prefer to remain as independently owned retailers or may not be viable acquisition targets for the Company due to price, size, location or other reasons. The Company believes the opportunity to become a part of an integrated quarrier, manufacturer and retailer of granite memorials promoting Rock of Ages branded memorials will be an attractive option for many granite memorial retailers who are currently customers of the Company. Likewise, the Company believes its improved knowledge of the retail market gained from owning retailers and the presence of John E. Keith, a prominent memorial retailer, as an officer and director will help it to better serve and be more responsive to the needs of its customers who remain independently owned. Since most independent retailers have competed with Rock of Ages authorized retailers for many years, the Company believes that the establishment of an owned Rock of Ages retail network through acquisition of existing granite memorial retail outlets should not disrupt the market in a fashion that would occur if a new entrant to the market entered the business or a manufacturer established new outlets instead of acquiring existing outlets. COMPETITION The granite memorial industry is highly competitive. The Company competes with other granite quarriers and manufacturers in the sale of granite blocks on the basis of price, color, quality, geographic proximity, service, design availability and availability of supply. All of the Company's colors of granite are subject to competition from granite blocks of similar color supplied by quarriers located throughout the world. There are approximately 140 manufacturers of granite memorials in North America. There are also manufacturers of granite memorials in India, South Africa, China and Portugal who sell finished memorials in North America. The Company competes based upon price, breadth of product line and design availability as well as production capabilities and delivery options. The Company's quarrying and manufacturing competitors include both domestic and international companies, some of which may have greater financial, technical, manufacturing, marketing and other resources than the Company. Additionally, foreign competitors of the Company may have access to lower cost labor and better commercial deposits of memorial grade granite, and may be subject to less restrictive regulatory requirements than the Company. Companies in South Africa, India, China and Portugal manufacture and export finished granite memorials into North America. See "Risk Factors -- Competition." The competition for retail sales of granite memorials is also intense and is based on price, quality, service, design availability and breadth of product line. Competitors include funeral home and cemetery owners, including consolidators, which have greater financial resources than the Company as well as approximately 3,000 independent retailers of granite memorials located outside funeral homes and cemeteries. See "Risk Factors -- Relationships with Retailers". PATENTS, TRADEMARKS AND LICENSES The Company holds a number of domestic and foreign patents, trademarks and copyrights, including the original registered trademark "Rock of Ages" which the Company first registered in 1914. The Company believes the loss of a single patent, trademark or copyright, other than the "Rock of Ages" trademarks, would not have a material adverse effect on the Company's business, financial condition or results of operations. 36 38 EMPLOYEES As of August 7, 1997, the Company had approximately 580 employees. The Company believes its relationship with its employees is good. A significant number of the Company's employees in Barre and Canada are represented by one of two labor unions. Some of the Company's employees in Elberton are also represented by a union. The Company has recently entered into collective bargaining agreements with its employees in Barre which are scheduled to expire in 2000, and the Company's collective bargaining agreements with its employees in Canada are scheduled to expire in 1999. PROPERTIES Following consummation of the Elberton Acquisitions, the Company will own the following quarry and manufacturing properties:
PROPERTY FUNCTION - --------------------------------------------- --------------------------------------------- VERMONT Barre Quarry Properties E. L. Smith Quarry.................... Quarrying of dimensional Barre Gray granite blocks Adam-Pirie Quarry..................... Quarrying of dimensional Barre Gray granite blocks Manufacturing Properties Associated Saw Plant.................. Slabbing of granite blocks Rock of Ages Manufacturing Plant...... Manufacturing of memorials Press Roll Production Plant........... Manufacturing of granite press rolls Rock of Ages Saw Plant #1............. Slabbing of granite blocks Lawson Production Plant............... Slabbing of granite blocks and memorials production facility Bethel Quarry Properties Bethel Quarry......................... Quarrying of dimensional Bethel White granite blocks GEORGIA Madison County Quarry Properties Royalty/Berkeley Quarries............. Quarrying of dimensional Royalty Blue and Berkeley Blue granite blocks Oglethorpe County Caprice Quarry........................ Quarrying of dimensional Caprice Blue blocks Millstone Quarry...................... Quarrying of dimensional Millstone Gray Elberton Manufacturing Properties Southern Mausoleum Plant.............. Manufacturing of memorials Keystone Memorials Plant.............. Manufacturing of memorials Keywest Plant......................... Manufacturing of memorials Childs & Childs Plant................. Manufacturing of memorials CANADA Stanstead, Quebec Quarry Properties Stanstead Quarry...................... Quarrying of dimensional Stanstead Gray granite blocks
37 39
PROPERTY FUNCTION - --------------------------------------------- --------------------------------------------- Guenette, Quebec Quarry Properties Laurentian Quarry..................... Quarrying of dimensional Laurentian Rose granite blocks Beebe Plain, Quebec Manufacturing Properties Rock of Ages Manufacturing Plant...... Manufacturing of memorials Adru Manufacturing Plant.............. Manufacturing of memorials PENNSYLVANIA St. Peters Quarry Properties American Black Quarry................. Quarrying of dimensional black granite blocks Manufacturing Properties Saw Plant............................. Slabbing of granite blocks NORTH CAROLINA Salisbury Quarry Properties Salisbury Pink Quarry................. Quarrying of dimensional Salisbury Pink granite blocks Manufacturing Properties Carolina Plant........................ Manufacturing of flush and granite under bronze markers OKLAHOMA Mill Creek Quarry Properties Autumn Rose Quarry.................... Quarrying of dimensional Autumn Rose granite blocks SOUTH CAROLINA Kershaw County Quarry Properties Kershaw Quarry........................ Quarrying of dimensional Kershaw granite blocks Lancaster County Quarry Properties Coral Gray Quarry..................... Quarrying of dimensional Coral Gray granite blocks
38 40 The following table sets forth certain information relating to the Company's quarry properties. Each of the quarries listed below: (i) is owned by the Company (other than the Kershaw quarry, which is leased with 40 years remaining on the lease); (ii) is an open-pit quarry; (iii) contains granite that is suitable for extraction as dimension granite for memorial or other use; (iv) is serviced by electricity provided by local utility companies (other than the Bethel quarry which is serviced by internal generators); and (v) has adequate and modern extraction and other equipment. The Company presently has no exploration plans in place.
APPROXIMATE DATE NET SALEABLE OF COMMENCEMENT PRIOR OWNER, MEANS OF TOTAL COST OF RESERVES(1) QUARRY OF OPERATIONS (DATE ACQUIRED) ACCESS EACH PROPERTY (CUBIC FEET) - ------------------- ----------------- --------------------------- ----------- ------------- --------------- E.L. Smith......... 1880 E.L. Smith Quarry Co. Paved road $ 7,562,676 2,460,000,000 (1948) Adam-Pirie......... 1880 J.K. Pirie Quarry (1955) Paved road $ 4,211,363 985,000,000 Bethel............. 1900 Woodbury Granite Company, Dirt road $ 174,024 76,665,000 Inc. (1957) Royalty/Berkeley... 1923 Coggins Granite (1991) Paved road $ 2,794,500 6,695,000 Millstone.......... 1985 Coggins Granite (1991) Paved road $ 1,195,900 5,663,000 Caprice............ 1968 Caprice Blue Quarry Paved road $ 0 No estimate Inc.(1997) Stanstead.......... 1920 Brodies Limited and Paved road $ 505,453 32,670,000 Stanstead Granite Company (1960) Laurentian......... 1944 Brodies Limited (1960) Paved road $ 860,115 3,920,000 American Black..... 1973 Pennsylvania Granite Inc. Paved road $ 2,900,000 14,701,000 (1997) Salisbury.......... 1918 Pennsylvania Granite Inc. Paved road $ 3,886,592 19,602,000 (1997) Autumn Rose........ 1969 Autumn Rose Quarry Inc. Paved road $ 200,000 735,000 (1997) Kershaw............ 1955 Pennsylvania Granite Inc. Paved road $ 200,000 635,000 (1997) Coral Gray......... 1955 Matthews International Paved road $ 200,000 No estimate Corporation (1992)
- --------------- (1) Net saleable reserves are based on internal Company estimates, except for the reserves for the E.L. Smith, Adam-Pirie and Bethel quarries, which are based on independent assessments by CA Rich Consultants, Inc. In addition, upon consummation of the Keith Acquisition, the Company will own or lease seventeen retail outlets in Kentucky, and a sandblasting facility in Elizabethtown, Kentucky. REGULATION The Company's quarry and manufacturing operations are subject to substantial regulation by federal and state governmental statutes and agencies, including OSHA, the Mine Safety and Health Administration and similar state and Canadian authorities. The Company's operations are also subject to extensive laws, and regulations administered by the EPA and similar state and Canadian authorities for the protection of the environment, including but not limited to those relating to air and water quality, solid and hazardous waste handling and disposal. These laws and regulations may require parties to fund remedial action or to pay damages regardless of fault. Environmental laws and regulations may also impose liability with respect to divested or terminated operations even if the operations were divested or terminated many years ago. In addition, current and future environmental or occupational health and safety laws, regulations or regulatory interpretations may require significant expenditures for compliance which could require the Company to modify or curtail its operations. The Company cannot predict the effect of such laws, regulations or regulatory interpretations on its business, financial condition, results of operations. While the Company expects to be able to continue to comply, in all material respects, with existing laws and regulations, any material non-compliance could have a material adverse affect on the Company's business, financial condition and results of operations. 39 41 LEGAL MATTERS The Company is a party to legal proceedings that arise from time to time in the ordinary course of its business. While the outcome of these proceedings cannot be predicted with certainty, management does not expect these matters to have a material adverse effect on the Company. The Company carries insurance with coverages that it believes to be customary in its industry. Although there can be no assurance that such insurance will be sufficient to protect the Company against all contingencies, management believes that its insurance protection is reasonable in view of the nature and scope of the Company's operations. 40 42 MANAGEMENT DIRECTORS AND OFFICERS Certain information concerning directors, executive officers and other officers of the Company is set forth below:
NAME AGE POSITIONS WITH THE COMPANY - ------------------------------------------ --- ------------------------------------------ DIRECTORS AND EXECUTIVE OFFICERS George R. Anderson........................ 57 Senior Vice President, Chief Financial Officer, Treasurer, Director James L. Fox(1)........................... 45 Director Peter A. Friberg.......................... 46 Senior Vice President -- Memorial Sales, Director Mark A. Gherardi.......................... 39 Senior Vice President -- Barre and Canada Manufacturing Operations, Director Jon M. Gregory............................ 48 President -- Quarry Division, Director John E. Keith(1).......................... 50 President -- Retail Division, Director Richard C. Kimball........................ 57 President -- Memorials Division, Vice Chairman of the Board of Directors G. Thomas Oglesby, Jr. ................... 51 President -- Keystone Division, Director Kurt M. Swenson........................... 52 President and Chief Executive Officer, Chairman of the Board of Directors Charles M. Waite.......................... 64 Director Fredrick E. Webster, Jr.(1)............... 59 Director OTHER OFFICERS John R. Monson............................ 56 Secretary and General Counsel Robert Otis Childs, III(1)................ 38 President -- C&C Division Albert Gherardi, Jr. ..................... 61 Vice President -- Facilities Management Edward E. Haydon.......................... 57 Senior Vice President -- National Accounts Manager George T. Oglesby, III.................... 27 Vice President -- Keystone Division Gerald E. Parrott......................... 48 Vice President -- Precision Products
- --------------- (1) Messrs. Childs, Fox, Keith and Webster will assume their respective positions upon consummation of this offering. George R. Anderson has been the Senior Vice President, Chief Financial Officer and a director of the Company since 1984. Mr. Anderson joined the Company in 1969 as the Chief Accountant and subsequently held the positions of Controller and Treasurer. He has been a director of the Barre Granite Association and a trustee of the Granite Group Insurance Trust and the Barre Belt Multi-Employer Pension Plan. Mr. Anderson's term as a director will expire in 1999. Robert Otis Childs, III will become, upon consummation of the C&C Acquisition, President -- C&C Division. Since 1983, Mr. Childs has been Vice President for Marketing of C&C. He has been President and a member of the Board of Directors of the American Monument Association, and is the President-elect and a director of the Manufacturers and Wholesalers Division of the Monument Builders of North America. James L. Fox. Since 1989, Mr. Fox has been Executive Vice President and General Manager of First Data Investor Services Group, a division of First Data Corporation. Mr. Fox's term as a director of the Company will expire in 1999. Peter A. Friberg has been Senior Vice President -- Memorial Sales, of the Company since 1996 and a director of the Company since January 1996. From 1975 to 1995 Mr. Friberg owned and managed the Anderson-Friberg Company, a family wholesale memorial manufacturing company, in Barre, Vermont, 41 43 serving as President from 1991 to 1995. From 1991 to 1993, Mr. Friberg was President of the Barre Granite Association. Mr. Friberg's term as a director of the Company will expire in 1998. Albert Gherardi, Jr. has been Vice President, Facilities Management of the Company since 1996. Prior to 1996, Mr. Gherardi held various positions over a 40-year period with Lawson Granite Company, a memorials company that the Company acquired in 1996. Albert Gherardi, Jr. is the father of Mark A. Gherardi. Mark A. Gherardi has been Senior Vice President, Barre and Canada Manufacturing Operations and a director of the Company since 1996. Prior to 1996, Mr. Gherardi held various sales and production positions over a 20-year period with Lawson Granite Company. Mr. Gherardi's term as a director of the Company will expire in 1998. Mark Gherardi is the son of Albert Gherardi, Jr. Jon M. Gregory has been President -- Quarry Division since 1993 and has been a director of the Company since 1995. Since joining the Company in 1975, Mr. Gregory has served in various positions including Senior Vice President of the Memorials Division, Manager of Manufacturing and line production supervisor. Mr. Gregory's term as a director of the Company will expire in 1998. Edward E. Haydon has been Senior Vice President -- National Accounts Manager since 1996 and President of Rock of Ages Canada, Inc. since 1985. In addition, Mr. Haydon was also Senior Vice President, Memorial Operations from 1991 to 1993. Mr. Haydon is also a Director of the Canadian Stone Association, and a Trustee of the Manufacturers and Wholesalers Division of Monument Builders of North America. John E. Keith will become, upon consummation of the Keith Acquisition, the President -- Retail Division and a director of the Company. Mr. Keith has been an owner of and President of Keith Monument since 1989. From 1965 to 1989, Mr. Keith held various officer positions with Keith Monument. Mr. Keith's term as a director of the Company will expire in 2000. Richard C. Kimball has been President -- Memorials Division, and Vice Chairman of the Board of Directors since 1993 and a director of the Company since 1986. Prior to joining the Company, Mr. Kimball served as a director, principal and President of The Bigelow Company, Inc., a strategic planning and investment banking firm from 1972 until 1993. Mr. Kimball's current term as a director of the Company will expire in 2000. John R. Monson has been Secretary of the Company since 1984 and General Counsel of the Company since August, 1996. Since 1974, Mr. Monson has been a partner, director and member of Wiggin & Nourie, P.A., a law firm located in Manchester, New Hampshire that has represented the Company since 1984. G. Thomas Oglesby, Jr. became the President -- Keystone Division and a director of the Company in connection with the consummation of the Keystone Acquisition in June 1997. Since 1982, Mr. Oglesby has been President of Keystone Memorials Inc. Mr. Oglesby was a member of the Board of Directors and served four separate terms as President of the Elberton Granite Association from 1979 until 1996. He is a director of the American Monument Association and the Manufacturers and Wholesalers Division of the Monument Builders of North America. He is the father of George T. Oglesby, III. Mr. Oglesby's current term as a director of the Company will expire in 1999. George T. Oglesby, III was elected Vice President -- Keystone Division in connection with the consummation of the Keystone Acquisition in June 1997. Since 1992, Mr. Ogelsby has held various sales and management positions with Keystone Memorials Inc. He is a member of the Board of Directors of the Elberton Granite Association. Gerald E. Parrott has been Vice President -- Precision Products since 1992. From 1976 to 1992 he was Chief Engineer of the Company. Kurt M. Swenson has been the President and Chief Executive Officer and Chairman of the Board of Directors of the Company since 1984. Mr. Swenson has been the Chief Executive Officer and a director of Swenson Granite Company, Inc. since 1974. He is also a director of the American Monument Association, the Funeral and Memorial Information Council, the National Building Granite Quarriers Association and Group Polycor International. Mr. Swenson is also a director and the President of the StonExpo Federation and a 42 44 trustee of the Manufacturers and Wholesalers' Division of Monument Builders of North America. Mr. Swenson's current term as a director of the Company will expire in 2000. Charles M. Waite has been a director of the Company since 1985. Since 1989, Mr. Waite has been managing partner of Chowning Partners, a financial consulting firm that provides consulting services to New England companies. Mr. Waite's current term as a director will expire in 2000. Fredrick E. Webster, Jr., Ph.D. has been a Professor of Management at the Amos Tuck School of Business Administration of Dartmouth College since 1965. He is also a management consultant and lecturer. Dr. Webster serves as a director of Vermont Public Radio and the American Marketing Association. He is also a member of the Corporation of Mary Hitchcock Memorial Hospital. Mr. Webster's term as a director will expire in 1999. COMMITTEES OF THE BOARD OF DIRECTORS The principal function of the Audit Committee, which, upon consummation of this offering, will consist of Messrs. Fox and Waite, is to endeavor to assure the integrity and adequacy of financial statements issued by the Company. It is intended that the Audit Committee will review internal auditing systems and procedures as well as the activities of the public accounting firm performing the external audit. The principal function of the Compensation Committee, which, upon consummation of this offering, will consist of Messrs. Fox, Waite and Webster, is to review periodically the suitability of the remuneration arrangements (including benefits) for the executive officers of the Company and to administer the 1994 Plan. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During 1996, the Compensation Committee of the Board of Directors was comprised of Kurt Swenson, Guy A. Swenson, Jr. and Charles M. Waite. During his 1996 service on the Compensation Committee, Mr. Swenson was the President and Chief Executive Officer of the Company and Mr. Swenson participated in all compensation decisions, including those related to his own compensation. COMPENSATION OF DIRECTORS Directors who are not also officers of the Company are paid annual directors' retainers of $5,000, and $250 for each meeting of the Board, including committee meetings. Directors are also eligible for stock option grants under the 1994 Plan. 43 45 EXECUTIVE COMPENSATION The following table sets forth information with respect to the Chief Executive Officer of the Company and each of the four other most highly compensated executive officers of the Company (the "Named Executive Officers") for the year ended December 31, 1996. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION --------------------- -------------------- SECURITIES UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS(#) COMPENSATION(1) - ---------------------------------- ---- --------- -------- --------------------- --------------- Kurt M. Swenson................... 1996 $304,320 $15,220 12,500 $ 1,050 President, Chief Executive Officer, Chairman of the Board of Directors Richard C. Kimball................ 1996 $204,360 $14,000 12,500 $ 1,050 President -- Memorials Division, Vice Chairman of the Board of Directors George R. Anderson................ 1996 $154,440 $10,500 25,000 $ 1,050 Senior Vice President, Chief Financial Officer, Director Jon M. Gregory.................... 1996 $153,360 $10,500 50,000 $ 1,050 President -- Quarry Division, Director Mark A. Gherardi.................. 1996 $140,040 $12,500 75,000 -- Senior Vice President -- Barre and Canada Manufacturing Operations, Director
- --------------- (1) In each case, represents a matching contribution under the Company's 401K plan. STOCK OPTION GRANTS The following table sets forth certain information concerning grants of stock options made during the year ended December 31, 1996 by the Company to the Named Executive Officers: OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE INDIVIDUAL GRANTS AT ASSUMED ANNUAL ------------------------------------------------------- RATES NUMBER OF PERCENT OF OF STOCK PRICE SECURITIES TOTAL OPTIONS APPRECIATION UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(4) OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------- NAME GRANTED(1) FISCAL YEAR(2) PER SHARE(3) DATE 5% 10% - ---------------------------- ---------- -------------- ------------ ---------- -------- ---------- Kurt M. Swenson............. 12,500 2.1% $ 4.12 12/31/01 $ 14,229 $ 31,441 Richard C. Kimball.......... 12,500 2.1% $ 3.74 12/31/01 12,916 28,541 George R. Anderson.......... 25,000 4.3% $ 3.74 12/31/01 25,832 59,083 Jon M. Gregory.............. 50,000 8.5% $ 3.74 12/31/01 51,665 114,165 Mark A. Gherardi............ 75,000 12.8% $ 3.59 01/01/01 74,389 164,380
- --------------- (1) The options represent the right to acquire Class B Common Stock, which is convertible on a share-for-share basis into Class A Common Stock. (2) Based on an aggregate of 587,500 options granted to employees and directors of the Company in fiscal 1996, including the Named Executive Officers. (3) The exercise price of each option was equal to the fair market value of the Common Stock on the date of grant as determined by the Board of Directors. (4) These amounts represent certain assumed annual rates of appreciation calculated from the exercise price, as required by the rules of the Securities and Exchange Commission. Actual gains, if any, on stock option exercises and Common Stock holdings are dependent on the future performance of the Common Stock. There can be no assurance that the amounts reflected in the table will be the actual amounts achieved. 44 46 The following table sets forth information concerning the fiscal year-end value of unexercised options held at December 31, 1996 by each of the Named Executive Officers, using the exercise price of options granted in December, 1996 as the fiscal year-end value per share of Common Stock. Each of the stock options set forth below represents the right to acquire Class B Common Stock. During 1996, no stock options were exercised by any of the Named Executive Officers. The Company has not granted any stock appreciation rights. FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT DECEMBER 31, 1996 IN-THE-MONEY OPTIONS AT DECEMBER 31, 1996 ----------------------------- ----------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---------------------------------------------- ------------ -------------- ------------ -------------- Kurt M. Swenson............................... 62,500 50,000 $ 66,000 $ 44,000 Richard C. Kimball............................ 47,500 40,000 60,300 40,200 George R. Anderson............................ 35,000 40,000 40,200 26,800 Jon M. Gregory ............................... 25,000 50,000 20,100 13,400 Mark A. Gherardi.............................. 15,000 60,000 2,250 9,000
PENSION PLANS The Company maintains a qualified pension plan (the "Pension Plan"), and non-qualified salary continuation agreements (the "Salary Continuation Agreements") for certain executive officers of the Company. The Company's Pension Plan is noncontributory and provides benefits based upon length of service and final average earnings. Generally, employees age 21 with one year of continuous service are eligible to participate in the retirement plan. The annual pension benefits shown for the qualified plan assume a participant attains age 65 during 1997 and retires immediately. The Employee Retirement Income Security Act of 1974 places limitations on the compensation used to calculate pensions and on pensions which may be paid under federal income tax qualified plans, and some of the amounts shown on the following table may exceed the applicable limitations. Such limitations are not currently applicable to the Salary Continuation Agreements. The following table shows the total estimated annual retirement benefits payable upon normal retirement under the Pension Plan for the Named Executive Officers at the specified executive remuneration and years of continuous service. PENSION PLAN TABLE
FINAL AVERAGE COMPENSATION 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS ---------------------------- -------- -------- -------- -------- -------- $125,000.................... $ 39,492 $ 52,656 $ 65,820 $ 78,984 $ 78,984 $150,000.................... $ 47,742 $ 63,656 $ 79,570 $ 95,484 $ 95,484 $175,000.................... $ 55,992 $ 74,656 $ 93,320 $111,984 $111,984 $200,000.................... $ 64,242 $ 85,656 $107,070 $128,484 $128,484 $225,000.................... $ 72,492 $ 96,656 $120,820 $144,984 $144,984 $250,000.................... $ 80,742 $107,656 $134,570 $161,484 $161,484 $275,000.................... $ 88,992 $118,656 $148,320 $177,984 $177,984 $300,000.................... $ 97,242 $129,656 $194,484 $194,484 $194,484 $325,000.................... $105,492 $140,656 $175,820 $210,984 $210,984 $350,000.................... $113,742 $151,656 $189,570 $227,484 $227,484 $375,000.................... $121,992 $162,656 $203,320 $243,984 $243,984
45 47 These calculations are based on the retirement formula in effect as of December 31, 1996, which provides an annual life annuity at age 65 equal to 1.8% of a participant's final five-year average compensation (excluding bonus) plus .4% of a participant's final five-year average compensation in excess of Social Security Covered Compensation times years of service to a maximum of 30 years. Estimated years of continuous service for each of the Named Executive Officers, as of December 31, 1996 and rounded to the full year, are: Mr. G. Anderson, 28 years; Mr. J. Gregory, 21 years; Mr. M. Gherardi, 16 years; Mr. R. Kimball, 4 years; and Mr. K. Swenson, 13 years. In addition, the Company's Salary Continuation Agreements provide for supplemental pension benefits to certain executive officers of the Company, including the Named Executive Officers. The following table sets forth the supplemental pension benefits for the Named Executive Officers.
ANNUAL TOTAL YEARS RETIREMENT ANNUAL BASE OF SERVICE BENEFIT NAME COMPENSATION AT AGE 65 AT AGE 65 ------------------------------------------------ ------------ ----------- ---------- M. Gherardi..................................... $140,000 27 $ 22,680 G. Anderson..................................... $154,440 35 $ 32,432 R. Kimball...................................... $204,360 12 $ 24,523 K. Swenson...................................... $304,320 26 $ 87,036 J. Gregory...................................... $153,360 39 $ 35,886
These calculations are based on individual Salary Continuation Agreements, which provide a 100% joint and survivor annuity at age 65 equal to a percentage, ranging from .6% to 1.1%, of a participant's highest annual base compensation times full years of service. The percentage range has been determined by the Board of Directors. There is no compensation increases assumed in these calculations. EMPLOYMENT AGREEMENTS The Company has entered into an employment agreement with Kurt M. Swenson (the "Swenson Employment Agreement") for retention of his services as President and Chief Executive Officer of the Company. The term of the Swenson Employment Agreement commences on the date of consummation of the offering (the "Commencement Date") and continues until the fifth anniversary thereof, provided that on the third and each subsequent anniversary of the Commencement Date such term will automatically be extended for one additional year, unless, not later than ninety days prior to the expiration of the term, the Company or Mr. Swenson gives notice that the term will not be extended. The Swenson Employment Agreement provides for continued payment of salary and benefits over the remainder of the term if Mr. Swenson's employment is terminated by the Company without Cause (as defined in the Swenson Employment Agreement) or as a result of death or disability or by Mr. Swenson for Good Reason (as defined in the Swenson Employment Agreement). The Swenson Employment Agreement also provides for a lump sum payment to Mr. Swenson equal to the sum of (i) accrued but unpaid salary, and a prorated bonus amount equal to the greater of the largest annual bonus paid to Mr. Swenson during the prior three years and the annual bonus payable in respect of the most recently completed fiscal year (the "Highest Annual Bonus"), through the date of termination and (ii) three times the sum of (A) his then annual salary and (B) Highest Annual Bonus, and for continuation of benefits for three years, if Mr. Swenson's employment is terminated by the Company (other than for Cause, death or disability) during the twelve-month period following, or prior to but in connection with, or by Mr. Swenson during the twelve-month period following, a Change in Control (as defined in the Swenson Employment Agreement). In the event of such a termination, Mr. Swenson may elect in lieu of the lump sum payment described above, to receive in a lump sum or over the then remaining term of the Swenson Employment Agreement, an amount equal to the total amount he would have been entitled to receive if his employment had been terminated by the Company Without Cause or by Mr. Swenson for Good Reason. If any payment or distribution by the Company to or for the benefit of Mr. Swenson under the Swenson Employment Agreement would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by Mr. Swenson with respect to such excise tax, then Mr. Swenson will 46 48 generally be entitled to receive an additional payment such that after payment by Mr. Swenson of all taxes, Mr. Swenson retains an amount of the additional payment equal to the excise tax imposed. The Company has entered into an employment agreement with G. Thomas Oglesby, Jr. and George T. Oglesby, III and will enter into employment agreements with each of Robert Otis Childs, III, John E. Keith and Roy H. Keith, Jr. (such persons, together with G. Thomas Oglesby, Jr., being referred to as the "Acquisition Executives" and such employment agreements with the Acquisition Executives being referred to collectively as the "Acquisition Employment Agreements"), upon consummation of the C&C Acquisition and Keith Acquisition. The Acquisition Employment Agreement with Mr. Oglesby provides for an initial five-year term commencing on June 27, 1997, and each of the other Acquisition Employment Agreements provides, in effect, for an initial five-year term commencing on the date of the offering. Pursuant to the Acquisition Employment Agreements, the Executives will hold the respective positions listed for such persons under "Management -- Directors and Officers". The Acquisition Employment Agreements provide for benefits of the type generally provided to key executives of the Company, and for continued payment of salary and benefits over the remainder of the term if the Executive's employment is terminated by the Company without Cause. The Acquisition Employment Agreements and related undertakings generally prohibit the Executives from competing with the Company during the term of employment and for two years thereafter, and contain customary confidentiality provisions in favor of the Company. In addition, the Acquisition Employment Agreements of G. Thomas Oglesby, Jr. and John E. Keith provide that, so long as they remain employed under their respective Acquisition Employment Agreements, they will be nominated for election to the Board of Directors of the Company, subject to certain conditions. The Company will also enter into employment agreements with Richard C. Kimball, George R. Anderson, Jon Gregory and Edward E. Haydon (the "Officer Employment Agreements"), effective upon consummation of this offering. The Officer Employment Agreements will contain substantially the same terms as the Acquisition Employment Agreements, except that they will not include any right to be nominated for election to the Company's Board of Directors. In connection with the acquisitions of Lawson Granite Company and the Anderson Friberg Company, the Company on January 1, 1996 entered into five-year employment agreements (the "Lawson-AFCO Employment Agreements") with Peter Friberg, Albert Gherardi, Jr., Mark Gherardi and Paula Plante (the "Lawson-AFCO Employees") providing for the employment of such persons in their current positions. The Lawson-AFCO Employment Agreements contain substantially the same terms as the Acquisition Employment Agreements except that they provide for certain severance payments upon certain conditions occurring. INCENTIVE PLAN 1994 Amended and Restated Stock Plan. Under the 1994 Plan, a total of 1,500,000 shares of Common Stock will be reserved for issuance to officers, directors, employees and consultants of the Company and its subsidiaries. Awards under the 1994 Plan made by the Board of Directors prior to the consummation of this offering will be satisfied in shares of Class B Common Stock and awards made under the 1994 Plan made on or after that date will be satisfied in shares of Class A Common Stock. As of the date of this Prospectus, options for 862,500 shares of Class B Common Stock have been granted and were outstanding under the 1994 Plan and no such options have been exercised. Options for 383,252 shares of Class A Common Stock will be granted in connection with the Acquisitions and to two non-employee directors who will assume their positions upon consummation of this offering. In addition, as of the date of this Prospectus, options to acquire 312,500 shares of Class A Common Stock remained available for future issuance under the 1994 Plan. Under the terms of the 1994 Plan, "incentive stock options" ("ISOs") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), "nonqualified stock options" or options which do not qualify as ISOs ("NQSOs"), awards of Common Stock, and opportunities to make direct purchases, of Common Stock ("Awards") may be granted by the Board of Directors to employees (including officers and directors who are employees), directors and consultants of the Company, except that ISOs may be granted only to persons who are employees of the Company at the time the ISOs are granted. Initially, each ISO will be exercisable over a period, determined by the Board of Directors in its discretion, not to exceed ten years from the date of grant, as required by the Code. In addition, in the case of an ISO granted to an individual who, at the time such ISO is granted, owns shares of capital stock of the 47 49 Company representing more than ten percent of the total combined voting power of all classes of stock of the Company, the exercise period for an ISO may not exceed five years from the date of grant. Options may be exercisable during the exercise period at such times, in such amount, in accordance with such terms and conditions, and subject to such restrictions as are set forth in the option agreement evidencing the grant of such options. The Board of Directors generally has the right to accelerate the exercisability of any options granted under the 1994 Plan which would otherwise be unexercisable. Upon certain consolidations or mergers, the board of directors of any entity assuming the obligations of the Company may make equitable adjustments to the options, accelerate the exercisability of options or terminate them in exchange for a cash payment. The 1994 Plan shall expire at the end of the day on November 20, 2004, except with respect to options or Awards outstanding on such date. The Board of Directors may terminate the 1994 Plan sooner at any time or amend the Plan at any time, subject to the terms of the 1994 Plan. LIMITATION OF LIABILITY AND INDEMNIFICATION The Company's Amended and Restated Certificate of Incorporation (the "Certificate of Incorporation") provides that no director of the Company shall be personally liable to the Company or to any stockholder for monetary damages arising out of such director's breach of fiduciary duty, except to the extent that the elimination or limitation of liability is not permitted by the Delaware General Corporation Law. The Delaware General Corporation Law, as currently in effect, permits charter provisions eliminating the liability of directors for breach of fiduciary duty, except that such charter provisions may not eliminate or limit the liability of directors for: (i) any breach of the director's duty of loyalty to a corporation or its stockholders; (ii) any acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) any payment of a dividend or approval of a stock purchase or other transaction that is illegal under Section 174 of the Delaware General Corporation Law; or (iv) any transaction from which the director derived an improper personal benefit. A principal effect of this provision of the Certificate of Incorporation is to limit or eliminate the potential liability of the Company's directors for monetary damages arising from any breach of their duty of care, unless the breach involves one of the four exceptions described in clauses (i) through (iv) of the immediately preceding sentence. The Certificate of Incorporation and the Company's By-laws further provide for the indemnification of the Company's directors and officers to the fullest extent permitted by Section 145 of the Delaware General Corporation Law, including circumstances in which indemnification is otherwise discretionary. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. At the present time, there is no pending litigation or proceeding involving any director, officer, employee or agent of the Company in which indemnification will be required or permitted. The Company is not aware of any threatened litigation or proceeding which may result in a claim for such indemnification. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Prior to the closing of the offering, the Company will effect a reorganization (the "Reorganization") as follows: (i) the reincorporation merger of Rock of Ages Corporation, a Vermont corporation and the immediate predecessor to the Company ("ROA Vermont"), with and into a newly-formed Delaware corporation, with the Company surviving as a Delaware corporation (the "Reincorporation Merger"), which occurred on August 12, 1997, whereby the Class A and Class B Common Stock was created and each outstanding share of common stock of ROA Vermont was converted into one half of a share of Class B Common Stock; (ii) the merger of Swenson Granite Company ("Swenson Granite") with and into the Company, with the Company as the surviving corporation (the "Swenson Merger"), in which Swenson Granite's stockholders will receive 1,618.123 shares of Class B Common Stock for each share of Swenson Granite capital stock held by them; and (iii) immediately prior to the Swenson Merger, Swenson Granite will distribute its curb and landscaping business to its stockholders (the "Swenson Granite Distribution") through 48 50 a pro rata distribution of all of the member interests in a newly formed limited liability company to be named Swenson Granite Company LLC ("Swenson LLC"). Swenson Granite is a party to certain financing agreements of the Company with CIT and is a co-maker and/or guarantor of all indebtedness of the Company due to CIT (see "Management's Discussion and Analysis -- Liquidity and Capital Resources"). Upon consummation of the Swenson Granite Distribution and the offering, Swenson LLC will be released by CIT as a party, co-maker and/or guarantor of the Company's indebtedness to CIT, and the Company will remain liable with respect thereto. As at June 30, 1997, the Company carried on its books approximately $4.6 million as due from Swenson Granite with respect to borrowings by the Company under these credit facilities and advanced by the Company to Swenson Granite. Of this amount, approximately $3.3 million will not be assumed or repaid by Swenson LLC in connection with the Swenson Granite Distribution and will remain an obligation of the Company. The balance of approximately $1.3 million, together with any net advances from the Company to Swenson Granite from and after June 30, 1997 to the date of the Swenson Granite Distribution and the consummation of the offering, will be repaid by Swenson LLC to the Company on or before December 31, 1997. In connection with the Company's acquisition of Lawson Granite Company and Anderson Friberg Company in December 1995, Swenson Granite is obligated under certain notes and agreements related thereto (the "Lawson-Anderson Friberg Obligations"). Except for certain employment agreement and other obligations to Robert F. Pope (the "Pope Obligations"), the Chief Operating Officer of Swenson Granite who, effective upon the Swenson Granite Distribution, will become President and Chief Executive Officer of Swenson LLC, none of the Lawson-Anderson Friberg Obligations, including but not limited to a note payable to Paula Plante in the amount of $310,000, will be assumed by Swenson LLC and will become direct obligations of the Company as a result of the Swenson Merger. The Company will indemnify Swenson LLC with respect to such obligations, other than the Pope Obligations as to which Mr. Pope will release, and Swenson LLC will provide an indemnity to, Swenson Granite and the Company. Swenson LLC will own two granite quarries, one in Concord, New Hampshire and other in Woodbury, Vermont. Both have been owned by Swenson Granite for more than 40 years. The Company anticipates that it will continue to purchase Woodbury granite from Swenson LLC at the same price Swenson LLC charges its landscape manufacturing operations. The Company expects that it will continue to be able to purchase all of the excess output of the Woodbury quarry (beyond that required by Swenson LLC for its curb and landscaping operations) for resale for both memorial and other uses. Because of the proximity of the Woodbury quarry to Barre, Vermont, the Company has provided, and expects to continue to provide, certain maintenance services and equipment to the Woodbury quarry. Both the Company and Swenson LLC will have the right to terminate these services at any time and the Company will have no obligation to purchase or continue to purchase Woodbury granite from Swenson LLC. The Company's sales of Woodbury granite provided by Swenson Granite represented less than 2% of 1996 sales of the Company (less than 1% assuming the Acquisitions occurred as of January 1, 1996). The Company believes these arrangements with Swenson LLC are as favorable, or more favorable, than would be available from an unrelated party for comparable granite blocks. It is expected that, effective upon the Swenson Granite Distribution, ongoing pension liabilities under the Pension Plan (which is sponsored jointly by the Company and Swenson Granite) in respect of the employees of Swenson Granite will be assumed by Swenson LLC, and appropriate assets, determined in accordance with applicable law, will be transferred from the Pension Plan to a pension plan established by Swenson LLC. It is anticipated that in connection with the Swenson Granite Distribution, the 401(k) accounts of Swenson Granite employees who participate in 401(k) plans jointly sponsored by the Company and Swenson Granite will be "rolled-over" into a new 401(k) plan or plans established by Swenson LLC. Upon consummation of the Swenson Granite Distribution, Kurt M. Swenson, the Company's Chairman and Chief Executive Officer, will own approximately 30% of all outstanding member interests of Swenson LLC. Mr. Swenson, who has served as Chairman of the Board and Chief Executive Officer of Swenson Granite since 1974, will resign as President, Chief Executive Officer of Swenson Granite, effective upon the consummation of the Swenson Granite Distribution. However, Mr. Swenson will continue to serve as a non- 49 51 officer Chairman of the Board of Swenson LLC, but will have no involvement with the day to day operations of Swenson LLC. Neither Mr. Swenson nor any other officer of the Company, will receive salary, bonus, expenses or other compensation from Swenson LLC except for any pro rata share of earnings attributable to their ownership interest. In connection with the Keystone Acquisition, the Company entered into the Supply Agreements with Missouri Red and KGCI (see "Business -- Quarrying and Manufacturing Operations"). The Company believes the terms and conditions of the Supply Agreements are as favorable as would be available from unrelated suppliers. Also in connection with the Keystone Acquisition, the Company agreed to grant to G. Thomas Oglesby, Jr. and George T. Oglesby, III, principal owners and officers of Keystone, options under the 1994 Plan to purchase 75,000 shares and 50,000 shares, respectively, at an exercise price per share equal to the initial public offering price per share of the Class A Common Stock. See "Management -- Directors and Officers." In connection with the C&C Acquisition, the Company has agreed to grant to Robert Otis Childs, III, one of the principal owners of C&C, an option under the 1994 Plan to purchase 75,000 shares of Class A Common Stock at an exercise price per share equal to the initial public offering price per share of the Class A Common Stock. See "Mangement -- Directors and Officers." In connection with the Keith Acquisition, the Company agreed to (i) enter into a five year triple net lease agreement with John E. Keith and Roy Keith, Jr., the principal owners of Keith Monument, for office buildings and retail locations containing 28,000 square feet at an annual rent of $120,000; and (ii) grant to John E. Keith and Roy Keith, Jr. options under the 1994 Plan to purchase an aggregate of 125,000 shares of Class A Common Stock at an exercise price per share equal to the initial public offering price per share of the Class A Common Stock. See "Management -- Directors and Officers." Upon consummation of the offering, the Company will grant to each of James L. Fox and Frederick E. Webster, Jr., each of whom will become non-employee directors of the Company at that time, options under the 1994 Plan to purchase 29,126 shares of Class A Common Stock at an exercise price per share equal to the initial public offering price per share of the Class A Common Stock. The Company has adopted a policy pursuant to which any future transaction with one of its officers, directors or affiliates will be on terms no less favorable to the Company than could be obtained from unrelated third parties and will be approved by a majority of the disinterested members of the Board of Directors. 50 52 PRINCIPAL AND SELLING STOCKHOLDERS The following tables set forth certain information as to the beneficial ownership of the Common Stock as of , 1997, and as adjusted to reflect the sale of shares of Class A Common Stock offered hereby, by (i) each person known by the Company to be the beneficial owner of 5% or more of Common Stock; (ii) each director of the Company; (iii) each of the executive officers of the Company; (iv) all directors and executive officers as a group; and (v) each Selling Stockholder. Unless otherwise indicated, the Company believes all persons listed have sole voting power and sole investment power with respect to the shares shown.
COMMON STOCK COMMON STOCK BENEFICIALLY OWNED SHARES OF BENEFICIALLY OWNED PRIOR TO OFFERING(2) CLASS A AFTER OFFERING(2) NAME AND ADDRESS OF --------------------- COMMON STOCK --------------------- BENEFICIAL OWNER(1) NUMBER PERCENT TO BE SOLD NUMBER PERCENT - ------------------------------------- ---------- ------- ------------ ---------- ------- Kurt M. Swenson(3)(4)................ 1,123,989 27.5 -- 1,123,989 Kevin C. Swenson(4)(5)............... 1,061,489 25.9 -- 1,061,489 Richard C. Kimball(4)(6)............. 76,626 1.9 -- 76,626 * Jon M. Gregory(4)(7)................. 54,126 1.3 -- 54,126 * Missouri Red Quarries, Inc.(8)....... 263,441 6.4 -- 263,441 George R. Anderson(4)(9)............. 64,126 1.6 -- 64,126 * Mark A. Gherardi(4)(10).............. 277,573 6.8 -- 277,573 Peter A. Friberg(4)(11)(17).......... 196,667 4.8 -- 196,667 John E. Keith(12).................... -- * -- 12,500 James L. Fox(12)..................... -- * -- 5,825 G. Thomas Oglesby, Jr.(13)........... 263,441 6.4 -- 278,441 George T. Oglesby, III(14)........... 263,441 6.4 -- 273,441 Frederick E. Webster, Jr.(12)........ -- * -- 5,825 Charles M. Waite(4).................. 29,126 * -- 29,126 * Lois Swenson Moore Trust(15)......... 161,812 4.0 Melvin Friberg(16)................... 84,142 2.1 Merilyn Friberg(16).................. 77,670 1.9 Guy A. Swenson, III(15).............. 48,544 1.2 Karen Swenson Shue(15)............... 45,307 1.1 Guy A. Swenson, Jr.(15).............. 45,307 1.1 Peter B. Moore(15)................... 40,453 1.0 John D. Swenson(15).................. 32,362 * George M. Karnedy.................... 29,126 * Christian P. Swenson(15)............. 24,272 * Jeanette Swenson Sumner Trust(15).... 19,417 * Richard J. Vogelsang(15)............. 17,799 * Susan S. Vogelsang(15)............... 9,709 * J. Malcolm Swenson(15)............... 8,091 * Paula G. Plante(17).................. 5,354 * All directors and executive officers as a group (11 persons)............ 2,085,674 51.0
- --------------- * Less than 1%. (1) The business address of each director, executive officer and 5% stockholder of the Company is c/o Rock of Ages Corporation, 772 Graniteville Road, Graniteville, Vermont 05654. (2) The listed persons hold Class B Common Stock except as otherwise specified. Shares of Class B Common Stock held by the Selling Stockholders will automatically convert into Class A Common Stock on a share-for-share basis upon the sale by the Selling Stockholders of such shares pursuant to the offering. 51 53 (3) Includes shares held by a trust for the benefit of the children of Kurt M. Swenson of which John R. Monson is the sole trustee. Kurt M. Swenson is the brother of Kevin C. Swenson. Mr. Swenson disclaims any voting power or beneficial interest in these shares. Mr. Monson is Secretary and General Counsel to the Company. Also includes 62,500 shares subject to stock options exercisable within 60 days. (4) Will be a director of Swenson LLC. (5) Includes shares held by a trust for the benefit of the children of Kevin C. Swenson of which John R. Monson is the sole trustee. Kevin C. Swenson is the brother of Kurt M. Swenson. Mr. Swenson disclaims any voting power or beneficial interest in these shares. (6) Includes 47,500 shares subject to currently exercisable stock options. (7) Includes 25,000 shares subject to currently exercisable stock options. (8) Missouri Red Quarries, Inc. is 100% owned by G. Thomas Oglesby, Jr. G. Thomas Oglesby, Jr. is an officer and the sole director of Missouri Red Quarries, Inc. and is the father of George T. Oglesby, III, who is an officer of Missouri Red Quarries, Inc. The shares owned by Missouri Red Quarries, Inc. are also listed in the shares owned by G. Thomas Oglesby, Jr., and by George T. Oglesby, III. (9) Includes 35,000 shares subject to currently exercisable stock options. (10) Includes 30,000 shares subject to currently exercisable stock options. (11) Includes 30,000 shares subject to currently exercisable stock options. (12) Represents shares of Class A Common Stock subject to stock options which will be granted and exercisable upon consummation of the offering. (13) Includes 263,441 shares owned by Missouri Red Quarries, Inc., of which G. Thomas Oglesby, Jr. is an officer and director and George T. Oglesby, III is an officer. Also includes 15,000 shares of Class A Common Stock subject to options which will be granted and exercisable upon consummation of the offering. G. Thomas Oglesby, Jr. is the father of George T. Oglesby, III. (14) Includes 263,441 shares owned by Missouri Red Quarries, Inc., of which Mr. Oglesby is an officer. Also includes 10,000 shares of Class A Common Stock subject to stock options which will be granted and exercisable upon consummation of the offering. (15) The listed holder, or beneficiaries of the listed trusts are relatives of Kurt M. Swenson and his brother Kevin C. Swenson. (16) Melvin and Merilyn Friberg are Peter Friberg's parents. (17) Includes 500 shares subject to currently exercisable stock options. Paula Plante is Mark Gherardi's sister and Albert Gherardi, Jr.'s daughter. 52 54 DESCRIPTION OF CAPITAL STOCK The following summarizes the material terms of the capital stock of the Company. GENERAL The authorized capital stock of the Company consists of 30,000,000 shares of Class A Common Stock, par value $.01 per share, shares of which will be issued and outstanding upon the consummation of this offering; 15,000,000 shares of Class B Common Stock, par value $.01 per share, shares of which will be issued and outstanding upon consummation of this offering; and 2,500,000 shares of Preferred Stock, par value $.01 per share, none of which will be outstanding upon consummation of this offering. CLASS A COMMON STOCK AND CLASS B COMMON STOCK The shares of Class A Common Stock and Class B Common Stock are substantially identical, except for voting rights and certain conversion rights, as described below. Voting Rights. Each share of Class A Common Stock entitles the holder to one vote on each matter submitted to a vote of the Company's stockholders and each share of Class B Common Stock entitles the holder to ten votes on each such matter, in each case including the election of directors. Except as required by applicable law, holders of the Class A Common Stock and Class B Common Stock will vote together as a single class on all matters submitted to a vote of the stockholders. Neither the Class A Common Stock nor the Class B Common Stock has cumulative voting rights. See "Risk Factors -- Control by Existing Stockholders" and "Anti-Takeover Effects of Certain Provisions of the Charter and By-laws and of Delaware Law." Any action that can be taken at a meeting of the stockholders may be taken by written consent in lieu of the meeting if the Company receives consents signed by stockholders having the minimum number of votes that would be necessary to approve the action at a meeting at which all shares entitled to vote on the matter were present. This could permit the holders of Class B Common Stock to take all actions required to be taken by the stockholders without providing the other stockholders the opportunity to vote or raise other matters at a meeting. Dividends. Holders of Class A Common Stock and Class B Common Stock are entitled to receive dividends at the same rate if and when declared by the Board of Directors out of funds legally available therefor, subject to the dividend and liquidation rights of any Preferred Stock that may be issued and outstanding. If a dividend or distribution payable in Class A Common Stock is made on the Class A Common Stock, the Company must also make a pro rata and simultaneous dividend or distribution on the Class B Common Stock payable in shares of either Class A Common Stock or Class B Common Stock. Conversely, if a dividend or distribution payable in Class B Common Stock is made on the Class B Common Stock, the Company must also make a pro rata and simultaneous dividend or distribution on the Class A Common Stock payable solely in shares of Class A Common Stock. Conversion. Class A Common Stock has no conversion rights. Class B Common Stock will be convertible into Class A Common Stock, in whole or in part, at any time and from time to time at the option of the holder on the basis of one share of Class A Common Stock for each share of Class B Common Stock converted. Each share of Class B Common Stock will also automatically convert into one share of Class A Common Stock upon transfer to any person or entity other than a "Permitted Transferee." For this purpose, a Permitted Transferee is (i) a spouse or lineal descendant of any person duly holding shares of Class B Common Stock (a "Qualified Holder") and any spouse of such lineal descendant (all such spouses and lineal descendants, collectively, "Family Members"), (ii) the trustee of a trust for the sole benefit of a Qualified Holder or Family Member, (iii) a partnership comprised exclusively of Qualified Holders or Family members or other entity wholly owned by Qualified Holders or Family Members, or (iv) the executor, administrator or personal representative of the estate of a Qualified Holder or Family Member, or the guardian or conservator of a Qualified Holder or any Family Member who has been adjudged disabled by a court of competent jurisdiction. 53 55 Liquidation. In the event of liquidation of the Company, after payment of the debts and other liabilities of the Company and after making provision for the holders of Preferred Stock, if any, the remaining assets of the Company will be distributable ratably among the holders of the Class A Common Stock and Class B Common Stock treated as a single class. Other Provisions. The holders of shares of the Common Stock are not entitled to preemptive rights. Neither the Class A Common Stock nor the Class B Common Stock may be subdivided or combined in any manner unless the other class is subdivided or combined in the same proportion. PREFERRED STOCK The Board of Directors may, without further action by the Company's stockholders, from time to time, direct the issuance of shares of Preferred Stock in series and may, at the time of issuance, determine the rights, preferences and limitations of each series. Satisfaction of any dividend preferences of outstanding shares of Preferred Stock would reduce the amount of funds available for the payment of dividends on shares of Common Stock. Holders of shares of Preferred Stock may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding-up of the Company before any payment is made to the holders of shares of Common Stock. Under certain circumstances, the issuance of shares of Preferred Stock may render more difficult or tend to discourage a merger, tender offer or proxy contest, the assumption of control by a holder of a large block of the Company's securities or the removal of incumbent management. The Board of Directors, without stockholder approval, may issue shares of Preferred Stock with voting and conversion rights which could adversely affect holders of shares of Common Stock. Upon consummation of the offering, there will be no shares of Preferred Stock outstanding, and the Company has no present intention to issue any shares of Preferred Stock. ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CHARTER AND BY-LAWS AND OF DELAWARE LAW Charter and By-Laws The Certificate of Incorporation and the By-laws, together with certain provisions of Delaware law, contain certain provisions that could discourage potential takeover attempts and make more difficult the acquisition of a substantial block of the Common Stock. The Certificate of Incorporation provides for a Board of Directors that is divided into three classes. The directors in Class I hold office until the first annual meeting of stockholders following this offering, the directors in Class II hold office until the second annual meeting of stockholders following this offering, and the directors in Class III hold office until the third annual meeting of stockholders following this offering (or, in each case, until their successors are duly elected and qualified or until their earlier resignation, removal from office for cause or death), and, after each such election, the directors in each such class will then serve in succeeding terms of three years and until their successors are duly elected and qualified. The classification system of electing directors and the ability of stockholders to remove directors only for cause may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of the Company and may maintain the incumbency of the Board of Directors, as the classification of the Board of Directors generally increases the difficulty of replacing a majority of the directors. The Certificate of Incorporation authorizes the directors to issue, without stockholder approval, shares of Preferred Stock in one or more series and to fix the voting powers, designations, preferences and relative, participating, optional or other special rights (and the qualifications, limitations or restrictions of such preferences and rights) of the shares of each such series. The By-laws provide that special meetings of the Company's stockholders may be called only by the Chairman of the Board, (if there is one), or the President, any Vice President, (if there is one), the Secretary or any Assistant Secretary, (if there is one), and shall be called by any such officer at the written request of a majority of the directors. The By-laws also provide that nominations for directors may not be made by stockholders at any annual or special meeting thereof unless the stockholder intending to make a nomination notifies the Company of its intentions a specified number of days in advance of the meeting and furnishes to the Company certain information regarding itself and the intended nominee. The By-laws also require a stockholder to provide to the Secretary of the Company advance notice of 54 56 business to be brought by such stockholder before any annual or special meeting of stockholders as well as certain information regarding such stockholder and others known to support such proposal and any material interest they may have in the proposed business. These provisions could delay stockholder actions that are favored by the holders of a majority of the outstanding stock of the Company until the next stockholders' meeting. Delaware Anti-Takeover Statute The Company is subject to Section 203 of the Delaware General Corporation Law which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder, unless: (i) prior to such time, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (x) by persons who are directors and also officers and (y) by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder. The application of Section 203 may limit the ability of stockholders to approve a transaction that they may deem to be in their best interests. In general, Section 203 defines "business combination" to include: (i) any merger or consolidation involving the corporation and the interested stockholder; (ii) any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation to or with the interested stockholder; (iii) subject to certain exceptions, any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or (v) the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. In general, Section 203 defines an "interested stockholder" as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person associated with, affiliated with or controlling or controlled by such entity or person. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is American Stock Transfer & Trust Company. 55 57 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering and the C&C Acquisition and Keith Acquisition, the Company will have shares of Common Stock ( shares if the Underwriters' over-allotment option is exercised in full) outstanding. The shares of Class A Common Stock ( shares if the Underwriters' over-allotment option is exercised in full) offered hereby will be freely tradable in the United States without restriction or further registration under the Securities Act, unless purchased or held by "affiliates" (as such term is defined in Rule 144) of the Company. All shares of Class B Common Stock outstanding upon completion of this offering will be "restricted securities" within the meaning of Rule 144 (the "Restricted Shares"). Restricted Shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144 or 701 promulgated under the Securities Act, which are summarized below. Sales of the Restricted Shares in the public market, or the availability of such shares for sale, could adversely affect the market price of the Class A Common Stock. None of the Restricted Shares will be eligible for sale in the public market upon the effectiveness of the Registration Statement of which this Prospectus is a part (the "Effective Date"). All of the Restricted Shares will be eligible for sale in the public market 90 days after the Effective Date, subject to the provisions of Rule 144 and the lock-up agreements described below, if applicable. In addition, shares of Common Stock that are or will be subject to vested options granted pursuant to the 1994 Plan will be available for sale 90 days after the Effective Date, subject to compliance with Rule 701 and the lock-up agreements described below, if applicable. In general, under Rule 144, as currently in effect, beginning 90 days after the Effective Date, a person (or persons whose shares are aggregated) who has beneficially owned Restricted Shares for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: (i) one percent of the number of shares of Common Stock then outstanding (which will equal approximately shares immediately after this offering); or (ii) the average weekly reported trading volume during the four calendar weeks preceding the filing of a Form 144 with respect to such sale. Sales under Rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about the Company. Under Rule 144(k), a person who is not deemed to have been an affiliate of the Company at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Further, the Commission has proposed an amendment to Rule 144 which would ease some of the requirements relating to manner and notice of sale and accordingly, if this proposal is adopted, shares would be sold more easily and with less public notice than under the current rules. In general, under Rule 701, beginning 90 days after the Effective Date, certain shares issued upon the exercise of options granted by the Company prior to the date of this Prospectus will also be available for sale in the public market. Any employee, officer or director of or consultant to the Company who purchased his or her shares pursuant to a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits affiliates and non-affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. Rule 701 further provides that non-affiliates may sell such shares in the public market in reliance on Rule 144 without having to comply with the public information, volume limitation or notice provisions of Rule 144. In both cases, a holder of Rule 701 shares is required to wait until 90 days after the date of this Prospectus before selling such shares in the public market. An aggregate of 1,500,000 shares of Common Stock will be reserved for issuance to employees and directors of the Company pursuant to the 1994 Plan. Currently, 862,500 shares of Class B Common Stock are issuable under existing options granted to employees pursuant to the 1994 Plan. In addition, upon consummation of the offering, options exercisable for a total of 383,252 shares of Class A Common Stock will be granted under the 1994 Plan to employees in connection with the Acquisitions and to two new directors. After consummation of the offering, the Company intends to file one or more registration statements on Form S-8 with respect to shares of Common Stock issuable under the 1994 Plan. See "Management -- Incentive Plan." Shares covered by any such registration statement will be eligible for sale in the public 56 58 market upon the effectiveness of such registration statement (which occurs immediately upon filing), subject to the limitations of Rule 144 that are applicable to affiliates and to the lock-up agreements described below, if applicable. The Company, and the executive officers and directors and holders of more than 2% of the Common Stock have agreed not to sell, offer to sell, contract to sell, pledge or otherwise dispose of or transfer any shares of Common Stock, or any securities convertible into or exchangeable or exercisable for or any rights to purchase or acquire Common Stock for a period of 180 days following the date of this Prospectus without the prior written consent of Raymond James & Associates, Inc., other than, in the case of the Company, the issuance of options to purchase Common Stock or shares of Common Stock issuable upon the exercise thereof, issuances of Common Stock in connection with the C&C Acquisition and the Keith Acquisition and other issuances of capital stock in connection with other acquisitions, provided such shares of Common Stock issued upon the exercise of options and such shares of capital stock issued in connection with any such other acquisitions shall not be transferable prior to the end of the aforesaid 180-day period. Raymond James & Associates, Inc. may, in its sole discretion and at any time without notice, release all or any portion of the securities subject to lock-up agreements. As a result of these contractual restrictions, notwithstanding possible earlier eligibility for public sale under the provisions of Rules 144 and 701, shares subject to lock-up agreements will not be saleable until such agreements expire or are waived by Raymond James & Associates. Beginning 180 days after the Effective Date, upon the expiration of the lock-up agreements not to sell such shares, (i) Restricted Shares will become eligible for public sale, subject to the provisions of Rule 144, and (ii) shares of Common Stock subject to vested options granted pursuant to the 1994 Plan will be available for public sale, subject to compliance with Rule 701. Prior to the offering, there has been no market for the Class A Common Stock. No predictions can be made of the effect, if any, that market sales of shares of Class A Common Stock or the availability of such shares for sale will have on the market price prevailing from time to time. Nevertheless, sales of significant amounts of Class A Common Stock could adversely affect the prevailing market price of Class A Common Stock, as well as impair the ability of the Company to raise capital through the issuance of additional equity securities. 57 59 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the underwriters named below (the "Underwriters"), through their representative Raymond James & Associates, Inc. (the "Representative"), have severally agreed to purchase from the Company and the Selling Stockholders the following respective numbers of shares of Class A Common Stock at the public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus:
NUMBER OF NAME SHARES -------------------------------------------------------------------------- --------- Raymond James & Associates, Inc. ......................................... --------- Total........................................................... =========
The Underwriting Agreement provides that the obligations of the several Underwriters to pay for and accept delivery of the shares of Class A Common Stock offered hereby are subject to approval of certain legal matters by their counsel and to certain other conditions. The Underwriters are obligated to take and pay for all shares of Class A Common Stock offered hereby (other than those covered by the over-allotment option described below) if any such shares are purchased. The Underwriters, through the Representative, propose to offer part of the shares of Class A Common Stock directly to the public at the public offering price set forth on the cover page of this Prospectus and part of the shares to certain dealers at a price that represents a concession not in excess of $ per share under the public offering price. The Underwriters may allow, and such dealers may re-allow, a concession not in excess of $ per share to certain other dealers. The Representative has advised the Company that the Underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. The Company has granted the Underwriters an option exercisable not later than 30 days after the date of this Prospectus, to purchase up to an aggregate of additional shares of Class A Common Stock, at the public offering price, less the underwriting discounts and commissions set forth on the cover page of this Prospectus. To the extent that the Underwriters exercise such option, each of the Underwriters will have a firm commitment to purchase approximately the same percentage thereof as the number of shares of Class A Common Stock to be purchased by it shown in the above table bears to the total shown, and the Company will be obligated, pursuant to the option, to sell such shares to the Underwriters. The Underwriters may exercise their option only to cover over-allotments made in connection with the sale of the shares of Class A Common Stock offered hereby. If purchased, the Underwriters will sell such additional shares on the same terms as those on which the shares are being offered. The Company and the Selling Stockholders have agreed to indemnify the Underwriters against, or to contribute to, losses arising out of certain liabilities in connection with this offering, including liabilities under the Securities Act. The Company, its executive officers and directors, and holders of more than 2% of the Common Stock prior to the consummation of the offering, have agreed not to sell, offer to sell, contract to sell, pledge or otherwise dispose of or transfer any shares of Common Stock, or any securities convertible into or exchangeable or exercisable for, or any rights to purchase or acquire, Common Stock for a period of 180 days following the date of this Prospectus without the prior written consent of Raymond James & Associates, Inc., other than, in the case of the Company, the issuance of options to purchase Common Stock or shares of Common Stock issuable upon the exercise thereof, issuances of Common Stock in connection with the C&C Acquisition and the Keith Acquisition and other issuances of capital stock of the Company in connection with other acquisitions, provided such shares of Common Stock issued upon the exercise of options and such shares 58 60 of capital stock issued in connection with any such other acquisitions shall not be transferable prior to the end of the aforesaid 180-day period. Raymond James & Associates, Inc. may, in its sole discretion and at any time without notice, release all or any portion of the shares subject to such lock-up agreements. Prior to this offering, there has been no public market for the Class A Common Stock of the Company. The initial public offering price the Class A Common Stock was determined by negotiation between the Company and the Representative. Among the factors considered in such negotiations were prevailing market conditions, the value of publicly traded companies believed to be comparable to the Company, the results of operations of the Company in recent periods, estimates of the business potential of the Company, the present state of the Company's development and other factors deemed relevant. The Representative, acting on behalf of the Underwriters, may over-allot the shares offered hereby and, during the course of this offering, may engage in stabilizing and syndicate short covering and may impose a penalty bid on members of the offering syndicate. Over-allotment involves sales of shares in excess of the total number being offered, thereby creating a syndicate short position. Stabilizing involves a bid by the syndicate to purchase shares in the open market at a specified price, which may not exceed the public offering price and may be decreased but not increased. Syndicate short covering involves open market purchases of shares to cover all or a portion of the syndicate short position created by over-allotments. A penalty bid permits the Representative to reclaim selling concessions from a syndicate member when shares sold by that member in the offering are purchased by the Representative in the open market to cover a syndicate short position or pursuant to a stabilizing bid. All of these activities may cause the market price of the Class A Common Stock to be higher than otherwise might be the case in the absence of these activities. These transactions may be effected on the Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time. The foregoing includes a summary of certain principal terms of the Underwriting Agreement and does not purport to be complete. Reference is made to the copy of the Underwriting Agreement that is on file as an exhibit to the Registration Statement on Form S-1 (the "Registration Statement") under the Securities Act and filed by the Company with the Commission with respect to the shares of Class A Common Stock offered hereby, of which this Prospectus is a part. LEGAL MATTERS The validity of the issuance of the shares of Class A Common Stock offered hereby will be passed upon for the Company by Skadden, Arps, Slate, Meagher & Flom LLP, Boston, Massachusetts. Certain legal matters will be passed upon for the Underwriters by Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A., Miami, Florida. EXPERTS The audited financial statements of the Company, the audited financial statements of Keystone, the audited financial statements of C&C, and the audited financial statements of Keith Monument, have been included herein and in the Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP, independent auditors, as of the dates and for the periods indicated in their reports appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The audited financial statements of the Quarry Companies and SMI have been included herein and in the Registration Statement in reliance upon the report of Greene and Company, L.L.P., independent certified public accountants as of the dates and for the periods indicated in their reports appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company filed with the Commission the Registration Statement under the Securities Act with respect to the shares of Class A Common Stock being offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits and schedules thereto, to which reference 59 61 is hereby made. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete; with respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description thereof. The Registration Statement and the exhibits and schedules thereto may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be available for inspection and copying at the regional offices of the Commission located at 7 World Trade Center, New York, New York 10048 and at Northwestern Atrium Center, 500 West Madison Street (Suite 1400), Chicago, Illinois 60661. Copies of such material may also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Additionally, the Commission maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission at (http://www.sec.gov). Upon consummation of this offering, the Company will become subject to the information requirements of the Exchange Act, and in accordance therewith will be required to file periodic reports and other information with the Commission. The Company intends to furnish its stockholders with annual reports containing audited financial statements. 60 62 INDEX TO FINANCIAL STATEMENTS ROCK OF AGES CORPORATION
PAGE ------ Independent Auditors' Report......................................................... F-3 Consolidated Balance Sheets at December 31, 1995 and 1996 and June 30, 1997 (unaudited)........................................................................ F-4 Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and 1996 and the six months ended June 30, 1996 and 1997 (unaudited)................... F-6 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994, 1995 and 1996 and the six months ended June 30, 1997 (unaudited)............. F-7 Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996 and the six months ended June 30, 1996 and 1997 (unaudited)................... F-8 Notes to Consolidated Financial Statements........................................... F-10 CHILDS & CHILDS GRANITE CO., INC., C & C GRANITE CO., INC., QUARRY COMPANIES AND SMI Independent Auditors' Report......................................................... F-23 Combined Balance Sheet as of May 31, 1997............................................ F-24 Combined Statement of Operations for the Eleven-Month Period ended May 31, 1997...... F-25 Combined Statement of Stockholders' Equity for the Eleven-Month Period ended May 31, 1997............................................................................... F-26 Combined Statement of Cash Flows for the Eleven-Month Period ended May 31, 1997...... F-27 Notes to Combined Financial Statements............................................... F-28 KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI Independent Auditors' Report......................................................... F-32 Combined Balance Sheet as of April 30, 1997.......................................... F-33 Combined Statement of Operations for the Ten-Month Period ended April 30, 1997....... F-34 Combined Statement of Stockholder's Deficit for the Ten-Month Period ended April 30, 1997............................................................................... F-35 Combined Statement of Cash Flows for the Ten-Month period ended April 30, 1997....... F-36 Notes to Combined Financial Statements............................................... F-37 KEITH MONUMENT COMPANIES Independent Auditors' Report......................................................... F-41 Combined Balance Sheets as of June 30, 1996 and 1997................................. F-42 Combined Statements of Operations for the Years ended June 30, 1995, 1996 and 1997... F-43 Combined Statements of Stockholders' Equity for the Years ended June 30, 1995, 1996 and 1997........................................................................... F-44 Combined Statements of Cash Flows for the Years ended June 30, 1995, 1996 and 1997... F-45 Notes to Combined Financial Statements............................................... F-46
F-1 63
PAGE ------ PENNSYLVANIA GRANITE CORPORATION Independent Auditors' Report on Financial Statements................................. F-55 Consolidated Balance Sheets as of May 31, 1997 and April 30, 1997.................... F-56 Consolidated Statement of Operations and Accumulated Deficit for the Eleven Months ended May 31, 1997................................................................. F-57 Consolidated Statement of Operations and Accumulated Deficit for the Ten Months ended April 30, 1997..................................................................... F-58 Consolidated Statement of Cash Flows for the Eleven Months ended May 31, 1997........ F-59 Consolidated Statement of Cash Flows for the Ten Months ended April 30, 1997......... F-60 Notes to Consolidated Financial Statements........................................... F-61 PENNSYLVANIA GRANITE CORPORATION Independent Auditors' Report on Financial Statements................................. F-66 Consolidated Balance Sheet as of June 30, 1996....................................... F-67 Consolidated Statement of Operations and Accumulated Deficit for the Year ended June 30, 1996...................................................................... F-68 Consolidated Statement of Cash Flows for the Year ended June 30, 1996................ F-69 Notes to Consolidated Financial Statements........................................... F-70 CAPRICE BLUE QUARRY, INC. Independent Auditors' Report on Financial Statements................................. F-75 Balance Sheets as of May 31, 1997 and April 30, 1997................................. F-76 Statement of Operations and Accumulated Deficit for the Eleven Months ended May 31, 1997............................................................................... F-77 Statement of Operations and Accumulated Deficit for the Ten Months ended April 30, 1997............................................................................... F-78 Statement of Cash Flows for the Eleven Months ended May 31, 1997..................... F-79 Statement of Cash Flows for the Ten Months ended April 30, 1997...................... F-80 Notes to Financial Statements........................................................ F-81 AUTUMN ROSE QUARRY, INC. Independent Auditors' Report on Financial Statements................................. F-84 Balance Sheets as of May 31, 1997 and April 30, 1997................................. F-84 Statement of Operations and Accumulated Deficit for the Eleven Months ended May 31, 1997............................................................................... F-86 Statement of Operations and Accumulated Deficit for the Ten Months ended April 30, 1997............................................................................... F-87 Statement of Cash Flows for the Eleven Months ended May 31, 1997..................... F-88 Statement of Cash Flows for the Ten Months ended April 30, 1997...................... F-89 Notes to Financial Statements........................................................ F-90 SOUTHERN MAUSOLEUMS, INC. Independent Auditors' Report......................................................... F-94 Balance Sheets as of May 31, 1997 and April 30, 1997................................. F-95 Statement of Operations and Accumulated Deficit for the Eleven Months ended May 31, 1997............................................................................... F-96 Statement of Operations and Accumulated Deficit for the Ten Months ended April 30, 1997............................................................................... F-97 Statement of Cash Flows for the Eleven Months ended May 31, 1997..................... F-98 Statement of Cash Flows for the Ten Months ended April 30, 1997...................... F-99 Notes to Financial Statements........................................................ F-100
F-2 64 INDEPENDENT AUDITORS' REPORT The Board of Directors Rock of Ages Corporation: We have audited the accompanying consolidated balance sheets of Rock of Ages Corporation and Subsidiaries as of December 31, 1995 and 1996 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Rock of Ages Corporation and Subsidiaries as of December 31, 1995 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. March 24, 1997, except as to Note 13 which is as of August 12, 1997 F-3 65 ROCK OF AGES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, --------------------------- JUNE 30, 1995 1996 1997 ----------- ----------- ----------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents......................... $ 1,994,534 $ 763,056 $ 191,855 Trade receivables, less allowance for doubtful accounts of $445,627 in 1995 and $564,242 in 1996........................................... 10,757,049 8,525,463 11,248,648 Due from affiliates............................... 2,292,677 3,584,644 5,375,181 Inventories (note 2).............................. 10,110,107 11,323,613 13,374,103 Deferred tax assets (note 6)...................... 270,071 419,871 467,161 Other current assets.............................. 190,755 322,216 837,308 ----------- ----------- ----------- Total current assets........................... 25,615,193 24,938,863 31,494,256 ----------- ----------- ----------- Property, plant and equipment: Granite reserves and development costs............ 6,747,993 7,045,644 7,045,644 Land.............................................. 1,937,132 1,981,230 2,151,084 Buildings and land improvements................... 8,028,757 8,661,575 8,850,364 Machinery and equipment........................... 18,548,026 19,331,762 21,616,857 Furniture and fixtures............................ 13,329 13,270 208,722 Construction-in-process........................... 208,239 372,028 1,955,824 ----------- ----------- ----------- 35,483,476 37,405,509 41,828,495 Less accumulated depreciation, depletion and amortization................................... 17,306,340 18,809,535 20,598,189 ----------- ----------- ----------- Net property, plant and equipment.............. 18,177,136 18,595,974 21,230,306 ----------- ----------- ----------- Other assets: Cash surrender value of life insurance, net of loans of $95,412 in 1995 and 1996.............. 752,007 917,137 959,478 Goodwill, less accumulated amortization of $30,450 in 1996........................................ 1,301,113 1,270,663 1,252,663 Debt issuance costs, less accumulated amortization of $229,976 in 1995 and $104,040 in 1996....... 157,019 123,293 88,683 Organization costs, less accumulated amortization of $26,688 in 1995 and $63,961 in 1996......... 72,644 212,799 189,985 Deferred tax assets (note 6)...................... 763,862 597,576 543,176 Intangible pension asset (note 8)................. 0 93,418 93,418 Investments in and advances to affiliated companies (note 5)............................. 378,614 217,953 1,618,512 Other investments, at cost which approximates market......................................... 109,119 59,366 30,948 Other............................................. 296,333 489,734 0 ----------- ----------- ----------- Total other assets............................. 3,830,711 3,981,939 4,776,863 ----------- ----------- ----------- Total assets (notes 3 and 4).............. $47,623,040 $47,516,776 $57,501,425 =========== =========== ===========
See accompanying notes to consolidated financial statements. F-4 66 ROCK OF AGES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
DECEMBER 31, --------------------------- JUNE 30, 1995 1996 1997 ----------- ----------- ----------- (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Borrowings under lines of credit (note 3)......... $ 2,579,859 $ 3,500,437 $ 8,667,627 Current installments of long-term debt (note 4)... 4,096,813 2,081,481 2,844,419 Accounts payable.................................. 1,929,388 1,693,144 2,066,541 Accrued expenses.................................. 1,668,822 1,969,976 2,357,840 Income taxes payable.............................. 397,409 466,711 131,149 Current portion of deferred income................ 400,000 400,000 400,000 Customer deposits................................. 851,673 1,541,602 1,794,819 ----------- ----------- ----------- Total current liabilities................. 11,923,964 11,653,351 18,262,395 Long-term debt, excluding current installments (note 4)................................................ 14,656,514 13,054,399 13,896,615 Deferred compensation (note 8)...................... 2,754,094 3,026,090 3,088,431 Deferred income, excluding current portion.......... 800,000 400,000 200,000 Accrued pension cost (note 8)....................... 1,504,512 1,504,512 1,504,512 Accrued postretirement benefit cost (note 8)........ 504,750 506,938 506,938 ----------- ----------- ----------- Total liabilities......................... 32,143,834 30,145,290 37,458,891 ----------- ----------- ----------- Commitments (note 7) Stockholders' equity: Preferred stock -- $.01 par value; 2,500,000 shares authorized No shares issued or outstanding Common Stock -- Class A, $.01 par value; 30,000,000 shares authorized No shares issued or outstanding Common stock -- Class B, $.01 par value; 15,000,000 shares authorized 3,500,000 shares issued and outstanding in 1995 and 1996............................... 35,000 35,000 37,634 Additional paid-in capital........................ 5,593,843 5,593,843 9,384,759 Retained earnings................................. 9,827,918 11,736,082 10,675,378 Cumulative translation adjustment................. 22,445 6,561 (55,237) ----------- ----------- ----------- Total stockholders' equity................ 15,479,206 17,371,486 20,042,534 ----------- ----------- ----------- Total liabilities and stockholders' equity.................................. $47,623,040 $47,516,776 $57,501,425 ========== ========== ==========
See accompanying notes to consolidated financial statements. F-5 67 ROCK OF AGES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, ------------------------------------- ----------------------- 1994 1995 1996 1996 1997 ----------- ---------- ---------- ---------- ---------- (UNAUDITED) Net revenues........................ $34,187,749 33,087,783 44,668,851 19,943,096 20,767,426 Cost of revenues.................... 24,094,198 22,638,804 31,262,530 14,686,791 15,562,135 ----------- ---------- ---------- ---------- ---------- Gross profit.............. 10,093,551 10,448,979 13,406,321 5,256,305 5,205,291 Selling, general and administrative expenses.......................... 6,048,890 6,453,425 9,131,459 4,649,628 4,327,952 ----------- ---------- ---------- ---------- ---------- Income from operations.... 4,044,661 3,995,554 4,274,862 606,677 877,339 ----------- ---------- ---------- ---------- ---------- Other expenses: Interest expense.................. 1,652,895 1,678,178 1,723,355 933,684 866,064 Early retirement plan expense (note 8)....................... -- 563,857 -- -- -- ----------- ---------- ---------- ---------- ---------- Total other expenses...... 1,652,895 2,242,035 1,723,355 933,684 866,064 ----------- ---------- ---------- ---------- ---------- Income (loss) before provision (benefit) for income taxes............ 2,391,766 1,753,519 2,551,507 (327,007) 11,275 Provision (benefit) for income taxes (note 6).......................... 576,485 358,021 643,343 (82,452) 2,843 ----------- ---------- ---------- ---------- ---------- Net income (loss)......... $ 1,815,281 1,395,498 1,908,164 (244,555) 8,432 =========== ========== ========== ========== ========== Net income (loss) per share......... $ .45 .35 .45 (.06) .00 Weighted average number of common shares outstanding................ 4,029,744 4,029,744 4,216,609 4,212,243 4,216,609
See accompanying notes to consolidated financial statements. F-6 68 ROCK OF AGES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 AND THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
ISSUED AND OUTSTANDING SHARES OF CLASS B CLASS B ADDITIONAL CUMULATIVE TOTAL COMMON COMMON PAID-IN RETAINED TRANSLATION STOCKHOLDERS' STOCK STOCK CAPITAL EARNINGS ADJUSTMENT EQUITY ----------- ------- ---------- ---------- ---------- ------------- Balance at December 31, 1993...... 3,500,000 $35,000 2,212,044 6,617,139 (15,467) 8,848,716 Net income...................... -- -- -- 1,815,281 -- 1,815,281 Cumulative translation adjustment.................... -- -- -- -- 22,142 22,142 --------- ------- --------- --------- ------- ---------- Balance at December 31, 1994...... 3,500,000 35,000 2,212,044 8,432,420 6,675 10,686,139 Net income...................... -- -- -- 1,395,498 -- 1,395,498 Acquisitions (note 12).......... -- -- 3,381,799 -- -- 3,381,799 Cumulative translation adjustment.................... -- -- -- -- 15,770 15,770 --------- ------- --------- --------- ------- ---------- Balance at December 31, 1995...... 3,500,000 35,000 5,593,843 9,827,918 22,445 15,479,206 Net income...................... -- -- -- 1,908,164 -- 1,908,164 Cumulative translation adjustment.................... -- -- -- -- (15,884) (15,884) --------- ------- --------- --------- ------- ---------- Balance at December 31, 1996...... 3,500,000 35,000 5,593,843 11,736,082 6,561 17,371,486 Net income...................... -- -- -- 8,432 -- 8,432 Dividends (note 13)............. -- -- -- (1,069,136) -- (1,069,136) Acquisition (note 13)........... 263,441 2,634 3,790,916 -- -- 3,793,550 Cumulative translation adjustment.................... -- -- -- -- (61,798) (61,798) --------- ------- --------- --------- ------- ---------- Balance at June 30, 1997.......... 3,763,441 $37,634 9,384,759 10,675,378 (55,237) 20,042,534 ========= ======= ========= ========= ======= ==========
See accompanying notes to consolidated financial statements F-7 69 ROCK OF AGES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, --------------------------------------- ------------------------- 1994 1995 1996 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) Cash flows from operating activities: Net income (loss).............. $ 1,815,281 1,395,498 1,908,164 (244,555) 8,432 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation, depletion and amortization.............. 1,399,028 1,413,336 1,846,298 1,049,466 984,841 Decrease (increase) in cash surrender value of life insurance................. 26,068 71,132 (165,130) (82,565) (42,341) Loss (gain) on sale of property, plant and equipment................. (319,917) (45,063) (5,500) (3,389) 20,004 Loss (equity) in income of affiliated companies...... (134,264) 43,156 160,661 134,434 19,019 Deferred taxes.............. 79,967 (131,676) 16,486 (152,452) 7,110 Changes in assets and liabilities: Decrease (increase) in trade receivables...... (1,524,444) (1,727,154) 2,231,586 2,046,113 (1,269,760) Decrease (increase) in due from affiliates........ (421,630) 378,885 (1,291,967) (1,416,988) (1,319,007) Decrease (increase) in inventories............ 2,148,792 243,979 (1,081,430) (1,686,701) (918,391) Increase in other current assets................. (4,022) (36,783) (131,461) (391,593) (497,668) Decrease (increase) in intangible pension asset.................. (178,630) 481,366 (93,418) -- -- Decrease (increase) in other assets........... 184,454 101,365 (193,401) (762,900) 19,779 Increase (decrease) in accounts payable....... 499,742 (205,627) (236,244) 477,197 (22,375) Increase in accrued expenses............... 733,651 85,493 301,154 515,851 224,869 Increase (decrease) in income taxes payable... 541,354 (290,090) 69,302 (136,775) (298,374) Increase in customer deposits............... 5,918 228,447 689,929 266,453 253,217 Increase (decrease) in deferred compensation........... (14,706) 9,264 271,996 73,565 62,341 Decrease in deferred income................. (400,000) (400,000) (400,000) (200,000) (200,000) Increase in accrued pension cost........... 86,700 29,912 2,188 -- -- Increase in accrued postretirement benefit cost................... 9,345 10,811 -- 45,000 -- ---------- ---------- ---------- ---------- ---------- Net cash provided by (used in) operating activities........... 4,532,687 1,656,251 3,899,213 (469,839) (2,968,304) ---------- ---------- ---------- ---------- ---------- Cash flows from investing activities: Purchases of property, plant and equipment............... (502,918) (896,447) (1,648,505) (883,593) (1,589,953) Proceeds from sale of property, plant and equipment......... 751,866 70,836 14,476 11,000 --
See accompanying notes to consolidated financial statements. F-8 70 ROCK OF AGES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
YEARS ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, --------------------------------------- ------------------------- 1994 1995 1996 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) Increase in investments in and advances to affiliates...... -- -- -- -- (171,020) Decrease (increase) in other investments................. 1,927 (53,933) 49,753 10,897 28,418 Acquisitions, net of cash acquired.................... -- 2,642 (238,310) -- 73,256 ---------- ---------- ---------- ---------- ---------- Net cash provided by (used in) investing activities........... 250,875 (876,902)( 1,822,586) (861,696) (1,659,299) ---------- ---------- ---------- ---------- ---------- Cash flows from financing activities: Net borrowings (repayments) under lines of credit....... (3,062,646) 2,454,269 920,578 2,401,628 5,167,190 Increase in debt issuance costs....................... (190,027) (2,569) (36,415) (36,415) -- Increase in organization costs....................... (97,565) (1,766) (172,689) (172,689) -- Proceeds from long-term debt... -- -- 122,082 -- -- Principal payments on long-term debt........................ (1,145,802) (1,644,533) (4,126,635) (2,376,882) (1,048,990) ---------- ---------- ---------- ---------- ---------- Net cash provided by (used in) financing activities........... (4,496,040) 805,401 (3,293,079) (184,358) 4,118,200 ---------- ---------- ---------- ---------- ---------- Effect of exchange rate changes on cash........................ 14,498 16,176 (15,026) (32,665) (61,798) ---------- ---------- ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents.......... 302,020 1,600,926 (1,231,478) (1,548,558) (571,201) Cash and cash equivalents, beginning of period............ 91,588 393,608 1,994,534 1,994,534 763,056 ---------- ---------- ---------- ---------- ---------- Cash and cash equivalents, end of period......................... $ 393,608 1,994,534 763,056 445,976 191,855 ========== ========== ========== ========== ========== Supplemental cash flow information: Cash paid during the period for: Interest.................... $ 1,780,181 1,678,178 1,520,420 933,684 866,064 Income taxes................ 150,150 711,299 742,626 168,983 351,155
Supplemental non-cash investing and financing activities: See Note 12 for non-cash activities relating to the acquisitions. In 1994, $3,663,747 in borrowings under lines of credit was refinanced as long-term debt.
YEARS ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, --------------------------------------- ------------------------- 1994 1995 1996 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) Acquisitions: Assets acquired................ $ -- 8,708,561 625,416 -- 7,018,273 Liabilities assumed and issued...................... -- (4,971,882) (387,106) -- (3,224,723) Capital contributed............ -- (3,381,799) -- -- -- Common stock issued............ -- -- -- -- (3,793,550) ---------- ---------- ---------- ---------- ---------- Cash paid...................... -- 354,880 238,310 -- -- Less cash acquired............. -- (357,522) -- -- (73,256) ---------- ---------- ---------- ---------- ---------- Net cash paid for (received from) acquisitions......... $ -- (2,642) 238,310 -- (73,256) ========== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements. F-9 71 ROCK OF AGES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Rock of Ages Corporation, together with its wholly-owned subsidiaries (the "Company"), Rock of Ages Canada, Inc., Royalty Granite Corporation, Rock of Ages International, and Associated Memorials, Inc. is an integrated quarrier, manufacturer and distributor of granite and products manufactured from granite. The quarry division sells granite both to the manufacturing division and to outside manufacturers, as well as to distributors in Europe and Japan. The manufacturing division's principal product is granite memorials used primarily in cemeteries, although it also manufactures some specialized granite products for industrial applications. Manufacturing revenues were approximately 50%, 60% and 60% of total revenues in 1994, 1995 and 1996 respectively, with the balance being quarry revenues. Foreign revenues represented approximately 27%, 20% and 13% of total revenues in 1994, 1995 and 1996, respectively. (a) Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. (b) Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. (c) Inventories Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. (d) Depreciation, Depletion and Amortization Property, plant and equipment are stated at cost. Depreciation is calculated using the straight-line and declining balance methods, based upon the following estimated useful lives: Buildings and land improvements........................ 5 to 40 years Machinery and equipment................................ 3 to 20 years Furniture and fixtures................................. 5 to 12 years
Depreciation expense amounted to $1,281,415, $1,253,186 and $1,659,160 in 1994, 1995 and 1996, respectively. Cost depletion and amortization of granite reserves and development costs is provided by charges to operations based on cubic feet produced in relation to estimated reserves of the property. Cost depletion and amortization charged to operations amounted to $71,010, $69,338 and $54,013 in 1994, 1995 and 1996, respectively. (e) Foreign Currency Translation The Company translates the accounts of its foreign subsidiary in accordance with Statement of Financial Accounting Standards No. 52, under which all assets and liabilities are translated at the rate of exchange in effect at year end. Revenue and expense accounts are translated using weighted average exchange rates in effect during the year. Gains or losses from foreign currency translation are charged to "cumulative translation adjustment" which is included in stockholders' equity in the accompanying consolidated balance sheets. F-10 72 ROCK OF AGES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) (f) Income Taxes The Company files its Federal income tax returns on a consolidated basis. Rock of Ages Canada, Inc. is responsible for income taxes in Canada. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (g) Goodwill Goodwill was recorded in 1995 as a result of two acquisitions (see Note 12) and is being amortized over 40 years using the straight-line method. Amortization expense amounted to $30,450 in 1996. The Company periodically evaluates the recoverability of goodwill and measures the amount of impairment, if any, by assessing current and future levels of income and cash flows, as well as other factors, such as business trends and prospects and market and economic conditions. (h) Debt Issuance Costs Debt issuance costs are amortized using the straight-line method over the term of the related borrowing. Amortization expense amounted to $40,603, $70,124 and $70,141 in 1994, 1995 and 1996, respectively. (i) Organization Costs Organization costs are amortized using the straight-line method over 60 months. Amortization expense amounted to $6,000, $20,688 and $32,534 in 1994, 1995 and 1996, respectively. (j) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on January 1, 1996. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of the Statement did not have a material impact on the Company's financial position, results of operations, or liquidity. (k) Deferred Income Deferred income represents revenues received in 1992 in relation to a distribution agreement. Revenue is being recognized over six years beginning in 1993, per the terms of the agreement. (l) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to use estimates and assumptions that affect the reported amounts of assets and F-11 73 ROCK OF AGES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. (m) Stock-Based Employee Compensation The Company uses the intrinsic value based method per APB Opinion No. 25, Accounting for Stock Issued to Employees, for all of its stock-based employee compensation arrangements. (n) Net Income Per Share Net income per share is computed by dividing earnings available for common shares by the weighted average number of common shares outstanding during each year. Common stock equivalent shares are not included in the per share calculations where the effect of their inclusion would be antidilutive. (o) Interim Consolidated Financial Statements The consolidated financial statements for the six months ended June 30, 1996 and 1997 are unaudited but, in the opinion of management, include all normal, recurring adjustments necessary for a fair presentation of results for these interim periods. The results of operations for the interim periods are not necessarily indicative of trends or results expected for a full year. (2) INVENTORIES Inventories consist of the following at December 31, 1995 and 1996:
1995 1996 ----------- ----------- Raw materials..................................... $ 6,994,078 7,065,320 Work-in-process................................... 1,304,347 1,694,671 Finished goods and supplies....................... 1,811,682 2,563,622 ----------- ----------- $10,110,107 11,323,613 =========== ===========
(3) LINES OF CREDIT The Company and an affiliate, Swenson Granite Company, Inc., may be advanced up to a maximum of $9,500,000 under the terms of line of credit agreements with a lending institution, based on percentages of eligible accounts receivable and eligible inventory. The line of credit arrangements expire August 1999 and bear interest at the Chemical Bank prime rate plus 1%, and are secured by substantially all assets of the Company. Amounts outstanding as of December 31, 1995 and 1996 were $1,179,859 and $1,779,124, respectively. Effective November 30, 1995, Rock of Ages Canada, Inc. entered into a line of credit agreement with a lending institution. Under the terms of this agreement, a maximum of approximately $2,400,000 may be advanced based on percentages of eligible accounts receivable, eligible inventory, and tangible fixed assets. The line of credit agreement will be reviewed at least annually for any revisions to the agreement, bears interest at the prime rate plus 3/4%, and is secured by substantially all assets of the subsidiaries. Amounts outstanding as of December 31, 1995 and 1996 were $1,400,000 and $1,721,313, respectively. F-12 74 ROCK OF AGES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (4) LONG-TERM DEBT Long-term debt at December 31, 1995 and 1996 consists of the following:
1995 1996 ----------- ---------- Note payable -- bank, interest at Chemical Bank prime plus 1 1/4%, payable in quarterly installments of $100,000 with the final installment of $2,500,000 due October 1998, secured by substantially all assets of the Company.................................................. $ 3,600,000 3,200,000 Note payable -- bank, interest at Chemical Bank prime plus 1 1/4%, payable in quarterly installments of $400,000 with the final installment of $8,400,000 due January 1999, secured by substantially all assets of the Company.................................................. 13,010,384 11,410,385 Notes payable -- bank, interest at prime plus 1%, unsecured, paid in full in January 1996.................. 1,320,622 -- Note payable -- Small Business Administration, interest at 10.147%, secured by property, plant and equipment, paid in full in January 1996.................................. 327,230 -- Note payable -- VEDA, interest at 4%, unsecured, paid in full in January 1996..................................... 118,233 -- Note payable -- Dutton, interest at 6%, payable in monthly principal and interest payments of $674, unsecured, due December 2003............................................ 51,280 46,130 Note payable -- Friberg, interest at 8%, unsecured, paid in full in April 1996....................................... 325,578 -- Note payable -- bank, interest at lender's operational rate plus 1%, payable in monthly installments of $3,649 plus interest, due April 2004, secured by property with a net book value of $336,330 at December 31, 1996.............. -- 321,068 Note payable -- bank, interest at 10.5%, payable in monthly principal and interest installments of $1,216, due March 2000, secured by machinery with a net book value of $39,792 at December 31, 1996............................. -- 40,012 Note payable -- bank, interest at prime plus 1.5%, payable in monthly installments of $608 plus interest, due November 2001, secured by property with a net book value of $40,193 at December 31, 1996.......................... $ -- 35,269 Obligation under capital lease, interest at 7.99%, payable in monthly installments of $1,680 plus interest, due December 2000, secured by equipment with a cost and accumulated depreciation of $95,731 and $1,595, respectively, at December 31, 1996....................... -- 83,016 ----------- ---------- 18,753,327 15,135,880 Less current installments.................................. 4,096,813 2,081,481 ----------- ---------- Long-term debt, excluding current installments............. $14,656,514 13,054,399 =========== ==========
All bank-related obligations are guaranteed by an affiliate, Swenson Granite Company, Inc. F-13 75 ROCK OF AGES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (4) LONG-TERM DEBT -- (CONTINUED) Future maturities of the December 31, 1996 long-term debt are as follows:
OBLIGATION OTHER UNDER LONG-TERM YEAR ENDED DECEMBER 31: CAPITAL LEASE DEBT ----------------------------------------------------------- ------------- ---------- 1997.................................................. $ 20,163 2,067,444 1998.................................................. 20,163 4,468,983 1999.................................................. 20,163 1,670,669 2000.................................................. 41,337 6,671,596 2001.................................................. -- 56,810 Thereafter............................................ -- 117,362 -------- ---------- 101,826 15,052,864 ========== Interest included in obligation under capital lease........ 18,810 -------- $ 83,016 ========
The financing agreements with banks contain various restrictive covenants with respect to the maintenance of financial ratios, capital additions, and other items. As of December 31, 1996 all covenants have been complied with or waived by the banks. (5) INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES Investments in and advances to affiliated companies, accounted for under the equity method, at December 31, 1995 and 1996 consists of a 50% equity interest in Rock of Ages of Asia of $378,613 and $217,953, respectively. The Company's equity (loss) in the income of Rock of Ages Asia was $134,264, $(43,156) and $(160,661), in 1994, 1995 and 1996, respectively. Sales to Rock of Ages Asia were $3,911,195, $2,997,845 and $592,100 in 1994, 1995 and 1996, respectively. Accounts receivable from Rock of Ages Asia was $2,221,824, $2,327,054 and $769,354 as of December 31, 1994, 1995 and 1996, respectively. See note 13. (6) INCOME TAXES A summary of components of the provision for income taxes for the years ended December 31, 1994, 1995 and 1996 is as follows:
1994 1995 1996 -------- -------- -------- Current............................................ $496,518 $381,719 $626,857 Deferred........................................... 79,967 (23,698) 16,486 -------- -------- -------- Total.................................... $576,485 $358,021 $643,343 ======== ======== ========
F-14 76 ROCK OF AGES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (6) INCOME TAXES -- (CONTINUED) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1995 and 1996 are presented below:
1995 1996 ---------- ---------- Deferred tax assets: Accrued pension, accrued postretirement benefit cost and deferred compensation.................................. $ 903,743 $ 890,941 Allowance for doubtful accounts........................... 79,096 94,920 Accrued expenses.......................................... 60,224 86,120 Deferred income........................................... 326,400 217,600 Inventories, principally due to additional costs inventoried for tax purposes pursuant to the Tax Reform Act of 1986............................................ 211,634 237,279 Other assets.............................................. 297,426 374,789 ---------- ---------- Total gross deferred tax assets................... 1,878,523 1,901,649 Less valuation allowance.......................... (482,241) (495,877) ---------- ---------- Total net deferred tax assets..................... 1,396,282 1,405,772 ---------- ---------- Deferred tax liabilities: Quarry development........................................ (309,176) (375,445) Other liabilities......................................... (53,173) (12,880) ---------- ---------- Total gross deferred tax liabilities.............. (362,349) (388,325) ---------- ---------- Net deferred tax assets........................... $1,033,933 $1,017,447 ========== ==========
The reconciliation of differences between the statutory U.S. federal income tax rate and the Company's effective tax rate follows:
1994 1995 1996 ----- ----- ----- U.S. statutory rate......................................... 34.0% 34.0% 34.0% State taxes................................................. 5.9 6.0 6.1 Valuation allowance change.................................. (5.3) -- -- Other....................................................... (10.5) (19.6) (14.9) ----- ----- ----- Effective tax rate.......................................... 24.1% 20.4% 25.2% ===== ===== =====
SFAS No. 109 requires a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets. (7) LEASES The Company has several noncancellable operating leases for vehicles and equipment which expire over the next four years. Rental expense for operating leases was $118,211, $164,467 and $161,607 during 1994, 1995 and 1996, respectively. F-15 77 ROCK OF AGES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (7) LEASES -- (CONTINUED) Future minimum lease payments under noncancellable operating leases (with initial or remaining lease terms in excess of one year) are as follows:
YEAR ENDED DECEMBER 31: ---------------------------------------------------------- 1997...................................................... $149,763 1998...................................................... 134,777 1999...................................................... 105,008 2000...................................................... 37,989 -------- $427,537 ========
The Company also acts as the lessor of various parcels of land. Rental income was $28,841, $32,182 and $32,210 in 1994, 1995 and 1996, respectively. Future minimum rentals to be received under noncancellable leases are as follows:
YEAR ENDED DECEMBER 31: ---------------------------------------------------------- 1997...................................................... $ 22,950 1998...................................................... 19,950 1999...................................................... 19,575 2000...................................................... 16,950 2001...................................................... 16,200 Thereafter................................................ 44,550 -------- $140,175 ========
(8) PENSION AND RETIREMENT PLANS Pension Plans -- Non-Union The Company has a defined benefit pension plan which covers all salaried employees of the Company and its affiliate, Swenson Granite Company, Inc. who have attained age 21 and have completed one year of service. Employees with five or more years of service are entitled to pension benefits beginning at normal retirement age (65) equal to 1.8% of average compensation times years of credited service. Maximum number of years of credited service is equal to 30 years. The Company makes contributions in such amounts and at such times as it shall determine in accordance with an established funding method and policy, which is consistent with plan objectives and the requirements of the Employee Retirement Income Security Act of 1974 (ERISA). The Company's contributions for the year ended December 31, 1994, 1995 and 1996 were based on the minimum funding requirements of ERISA. Plan assets consist of marketable securities and an unallocated insurance contract. F-16 78 ROCK OF AGES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (8) PENSION AND RETIREMENT PLANS -- (CONTINUED) Net periodic pension cost for the Company's defined benefit pension plan for the years ended December 31, 1995 and 1996, charged to operations in the accompanying consolidated statements of operations, excluding the expense incurred as a result of the early retirement window described below, consisted of the following:
1995 1996 ----------- ----------- Service cost-benefits attributable to service during the period.................................................. $ 222,485 $ 392,429 Interest cost on projected benefit obligation............. 881,644 1,042,864 Return on plan assets..................................... (1,660,367) (1,342,269) Net amortization and deferral............................. 1,149,127 776,636 ----------- ----------- Net periodic pension cost................................. $ 592,889 $ 869,660 =========== ===========
Assumptions used by the Company in the determination of pension plan information consisted of the following as of December 31, 1995 and 1996:
1995 1996 ---- ---- Discount rate.......................................................... 7.25% 7.25% Rate of increase in compensation levels................................ 5.50% 5.50% Expected long-term rate of return on plan assets....................... 9.00% 9.00%
The following table sets forth the funded status of the plan and amounts recognized in the accompanying consolidated balance sheets at December 31, 1995 and 1996:
1995 1996 ------------ ------------ Actuarial present value of accumulated benefit obligation including vested benefits of $10,760,173 in 1995 and $11,654,986 in 1996.......................... $(11,087,582) $(12,225,920) ============ ============ Actuarial present value of projected benefit obligation............................................ (12,845,942) (15,045,099) Plan assets at fair value............................... 9,901,354 11,296,553 ------------ ------------ Projected benefit obligation in excess of plan assets... (2,944,588) (3,748,546) Unrecognized net gain from past experience different from that assumed and the effects of changes in assumptions........................................... (500,947) (899,363) Unrecognized net prior service cost..................... 865,707 2,209,852 Unrecognized net obligation............................. 1,075,316 933,545 ------------ ------------ Accrued pension cost.................................... $ (1,504,512) $ (1,504,512) ============ ============
Effective November 1, 1995 the Company offered an early retirement window for eligible employees. As a result, the Company recognized a curtailment loss of $563,857 which has been charged to other expenses in the accompanying consolidated statement of operations. Postretirement Benefits In addition to providing pension benefits, the Company and its affiliate, Swenson Granite Company, Inc. (Swenson) have sponsored a defined benefit postretirement health care plan for early retirees. No other Company employees or retirees are eligible to participate in the plan. The Company and Swenson also sponsor defined benefit postretirement group life insurance plans for union and non-union employees. The death benefit provided to union retirees is $6,000; the death benefit provided to non-union retirees is 0.75 times the retiree's salary on the date of retirement (capped at $60,000). Included in selling, general and administrative F-17 79 ROCK OF AGES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (8) PENSION AND RETIREMENT PLANS -- (CONTINUED) expenses of the Company is its share of the net periodic postretirement benefit costs of $219,428, $194,719 and $188,076 for the years ended December 31, 1994, 1995 and 1996, respectively. Net periodic postretirement benefit costs for the Company and its affiliate for the years ended December 31, 1994, 1995 and 1996 consisted of the following:
POSTRETIREMENT POSTRETIREMENT 1994 MEDICAL LIFE INSURANCE TOTAL ---------------------------------------------- -------------- -------------- -------- Service cost-benefits attributable to service during the period........................... $ -- $ 14,728 $ 14,728 Interest cost on accumulated postretirement benefit obligation.......................... 49,000 99,079 148,079 Net amortization and deferral................. 37,625 66,053 103,678 ------- ------- ------- Net periodic postretirement benefit cost...... $ 86,625 $179,860 $266,485 ======= ======= ======= 1995 Service cost-benefits attributable to service during the period........................... $ -- $ 12,559 $ 12,559 Interest cost on accumulated postretirement benefit obligation.......................... 35,677 98,599 134,276 Net amortization and deferral................. 24,410 66,053 90,463 ------- ------- ------- Net periodic postretirement benefit cost...... $ 60,087 177,211 237,298 ======= ======= ======= 1996 Service cost-benefits attributable to service during the period........................... $ -- $ 20,308 $ 20,308 Interest cost on accumulated postretirement benefit obligation.......................... 22,096 106,150 128,246 Net amortization and deferral................. 9,878 66,053 75,931 ------- ------- ------- Net periodic postretirement benefit cost...... $ 31,974 $192,511 $224,485 ======= ======= =======
The amounts recognized in the accompanying consolidated balance sheets as of December 31, 1995 and 1996, representing the Company's share of the funded status of the plans, were $504,750 and $506,938, respectively. The following table sets forth the funded status for the Company and its affiliate as of December 31, 1995 and 1996:
POSTRETIREMENT POSTRETIREMENT 1995 MEDICAL LIFE INSURANCE TOTAL -------------------------------------------- -------------- -------------- ----------- Accumulated postretirement benefit obligation: Retirees.................................. $ (429,652) $ (1,048,213) $(1,477,865) Fully eligible active plan participants... -- (148,911) (148,911) Other active plan participants............ -- (181,823) (181,823) --------- ---------- ---------- Accumulated postretirement benefit obligation in excess of plan assets....... (429,652) (1,378,947) (1,808,599) Unrecognized transition obligation.......... 73,231 1,188,952 1,262,183 Unrecognized net (gain)/loss from past experience different from that assumed.... (22,012) 16,184 (5,828) --------- ---------- ---------- Accrued postretirement benefit cost......... $ (378,433) $ (173,811) $ (552,244) ========= ========== ==========
F-18 80 ROCK OF AGES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (8) PENSION AND RETIREMENT PLANS -- (CONTINUED)
POSTRETIREMENT POSTRETIREMENT MEDICAL LIFE INSURANCE TOTAL -------------- -------------- ----------- 1996 Accumulated postretirement benefit obligation: Retirees.................................. $ (285,441) $ (1,094,623) $(1,380,064) Fully eligible active plan participants... -- (193,450) (193,450) Other active plan participants............ -- (219,676) (219,676) --------- ---------- ---------- Accumulated postretirement benefit obligation in excess of plan assets....... (285,441) (1,507,749) (1,793,190) Unrecognized transition obligation.......... 48,821 1,122,899 1,171,720 Unrecognized net (gain)/loss from past experience different from that assumed.... (79,047) 133,080 54,033 --------- ---------- ---------- Accrued postretirement benefit cost......... $ (315,667) $ (251,770) $ (567,437) ========= ========== ==========
The weighted-average discount rate used in determining the actuarial present value of the accumulated postretirement benefit obligation was 7.25% and 7.5% as of December 31, 1995 and 1996, respectively. For measurement purposes, a 9% rate of increase in the per capita cost of covered health care benefits was assumed for 1996 and was assumed to gradually decrease to 4% over the next 6 years. An increase in the assumed health care cost trend rates of 1 percentage point in each year would result in an increase in the postretirement medical plan accumulated postretirement benefit obligation as of December 31, 1996 of $9,846 and the aggregate of the service and the interest cost components of the postretirement medical plan net periodic postretirement benefit cost for 1996 would increase by $687. Union Employee Plans Union employees participate in a multi-employer defined benefit pension plan. The Company contributes amounts as required by the union contract. At the present time, there is not sufficient information to accurately determine the Company's share of the liability for unfunded vested benefits of the plan. If the Company terminated its operations or withdrew from the plan, it would be required, under federal law, to accelerate funding of its proportionate share of the plan's unfunded vested benefits. The amount charged to operations in the accompanying consolidated statements of operations was $284,591, $456,470 and $713,738 in 1994, 1995 and 1996, respectively. Deferred Compensation Plans The Company has deferred compensation agreements with certain employees under a salary continuation plan. Generally, the terms of the plan provides for specified monthly payments to the employee or the beneficiary for a 15-year period beginning at the employee's retirement, disability or death. In certain cases, the plan also provides for minimum payments in the event of termination other than retirement, disability or death. F-19 81 ROCK OF AGES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (8) PENSION AND RETIREMENT PLANS -- (CONTINUED) Net periodic deferred compensation cost, charged to operations in the accompanying consolidated statements of operations, under the plan for the years ended December 31, 1994, 1995 and 1996 consisted of the following:
1994 1995 1996 -------- -------- -------- Service cost earned during the period.............. $ 33,635 $ 13,369 $ 56,108 Interest cost on projected benefit obligation...... 87,457 87,876 98,386 Net amortization and deferral...................... 18,761 18,761 31,392 -------- -------- -------- Net periodic deferred compensation cost............ $139,853 $120,006 $185,886 ======== ======== ========
The following table sets forth the funded status of the plan as of December 31, 1995 and 1996 and amounts recognized in the accompanying consolidated balance sheets as of December 31, 1995 and 1996:
1995 1996 ----------- ----------- Actuarial present value of projected benefit obligation... $(1,159,113) $(1,445,083) Plan assets at fair value................................. -- -- ----------- ---------- Projected benefit obligation in excess of plan assets..... (1,159,113) (1,445,083) Unrecognized net gain from past experience different from that assumed and the effect of changes in assumptions... (57,128) (17,589) Unrecognized net obligation............................... 41,205 36,736 Unrecognized prior service obligation..................... 90,121 251,873 Adjustment required to recognize minimum liability........ (570) (183,418) ----------- ---------- Deferred compensation..................................... $(1,085,485) $(1,357,481) =========== ==========
The assumed rate of return used in determining the value of accumulated plan benefits was 7.25% and 7.5% for the years ended December 31, 1995 and 1996, respectively. The Company also has deferred compensation agreements with former stockholders of Lawson Granite Company and a former stockholder of Anderson-Friberg Company which are not covered under the Company's salary continuation plan. Total annual payments of $224,000 begin in 2000 and end at various dates through 2020. The present value of these payments was $1,668,609 as of December 31, 1995 and 1996, which is included in deferred compensation in the consolidated balance sheets. Savings and Profit Sharing Plan The Company has a defined contribution savings plan under Section 401(k) of the Internal Revenue Code for employees whose employment is not governed by a collective bargaining agreement and who have completed one year of service. The Company's contribution was $12,088, $19,804 and $27,587 in 1994, 1995 and 1996, respectively. The Company has a defined contribution savings plan under Section 401(k) of the Internal Revenue Code for employees covered by a collective bargaining agreement who have completed one year of service. The Company's contribution was $7,257, $13,830 and $24,362 in 1994, 1995 and 1996, respectively. (9) STOCK-BASED EMPLOYEE COMPENSATION Under the terms of the Amended and Restated 1994 Stock Plan, 1,500,000 options were reserved for issuance to key employees to purchase equivalent shares of common stock at exercise prices ranging from $2.40 to $4.12. The options granted have a five year term and vest at 20% per year over this period. F-20 82 ROCK OF AGES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (9) STOCK-BASED EMPLOYEE COMPENSATION -- (CONTINUED) The following table sets forth the stock option transactions for the years ended December 31, 1994, 1995 and 1996:
NUMBER WEIGHTED AVERAGE OF SHARES EXERCISE PRICE ----------- ---------------- Outstanding, December 31, 1993, 1994 and 1995............ 275,000 $ 2.49 Granted, January 2, 1996............................... 225,000 3.59 Granted, December 31, 1996............................. 362,500 3.75 ------- ----- Outstanding, December 31, 1996........................... 862,500 3.31 ======= ===== Exercisable, December 31, 1996........................... 282,500 2.99 Weighted average remaining contractual life.............. 3.4 years
The Company has adopted the disclosure-only provisions of Statement of Financial Standards No. 123, Accounting for Stock-Based Compensation. Accordingly, no compensation cost has been recognized for stock options granted under the plan during 1996 as the options were all granted at exercise prices which equaled the fair value at the date of the grant. There were no awards granted during 1995 and 1994. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant date for awards during 1996 consistent with the provisions of SOFAS No. 123, the Company's net income would have been reduced to the pro forma amount indicated below: Net income, as reported.................................. $1,908,164 Net income, pro forma.................................... 1,798,619 Net income per share, pro forma.......................... $ .43
Pro forma net income reflects only options granted in 1996. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income amounts presented because compensation cost is reflected over the options' vesting periods and compensation cost for options granted prior to January 1, 1995 is not considered. The fair value of each option grant is estimated on the date of the grant using the Minimum Value Method with the following weighted-average assumptions used for grants in 1996: risk-free interest rate of 6%; dividend yield of $0; and expected lives of five (5) years. (10) RELATED PARTY TRANSACTIONS The Company is related, through common ownership, to Swenson Granite Company, Inc. (Swenson). The Company paid a management fee of $632,000, $912,000, $936,000 in 1994, 1995 and 1996, respectively. Sales to Swenson were $0, $0 and $729,611 and purchases from Swenson were $0, $0 and $197,047 in 1994, 1995 and 1996, respectively. (11) FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosures About the Fair Value of Financial Instruments", requires disclosure of information about the fair value of certain financial instruments for which it is practicable to estimate that value. For purposes of the following disclosure the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties other than in a forced sale or liquidation. Management has determined that the carrying values of its financial assets and liabilities approximate fair value at December 31, 1996. (12) ACQUISITIONS Effective December 31, 1995 Swenson Granite Company purchased all of the outstanding stock of Lawson Granite Company and Anderson-Friberg Company. The aggregate cost of these acquisitions was F-21 83 ROCK OF AGES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (12) ACQUISITIONS -- (CONTINUED) $5,715,288 made up of 463 shares of Swenson stock valued at $3,381,799, a $310,000 note payable, $354,880 in cash paid in 1996, and $1,668,609 in deferred compensation arrangements. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based upon their respective fair values. This treatment resulted in $1,301,113 of cost in excess of net assets acquired, or goodwill, and was accounted for under the purchase method. The net assets from the acquisition were contributed by Swenson to the Company. The following unaudited pro forma information has been prepared assuming that the acquisitions occurred at the beginning of the periods presented. The pro forma information is presented for information purposes only and is not necessarily indicative of what would have occurred if the acquisitions had been made as of those dates.
(UNAUDITED) YEARS ENDED DECEMBER 31, --------------------------- 1994 1995 ----------- ----------- Net revenues...................................... $43,689,296 $41,199,480 Net income........................................ 1,842,046 1,462,688 Net income per share.............................. .46 .36
The Company also acquired certain assets and assumed certain liabilities of Adru Granite, Inc. for $238,310 in 1996. The results of operations were not material in relation to the Company's consolidated results of operations. (13) SUBSEQUENT EVENTS On June 27, 1997 the Company dividended assets of $1,069,136 to Swenson Granite Company, Inc. On June 30, 1997 the Company acquired all of the outstanding stock of KSMG, a successor to Keystone Memorials, Inc. for 263,441 shares of the Company's stock which was accounted for under the purchase method. The fair market value of KSMG on the date of acquisition was $3,793,550. As of June 30, 1997 investments in and advances to affiliated companies included Keystone's share of its investment in and advances to four Quarry Companies and Southern Mausoleums, Inc. The following unaudited pro forma information has been prepared assuming that the acquisitions occurred at the beginning of the periods presented. The pro forma information is presented for information purposes only and is not necessarily indicative of what would have occurred if the acquisitions had been made as of those dates.
(UNAUDITED) --------------------------- YEAR ENDED SIX MONTHS DECEMBER ENDED 31, JUNE 30, 1996 1997 ----------- ----------- Net sales......................................... $53,972,546 $25,415,687 Net income (loss)................................. 1,711,447 (285,625) Net income (loss) per share....................... .41 (.08)
On August 12, 1997, pursuant to the reincorporation merger of Rock of Ages Corporation, a Vermont corporation and the immediate predecessor to the Company ("ROA Vermont") with and into a newly-formed Delaware corporation, with the Company surviving as a Delaware corporation, (i) the Company authorized 30,000,000 shares of $.01 par value Class A Common Stock, 15,000,000 shares of $.01 par value Class B Common Stock, and 2,500,000 shares of $.01 par value Preferred Stock and (ii) each outstanding share of common stock of ROA Vermont was converted into one half of a share of Class B Common Stock of the Company. As of August 12, 1997, no shares of Class A Common or Preferred Stock had been issued. The Common Stock outstanding and weighted average shares outstanding for all periods presented have been adjusted for the new stock capitalization. F-22 84 INDEPENDENT AUDITORS' REPORT The Board of Directors, Childs & Childs Granite Company, Inc. and C & C Granite Company, Inc.: We have audited the accompanying combined balance sheet of Childs & Childs Granite Company, Inc., C & C Granite Company Inc., the Quarry Companies and Southern Mausoleums, Inc. (SMI) as of May 31, 1997, and the related combined statements of operations, stockholders' equity, and cash flows for the eleven- month period ended May 31, 1997. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audit. We did not audit the financial statements of the Quarry Companies (Caprice Blue Quarry, Inc.; Autumn Rose Quarry, Inc.; and Pennsylvania Granite Corporation, including its wholly-owned subsidiary, Carolina Quarries, Inc.) or SMI. The Company's combined investment in and advances to the Quarry Companies and SMI at May 31, 1997 was $540,184 and its equity in the earnings of the Quarry Companies and SMI was $128,839 for the eleven-month period ended May 31, 1997. The financial statements of the Quarry Companies and SMI were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for the Quarry Companies and SMI, is based solely on the reports of the other auditors. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of the other auditors provides a reasonable basis for our opinion. In our opinion, based on our audit and the reports of the other auditors, the combined financial statements referred to above present fairly, in all material respects, the financial position of Childs & Childs Granite Company, Inc., C & C Granite Company, Inc., the Quarry Companies and SMI at May 31, 1997, and the results of their operations and their cash flows for the eleven-month period ended May 31, 1997 in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Atlanta, Georgia July 18, 1997 F-23 85 CHILDS & CHILDS GRANITE COMPANY, INC., C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI COMBINED BALANCE SHEET MAY 31, 1997 ASSETS (NOTE 5) Current assets: Cash........................................................................... $ 113,486 Trade accounts receivable, less allowance for doubtful accounts of $134,000.... 1,055,833 Inventories (note 2)........................................................... 1,136,298 ---------- Total current assets........................................................ 2,305,617 ---------- Investments in and advances to affiliated companies (note 4)..................... 540,184 Property, plant, and equipment: Land........................................................................... 15,000 Buildings...................................................................... 480,115 Machinery and equipment........................................................ 1,050,767 Trucks, autos, and trailers.................................................... 357,319 Furniture and fixture.......................................................... 45,310 ---------- 1,948,511 Less accumulated depreciation.................................................. 945,953 ---------- Net property, plant, and equipment.......................................... 1,002,558 ---------- $3,848,359 ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt (note 5)..................................... $ 412,185 Trade accounts payable......................................................... 128,887 Trade accounts payable-affiliates (note 4)..................................... 170,290 Due to stockholders............................................................ 23,909 Accrued wage related costs..................................................... 37,318 ---------- Total current liabilities................................................... 772,589 Long-term debt, less current portion (note 5).................................... 500,000 ---------- Total liabilities........................................................... 1,272,589 ---------- Commitment and contingency (notes 5 and 7)....................................... Stockholders' equity: Common stock (note 6).......................................................... 22,500 Quarry Companies' and SMI's capital............................................ 348,184 Retained earnings.............................................................. 2,205,086 ---------- Total stockholders' equity.................................................. 2,575,770 ---------- $3,848,359 ==========
See accompanying notes to combined financial statements. F-24 86 CHILDS & CHILDS GRANITE COMPANY, INC., C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI COMBINED STATEMENT OF OPERATIONS FOR THE ELEVEN-MONTH PERIOD ENDED MAY 31, 1997 Net revenues..................................................................... $5,606,364 Cost of goods sold (including purchases from the Quarry Companies of $1,009,448) -- (note 4)........................................................ 4,592,884 ---------- Gross profit........................................................... 1,013,480 Selling, general, and administrative expenses.................................... 701,325 ---------- Operating income....................................................... 312,155 ---------- Other income (expense): Interest expense............................................................... (58,758) Finance charge income.......................................................... 28,322 Miscellaneous income........................................................... 2,033 ---------- Net other expense...................................................... (28,403) ---------- Net income before equity in earnings of investees...................... 283,752 Equity in earnings of investees (note 4)......................................... 128,839 ---------- Net income............................................................. $ 412,591 ==========
See accompanying notes to combined financial statements. F-25 87 CHILDS & CHILDS GRANITE COMPANY, INC., C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI COMBINED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE ELEVEN-MONTH PERIOD ENDED MAY 31, 1997
QUARRY COMPANIES' TOTAL COMMON AND SMI'S RETAINED STOCKHOLDERS' STOCK CAPITAL EARNINGS EQUITY ------- --------- ---------- ------------ Balance at June 30, 1996...................... $22,500 $ 219,345 $2,269,711 $ 2,511,556 Distributions to stockholders............... -- -- (348,377) (348,377) Net income.................................. -- 128,839 283,752 412,591 ------- -------- ---------- ---------- Balance at May 31, 1997....................... $22,500 $ 348,184 $2,205,086 $ 2,575,770 ======= ======== ========== ==========
See accompanying notes to the combined financial statements. F-26 88 CHILDS & CHILDS GRANITE COMPANY, INC., C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI COMBINED STATEMENT OF CASH FLOWS FOR THE ELEVEN-MONTH PERIOD ENDED MAY 31, 1997 Cash flows from operating activities: Net income.................................................................... $ 412,591 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation............................................................... 144,638 Equity in earnings of Quarry Companies and SMI............................. (128,839) Changes in operating assets and liabilities: Trade accounts receivable................................................ (213,089) Inventories.............................................................. (57,466) Prepaid expenses......................................................... 57,561 Trade accounts payable, trade accounts payable-affiliates, and accrued costs................................................................... 96,690 --------- Net cash provided by operating activities............................. 312,086 --------- Cash flows from investing activities: Additions to property, plant, and equipment................................... (31,768) Increase in cash surrender value.............................................. (56,008) --------- Net cash used in investing activities................................. (87,776) --------- Cash flows from financing activities: Proceeds from long-term debt.................................................. 912,185 Payments on long-term debt.................................................... (814,377) Distributions to stockholders................................................. (234,000) --------- Net cash used in financing activities................................. (136,192) --------- Net change in cash.................................................... 88,118 Cash at beginning of period..................................................... 25,368 --------- Cash at end of period........................................................... $ 113,486 ========= Supplemental disclosure of cash flow information -- cash paid during the period for interest.................................................................. $ 62,545 ========= Supplemental disclosure of noncash investing and financing activities -- the Company distributed the cash surrender value of certain life insurance policies to the Company's stockholders which amounted to...................... $ 114,377 =========
See accompanying notes to the combined financial statements. F-27 89 CHILDS & CHILDS GRANITE COMPANY, INC., C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI NOTES TO COMBINED FINANCIAL STATEMENTS MAY 31, 1997 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (a) Description of Business Childs & Childs Granite Company, Inc. is a manufacturer of granite monuments and memorials in Elberton, Georgia. The three stockholders of Childs & Childs Granite Company, Inc. collectively own C & C Granite Company, Inc., which is a trucking company that primarily delivers products to Childs & Childs Granite Company, Inc.'s customers. Additionally, the three stockholders of Childs & Childs Granite Company, Inc. collectively own a 50% interest in the Quarry Companies (Caprice Blue Quarry, Inc.; Autumn Rose Quarry, Inc.; and Pennsylvania Granite Corporation, including its wholly owned subsidiary, Carolina Quarries, Inc.) which operate six granite quarries in five states and Southern Mausoleum, Inc. (SMI), a mausoleum manufacturing plant. Net revenues are to various retail monument customers throughout the United States. (b) Basis of Presentation The combined financial statements include the financial statements of Childs & Childs Granite Company, Inc.; C & C Granite Company, Inc.; and the 50% ownership in the aforementioned three Quarry Companies and SMI owned by the three stockholders of Childs & Childs Granite Company, Inc. (collectively, the "Company"). Childs & Childs Granite Company, Inc., the Quarry Companies and SMI have been combined using historical costs as a result of the common ownership. The Quarry Companies and SMI are accounted for under the equity method. All significant intercompany balances and transactions have been eliminated in combination. (c) Cash Equivalents For purposes of the combined statement of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. At May 31, 1997, the Company owned no cash equivalents. (d) Inventories Inventories are stated at the lower of cost or market (net realizable value). Cost is determined using the first-in, first-out (FIFO) method for all inventories. (e) Property, Plant, and Equipment Property, plant, and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the assets on a straight-line basis. Property, plant, and equipment are depreciated over the following estimated useful lives:
YEARS Buildings.................................................... 39 Machinery and equipment...................................... 12 Vehicles..................................................... 5 Office equipment............................................. 5 to 7
F-28 90 CHILDS & CHILDS GRANITE COMPANY, INC., C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES -- (CONTINUED) (f) Income Taxes The stockholders of the Company have elected to have the earnings of the Company taxed under the S Corporation provisions of the Internal Revenue Code. Under the S Corporation provisions, the income taxes of the Company are the responsibility of the stockholders for Federal and state income tax purposes. Accordingly, no income tax provision or income tax balances have been recorded by the Company. (g) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on January 1, 1996. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of this statement did not have a material impact on the Company's financial position, results of operations, or liquidity. (h) Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (2) INVENTORIES The components of inventories are as follows: Raw materials............................................ $ 896,816 Work in process.......................................... 56,629 Finished goods........................................... 182,853 ---------- Total inventories.............................. $1,136,298 ==========
(3) FAIR VALUE OF FINANCIAL INSTRUMENTS For cash, trade accounts receivables, trade accounts payables, trade accounts payable-affiliates, due to stockholders, and accrued wage related costs, the carrying amounts approximate fair value because of the short maturity of these instruments. The carrying value of long-term debt approximates fair value due to the variable interest of these instruments using a discounted cash flow analysis. F-29 91 CHILDS & CHILDS GRANITE COMPANY, INC., C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (4) INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES Investments in affiliated companies consist of the three stockholders' 50% of the common stock of each of the Quarry Companies and SMI. Summary unaudited financial information for the Quarry Companies and SMI as of and for the eleven-month period ended May 31, 1997 is as follows:
CAPRICE AUTUMN BLUE ROSE PENNSYLVANIA QUARRY SMI QUARRY GRANITE TOTAL --------- ---------- ---------- ------------ ----------- Current assets.............. $ 25,169 $ 611,297 $ 85,413 $ 1,887,749 $ 2,609,628 Noncurrent assets........... 277,301 288,514 1,530,708 5,476,508 7,573,031 --------- --------- --------- --------- --------- Total assets...... $ 302,470 $ 899,811 $1,616,121 $ 7,364,257 $10,182,659 ========= ========= ========= ========= ========= Current liabilities......... $ 200,443 $ 587,554 $ 171,684 $ 5,097,809 $ 6,057,490 Noncurrent liabilities...... 797,511 590,242 1,511,181 529,868 3,428,802 Stockholders' equity (deficit)................. (695,484) (277,985) (66,744) 1,736,580 696,367 --------- --------- --------- --------- --------- Total liabilities and stockholders' equity (deficit)....... $ 302,470 $ 899,811 $1,616,121 $ 7,364,257 $10,182,659 ========= ========= ========= ========= ========= Net revenues................ $ 183,569 $1,225,396 $ 325,533 $ 6,725,009 $ 8,459,507 Gross profit (loss)......... (234,920) 244,123 (29,267) 1,657,346 1,637,282 Net earnings (loss)......... $(254,707) $ 126,185 $ (78,525) $ 464,725 $ 257,678 ========= ========= ========= ========= =========
In addition, the Company has advances to the Quarry Companies and SMI totaling $192,000 at May 31, 1997. Childs & Childs Granite Co., Inc. purchases a substantial portion of its raw granite from the Quarry Companies. Such purchases amounted to $1,009,448 for the eleven-month period ended May 31, 1997. Individually, the purchases from each Quarry Company are as follows: Caprice Blue Quarry...................................... $ 158,657 Autumn Rose Quarry....................................... 84,608 Pennsylvania Granite..................................... 766,183 ---------- Total.......................................... $1,009,448 ==========
At May 31, 1997, the Company's 50% interest in the cumulative losses of the Quarry Companies and SMI amounted to $(928,927). (5) LONG-TERM DEBT Long-term debt at May 31, 1997 consists of the following: Borrowings under line of credit, interest at 9.00%, payable monthly, principal due November 1998............ $500,000 Borrowings under line of credit, interest at prime plus 1% (9.5% at May 31, 1997) payable quarterly beginning August 1997, principal due May 1998..................... 412,185 -------- Total long-term debt............................ 912,185 Less current portion...................................... 412,185 -------- Long-term debt, less current portion............ $500,000 ========
F-30 92 CHILDS & CHILDS GRANITE COMPANY, INC., C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (5) LONG-TERM DEBT -- (CONTINUED) The aggregate maturities of long-term debt for each of the two years subsequent to May 31, 1997 are as follows: 1998, $412,185 and 1999, $500,000. Childs & Childs Granite Co., Inc. has two lines of credit with a bank for a total of $1,000,000, of which $912,185 was outstanding at May 31, 1997. The lines of credit are secured by substantially all of the assets of Childs and Childs Granite Co., Inc. The lines of credit may be prepaid at any time without penalty. (6) COMMON STOCK At May 31, 1997, the par value and the authorized shares of common stock of Childs & Childs Granite Co., Inc. were $100 and 5,000, respectively. In addition, 210 shares were issued and outstanding. At May 31, 1997, the par value and the authorized shares of common stock of C & C Granite Co., Inc. were $100 and 5,000, respectively. In addition, 15 shares were issued and outstanding. (7) SUBSEQUENT EVENT On June 28, 1997, Rock of Ages Corporation entered into a definitive agreement with the shareholders of the Company to purchase all of the outstanding stock of the Company. F-31 93 INDEPENDENT AUDITORS' REPORT The Board of Directors, Keystone Memorials, Inc.: We have audited the accompanying combined balance sheet of Keystone Memorials, Inc., the Quarry Companies and Southern Mausoleums, Inc. (SMI) as of April 30, 1997, and the related combined statements of operations, stockholder's deficit, and cash flows for the ten-month period ended April 30, 1997. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audit. We did not audit the financial statements of the Quarry Companies (Caprice Blue Quarry, Inc.; Autumn Rose Quarry, Inc.; or Pennsylvania Granite Corporation and its subsidiary, Carolina Quarries, Inc.) or SMI. The Company's combined investment in and advances to the Quarry Companies and SMI at April 30, 1997 was $585,010 and its equity in the earnings of the Quarry Companies and SMI was $55,787 for the ten-month period ended April 30, 1997. The financial statements of the Quarry Companies and SMI were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for the Quarry Companies and SMI, is based solely on the reports of the other auditors. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of the other auditors provides a reasonable basis for our opinion. In our opinion, based on our audit and the reports of the other auditors, the combined financial statements referred to above present fairly, in all material respects, the financial position of Keystone Memorials, Inc., the Quarry Companies and SMI at April 30, 1997, and the results of their operations and their cash flows for the ten-month period ended April 30, 1997 in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Atlanta, Georgia July 25, 1997 F-32 94 KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI COMBINED BALANCE SHEET APRIL 30, 1997 ASSETS (NOTE 6) Current assets: Cash equivalents............................................................... $ 35,883 Trade accounts receivable, less allowance for doubtful accounts of $1,282,000.................................................................. 1,626,474 Due from employees............................................................. 14,790 Prepaid expenses............................................................... 62,040 Inventories (note 2)........................................................... 1,532,099 ---------- Total current assets........................................................ 3,271,286 ---------- Investments in and advances to affiliated companies (note 4)..................... 585,010 ---------- Property, plant, and equipment: Land........................................................................... 272,977 Buildings...................................................................... 906,882 Machinery and equipment........................................................ 3,293,562 Trucks, autos, and trailers.................................................... 718,778 Furniture and fixtures......................................................... 195,452 ---------- 5,387,651 Less accumulated depreciation.................................................. 2,682,924 ---------- Net property, plant, and equipment.......................................... 2,704,727 ---------- $6,561,023 ========== LIABILITIES AND STOCKHOLDER'S DEFICIT Current liabilities: Current portion of long-term debt (note 6)..................................... $ 844,419 Bank overdraft................................................................. 70,921 Trade accounts payable......................................................... 816,917 Trade accounts payable-affiliates.............................................. 3,394,680 Accrued expenses............................................................... 171,464 ---------- Total current liabilities................................................... 5,298,401 Long-term debt, less current portion (note 6).................................... 1,745,649 ---------- Total liabilities...................................................... 7,044,050 ---------- Stockholder's deficit: Common stock, $100 par value. Authorized 100 shares; issued and outstanding 100 shares...................................................................... 10,000 Quarry Companies and SMI's capital............................................. 275,132 Accumulated deficit............................................................ (768,159) ---------- Total stockholder's deficit............................................ (483,027) Commitments and contingencies (notes 5 and 6).................................... ---------- $6,561,023 ==========
See accompanying notes to combined financial statements. F-33 95 KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI COMBINED STATEMENT OF OPERATIONS FOR THE TEN-MONTH PERIOD ENDED APRIL 30, 1997 Net revenues..................................................................... $7,537,876 Cost of goods sold (including purchases from affiliated companies of $761,923 and related parties of $848,822) -- (notes 4 and 8)................................ 6,723,718 ---------- Gross profit........................................................... 814,158 Selling, general, and administrative expenses.................................... 1,093,782 ---------- Operating loss......................................................... (279,624) ---------- Other income (expense): Interest expense............................................................... (186,401) Finance charge income.......................................................... 92,955 Gain on sales of property and equipment........................................ 40,207 ---------- Total other expense.................................................... (53,239) ---------- Loss before equity in earnings of Quarry Companies and SMI and income taxes.................................................................. (332,863) Equity in earnings of Quarry Companies and SMI (note 4).......................... 55,787 ---------- Loss before income taxes............................................... (277,076) Income taxes (note 7)............................................................ -- ---------- Net loss............................................................... $ (277,076) ==========
See accompanying notes to combined financial statements. F-34 96 KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI COMBINED STATEMENT OF STOCKHOLDER'S DEFICIT FOR THE TEN-MONTH PERIOD ENDED APRIL 30, 1997
QUARRY COMPANIES' TOTAL COMMON AND SMI'S ACCUMULATED STOCKHOLDER'S STOCK CAPITAL DEFICIT DEFICIT ------- ---------- ----------- ------------- Balance at June 30, 1996............................ $10,000 219,345 (435,296) (205,951) Net earnings (loss)............................... -- 55,787 (332,863) (277,076) ------- ------- -------- -------- Balance at April 30, 1997........................... $10,000 275,132 (768,159) (483,027) ======= ======= ======== ========
See accompanying notes to the combined financial statements. F-35 97 KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI COMBINED STATEMENT OF CASH FLOWS FOR THE TEN-MONTH PERIOD ENDED APRIL 30, 1997 Cash flows from operating activities: Net loss....................................................................... $ (277,076) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation................................................................ 297,023 Gain on sales of property, plant, and equipment............................. (40,207) Equity in earnings of Quarry Companies and SMI.............................. (55,787) Changes in operating assets and liabilities: Trade accounts receivable and due from employees.......................... (190,647) Inventories............................................................... (59,243) Prepaid expenses.......................................................... 33,258 Trade accounts payable, trade accounts payable-affiliates, and accrued expenses................................................................. 172,684 ---------- Net cash used in operating activities.................................. (119,995) ---------- Cash flows from investing activities: Additions to property, plant, and equipment.................................... (172,670) Proceeds from sales of property, plant, and equipment.......................... 185,000 Increase in advances to affiliated companies................................... (121,998) ---------- Net cash used in investing activities.................................. (109,668) ---------- Cash flows from financing activities: Increase in bank overdraft..................................................... 70,921 Proceeds from long-term debt................................................... 1,013,458 Payments on long-term debt..................................................... (979,972) ---------- Net cash provided by financing activities.............................. 104,407 ---------- Net change in cash equivalents......................................... (125,256) Cash equivalents at beginning of period.......................................... 161,139 ---------- Cash equivalents at end of period................................................ $ 35,883 ========== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest.................................................................... $ 186,401 ========== Income taxes................................................................ $ -- ==========
See accompanying notes to the combined financial statements. F-36 98 KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI NOTES TO COMBINED FINANCIAL STATEMENTS APRIL 30, 1997 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (a) Description of Business Keystone Memorials, Inc. is a manufacturer of granite monuments and memorials in Elberton, Georgia. Additionally, the sole stockholder of Keystone Memorials, Inc. owns a 50% interest in three Quarry Companies (Caprice Blue Quarry, Inc.; Autumn Rose Quarry, Inc.; and Pennsylvania Granite Corporation, including its wholly owned subsidiary, Carolina Quarries, Inc.) which operate six granite quarries in five states and Southern Mausoleum, Inc. (SMI), a mausoleum manufacturing plant. Net revenues are to various retail monument customers throughout the United States. (b) Basis of Presentation The combined financial statements include the financial statements of Keystone Memorials, Inc., and its 50% ownership in three Quarry Companies and SMI owned by the sole stockholder of Keystone Memorials, Inc. (collectively, the "Company"). Keystone Memorials, Inc., Quarry Companies and SMI have been combined using historical costs as a result of the common ownership. The Quarry Companies and SMI are accounted for under the equity method. (c) Cash Equivalents For purposes of the combined statement of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. At April 30, 1997, the cash equivalents consisted of $35,883 invested in a money market account. (d) Inventories Inventories are stated at the lower of cost or market (net realizable value). Cost is determined using the first-in, first-out (FIFO) method for all inventories. (e) Property, Plant, and Equipment Property, plant, and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the assets on a straight-line basis. Property, plant, and equipment are depreciated over the following estimated useful lives:
YEARS ------ Buildings.................................................... 39 Machinery and equipment...................................... 12 Vehicles..................................................... 5 Office equipment............................................. 5 to 7
(f) Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (g) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on January 1, 1996. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be F-37 99 KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES -- (CONTINUED) recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of this statement did not have a material impact on the Company's financial position, results of operations, or liquidity. (h) Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (2) INVENTORIES The components of inventories are as follows: Raw materials............................................ 791,570 Work in process.......................................... 154,017 Finished goods........................................... $ 586,512 ---------- Total inventories.............................. $1,532,099 ==========
(3) FAIR VALUE OF FINANCIAL INSTRUMENTS For cash equivalents, trade accounts receivables, due from employees, bank overdraft, trade accounts payables, trade accounts payable-affiliates, and accrued expenses, the carrying amounts approximate fair value because of the short maturity of these instruments. The carrying value of long-term debt approximates fair value based on discounted cash flow analyses. (4) INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES Investments in affiliated companies consists of the sole stockholder's 50% of the common stock of each of the Quarry Companies and SMI. Summary unaudited financial information for the Quarry Companies and SMI as of and for the ten-month period ended April 30, 1997 is as follows:
CAPRICE AUTUMN ROSE PENNSYLVANIA BLUE QUARRY SMI QUARRY GRANITE TOTAL ----------- ---------- ----------- ------------ ----------- Current assets.............. $ 17,557 $ 610,406 $ 91,700 $ 1,774,381 $ 2,494,044 Noncurrent assets........... 279,247 292,488 1,534,118 5,454,693 7,560,546 -------- -------- ---------- ---------- ----------- Total assets...... $ 296,804 $ 902,894 $1,625,818 $ 7,229,074 $10,054,590 ======== ======== ========== ========== =========== Current liabilities......... $ 231,976 $ 632,922 $ 178,070 $ 4,994,908 $ 6,037,876 Noncurrent liabilities...... 749,409 605,748 1,512,690 579,868 3,447,715 Stockholders' equity (deficit)................. (684,581) (335,776) (64,942) 1,654,298 568,999 -------- -------- ---------- ---------- ----------- Total liabilities and stockholders' equity (deficit)....... $ 296,804 $ 902,894 $1,625,818 $ 7,229,074 $10,054,590 ======== ======== ========== ========== =========== Net revenues................ $ 164,197 $1,073,646 $ 294,495 $ 6,076,004 $ 7,608,342 Gross profit (loss)......... (226,437) 174,251 (31,007) 1,401,663 1,318,470 Net earnings (loss)......... $ (243,804) $ 68,394 $ (76,723) $ 382,443 $ 130,310 ======== ======== ========== ========== ===========
In addition, the Company has advances to the Quarry Companies and SMI totaling $300,510 at April 30, 1997. F-38 100 KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (4) INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES -- (CONTINUED) Keystone Memorials, Inc. purchases a substantial portion of its raw granite from the Quarry Companies and SMI. Such purchases amounted to $761,923 for the ten-month period ended April 30, 1997. Intercompany profits of $9,368 have been eliminated in combination. Individually, the purchases from each of the Quarry Companies and SMI are as follows: Caprice Blue Quarry....................................... $ 21,297 Southern Mausoleums....................................... 31,597 Autumn Rose Quarry........................................ 62,068 Pennsylvania Granite...................................... 646,961 -------- $761,923 ========
Keystone Memorials, Inc. sold various property and equipment to Pennsylvania Granite for $109,000 for the ten-month period ended April 30, 1997. At April 30, 1997, the Company's 50% interest in the cumulative losses of the Quarry Companies and SMI amounted to $(992,611). (5) LEASES The Company has several noncancelable operating leases, primarily for office equipment, that expire over the next three years. Rental expense for the operating leases (except those with lease terms of a month or less that were not renewed) during the ten-month period ending April 30, 1997 was $4,000. Future minimum lease payments under noncancelable operating leases with initial or remaining lease terms in excess of one year as of April 30, 1997 are $13,000 over the next three years. (6) LONG-TERM DEBT Long-term debt at April 30, 1997 consists of the following: 9.75% note payable in monthly installments of $7,840, including interest, with final payment of $484,708, due June 1999.............................................. $ 568,688 9.75% note payable in monthly installments of $4,035, including interest, with final payment of $249,962, due June 1999.............................................. 293,083 Borrowings under line of credit, interest at prime plus .25% (8.75% at April 30, 1997) payable monthly, principal due May 1998................................. 945,243 Non-interest bearing note payable to former owner which is the estate of the relative of the sole stockholder............................................ 783,054 ---------- Total long-term debt........................... 2,590,068 Less current portion..................................... 844,419 ---------- Long-term debt, excluding current portion...... $1,745,649 ==========
The aggregate maturities of long-term debt for each of the three years subsequent to April 30, 1997 are as follows: 1998, $844,419; 1999, $1,012,866; and 2000, $732,783. Keystone Memorials, Inc. has a line of credit with a bank for a total of $1,000,000, of which $945,243, was outstanding at April 30, 1997. The line of credit is secured by substantially all of the assets of Keystone Memorials, Inc. The line of credit may be prepaid at any time without penalty. Keystone Memorials, Inc. also has two financing notes used to finance various equipment. These notes are paid on a monthly basis, with the final payments due in June 1999. These notes are secured by the equipment they are financing. F-39 101 KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (7) INCOME TAXES Income taxes for the ten-month period ended April 30, 1997 differed from the amounts computed by applying the U.S. federal income tax rate of 34% to loss before income taxes as a result of the following: Computed "expected" tax benefit.......................... $ (94,206) Increase (reduction) in income taxes resulting from: Change in the beginning-of-the-year balance of the valuation allowance for deferred tax assets allocated to income taxes........................... 108,060 State and local income taxes, net of federal income tax benefit............................................. (15,683) Other, net............................................. 1,829 --------- $ -- =========
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at April 30, 1997 are presented below. Deferred tax assets: Accounts receivable principally due to allowance for doubtful accounts................................... $ 499,980 Inventories, principally due to additional costs inventoried for tax purposes pursuant to the Tax Reform Act of 1986.................................. 72,150 Accruals not deductible until paid..................... 21,648 Investments in affiliated companies, principally due to undistributed losses of affiliated companies........ 387,118 Net operating loss carryforwards....................... 253,422 Other.................................................. 4,801 --------- Total gross deferred tax assets................ 1,239,119 Less valuation allowance............................... 821,555 --------- Net deferred tax assets........................ 417,564 --------- Deferred tax liability -- Property, plant, and equipment, principally due to differences in depreciation......... (417,564) --------- Net deferred taxes............................. $ -- =========
The change in the income tax valuation allowance for the ten-month period ended April 30, 1997 was $108,060. At April 30, 1997, the Company has net operating loss carryforwards for federal income tax purposes of $649,800 which are available to offset future federal taxable income, if any, through 2012. Such net operating loss carryforwards may not be utilized subsequent to the acquisition (see note 9). (8) RELATED PARTY TRANSACTIONS The sole stockholder of the Company has an ownership interest in two quarries that sell raw granite to the Company on a routine basis. Total purchases from these related parties for the ten-month period ended April 30, 1997 was $848,822. Also, the Company sold various machinery and equipment to one of the quarries for $76,000. (9) SUBSEQUENT EVENT On June 30, 1997, a successor to the Company was acquired by Rock of Ages Corporation ("Rock of Ages") in exchange for 263,441 shares of common stock of Rock of Ages. A total of $3,273,856, included in trade accounts payable, was not included in this transaction. F-40 102 INDEPENDENT AUDITORS' REPORT The Boards of Directors Keith Monument Companies: We have audited the accompanying combined balance sheets of Keith Monument Companies (the "Companies") as of June 30, 1997 and 1996, and the related combined statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended June 30, 1997. These combined financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Keith Monument Companies as of June 30, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 1997 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Louisville, Kentucky August 8, 1997 F-41 103 KEITH MONUMENT COMPANIES COMBINED BALANCE SHEETS JUNE 30, 1996 AND 1997
1996 1997 ---------- ---------- ASSETS Current assets: Cash and cash equivalents......................................... $1,866,496 $1,783,346 Accounts receivable, less allowance for doubtful accounts of $124,500....................................................... 834,237 1,002,527 Current portion of notes receivable (note 4): Related party.................................................. 63,145 89,876 Other.......................................................... 39,525 28,738 Inventories (note 2).............................................. 664,100 1,192,364 Prepaid expenses and other current assets......................... 77,474 98,210 Prepaid income taxes (note 7)..................................... 26,300 16,400 Deferred income taxes (note 7).................................... 9,900 10,300 ---------- ---------- Total current assets........................................... 3,581,177 4,221,761 Property, plant and equipment, net (notes 3 and 5).................. 977,386 1,393,261 Notes receivable, excluding current portion (note 4): Related party..................................................... 468,346 401,406 Other............................................................. 26,580 15,775 Due from related party.............................................. 48,870 48,870 Investments......................................................... 304,046 319,434 Cash surrender value of life insurance.............................. 148,956 164,329 Covenants not to compete, less accumulated amortization of $45,000 and $83,022, respectively (note 9)................................ 105,000 387,861 Goodwill, less accumulated amortization of $13,982 (note 9)......... -- 824,940 Other assets........................................................ 237,853 209,199 ---------- ---------- $5,898,214 $7,986,836 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt (note 5)..................... $ -- $ 277,921 Trade accounts payable............................................ 31,818 96,964 Accrued expenses.................................................. 493,602 630,137 Dividends payable................................................. 141,303 85,825 Customer deposits................................................. 964,324 844,895 ---------- ---------- Total current liabilities...................................... 1,631,047 1,935,742 Long-term debt, excluding current maturities (note 5)............... -- 1,840,562 Deferred income taxes (note 7)...................................... 27,200 -- ---------- ---------- Total liabilities......................................... 1,658,247 3,776,304 ---------- ---------- Commitments and contingencies (note 8).............................. Stockholders' equity (note 6): Common stock...................................................... 179,700 179,700 Retained earnings................................................. 4,066,267 4,036,832 Treasury stock.................................................... (6,000) (6,000) ---------- ---------- Total stockholders' equity................................ 4,239,967 4,210,532 ---------- ---------- $5,898,214 $7,986,836 ========== ==========
See accompanying notes to combined financial statements. F-42 104 KEITH MONUMENT COMPANIES COMBINED STATEMENTS OF OPERATIONS YEARS ENDED JUNE 30, 1995, 1996 AND 1997
1995 1996 1997 ---------- ---------- ---------- Net revenues........................................... $7,041,748 $6,781,005 $7,810,831 Cost of goods sold..................................... 2,133,608 2,048,600 2,531,797 ---------- ---------- ---------- Gross profit................................. 4,908,140 4,732,405 5,279,034 Selling, general and administrative expenses........... 3,940,554 3,854,739 4,208,996 ---------- ---------- ---------- Operating income............................. 967,586 877,666 1,070,038 Interest income........................................ 98,856 148,582 172,300 Other income........................................... 81,295 93,521 71,633 Other expense.......................................... (23,251) (23,502) (85,328) ---------- ---------- ---------- Income before income taxes................... 1,124,486 1,096,267 1,228,643 Income tax expense (benefit) (note 7).................. 11,000 2,600 (23,650) ---------- ---------- ---------- Net income................................... $1,113,486 $1,093,667 $1,252,293 ========== ========== ==========
See accompanying notes to combined financial statements. F-43 105 KEITH MONUMENT COMPANIES COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED JUNE 30, 1995, 1996 AND 1997
COMMON RETAINED TREASURY STOCK EARNINGS STOCK TOTAL -------- ---------- -------- ---------- Balance at June 30, 1994...................... $179,700 4,230,074 (6,000) 4,403,774 Net income.................................. -- 1,113,486 -- 1,113,486 Dividends................................... -- (1,207,237) -- (1,207,237) -------- ---------- ------ ---------- Balance at June 30, 1995...................... 179,700 4,136,323 (6,000) 4,310,023 Net income.................................. -- 1,093,667 -- 1,093,667 Dividends................................... -- (1,163,723) -- (1,163,723) -------- ---------- ------ ---------- Balance at June 30, 1996...................... 179,700 4,066,267 (6,000) 4,239,967 Net income.................................. -- 1,252,293 -- 1,252,293 Dividends................................... -- (1,281,728) -- (1,281,728) -------- ---------- ------ ---------- Balance at June 30, 1997...................... $179,700 4,036,832 (6,000) 4,210,532 ======== ========== ====== ==========
See accompanying notes to combined financial statements. F-44 106 KEITH MONUMENT COMPANIES COMBINED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 1995, 1996 AND 1997
1995 1996 1997 --------- --------- --------- Cash flows from operating activities: Net income............................................... $1,113,486 $1,093,667 $1,252,293 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation.......................................... 131,295 104,203 117,072 Amortization.......................................... 15,000 30,000 52,004 (Gain) loss on sale of property, plant and equipment........................................... (4,044) 7,433 25,349 Deferred income taxes................................. (1,900) (1,800) (27,600) (Increase) decrease in accounts receivable............ 27,061 306,879 (168,290) (Increase) decrease in inventories.................... (37,649) 24,952 41,914 (Increase) decrease in prepaid expenses and other current assets...................................... 24,768 104,627 (20,736) (Increase) decrease in prepaid income taxes........... 14,400 (26,300) 9,900 (Increase) decrease in other assets................... (20,269) (161,091) 28,654 Increase (decrease) in trade accounts payable......... (85,882) (18,784) 65,146 Increase (decrease) in accrued expenses............... 5,524 (20,162) 136,535 Increase (decrease) in income taxes payable........... 12,709 (12,709) -- Increase (decrease) in customer deposits.............. (43,356) 254,593 (119,429) ---------- ---------- ---------- Net cash provided by operating activities........ 1,151,143 1,685,508 1,392,812 ---------- ---------- ---------- Cash flows from investing activities: Decrease in notes receivable............................. 75,579 91,223 61,801 Additions to property, plant and equipment............... (74,562) (142,857) (195,701) Proceeds from sale of property, plant and equipment...... 11,400 28,105 25,905 (Increase) decrease in investments....................... (13,306) 92,635 (15,388) Increase in cash surrender value of life insurance....... (11,172) (23,070) (15,373) Cash paid for covenant not to compete.................... (150,000) -- -- ---------- ---------- ---------- Net cash provided by (used in) investing activities..................................... (162,061) 46,036 (138,756) ---------- ---------- ---------- Cash flows from financing activities -- Cash dividends paid...................................... (1,255,494) (1,192,264) (1,337,206) ---------- ---------- ---------- Net increase (decrease) in cash.................. (266,412) 539,280 (83,150) Cash and cash equivalents at beginning of year............. 1,593,628 1,327,216 1,866,496 ---------- ---------- ---------- Cash and cash equivalents at end of year................... $1,327,216 $1,866,496 $1,783,346 ========== ========== ========== Supplemental cash flow information -- Cash (paid) refunded for income taxes.................... $ 14,026 $ (23,517) $ -- ========== ========== ========== Supplemental schedule of noncash investing and financing activities -- Note receivable for sale of building and land............ $ -- $ 36,000 $ -- ========== ========== ==========
See accompanying notes to combined financial statements. F-45 107 KEITH MONUMENT COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS JUNE 30, 1996 AND 1997 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Description of Business Keith Monument Companies (the Companies) are engaged in a single line of business of the engraving and selling of memorials, primarily to customers in the Commonwealth of Kentucky. (b) Principles of Combination The combined financial statements include the following Kentucky corporations, all affiliated through common ownership and control of substantially all of the issued and outstanding shares of common stock of the Companies by Messers. John E. Keith and Roy H. Keith, Jr., and their families: Keith Monument Company, National Memorial Corporation, Riehm-Gerlack Monument Company, Inc., Keith Lettering & Setting Corporation, Glasgow Monument Company, Inc. and Snyder Corporation. Keith Monument Company is a wholly-owned subsidiary of Keith National Corporation, a Kentucky corporation also controlled by Messers. Keith. All significant intercompany balances and transactions have been eliminated in the combined financial statements. (c) Cash Equivalents Cash equivalents of $415,283 and $321,572 at June 30, 1996 and 1997, respectively, consist primarily of money market funds and certificates of deposit with an initial term of less than three months. For purposes of the statements of cash flows, the Companies consider all short-term highly liquid investments with original maturities of three months or less to be cash equivalents. Cash and certificates of deposit are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. The Companies had bank balances exceeding individual FDIC insurance limits by $1,184,665 at June 30, 1997. (d) Accounts Receivable and Revenue Recognition The Companies recognize revenue upon the setting of the memorial. In certain instances, the Companies may enter into agreements with their customers which provide for extended payment terms, generally up to two years from either the date of setting of the memorial or, in certain instances, upon the settlement of an estate. Customer deposits and prepayments are recorded as a liability and recognized as revenue upon the setting of the memorial. Finance charges are recognized when received. The Companies do not require collateral or other security on accounts receivable. The credit risk on accounts is controlled by requiring significant deposits and monitoring procedures. (e) Notes Receivable Notes receivable are recorded at cost, less the related allowance for impaired notes receivable, if necessary. Management, considering current information and events regarding the borrowers' ability to repay their obligations, considers a note to be impaired when it is probable that the Companies will be unable to collect all amounts due according to the contractual terms of the note agreement. When a loan is considered to be impaired, the amount of the impairment is measured based on the present value of expected future cash flows discounted at the notes effective interest rate. No impairment losses are estimated to exist at June 30, 1996 and 1997. (f) Inventories Inventories consist primarily of memorials purchased for resale or for display purposes, and are stated at the lower of cost or market. Cost is determined using the last-in, first-out method (LIFO) for all inventories F-46 108 KEITH MONUMENT COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) except those acquired from Lexington Granite Company, Inc. (which were acquired March 31, 1997, see note 9) for which cost is determined using the first-in, first-out method (FIFO). (g) Property, Plant and Equipment and Depreciation Property, plant and equipment are stated at cost. Depreciation on plant and equipment is calculated on various accelerated methods over the estimated useful lives of the assets as follows: Buildings and improvements............................ 10 to 30 years Machinery, equipment, furniture and fixtures.......... 5 to 10 years Vehicles.............................................. 4 to 10 years
(h) Investments Investments consist of certificates of deposit with initial terms of six years with maturities through 1999. Certificates of deposit are valued at cost plus accrued interest, which approximates fair value. The Companies had certificates of deposits exceeding individual FDIC insurance limits (see note 1(c)) by $224,118 at June 30, 1997. (i) Covenants Not to Compete Covenants not to compete are amortized on a straight-line basis over five to ten years, the lives of the covenants. (j) Goodwill Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis over 15 years, the expected periods to be benefited. The Companies assess the recoverability of this intangible asset by determining whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. The amount of goodwill impairment, if any, is measured based on projected discounted future operating cash flows using a discount rate reflecting the Companies' average cost of funds. The assessment of the recoverability of goodwill will be impacted if estimated future operating cash flows are not achieved. (k) Income Taxes National Memorial Corporation, Riehm-Gerlack Monument Company, Inc., Keith Lettering & Setting Corporation, Glasgow Monument Company, Inc. and Snyder Corporation have elected to be taxed as Small Business Corporations for Federal and state income tax purposes. Therefore, no provision for Federal and state income taxes has been made in the combined financial statements for those companies since such taxes are the responsibility of the stockholders. Keith Monument Company has elected to be taxed as a C Corporation. Accordingly, income taxes are accounted for under the asset and liability method for Keith Monument Company. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. F-47 109 KEITH MONUMENT COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) (l) Use of Estimates Management of the Companies has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from these estimates. (m) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of The Companies adopted the provisions of Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on July 1, 1996. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of this Statement did not have a material impact on the Companies' financial position, results of operations, or liquidity. (n) Fair Value of Financial Instruments Various methods and assumptions were used by the Companies in estimating their fair value disclosures for significant financial instruments. Fair values of cash equivalents, accounts and notes receivable, investments, trade accounts payable, accrued expenses and customer deposits approximate their carrying amount because of the short maturity of those instruments. The fair value of long-term debt is based on the present value of the underlying cash flows discounted at the current estimated borrowing rates available to the Companies. The fair value of the Companies' long-term debt at June 30, 1997 approximates the carrying value. (2) INVENTORIES Inventories consist of the following:
1996 1997 ---------- ---------- Memorials accounted for under the FIFO method.................................... $ -- $ 577,672 Memorials accounted for under the LIFO method.................................... 865,821 860,903 LIFO reserve................................ (201,721) (246,211) ---------- ---------- $ 664,100 $1,192,364 ========== ==========
During 1996 and 1997, LIFO inventory layers were reduced. The impact of charging lower inventory costs prevailing in previous years to cost of goods sold in 1996 and 1997 was not significant. F-48 110 KEITH MONUMENT COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (3) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are summarized as follows:
1996 1997 ---------- ---------- Land........................................ $ 297,557 $ 521,462 Buildings and improvements.................. 880,454 1,084,032 Machinery, equipment, furniture and fixtures.................................. 336,122 364,005 Vehicles.................................... 499,125 478,537 ---------- ---------- 2,013,258 2,448,036 Less accumulated depreciation............... 1,035,872 1,054,775 ---------- ---------- $ 977,386 $1,393,261 ========== ==========
(4) NOTES RECEIVABLE Notes receivable consist of the following:
1996 1997 ---------- ---------- GMMC, Inc., an affiliated company, $200,000 dated April 26, 1993, receivable in semi-annual installments of $13,443 commencing October 26, 1993 with a final receipt due on April 26, 2003, at a 6% rate of interest, secured by a first mortgage on real estate................... $ 151,855 $ 133,814 GMMC, Inc., an affiliated company, $500,000 dated April 26, 1993, receivable in semi-annual installments of $33,608 commencing October 26, 1993 with a final receipt due on April 26, 2003, at a 6% rate of interest, secured by a first mortgage on real estate................... 379,636 357,468 Others...................................... 66,105 44,513 -------- -------- Total notes receivable............ 597,596 535,795 Less current portion........................ 102,670 118,614 -------- -------- Notes receivable, excluding current portion................. $ 494,926 $ 417,181 ======== ========
F-49 111 KEITH MONUMENT COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (5) LONG-TERM DEBT Long-term debt consists of the following:
1996 1997 --------- ---------- Lexington Granite Company, Inc., $1,797,600 dated March 31, 1997, payable in annual installments of $256,800 plus interest commencing March 31, 1998 with a final payment due on March 31, 2004, at a 9% rate of interest.......................... $ -- $1,797,600 David DeMarcus, $500,000 covenant not to compete dated March 31, 1997, payable in annual installments of $50,000 commencing March 31, 1998 with a final payment due March 31, 2007, with no interest stated, imputed interest at 9%.................... -- 320,883 --------- ---------- Total long-term debt.............. -- 2,118,483 Less current maturities..................... -- 277,921 --------- ---------- Long-term debt, excluding current maturities...................... -- $1,840,562 ========= ==========
The Lexington Granite Company, Inc. note and interest are secured by certain assets of Keith & Keith Partnership, a related party, and National Memorial Corporation. Long-term debt matures as follows:
YEAR ENDING JUNE 30 --------------------------------------------------------- 1998..................................................... $ 277,921 1999..................................................... 279,821 2000..................................................... 281,893 2001..................................................... 284,152 2002..................................................... 286,613 Thereafter............................................... 708,083 ---------- $ 2,118,483 ==========
(6) STOCKHOLDERS EQUITY Common stock at June 30, 1996 and 1997 is summarized as follows:
SHARES SHARES ISSUED AND COMPANY PAR/STATED VALUE AUTHORIZED OUTSTANDING AMOUNT - ------------------------------------------- --------------------- ---------- ----------- -------- Keith Monument Company..................... Par value of $100 1,500 1,320 $132,000 National Memorial Corporation.............. Stated value of $10 1,000 1,000 10,000 Riehm-Gerlack Monument Company, Inc. ........................... Par value of $100 1,000 95 9,500 Keith Lettering & Setting Corporation...... Par value of $100 500 60 6,000 Glasgow Monument Company, Inc. ............ Stated value of $150 160 60 9,000 Snyder Corporation......................... Stated value of $60 1,000 220 13,200 ===== ===== -------- $179,700 ========
All of the above shares of stock are voting shares. F-50 112 KEITH MONUMENT COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (6) STOCKHOLDERS EQUITY -- (CONTINUED) Treasury stock consists of the cost of shares purchased from shareholders of Keith Lettering & Setting Corporation and Snyder Corporation in the amounts of $4,000 (2 shares) and $2,000 (20 shares), respectively. National Memorial Corporation also has authorized 1,000 shares of no par value Class A Preferred Stock and 10,000 shares of no par value Class B Preferred Stock. None of these shares were issued on June 30, 1996 or 1997. The dividends represent distributions of Small Business Corporations. (7) INCOME TAXES Income tax expense (benefit) is attributable only to Keith Monument Company and consists of:
CURRENT DEFERRED TOTAL ------- -------- -------- Year ended June 30, 1995: U.S. Federal...................... $10,400 $ (1,425) $ 8,975 State and local................... 2,500 (475) 2,025 ------- -------- $12,900 $ (1,900) $ 11,000 ======= ======== Year ended June 30, 1996: U.S. Federal...................... $ 3,300 $ (1,350) $ 1,950 State and local................... 1,100 (450) 650 ------- -------- $ 4,400 $ (1,800) $ 2,600 ------- -------- Year ended June 30, 1997: U.S. Federal...................... $ 2,700 $(20,700) $(18,000) State and local................... 1,250 (6,900) (5,650) ------- -------- $ 3,950 $(27,600) $(23,650) ------- --------
Income tax expense (benefit) was $11,000, $2,600 and ($23,650) for the years ended June 30, 1995, 1996 and 1997, respectively, and differed from the amounts computed by applying the U.S. Federal income tax rate of 35% to Keith Monument Company pretax income (loss) as a result of the following:
1995 1996 1997 -------- -------- -------- Computed "expected" tax expense (benefit)........................ $ 19,593 $ 11,005 $(33,696) Increase (reduction) in income taxes resulting from: State and local income taxes, net of federal income tax benefit....................... 2,911 1,635 (5,006) Other, net....................... (11,504) (10,040) 15,052 -------- -------- -------- $ 11,000 $ 2,600 $(23,650) ======== ======== ========
F-51 113 KEITH MONUMENT COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (7) INCOME TAXES -- (CONTINUED) The tax effects of temporary differences that give rise to significant portion of the deferred tax assets (liabilities) at June 30, 1996 and 1997 are presented below.
1996 1997 -------- -------- Deferred tax assets: Accounts receivable, principally due to allowances for doubtful accounts.......... $ 5,800 $ 5,800 Compensated absences, principally due to accrual for financial reporting purposes.................................. 2,000 2,000 Other........................................ 2,100 2,500 ------- ------ Total gross deferred tax assets...... 9,900 10,300 Less valuation allowance..................... -- -- ------- ------ Net deferred tax assets.............. $ 9,900 $ 10,300 ------- ------ Deferred tax liabilities: Deferred income from affiliated companies.... (27,200) -- ------- ------ Net deferred tax asset (liability)... $(17,300) $ 10,300 ======= ======
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not Keith Monument Company will realize the benefits of these deductible differences. (8) COMMITMENTS AND CONTINGENT LIABILITIES The Companies have entered into certain leases, all of which will expire by 1999. Certain of such leases are with related parties. Such leases are classified as operating leases and will require cash outflows as follows:
YEAR ENDING JUNE 30 ------------------------------------------------------- 1998................................................... $66,500 1999................................................... 17,000 ------- $83,500 -------
The Companies are in the process of negotiating with Keith and Keith Partnership, an entity controlled by Messrs. John E. Keith and Roy H. Keith, Jr., for a lease of land and buildings associated with the purchase of Lexington Granite Company, Inc. (see note 9). The monthly lease amount will be $10,000. The lease term has not yet been finalized. Rent expense was $75,635, $75,692 and $93,398 for 1995, 1996 and 1997, respectively, of which $51,515, $50,772 and $80,772, respectively, was with related parties. The Companies sponsor two defined contribution profit sharing plans, which cover substantially all employees. Contributions to the plans are based on a percentage of employees' compensation. Such expenses amounted to $297,073, $304,572 and $303,869 in 1995, 1996 and 1997, respectively. F-52 114 KEITH MONUMENT COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (8) COMMITMENTS AND CONTINGENT LIABILITIES -- (CONTINUED) In the ordinary course of business, the Companies are subject to environmental matters. Management provides for such matters when they are probable and can be reasonably estimated. Management is of the opinion there are no existing matters which would have a material impact on the Companies' financial condition or results of operations. In the ordinary course of business, the Companies are subject to litigation matters. Management provides for such matters when they are probable and can be reasonably estimated. Management is of the opinion there are no existing matters which would have a material impact on the Companies' financial condition or results of operations. The Companies participate in the Safety Association Fund (the Fund), a workers' compensation self-insurance fund organized pursuant to the regulations of the Commonwealth of Kentucky -- Department of Workers' Claims. The Companies are charged premiums for workers' compensation based on rates determined by the Fund. While significant judgmental factors are included in the determination of these premiums, management of the Companies believes the amounts paid are adequate to provide for all existing known and incurred but not reported cases, and retroactive adjustments, if any, from the Fund would not have a material impact on the Companies' financial condition or results of operations. (9) ACQUISITION On March 31, 1997, National Memorial Corporation acquired certain assets of Lexington Granite Company, Inc. for a note payable in the amount of $1,797,600 (see note 5). The acquisition has been accounted for as a purchase, with the results of operations of Lexington Granite Company, Inc. included in the combined results of operations of the Companies since April 1, 1997. The purchase price was allocated as follows: Inventories.............................................. $ 570,178 Land..................................................... 300,000 Equipment and machinery.................................. 88,500 Goodwill................................................. 838,922 ---------- $1,797,600 ==========
In addition, the previous owner of Lexington Granite Company, Inc. entered into a ten-year covenant not to compete with National Memorial Corporation for $500,000, payable $50,000 per year for ten years with no interest rate. The covenant not to compete has been recorded at its net present value using a 9% discount rate (see note 5). Pro forma results, giving effect to interest, amortization, rent, salary and commissions, as if the acquisition had occurred on July 1, 1995 are as follows:
1996 1997 ---------- ---------- Net revenues................................ $8,273,000 $9,021,000 ---------- ---------- Net income.................................. $1,009,000 $1,225,000 ---------- ----------
(10) SUBSEQUENT EVENT On July 30, 1997, Messrs. John E. Keith and Roy H. Keith, Jr. and the Companies entered into a definitive agreement with Rock of Ages Corporation ("Rock of Ages"), whereby Rock of Ages will purchase substantially all of the assets and assume substantially all of the liabilities of the Companies for $16,375,000 in cash and shares of Class A common stock, the number of shares to be determined pursuant to a formula F-53 115 KEITH MONUMENT COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (10) SUBSEQUENT EVENT -- CONTINUED defined in the agreement. The purchase price includes an amount of $1,797,600 to be used to repay the Companies' long-term debt to Lexington Granite Company, Inc. (see note 5) at the closing date of the purchase. Rock of Ages is currently planning an initial public offering, and the sale of the Companies is expected to occur concurrently with the consummation of the offering. F-54 116 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS To the Board of Directors Pennsylvania Granite Corporation St. Peters, Pennsylvania We have audited the accompanying consolidated balance sheets of Pennsylvania Granite Corporation and subsidiary as of May 31, 1997 and April 30, 1997, and the related consolidated statements of operations and accumulated deficit, and cash flows for the eleven months and ten months then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Pennsylvania Granite Corporation and subsidiary as of May 31, 1997 and April 30, 1997, and the results of their operations and their cash flows for the eleven months and ten months then ended in conformity with generally accepted accounting principles. /s/ GREENE AND COMPANY, L.L.P. -------------------------------------- GREENE AND COMPANY, L.L.P. Anderson, South Carolina July 22, 1997 F-55 117 PENNSYLVANIA GRANITE CORPORATION CONSOLIDATED BALANCE SHEETS MAY 31, 1997 AND APRIL 30, 1997
MAY 31, APRIL 30, 1997 1997 ---------- ---------- ASSETS Current assets: Cash and cash equivalent.......................................... $ 432,487 $ 402,432 Trade receivables, less allowance for doubtful accounts of $13,495........................................................ 457,327 453,609 Trade receivables -- affiliates................................... 661,348 616,645 Employee receivables.............................................. 120 70 Inventory -- finished goods....................................... 244,751 220,347 Prepaid taxes..................................................... 2,109 4,040 Prepaid expenses.................................................. 86,107 73,738 Deposits.......................................................... 3,500 3,500 ---------- ---------- Total current assets...................................... 1,887,749 1,774,381 ---------- ---------- Property and equipment, net......................................... 2,273,052 2,297,914 ---------- ---------- Other assets: Advances to affiliates............................................ 941,489 873,989 Intangibles, net.................................................. 2,261,967 2,282,790 ---------- ---------- Total other assets............................................. 3,203,456 3,156,779 ---------- ---------- Total assets.............................................. $7,364,257 $7,229,074 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.................................................. $ 503,185 $ 483,839 Accounts payable -- affiliates.................................... 196,529 192,058 Accrued interest.................................................. 20,794 10,877 Accrued expenses.................................................. 14,837 22,608 Income taxes payable.............................................. 155,720 82,000 Deferred income taxes............................................. 279,000 261,000 Notes payable..................................................... 3,927,744 3,942,526 ---------- ---------- Total current liabilities................................. 5,097,809 4,994,908 ---------- ---------- Long-term liabilities -- advances from affiliates................... 529,868 579,868 ---------- ---------- Stockholders' equity: Common stock, no par value. Authorized 1,950 shares; 1,740 shares issued and outstanding......................................... 2,500,500 2,500,500 Accumulated deficit............................................... (763,920) (846,202) ---------- ---------- Total stockholders' equity..................................... 1,736,580 1,654,298 ---------- ---------- Total liabilities and stockholders' equity................ $7,364,257 $7,229,074 ========== ==========
See accompanying notes to financial statements. F-56 118 PENNSYLVANIA GRANITE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT FOR THE ELEVEN MONTHS ENDED MAY 31, 1997 Net revenues (including revenues to affiliates of $1,526,022)................... $ 6,725,009 Cost of goods sold (including purchases from affiliates of $99,997)............. 5,067,663 ----------- Gross profit.................................................................... 1,657,346 Selling and administrative expenses (including fees paid to affiliates of $55,278)...................................................................... 619,257 ----------- Operating income................................................................ 1,038,059 ----------- Other (income) expense: Interest expense.............................................................. 343,601 Finance charges............................................................... (1,982) Interest income............................................................... (10,350) Rental income................................................................. (3,935) ----------- Total other expense................................................... 327,334 ----------- Income before income taxes...................................................... 710,725 Income taxes.................................................................... 246,000 ----------- Net income...................................................................... 464,725 Accumulated deficit, July 1, 1996............................................... (1,228,645) ----------- Accumulated deficit, May 31, 1997............................................... $ (763,920) ===========
See accompanying notes to financial statements. F-57 119 PENNSYLVANIA GRANITE CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT FOR THE TEN MONTHS ENDED APRIL 30, 1997 Net revenues (including revenues to affiliates of $1,323,006)................... $ 6,076,004 Cost of goods sold (including purchases from affiliates of $97,776)............. 4,674,341 ----------- Gross profit.................................................................... 1,401,663 Selling and administrative expenses (including fees paid to affiliates of $49,767)...................................................................... 569,950 ----------- Operating income................................................................ 831,713 ----------- Other (income) expense: Interest expense.............................................................. 312,223 Finance charges............................................................... (1,879) Interest income............................................................... (10,139) Rental income................................................................. (3,935) ----------- Total other expense................................................... 296,270 ----------- Income before income taxes...................................................... 535,443 Income taxes.................................................................... 153,000 ----------- Net income...................................................................... 382,443 Accumulated deficit, July 1, 1996............................................... (1,228,645) ----------- Accumulated deficit, April 30, 1997............................................. $ (846,202) ===========
See accompanying notes to financial statements. F-58 120 PENNSYLVANIA GRANITE CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE ELEVEN MONTHS ENDED MAY 31, 1997 Cash flows from operating activities: Net income..................................................................... $ 464,725 Adjustments to reconcile net income to net cash provided by operating activities: Amortization................................................................ 207,426 Depletion................................................................... 24,078 Depreciation................................................................ 296,646 Deferred income taxes....................................................... 61,000 (Increase) decrease in assets: Trade receivables......................................................... (157,215) Employee receivables...................................................... 1,083 Inventory................................................................. (114,021) Prepaid taxes............................................................. 1,673 Prepaid expenses.......................................................... 36,682 Increase (decrease) in liabilities: Accounts payable.......................................................... 215,322 Accrued interest.......................................................... 20,794 Accrued expenses.......................................................... (71,114) Income taxes payable...................................................... 155,720 ---------- Net cash provided by operating activities.............................. 1,142,799 ---------- Cash flows used in investing activities -- purchase of property and equipment.... (230,572) ---------- Cash flows from financing activities: Payments on notes payable...................................................... (318,908) Advances to affiliates......................................................... (611,500) ---------- Net cash used in financing activities.................................. (930,408) ---------- Net decrease in cash and cash equivalents........................................ (18,181) Cash and cash equivalents, July 1, 1996.......................................... 450,668 ---------- Cash and cash equivalents, May 31, 1997.......................................... $ 432,487 ========== Supplemental disclosures of cash flows information -- cash paid for interest..... $ 343,601 ==========
See accompanying notes to financial statements. F-59 121 PENNSYLVANIA GRANITE CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE TEN MONTHS ENDED APRIL 30, 1997 Cash flows from operating activities: Net income..................................................................... $ 382,443 Adjustments to reconcile net income to net cash provided by operating activities: Amortization................................................................ 188,569 Depletion................................................................... 22,112 Depreciation................................................................ 268,523 Deferred income taxes....................................................... 43,000 (Increase) decrease in assets: Trade receivables......................................................... (108,795) Employee receivables...................................................... 1,133 Inventory................................................................. (89,617) Prepaid taxes............................................................. (258) Prepaid expenses.......................................................... 49,052 Increase (decrease) in liabilities: Accounts payable.......................................................... 191,506 Accrued interest.......................................................... 10,877 Accrued expenses.......................................................... (63,344) Income taxes payable...................................................... 82,000 ---------- Net cash provided by operating activities.............................. 977,201 ---------- Cash flows used in investing activities -- purchase of property and equipment.... (227,311) ---------- Cash flows used in financing activities: Payments on notes payable...................................................... (304,126) Advances to affiliates......................................................... (494,000) ---------- Net cash used in financing activities.................................. (798,126) ---------- Net decrease in cash and cash equivalents........................................ (48,236) Cash and cash equivalents, July 1, 1996.......................................... 450,668 ---------- Cash and cash equivalents, April 30, 1997........................................ $ 402,432 ========== Supplemental disclosures of cash flows information -- cash paid for interest..... $ 312,223 ==========
See accompanying notes to financial statements. F-60 122 PENNSYLVANIA GRANITE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1997 AND APRIL 30, 1997 NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES This summary of significant accounting policies of the Company is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management, who is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. Nature of Business The Company quarries granite dimensional blocks for monuments, industrial surface plates and building materials in Pennsylvania and North and South Carolina. These products are sold nationwide and in Europe. Use of Estimates The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Company has a money market account in the amount of $266,887 at May 31, 1997 and $66,703 at April 30, 1997. Trade Receivables The Company accounts for uncollectible trade receivables on the reserve method. Inventory Inventory of quarry product is valued at the lower of average cost or market. Average cost is the cost to quarry, which includes direct labor and overhead. See accountants' report. F-61 123 PENNSYLVANIA GRANITE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Property and Equipment Property and equipment are stated at acquisition cost as of October 12, 1988, and cost for additions thereafter. Depreciation is computed under the straight-line method for financial reporting purposes over the following estimated useful lives:
YEARS ----- Buildings............................................ 10-40 Trucks and automobiles............................... 3-7 Machinery and equipment.............................. 3-10 Office fixtures and equipment........................ 3-10
Major renewals and betterments are added to the property accounts while maintenance and repairs are charged against earnings as incurred. Intangibles Amortization is computed under the straight-line method for financial reporting purposes over the following estimated useful lives: Goodwill........................................... 18 1/2-40 Organization costs................................. 5 Loan costs......................................... 5 Overburden removal................................. 15 Covenant not to compete............................ 5
Depletion of mineral deposits is computed using cost depletion for financial reporting purposes. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or recognized in income in the period that includes the enactment date. Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on January 1, 1996. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of this statement did not have a material impact on the Company's financial position, results of operations, or liquidity. See accountants' report. F-62 124 PENNSYLVANIA GRANITE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE B -- PROPERTY AND EQUIPMENT Property and equipment consist of the following:
MAY 31, APRIL 30, 1997 1997 ----------- ----------- Land.............................................. $ 721,570 $ 721,570 Buildings......................................... 477,955 477,955 Trucks and automobiles............................ 181,331 181,331 Machinery and equipment........................... 4,719,544 4,716,283 Office fixtures and equipment..................... 61,819 61,819 ----------- ----------- 6,162,219 6,158,958 Accumulated depreciation.......................... (3,889,167) (3,861,044) ----------- ----------- $ 2,273,052 $ 2,297,914 =========== ===========
Depreciation expense for the eleven months ended May 31, 1997 and the ten months ended April 30, 1997 was $296,646 and $268,523, respectively. NOTE C -- INTANGIBLES Intangibles consist of the following:
MAY 31, APRIL 30, 1997 1997 ----------- ----------- Goodwill.......................................... $ 2,883,628 $ 2,884,511 Organization costs................................ 36,990 37,262 Mineral deposits.................................. 540,162 540,162 Loan costs........................................ 24,711 24,711 Overburden removal................................ 150,204 150,204 Covenant not to compete........................... 300,000 300,000 ----------- ----------- 3,935,695 3,936,850 Accumulated amortization and depletion............ (1,673,728) (1,654,060) ----------- ----------- $ 2,261,967 $ 2,282,790 =========== ===========
Amortization and depletion expense for the eleven months ended May 31, 1997 were $207,426 and $24,078, respectively. Amortization and depletion expense for the ten months ended April 30, 1997 were $188,569 and $22,112, respectively. See accountants' report. F-63 125 PENNSYLVANIA GRANITE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE D -- NOTES PAYABLE Notes Payable are as follows:
MAY 31, APRIL 30, 1997 1997 ----------- ----------- Bank mortgage, payable $19,092 monthly (principal and interest at 9 1/2%) with a maturity date of October 1998; the mortgage balance is secured by substantially all of the Company's assets and guarantees by the stockholders. ................ $ 1,590,843 $ 1,597,291 Bank mortgage, payable $8,334 monthly plus interest at prime plus 1 1/2% with a maturity date of October 1998; secured by substantially all of the Company's assets and guarantees by the stockholders. .............................. 1,050,117 1,058,451 Bank mortgage, payable $25,000 monthly (principal and interest at prime plus 0.45%) with a maturity date of May 1997; the mortgage balance is secured by substantially all of the subsidiary's assets and guarantees by the stockholders. Principal and accrued interest were paid in full on July 2, 1997. ............. 1,286,784 1,286,784 ---------- ---------- 3,927,744 3,942,526 Current portion................................... (3,927,744) (3,942,526) ---------- ---------- $ -- $ -- ========== ==========
In regard to the term loans, the Company has agreed to maintain proper financial records and statements and to maintain certain financial ratios pertaining to its net worth, working capital, debt coverage, etc. The Company has not met these requirements for the periods ended May 31, 1997 and April 30, 1997, and the bank has decided not to waive the requirements. Therefore, all notes payable have been classified as current. NOTE E -- RELATED-PARTY TRANSACTIONS The Company is affiliated with numerous other companies through common control and stock ownership. The stockholders and other joint venture companies have made unsecured non-interest bearing advances to the Company for working capital purposes. NOTE F -- INCOME TAX MATTERS A summary of the provision for income taxes is as follows:
APRIL MAY 31, 30, 1997 1997 -------- -------- Current................................................ $185,000 $110,000 Deferred............................................... 61,000 43,000 -------- -------- Provision for Income Taxes................... $246,000 $153,000 ======== ========
See accountants' report. F-64 126 PENNSYLVANIA GRANITE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE F -- INCOME TAX MATTERS -- (CONTINUED) The net deferred tax liability on the balance sheet includes the following components:
APRIL MAY 31, 30, 1997 1997 -------- -------- Deferred tax liabilities arising from: Accelerated methods of depreciation for tax.......... $136,000 $137,000 Tax depletion on quarry.............................. 26,000 26,000 Alternative minimum tax.............................. 129,000 129,000 Deferred tax assets arising from: Allowance for bad debts.............................. (5,000) (5,000) Inventory adjustments (Section 263(a))............... (7,000) (6,000) Net operating loss carryovers........................ -- (8,000) Investment tax credit carryovers..................... -- (12,000) -------- -------- Net deferred tax liability................... $279,000 $261,000 ======== ========
The Company has unused net operating losses and investment tax credits available for carryforward to offset future taxable income and tax liabilities for income tax reporting purposes which expire as follows:
NET YEARS ENDING OPERATING TAX SEPTEMBER 30, LOSS CREDITS -------------------------------------------------------- --------- ------- 1999.................................................. $ -- $ 6,992 2000.................................................. -- 12,483 2001.................................................. -- 9,831 2006.................................................. 10,375 -- 2007.................................................. 6,302 -- 2008.................................................. 3,964 -- ------- ------- $20,641 $29,306 ======= =======
NOTE G -- CONCENTRATION OF CREDIT RISK All of the Company's cash funds are located in financial institutions that are insured by the FDIC for up to $100,000. The amounts in excess of this limit at May 31, 1997 and April 30, 1997 are $166,887 and $187,949, respectively. Sales to two major customers represented 56% of total revenues for both the eleven and ten months ended May 31, 1997 and April 30, 1997. Trade accounts receivable from major customers represented 40% and 62% of total trade accounts receivable as of May 31, 1997 and April 30, 1997, respectively. NOTE H -- SUBSEQUENT EVENTS Subsequent to the date of these financial statements, the Company joined in a merger with its affiliates and other unrelated granite companies. NOTE I -- FAIR VALUES OF FINANCIAL INSTRUMENTS The Company has a number of financial instruments, none of which are held for trading purposes. The Company estimates that the fair value of all financial instruments at May 31, 1997 and April 30, 1997 does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying balance sheets. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgement is necessarily required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange. See accountants' report. F-65 127 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS To the Board of Directors Pennsylvania Granite Corporation St. Peters, Pennsylvania We have audited the accompanying consolidated balance sheet of Pennsylvania Granite Corporation and subsidiary as of June 30, 1996, and the related consolidated statements of operations and accumulated deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Pennsylvania Granite Corporation and subsidiary as of June 30, 1996, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ GREENE AND COMPANY, L.L.P. -------------------------------------- GREENE AND COMPANY, L.L.P. Anderson, South Carolina July 22, 1997 F-66 128 PENNSYLVANIA GRANITE CORPORATION CONSOLIDATED BALANCE SHEET JUNE 30, 1996 ASSETS Current assets: Cash and cash equivalents..................................................... $ 450,668 Trade receivables, less allowance for doubtful accounts of $13,495............ 634,240 Trade receivables -- affiliates............................................... 327,220 Employee receivables.......................................................... 1,203 Inventory -- finished goods................................................... 130,730 Prepaid taxes................................................................. 3,782 Prepaid expenses.............................................................. 122,789 Deposits...................................................................... 3,500 ---------- Total current assets.................................................. 1,674,132 ---------- Property and equipment, net..................................................... 2,339,126 ---------- Other assets: Advances to affiliates........................................................ 489,989 Intangibles, net.............................................................. 2,493,471 ---------- Total other assets......................................................... 2,983,460 ---------- Total assets.......................................................... $ 6,996,718 ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.............................................................. $ 393,970 Accounts payable -- affiliates................................................ 90,421 Accrued expenses.............................................................. 85,952 Deferred income taxes......................................................... 218,000 Notes payable................................................................. 4,246,652 ---------- Total current liabilities............................................. 5,034,995 ---------- Long-term liabilities -- advances from affiliates............................... 689,868 ---------- Stockholders' equity: Common stock, no par value, 1,950 shares authorized, 1,740 shares issued and outstanding............................................................ 2,500,500 Accumulated deficit........................................................... (1,228,645) ---------- Total stockholders' equity................................................. 1,271,855 ---------- Total liabilities and stockholders' equity............................ $ 6,996,718 ==========
See accompanying notes to financial statements. F-67 129 PENNSYLVANIA GRANITE CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT FOR THE YEAR ENDED JUNE 30, 1996 Net revenues (including sales to affiliates of $1,772,844)...................... $ 7,528,511 Cost of goods sold (including purchases from affiliates of $57,029)............. 6,244,640 ----------- Gross profit.................................................................... 1,283,871 Selling and administrative expenses (including fees paid to affiliates of $54,269)...................................................................... 589,172 ----------- Operating income................................................................ 694,699 ----------- Other (income) expense: Interest expense.............................................................. 409,255 Loss from judgment............................................................ 62,104 Other income.................................................................. (32,591) Interest income............................................................... (7,763) Rental income................................................................. (3,000) Gain on sale of equipment..................................................... (1,656) Finance charges............................................................... (1,478) ----------- Total other expense................................................... 424,871 ----------- Income before income tax........................................................ 269,828 Income tax...................................................................... (72,000) ----------- Net income...................................................................... 341,828 Accumulated deficit, beginning of year.......................................... (1,002,250) Distributions................................................................... (568,223) ----------- Accumulated deficit, end of year................................................ $(1,228,645) ===========
See accompanying notes to financial statements. F-68 130 PENNSYLVANIA GRANITE CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 1996 Cash flows from operating activities: Net income..................................................................... $ 341,828 Adjustments to reconcile net income to net cash provided by operating activities: Amortization................................................................ 226,283 Depreciation................................................................ 289,155 Depletion................................................................... 24,783 Deferred income taxes....................................................... (72,000) Gain on sale of equipment................................................... (1,656) (Increase) decrease in assets: Trade receivables......................................................... (24,649) Employee receivables...................................................... (756) Inventory................................................................. 60,600 Prepaid taxes............................................................. 2,521 Prepaid expenses.......................................................... 61,631 Deposits.................................................................. 10,938 Increase (decrease) in liabilities: Accounts payable.......................................................... (8,632) Accrued expenses.......................................................... 61,135 -------- Net cash provided by operating activities.............................. 971,181 -------- Cash flows used in investing activities: Purchase of fixed assets....................................................... (220,759) Sale of equipment -- proceeds.................................................. 41,000 -------- Net cash used in investing activities.................................. (179,759) -------- Cash flows used in financing activities: Distributions to stockholders.................................................. (568,223) Payments on notes payable...................................................... (384,480) Advances from affiliates....................................................... 683,800 Advances to affiliates......................................................... (385,000) -------- Net cash used in financing activities.................................. (653,903) -------- Net increase in cash and cash equivalents........................................ 137,519 Cash and cash equivalents at beginning of year................................... 313,149 -------- Cash and cash equivalents at end of year......................................... $ 450,668 ======== Supplemental disclosure of cash flow information -- cash paid for interest....... $ 409,255 ========
See accompanying notes to financial statements. F-69 131 PENNSYLVANIA GRANITE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES This summary of significant accounting policies of the Company is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management, who is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. Nature of Business The Company quarries granite dimensional blocks for monuments, industrial surface plates and building materials in Pennsylvania and North and South Carolina. These products are sold nationwide and in Europe. Use of Estimates The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Intangibles Amortization is computed under the straight-line method for financial reporting purposes over the following estimated useful lives: Goodwill........................................... 18 1/2-40 Organization costs................................. 20 Loan costs......................................... 5 Overburden removal................................. 15 Covenant not to compete............................ 5
Depletion of mineral deposits is computed using cost depletion for financial reporting purposes. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or recognized in income in the period that includes the enactment date. Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Company has a money market account in the amount of $352,014 at June 30, 1996. See accountants' report. F-70 132 PENNSYLVANIA GRANITE CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Trade Receivables The Company accounts for uncollectible trade receivables on the reserve method. Inventory Inventory of quarry product is valued at the lower of average cost or market. Average cost is the cost to quarry, which includes direct labor and overhead. Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on January 1, 1996. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. The fair value of the Company's assets approximates the carrying cost at the balance sheet dates. Property and Equipment Property and equipment are stated at acquisition cost as of October 12, 1988, and cost for additions thereafter. Depreciation is computed under the straight-line method for financial reporting purposes over the following estimated useful lives: Buildings........................................... 10-40 Trucks and automobiles.............................. 3-7 Machinery and equipment............................. 3-10 Office fixtures and equipment....................... 3-10 Overburden removal.................................. 15
Major renewals and betterments are added to the property accounts while maintenance and repairs are charged against earnings as incurred. See accountants' report. F-71 133 PENNSYLVANIA GRANITE CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE B -- PROPERTY AND EQUIPMENT Property and equipment consist of the following: Land........................................................... $ 701,570 Buildings...................................................... 433,955 Trucks and automobiles......................................... 181,331 Machinery and equipment........................................ 4,561,674 Office fixtures and equipment.................................. 53,117 ----------- 5,931,647 Accumulated depreciation....................................... (3,592,521) ----------- $2,339,126 ===========
Depreciation expense for the year ended June 30, 1996 was $289,155. NOTE C -- INTANGIBLES Intangibles consist of the following: Goodwill........................................................ $ 2,893,345 Organization costs.............................................. 39,982 Mineral deposits................................................ 540,162 Loan costs...................................................... 24,711 Overburden removal.............................................. 150,204 Covenant not to compete......................................... 300,000 ----------- 3,948,404 Accumulated amortization and depletion.......................... (1,454,933) ----------- $ 2,493,471 ===========
Amortization and depletion expense for the year ended June 30, 1996 was $226,283 and $24,783, respectively. NOTE D -- NOTES PAYABLE Notes payable are as follows: Bank mortgage, payable $25,000 monthly (principal and interest at prime + 0.45%) with a maturity date of May, 1997; the mortgage balance is secured by substantially all of the subsidiary's assets and guarantees by the stockholders........ $ 1,440,571 Bank mortgage, payable $19,092 monthly (principal and interest at 9 1/2%) with a maturity date of October 1998; the mortgage balance is secured by substantially all of the Company's assets and guarantees by the stockholders..................... $ 1,664,290 Bank mortgage, payable $8,334 monthly plus interest at prime plus 1 1/2% with a maturity date of October 1998; secured by substantially all of the Company's assets and guarantees by the stockholders.............................................. 1,141,791 ----------- 4,246,652 Current portion................................................. (4,246,652) ----------- $ 0 ===========
See accountants' report. F-72 134 PENNSYLVANIA GRANITE CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE D -- NOTES PAYABLE -- (CONTINUED) In regard to the term loans, the Company has agreed to maintain proper financial records and statements and to maintain certain financial ratios pertaining to its net worth, working capital, debt coverage, etc. The Company has not met these requirements for the year ended June 30, 1996 and the bank has decided not to waive the requirements. Therefore, the entire notes payable balance must be classified as current. NOTE E -- RELATED-PARTY TRANSACTIONS The Company is affiliated with numerous other companies through common control and stock ownership. The stockholders and other joint venture companies have made unsecured non-interest bearing advances to the Company for working capital purposes. NOTE F -- INCOME TAX MATTERS A summary of the provision for income taxes is as follows: Current........................................................... $ 0 Deferred.......................................................... (72,000) -------- Provision (benefit) for income taxes.................... $(72,000) ========
The net deferred tax liability on the balance sheet includes the following components: Deferred tax liabilities arising from: Accelerated methods of depreciation for tax..................... $134,000 Tax depletion on quarry......................................... 32,000 Alternative minimum tax......................................... 121,000 Deferred tax assets arising from: Allowance for bad debts......................................... (6,000) Inventory adjustments (Section 263(a)).......................... (7,000) Net operating loss carryovers................................... (45,000) Investment tax credit carryovers................................ (11,000) -------- Net deferred tax liability.............................. $218,000 ========
The Company has unused net operating losses and investment tax credits available for carryforward to offset future taxable income and tax liabilities for income tax reporting purposes which expire in the following tax years:
NET OPERATING LOSS TAX CREDITS ------------------ ----------- 1999............................................ $ 0 $ 6,992 2000............................................ 0 12,483 2001............................................ 0 9,831 2006............................................ 104,786 0 2007............................................ 6,302 0 2008............................................ 3,964 0 -------- ------- $115,052 $29,306 ======== =======
See accountants' report. F-73 135 PENNSYLVANIA GRANITE CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE G -- CONCENTRATION OF CREDIT RISK Cash accounts are insured by the FDIC for up to $100,000. Amount in excess of insured limits was approximately $252,014 at June 30, 1996. Sales to two major customers represented 54% of total revenues for the year ended June 30, 1996. Trade accounts receivable from major customers represented 72% of total trade accounts receivable as of June 30, 1996. NOTE H -- SUBSEQUENT EVENTS Subsequent to the date of these financial statements, the Company joined in a merger with its affiliates and other unrelated granite companies. NOTE I -- FAIR VALUES OF FINANCIAL INSTRUMENTS The Company has a number of financial instruments, none of which are held for trading purposes. The Company estimates that the fair value of all financial instruments at June 30, 1996 does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying balance sheets. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgement is necessarily required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange. See accountants' report. F-74 136 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS To the Board of Directors Caprice Blue Quarry, Inc. Elberton, Georgia We have audited the accompanying balance sheets of Caprice Blue Quarry, Inc. (an "S" corporation) as of May 31, 1997 and April 30, 1997, and the related statements of operations and accumulated deficit, and cash flows for the eleven months and ten months then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Caprice Blue Quarry, Inc. as of May 31, 1997 and April 30, 1997, and the results of its operations and its cash flows for the eleven months and ten months then ended in conformity with generally accepted accounting principles. /s/ GREENE AND COMPANY, L.L.P. -------------------------------------- GREENE AND COMPANY, L.L.P. Anderson, South Carolina July 22, 1997 F-75 137 CAPRICE BLUE QUARRY, INC. BALANCE SHEETS MAY 31, 1997 AND APRIL 30, 1997
MAY 31, APRIL 30, 1997 1997 --------- --------- ASSETS Current assets: Cash............................................................... $ 1,525 $ 370 Trade receivables.................................................. 3,782 380 Trade receivables -- affiliates.................................... 4,112 2,794 Employee receivables............................................... 1,144 1,295 Inventory -- finished goods........................................ 13,550 10,022 Prepaid expenses................................................... 1,056 2,696 --------- --------- Total current assets....................................... 25,169 17,557 --------- --------- Property and equipment, net.......................................... 81,898 83,376 --------- --------- Other assets: Intangibles, net................................................... 168,103 169,166 Advances to affiliates............................................. 27,300 26,705 --------- --------- Total other assets.............................................. 195,403 195,871 --------- --------- Total assets............................................... $ 302,470 $ 296,804 ========= ========= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Bank overdraft..................................................... $ 0 $ 5,616 Accounts payable................................................... 18,470 9,493 Accounts payable -- affiliates..................................... 123,620 158,586 Accrued expenses................................................... 2,592 3,004 Current portion of long-term debt.................................. 55,761 55,277 --------- --------- Total current liabilities.................................. 200,443 231,976 --------- --------- Long-term liabilities: Long-term debt, less current portion............................... 45,636 50,534 Advances from affiliates........................................... 483,000 430,000 Advances from stockholders......................................... 268,875 268,875 --------- --------- Total long-term liabilities................................ 797,511 749,409 --------- --------- Stockholders' deficit: Common stock, $10 par value. Authorized 100,000 shares; 240 shares issued and outstanding.......................................... 2,400 2,400 Additional paid-in capital......................................... 121 121 Accumulated deficit................................................ (698,005) (687,102) --------- --------- Total stockholders' deficit..................................... (695,484) (684,581) --------- --------- Total liabilities and stockholders' deficit................ $ 302,470 $ 296,804 ========= =========
See accompanying notes to financial statements. F-76 138 CAPRICE BLUE QUARRY, INC. STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT FOR THE ELEVEN MONTHS ENDED MAY 31, 1997 Net revenues (including revenues to affiliates of $176,562)...................... $ 183,569 Cost of goods sold (including purchases from affiliates of $104,659)............. 418,489 --------- Gross loss....................................................................... (234,920) Selling and administrative expenses (including fees paid to affiliates of $4,601)........................................................................ 10,768 --------- Operating loss................................................................... (245,688) --------- Other (income) expense: Rent income.................................................................... (2,973) Interest expense............................................................... 11,992 --------- Total other expense.................................................... 9,019 --------- Net loss......................................................................... (254,707) Accumulated deficit, July 1, 1996................................................ (443,298) --------- Accumulated deficit, May 31, 1997................................................ $(698,005) =========
See accompanying notes to financial statements. F-77 139 CAPRICE BLUE QUARRY, INC. STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT FOR THE TEN MONTHS ENDED APRIL 30, 1997 Net revenues (including revenues to affiliates of $160,592)...................... $ 164,197 Cost of goods sold (including purchases from affiliates of $104,292)............. 390,634 --------- Gross loss....................................................................... (226,437) Selling and administrative expenses (including fees paid to affiliates of $4,234)........................................................................ 8,636 --------- Operating loss................................................................... (235,073) --------- Other (income) expense: Rental income.................................................................. (2,378) Interest expense............................................................... 11,109 --------- Total other expense.................................................... 8,731 --------- Net loss......................................................................... (243,804) Accumulated deficit, July 1, 1996................................................ (443,298) --------- Accumulated deficit, April 30, 1997.............................................. $(687,102) =========
See accompanying notes to financial statements. F-78 140 CAPRICE BLUE QUARRY, INC. STATEMENT OF CASH FLOWS FOR THE ELEVEN MONTHS ENDED MAY 31, 1997 Cash flows from operating activities: Net loss....................................................................... $(254,707) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation................................................................ 21,303 Depletion................................................................... 9,651 (Increase) decrease in assets: Trade receivables......................................................... (7,126) Employee receivables...................................................... (533) Advances to affiliates.................................................... (2,973) Inventory................................................................. (13,550) Prepaid expenses.......................................................... 790 Increase (decrease) in liabilities: Accounts payable.......................................................... 78,718 Accrued expenses.......................................................... 1,758 --------- Net cash used in operating activities.................................. (166,669) --------- Cash flows used in investing activities -- purchases of machinery and equipment...................................................................... (21,586) --------- Cash flows from financing activities: Payments on notes payable...................................................... (45,577) Advances from affiliates....................................................... 234,000 --------- Net cash provided by financing activities.............................. 188,423 --------- Net increase in cash............................................................. 168 Cash, July 1, 1996............................................................... 1,357 --------- Cash, May 31, 1997............................................................... $ 1,525 ========= Supplemental disclosure of cash flow information -- cash paid for interest....... $ 11,992 =========
See accompanying notes to financial statements. F-79 141 CAPRICE BLUE QUARRY, INC. STATEMENT OF CASH FLOWS FOR THE TEN MONTHS ENDED APRIL 30, 1997 Cash flows from operating activities: Net loss....................................................................... $(243,804) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation................................................................ 19,824 Depletion................................................................... 8,588 (Increase) decrease in assets: Trade receivables......................................................... (2,407) Employee receivables...................................................... (683) Advances to affiliates.................................................... (2,378) Inventory................................................................. (10,022) Prepaid expenses.......................................................... (850) Increase (decrease) in liabilities: Accounts payable.......................................................... 104,708 Accrued expenses.......................................................... 2,170 --------- Net cash used in operating activities.................................. (124,854) --------- Cash flows from investing activities -- purchases of fixed assets................ (21,586) --------- Cash flows from financing activities: Increase in bank overdraft..................................................... 5,616 Payments on notes payable...................................................... (41,163) Advances from affiliates....................................................... 181,000 --------- Net cash provided by financing activities.............................. 145,453 --------- Net decrease in cash............................................................. (987) Cash, July 1, 1996............................................................... 1,357 --------- Cash, April 30, 1997............................................................. $ 370 ========= Supplemental disclosure of cash flow information -- cash paid for interest....... $ 11,109 =========
See accompanying notes to financial statements. F-80 142 CAPRICE BLUE QUARRY, INC. NOTES TO FINANCIAL STATEMENTS MAY 31, 1997 AND APRIL 30, 1997 NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES This summary of significant accounting policies of the Company is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management, who is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. Nature of Business The Company quarries granite blocks in northeast Georgia for sale to customers nationwide. Use of Estimates The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Basis of Accounting Assets, liabilities, revenues, and expenses are recognized on the accrual method of accounting. Inventory Inventories are stated at lower of cost or market with cost being determined using average cost. Property and Equipment Property and equipment are stated at acquisition cost. Depreciation is computed under the accelerated method for financial reporting purposes over the following estimated useful lives:
YEARS ----- Vehicles.............................................. 3-7 Machinery and equipment............................... 3-10
Major renewals and betterments are added to the property accounts while maintenance and repairs are charged against earnings as incurred. Intangibles Intangibles consist of mineral rights which are depleted using cost depletion. Income Taxes The Company with the consent of its stockholders has elected to be an "S" Corporation under the Internal Revenue Code. Instead of paying corporate income taxes the stockholders of an "S" Corporation are taxed individually on their proportionate share of the Company's taxable income. Therefore, no provision or liability for federal income taxes has been included in these financial statements. See accountants' report. F-81 143 CAPRICE BLUE QUARRY, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on January 1, 1996. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. The fair value of the Company's assets approximates the carrying cost at the balance sheet dates. NOTE B -- PROPERTY AND EQUIPMENT Property and equipment consist of the following:
MAY 31, APRIL 30, 1997 1997 --------- --------- Land................................................. $ 43,000 $ 43,000 Vehicles............................................. 18,635 18,635 Machinery and equipment.............................. 318,087 318,087 --------- --------- 379,722 379,722 Accumulated depreciation............................. (297,824) (296,346) --------- --------- $ 81,898 $ 83,376 ========= =========
Depreciation expense for the eleven months ended May 31, 1997 was $21,303. Depreciation expense for the ten months ended April 30, 1997 was $19,825. NOTE C -- INTANGIBLES Intangibles consist of the following:
APRIL MAY 31, 30, 1997 1997 -------- -------- Mineral rights......................................... $240,000 $240,000 Accumulated depletion.................................. (71,897) (70,834) -------- -------- $168,103 $169,166 ======== ========
Depletion expense for the eleven months ended May 31, 1997 was $9,651. Depletion expense for the ten months ended April 30, 1997 was $8,588. See accountants' report. F-82 144 CAPRICE BLUE QUARRY, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE D -- NOTES PAYABLE Notes payable are as follows:
APRIL MAY 31, 30, 1997 1997 -------- -------- Bank loan, payable $5,297 monthly (principal and interest at 10 1/2%) with a maturity date of February 1999; the loan is secured by the Company's inventory............................................ $101,397 $105,811 Current portion........................................ (55,761) (55,277) -------- -------- $ 45,636 $ 50,534 ======== ========
The following is a schedule of maturities of notes payable at May 31, 1997 and April 30, 1997:
APRIL MAY 31, 30, 1997 1997 -------- -------- 1998................................................... $ 55,761 $ 55,277 1999................................................... 45,636 50,534 -------- -------- $101,397 $105,811 ======== ========
NOTE E -- RELATED-PARTY TRANSACTIONS The Company is affiliated with numerous other companies through common control and stock ownership. The stockholders and other joint venture companies have made unsecured non-interest bearing advances to the Company for working capital purposes. The Company classifies advances payable to affiliates as long-term based upon the intent of the parties. NOTE F -- CONCENTRATION OF CREDIT RISK All of the Company's cash funds are located in financial institutions that are insured by the FDIC for up to $100,000. There are no amounts in excess of this limit at May 31, 1997 and April 30, 1997. NOTE G -- SUBSEQUENT EVENT Subsequent to the date of these financial statements, the Company joined in a merger with its affiliates and other unrelated granite companies. As of the effective date of the merger, the Company's election to be an "S" corporation under the Internal Revenue Code will terminate. NOTE H -- FAIR VALUES OF FINANCIAL INSTRUMENTS The Company has a number of financial instruments, none of which are held for trading purposes. The Company estimates that the fair value of all financial instruments at May 31, 1997 and April 30, 1997, does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying balance sheets. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange. See accountants' report. F-83 145 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS To the Board of Directors Autumn Rose Quarry, Inc. Ada, Oklahoma We have audited the accompanying balance sheets of Autumn Rose Quarry, Inc. as of May 31, 1997 and April 30, 1997, and the related statements of operations and accumulated deficit, and cash flows for the eleven months and ten months then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Autumn Rose Quarry, Inc. as of May 31, 1997 and April 30, 1997, and the results of its operations and its cash flows for the eleven months and ten months then ended in conformity with generally accepted accounting principles. /s/ GREENE AND COMPANY, L.L.P. -------------------------------------- GREENE AND COMPANY, L.L.P. Anderson, South Carolina July 22, 1997 F-84 146 AUTUMN ROSE QUARRY, INC. BALANCE SHEETS MAY 31, 1997 AND APRIL 30, 1997
MAY 31, APRIL 30, 1997 1997 ---------- ---------- ASSETS Current assets: Cash.............................................................. $ 8,291 $ 4,864 Trade receivables................................................. 8,535 19,456 Trade receivables -- affiliates................................... 22,830 18,943 Employee receivables.............................................. 155 280 Inventory -- finished goods....................................... 45,602 45,094 Prepaid expenses.................................................. 0 3,063 ---------- ---------- Total current assets...................................... 85,413 91,700 ---------- ---------- Property and equipment, net......................................... 174,066 176,757 ---------- ---------- Other assets: Intangibles, net.................................................. 1,351,362 1,352,081 Deposits.......................................................... 5,280 5,280 ---------- ---------- Total other assets............................................. 1,356,642 1,357,361 ---------- ---------- Total assets.............................................. $1,616,121 $1,625,818 ========== ========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable.................................................. $ 207 $ 7,707 Accounts payable -- due to affiliates............................. 8,923 8,238 Accrued expenses.................................................. 5,525 5,096 Current portion of long-term debt................................. 157,029 157,029 ---------- ---------- Total current liabilities................................. 171,684 178,070 ---------- ---------- Long-term liabilities: Long-term debt, less current portion.............................. 505,681 521,690 Advances from affiliates.......................................... 605,500 591,000 Advances from stockholders........................................ 400,000 400,000 ---------- ---------- Total long-term liabilities............................... 1,511,181 1,512,690 ---------- ---------- Stockholders' deficit: Common stock, $100 par value. Authorized 1,000,000 shares; 60 shares issued and outstanding.................................. 6,000 6,000 Additional paid-in capital........................................ 44,000 44,000 Accumulated deficit............................................... (116,744) (114,942) ---------- ---------- Total stockholders' deficit.................................... (66,744) (64,942) ---------- ---------- Total liabilities and stockholders' deficit............... $1,616,121 $1,625,818 ========== ==========
See accompanying notes to financial statements. F-85 147 AUTUMN ROSE QUARRY, INC. STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT FOR THE ELEVEN MONTHS ENDED MAY 31, 1997 Net revenues (including revenues to affiliates of $168,059)...................... $ 325,533 Cost of goods sold............................................................... 354,800 --------- Gross loss....................................................................... (29,267) Selling and administrative expenses (including fees paid to affiliates of $3,685)........................................................................ 25,392 --------- Operating loss................................................................... (54,659) --------- Other (income) expense: Interest expense............................................................... 21,249 Loss on disposal of equipment.................................................. 2,930 Finance charge income.......................................................... (313) --------- Total other expense.................................................... 23,866 --------- Net loss......................................................................... (78,525) Accumulated deficit, July 1, 1996................................................ (38,219) --------- Accumulated deficit, May 31, 1997................................................ $(116,744) =========
See accompanying notes to financial statements. F-86 148 AUTUMN ROSE QUARRY, INC. STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT FOR THE TEN MONTHS ENDED APRIL 30, 1997 Net revenues (including revenues to affiliates of $149,426)...................... $ 294,495 Cost of goods sold............................................................... 325,502 --------- Gross loss....................................................................... (31,007) Selling and administrative expenses (including fees paid to affiliates of $3,318)........................................................................ 23,589 --------- Operating loss................................................................... (54,596) --------- Other (income) expense: Interest expense............................................................... 19,482 Loss on disposal of equipment.................................................. 2,930 Finance charge income.......................................................... (285) --------- Total other expense.................................................... 22,127 --------- Net loss......................................................................... (76,723) Accumulated deficit, July 1, 1996................................................ (38,219) --------- Accumulated deficit, April 30, 1997.............................................. $(114,942) =========
See accompanying notes to financial statements. F-87 149 AUTUMN ROSE QUARRY, INC. STATEMENT OF CASH FLOWS FOR THE ELEVEN MONTHS ENDED MAY 31, 1997 Cash flows from operating activities: Net loss....................................................................... $ (78,525) Adjustments to reconcile net loss to net cash used in operating activities: Amortization................................................................ 4,392 Depreciation................................................................ 29,503 Depletion................................................................... 3,360 Loss on disposal of equipment............................................... 2,930 (Increase) decrease in assets: Trade receivables......................................................... (24,520) Employee receivables...................................................... 1,175 Deposits.................................................................. 1,692 Inventory................................................................. 7,253 Prepaid expenses.......................................................... 10,903 Increase (decrease) in liabilities: Accounts payable.......................................................... (28,356) Accrued expenses.......................................................... 3,972 --------- Net cash used in operating activities.................................. (66,221) --------- Cash flows from financing activities: Payments on notes payable...................................................... (146,409) Advances from affiliates....................................................... 217,500 --------- Net cash provided by financing activities.............................. 71,091 --------- Net increase in cash............................................................. 4,870 Cash, July 1, 1996............................................................... 3,421 --------- Cash, May 31, 1997............................................................... $ 8,291 ========= Supplemental disclosure of cash flow information -- cash paid for interest....... $ 21,249 =========
See accompanying notes to financial statements. F-88 150 AUTUMN ROSE QUARRY, INC. STATEMENT OF CASH FLOWS FOR THE TEN MONTHS ENDED APRIL 30, 1997 Cash flows from operating activities: Net loss....................................................................... $ (76,723) Adjustments to reconcile net loss to net cash used in operating activities: Amortization................................................................ 3,993 Depreciation................................................................ 26,814 Depletion................................................................... 3,039 Loss on disposal of equipment............................................... 2,930 (Increase) decrease in assets: Trade receivables......................................................... (31,554) Employee receivables...................................................... 1,050 Deposits.................................................................. 1,692 Inventory................................................................. 7,761 Prepaid expenses.......................................................... 7,840 Increase (decrease) in liabilities: Accounts payable.......................................................... (21,542) Accrued expenses.......................................................... 3,543 --------- Net cash used in operating activities.................................. (71,157) --------- Cash flows from financing activities: Payments on notes payable...................................................... (130,400) Advances from affiliates....................................................... 203,000 --------- Net cash provided by financing activities.............................. 72,600 --------- Net increase in cash............................................................. 1,443 Cash, July 1, 1996............................................................... 3,421 --------- Cash, April 30, 1997............................................................. $ 4,864 ========= Supplemental disclosure of cash flow information -- cash paid for interest....... $ 19,482 =========
See accompanying notes to financial statements. F-89 151 AUTUMN ROSE QUARRY, INC. NOTES TO FINANCIAL STATEMENTS MAY 31, 1997 AND APRIL 30, 1997 NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES This summary of significant accounting policies of the Company is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management, who is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. Nature of Business The Company quarries granite blocks in northeast Oklahoma for sales to customers nationwide. Use of Estimates The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Basis of Accounting Assets, liabilities, revenues, and expenses are recognized on the accrual method of accounting. Inventory Inventories are stated at lower of cost or market, with cost determined using average cost. Property and Equipment Property and equipment are stated at acquisition cost. Depreciation is computed under the straight-line method for financial reporting purposes over the following estimated useful lives:
YEARS ----- Buildings............................................. 7 Vehicles.............................................. 3-7 Machinery and equipment............................... 3-10
Major renewals and betterments are added to the property accounts while maintenance and repairs are charged against earnings as incurred. Intangibles Intangibles consist of loan costs, mineral rights, and overburden removal. Amortization of the loan costs is computed using the straight-line method over the term of the loan which is five years. Amortization of overburden removal is computed using the straight-line method over ten years. Depletion of mineral rights is computed using cost depletion. See accountants' report. F-90 152 AUTUMN ROSE QUARRY, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on January 1, 1996. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. The fair value of the Company's assets approximates the carrying cost at the balance sheet dates. NOTE B -- PROPERTY AND EQUIPMENT Property and equipment consist of the following:
APRIL MAY 31, 30, 1997 1997 -------- -------- Land................................................... $ 40,000 $ 40,000 Buildings.............................................. 5,536 5,536 Machinery and equipment................................ 196,773 196,773 Vehicles............................................... 2,613 2,613 -------- -------- 244,922 244,922 Accumulated depreciation............................... (70,856) (68,165) -------- -------- $174,066 $176,757 ======== ========
Depreciation expense for the eleven months ended May 31, 1997 was $29,503. Depreciation expense for the ten months ended April 30, 1997 was $26,814. NOTE C -- INTANGIBLES Intangibles consist of the following:
MAY 31, APRIL 30, 1997 1997 ---------- ---------- Loan costs.......................................... $ 2,709 $ 2,709 Mineral rights...................................... 1,327,500 1,327,500 Overburden removal.................................. 42,500 42,500 ---------- ---------- 1,372,709 1,372,709 Accumulated amortization and depletion.............. (21,347) (20,628) ---------- ---------- $1,351,362 $1,352,081 ========== ==========
Amortization and depletion expense for the eleven months ended May 31, 1997 were $4,392 and $3,360, respectively. See accountants' report. F-91 153 AUTUMN ROSE QUARRY, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE C -- INTANGIBLES -- (CONTINUED) Amortization and depletion expense for the ten months ended April 30, 1997 were $3,993 and $3,039, respectively. NOTE D -- NOTES PAYABLE Notes payable are as follows:
MAY 31, APRIL 30, 1997 1997 --------- --------- Bank loan, payable $5,833 principal monthly plus 9 1/2% interest with a maturity date of June 2000; the mortgage balance is secured by substantially all of the Company's assets and guarantees by the shareholders. ..................................... $ 210,000 $ 215,833 Note to corporation to be paid with granite inventory. Sales price set at $14.50 per cubic foot per agreement of purchase and sale. ............... 452,710 462,886 --------- --------- 662,710 678,719 Current portion...................................... (157,029) (157,029) --------- --------- $ 505,681 $ 521,690 ========= =========
The following is a schedule of maturities of notes payable:
APRIL MAY 31, 30, 1997 1997 -------- -------- 1998................................................... $157,029 $157,029 1999................................................... 162,862 162,862 2000................................................... 162,862 162,862 2001................................................... 98,696 104,529 2002................................................... 81,261 91,437 -------- -------- $662,710 $678,719 ======== ========
NOTE E -- RELATED-PARTY TRANSACTIONS The Company is affiliated with numerous other companies through common control and stock ownership. The stockholders and other joint venture companies have made unsecured non-interest bearing advances to the Company for working capital purposes. The Company classifies advances payable to affiliates as long-term based upon the intent of the parties. NOTE F -- CONCENTRATION OF CREDIT RISK All of the Company's cash funds are located in financial institutions that are insured by the FDIC for up to $100,000. There are no amounts in excess of this limit at May 31, 1997 and April 30, 1997. NOTE G -- SUBSEQUENT EVENTS Subsequent to the date of these financial statements, the Company joined in a merger with its affiliates and other unrelated granite companies. See accountants' report. F-92 154 AUTUMN ROSE QUARRY, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE H -- FAIR VALUES OF FINANCIAL INSTRUMENTS The Company has a number of financial instruments, none of which are held for trading purposes. The Company estimates that the fair value of all financial instruments at May 31, 1997 and April 30, 1997, does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying balance sheets. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange. NOTE I -- INCOME TAXES The Company is taxed as a corporation under the Internal Revenue Code. For federal income tax purposes, approximately $430,727 of net operating loss carryforwards exist to offset future taxable income. These carryforwards begin to expire in 2009. No tax benefit has been reported in the accompanying financial statements, however, because the Company believes that the carryforwards will expire unused. Accordingly, the $146,000 tax benefit of the cumulative carryforwards has been offset by evaluation allowance of the same amount. See accountants' report. F-93 155 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS To the Board of Directors Southern Mausoleums, Inc. Elberton, Georgia We have audited the accompanying balance sheets of Southern Mausoleums, Inc. (an "S" corporation) as of May 31, 1997 and April 30, 1997, and the related statements of operations and accumulated deficit, and cash flows for the eleven months and ten months then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Southern Mausoleums, Inc. as of May 31, 1997 and April 30, 1997, and the results of its operations and its cash flows for the eleven months and ten months then ended in conformity with generally accepted accounting principles. /s/ GREENE AND COMPANY, L.L.P. -------------------------------------- GREENE AND COMPANY, L.L.P. Anderson, South Carolina July 22, 1997 F-94 156 SOUTHERN MAUSOLEUMS, INC. BALANCE SHEETS MAY 31, 1997 AND APRIL 30, 1997
MAY 31, APRIL 30, 1997 1997 --------- --------- ASSETS Current assets: Cash and cash equivalents.......................................... $ 223,242 $ 237,934 Cash -- restricted................................................. 7,115 6,265 Trade receivables (less allowance for doubtful accounts of $25,539 and $25,162).................................................... 26,443 32,529 Trade receivables -- affiliates.................................... 42,576 40,613 Inventory.......................................................... 302,272 280,759 Prepaid expenses................................................... 9,649 12,306 --------- --------- Total current assets....................................... 611,297 610,406 --------- --------- Property and equipment, net.......................................... 270,445 274,355 --------- --------- Other assets: Intangibles, net................................................... 2,088 2,152 Deposits........................................................... 3,885 3,885 Advances to affiliates............................................. 12,096 12,096 --------- --------- Total other assets.............................................. 18,069 18,133 --------- --------- Total assets............................................... $ 899,811 $ 902,894 ========= ========= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable................................................... $ 45,159 $ 49,234 Accrued expenses................................................... 19,478 25,084 Current portion of long-term debt.................................. 157,068 156,267 Customer deposits.................................................. 365,849 402,337 --------- --------- Total current liabilities.................................. 587,554 632,922 --------- --------- Long-term liabilities: Long-term debt, less current portion............................... 271,588 280,472 Advances from affiliates........................................... 36,489 36,489 Accounts payable -- affiliates..................................... 252,154 258,776 Advances from stockholders......................................... 30,011 30,011 --------- --------- Total long-term liabilities................................ 590,242 605,748 --------- --------- Stockholders' deficit: Common stock, $10 par value. Authorized 100,000 shares; 120 shares issued and outstanding.......................................... 1,200 1,200 Accumulated deficit................................................ (279,185) (336,976) --------- --------- Total stockholders' deficit..................................... (277,985) (335,776) --------- --------- Total liabilities and stockholders' deficit................ $ 899,811 $ 902,894 ========= =========
See accompanying notes to financial statements. F-95 157 SOUTHERN MAUSOLEUMS, INC. STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT FOR THE ELEVEN MONTHS ENDED MAY 31, 1997 Net revenues (including revenues to affiliates of $47,912)....................... $1,225,396 Cost of goods sold (including purchases from affiliates of $261,501)............. 981,273 ---------- Gross profit..................................................................... 244,123 Selling and administrative expenses (reduced by fees charged to affiliates of $63,565)....................................................................... 80,993 ---------- Operating income................................................................. 163,130 ---------- Other (income) expense: Interest expense............................................................... 40,640 Finance charge income.......................................................... (1,482) Interest income................................................................ (2,213) ---------- Total other expense.................................................... 36,945 ---------- Net income....................................................................... 126,185 Accumulated deficit, July 1, 1996................................................ (405,370) ---------- Accumulated deficit, May 31, 1997................................................ $ (279,185) ==========
See accompanying notes to financial statements. F-96 158 SOUTHERN MAUSOLEUMS, INC. STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT FOR THE TEN MONTHS ENDED APRIL 30, 1997 Net revenues (including revenues to affiliates of $46,368)....................... $1,073,646 Cost of goods sold (including purchases from affiliates of $232,842)............. 899,395 ---------- Gross profit..................................................................... 174,251 Selling and administrative expenses (reduced by fees charged to affiliates of $57,319)....................................................................... 71,471 ---------- Operating income................................................................. 102,780 ---------- Other (income) expense: Interest expense............................................................... 37,135 Finance charge income.......................................................... (760) Interest income................................................................ (1,989) ---------- Total other expense.................................................... 34,386 ---------- Net income....................................................................... 68,394 Accumulated deficit, July 1, 1996................................................ (405,370) ---------- Accumulated deficit, April 30, 1997.............................................. $ (336,976) ==========
See accompanying notes to financial statements. F-97 159 SOUTHERN MAUSOLEUMS, INC. STATEMENT OF CASH FLOWS FOR THE ELEVEN MONTHS ENDED MAY 31, 1997 Cash flows from operating activities: Net income..................................................................... $ 126,185 Adjustments to reconcile net income to net cash provided by operating activities: Amortization................................................................ 696 Depreciation................................................................ 51,724 (Increase) decrease in assets: Trade receivables......................................................... 7,304 Related party receivables................................................. (10,596) Inventory................................................................. (102,264) Prepaid expenses.......................................................... 1,744 Increase (decrease) in liabilities: Accounts payable.......................................................... (42,662) Accrued expenses.......................................................... 22,799 Customer deposits......................................................... 224,367 --------- Net cash provided by operating activities.............................. 279,297 --------- Cash flows used in investing activities -- purchase of property and equipment.... (1,628) --------- Cash flows from financing activities: Payments on notes payable...................................................... (78,282) Loan proceeds.................................................................. 5,000 --------- Net cash used in financing activities.................................. (73,282) --------- Net increase in cash and cash equivalents........................................ 204,387 Cash and cash equivalents, July 1, 1996.......................................... 25,970 --------- Cash and cash equivalents, May 31, 1997.......................................... $ 230,357 ========= Supplemental disclosure of cash flow information -- cash paid for interest....... $ 41,262 =========
See accompanying notes to financial statements. F-98 160 SOUTHERN MAUSOLEUMS, INC. STATEMENT OF CASH FLOWS FOR THE TEN MONTHS ENDED APRIL 30, 1997 Cash flows from operating activities: Net income...................................................................... $ 68,394 Adjustments to reconcile net income to net cash provided by operating activities: Amortization................................................................. 633 Depreciation................................................................. 47,814 (Increase) decrease in assets: Trade receivables.......................................................... 3,181 Related party receivables.................................................. (10,596) Inventory.................................................................. (80,754) Prepaid expenses........................................................... (913) Increase (decrease) in liabilities: Accounts payable........................................................... (46,347) Accrued expenses........................................................... 42,789 Customer deposits.......................................................... 260,855 -------- Net cash provided by operating activities............................... 285,056 -------- Cash flows used in investing activities -- purchase of property and equipment..... (1,628) -------- Cash flows from financing activities: Payments on notes payable....................................................... (70,199) Loan proceeds................................................................... 5,000 -------- Net cash used in financing activities................................... (65,199) -------- Net increase in cash and cash equivalents......................................... 218,229 Cash and cash equivalents, July 1, 1996........................................... 25,970 -------- Cash and cash equivalents, April 30, 1997......................................... $244,199 ======== Supplemental disclosure of cash flow information -- cash paid for interest........ $ 38,243 ========
See accompanying notes to financial statements. F-99 161 SOUTHERN MAUSOLEUMS, INC. NOTES TO FINANCIAL STATEMENTS MAY 31, 1997 AND APRIL 30, 1997 NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES This summary of significant accounting policies of the Company is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management, who is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. Nature of Business The Company saws and polishes granite into dimensional blocks for mausoleum assembly at a plant located in northeast Georgia. The completed mausoleums are sold nationwide. Use of Estimates The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Basis of Accounting Assets, liabilities, revenues, and expenses are recognized on the accrual method of accounting. Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Company has a money market account in the amount of $179,767 at May 31, 1997 and $104,543 at April 30, 1997. Trade Receivables The Company accounts for uncollectible trade receivables on the reserve method. Inventory Inventories are stated at lower of cost or market, with cost determined as follows: Finished goods....................... First-in first-out (FIFO) method Materials and work in process........ Average cost
See accountants' report. F-100 162 SOUTHERN MAUSOLEUMS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Property and Equipment Property and equipment are stated at acquisition cost. Depreciation is computed under the straight-line method for financial reporting purposes over the following estimated useful lives:
YEARS ------- Buildings........................................................... 31 1/2 Building improvements............................................... 31 1/2 Vehicles............................................................ 5 Machinery and equipment............................................. 2 1/2 - 7 Office fixtures and equipment....................................... 7
Major renewals and betterments are added to the property accounts while maintenance and repairs are charged against earnings as incurred. Intangibles Intangibles consist of start-up costs and loan costs. Amortization of the intangibles is computed using the straight-line method over terms ranging from five years for start-up costs to six years for loan costs. Income Taxes The Company with the consent of its stockholders has elected to be an "S" Corporation under the Internal Revenue Code. Instead of paying corporate income taxes the stockholders of an "S" Corporation are taxed individually on their proportionate share of the Company's taxable income. Therefore, no provision or liability for federal income taxes has been included in these financial statements. NOTE B -- PROPERTY AND EQUIPMENT Property and equipment consist of the following:
MAY 31, APRIL 30, 1997 1997 --------- --------- Land................................................. $ 20,105 $ 20,105 Land improvements.................................... 7,180 7,180 Buildings............................................ 180,945 180,945 Building improvements................................ 11,904 11,904 Vehicles............................................. 3,208 3,208 Machinery and equipment.............................. 342,559 342,559 Office fixtures and equipment........................ 41,119 41,119 --------- --------- 607,020 607,020 Accumulated depreciation............................. (336,575) (332,665) --------- --------- $ 270,445 $ 274,355 ========= =========
Depreciation expense for the eleven months ended May 31, 1997 was $51,724. Depreciation expense for the ten months ended April 30, 1997 was $47,814. See accountants' report. F-101 163 SOUTHERN MAUSOLEUMS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE C -- NOTES PAYABLE Notes payable are as follows:
MAY 31, APRIL 30, 1997 1997 --------- --------- Bank loan, payable $11,100 monthly (principal and interest at prime + 1%) with a maturity date of February 2000; the mortgage balance is secured by substantially all of the Company's assets and guarantees by the stockholders. ................... $ 373,656 $ 381,739 Individual, payable on demand at 10% interest. Principal and accrued interest were paid in full on June 27, 1997. .................................... 55,000 55,000 --------- --------- 428,656 436,739 Current portion...................................... (157,068) (156,267) --------- --------- $ 271,588 $ 280,472 ========= =========
The following is a schedule of maturities of notes payable due as of:
MAY 31, APRIL 30, -------- --------- 1998........................................... $157,068 $ 156,267 1999........................................... 112,200 111,320 2000........................................... 159,388 169,152 -------- -------- $428,656 $ 436,739 ======== ========
NOTE D -- RELATED-PARTY TRANSACTIONS The Company is affiliated with numerous other companies through common control and stock ownership. The stockholders and other joint venture companies have made unsecured non-interest bearing advances to the Company for working capital purposes. Accounts payable to affiliates are classified as long-term liabilities based upon the intent of the related parties. NOTE E -- CONCENTRATION OF CREDIT RISK The Company's cash is located in a single financial institution. Cash accounts are insured by the FDIC for up to $100,000. Amounts in excess of insured limits were approximately $79,767 at May 31, 1997 and $57,391 at April 30, 1997. Sales to a major customer represented 44% of total revenues for both the eleven and ten months ended May 31, 1997 and April 30, 1997. There were no outstanding trade accounts receivable from the Company's major customer at May 31, 1997 and April 30, 1997. NOTE F -- SUBSEQUENT EVENTS Subsequent to the date of these financial statements, the Company joined in a merger with its affiliates and other unrelated granite companies. As of the effective date of the merger, the Company's election to be an "S" corporation under the Internal Revenue Code will terminate. See accountants' report. F-102 164 SOUTHERN MAUSOLEUMS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE G -- RESTRICTED CASH Restricted cash balances at May 31, 1997 and April 30, 1997 were $7,115 and $6,265, respectively. These cash balances are employee savings accounts and are restricted for that purpose. NOTE H -- INVENTORY Inventory consisted of the following as of:
MAY 31, APRIL 30, 1997 1997 -------- --------- Materials.............................................. $165,858 $ 154,169 Work in process........................................ 76,836 71,303 Finished goods......................................... 59,578 55,287 -------- -------- $302,272 $ 280,759 ======== ========
NOTE I -- FAIR VALUES OF FINANCIAL INSTRUMENTS The Company has a number of financial instruments, none of which are held for trading purposes. The Company estimates that the fair value of all financial instruments at May 31, 1997 and April 30, 1997, does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying balance sheets. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange. See accountants' report. F-103 165 ====================================================== NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE SPECIFICALLY OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. ------------------------ TABLE OF CONTENTS
PAGE ----- Prospectus Summary.................. 3 Risk Factors........................ 8 Use of Proceeds..................... 13 Dividend Policy..................... 13 Capitalization...................... 14 Dilution............................ 15 Selected Consolidated Financial Data.............................. 16 Unaudited Pro Forma Combined and Condensed Financial Data.......... 17 Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 23 The Death Care Industry and Granite Memorialization................... 28 Business............................ 31 Management.......................... 41 Certain Relationships and Related Transactions...................... 48 Principal and Selling Stockholders...................... 51 Description of Capital Stock........ 53 Shares Eligible for Future Sale..... 56 Underwriting........................ 58 Legal Matters....................... 59 Experts............................. 59 Available Information............... 59 Index to Financial Statements....... F-1
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ====================================================== ====================================================== [ ] SHARES [LOGO] ROCK OF AGES CORPORATION COMMON STOCK --------------------- PROSPECTUS --------------------- RAYMOND JAMES & ASSOCIATES, INC. , 1997 ====================================================== 166 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Set forth below is an estimate (except for the Securities and Exchange Commission Registration Fee) of the fees and expenses all of which are payable by the Company, other than any underwriting discounts and commissions, in connection with the registration and sale of the securities being registered: Securities and Exchange Commission Registration Fee....................... 17,273 National Association of Securities Dealers, Inc. Filing Fee............... 6,200 Nasdaq National Market Listing Fee........................................ 20,000 Transfer Agent and Registrar Fees and Expenses............................ 10,000 Blue Sky Fees and Expenses................................................ 5,000 Legal Fees and Expenses................................................... * Accounting Fees and Expenses.............................................. * Printing, Engraving and Mailing Expenses.................................. 150,000 Miscellaneous............................................................. * ---------- Total........................................................... $ * ==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 102 of the Delaware General Corporation Law, as amended, allows a corporation to eliminate the personal liability of directors of a corporation to the corporation or its stockholders for monetary damages for a breach of fiduciary duty as a director, except where the director breached his duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase in violation of Delaware corporate law or obtained an improper personal benefit. Section 145 of the Delaware General Corporation Law, as amended, provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at its request in such capacity in another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Article Ninth of the Registrant's Amended and Restated Certificate of Incorporation provides for elimination of directors' personal liability and indemnification as follows: "(Nine) No director shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereto is not permitted under the DGCL as the same exists or may hereafter be amended. If the DGCL is amended hereafter to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent authorized by the DGCL, as so amended. Any repeal or modification of this Article NINTH shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification." II-1 167 In addition, Article VIII of the By-Laws of the Registrant provides for indemnification of officers and directors of the Company and certain other persons against liabilities and expenses incurred by any of them in certain stated proceedings and under certain stated conditions. Section 9 of the Underwriting Agreement between the Company and the Representative provides for indemnification by the Company of the Representative, the Underwriters and each person, if any, who controls the Representative or any Underwriter, against certain liabilities under the Securities Act. The Underwriting Agreement also provides that the Representative and the Underwriters shall similarly indemnify the Company, its directors, officers, and controlling person, as set forth therein. The Registrant has purchased directors' and officers' liability insurance which would indemnify the directors and officers of the Company against damages arising out of certain kinds of claims which might be made against them based on their negligent acts or omissions while acting in their capacity as such. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES The following information is furnished with regard to all securities sold by the Company within the past three years which were not registered under the Securities Act. 1. As of June 27, 1997, Rock of Ages Quarries, Inc., a predecessor of the Company ("ROAQ"), and Royalty Granite Corporation, a wholly owned subsidiary of the Company, entered into an Agreement and Plan of Reorganization with KSGM, Inc. ("KSGM") and Missouri Red Quarries, Inc. ("Missouri Red") pursuant to which, effective June 28, 1997, KSGM was merged with and into Rock of Ages Corporation, a Vermont corporation and the immediate predecessor of the Company ("ROA Vermont"), and all outstanding shares of capital stock of KSGM were converted into 526,882 shares (263,441 shares after giving effect to the 1-for-2 reverse stock pursuant to the merger of ROA Vermont with and into the Company as described in 5. below) of common stock of ROA Vermont, which shares were issued to Missouri Red, as the sole stockholder of KSGM (the "Keystone Merger Shares"). The Keystone Merger Shares were not registered under the Securities Act in reliance on the exemption provided by Section 4(2) thereof as an offer and sale of securities which does not involve a public offering. 2. As of June 27, 1997, ROAQ entered into a Stock Purchase Agreement with Robert Otis Childs, Jr., Robert Otis Childs, III, and Timothy Carroll Childs, pursuant to which the Company will issue to Robert Otis Childs, III, contemporaneously with the consummation of the offering $200,000 in shares of Class A Common Stock (valued at the initial public offering price per share) (the "Childs Shares") as a portion of the consideration payable in connection with the C&C Acquisition. The Childs Shares will not be registered under the Securities Act in reliance on the exemption provided by Section 4(2) thereof as an offer and sale of securities which does not involve a public offering. 3. Effective June 27, 1997, ROA Vermont merged with and into ROAQ and ROAQ changed its name to Rock of Ages Corporation. In connection therewith, each outstanding share of Class A Common Stock of ROAQ was converted into 72.8347276 shares of Common Stock of ROAQ ("ROAQ Shares"). The ROAQ Shares were not registered under the Securities Act in reliance on the exemption provided by Section 3(a)(9) thereof with respect to securities exchanged by the issuer with its existing security-holders exclusively. 4. As of July 30, 1997, ROA Vermont entered into an Asset Purchase Agreement with Keith Monument, pursuant to which the Company will issue to Keith Monument, contemporaneously with the consummation of the offering, $1.5 million in shares of Class A Common Stock (valued at the initial public offering price per share) (the "Keith Monument Shares") as a portion of the consideration payable in connection with the Keith Acquisition. The Keith Monument Shares will not be registered under the Securities Act in reliance on the exemption provided by Section 4(2) thereof as an offer and sale of securities which does not involve a public offering. 5. Effective August 12, 1997, ROA Vermont became a Delaware corporation pursuant to a reincorporation merger into a newly formed Delaware company. In the merger, each outstanding share of ROA Vermont was converted into one half of one share of Class B Common Stock of the Company. In connection therewith, an aggregate of 3,763,441 shares of Class B Common Stock of the Company were issued (the "Reincorpora- II-2 168 tion Merger Shares"). The Reincorporation Merger Shares were not registered under the Securities Act in reliance on the exemption provided by Section 4(2) thereof as an offer and sale of securities which does not involve any public offering. 6. On August 13, 1997, the Company entered into an Agreement of Merger and Plan of Reorganization with Swenson Granite Company, Inc., Kurt M. Swenson and Kevin C. Swenson, pursuant to which, immediately prior to consummation of the offering, each share of Swenson Granite Company, Inc. will be converted into 1,618.23 shares of Class B Common Stock of the Company (the "Reorganization Merger Shares"). The Reorganization Merger Shares will not be registered under the Securities Act in reliance on the exemption provided by Section 4(2) thereof as an offer and sale of securities which does not involve any public offering. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits:
EXHIBIT NUMBER DESCRIPTION - ------- ----------------------------------------------------------------------------------- 1.* Form of Underwriting Agreement by and between the Company and Raymond James & Associates, Inc. 2.1 Agreement and Plan of Reorganization dated as of June 27, 1997 by and among Rock of Ages Quarries, Inc., to be known as Rock of Ages Corporation, KSGM, Inc., Royalty Granite Corporation and Missouri Red Quarries, Inc. 2.2 Stock Purchase Agreement dated as of June 27, 1997 by and among Rock of Ages Quarries, Inc., to be known as Rock of Ages Corporation, Robert Otis Childs, Jr., Robert Otis Childs, III and Timothy Carroll Childs 2.3 Asset Purchase Agreement dated as of July 30, 1997 by and among the Company, John E. Keith, Roy H. Keith, Jr., Glasgow Monument Co., Inc., Keith Lettering and Setting Corporation, Keith Monument Company, National Memorial Corporation, Riehm-Gerlack Monument Co. and The Snyder Corporation 2.4 Agreement and Plan of Merger and Reorganization dated as of August 13, 1997, by and among Rock of Ages Corporation, Swenson Granite Company, Inc., Kurt M. Swenson and Kevin G. Swenson. 3.1 Form of Amended and Restated Certificate of Incorporation of the Company 3.2 By-laws of the Company 4.* Specimen Certificate representing the Class A Common Stock 5.* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the Company, regarding the legality of the shares of Class A Common Stock 10.1 Rock of Ages Corporation Amended and Restated 1994 Stock Plan 10.2* Employment Agreement of Kurt M. Swenson 10.3 Employment Agreement of Paula Plante 10.4 Employment Agreement of Peter Friberg 10.5 Employment Agreement of Albert Gherardi, Jr. 10.6 Employment Agreement of Mark Gherardi 10.7 Form of Acquisition Employment Agreement with G. Thomas Oglesby, Jr., George T. Oglesby, III, Robert Otis Childs, III, John E. Keith and Roy H. Keith 10.8* Form of Officer Employment Agreement with each of Richard C. Kimball, George R. Anderson, Jon M. Gregory and Edward E. Haydon 10.9+ Supply and Distribution Agreement dated as of June 27, 1997 by and among Keystone Granite Company, Inc., The Estate of George T. Oglesby, Sr., Rock of Ages Corporation and Missouri Red Quarries, Inc. 10.10+ Supply and Distribution Agreement dated as of June 27, 1997 by and among Missouri Red Quarries, Inc., George T. Oglesby, Jr. and Rock of Ages Corporation. 10.11+ Letter Agreement dated as of July 25, 1997 between Rock of Ages Corporation and Dakota Granite Company
II-3 169
EXHIBIT NUMBER DESCRIPTION - ------- ----------------------------------------------------------------------------------- 10.12 Stock Subscription Agreement and Continuity of Interest Agreement dated June 27, 1997 between Rock of Ages Corporation and Missouri Red Quarries, Inc. 10.13 Stock Subscription Agreement dated as of July 30, 1997 between Rock of Ages Corporation and National Memorial Corporation 10.14 Stock Subscription Agreement dated as of June 27, 1997 between Rock of Ages Corporation and Robert Otis Childs, III 10.15 Form of Salary Continuation Agreement 10.16 Salary Continuation Agreement dated January 3, 1996 between Rock of Ages Corporation and Mark Gherardi 10.17 Salary Continuation Agreement dated January 3, 1996 between Rock of Ages Corporation and Melvin Friberg 10.18* Form of Custody Agreement and Power of Attorney 10.19* Financing Agreement dated as of August 25, 1994 between the CIT Group/Business Credit, Inc. and Rock of Ages Corporation 10.20* Credit Facility dated as of June 25, 1997 between Royal Bank of Canada and Rock of Ages Canada Inc., Rock of Ages Quarries Inc. and Rock of Ages Canada Inc. 11. Statement re. computation of per share earnings 21. Subsidiaries of the Company 23.1* Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5) 23.2 Consent of KPMG Peat Marwick LLP 23.3 Consent of KPMG Peat Marwick LLP 23.4 Consent of KPMG Peat Marwick LLP 23.5 Consent of KPMG Peat Marwick LLP 23.6 Consent of Greene and Company, L.L.P. 23.7 Consent of Greene and Company, L.L.P. 23.8 Consent of Greene and Company, L.L.P. 23.9 Consent of Greene and Company, L.L.P. 23.10 Consent of Frederick E. Webster 23.11 Consent of John E. Keith 23.12 Consent of James L. Fox 23.13 Consent of CA Rich Consultants, Inc. 24.* Power of Attorney (set forth on the signature page of this Registration Statement) 27. Financial Data Schedule
- --------------- * To be filed by amendment + Confidential treatment requested as to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. (b) Financial Statement Schedules: Schedule II -- Valuation and Qualifying Accounts and Reserves......... S-1
All other schedules for which provision is made by the applicable accounting regulation of the Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. ITEM 17. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to its Restated Articles of Incorporation, By-Laws, by agreement or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange II-4 170 Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The Company hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance on Rule 430A and contained in a form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or Rule 497(h) under the Securities Act shall be deemed to be part of the Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To provide to the Underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. II-5 171 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Company certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Barre, Vermont on August 14, 1997. ROCK OF AGES CORPORATION By: /s/ KURT M. SWENSON ------------------------------------ Name: Kurt M. Swenson Title: President, Chief Executive Officer and Chairman of the Board of Directors POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kurt M. Swenson and Richard C. Kimball and each of them, as such person's true and lawful attorney-in-fact and agent with full power of substitution and revocation for such person and in such person's name, place and stead, in any and all capacities, to execute any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on August 14, 1997.
SIGNATURE TITLE - ---------------------------------------- --------------------------------------------------- KURT M. SWENSON President, Chief Executive Officer and Chairman of - ---------------------------------------- the Board of Directors (Principal Executive Kurt M. Swenson Officer) GEORGE R. ANDERSON Senior Vice President, Chief Financial Officer, - ---------------------------------------- Treasurer and Director (Principal Financial George R. Anderson Officer) RICHARD C. KIMBALL Vice Chairman and President, Memorials Division, - ---------------------------------------- and Director Richard C. Kimball JON M. GREGORY President, Quarry Division and Director - ---------------------------------------- Jon M. Gregory MARK A. GHERARDI Senior Vice President, Barre and Canada - ---------------------------------------- Manufacturing Operations and Director Mark A. Gherardi President, Keystone Memorials, Inc. and Director - ---------------------------------------- G. Thomas Oglesby, Jr. PETER A. FRIBERG Senior Vice President -- Memorial Sales, Director - ---------------------------------------- Peter A. Friberg CHARLES M. WAITE Director - ---------------------------------------- Charles M. Waite
II-6 172 ROCK OF AGES CORPORATION SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN THOUSANDS)
COL. A COL. B COL. C COL. E COL. F - ------------------------------------------------------ ---------- ---------- ---------- ---------- BALANCE AT CHARGED TO BALANCE AT BEGINNING COSTS AND END OF DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD - ------------------------------------------------------ ---------- ---------- ---------- ---------- Year ended December 31, 1996 Allowances for possible losses on accounts receivable....................................... $446 $181 $ 63 $564 Year ended December 31, 1995 Allowances for possible losses on accounts receivable....................................... $464 $ 62 $ 80 $446 Year ended December 31, 1994 Allowances for possible losses on accounts receivable....................................... $378 $216 $130 $464
S-1 173 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ------------------------------------------------------------------------------------ 1.* Form of Underwriting Agreement by and between the Company and Raymond James & Associates, 2.1 Agreement and Plan of Reorganization dated as of June 27, 1997 by and among Rock of Ages Quarries, Inc., to be known as Rock of Ages Corporation, KSGM, Inc., Royalty Granite Corporation and Missouri Red Quarries, Inc. 2.2 Stock Purchase Agreement dated as of June 27, 1997 by and among Rock of Ages Quarries, Inc., to be known as Rock of Ages Corporation, Robert Otis Childs, Jr., Robert Otis Childs, III and Timothy Carroll Childs 2.3 Asset Purchase Agreement dated as of July 30, 1997 by and among the Company, John E. Keith, Roy H. Keith, Jr., Glasgow Monument Co., Inc., Keith Lettering and Setting Corporation, Keith Monument Company, National Memorial Corporation, Riehm-gerlack Monument Co., and the Snyder Corporation. 2.4 Agreement and Plan of Merger and Reorganization dated as of August 13, 1997 by and among Rock of Ages Corporation, Swenson Granite Company, Inc., Kurt M. Swenson and Kevin C. Swenson 3.1 Form of Amended and Restated Certificate of Incorporation of the Company 3.2 By-laws of the Company 4.* Specimen Certificate representing the Class A Common Stock 5.* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the Company, regarding the legality of the shares of Class A Common Stock 10.1 Rock of Ages Corporation Amended and Restated 1994 Stock Plan 10.2* Employment Agreement of Kurt M. Swenson 10.3 Employment Agreement of Paula Plante 10.4 Employment Agreement of Peter Friberg 10.5 Employment Agreement of Albert Gherardi, Jr. 10.6 Employment Agreement of Mark Gherardi 10.7 Form of Acquisition Employment Agreement with G. Thomas Oglesby, Jr., George T. Oglesby, III, Robert Otis Childs, III, John E. Keith and Roy H. Keith 10.8* Form of Officer Employment Agreement with each of Richard C. Kimball, George R. Andersen, Jon M. Gregory and Edward E. Haydon 10.9+ Supply and Distribution Agreement dated as of June 27, 1997 by and among Keystone Granite Company, Inc., the Estate of George T. Oglesby, Sr., Rock of Ages Corporation and Missouri Red Quarries, Inc. 10.10+ Supply and Distribution Agreement dated as of June 27, 1997 by and among Missouri Red Quarries, Inc., George T. Oglesby, Jr. and Rock of Ages Corporation. 10.11+ Letter Agreement dated as of July 25, 1997 between Rock of Ages Corporation and Dakota Granite Company 10.12 Stock Subscription Agreement and Continuity of Interest Agreement dated June 27, 1997 between Rock of Ages Corporation and Missouri Red Quarries, Inc. 10.13 Stock Subscription Agreement dated as of July 30, 1997 between Rock of Ages Corporation and National Memorial Corporation 10.14 Stock Subscription Agreement dated as of June 27, 1997 between Rock of Ages Corporation and Robert Otis Childs, III
174
EXHIBIT NUMBER DESCRIPTION - ------- ------------------------------------------------------------------------------------ 10.15 Form of Salary Continuation Agreement 10.16 Salary Continuation Agreement dated January 3, 1996 between Rock of Ages Corporation and Mark Gherardi 10.17 Salary Continuation Agreement dated January 3, 1997 between Rock of Ages Corporation and Melvin Friberg 10.18* Form of Custody Agreement and Power of Attorney 10.19* Financing Agreement dated as of August 25, 1994 between the CIT Group/Business Credit, Inc. and Rock of Ages Corporation 10.20* Credit Facility dated as of June 25, 1997 between Royal Bank of Canada and Rock of Ages Canada Inc., Rock of Ages Quarries Inc. and Rock of Ages Canada Inc. 11. Statement re. computation of per share earnings 21. Subsidiaries of the Company 23.1* Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5) 23.2 Consent of KPMG Peat Marwick LLP 23.3 Consent of KPMG Peat Marwick LLP 23.4 Consent of KPMG Peat Marwick LLP 23.5 Consent of KPMG Peat Marwick LLP 23.6 Consent of Greene and Company, L.L.P. 23.7 Consent of Greene and Company, L.L.P. 23.8 Consent of Greene and Company, L.L.P. 23.9 Consent of Greene and Company, L.L.P. 23.10 Consent of Frederick E. Webster 23.11 Consent of John E. Keith 23.12 Consent of James L. Fox 23.13 Consent of CA Rich Consultants, Inc. 24. Power of Attorney (set forth on the signature page of this Registration Statement) 27. Financial Data Schedule
- --------------- * To be filed by amendment + Confidential treatment requested as to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. EX-2.1 2 AGMT & PLAN OF REORGANIZATION DATED 6/27/97 1 EXHIBIT 2.1 AGREEMENT AND PLAN OF REORGANIZATION AGREEMENT AND PLAN OF REORGANIZATION made this 27th day of June, 1997, by and among ROCK OF AGES QUARRIES, INC. (to be known as ROCK OF AGES CORPORATION as set forth below), a Vermont corporation with its principal office located in Concord, New Hampshire (hereinafter referred to as "Acquiror"), KSGM, INC., a Georgia corporation with its principal office in Elberton, Georgia (hereinafter referred to as "Target"), ROYALTY GRANITE CORPORATION, a Georgia corporation with its principal place of business in Elberton, Georgia and a wholly owned subsidiary of Acquiror (hereinafter referred to as "Sub"), and MISSOURI RED QUARRIES, INC., a Georgia corporation, with its principal office in Elberton, Georgia, and the sole shareholder of Target (hereinafter sometimes referred to as "Missouri Red") (Missouri Red is sometimes referred to herein as the "Shareholder"). RECITALS: 1. The Boards of Directors of Acquiror and Target have approved the acquisition of Target by Acquiror using common stock of Acquiror as consideration for such acquisition. 2. The Boards of Directors of Acquiror and Target have recommended the approval of the Merger of Target into Acquiror (the "Merger") to their respective shareholders, pursuant to the Plan of Merger set forth in EXHIBIT A attached hereto (the "Plan of Merger") and the transactions contemplated thereby, in accordance with the applicable provisions of the Vermont Business Corporation Act, Title 11A of Vermont Statutes Annotated (the "VBCA") and the Georgia Business Corporation Code, O.C.G.A 14-2 -101 ET SEQ. (the "GCC") which permit said Merger. 3. The Board of Director of Acquiror has approved the transfer of the operating assets and liabilities of Target acquired in the Merger to Sub. 4. For federal income tax purposes it is intended that the acquisition and Merger shall qualify as a merger under ss.368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code") using common stock of Acquiror followed by Acquiror transferring all or a part of the assets and liabilities of Target obtained in the Merger to Sub pursuant to ss.368(a)(2)(C) of thE Code. 5. Acquiror and Sub (hereinafter sometimes collectively referred to as the "Rock of Ages Group") and Target and Shareholder believe the acquisition and the Merger will accomplish among other purposes, the following significant business purposes: (a) Target's historic and successful business of manufacturing and selling granite memorials will be enhanced as a part of the Rock of Ages Group; and (b) the Rock of Ages Group will obtain the manufacturing, business and sales expertise of certain key employees and the granite 2 memorial manufacturing facilities of Target which will allow it to expand its business of manufacturing and selling granite memorials. 6. At 5:05 P.M., June 27, 1997 Acquiror: (a) will merge its wholly owned subsidiary Rock of Ages Corporation into it; (b) will be the surviving corporation in the merger (the "Prior Merger"); (c) will as a part of the merger amend its Articles of Incorporation to change its name to Rock of Ages Corporation; and (d) to convert its capital structure and its outstanding shares of capital stock as represented in Section 5.2(b) hereof. 7. Various of the parties to this agreement desire to make the representations, warranties and agreements as hereinafter set forth and to prescribe certain conditions thereto. NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I THE MERGER ---------- 1.1 THE MERGER. (a) At the Effective Time (as defined in Section 1.2), subject to the terms hereof and the Plan of Merger, Target shall be merged into Acquiror, the separate existence of Target shall thereupon cease pursuant to the applicable provisions of the VBCA and the GCC and as soon as possible after the Effective Time substantially all of the operating assets and liabilities of Target acquired in the Merger will be transferred by Acquiror to Sub. (b) Acquiror will be the surviving corporation in the Merger (sometimes referred to herein as the "Surviving Corporation") and will continue to be governed by the laws of the State of Vermont, and the separate corporate existence of Acquiror and all of its rights, privileges, immunities and franchises, public or private, and all its duties and liabilities as a corporation organized under the VBCA will continue unaffected by the Merger. (c) The Merger will have the effects specified under the VBCA. 1.2 EFFECTIVE TIME AND EFFECTIVE DATE. Provided that this agreement has not been terminated or abandoned pursuant to Article VIII hereof, Acquiror and Target will cause Articles of Merger complying with Section 11.05 VBCA to be filed with the Secretary of State of the State of Vermont and a Certificate of Merger complying with Section 14-2-1105 of the GCC to be filed with the Secretary of State of the State of Georgia. Such Articles of Merger and the Certificate of Merger will provide that the merger will be effective at 11:59 P.M. on June 28, 1997. The date the Merger becomes effective is referred to herein as the -2- 3 "Effective Date" and the time on the Effective Date the Merger becomes effective is referred to herein as the "Effective Time". ARTICLE II ACQUIROR AS THE SURVIVING CORPORATION ------------------------------------- 2.1 ARTICLES OF INCORPORATION. The Articles of Incorporation of Acquiror in effect immediately prior to the Effective Time shall be the Articles of Incorporation of Acquiror after the Effective Time. 2.2 BY-LAWS. The By-Laws of Acquiror in effect immediately prior to the Effective Time shall be the By-Laws of Acquiror from and after the Effective Time. 2.3 BOARD OF DIRECTORS. After the Effective Time, the Board of Directors of Acquiror shall be and continue as the Board of Directors of Acquiror. ARTICLE III CONVERSION OF SHARES -------------------- 3.1 CONVERSION OF TARGET SHARES IN THE MERGER. Pursuant to the Plan of Merger at the Effective Time, by virtue of the Merger and without any action on the part of any holder of any capital stock of Target, the holders of issued and outstanding shares of common stock, no par value of Target (the "Target Common Stock") shall be entitled to receive shares of validly issued, fully paid and non-assessable Common Stock of Acquiror (the "Acquiror Common Stock") determined as follows: five hundred twenty-six thousand eight hundred eighty-two (526,882) shares of Target Common Stock which constitutes all of the issued and outstanding capital stock of Target will be converted on a one (1) for one (1) basis into total of five hundred twenty-six thousand eight hundred eighty-two (526,882) shares of Acquiror Common Stock so that upon the Effective Date the total number of issued and outstanding shares of the Acquiror Common Stock will be seven million five hundred twenty-six thousand eight hundred eighty-two (7,526,882). 3.2 STATUS OF ACQUIROR SHARES. Subject to Section 3.3(b), at the Effective Time, each issued and outstanding share of common stock of Acquiror common stock shall continue unchanged and shall remain outstanding. 3.3 EXCHANGE OF TARGET STOCK CERTIFICATES. -3- 4 (a) On the Effective Date, subject to Section 3.3(b), Acquiror shall make available to Shareholder the certificates representing the shares of Acquiror Common Stock required to effect the conversion and exchange referred to in Section 3.3(b). (b) On or after the Effective Date, Shareholder agrees to surrender to Acquiror Shareholder's certificate(s) which prior to the Effective Date represented all the outstanding shares of Target Common Stock, and Shareholder shall receive in exchange therefor a certificate or certificates representing the shares of Acquiror Common Stock into which Shareholder's shares of Target Common Stock were converted pursuant to Section 3.1. 3.4 SHAREHOLDER VOTE. Shareholder agrees to vote in favor of the Merger. 3.5 CLOSING OF TRANSFER BOOKS. From and after the Effective Date, the stock transfer books of Target shall be closed and no transfer of Target Common Stock shall be thereafter made. 3.6 CLOSING. The closing (the "Closing") of the transactions contemplated by this agreement shall take place at the offices of Phelps & Campbell, LLP, 313 Heard Street, Elberton, Georgia at 2:00 P.M. on June 27, 1997 or at such other time and place and such other date as Acquiror and Target shall agree (the "Closing Date"). ARTICLE IV FURTHER AGREEMENTS ------------------ 4.1 EMPLOYMENT AGREEMENT. At the Closing, as the same may be extended or as soon thereafter as possible, Acquiror and the other parties thereto, shall execute employment agreements (the "Employment Agreements"). The Employment Agreement for George T. Oglesby, Jr. shall be substantially in the form thereof attached as EXHIBIT 4.1(a) hereto, with such additional terms and conditions as may be mutually agreed to by the various parties thereto and the Employment Agreement for George T. Olgesby, III shall be substantially in the form thereof attached as EXHIBIT 4.1(b) hereto, with such additional terms and conditions as may be mutually agreed to by the various parties thereto. 4.2 STOCK SUBSCRIPTION AND CONTINUITY OF INTEREST AGREEMENT. Concurrently with the execution and delivery of this agreement, Shareholder and Acquiror shall execute the stock subscription and continuity of interest agreement (the "Stock Subscription and Continuity of Interest Agreement") substantially in the form attached hereto as EXHIBIT 4.2 . ARTICLE V -4- 5 REPRESENTATIONS AND WARRANTIES ------------------------------ 5.1 GENERAL STATEMENT. The parties make the representations and warranties to each other which are set forth in this Article V. The survival of all such representations and warranties shall be in accordance with Section 10.1 hereof. All representations and warranties of the parties are made subject to the exceptions, if any, which are noted in the respective schedules delivered by the parties to each other and accepted by the receiving party concurrently herewith and identified as, in the case of Section 5.2, the "Rock of Ages Group Disclosure Schedule," and in the case of Section 5.3, the "Target Disclosure Schedule." 5.2 REPRESENTATIONS AND WARRANTIES OF THE ROCK OF AGES GROUP. Each member of the Rock of Ages Group, jointly and severally, makes the following representations and warranties to the Target and the Shareholder with the intention that the Target and the Shareholder may rely upon the same, and acknowledges that the same are true and correct and shall be true and correct at the Effective Time: (a) ORGANIZATION, POWER, ETC. Each member of the Rock of Ages Group is a corporation, existing and in good standing under the laws of its respective state of incorporation. Each member of the Rock of Ages Group has all requisite corporate power and authority to own and lease its respective properties and to carry on the business in which it is presently engaged (herein sometimes referred to as the "Business" of that Group member or members or as the "Businesses" of the Rock of Ages Group). Each member of the Rock of Ages Group to the best of its knowledge is registered to do business in each state where the nature of its business and activities or the location of its assets or employees makes such registration necessary. A list of the Acquiror's direct and indirect subsidiaries is attached as EXHIBIT 5.2(A). (b) ACQUIROR COMMON STOCK. The authorized capital stock of Acquiror will, subsequent to the effective time of the Prior Merger, consists of 20,000,000 shares of voting common stock and 1,000,000 shares of serial preferred stock, and after the effective time of the Prior Merger and prior to the Effective Time, 7,000,000 shares of voting common stock will be issued and outstanding and zero (0) shares of the Serial Preferred Stock will be issued and outstanding. All stock of Acquiror, including specifically the Acquiror Common Stock to be issued in the merger, shall at the Effective Time be duly authorized, validly issued, fully paid and non-assessable. (c) CORPORATE AUTHORITY. The execution, delivery and performance of this agreement by each member of the Rock of Ages Group and consummation by them of the transactions contemplated herein have been duly authorized by all necessary corporate action and this agreement constitutes the legal, valid and binding obligation of each member of the Rock of Ages Group in accordance with its terms. -5- 6 (d) BINDING NATURE AND EFFECT OF AGREEMENT. The execution, delivery and performance of this agreement by each member of the Rock of Ages Group and consummation by each of them of the transactions contemplated herein do not, to the best of their knowledge, require the consent, waiver, approval, license or authorization of any person or public authority which will not be obtained prior to or at the Effective Time; to the best of the Rock of Ages Group's knowledge, after due inquiry, this agreement does not violate, with or without the giving of notice and/or the passage of time, any provision of law applicable to the Rock of Ages Group and does not conflict with or result in a breach or termination of any provision of, or constitute a default in or under, or result in the creation of any lien, charge or encumbrance upon any of the property or assets of the Rock of Ages Group pursuant to any corporate charter provision, bylaw, mortgage, deed of trust, indenture or other agreement or instrument, or any order, judgment, and, to the best of the Rock of Ages Group's knowledge, after due inquiry, any decree, statute, regulation or any other restriction of any kind or character to which the Rock of Ages Group is a party or by which the Rock of Ages Group or any of its assets and properties are bound. (e) FINANCIAL STATEMENTS. Acquiror has furnished to the Target and to the Shareholder comparative consolidated balance sheets and income statements of Acquiror and Rock of Ages Corporation as of December 31, 1995, as of December 31, 1996 and projected as of December 31, 1997 for the purposes (the foregoing financial data shall be collectively referred to as the "Financial Statements" and are attached hereto as EXHIBIT 5.2(e). The 1997 Financials will be impacted by the proposed transactions. The Financial Statements were furnished to Target and Shareholders solely for the purposes set forth therein. (f) TAX MATTERS. The Rock of Ages Group has duly filed with the appropriate federal, state and local governmental agencies, and all foreign countries and political subdivisions thereof, all Returns (as defined in Section 5.3(e)(i) hereof) required to be filed and has paid in full all Taxes (as defined in Section 5.3(e)(xiii) hereof), assessments or deficiencies shown to be due on such Returns or claimed to be due by any taxing authority and all such Returns as filed or as amended or to be amended prior to the Effective Time accurately and completely report the Taxes due to any such taxing authority. The Rock of Ages Group has not executed or filed with the Internal Revenue Service or any other taxing authority (domestic or foreign) any agreement extending the period for assessment or collection of any Taxes. The Rock of Ages Group is not a party to any pending action or proceeding nor, to the best of its knowledge, is any action or proceeding threatened by any governmental authority for assessment or collection of Taxes, and no claim for assessment or collection of Taxes has been asserted against it. The provisions for Taxes shown in the Financial Statements (if any) are and will be adequate to cover the respective liabilities of the Rock of Ages Group as of the Effective Time for all Taxes of the Rock of Ages Group. (g) TITLE TO ASSETS, ABSENCE OF LIENS AND ENCUMBRANCES. The Rock of Ages Group has good and marketable title to all of its assets, and, except as set forth in the Financial Statements, such title is free and clear of all liens, claims and encumbrances and rights of other parties relating to its assets or its business. -6- 7 (h) LITIGATION. Except as set forth on EXHIBIT 5.2(h) the Rock of Ages Group has not been notified of, and no member of said Group is a party to, any actions, suits, proceedings or investigations (including any environmental, building or safety investigation) pertaining to their assets or Businesses; nor does the Rock of Ages Group have any knowledge of, nor reasonable grounds to have knowledge of, any claim or state of facts which may lead to, or constitute a threat of, any material investigation, claim, proceeding, or litigation, against the Rock of Ages Group or their assets or Businesses. There are no orders, judgments or decrees of any court or governmental agency relating to the Rock of Ages Group which would prevent, impede or make illegal the consummation of the transactions contemplated herein or which would have a material adverse effect upon a member of the Rock of Ages Group. (i) LABOR CONTROVERSIES. To the best of the Rock of Ages Group's knowledge, there are no material controversies between any member of the Rock of Ages Group and any of its employees, no material unresolved labor practice proceedings or disputes and no material labor arbitration proceedings pending or threatened, and there are no organizational efforts presently being made or, to the best of the Rock of Ages Group's knowledge, after due inquiry, threatened involving any of the Rock of Ages Group members' non-union employees. The members of the Rock of Ages Group have complied in all material respects with all federal, state and local laws and orders relating to the employment of labor, and all laws governing wages, hours, collective bargaining, the payment of social security, withholding and similar taxes, equal employment opportunity, employment discrimination and immigration and naturalization; and no member of the Rock of Ages Group is liable for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. There is no claim of employment discrimination or sexual harassment pending or, to the best of the Rock of Ages Group's knowledge, after due inquiry, threatened against it, or any strike, dispute, slowdown or stoppage pending or, to the best of the Rock of Ages Group's knowledge, threatened against or involving it. (j) PATENTS, TRADEMARKS, ETC. No one has made or, to the best of the Rock of Ages Group's knowledge, after due inquiry, threatened to make any claims that any member of the Rock of Ages Group has wrongfully used or appropriated, or infringed upon any patent, patent license, trade name, trademark, servicemark, brandmark, brand name, copyright, know-how, trade secret or other proprietary or trade rights of any third party. No director, officer, shareholder or employee of any member of the Rock of Ages Group owns or has owned, directly or indirectly, in whole or in part, any patents, trademarks, trade names, servicemarks, brandmarks, brand names, copyrights, registrations or applications thereof or interests therein which any member of the Rock of Ages Group has used or is using or the use of which is necessary for their respective Businesses. (k) BOOKS AND RECORDS. The books, records and working papers of the members of the Rock of Ages Group, to the extent such books and records relate to their Businesses, are in all material respects complete and correct, have been maintained in -7- 8 accordance with sound business practices, and accurately reflect the basis for the financial condition and results of operations of the members of the Rock of Ages Group. (l) PERMITS, AUTHORIZATIONS, ETC. The members of the Rock of Ages Group have all approvals, authorizations, consents, licenses, orders and other permits of all governmental agencies, whether federal, state or local, reasonably required to permit the operation of their Businesses as heretofore and as presently conducted, and all of the same will survive the consummation of the transactions contemplated by this agreement. The Rock of Ages Group has not received any written notice of any license or permit which will have to be acquired in the future in order for their Businesses to be operated by any member thereof as heretofore and presently conducted. (m) COMPLIANCE WITH APPLICABLE LAW. The members of the Rock of Ages Group, have not received any written notice that they are in material violation of any foreign or domestic (federal, state or local) law, ordinance, regulation, order or requirement including without limitation Environmental Laws (as defined in EXHIBIT 5.2(m)) relating to their Businesses. None of the Rock of Ages Group have received any written notice that they or their assets used in the operation of the Businesses of each member of the Rock of Ages Group are in violation of any state and local building, zoning, subdivision, land use, Environmental Laws and other laws, ordinances and regulations. There are no federal, state, municipal, public zoning or other restrictions that will prevent the utilization of any property owned or leased by the members of the Rock of Ages Group in connection with their Businesses for the purposes presently used, and there are no condemnation proceedings pending or, to the best of their knowledge, threatened against any such property. (n) EMPLOYEE PLANS. The Rock of Ages Group will make made available upon request for examination by Target and Shareholder true, correct and complete copies of: (i) the most recent Internal Revenue Service determination letter relating to each of the Rock of Ages Group's pension, profit-sharing, stock bonus or other deferred compensation arrangements, if any, for which a letter was obtained except for any multi-employer plans sponsored by any number of the Rock of Ages Group, (each a "Plan" and collectively the "Plans"); (ii) the most recent Annual Report (Form 5500 Series) and accompanying schedules of each Plan sponsored by the Rock of Ages Group with respect to which the same are required, as filed pursuant to applicable law; and (iii) all plan documents, as amended to date, summary plan descriptions and summaries of material modifications with respect to each Plan sponsored by a member of the Rock of Ages Group, as well as the most recent financial statements of each of such plans. -8- 9 With respect to each of such Plans as to which an Annual Report (Form 5500 series) is required to be filed, no liabilities as of the date of such Annual Report exist unless specifically referred to in the most recent such Annual Report, and no material change has occurred with respect to the matters covered by the last Annual Report since the date thereof. The Rock of Ages Group does not know, nor have any reasonable grounds to know, of any "prohibited transaction," as such term is defined in Section 406 of the Employee Retirement Income Security Act of 1974, as amended, ("ERISA") and Section 4975 of the Code, which has been engaged in by any member of the Rock of Ages Group or by any Plan sponsored by any member of the Rock of Ages Group, any trust created thereunder or any trustee, administrator or other fiduciary thereof, or which would subject such Plan or any such entity, or any party dealing with such Plan or any such trust, to the sanctions imposed by ERISA or the tax on prohibited transactions imposed by Section 4975 of the Code. There are no actions, suits or claims pending or, to the best of the Rock of Ages Group's knowledge, after due inquiry, threatened against any of the Plans or any administrator or fiduciary thereof. Neither any of the Plans nor any said trust have incurred any "accumulated funding deficiency," as such term is defined in Section 302 of ERISA or Section 412(a) of the Code (whether or not waived), since the Effective Time of ERISA. The terms and operation of each of the Plans have complied to the extent required with the provisions of Section 401(a) of the Code and with ERISA, and all reports and notices required by ERISA or the Code have been duly filed or given. The Rock of Ages Group shall make available for examination by Target and Shareholder a list of all of the Rock of Ages Group's Plans subject to Title IV of ERISA and all trusts created thereunder which have been terminated, and all "reportable events," as that term is defined in Section 4043 of ERISA, if any. Except as may be specified in Rock of Ages Group Disclosure Schedule hereto, none of the Rock of Ages Group's Plans and no such trust has been terminated, nor has any such "reportable event" occurred with respect to any such as a share of common stock of Acquiror. Plans since the effective date of ERISA. The present value, on a plan termination basis, of all benefits accrued under each Plan sponsored or contributed to by a member of the Rock of Ages Group and subject to Title IV of ERISA did not, as of the most recent valuation date, exceed the fair market value of the assets of such plan as of such date. (o) INVENTORY. All of the inventory of each member of the Rock of Ages Group consists of materials of a quality and quantity usable and salable in accordance with such member's normal pricing and sales practices. (p) LIST OF PROPERTIES, CONTRACTS AND OTHER DATA. Prior to the execution of this agreement or concurrently herewith, the Rock of Ages Group will deliver on the written request of Target or Shareholder a true and complete list, which list shall be updated and amended as of the Closing Date if requested, setting forth the following: (i) all material intellectual property and all other material proprietary information owned by Rock of Ages Group members, and copies of all other material agreements to which Rock of Ages Group members are parties which relate to any material proprietary rights affecting their assets; -9- 10 (ii) all policies of insurance insuring the Rock of Ages Group's assets; and (iii) all material contracts, agreements, leases, understandings and commitments to which members of the Rock of Ages Group are a party, or to which any of their assets are subject. True and complete copies of all documents referred to in such list or will be provided to Target and Shareholder and their counsel upon their request as part of Target's due diligence. All such material contracts, agreements, rights, leases, obligations and commitments are valid and enforceable in accordance with their respective terms, except as such enforceability may be affected by bankruptcy or similar laws affecting the rights of creditors generally and by general principles of equity, for the periods stated therein and there is not, to the Rock of Ages Group's knowledge, under any of them any existing default or event of default or any event which with notice and/or lapse of time would constitute a default. (q) INDUSTRY AND GOVERNMENTAL EVENTS. The Rock of Ages Group is not aware of any future events, loss of customers or suppliers that may materially affect them and/or their Businesses and financial affairs either prior to or subsequent to the Effective Time. The Rock of Ages Group has received no written notice of any change or any pending or contemplated condemnation or change of zoning, subdivision, land use, environmental or other statutes, or regulations or court or administrative rulings or other governmental action affecting the Rock of Ages Group. (r) NO DEFAULTS. There currently are no defaults by the Rock of Ages Group or acts or events which, with the passage of time or giving of notice, or both, could become defaults by them under any indebtedness, indenture, mortgage, deed of trust, security deed, security agreement or other instrument. (s) ACCURACY AND OMISSIONS. None of the information and documents furnished or to be furnished or made available for inspection by the Rock of Ages Group pursuant to the provisions of this agreement is or will be false or misleading, or contains or will contain any material misstatement of fact or omits or will omit to state any material fact required to be stated to make the statements therein not misleading. 5.3 REPRESENTATIONS AND WARRANTIES OF TARGET AND SHAREHOLDER. Target and Shareholder, jointly and severally, make the following representations and warranties to each member of the Rock of Ages Group, with the intention that they may rely upon the same and acknowledge that the same are true and correct and shall be true and correct at the Effective Time: (a) ORGANIZATION, POWER, ETC. Each member of the Target Group (as hereinafter defined) is a corporation existing and in good standing under the laws of the state of incorporation. Each member of the Target Group has all requisite corporate power and authority to own, operate and lease its properties and to carry on its business (hereinafter the -10- 11 business of each member of the Target's Group is sometimes referred to as its "Business" and all their businesses are sometimes collectively referred to as the "Businesses"). The copies of Articles of Incorporation and By-Laws, as amended to date of each member of the Target Group, which have been delivered by Target to the Rock of Ages Group, are complete and correct. Target owns fifty percent (50%) of all of the issued and outstanding capital stock of: (i) Pennsylvania Granite Corp., a Pennsylvania corporation (herein referred to as "Pennsylvania") and Pennsylvania owns one hundred percent (100%) of the issued and outstanding capital stock of Carolina Quarries, Inc., a Georgia corporation, (herein sometimes referred to as "Carolina"); (ii) Southern Mausoleums, Inc, a Georgia corporation (herein sometimes referred to as "Mausoleum"); (iii) Caprice Blue Quarry, Inc., a Georgia corporation (herein sometimes referred to as "Caprice"); and (iv) Autumn Rose Quarry, Inc., a Georgia corporation (herein sometimes referred to as "Autumn") (herein Pennsylvania, Carolina, Mausoleum, Caprice and Autumn are collectively referred to as the "Joint Venture Companies"). Shareholder on June 13 completed a merger with its parent corporation named Keystone Memorials, Inc., a Georgia corporation (herein sometimes referred to as "KMI") and is the surviving corporation of that merger. Target and the Joint Venture Companies are herein sometimes collectively referred to as the "Target Group". Other than the Joint Venture Companies, Target has no subsidiaries and other than Target, Shareholder has no subsidiaries. To the best of the Shareholder and Target's knowledge, after due inquiry, each of the Joint Venture Companies are registered to do business in each state where the nature of its business activities or the location of its assets or employees makes such registration necessary. (b) BINDING NATURE, EFFECT OF AGREEMENT AND AUTHORITY. Except as set forth on Target's Disclosure Schedule, the execution, delivery and performance of this agreement by Target and Shareholder and consummation by each of them of the transactions contemplated herein do not and will not (i) require the consent, waiver, approval, license or authorization of any person or public authority which will not be obtained prior to or at the Effective Date; (ii) to the best of Target and Shareholder's knowledge, after due inquiry, violate, with or without the giving of notice and/or the passage of time, any provision of law applicable to Shareholder or any member of the Target Group and does not conflict with or result in a breach or termination of any provision of, or constitute a default or violation under, or result in the creation of any lien, charge or encumbrance upon any of the property or assets of Shareholder or any member of the Target Group pursuant to, any corporate charter provision, bylaw, mortgage, deed of trust, indenture or other agreement or instrument, or any order or judgment, or, to the best of their knowledge, after due inquiry, any decree, statute, regulation or any other restriction of any kind or character, to which Shareholder or any member of the Target Group are or were a party or by which Shareholder or any member of the Target Group or any of their assets and properties are bound. The execution, delivery and performance of this agreement by Target and Shareholder and consummation by them of the transactions contemplated herein have been duly authorized by all necessary corporate actions (including without limitations afforded in this agreement and the merger by requisite actions of the sole shareholder of Target) and this agreement as constitutes the legal, valid and binding obligation of each target in accordance -11- 12 with its terms and constitutes the legal, valid and binding obligation of Shareholder in accordance with its terms. (c) OUTSTANDING SECURITIES. The authorized capital stock of Target consists of one million (1,000,000) shares of no par value common stock (the "Target Common Stock"), of which five hundred twenty-six thousand eight hundred eighty-two (526,882) shares are duly issued and outstanding, fully paid and non-assessable, Shareholder presently owns five hundred twenty-six thousand eight hundred eighty-two (526,882) duly issued and outstanding shares being all of the issued and outstanding shares of capital stock of Target; and no other person or entities own Target Common Stock or any securities convertible into such stock and no warrants, options or other rights to purchase any shares of such stock are issued and outstanding and there are no agreements in existence under which any such stock or any such warrants, options or rights may be issued and no shares of such stock are held in Target's treasury. Shareholder has good and marketable title to all Shareholder's Target Common Stock, free and clear of all pledges, adverse claims, liens, charges or encumbrances of any kind, including, but not limited to, any claims of any former or present shareholders of Target. Except as specifically disclosed in Target's Disclosure Schedule, there is no other Target class of stock, common or preferred, authorized or issued, and there are no options, warrants, calls, rights, commitments or any agreements of any character obligating Target or the Shareholder to issue, sell or otherwise dispose of or, except as set forth herein, redeem, purchase or otherwise acquire any shares of Target Common Stock or any other class of capital stock. All of the outstanding shares of Target Common Stock are duly authorized, validly issued, fully paid and non-assessable. There are no voting trusts or other agreements or understandings with any other entity concerning the Target Common Stock to which the Shareholder or Target or any other person or entity are a party the authorized, issued, and outstanding capital of each of the Joint Venture Companies is set forth in Sections 5.3(c) of the Target disclosure schedules. Target owns fifty percent (50%) of all of the issued and outstanding capital stock of each of the Joint Venture Companies, except for Carolina, and Pennsylvania owns all of the issued and outstanding capital stock of Carolina, all of said capital stock is duly issued and outstanding, fully paid and non-assessable; there are no persons or entities which own any securities convertible into such capital stock and no warrants, options or other rights to purchase any shares of such capital stock are issued and outstanding; there are no agreements in existence under which any such capital stock or any such warrants, options or rights may be issued or sold, redeemed, purchased or otherwise acquired (other than this agreement); and no shares of such stock are held in the treasury of any Joint Venture Company. Target has good and marketable title to all its capital stock in the Joint Venture Companies, except for Carolina, and Pennsylvania has good and marketable title to all of the capital stock of Carolina, in each case free and clear of all pledges, adverse claims, liens, agreements, charges or encumbrances of any kind, including, but not limited to any claims of former or present shareholders; there is no class of capital stock in the Joint Venture Companies other than the class of stock currently issued and outstanding to Target and Pennsylvania respectively, and there are no agreements, commitments, options, warrants, calls or rights in existence obligating the Joint Venture Companies to issue any class of capital stock other than the class currently issued. -12- 13 (d) FINANCIAL STATEMENTS. Target has furnished to the Rock of Ages Group a true and complete balance sheet of Target's predecessor, Keystone Memorials, Inc. as of December 31, 1996 and the related statements of operations, stockholders equity and cash flows each dated as of December 31, 1996, including in each case the notes thereto, and similar financial statements for its fiscal years 1993 to 1995. (the foregoing financial data shall be collectively referred to as the "Target Financial Statements" and are attached hereto as EXHIBIT 5.3(d)). The balance sheet dated as of December 31, 1996 (the "Balance Sheet Date") makes full and adequate provision for all direct and indirect material obligations and liabilities (fixed or contingent) as of such date and Target and Target's predecessor has no direct or indirect material obligation or liability (fixed or contingent) not reflected or reserved against on such balance sheet. The Target Financial Statements, taken as a whole, fairly and accurately present the financial position and results of operations of Target's predecessor, in all material respects, as of the dates and for the periods indicated and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis. Target has also furnished to Acquiror its audited balance sheet of Target as of April 30, 1997 and the audited related statement of operations for the period then ended and the notes related thereto (the "Target Audited Financial Statements"). The Target Audited Financial Statements are materially complete and correct, taken as a whole, fairly present the consolidated financial position and results of operations of Target in all material respects, as of the date and for the period indicated and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis except as may be stated in the notes thereto. Except as disclosed in the Target Disclosure Schedule, elsewhere herein or in the Target Audited Financial Statements, there have been no material changes (other than in the ordinary course of business) in its said obligations and liabilities since April 30, 1997. Target has furnished to the Rock of Ages Group the balance sheets dated as of December 31, 1996 or s of the most recent fiscal year end and the related statements of operations, stockholders equity and cash flows for the Joint Venture Companies listed on EXHIBIT 5.3(d) (the "JV Financial Statements"). The most recent balance sheets for each of said corporations make full and adequate provision for all direct and indirect material obligations and liabilities (fixed or contingent) as of their date and said corporations have no direct or indirect material obligation or liability (fixed or contingent) not reflected or reserved against on said balance sheets. The JV Financial Statements, taken as a whole, fairly and accurately present the financial position and results of operations of said corporations, in all material respects, as of the dates and periods indicated and have been prepared on a consistent basis except for Pennsylvania, in which case they were prepared in accordance with generally accepted accounting principles applied on a consistent basis. Target has also furnished the Rock of Ages Group the Joint Venture Companies' unaudited internally generated balance sheets as of May 31, 1997 and the Joint Venture Companies' unaudited internally generated related statements of operations for the period then ended (the "JV Companies May Financial Statements"). Subject to year end adjustments, the JV Companies May Financial Statements are materially complete and correct, taken as a whole, fairly present the financial position and results of operations of each said corporation in all material respects, as of the date and for the period indicated and have been prepared on a consistent basis, except for Pennsylvania, in which case they were prepared in accordance -13- 14 with generally accepted accounting principles applied on a consistent basis. Except as disclosed in the Target Disclosure Schedule, elsewhere herein or in the JV Companies May Financial Statements, there have been no material changes (other than in the ordinary court of business) in each said corporation's obligations and liabilities since the date of the JV Financial Statements. (e) TAX MATTERS. With respect to Taxes (as defined in Clause (xiii) hereof): (i) Each member of the Target Group has filed, within the time and in the manner prescribed by law, all returns, declarations, reports, estimates, information returns and statements ("Returns") required to be filed under federal, state, local or any foreign laws by each such member, and all such Returns are true, correct and complete in all material respects. (ii) Except as set forth in Target's Disclosure Schedule, each member of the Target Group has within the time and in the manner prescribed by law, paid (and until the Effective Time will, within the time and in the manner prescribed by law, pay) all Taxes that are due and payable. (iii) Each member of the Target Group has established (and until the Effective Time will establish) on their respective books and records and on Target's Unaudited Financial Statements, reserves (to be specifically designated as an increase to current liabilities) that are adequate for the payment of all Taxes not yet due and payable. (iv) There are no liens for Taxes upon the assets of any member of the Target Group except liens for Taxes not yet due. (v) No member of the Target Group has filed (and they will not file prior to the Effective Time) any consent agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of any "subsection (f) asset" (as such term is defined in Section 341(f)(4) of the Code) owned by any such member. (vi) Except as set forth in Target's Disclosure Schedule (which shall set forth the type of return, date filed, and date of expiration of the statute of limitations), no deficiency for any Taxes has been proposed, asserted or assessed against any member of the Target Group which has not be resolved and paid in full. (vii) There are no outstanding waivers or comparable consents regarding the application of the statute of limitations with respect to any Taxes or Returns that have been given by any member of the Target Group. -14- 15 (viii) Except as set forth in Target's Disclosure Schedule (which shall set forth the nature of the proceeding, the type of return, the deficiencies proposed or assessed and the amount thereof, and the taxable year in question), no federal, state, local or foreign audits or other administrative proceedings or court proceedings are presently pending with regard to any Taxes or Returns. (ix) No member of the Target Group is a party to any tax-sharing or allocation agreement, nor does Target or any such subsidiary owe any amount under any such agreement. (x) No amounts payable under the Plans (as defined in Section 5.3(m)) will fail to be deductible for federal income tax purposes by virtue of Section 2808G of the Code. (xi) Each member of the Target Group has complied (and until the Effective Time will comply) in all respects with all applicable laws, rules and regulations relating to the payment and withholding of Taxes (including, without limitation, withholding of Taxes pursuant to Sections 1441 or 1442 of the Code or similar provisions under any foreign laws) and have, within the time and in the manner prescribed by law, withheld from employee wages and paid over to the proper governmental authorities all amounts required to be so withheld and paid over under all applicable laws. (xii) No member of the Target Group has ever been (nor has any liability for unpaid Taxes because any of them once was) a member of an "affiliated group" within the meaning of Section 1502 of the Code during any part of any consolidated return year within any part of which year any corporation other than Target, Missouri Red or Missouri was also a member of such affiliated group. (xiii) For purposes of this agreement, "Taxes" shall mean all taxes, charges, fees, levies or other assessments of whatever kind or nature, including, without limitation, all net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, excise, estimated, severance, stamp, occupancy or property taxes, customs duties, fees, assessments or charges of any kind whatsoever (together within any interest and any penalties, additions to tax or additional amounts) imposed by any taxing authority (domestic or foreign) upon or payable by the party in question or any subsidiary thereof. (xiv) Target has no liability for any Taxes of Shareholder or Missouri nor will Target have any such liability in the future. -15- 16 (f) TITLE TO ASSETS, ABSENCE OF LIENS AND ENCUMBRANCES. Target and each of the Joint Venture Companies have good and marketable title to all of their respective assets, and except as set forth in the Financial Statements or on the Target Group Disclosure Schedule, such title is free and clear of all liens, claims and encumbrances and rights of other parties relating to its assets or its Business. EXHIBIT 5.3(f) sets forth an accurate and complete description of all of Target and each Joint Venture Company's real estate and interests therein ("Target Group's Realty"). Target and each Joint Venture Company owns or leases all assets and property required to operate its Business in the ordinary course and to the extent any thereof are leased, EXHIBIT 5.3(f) sets forth the terms of such lease and the other parties thereto, except leases which in the aggregate do not call for lease payments in excess of $1,000 per year. No director, officer, shareholder, or employee of Shareholder, Target or the Joint Venture Companies, or any relative of any of them, owns or has owned, directly or indirectly, in whole or in part, or leases or has leased, to Shareholder, Target or the Joint Venture Companies any asset which Target or the Joint Venture Companies uses or has used or the use of which is necessary for their Businesses. (g) LITIGATION. Except as set forth in Target's Disclosure Schedule, Target has not been notified of, and none of Shareholder, Target or the Joint Venture Companies are a party to, any actions, suits, proceedings or investigations (including any environmental, building or safety investigation) pertaining to them or their assets or Businesses, nor does Shareholder or Target have any knowledge of, nor reasonable grounds to have knowledge of, any claim or state of facts which may lead to, or constitute a threat of, any investigation, claim, proceeding, or litigation, relating to Target, Shareholder or any member of the Target Group or their assets or Business. There are no orders, judgments or decrees of any court or governmental agency relating to Shareholder or any member of the Target Group, which would prevent, impede or make illegal the consummation of the transactions contemplated herein or which would have a material adverse effect on Target, Shareholder or the Joint Venture Companies. (h) LABOR CONTROVERSIES. Target and the Joint Venture Companies are parties to certain collective bargaining agreements, labor agreements, affirmative action programs and other agreements and programs affecting their employees all of which are listed on EXHIBIT 5.3(h) and copies of which are in writing have been delivered to the Rock of Ages Group. To the best of Target's knowledge, there are no material controversies between Target or the Joint Venture Companies and any of their employees, no material unresolved labor practice proceedings or disputes and no material labor arbitration proceedings pending or threatened, and there are no organizational efforts presently being made or, to the best of Target's knowledge after due inquiry, threatened, involving any of Target's or any of the Joint Venture Companies' non-union employees. Target and each of the Joint Venture Companies are in compliance with all federal, state and local laws and orders relating to the employment of labor, and all laws governing wages, hours, collective bargaining, the payment of social security, withholding and similar taxes, equal employment opportunity; employment discrimination and immigration and naturalization, and none of them is liable for any arrears of wages or any taxes or penalties for failure to comply with -16- 17 any of the foregoing. There is no claim of employment discrimination or sexual harassment pending or to the best of the Target's and Shareholder's knowledge, after due inquiry, threatened against Shareholder, Target, or any of the Joint Venture Companies or any of their officers, directors and employees nor any strike, dispute, slowdown or stoppage pending or, to the best of Target's knowledge, threatened against or involving any of them. (i) PATENTS, TRADEMARKS, ETC. No one has made or, to the best of the Target's knowledge, after due inquiry, threatened to make any claims that Target or any of the Joint Venture Companies have wrongfully used or appropriated or infringed upon, any patent, patent license, trade name, trademark, servicemark, brandmark, brand name, copyright, know-how, trade secret or other proprietary or trade rights of any third party. No director, officer, shareholder or employee of Shareholder, Target or any of the Joint Venture Companies owns or has owned, directly or indirectly, in whole or in part, any patents, trademarks, trade names, servicemarks, brandmarks, brand names, copyrights, registrations or applications thereof or interests therein which Target and the Joint Venture Companies have used or are using or the use of which is necessary for their Businesses. (j) BOOKS AND RECORDS. The financial books, records and working papers of Target are to the best of Target's knowledge, in all material respects complete and correct, have been maintained in accordance with sound business practices, and accurately reflect the basis for the financial condition and results of its operations as set forth in the financial statements described in Section 5.3(d) above. Each of the Joint Venture Companies maintains financial books, records and working papers which are in all material respects complete and correct, have been maintained in accordance with sound business practices and accurately reflect the financial condition and results of their operations as set forth in the financial statements described in Section 5.3(d) above. (k) PERMITS, AUTHORIZATIONS, ETC. Target and each of the Joint Venture Companies have all approvals, authorizations, consents, licenses, orders and other permits of all governmental agencies, whether federal, state or local, reasonably required to permit the operation of their Businesses as heretofore and as presently conducted, and all of the same will survive the consummation of the transactions contemplated by this agreement. Target has not received any written notice of any license or permit which will have to be acquired in the future in order for its Business or the Joint Venture Companies' Businesses to be operated as heretofore and as presently conducted. Set forth in EXHIBIT 5.3(k) is a list of all licenses, permits and approvals necessary for Target to conduct its Business as presently being conducted, including all licenses and permits as are required by any federal, state and local law, rule and regulation. (l) COMPLIANCE WITH APPLICABLE LAW. Shareholder and Target have not received any written notice that they are and none of the Joint Venture Companies have received any written notice that they are in violation of any foreign or domestic (federal, state or local) law, ordinance, regulation, order or requirement including Environmental Laws, relating to their Businesses. Neither Target nor any of the Joint Venture Companies -17- 18 have received any written notice that, Target Group's Realty or their assets are in violation of any state and local building, zoning, subdivision, land use, Environmental Laws and other laws, ordinances and regulations. Neither Shareholder, Target nor any of the Joint Venture Companies have received any written notice of any federal, state, municipal, public zoning or other restrictions that will prevent the utilization of any property owned or leased by them for the purposes presently used, and there are no condemnation proceedings pending or, to the best of its knowledge, threatened against any such property. Target is not in violation of any foreign or domestic (federal, state, or local) law, ordinance, regulation, order or requirement including environmental laws relating to its business. (m) EMPLOYEE PLANS. Target has heretofore delivered to the Rock of Ages Group true, correct and complete copies of: (i) the most recent Internal Revenue Service determination letter relating to each of Target's and each Joint Venture Company's pension, profit-sharing, stock bonus or other deferred compensation arrangements, if any, listed in EXHIBIT 5.3(m) hereto for which a letter was obtained except for any multi-employer plans sponsored by any of them (each a "Plan" and collectively the "Plans"); (ii) the most recent Annual Report (Form 5500 series) and accompanying schedules of each Plan currently sponsored by any of them, with respect to which the same are required, as filed pursuant to applicable law; and (iii) all plan documents, as amended to date, summary plan descriptions and summaries of material modifications and all plan termination documentation with respect to each Plan and employee welfare plan presently or in the past sponsored by Shareholder, Target or any of the Joint Venture Companies, as well as the most recent financial statements of each of such plans, except for the multi-employer plans referred to below. With respect to each of such Plans as to which an Annual Report (Form 5500 series) is required to be filed, no liabilities as of the date of such Annual Report exist unless specifically referred to in the most recent such Annual Report, and no material change has occurred with respect to the matters covered by the last Annual Report since the date thereof. Target does not know, nor have any reasonable grounds to know, of any "prohibited transaction," as such term is defined in Section 406 of ERISA and Section 4975 of the Code, which has ever been engaged in by Shareholder, Target or any of the Joint Venture Companies, or by any Plan sponsored by Target, Shareholder or any such company, any trust created thereunder or any trustee, administrator or other fiduciary thereof, or which would subject such Plan or any such entity, or any party dealing with such Plan or any such trust, to the sanctions imposed by ERISA or the tax on prohibited transactions imposed by Section 4975 of the Code. There are no actions, suits or claims pending or, to the best of -18- 19 Target's knowledge after due inquiry, threatened, against any of the Plans or any administrator or fiduciary thereof. Neither any of the Plans nor any of said trusts have incurred any "accumulated funding deficiency," as such term is defined in Section 302 of ERISA or Section 412(a) of the Code (whether or not waived), since the Effective Time of ERISA. The terms and operation of each of the Plans have complied to the extent required with the provisions of Section 401(a) of the Code and with ERISA, and all reports and notices required by ERISA or the Code have been duly filed or given. Target shall deliver to the Rock of Ages Group a list of all of Shareholder, Target and all the Joint Venture Companies Plans subject to Title IV of ERISA and all trusts created thereunder which have been terminated, and all "reportable events," as that term is defined in Section 4043 of ERISA. Except as may be specified in EXHIBIT 5.3(m) hereto, none of such Plans and no such trust has been terminated, nor has any such "reportable event" occurred with respect to any such Plans since the effective date of ERISA. The present value, on a plan termination basis, of all benefits accrued under each Plan sponsored or contributed to by Shareholder, Target or any of the Joint Venture Companies and subject to Title IV of ERISA did not, as of the most recent valuation date, exceed the fair market value of the assets of such Plan as of such date. Shareholder, Target and the Joint Venture Companies have never been sponsors of, and/or a contributing employer to, a multi-employer pension plan subject to the provisions of Section 4201, ET SEQ., of ERISA; or if they have, they have never incurred any withdrawal liability thereunder, nor will they incur any such liability as a result of the consummation of any of the transactions contemplated by this agreement; or if they will, Target will, at or prior to the Closing Date, pay or otherwise satisfy such liability in full and/or establish an escrow fund or secure a bond in an appropriate amount with respect to the same with an escrow agent and/or a bonding company reasonably satisfactory to the Rock of Ages Group and in a manner agreeable to applicable law. Neither Shareholder, Target nor any of the Joint Venture Companies have ever been a sponsor of, or a contributing employer to, a single employer pension plan subject to the provisions of Section 4041, ET SEQ., of ERISA; nor have they ever incurred any liability thereunder or under Section 4062, ET SEQ., of ERISA, nor will any of them incur any such liability as a result of the consummation of any of the transactions contemplated by this agreement; or if any of them will, Target will, at or prior to the Closing Date, pay or otherwise satisfy such liability in full and/or establish an escrow fund or secure a bond with respect to the same as provided in the preceding sentence. (n) INVENTORY. All of the inventory of Target and of each of the Joint Venture Companies consists of materials of a quality and quantity usable and salable in accordance with each corporation's normal pricing and sales practices. (o) LIST OF PROPERTIES, CONTRACTS AND OTHER DATA. Prior to the execution of this agreement or concurrently herewith, Target has delivered or will deliver to the Rock of Ages Group a true and complete list (designated for purposes of this agreement as EXHIBIT 5.3(o)), which list shall be updated and amended as of the Closing Date, setting forth the following: -19- 20 (i) all intellectual property and all other proprietary information owned by Target and each of the Joint Venture Companies, and copies of all other material agreements to which Target and each of the Joint Venture Companies are a party which relate to any proprietary rights affecting their assets; (ii) all policies of insurance insuring Target's and each of the Joint Venture Companies' assets; and (iii) all contracts, agreements, leases, understandings and commitments to which Target and each of the Joint Venture Companies are a party, or to which it or any of their assets are subject, except those involving not more than $5,000 on an annual basis. True and complete copies of all documents referred to in such list have been or will be provided to the Rock of Ages Group and its counsel upon their request as part of Rock of Ages Group's due diligence. All such documents, rights, leases, obligations and commitments are valid and enforceable in accordance with their respective terms, except as such enforceability may be affected by bankruptcy, or similar laws affecting the rights of creditors generally and by general principles of equity, for the periods stated therein and there is not, under any of them any existing default or event of default or any event which with notice and/or lapse of time would constitute a default. (p) INDUSTRY AND GOVERNMENTAL EVENTS. Shareholder, Target and the Joint Venture Companies are not aware of any future events, loss of customers or suppliers, that may materially affect them or any of the Joint Venture Companies and/or their Businesses and financial affairs either prior to or subsequent to the Effective Date. Neither Shareholder nor Target has received any written notice of any change or any pending or contemplated condemnation or change of zoning, subdivision land use, environmental or other statutes, or regulations or court or administrative rulings or other governmental action affecting Target Group's Realty. (q) NO DEFAULTS. Except as disclosed in Exhibit 5.3(q), for a certain bank loan to Pennsylvania, there currently are no defaults by Shareholder, Target or any of the Joint Venture Companies or acts or events which, with the passage of time or giving of notice, or both, could become defaults by any of them under any indebtedness, indenture, mortgage, deed of trust, security deed, security agreement or other instrument. (r) ACCURACY AND OMISSIONS. None of the information and documents furnished or to be furnished or made available for inspection by Shareholder, Target or any of the Joint Venture Companies pursuant to the provisions of this agreement is or will be false or misleading, or contains or will contain any material misstatement of fact or omits or will omit to state any material fact required to be stated to make the statements therein not misleading. -20- 21 ARTICLE VI PRE-MERGER AND POST MERGER COVENANTS ------------------------------------ 6.1 CONDUCT OF TARGET'S BUSINESS PENDING CLOSING. For the period commencing from and after the date hereof until the Effective Date or the earlier termination of this agreement (hereinafter referred to as the "Interim Period"), Shareholder and Target covenant and agree as follows: (a) FULL ACCESS AND DUE DILIGENCE. Rock of Ages Group and its respective agents and representatives (including legal counsel and accountants) shall have full access during normal business hours, to inspect all properties, books, records, contracts and documents of Target and each of the Joint Venture Companies used in or associated with their Businesses and to all of their executive employees (including the opportunity to meet with and discuss their Businesses with such employees) and to otherwise conduct such due diligence (the "Rock of Ages Group Due Diligence") regarding its examination of them, their Business and financial affairs as the Rock of Ages Group may deem reasonably necessary and appropriate; provided, however, that the Rock of Ages Group and its representatives shall not unreasonably interfere with their operations; and Target and each of the Joint Venture Companies shall furnish or cause to be furnished to the Rock of Ages Group and its authorized representatives all information with respect to their Businesses as the Rock of Ages Group or its representatives may reasonably request. Furthermore, the Rock of Ages Group, its agents and representatives, shall have the opportunity to inspect and test any or all of Target's and each Joint Venture Company's equipment and properties as it determines in its sole discretion, at any reasonable time, and from time to time, up to the Closing Date provided that the Rock of Ages Group makes reasonable efforts not to disrupt their Businesses and operations when conducting such tests. (b) BUSINESS IN THE ORDINARY COURSE. Except as specifically permitted or required herein, during the Interim Period, Target's Business shall be conducted in the ordinary course consistent with past practices. Except as specifically permitted or required herein, it shall not enter into any contract or commitment or engage in any transaction that could reasonably be anticipated to (separately or in the aggregate) materially adversely affect the Merger contemplated herein. If it desires to engage in any transaction not in the ordinary course of business and such transaction involves consideration equal to or greater than Ten Thousand Dollars ($10,000.00), unless such transaction is necessary to the Merger, Target shall first obtain the prior written consent of the Rock of Ages Group before entering into such transaction (which consent shall not be unreasonably withheld). (c) PRESERVATION OF ORGANIZATION. During the Interim Period, Target (i) shall not make or voluntarily suffer any change in its Articles of Incorporation or By-Laws; (ii) shall make a reasonable and diligent effort to in the ordinary course of business and to the extent consistent with its reasonable business judgment, preserve its Business intact; (iii) -21- 22 shall keep available, to the extent feasible, its present employees and representatives; (iv) shall preserve its present relationships with its suppliers, customers, governmental agencies, and others having business relations with it; (v) shall not increase the compensation of any of its employees or representatives or the rate of any commission that may be paid to any such employee or representatives, nor will it make any promise or undertake to increase such compensation or rate of commission without the prior written consent of Acquiror; (vi) shall not issue any capital stock or warrants, options or rights to purchase or acquire such stock nor incur any new indebtedness; and (vii) shall not pay any dividends nor make any distribution on its capital stock. (d) NO DEFAULT. During the Interim Period, Target shall not breach any contract, commitment or obligation to which it is a party. (e) COMPLIANCE WITH LAWS. Target shall comply with all applicable laws, rules, regulations and ordinances, as are required for the conduct of its Business and the Merger. (f) NO ENCUMBRANCES. Target shall not create, voluntarily suffer, or permit to become effective any encumbrance of any kind upon its assets, except as specifically authorized or contemplated by this agreement. (g) NO DISPOSITION OF ASSETS. Target shall not transfer, sell, abandon, destroy, or otherwise dispose of, or enter into any contract or agreement to sell or otherwise transfer, any of its property or assets other than in the ordinary course of business consistent with past practices. (h) INSURANCE. Target shall keep all of its assets and properties insured against any loss, either by fire, other casualty or theft to the extent of present coverage under present enforceable policies of insurance coverage. (i) TERMINATION OF EMPLOYEE PENSION BENEFIT PLANS. Prior to Closing Target shall commence all requisite action to (a) terminate any employee pension benefit plans (within the meaning of ERISA) sponsored by Target; and (b) upon the written request of the Rock of Ages Group, withdraw from, or cease all contributions to, any multiple-employer or multiemployer employee pension benefit plans (within the meaning of ERISA) in which Target may participate or to which it may contribute for the benefit of some or all of its employees; all such action to be taken in accordance with the provisions of the respective plans and of applicable law (including, without limitation, the Code and ERISA) and in a timely manner. (j) NO TERMINATION OF KEY EMPLOYEES. Target will not without the prior written consent of Acquiror terminate the employment of any of its officers or any of its other key employees. -22- 23 (k) CONTRIBUTION OF JOINT VENTURE COMPANY DEBT. Shareholder will cause any amounts due, including without limitations, those totaling approximately Seven Hundred and Eight Thousand Dollars ($708,000.00) to George T. Oglesby, Jr., Oglesby Farms or KSGM, Inc. (collectively the "Lender"), by any of the Joint Venture Companies to have been contributed by each of the Lenders to the capital of the Joint Venture Company which owes the same to the Lender in question all on or before the Closing Date. Target will not agree to any actions by the Joint Venture Companies which are described in subparagraphs (a) through (j) above, which if taken by Target would cause Target to be in violation of said subparagraphs and Target will use its reasonable best efforts to prevent each Joint Venture Company from taking any actions or failing to take any actions which would violate said subparagraphs as if each Joint Venture Company was bound thereby in the same manner as Target is bound thereby. 6.2 REAL PROPERTY COVENANTS. During the Interim Period, Target will refrain from: (a) performing any grading or excavation, construction, or removal of or from its real estate, or making any other material change or improvement upon or about its real estate, without the consent of the Rock of Ages Group, other than those required to bring the same into compliance with applicable laws, rules or regulations, or as specifically provided herein; (b) committing or allowing any third party to commit any waste or nuisance upon its real estate; and (c) violating or allowing any third party to violate any Environmental Laws with respect to its real estate. Target will not agree to any actions by the Joint Venture Companies which are described in subparagraph (a) through (c) above, which if taken by Target would cause Target to be in violation of said subparagraphs and Target will use its reasonable best efforts to prevent each Joint Venture Company from taking any actions or failing to take any actions which would violate said subparagraphs as if each Joint Venture Company was bound thereby in the same manner as Target is bound thereby. 6.3 CONDUCT OF THE ROCK OF AGES GROUP'S BUSINESS PENDING CLOSING. During the Interim Period, Acquiror covenants and agrees as follows: (a) FULL ACCESS AND DUE DILIGENCE. Target and Shareholder and their agents and representatives (including legal counsel and accountants) shall have full access during normal business hours, to inspect all material properties, books, records, contracts and documents of the Rock of Ages Group used in or associated with the Businesses and to all of its executive employees (including the opportunity to meet with and discuss its -23- 24 Businesses with such employees) and to otherwise conduct such due diligence (the "Target and Shareholder Due Diligence") regarding their examination of Rock of Ages Group's Businesses and financial affairs as they may deem reasonably necessary and appropriate, provided, however, that they and their representatives shall not unreasonably interfere with Rock of Ages Group's operations and Rock of Ages Group shall furnish or cause to be furnished to them and their authorized representatives all information they may reasonably request. (b) BUSINESSES IN THE ORDINARY COURSE. Except as specifically permitted or required herein, during the Interim Period, the Rock of Ages Group's Businesses shall be conducted in the ordinary course consistent with past practices. Except as specifically permitted or required herein, the Rock of Ages Group shall not enter into any contract or commitment or engage in any transaction that could reasonably be anticipated to (separately or in the aggregate) materially adversely affect the Merger contemplated herein; provided, however, that the Rock of Ages Group is specifically permitted (without the prior consent of Target or Shareholder) to continue other mergers and acquisitions, including without limitation the Prior Merger, the acquisition of Childs & Childs Granite Company, Inc., C & C Granite Company, Inc. and the capital stock of each Joint Venture Company not owned by Target and retail monument dealers, (along with the Merger, collectively referred to as the "Acquisitions"), to restructure and refinance its credit facilities with its lenders, as necessary to consummate the Acquisitions, to pursue other debt and equity financing it deems appropriate, , including without limitation, the IPO (as hereinafter defined), and otherwise to engage in any transaction necessary and appropriate to consummate the Acquisitions, including internal reorganizations, asset dispositions, dividends, mergers, and recapitalizations (all of the Acquisitions and the foregoing being herein sometimes, including without limitation a possible public offering of its stock and securities, referred to as the "Proposed Transactions"). (c) PRESERVATION OF ORGANIZATION. During the Interim Period the Rock of Ages Group: (i) shall not make or voluntarily suffer any change in any of its Articles of Incorporation or By-Laws except as necessary or convenient to effect the Proposed Transactions; (ii) shall make a reasonable effort to in the ordinary course of business and to the extent consistent with its reasonable business judgment, preserve its Businesses intact; (iii) shall keep available, to the extent, reasonably feasible, its present executive employees; and (iv) shall use reasonable efforts to preserve Rock of Ages Group's present relationships with its suppliers, customers, governmental agencies, and others having business relations with the Rock of Ages Group. (d) NO DEFAULT. The Rock of Ages Group shall not breach any contract, commitment or obligation to which it is a party. (e) COMPLIANCE WITH LAWS. The Rock of Ages Group shall comply with all applicable laws, rules, regulations and ordinances, as are required for the conduct of its Businesses and the Merger. -24- 25 (f) NO ENCUMBRANCES. The Rock of Ages Group shall not create, voluntarily suffer, or permit to become effective any encumbrance of any kind upon its assets, except as necessary or required to effect the Proposed Transactions. (g) NO DISPOSITION OF ASSETS. The Rock of Ages Group shall not transfer, sell, abandon, destroy, or otherwise dispose of, or enter into any contract or agreement to sell or otherwise transfer, any of its assets other than in the ordinary course consistent with past practices, or except as necessary or required to effect the Proposed Transactions. (h) INSURANCE. The Rock of Ages Group shall keep all of its assets and properties insured against any loss, either by fire, other casualty or theft, to the extent of present coverage under present, enforceable policies of insurance coverage. 6.4 REAL PROPERTY COVENANTS. During the Interim Period, the Rock of Ages Group will refrain from: (a) performing any material excavation, construction, or removal of or from any real property, in which any member of the Rock of Ages Group owns any interest (the "Rock of Ages Realty"), or making any other material change or improvement upon the Rock of Ages Realty, without the consent of Target, other than existing quarry operations in the ordinary course of business or as required to bring the same into compliance with applicable laws, rules or regulations; (b) committing or allowing any third party to commit any waste or nuisance upon the Rock of Ages Realty; and (c) violating or allowing any third party to violate any Environmental Laws with respect to the Rock of Ages Realty. 6.5 ACCESS TO AND INFORMATION CONCERNING REAL PROPERTY. Target and the Rock of Ages Group shall, during the Interim Period, allow the other and the other's agents access to each of their real property and Target will allow the Rock of Ages Group access to the Target Realty during regular business hours upon reasonable prior notice, for purposes of inspecting and testing the same or any part thereof as the other shall reasonably request. Target and the Rock of Ages Group agree to furnish to the other any and all information regarding ownership of Rock of Ages Group Realty or Target Realty and their Businesses that the other shall reasonably request from time to time. Each agrees to indemnify and hold the other harmless from all claims, suits, damages, and losses arising from the its inspection or testing of the said real property, which indemnity shall survive termination of this agreement. 6.6 ENVIRONMENTAL AND ENGINEERING MATTERS. The Rock of Ages Group may, prior to the Closing Date, perform whatever environmental and engineering tests, searches or inspections of the Target Group's Realty which it desires to perform and Target may do -25- 26 likewise with respect to the Rock of Ages Realty. In addition to any testing which may be performed: (a) Upon or prior to the execution of this agreement Acquiror shall hire a certified environmental engineering firm at its own cost and expense ("Environmental Engineer"), to perform a Level I environmental audit of Target Group's Realty and at its option a Level II environmental audit of Target Group's Realty. Such Environmental Engineer shall address and certify his environmental report to the Rock of Ages Group. If the report issued by the Environmental Engineer recommends or requires further testing and/or the removal or treatment of any Hazardous Material (as defined in EXHIBIT 5.2(m)), or if any engineer hired by the Rock of Ages Group determines an environmental problem exists on Target Group's Realty, or recommends further testing and/or the removal or treatment of any Hazardous Material on any portion of Target Group's Realty, such testing, removal, repair or treatment of Hazardous Material or the correction of the environmental problem shall be at the sole cost and expense of Target or the Joint Venture Company involved (the "Environmental Work"), and shall be completed to the sole satisfaction of the Rock of Ages Group and its engineers and financing institutions as evidenced by a report from an engineer acceptable to them which indicates that the Hazardous Materials have been brought into compliance with Environmental Laws, or the environmental problem has been corrected. If Target or the Joint Venture Company involved fails to perform the Environmental Work, to the satisfaction of the Rock of Ages Group and its financing institutions, the Rock of Ages Group shall have the right to terminate this agreement. Target shall use its best efforts to complete any of its Environmental Work, and shall use its reasonable best efforts to cause any Joint Venture Company involved to complete its Environmental Work, as expeditiously as possible, but in any event, the Environmental Work shall be completed within thirty (30) days from receipt of written notice from the Rock of Ages Group that it requires the performance of Environmental Work. Notwithstanding the foregoing, if the Environmental Engineer estimates that the cost for completing the Environmental Work would be equal to or greater than Two Hundred Thousand Dollars ($200,000.00), in the aggregate, including one-half (1/2) of the cost of any work for the Joint Venture Companies, Target may by ten (10) days prior written notice terminate this agreement without incurring any obligation or liability to the Rock of Ages Group as a result of such termination; provided, however that Target shall have no such right of termination if a member of the Rock of Ages Group agrees in writing within ten (10) days of receipt of Target's said notice to reimburse Target or the Joint Venture Company involved for the portion of the Environmental Work exceeding Two Hundred Thousand Dollars ($200,000.00). (b) The Rock of Ages Group has previously had Level I environmental audits conducted on the Rock of Ages Realty. The Rock of Ages Group will provide Target with copies of the same upon Target's request. 6.7 Intentionally Left Blank. -26- 27 6.8 SECURITIES LAW COMPLIANCE. (a) Acquiror shall promptly cause to be prepared and filed such applications, forms, statements, if any, as are required under Federal securities laws to cover the issuance of Acquiror Common Stock into which Target Common Stock outstanding at the Effective Time of the Merger is to be converted. (b) Acquiror will take any action required to be taken under applicable state securities laws and Acquiror will also take action to secure all necessary exemptions or clearances under all state securities laws applicable to (i) the Merger and (ii) the issuance of Acquiror Common Stock pursuant thereto. (c) Acquiror will promptly deliver to Target copies of any filings made by Acquiror pursuant to this Section 6.8. (d) Target will take any action required to be taken under applicable state securities laws and will promptly deliver to Acquiror copies of any filings made by Target pursuant to this Section 6.8. 6.9 THIRD PARTY CONSENTS. Each party to this agreement shall use its best efforts to obtain, as soon as reasonably practicable, all permits, authorizations, consents, waivers and approvals from third parties or governmental authorities necessary to consummate this agreement and the Plan of Merger and the transactions contemplated hereby or thereby, including, without limitation, any permits, authorizations, consents, waivers and approvals required in connection with the Merger. 6.10 TARGET EMPLOYEES. (a) Acquiror and Sub do not accept or assume the terms of any collective bargaining agreements of Target. Acquiror and Sub do not, by reason of this agreement, agree to hire any specified number or percentage of Target's hourly or salaried work force. (b) All hourly employees from whom applications will be solicited will also be provided with a document setting forth the essential terms and conditions of employment. Target will be provided with a copy of such document. Sub will consider employing said employees under such terms and conditions of employment. If applications acceptable to Sub are received from Target's employees, offers of employment shall be extended on or about the Effective Date. (c) Sub shall, as soon as practical following the distribution of the materials referred to in paragraph (b) above, make themselves available for meetings and discussions with the current collective bargaining agent of Target's employees (the "Union"), PROVIDED, HOWEVER, that such collective bargaining agent agrees in writing that such meetings -27- 28 and discussions do not constitute recognition of the collective bargaining agent as the bargaining representative for any prospective employees of Sub. (d) If, as a result of processing applications under paragraph (b) above, a majority of the employees to whom Sub extend offers of employment are from Target's bargaining unit, Sub anticipates that said employees will come within the jurisdiction of Sub's existing collective bargaining agreement. ARTICLE VII CONDITIONS TO COMPLETION OF CLOSING ----------------------------------- 7.1 CONDITIONS TO TARGET'S OBLIGATIONS. The obligation of Target under this agreement to consummate the Merger is subject to the fulfillment of each of the following conditions prior to the completion of the Closing, except to the extent Target may, in its absolute discretion, waive anyone or more thereof, in whole or in part: (a) The representations and warranties by the Rock of Ages Group in this agreement shall be true and correct in all material respects as of the Closing, with the same force and effect as though such representations and warranties had been made on the Closing Date, the Rock of Ages Group shall have performed in all material respects all its obligations, covenants and agreements set forth herein, the Rock of Ages Group shall not have breached any of its covenants or agreements set forth herein, and Target shall have received a certificate of an executive officer of Acquiror to such effect. (b) There shall have been delivered to Target an opinion of counsel for the Rock of Ages Group, reasonably satisfactory in form and substance to counsel for Target, to the effect that Acquiror, Sub and the Joint Venture Companies are corporations existing and in good standing under the laws of their states of incorporation; that all necessary corporate proceedings of each member of the Rock of Ages Group have been duly taken to authorize this agreement and the transactions contemplated hereby; that this agreement has been duly executed and delivered by each member of the Rock of Ages Group and constitutes their respective legal, valid, and binding obligations; that the shares of Acquiror Common Stock when delivered in the Merger pursuant to this agreement will be duly authorized, validly issued, fully paid, and nonassessable shares of Acquiror Common Stock; that this agreement does not, and the carrying out of the transaction herein provided for will not, to the best of such counsel's knowledge, violate any charter or other corporate restriction to which Acquiror or Sub is subject or any other agreement or instrument to which they are a party or by which they are bound. (c) The Employment Agreements, substantially in the form attached as EXHIBIT 4.1 shall be executed by Acquiror. -28- 29 (d) The Stock Subscription and Continuity of Interest Agreement substantially in the form attached as EXHIBIT 4.2 shall be executed by Acquiror. (e) Acquiror and Sub shall have delivered to Target Secretary's Certificates having attached thereto copies of their Articles of Incorporation and Bylaws, as amended to date and a list of their officers and directors. (f) Any guaranties by Shareholder, Missouri and Keystone Granite, Inc., a Georgia corporation ("Keystone Granite") and George T. Oglesby, Jr. of any indebtedness of Target or any of the Joint Venture Companies indebtedness shall have been released and discharged or provisions for the future release and discharge thereof, satisfactory to Shareholder and George T. Oglesby, Jr., in their sole discretion, shall have been made. (g) All Schedules and Exhibits to be attached to their agreement were attached to this agreement upon its execution or have been attached pursuant to Section 10.11. 7.2 CONDITIONS TO THE ROCK OF AGES GROUP'S OBLIGATIONS. The obligation of Acquiror under this agreement to consummate the merger are subject to the fulfillment of each of the following conditions prior to the completion of the Closing, except to the extent that Acquiror may, in its absolute discretion, waive any one or more hereof, in whole or in part: (a) The representations and warranties by Target and Shareholder shall be true and correct, as of the Closing, with the same force and effect as though such representations and warranties had been made on the closing, Target and Shareholder shall have performed all their obligations, covenants and agreements set forth herein, Target and Shareholder have not breached any of their covenants or agreements set forth herein, and Acquiror shall have received certificates from Target and Shareholder to such effect. (b) There shall have been delivered to Acquiror an opinion of counsel for Target and the Shareholder, reasonably satisfactory in form and substance to counsel for the Rock of Ages Group, to the effect that: (i) Target and the Joint Venture Companies are corporations duly organized validly existing and in good standing under the laws of their respective states of incorporation and are duly qualified to do business as foreign corporations in any jurisdiction in which the nature of their businesses would require such qualification; that this agreement has been duly executed and delivered by Target and the Shareholder and constitutes their legal, valid and binding obligations, enforceable against Target and Shareholder in accordance with its terms, that the capitalization of Target and of each of the Joint Venture Companies are set forth in Section 5.3 and Section 5.3 of the Target Disclosure Schedule, respectively; that all outstanding shares of Target -29- 30 and the shares of capital stock of the Joint Venture Companies to be acquired by Acquiror in the Merger are duly authorized, validly issued, fully paid and nonassessable, are free and clear of all liens, claims, pledges, encumbrances, charges, options, proxies or restrictions of any kind or nature, and upon consummation of the transactions contemplated by this agreement, Acquiror will acquire good, valid and marketable title to said shares, free and clear of all liens, claims, pledges, charges, options, proxies or restrictions of any kind or nature; and that this agreement does not, and the carrying out of the transactions herein provided for will not, to the best of such counsel's knowledge, violate or conflict with any charter or other corporate restriction to which Target or any of the Joint Venture Companies are subject, or any law or regulation applicable to Target and Shareholder, or, to the best of Counsel's knowledge, any agreement or instrument to which they or the Shareholder are a party or by which they are bound: (ii) Each member of the Target Group's capital stock has been duly authorized, validly issued, and is fully paid and non-assessable, this agreement and the transactions contemplated hereby do not conflict with, breach, or constitute a default under, the organizational documents of any member of the Target Group or any corporate restrictions, contracts, laws or regulations applicable to any member of the Target Group, the capital stock of which is being acquired pursuant to this agreement, and no consents or approvals of any governmental entity or other third party are required for the valid execution, delivery or performance of this agreement or the transactions contemplated by this agreement, and to counsel's best knowledge, there is no pending or threatened litigation which would have a material adverse effect on this agreement, the transactions contemplated by this agreement, or would have a material adverse effect on the business, operations, or financial condition of any member of the Target Group. (c) George T. Oglesby, Jr. shall have executed his Employment Agreement substantially in the form attached as EXHIBIT 4.1(a); (d) George T. Oglesby, III, shall have executed his Employment Agreement substantially in the form attached as EXHIBIT 4.1(b); (e) The Shareholder shall have executed the Stock Subscription and Continuity of Interest Agreement substantially in the form attached as EXHIBIT 4.2. (f) George T. Oglesby, Jr. and George T. Oglesby, III shall each have executed his Acquisition Noncompete, Nonsolicitation and Nondisclosure Agreements substantially in the forms thereof attached as Exhibit 7.2(f). -30- 31 (g) Shareholder shall have voted Shareholder's Target Common Stock to approve the Merger. (h) Prior to the Closing Date, the Rock of Ages Group shall have received the consent of CIT Group/Business Credit, Inc. ("CIT/BC") to this agreement and the Merger and the transactions contemplated herein and thereby. (i) There shall be no uncompleted Environmental work on Target Group's Realty. (j) Target shall have delivered to Acquiror a Secretary's Certificate having attached thereto copies of Target and the Joint Venture Companies Articles of Incorporation and Bylaws, as amended to date, a list of their officers and directors and certified copies of the votes of Target's Board of Directors, and Shareholder's Board of Directors approving and consenting to this agreement, the Merger and all the transactions contemplated herein or in any document or agreement referenced herein and a copy of the certified unanimous written consent or the vote of Missouri Red, in its capacity as sole shareholder of Target, approving this agreement and the Merger. (k) Target shall own, prior to the Closing Date fifty percent (50%) of the issued and outstanding capital stock of each of the Joint Venture Companies except that Pennsylvania will on the Closing Date own all of the issued and outstanding capital stock of Carolina. (l) The Rock of Ages Group shall have entered into a binding agreement with the other owners of capital stock in the Joint Venture Companies (excluding Carolina) under which the Rock of Ages Group will acquire all of the capital stock of them not owned by Target on terms and conditions satisfactory to Acquiror, in its sole discretion. (m) The Rock of Ages Group shall have entered into a binding agreement with the owners of Childs & Childs Granite Company, Inc., a Georgia corporation, and C&C Granite, Inc., a Georgia corporation, under which the Rock of Ages Group will acquire said corporations on terms and conditions satisfactory to Acquiror in its sole discretion. (n) Missouri Red and Keystone Granite, Inc., a Georgia corporation ("Keystone Granite") shall, prior to or simultaneously with the Closing, have entered into guaranteed granite Supply and Distribution Agreements with Acquiror substantially in the form thereof attached hereto as Exhibit 7.2(n). (o) Any guaranties by Target or the Joint Venture Companies of any Missouri Red or Keystone Granite indebtedness or their obligation to pay any such indebtedness shall have been released or discharged or provisions for the future release and discharge thereof, satisfactory to Acquiror, in its sole discretion, shall have been made. -31- 32 (p) Target shall not have any debt outstanding at the Closing Date and the Effective Date except for debt not to exceed Eight Hundred Thousand Dollars ($800,000.00) to George T. Oglesby, Jr. and members of his family and debt not to exceed One Million Six Hundred Thousand Dollars ($1,600,000.00) to banks and other institutional lenders, and said lenders shall have agreed that all of said debt may be paid after the Effective Date by Acquiror according to its terms in effect on the date hereof and the repayment terms of the Eight Hundred Thousand Dollars ($800,000.00) are satisfactory to Acquiror in its sole discretion. (q) The Bank Debt and the obligations to Anderson Company of the Joint Venture Companies, at the Closing Date and the Effective Date, shall not exceed Five Million Four Hundred Eighty-Four Thousand ($5,484,000.00). (r) All Schedules and Exhibit to be attached to this agreement were attached to this agreement upon its execution or have been attached pursuant to Section 10.11. 7.3 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective obligations of each party to this agreement to consummate the Merger are subject to the fulfillment of all of the following conditions at or prior to its completion of the closing: (a) The Merger shall have been approved by the Shareholder pursuant to the requirements of GCC. (b) The Merger shall, if required, have been approved by Acquiror's shareholders pursuant to the requirements of VBCA. (c) No injunction or other or decree shall have been issued by any competent Federal or state court which prevents the consummation of Merger and no inquiry shall have been received from, nor shall any investigation or proceeding have been instituted by, any governmental agency seeking to prohibit the Merger and the transactions contemplated herein or asserting that the same breach of violate any material statute, rule or regulation. (d) No statute or regulation has been enacted which would prevent consummation of Merger. (e) All governmental consents, approvals and filings required to consummate the Merger shall have been obtained or made. -32- 33 ARTICLE VIII TERMINATION ----------- 8.1 TERMINATION OF AGREEMENT. This agreement and the transactions contemplated herein may be terminated by mutual written consent of Acquiror and Target. 8.2 CONSEQUENCES OF TERMINATION. In the event of termination of this agreement, it shall forthwith become void and there shall be no liability on the part of Acquiror, Sub, Target or Shareholder, or their respective officers and directors (except as set forth below in this Section 8.2 or Section 10.2 hereof) and each party hereto shall return to the others all documents and materials obtained from it or them in connection with the transactions contemplated by this agreement. In the event of termination under Section 8.1, the parties shall be deemed to have released each other from any liability arising from the termination of this agreement. ARTICLE IX INDEMNIFICATION --------------- 9.1 SHAREHOLDER GENERAL INDEMNIFICATION COVENANTS. Subject to the provisions of Sections 9.3 and 9.4, Shareholder shall indemnify, save and keep Acquiror and its parent, subsidiaries, affiliates, successors and permitted assigns (including Target and the Surviving Corporation as defined in the Plan of Merger) (the "Acquiror Indemnitees"), harmless against and from all liability, demands, claims, actions or causes of action, assessments, losses, fines, penalties, costs, damages and expenses, including reasonable attorneys' fees, disbursements and expenses (collectively, "Damages"), sustained or incurred by any of the Acquiror Indemnitees as a result of, arising out of or by virtue of any misrepresentation, breach of any warranty or representation, or non-fulfillment of any agreement or covenant on the part of Target or Shareholder, whether contained in this agreement or the Plan of Merger or any exhibit or schedule hereto or thereto or any written statement or certificate furnished or to be furnished to Acquiror or Sub pursuant hereto or in any closing document delivered by Target or Shareholder in connection herewith. 9.2 SHAREHOLDER TAX INDEMNITY. (a) Shareholder hereby agrees to pay, indemnify, defend and hold the Acquiror Indemnities harmless from and against any and all Taxes of Target, Shareholder, and their subsidiaries with respect to any period (or any portion thereof) up to and including the Effective Time, except for Taxes of Target and its subsidiaries which are reflected as current liabilities for Taxes that exist as of the Effective Time ('Current Tax Liabilities') on the Target Unaudited Financial Statements, together with all reasonable legal fees, disbursements and expenses incurred by the Acquiror Indemnities in connection therewith. -33- 34 (b) Acquiror shall prepare and file any Return of Target which is required to be filed after the Effective Time and which relates to any period (or portion thereof) up to and including the Effective Time, and Acquiror shall, within forty-five (45) days prior to the due date of any such Return, deliver a draft copy to Shareholder. Within thirty (30) days of the receipt of any such Return, Shareholder may reasonably request changes, in which event Acquiror and Shareholder shall attempt to agree on a mutually acceptable resolution of the issues in dispute. If a resolution is reached, such Return shall be filed in accordance therewith. If a resolution is not reached, then at the expense of Acquiror and Shareholder (such expense to be shared equally), such Return shall be submitted to a firm of independent certified public accountants selected by Acquiror and reasonably acceptable to Shareholder, which shall be directed to resolve the issues in dispute and prepare the Return for filing. As soon as is practicable after notice from Acquiror to Shareholder at any time prior to the date any payment for Taxes attributable to any such Return is due, provided such Return is prepared for filing in accordance with the foregoing, an amount equal to the excess, if any, of (i) Taxes that are due with respect to any taxable period ending on or before the Effective Time, or taxes that would have been due with respect to a taxable period beginning before and ending after the Effective Time if such period has ended on the Effective Time over (ii) the amount of such Taxes of Target, Shareholder and their subsidiaries with respect to such taxable period which are reflected as Current Tax Liabilities on the Target Unaudited Financial Statement shall be paid by Shareholder to Acquiror by wire transfer of immediately available funds within three (3) business days after the determination of said amount is made. (c) The indemnity provided for in this Section 9.2 shall be independent of any other indemnity provision hereof and, anything in this agreement to the contrary notwithstanding, shall survive until the expiration of the applicable statutes of limitation for the Taxes referred to herein, and any Taxes subject to the indemnification for Taxes set forth in this Section 9.2 shall not be subject to the provisions of Sections 9.1 or 9.4 hereof. Notwithstanding anything in this agreement to the contrary, Shareholder will not be obligated to indemnify Acquiror and Sub under any provisions of this agreement with respect to Taxes or other liabilities that arise as a direct result of the failure of the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Code, provided that Shareholder is not in breach of any of Shareholder's representations, covenants or agreements contained in the Stock Subscription and Continuity of Interest Agreement. 9.3 LIMITATIONS ON SHAREHOLDER INDEMNIFICATION. The obligations of Shareholder pursuant to Sections 9.1 and 9.2 are subject to the following limitations: (a) In no event shall the obligation of Shareholder to indemnify the Acquiror Indemnitees pursuant to Section 9.1 exceed $750,000.00 in the aggregate; provided, however, that such limitation shall not apply to any indemnification obligations of Shareholder under Section 9.2; and (b) Shareholder shall not have any indemnification obligation with respect to the first $50,000.00 of total liabilities incurred under Sections 9.1 and 9.2, unless the total -34- 35 aggregate liabilities of Shareholder under Sections 9.1 and 9.2 equal or exceed such amount, in which case the indemnification obligations of Shareholder will include all liabilities in excess of One Dollar ($1.00) incurred under Sections 9.1 and 9.2 (subject only, in the case of liabilities incurred under Section 9.1, to the maximum aggregate amount set forth in Section 9.3(a) above). 9.4 CONDITIONS OF SHAREHOLDER INDEMNIFICATION PURSUANT TO SECTION 9.1. (a) Promptly following the receipt by an Acquiror Indemnitee of notice of a demand, claim, action, assessment or proceeding made or brought by a third party, including a governmental agency (a "Third Party Claim"), the Acquiror Indemnitee receiving the notice of the Third Party Claim (i) shall notify Shareholder of its existence, setting forth the facts and circumstances of which such Acquiror Indemnitee has received notice, and (ii) if the Acquiror Indemnitee giving such notice is a person entitled to indemnification under this Article IX (an "Indemnified Party"), specifying the basis hereunder upon which the Indemnified Party's claim for indemnification is asserted. (b) The Indemnified Party shall, upon reasonable notice by Shareholder, tender the defense of a Third Party Claim to Shareholder. If Shareholder accepts responsibility for the defense of a Third Party Claim, then Shareholder shall have the exclusive right to contest, defend and litigate the Third Party Claim and shall have the exclusive right, in Shareholder's discretion exercised in good faith and upon the advice of counsel, to settle any such matter, either before or after the initiation of litigation, at such time and upon such terms as Shareholder deems fair and reasonable, provided that at least ten (10) days prior to any such settlement, Shareholder shall give written notice of Shareholder's intention to settle to the Indemnified Party. The Indemnified Party shall have the right to be represented by counsel at its own expense in any defense conducted by Shareholder. (c) Notwithstanding the foregoing, in connection with any settlement negotiated by Shareholder, no Indemnified Party shall be required to (i) enter into any settlement (A) that does not include the delivery by the claimant or plaintiff to the Indemnified Party of a release from all liability in respect of such claim or litigation, (B) if the Indemnified Party shall, in writing to Shareholder within the ten (10) day period prior to such proposed settlement, disapprove of such settlement proposal and desire to have Shareholder tender the defense of such matter back to the Indemnified Party, or (C) that requires an Indemnified Party to take any affirmative actions as a condition of such settlement, or (ii) consent to the entry of any judgment that does not include a full dismissal of the litigation or proceeding against the Indemnified Party with prejudice; provided, however, that should the Indemnified Party disapprove of a settlement proposal pursuant to Clause (B) above, the Indemnified Party shall thereafter have all of the responsibility for defending, contesting and settling such Third Party Claim but shall not be entitled to indemnification by Shareholder to the extent that, upon final resolution of such Third Party Claim, Shareholder's liability to the Indemnified Party but for this proviso exceeds what -35- 36 Shareholder's liability to the Indemnified Party would have been if Shareholder were permitted to settle such Third Party Claim in the absence of the Indemnified Party exercising its right under Clause (B) above. (d) If, in accordance with the foregoing provisions of this Section 9.4, an Indemnified Party shall be entitled to indemnification against a Third Party Claim, and if Shareholder shall fail to accept the defense of a Third Party Claim which has been tendered in accordance with this Section 9.4, the Indemnified Party shall have the right, without prejudice to its right of indemnification hereunder, in its discretion exercised in good faith and upon the advice of counsel, to contest, defend and litigate such Third Party Claim, and may settle such Third Party Claim, either before or after the initiation of litigation, at such time and upon such terms as the Indemnified Party deems fair and reasonable, provided that at least ten (10) days prior to any such settlement, written notice of its intention to settle is given to Shareholder. If, pursuant to this Section 9.4, the Indemnified Party so defends or settles a Third Party Claim for which it is entitled to indemnification hereunder, as hereinabove provided, the Indemnified Party shall be reimbursed by Shareholder for the reasonable attorneys' fees and other expenses of defending the Third Party Claim which are incurred from time to time, forthwith following the presentation to Shareholder of itemized bills for said attorneys' fees and other expenses. No failure by Shareholder to acknowledge in writing Shareholder's indemnification obligations under this Article IX shall relieve Shareholder of such obligations to the extent they exist. 9.5 CERTAIN TAX AND OTHER MATTERS. (a) If, in connection with the audit of any Return, a proposed adjustment is asserted in writing with respect to any Taxes of Target for which Shareholder is required to indemnify a Acquiror Indemnitee pursuant to Section 9.2(a) hereof, Acquiror shall notify Shareholder of such proposed adjustment within twenty (20) days after the receipt thereof. Upon notice to Acquiror within twenty (20) days after receipt of the notice of such proposed adjustment from Acquiror, Shareholder may assume (at Shareholder's own cost and expense) control of and contest such proposed adjustment. (b) Alternatively, if Shareholder requests within twenty (20) days after receipt of notice of such proposed adjustment from an Acquiror Indemnitee, Acquiror or the Acquiror Indemnitee involved, at Acquiror's option, as the case may be, shall contest such proposed adjustment. Shareholder shall be obligated to pay all reasonable out-of-pocket costs and expenses (including legal fees and expenses) which Acquiror or Sub may incur in so contesting such proposed adjustment as such costs and expenses are incurred, and Acquiror shall have the full right to contest such proposed adjustment and shall be entitled to settle or agree to pay in full such proposed adjustment (in its sole discretion) and thereafter pursue its rights under this agreement. Shareholder shall pay to Acquiror all indemnity amounts in respect of any such proposed adjustment within thirty (30) days after written demand to Shareholder therefor, or, if Shareholder has assumed control of the contest of such proposed adjustment as provided above (or has requested Acquiror or Sub to contest such proposed -36- 37 adjustment within the time provided above), within thirty (30) days after such proposed adjustment is settled or a Final Determination has been made with respect to such proposed adjustment. (c) For purposes of this Section 9.5, a "Final Determination" shall mean (i) the entry of a decision of a court of competent jurisdiction at such time as an appeal may no longer be taken from such decision or (ii) the execution of a closing agreement or its equivalent between the particular taxpayer and the Internal Revenue Service, as provided in Section 7121 and Section 7122, respectively, of the Internal Revenue Code of 1986, as amended, or a corresponding agreement between the particular taxpayer and the particular state or local taxing authority. The obligation of Shareholder to make any indemnity payment pursuant to Section 9.2(a) shall be premised on the receipt by Shareholder from Acquiror or Sub of a written notice setting forth the relevant portion of any Final Determination, and in cases where the amount of the indemnity payment exceeds $100,000.00, a certified statement by Acquiror's nationally recognized accounting firm setting forth the amount of the indemnity payment (and in all other cases, a similar statement certified by the chief financial officer of Acquiror) and describing in reasonable detail the calculation thereof. 9.6 CERTAIN TARGET INFORMATION. Acquiror, Shareholder and Target agree to furnish or cause to be furnished to each other (at reasonable times and at no charge) upon request as promptly as practicable such information (including access to books and records) pertinent to Target and assistance relating to Target as is reasonably necessary for the preparation, review and audit of financial statements, the preparation, review, audit and filing of any Return, the preparation for any audit or the prosecution or defense of any claim, suit or proceeding relating to any proposed adjustment or which may result in Shareholder being liable under the indemnification provisions of this Article IX, provided, that access shall be limited to items pertaining solely to Target. Shareholder shall grant to Acquiror access to all Returns filed with respect to Target and its parent and their subsidiaries, current or past. 9.7 RELEASE OF ACQUIROR BY SHAREHOLDER. Shareholder hereby releases and discharges Acquiror and Sub and each of its officers and directors from, and agrees and covenants that in no event will Shareholder commence any litigation or other legal or administrative proceeding against, Acquiror, Sub their subsidiaries, parents and affiliates or any of their officers or directors, whether in law or equity, relating to any and all claims and demands, known or unknown, suspected and unsuspected, disclosed and undisclosed, for damages, actual or consequential, past, present and future, arising out of or in any way connected with Shareholder's ownership or alleged ownership of Target Common Stock or G. Thomas Oglesby's ownership of capital stock in Shareholder prior to the Effective Time, other than claims or demands arising out of the transactions contemplated by this agreement. -37- 38 9.8 ACQUIROR GENERAL INDEMNIFICATION COVENANTS. Subject to the provisions of Sections 9.9 and 9.10, Acquiror shall indemnify, save and keep Shareholder, its and successors (the "Shareholder Indemnitees"), harmless against and from all Damages sustained or incurred by any of the Shareholder Indemnitees as a result of, arising out of or by virtue of any misrepresentation, breach of any warranty or representation, or non- fulfillment of any agreement or covenant of the part of Acquiror, whether contained in this agreement or the Plan of Merger or any exhibit or schedule hereto or thereto or any written statement or certified furnished or to be furnished to Shareholder hereto or in any closing document delivered by Acquiror or Sub in connection herewith; provided that Acquiror's indemnification covenants and obligations in this agreement shall terminate upon the of a Registrations Statement of Acquiror under the Securities Act of 1933, as amended (the "Securities Act") with respect to an initial public offering of Acquiror's securities (an "IPO"). 9.9 LIMITATION ON ACQUIROR INDEMNIFICATION. The obligations of Acquiror pursuant to Section 9.8 is subject to the following limitations: (a) In no event shall the obligation of Acquiror to indemnify the Shareholder Indemnitees pursuant to Section 9.8 exceed $140,000.00 in the aggregate. (b) Acquiror shall not have any indemnification obligation with respect to the first $10,000.00 of total liabilities incurred under Section 9.8, unless the total aggregate liabilities of Acquiror under Section 9.8 equal or exceed such amount, in which case the indemnification obligations of Acquiror will include all liabilities in excess of One Dollar ($1.00) incurred under Section 9.8 (subject only, to the maximum aggregate amount set forth in Section 9.9(a) above). 9.10 CONDITIONS OF INDEMNIFICATION PURSUANT TO SECTION 9.8. (a) Promptly following the receipt by a Shareholder Indemnitee of notice of a demand, claim, action, assessment or proceeding made or brought by a third party, including a governmental agency (a "Third Party Claim"), the Shareholder Indemnitee receiving the notice of the Third Party Claim (i) shall notify Acquiror of its existence, setting forth the facts and circumstances of which such Shareholder Indemnitee has received notice, and (ii) if the Shareholder Indemnitee giving such notice is a person entitled to indemnification under this Section IX (an "Indemnified Party"), specifying the basis hereunder upon which the Indemnified Party's claim for indemnification is asserted. (b) The Indemnified Party shall, upon reasonable notice by Acquiror, tender the defense of a Third Party Claim to Acquiror. If Acquiror accepts responsibility for the defense of a Third Party Claim, then Acquiror shall have the exclusive right to contest, defend and litigate the Third Party Claim and shall have the exclusive right, in its discretion exercised in good faith and upon the advice of counsel, to settle any such matter, either before or after the initiation of litigation, at such time and upon such terms as it deems fair -38- 39 and reasonable, provided that at least ten (10) days prior to any such settlement, it shall give written notice of its intention to settle to the Indemnified Party. The Indemnified Party shall have the right to be represented by counsel at its own expense in any defense conducted by Acquiror. (c) Notwithstanding the foregoing, in connection with any settlement negotiated by Acquiror, no Indemnified Party shall be required to (i) enter into any settlement (A) that does not include the delivery by the claimant or plaintiff to the Indemnified Party of a release from all liability in respect of such claim or litigation, (B) if the Indemnified Party shall, in writing to Acquiror within the ten (10) day period prior to such proposed settlement, disapprove of such settlement proposal and desire to have Acquiror tender the defense of such matter back to the Indemnified Party, or (C) that requires an Indemnified Party to take any affirmative actions as a condition of such settlement, or (ii) consent to the entry of any judgment that does not include a full dismissal of the litigation or proceeding against the Indemnified Party with prejudice; provided, however, that should the Indemnified Party disapprove of a settlement proposal pursuant to Clause (B) above, the Indemnified Party shall thereafter have all of the responsibility for defending, contesting and settling such Third Party Claim but shall not be entitled to indemnification by Acquiror to the extent that, upon final resolution of such Third Party Claim, Acquiror's liability to the Indemnified Party but for this proviso exceeds what Acquiror's liability to the Indemnified Party would have been if Acquiror were permitted to settle such Third Party Claim in the absence of the Indemnified Party exercising its right under Clause (B) above. (d) If, in accordance with the foregoing provisions of this Section 9.10, an Indemnified Party shall be entitled to indemnification against a Third Party Claim, and if Acquiror shall fail to accept the defense of a Third Party Claim which has been tendered in accordance with this Section 9.10, the Indemnified Party shall have the right, without prejudice to its right of indemnification hereunder, in its discretion exercised in good faith and upon the advice of counsel, to contest, defend and litigate such Third Party Claim, and may settle such Third Party Claim, either before or after the initiation of litigation, at such time and upon such terms as the Indemnified Party deems fair and reasonable, provided that at least ten (10) days prior to any such settlement, written notice of its intention to settle is given to Acquiror. If, pursuant to this Section 9.10, the Indemnified Party so defends or settles a Third Party Claim for which it is entitled to indemnification hereunder, as hereinabove provided, the Indemnified Party shall be reimbursed by Acquiror for the reasonable attorneys' fees and other expenses of defending the Third Party Claim which are incurred from time to time, forthwith following the presentation to Acquiror of itemized bills for said attorneys' fees and other expenses. No failure by Acquiror to acknowledge in writing its indemnification obligations under this Article IX shall relieve it of such obligations to the extent they exist. -39- 40 ARTICLE X MISCELLANEOUS PROVISIONS ------------------------ 10.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS. All representations, warranties, covenants and agreements made by any party in this agreement or pursuant hereto shall survive the Merger until the expiration of the applicable statutes of limitations with respect to the matters covered thereby; provided that, notwithstanding anything to the contrary set forth in this Agreement and Plan of Reorganization, the representations, warranties, covenants and agreements of Acquiror and Sub shall terminate, and be of no further force or effect, upon the effectiveness of Acquiror's registration statement of Acquiror under the Securities Act with respect to an IPO. 10.2 CONFIDENTIALITY. Subject to the last sentence of this Section and regardless of whether the Merger shall take place, or this agreement is terminated, Acquiror, Sub, Target and Shareholder all agree to keep the negotiation, execution and Closing of this agreement and the Merger confidential and not to disclose the same or any documents prepared or delivered in connection therewith to any person without the prior written consent of Acquiror and Target; except that each such party may advise their accountants, attorneys, appraisers, surveyors, engineers and other advisors, agents, employees, shareholders, investment advisors, underwriters, bankers, lenders and banks (collectively the "Agents") of the same as necessary in order to carry out and consummate the transactions contemplated herein; provided that they inform them of this confidentiality agreement and require them to keep the subject matter of it confidential; and provided further, however, that Acquiror may make any disclosure of or with respect to this agreement in connection with the Proposed Transactions, and no party hereto shall be liable for any breach or violation of this Section 10.2 confidentiality agreement because of disclosure of this agreement to any governmental agency as required for such party to fulfill its obligations under this agreement and to consummate the transactions contemplated by this agreement or as otherwise required by law. After the Effective Date and subsequent to the disclosure to the employees of Target and the Rock of Ages Group and their subsidiaries and affiliates, Acquiror may, at its election, publicly disclose the execution and delivery of this agreement and the other agreements referenced herein and in the Exhibits hereto and the details of the transactions consummated hereunder. 10.3 BROKERS OR FINDERS. Each party represents to the other that no broker or agent has been involved on its behalf in the Merger or other transactions contemplated herein, and agrees that if any claim for a commission or fee is asserted, it will be paid by the party which the broker or agent claims is represented by such broker or agent. 10.4 ARTICLE AND SECTION HEADINGS. Article and Section headings are employed in this agreement for reference purposes only and shall not affect the interpretation or meaning of this agreement. -40- 41 10.5 ASSIGNMENT, SUCCESSORS AND ASSIGNS. No party may assign or transfer any of its rights or obligations hereunder without the prior written consent of all other parties hereto, given or withheld in their sole discretion. This agreement shall be binding upon and inure to the benefit of each party hereto and their respective heirs, personal representatives, successors and permitted assigns. 10.6 NOTICES. Any notice or other communication required or permitted under this agreement shall be in writing and shall be deemed to have been duly given (i) upon hand delivery, or (ii) on the third day following delivery to the U.S. Postal Service as certified or registered mail, return receipt requested and postage prepaid, or (iii) on the first day following delivery to a nationally recognized United States overnight courier services, fee prepaid, return receipt or other confirmation of delivery requested or (iv) when telecopied or sent by facsimile transmission if an additional notice is also given under (i), (ii) or (iii) above within three days thereafter. Any such notice or communication shall be directed to a party at its address set forth below or at such other address as may be designated by a part in a notice given to all other parties hereto in accordance with the provisions of this Section. If to Shareholder: Missouri Red Quarries, Inc. P. O. Box 6077 Elberton, GA 30635 Phone: (706) 283-5402 Telecopy: (706) 283-4758 If to Target: KSGM, Inc. P. O. Box 6077 Elberton, GA 30635 Phone: (706) 283-5402 Telecopy: (706) 283-4758 with, in the case of notice R. Chris Phelps, Esq. to Shareholder Phelps & Campbell, LLP or Target, a copy to P. O. Drawer 1056 (which shall not constitute Elberton, GA 30635 notice): Phone: 706-283-5000 Fax: 706-283-5002 If to any member of the Rock of Ages Group: Kurt M. Swenson, Chairman and Chief Executive Officer Rock of Ages Corporation 369 North State Street Concord, NH 03301 Phone: 603-225-8397 Fax: 603-225-4801 -41- 42 with a copy to: John R. Monson, Esq. (which shall not Wiggin & Nourie, P.A. constitute notice) P.O. Box 808 Manchester, NH 03105 Phone: 603-669-2211 Fax: 603-623-8442 10.7 COMPLETE AGREEMENT, WAIVERS. Neither this agreement nor any provision hereof may be changed, waived, modified, discharged, amended or terminated orally but only by an instrument in writing signed by all parties hereto; provided however that there shall be no material amendment to this agreement after the approval of it by Shareholder. No action taken by any party after the date hereof, including without limitation any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance by any other party with any representations, warranties, covenants or agreements contained in this agreement. The waiver by any party hereto of a breach of any provision of this agreement shall not operate or be construed as a waiver of any other or any subsequent breach. The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect its right at a later time to enforce the same. This agreement, together with the Exhibits and Schedules attached hereto or incorporated herein pursuant to Section 10.11 hereof constitutes the only agreement among the parties hereto concerning the subject matter hereof and supersedes all prior agreements whether written or oral, relating thereto. 10.8 GOVERNING LAW. This agreement shall be governed by and construed in accordance with the laws of the State of Vermont. 10.9 TAX CONSEQUENCES. Each party represents and warrants that it has made an independent evaluation of the tax consequences resulting to such party as a result of the terms and effect of this agreement and of the Merger. No party shall have any recourse against any other party to this agreement nor shall this agreement be affected in any way by reason of the fact that the consummation of this agreement, the transactions contemplated thereby and the Merger do not have the tax consequences anticipated by such party; provided that the foregoing shall not limit a party's liability for breach of any representation, warranty, covenant or agreement contained herein. 10.10 COUNTERPARTS. This agreement may be executed in counterparts and by different parties on different counterparts with the same effect as if the signatures were on the same instrument. This agreement shall be effective and binding upon all parties hereto as of the time when all parties have executed a counterpart of this agreement. 10.11 EXHIBITS. Each Exhibit or Schedule delivered pursuant to the terms of this agreement shall be in writing and shall constitute a part of this agreement. The parties may agree with respect to any Schedule or Exhibit required to be attached to this agreement, that such Schedule or Exhibit, if mutually satisfactory, may be attached to this agreement after the date of execution hereof and prior to the Closing and, after mutual approval thereof, such subsequently attached Schedule or Exhibit shall be treated as if it were attached to this -42- 43 agreement as of the date of execution of this agreement. All Exhibits and Schedules attached hereto are specifically incorporated herein by reference and made a part hereof. The words "agreement," "herein" and "hereof" as used herein shall in all respects include the entirety of this agreement together with all Exhibits and Schedules attached hereto and all documents required or permitted to be delivered hereunder. IN WITNESS WHEREOF, the parties hereto have executed this agreement all as of the 27th day of June, 1997. WITNESS: ROCK OF AGES QUARRIES, INC. /s/ By: /S/ KURT M. SWENSON - ------------------------------- ------------------------------- Kurt M. Swenson, Chairman and Chief Executive Officer ROYALTY GRANITE CORPORATION /s/ By: /S/ KURT M. SWENSON - ------------------------------- ------------------------------- Kurt M. Swenson, Chairman of the Board and Chief Executive Officer KSGM, INC.: /s/ By: /S/ GEORGE T. OGLESBY, JR. - ------------------------------- ------------------------------- George T. Oglesby, Jr., President MISSOURI RED QUARRIES, INC., Shareholder /s/ By: /S/ GEORGE T. OGLESBY, JR. - ------------------------------- ------------------------------- George T. Oglesby, Jr., President -43- 44 LIST OF EXHIBITS TO AGREEMENT AND PLAN OF REORGANIZATION -------------------------------------------------------- Exhibit A Plan of Merger Exhibit 4.1(a) Employment Agreement Exhibit 4.1(b) Employment Agreement Exhibit 4.2 Stock Subscription and Continuity of Interest Agreement Exhibit 5.2(a) Direct and Indirect Subsidiaries as of June 27, 1997 Exhibit 5.2(e) Swenson Group Financial Statements Exhibit 5.2(h) Litigation Exhibit 5.2(m) Environmental Laws and Hazardous Materials (Environmental Definitions) Exhibit 5.3(a) Target Subsidiaries Exhibit 5.3(c) Authorized and Outstanding Capital Stock of Joint Venture Companies Exhibit 5.3(d) Financial Statements for JV Companies, Keystone, KSGM Exhibit 5.3(f) Target Group Realty and Lease Terms Exhibit 5.3(h) Labor Agreements, if any Exhibit 5.3(k) Licenses, Permits for Target Business Exhibit 5.3(m) Employee Plans, Pension, Profit Sharing and Deferred Compensation Exhibit 5.3(o) List of Intellectual Property, All Insurance Policies, All Agreements Involving More Than $5,000 on Annual Basis Exhibit 5.3(q) Defaults, E.G., Pensylvania Bank Loan Schedule to Rock of Ages Group Disclosure Schedule under Section 5.1 Agreement and Plan and 5.2 of Reorganization Schedule to Target Disclosure Schedule Under Section 5.1 and 5.3 Agreement and Plan of Reorganization Rock of Ages Corporation agrees to furnish supplementally to the Commission a copy of any omitted schedule upon request. EX-2.2 3 STOCK PURCHASE AGREEMENT DATED 6/27/97 1 Exhibit 2.2 STOCK PURCHASE AGREEMENT ------------------------ STOCK PURCHASE AGREEMENT made as of this 27th day of June, 1997, by and among ROCK OF AGES QUARRIES, INC. (to be known as ROCK OF AGES CORPORATION as set forth below), with a principal office located in Concord, New Hampshire (hereinafter referred to as the "Buyer"), ROBERT OTIS CHILDS, JR., ROBERT OTIS CHILDS, III, and TIMOTHY CARROLL CHILDS, individuals residing in Elberton, Georgia (said Robert Otis Childs, Jr., Robert Otis Childs, III and Timothy Carroll Childs being hereinafter sometimes collectively referred to together as the "Sellers" or the "Shareholders" and individually referred to as a "Seller" or as a "Shareholder") , being all of the stockholders of CHILDS & CHILDS GRANITE COMPANY, INC., a Georgia corporation ("CC") and of C&C GRANITE COMPANY, INC., a Georgia Corporation ("CCT") (hereinafter each of said corporations are sometimes collectively referred to as the "Companies" and each corporation is sometimes referred to as a "Company") and BERNITA Y. CHILDS, an individual residing in Elberton, Georgia. RECITALS: 1. The Sellers own all of the issued and outstanding shares of capital stock of the Companies (the "Companies Shares"), fifty percent (50%) of the outstanding capital stock of : (a) Pennsylvania Granite Corporation, a Pennsylvania corporation (herein referred to as "Pennsylvania") and Pennsylvania owns one hundred percent (100%) of the issued and outstanding capital stock of Carolina Quarries, Inc., a Georgia corporation, (herein sometimes referred to as "Carolina"); (b) Southern Mausoleums, Inc, a Georgia corporation (herein sometimes referred to as "Mausoleum"); (c) Caprice Blue Quarry, Inc., a Georgia corporation (herein sometimes referred to as "Caprice"); and (d) Autumn Rose Quarry, Inc., a Georgia corporation (herein sometimes referred to as "Autumn"). The capital stock owned by Shareholders in Pennsylvania, in Mausoleum, in Caprice and in Autumn is sometimes referred to as the "Joint Venture Companies Shares" and the Companies Shares and the Joint Venture Companies Shares are sometimes collectively referred to as the "Shares". Pennsylvania, Carolina, Mausoleum, Caprice and Autumn are sometimes collectively referred to herein as the "Joint Venture Companies". The Companies and the Joint Venture Companies are herein sometimes collectively referred to as the "Childs Group." 2. At 5:05 P.M., June 27, 1997 Buyer: (a) will merge its wholly owned subsidiary Rock of Ages Corporation into it; (b) will be the surviving corporation in the merger (the "Prior Merger"); and (c) will as a part of the merger amend its Articles of Incorporation to change its name to Rock of Ages Corporation. 3. The Buyer desires to purchase, and the Sellers desire to sell, the Shares upon the terms and subject to the conditions of this agreement. 2 NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements contained herein, the Sellers and Buyer hereby agree as follows: ARTICLE I PURCHASE AND SALE OF SHARES 1.1 PURCHASE AND SALE. Upon the terms and subject to the conditions of this agreement, Sellers agree to sell, transfer and assign to Buyer and Buyer agrees to purchase from Sellers all right, title and interest in the Shares, at an aggregate purchase price(the "Purchase Price"), determined as provided in Section 1.4 below. 1.2 CLOSING. The closing of the purchase and sale of the Shares (the "Closing") shall take place at Phelps & Campbell, LLP, 313 Heard Street, Elberton, Georgia, 30635, at 11:00 A.M., Eastern Standard Time, on or before November 1, 1997, after all of the conditions set forth in Article IV hereof shall be fulfilled or waived in accordance with this agreement and applicable law or at such other time, date and/or place as Sellers and Buyer may agree. The date and time at which the Closing actually occurs is referred to as the "Closing Date". The Closing Date can be extended automatically by Buyer for an additional thirty (30) days to November 30, 1997, if an S-1 Registration for Buyer's IPO has been filed with the Securities and Exchange Commission on or before November 1, 1997 and on or before November 1, 1997 Buyer makes an additional FIFTY THOUSAND AND no/100 ($50,000.00) DOLLARS addition to the Deposit with the Escrow Agent . 1.3 DETERMINATION OF THE PURCHASE PRICE. (a) Certain Sellers have loaned certain amounts to and have borrowed certain amounts from the Childs Group, the net amount equal to Four Hundred Sixty-Three Thousand and Twenty-Six ($463,026) Dollars as shown on Exhibit 1.3(a) (the "Childs' Family Loans"). At or immediately after the Closing, Buyer will cause the members of the Childs Group owing any Childs' Family Loans to pay the principal and interest owed on said loans to the Maker of each of said loans. The aggregate amount so paid is herein referred to as the "Childs' Family Loans Repayment Amount". The Purchase Price has been determined by subtracting the Child's Family Loan amount from Six Million Eight Hundred Thousand Dollars ($6,800,000.00) and the amount of the difference, Six Million Three Hundred Thirty Six Thousand Nine Hundred Seventy-Four Thousand ($6,336,974.00) Dollars is the Total Purchase Price of the Shares shall be the Purchase Price (herein the "Purchase Price"). The Purchase Price shall be allocated as set forth in Section 1.4 below. Neither Sellers nor Buyer expect any change in the amount of the Childs Family Loans, but if the loans increase or decrease prior to closing the Purchase Price and allocation will be modified accordingly. (b) Two Hundred Fifty Thousand Dollars ($250,000.00) shall be deposited upon execution of this agreement by Buyer as an earnest money deposit (the "Deposit") in -2- 3 escrow with Phelps & Campbell, LLP (the "Escrow Agent"). The Deposit shall be held by the Escrow Agent in accordance with the terms of the escrow agreement (the "Escrow Agreement"), a copy of which is attached hereto as EXHIBIT 1.3(b), and paid by the Escrow Agent to Sellers as part of the Purchase Price at the Closing; provided that the Deposit shall (i) be immediately returned to the Buyer if the transaction contemplated by this agreement does not close because any of the Sellers are in default of or have breached any of their representations, warranties, covenants or agreements set forth herein or any of the conditions to Closing for the benefit of Buyer are not met or waived in writing on the Closing Date; or (ii) paid to Sellers in accordance with the terms and conditions of the Escrow Agreement upon the failure by Buyer to close on the Closing Date (unless such failure is due to the nonfulfillment of any of Buyer's conditions to Closing set forth in Section 5.2 of this agreement), provided that Sellers on the Closing Date are not in default of, nor have they breached any of, their representations, warranties, covenants or agreements set forth herein and all the conditions to Closing for the benefit of Buyer have been met or waived in writing on the Closing Date. 1.4 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated as follows: (a) $875,000.00 in cash, to Robert Otis Childs, Jr. in full payment for all of his capital stock in CC; (b) $675,000.00 in cash and a number of shares of Buyer's Common Stock (as hereinafter defined) having an aggregate value of $200,000.00 (the "Common Stock Consideration Amount", determined as provided in Section 1.6), to Robert Otis Childs, III in full payment for all of his capital stock in CC; (c) $875,000.00 in cash, to Timothy Carroll Childs in full payment for all of his capital stock in CC; (d) $166,667.00 in cash, to Robert Otis Childs, Jr. in full payment for all of his capital stock in CCT; (e) $166,667.00 in cash, to Robert Otis Childs, III, in full payment for all of his capital stock in CCT; (f) $166,667.00 in cash, to Timothy Carroll Childs in full payment for all of his capital stock in CCT; (g) $1.00 in cash, to Robert Otis Childs, Jr. in full payment for all of his capital stock in Autumn; (h) $1.00 in cash, to Robert Otis Childs, III in full payment for all of his capital stock in Autumn; -3- 4 (i) $1.00 in cash, to Timothy Carroll Childs in full payment for all of his capital stock in Autumn; (j) $1.00 in cash, to Robert Otis Childs, Jr. in full payment for all of his capital stock in Caprice; (k) $1.00 in cash, to Robert Otis Childs, III in full payment for all of his capital stock in Caprice; (l) $1.00 in cash, to Timothy Carroll Childs in full payment for all of his capital stock in Caprice; (m) $970,655.67 in cash, to Robert Otis Childs, Jr.. in full payment for all of his capital stock in Pennsylvania; (n) $970,665.67 in cash, to Robert Otis Childs, III in full payment for all of his capital stock in Pennsylvania; (o) $970,665.67 in cash, to Timothy Carroll Childs in full payment for all of his capital stock in Pennsylvania; (p) $100,000.00 in cash, to Robert Otis Childs, Jr. in full payment for all of his capital stock in Mausoleum; (q) $100,000.00 in cash, to Robert Otis Childs, III in full payment for all of his capital stock in Mausoleum; and (r) $100,000.00 in cash, to Timothy Carroll Childs in full payment for all of his capital stock in Mausoleum. 1.5 PAYMENT OF PURCHASE PRICE. Upon the terms and subject to the conditions of this agreement, at the Closing: (a) Buyer shall deliver to each of the Sellers on the Closing Date by wire transfer in immediately available funds to a bank account designed in writing by each of the Sellers no later than three (3) business days prior to the Closing Date the amount of the Purchase Price payable in cash as set forth in Section 1.4, to each Seller, less the amount of each Seller's Contribution to the Indemnity Fund (as hereinafter defined in Section 7.6 hereof). -4- 5 (b) Buyer shall deliver to Robert Otis Childs, III, the Common Stock equal to the Common Stock Share Amount (as defined in Section 1.6 below), registered in his name. (c) Sellers shall deliver to Buyer (i) certificates representing the Shares duly endorsed in blank with stock powers attached duly executed in blank, in proper form for transfer, with signatures properly guaranteed, free and clear of all liens, claims pledges, encumbrances, charges, options proxies or restrictions of any kind or nature, (ii)each Seller's Employment Agreement or Consulting Agreement, and (iii) funds for the payment of all transfer, stamp and similar taxes, if any, in respect to the sale, transfer and assignment of the Shares pursuant to this agreement, including without limitation, any transfer or gains taxes to which the transactions contemplated hereby may be subject under the laws of the State of Georgia. (d) Bernita Y. Childs shall deliver to Buyer her Consulting Agreement. 1.6 STOCK OF BUYER. Robert Otis Childs, III agrees to acquire from Buyer and accept, in full payment of the Common Stock Consideration Amount a number of shares of common stock of the Buyer ("Common Stock") having an aggregate value equal to the Common Stock Consideration Amount, with each share of the Common Stock to be valued for this purpose at the price per share of the Common Stock to the public in the Buyer's contemplated initial public offering (the "IPO") or the fair market value per share as determined on the Closing Date in good faith by the Buyer's Board of Directors if the IPO has not occurred on or before the Closing Date (the "Common Stock Price"). The number of such shares to be delivered to Robert Otis Childs, III by Buyer and accepted by Robert Otis Childs, III above shall be the quotient (the "Common Stock Share Amount") determined by dividing the Common Stock Consideration Amount by the Common Stock Price. If the IPO occurs within one (1) year after the Closing, then the Common Stock Price will be recalculated using the IPO price per share of the Common Stock to the public, the Common Stock Share Amount will be recalculated and the Buyer will deliver any additional shares of Common Stock required by said recalculated Common Stock Share Amount to Robert Otis Childs, III or Robert Otis Childs, III will return to the Buyer any shares he has received which exceed the recalculated Common Stock Share Amount. ARTICLE II FURTHER AGREEMENTS 2.1 EMPLOYMENT AGREEMENT FOR ROBERT OTIS CHILDS, III. At the Closing, Buyer and Robert Otis Childs, III shall execute an employment agreement (the "Employment Agreement") substantially in the form thereof attached as EXHIBIT 2.1 hereto, with such additional terms and conditions as may be mutually agreed to by the parties thereto. -5- 6 2.2 STOCK SUBSCRIPTION AGREEMENT. If Sections 1.4(b) and 1.6 provide for Robert Otis Childs, III to receives shares of Buyer's Common Stock, then concurrently with the execution and delivery of this agreement, Robert Otis Childs, III and Buyer shall execute the stock subscription agreement (the "Stock Subscription Agreement") substantially in the form attached hereto as EXHIBIT 2.2. 2.3 CONSULTING AGREEMENTS. At the Closing, Buyer and each of Robert Otis Childs, Jr. and Bernita Y. Childs shall execute respective Consulting Agreements substantially in the respective forms attached hereto as EXHIBIT 2.3. 2.4 EMPLOYMENT AGREEMENT FOR TIMOTHY CARROLL CHILDS. At the Closing, Timothy Carroll Childs shall execute the Employment Agreement substantially in the form attached hereto as EXHIBIT 2.4. ARTICLE III REPRESENTATIONS AND WARRANTIES ------------------------------ 3.1 GENERAL STATEMENT. The parties make the representations and warranties which are set forth in this Article III. The survival of all such representations and warranties shall be in accordance with Section 8.1 hereof. All representations and warranties of the parties are made subject to the exceptions, if any, which are noted in the respective schedules delivered by the parties to each other and accepted by the receiving party concurrently herewith and identified as, in the case of Section 3.2, the "Buyer's Disclosure Schedule," and in the case of Section 3.3, the "Shareholders Disclosure Schedule." 3.2 REPRESENTATIONS AND WARRANTIES OF THE BUYER. Except as set forth below where certain representations and warranties are specifically made to all Shareholders, Buyer makes the following representations and warranties only to Robert Otis Childs, III and only if Sections 1.4(b)(ii) and 1.6 provide that Robert Otis Childs, III will receive shares of the Buyer's Common Stock with the intention that Robert Otis Childs, III (if he is receiving Common Stock hereto) and all the Shareholders, as applicable, may rely upon the same, and acknowledges that the same are true and correct in all material respects and shall be true and correct in all material respects at the Closing Date, subject to changes therein occurring because of Buyer's conduct of its business in the ordinary course or occurring because of the Proposed Transactions as defined in Exhibit 3.2 attached hereto. (a) ORGANIZATION, POWER, ETC. Buyer represents and warrants to all Shareholders that each member of the Rock of Ages Group (the Rock of Ages Group, being defined herein as Buyer and Buyer's wholly owned subsidiary, Royalty Granite Corporation, a Georgia Corporation) is a corporation, existing and in good standing under the laws of the State of Vermont. Each member of the Rock of Ages Group has all requisite corporate power and authority to own and lease its respective properties and to carry on the business in which -6- 7 it is presently engaged (herein sometimes referred to as the "Business" of that Group member or members or as the "Businesses" of the Rock of Ages Group). (b) BUYER CAPITAL STOCK. Immediately after the effective date of the Prior Merger, the authorized capital stock of Buyer will consist of 20,000,000 shares of Common Stock, 7,000,000 shares will be issued and outstanding and of 1,000,000 shares of Serial Preferred Stock of which zero (0) shares will be issued and outstanding. All stock of Buyer to be issued to Robert Otis Childs, III, shall at the Closing Date, be duly authorized, validly issued, fully paid and non-assessable. (c) CORPORATE AUTHORITY. Buyer represents and warrants to all Shareholders that the execution, delivery and performance of this agreement by it and consummation by it of the transactions contemplated herein have been duly authorized by all necessary corporate action and this agreement constitutes the legal, valid and binding obligation of Buyer in accordance with its terms. (d) BINDING NATURE AND EFFECT OF AGREEMENT. Buyer represents and warrants to all Shareholders that the execution, delivery and performance of this agreement by it and consummation by it of the transactions contemplated herein do not, to the best of its knowledge, require the consent, waiver, approval, license or authorization of any person or public authority which will not be obtained prior to or at the Closing Date; to the best of its knowledge, after due inquiry, this agreement does not violate, with or without the giving of notice and/or the passage of time, any provision of law applicable to it and does not conflict with or result in a breach or termination of any provision of, or constitute a default in or under, or result in the creation of any lien, charge or encumbrance upon any of its property or assets pursuant to any corporate charter provision, bylaw, mortgage, deed of trust, indenture or other agreement or instrument, or any order, judgment, and, to the best of its knowledge, after due inquiry, any decree, statute, regulation or any other restriction of any kind or character to which the it is a party or by which it or any of its assets and properties are bound. (e) FINANCIAL STATEMENTS. Buyer has furnished to Robert Otis Childs, III the draft audit of Rock of Ages Corporation and Subsidiaries consolidated financial statements as of December 31, 1996, 1995, and 1994, together with a Schedule of Material Inter-Company Transactions (the foregoing financial data shall be collectively referred to as the "Financial Statements" and are attached hereto as EXHIBIT 3.2(e). The Financial Statements were furnished to Target and Shareholders solely for the purposes set forth therein. (f) TAX MATTERS. The Rock of Ages Group has duly filed with the appropriate federal, state and local governmental agencies, and all foreign countries and political subdivisions thereof, all Returns (as defined in Section 3.3(e)(i) hereof) required to be filed and has paid in full all Taxes (as defined in Section 3.3(e)(xiii) hereof), assessments or deficiencies shown to be due on such Returns or claimed to be due by any taxing authority -7- 8 and all such Returns as filed or as amended or to be amended prior to the Closing Date accurately and completely report the Taxes due to any such taxing authority. The Rock of Ages Group has not executed or filed with the Internal Revenue Service or any other taxing authority (domestic or foreign) any agreement extending the period for assessment or collection of any Taxes. The Rock of Ages Group is not a party to any pending action or proceeding nor, to the best of its knowledge, is any action or proceeding threatened by any governmental authority for assessment or collection of Taxes, and no claim for assessment or collection of Taxes has been asserted against it. The provisions for Taxes shown in the Financial Statements (if any) are and will be adequate to cover the respective liabilities of the Rock of Ages Group as of the date thereof for all Taxes of the Rock of Ages Group. (g) TITLE TO ASSETS, ABSENCE OF LIENS AND ENCUMBRANCES. The Rock of Ages Group has good and marketable title to all of its assets, and, except as set forth in the Financial Statements, such title is free and clear of all liens, claims and encumbrances and rights of other parties relating to its assets or its business. (h) LITIGATION. The Rock of Ages Group's Disclosure Schedule, the Rock of Ages Group has not been notified of, and no member of said Group is a party to, any material actions, suits, proceedings or investigations (including any environmental, building or safety investigation) pertaining to their assets or Businesses; nor does the Rock of Ages Group have any knowledge of, nor reasonable grounds to have knowledge of, any claim or state of facts which may lead to, or constitute a threat of, any material investigation, claim, proceeding, or litigation, against the Rock of Ages Group or their assets or Businesses. There are no orders, judgments or decrees of any court or governmental agency relating to the Rock of Ages Group which would prevent, impede or make illegal the consummation of the transactions contemplated herein or which would have a material adverse effect upon a member of the Rock of Ages Group. (i) LABOR CONTROVERSIES. To the best of Buyer's knowledge, there are no material controversies between any member of the Rock of Ages Group and any of its employees, no material unresolved labor practice proceedings or disputes and no material labor arbitration proceedings pending or threatened, and there are no organizational efforts presently being made or, to the best of Buyer's knowledge, after due inquiry, threatened involving any of the Rock of Ages Group members' non-union employees. The members of the Rock of Ages Group have complied in all material respects with all federal, state and local laws and orders relating to the employment of labor, and all laws governing wages, hours, collective bargaining, the payment of social security, withholding and similar taxes, equal employment opportunity, employment discrimination and immigration and naturalization; and no member of the Rock of Ages Group is liable for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. There is no claim of employment discrimination or sexual harassment pending or, to the best of Buyer's knowledge, after due inquiry, threatened against it, or any strike, dispute, slowdown or stoppage pending or, to the best of Buyer's knowledge, threatened against or involving it. -8- 9 (j) PATENTS, TRADEMARKS, ETC. No one has made or, to the best of Buyer's knowledge, after due inquiry, threatened to make any claims that any member of the Rock of Ages Group has wrongfully used or appropriated, or infringed upon any patent, patent license, trade name, trademark, servicemark, brandmark, brand name, copyright, know-how, trade secret or other proprietary or trade rights of any third party. No director, officer, shareholder or employee of any member of the Rock of Ages Group owns or has owned, directly or indirectly, in whole or in part, any patents, trademarks, trade names, servicemarks, brandmarks, brand names, copyrights, registrations or applications thereof or interests therein which any member of the Rock of Ages Group has used or is using or the use of which is necessary for their respective Businesses. (k) BOOKS AND RECORDS. The books, records and working papers of the members of the Rock of Ages Group, to the extent such books and records relate to their Businesses, are in all material respects complete and correct, have been maintained in accordance with sound business practices, and accurately reflect the basis for the financial condition and results of operations of the members of the Rock of Ages Group as set forth in the Financial Statements. (l) PERMITS, AUTHORIZATIONS, ETC. The members of the Rock of Ages Group have all approvals, authorizations, consents, licenses, orders and other permits of all governmental agencies, whether federal, state or local, reasonably required to permit the operation of their Businesses as heretofore and as presently conducted, and all of the same will survive the consummation of the transactions contemplated by this agreement. No member of the Rock of Ages Group has received any written notice of any license or permit which will have to be acquired in the future in order for their Businesses to be operated by any member thereof as heretofore and presently conducted. (m) COMPLIANCE WITH APPLICABLE LAW. The members of the Rock of Ages Group, have not received any written notice that they are in material violation of any foreign or domestic (federal, state or local) law, ordinance, regulation, order or requirement including without limitation Environmental Laws (as defined in EXHIBIT 3.2(m)) relating to their Businesses. None of the Rock of Ages Group have received any written notice that they or their assets used in the operation of the Businesses of each member of the Rock of Ages Group are in violation of any state and local building, zoning, subdivision, land use, Environmental Laws and other laws, ordinances and regulations. There are no federal, state, municipal, public zoning or other restrictions that will prevent the utilization of any property owned or leased by the members of the Rock of Ages Group in connection with their Businesses for the purposes presently used, and there are no condemnation proceedings pending or, to the best of their knowledge, threatened against any such property. (n) EMPLOYEE PLANS. The Rock of Ages Group will make made available upon request for examination by Robert Otis Childs, III true, correct and complete copies of: -9- 10 (i) the most recent Internal Revenue Service determination letter relating to each of the Rock of Ages Group's pension, profit-sharing, stock bonus or other deferred compensation arrangements, if any, for which a letter was obtained except for any multi-employer plans sponsored by any number of the Rock of Ages Group, (each a "Plan" and collectively the "Plans"); (ii) the most recent Annual Report (Form 5500 Series) and accompanying schedules of each Plan sponsored by the Rock of Ages Group with respect to which the same are required, as filed pursuant to applicable law; and (iii) all plan documents, as amended to date, summary plan descriptions and summaries of material modifications with respect to each Plan sponsored by a member of the Rock of Ages Group, as well as the most recent financial statements of each of such plans. With respect to each of such Plans as to which an Annual Report (Form 5500 series) is required to be filed, no liabilities as of the date of such Annual Report exist unless specifically referred to in the most recent such Annual Report, and no material change has occurred with respect to the matters covered by the last Annual Report since the date thereof. Buyer does not know, nor have any reasonable grounds to know, of any "prohibited transaction," as such term is defined in Section 406 of the Employee Retirement Income Security Act of 1974, as amended, ("ERISA") and Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"), which has been engaged in by any member of the Rock of Ages Group or by any Plan sponsored by any member of the Rock of Ages Group, any trust created thereunder or any trustee, administrator or other fiduciary thereof, or which would subject such Plan or any such entity, or any party dealing with such Plan or any such trust, to the sanctions imposed by ERISA or the tax on prohibited transactions imposed by Section 4975 of the Code. There are no actions, suits or claims pending or, to the best of Buyer's knowledge, after due inquiry, threatened against any of the Plans or any administrator or fiduciary thereof. Neither any of the Plans nor any said trust have incurred any "accumulated funding deficiency," as such term is defined in Section 302 of ERISA or Section 412(a) of the Code (whether or not waived), since the Closing Date of ERISA. The terms and operation of each of the Plans have complied to the extent required with the provisions of Section 401(a) of the Code and with ERISA, and all reports and notices required by ERISA or the Code have been duly filed or given. Buyer shall make available for examination by Robert Otis Childs, III a list of all of the Rock of Ages Group's Plans subject to Title IV of ERISA and all trusts created thereunder which have been terminated, and all "reportable events," as that term is defined in Section 4043 of ERISA, if any. Except as may be specified in Rock of Ages Group Disclosure Schedule hereto, none of the Rock of Ages Group's Plans and no such trust has been terminated, nor has any such "reportable event" occurred with respect to any such Plans since the effective date of ERISA. The present value, on a plan termination basis, of all benefits accrued under each Plan sponsored or contributed to by a member of the Rock of Ages Group and subject to Title IV of ERISA did not, as of -10- 11 the most recent valuation date, exceed the fair market value of the assets of such plan as of such date. (o) INVENTORY. All of the inventory of each member of the Rock of Ages Group consists of materials of a quality and quantity usable and salable in accordance with such member's normal pricing and sales practices. (p) LIST OF PROPERTIES, CONTRACTS AND OTHER DATA. Upon the execution of this agreement, the Rock of Ages Group will deliver on the written request of Robert Otis Childs, III a true and complete list, which list shall be updated and amended as of the Closing Date if requested, setting forth the following: (i) all material intellectual property and all other material proprietary information owned by Rock of Ages Group members, and copies of all other material agreements to which Rock of Ages Group members are parties which relate to any material proprietary rights affecting their assets; (ii) all policies of insurance insuring the Rock of Ages Group's assets; and (iii) all material contracts, agreements, leases, understandings and commitments to which members of the Rock of Ages Group are a party, or to which any of their assets are subject. True and complete copies of all documents referred to in such list or will be provided to Robert Otis Childs, III and his counsel upon his request as part of Robert Otis Childs, III's due diligence. All such material contracts, agreements, rights, leases, obligations and commitments are valid and enforceable in accordance with their respective terms, except as such enforceability may be affected by bankruptcy or similar laws affecting the rights of creditors generally and by general principles of equity, for the periods stated therein and there is not, to Buyer's knowledge, under any of them any existing default or event of default or any event which with notice and/or lapse of time would constitute a default. (q) INDUSTRY AND GOVERNMENTAL EVENTS. Buyer is not aware of any future events, loss of customers or suppliers that may materially affect the Rock of Ages Group and/or their Businesses and financial affairs either prior to or subsequent to the Closing Date. The Rock of Ages Group has received no written notice of any change or any pending or contemplated condemnation or change of zoning, subdivision, land use, environmental or other statutes, or regulations or court or administrative rulings or other governmental action affecting the Rock of Ages Group. -11- 12 (r) NO DEFAULTS. There currently are no defaults by the Rock of Ages Group or acts or events which, with the passage of time or giving of notice, or both, could become defaults by them under any indebtedness, indenture, mortgage, deed of trust, security deed, security agreement or other instrument. (s) ACCURACY AND OMISSIONS. None of the information and documents furnished or to be furnished or made available for inspection for Robert Otis Childs, Jr. by the Rock of Ages Group pursuant to the provisions of this agreement is or will be false or misleading, or contains or will contain any material misstatement of fact or omits or will omit to state any material fact required to be stated to make the statements therein not misleading. 3.3 REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS. Shareholders, jointly and severally, make the following representations and warranties to Buyer, with the intention that it may rely upon the same and acknowledge that the same are true and correct and shall be true and correct at the Closing Date: (a) ORGANIZATION, POWER, ETC. Each member of the Childs Group is a corporation existing and in good standing under the laws of its state of incorporation. Each member of the Childs Group has all requisite corporate power and authority to own, operate and lease its properties and to carry on its business (hereinafter the business of each member of the Childs' Group is sometimes referred to as its "Business" and all their businesses are sometimes collectively referred to as the "Businesses"). The copies of Articles of Incorporation and By-Laws, as amended to date of each member of the Childs Group, which have been delivered by Sellers to Buyer, are complete and correct. Neither CC nor CCT have any subsidiaries. To the best of Sellers' knowledge, after due inquiry, each of the Joint Venture Companies are registered to do business in each state where the nature of its business activities or the location of its assets or employees makes such registration necessary. (b) BINDING NATURE, EFFECT OF AGREEMENT AND AUTHORITY. Except as set forth on Shareholders Disclosure Schedule, the execution, delivery and performance of this agreement by Shareholders and consummation by each of them of the transactions contemplated herein do not and will not (i) require the consent, waiver, approval, license or authorization of any person or public authority which will not be obtained prior to or at the Closing Date, (ii) to the best of Shareholders' knowledge, after due inquiry, violate, with or without the giving of notice and/or the passage of time, any provision of law applicable to Shareholders or any member of the Childs Group, or (iii) conflict with or result in a breach or termination of any provision of, or constitute a default or violation under, or result in the creation of any lien, charge or encumbrance upon any of the property or assets of Shareholders or any member of the Childs Group pursuant to, any corporate charter provision, bylaw, mortgage, deed of trust, indenture or other agreement or instrument, or any order or judgment, or, to the best of Shareholders' knowledge, after due inquiry, any decree, statute, regulation or any other restriction of any kind or character, to which Shareholders or any member of the Childs Group are or were a party or by which Shareholders or any member of the Childs Group or any of their assets and properties are bound. The execution, delivery and -12- 13 performance of this agreement by Shareholders and consummation by them of the transactions contemplated herein have been duly authorized by all necessary actions and this agreement constitutes the legal, valid and binding obligation of the Shareholders enforceable against them in accordance with its terms. (c) OUTSTANDING SECURITIES; OWNERSHIP; GOOD TITLE. The authorized capital stock of CC consists of Five Thousand (5,000) shares of $100 par value common stock (the "CC Common Stock"), of which Two Hundred Ten (210) shares are duly issued and outstanding, fully paid and non-assessable; each Shareholder presently owns Seventy (70) duly issued and outstanding shares, being all of the issued and outstanding shares of capital stock of CC; and no other person or entities own CC Common Stock or any securities convertible into such stock and no warrants, options or other rights to purchase any shares of such stock are issued and outstanding and there are no agreements in existence under which any such stock or any such warrants, options or rights may be issued and no shares of such stock are held in CC's treasury. The authorized capital stock of CCT consists of Five Thousand (5,000) shares of $100 par value common stock (the "CCT Common Stock"), of which fifteen (15) shares are duly issued and outstanding, fully paid and non-assessable; each Shareholder presently owns five (5) duly issued and outstanding shares being all of the issued and outstanding shares of capital stock of CCT and no other person or entities own CCT Common Stock or any securities convertible into such stock and no warrants, options or other rights to purchase any shares of such stock are issued and outstanding and there are no agreements in existence under which any such stock or any such warrants, options or rights may be issued and no shares of such stock are held in CCT's treasury. Shareholders have good and marketable title to all Shareholders' CC Common Stock and CCT Common Stock, free and clear of all pledges, adverse claims, liens, charges or encumbrances of any kind, including, but not limited to, any claims of any former or present shareholders of CC or CCT and have complete and unrestricted power and the unqualified right to sell, assign, transfer, and deliver such shares of CC Common Stock and CCT Common Stock to Buyer. Except as specifically disclosed, there is no other CC or CCT class of stock, common or preferred, authorized or issued, and there are no options, warrants, calls, rights, commitments or any agreements of any character obligating CC, CCT or the Shareholders to issue, sell or otherwise dispose of or, except as set forth herein, redeem, purchase or otherwise acquire any shares of CC Common Stock or CCT Common Stock or any other class of capital stock. All of the outstanding shares of CC Common Stock and CCT Common Stock are duly authorized, validly issued, fully paid and non-assessable. There are no voting trusts or other agreements or understandings with any entity concerning the CC Common Stock and the CCT Common Stock to which the Shareholders or any other person or entity are a party. The Shareholders own fifty percent (50%) of all of the issued and outstanding capital stock of the Joint Venture Companies, except for Carolina and Pennsylvania owns all of the issued and outstanding capital stock of Carolina, all of said capital stock is duly issued and outstanding, fully paid and non-assessable; there are no persons or entities which own any securities convertible into such capital stock and no warrants, options or other rights to purchase any shares of such capital stock are issued and outstanding; there are no agreements in existence under which any such capital stock or any such warrants, options or rights may be issued or sold, redeemed, -13- 14 purchased or otherwise acquired (other than this agreement); and no shares of such stock are held in the treasury of any Joint Venture Company. The authorized, issued and outstanding capital stock of each of the Joint Venture Companies is or set forth in Section 3.3 of the Shareholders's Disclosure Schedule. The Shareholders have good and marketable title to all their capital stock in the Joint Venture Companies, except for Carolina and Pennsylvania has good and marketable title to all of the capital stock of Carolina, in each case free and clear of all pledges, adverse claims, liens, agreements, charges or encumbrances, proxies or options of any kind, including, but not limited to any claims of former or present shareholders and have complete and unrestricted power and the unqualified right to sell, assign, transfer and deliver such capital stock to Buyer. There is no class of capital stock in the Joint Venture Companies other than the class of stock currently issued and outstanding to CC and Keystone Memorials, Inc., and in the case of Carolina to Pennsylvania, respectively, and there are no agreements, commitments, options, warrants, calls or rights in existence obligating the Joint Venture Companies to issue any class of capital stock other than the class currently issued. Upon consummation of the transactions contemplated by this agreement, Buyer will acquire, good, valid and marketable title to the Shares, free and clear of all liens, claims, pledges, encumbrances, charges, options, proxies or restrictions of any kind or nature. (d) FINANCIAL STATEMENTS. Shareholders have furnished to Buyer true and complete balance sheets of CC and CCT as of December 31, 1996 and the related statements of operations, each dated as of December 31, 1996, and similar financial statements for fiscal years 1994 to 1995 (the foregoing financial data shall be collectively referred to as the "Childs Financial Statements" and are attached hereto as EXHIBIT 3.3(d)). The balance sheets dated as of December 31, 1996 (the "Balance Sheet Date") make full and adequate provision for all direct and indirect material obligations and liabilities (fixed or contingent) as of such date and CC and CCT have no direct or indirect material obligations or liabilities (fixed or contingent) not reflected or reserved against on such balance sheets. The Childs Financial Statements, taken as a whole, fairly and accurately present the financial position and results of operations of CC & CCT, in all material respects, as of the dates and for the periods indicated and have been prepared on a consistent basis. Shareholders have also furnished to Buyer CC and CCT's balance sheets as of May 31, 1997 and the related statements of operations for the period then ended (the "Childs May Financial Statements"). The Childs May Financial Statements are materially complete and correct, taken as a whole, fairly present the consolidated financial position and results of operations of CC and CCT in all material respects, as of the date and for the period indicated and have been prepared on a consistent basis. Except as disclosed in the Shareholders Disclosure Schedule, elsewhere herein or in the Childs May Financial Statements, there have been no material changes (other than in the ordinary course of business) in their said obligations and liabilities since May 31, 1997. Shareholders have furnished to Buyer the balance sheets of the Joint Venture Companies dated as of December 31, 1996, or the most recent fiscal year end and the related statements of operations for such Companies each dated as of December 31, 1996, or the most recent fiscal year end, including in the case of Pennsylvania the notes thereto, and similar financial statements for the Joint Venture Companies' fiscal years ended in 1994 to 1995 (the "JV Financial Statements"). The most recent balance sheets for each of said corporations make -14- 15 full and adequate provision for all direct and indirect material obligations and liabilities (fixed or contingent) as of their date and said corporations have no direct or indirect material obligation or liability (fixed or contingent) not reflected or reserved against on said balance sheets. The JV Financial Statements, taken as a whole, fairly and accurately present the financial position and results of operations of said corporations, in all material respects, as of the dates and periods indicated and have been prepared on a consistent basis, except for Pennsylvania, in which case, they were prepared in accordance with generally accepted accounting principles applied on a consistent basis. Shareholders have also furnished Buyer the Joint Venture Companies' unaudited internally generated balance sheets as of May 31, 1997 and the Joint Venture Companies' unaudited internally generated related statements of operations for the period then ended (the "JV Companies May Financial Statements"). Subject to year end adjustments, the JV Companies May Financial Statements are materially complete and correct, taken as a whole, fairly present the financial position and results of operations of each said corporations in all material respects, as of the date and for the period indicated and have been prepared on a consistent basis, except for Pennsylvania, in which case they were prepared in accordance with generally accepted accounting principles applied on a consistent basis. Except as disclosed in the Shareholders Disclosure Schedule, elsewhere herein or in the JV Companies May Financial Statements, there have been no material changes (other than in the ordinary course of business) in each said corporation's obligations and liabilities since December 31, 1996. (e) TAX MATTERS. With respect to Taxes (as defined in Clause (xiii) hereof): (i) Each member of the Childs Group has filed, within the time and in the manner prescribed by law, all returns, declarations, reports, estimates, information returns and statements ("Returns") required to be filed under federal, state, local or any foreign laws by each such member, and all such Returns are true, correct and complete in all material respects. (ii) Except as set forth in the Shareholders' Disclosure Schedule, each member of the Childs Group has within the time and in the manner prescribed by law, paid (and until the Closing Date will, within the time and in the manner prescribed by law, pay) all Taxes that are due and payable. (iii) There are no liens for Taxes upon the assets of any member of the Childs' Group except liens for Taxes not yet due. (iv) No member of the Childs Group has filed (and they will not file prior to the Closing Date) any consent agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of any "subsection (f) asset" (as such term is defined in Section 341(f)(4) of the Code) owned by any such member. -15- 16 (v) No deficiency for any Taxes has been proposed, asserted or assessed against any member of the Childs Group which has not been resolved and paid in full. (vi) There are no outstanding waivers or comparable consents regarding the application of the statute of limitations with respect to any Taxes or Returns that have been given by any member of the Childs Group. (vii) Except as set forth in the Shareholders' Disclosure Schedule (which shall set forth the nature of the proceeding, the type of return, the deficiencies proposed or assessed and the amount thereof, and the taxable year in question), no federal, state, local or foreign audits or other administrative proceedings or court proceedings are presently pending with regard to any Taxes or Returns. (viii) No member of the Childs Group is a party to any tax-sharing or allocation agreement, nor does CC, CCT or any Joint Venture Company owe any amount under any such agreement. (ix) Each member of the Childs Group has complied (and until the Closing Date will comply) in all respects with all applicable laws, rules and regulations relating to the payment and withholding of Taxes (including, without limitation, withholding of Taxes pursuant to Sections 1441 or 1442 of the Code or similar provisions under any foreign laws) and have, within the time and in the manner prescribed by law, withheld from employee wages and paid over to the proper governmental authorities all amounts required to be so withheld and paid over under all applicable laws. (x) No member of the Childs Group has ever been (nor has any liability for unpaid Taxes because any of them once was) a member of an "affiliated group" within the meaning of Section 1502 of the Code during any part of any consolidated return year. (xi) For purposes of this agreement, "Taxes" shall mean all taxes, charges, fees, levies or other assessments of whatever kind or nature, including, without limitation, all net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, excise, estimated, severance, stamp, occupancy or property taxes, customs duties, fees, assessments or charges of any kind whatsoever (together within any interest and any penalties, additions to tax or additional amounts) imposed by any taxing authority (domestic or foreign) upon or payable by the party in question or any subsidiary thereof. -16- 17 (xii) Neither CC nor CCT have any liability for any Taxes of any of the Joint Venture Companies. (f) TITLE TO ASSETS, ABSENCE OF LIENS AND ENCUMBRANCES. CC and CCT and each of the Joint Venture Companies have good and marketable title to all of their respective assets, and except as set forth in any of the financial statements set forth in (d) above or on the Shareholders Group Disclosure Schedule, such title is free and clear of all liens, claims and encumbrances and rights of other parties relating to its assets or its Business. EXHIBIT 3.3(f) sets forth an accurate and complete description of all of CC and CCT and each Joint Venture Company's real estate and interests therein ("Childs Group's Realty"). CC and CCT and each Joint Venture Company owns or leases all assets and property required to operate its Business in the ordinary course and to the extent any thereof are leased, EXHIBIT 3.3(f) sets forth the terms of such lease and the other parties thereto, except leases which in the aggregate do not call for lease payments in excess of $5,000 per year. No director, officer, shareholder, or employee of CC, CCT or the Joint Venture Companies, or any relative of any of them, owns or has owned, directly or indirectly, in whole or in part, or leases or has leased, to CC, CCT or the Joint Venture Companies any asset which CC, CCT or the Joint Venture Companies uses or has used or the use of which is necessary for their Businesses. (g) LITIGATION. Except as set forth in the Shareholders' Disclosure Schedule, none of the members of the Childs Group nor the Shareholders have been notified of, and none of the Companies, the Shareholders or the Joint Venture Companies are a party to, any actions, suits, proceedings or investigations (including any environmental, building or safety investigation) pertaining to them or their assets or Businesses, nor do Shareholders have any knowledge of, nor reasonable grounds to have knowledge of, any claim or state of facts which may lead to, or constitute a threat of, any investigation, claim, proceeding, or litigation, relating to Shareholders or any member of the Childs Group or their assets or Business. There are no orders, judgments or decrees of any court or governmental agency relating to Shareholders or any member of the Childs Group, which would prevent, impede or make illegal the consummation of the transactions contemplated herein or which would have a material adverse effect on Shareholders or any member of the Childs Group. (h) LABOR CONTROVERSIES. CC and CCT and the Joint Venture Companies are not parties to collective bargaining agreements, labor agreements, affirmative action programs or other agreements and programs affecting their employees. To the best of Shareholders' knowledge, there are no material controversies between CC, CCT or the Joint Venture Companies and any of their employees, no material unresolved labor practice proceedings or disputes and no material labor arbitration proceedings pending or threatened, and there are no organizational efforts presently being made or, to the best of Shareholders' knowledge after due inquiry, threatened, involving any of CC, CCT or any of the Joint Venture Companies' non-union employees. CC, CCT and each of the Joint Venture Companies are in compliance with all federal, state and local laws and orders relating to the employment of labor, and all laws governing wages, hours, collective bargaining, the payment of social security, withholding and similar taxes, equal employment opportunity; employment -17- 18 discrimination and immigration and naturalization, and none of them is liable for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. There is no claim of employment discrimination or sexual harassment pending or to the best of the Shareholders' knowledge, after due inquiry, threatened against any of the Shareholders, CC, CCT, or any of the Joint Venture Companies or any of their officers, directors and employees nor any strike, dispute, slowdown or stoppage pending or, to the best of Shareholders' knowledge, threatened against or involving any of them. (i) PATENTS, TRADEMARKS, ETC. No one has made or, to the best of the Shareholders' knowledge, after due inquiry, threatened to make any claims that CC, CCT or any of the Joint Venture Companies have wrongfully used or appropriated or infringed upon, any patent, patent license, trade name, trademark, servicemark, brandmark, brand name, copyright, know-how, trade secret or other proprietary or trade rights of any third party. No director, officer, shareholder or employee of CC, CCT or any of the Joint Venture Companies owns or has owned, directly or indirectly, in whole or in part, any patents, trademarks, trade names, servicemarks, brandmarks, brand names, copyrights, registrations or applications thereof or interests therein which CC, CCT and the Joint Venture Companies have used or are using or the use of which is necessary for their Businesses. (j) BOOKS AND RECORDS. The financial books, records and working papers of CC and CCT are in all material respects complete and correct, have been maintained in accordance with sound business practices, and accurately reflect the basis for the financial condition and results of their operations as set forth in their financial statements set forth in item (d) above. Each of the Joint Venture Companies maintains financial books, records and working papers which are in all material respects complete and correct, have been maintained in accordance with sound business practices and accurately reflect the basis for the financial condition and results of their operations as set forth in their financial statements set forth in item (d) above. (k) PERMITS, AUTHORIZATIONS, ETC. CC, CCT and each of the Joint Venture Companies have all approvals, authorizations, consents, licenses, orders and other permits of all governmental agencies, whether federal, state or local, reasonably required to permit the operation of their Businesses as heretofore and as presently conducted, and all of the same will survive the consummation of the transactions contemplated by this agreement. CC and CCT have not received any written notice of any license or permit which will have to be acquired in the future in order for their Businesses or the Joint Venture Companies' Businesses to be operated as heretofore and as presently conducted. Set forth in EXHIBIT 3.3(k) is a list of all licenses, permits and approvals necessary for CC, CCT and the Joint Venture Companies to conduct their Businesses as presently being conducted, including all licenses and permits as are required by any federal, state and local law, rule and regulation. -18- 19 (l) COMPLIANCE WITH APPLICABLE LAW. CC and CCT have not received any written notice that they are and none of the Joint Venture Companies have received any written notice that they are in violation of any foreign or domestic (federal, state or local) law, ordinance, regulation, order or requirement including Environmental Laws, relating to their Businesses. Neither CC or CCT nor any of the Joint Venture Companies have received any written notice that, Childs Group's Realty or their assets are in violation of any state and local building, zoning, subdivision, land use, Environmental Laws and other laws, ordinances and regulations. None of CC, CCT or the Joint Venture Companies have received any written notice of any federal, state, municipal, public zoning or other restrictions that will prevent the utilization of any property owned or leased by them for the purposes presently used, and there are no condemnation proceedings pending or, to the best of its knowledge, threatened against any such property. CC, CCT and the Joint Venture Companies are not in violation of any foreign or domestic (federal, state or local) law, ordinance, regulation, order or requirement including Environmental Laws relating to their Businesses. (m) EMPLOYEE PLANS. Shareholders have heretofore delivered to the Buyer true, correct and complete copies of: (i) the most recent Internal Revenue Service determination letter relating to each of CC, CCT and each Joint Venture Company's pension, profit-sharing, stock bonus or other deferred compensation arrangements, if any, listed in EXHIBIT 3.3(m) hereto for which a letter was obtained except for any multi-employer plans sponsored by any of them (each a "Plan" and collectively the "Plans"); (ii) the most recent Annual Report (Form 5500 series) and accompanying schedules of each Plan currently sponsored by any of them, with respect to which the same are required, as filed pursuant to applicable law; and (iii) all plan documents, as amended to date, summary plan descriptions and summaries of material modifications and all plan termination documentation with respect to each Plan and employee welfare plan presently or in the past sponsored by CC, CCT or any of the Joint Venture Companies, as well as the most recent financial statements of each of such plans, except for the multi-employer plans referred to below. With respect to each of such Plans as to which an Annual Report (Form 5500 series) is required to be filed, no liabilities as of the date of such Annual Report exist unless specifically referred to in the most recent such Annual Report, and no material change has occurred with respect to the matters covered by the last Annual Report since the date thereof. Shareholders do not know, nor have any reasonable grounds to know, of any "prohibited transaction," as such term is defined in Section 406 of ERISA and Section 4975 of the Code, which has ever been engaged in by any Shareholder, CC, CCT or any of the Joint Venture Companies, or by any Plan sponsored by any of them, any trust created thereunder or any -19- 20 trustee, administrator or other fiduciary thereof, or which would subject such Plan or any such entity, or any party dealing with such Plan or any such trust, to the sanctions imposed by ERISA or the tax on prohibited transactions imposed by Section 4975 of the Code. There are no actions, suits or claims pending or, to the best of Shareholders' knowledge after due inquiry, threatened, against any of the Plans or any administrator or fiduciary thereof. Neither any of the Plans nor any of said trusts have incurred any "accumulated funding deficiency," as such term is defined in Section 302 of ERISA or Section 412(a) of the Code (whether or not waived), since the date of ERISA. The terms and operation of each of the Plans have complied to the extent required with the provisions of Section 401(a) of the Code and with ERISA, and all reports and notices required by ERISA or the Code have been duly filed or given. Shareholders shall deliver to the Buyer a list of all of CC, CCT and all the Joint Venture Companies Plans subject to Title IV of ERISA and all trusts created thereunder which have been terminated, and all "reportable events," as that term is defined in Section 4043 of ERISA. Except as may be specified in EXHIBIT 3.3(m) hereto, none of such Plans and no such trust has been terminated, nor has any such "reportable event" occurred with respect to any such Plans since the effective date of ERISA. The present value, on a plan termination basis, of all benefits accrued under each Plan sponsored or contributed to by CC, CCT or any of the Joint Venture Companies and subject to Title IV of ERISA did not, as of the most recent valuation date, exceed the fair market value of the assets of such Plan as of such date. CC, CCT and the Joint Venture Companies have never been sponsors of, and/or a contributing employer to, a multi-employer pension plan subject to the provisions of Section 4201, ET SEQ., of ERISA; or if they have, they have never incurred any withdrawal liability thereunder, nor will they incur any such liability as a result of the consummation of any of the transactions contemplated by this agreement; or if they will, at or prior to the Closing Date, they will pay or otherwise satisfy such liability in full and/or establish an escrow fund or secure a bond in an appropriate amount with respect to the same with an escrow agent and/or a bonding company reasonably satisfactory to the Buyer and in a manner agreeable to applicable law. Neither CC, CCT nor any of the Joint Venture Companies have ever been a sponsor of, or a contributing employer to, a single employer pension plan subject to the provisions of Section 4041, ET SEQ., of ERISA; nor have they ever incurred any liability thereunder or under Section 4062, ET SEQ., of ERISA, nor will any of them incur any such liability as a result of the consummation of any of the transactions contemplated by this agreement; or if any of them will, at or prior to the Closing Date, they will pay or otherwise satisfy such liability in full and/or establish an escrow fund or secure a bond with respect to the same as provided in the preceding sentence. (n) INVENTORY. All of the inventory of CC, CCT and of each of the Joint Venture Companies consists of materials of a quality and quantity usable and salable in accordance with each corporation's normal pricing and sales practices. (o) LIST OF PROPERTIES, CONTRACTS AND OTHER DATA. Prior to the execution of this agreement or concurrently herewith, Shareholders have delivered or will deliver to the -20- 21 Buyer a true and complete list (designated for purposes of this agreement as EXHIBIT 3.3(o)), which list shall be updated and amended as of the Closing Date, setting forth the following: (i) all intellectual property and all other proprietary information owned by CC, CCT and each of the Joint Venture Companies, and copies of all other material agreements to which CC, CCT and each of the Joint Venture Companies are a party which relate to any proprietary rights affecting their assets; (ii) all policies of insurance insuring CC, CCT and each of the Joint Venture Companies' assets; and (iii) all contracts, agreements, leases, understandings and commitments to which CC, CCT and each of the Joint Venture Companies are a party, or to which any of their assets are subject, except those involving not more than $5,000 on an annual basis. True and complete copies of all documents referred to in such list have been or will be provided to Buyer and its counsel upon their request as part of Buyer's due diligence. All such documents, rights, leases, obligations and commitments are valid and enforceable in accordance with their respective terms, except as such enforceability may be affected by bankruptcy, or similar laws affecting the rights of creditors generally and by general principles of equity, for the periods stated therein and there is not, under any of them any existing default or event of default or any event which with notice and/or lapse of time would constitute a default. (p) INDUSTRY AND GOVERNMENTAL EVENTS. Shareholders, CC, CCT and Joint Venture Companies are not aware of any future events, loss of customers or suppliers, that may materially affect them and/or their Businesses and financial affairs either prior to or subsequent to the Closing Date. Neither CC, CCT nor any Joint Venture Company has received any written notice of any change or any pending or contemplated condemnation or change of zoning, subdivision land use, environmental or other statutes, or regulations or court or administrative rulings or other governmental action affecting Childs Group's Realty. (q) NO DEFAULTS. There currently are no defaults by Shareholders, CC, CCT or any of the Joint Venture Companies or acts or events which, with the passage of time or giving of notice, or both, could become defaults by any of them under any indebtedness, indenture, mortgage, deed of trust, security deed, security agreement or other instrument, except as set forth in Exhibit 3.3(q). (r) ACCURACY AND OMISSIONS. None of the information and documents furnished or to be furnished or made available for inspection by Shareholders, CC, CCT or any of the Joint Venture Companies pursuant to the provisions of this agreement is or will be false or misleading, or contains or will contain any material misstatement of fact or omits or -21- 22 will omit to state any material fact required to be stated to make the statements therein not misleading. (s) BANK DEBT OF JOINT VENTURE COMPANIES. The Bank Debt and the obligations to Anderson Company shall not exceed Five Million Four Hundred Eighty-Four Thousand and no/100 ($5,484,000.00) Dollars. ARTICLE IV PRE-ACQUISITION AND POST-ACQUISITION COVENANTS ---------------------------------------------- 4.1 CONDUCT OF COMPANIES' BUSINESSES PENDING CLOSING. For the period commencing from and after the date hereof until the Closing Date or the earlier termination of this agreement (hereinafter referred to as the "Interim Period"), Shareholders covenant and agree as follows: (a) FULL ACCESS AND DUE DILIGENCE. Buyer and its respective agents and representatives (including legal counsel and accountants) shall have full access during normal business hours, to inspect all properties, books, records, contracts and documents of the Childs Group used in or associated with their Businesses and to all of their executive employees (including the opportunity to meet with and discuss their Businesses with such employees) and to otherwise conduct such due diligence (the "Rock of Ages Group Due Diligence") regarding its examination of them, their Business and financial affairs as Buyer may deem reasonably necessary and appropriate; provided, however, that the Buyer and its representatives shall not unreasonably interfere with their operations; and each of the Childs Group shall furnish or cause to be furnished to the Rock of Ages Group and its authorized representatives all information with respect to their Businesses as the Rock of Ages Group or its representatives may reasonably request. Furthermore, Buyer, its agents and representatives, shall have the opportunity to inspect and test any or all of each of the Childs Group's equipment and properties as it determines in its sole discretion, at any reasonable time, and from time to time, up to the Closing Date provided that the Buyer makes reasonable efforts not to disrupt their Businesses and operations when conducting such tests. (b) BUSINESS IN THE ORDINARY COURSE. Except as specifically permitted or required herein, during the Interim Period, the Companies' Businesses shall, and the Shareholders shall cause the Companies' Businesses to, be conducted in the ordinary course consistent with past practices. Except as specifically permitted or required herein, the Companies shall not, and the Shareholders shall cause the Companies not to, enter into any contract or commitment or engage in any transaction that could reasonably be anticipated to (separately or in the aggregate) materially adversely affect their financial condition or their Businesses. If either Company desires to engage in any transaction not in the ordinary course of business and such transaction involves consideration equal to or greater than Ten Thousand Dollars ($10,000.00), they shall first obtain the prior written consent of Buyer -22- 23 before entering into such transaction (which consent shall not be unreasonably withheld); provided that in no event shall the Companies incur any obligation to lawyers, accountants, financial advisors, environmental or other engineers, brokers or finders in connection with the transactions contemplated by this agreement. (c) PRESERVATION OF ORGANIZATION. During the Interim Period, Shareholders shall cause the Companies (i) to not make or voluntarily suffer any change in their Articles of Incorporation or By-Laws; (ii) to make a reasonable and diligent effort to in the ordinary course of business and to the extent consistent with reasonable business judgment, preserve their Businesses intact; (iii) to keep available, to the extent feasible, their present employees and representatives; (iv) to preserve their present relationships with their suppliers, customers, governmental agencies, and others having business relations with them; (v) to not increase the compensation of any of their employees or representatives or the rate of any commission that may be paid to any such employee or representatives, nor to make any promise or undertake to increase such compensation or rate of commission without the prior written consent of Buyer; (vi) to not issue any capital stock or warrants, options or rights to purchase or acquire such stock nor incur any new indebtedness; and (vii) to not pay any dividends nor make any distributions on their capital stock, except that Companies may pay cash dividends and make cash distributions on their capital stock; provided that CC meets the liquidity requirements of Section 5.2(j) of this agreement and Shareholders agree to cause CC to meet the liquidity requirements of Section 5.2(j) of this agreement. (d) NO DEFAULT. During the Interim Period, the Companies shall not breach any contract, commitment or obligation to which there are a party. (e) COMPLIANCE WITH LAWS. Each Company shall comply with all applicable laws, rules, regulations and ordinances, as are required for the conduct of its Business. (f) NO ENCUMBRANCES. The Companies shall not create, voluntarily suffer, or permit to become effective any encumbrance of any kind upon their assets, except as specifically authorized or contemplated by this agreement. (g) NO DISPOSITION OF ASSETS. The Companies shall not transfer, sell, abandon, destroy, or otherwise dispose of, or enter into any contract or agreement to sell or otherwise transfer, any of their property or assets other than in the ordinary course of business consistent with past practices. (h) INSURANCE. Each Company shall keep all of its assets and properties insured against any loss, either by fire, other casualty or theft to the extent of present coverage under present enforceable policies of insurance coverage. (i) TERMINATION OF EMPLOYEE PENSION BENEFIT PLANS. Prior to Closing each of the Companies shall commence all requisite action to (a) terminate any employee pension -23- 24 benefit plans (within the meaning of ERISA) sponsored by it; and (b) upon the written request of Buyer, withdraw from, or cease all contributions to, any multiple-employer or multiemployer employee pension benefit plans (within the meaning of ERISA) in which it may participate or to which it may contribute for the benefit of some or all of its employees; all such action to be taken in accordance with the provisions of the respective plans and of applicable law (including, without limitation, the Code and ERISA) and in a timely manner. (j) NO TERMINATION OF KEY EMPLOYEES. The Companies shall not, without the prior written consent of Buyer terminate the employment of any of their officers or any of their other key employees. (k) AUDIT. Shareholders will and will cause each member of Childs Group to assist and to cooperate with Buyer's auditors, KPMG Peat Marwick, LLP, to allow them to expeditiously complete the KPMG Audit (as hereinafter defined) of each member of the Childs Group as Buyer deems appropriate on or before July 31, 1997. The Companies and Shareholders will not agree to any actions by the Joint Venture Companies which are described in subparagraphs (a) through (j) above, which if taken by the Companies would cause them to be in violation of said subparagraphs and the Companies' Shareholders and Rock of Ages will use their reasonable best efforts to prevent each Joint Venture Company from taking any actions or failing to take any actions which would violate said subparagraphs as if each Joint Venture Company was bound thereby in the same manner as the Companies are bound thereby. 4.2 REAL PROPERTY COVENANTS. During the Interim Period, each Company will refrain from: (a) performing any grading or excavation, construction, or removal of or from its real estate, or making any other material change or improvement upon or about its real estate, without the consent of Buyer, other than those required to bring the same into compliance with applicable laws, rules or regulations, or as specifically provided herein; (b) committing or allowing any third party to commit any waste or nuisance upon its real estate; and (c) violating or allowing any third party to violate any Environmental Laws with respect to its real estate. The Companies and Shareholders will not agree to any actions by the Joint Venture Companies which are described in subparagraph (a) through (c) above, which if taken by them would cause them to be in violation of said subparagraphs and the Companies and Shareholders will use their reasonable best efforts to prevent each Joint Venture Company from taking any actions or failing to take any actions which would violate said subparagraphs -24- 25 as if each Joint Venture Company was bound thereby in the same manner as the Companies are bound thereby. 4.3 Purposely left Bank. 4.4 NO ENCUMBRANCES ON SHARES. Except as contemplated by this agreement, Shareholders shall not (a) sell, transfer, pledge, assign or otherwise dispose of or otherwise encumber any of the Shares; (b) enter into any contract, option or other arrangement or understanding with respect to the sale, transfer, pledge, assignment or other disposition or encumbrance of any of the Shares; or (c) grant any proxies, deposit any Shares into a voting trust or enter into any voting agreement with respect to any of the Shares. 4.5 RECORDS. (a) On the Closing Date Shareholders will deliver or cause to be delivered to Buyer all original agreements, documents, books, records and files (collectively, "Records"), in the possession of Shareholders or any member of the Childs Group relating to the business and operations of the Companies and the Joint Venture Companies to the extent not then in the possession of Buyer, subject to the following exceptions: (i) Shareholders may retain all Records prepared in connection with the sale of the Shares, including bids received from other parties and analyses relating to the Companies and the Joint Venture Companies; and (ii) Shareholders may retain copies of any tax returns, reports or forms, and Buyer shall be provided with the originals of such returns, reports or forms to the extent that they relate to the Companies or the Joint Venture Companies separate returns or separate tax liability. (b) After the Closing, upon reasonable written notice, Buyer and Shareholders agree to furnish or cause to be furnished to each other and their representatives, employees, counsel and accountants access, during normal business hours, such information (including Records pertinent to the Companies and the Joint Venture Companies) and assistance relating to the Companies and the Joint Venture Companies as is reasonably necessary for financial reporting and accounting matters, the preparation and filing of any Returns, reports or forms or the defense of any tax claim or assessment; PROVIDED, HOWEVER, that such access does not unreasonably disrupt the normal operations of Buyer, the Companies or the Joint Venture Companies. 4.6 ACCESS TO AND INFORMATION CONCERNING REAL PROPERTY. Shareholders agree to cause the Companies and the Joint Venture Companies, during the Interim Period, to allow Buyer and its agents access to the Childs Realty during regular business hours upon reasonable prior notice, for purposes of inspecting and testing the same or any part thereof as the other shall reasonably request. The Shareholders agree to cause the Childs Group agree to -25- 26 furnish to Buyer any and all information regarding ownership of Childs Group and their Businesses that the Buyer shall reasonably request from time to time. Buyer agrees to indemnify and hold the Childs Group harmless from all claims, suits, damages, and losses arising from the its inspection or testing of the said real property, which indemnity shall survive termination of this agreement. 4.7 ENVIRONMENTAL AND ENGINEERING MATTERS. The Rock of Ages Group may, prior to the Closing Date, perform whatever environmental and engineering tests, searches or inspections of the Childs Group's Realty which it desires to perform. In addition to any testing which may be performed: (a) Upon or prior to the execution of this agreement Buyer shall hire a certified environmental engineering firm at its own cost and expense ("Environmental Engineer"), to perform a Level I environmental audit of Childs Group's Realty and at its option a Level II environmental audit of Childs Group's Realty. Such Environmental Engineer shall address and certify his environmental report to the Buyer. If the report issued by the Environmental Engineer recommends or requires further testing and/or the removal or treatment of any Hazardous Material (as defined in EXHIBIT 3.2(m)), or if any engineer hired by the Buyer determines an environmental problem exists on Childs Group's Realty, or recommends further testing and/or the removal or treatment of any Hazardous Material on any portion of Childs Group's Realty, such testing, removal, repair or treatment of Hazardous Material or the correction of the environmental problem shall be at the sole cost and expense of CC, CCT or the Joint Venture Company involved (the "Environmental Work") (and the Shareholders shall cause CC, CCT or such Joint Venture Company to pay such costs and defenses), and shall be completed to the sole satisfaction of the Rock of Ages Group and its engineers and financing institutions as evidenced by a report from an engineer acceptable to them which indicates that the Hazardous Materials have been brought into compliance with Environmental Laws, or the environmental problem has been corrected. If CC, CCT or the Joint Venture Company involved fails to perform the Environmental Work, to the satisfaction of the Rock of Ages Group and its financing institutions, the Buyer shall have the right to terminate this agreement. Shareholders shall cause any Environmental Work, to be completed, as expeditiously as possible, but in any event, the Environmental Work shall be completed within thirty (30) days from receipt of written notice from the Buyer that it requires the performance of Environmental Work. Notwithstanding the foregoing, if the Environmental Engineer estimates that the cost for completing the Environmental Work would be equal to or greater than Two Hundred Thousand Dollars ($200,000.00), in the aggregate including one-half (1/2) of the cost of any work for the Joint Venture Companies, Shareholders may by ten (10) days prior written notice terminate this agreement without incurring any obligation or liability to Buyer as a result of such termination; provided, however that Shareholders shall have no such right of termination if a member of the Rock of Ages Group agrees in writing within ten (10) days of receipt of Shareholders' said notice to reimburse CC, CCT or the Joint Venture Company involved for the portion of the Environmental Work exceeding Two Hundred Thousand Dollars ($200,000.00), and in such event, as set forth -26- 27 above, Shareholders shall pay the first Two Hundred Thousand Dollars ($200,000.00) of the cost of such work.. (b) The Rock of Ages Group has previously had Level I environmental audits conducted on the Rock of Ages Realty. 4.8 COVENANTS RELATING TO TAXES. (a) LIABILITY FOR TAXES. Shareholders shall be liable for and indemnify Buyer for all Taxes imposed on the Companies for which the Companies may otherwise be liable for any taxable year or period that ends on or before the Closing Date and, with respect to any taxable year or period beginning before and ending after the Closing Date, the portion of such taxable year or period ending on and including the Closing Date. Shareholders shall be entitled to any refund of Taxes of the Companies received for such periods. (b) TAX LIABILITY OF BUYER. Buyer shall be liable for and indemnify Shareholders for the Taxes of the Companies for any taxable year or period that begins after the Closing Date and, with respect to any taxable year or period beginning before and ending after the Closing Date, the portion of such taxable year or period beginning after the Closing Date. Buyer shall be entitled to any refund of Taxes of the Companies received for such periods. (c) TAXES FOR SHORT TAXABLE YEAR. For purposes of Section 4.8(a) and (b), whenever it is necessary to determine the liability for Taxes of the Companies for a portion of a taxable year or period that begins before and ends after the Closing Date, the determination of the Taxes of the Companies for the portion of the year or period ending on, and the portion of the year or period beginning after, the Closing Date shall be determined by assuming that the Companies had a taxable year or period which ended at the close of the Closing Date, except that exemptions, allowances or deductions that are calculated on an annual basis, such as the deduction for depreciation, shall be apportioned on a time basis. (d) TAX REFUNDS. To the extent that they arise as a result of transactions or activities occurring after the Closing Date, Buyer shall cause the Companies to retain all federal, state, local and foreign income tax refunds, including interest, with respect to periods ended as of or prior to the close of business on the Closing Date. (e) ASSISTANCE AND COOPERATION. After the Closing Date, Buyer and Shareholders shall each: (i) assist the other party in the preparation of any Returns which such other party is responsible for preparing and filing in accordance with this Section 4.8; -27- 28 (ii) cooperate fully in preparing for any audits of, or disputes with taxing authorities regarding, any Returns of the Companies; (iii) make available to the other party and to any taxing authority as reasonably requested all information, records, and documents relating to Taxes of the Companies; (iv) provide timely notice to the other party in writing of any pending or threatened tax audits of or assessment against the Companies for taxable periods for which the other party may have a liability under this Section 4.8; and (v) furnish the other party with copies of all correspondence received from any taxing authority in connection with any tax audit or information request with respect to any such taxable period. (f) SURVIVAL OF OBLIGATIONS. The obligations of the parties set forth in this Section 4.8 shall be unconditional and absolute and shall remain in effect without limitation as to time irrespective of any other provision of this agreement. (g) TRANSFER AND GAINS TAXES. Shareholders shall be liable for and pay all stamp, transfer, documentary, sales, use, registration, gains and other such taxes and fees (including any penalties and interest) incurred in connection with this agreement and the transaction contemplated hereby. (h) ELECTION FOR SHORT TAXABLE YEAR UNDER NORMAL TAX ACCOUNTING RULES. Shareholders and Buyer agree that each of the Companies which is an S. Corporation under the Code shall make the election under Section 1362(e)(3) of the code to have each of the Companies items of income, loss, etc., assigned to the short taxable year of the Companies caused by such election under normal tax accounting rules and Shareholders agree that they will, and will cause any other shareholder who was a shareholder at the time during the Companies short years ending on the Closing Date, to consent to said election and Buyer agrees to consent to said election. 4.9 NOTIFICATION OF CERTAIN MATTERS. Shareholders shall give prompt notice to Buyer of: (a) any notice of, or other communication relating to, a default or event that, with notice or lapse of time or both, would become a default, received by Shareholders, the Companies or the Joint Venture Companies subsequent to the date of this agreement and prior to the Closing Date, under any contract material to the Companies or the Joint Venture Companies to which Shareholders, the Companies or any of the Joint Venture Companies is a party or is subject; and (b) any material adverse change in the condition, financial or otherwise, assets, properties, liabilities, results of operations or prospects of the Companies or the Joint Venture Companies or the occurrence of any event which, so far as reasonably can be foreseen at the time of its occurrence, is reasonably likely to result in any such change. Each of Shareholders and Buyer -28- 29 shall give prompt notice to the other party of any notice or other communication from any third party alleging that the consent of such third party is or may be required in connection with the transaction contemplated by this agreement. 4.10 CONSULTING AGREEMENTS AND EMPLOYMENT AGREEMENTS. At the Closing, Robert Otis Childs, Jr. and Bernita Childs agree to enter into Consulting Agreements in the forms attached hereto as EXHIBIT 2.3 and Robert Otis Childs, III and Timothy Carroll Childs agree to enter into the Employment Agreement in the forms attached hereto as EXHIBIT 2.1 and EXHIBIT 2.4, respectively. 4.11 SECURITIES LAW COMPLIANCE. (a) Buyer shall cause to be prepared and filed such applications, forms, statements, if any, as are required under Federal securities laws to cover the issuance of Buyer's Common Stock to Robert Otis Childs, III as provided for in Article I at the Closing. (b) Buyer will take any action required to be taken under applicable state securities laws and Buyer will also take action to secure all necessary exemptions or clearances under all state securities laws applicable to the issuance of Buyer's Common Stock to Robert Otis Childs, III pursuant hereto. (c) Buyer will deliver to Robert Otis Childs, III copies of any filings made by Buyer pursuant to this Section 4.11. 4.12 THIRD PARTY CONSENTS. All parties to this agreement shall use their best efforts to obtain, as soon as reasonably practicable, all permits, authorizations, consents, waivers and approvals from third parties or governmental authorities necessary to consummate this agreement and the transactions contemplated hereby and each party to this agreement will use its best efforts to cause the Closing to occur. 4.13 CERTAIN LIFE INSURANCE POLICIES. Shareholders shall cause CC prior to, or at the Closing, to transfer certain life insurance policies, listed on EXHIBIT 4.13, owned by it on the lives of Robert Otis Childs, III and Timothy Carroll Childs to each of them. 4.14 COOPERATION. Shareholders shall reasonably cooperate with Buyer with respect to the release or discharge contemplated by Section 5.1(g) and 5.2(k). -29- 30 ARTICLE V CONDITIONS TO COMPLETION OF CLOSING ----------------------------------- 5.1 CONDITIONS TO SHAREHOLDERS' OBLIGATIONS. The obligations of Shareholders under this agreement to consummate the transaction provided for herein are subject to the fulfillment of each of the following conditions prior to the completion of the Closing, except to the extent Shareholders may, in their absolute discretion, waive anyone or more thereof, in whole or in part: (a) The representations and warranties by Buyer to Shareholders and, if applicable, to Robert Otis Childs, III, respectively, in this agreement shall be true and correct, in all material respects as of the Closing Date, with the same force and effect as though such representations and warranties had been made on the Closing Date, Buyer shall have performed in all material respects all its obligations, covenants and agreements set forth herein; and Shareholders shall have received a certificate of an executive officer of Buyer to such effect; provided, however, that changes in said representations, warranties, covenants and agreements occurring because of Buyer's conduct of its business in the ordinary course or occurring because of the Proposed Transactions shall not be considered a breach of, or default in, any of Buyer's representations, warranties, covenants and agreements set forth in this agreement for purpose of this Section 5.1(a) or for any other purpose under this agreement. (b) There shall have been delivered to Shareholders an opinion of counsel for Buyer, reasonably satisfactory in form and substance to counsel for Shareholders, to the effect that Buyer is a corporation existing and in good standing under the laws of its state of incorporation; that all necessary corporate proceedings of Buyer have been duly taken to authorize this agreement and the transactions contemplated hereby; that this agreement constitutes Buyer's legal, valid, and binding obligation, enforceable against Buyer in accordance with its terms; that shares of Buyer's Common Stock, if any, delivered to Robert Otis Childs, III pursuant to this agreement will be duly authorized, validly issued, fully paid, and nonassessable shares of Buyer's Common Stock; that this agreement does not, and the carrying out of the transaction herein provided for will not, to the best of such counsel's knowledge, violate any charter or other corporate restriction to which Buyer is subject or any other agreement or instrument to which it is a party or by which it is bound. (c) The Employment Agreements, substantially in the forms attached as EXHIBIT 2.1 and EXHIBIT 2.4 and the Consulting Agreements substantially in the forms attached as EXHIBIT 2.3 shall be executed by Buyer. (d) The Stock Subscription Agreement substantially in the form attached as EXHIBIT 2.2 shall be executed by Buyer. (e) Buyer shall have delivered to Shareholders a certificate certifying it has completed all the Rock of Ages Group Due Diligence it desires to conduct, is satisfied, in its -30- 31 sole discretion, with the results thereof and as a consequence thereof it desires to consummate the transactions contemplated by this agreement. (f) Buyer shall have delivered to Shareholders its Secretary's Certificates having attached thereto copies of its Articles of Incorporation and Bylaws, as amended to date and a list of their officers and directors. (g) Any guaranties by Shareholders of any indebtedness of CC, CCT or any of the Joint Venture Companies shall have been released and discharged or provisions for the future release and discharge thereof shall have been made; if , in the latter case, agreed to by the parties. (h) All Schedules and Exhibits to be attached to their agreement were attached to this agreement upon its execution or have been attached pursuant to Section 8.12. 5.2 CONDITIONS TO THE ROCK OF AGES GROUP'S OBLIGATIONS. The obligations of Buyer under this agreement to consummate the transactions provided for herein are subject to the fulfillment of each of the following conditions prior to the completion of the Closing, except to the extent that Buyer may, in its absolute discretion, waive any one or more hereof, in whole or in part: (a) The representations and warranties by Shareholders shall be true and correct, in all material respects, as of the completion of the Closing Date, with the same force and effect as though such representations and warranties had been made on the Closing Date; Shareholders shall have performed, in all material respects, all their obligations, covenants and agreements set forth herein; Shareholders have not breached any of their covenants or agreements set forth herein, and Buyer shall have received certificates from Shareholders to such effect. (b) There shall have been delivered to Buyer an opinion of counsel for the Shareholders, and the Childs Group, reasonably satisfactory in form and substance to counsel for Buyer, to the effect that: -31- 32 (i) that this agreement has been duly executed and delivered by the Shareholders and constitutes their legal, valid and binding obligation enforceable in accordance with its terms; and the Shares are owned by Shareholders free and clear of all liens, claims, pledges, encumbrances, charges, options, proxies or restrictions of any kind or nature and Shareholders have complete and unrestricted power and the unqualified right to sell, assign, transfer and deliver the Shares to Buyer; upon consummation of the transactions contemplated by this agreement, Buyer will acquire good, valid and marketable title to the Shares, free and clear of all liens, claims pledges, charges, options, proxies or restrictions of any kind or nature; this agreement does not, and the carrying out of the transactions herein provided for will not, to the best of such counsel's knowledge, violate any agreement or instrument to which any Shareholders or any member of the Childs' Group, are a party or by which it or they are bound; (ii) Each member of the Childs Group has been duly organized and is in good standing in its state of incorporation, and is in good standing as a foreign corporation in each other state where it is qualified to do business, or where the nature of its business requires such qualification and the capitalization of each member of the Childs Group is as set forth in Section 3.3(c) and Section 3.3(c) of the Shareholders Disclosure Group; (iii) Each member of the Childs Group's capital stock has been duly authorized, validly issued, and is fully paid and non-assessable; this agreement and the transactions contemplated hereby do not conflict with, breach, or constitute a default under, the organizational documents of any member of the Childs Group or any corporate restriction, contracts, laws or regulations applicable to any member of the Childs Group the capital stock of which is being acquired pursuant to this agreement; and no consents or approvals of any governmental entity or other third party are required for the valid execution, delivery or performance of this agreement or the transactions contemplated by this agreement; and to counsel's best knowledge, there is no pending or threatened litigation against the Shareholders or any member of the Childs Group which would have a material adverse effect on this agreement or the transactions contemplated by this agreement, or would have a material adverse effect on the Business operations or financial condition of any member of the Childs Group. (c) Robert Otis Childs, III shall have executed his Employment Agreement substantially in the form attached as EXHIBIT 2.1; (d) Robert Otis Childs, III shall have executed the Stock Subscription Agreement substantially in the form attached as EXHIBIT 2.2. -32- 33 (e) Robert Otis Childs, Jr. and Bernita Y. Childs shall have executed their Consulting Agreements substantially in the forms attached as EXHIBIT 2.3 and Timothy Carroll Childs shall have executed his Employment Agreement in substantially in the form attached as EXHIBIT 2.4. (f) Prior to the Closing Date, Buyer shall have received the consent of CIT Group/Business Credit, Inc. ("CIT/BC") to this agreement and the transactions contemplated herein and shall have received from CIT/BC credit facilities, satisfactory to Buyer, in its sole discretion, or shall have received IPO proceeds sufficient to provide the funds required for Buyer to pay the cash portion of the Purchase Price. (g) There shall be no uncompleted Environmental work on Childs Group's Realty and the Shareholders shall have paid to CC, CCT or the applicable Joint Venture Company or Joint Venture Companies any amounts which they have agreed to pay in respect of environmental work pursuant to Section 4.7(a). (h) Shareholders shall have delivered to Buyer a Certificate having attached thereto copies of CC, CCT and the Joint Venture Companies Articles of Incorporation and Bylaws, as amended to date and an incumbency certificate for their officers and directors and the resignations of such of the officers and directors thereof as Buyer shall request in writing. (i) Shareholders shall own on the Closing Date fifty percent (50%) of the issued and outstanding capital stock of each of the Joint Venture Companies except that Pennsylvania will on the Closing Date own all of the issued and outstanding capital stock of Carolina. (j) At the Closing the sum of CC's cash, accounts receivable, inventory (valued at full cost or market, whichever is lower, as determined by the KMPG Peat Marwick, LLP audit, updated to the Closing Date the "KMPG Audit") exceeds the sum of CC's accounts payable, accrued payroll and current tax liabilities (the "Current Tax Liabilities") and notes payable (excluding from the amount of the notes payable for this purpose any notes payable to Robert Otis Childs, Jr., Robert Otis Childs, III, Timothy Carroll Childs or Bernita Y. Childs), by at least Four Hundred Thousand Dollars ($400,000.00). (k) Any personal guaranties by the Shareholders of indebtedness of CC, CCT and the Joint Venture Companies or their obligation to pay any such indebtedness shall have been released or discharged or provisions for the future release and discharge thereof shall have been made, if agreed to by the parties in the latter case, shall have been made on terms satisfactory to Buyer, in its sole discretion. (l) All Schedules and Exhibit to be attached to this agreement were attached to this agreement upon its execution or have been attached pursuant to Section 8.12. -33- 34 5.3 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective obligations of each party under this agreement to consummate the transactions provided for herein shall be subject to the fulfillment of all of the following conditions precedent at or prior to the Closing Date: (a) No injunction or other or decree shall have been issued by any competent Federal or state court which prevents the consummation of the transactions provided for in this agreement and no inquiry shall have been received from, nor shall any investigation or proceeding have been instituted by, any governmental agency seeking to prohibit said transactions and the transactions provided for in this agreement or asserting that the same breach or violate any material statute, rule or regulation. (b) No statute or regulation has been enacted which would prevent consummation of the transactions provided for in this agreement. (c) All governmental consents, approvals and filings required to consummate the transactions provided for in this agreement have been obtained or made. ARTICLE VI TERMINATION ----------- 6.1 TERMINATION OF AGREEMENT. This agreement and the transactions contemplated herein may be terminated as follows: (a) By mutual written consent of Buyer and Shareholders. (b) By the Shareholders pursuant to written notice delivered after September 1, 1997 if any of those conditions set forth in Sections 3.1 or 3.3 have not been satisfied by such date (unless the non-satisfaction of such conditions is due to the breach or default by Shareholders under this agreement), or, delivered at any time prior to the Closing, if the Buyer has failed in any material respect to perform its Covenants as set forth in Article IV or if the Buyer has materially breached any of its representations and warranties as set forth in Section 3.2. (c) By Buyer pursuant to written notice delivered after September 1, 1997 if any of those conditions set forth in Sections 3.2 or 3.3 have not been satisfied by such date (unless the non-satisfaction of such conditions is due to the breach or default by Buyer under this agreement), or delivered at any time prior to the Closing if Shareholders have failed in any material respect to perform any Covenants as set forth in Article IV or if Shareholders have materially breached any of their representations and warranties as set forth in Section 3.3. -34- 35 (d) By either Buyer or Shareholders, pursuant to written notice delivered prior to the Closing, if (i) any governmental or regulatory body, the consent of which is a condition to the obligations of Buyer and Shareholders to consummate the transactions contemplated hereby, shall have determined not to grant its consent and all appeals of such determination shall have been taken and have been unsuccessful, or (ii) any court of competent jurisdiction in the United States or any state shall have issued an order, judgment or decree (other than a temporary restraining order) restraining, enjoining or otherwise prohibiting the transaction provided for in this agreement and such order, judgment or decree shall have become final and nonappealable. 6.2 CONSEQUENCES OF TERMINATION. In the event of termination of this agreement, it shall forthwith become void and there shall be no liability on the part of Buyer or Shareholder (except as set forth below in this Section 6.2 or Section 8.2 hereof) and each party hereto shall return to the others all documents and materials obtained from it or them in connection with the transactions contemplated by this agreement. In the event of termination under Section 6.1(a), the parties shall be deemed to have released each other from any liability arising from the termination of this agreement. In the event of termination under Section 6.1(b), (c) or (d), the parties shall retain all rights and remedies, if any, pertaining to any claim for breach of this agreement. ARTICLE VII INDEMNIFICATION --------------- 7.1 SHAREHOLDERS GENERAL INDEMNIFICATION COVENANTS. Subject to the provisions of Sections 7.3 and 7.4, Shareholders shall indemnify, save and keep Buyer and its parent, subsidiaries (including the members of the Childs Group if the Closing has occurred), affiliates, successors and permitted assigns (the "Buyer Indemnities"), harmless against and from all liability, demands, claims, actions or causes of action, assessments, losses, fines, penalties, costs, damages and expenses, including reasonable attorneys' fees, disbursements and expenses (collectively, "Damages"), sustained or incurred by any of the Buyer Indemnities as a result of, arising out of or by virtue of any misrepresentation, breach of any warranty or representation, or non-fulfillment of any agreement or covenant on the part of Shareholders, whether contained in this agreement or any exhibit or schedule hereto or any written statement or certificate furnished or to be furnished to Buyer pursuant hereto or in any closing document delivered by Shareholders in connection herewith. 7.2 SHAREHOLDERS TAX INDEMNITY. (a) Shareholders hereby agree to pay, indemnify, defend and hold the Buyer Indemnities harmless from and against any and all Taxes of the Shareholders' or the Companies with respect to any period (or any portion thereof) up to and including the Closing -35- 36 Date, together with all reasonable legal fees, disbursements and expenses incurred by the Buyer Indemnities in connection therewith. (b) Shareholders shall prepare and file any Return of CC and CCT which is required to be filed after the Closing Date and which relates to any period (or portion thereof) up to and including the Closing Date, and Shareholders shall, within forty-five (45) days prior to the due date of any such Return, deliver a draft copy to Buyer. Within thirty (30) days of the receipt of any such Return, Buyer may reasonably request changes, in which event Buyer and Shareholders shall attempt to agree on a mutually acceptable resolution of the issues in dispute. If a resolution is reached, such Return shall be filed in accordance therewith. If a resolution is not reached, then at the expense of Buyer and Shareholders (such expense to be shared equally), such Return shall be submitted to a firm of independent certified public accountants selected by Buyer and reasonably acceptable to Shareholders, which shall be directed to resolve the issues in dispute and prepare the Return for filing. As soon as is practicable after notice from Buyer to Shareholders at any time prior to the date any payment for Taxes by Buyer attributable to any such Return is due, provided such Return is prepared for filing in accordance with the foregoing, an amount equal to the excess, if any, of (i) Taxes that are due with respect to any taxable period ending on or before the Closing Date, or taxes that would have been due with respect to a taxable period beginning before and ending after the Closing Date if such period has ended on the Closing Date over (ii) the amount of such Taxes of CC and CCT and their subsidiaries with respect to such taxable period which are reflected as current tax liabilities on the KMPG Audit shall be paid by Shareholders to Buyer by wire transfer of immediately available funds within three (3) business days after the determination of said amount is made. (c) The indemnity provided for in this Section 7.2 shall be independent of any other indemnity provision hereof and, anything in this agreement to the contrary notwithstanding, shall survive until the expiration of the applicable statutes of limitation for the Taxes referred to herein, and any Taxes subject to the indemnification for Taxes set forth in this Section 7.2 shall not be subject to the provisions of Sections 7.1 or 7.4 hereof. 7.3 LIMITATIONS ON SHAREHOLDER INDEMNIFICATION. The obligations of Shareholders pursuant to Sections 7.1 and 7.2 are subject to the following limitations: (a) In no event shall the obligation of Shareholders to indemnify the Buyer Indemnities pursuant to Section 7.1 exceed the Purchase Price in the aggregate; provided, however, that such limitation shall not apply to any indemnification obligations of Shareholders under Section 7.2; and (b) Shareholders shall not have any indemnification obligation with respect to the first $10,000.00 of total liabilities incurred under Sections 7.1 and 7.2, unless the total aggregate liabilities of Shareholders under Sections 7.1 and 7.2 equal or exceed such amount, in which case the indemnification obligations of Shareholders will include all liabilities in excess of One Dollar ($1.00) incurred under Sections 7.1 and 7.2 (subject only, in the case of -36- 37 liabilities incurred under Section 7.1, to the maximum aggregate amount set forth in Section 7.3(a) above). 7.4 CONDITIONS OF SHAREHOLDERS INDEMNIFICATION PURSUANT TO SECTION 7.1. (a) Promptly following the receipt by an Buyer Indemnitee of notice of a demand, claim, action, assessment or proceeding made or brought by a third party, including a governmental agency (a "Third Party Claim"), the Buyer Indemnitee receiving the notice of the Third Party Claim (i) shall notify Shareholders of its existence, setting forth the facts and circumstances of which such Buyer Indemnitee has received notice, and (ii) if the Buyer Indemnitee giving such notice is a person entitled to indemnification under this Article VII (an "Indemnified Party"), specifying the basis hereunder upon which the Indemnified Party's claim for indemnification is asserted. (b) The Indemnified Party shall, upon reasonable notice by Shareholders, tender the defense of a Third Party Claim to Shareholders. If Shareholders accepts responsibility for the defense of a Third Party Claim, then Shareholders shall have the exclusive right to contest, defend and litigate the Third Party Claim and shall have the exclusive right, in Shareholders' discretion exercised in good faith and upon the advice of counsel, to settle any such matter, either before or after the initiation of litigation, at such time and upon such terms as Shareholders deem fair and reasonable, provided that at least ten (10) days prior to any such settlement, Shareholders shall give written notice of Shareholders' intentions to settle to the Indemnified Party. The Indemnified Party shall have the right to be represented by counsel at its own expense in any defense conducted by Shareholders. (c) Notwithstanding the foregoing, in connection with any settlement negotiated by Shareholders, no Indemnified Party shall be required to (i) enter into any settlement (A) that does not include the delivery by the claimant or plaintiff to the Indemnified Party of a release from all liability in respect of such claim or litigation, (B) if the Indemnified Party shall, in writing to Shareholders within the ten (10) day period prior to such proposed settlement, disapprove of such settlement proposal and desire to have Shareholders tender the defense of such matter back to the Indemnified Party, or (C) that requires an Indemnified Party to take any affirmative actions as a condition of such settlement, or (ii) consent to the entry of any judgment that does not include a full dismissal of the litigation or proceeding against the Indemnified Party with prejudice; provided, however, that should the Indemnified Party disapprove of a settlement proposal pursuant to Clause (B) above, the Indemnified Party shall thereafter have all of the responsibility for defending, contesting and settling such Third Party Claim but shall not be entitled to indemnification by Shareholders to the extent that, upon final resolution of such Third Party Claim, Shareholders' liability to the Indemnified Party but for this proviso exceeds what Shareholder's liability to the Indemnified Party would have been if Shareholder were permitted to settle such Third Party Claim in the absence of the Indemnified Party exercising its right under Clause (B) above. -37 38 (d) If, in accordance with the foregoing provisions of this Section 7.4, an Indemnified Party shall be entitled to indemnification against a Third Party Claim, and if Shareholders shall fail to accept the defense of a Third Party Claim which has been tendered in accordance with this Section 7.4, the Indemnified Party shall have the right, without prejudice to its right of indemnification hereunder, in its discretion exercised in good faith and upon the advice of counsel, to contest, defend and litigate such Third Party Claim, and may settle such Third Party Claim, either before or after the initiation of litigation, at such time and upon such terms as the Indemnified Party deems fair and reasonable, provided that at least ten (10) days prior to any such settlement, written notice of its intention to settle is given to Shareholders. If, pursuant to this Section 7.4, the Indemnified Party so defends or settles a Third Party Claim for which it is entitled to indemnification hereunder, as hereinabove provided, the Indemnified Party shall be reimbursed by Shareholders for the reasonable attorneys' fees and other expenses of defending the Third Party Claim which are incurred from time to time, forthwith following the presentation to Shareholders of itemized bills for said attorneys' fees and other expenses. No failure by Shareholders to acknowledge in writing Shareholders' indemnification obligations under this Article VII shall relieve Shareholder of such obligations to the extent they exist. 7.5 CERTAIN TAX AND OTHER MATTERS. (a) If, in connection with the audit of any Return, a proposed adjustment is asserted in writing with respect to any Taxes of CC and CCT for which Shareholders is required to indemnify a Buyer Indemnitee pursuant to Section 9.2(a) hereof, Buyer shall notify Shareholders of such proposed adjustment within twenty (20) days after the receipt thereof. Upon notice to Buyer within twenty (20) days after receipt of the notice of such proposed adjustment from Buyer, Shareholders may assume (at Shareholders' own cost and expense) control of and contest such proposed adjustment. (b) Alternatively, if Shareholders request within twenty (20) days after receipt of notice of such proposed adjustment from an Buyer Indemnitee, Buyer or the Buyer Indemnitee involved at Buyer's option, as the case may be, shall contest such proposed adjustment. Shareholder shall be obligated to pay all reasonable out-of-pocket costs and expenses (including legal fees and expenses) which Buyer may incur in so contesting such proposed adjustment as such costs and expenses are incurred, and Buyer shall have the full right to contest such proposed adjustment and shall be entitled to settle or agree to pay in full such proposed adjustment (in its sole discretion) and thereafter pursue its rights under this agreement. Shareholders shall pay to Buyer all indemnity amounts in respect of any such proposed adjustment within thirty (30) days after written demand to Shareholders therefor, or, if Shareholders have assumed control of the contest of such proposed adjustment as provided above (or have requested Buyer to contest such proposed adjustment within the time provided above), within thirty (30) days after such proposed adjustment is settled or a Final Determination has been made with respect to such proposed adjustment. -38 39 (c) For purposes of this Section 7.5, a "Final Determination" shall mean (i) the entry of a decision of a court of competent jurisdiction at such time as an appeal may no longer be taken from such decision or (ii) the execution of a closing agreement or its equivalent between the particular taxpayer and the Internal Revenue Service, as provided in Section 7121 and Section 7122, respectively, of the Internal Revenue Code of 1986, as amended, or a corresponding agreement between the particular taxpayer and the particular state or local taxing authority. The obligation of Shareholders to make any indemnity payment pursuant to Section 7.2(a) shall be premised on the receipt by Shareholders from Buyer of a written notice setting forth the relevant portion of any Final Determination, and in cases where the amount of the indemnity payment exceeds $100,000.00, a certified statement by Buyer's nationally recognized accounting firm setting forth the amount of the indemnity payment (and in all other cases, a similar statement certified by the chief financial officer of Buyer) and describing in reasonable detail the calculation thereof. 7.6 INDEMNITY FUND. Buyer will withhold Two Hundred Fifty Thousand Dollars ($250,000.00) of the Purchase Price and hold it as a fund (the "Indemnity Fund") for the payment of any Taxes required to be paid by Shareholders under Section 7.2 or any Damages required to be paid by Shareholders under Section 7.1. Robert Otis Childs, Jr. will contribute Eighty-Three Thousand Three Hundred Thirty-Three Dollars ($83,333.00) of his share of the Purchase Price to the Indemnity Fund, Timothy Carroll Childs will contribute Eighty-Three Thousand Three Hundred Thirty-Three Dollars ($83,333.00) of his share of the Purchase Price to the Indemnity Fund and Robert Otis Childs, III will contribute Eighty-Three Thousand Three Hundred Thirty-Three Dollars ($83,333.00) of Buyer's Common Stock, along with Assignments Separate From Certificate assigning said stock to Buyer, if he receives said stock as part of the Purchase Price pursuant to Section 1.6 hereof, and if he does not receive said stock as part of the Purchase Price or if he is prevented by law, the rules and regulations of the Securities and Exchange Commission or agreements with Buyer's underwriters or investment bankers from contributing said stock he will contribute Eighty-Three Thousand Three Hundred Thirty-Three Dollars ($83,333.00) of his share of the cash Purchase Price to the Indemnity Fund. Each of the amounts so contributed by each of the Sellers is herein sometimes referred to as the "Seller's Contribution to the Indemnity Fund". If any claim for Taxes or Damages (a "Claim" or "Claims") is received by a Buyer Indemnitee within one (1) year of the Closing Date, Buyer will be entitled to deduct the amount thereof from the Indemnity Fund and to hold said amount in reserve until liability for the Claim is resolved pursuant to the provisions of this Article VII. When the Buyer Indemnitee liability for a Claim (the "Claim Liability") has been determined pursuant to the provisions of this Article VII, Buyer shall deduct the amount so determined from the amounts reserved for it and if necessary any additional amounts from the Indemnity Fund necessary to pay the Claim Liability. Buyer shall send Sellers written notice at least ten (10) days prior to paying the Claim Liability. -39- 40 On the date which is one (1) year after the Closing Date, Buyer will forward its check to each of the Sellers for the amount of each's Seller's Contribution to the Indemnity Fund not already deducted from the Indemnity Fund for Claims paid from the Fund or held in reserve in the Indemnity Fund against Claims asserted against the Buyer Indemnities. Thereafter, at the end of each calendar quarter occurring after the first payment, Buyer will forward to each Seller any amounts released from the reserve because Claims were determined not to be payable. Buyer will pay interest at the rate of five (5%) percent simple interest on the Indemnity Fund, less amounts therein reserved for claims, payable quarterly at Shareholders' request to Robert Otis Childs, Jr. Each Seller's Contribution to the Indemnity Fund shall be prorata liable for all Claims Buyer may pay from the Indemnity Fund. 7.7 CERTAIN COMPANIES' INFORMATION. Buyer and Shareholders agree to furnish or cause to be furnished to each other (at reasonable times and at no charge) upon request as promptly as practicable such information (including access to books and records) pertinent to the Companies and assistance relating to the Companies as is reasonably necessary for the preparation, review and audit of financial statements, the preparation, review, audit and filing of any Return, the preparation for any audit or the prosecution or defense of any claim, suit or proceeding relating to any proposed adjustment or which may result in Shareholders being liable under the indemnification provisions of this Article VII, provided, that access shall be limited to items pertaining solely to the Companies. Shareholders shall grant to Buyer access to all Returns filed with respect to the Companies and their subsidiaries, current or past. 7.8 RELEASE OF BUYER BY SHAREHOLDERS. Shareholders hereby release and discharge Buyer and each of its officers and directors from, and agree and covenant that in no event will Shareholders commence any litigation or other legal or administrative proceeding against, Buyer, its subsidiaries, parents and affiliates or any of their officers or directors, whether in law or equity, relating to any and all claims and demands, known or unknown, suspected and unsuspected, disclosed and undisclosed, for damages, actual or consequential, past, present and future, arising out of or in any way connected with Shareholders' ownership or alleged ownership of the Companies capital stock prior to the Closing Date, other than claims or demands arising out of the transactions contemplated by this agreement. 7.9 BUYER GENERAL INDEMNIFICATION COVENANTS. Subject to the provisions of Sections 7.9 and 7.10, if the Closing occurs, Buyer shall indemnify, save and keep Robert Otis Childs, III, if he agrees to acquire any of Buyer's Common Stock pursuant to Section 1.6 hereof and his heirs, personal representatives and successors (the "Shareholders Indemnities"), harmless against and from all Damages sustained or incurred by any of the Shareholders Indemnities as a result of, arising out of or by virtue of any misrepresentation, breach of any warranty or representation, or non-fulfillment of any agreement or covenant of the part of Buyer, contained in this agreement or any exhibit or schedule hereto or any written statement or certified furnished or to be furnished to Shareholders hereto or in any closing document delivered by Buyer in connection herewith; provided that Buyer's indemnification covenants -40- 41 and obligations in this agreement shall terminate upon the effectiveness of Buyer's registration statement under the Securities Act of 1933, as amended, with respect to the IPO. 7.10 LIMITATION ON BUYER INDEMNIFICATION. The obligations of Buyer pursuant to Section 7.9 is subject to the following limitations: (a) In no event shall the obligation of Buyer to indemnify the Shareholder Indemnities pursuant to Section 7.9 exceed the value on the Closing Date of any Common Stock acquired by Robert Otis Childs, III pursuant to Section 1.6 hereof determined as provided in said Section. (b) Buyer shall not have any indemnification obligation with respect to the first $10,000.00 of total liabilities incurred under Section 7.9, unless the total aggregate liabilities of Buyer under Section 7.9 equal or exceed such amount, in which case the indemnification obligations of Buyer will include all liabilities in excess of One Dollar ($1.00) incurred under Section 7.9 (subject only, to the maximum aggregate amount set forth in Section 7.10(a) above). 7.11 CONDITIONS OF INDEMNIFICATION PURSUANT TO SECTION 7.9. (a) Promptly following the receipt by a Shareholder Indemnitee of notice of a demand, claim, action, assessment or proceeding made or brought by a third party, including a governmental agency (a "Third Party Claim"), the Shareholder Indemnitee receiving the notice of the Third Party Claim (i) shall notify Buyer of its existence, setting forth the facts and circumstances of which such Shareholder Indemnitee has received notice, and (ii) if the Shareholder Indemnitee giving such notice is a person entitled to indemnification under this Section VII (an "Indemnified Party"), specifying the basis hereunder upon which the Indemnified Party's claim for indemnification is asserted. (b) The Indemnified Party shall, upon reasonable notice by Buyer, tender the defense of a Third Party Claim to Buyer. If Buyer accepts responsibility for the defense of a Third Party Claim, then Buyer shall have the exclusive right to contest, defend and litigate the Third Party Claim and shall have the exclusive right, in its discretion exercised in good faith and upon the advice of counsel, to settle any such matter, either before or after the initiation of litigation, at such time and upon such terms as it deems fair and reasonable, provided that at least ten (10) days prior to any such settlement, it shall give written notice of its intention to settle to the Indemnified Party. The Indemnified Party shall have the right to be represented by counsel at its own expense in any defense conducted by Buyer. (c) Notwithstanding the foregoing, in connection with any settlement negotiated by Buyer, no Indemnified Party shall be required to (i) enter into any settlement (A) that does not include the delivery by the claimant or plaintiff to the Indemnified Party of a release from all liability in respect of such claim or litigation, (B) if the Indemnified Party shall, in writing to Buyer within the ten (10) day period prior to such proposed settlement, -41- 42 disapprove of such settlement proposal and desire to have Buyer tender the defense of such matter back to the Indemnified Party, or (C) that requires an Indemnified Party to take any affirmative actions as a condition of such settlement, or (ii) consent to the entry of any judgment that does not include a full dismissal of the litigation or proceeding against the Indemnified Party with prejudice; provided, however, that should the Indemnified Party disapprove of a settlement proposal pursuant to Clause (B) above, the Indemnified Party shall thereafter have all of the responsibility for defending, contesting and settling such Third Party Claim but shall not be entitled to indemnification by Buyer to the extent that, upon final resolution of such Third Party Claim, Buyer's liability to the Indemnified Party but for this proviso exceeds what Buyer's liability to the Indemnified Party would have been if Buyer were permitted to settle such Third Party Claim in the absence of the Indemnified Party exercising its right under Clause (B) above. (d) If, in accordance with the foregoing provisions of this Section 7.11, an Indemnified Party shall be entitled to indemnification against a Third Party Claim, and if Buyer shall fail to accept the defense of a Third Party Claim which has been tendered in accordance with this Section 7.11, the Indemnified Party shall have the right, without prejudice to its right of indemnification hereunder, in its discretion exercised in good faith and upon the advice of counsel, to contest, defend and litigate such Third Party Claim, and may settle such Third Party Claim, either before or after the initiation of litigation, at such time and upon such terms as the Indemnified Party deems fair and reasonable, provided that at least ten (10) days prior to any such settlement, written notice of its intention to settle is given to Buyer. If, pursuant to this Section 7.11, the Indemnified Party so defends or settles a Third Party Claim for which it is entitled to indemnification hereunder, as hereinabove provided, the Indemnified Party shall be reimbursed by Buyer for the reasonable attorneys' fees and other expenses of defending the Third Party Claim which are incurred from time to time, forthwith following the presentation to Buyer of itemized bills for said attorneys' fees and other expenses. No failure by Buyer to acknowledge in writing its indemnification obligations under this Article VII shall relieve it of such obligations to the extent they exist. ARTICLE VIII MISCELLANEOUS PROVISIONS ------------------------ 8.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS. All representations, warranties, covenants and agreements made by any party in this agreement or pursuant hereto shall survive until the expiration of the applicable statutes of limitations with respect to the matters covered thereby; provided that notwithstanding anything to the contrary set forth in this agreement the representations, warranties, covenants and agreements of Buyer shall terminate and be of no further force or effect upon the effectiveness of Buyer's registration statement under the Securities Act of 1933, as amended, with respect to the IPO. -42- 43 8.2 CONFIDENTIALITY. Subject to the last sentence of this Section and regardless of whether the Closing shall take place, or this agreement is terminated, Buyer and Shareholders all agree to keep the negotiation, execution and Closing of this agreement and not to disclose the same or any documents prepared or delivered in connection therewith to any person without the prior written consent of Buyer and Shareholders; except that each such party may advise their accountants, attorneys, appraisers, surveyors, engineers and other advisors, agents, employees, shareholders, investment advisors, underwriters, bankers, lenders and banks (collectively the "Agents") of the same as necessary in order to carry out and consummate the transactions contemplated herein; provided that they inform them of this confidentiality agreement and require them to keep the subject matter of it confidential and, provided further, however, no party hereto shall be liable for any breach or violation of this Section 8.2 confidentiality agreement because of disclosure of this agreement to any governmental agency as required for such party to fulfill its obligations under this agreement and to consummate the transactions contemplated by this agreement or as otherwise required by law. After the Closing Date and subsequent to the disclosure to the employees of the Companies and the Rock of Ages Group and their subsidiaries and affiliates of the transactions referred to in this agreement, Buyer may, at its election, publicly disclose the execution and delivery of this agreement and the other agreements referenced herein and in the Exhibits hereto and the details of the transactions consummated hereunder. 8.3 BROKERS OR FINDERS. Each party represents to the other that no broker or agent has been involved on its behalf in the transactions contemplated herein, and agrees that if any claim for a commission or fee is asserted, it will be paid by the party which the broker or agent claims is represented by such broker or agent. 8.4 PAYMENT OF EXPENSES. Whether or not the purchase and sale of Shares provided for herein shall be consummated, each party hereto shall pay his or its own expenses incident to preparing for, entering into and carrying out this agreement and the transactions contemplated hereby. 8.5 ARTICLE AND SECTION HEADINGS. Article and Section headings are employed in this agreement for reference purposes only and shall not affect the interpretation or meaning of this agreement. 8.6 ASSIGNMENT, SUCCESSORS AND ASSIGNS. This agreement and the rights hereunder shall not be assignable or transferable by Buyer or Sellers (including by operation of law in connection with a merger or sale of substantially all of the assets) without the prior written consent of the other party hereto; provided that Buyer may assign its rights to purchase the Shareholders hereunder to a wholly owned direct or indirect subsidiary of Buyer without the prior written consent of Sellers, provided that no such assignment shall limit or affect Buyer's obligations hereunder and all references to Buyer hereunder shall be deemed to also include such subsidiary to which Buyer has assigned its right to purchase the Shares hereunder, and -43- 44 provided further herein that Buyer may assign this agreement by operation of law or otherwise in connection with the proposed transaction. 8.7 NOTICES. Any notice or other communication required or permitted under this agreement shall be in writing and shall be deemed to have been duly given (i) upon hand delivery, or (ii) on the third day following delivery to the U.S. Postal Service as certified or registered mail, return receipt requested and postage prepaid, or (iii) on the first day following delivery to a nationally recognized United States overnight courier services, fee prepaid, return receipt or other confirmation of delivery requested or (iv) when telecopied or sent by facsimile transmission if an additional notice is also given under (i), (ii) or (iii) above within three days thereafter. Any such notice or communication shall be directed to a party at its address set forth below or at such other address as may be designated by a part in a notice given to all other parties hereto in accordance with the provisions of this Section. If to Shareholders: 1303 Lincolnton Highway Elberton, GA 30635 Phone: 706-283-2737 with, in the case of notice R. Chris Phelps, Esq. to Shareholders, a copy to Phelps & Campbell (which shall not constitute P. O. Drawer 1056 notice): Elberton, GA 30635 Phone: 706-283-5000 Fax: 706-283-5002 If to any member of the Rock of Ages Group: Kurt M. Swenson, Chairman and Chief Executive Officer Rock of Ages Corporation 369 North State Street Concord, NH 03301 Phone: 603-225-8397 Fax: 603-225-4801 with a copy to: John R. Monson, Esq. (which shall not Wiggin & Nourie, P.A. constitute notice) P.O. Box 808 Manchester, NH 03105 Phone: 603-669-2211 Fax: 603-623-8442 8.8 COMPLETE AGREEMENT, WAIVERS. Neither this agreement nor any provision hereof may be changed, waived, modified, discharged, amended or terminated orally but only by an instrument in writing signed by all parties hereto. No action taken by any party after -44- 45 the date hereof, including without limitation any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance by any other party with any representations, warranties, covenants or agreements contained in this agreement. The waiver by any party hereto of a breach of any provision of this agreement shall not operate or be construed as a waiver of any other or any subsequent breach. The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect its right at a later time to enforce the same. This agreement, together with the Exhibits and Schedules attached hereto or incorporated herein pursuant to Section 8.12 hereof constitutes the only agreement among the parties hereto concerning the subject matter hereof and supersedes all prior agreements whether written or oral, relating thereto. 8.9 GOVERNING LAW. This agreement shall be governed by and construed in accordance with the laws of the State of New Hampshire and any actions brought pertaining to the same shall lie only in the Merrimack County New Hampshire Superior Court, in the United States District Court for the District of New Hampshire, the Washington County Superior Court, Georgia, or the U.S. District Court for the District of Georgia, in said States all of which are the sole and exclusive forums for any actions or claims by the parties to this agreement and each party hereto consents to the jurisdiction of, and venue in, said courts in any action brought by another party hereto and agrees that no claims or actions relating to any matter hereunder will be brought by them in any other courts of said States, any other country. 8.10 TAX CONSEQUENCES. Each party represents and warrants that it has made an independent evaluation of the tax consequences resulting to such party as a result of the terms and effect of this agreement. No party shall have any recourse against any other party to this agreement nor shall this agreement be affected in any way by reason of the fact that the consummation of this agreement and the transactions contemplated thereby do not have the tax consequences anticipated by such party; provided that the foregoing shall not limit a party's liability for breach of any representation, warranty, covenant or agreement set forth herein. 8.11 COUNTERPARTS. This agreement may be executed in counterparts and by different parties on different counterparts with the same effect as if the signatures were on the same instrument. This agreement shall be effective and binding upon all parties hereto as of the time when all parties have executed a counterpart of this agreement. 8.12 EXHIBITS. Each Exhibit or Schedule delivered pursuant to the terms of this agreement shall be in writing and shall constitute a part of this agreement. The parties may agree with respect to any Schedule or Exhibit required to be attached to this agreement, that such Schedule or Exhibit, if mutually satisfactory, may be attached to this agreement after the date of execution hereof and prior to the Closing and, after mutual approval thereof, such subsequently attached Schedule or Exhibit shall be treated as if it were attached to this agreement as of the date of execution of this agreement. All Exhibits and Schedules attached hereto are specifically incorporated herein by reference and made a part hereof. The words -45- 46 "agreement," "herein" and "hereof" as used herein shall in all respects include the entirety of this agreement together with all Exhibits and Schedules attached hereto and all documents required or permitted to be delivered hereunder. 8.13 FURTHER ASSURANCES. From time to time, as and when requested by any party hereto, the other party shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such further or other actions, as such other party may reasonably deem necessary or desirable to consummate the transactions contemplated by this agreement. -46- 47 IN WITNESS WHEREOF, the parties hereto have executed this agreement all as of the 27th day of June, 1997. WITNESS: ROCK OF AGES CORPORATION /s/ By: /s/ Kurt M. Swenson - ---------------------------------- ------------------------------ Kurt M. Swenson, Chairman of the Board and Chief Executive Officer /s/ /s/ Robert Otis Childs, Jr. - ---------------------------------- ---------------------------------- Robert Otis Childs, Jr. /s/ /s/ Robert Otis Childs, Jr. - ---------------------------------- ---------------------------------- Robert Otis Childs, III /s/ /s/ Timothy Carroll Childs - ---------------------------------- ---------------------------------- Timothy Carroll Childs /s/ /s/ Bernita Y. Childs - ---------------------------------- ---------------------------------- Bernita Y. Childs -47- 48 LIST OF EXHIBITS TO STOCK PURCHASE AGREEMENT -------------------------------------------- Exhibit 1.3(b) Escrow Agreement Exhibit 2.1 Employment Agreement for Robert Otis Childs, III Exhibit 2.2 Consulting Agreements Exhibit 2.4 Employment Agreement for Timothy Carroll Childs Exhibit 3.2(e) Swenson Group Financial Statements Exhibit 3.2(m) Environmental Laws and Hazardous Materials (Environmental Definitions) Exhibit 3.3(d) Childs Financial Statements Exhibit 3.3(f) Childs Group Realty Exhibit 3.3(h) Collective Bargaining Agreements, Labor Agreements, etc. Exhibit 3.3(k) Target Licenses, Permits and Approvals Exhibit 3.3(m) Target Pension, Profit Sharing, Stock Bonus and Other Deferred Compensation Arrangements Exhibit 3.3(o) Target Intellectual Property and Proprietary Interest; Insurance; Material Contracts Exhibit 4.13 Life Insurance Policies Rock of Ages Corporation agrees to furnish supplementally to the Commission a copy of any omitted schedule upon request. EX-2.3 4 ASSET PURCHASE AGREEMENT DATED 7/30/97 1 Exhibit 2.3 ASSET PURCHASE AGREEMENT ------------------------ ASSET PURCHASE AGREEMENT made as of this ____ day of July, 1997, by and among ROCK OF AGES CORPORATION, with a principal office located in Concord, New Hampshire (hereinafter referred to as the "Buyer"), JOHN E. KEITH, (hereinafter referred to as "JK") an individual residing in Hodgenville, Kentucky and ROY H. KEITH, JR., (hereinafter referred to as "RK") an individual residing in Elizabethtown, Kentucky, GLASGOW MONUMENT CO., INC., a Kentucky corporation ("GMC"), KEITH LETTERING AND SETTING CORPORATION, a Kentucky corporation ("KLS"), KEITH MONUMENT COMPANY, a Kentucky corporation ("KMC"), NATIONAL MEMORIAL CORPORATION, a Kentucky corporation ("NMC"), RIEHM-GERLACK MONUMENT CO., a Kentucky corporation ("RGM") and THE SNYDER CORPORATION, a Kentucky corporation ("SC") (hereinafter each of said corporations is sometimes referred to as a "Company" or a "Seller" and all of said corporations are sometimes collectively referred to as the "Companies" and as the "Sellers" and JK and RK are sometimes collectively referred to as the "Principal Shareholders"). RECITALS: The Principal Shareholders own and/or control substantially all of the issued and outstanding shares of capital stock of the Companies except for KMC which is a wholly owned subsidiary of Keith National Corporation, a Kentucky corporation. The Companies are sometimes collectively referred to as the "KMC Group". The Buyer desires to purchase and assume, and the Sellers desire to sell and assign, substantially all of the assets and substantially all of the liabilities of the Sellers upon the terms and subject to the conditions of this agreement. NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements contained herein, the parties hereto hereby agree as follows: ARTICLE I PURCHASE AND SALE OF ASSETS AND ASSUMPTION OF LIABILITIES 1.1 PURCHASE OF ASSETS. Subject to the terms and conditions of this agreement, the Sellers agree on the Closing Date (as hereinafter defined), to sell, assign, transfer, convey, and deliver to the Buyer, and the Buyer agrees on the Closing Date to purchase from the Sellers, all of the assets and properties of the Sellers (except for the Excluded Assets (as hereinafter defined)) wherever the same may be located, including without limitation the following (collectively referred to as the "Assets"): 2 (a) All of Sellers inventories, including, without limitation, all raw materials, work in process, supplies and finished inventory in existence, as of the Closing Date; (b) All of Sellers machinery, tooling, trade fixtures and leasehold improvements, motor vehicles, equipment, furniture, furnishings, fixtures, terminals, and accessories of all kinds, as such items exist as of the Closing Date; together with all drawings, specifications and instructions relating thereto; (c) All of Sellers U.S. and foreign trademarks, trademark applications, servicemarks, copyrights, copyright applications, trade names, patents and patent applications, inventions, trade secrets and technical know-how and proprietary information (whether or not registered with any state or federal governmental agency); (d) All of Sellers customer lists, labels, advertising and promotional materials, software owned by the Sellers, sales and other business records and reports, files, telephone numbers, and proprietary information; (e) All of Sellers permits, licenses, certificates, approvals and notifications, governmental or otherwise; (f) Each Seller's rights and obligations under all purchase orders, made or accepted by the Sellers with their customers and others for goods and services sold in the ordinary course of business consistent with past practices prior to the Closing (as defined below) which each Seller has not fulfilled by Closing, together with any accounts receivable and all prepaids for such orders;. (g) All of the Seller's contract rights and benefits under any personal property and real property leases subject to the terms and conditions thereof; (h) All of Sellers cash, accounts receivable, prepaids, insurances, instruments, general intangibles, goodwill, Businesses and similar property; (i) All other personal property, tangible and intangible, and all KMC Group's Realty (as hereinafter defined) owned by Sellers; (j) All books and records of the Sellers related to Sellers' Businesses (as hereinafter defined); and (k) The Sellers' corporate names, except NMC may retain its name. -2- 3 1.2 EXCLUDED ASSETS. Notwithstanding anything herein to the contrary, Buyer does not purchase, and Sellers do not sell, any of the assets listed on EXHIBIT 1.2 attached hereto (the "Excluded Assets"): 1.3 LIABILITIES AND OBLIGATIONS ASSUMED. Buyer does hereby agree to assume at Closing and in writing, Sellers' obligations and liabilities set forth in the KMC Financial Statements and the KMC 1997 Financial Statements and Sellers' obligations and liabilities incurred in the ordinary course of business from the dates of the KMC 1997 Financial Statements up to the Closing Date (collectively referred to as the "Assumed Liabilities"), except for those listed in Section 1.4 below. 1.4 LIABILITIES AND OBLIGATIONS NOT ASSUMED. Except for the liabilities of Sellers expressly assumed by Buyer in Section 1.3, Buyer shall not assume any liabilities, obligations or undertakings of Sellers of any kind or nature whatsoever, whether fixed or contingent, known or unknown, determined or determinable, including, without limitation: (a) those liabilities listed on EXHIBIT 1.2 hereof; (b) all of Sellers interest bearing indebtedness, and obligations, including the amount due David DeMarcus and the Covenant Not to Compete amount due David DeMarcus both listed on EXHIBIT 1.2, all of which will be paid at the Closing pursuant to EXHIBIT 1.2 (the amounts thereof being herein sometimes referred to the "Loan Amount"); and (c) trade payables other than Existing Trade Payable (as defined below) (all of the liabilities and obligations of Sellers described in this Section being herein sometimes collectively referred to as the "Excluded Liabilities"). 1.5 BULK SALES. Buyer and Sellers each hereby waive compliance by the other with any applicable provisions of the bulk sales laws of the State of Kentucky because Buyer is assuming the obligations to Sellers' trade creditors existing as of the date of the KMC 1997 Financial Statements and incurred thereafter in the ordinary course of business (the "Existing Trade Payables"). Any trade payables other than the Existing Trade Payables are not part of the Assumed Liabilities, are not assumed by Buyer hereunder and shall remain the liabilities of Sellers and Sellers and Principal Shareholders agree to pay the same. 1.6 CLOSING. The closing of the purchase and sale hereunder (the "Closing") shall take place at Skadden, Arps, Slate, Meagher & Flom, LLP, One Beacon Street, Boston, MA 02108-3194 at 10:00 A.M., Eastern Standard Time, on or before November 1, 1997, in accordance with the provisions of Article IV hereof after all of the conditions set forth in Article IV hereof shall be fulfilled or waived in accordance with this agreement and applicable law or at such other time, date and/or place as Sellers and Buyer may agree. The date and time at which the Closing actually occurs is referred to as the "Closing Date". The Closing Date can be extended automatically by Buyer for an additional thirty (30) days to November 30, 1997, if an S-1 Registration for Buyer's IPO (as hereinafter defined) has been filed with the Securities and Exchange Commission on or before November 1, 1997 and on or before November 1, 1997 Buyer makes an additional TWENTY-FIVE THOUSAND AND no/100 DOLLARS ($25,000.00) addition to the Deposit with the Escrow Agent. -3- 4 1.7 DETERMINATION OF AND ALLOCATION OF THE PURCHASE PRICE. (a) The purchase price for the Assets will be Sixteen Million Three Hundred Seventy-Five Thousand Dollars ($16,375,000.00) (the "Purchase Price"). The Purchase Price will be payable at the Closing. Buyer will subtract from the Purchase Price the Loan Amount and will pay the creditors of the Sellers owed the Loan Amount at the Closing. The difference between the Purchase Price and the Loan Amount is herein referred to as the "Balance of the Purchase Price." The Loan Amount and the Balance of the Purchase Price will be tentatively allocated to the Sellers and to the Assets and the Assumed Liabilities being purchased and assumed by Buyer from each Seller as set forth on EXHIBIT 1.7(a) and the Common Stock (as hereinafter defined) of Buyer being paid to certain Sellers as part of the Purchase Price shall be allocated to said Sellers as set forth in Section 1.8 below. The Loan Amount and the Balance of the Purchase Price, except for the Common Stock, will be reallocated by Buyer and Sellers at the Closing by an amendment to EXHIBIT 1.7(a) which will amend the allocations on EXHIBIT 1.7(a) when the final amount of the Loan Amount is calculated on or before the Closing Date. (b) One Hundred Thousand Dollars ($100,000.00) shall be deposited upon execution of this agreement by Buyer as an earnest money deposit (the "Deposit") in escrow with Whitlow & Scott (the "Escrow Agent"). The Deposit shall be held by the Escrow Agent in accordance with the terms of the escrow agreement (the "Escrow Agreement"), a copy of which is attached hereto as EXHIBIT 1.7(b), and paid by the Escrow Agent to Sellers as part of the Purchase Price at the Closing; provided that the Deposit shall (i) be immediately returned to the Buyer if the transaction contemplated by this agreement does not close because any of the Sellers or Principal Shareholders are in default of or have breached any of their representations, warranties, covenants or agreements set forth herein or any of the conditions to Closing for the benefit of Buyer are not met or waived in writing on the Closing Date; or (ii) paid to Sellers in accordance with the terms and conditions of the Escrow Agreement upon the failure by Buyer to close on the Closing Date (unless such failure is due to the nonfulfillment of any of Buyer's conditions to Closing set forth in Section 5.2 of this agreement), provided that Sellers and Principal Shareholders on the Closing Date are not in default of, nor have they breached any of, their representations, warranties, covenants or agreements set forth herein and all the conditions to Closing for the benefit of Buyer have been met or waived in writing on the Closing Date. (c) The parties agree to report the transactions contemplated by this agreement and to allocate the Purchase Price, for tax and accounting purposes in accordance with the allocations set forth on EXHIBIT 1.7(a) pursuant to Section 1060 of the Internal Revenue Code of 1986, as amended, ("Code") and the permanent and temporary Treasury Regulations thereunder. 1.8 COMMON STOCK PORTION OF THE PURCHASE PRICE. The following portion of the Purchase Price will be paid with shares of Buyer's Common Stock: The number of shares of Buyer's Common Stock having an aggregate value of $1,500,000.00 (the "NMC Common -4- 5 Stock Consideration Amount," determined as provided in Section 1.10) shall be paid to NMC in part payment for a portion of the Assets being sold by it to Buyer. As noted above, except for the NMC Common Stock Consideration Amount and the allocation made to real estate and improvements thereto and thereon, to furniture, fixture and equipment and to motor vehicles, all the allocations set forth on EXHIBIT 1.7(a) are tentative and will be finalized on the Closing Date as set forth above in Section 1.7(a). 1.9 PAYMENT OF PURCHASE PRICE. Upon the terms and subject to the conditions of this agreement, at the Closing: (a) Buyer shall deliver to each of the Sellers on the Closing Date by wire transfer in immediately available funds to a bank account designed in writing by each of the Sellers no later than three (3) business days prior to the Closing Date the amount of the Purchase Price payable in cash as set forth on EXHIBIT 1.7(a), to each Seller, less the amount of each Seller's Contribution to the Indemnity Fund (as hereinafter defined in Section 7.6 hereof) and shall pay in the same fashion the Loan Amount. (b) Buyer shall deliver to NMC the Common Stock equal to the Common Stock Share Amount (as defined in Section 1.10 below), registered in its name. (c) Each of the Sellers shall deliver to Buyer (i) a bill of sale and assignment with full warranties of title, warranty deeds and all other necessary instruments necessary to transfer title to its portion of the Assets and Assumed Liabilities, free and clear of all liens, claims pledges, encumbrances, charges, options proxies or restrictions of any kind or nature, except for Permitted Encumbrances (ii) its agreements, if any, listed in Article II, and (iii) funds for the payment of all sales, transfer, and similar taxes, if any, in respect to the sale, transfer and assignment of the Assets and Assumed Liabilities pursuant to this agreement, including without limitation, any transfer or gains taxes, to the extent Buyer has any liability for the collection thereof, to which the transactions contemplated hereby may be subject under the laws of the State of Kentucky; and each of the Principal Shareholders shall deliver to Buyer his agreements listed in Article II. 1.10 COMMON STOCK OF BUYER. NMC agrees to acquire from Buyer and accept, in full payment of the NMC Common Stock Consideration Amount a number of shares of common stock of the Buyer ("Common Stock") having an aggregate value equal to the NMC Common Stock Consideration Amount with each share of the Common Stock to be valued for this purpose at the price per share of the Common Stock to the public in the Buyer's contemplated initial public offering (the "IPO") or the fair market value per share as determined on the Closing Date in good faith by the Buyer's Board of Directors if the IPO has not occurred on or before the Closing Date and the parties waive the IPO conditions set forth in Article V and elect to close (the "Common Stock Price"). The number of such shares to be delivered to NMC by Buyer and accepted by NMC shall be the quotient (the "Common Stock Share Amount") determined by dividing the NMC Common Stock Consideration Amount by the Common Stock Price. If the IPO occurs within one (1) year -5- 6 after the Closing, then the Common Stock Price will be recalculated using the IPO price per share of the Common Stock to the public, the Common Stock Share Amount will be recalculated and the Buyer will deliver any additional shares of Common Stock required by said recalculated Common Stock Share Amount to NMC and NMC will return to the Buyer any shares it has received which exceed the recalculated Common Stock Share Amount rounded down to the nearest whole share of the Common Stock. ARTICLE II FURTHER AGREEMENTS ------------------ 2.1 EMPLOYMENT AGREEMENT FOR JK. At the Closing, Buyer and JK shall execute the Employment Agreement (the "JK Employment Agreement") substantially in the form thereof attached as EXHIBIT 2.1 hereto. 2.2 EMPLOYMENT AGREEMENT FOR RK. At the Closing, Buyer and RK shall execute the Employment Agreement (the "RK Employment Agreement") substantially in the form thereof attached as EXHIBIT 2.2 hereto. 2.3 STOCK SUBSCRIPTION AGREEMENT FOR NMC. Concurrently with the execution and delivery of this agreement, NMC and Buyer shall execute the Stock Subscription Agreement (the "NMC Stock Subscription Agreement") substantially in the form thereof attached hereto as EXHIBIT 2.3. 2.4 INTENTIONALLY LEFT BLANK. 2.5 ACQUISITION NONCOMPETE, NONSOLICITATION AND NONDISCLOSURE AGREEMENT FOR JK. At the Closing, Buyer and JK shall execute the Acquisition Noncompete, Nonsolicitation and Nondisclosure Agreement (the "JK Noncompete Agreement") substantially in the form attached hereto as EXHIBIT 2.5. 2.6 ACQUISITION NONCOMPETE, NONSOLICITATION AND NONDISCLOSURE AGREEMENT FOR RK. At the Closing, Buyer and RK shall execute the Acquisition Noncompete, Nonsolicitation and Nondisclosure Agreement (the "RK Noncompete Agreement") substantially in the form attached hereto as EXHIBIT 2.6. 2.7 LEASE AGREEMENT. At the Closing, Buyer and Keith & Keith shall execute the Lease Agreement (the "Lease Agreement") substantially in the form attached hereto as EXHIBIT 2.7. 2.8 COVENANT NOT TO COMPETE FROM SELLERS. At the Closing, Sellers shall execute the Noncompete, Nonsolicitation and Nondisclosure Agreement (the "Covenant Not To Compete") substantially in the form attached hereto as EXHIBIT 2.8, prohibiting each Seller, -6- 7 and any corporation or entity, directly or indirectly, owned, controlled or affiliated with each Seller ("Affiliates") from competing with Buyer, or taking any of the other actions described therein, for a period of five (5) years from the Closing Date. ARTICLE III REPRESENTATIONS AND WARRANTIES ------------------------------ 3.1 GENERAL STATEMENT. The parties make the representations and warranties which are set forth in this Article III. The survival of all such representations and warranties shall be in accordance with Section 8.1 hereof. All representations and warranties of the parties are made subject to the exceptions, if any, which are noted in the respective schedules delivered by the parties to each other and accepted by the receiving party concurrently herewith and identified as, in the case of Section 3.2, the "Buyer's Disclosure Schedule," and in the case of Section 3.3, the "Sellers' Disclosure Schedule." 3.2 REPRESENTATIONS AND WARRANTIES OF THE BUYER. Except as set forth below where certain representations and warranties are noted as specifically made to all Sellers, Buyer makes the following representations and warranties as of the date hereof and only to NMC with the intention that NMC and all the Sellers, as applicable, may rely upon the same, and acknowledges that the same are true and correct in all material respects on the date hereof and shall be true and correct in all material respects at the Closing Date, subject to changes therein occurring because of Buyer's conduct of its business in the ordinary course or occurring because of the Transactions as defined in EXHIBIT 3.2 attached hereto: (a) ORGANIZATION, POWER, ETC. Buyer represents and warrants to all Sellers that Buyer is a corporation, existing and in good standing under the laws of its state of incorporation. The Buyer has all requisite corporate power and authority to own and lease its respective properties and to carry on the business in which it is presently engaged (herein sometimes referred to as the "Business"). (b) BUYER CAPITAL STOCK. On the date hereof the authorized capital stock of Buyer consists of 20,000,000 shares of Common Stock, 7,526,882 shares of which are issued and outstanding and of 1,000,000 shares of Serial Preferred Stock of which zero (0) shares are issued and outstanding. All stock of Buyer to be issued to NMC shall be duly authorized, validly issued, fully paid and non-assessable. (c) CORPORATE AUTHORITY. Buyer represents and warrants to all Sellers that the execution, delivery and performance of this agreement by it and consummation by it of the transactions contemplated herein have been duly authorized by all necessary corporate action and this agreement constitutes the legal, valid and binding obligation of Buyer in accordance with its terms. -7- 8 (d) BINDING NATURE AND EFFECT OF AGREEMENT. Buyer represents and warrants to Sellers that the execution, delivery and performance of this agreement by it and consummation by it of the transactions contemplated herein do not, to the best of its knowledge, require the consent, waiver, approval, license or authorization of any person or public authority which will not be obtained prior to or at the Closing Date; to the best of its knowledge, after due inquiry, this agreement does not violate, with or without the giving of notice and/or the passage of time, any provision of law applicable to it and does not conflict with or result in a breach or termination of any provision of, or constitute a default in or under, or result in the creation of any lien, charge or encumbrance upon any of its property or assets pursuant to any corporate charter provision, bylaw, mortgage, deed of trust, indenture or other agreement or instrument, or any order, judgment, and, to the best of its knowledge, after due inquiry, any decree, statute, regulation or any other restriction of any kind or character to which the it is a party or by which it or any of its assets and properties are bound. (e) FINANCIAL STATEMENTS. Buyer has furnished to NMC the draft audit of Rock of Ages Corporation and Subsidiaries consolidated financial statements as of December 31, 1996 and 1995, together with a Schedule of Material Inter-Company Transactions (the foregoing financial data shall be collectively referred to as the "Financial Statements" and are attached hereto as EXHIBIT 3.2(e). The Financial Statements were furnished to NMC solely for the purposes set forth therein. (f) TAX MATTERS. Buyer has duly filed with the appropriate federal, state and local governmental agencies, and all foreign countries and political subdivisions thereof, all Returns (as defined in Section 3.3(e)(i) hereof) required to be filed and has paid in full all Taxes (as defined in Section 3.3(e)(xii) hereof), assessments or deficiencies shown to be due on such Returns or claimed to be due by any taxing authority and all such Returns as filed or as amended or to be amended prior to the Closing Date accurately and completely report the Taxes due to any such taxing authority. Buyer has not executed or filed with the Internal Revenue Service or any other taxing authority (domestic or foreign) any agreement extending the period for assessment or collection of any Taxes. Buyer is not a party to any pending action or proceeding nor, to the best of its knowledge, is any action or proceeding threatened by any governmental authority for assessment or collection of Taxes, and no claim for assessment or collection of Taxes has been asserted against it. The provisions for Taxes shown in the Financial Statements (if any) are and will be adequate to cover the respective liabilities of Buyer as of the date thereof for all Taxes of Buyer. (g) TITLE TO ASSETS, ABSENCE OF LIENS AND ENCUMBRANCES. Buyer has good and marketable title to all of its assets, subject to liens, claims and encumbrances as set forth in the Financial Statements, those incurred since the date thereof in the ordinary course of business and to those incurred in the Transactions. (h) LITIGATION. Except as set forth on EXHIBIT 3.2(h), Buyer has not been notified of, and is not a party to, any material actions, suits, proceedings or investigations -8- 9 (including any environmental, building or safety investigation) pertaining to its assets or Business; nor does Buyer have any knowledge of, nor reasonable grounds to have knowledge of, any claim or state of facts which may lead to, or constitute a threat of, any material investigation, claim, proceeding, or litigation, against Buyer or its assets or Business. There are no orders, judgments or decrees of any court or governmental agency relating to Buyer which would prevent, impede or make illegal the consummation of the transactions contemplated herein or which would have a material adverse effect upon Buyer. (i) LABOR CONTROVERSIES. To the best of Buyer's knowledge, there are no material controversies between it and any of its employees, no material unresolved labor practice proceedings or disputes and no material labor arbitration proceedings pending or threatened, and there are no organizational efforts presently being made or, to the best of Buyer's knowledge, after due inquiry, threatened involving any of its non-union employees. Buyer has complied in all material respects with all federal, state and local laws and orders relating to the employment of labor, and all laws governing wages, hours, collective bargaining, the payment of social security, withholding and similar taxes, equal employment opportunity, employment discrimination and immigration and naturalization; and Buyer is not liable for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. There is no claim of employment discrimination or sexual harassment pending or, to the best of Buyer's knowledge, after due inquiry, threatened against it, or any strike, dispute, slowdown or stoppage pending or, to the best of Buyer's knowledge, threatened against or involving it. (j) PATENTS, TRADEMARKS, ETC. No one has made or, to the best of Buyer's knowledge, after due inquiry, threatened to make any claims that it has wrongfully used or appropriated, or infringed upon any patent, patent license, trade name, trademark, servicemark, brandmark, brand name, copyright, know-how, trade secret or other proprietary or trade rights of any third party. No director, officer, shareholder or employee of Buyer owns or has owned, directly or indirectly, in whole or in part, any patents, trademarks, trade names, servicemarks, brandmarks, brand names, copyrights, registrations or applications thereof or interests therein which Buyer has used or is using or the use of which is necessary for its Business. (k) BOOKS AND RECORDS. The books, records and working papers of Buyer, to the extent such books and records relate to its Business, are in all material respects complete and correct, have been maintained in accordance with sound business practices, and accurately reflect the basis for the financial condition and results of operations of Buyer as set forth in the Financial Statements. (l) PERMITS, AUTHORIZATIONS, ETC. Buyer has all material approvals, authorizations, consents, licenses, orders and other permits of all governmental agencies, whether federal, state or local, reasonably required to permit the operation of its Business as heretofore and as presently conducted, and all of the same will survive the consummation of the transactions contemplated by this agreement. Buyer has not received any written notice -9- 10 of any license or permit which will have to be acquired in the future in order for its Business to be operated by as heretofore and presently conducted. (m) COMPLIANCE WITH APPLICABLE LAW. Buyer has not received any written notice that it is in material violation of any foreign or domestic (federal, state or local) law, ordinance, regulation, order or requirement including without limitation Environmental Laws (as defined in EXHIBIT 3.2(m)) relating to its Business. Buyer has not received any written notice that it or its assets used in the operation of its Business is in material violation of any state and local building, zoning, subdivision, land use, Environmental Laws and other laws, ordinances and regulations. There are no federal, state, municipal, public zoning or other restrictions that will prevent the utilization of any property owned or leased by Buyer in connection with its Business for the purposes presently used, and there are no condemnation proceedings pending or, to the best of its knowledge, threatened against any such property. (n) EMPLOYEE PLANS. Buyer will make made available upon written request for examination by NMC true, correct and complete copies of: (i) the most recent Internal Revenue Service determination letter relating to each of Buyer's pension, profit-sharing, stock bonus or other deferred compensation arrangements, if any, for which a letter was obtained except for any multi-employer plans sponsored by Buyer, (each a "Plan" and collectively the "Plans"); (ii) the most recent Annual Report (Form 5500 Series) and accompanying schedules of each Plan sponsored by Buyer with respect to which the same are required, as filed pursuant to applicable law; and (iii) all plan documents, as amended to date, summary plan descriptions and summaries of material modifications with respect to each Plan sponsored by Buyer, as well as the most recent financial statements of each of such plans. With respect to each of such Plans as to which an Annual Report (Form 5500 series) is required to be filed, no liabilities as of the date of such Annual Report exist unless specifically referred to in the most recent such Annual Report, and no material change has occurred with respect to the matters covered by the last Annual Report since the date thereof. Buyer does not know, nor have any reasonable grounds to know, of any "prohibited transaction," as such term is defined in Section 406 of the Employee Retirement Income Security Act of 1974, as amended, ("ERISA") and Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"), which has been engaged in by Buyer or by any Plan sponsored by Buyer, any trust created thereunder or any trustee, administrator or other fiduciary thereof, or which would subject such Plan or any such entity, or any party dealing with such Plan or any such trust, to the sanctions imposed by ERISA or the tax on prohibited transactions imposed by Section 4975 of the Code. There are no actions, suits or claims -10- 11 pending or, to the best of Buyer's knowledge, after due inquiry, threatened against any of the Plans or any administrator or fiduciary thereof. Neither any of the Plans nor any said trust have incurred any "accumulated funding deficiency," as such term is defined in Section 302 of ERISA or Section 412(a) of the Code (whether or not waived), since the Closing Date of ERISA. The terms and operation of each of the Plans have complied to the extent required with the provisions of Section 401(a) of the Code and with ERISA, and all reports and notices required by ERISA or the Code have been duly filed or given. Buyer shall make available for examination by JK or RK a list of all of Buyer's Plans subject to Title IV of ERISA and all trusts created thereunder which have been terminated, and all "reportable events," as that term is defined in Section 4043 of ERISA, if any. Except as may be specified in Buyer's Disclosure Schedule hereto, none of Buyer's Plans and no such trust has been terminated, nor has any such "reportable event" occurred with respect to any such Plans since the effective date of ERISA. The present value, on a plan termination basis, of all benefits accrued under each Plan sponsored or contributed to by Buyer and subject to Title IV of ERISA did not, as of the most recent valuation date, exceed the fair market value of the assets of such plan as of such date. (o) INVENTORY. All of the inventory of Buyer consists of materials of a quality and quantity usable and salable in accordance with Buyer's normal pricing and sales practices. (p) LIST OF PROPERTIES, CONTRACTS AND OTHER DATA. Buyer will deliver on the written request of NMC a true and complete list, which list shall be updated and amended as of the Closing Date if requested, in writing, setting forth the following: (i) all material intellectual property and all other material proprietary information owned by Buyer, and copies of all other material agreements to which Buyer is a party which relate to any material proprietary rights affecting its assets; (ii) all policies of insurance insuring Buyer's assets; and (iii) all material contracts, agreements, leases, understandings and commitments to which Buyer is a party, or to which any of its assets are subject and which involve a payment or an amount in excess of $100,000. True and complete copies of all documents referred to in such list will be provided to NMC and their counsel upon their written request as part of their due diligence. All such material contracts, agreements, rights, leases, obligations and commitments are valid and enforceable in accordance with their respective terms, except as such enforceability may be affected by bankruptcy or similar laws affecting the rights of creditors generally and by general principles of equity, for the periods stated therein. -11- 12 (q) INDUSTRY AND GOVERNMENTAL EVENTS. Buyer is not aware of any future events, loss of customers or suppliers that may materially affect Buyer and/or its Business and financial affairs either prior to or subsequent to the Closing Date. Buyer has received no written notice of any change or any pending or contemplated condemnation or change of zoning, subdivision, land use, environmental or other statutes, or regulations or court or administrative rulings or other governmental action materially affecting Buyer. (r) NO DEFAULTS. There currently are no defaults by Buyer or acts or events which, with the passage of time or giving of notice, or both, could become defaults by it under any indebtedness, indenture, mortgage, deed of trust, security deed, security agreement or other instrument. (s) ACCURACY AND OMISSIONS. None of the information and documents furnished or to be furnished or made available for inspection for NMC by Buyer pursuant to the provisions of this agreement is or will be false or misleading, or contains or will contain any material misstatement of fact or omits or will omit to state any material fact required to be stated to make the statements therein not misleading. 3.3 REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS. Sellers and Principal Shareholders, jointly and severally, make the following representations and warranties to Buyer, in each case with the intention that it may rely upon the same and acknowledge that the same are true and correct and shall be true and correct at the Closing Date: (a) ORGANIZATION, POWER, ETC. Each member of the KMC Group is a corporation existing and in good standing under the laws of the state of Kentucky. Each member of the KMC Group has all requisite corporate power and authority to own, operate and lease its properties and to carry on its business (hereinafter the business of each member of the KMC Group is sometimes referred to as its "Business" and all their businesses are sometimes collectively referred to as the "Businesses"). The copies of the Articles of Incorporation and By-Laws, as amended to date, of each member of the KMC Group, which have been delivered by Sellers to Buyer, are complete and correct. None of the members of the KMC Group, except KNC which has KMC as a wholly owned subsidiary, have any subsidiaries. To the best of Sellers and Principal Sellers' knowledge, after due inquiry, each member of the KMC Group is registered to do business in each state where the nature of its business activities or the location of its assets or employees makes such registration necessary. (b) BINDING NATURE, EFFECT OF AGREEMENT AND AUTHORITY. Except as set forth on Sellers Disclosure Schedule, Sellers and Principal Shareholders represent and warrant that the execution, delivery and performance of this agreement by Sellers and Principal Shareholders and consummation by each of them of the transactions contemplated herein do not and will not (i) require the consent, waiver, approval, license or authorization of any person or public authority which will not be obtained prior to or at the Closing Date, (ii) to the best of their knowledge, after due inquiry, violate, with or without the giving of -12- 13 notice and/or the passage of time, any provision of law applicable to them, or (iii) conflict with or result in a breach or termination of any provision of, or constitute a default or violation under, or result in the creation of any lien, charge or encumbrance upon any of the property or assets of any member of the KMC Group pursuant to, any corporate charter or articles of incorporation provision, bylaw, mortgage, deed of trust, indenture or other agreement or instrument, or any order or judgment, or, to the best of their knowledge, after due inquiry, any decree, statute, regulation or any other restriction of any kind or character, to which any member of the KMC Group are or were a party or by which any member of the KMC Group or any of their assets and properties are bound. The execution, delivery and performance of this agreement by them and consummation by them of the transactions contemplated herein have been duly authorized by all necessary actions and this agreement constitutes their legal, valid and binding obligation enforceable against them in accordance with its terms. (c) INSURANCE. Each Seller has maintained and will continue to maintain until the Closing Date the property, casualty, liability, extended coverage and other insurance described in EXHIBIT 3.3(c) attached hereto, including insurance on each Seller's portion of the Assets, including, without limitation, tangible personal property and on KMC Group Realty (as hereinafter defined), whether owned or leased, against loss or damage by fire or other casualty, in amounts equal to or in excess of One Hundred Percent (100%) of the replacement value thereof, subject to current deductibles; all such insurance is in full force and effect on the date of this agreement, is carried in reputable companies authorized to do business in Kentucky and is in amounts and with coverages normally and customarily carried by similar business doing business in the areas where each Seller does business and all such insurance can be assigned to Buyer at the Closing without any cost or expense to Buyer. (d) FINANCIAL STATEMENTS. Sellers and Principal Shareholders have furnished to Buyer true and complete balance sheets of each member of the KMC Group for its prior three (3) fiscal years and the related statements of operations, stockholders equity and cash flows, including the notes thereto, each dated as shown on EXHIBIT 3.3(d) attached hereto (the foregoing financial data shall be collectively referred to as the "KMC Financial Statements" and are attached hereto as EXHIBIT 3.3(d)). The balance sheets dated as of each member of the KMC Group's most recent fiscal year end (the "Balance Sheet Date") make full and adequate provision for all direct and indirect material obligations and liabilities (fixed or contingent) as of such Balance Sheet Date and the members of the KMC Group have no direct or indirect material obligations or liabilities (fixed or contingent) not reflected or reserved against on such balance sheets. The KMC Financial Statements, taken as a whole, fairly and accurately present the financial position and results of operations of each of the members of the KMC Group, in all material respects, as of the dates and for the periods indicated and have been prepared in conformity with generally accepted accounting principals applied on a consistent basis. Sellers and Principal Shareholders have also furnished to Buyer each KMC Group member's balance sheet as of June 30, 1997 and the related statements of operations, stockholders equity and cash flows, including the notes thereto, for the period then ended (the "KMC 1997 Financial Statements"). The KMC 1997 Financial -13- 14 Statements are materially complete and correct, taken as a whole, fairly present the consolidated financial position and results of operations of each member of the KMC Group in all material respects, as of the date and for the period indicated and have been prepared in conformity with generally accepted accounting principals applied on a consistent basis. Except as disclosed in the Shareholders Disclosure Schedule, elsewhere herein or in the KMC 1997 Financial Statements, there have been no material changes (other than in the ordinary course of business) in each member of the KMC Group's obligations and liabilities since the date of each member's most recent fiscal year end. (e) TAX MATTERS. With respect to Taxes (as defined in Clause (xi) and (xii) hereof): (i) Each member of the KMC Group has filed, within the time and in the manner prescribed by law, all returns, declarations, reports, estimates, information returns and statements ("Returns") required to be filed under federal, state, local or any foreign laws by each such member, and all such Returns are true, correct and complete in all material respects. (ii) Except as set forth in the Sellers' Disclosure Schedule, each member of the KMC Group has within the time and in the manner prescribed by law, paid (and until the Closing Date will, within the time and in the manner prescribed by law, pay) all Taxes that are due and payable. (iii) Each member of the KMC Group has established (and until the Closing Date will establish) on their respective books and records and on KMC 1997 Financial Statements reserves (to be specifically designated as an increase to current liabilities) that are adequate for the payment of all Taxes not yet due and payable. (iv) There are no liens for Taxes upon the assets of any member of the KMC Group's except liens for Taxes not yet due. (v) Except as set forth in the Sellers' Disclosure Schedule (which shall set forth the type of return, date filed, and date of expiration of the statute of limitations), (i) the statute of limitations for the assessment of federal income taxes has expired for all federal income tax returns of each member of the KMC Group or such returns have been examined by the Internal Revenue Service for all periods through December 31, 1994; (ii) the statute of limitations for the assessment of state, local and foreign income taxes has expired for all applicable Returns of each member of the KMC Group or such Returns have been examined by the appropriate tax authorities for all periods through December 31, 1994; and (iii) no deficiency for any Taxes has been proposed, asserted or assessed against any member of the KMC Group which has not been resolved and paid in full. -14- 15 (vi) There are no outstanding waivers or comparable consents regarding the application of the statute of limitations with respect to any Taxes or Returns that have been given by any member of the KMC Group. (vii) Except as set forth in the Sellers' Disclosure Schedule (which shall set forth the nature of the proceeding, i the type of return, the deficiencies proposed or assessed and the amount thereof, and the taxable year in question), no federal, state, local or foreign audits or other administrative proceedings or court proceedings are presently pending with regard to any Taxes or Returns. (viii) No member of the KMC Group is a party to any tax-sharing or allocation agreement, nor does any member of the KMC Group owe any amount under any such agreement. (ix) No member of the KMC Group will be liable for any Taxes under Section 4972 of the Code for contributions made by any member to any Plans (as defined in Section 3.2(m)). (x) Each member of the KMC Group has complied (and until the Closing Date will comply) in all respects with all applicable laws, rules and regulations relating to the payment and withholding of Taxes (including, without limitation, withholding of Taxes pursuant to Sections 1441 or 1442 of the Code or similar provisions under any foreign laws) and has, within the time and in the manner prescribed by law, withheld from employee wages and paid over to the proper governmental authorities all amounts required to be so withheld and paid over under all applicable laws. (xi) No member of the KMC Group has ever been (nor has any liability for unpaid Taxes because any of them once was) a member of an "affiliated group" within the meaning of Section 1502 of the Code during any part of any consolidated return year except for the current liability for taxes for the 1997 fiscal year of KMC and KNC. (xii) For purposes of this agreement, "Taxes" shall mean all taxes, charges, fees, levies or other assessments of whatever kind or nature, including, without limitation, all net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, excise, estimated, severance, stamp, occupancy or property taxes, customs duties, fees, assessments or charges of any kind whatsoever (together within any interest and any penalties, additions to tax or additional amounts) imposed by any taxing authority (domestic or foreign) upon or payable by the party in question or any subsidiary thereof. -15- 16 (f) TITLE TO ASSETS, ABSENCE OF LIENS AND ENCUMBRANCES. Each member of the KMC Group has good, marketable and insurable title to all of its respective portion of the Assets, and except as set forth in any of the financial statements set forth in Section 3.3(d) above or on the Sellers' Group Disclosure Schedule, such title is free and clear of all liens, claims and encumbrances and rights of other parties relating to its assets or its Business. The matters set forth on EXHIBIT 3.3(f) attached hereto which affect each Seller's title to its respective portion of the Assets and agreed to be accepted by Buyer are herein sometimes referred to as the "Permitted Encumbrances." EXHIBIT 3.3(f) sets forth an accurate and complete description of all of each member of the KMC Group's real estate and interests therein, including leasehold interests, ("KMC Group's Realty"). Each member of the KMC Group owns or leases all assets and property required to operate its Business in the ordinary course and to the extent any thereof are leased, EXHIBIT 3.3(f) sets forth the terms of such lease and the other parties thereto, none of such leases will be breached or violated by the transactions contemplated by this agreement and all of such leases can be assigned to Buyer at the Closing. Except as set forth on EXHIBIT 3.3(f), no director, officer, shareholder, or employee of any member of the KMC Group, or any relative of any of them, owns or has owned, directly or indirectly, in whole or in part, or leases or has leased, to any member of the KMC Group any asset which any member of the KMC Group uses or has used or the use of which is necessary for its Business. The Assets are good condition and repair and will be in good condition and repair on the Closing Date. (g) LITIGATION. Except as set forth in the Sellers' Disclosure Schedule, none of the members of the KMC Group nor the Principal Shareholders have been notified of, and none of the KMC Group or the Principal Shareholders are a party to, any actions, suits, proceedings or investigations (including any environmental, building or safety investigation) pertaining to them or their assets or Businesses, nor do Sellers or Principal Shareholders have any knowledge of, nor reasonable grounds to have knowledge of, any claim or state of facts which may lead to, or constitute a threat of, any investigation, claim, proceeding, or litigation, relating to Principal Shareholders or any member of the KMC Group or their assets or Business. There are no orders, judgments or decrees of any court or governmental agency relating to Principal Shareholders or any member of the KMC Group, which would prevent, impede or make illegal the consummation of the transactions contemplated herein or which would have a material adverse effect on Principal Shareholders or any member of the KMC Group. (h) LABOR CONTROVERSIES. Except as set forth in EXHIBIT 3.3(h), no member of the KMC Group is a part to any collective bargaining agreements, labor agreement, affirmative action program or other agreement or program affecting any such member's employees or its business. There are no controversies between any member of the KMC Group and any of said member's employees, no unresolved labor practice proceedings or disputes and no labor arbitration proceedings pending or threatened relating to any such member with respect to its Business, and there are no organizational efforts presently being made or to the best of each member's actual knowledge, after due inquiry, threatened involving any of member's employees involved in the Businesses. Each Seller and to the -16- 17 best of each Seller's actual knowledge, after due inquiry, all of its employees, have complied with all federal, state and local laws and orders relating to the employment of labor, including, without limitation ERISA and all laws governing wages, hours, collective bargaining, the payment of social security, withholding and similar taxes, equal employment opportunity, employment discrimination, disability, family leave and immigration and naturalization, including, without limitation, Executive Order 11246, governing affirmative action, the Rehabilitation Act of 1973, the Vietnam-Era Veterans' Readjustment Assistance Act of 1974, the Drug-Free Workplace Act, the Americans With Disabilities Act of 1990, the Age Discrimination in Employment Act, the Family and Medical Leave Act, Title VII of the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, the Occupational Safety and Health Act, the Immigration Reform and Control Act, the Worker Adjustment and Retaining Notification Act, the Social Security Act, the Department of Transportation Drug-Testing Rules, the Employee Polygraph Protection Act of 1988, the Equal Pay Act, the Kentucky Human Rights Law, the AIDS Testing Confidentiality Act, the Rights of Persons with Disabilities Act, the Nondiscrimination Against Genetic Disorders Act, the Employee's Protection from Discrimination for Engagement in Legal Activities Law, the Equal Rights Law, the Adoptive Parents' Child Care Leave Law, and the Employment Agency Discrimination Law, and is not subject to any governmental or private claims, proceedings, investigations, lawsuits or other actions alleging violation of or failure to comply with any of the foregoing nor is any Seller liable for any arrears of wages, or any taxes or penalties for failure to comply with any of the foregoing or any judgements, orders, damage awards or other sanctions. Each member of the KMC Group has enjoyed a satisfactory employer-employee relationship with its respective employees, past and present. There is no claim under any law regulating employees or their employment pending or to the best of each Seller's actual knowledge, after due inquiry, threatened against any Seller, nor any strike, dispute, slowdown or stoppage pending or threatened against or involving any Seller. (i) PATENTS, TRADEMARKS, ETC. No one has made or, to the best of the Sellers and Principal Shareholders' knowledge, after due inquiry, threatened to make any claims that any member of the KMC Group has wrongfully used or appropriated or infringed upon, any patent, patent license, trade name, trademark, servicemark, brandmark, brand name, copyright, know-how, trade secret or other proprietary or trade rights of any third party. No director, officer, shareholder or employee of any member of the KMC Group owns or has owned, directly or indirectly, in whole or in part, any patents, trademarks, trade names, servicemarks, brandmarks, brand names, copyrights, registrations or applications thereof or interests therein which any member of the KMC Group has used or are using or the use of which is necessary for their Businesses. (j) BOOKS AND RECORDS. The financial books, records and working papers of each member of the KMC Group are in all material respects complete and correct, have been maintained in accordance with sound business practices, and accurately reflect the basis for the financial condition and results of their operations as set forth in their financial statements set forth in Section 3.3(d) above. Each member of the KMC Group maintains financial books, records and working papers which are in all material respects complete and correct, -17- 18 have been maintained in accordance with sound business practices and accurately reflect the basis for the financial condition and results of their operations as set forth in their financial statements set forth in Section 3.3(d) above. (k) PERMITS, AUTHORIZATIONS, ETC. Each member of the KMC Group has all approvals, authorizations, consents, licenses, orders and other permits of all governmental agencies, whether federal, state or local, required to permit the operation of its Business as heretofore and as presently conducted, and all of the same will survive their assignment to Buyer and the consummation of the transactions contemplated by this agreement. No member of the KMC Group received any notice of any license or permit which will have to be acquired in the future in order for its Business to be operated as heretofore and as presently conducted. Set forth in EXHIBIT 3.3(k) is a list of all licenses, permits and approvals necessary for each member of the KMC Group to conduct its Business as presently being conducted, including all licenses and permits as are required by any federal, state and local law, rule and regulation. (l) COMPLIANCE WITH APPLICABLE LAW. No member of the KMC Group has received any notice that it or any other member of the KMC Group are, and none of the members of the KMC Group have received any notice that it or any other member of the KMC Group is in violation of any foreign or domestic (federal, state or local) law, ordinance, regulation, order or requirement including Environmental Laws, relating to their Businesses. No member of the KMC Group has received any notice that, KMC Group's Realty or its assets are in violation of any state and local building, zoning, subdivision, land use, Environmental Laws and other laws, ordinances and regulations. No member of the KMC Group has ever received any notice of any federal, state, municipal, public zoning or other restrictions that will prevent the utilization of any property owned or leased by it for the purposes presently used, and there are no condemnation proceedings pending or, to the best of its knowledge, threatened against any such property. No member of the KMC Group is in violation of any foreign or domestic (federal, state or local) law, ordinance, regulation, order or requirement including Environmental Laws. (m) EMPLOYEE PLANS. Sellers and Principal Shareholders have heretofore delivered to the Buyer true, correct and complete copies of: (i) the most recent Internal Revenue Service determination letter relating to each member of the KMC Group's pension, profit-sharing, stock bonus or other deferred compensation arrangements, if any, listed in EXHIBIT 3.3(m) hereto for which a determination letter was obtained or for which no such letter was obtained except for any multi-employer plans sponsored by any of them (each a "Plan" and collectively the "Plans"); (ii) the most recent Annual Report (Form 5500 series) and accompanying schedules of each Plan currently sponsored by any of them, -18- 19 with respect to which the same are required, as filed pursuant to applicable law; and (iii) all plan documents, as amended to date, summary plan descriptions and summaries of material modifications and all plan termination documentation with respect to each Plan and employee welfare plan presently or in the past sponsored by any member of the KMC Group, as well as the most recent financial statements of each of such plans, except for the multi-employer plans referred to below. With respect to each of such Plans as to which an Annual Report (Form 5500 series) is required to be filed, no liabilities as of the date of such Annual Report exist unless specifically referred to in the most recent such Annual Report, and no material change has occurred with respect to the matters covered by the last Annual Report since the date thereof. Sellers and Principal Shareholders do not know, nor have any reasonable grounds to know, of any "prohibited transaction," as such term is defined in Section 406 of ERISA and Section 4975 of the Code, which has ever been engaged in by any shareholder, or any member of the KMC Group, or by any Plan sponsored by any member of the KMC Group, any trust created thereunder or any trustee, administrator or other fiduciary thereof, or which would subject such Plan or any such entity, or any party dealing with such Plan or any such trust, to the sanctions imposed by ERISA or the tax on prohibited transactions imposed by Section 4975 of the Code. There are no actions, suits or claims pending or, to the best of Sellers and Principal Shareholders' knowledge after due inquiry, threatened, against any of the Plans or any administrator or fiduciary thereof. Neither any of the Plans nor any of said trusts have incurred any "accumulated funding deficiency," as such term is defined in Section 302 of ERISA or Section 412(a) of the Code (whether or not waived), since the date of ERISA. The terms and operation of each of the Plans have complied to the extent required with the provisions of Section 401(a) of the Code and with ERISA, and all reports and notices required by ERISA or the Code have been duly filed or given. Sellers and Principal Shareholders shall deliver to the Buyer a list of all of the members of the KMC Group's Plans subject to Title IV of ERISA and all trusts created thereunder which have been terminated, and all "reportable events," as that term is defined in Section 4043 of ERISA. Except as may be specified in EXHIBIT 3.3(m) hereto, none of such Plans and no such trust has been terminated, nor has any such "reportable event" occurred with respect to any such Plans since the effective date of ERISA. The present value, on a plan termination basis, of all benefits accrued under each Plan sponsored or contributed to by any member of the KMC Group and subject to Title IV of ERISA did not, as of the most recent valuation date, exceed the fair market value of the assets of such Plan as of such date. No members of the KMC Group have ever been sponsors of, and/or a contributing employer to, a multi-employer pension plan subject to the provisions of Section 4201, ET SEQ., of ERISA; or if they have, they have never incurred any withdrawal liability thereunder, nor will they incur any such liability as a result of the consummation of any of the transactions contemplated by this agreement; or if they will, at or prior to the Closing Date, they will pay -19- 20 or otherwise satisfy such liability in full and/or establish an escrow fund or secure a bond in an appropriate amount with respect to the same with an escrow agent and/or a bonding company reasonably satisfactory to the Buyer and in a manner agreeable to applicable law. No member of the KMC Group has ever been a sponsor of, or a contributing employer to, a single employer pension plan subject to the provisions of Section 4041, ET SEQ., of ERISA; nor has it ever incurred any liability thereunder or under Section 4062, ET SEQ., of ERISA, nor will it incur any such liability as a result of the consummation of any of the transactions contemplated by this agreement; or if any of them will, at or prior to the Closing Date, they will pay or otherwise satisfy such liability in full and/or establish an escrow fund or secure a bond with respect to the same as provided in the preceding sentence. (n) INVENTORY. All of the inventory of each member of the KMC Group consists of materials of a quality and quantity usable and salable in accordance with each member's normal pricing and sales practices. (o) LIST OF PROPERTIES, CONTRACTS AND OTHER DATA. Prior to the execution of this agreement or concurrently herewith, Sellers and Principal Shareholders have delivered or will deliver to the Buyer a true and complete list (designated for purposes of this agreement as EXHIBIT 3.3(o)), which list shall be updated and amended as of the Closing Date, setting forth the following: (i) all intellectual property and all other proprietary information owned by each member of the KMC Group, and copies of all other material agreements to which each member of the KMC Group are a party which relate to any proprietary rights affecting their assets; and (ii) all contracts, agreements, mortgages, promissory notes, loan facilities, leases, understandings and commitments to which each member of the KMC Group is a party, or to which any of its assets are subject, except those involving not more than $5,000 on an annual basis. True and complete copies of all documents referred to in such list have been or will be provided to Buyer and its counsel upon their request as part of Buyer's due diligence. All such documents, rights, leases, obligations and commitments are valid and enforceable in accordance with their respective terms, except as such enforceability may be affected by bankruptcy, or similar laws affecting the rights of creditors generally and by general principles of equity, for the periods stated therein and there is not, under any of them any existing default or event of default or any event which with notice and/or lapse of time would constitute a default nor will the consummation of the transactions contemplated by this agreement cause a default or constitute an event of default under any of them. (p) INDUSTRY AND GOVERNMENTAL EVENTS. Neither Sellers nor Principal Shareholders, nor any member of the KMC Group, are aware of any future events, loss of customers or suppliers, that may materially affect any member of the KMC Group and/or -20- 21 their Businesses and financial affairs either prior to or subsequent to the Closing Date. No member of the KMC Group has received any notice of any pending or contemplated condemnation or any change of zoning, subdivision land use, environmental or other statutes, or regulations or court or administrative rulings or other governmental action affecting KMC Group's Realty. (q) NO DEFAULTS. There currently are no defaults by any member of the KMC Group or acts or events which, with the passage of time or giving of notice, or both, could become defaults by any of them under any indebtedness, indenture, mortgage, deed of trust, security deed, security agreement or other instrument or agreements, except as set forth in EXHIBIT 3.3(q). (r) ACCURACY AND OMISSIONS. None of the information and documents furnished or to be furnished or made available for inspection by Principal Shareholders, or any member of the KMC Group pursuant to the provisions of this agreement is or will be false or misleading, or contains or will contain any material misstatement of fact or omits or will omit to state any material fact required to be stated to make the statements therein not misleading. ARTICLE IV PRE-ACQUISITION AND POST-ACQUISITION COVENANTS ---------------------------------------------- 4.1 CONDUCT OF KMC GROUP'S BUSINESSES PENDING CLOSING. For the period commencing from and after the date hereof until the Closing Date or the earlier termination of this agreement (hereinafter referred to as the "Interim Period"), Principal Shareholders and Sellers covenant and agree as follows: (a) FULL ACCESS AND DUE DILIGENCE. Buyer and its respective agents and representatives (including legal counsel and accountants) shall have full access during normal business hours, to inspect all properties, books, records, contracts and documents of the KMC Group used in or associated with their Businesses and to all of their executive employees (including the opportunity to meet with and discuss their Businesses with such employees) and to otherwise conduct such due diligence (the "Buyer's Due Diligence") regarding its examination of them, their Businesses and financial affairs as Buyer may deem reasonably necessary and appropriate; provided, however, that the Buyer and its representatives shall not unreasonably interfere with their operations; and each of the KMC Group shall furnish or cause to be furnished to the Buyer and its authorized representatives all information with respect to their Businesses as Buyer or its representatives may reasonably request. Furthermore, Buyer, its agents and representatives, shall have the opportunity to inspect and test any or all of each of the KMC Group's equipment and properties as it determines in its sole discretion, at any reasonable time, and from time to -21- 22 time, up to the Closing Date provided that the Buyer makes reasonable efforts not to disrupt their Businesses and operations when conducting such tests. (b) BUSINESS IN THE ORDINARY COURSE. Except as specifically permitted or required herein, during the Interim Period, the KMC Group's Businesses shall, and the Principal Shareholders shall cause the KMC Group's Businesses to, be conducted in the ordinary course consistent with past practices. Except as specifically permitted or required herein, the members of the KMC Group shall not, enter into any contract or commitment or engage in any transaction that could reasonably be anticipated to (separately or in the aggregate) materially adversely affect their financial condition or their Businesses. If any member of the KMC Group desires to engage in any transaction not in the ordinary course of business and such transaction involves consideration equal to or greater than Ten Thousand Dollars ($10,000.00), it shall first obtain the prior written consent of Buyer before entering into such transaction (which consent shall not be unreasonably withheld); provided that in no event shall any member of the KMC Group incur any obligation to lawyers, accountants, financial advisors, environmental or other engineers, brokers or finders in connection with the transactions contemplated by this agreement. (c) PRESERVATION OF ORGANIZATION. During the Interim Period, each member of the KMC Group shall (i) not make or voluntarily suffer any change in their Articles of Incorporation or By-Laws; (ii) make a reasonable and diligent effort to in the ordinary course of business and to the extent consistent with reasonable business judgment, to preserve its Business intact; (iii) keep available, to the extent feasible, its present employees and representatives; (iv) preserve their present relationships with its suppliers, customers, governmental agencies, and others having business relations with it; (v) not increase the compensation of any of its employees or representatives or the rate of any commission that may be paid to any such employee or representatives, nor make any promise or undertake to increase such compensation or rate of commission without the prior written consent of Buyer; (vi) not issue any capital stock or warrants, options or rights to purchase or acquire such stock nor incur any new indebtedness; and (vii) not pay any dividends nor make any distributions on their capital stock; provided that at or before the Closing those members of the KMC Group which are S-corporations may distribute to their shareholders cash in the amount of each of their current year 1997 earnings and profits accrued up to the Closing Date. (d) NO DEFAULT. During the Interim Period, no member of the KMC Group shall breach any contract, commitment or obligation to which it is a party. (e) COMPLIANCE WITH LAWS. Each member of the KMC Group shall comply with all applicable laws, rules, regulations and ordinances, as are required for the conduct of its Business. -22- 23 (f) NO ENCUMBRANCES. No member of the KMC Group shall create, voluntarily suffer, or permit to become effective any encumbrance of any kind upon its portion of the Assets, except as specifically authorized or contemplated by this agreement. (g) NO DISPOSITION OF ASSETS. No member of the KMC Group shall transfer, sell, abandon, destroy, or otherwise dispose of, or enter into any contract or agreement to sell or otherwise transfer, any of their property or any portion of the Assets other than in the ordinary course of business consistent with past practices. (h) INSURANCE. Each member of the KMC Group shall keep all of its portion of the Assets and properties insured as described in Section 3.3(c) against any loss, either by fire, other casualty or theft. (i) TERMINATION OF EMPLOYEE PENSION BENEFIT PLANS. Prior to Closing each member of the KMC Group shall commence all requisite action to (a) terminate any employee pension benefit plans (within the meaning of ERISA) sponsored by it; and (b) upon the written request of Buyer, withdraw from, or cease all contributions to, any multiple-employer or multiemployer employee pension benefit plans (within the meaning of ERISA) in which it may participate or to which it may contribute for the benefit of some or all of its employees; all such action to be taken in accordance with the provisions of the respective plans and of applicable law (including, without limitation, the Code and ERISA) and in a timely manner. (j) NO TERMINATION OF KEY EMPLOYEES. No member of the KMC Group shall, without the prior written consent of Buyer, terminate the employment of any of their officers or any of their other key employees. (k) AUDIT. Principal Shareholders will cause each member of the KMC Group to, and each member of the KMC Group will assist and cooperate with Buyer's auditors, KPMG Peat Marwick, LLP, to allow them to expeditiously complete the KPMG audit of each member of the KMC Group (the "KPMG Audit") as Buyer deems appropriate on or before July 31, 1997. 4.2 REAL PROPERTY COVENANTS. During the Interim Period, each member of the KMC Group will refrain from: (a) performing any grading or excavation, construction, or removal of or from KMC Group's Realty, or making any other material change or improvement upon or about the KMC Group's Realty, without the consent of Buyer, other than those required to bring the same into compliance with applicable laws, rules or regulations, or as specifically provided herein; (b) committing or allowing any third party to commit any waste or nuisance upon the KMC Group's Realty; and -23- 24 (c) violating or allowing any third party to violate any Environmental Laws with respect to the KMC Group's Realty. (d) violating or defaulting under any lease to which it is a party or amending or changing any such lease or accepting any prepayments of rent under any such lease. 4.3 COVENANT NOT TO COMPETE. At the Closing each Seller shall execute its Covenant Not to Compete in the form attached hereto as EXHIBIT 2.8. 4.4 RECORDS. (a) On the Closing Date, each member of the KMC Group will deliver or cause to be delivered to Buyer all original agreements, documents, books, records and files (collectively, "Records"), in its possession relating to its Business and operations to the extent not then in the possession of Buyer. (b) After the Closing, upon reasonable written notice, Buyer and Sellers agree to furnish or cause to be furnished to each other and their representatives, employees, counsel and accountants access, during normal business hours, such information and assistance relating to the members of the KMC Group as is reasonably necessary for financial reporting and accounting matters, the preparation and filing of any Returns, reports or forms or the defense of any tax claim or assessment; PROVIDED, HOWEVER, that such access does not unreasonably disrupt the normal operations of Buyer or the members of the KMC Group. 4.5 ACCESS TO AND INFORMATION CONCERNING REAL PROPERTY. Each member of the KMC Group, during the Interim Period will allow Buyer and its agents access to its portion of the KMC Realty and Assets during regular business hours upon reasonable prior notice, for purposes of inspecting and testing the same or any part thereof as the Buyer shall reasonably request. Each member of the KMC Group will furnish to Buyer any and all information regarding it and its Business that the Buyer shall reasonably request from time to time. Buyer agrees to indemnify and hold the KMC Group members harmless from all claims, suits, damages, and losses arising from the its inspection or testing of the said real property, which indemnity shall survive termination of this agreement. 4.6 ENVIRONMENTAL AND ENGINEERING MATTERS. Buyer may, prior to the Closing Date, perform whatever environmental and engineering tests, searches or inspections of the KMC Group's Realty owned by each member thereof which it desires to perform. In addition to any testing which may be performed upon or prior to the execution of this agreement, Buyer may hire a certified environmental engineering firm at its own cost and expense ("Environmental Engineer"), to perform a Level I environmental audit of KMC Group's Realty and at its option a Level II environmental audit of KMC Group's Realty. Such Environmental Engineer shall address and certify his environmental report to the Buyer. If the report issued by the Environmental Engineer recommends or requires further testing -24- 25 and/or the removal or treatment of any Hazardous Material (as defined in EXHIBIT 3.2(m)), or if any engineer hired by the Buyer determines an environmental problem exists on KMC Group's Realty, or recommends further testing and/or the removal or treatment of any Hazardous Material on any portion of KMC Group's Realty, such testing, removal, repair or treatment of Hazardous Material or the correction of the environmental problem shall be at the sole cost and expense of the affected Seller (the "Environmental Work") and the Environmental Work shall be completed to the sole satisfaction of the Buyer and its engineers and financing institutions as evidenced by a report from an engineer acceptable to them which indicates that the Hazardous Materials and the KMC Group Realty has been brought into compliance with Environmental Laws, or the environmental problem has been corrected. If the Sellers fail to cause the members of the KMC Group involved to perform the Environmental Work, to the satisfaction of the Buyer and its financing institutions, the Buyer shall at its election have the right to terminate this agreement or to perform the Environmental Work itself and pay for the same as provided for in the next sentence. Each Seller agrees to cause any Environmental Work on its KMC Group Realty, to be completed, as expeditiously as possible, but in any event, the Environmental Work shall be completed within thirty (30) days from receipt of written notice from the Buyer that it requires the performance of Environmental Work and shall be promptly paid for by the affected Seller and to the extent not paid for at the Closing may be deducted by the Buyer from the Purchase Price before allocation thereof to Sellers under Section 1.4 and paid to the providers of the Environmental Work. 4.7 COVENANTS RELATING TO TAXES. (a) LIABILITY FOR TAXES. Principal Shareholders and Sellers shall be liable for and indemnify Buyer for all Taxes imposed on the members of the KMC Group for which the said members may otherwise be liable for any taxable year or period that ends on, before or after the Closing Date. (b) TRANSFER AND GAINS TAXES. Principal Shareholder shall be liable for and pay all transfer, registration, gains and other such taxes and fees (including any penalties and interest) incurred in connection with this agreement and the transaction contemplated hereby; provided, however, Buyer will pay sales taxes incurred in connection with this agreement. 4.8 NOTIFICATION OF CERTAIN MATTERS. Sellers shall give prompt notice to Buyer of: (a) any notice of, or other communication relating to, a default or event that, with notice or lapse of time or both, would become a default, received by any member of the KMC Group, subsequent to the date of this agreement and prior to the Closing Date, under any contract material to any member of the KMC Group to which any member of the KMC Group is a party or is subject; and (b) any material adverse change in the condition, financial or otherwise, assets, properties, liabilities, results of operations or prospects of any member of the KMC Group or the occurrence of any event which, so far as reasonably can be foreseen at the time of its occurrence, is reasonably likely to result in any such change. Each Seller and Buyer shall give prompt notice to the other party of any notice or other communication -25- 26 from any third party alleging that the consent of such third party is or may be required in connection with the transaction contemplated by this agreement. 4.9 EMPLOYMENT AGREEMENTS AND NONCOMPETE AGREEMENTS. At the Closing, JK and RK agree to enter into: (a) the Employment Agreements in substantially the forms attached hereto as EXHIBIT 2.1 and EXHIBIT 2.2, respectively, and (b) Acquisition Noncompete, Nonsolicitation and Nondisclosure Agreements and Noncompete Agreements in the forms attached hereto as EXHIBIT 2.5 and EXHIBIT 2.6, respectively. 4.10 LEASE AGREEMENT. At the Closing, Principal Shareholders shall cause Keith & Keith to execute the Lease Agreement substantially in the form attached hereto as EXHIBIT 2.7. 4.11 SECURITIES LAW COMPLIANCE. (a) Buyer shall cause to be prepared and filed such applications, forms, statements, if any, as are required under Federal securities laws to cover the issuance of Buyer's Common Stock to NMC as provided for in Article I at the Closing. (b) Buyer will take any action required to be taken under applicable state securities laws and Buyer will also take action to secure all necessary exemptions or clearances under all state securities laws applicable to the issuance of Buyer's Common Stock to NMC pursuant hereto. 4.12 THIRD PARTY CONSENTS. All parties to this agreement shall use their best efforts to obtain, as soon as reasonably practicable, all permits, authorizations, consents, assignments, waivers and approvals from third parties or governmental authorities necessary to consummate this agreement and the transactions contemplated hereby and each party to this agreement will use its best efforts to cause the Closing to occur. 4.13 SELLERS' EMPLOYEES. All employees of the Sellers (both union and non-union) shall be employees of the Sellers up to and through (whether it is a business day, weekend day or holiday) the Closing Date, and the Sellers shall be responsible for and shall pay all payroll, salaries, bonuses, accrued vacation pay, workman's compensation benefits and other obligations due and payable to said employees through that date and Buyer agrees post-Closing to pay to all Sellers employees whether or not Buyer employs them all such obligations due after the Closing Date and to assist the Sellers in the preparation of the Sellers' final payrolls. Prior to or at the Closing, the Sellers will provide the Buyer with a list of all of their employees, and their current compensation, as of the last full payroll period prior to the Closing Date. Buyer will prior to the Closing Date meet with Sellers' employees and make offers of employment to such of them as Principal Shareholders recommend should be employed by Buyer after the Closing Date and each Seller will assist Buyer with these discussions. -26- 27 ARTICLE V CONDITIONS TO COMPLETION OF CLOSING AND CLOSING ----------------------------------------------- 5.1 CONDITIONS TO SELLERS' OBLIGATIONS. The obligations of Sellers under this agreement to consummate the transaction provided for herein are subject to the fulfillment of each of the following conditions prior to the completion of the Closing, except to the extent Sellers may, in their absolute discretion, waive anyone or more thereof, in whole or in part: (a) The representations and warranties by Buyer to Sellers in this agreement shall be true and correct, in all material respects as of the Closing Date, with the same force and effect as though such representations and warranties had been made on the Closing Date, Buyer shall have performed in all material respects all its obligations, covenants and agreements set forth herein; and Sellers shall have received a certificate of an executive officer of Buyer to such effect (the "Buyer's Officer's Certificate"); provided, however, that changes in said representations, warranties, covenants and agreements occurring because of Buyer's conduct of its business in the ordinary course or occurring because of the Transactions shall not be considered a breach of, or default in, any of Buyer's representations, warranties, covenants and agreements set forth in this agreement for purpose of this Section 5.1(a) or for any other purpose under this agreement. (b) There shall have been delivered to Sellers an opinion of counsel for Buyer ("Buyer's Opinion of Counsel"), reasonably satisfactory in form and substance to counsel for Shareholders, to the effect that Buyer is a corporation existing and in good standing under the laws of its state of incorporation; that all necessary corporate proceedings of Buyer have been duly taken to authorize this agreement and the transactions contemplated hereby; that this agreement constitutes Buyer's legal, valid, and binding obligation, enforceable against Buyer in accordance with its terms; that this agreement does not, and the carrying out of the transaction herein provided for will not, to the best of such counsel's knowledge, violate any charter or other corporate restriction to which Buyer is subject or any other agreement or instrument to which it is a party or by which it is bound; and an opinion to NMC that the shares of Buyer's Common Stock delivered to NMC pursuant to this agreement will be duly authorized, validly issued, fully paid, and nonassessable shares of Buyer's Common Stock. (c) The Employment Agreements, substantially in the forms attached as EXHIBIT 2.1 and EXHIBIT 2.2 shall be executed by Buyer. (d) Buyer shall have delivered to Sellers a certificate certifying it has completed all the Buyer Due Diligence it desires to conduct, is satisfied, in its sole discretion, with the results thereof and as a consequence thereof it desires to consummate the transactions contemplated by this agreement. -27- 28 (e) Buyer shall have delivered to NMC its Secretary's Certificate having attached thereto copies of its Articles of Incorporation and Bylaws, as amended to date, and a list of its officers and directors. (f) Prior to or simultaneously with the Closing, Buyer shall have received proceeds from its IPO sufficient to provide Buyer with the funds required to pay the cash portion of the Purchase Price to the Sellers. (g) All Schedules and Exhibits to be attached to their agreement were attached to this agreement upon its execution or have been attached pursuant to Section 8.12. 5.2 CONDITIONS TO THE BUYER'S OBLIGATIONS. The obligations of Buyer under this agreement to consummate the transactions provided for herein are subject to the fulfillment of each of the following conditions prior to the completion of the Closing, except to the extent that Buyer may, in its absolute discretion, waive any one or more hereof, in whole or in part: (a) The representations and warranties by Sellers and Principal Shareholders shall be true and correct, in all material respects, as of the completion of the Closing Date, with the same force and effect as though such representations and warranties had been made on the Closing Date; Sellers and Principal Shareholders shall have performed, in all material respects, all their obligations, covenants and agreements set forth herein; Sellers and Principal Shareholders have not breached any of their covenants or agreements set forth herein, and Buyer shall have received a certificates from Sellers and Principal Shareholders to such effect an officer of each Seller to that effect (each the "Sellers' Officer's Certificate") and from each Principal Shareholders to that effect (each a "Principal Shareholder's Certificate"). (b) There shall have been delivered to Buyer an opinion of counsel for Sellers and the Principal Shareholders, reasonably satisfactory in form and substance to counsel for Buyer, to the effect that: (i) This agreement has been duly executed and delivered by the Sellers and Principal Shareholders and constitutes their legal, valid and binding obligation enforceable in accordance with its terms; and the Assets are owned by Sellers free and clear of all liens, claims, pledges, encumbrances, charges, options, or restrictions of any kind or nature, except for Permitted Encumbrances, Sellers have complete and unrestricted power and the unqualified right to sell, assign, transfer and deliver the Assets to Buyer; upon consummation of the transactions contemplated by this agreement, Buyer will acquire good, valid and marketable title to the Assets, free and clear of all liens, claims pledges, charges, options, or restrictions of any kind or nature; except for Permitted Encumbrances, this agreement does not, and the carrying out of the transactions herein provided for will not, to the best of such -28- 29 counsel's knowledge, violate any agreement or instrument to which any Seller or Principal Shareholder, are a party or by which any of them are bound, nor violate any statute, law, rule or regulation to which any Seller or Principal Shareholder is subject; (ii) Each member of the KMC Group has been duly organized and is in good standing in the State of Kentucky, and is in good standing as a foreign corporation in each other state, if any, where it is qualified to do business, or where the nature of its business requires such qualification; (iii) This agreement and the transactions contemplated hereby do not conflict with, breach, or constitute a default under, the organizational documents, i.e., the certificate of incorporation, the articles of incorporation, the bylaws or other documents, of any member of the KMC Group or any corporate restriction, contracts, agreements, laws or regulations applicable to any member of the KMC Group; and no consents or approvals of any governmental entity or other third party are required for the valid execution, delivery or performance of this agreement or the transactions contemplated by this agreement; and to counsel's best knowledge, there is no pending or threatened litigation against the Sellers or Principal Shareholders which would have a material adverse effect on this agreement or the transactions contemplated by this agreement, or would have a material adverse effect on the Assets, Assumed Liabilities or Business of any member of the KMC Group. (c) JK shall have executed his Employment Agreement substantially in the form attached as EXHIBIT 2.1; (d) RK shall have executed his Employment Agreement substantially in the form attached as EXHIBIT 2.2. (e) JK shall have executed the JK Noncompete Agreement substantially in the form attached as EXHIBIT 2.5. (f) RK shall have executed the RK Noncompete Agreement substantially in the form attached as EXHIBIT 2.6. (g) Prior to or simultaneously with the Closing, Buyer shall have received proceeds from its IPO sufficient to provide Buyer with the funds required to pay the cash portion of the Purchase Price to the Sellers. (h) There shall be no uncompleted Environmental work on KMC Group's Realty and the Sellers and Principal Shareholders shall have paid any amounts which they -29- 30 have agreed to pay in respect of Environmental Work pursuant to Section 4.6(a) or Buyer shall have elected to pay the same and deduct such amounts from the Purchase Price. (i) Each Seller shall have delivered to Buyer a Certificate of its Secretary having attached thereto true, correct and complete copies of its Articles of Incorporation and Bylaws, as amended to date, an incumbency certificate for its officers and directors, and copies of the minutes of the meetings of its shareholders and directors authorizing and approving this agreement and the transactions contemplated by this agreement certified by its Secretary as true, correct, complete and in effect on the Closing Date. (j) Sellers shall have executed the Covenant Not to Compete substantially in the form attached as EXHIBIT 2.8. (k) Keith & Keith shall have executed and delivered the Lease Agreement. (l) All Schedules and Exhibit to be attached to this agreement were attached to this agreement upon its execution or have been attached pursuant to Section 8.12. 5.3 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective obligations of each party under this agreement to consummate the transactions provided for herein shall be subject to the fulfillment of all of the following conditions precedent at or prior to the Closing Date: (a) No injunction or order or decree shall have been issued by any competent Federal or state court which prevents the consummation of the transactions provided for in this agreement and no inquiry shall have been received from, nor shall any investigation or proceeding have been instituted by, any governmental agency seeking to prohibit said transactions and the transactions provided for in this agreement or asserting that the same breach or violate any material statute, rule or regulation. (b) No statute or regulation has been enacted which would prevent consummation of the transactions provided for in this agreement. (c) All governmental consents, approvals and filings required to consummate the transactions provided for in this agreement have been obtained or made. 5.4 THE CLOSING. (a) DOCUMENTS AND INSTRUMENTS TO BE DELIVERED BY SELLERS. Each Seller or the Sellers and the Principal Shareholders agree to deliver the following documents and instruments, duly executed, to the Buyer at the Closing: (i) An Officer's Certificate for each Seller and a Principal Shareholder's Certificate for each Principal Shareholder; -30- 31 (ii) A Secretary's Certificate for each Seller; (iii) A Certificate of Existence for each Seller from the Secretary of State of Kentucky dated within twenty (20) day prior to the Closing Date; (iv) The opinion of counsel for Sellers and Principal Shareholders; (v) The agreements listed in Article II hereof which are required to be executed by Sellers or Principal Shareholders; (vi) A bill of sale, assignment and assumption with full warranties of title for the assignment and transfer of the Assets and Assumed Liabilities of each Seller; (vii) Certificates of title and assignments thereof for each Seller's motor vehicles which are required under state law to have certificates of title and which are being purchased hereunder; (viii) Warranty Deeds subject to no liens, charges or encumbrances other than Permitted Encumbrances from each Seller to Buyer for any of KMC Group's Realty owned by it; (ix) An assignment from each Seller of any and all warranties, maintenance agreements and insurance policies covering the Assets; (x) Assignment of each Seller's real estate and personal property leases and the consents to assignment of the lessors under any personal property leases and real property leases of each Seller's rights, title and interest in all leases of personal property and KMC Group Realty leased by it; (xi) Such other documents as Buyer or its counsel may reasonably request for the purpose of assigning, transferring, granting, conveying, and confirming to Buyer or reducing to its possession all of the Assets and required for Sellers and Principal Shareholders to consummate the transactions contemplated by this agreement; (b) DOCUMENTS AND INSTRUMENTS TO BE DELIVERED BY BUYER. The Buyer agrees to deliver the following documents and instruments, duly executed, to the Sellers at the Closing: (i) Its Officer's Certificate; (ii) Its Secretary's Certificate; -31- 32 (iii) A Certificate of Good Standing from the Secretary of State of Buyer's state of incorporation dated within twenty (20) days prior to the Closing; (iv) The opinion of counsel for Buyer; (v) The agreements listed in Article II hereof which are required to be executed by Buyer; (vi) The Common Stock required pursuant to Section 1.8 hereof; (vii) The cash portion of the Purchase Price due at Closing as required by Section 1.9 hereof; (viii) Such other documents as the Sellers or their counsel may reasonably request required for Buyer to consummate the transactions contemplated by this agreement. ARTICLE VI TERMINATION ----------- 6.1 TERMINATION OF AGREEMENT. This agreement and the transactions contemplated herein may be terminated as follows: (a) By mutual written consent of Buyer and Sellers (b) By Sellers pursuant to written notice delivered at any time prior to the Closing, if the Buyer has failed in any material respect to perform its Covenants as set forth in Article IV or if the Buyer has materially breached any of its representations and warranties as set forth in Section 3.2. (c) By Buyer pursuant to written notice delivered at any time prior to the Closing if any Sellers or any Principal Shareholder has failed in any material respect to perform its Covenants as set forth in Article IV or if the Principal Shareholders or the Sellers have materially breached any of their representations and warranties as set forth in Section 3.3. (d) By either Buyer or Sellers, pursuant to written notice delivered prior to the Closing, if (i) any governmental or regulatory body, the consent of which is a condition to the obligations of Buyer and Sellers to consummate the transactions contemplated hereby, shall have determined not to grant its consent and all appeals of such determination shall have been taken and have been unsuccessful, or (ii) any court of competent jurisdiction in the -32- 33 United States or any state shall have issued an order, judgment or decree (other than a temporary restraining order) restraining, enjoining or otherwise prohibiting the transaction provided for in this agreement and such order, judgment or decree shall have become final and nonappealable. 6.2 CONSEQUENCES OF TERMINATION. In the event of termination of this agreement, it shall forthwith become void and there shall be no liability on the part of Buyer or Sellers (except as set forth below in this Section 6.2 or Section 8.2 hereof) and each party hereto shall return to the others all documents and materials obtained from it or them in connection with the transactions contemplated by this agreement. In the event of termination under Section 6.1(a), the parties shall be deemed to have released each other from any liability arising from the termination of this agreement. In the event of termination under Section 6.1(b), (c) or (d), the parties shall retain all rights and remedies, if any, pertaining to any claim for breach of this agreement. ARTICLE VII INDEMNIFICATION AND RISK OF LOSS -------------------------------- 7.1 SELLERS AND PRINCIPAL SHAREHOLDERS GENERAL INDEMNIFICATION COVENANTS. Subject to the provisions of Sections 7.3 and 7.4, Sellers and Principal Shareholders shall, jointly and severally, indemnify, save and keep Buyer and its parent, subsidiaries, affiliates, successors and permitted assigns (the "Buyer Indemnitees"), harmless against and from all liability, demands, claims, actions or causes of action, assessments, losses, fines, penalties, costs, damages and expenses, including reasonable attorneys' fees, disbursements and expenses (collectively, "Damages"), sustained or incurred by any of the Buyer Indemnitees as a result of, arising out of or by virtue of any misrepresentation, breach of any warranty or representation, or non-fulfillment or breach of any agreement or covenant made on the part of Sellers or Principal Shareholders, whether contained in this agreement or any exhibit or schedule hereto or any written statement or certificate furnished or to be furnished to Buyer pursuant hereto or in any closing document delivered by Sellers or Principal Shareholders in connection herewith. 7.2 TAX INDEMNITY. (a) Sellers and Principal Shareholders hereby, jointly and severally, agree to pay, indemnify, defend and hold the Buyer Indemnities harmless from and against any and all Taxes of the Sellers or the Principal Shareholders or the other shareholders of each member of the KMC Group with respect to any period (or any portion thereof) up to and including the Closing Date, and for any Taxes owed by them because of the consummation of the transactions contemplated by this agreement, together with all reasonable legal fees, disbursements and expenses incurred by the Buyer Indemnities in connection therewith. -33- 34 (b) The indemnity provided for in this Section 7.2 shall be independent of any other indemnity provision hereof and, anything in this agreement to the contrary notwithstanding, shall survive until the expiration of the applicable statutes of limitation for the Taxes referred to herein, and any Taxes subject to the indemnification for Taxes set forth in this Section 7.2 shall not be subject to the provisions of Sections 7.1 or 7.4 hereof. 7.3 LIMITATIONS ON INDEMNIFICATION. The obligations of Sellers and Principal Shareholders pursuant to Sections 7.1 and 7.2 are subject to the following limitations: (a) In no event shall the joint and several obligation of Sellers and Principal Shareholders to indemnify the Buyer Indemnitees pursuant to Section 7.1 exceed the Purchase Price in the aggregate; provided, however, that such limitation shall not apply to any indemnification obligations of Sellers and Principal Shareholders under Section 7.2; and (b) Sellers and Principal Shareholders shall not have any indemnification obligation with respect to the first $10,000.00 of total liabilities incurred under Sections 7.1 and 7.2, unless the total aggregate liabilities of Sellers and Principal Shareholders under Sections 7.1 and 7.2 equal or exceed such amount, in which case the indemnification obligations of Sellers and Principal Shareholders will include all liabilities in excess of One Dollar ($1.00) incurred under Sections 7.1 and 7.2 (subject only, in the case of liabilities incurred under Section 7.1, to the maximum aggregate amount set forth in Section 7.3(a) above). 7.4 CONDITIONS OF INDEMNIFICATION PURSUANT TO SECTION 7.1. (a) Promptly following the receipt by an Buyer Indemnitee of notice of a demand, claim, action, assessment or proceeding made or brought by a third party, including a governmental agency (a "Third Party Claim"), the Buyer Indemnitee receiving the notice of the Third Party Claim (i) shall notify Principal Shareholders of its existence, setting forth the facts and circumstances of which such Buyer Indemnitee has received notice, and (ii) if the Buyer Indemnitee giving such notice is a person entitled to indemnification under this Article VII (an "Indemnified Party"), specifying the basis hereunder upon which the Indemnified Party's claim for indemnification is asserted. (b) The Indemnified Party shall, upon reasonable notice by Shareholders, tender the defense of a Third Party Claim to Principal Shareholders. If Principal Shareholders accept responsibility for the defense of a Third Party Claim, then Principal Shareholders shall have the exclusive right to contest, defend and litigate the Third Party Claim and shall have the exclusive right, in Principal Shareholders' discretion exercised in good faith and upon the advice of counsel, to settle any such matter, either before or after the initiation of litigation, at such time and upon such terms as Principal Shareholders deem fair and reasonable, provided that at least ten (10) days prior to any such settlement, Principal Shareholders shall give written notice of Principal Shareholders' intentions to settle -34- 35 to the Indemnified Party. The Indemnified Party shall have the right to be represented by counsel at its own expense in any defense conducted by Principal Shareholders. (c) Notwithstanding the foregoing, in connection with any settlement negotiated by Principal Shareholders, no Indemnified Party shall be required to (i) enter into any settlement (A) that does not include the delivery by the claimant or plaintiff to the Indemnified Party of a release from all liability in respect of such claim or litigation, (B) if the Indemnified Party shall, in writing to Principal Shareholders within the ten (10) day period prior to such proposed settlement, disapprove of such settlement proposal and desire to have Principal Shareholders tender the defense of such matter back to the Indemnified Party, or (C) that requires an Indemnified Party to take any affirmative actions as a condition of such settlement, or (ii) consent to the entry of any judgment that does not include a full dismissal of the litigation or proceeding against the Indemnified Party with prejudice; provided, however, that should the Indemnified Party disapprove of a settlement proposal pursuant to Clause (B) above, the Indemnified Party shall thereafter have all of the responsibility for defending, contesting and settling such Third Party Claim but shall not be entitled to indemnification by Principal Shareholders to the extent that, upon final resolution of such Third Party Claim, Principal Shareholders' liability to the Indemnified Party but for this proviso exceeds what Principal Shareholders' liability to the Indemnified Party would have been if Principal Shareholders were permitted to settle such Third Party Claim in the absence of the Indemnified Party exercising its right under Clause (B) above. (d) If, in accordance with the foregoing provisions of this Section 7.4, an Indemnified Party shall be entitled to indemnification against a Third Party Claim, and if Principal Shareholders shall fail to accept the defense of a Third Party Claim which has been tendered in accordance with this Section 7.4, the Indemnified Party shall have the right, without prejudice to its right of indemnification hereunder, in its discretion exercised in good faith and upon the advice of counsel, to contest, defend and litigate such Third Party Claim, and may settle such Third Party Claim, either before or after the initiation of litigation, at such time and upon such terms as the Indemnified Party deems fair and reasonable, provided that at least ten (10) days prior to any such settlement, written notice of its intention to settle is given to Principal Shareholders. If, pursuant to this Section 7.4, the Indemnified Party so defends or settles a Third Party Claim for which it is entitled to indemnification hereunder, as hereinabove provided, the Indemnified Party shall be reimbursed by Principal Shareholders for the reasonable attorneys' fees and other expenses of defending the Third Party Claim which are incurred from time to time, forthwith following the presentation to Principal Shareholders of itemized bills for said attorneys' fees and other expenses. No failure by Principal Shareholders to acknowledge in writing Principal Shareholders' indemnification obligations under this Article VII shall relieve Principal Shareholders of such obligations to the extent they exist. -35- 36 7.5 CERTAIN TAX AND OTHER MATTERS. (a) If, in connection with the audit of any Return, a proposed adjustment is asserted in writing with respect to any Taxes for any of the Sellers for which Sellers and Principal Shareholders are required to indemnify a Buyer Indemnitee pursuant to Section 7.2(a) hereof, Buyer shall notify Principal Shareholders of such proposed adjustment within twenty (20) days after the receipt thereof. Upon notice to Buyer within twenty (20) days after receipt of the notice of such proposed adjustment from Buyer, Principal Shareholders may assume (at Principal Shareholders' own cost and expense) control of and contest such proposed adjustment. (b) Alternatively, if Principal Shareholders request within twenty (20) days after receipt of notice of such proposed adjustment from an Buyer Indemnitee, Buyer or the Buyer Indemnitee involved at Buyer's option, as the case may be, shall contest such proposed adjustment. Principal Shareholders shall be obligated to pay all reasonable out-of-pocket costs and expenses (including legal fees and expenses) which Buyer may incur in so contesting such proposed adjustment as such costs and expenses are incurred, and Buyer shall have the full right to contest such proposed adjustment and shall be entitled to settle or agree to pay in full such proposed adjustment (in its sole discretion) and thereafter pursue its rights under this agreement. Principal Shareholders shall pay to Buyer all indemnity amounts in respect of any such proposed adjustment within thirty (30) days after written demand to Principal Shareholders therefor, or, if Principal Shareholders have assumed control of the contest of such proposed adjustment as provided above (or have requested Buyer to contest such proposed adjustment within the time provided above), within thirty (30) days after such proposed adjustment is settled or a Final Determination has been made with respect to such proposed adjustment. (c) For purposes of this Section 7.5, a "Final Determination" shall mean (i) the entry of a decision of a court of competent jurisdiction at such time as an appeal may no longer be taken from such decision or (ii) the execution of a closing agreement or its equivalent between the particular taxpayer and the Internal Revenue Service, as provided in Section 7121 and Section 7122, respectively, of the Code, or a corresponding agreement between the particular taxpayer and the particular state or local taxing authority. The obligation of Principal Shareholders to make any indemnity payment pursuant to Section 7.2(a) shall be premised on the receipt by Principal Shareholders from Buyer of a written notice setting forth the relevant portion of any Final Determination, and in cases where the amount of the indemnity payment exceeds $100,000.00, a certified statement by Buyer's nationally recognized accounting firm setting forth the amount of the indemnity payment (and in all other cases, a similar statement certified by the chief financial officer of Buyer) and describing in reasonable detail the calculation thereof. 7.6 INDEMNITY FUND. Buyer will withhold One Hundred Thousand Dollars ($100,000.00) of the Purchase Price and hold it as a fund (the "Indemnity Fund") for the payment of any Taxes required to be paid under Section 7.2 or any Damages required to be -36- 37 paid under Section 7.1. Keith Monument Company will contribute One Hundred Thousand Dollars ($100,000.00) to the Indemnity Fund. The amount so contributed is herein sometimes referred to as the "Seller's Contribution to the Indemnity Fund". If any claim for Taxes or Damages (a "Claim" or "Claims") is received by a Buyer Indemnitee within one (1) year of the Closing Date, Buyer will be entitled to deduct the amount thereof from the Indemnity Fund and to hold said amount in reserve until liability for the Claim is resolved pursuant to the provisions of this Article VII. When the Buyer Indemnitee liability for a Claim (the "Claim Liability") has been determined pursuant to the provisions of this Article VII, Buyer shall deduct the amount so determined from the amounts reserved for it and if necessary any additional amounts from the Indemnity Fund necessary to pay the Claim Liability. Buyer shall send Principal Shareholders written notice at least ten (10) days prior to paying the Claim Liability. On the date which is one (1) year after the Closing Date, Buyer will forward its check to KMC for the amount of Seller's Contribution to the Indemnity Fund not already deducted from the Indemnity Fund for Claims paid from the Fund or held in reserve in the Indemnity Fund against Claims asserted against the Buyer Indemnitees. Thereafter, at the end of each calendar quarter occurring after the first payment, Buyer will forward to KMC any amounts released from the reserve because Claims were determined not to be payable. Seller's Contribution to the Indemnity Fund shall be liable for all Claims Buyer may pay from the Indemnity Fund. 7.7 CERTAIN INFORMATION. Buyer and Sellers and Principal Shareholders agree to furnish or cause to be furnished to each other (at reasonable times and at no charge) upon request as promptly as practicable such information (including access to books and records) pertinent to the KMC Group and assistance relating to the KMC Group as is reasonably necessary for the preparation, review and audit of financial statements, the preparation, review, audit and filing of any Return, the preparation for any audit or the prosecution or defense of any claim, suit or proceeding relating to any proposed adjustment or which may result in any Seller or Principal Shareholders being liable under the indemnification provisions of this Article VII, provided, that access shall be limited to items pertaining solely to the KMC Group. Principal Shareholders shall grant to Buyer access to all Returns filed with respect to the KMC Group and their subsidiaries, current or past. 7.8 BUYER GENERAL INDEMNIFICATION COVENANTS. Subject to the provisions of Sections 7.8 and 7.9, if the Closing occurs, Buyer shall indemnify, save and keep Sellers, their successors and assigns (the "Seller Indemnitees"), harmless against and from all Damages sustained or incurred by any of the Sellers Indemnitees as a result of, arising out of or by virtue of any misrepresentation, breach of any warranty or representation, or non-fulfillment or breach of any agreement or covenant of the part of Buyer, contained in this agreement or any exhibit or schedule hereto or any written statement or certificate furnished -37- 38 or to be furnished to Sellers hereto or in any closing document delivered by Buyer in connection herewith; provided that Buyer's indemnification covenants and obligations in this agreement shall terminate upon the effectiveness of Buyer's registration statement under the Securities Act of 1933, as amended, with respect to the IPO. 7.9 LIMITATION ON BUYER INDEMNIFICATION. The obligations of Buyer pursuant to Section 7.8 is subject to the following limitations: (a) In no event shall the obligation of Buyer to indemnify the Seller Indemnitees pursuant to Section 7.8 exceed Two Hundred Thousand Dollars ($200,000.00). (b) Buyer shall not have any indemnification obligation with respect to the first $10,000.00 of total liabilities incurred under Section 7.8, unless the total aggregate liabilities of Buyer under Section 7.8 equal or exceed such amount, in which case the indemnification obligations of Buyer will include all liabilities in excess of One Dollar ($1.00) incurred under Section 7.8 (subject only, to the maximum aggregate amount set forth in Section 7.10(a) above). 7.10 CONDITIONS OF INDEMNIFICATION PURSUANT TO SECTION 7.8. (a) Promptly following the receipt by a Seller Indemnitee of notice of a demand, claim, action, assessment or proceeding made or brought by a third party, including a governmental agency (a "Third Party Claim"), the Seller Indemnitee receiving the notice of the Third Party Claim (i) shall notify Buyer of its existence, setting forth the facts and circumstances of which such Seller Indemnitee has received notice, and (ii) if the Seller Indemnitee giving such notice is a person entitled to indemnification under this Section VII (an "Indemnified Party"), specifying the basis hereunder upon which the Indemnified Party's claim for indemnification is asserted. (b) The Indemnified Party shall, upon reasonable notice by Buyer, tender the defense of a Third Party Claim to Buyer. If Buyer accepts responsibility for the defense of a Third Party Claim, then Buyer shall have the exclusive right to contest, defend and litigate the Third Party Claim and shall have the exclusive right, in its discretion exercised in good faith and upon the advice of counsel, to settle any such matter, either before or after the initiation of litigation, at such time and upon such terms as it deems fair and reasonable, provided that at least ten (10) days prior to any such settlement, it shall give written notice of its intention to settle to the Indemnified Party. The Indemnified Party shall have the right to be represented by counsel at its own expense in any defense conducted by Buyer. (c) Notwithstanding the foregoing, in connection with any settlement negotiated by Buyer, no Indemnified Party shall be required to (i) enter into any settlement (A) that does not include the delivery by the claimant or plaintiff to the Indemnified Party of a release from all liability in respect of such claim or litigation, (B) if the Indemnified Party shall, in writing to Buyer within the ten (10) day period prior to such proposed settlement, -38- 39 disapprove of such settlement proposal and desire to have Buyer tender the defense of such matter back to the Indemnified Party, or (C) that requires an Indemnified Party to take any affirmative actions as a condition of such settlement, or (ii) consent to the entry of any judgment that does not include a full dismissal of the litigation or proceeding against the Indemnified Party with prejudice; provided, however, that should the Indemnified Party disapprove of a settlement proposal pursuant to Clause (B) above, the Indemnified Party shall thereafter have all of the responsibility for defending, contesting and settling such Third Party Claim but shall not be entitled to indemnification by Buyer to the extent that, upon final resolution of such Third Party Claim, Buyer's liability to the Indemnified Party but for this proviso exceeds what Buyer's liability to the Indemnified Party would have been if Buyer were permitted to settle such Third Party Claim in the absence of the Indemnified Party exercising its right under Clause (B) above. (d) If, in accordance with the foregoing provisions of this Section 7.10, an Indemnified Party shall be entitled to indemnification against a Third Party Claim, and if Buyer shall fail to accept the defense of a Third Party Claim which has been tendered in accordance with this Section 7.10, the Indemnified Party shall have the right, without prejudice to its right of indemnification hereunder, in its discretion exercised in good faith and upon the advice of counsel, to contest, defend and litigate such Third Party Claim, and may settle such Third Party Claim, either before or after the initiation of litigation, at such time and upon such terms as the Indemnified Party deems fair and reasonable, provided that at least ten (10) days prior to any such settlement, written notice of its intention to settle is given to Buyer. If, pursuant to this Section 7.10, the Indemnified Party so defends or settles a Third Party Claim for which it is entitled to indemnification hereunder, as hereinabove provided, the Indemnified Party shall be reimbursed by Buyer for the reasonable attorneys' fees and other expenses of defending the Third Party Claim which are incurred from time to time, forthwith following the presentation to Buyer of itemized bills for said attorneys' fees and other expenses. No failure by Buyer to acknowledge in writing its indemnification obligations under this Article VII shall relieve it of such obligations to the extent they exist. 7.11 RISK OF LOSS. The risk of loss, damage or impairment, confiscation or condemnation of any of the Assets from any cause whatsoever shall be borne by the Sellers at all times prior to the Closing. Sellers shall notify Buyer with ten (10) days of any such loss exceeding One Thousand Dollars ($1,000.00). In the event the cumulative amount of any uninsured, uncompensated or unreimbursed loss, damage or impairment, confiscation or condemnation exceeds Fifty Thousand Dollars ($50,000.00) (the "Material Amount"), the Buyer may elect to terminate this agreement, receive a refund of the Deposit and to treat this agreement as terminated under Section 6.1(a) hereof; or elect to close and deduct the amount of the uninsured loss from the cash portion of the Purchase Price due to the Seller(s) which incurred the uninsured, compensated or unreimbursed loss. -39- 40 ARTICLE VIII MISCELLANEOUS PROVISIONS ------------------------ 8.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS. All representations, warranties, covenants and agreements made by any party in this agreement or pursuant hereto shall survive until the expiration of the applicable statutes of limitations with respect to the matters covered thereby; provided that notwithstanding anything to the contrary set forth in this agreement the representations, warranties, covenants and agreements of Buyer shall terminate and be of no further force or effect upon the effectiveness of Buyer's registration statement under the Securities Act of 1933, as amended, with respect to the IPO. 8.2 CONFIDENTIALITY. Subject to the last sentence of this Section and regardless of whether the Closing shall take place, or this agreement is terminated, Buyer, Sellers and Principal Shareholders all agree to keep the negotiation, execution and Closing of this agreement confidential and not to disclose the same or any documents prepared or delivered in connection therewith to any person without the prior written consent of Buyer and Principal Shareholders; except that each such party may advise their accountants, attorneys, appraisers, surveyors, engineers and other advisors, agents, employees, shareholders, investment advisors, underwriters, bankers, lenders and banks (collectively the "Agents") of the same as necessary in order to carry out and consummate the transactions contemplated herein; provided that they inform them of this confidentiality agreement and require them to keep the subject matter of it confidential and, provided further, however, no party hereto shall be liable for any breach or violation of this Section 8.2 confidentiality agreement because of disclosure of this agreement to any governmental agency as required for such party to fulfill its obligations under this agreement and to consummate the transactions contemplated by this agreement, as otherwise required by law, as necessary or appropriate in connection with Buyer's IPO, and as agreed to by the Buyer and the Principal Shareholders. After the Closing Date and subsequent to the disclosure to the employees of the KMC Group and the Buyer and their subsidiaries and affiliates of the transactions referred to in this agreement, Buyer may, at its election, publicly disclose the execution and delivery of this agreement and the other agreements referenced herein and in the Exhibits hereto and the details of the transactions consummated hereunder. 8.3 BROKERS OR FINDERS. Each party represents to the other that no broker or agent has been involved on its behalf in the transactions contemplated herein, and agrees that if any claim for a commission or fee is asserted, it will be paid by the party which the broker or agent claims is represented by such broker or agent. 8.4 PAYMENT OF EXPENSES. Whether or not the purchase and sale provided for herein shall be consummated, each party hereto shall pay his or its own expenses incident to preparing for, entering into and carrying out this agreement and the transactions -40- 41 contemplated hereby and Principal Shareholders shall pay all expenses of transferring the Assets from Sellers to Buyer, except Buyer will pay any sales taxes incident to said transfers. 8.5 ARTICLE AND SECTION HEADINGS. Article and Section headings are employed in this agreement for reference purposes only and shall not affect the interpretation or meaning of this agreement. 8.6 ASSIGNMENT, SUCCESSORS AND ASSIGNS. This agreement and the rights hereunder shall not be assignable or transferable by Buyer or Sellers (including by operation of law in connection with a merger or sale of substantially all of the assets) without the prior written consent of the other party hereto; provided that Buyer may assign this agreement and its rights to purchase the Assets hereunder to a wholly owned direct or indirect subsidiary (corporation, limited liability company or other entity) of Buyer without the prior written consent of Sellers, provided that no such assignment shall limit or affect Buyer's obligations hereunder and all references to Buyer hereunder shall be deemed to also include such subsidiary to which Buyer has assigned its right to purchase the Shares hereunder and provided, further however, that Buyer may assign this agreement by operation of law or otherwise as a part of the Transactions. 8.7 NOTICES. Any notice or other communication required or permitted under this agreement shall be in writing and shall be deemed to have been duly given (i) upon hand delivery, or (ii) on the third day following delivery to the U.S. Postal Service as certified or registered mail, return receipt requested and postage prepaid, or (iii) on the first day following delivery to a nationally recognized United States overnight courier services, fee prepaid, return receipt or other confirmation of delivery requested or (iv) when telecopied or sent by facsimile transmission if an additional notice is also given under (i), (ii) or (iii) above within three days thereafter. Any such notice or communication shall be directed to a party at its address set forth below or at such other address as may be designated by a part in a notice given to all other parties hereto in accordance with the provisions of this Section. If to Sellers or to John E. Keith Principal Shareholders: 169 Forest Hill Road Hodgenville, KY 42728 Phone: (502) 358-4035 Roy H. Keith, Jr. 782 Bates Road Elizabethtown, KY 42701 Phone: (502) 737-6007 -41- 42 with, in the case of notice James T. Whitlow, Esq. to Sellers or Principal Whitlow & Scott Shareholders, a copy to (which 45 Lincoln Square shall not constitute notice): P. O. Box 179 Hodgenville, KY 42748 Phone: 502-358-4344 Fax: 502-358-4536 If to Buyer: Kurt M. Swenson, Chairman, President and Chief Executive Officer Rock of Ages Corporation 369 North State Street Concord, NH 03301 Phone: 603-225-8397 Fax: 603-225-4801 with a copy to: John R. Monson, Esq. (which shall not Wiggin & Nourie, P.A. constitute notice) P.O. Box 808 Manchester, NH 03105 Phone: 603-669-2211 Fax: 603-623-8442 8.8 COMPLETE AGREEMENT, WAIVERS. Neither this agreement nor any provision hereof may be changed, waived, modified, discharged, amended or terminated orally but only by an instrument in writing signed by all parties hereto. No action taken by any party after the date hereof, including without limitation any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance by any other party with any representations, warranties, covenants or agreements contained in this agreement. The waiver by any party hereto of a breach of any provision of this agreement shall not operate or be construed as a waiver of any other or any subsequent breach. The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect its right at a later time to enforce the same. This agreement, together with the Exhibits and Schedules attached hereto or incorporated herein pursuant to Section 8.12 hereof constitutes the only agreement among the parties hereto concerning the subject matter hereof and supersedes all prior agreements whether written or oral, relating thereto. 8.9 GOVERNING LAW. This agreement shall be governed by and construed in accordance with the laws of the State of New Hampshire and any actions brought pertaining to the same shall lie only in the Merrimack County New Hampshire Superior Court, in the United States District Court for the District of New Hampshire, the Hardin County Circuit Court, Kentucky, or the U.S. District Court for the Western District of Kentucky, in said States all of which are the sole and exclusive forums for any actions or claims by the parties -42- 43 to this agreement and each party hereto consents to the jurisdiction of, and venue in, said courts in any action brought by another party hereto and agrees that no claims or actions relating to any matter hereunder will be brought by them in any other courts of said States, any other country. 8.10 TAX CONSEQUENCES. Each party represents and warrants that it has made an independent evaluation of the tax consequences resulting to such party as a result of the terms and effect of this agreement. No party shall have any recourse against any other party to this agreement nor shall this agreement be affected in any way by reason of the fact that the consummation of this agreement and the transactions contemplated thereby do not have the tax consequences anticipated by such party; provided that the foregoing shall not limit a party's liability for breach of any representation, warranty, covenant or agreement set forth herein. 8.11 COUNTERPARTS. This agreement may be executed in counterparts and by different parties on different counterparts with the same effect as if the signatures were on the same instrument. This agreement shall be effective and binding upon all parties hereto as of the time when all parties have executed a counterpart of this agreement. 8.12 EXHIBITS. Each Exhibit or Schedule delivered pursuant to the terms of this agreement shall be in writing and shall constitute a part of this agreement. The parties may agree with respect to any Schedule or Exhibit required to be attached to this agreement, that such Schedule or Exhibit, if mutually satisfactory, may be attached to this agreement after the date of execution hereof and prior to the Closing and, after mutual approval thereof, such subsequently attached Schedule or Exhibit shall be treated as if it were attached to this agreement as of the date of execution of this agreement. All Exhibits and Schedules attached hereto are specifically incorporated herein by reference and made a part hereof. The words "agreement," "herein" and "hereof" as used herein shall in all respects include the entirety of this agreement together with all Exhibits and Schedules attached hereto and all documents required or permitted to be delivered hereunder. 8.13 FURTHER ASSURANCES. From time to time, as and when requested by any party hereto, the other party shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such further or other actions, as such other party may reasonably deem necessary or desirable to consummate the transactions contemplated by this agreement. -43- 44 IN WITNESS WHEREOF, the parties hereto have executed this agreement all as of the date first set forth above. WITNESS: ROCK OF AGES CORPORATION /s/ By: /S/ KURT M. SWENSON - -------------------------------- ------------------------------- Kurt M. Swenson, Chairman of the Board, President and Chief Executive Officer /s/ /S/ JOHN E. KEITH - -------------------------------- ----------------------------------- John E. Keith, Principal Shareholder /s/ /S/ ROY H. KEITH, JR. - -------------------------------- ----------------------------------- Roy H. Keith, Jr., Principal Shareholder GLASGOW MONUMENT CO., INC. /s/ By: /S/ ROY H. KEITH, JR. - -------------------------------- ------------------------------- Roy H. Keith, Jr., President KEITH LETTERING AND SETTING CORPORATION /s/ By: /S/ JOHN E. KEITH - -------------------------------- ------------------------------- John E. Keith, President KEITH MONUMENT COMPANY /s/ By: /S/ ROY H. KEITH, JR. - -------------------------------- ------------------------------- Roy H. Keith, Jr., President NATIONAL MEMORIAL CORPORATION /s/ By: /S/ ROY H. KEITH, JR. - -------------------------------- ------------------------------- Roy H. Keith, Jr., President -44- 45 RIEHM-GERLACK MONUMENT CO. /s/ By: /S/ ROY H. KEITH, JR. - -------------------------------- ------------------------------- Roy H. Keith, Jr., President THE SNYDER CORPORATION /s/ By: /S/ JOHN E. KEITH - -------------------------------- ----------------------------------- John E. Keith, President -45- 46 EXHIBIT 1.2 TO THE ASSET PURCHASE AGREEMENT The following are the Excluded Assets and Excluded Liabilities referred to in Sections 1.2 and 1.4: 1. Two notes receivable from Green Meadows Cemetery, one to Keith Monument Company and one to National Memorial Corporation with a combined remaining unpaid balance of approximately $600,000. 2. A certain tract of land and any related liabilities owned by Keith Monument Company held as a potential cemetery in Elizabethtown, Kentucky near I-65 and not used in the KMC Group's memorial business. 3. Escrow Account of approximately $75,000 for Harry Jackson, held by Whitlow & Scott. 4. The land and buildings at 810-812 East Broadway in Louisville, Kentucky owned by National Monument Corporation and any related liabilities. 5. The stock of Clairmont Cemetery owned by National Memorial Corporation and any related liabilities. 6. The cemetery property in Georgetown, Kentucky owned by National Memorial Corporation and any related liabilities. 7. The Loan Amount of the KMC Group of $1,797,600 plus interest owed to David DeMarcus and the Covenant Not to Compete in the amount of $500,000 due David DeMarcus will not be assumed and will be paid at the Closing by Buyer as a deduction to the Purchase Price as set forth in Section 1.3(a) and the $500,000 Covenant Not to Compete will be held in escrow pursuant to an escrow agreement to be entered into among Sellers, Buyer and Whitlow & Scott. 8. Life insurance policy and approximately $42,000 cash surrender value thereof on life of Roy H. Keith, Sr. 9. Keith Monument Company interest and receivable on a $500,000 life insurance policy on the life of Susan S. Keith, having a value of approximately $83,000. 10. Memberships in Valhalla Country Course and Oxmoor Country Club. 47 EXHIBIT 3.2 OF THE ASSET PURCHASE AGREEMENT Buyer has and will be pursuing the IPO, its own corporate restructuring and other mergers and acquisitions (some of which have been consummated as of the date hereof, some of which are pending and some of which are proposed), will be restructuring and refinancing its credit facilities with its lenders, as necessary to consummate said transactions, may pursue other debt and equity financing it deems appropriate, and will otherwise be engaging in other transactions necessary and appropriate to consummate said transactions, including internal reorganizations, asset dispositions, dividends, mergers, and recapitalizations (all of the foregoing transactions being herein sometimes referred to in this agreement as the "Transactions"). 48 LIST OF EXHIBITS TO ASSET PURCHASE AGREEMENT -------------------------------------------- Exhibit 1.3(b) Escrow Agreement Exhibit 1.7(A) Tentative Allocations of Purchase Price Exhibit 1.7(b) Escrow Agreement Exhibit 2.1 Employment Agreement for JK Exhibit 2.2 Employment Agreement for RK Exhibit 2.3 Stock Subscription Agreement for NMC Exhibit 2.5 Acquisition Noncompete, Nonsolicitation and Nondisclosure Agreement for JK Exhibit 2.6 Acquisition Noncompete, Nonsolicitation and Nondisclosure Agreement for RK Exhibit 2.7 Lease Agreement Exhibit 2.8 Covenant not to Compete from Sellers Exhibit 3.2(e) Swenson Group Financial Statements Exhibit 3.2(h) Litigation Exhibit 3.2(m) Environmental Laws and Hazardous Materials (Environmental Definitions) Exhibit 3.3(c) Sellers' Insurance Exhibit 3.3(d) Sellers' Financial Statements Exhibit 3.3(f) Sellers' Group Realty Exhibit 3.3(h) Collective Bargaining Agreements, Labor Agreements, etc. Exhibit 3.3(k) Seller Licenses, Permits and Approvals Exhibit 3.3(m) Seller Pension, Profit Sharing, Stock Bonus and Other Deferred Compensation Arrangements Exhibit 3.3(o) Seller Intellectual Property and Proprietary Interest; Insurance; Material Contracts Schedule to Asset Buyer's Disclosure Schedule Under Section 3.1 and 3.2 Purchase Agreement Schedule to Asset Sellers' Disclosure Schedule Under Section 3.1 and 3.3 Purchase Agreement Rock of Ages Corporation agrees to furnish supplementally to the Commission a copy of any omitted schedule upon request. EX-2.4 5 AGREEMENT & PLAN OF MERGER & REORGANIZATION 1 Exhibit 2.4 AGREEMENT AND PLAN OF MERGER AND REORGANIZATION AGREEMENT AND PLAN OF MERGER AND REORGANIZATION dated as of August 13, 1997 by and among Rock of Ages Corporation, a Delaware corporation ("Rock of Ages"), Swenson Granite Company, Inc., a New Hampshire corporation and owner of 93% of the outstanding capital stock of Rock of Ages ("Swenson Granite"), and Kurt M. Swenson and Kevin C. Swenson, each of whom own 30.3% of the outstanding capital stock of Swenson Granite (collectively, the "Swenson Shareholders"). WHEREAS, the parties hereto desire to set forth the terms and conditions whereby Swenson Granite will merge (the "Merger") with and into Rock of Ages, with Rock of Ages as the surviving corporation (the "Surviving Corporation"), as part of a reorganization of Rock of Ages and Swenson Granite (the "Reorganization") in order to facilitate, and which will occur immediately prior to consummation of, an initial public offering by Rock of Ages of its Class A Common Stock, par value $.01 per share (the "IPO"); and WHEREAS, as part of the Reorganization and immediately prior to the Effective Time (as defined herein) of the Merger, Swenson Granite will effect, through a series of transactions, a pro rata distribution to its shareholders of equity interests representing ownership of substantially all of the assets and business of Swenson Granite, other than Swenson Granite's stock interest in Rock of Ages (the "Distribution"); and WHEREAS, the Board of Directors of each of Swenson Granite and Rock of Ages, and Swenson Granite, as a shareholder of Rock of Ages, has determined that the Merger is advisable and in the best interests of their respective corporations and shareholders; and WHEREAS, the Swenson Shareholders hold shares of capital stock of Swenson Granite representing a majority of the voting power of all outstanding voting securities of Swenson Granite, and, accordingly, can approve this Agreement in their capacity as shareholders of Swenson Granite without the vote of any other Swenson Granite shareholder and can cause Swenson Granite to 2 approve and adopt this Agreement in its capacity as a stockholder of Rock of Ages without the vote of any other Rock of Ages stockholder; NOW THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth below, the parties hereto hereby agree as follows: ARTICLE I THE MERGER Section 1.1 The Merger. Subject to the terms and conditions of this Agreement, at the Effective Time, Swenson Granite shall merge with and into Rock of Ages in accordance with the General Corporation Law of the State of Delaware (the "DGCL") and the New Hampshire Business Corporation Act (the "NH Law"), the separate corporate existence of Swenson Granite shall cease and Rock of Ages shall continue as the Surviving Corporation. Section 1.2 Consummation of the Merger. In order to effectuate the Merger, immediately upon satisfaction of all of the conditions set forth in Article VII hereof, Swenson Granite and Rock of Ages shall cause (i) a certificate of merger (the "Certificate of Merger") to be filed with the Secretary of State of the State of Delaware and (ii) articles of merger ("Articles of Merger") to be filed with the Secretary of State of the State of New Hampshire, each in such form as required by, and executed in accordance with, the DGCL and NH Law, respectively. The Merger shall be effective as of the later of the time of the filing of the Certificate of Merger or Articles of Merger (the "Effective Time"). Section 1.3 Effects of Merger. The Merger shall have the effects provided for in Section 259 of the DGCL and Section 11.06 of the NH Law. Section 1.4 Governing Documents. The Certificate of Incorporation of Rock of Ages, as in effect immediately prior the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation without change or amendment, and the By-Laws of Rock of Ages, as in effect immediately prior the Effective Time, 2 3 shall be the By-Laws of the Surviving Corporation without change or amendment. Section 1.5 Officers and Directors. The persons who are officers and directors of Rock of Ages immediately prior to the Effective Time shall, after the Effective Time, be the officers and directors of the Surviving Corporation, without change until their successors have been duly elected and qualified in accordance with the Certificate of Incorporation and By-Laws of the Surviving Corporation. ARTICLE II CONVERSION OF SECURITIES Section 2.1 Conversion of Swenson Granite Shares. Subject to Sections 2.4 and 2.6, at the Effective Time, by virtue of the Merger and without any action on the part of the holders thereof, each issued and outstanding share of common stock, par value $10.00 per share ("Swenson Granite Common Stock"), of Swenson Granite shall be changed and converted into 1,618.123 fully paid and nonassessable shares of Class B Common Stock, par value $.01 per share, of Rock of Ages ("Class B Common Stock"); provided, however, that in lieu of fractional shares of Class B Common Stock that would otherwise be issued, each such holder that would have been entitled to receive a fractional share of Class B Common Stock shall receive such whole number of shares of Class B Common Stock as is equal to the precise number of shares of Class B Common Stock to which such shareholder would be entitled, with a fractional interest of .5 or above rounded up to the nearest whole number and a fractional interest of less than .5 rounded down to the nearest whole number. Section 2.2 Cancellation of Treasury Stock and Swenson Granite-Owned Stock. At the Effective Time, by virtue of the Merger and without any action on the part of Swenson Granite, all shares of Swenson Granite Common Stock that are owned by Swenson Granite as treasury stock and all shares of Class B Common Stock owned by Swenson Granite shall be cancelled and retired and shall cease to exist, and no stock of Rock of Ages or other consideration shall be delivered in exchange therefor. 3 4 Section 2.3 Missouri Red-Owned Stock. All shares of Class B Common Stock owned by Missouri Red Quarries, Inc. shall be unaffected by the Merger and shall remain issued and outstanding. Section 2.4 Stock Certificates. At and after the Effective Time, all of the outstanding certificates which immediately prior to the Effective Time represented shares of Swenson Granite Common Stock ("Swenson Granite Certificates"), other than Swenson Granite Certificates representing Dissenting Shares (as defined herein), shall be deemed for all purposes to evidence ownership of and to represent the shares of Class B Common Stock into which the shares of Swenson Granite Common Stock formerly represented by such Swenson Granite Certificates have been converted as herein provided. At and after the Effective Time, upon surrender to Rock of Ages of a Swenson Granite Certificate (other than Swenson Granite Certificates representing Dissenting Shares), together with a letter to Rock of Ages executed by the record holder setting forth representations of such holder substantially in the form set forth in Sections 5.2 - 5.6 hereof, the Surviving Corporation shall issue to the record holder of such Swenson Granite Certificate so surrendered, a certificate or certificates representing the shares of Class B Common Stock into which such holder's Swenson Granite Common Stock formerly represented by such Swenson Granite Certificate have been converted pursuant to Section 2.1 hereof. Section 2.5 Closing of Stock Transfer Books. The stock transfer books of Swenson Granite shall be closed as of the Effective Time, and thereafter there shall be no further registration of transfers on the stock transfer books of Swenson Granite or the Surviving Corporation of the shares of Swenson Granite Common Stock which were outstanding immediately prior to such time. If, after the Effective Time, Swenson Granite Certificates are presented to the Surviving Corporation for any reason, they shall be cancelled and exchanged as provided in Section 2.4. Section 2.6 Dissenting Shares. Notwithstanding any other provision of this Agreement to the contrary, shares of Swenson Granite Common Stock that are outstanding immediately prior to the Effective Time and which are held by shareholders of Swenson Granite who 4 5 shall have not voted in favor of approval and adoption of this Agreement and the Merger or consented thereto in writing and who shall have properly demanded in writing appraisal for such shares in accordance with Section 13.21 of the NH Law and who shall not have withdrawn such demand or otherwise have forfeited appraisal rights (collectively, the "Dissenting Shares") shall not be converted into or represent the right to receive shares of Class B Common Stock as provided herein. Such shareholders of Swenson Granite shall be entitled to receive payment of the appraised value of such shares of Swenson Granite Common Stock held by them in accordance with the provisions of Section 13.25 of NH Law, except that all Dissenting Shares held by shareholders who shall have failed to perfect or who effectively shall have withdrawn or lost their rights to appraisal of such shares of Swenson Granite Common Stock under Section 13.21 of NH Law shall thereupon be deemed to have been converted, as of the Effective Time, into the right to receive, without interest, the shares of Class B Common Stock as provided herein upon surrender by such shareholder, in the manner provided in Section 2.4, of a Swenson Granite Certificate. ARTICLE III REPRESENTATIONS AND WARRANTIES OF ROCK OF AGES Rock of Ages represents and warrants as follows: Section 3.1 Organization. Rock of Ages is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Section 3.2 Authority. (a) Rock of Ages has all requisite corporate power and authority to enter into this Agreement and any additional documents or instruments to be delivered hereunder on or prior to the Effective Time (the "Additional Documents"), to perform its obligations hereunder and thereunder and to consummate the Merger. (b) The execution, delivery and performance by Rock of Ages of this Agreement and the Additional Documents to which Rock of Ages is a party and the 5 6 consummation by Rock of Ages of the Merger have been duly authorized by all requisite corporate action on the part of Rock of Ages, including without limitation, obtaining the requisite approval and adoption of this Agreement and the Merger by the shareholders of Rock of Ages. (c) This Agreement has been and, upon execution thereof by Rock of Ages, the Additional Documents to which Rock of Ages is a party will be, duly and validly executed and delivered by Rock of Ages and constitutes or, in the case of the Additional Documents, will constitute, valid and binding obligations of Rock of Ages, enforceable against Rock of Ages in accordance with their respective terms. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SWENSON GRANITE Swenson Granite represents and warrants as follows: Section 4.1 Organization. Swenson Granite is a corporation duly organized, validly existing and in good standing under the laws of the State of New Hampshire. Section 4.2 Authority. (a) Swenson Granite has all requisite corporate power and authority to enter into this Agreement and any Additional Documents, to perform its obligations hereunder and thereunder and to consummate the Merger. (b) The execution, delivery and perfor- mance by Swenson Granite of this Agreement and the Additional Documents to which Swenson Granite is a party and the consummation by Swenson Granite of the Merger have been duly authorized by all requisite corporate action on the part of Swenson Granite, except for the requisite approval and adoption of this Agreement and the Merger by the shareholders of Swenson Granite. (c) This Agreement has been and, upon execution thereof by Swenson Granite, the Additional Documents to which Swenson Granite is a party will be, 6 7 duly and validly executed and delivered by Swenson Granite and constitutes or, in the case of the Additional Documents, will constitute, valid and binding obligations of Swenson Granite, enforceable against Swenson Granite in accordance with their respective terms. ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE SWENSON SHAREHOLDERS Each Swenson Shareholder represents and warrants, solely with respect to such Swenson Shareholder, as follows: Section 5.1 Authority. (a) Such Swenson Shareholder has the full legal right and power to enter into this Agreement and any Additional Documents and to perform his obligations hereunder and thereunder. (b)This Agreement has been and, upon execution thereof by such Swenson Shareholder, the Additional Documents to which such Swenson Shareholder is a party will be, duly and validly executed and delivered by such Swenson Shareholder and constitutes or, in the case of the Additional Documents, will constitute, valid and binding obligations of such Swenson Shareholder, enforceable against such Swenson Shareholder in accordance with their respective terms. Section 5.2 Accredited Investor; Purchase for Investment. Such Swenson Shareholder (i) is an "accredited investor" within the meaning of Rule 501(a) of Regulation D under the Securities Act of 1933, as amended (the "Securities Act"), or (ii) if such Swenson Shareholder is not such an accredited investor, such Swenson Shareholder has designated a "purchaser representative" within the meaning of Rule 501(h) of Regulation D under the Securities Act (the "Purchaser Representative"). The shares of Class B Common Stock to be issued to such Swenson Shareholder pursuant to the Merger (the "Shares") will be acquired by such Swenson Shareholder for investment only and not with a view to any public distribution thereof in violation of any of the requirements of the Securities Act or the rules and regulations thereunder. 7 8 Section 5.3 Shares Not Registered; Legend. Such Swenson Shareholder understands that the Shares have not been registered under the Securities Act in reliance upon exemptions contained in the Securities Act and applicable regulations promulgated thereunder or interpretations thereof, and cannot be offered for sale, sold or otherwise transferred unless such sale or transfer is so registered or qualifies for exemption from registration under the Securities Act; and that the certificates representing the Shares shall bear a legend to such effect. Section 5.4 Rule 144. Such Swenson Shareholder understands that the Shares will be considered "restricted securities" within the meaning of Rule 144 under the Securities Act; that Rule 144 may not be available to exempt from the registration requirements of the Securities Act sales of such "restricted securities"; that if Rule 144 is available, sales may be made in reliance upon Rule 144 only in accordance with the terms and conditions of Rule 144, which among other things generally requires that the securities be held for at least one year and that sales be made in limited amounts (which amounts are subject to certain exceptions depending upon whether the seller is an "affiliate" within the meaning of Rule 144 and how long the securities have been held); and that, if an exemption for such sales is not available, registration of the Shares may be required, but that Rock of Ages is under no obligation to register the Shares or to facilitate compliance or to comply with any exemption. Section 5.5 Sophistication. Such Swenson Shareholder has such knowledge and experience in financial and business matters that such Swenson Shareholder is capable of evaluating the merits and risks of such Swenson Shareholder's investment in the Shares or such Swenson Shareholder has been advised by a Purchaser Representative possessing such knowledge and experience; and such Swenson Shareholder understands and is able to bear any economic risks associated with such investment (including the necessity of holding the Shares for an indefinite period of time, inasmuch as the Shares have not been, and may not in the foreseeable future be, registered under the Securities Act, and including the risk of the loss of such Swenson Shareholder's entire investment in the Shares). 8 9 Section 5.6 Review. Such Swenson Shareholder and, if applicable, his Purchaser Representative have been given the opportunity to ask questions of, and receive answers from, the principal officers of Rock of Ages concerning the business and financial affairs of Rock of Ages, and the terms and conditions of such Swenson Shareholder's acquisition of Shares; and such Swenson Shareholder and, if applicable, his Purchaser Representative have had further opportunity to obtain any additional information necessary to verify the accuracy of the foregoing information. Such Swenson Shareholder and, if applicable, his Purchaser Representative have relied on their own examination of Rock of Ages and the terms of the Class B Common Stock, including the merits and risks involved in making an investment in the Shares and such Swenson Shareholder acknowledges that no representations have been made to such Swenson Shareholder concerning the Shares. Such Swenson Shareholder acknowledges that he and, if applicable, his Purchaser Representative have had the opportunity to review such terms and agreements and the transactions contemplated hereby with such Swenson Shareholder's own legal counsel and tax and investment advisors. Such Swenson Shareholder is relying solely on such counsel and advisors (including, if applicable, such Swenson Shareholder's Purchaser Representative) for legal, tax and investment advice with respect to such terms, agreements and transactions. ARTICLE VI COVENANTS AND AGREEMENTS Section 6.1 Shareholders' Meetings. Swenson Granite shall, and the Swenson Shareholders shall cause Swenson Granite to, call a meeting of its shareholders to be held as promptly as practicable for the purpose of voting upon the approval and adoption of this Agreement. Swenson Granite will, through its Board of Directors, recommend to its shareholders approval and adoption of this Agreement and the Merger. Section 6.2 Best Efforts. Subject to the terms and conditions of this Agreement, each of the parties hereto agrees to use its best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under 9 10 applicable laws and regulations to consummate the Merger in accordance with the terms and conditions of this Agreement. Section 6.3 Agreement to Vote Shares. Each of the Swenson Shareholders irrevocably agrees to vote such Swenson Shareholder's shares of Swenson Granite Common Stock in favor of adoption and approval of the Merger Agreement and the Merger at any meeting of the stockholders of Swenson Granite at which such matter is considered and at every adjournment thereof. Each Swenson Shareholder agrees to deliver to Rock of Ages (or a designee of Rock of Ages) upon request prior to any vote contemplated by the foregoing a proxy substantially in the form attached hereto as Exhibit A (a "Proxy"), which Proxy shall be irrevocable to the extent permitted under New Hampshire law, and Rock of Ages (or its designee, if applicable) irrevocably agrees to vote the shares of Swenson Granite Common Stock subject to each such Proxy in favor of adoption and approval of the Merger Agreement and the Merger. ARTICLE VII CONDITIONS The respective obligations of Swenson Granite and Rock of Ages to consummate the Merger are subject to the satisfaction of the following conditions: Section 7.1 Stockholder Approval. This Agreement and the Merger shall have been approved and adopted by the affirmative vote of the holders of Swenson Granite Common Stock entitled to cast a majority of the total number of votes entitled to be cast. Section 7.2 Consummation of Distribution. The Distribution shall have been consummated. Section 7.3 Initial Public Offering. All conditions to the closing of the IPO set forth in the Underwriting Agreement to be entered into among Rock of Ages, Raymond James & Associates, Inc. and certain selling stockholders of Rock of Ages (the "Underwriting Agreement"), shall have been satisfied or waived by the respective parties thereto, and the closing of the IPO shall be about to occur. 10 11 ARTICLE VIII MISCELLANEOUS Section 8.1 Amendments; Waiver. This Agreement may not be amended except by an instrument in writing signed by the parties hereto, which amendment has been approved by a majority of the directors of each of Swenson Granite and Rock of Ages (excluding for this purpose the Swenson Shareholders who are such directors). Any provision hereof may be waived only by an instrument in writing signed by the party or parties entitled to the benefit of such provision and, in the case of such a waiver by Swenson Granite or Rock of Ages, respectively, only if such instrument has been approved by a majority of the directors of Swenson Granite or Rock of Ages, respectively (excluding for this purpose the Swenson Shareholders who are such directors). Section 8.2 Notices. All notices and other communications hereunder shall be in writing and shall be delivered personally or by next-day courier or telecopied with confirmation of receipt to the parties at the respective addresses specified below (or at such other address for a party as shall be specified by like notice). Any such notice or other communication shall be effective upon receipt, if personally delivered or telecopied, or one day after delivery to a courier for next-day delivery. (a) if to Rock of Ages, to: 772 Graniteville Road Graniteville, Vermont 05654 Attention: Kurt M. Swenson Telecopy: (802) 476-3110 (b) if to Swenson Granite, to: 369 North State Street Concord, New Hampshire 03301 Attention: President Telecopy: (603) 225-4801 11 12 (c) if to either of the Swenson Share- holders, to: c/o Kurt M. Swenson 336 Putney Hill Road Hopkinton, New Hampshire 03229 Section 8.3 Interpretation. When a reference is made in this Agreement to Sections, such reference shall be to a Section of this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 8.4 Severability. In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect against a party hereto, the validity, legality and enforceability of the remaining provisions herein shall not in any way be affected or impaired thereby and such invalidity, illegality or unenforceability shall only apply as to such party in the specific jurisdiction where such judgment shall be made. Section 8.5 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 8.6 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware (without giving effect to the principles of conflicts of law thereof), except to the extent NH Law applies to the Merger. 12 13 IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. ROCK OF AGES CORPORATION By /s/ George Anderson ------------------------------ Name: George Anderson Title: Chief Financial Officer SWENSON GRANITE COMPANY, INC. By /s/ Kurt M. Swenson ------------------------------ Name: Kurt M. Swenson Title: President SWENSON SHAREHOLDERS: /s/ Kurt M. Swenson ------------------------------ Kurt M. Swenson /s/ Kevin C. Swenson ------------------------------ Kevin C. Swenson 13 14 EXHIBIT A FORM OF PROXY The undersigned, for consideration received, hereby appoints [Rock of Ages Corporation, a Delaware corporation ("Rock of Ages")][designee of Rock of Ages], his proxy to vote all shares of Common Stock, par value $10.00 per share, of Swenson Granite Company, Inc., a New Hampshire corporation (the "Company"), owned by the undersigned and which the undersigned is entitled vote at any meeting of stockholders of the Company, and at any adjournment thereof, to be held for the purpose of considering and voting upon a proposal to approve and adopt the Agreement and Plan of Merger and Reorganization, dated as of August , 1997 (the "Merger Agreement"), by and among Rock of Ages, the Company and Kurt M. Swenson and Kevin C. Swenson, providing for the merger (the "Merger") of the Company with and into Rock of Ages, FOR such proposal. This proxy is coupled with an interest and revokes all prior proxies granted by the undersigned, is irrevocable. Dated ____________________, 1997 ---------------------------------- (Signature of Swenson Shareholder) EX-3.1 6 FORM OF AMENDED & RESTATED CERT. OF INCORP. 1 EXHIBIT 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF ROCK OF AGES CORPORATION ROCK OF AGES CORPORATION, a Delaware corporation (the "Corporation"), does hereby certify that the Corporation was organized in the State of Delaware on July 31, 1997 under the name Rock of Ages Corporation and that this Amended and Restated Certificate of Incorporation, hereby amends, restates and integrates the provisions of the Certificate of Incorporation of the Corporation as currently in effect (the "Certificate of Incorporation") before payment for stock and has been duly adopted in accordance with the provisions of Sections 241 and 245 of the General Corporation Law of the State of Delaware. The text of the Certificate of Incorporation is hereby amended and restated to read in its entirety as follows: FIRST: The name of the Corporation is "Rock of Ages Corporation" (hereinafter the "Corporation"). SECOND: The address of the registered office of the Corporation in the State of Delaware is 1201 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at that address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware as set forth in Title 8 of the Delaware Code (the "DGCL"). The Corporation will have perpetual existence. FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is 47,500,000 shares of capital stock, consisting of (i) 2,500,000 shares of preferred stock, each having a par value of one penny ($.01) ("Preferred Stock"), (ii) 30,000,000 shares of Class A common stock, each having a par value of one penny ($.01) ("Class A Common Stock"), and (iii) 15,000,000 shares of class B common stock, each having a par value of one penny ($.01) ("Class B Common 2 Stock" and, together with Class A Common Stock, "Common Stock"). A. COMMON STOCK ------------ (1) RELATIVE RIGHTS OF PREFERRED STOCK AND COMMON STOCK. All preferences, voting powers, relative, participating, optional or other special rights and privileges and qualifications, limitations or restric tions of the Common Stock are expressly made subject to those that may be fixed with respect to any shares of Preferred Stock. (2) VOTING RIGHTS. (a) Except as otherwise required by law or this Certificate of Incorporation, the holders of shares of Class A Common Stock and the holders of shares of Class B Common Stock shall vote together as a single class, provided, however, that with respect to each matter properly brought before the stockholders for their consideration and vote, each share of Class A Common Stock shall entitle the registered holder thereof to one vote and, subject to subparagraph (b) immediately below, each share of Class B Common Stock shall entitle the registered holder thereof to ten votes. There shall be no cumulative voting. (b) Notwithstanding the immediately preceding subparagraph (a), in the case of each share of Class B Common Stock held of record by a bank, voting trustee, broker, dealer, clearing agency or any nominee thereof, or by any other nominee of the beneficial owner of such share, if (i) the Corporation or the transfer agent for the Class B Common Stock (which may be either the Corporation or any third party retained by it for such purpose) delivers to such record holder a written request (a "Certification Request") that such record holder certify, on a form provided to such record holder with such Certification Request (a "Class B Common Stock Ownership Certificate"), that such share of Class B Common Stock held of record by such record holder has been and continues to be beneficially owned continuously from the date of issuance by the original beneficial owner (whose name and address must be certified to the Corporation by such record holder as part of the Class B Common Stock Ownership Certificate), or by a Permitted Transferee (as defined in paragraph A(4) of Article Fourth hereof) of such original beneficial owner, and (ii) such record holder 2 3 has not within twenty (20) days after delivery to such record holder of a Certification Request, duly executed and filed with the transfer agent for the Class B Common Stock a Class B Common Stock Ownership Certificate, each such share of Class B Common Stock held by such record holder shall entitle such record holder to only one vote unless and until such record holder establishes to the satisfaction of the Corporation that such share of Class B Common Stock has been, and continues to be, beneficially owned continuously from the date of issuance by the original beneficial owner or a Permitted Transferee of such original beneficial owner. (3) CONVERSION. (a) Each share of Class B Common Stock shall be convertible at any time, at the option of the registered holder thereof, into one fully paid and nonassessable share of Class A Common Stock of the Corporation. (b) No fractional shares of Class A Common Stock shall be issued upon such conversion, but in lieu thereof the Corporation shall pay to the holder an amount in cash equal to the fair market value (as determined by the Corporation's Board of Directors) of such fractional share. (c) To convert shares of Class B Common Stock under this paragraph A(3), the registered holder thereof shall surrender the certificate or certificates representing such shares, duly endorsed to the Corporation or in blank (which endorsement shall correspond exactly with the name or names of the registered holder or holders set forth on the face of the certificates and on the stock transfer records of the Corporation), at the office of the transfer agent for the shares of Class B Common Stock (which may be either the Corporation or any third party retained by it for such purpose), and shall give written notice to the transfer agent and the Corporation that such holder elects to convert all or part of the shares represented thereby, stating therein the name or names (with the address or addresses) in which the certificate or certificates for shares of Class A Common Stock are to be issued. (d) If the registered holder fully complies with paragraph A(3)(c), the Corporation shall, as soon as practicable thereafter, deliver (if the Corpora- 3 4 tion is then the transfer agent for the shares of Class B Common Stock), or instruct the transfer agent to deliver, to such holder, or to such holder's nominee or nominees, a certificate or certificates for the number of shares of Class A Common Stock to which such holder shall be entitled, rounded to the nearest whole number of shares, and a check for any amount payable hereunder in lieu of any fractional share, along with a certificate representing any shares of Class B Common Stock that the holder has not elected to convert hereunder but which constituted part of the shares of Class B Common Stock represented by the certificate or certificates surrendered. (e) Shares of Class B Common Stock shall be deemed to have been converted as of the close of business on the date of the due surrender of the certificates representing the shares to be converted as provided above, and the person or persons entitled to receive the shares of Class A Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Class A Common Stock at such time. (f) If the Corporation shall in any manner split or subdivide the outstanding shares of Class A Common Stock or Class B Common Stock, the outstanding shares of the other such class of Common Stock shall be split or subdivided in the same manner, proportionately and on the same basis per share. (g) When shares of Class B Common Stock have been converted pursuant to this paragraph A(3), they shall be irrevocably canceled and not reissued. (4) TRANSFERS OF CLASS B COMMON STOCK. No holder of shares of Class B Common Stock shall transfer, and the Corporation shall not register (and shall not permit the transfer agent for the Class B Common Stock to register) the transfer of, any shares of Class B Common Stock or any interest therein, whether by sale, assignment, gift, bequest, pledge, hypothecation, encumbrance, or any other disposition, except to a "Permitted Transferee" of such person (as defined below). If a holder of shares of Class B Common Stock transfers any such shares to any person or entity other than a Permitted Transferee, such transfer, without any further action of any party or the Corporation, shall automatically and irrevocably convert such shares into an equal number of shares 4 5 of Class A Common Stock from the date of such transfer. "Permitted Transferee" shall mean only: (a) the spouse and any lineal descendant (including adopted children) of any person duly holding shares of Class B Common Stock (a "Qualified Holder"), and any spouse of any such lineal descendant (all such spouses and lineal descendants being hereinafter referred to as "Family Members"); (b) the trustee of a trust for the sole benefit of a Qualified Holder or Family Member; (c) a partnership comprised exclusively of Qualified Holders or Family Members or a corporation or limited liability company wholly owned by Qualified Holders or Family Members, provided, however, that as of the date that such partnership, corporation or limited liability company is no longer comprised exclusively of or owned exclusively by Qualified Holders or Family Members, such partnership, corporation or limited liability company will no longer be a Permitted Transferee and any Class B Common Stock held by it shall automatically and irrevocably be converted into Class A Common Stock without any further action of any party or the Corporation; or (d) the executor, administrator or personal representative of the estate of a Qualified Holder or of any Family Member, or the guardian or conservator of a Qualified Holder or any Family Member who has been adjudged disabled by a court of competent jurisdiction. (5) DIVIDENDS. Subject to the preferential rights of holders of Preferred Stock, if any, the holders of shares of Common Stock shall be entitled to receive, when, as and if declared by the Board of Directors of the Corporation (the "Board of Directors"), out of the assets of the Corporation which are by law available therefor, dividends payable either in cash, in property or in shares of capital stock. No dividend shall be declared or paid in respect of any Common Stock unless the holders of both the Class A Common Stock and the Class B Common Stock receive the same per share dividend, payable in the same amount and type of consideration, as if such classes constituted a single class, except that if any dividend is declared that is payable in shares of, or in subscrip tion or other rights to acquire shares of, Class A Common Stock or Class B Common Stock, such dividend shall be 5 6 declared and paid at the same rate per share with respect to the Class A Common Stock and the Class B Common Stock, and the dividend payable on shares of Class A Common Stock shall be payable only in shares of, or in subscription or other rights to acquire shares of, Class A Common Stock and the dividend payable on shares of Class B Common Stock shall be payable only in shares of, or in subscription or other rights to acquire shares of, Class B Common Stock. (6) DISSOLUTION, LIQUIDATION OR WINDING UP. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, after distribution in full of the preferential amounts, if any, to be distributed to holders of shares of Preferred Stock, unless otherwise required by law, holders of shares of Common Stock shall be entitled to receive all the remaining assets of the Corporation of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. The holders of the Class A Common Stock and the Class B Common Stock shall participate in such assets as if such classes constituted a single class of stock. A dissolution, liquidation or winding-up of the Corporation, as such terms are used in this paragraph A(6), shall not be deemed to be occasioned by or to include any consolidation or merger of the Corporation with or into any other corporation or corporations or other entity or a sale, lease, exchange or conveyance of all or a part of the assets of the Corporation. B. PREFERRED STOCK --------------- (1) GENERAL. The Board of Directors is expressly authorized to provide for the issuance of all or any shares of the Preferred Stock in one or more classes or series, and to fix for each such class or series such voting powers, full or limited, or no voting powers, and such distinctive designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issuance of such class or series and as may be permitted by the DGCL. FIFTH: The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, 6 7 limitation and regulation of the powers of the Corporation and of its directors and stockholders: (1) The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. (2) The number of directors that shall constitute the whole Board of Directors shall from time to time be fixed exclusively by the Board of Directors by a resolution adopted by a majority of the whole Board of Directors serving at the time of that vote. In no event shall the number of directors that constitute the whole Board of Directors be less than three. No decrease in the number of directors shall have the effect of shortening the term of any incumbent director. Election of directors need not be by written ballot unless the By-Laws so provide. (3) In addition to the powers and authority hereinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the DGCL, this Certificate of Incorporation, and any By-Laws adopted by the stockholders; provided, however, that no By-Laws hereafter adopted by the stockholders shall invalidate any prior act of the directors which would have been valid if such By-Laws had not been adopted. (4) The directors shall be divided into three classes designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. The initial division of the Board of Directors into classes shall be made by the decision of the affirmative vote of a majority of the entire Board of Directors. The term of the initial Class I directors shall terminate on the date of the 1998 annual meeting; the term of the initial Class II directors shall terminate on the date of the 1999 annual meeting; and the term of the initial Class III directors shall terminate on the date of the 2000 annual meeting. At each succeeding annual meeting of stockholders begin ning in 1998, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned 7 8 among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be duly elected and shall duly qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Any vacancy on the Board of Directors that results from an increase in the number of directors may be filled by a majority of the directors then in office, provided that a quorum is present, and any other vacancy occurring in the Board of Directors may be filled by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his predecessor and shall hold office until his successor shall be duly elected and shall duly qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. (5) The presence of a majority of the total number of directors shall constitute a quorum for the transaction of business and, except as otherwise provided herein, the vote of a majority of such quorum shall be required in order for the Board of Directors to act. (6) Any director may be removed from office as a director, but only for cause, by the affirmative vote of stockholders who are entitled to cast at least two-thirds (66 2/3%) of the total number of votes entitled to be cast. (7) Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies, removal and other features of such directorships shall be governed by the terms of the instrument creating such class or series of Preferred Stock, and such directors so elected shall not be divided into classes pursuant to 8 9 this Article FIFTH unless expressly provided by such terms. SIXTH: Unless otherwise required by the DGCL, special meetings of stockholders, for any purpose or purposes, may be called only by (i) the Chairman of the Board of Directors (if there be one), (ii) the President of the Corporation, (iii) any Vice President of the Corporation (if there be one), (iv) the Secretary of the Corporation or (v) any Assistant Secretary of the Corpo- ration (if there be one), and shall be called by any such officer at the request in writing of a majority of the Board of Directors. Stockholders shall not be entitled to call a special meeting of stockholders, nor to require the Board of Directors to call such a special meeting. SEVENTH: In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized and empowered to adopt, amend or repeal any provision of the By-Laws of the Corporation. The affirmative vote of at least a majority of the entire Board of Directors shall be required to adopt, amend, alter or repeal the Corporation's By-Laws. The By-Laws of the Corporation also may be adopted, amended or repealed by the stockholders by the affirmative vote of stockholders who are entitled to cast at least two thirds (66 2/3%) of the total number of votes to be cast at an election of directors. EIGHTH: The Corporation shall indemnify its directors and officers to the fullest extent authorized or permitted by law, as now or hereafter in effect, and such right to indemnification shall continue as to a person who has ceased to be a director or officer of the Corporation and shall inure to the benefit of his or her heirs, executors and personal and legal representatives; provided, however, that, except for proceedings to enforce rights to indemnification, the Corporation shall not be obligated to indemnify any director or officer (or his or her heirs, executors or personal or legal repre- sentatives) in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors. The right to indemnification conferred by this Article EIGHTH shall include the right to be paid by the Corporation the expenses incurred in defending or otherwise participating in any proceeding in advance of its final disposition. 9 10 The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article EIGHTH to directors and officers of the Corporation. The rights to indemnification and to the ad vance of expenses conferred in this Article EIGHTH shall not be exclusive of any other right which any person may have or hereafter acquire under this Certificate of Incorporation, the By-Laws of the Corporation, any statute, agreement, vote of stockholders or disinterested directors or otherwise. Any repeal or modification of this Article EIGHTH shall not adversely affect any rights to indemnification and to the advancement of expenses of a director of officer of the Corporation existing at the time of such repeal or modification with respect to any acts or omissions occurring prior to such repeal or modification. NINTH: No director shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereto is not permitted under the DGCL as the same exists or may hereafter be amended. If the DGCL is amended hereafter to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent authorized by the DGCL, as so amended. Any repeal or modification of this Article NINTH shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification. TENTH: Meetings of stockholders may be held within or without the State of Delaware, as the By-Laws may provide. The books of the Corporation may be kept (subject to any provision contained in the DGCL) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-Laws of the Corporation. ELEVENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained 10 11 in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation; provided, however, that, notwithstanding any other provision of this Certificate of Incorporation (and in addition to any other vote that may be required by law), the affirmative vote of stockholders who are entitled to cast at least eighty five percent (85%) of the total number of votes to be cast, shall be required to amend, alter, change or repeal, or to adopt any provision as part of this Certificate of Incorporation inconsistent with the purpose and intent of, Articles FIFTH, SIXTH or SEVENTH, or this Article ELEVENTH, of this Certificate of Incorporation. IN WITNESS WHEREOF, ROCK OF AGES CORPORATION has caused this Certificate of Incorporation to be executed in its corporate name this 4th day of August, 1997. ROCK OF AGES CORPORATION By /S/ Deborah M. Reusch ------------------------------------------- Name: Deborah M. Reusch Title: 11 EX-3.2 7 BY - LAWS 1 EXHIBIT 3.2 BY-LAWS OF ROCK OF AGES CORPORATION (hereinafter called the "Corporation") ARTICLE I OFFICES ------- SECTION 1. REGISTERED OFFICE. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. SECTION 2. OTHER OFFICES. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors of the Corporation (the "Board of Directors") may from time to time determine. ARTICLE II MEETINGS OF STOCKHOLDERS ------------------------ SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware as shall be designated from time to time by the Board of Directors. 2 SECTION 2. ANNUAL MEETINGS. The Annual Meetings of Stockholders for the election of directors shall be held on such date and at such time as shall be designated from time to time by the Board of Directors. SECTION 3. NATURE OF BUSINESS AT ANNUAL MEETINGS. No business may be transacted at an Annual Meeting of Stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the Annual Meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the Annual Meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 3 and on the record date for the determination of stockholders entitled to vote at such Annual Meeting and (ii) who complies with the notice procedures set forth in this Section 3. In addition to any other applicable requirements, for business to be properly brought before an Annual Meeting by a stockholder, such stockholder must 2 3 have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding Annual Meeting of Stockholders; PROVIDED, HOWEVER, that in the event that the Annual Meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the Annual Meeting was mailed or such public disclosure of the date of the Annual Meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the Annual Meeting (i) a brief description of the business desired to be brought before the Annual Meeting and the reasons for conducting such business at the Annual Meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock 3 4 of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the Annual Meeting to bring such business before the meeting. No business shall be conducted at the Annual Meeting of Stockholders except business brought before the Annual Meeting in accordance with the procedures set forth in this Section 3; PROVIDED, HOWEVER, that, once business has been properly brought before the Annual Meeting in accordance with such procedures, nothing in this Section 3 shall be deemed to preclude discussion by any stockholder of any such business. If the Chairman of an Annual Meeting determines that business was not properly brought before the Annual Meeting in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the business was not properly brought before the Annual Meeting and such business shall not be transacted. 4 5 SECTION 4. SPECIAL MEETINGS. Unless otherwise required by law or by the certificate of incorporation of the Corporation, as amended and restated from time to time (the "Certificate of Incorporation"), Special Meetings of Stockholders, for any purpose or purposes, may be called only by (i) the Chairman (if there be one), (ii) the President, (iii) any Vice President (if there be one), (iv) the Secretary or (v) any Assistant Secretary (if there be one), and shall be called by any such officer at the request in writing of a majority of the Board of Directors. Such request shall state the purpose or purposes of the proposed meeting. At a Special Meeting of Stockholders, only such business shall be conducted as shall be specified in the notice of meeting (or any supplement thereto). SECTION 5. NOMINATION OF DIRECTORS AT ANNUAL AND SPECIAL MEETINGS. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation, except as may be otherwise provided in the Certificate of Incorporation with respect to the right of holders of preferred stock of the Corporation to nominate and elect a specified number of directors in certain circumstances. Nominations of persons for election to the Board of 5 6 Directors may be made at any Annual Meeting of Stockholders, or at any Special Meeting of Stockholders called for the purpose of electing directors, (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 5 and on the record date for the determination of stockholders entitled to vote at such meeting and (ii) who complies with the notice procedures set forth in this Section 5. In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation (a) in the case of an Annual Meeting, not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding Annual Meeting of Stockholders; PROVIDED, HOWEVER, that in the event that the Annual Meeting is called for a date that is not within thirty (30) days before or after such anniversary 6 7 date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the Annual Meeting was mailed or such public disclosure of the date of the Annual Meeting was made, whichever first occurs; and (b) in the case of a Special Meeting of Stockholders called for the purpose of electing directors, not later than the close of business on the tenth (10th) day following the day on which notice of the date of the Special Meeting was mailed or public disclosure of the date of the Special Meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies 7 8 for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice, (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in such stockholder's notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected. 8 9 No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 5. If the Chairman of the meeting determines that a nomina tion was not made in accordance with the foregoing proce dures, the Chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. SECTION 6. NOTICE. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise re quired by law, the written notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. SECTION 7. ADJOURNMENTS. Any meeting of the stockholders may be adjourned from time to time to recon vene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the 9 10 Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 8. QUORUM. Unless otherwise required by law or the Certificate of Incorporation, the holders of capital stock of the Corporation representing a majority of the total votes represented by all outstanding capital stock of the Corporation, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, in the manner provided in Section 7, until a quorum shall be present or represented. 10 11 SECTION 9. VOTING. Unless otherwise required by law, the Certificate of Incorporation or these By-laws, any question brought before any meeting of stockholders, other than the election of directors, shall be decided by the vote of the holders of a majority of the total number of votes of the capital stock represented and entitled to vote thereat, voting as a single class. Subject to Section 5 of Article V hereof, each stockholder represented at a meeting of stockholders shall be entitled to cast the number of votes as provided in the Certificate of Incorporation. Such votes may be cast in person or by proxy but no proxy shall be voted on or after three years from its date, unless such proxy provides for a longer period. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in such officer's discretion, may require that any votes cast at such meeting shall be cast by written ballot. SECTION 10. ACTION BY CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless otherwise provided in the Certificate of Incorporation, any action required or permitted to be taken at any Annual or Special Meeting of Stockholders of the Corporation, may be taken without a meeting, without prior notice and without a vote, if a 11 12 consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty days of the earliest dated consent delivered in the manner required by this Section 10 to the Corporation, written consents signed by a sufficient number of holders to take action are delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are 12 13 recorded. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the Corporation as provided above in this section. SECTION 11. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall 13 14 also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present. SECTION 12. STOCK LEDGER. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 11 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. SECTION 13. CONDUCT OF MEETINGS. The Board of Directors of the Corporation may adopt by resolution such rules and regulations for the conduct of the meeting of the stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of the stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or 14 15 order of business for the meeting; (ii) the determination of when the polls shall open and close for any given matter to be voted on at the meeting; (iii) rules and procedures for maintaining order at the meeting and the safety of those present; (iv) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (v) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (vi) limitations on the time allotted to questions or comments by participants. ARTICLE III DIRECTORS --------- SECTION 1. ELECTION OF DIRECTORS. Except as otherwise required by law or the Certificate of Incorporation, directors shall be elected by a plurality of the votes cast at the Annual Meetings of Stockholders and each director so elected shall hold office until the next Annual Meeting of Stockholders and until such director's successor is duly elected and qualified, or until such director's earlier death, resignation or removal. Any 15 16 director may resign at any time upon written notice to the Corporation. Directors need not be stockholders. SECTION 2. DUTIES AND POWERS. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws required to be exercised or done by the stockholders. SECTION 3. MEETINGS. The Board of Directors may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman (if there be one), the Chief Executive Officer (if there be one), the President, or by any other officer of the Corporation upon the request of a majority of the directors then in office. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone or telegram on twenty-four (24) hours' notice, or on such 16 17 shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. SECTION 4. QUORUM. Except as otherwise required by law or the Certificate of Incorporation, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting of the time and place of the adjourned meeting, until a quorum shall be present. SECTION 5. ACTIONS BY WRITTEN CONSENT. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. 17 18 SECTION 6. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Members of the Board of Directors of the Corporation, or any committee thereof, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 6 shall constitute presence in person at such meeting. SECTION 7. COMMITTEES. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified mem- 18 19 ber. Any committee, to the extent permitted by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Each committee shall keep regular minutes and report to the Board of Directors when required. SECTION 8. COMPENSATION. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid such other compensation as may be determined by the Board of Directors from time to time. SECTION 9. INTERESTED DIRECTORS. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because the director or officer's vote is counted for such purpose if (i) the material facts as to the director or officer's relation ship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the 19 20 contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to the director or officer's relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. 20 21 ARTICLE IV OFFICERS -------- SECTION 1. GENERAL. The officers of the Corporation shall be chosen by the Board of Directors and shall be a President, a Secretary and a Treasurer. The Board of Directors, in its discretion, also may choose a Chief Executive Officer, Chairman of the Board of Directors (who must be a director) and one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law or the Certificate of Incorporation. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman of the Board of Directors, need such officers be directors of the Corporation. SECTION 2. ELECTION. The Board of Directors, at its first meeting held after each Annual Meeting of Stockholders (or action by written consent of stockholders in lieu of the Annual Meeting of Stockholders), shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and all 21 22 officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier death, resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the affirmative vote of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the Chief Executive Officer (if there be one), the President or any Vice President or any other officer authorized to do so by the Board of Directors and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by reso- 22 23 lution, from time to time confer like powers upon any other person or persons. SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS; CHIEF EXECUTIVE OFFICER. The Chairman of the Board of Directors (if there be one) shall preside at all meetings of the stockholders and of the Board of Directors. Except where by law the signature of the President is required, each of the Chairman of the Board of Directors (if there be one) and the Chief Executive Officer (if there be one) shall possess the same power as the President to sign all contracts, certificates and other instruments of the Corporation which may be authorized by the Board of Directors. During the absence or disability of the President, the Chairman of the Board of Directors or the Chief Executive Officer, as the Board of Directors shall determine, shall exercise all the powers and discharge all the duties of the President. The Chairman of the Board of Directors and the Chief Executive Officer shall also perform such other duties and may exercise such other powers as may from time to time be assigned by these By-Laws or by the Board of Directors. SECTION 5. PRESIDENT. The President shall, subject to the control of the Board of Directors and, if there be one, the Chief Executive Officer, have general 23 24 supervision of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall execute all bonds, mortgages, contracts and other instruments of the Corporation requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the Corporation may sign and execute documents when so authorized by these By-Laws, the Board of Directors or the President. In the absence or disability of the Chairman of the Board of Directors, or if there be none, the President shall preside at all meetings of the stockholders and the Board of Directors. The President shall also perform such other duties and may exercise such other powers as may from time to time be assigned to such officer by these By-Laws or by the Board of Directors. SECTION 6. VICE PRESIDENTS. At the request of the President or in the President's absence or in the event of the President's inability or refusal to act (and if there be no Chief Executive Officer or Chairman of the Board of Directors), the Vice President, or the Vice Presidents if there is more than one (in the order designated by the Board of Directors), shall perform the 24 25 duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Vice President shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe. If there be no Chairman of the Board of Directors, Chief Executive Officer or Vice President, the Board of Directors shall designate the officer of the Corporation who, in the absence of the President or in the event of the inability or refusal of the President to act, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. SECTION 7. SECRETARY. The Secretary shall attend all meetings of the Board of Directors and all meetings of stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for committees of the Board of Directors when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board of Directors (if there be one), the 25 26 Chief Executive Officer (if there be one) or the President, under whose supervision the Secretary shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors, the Chief Executive Officer (if there be one) or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation, and the Secretary or any Assistant Secretary (if there be one) shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest to the affixing by such officer's signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be. SECTION 8. TREASURER. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and 26 27 disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Chief Executive Officer (if there be one), the President or the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Chief Executive Officer (if there be one), the President or the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chief Executive Officer (if there be one), the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of the office of the Treasurer and for the restoration to the Corporation, in case of the Treasurer's death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Treasurer's possession or under the Treasurer's control belonging to the Corporation. 27 28 SECTION 9. ASSISTANT SECRETARIES. Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the Chief Executive Officer (if there be one), the President, any Vice President (if there be one) or the Secretary, and in the absence of the Secretary or in the event of the Secretary's disability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary. SECTION 10. ASSISTANT TREASURERS. Assistant Treasurers, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the Chief Executive Officer (if there be one), the President, any Vice President (if there be one) or the Treasurer, and in the absence of the Treasurer or in the event of the Treasurer's disability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. If required by the Board of Directors, an Assistant Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be 28 29 satisfactory to the Board of Directors for the faithful performance of the duties of the office of Assistant Treasurer and for the restoration to the Corporation, in case of the Assistant Treasurer's death, resignation, re- tirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Assistant Treasurer's possession or under the Assis tant Treasurer's control belonging to the Corporation. SECTION 11. OTHER OFFICERS. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers. ARTICLE V STOCK ----- SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the Corporation shall be entitled to have a certificate signed, in the name of the Corporation (i) by the Chairman of the Board of Directors, the President or a Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secre- 29 30 tary of the Corporation, certifying the number of shares owned by such stockholder in the Corporation. SECTION 2. SIGNATURES. Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or the owner's legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a 30 31 bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed or the issuance of such new certificate. SECTION 4. TRANSFERS. Stock of the Corporation shall be transferable in the manner prescribed by law and in these By-Laws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by such person's attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be cancelled before a new certificate shall be issued. No transfer of stock shall be valid as against the Corporation for any purpose until it shall have been entered in the stock records of the Corporation by an entry showing from and to whom transferred. SECTION 5. RECORD DATE. (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board 31 32 of Directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (b) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. 32 33 If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. SECTION 6. RECORD OWNERS. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise required by law. ARTICLE VI NOTICES ------- SECTION 1. NOTICES. Whenever written notice is required by law, the Certificate of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, such notice may be given by mail or by a nationally recognized overnight delivery service, addressed to such director, member of a committee or stockholder, at such person's address as it ap- 33 34 pears on the records of the Corporation, with postage thereon prepaid if by mail, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail or if applicable, entrusted to such nationally recognized overnight delivery service. Written notice may also be given personally or by telegram, telex or cable. SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required by law, the Certificate of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed, by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance of a person at a meeting, present in person or represented by proxy, shall constitute a waiver of notice of such meeting, except where the person attends the meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. 34 35 ARTICLE VII GENERAL PROVISIONS ------------------ SECTION 1. DIVIDENDS. Dividends upon the capital stock of the Corporation, subject to the requirements of the General Corporation Law of the State of Delaware and the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting of the Board of Directors (or any action by written consent in lieu thereof in accordance with Section 5 of Article III hereof), and may be paid in cash, in property or in shares of the Corporation's capital stock. Before pay- ment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve. SECTION 2. DISBURSEMENTS. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person 35 36 or persons as the Board of Directors may from time to time designate. SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. SECTION 4. CORPORATE SEAL. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. 36 37 ARTICLE VIII INDEMNIFICATION --------------- SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investi- gative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director or officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such 37 38 person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person's conduct was unlawful. SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys' fees) 38 39 actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any indemnification under this Article VIII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article VIII, as the case may be. Such determination shall be made (i) by a majority vote of the 39 40 directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (ii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion or (iii) by the stockholders. To the extent, however, that a director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case. SECTION 4. GOOD FAITH DEFINED. For purposes of any determination under Section 3 of this Article VIII, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe such person's conduct was unlawful, if such person's action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to such person by the officers of the Corporation or another 40 41 enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term "another enterprise" as used in this Section 4 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be. SECTION 5. INDEMNIFICATION BY A COURT. Not withstanding any contrary determination in the specific case under Section 3 of this Article VIII, and notwithstanding the absence of any determination thereunder, any director or officer may apply to the Court of Chancery in the State of Delaware for indemnification to the extent otherwise permissible under Sections 1 and 2 of this 41 42 Article VIII. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standards of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be. Neither a contrary determination in the specific case under Section 3 of this Article VIII nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 5 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application. SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred by a director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it 42 43 shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this Article VIII. SECTION 7. NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The indemnification and advancement of expenses provided by or granted pursuant to this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Certificate of Incorporation, any By-Law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Sections 1 and 2 of this Article VIII shall be made to the fullest extent permitted by law. The provisions of this Article VIII shall not be deemed to preclude the indemnification of any person who is not specified in Section 1 or 2 of this Article VIII but whom the Corporation has the power or obligation to indemnify under the provisions of the General Corporation Law of the State of Delaware, or otherwise. 43 44 SECTION 8. INSURANCE. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power or the obligation to indemnify such person against such liability under the provisions of this Article VIII. SECTION 9. CERTAIN DEFINITIONS. For purposes of this Article VIII, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as 44 45 a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article VIII, references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article VIII. SECTION 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The indemnification and advancement of expenses provided by, or granted pursuant 45 46 to, this Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION 11. LIMITATION ON INDEMNIFICATION. Notwithstanding anything contained in this Article VIII to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 5 hereof), the Corporation shall not be obligated to indemnify any director or officer in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation. SECTION 12. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article VIII to directors and officers of the Corporation. 46 47 ARTICLE IX AMENDMENTS ---------- SECTION 1. AMENDMENTS. Subject to the voting requirements set forth in the Certificate of Incorporation, these By-Laws may be altered, amended or repealed, in whole or in part, or new By-Laws may be adopted by the stockholders or by the Board of Directors. SECTION 2. ENTIRE BOARD OF DIRECTORS. As used in this Article IX and in these By-Laws generally, the term "entire Board of Directors" means the total number of directors which the Corporation would have if there were no vacancies. * * * 47 EX-10.1 8 AMENDED & RESTATED 1994 STOCK PLAN 1 Exhibit 10.1 ROCK OF AGES CORPORATION FORM OF AMENDED AND RESTATED 1994 STOCK PLAN 1. Purpose. This Amended and Restated 1994 Stock Plan (the "Plan") is intended to benefit and provide incentives: (a) to the employees of Rock of Ages Corporation, a Delaware corporation (the "Company"), its parent (if any) and any present or future subsidiaries of the Company (collectively, "Related Corporations"), by providing them with opportunities to purchase stock in the Company pursuant to options granted hereunder which qualify as "incentive stock options" ("ISO" or "ISOs") under Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"); (b) to employees, directors and consultants of the Company and Related Corporations by providing them with opportunities to purchase stock in the Company pursuant to options granted hereunder which do not qualify as ISOs ("Non-Qualified Option" or "Non-Qualified Options"); and (c) to employees, directors and consultants of the Company and Related Corporations by providing them with awards or opportunities to make direct purchases, of stock in the Company ("Awards"). Both ISOs and Non-Qualified Options are referred to hereinafter individually as an "Option" and collectively as "Options." Options and Awards are referred to hereinafter collectively as "Stock Rights." As used herein, the terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary corporation," respectively, as those terms are defined in Section 424 of the Code. 2. Administration of the Plan. A. Board or Committee Administration. The Plan shall be administered by a Committee of not less than two (2) persons, each of whom shall be a "Non-Employee Director" within the meaning of Rule 16b-3(b)(3)(i) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and an "outside director" within the meaning of Section 162(m) of the Code. The members of the Committee shall be appointed by the Company's Board of Directors (the "Board") and shall serve at the pleasure of the Board. If no Committee has been appointed to administer the Plan, the functions of the Committee specified in the Plan shall be carried out by 2 the Board, except that at any time after a registration of any of the Company's stock under the Exchange Act or the Company otherwise becomes subject to the reporting requirements of the Exchange Act, administration by a Committee is required. Subject to the terms of the Plan, the Committee shall have the authority to: (i) determine the employees of the Company and Related Corporations (from among the class of employees eligible under paragraph 3 to receive ISOs) to whom ISOs may be granted, and to determine (from among the class of individuals and entities eligible under paragraph 3 to receive Non-Qualified Options and Awards) to whom Non-Qualified Options and Awards may be granted; (ii) determine the time or times at which Options or Awards may be granted; (iii) determine the option price of shares subject to each Option, which price shall not be less than the minimum price specified in paragraph 6, and the purchase price (if any) of shares subject to each Award; (iv) determine whether each Option granted shall be an ISO or a Non-Qualified Option; (v) determine (subject to paragraph 7) the time or times when each Option shall become exercisable and the duration of the exercise period; (vi) determine whether restrictions such as repurchase rights and other vesting restrictions are to be imposed on shares subject to Options and Awards and the nature of such restrictions, if any; and (vii) interpret the Plan and prescribe and rescind rules and regulations relating to it. If the Committee determines to issue a Non-Qualified Option, it shall designate the Non-Qualified Option as such upon grant and in the agreement governing such Non-Qualified Option. The interpretation and construction by the Committee of any provisions of the Plan or of any Stock Right granted under it shall be final unless otherwise determined by the Board. The Committee may from time to time adopt such rules and regulations for carrying out the Plan as it may deem best. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Stock Right granted under the Plan. 2 3 B. Committee Actions. The Committee may select one of its members as its chairman, and shall hold meetings at such time and place as it may determine. Acts by a majority of the Committee, or acts reduced to or approved in writing by a majority of the members of the Committee, shall be the valid acts of the Committee. All references in this Plan to the Committee shall mean the Board if no Committee has been appointed. 3. Eligible Employees and Others. ISOs may be granted to any employee (including employees who serve as officers or directors) of the Company or any Related Corporation. Non-Qualified Options and Awards may be granted to any employee (including an employee who serves as an officer or director), director or consultant (including a consultant who also serves as a director) of the Company or any Related Corporation. The Committee may take into consideration a recipient's individual circumstances in determining whether to grant a Stock Right. No participant in the Plan shall be granted Stock Rights which in the aggregate exceed 50% of the total number of shares of Class A Common Stock, par value $.01 per share ("Class A Common Stock"), and Class B Common Stock, par value $.01 per share, of the Company (collectively, the "Common Stock"), authorized to be issued with respect to such Stock Rights pursuant to the Plan. The granting of any Stock Right to any individual or entity shall neither entitle that individual or entity to, nor disqualify him from, participation in any other grant of Stock Rights. 4. Stock. The stock subject to Options and Awards shall be authorized but unissued shares of Common Stock or shares of Common Stock reacquired by the Company in any manner; provided that the stock subject to Options granted on or after the date of consummation of the Company's initial public offering shall be Class A Common Stock only. The aggregate number of shares which may be issued pursuant to the Plan is 1,500,000, (which aggregate number of shares reflects (i) the adjustment, pursuant to Section 13 of the Plan as in effect at the time, and as a result, of the reincorporation merger of Rock of Ages Corporation, a Vermont corporation and the predecessor to the Company, with and into the Company on August 12, 1997 (the "Reincorporation Merger"), including the 1-for-2 reverse stock split effected pursuant to the Reincorporation Merger, and (ii) and a 500,000 share increase in such aggregate number of shares approved by the Board as of August , 1997 in connection with the approval and adoption by the Board of the Plan as set forth in Section 15 hereof, subject to adjustment as provided in paragraph 13. Any such shares may be issued pursuant to ISOs, Non-Qualified Options or Awards, so long as the number of shares so issued does not exceed such number, as adjusted. If any Option granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part, or if the Company shall reacquire any unvested shares issued pursuant to Awards, the unpurchased shares subject to such Options and any unvested shares so reacquired by the Company shall again be available for grants of Stock Rights under the Plan. 5. Granting of Stock Rights. Stock Rights may be granted under the Plan at any time on or after November 21, 1994 and prior to November 21, 2004. The date of grant of a Stock Right under the Plan will be the date specified by the Committee at the time it grants the Stock Right; provided, however, that such date shall not be prior to the date on which the Committee acts to approve the grant. The Committee shall 3 4 have the right, with the consent of the optionee, to convert an ISO granted under the Plan to a Non-Qualified Option pursuant to paragraph 16. 6. Minimum Option Price; ISO Limitations. A. Price for Non-Qualified Options. The exercise price per share specified in the agreement relating to each Non-Qualified Option granted under the Plan shall in no event be less than the par value per share of Common Stock as of the date of grant. B. Exercise Price for ISOs. The exercise price per share of Common Stock specified in the agreement relating to each ISO granted under the Plan shall not be less than the fair market value per share of Common Stock on the date of such grant. In the case of an ISO to be granted to an employee owning stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Related Corporation, the price per share specified in the agreement relating to such ISO shall not be less than one hundred ten percent (110%) of the fair market value per share of Common Stock on the date of such grant. C. $100,000 Annual Limitation on ISOs. Each eligible employee may be granted ISOs only to the extent that, in the aggregate under this Plan and all incentive stock option plans of the Company and any Related Corporation, such ISOs do not become exercisable for the first time by such employee during any calendar year in a manner which would entitle the employee to purchase more than $100,000 in fair market value (determined at the time the ISOs were granted) of Common Stock in that year. Any options granted to an employee in excess of such amount will be granted as Non-Qualified Options. D. Determination of Fair Market Value. If, at the time an Option is granted under the Plan, the Company's Common Stock is publicly traded, "fair market value" shall be determined as of the last business day for which the prices or quotes referred to in this sentence are available prior to the date such Option is granted and shall mean (i) the average (on that date) of the high and low prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the last reported sale price (on that date) of the Common Stock on the Nasdaq National Market, if the Common Stock is not then traded on a na- 4 5 tional securities exchange; or (iii) the closing bid price (or average bid prices) last quoted (on that date) by an established quotation service for over-the-counter securities, if the Common Stock is not then listed on the Nasdaq National Market. However, if the Common Stock is not publicly traded at the time an Option is granted under the Plan, "fair market value" shall be deemed to be the fair value of the Common Stock as determined by the Committee after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm's length. 7. Option Duration. Subject to earlier termination as provided in paragraphs 9 and 10, each Option shall expire on the date specified by the Committee, but not more than (i) ten years from the date of grant in the case of Non-Qualified Options and in the case of ISOs generally, and (ii) five years from the date of grant in the case of ISOs granted to an employee owning stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Related Corporation. Subject to earlier termination as provided in paragraphs 9 and 10, the term of each ISO shall be the term set forth in the original instrument granting such ISO, except with respect to any part of such ISO that is converted into a Non-Qualified Option pursuant to paragraph 16. 8. Exercise of Option. Subject to the provisions of paragraphs 9 through 12, each Option granted under the Plan shall be exercisable as follows: A. Vesting. The Option (or any portion thereof) shall either be fully exercisable on the date of grant or shall become exercisable thereafter in such installments as the Committee may specify. B. Full Vesting of Installments. Once an installment becomes exercisable, it shall remain exercisable until expiration or termination of the Option, unless otherwise specified by the Committee. C. Partial Exercise. Each Option or installment may be exercised at any time or from time to time, in whole or in part, for up to the total number of shares with respect to which it is then exercisable. D. Acceleration of Vesting. The Committee shall have the right to accelerate the date of exercise of any installment of any Option; provided, that the Committee shall not, without the consent of an optionee, accel- 5 6 erate the exercise date of any installment of any Option granted to any employee as an ISO (and not previously converted into a Non-Qualified Option pursuant to paragraph 16) if such acceleration would violate the annual vesting limitation contained in Section 422(d) of the Code, as described in paragraph 6(C). 9. Termination of Employment. If an ISO optionee ceases to be employed by the Company and all Related Corporations other than by reason of death or disability as defined in paragraph 10, no further installments of his ISOs shall become exercisable (unless otherwise approved by the Committee), and his ISOs which are exercisable on the date of termination of his employment shall terminate after the passage of three months from the date of termination of his employment, but in no event later than on their specified expiration dates, except (i) in the case of termination for "Misconduct," as defined in the instrument granting such ISOs, in which case such ISOs shall terminate automatically on the date of such termination, and (ii) to the extent that such ISOs (or unexercised installments thereof) have been converted into Non-Qualified Options pursuant to paragraph 16. Employment shall be considered as continuing uninterrupted during any bona fide leave of absence (such as those attributable to illness, military obligations or governmental service); provided, that the period of such leave does not exceed three months or, if longer, any period during which such optionee's right to reemployment is guaranteed by statute. A bona fide leave of absence with the written approval of the Committee shall not be considered an interruption of employment under the Plan, provided, that such written approval contractually obligates the Company or any Related Corporation to continue the employment of the optionee after the approved period of absence. ISOs granted under the Plan shall not be affected by any change of employment within or among the Company and Related Corporations, so long as the optionee continues to be an employee of the Company or any Related Corporation. Nothing in the Plan shall be deemed to give any grantee of any Stock Right the right to be retained in employment or other service by the Company or any Related Corporation for any period of time. 10. Death; Disability. A. Death. If an ISO optionee ceases to be employed by the Company and all Related Corporations by reason of his death, any ISO of his may be exercised, to the extent of the number of shares with respect to which he could have exercised it on the date of his death, by his estate, personal representative or beneficiary who has acquired the ISO by will or by the laws of descent and 6 7 distribution, at any time prior to the earlier of the specified expiration date of the ISO or 180 days from the date of the optionee's death or such longer period not in excess of one year as the Committee shall determine. B. Disability. If an ISO optionee ceases to be employed by the Company and all Related Corporations by reason of his disability, he shall have the right to exercise any ISO held by him on the date of termination of employment, to the extent of the number of shares with respect to which he could have exercised it on that date, at any time prior to the earlier of the specified expiration date of the ISO or 180 days from the date of the termination of the optionee's employment or such longer period not in excess of one year as the Committee shall determine. For the purposes of the Plan, the term "disability" shall mean "permanent and total disability" as defined in Section 22(e)(3) of the Code or successor statute. 11. Assignability. No Option shall be assignable or transferable by the optionee except by will or by the laws of descent and distribution or, if then permitted under Rule 16b-3 of the Exchange Act, pursuant to a qualified domestic relations order as defined under the Code or Title I of the Employee Retirement Income Security Act, or the rules thereunder. The Option shall be exercisable during the lifetime of the optionee only by such optionee or his guardian or legal representative. Notwithstanding the foregoing, to the extent the instrument evidencing any Non-Qualified Option so provides, and subject to the conditions that the Committee may prescribe, an optionee may, upon providing written notice to the President of the Company, elect to transfer the Options granted to such optionee pursuant to such instrument, without consideration therefor. The terms of such Option shall be binding upon any recipient of such Option. 12. Terms and Conditions of Options. Options shall be evidenced by instruments (which need not be identical) in such forms as the Committee may from time to time approve. Such instruments shall conform to the terms and conditions set forth in paragraphs 6 through 11 hereof and may contain such other provisions as the Committee deems advisable which are not inconsistent with the Plan, including restrictions applicable to shares of Common Stock issuable upon exercise of Options (including, without limitation, rights of repurchase by the Company and, in the event of an underwritten public offering of the Company's securities, restrictions on any sale or distribution by the optionee of any of the Company's common equity for a period of time as the underwriters in such public offering 7 8 shall determine). In granting any Non-Qualified Option, the Committee may specify that such Non-Qualified Option shall be subject to the restrictions set forth herein with respect to ISOs, or to such other termination, cancellation and other provisions not inconsistent with the Plan as the Committee may determine. The Committee may from time to time confer authority and responsibility on one or more of its own members or one or more officers of the Company to execute and deliver such instruments. The proper officers of the Company are authorized and directed to take any and all action necessary or advisable from time to time to carry out the terms of such instruments. 13. Adjustments. Upon the occurrence of any of the following events, an optionee's rights with respect to Options granted to him hereunder shall be adjusted as and to the extent hereinafter required, unless otherwise specifically provided in the written agreement between the optionee and the Company relating to such Option: A. Stock Dividends and Stock Splits. If the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, the number of shares of Common Stock deliverable upon the exercise of Options shall be appropriately increased or decreased proportionately and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or stock dividend. B. Consolidations or Mergers. If the Company is to be consolidated with or acquired by another entity in a merger, sale of all or substantially all of the Company's assets or otherwise (an "Acquisition"), the committee or the board of directors of any entity assuming the obligations of the Company hereunder (the "Successor Board"), shall, as to outstanding Options, either (i) make appropriate provision for the continuation of such Options by (A) substituting on an equitable basis for the shares then subject to such Options the consideration payable with respect to the outstanding shares of Common Stock in connection with the Acquisition or (B) making such other equitable changes or adjustments in the terms of such Options (including without limitation the type or number of shares of capital stock subject to such Options and the respective exercise prices thereof) as the Successor Board shall deem necessary or appropriate; (ii) upon written notice to the optionees, provide that all Options must be exercised, to the extent then exercisable (or in the discretion of the Committee or the Successor Board, also 8 9 provide that all unvested Options shall be, or become at the time which the Committee shall determine, immediately exercisable), within a specified number of days of the date of such notice, at the end of which period the Options shall terminate; or (iii) terminate all Options in exchange for a cash payment or other consideration equal to the excess of the fair market value of the shares subject to such Options (to the extent then exercisable, or in the discretion of the Committee or the Successor Board, whether or not then exercisable) over the exercise price thereof. C. Recapitalization or Reorganization. In the event of a recapitalization or reorganization of the Company (other than a transaction described in subparagraph B above) pursuant to which securities of the Company or of another corporation are issued with respect to the outstanding shares of Common Stock, an optionee upon exercising an Option shall be entitled to receive for the purchase price paid upon such exercise, the securities he would have received if he had exercised his Option immediately prior to such recapitalization or reorganization. D. Modification of ISOs. Notwithstanding the foregoing, any adjustments made pursuant to subparagraphs A, B or C with respect to ISOs shall be made only after the Committee, after consulting with counsel for the Company, determines whether such adjustments would constitute a "modification" of such ISOs (as that term is defined in Section 424 of the Code) or would cause any adverse tax consequences for the holders of such ISOs. If the Committee determines that such adjustments made with respect to ISOs would constitute a modification of such ISOs, it may refrain from making such adjustments. E. Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, each Option will terminate immediately prior to the consummation of such proposed action or at such other time and subject to such other conditions as shall be determined by the Committee. F. Issuances of Securities. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to Options. No adjustments shall be made for dividends paid in cash or in property other than securities of the Company. 9 10 G. Fractional Shares. No fractional shares shall be issued under the Plan and the optionee shall receive from the Company cash in lieu of such fractional shares. H. Adjustments. Upon the happening of any of the events described in subparagraphs A, B or C above, the class and aggregate number of shares set forth in paragraph 4 hereof that are subject to Stock Rights which previously have been or subsequently may be granted under the Plan shall also be appropriately adjusted to reflect the events described in such subparagraphs. If changes in the capitalization of the Company shall occur other than those referred to above in this Paragraph 13, the Committee shall make such adjustments, if any, in the number of shares covered by each Option and in the per share purchase price as the Committee in its discretion may consider appropriate. The Committee or, if applicable, the Successor Board, shall determine the specific adjustments to be made under this paragraph 13 and its determination shall be conclusive. If any person or entity owning restricted Common Stock obtained by exercise of a Stock Right made hereunder receives shares or securities or cash in connection with a corporate transaction described in subparagraphs A, B or C above as a result of owning such restricted Common Stock, such shares or securities or cash shall be subject to all of the conditions and restrictions applicable to the restricted Common Stock with respect to which such shares or securities or cash were issued, unless otherwise determined by the Committee or the Successor Board. 14. Means of Exercising Options. An Option (or any part or installment thereof) shall be exercised by giving written notice to the Company at its principal executive office or to the transfer agent as the Company shall designate. Such notice shall identify the Option being exercised and specify the number of shares as to which such Option is being exercised, accompanied by full payment of the purchase price therefor either (a) in United States dollars in cash or by check, (b) at the discretion of the Committee, through delivery of shares of Common Stock having a fair market value equal as of the date of the exercise to the cash exercise price of the Option, (c) at the discretion of the Committee, by delivery of the grantee's personal recourse note bearing interest payable not less than annually at no less than 100% of the lowest applicable Federal rate, as defined in Section 1274(d) of the Code or (d) at the discretion of the Committee, by any combination of (a), (b) or (c) above. If the Committee exercises 10 11 its discretion to permit payment of the exercise price of an Option by means of the methods set forth in clauses (b), (c) or (d) of the preceding sentence, such discretion shall be exercised in writing at the time of the grant of the Option in question. In connection with any payment pursuant to clause (c) above, the Committee may require the optionee to concurrently execute and deliver to the Company a pledge agreement in a form reasonably satisfactory to the Company, together with a stock certificate or certificates representing shares of the Company's Common Stock (having an aggregate fair market value equal as of the date of exercise to at least the value of the principal amount of the note), duly endorsed or accompanied by a stock power or powers duly endorsed, to secure the optionee's obligations under such personal recourse note. The holder of an Option shall not have the rights of a shareholder with respect to the shares covered by his Option until the date of issuance of a stock certificate to him for such shares. Except as expressly provided above in paragraph 13 with respect to changes in capitalization and stock dividends, no adjustment shall be made for dividends or similar rights for which the record date is before the date such stock certificate is issued. 15. Term and Amendment of Plan. The Plan was originally adopted by the Board and the shareholders of the Company on November 21, 1994. The Plan was amended by action of the Board which, on December 16, 1996, approved and adopted an amendment and restatement thereof, effective on December 31, 1996, which amendment and restatement was approved by the sole shareholder of the Company on December 31, 1996. The Plan as currently in effect was approved and adopted by the Board as of August , 1997 and was approved by the shareholders of the Company as of August , 1997. The Plan shall expire at the end of the day on November 21, 2004 (except as to Stock Rights outstanding on that date). The Board may terminate or amend the Plan in any respect at any time; provided, that no such amendment or termination shall adversely affect any Plan participant's rights under any Stock Right previously granted, without such participant's written consent. 16. Conversion of ISOs into Non-Qualified Options; Termination of ISOs. The Committee, at the written request of any optionee, may in its discretion, take such actions as may be necessary to convert such optionee's ISOs (or any installments or portions of installments thereof) that have not been exercised on the date of conversion into Non-Qualified Options at any time prior to the expiration of such ISOs, regardless of whether the optionee is an employee of the Company or a Related Corporation at the time of such conversion. Such actions may 11 12 include, but not be limited to, extending the exercise period or reducing the exercise price of the appropriate installments of such ISOs. At the time of such conversion, the Committee (with the consent of the optionee) may impose such conditions on the exercise of the resulting Non-Qualified Options as the Committee in its discretion may determine; provided, that such conditions shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to give any optionee the right to have such optionee's ISOs converted into Non-Qualified Options, and no such conversion shall occur until and unless the Committee takes appropriate action. The Committee, with the consent of the optionee, may also terminate any portion of any ISO that has not been exercised at the time of such conversion. 17. Governmental Regulation. The Company's obligation to sell and deliver shares of the Common Stock under this Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares. 18. Tax Withholding. Upon the exercise of a Non-Qualified Option, the grant of an Award or the making of a purchase of Common Stock for less than its fair market value pursuant to an Award, the making of a Disqualifying Disposition (as defined in paragraph 19) or the vesting of Restricted Stock (as defined in paragraph 20), the Company, in accordance with Section 3402(a) of the Code, may require the optionee or Award recipient to pay withholding taxes in respect of the amount that is considered compensation required to be included in such person's gross income. The Committee, in its discretion, may condition (i) the exercise of an Option, (ii) the grant of an Award, (iii) the making of a purchase of Common Stock for less than its fair market value pursuant to an Award or (iv) the vesting of Restricted Stock on the grantee's payment of such withholding taxes. The Committee shall have the sole discretion to determine the form in which payment of such withholding taxes will be made (i.e., cash, securities or a combination thereof). 19. Notice to Company of Disqualifying Disposition. Each employee who receives an ISO must agree to notify the Company in writing immediately after the employee makes a Disqualifying Disposition of any Common Stock acquired pursuant to the exercise of an ISO. A Disqualifying Disposition is any disposition (including any sale) of such Common Stock before the later of (a) two years after the date the employee was granted the ISO or (b) one year after the date the employee acquired Common Stock by exercising the ISO. If the employee has died before such stock is sold, these holding period 12 13 requirements do not apply and no Disqualifying Disposition can occur thereafter. 20. Provisions Related to Restricted Stock and Other Awards. A. Awards of shares of Common Stock may be granted either alone, in addition to or in tandem with other awards granted under the Plan or cash awards made outside the Plan, and such shares may be subject to repurchase by the Company upon such terms and conditions as the Committee may determine (such shares subject to such repurchase being referred to as "Restricted Stock"). The Committee shall determine the eligible persons to whom, and the time or times at which, Awards will be made, the number of shares to be awarded, the price (if any) to be paid by the Award recipient, in the case of Restricted Stock, the time or times within which such shares of Restricted Stock may be subject to forfeiture and all other terms and conditions of any such Award. The Committee may condition an Award or the vesting of Restricted Stock upon the attainment of specified performance goals or such other factors as the Committee may determine in its sole discretion. The terms and conditions of Awards need not be the same for each recipient. B. The prospective recipient of an Award shall not have any rights with respect to such Award, unless and until such recipient has executed an agreement evidencing the Award and has delivered a fully executed copy thereof to the Company, and has otherwise complied with the applicable terms and conditions of such Award. (i) The consideration for shares issued pursuant to an Award shall be equal to or greater than their par value. (ii) Awards must be accepted within a period of sixty (60) days (or such shorter period as the Committee may specify at grant) after the Award date, by executing an Award agreement and paying whatever price (if any) is required under the Award. (iii) A stock certificate in respect of shares of Common Stock which are the subject of an Award shall be issued in the name of the participant receiving such Award, and shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Award. 13 14 (iv) The Committee may require that the stock certificates evidencing shares of Restricted Stock be held in custody by the Company until the restrictions thereon shall have lapsed, and that, as a condition of any Restricted Stock Award, the participant shall have delivered a stock power, endorsed in blank, relating to the shares of Restricted Stock covered by such Award. C. Awards of shares of Restricted Stock under the Plan shall be subject to the following restrictions and conditions (in addition to other restrictions and conditions set forth in the Award agreement with respect to such shares not inconsistent with this Plan which the Committee shall determine in its sole discretion): (i) Subject to the provisions of the Plan and the Award agreement, during a period set by the Committee commencing with the date of such Award (the "Restricted Period"), the participant shall not be permitted to sell, transfer, pledge or assign shares of Restricted Stock issued pursuant to an Award. The Committee, in its sole discretion, may provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions in whole or in part, based on service, performance or such other factors or criteria as the Committee may determine, in its sole discretion. The Award agreement may contain other restrictions and conditions not inconsistent with the Plan as the Committee shall deem appropriate, including without limitation, rights of repurchase by the Company and, in the event of an underwritten public offering of the Company's securities, restrictions on any sale or distribution by the Award recipient of any of the Company's common equity for a period of time as the underwriters in such public offering shall determine. (ii) Except as provided herein, the recipient shall have, with respect to shares of Restricted Stock issued pursuant to an Award, all of the rights of a shareholder of the Company, including the right to vote the shares, and the right to receive any cash dividends. The Committee may, in its sole discretion, at the time of the grant of an Award of Restricted Stock, permit or require the payment of cash dividends with respect to such Restricted Stock to be deferred and, if the Committee so determines, reinvested, in additional shares of Restricted Stock to the extent shares are available under the Plan, or otherwise reinvested. Stock dividends issued with respect to Restricted Stock shall be treated as additional shares of Restricted Stock that are subject to the same 14 15 restrictions and other terms and conditions that apply to the shares with respect to which such dividends are issued. (iii) Subject to the applicable provisions of the Award agreement, if and when the Restricted Period expires without a prior forfeiture of the Restricted Stock subject to such Restricted Period, certificates for an appropriate number of unrestricted shares (without any legend referred to in subparagraph (iii) of subsection B of Section 20) shall be delivered to the participant promptly upon the surrender and cancellation of the previously issued certificate(s) representing such shares. 21. Governing Law; Construction. The validity and construction of the Plan and the instruments evidencing Stock Rights shall be governed by the laws of the State of Vermont, or the laws of any jurisdiction in which the Company or its successors in interest may be organized. In construing this Plan, the singular shall include the plural and the masculine gender shall include the feminine and neuter, unless the contest otherwise requires. 15 EX-10.3 9 EMPLOYMENT AGMT - PAULA PLANTE 1 Exhibit 10.3 EMPLOYMENT AGREEMENT THIS AGREEMENT made as of the 3rd day of January, 1996, and effective as of January 1, 1996, by and among SWENSON GRANITE COMPANY, INC., a New Hampshire corporation, with a principal place of business at 369 North State Street, Concord, NH 03301 ("Swenson"), ROCK OF AGES CORPORATION, a Vermont corporation, with a principal place of business at Main Street, Graniteville, Barre, Vermont 05654 ("ROAC") and PAULA A. PLANTE ("Employee") residing at Camp St. Ext., Barre, Vermont 05641. FACTUAL BACKGROUND: 1. ROAC wishes to employ Employee with such duties and responsibilities, and in such positions, as ROAC may assign to Employee; and Employee wishes to accept such employment subject to the terms and conditions of this agreement. 2. ROAC manufactures granite memorials and other granite products, performs services related thereto, and markets such products and services in the United States and in various foreign countries (ROAC's "Business") and has accumulated valuable and confidential information including trade secrets and know-how relating to technology, manufacturing procedures, formulas, machines, marketing plans, sources of supply, business strategies and other business records. 3. Agreement by Employee to enter into the covenants contained herein is a condition precedent to the employment of Employee. Employee acknowledges that the same and her execution of this agreement are express conditions of her employment; and that said covenants are given as material consideration for such employment and the other benefits conferred upon her by this agreement. 4. Swenson is a party to this agreement solely for purposes of agreeing to and undertaking joint and several responsibility with ROAC for ROAC's agreements, covenants, duties and undertakings hereunder and agreeing to the provisions of Section 7 hereof. NOW, THEREFORE, in consideration of such employment and other valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Employment. ROAC agrees to employ Employee, and Employee accepts employment, all upon the terms and conditions hereinafter set forth. ROAC agrees that Employee's employment hereunder shall not require her to relocate from the Central Vermont geographic region. 2 2. Duties and Policies. (a) Duties. The Employee agrees to devote her full time and best efforts to her employment duties in such positions to which Employee is assigned during the Term (as hereinafter defined). ROAC reserves the right in its sole discretion to request Employee to perform no duties for it under this agreement from time to time or at any time for such periods of time during the Term as it in its sole discretion may determine and in the event ROAC takes such action, Employee will thereafter not be eligible for any further increases in her Annual Base Salary or for any bonuses until ROAC requests, if ever, Employee return to active work. (b) Policies. Employee agrees to abide by the policies, rules, regulations or procedures applicable to all ROAC employees as established by ROAC from time to time and provided to Employee in writing. 3. Term. The term of this agreement (the "Term") shall be five (5) years, beginning with the day after the date on which the Effective Time (as defined in the Agreement and Plan of Reorganization by and among ROAC, Swenson, Rock of Ages Quarries, Inc. ("ROAQ"), Lawson Granite Company, Inc., Employee and others) occurs, unless terminated earlier pursuant to the provisions of Section 6 below. 4. Compensation. For all services to be rendered by Employee in any capacity hereunder, the Company shall pay Employee the following: (a) Salary. The Company shall pay Employee an annual salary of Sixty Thousand Dollars ($60,000.00) less withholding and other taxes required by federal and state law (the "Annual Base Salary"), payable in equal monthly installments, or as otherwise required by law. Employee shall be eligible to receive increases in Employee's Annual Base Salary pursuant to periodic salary reviews consistent with ROAC's corporate policies; it being understood such increases are not guaranteed, but are subject to Employee's job performance and the determination by ROAC's President or Board of Directors, in her or its sole discretion, to award salary increases to Employee. (b) Bonus. Employee may also be awarded a bonus or bonuses from time to time during the Term at such time, if any, as ROAC's President or its Board of Directors may determine, in her or its sole discretion, to award such bonuses. (c) Standards. ROAC agrees that the standards to be used by its Board of Directors in awarding salary increases and bonuses to Employee will be the same standards used by the Boards of Swenson and ROAQ (as hereinafter defined) in awarding the same to executive officers of those corporations, provided, however, that such salary increases and bonuses will be based on the performance of the Swenson Corporate Group. - 2 - 3 5. Fringe Benefits. During the term of this agreement, Employee shall be entitled to participate in such fringe benefits as, from time to time, may be applicable to the Company's similarly situated executive employees, subject to the terms and conditions of such fringe benefit plans and to the following fringe benefits: (i) Medical and major medical health insurance, paid for by ROAC; (ii) Life Insurance paid for by ROAC equal to one and one-half (1 1/2) times Employee's Annual Base Salary; (iii) Participation in ROAC's qualified 401(k) profit sharing plan pursuant to the terms thereof; (iv) Participation in ROAC's qualified defined benefit Salaried Employees Pension Plan pursuant to the terms thereof; (v) The use of an automobile comparable to the automobiles provided to other similar employees of ROAC and payment by ROAC of the costs of operation and maintenance of the automobile; and (vi) Vacation in accordance with ROAC's employee policies, in effect from time to time with credit given for years of service for Employee's service with Lawson Granite Company, Inc. Fringe benefits provided to Employee will, in addition, generally be not less advantageous to Employee than those provided by Swenson to its executive employees. Fringe benefits as used in this Section do not include cash compensation, stock options or other compensation. 6. Termination. (a) Termination because of Death or Total Disability. This agreement will terminate automatically upon the date of Employee's death or Total Disability. The Employee shall be deemed to have incurred a Total Disability: (i) if ROAC maintains a long term disability policy in effect for the benefit of Employee, on the date when the Employee shall have received total disability benefits under said policy for a period of six (6) months; (ii) if no such long term disability insurance policy is in effect, on the date when the Employee suffers from a physical or mental disability of such magnitude and effect that the Employee is unable to perform the essential functions of Employee's assigned position with or without reasonable - 3 - 4 accommodation and such disability continues during a period of twelve (12) continuous or noncontinuous months within the eighteen (18) month period beginning on the first day of the month in which the first day of disability occurs; (iii) if Employee illegally uses drugs and, as a result, performance of her duties and/or employment with ROAC is in any way impaired; or (iv) on the date when Employee receives her first payment under the Social Security Act because of determination by the Social Security administration that Employee is totally disabled. Total Disability as set forth in subsections (ii), (iii) or (iv) above shall be deemed to have occurred upon the written certification to ROAC thereof by the Employee's personal physician, which certification may be requested in writing by ROAC. If the Employee does not have a personal physician or refuses to consult with his personal physician, ROAC may select a licensed Vermont physician, board-certified in internal medicine or family practice, to examine the Employee, which physician shall, for purposes hereof, be deemed to be the Employee's personal physician; provided, that if the Employee refuses to be examined by this deemed personal physician within thirty (30) days after the physician's appointment by ROAC, then the Employee may at ROAC's election be conclusively presumed to have become Totally Disabled as of the close of such thirty (30) day period. If ROAC disagrees with the opinion of the Employee's personal physician, then ROAC may select a second licensed, board-certified Vermont physician to examine the Employee. The personal physician and this second physician shall then select a third licensed, board-certified Vermont physician to examine the Employee. Upon examination of the Employee by the three (3) physicians, each physician shall render an opinion with respect to the condition of the Employee in regards to his Total Disability, and the opinion of a majority of the physicians shall be binding upon all parties. (b) Termination Without Cause. ROAC shall have the right to terminate this agreement and Employee's employment under this agreement without cause at any time (any such termination by ROAC is herein sometimes referred to as a "Termination Without Cause"). It shall also be deemed a Termination Without Cause by ROAC if the Employee shall voluntarily resign from employment because of a required relocation contrary to the provisions of Section 1 of this agreement. (c) Termination With Cause. ROAC may terminate this agreement and the employment of the Employee at any time with cause and without further notice upon the occurrence of any of the following events: (i) abandonment by Employee of, or chronic, habitual or continuous failure by, Employee to perform, over a period of thirty (30) or more days, Employee's duties as an Employee hereunder; (ii) embezzlement or other theft of ROAC's property or the commission of other criminal activity against ROAC or its employees, agents and customers; or (iii) conviction of a crime which ROAC's Board of - 4 - 5 Directors reasonably determines will have a material adverse affect on the reputation, business and/or financial affairs of ROAC or the Swenson Corporate Group (as defined in Section 7 hereof) (any such termination is herein sometimes referred to as a "Termination With Cause" or as "Terminated With Cause"). (d) Termination by the Employee. Employee may resign from employment at any time for any reason and terminate this agreement by giving thirty (30) days' written notice to ROAC (any such termination is herein sometimes referred to as a "Voluntary Termination") of such intention. In such event, ROAC may, in its discretion, permit the Employee to work through the notice period or accept the Employee's immediate resignation. In the event of a Voluntary Termination, Employee shall not be entitled to payment of any further compensation or benefits under the terms of this agreement, except for salary earned, and bonuses declared, if any, prior to the date thereof. 7. Expenses Upon Termination and Swenson Corporate Group. In the event that Employee's employment is terminated for any reason or Employee resigns in lieu of such termination, Employee shall only be entitled to be paid any expenses she has incurred prior to the termination and for which she is entitled to reimbursement hereunder, and such prorated salary as she may have earned up to the date of termination. ROAC, ROAQ and Swenson and their direct and indirect subsidiaries, affiliates and successors and assigns are sometimes herein sometimes referred to as the "Swenson Corporate Group." 8. Severance Payments. If Employee's employment under this agreement and this agreement are terminated, then in consideration thereof and as liquidated damages incurred by Employee because of such termination and not as a penalty, Employee agrees to accept and ROAC agrees to pay to Employee, as Employee's sole entitlement because of any such termination, severance payments (the "Severance Payment") pursuant to the following schedule: Termination Without Cause or Severance Payment Equal to: $420,000, termination because of Death or payable in five (5) equal annual payments Total Disability during the First of $84,000 each with the first such Year through the Fifth Year of payment being due on the first day of the the Term: month following the date of the termination (the "First Date") and the remaining four on the second (2nd) through the fifth (5th) annual anniversaries of the First Date.
If Employee is Terminated with Cause or Voluntarily Terminates, Employee will still be entitled to a Severance Payment in the amount set forth above but payment thereof shall be made over seven (7) years instead of five (5) years in seven equal installments of Sixty - 5 - 6 Thousand Dollars ($60,000.00) each commencing on the First Date and continuing on the second (2nd) through the seventh (7th) annual anniversaries of the First Date. If at the end of the Term, Employee does not continue to work for ROAC, then she will be entitled to a Severance Payment in the amount set forth above paid in the same seven (7) year fashion as if she had Voluntarily Terminated her employment with Company. If at the end of the Term, Employee continues to work for ROAC any Severance Payments will be negotiated between Employee and Company as a part of a new employment agreement between them. Employee, in consideration of the payment of the severance payments set forth in this Section 8, hereby waives and releases, all members of the Swenson Corporate Group from any and all lawsuits, claims, damages, expenses, costs, (including attorneys fees) which Employee may incur or suffer because of Employee's termination of employment under this agreement. 9. Non-Disclosure of Confidential Information. Employee acknowledges that during her employment, she will become fully familiar with all aspects of the ROAC's Businesses and the Swenson Corporate Group's businesses and will obtain access to confidential and proprietary information relating to such businesses. Employee understands and agrees that such information is valuable and Employee has no property interest in it. Therefore, Employee covenants and agrees that during her employment with ROAC and thereafter Employee will not use, disclose, communicate or divulge such information to any person not employed by ROAC or use such information except as may be necessary to perform her duties as an Employee under this agreement. Such obligation shall survive the expiration of the term of this agreement and/or termination of Employee's employment with ROAC for any reason whatsoever. 10. Non-Solicitation of Employees, Clients and Customers. During the Term of this agreement and for the period of Employee's non-competition covenant set forth in Section 12 hereof, following the termination this agreement, Employee agrees not to, on her own behalf or on behalf of any other person, corporation, firm or entity, directly or indirectly, solicit or induce any client, customer, employee or sales representative of ROAC or the Swenson Corporate Group to stop doing business with or to leave any of said companies for any reason whatsoever or to hire any of their employees. 11. Return of Company Property. Upon termination or nonrenewal of this agreement for any reason, Employee agrees to immediately return all ROAC and Swenson Corporate Group property, whether confidential or not, without keeping any copies or excerpts thereof, including but not limited to computers, printers, customer lists, samples, product information, financial information, price lists, marketing materials, keys, credit cards, automobiles, technical data, research, blueprints, trade secrets information, and all confidential or proprietary information. - 6 - 7 12. Non-Competition Covenant by Employee. ROAC and the Employee agree that ROAC is currently engaged in the business of manufacturing, marketing and selling granite memorials and other granite products (herein referred to as the "Restricted Business") and ROAC is engaged in the Restricted Business in all of the states of the United States and in all of the provinces of Canada (herein the territory of all such states and provinces is referred to as the "Restricted Territory") and has hired the Employee to expand and grow the Restricted Business in the Restricted Territory. Accordingly, as a material and essential inducement to ROAC to hire the Employee and in consideration of ROAC's and Swenson's agreements with the Employee under this agreement, including without limitation the Severance Payments, Employee agrees that during the Term of this agreement and, if this agreement is terminated for any reason, lapses, is not renewed for any reason, or Employee is not employed by ROAC after the end of the Term hereof for any reason, for a period equal to the greater of (a) two (2) years; or (b) the periods during which ROAC is paying Severance Payments to Employee pursuant to Section 8 hereof, the Employee will not, in the Restricted Territory, directly or indirectly, in any manner whatsoever: (a) compete with ROAC, its successor and assigns, or the Swenson Corporate Group, its successors and assigns, in the Restricted Business; (b) engage in the Restricted Business, except as an employee of ROAC or the Swenson Corporate Group; (c) have any ownership interest in (other than the ownership of less than five percent (5%) of the ownership interests of a company whose stock or other ownership interests are publicly traded) any business entity which engages in the Restricted Business in the Restricted Territory except for any ownership interest owned by Employee during the Term of this agreement, and after termination of this agreement, in any member of the Swenson Corporate Group; (d) contract, subcontract, work for, solicit work from, solicit ROAC or Swenson Corporate Group employees for, or solicit customers for, advise or become affiliated with, any business entity which engages in the Restricted Business in the Restricted Territory except as an employee of ROAC or of the Swenson Corporate Group; or (e) lend money or provide anything of value to any entity which engages in the Restricted Business in the Restricted Territory. The term "compete" as used in this Section 12 means engage in competition, either as an owner, agent, member, consultant, partner, sole proprietor, stockholder, or any other ownership or other capacity. While the restrictions as set forth herein are considered by the parties hereto to be reasonable in all circumstances, it is recognized that any one or more of such restrictions - 7 - 8 might fail for unforeseen reasons. Accordingly, it is hereby agreed and declared that if any of such restrictions shall be adjudged to be void as unreasonable in all circumstances for the protection of ROAC and the Swenson Corporate Group and their interests, but would be valid if part of the wording thereof were deleted, the period thereof reduced, or the range of activities or area dealt with reduced in scope, such restrictions shall apply with the minimum modification as may be necessary to make them valid and effective, while still affording to ROAC and the Swenson Corporate Group the maximum amount of protection contemplated thereby. Employee represents that she has carefully reviewed Employee's restrictive non-competition covenant set forth in this Section 12 and has determined that this covenant will not impose undue hardship, financial or otherwise, on Employee; that its Restrictive Territory and duration will not impose a hardship on Employee; that it protects ROAC's and the Swenson Corporate Group's legitimate interests in their investment in Employee and their Restricted Business; and that in Employee's opinion Employee not being able to compete in the Restrictive Territory for the duration of this covenant will not be injurious to the public interest. Employee agrees that Employee's breach of her covenants in this Section 12 will cause irreparable harm to ROAC and the Swenson Corporate Group. Employee, therefore, further agrees that if she so breaches, ROAC may cease to make any Severance Payments remaining due to Employee on the date of the breach and ROAC's obligation to make any further Severance Payments to Employee will, therefore, terminate and be null, void and of no further force and effect. 13. Loyalty. Employee shall devote her full time and best efforts to the performance of her employment under this agreement. During the term of this agreement, Employee shall not at any time or place whatsoever, either directly or indirectly, engage in the Restricted Business or any other profession or active business to any extent whatsoever, except on or pursuant to the terms of this agreement, or with the prior written consent of ROAC. Employee agrees that she will not, while this agreement is in effect, do any unlawful acts or engage in any unlawful habits or usages which injure, directly or indirectly, ROAC and its business. ROAC agrees that if it exercises its rights in Section 2(a) hereof to have Employee perform no duties for it, then during such period of time during the Term as Employee is so not performing her duties, Employee may engage in other employment which does not violate her non-competition covenant in Section 12 and her other covenants in Sections 9, 10 and 11 of this agreement. 14. Governing Law, Jurisdiction and Venue. This agreement shall be governed by and construed in accordance with the laws of the state of Vermont. The parties agree that because performance of this agreement will take place predominantly in Washington County, Vermont, the Washington County Superior Court, Vermont, or the U.S. District Court for the District of Vermont, in said State are the sole and exclusive forums for any actions or claims by the parties of this agreement and each party hereto consents to the jurisdiction of - 8 - 9 said courts in any action brought by another party hereto and agrees that no claims or actions relating to any matter hereunder will be brought by them in any other courts in this State, any other state or any other country. 15. Headings. The descriptive headings of the several sections of this agreement are inserted for convenience of reference only and shall not control or affect the meanings or construction of any of the provisions hereof. 16. Severability and Violation of Laws. If any provision of this agreement shall be held invalid or unenforceable according to law, such provision shall be modified to the extent necessary to bring it within the legal requirements. Any such invalidity or unenforceability shall not affect the remaining provisions of this agreement, and such remaining provisions shall continue in full force and effect. 17. Specific Performance. The Employee hereby agrees and stipulates that it would be impossible to measure in monetary terms the damages which would be suffered by ROAC in the event of any breach by Employee of Sections 8, 9, 10, 11, 12 and 13 of this agreement. Therefore, if ROAC shall institute any action in equity to enforce such sections of this agreement, it is agreed that the Employee waives any claim or defense that ROAC has an adequate remedy at law, and Employee agrees ROAC is entitled to specific performance of such terms of the agreement. 18. Notices. Any notice or other communication required or permitted under this agreement shall be in writing and shall be deemed to have been duly given (i) upon hand delivery, or (ii) on the third day following delivery to the U.S. Postal Service as certified or registered mail, return receipt requested and postage prepaid, or (iii) on the first day following delivery to a nationally recognized United States overnight courier service for next business day delivery, fee prepaid, return receipt or other confirmation of delivery requested or (iv) when telecopied or sent by facsimile transmission if an additional notice is also given under (i), (ii) or (iii) above within three days thereafter. Any such notice or communication shall be directed to a party at its address set forth below or at such other address as may be designated by a party in a notice given to all other parties hereto in accordance with the provisions of this Section. For the ROAC: Mr. Kurt M. Swenson Chairman and Chief Executive Officer Swenson Granite Company, Inc. 369 North State Street Concord, NH 03302 - 9 - 10 with a copy to: John R. Monson, Esquire Wiggin & Nourie, P.A. 20 Market Street, P. O. Box 808 Manchester, New Hampshire 03105-0808 For the Employee: Ms. Paula A. Plante Camp St. Ext. Barre, Vermont 05641 with a copy to: John R. Nicholls, Esq. Abare, Nicholls & Parker, P.C. 59 North Main Street Barre, VT 05641 19. Assignment. The rights and obligations of ROAC together with its obligations and all of the Employee's covenants and agreements hereunder may be assigned by ROAC to any third party by operation of law or by contractual assignment; provided, however, that Swenson remains liable under this agreement after such assignment as set forth in Section 23 hereof and upon such assignment ROAC shall be relieved of all of its obligations, agreements, duties and covenants hereunder. The rights and obligations of the Employee under this agreement are not assignable. 20. Complete and Entire Agreement. This agreement contains all of the terms agreed upon by the parties with respect to the subject matter hereof and supersedes all prior agreements, representations and warranties of the parties as to the subject matter hereof. 21. Amendments. This agreement may be amended, or any provision of the agreement may be waived, provided that any such amendment or waiver will be binding on the parties only if such amendment or waiver is set forth in a writing executed by all parties hereto. The waiver by any party hereto of a breach of any provision of this agreement shall not operate or be construed as a waiver of any other breach. 22. Survival. Sections 8, 9, 10, 11, 12, 14, 16 and 17 shall survive expiration of the term of this agreement and/or termination of Employee's employment under this agreement. 23. Swenson as a Party. Swenson hereby agrees to joint and several liability with ROAC for all of ROAC's agreements, covenants, duties and undertakings under this - 10 - 11 agreement and Employee agrees that Swenson has all of ROAC's rights under this agreement. IN WITNESS WHEREOF, the parties hereto have executed this agreement, all as of the date first written above. WITNESS: ROCK OF AGES CORPORATION /s/ By: /s/ Kurt M. Swenson - -------------------------------- ------------------------------- Kurt M. Swenson, Chairman and Chief Executive Officer WITNESS: SWENSON GRANITE COMPANY, INC. /s/ By: /s/ Kurt M. Swenson - -------------------------------- ------------------------------- Kurt M. Swenson, President WITNESS: EMPLOYEE /s/ /s/ Paula A. Plante - -------------------------------- ------------------------------- Paula A. Plante - 11 - EX-10.4 10 EMPLOYMENT AGMT - PETER FRIBERG 1 Exhibit 10.4 EMPLOYMENT AGREEMENT THIS AGREEMENT made as of the 3rd day of January, 1996, and effective as of January 1, 1996, by and among SWENSON GRANITE COMPANY, INC., a New Hampshire corporation, with a principal place of business at 369 North State Street, Concord, New Hampshire 03301 ("Swenson"), ROCK OF AGES CORPORATION, a Vermont corporation, with a principal place of business at Main Street, Graniteville, Barre, Vermont 05654 ("ROAC") and PETER FRIBERG ("Employee") residing at 15 Tamarack Lane, Barre, Vermont 05641. FACTUAL BACKGROUND: 1. ROAC wishes to employ Employee, initially as Senior Vice President of Sales and Marketing (the "Position") and with such other duties and responsibilities, and such other or different positions, as ROAC may assign to Employee; and Employee wishes to accept such employment subject to the terms and conditions of this agreement. 2. ROAC manufactures granite memorials and other granite products, performs services related thereto, and markets such products and services in the United States and in various foreign countries (ROAC's "Business") and has accumulated valuable and confidential information including trade secrets and know-how relating to technology, manufacturing procedures, formulas, machines, marketing plans, sources of supply, business strategies and other business records. 3. Agreement by Employee to enter into the covenants contained herein is a condition precedent to the employment of Employee in the Position. Employee acknowledges that the same and his execution of this agreement are express conditions of his employment; and that said covenants are given as material consideration for such employment and the other benefits conferred upon him by this agreement. 4. Swenson is a party to this agreement solely for purposes of agreeing to and undertaking joint and several responsibility with ROAC for ROAC's agreements, covenants, duties and undertakings hereunder and agreeing to the provisions of Section 7 hereof. 2 NOW, THEREFORE, in consideration of such employment and other valuable consideration, receipt of which is hereby acknowledged the parties hereto agree as follows: 1. Employment. ROAC agrees to employ Employee, and Employee accepts employment in the Position, initially reporting to the President and COO of ROAC, all upon the terms and conditions hereinafter set forth. ROAC agrees that Employee's employment hereunder shall not require him to relocate from the Central Vermont geographic region. 2. Duties and Policies. (a) Duties. The Employee agrees to devote his full time and best efforts to his employment duties in the Position or, subject to the rights of ROAC in the second sentence of this Section 2(a), in such other comparable position to which Employee is assigned during the Term (as hereinafter defined), and to such other comparable duties as may be assigned to him from time to time by ROAC. ROAC reserves the right in its sole discretion to request Employee to perform no duties for it under this agreement from time to time or at any time for such periods of time during the Term as it in its sole discretion may determine and in the event ROAC takes such action, Employee will thereafter not be eligible for any further increases in his Annual Base Salary or for any bonuses until ROAC requests, if ever, Employee return to active work. (b) Policies. Employee agrees to abide by the policies, rules, regulations or usages applicable to Employee as established by ROAC from time to time and provided to Employee in writing. 3. Term. The term of this agreement (the "Term") shall be five (5) years, beginning with the day after the date on which the Effective Time (as defined in the Agreement and Plan of Reorganization by and among ROAC, Swenson, Rock of Ages Quarries, Inc ("ROAQ"), Anderson-Friberg Company, Inc., Employee and others) occurs, unless terminated earlier pursuant to the provisions of Section 6 below. 2 3 4. Compensation. For all services to be rendered by Employee in any capacity hereunder, the Company shall pay Employee the following: (a) Salary. The Company shall pay Employee an annual salary of One Hundred Forty Thousand Dollars ($140,000) less withholding and other taxes required by federal and state law (the "Annual Base Salary"), payable in equal monthly installments, or as otherwise required by law. Employee shall be eligible to receive increases in Employee's Annual Base Salary pursuant to periodic salary reviews consistent with ROAC's corporate policies, it being understood such increases are not guaranteed, but are subject to Employee's job performance and the determination by ROAC's Board of Directors, in its sole discretion, to award salary increases to Employee. (b) Bonus. Employee may also be awarded a bonus or bonuses from time to time during the Term at such time, if any, as ROAC's Board of Directors may determine, in its sole discretion, to award such bonuses. (c) Standards. ROAC agrees that the standards to be used by its Board of Directors in awarding salary increases and bonuses to Employee will be the same standards used by the Boards of Swenson and ROAQ (as hereinafter defined) in awarding the same to executive officers of those corporations, provided, however, that such salary increases and bonuses will be based on the performance of the Swenson Corporate Group. 5. Fringe Benefits. During the term of this agreement, Employee shall be entitled to participate in such fringe benefits as, from time to time, may be applicable to the Company's similarly situated executive employees, subject to the terms and conditions of such fringe benefit plans and to the following fringe benefits: i) Medical and major medical health insurance, paid for by ROAC; ii) Life Insurance paid for by ROAC equal to one and one-half (1-1/2) times Employee's Annual Base Salary; 3 4 iii) Participation in ROAC's qualified 401(k) profit sharing plan pursuant to the terms thereof; iv) Participation in ROAC's qualified defined benefit Salaried Employees Pension Plan pursuant to the terms thereof; v) The use of an automobile comparable to the automobiles provided to other executive officers of ROAC and payment by ROAC of the costs of operation and maintenance of the automobile; vi) Vacation in accordance with ROAC's employee policies, in effect from time to time with credit given for years of service for Employee's service with Anderson-Friberg Company, Inc. ("AFCO"); and vii) Participation in an ROAC Salary Continuation Agreement pursuant to the terms thereof. Fringe Benefits provided to Employee will, in addition, generally be not less advantageous to Employee than those provided by Swenson to its executive employees. Fringe benefits as used in this Section do not include cash compensation, stock options or other compensation. 6. Termination. (a) Termination because of Death or Total Disability. This agreement will terminate automatically upon the date of Employee's death or Total Disability. The Employee shall be deemed to have incurred a Total Disability: i) if ROAC maintains a long term disability policy in effect for the benefit of Employee, on the date when the Employee shall have received total disability benefits under said policy for a period of six (6) months; 4 5 ii) if no such long term disability insurance policy is in effect, on the date when the Employee suffers from a physical or mental disability of such magnitude and effect that the Employee is unable to perform the essential functions of Employee's assigned position with or without reasonable accommodation and such disability continues during a period of twelve (12) continuous or noncontinuous months within the eighteen (18) month period beginning on the first day of the month in which the first day of disability occurs; iii) if Employee illegally uses drugs and, as a result, performance of his duties and/or employment with ROAC is in any way impaired; or iv) on the date when Employee receives his first payment under the Social Security Act because of determination by the Social Security administration that Employee is totally disabled. Total Disability as set forth in subsections (ii), (iii) or (iv) above shall be deemed to have occurred upon the written certification to ROAC thereof by the Employee's personal physician, which certification may be requested in writing by ROAC. If the Employee does not have a personal physician or refuses to consult with his personal physician, ROAC may select a licensed Vermont physician, board-certified in internal medicine or family practice, to examine the Employee, which physician shall, for purposes hereof, be deemed to be the Employee's personal physician; provided, that if the Employee refuses to be examined by this deemed personal physician within thirty (30) days after the physician's appointment by ROAC, then the Employee may at ROAC's election be conclusively presumed to have become Totally Disabled as of the close of such thirty (30) day period. If ROAC disagrees with the opinion of the Employee's personal physician, then ROAC may select a second licensed, board-certified Vermont physician to examine the Employee. The personal physician and this second physician shall then select a third licensed, board-certified Vermont physician to examine the Employee. Upon examination of the 5 6 Employee by the three (3) physicians, each physician shall render an opinion with respect to the condition of the Employee in regards to his Total Disability, and the opinion of a majority of the physicians shall be binding upon all parties. (b) Termination Without Cause. ROAC shall not have the right to terminate this agreement and Employee's employment under this agreement except for a Termination for Cause (as defined in Section 6(c) below) unless ROAC pays Employee the severance payments set forth in Section 8 hereof on the terms and conditions of said Section 8 (any such termination by ROAC is herein sometimes referred to as a "Termination Without Cause"). It shall also be deemed a Termination Without Cause by ROAC if the Employee shall voluntarily resign from employment because of a required relocation contrary to the provisions of Section 1 of this agreement or a violation by ROAC of the provisions of Section 2(a) regarding assigning Employee to a position not comparable to the Position or to duties not comparable to the Position. (c) Termination With Cause. ROAC may terminate this agreement and the employment of the Employee at any time with cause and without further notice upon the occurrence of any of the following events: (i) abandonment by Employee of, or chronic, habitual or continuous failure by, Employee to perform, over a period of thirty (30) or more days, Employee's duties as an Employee hereunder; (ii) embezzlement or other theft of ROAC's property or the commission of other criminal activity against ROAC or its employees, agents and customers; or (iii) conviction of a crime which ROAC's Board of Directors reasonably determines will have a material adverse affect on the reputation, business and/or financial affairs of ROAC or the Swenson Corporate Group (as defined in Section 7 hereof)(any such termination is herein sometimes referred to as a "Termination With Cause" or as "Terminated With Cause"). In the event that Employee's employment is Terminated With Cause or Employee resigns in lieu of such termination, Employee shall only be entitled to be paid any expenses he has incurred prior to the termination and for which he is entitled to reimbursement hereunder, and such pro-rated salary as he may have earned up to the date of termination. 6 7 (d) Termination by the Employee. Employee may resign from employment at any time for any reason and terminate this agreement by giving thirty (30) days' written notice to ROAC (any such termination is herein sometimes referred to as a "Voluntary Termination") of such intention. In such event, ROAC may, in its discretion, permit the Employee to work through the notice period or accept the Employee's immediate resignation. In the event of a Voluntary Termination, Employee shall not be entitled to payment of any further compensation or benefits under the terms of this agreement, except for salary earned, and bonuses declared, if any, prior to the date thereof. 7. Board of Directors Positions. As long as Employee is an employee of ROAC under this agreement and is not prohibited by law from serving as a member of the Boards of Directors hereafter named, Swenson will cause Rock of Ages Quarries, Inc. ("ROAQ") and ROAC to elect Employee to their respective Boards of Directors. A separate agreement between Employee and others governs Employee's election as a member of the Board of Directors of Swenson. Employee agrees that if he incurs a Voluntary Termination hereunder he will submit his resignation from all of the above-referenced Boards of Directors, including Swenson's, simultaneously with his Voluntary Termination. ROAC, ROAQ and Swenson and their direct and indirect subsidiaries, affiliates and successors and assigns are sometimes herein sometimes referred to as the "Swenson Corporate Group." 8. Severance Payments. If Employee's employment under this agreement and this agreement are terminated because of Employee's death or Total Disability or by ROAC by virtue of a Termination Without Cause under Section 6(c) hereof, then in consideration thereof and as liquidated damages incurred by Employee because of such termination and not as a penalty, Employee agrees to accept and ROAC agrees to pay to Employee, as Employee's sole entitlement because of the Termination Without Cause, severance payments (the "Severance Payment") pursuant to the following schedule: 7 8
TERMINATION WITHOUT CAUSE SEVERANCE PAYMENT EQUAL DURING THE: TO: First Year of the Term: $840,000 Second Year of the Term: $700,000 Third Year of the Term: $560,000 Fourth Year of the Term: $420,000 Fifth Year of the Term: Severance Payment Equal to the sum of: the balance of Annual Base Salary owed from date of termination to end of 5th year and $280,000
In addition, ROAC agrees that if at the end of the Term of this agreement, ROAC does not offer Employee an Employment Agreement for at least an additional two (2) years at a Base Annual Salary equal to Employee's Annual Base Salary in the fifth (5th) year of the Term, but having other provisions deemed necessary, appropriate and in ROAC's best interests, none of which will necessarily be similar or the same as the other provisions of this agreement (the "New Agreement") then ROAC will pay a $280,000 severance payment payable monthly as hereinafter indicated to Employee; provided however, that if ROAC offers such a New Agreement and Employee does not accept it no such additional $280,000 will be paid to Employee and no other severance payment will be due Employee under the New Agreement, irrespective of how it may be terminated thereafter by either party to it or upon its nonrenewal at the end of its term. Employee agrees that any Severance Payments payable under this Section may be paid at the rate of $11,667 per month, commencing on the first day of the month after the month in which the Termination Without Cause occurs or on the first day of the month after the end of the Term of this agreement. Employee further agrees that no Severance Payments are due to Employee under this Section if Employee's employment is terminated because of Employee's death, Total Disability, Termination With Cause or Voluntary Termination. Employee, in consideration of the payment of the severance payments 8 9 set forth in this Section 8, hereby waives and releases, all members of the Swenson Corporate Group from any and all lawsuits, claims, damages, expenses, costs, (including attorneys fees) which Employee may incur or suffer because of Employee's Termination Without Cause. 9. Non-Disclosure of Confidential Information. Employee acknowledges that during his employment, he will become fully familiar with all aspects of the ROAC's Businesses and the Swenson Corporate Group's businesses and will obtain access to confidential and proprietary information relating to such businesses. Employee understands and agrees that such information is valuable and Employee has no property interest in it. Therefore, Employee covenants and agrees that during his employment with ROAC and thereafter Employee will not use, disclose, communicate or divulge such information to any person not employed by ROAC or use such information except as may be necessary to perform his duties as an Employee under this agreement. Such obligation shall survive the expiration of the term of this agreement and/or termination of Employee's employment with ROAC for any reason whatsoever. 10. Non-Solicitation of Employees, Clients and Customers. During the Term of this agreement and for the period of Employee's non-competition covenant set forth in Section 12 hereof, following the termination of this agreement, Employee agrees not to, on his own behalf or on behalf of any other person, corporation, firm or entity, directly or indirectly, solicit or induce any client, customer, employee or sales representative of ROAC or the Swenson Corporate Group to stop doing business with or to leave any of said companies for any reason whatsoever or to hire any of their employees. 11. Return of Company Property. Upon termination or nonrenewal of this agreement for any reason, Employee agrees to immediately return all ROAC and Swenson Corporate Group property, whether confidential or not, without keeping any copies or excerpts thereof, including but not limited to computers, printers, customer lists, samples, product information, financial information, price lists, marketing materials, keys, credit cards, automobiles, technical data, research, blueprints, trade secrets information, and all confidential or proprietary information. 9 10 12. Non-Competition Covenant by Employee. ROAC and the Employee agree that ROAC is currently engaged in the business of manufacturing, marketing and selling granite memorials and other granite products (herein referred to as the "Restricted Business") and ROAC is engaged in the Restricted Business in all of the states of the United States and in all of the provinces of Canada (herein the territory of all such states and provinces is referred to as the "Restricted Territory") and has hired the Employee to expand and grow the Restricted Business in the Restricted Territory. Accordingly, as a material and essential inducement to ROAC to hire the Employee and in consideration of ROAC's and Swenson's agreements with the Employee under this agreement, including without limitation the Severance Payments, Employee agrees that during the Term of this agreement and, if this agreement is terminated for any reason, lapses, is not renewed for any reason, or Employee is not employed by ROAC after the end of the Term hereof for any reason, for a period equal to the greater of (a) two (2) years; (b) or the periods during which ROAC is paying Severance Payments to Employee pursuant to Section 8 hereof, the Employee will not, in the Restricted Territory, directly or indirectly, in any manner whatsoever: (a) compete with ROAC, its successor and assigns, or the Swenson Corporate Group, its successors and assigns, in the Restricted Business; (b) engage in the Restricted Business, except as an employee of ROAC or the Swenson Corporate Group; (c) have any ownership interest in (other than the ownership of less than five percent (5%) of the ownership interest of a company whose stock or other ownership interests are publicly traded) any business entity which engages in the Restricted Business in the Restricted Territory except for any ownership interest owned by Employee during the Term of this agreement, and after termination of this agreement, in any member of the Swenson Corporate Group; (d) contract, subcontract, work for, solicit work from, solicit ROAC or Swenson Corporate Group employees for, or solicit customers for, advise or 10 11 become affiliated with, any business entity which engages in the Restricted Business in the Restricted Territory except as an employee of ROAC or of the Swenson Corporate Group; or (e) lend money or provide anything of value to any entity which engages in the Restricted Business in the Restricted Territory. The term "compete" as used in this Section 12 means engage in competition, either as an owner, agent, member, consultant, partner, sole proprietor, stockholder, or any other ownership or other capacity. While the restrictions as set forth herein are considered by the parties hereto to be reasonable in all circumstances, it is recognized that any one or more of such restrictions might fail for unforeseen reasons. Accordingly, it is hereby agreed and declared that if any of such restrictions shall be adjudged to be void as unreasonable in all circumstances for the protection of ROAC and the Swenson Corporate Group and their interests, but would be valid if part of the wording thereof were deleted, the period thereof reduced, or the range of activities or area dealt with reduced in scope, such restrictions shall apply with the minimum modification as may be necessary to make them valid and effective, while still affording to ROAC and the Swenson Corporate Group the maximum amount of protection contemplated thereby. Employee represents that he has carefully reviewed Employee's restrictive non-competition covenant set forth in this Section 12 and has determined that this covenant will not impose undue hardship, financial or otherwise, on Employee; that its Restrictive Territory and duration will not impose a hardship on Employee; that it protects ROAC's and the Swenson Corporate Group's legitimate interests in their investment in Employee and their Restricted Business; and that in Employee's opinion Employee not being able to compete in the Restrictive Territory for the duration of this covenant will not be injurious to the public interest. Employee agrees that Employee's breach of his covenants in this Section 12 will cause irreparable harm to ROAC and the Swenson Corporate Group. Employee, therefore, further agrees that if he so breaches, ROAC 11 12 may cease to make any Severance Payments remaining due to Employee on the date of the breach and ROAC's obligation to make any further Severance Payments to Employee will, therefore, terminate and be null, void and of no further force and effect. 13. Loyalty. Employee shall devote his full time and best efforts to the performance of his employment under this agreement. During the term of this agreement, Employee shall not at any time or place whatsoever, either directly or indirectly, engage in the Restricted Business or any other profession or active business to any extent whatsoever, except on or pursuant to the terms of this agreement, or with the prior written consent of ROAC. Employee agrees that he will not, while this agreement is in effect, do any unlawful acts or engage in any unlawful habits or usages which injure, directly or indirectly, ROAC and its business. ROAC agrees that if it exercises its rights in Section 2(a) hereof to have Employee perform no duties for it, then during such period of time during the Term as Employee is so not performing his duties, Employee may engage in other employment which does not violate his non-competition covenant in Section 12 and his other covenants in Sections 9, 10 and 11 of this agreement. 14. Governing Law, Jurisdiction and Venue. This agreement shall be governed by and construed in accordance with the laws of the state of Vermont. The parties agree that because performance of this agreement will take place predominantly in Washington County, Vermont, the Washington County Superior Court, Vermont, or the U.S. District Court for the District of Vermont, in said State are the sole and exclusive forums for any actions or claims by the parties of this agreement and each party hereto consents to the jurisdiction of said courts in any action brought by another party hereto and agrees that no claims or actions relating to any matter hereunder will be brought by them in any other courts in this State, any other state or any other country. 15. Headings. The descriptive headings of the several sections of this agreement are inserted for convenience of reference only and shall not control or affect the meanings or construction of any of the provisions hereof. 12 13 16. Severability and Violation of Laws. If any provisions of this agreement shall be held invalid or unenforceable according to law, such provision shall be modified to the extent necessary to bring it within the legal requirements. Any such invalidity or unenforceability shall not affect the remaining provisions of this agreement, and such remaining provisions shall continue in full force and effect. 17. Specific Performance. The Employee hereby agrees and stipulates that it would be impossible to measure in monetary terms the damages which would be suffered by ROAC in the event of any breach by Employee of Sections 9, 10, 11, 12 and 13 of this agreement. Therefore, if ROAC shall institute any action in equity to enforce such sections of this agreement, it is agreed that the Employee waives any claim or defense that ROAC has an adequate remedy at law, and Employee agrees ROAC is entitled to specific performance of such terms of the agreement. 18. Notices. Any notice or other communication required or permitted under this agreement shall be in writing and shall be deemed to have been duly given (i) upon hand delivery, or (ii) on the third day following delivery to the U.S. Postal Service as certified or registered mail, return receipt requested and postage prepaid, or (iii) on the first day following delivery to a nationally recognized United States overnight courier service for next business day delivery, fee prepaid, return receipt or other confirmation of delivery requested or (iv) when telecopied or sent by facsimile transmission if an additional notice is also given under (i), (ii) or (iii) above within three days thereafter. Any such notice or communication shall be directed to a party at its address set for the below or at such other address as may be designated by a party in a notice given to all other parties hereto in accordance with the provisions of this Section. For the ROAC: Mr. Kurt M. Swenson Chairman and Chief Executive Officer Swenson Granite Company, Inc. 369 North State Street Concord, New Hampshire 03302 13 14 with a copy to: John R. Monson, Esquire Wiggin & Nourie, P.A. 20 Market Street P.O. Box 808 Manchester, New Hampshire 03105-0808 For the Employee: Mr. Peter Friberg 15 Tamarack Lane Barre, Vermont 05641 with a copy to: Alan D. Port, Esq. Paul, Frank & Collins, Inc. P.O. Box 1307, One Church Street Burlington, Vermont 05402-1307 19. Assignment. The rights and obligations of ROAC together with its obligations and all of the Employee's covenants and agreements hereunder may be assigned by ROAC to any third party by operation of law or by contractual assignment; provided, however, that Swenson remains liable under this agreement after such assignment as set forth in Section 24 hereof and upon such assignment ROAC shall be relieved of all of its obligations, agreements, duties and covenants hereunder. The rights and obligations of the Employee under this agreement are not assignable. 20. Complete and Entire Agreement. This agreement contains all of the terms agreed upon by the parties with respect to the subject matter hereof and supersedes all prior agreements, representations and warranties of the parties as to the subject matter hereof. 21. Amendments. This agreement may be amended, or any provision of the agreement may be waived, provided that any such amendment or waiver will be binding on the parties only if such amendment or waiver is set forth in a writing executed by all parties hereto. The waiver by any party hereto of a breach of any provi- 14 15 sion of this agreement shall not operate or be construed as a waiver of any other breach. 22. Officer Shareholder Agreement. In consideration of ROAC and Swenson entering into this agreement and ROAC employing Employee hereunder, Employee agrees to enter into an Officer Shareholder Agreement with Swenson dated even date herewith. 23. Survival. Sections 8, 9, 10, 11, 12, 14, 16 and 17 shall survive expiration of the term of this agreement and/or termination of Employee's employment under this agreement. 24. Swenson as a Party. Swenson hereby agrees to joint and several liability with ROAC for all of ROAC's agreements, covenants, duties and undertakings under this agreement and Employee agrees that Swenson has all of ROAC's rights under this agreement. IN WITNESS WHEREOF, the parties hereto have executed this agreement, all as of the date first written above. WITNESS: ROCK OF AGES CORPORATION By: /s/ Kurt M. Swenson - -------------------------- ------------------------------------- Kurt M. Swenson, Chairman and Chief Executive Officer WITNESS: SWENSON GRANITE COMPANY, INC. By: /s/Kurt M. Swenson - -------------------------- ------------------------------------- Kurt M. Swenson, President WITNESS: EMPLOYEE By: /s/ Peter Friberg - -------------------------- ------------------------------------- Peter Friberg 15 EX-10.5 11 EMPLOYMENT AGMT - ALBERT GHERARDI, JR. 1 Exhibit 10.5 EMPLOYMENT AGREEMENT THIS AGREEMENT made as of the 3rd day of January, 1996, and effective as of January 1, 1996, by and among SWENSON GRANITE COMPANY, INC., a New Hampshire corporation, with a principal place of business at 369 North State Street, Concord, NH 03301 ("Swenson"), ROCK OF AGES CORPORATION, a Vermont corporation, with a principal place of business at Main Street, Graniteville, Barre, Vermont 05654 ("ROAC") and ALBERT GHERARDI, JR. ("Employee") residing at Harborwatch Condominium, Apt. 14, Burlington, Vermont 05401. FACTUAL BACKGROUND: 1. ROAC wishes to employ Employee, initially as Vice President (the "Position") with such duties and responsibilities as ROAC may assign to Employee; and Employee wishes to accept such employment subject to the terms and conditions of this agreement. 2. ROAC manufactures granite memorials and other granite products, performs services related thereto, and markets such products and services in the United States and in various foreign countries (ROAC's "Business") and has accumulated valuable and confidential information including trade secrets and know-how relating to technology, manufacturing procedures, formulas, machines, marketing plans, sources of supply, business strategies and other business records. 3. Agreement by Employee to enter into the covenants contained herein is a condition precedent to the employment of Employee in the Position. Employee acknowledges that the same and his execution of this agreement are express conditions of his employment; and that said covenants are given as material consideration for such employment and the other benefits conferred upon him by this agreement. 4. Swenson is a party to this agreement solely for purposes of agreeing to and undertaking joint and several responsibility with ROAC for ROAC's agreements, covenants, duties and undertakings hereunder and agreeing to the provisions of Section 7 hereof. NOW, THEREFORE, in consideration of such employment and other valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Employment. ROAC agrees to employ Employee, and Employee accepts employment in the Position, initially reporting to the President and COO of ROAC, all upon the terms and conditions hereinafter set forth. ROAC agrees that Employee's employment hereunder shall not require him to relocate from the Central Vermont geographic region. 2 2. Duties and Policies. (a) Duties. The Employee agrees to devote his full time and best efforts to his employment duties during the Term (as hereinafter defined). ROAC reserves the right in its sole discretion to request Employee: (i) to work in a different position during the Term with different duties and responsibilities, and (ii) to perform no duties for it under this agreement from time to time or at any time for such periods of time during the Term as it in its sole discretion may determine and in the event ROAC takes such action, Employee will thereafter not be eligible for any further increases in his Annual Base Salary or for any bonuses until ROAC requests, if ever, Employee return to active work. (b) Policies. Employee agrees to abide by the policies, rules, regulations or procedures applicable to all ROAC employees as established by ROAC from time to time and provided to Employee in writing. 3. Term. The term of this agreement (the "Term") shall be five (5) years, beginning with the day after the date on which the Effective Time (as defined in the Agreement and Plan of Reorganization by and among ROAC, Swenson, Rock of Ages Quarries, Inc. ("ROAQ"), Lawson Granite Company, Inc., Employee and others) occurs, unless terminated earlier pursuant to the provisions of Section 6 below. 4. Compensation. For all services to be rendered by Employee in any capacity hereunder, the Company shall pay Employee the following: (a) Salary. The Company shall pay Employee an annual salary of One Hundred Forty Thousand Dollars ($140,000.00) less withholding and other taxes required by federal and state law (the "Annual Base Salary"), payable in equal monthly installments, or as otherwise required by law. Employee shall be eligible to receive increases in Employee's Annual Base Salary pursuant to periodic salary reviews consistent with ROAC's corporate policies; it being understood such increases are not guaranteed, but are subject to Employee's job performance and the determination by ROAC's Board of Directors, in its sole discretion, to award salary increases to Employee. (b) Bonus. Employee may also be awarded a bonus or bonuses from time to time during the Term at such time, if any, as ROAC's Board of Directors may determine, in its sole discretion, to award such bonuses. (c) Standards. ROAC agrees that the standards to be used by its Board of Directors in awarding salary increases and bonuses to Employee will be the same standards used by the Boards of Swenson and ROAQ (as hereinafter defined) in awarding the same to executive officers of those corporations, provided, however, that such salary increases and bonuses will be based on the performance of the Swenson Corporate Group. - 2 - 3 5. Fringe Benefits. During the term of this agreement, Employee shall be entitled to participate in such fringe benefits as, from time to time, may be applicable to the Company's similarly situated executive employees, subject to the terms and conditions of such fringe benefit plans and to the following fringe benefits: (i) Medical and major medical health insurance, paid for by ROAC; (ii) Life Insurance paid for by ROAC equal to one and one-half (1 1/2) times Employee's Annual Base Salary; (iii) Participation in ROAC's qualified 401(k) profit sharing plan pursuant to the terms thereof; (iv) Participation in ROAC's qualified defined benefit Salaried Employees Pension Plan pursuant to the terms thereof; (v) The use of an automobile comparable to the automobiles provided to other executive officers of ROAC and payment by ROAC of the costs of operation and maintenance of the automobile; (vi) Vacation in accordance with ROAC's employee policies, in effect from time to time with credit given for years of service for Employee's service with Lawson Granite Company, Inc.; and (vii) Participation in an ROAC Salary Continuation Agreement pursuant to the terms thereof. Fringe benefits provided to Employee will, in addition, generally be not less advantageous to Employee than those provided by Swenson to its executive employees. Fringe benefits as used in this Section do not include cash compensation, stock options or other compensation. 6. Termination. (a) Termination because of Death or Total Disability. This agreement will terminate automatically upon the date of Employee's death or Total Disability. The Employee shall be deemed to have incurred a Total Disability: (i) if ROAC maintains a long term disability policy in effect for the benefit of Employee, on the date when the Employee shall have received total disability benefits under said policy for a period of six (6) months; - 3 - 4 (ii) if no such long term disability insurance policy is in effect, on the date when the Employee suffers from a physical or mental disability of such magnitude and effect that the Employee is unable to perform the essential functions of Employee's assigned position with or without reasonable accommodation and such disability continues during a period of twelve (12) continuous or noncontinuous months within the eighteen (18) month period beginning on the first day of the month in which the first day of disability occurs; (iii) if Employee illegally uses drugs and, as a result, performance of his duties and/or employment with ROAC is in any way impaired; or (iv) on the date when Employee receives his first payment under the Social Security Act because of determination by the Social Security administration that Employee is totally disabled. Total Disability as set forth in subsections (ii), (iii) or (iv) above shall be deemed to have occurred upon the written certification to ROAC thereof by the Employee's personal physician, which certification may be requested in writing by ROAC. If the Employee does not have a personal physician or refuses to consult with his personal physician, ROAC may select a licensed Vermont physician, board-certified in internal medicine or family practice, to examine the Employee, which physician shall, for purposes hereof, be deemed to be the Employee's personal physician; provided, that if the Employee refuses to be examined by this deemed personal physician within thirty (30) days after the physician's appointment by ROAC, then the Employee may at ROAC's election be conclusively presumed to have become Totally Disabled as of the close of such thirty (30) day period. If ROAC disagrees with the opinion of the Employee's personal physician, then ROAC may select a second licensed, board-certified Vermont physician to examine the Employee. The personal physician and this second physician shall then select a third licensed, board-certified Vermont physician to examine the Employee. Upon examination of the Employee by the three (3) physicians, each physician shall render an opinion with respect to the condition of the Employee in regards to his Total Disability, and the opinion of a majority of the physicians shall be binding upon all parties. (b) Termination Without Cause. ROAC shall have the right to terminate this agreement and Employee's employment under this agreement without cause at any time (any such termination by ROAC is herein sometimes referred to as a "Termination Without Cause"). It shall also be deemed a Termination Without Cause by ROAC if Employee shall voluntarily resign from employment because of a required relocation contrary to the provisions of Section 1 of this agreement. (c) Termination With Cause. ROAC may terminate this agreement and the employment of the Employee at any time with cause and without further notice upon the occurrence of any of the following events: (i) abandonment by Employee of, or chronic, - 4 - 5 habitual or continuous failure by, Employee to perform, over a period of thirty (30) or more days, Employee's duties as an Employee hereunder; (ii) embezzlement or other theft of ROAC's property or the commission of other criminal activity against ROAC or its employees, agents and customers; or (iii) conviction of a crime which ROAC's Board of Directors reasonably determines will have a material adverse affect on the reputation, business and/or financial affairs of ROAC or the Swenson Corporate Group (as defined in Section 7 hereof) (any such termination is herein sometimes referred to as a "Termination With Cause" or as "Terminated With Cause"). (d) Termination by the Employee. Employee may resign from employment at any time for any reason and terminate this agreement by giving thirty (30) days' written notice to ROAC (any such termination is herein sometimes referred to as a "Voluntary Termination") of such intention. In such event, ROAC may, in its discretion, permit the Employee to work through the notice period or accept the Employee's immediate resignation. In the event of a Voluntary Termination, Employee shall not be entitled to payment of any further compensation or benefits under the terms of this agreement, except for salary earned, and bonuses declared, if any, prior to the date thereof. 7. Swenson Corporate Group. ROAC, ROAQ and Swenson and their direct and indirect subsidiaries, affiliates and successors and assigns are sometimes herein sometimes referred to as the "Swenson Corporate Group." 8. Expense Reimbursement and Salary Upon Termination. In the event that Employee's employment is terminated for any reason or Employee resigns in lieu of such termination, Employee shall only be entitled to be paid any expenses he has incurred prior to the termination and for which he is entitled to reimbursement hereunder, and such pro-rated salary as he may have earned up to the date of termination. 9. Non-Disclosure of Confidential Information. Employee acknowledges that during his employment, he will become fully familiar with all aspects of the ROAC's Businesses and the Swenson Corporate Group's businesses and will obtain access to confidential and proprietary information relating to such businesses. Employee understands and agrees that such information is valuable and Employee has no property interest in it. Therefore, Employee covenants and agrees that during his employment with ROAC and thereafter Employee will not use, disclose, communicate or divulge such information to any person not employed by ROAC or use such information except as may be necessary to perform his duties as an Employee under this agreement. Such obligation shall survive the expiration of the term of this agreement and/or termination of Employee's employment with ROAC for any reason whatsoever. 10. Non-Solicitation of Employees, Clients and Customers. During the Term of this agreement and for the period of Employee's non-competition covenant set forth in Section 12 hereof, following the termination this agreement, Employee agrees not to, on his own behalf or on behalf of any other person, corporation, firm or entity, directly or - 5 - 6 indirectly, solicit or induce any client, customer, employee or sales representative of ROAC or the Swenson Corporate Group to stop doing business with or to leave any of said companies for any reason whatsoever or to hire any of their employees. 11. Return of Company Property. Upon termination or nonrenewal of this agreement for any reason, Employee agrees to immediately return all ROAC and Swenson Corporate Group property, whether confidential or not, without keeping any copies or excerpts thereof, including but not limited to computers, printers, customer lists, samples, product information, financial information, price lists, marketing materials, keys, credit cards, automobiles, technical data, research, blueprints, trade secrets information, and all confidential or proprietary information. 12. Non-Competition Covenant by Employee. ROAC and the Employee agree that ROAC is currently engaged in the business of manufacturing, marketing and selling granite memorials and other granite products (herein referred to as the "Restricted Business") and ROAC is engaged in the Restricted Business in all of the states of the United States and in all of the provinces of Canada (herein the territory of all such states and provinces is referred to as the "Restricted Territory") and has hired the Employee to expand and grow the Restricted Business in the Restricted Territory. Accordingly, as a material and essential inducement to ROAC to hire the Employee and in consideration of ROAC's and Swenson's agreements with the Employee under this agreement, Employee agrees that during the Term of this agreement and, if this agreement is terminated for any reason, lapses, is not renewed for any reason, or Employee is not employed by ROAC after the end of the Term hereof for any reason, for a period equal to two (2) years, the Employee will not, in the Restricted Territory, directly or indirectly, in any manner whatsoever: (a) compete with ROAC, its successor and assigns, or the Swenson Corporate Group, its successors and assigns, in the Restricted Business; (b) engage in the Restricted Business, except as an employee of ROAC or the Swenson Corporate Group; (c) have any ownership interest in (other than the ownership of less than five percent (5%) of the ownership interests of a company whose stock or other ownership interests are publicly traded) any business entity which engages in the Restricted Business in the Restricted Territory except for any ownership interest owned by Employee during the Term of this agreement, and after termination of this agreement, in any member of the Swenson Corporate Group; (d) contract, subcontract, work for, solicit work from, solicit ROAC or Swenson Corporate Group employees for, or solicit customers for, advise or become affiliated with, any business entity which engages in the Restricted Business in the Restricted Territory except as an employee of ROAC or of the Swenson Corporate Group; or - 6 - 7 (e) lend money or provide anything of value to any entity which engages in the Restricted Business in the Restricted Territory. The term "compete" as used in this Section 12 means engage in competition, either as an owner, agent, member, consultant, partner, sole proprietor, stockholder, or any other ownership or other capacity. While the restrictions as set forth herein are considered by the parties hereto to be reasonable in all circumstances, it is recognized that any one or more of such restrictions might fail for unforeseen reasons. Accordingly, it is hereby agreed and declared that if any of such restrictions shall be adjudged to be void as unreasonable in all circumstances for the protection of ROAC and the Swenson Corporate Group and their interests, but would be valid if part of the wording thereof were deleted, the period thereof reduced, or the range of activities or area dealt with reduced in scope, such restrictions shall apply with the minimum modification as may be necessary to make them valid and effective, while still affording to ROAC and the Swenson Corporate Group the maximum amount of protection contemplated thereby. Employee represents that he has carefully reviewed Employee's restrictive non-competition covenant set forth in this Section 12 and has determined that this covenant will not impose undue hardship, financial or otherwise, on Employee; that its Restrictive Territory and duration will not impose a hardship on Employee; that it protects ROAC's and the Swenson Corporate Group's legitimate interests in their investment in Employee and their Restricted Business; and that in Employee's opinion Employee not being able to compete in the Restrictive Territory for the duration of this covenant will not be injurious to the public interest. 13. Loyalty. Employee shall devote his full time and best efforts to the performance of his employment under this agreement. During the term of this agreement, Employee shall not at any time or place whatsoever, either directly or indirectly, engage in the Restricted Business or any other profession or active business to any extent whatsoever, except on or pursuant to the terms of this agreement, or with the prior written consent of ROAC. Employee agrees that he will not, while this agreement is in effect, do any unlawful acts or engage in any unlawful habits or usages which injure, directly or indirectly, ROAC and its business. ROAC agrees that if it exercises its rights in Section 2(a) hereof to have Employee perform no duties for it, then during such period of time during the Term as Employee is so not performing his duties, Employee may engage in other employment which does not violate his non-competition covenant in Section 12 and his other covenants in Sections 9, 10 and 11 of this agreement. 14. Governing Law, Jurisdiction and Venue. This agreement shall be governed by and construed in accordance with the laws of the state of Vermont. The parties agree that because performance of this agreement will take place predominantly in Washington County, Vermont, the Washington County Superior Court, Vermont, or the U.S. District Court for - 7 - 8 the District of Vermont, in said State are the sole and exclusive forums for any actions or claims by the parties of this agreement and each party hereto consents to the jurisdiction of said courts in any action brought by another party hereto and agrees that no claims or actions relating to any matter hereunder will be brought by them in any other courts in this State, any other state or any other country. 15. Headings. The descriptive headings of the several sections of this agreement are inserted for convenience of reference only and shall not control or affect the meanings or construction of any of the provisions hereof. 16. Severability and Violation of Laws. If any provision of this agreement shall be held invalid or unenforceable according to law, such provision shall be modified to the extent necessary to bring it within the legal requirements. Any such invalidity or unenforceability shall not affect the remaining provisions of this agreement, and such remaining provisions shall continue in full force and effect. 17. Specific Performance. The Employee hereby agrees and stipulates that it would be impossible to measure in monetary terms the damages which would be suffered by ROAC in the event of any breach by Employee of Sections 8, 9, 10, 11, 12 and 13 of this agreement. Therefore, if ROAC shall institute any action in equity to enforce such sections of this agreement, it is agreed that the Employee waives any claim or defense that ROAC has an adequate remedy at law, and Employee agrees ROAC is entitled to specific performance of such terms of the agreement. 18. Notices. Any notice or other communication required or permitted under this agreement shall be in writing and shall be deemed to have been duly given (i) upon hand delivery, or (ii) on the third day following delivery to the U.S. Postal Service as certified or registered mail, return receipt requested and postage prepaid, or (iii) on the first day following delivery to a nationally recognized United States overnight courier service for next business day delivery, fee prepaid, return receipt or other confirmation of delivery requested or (iv) when telecopied or sent by facsimile transmission if an additional notice is also given under (i), (ii) or (iii) above within three days thereafter. Any such notice or communication shall be directed to a party at its address set forth below or at such other address as may be designated by a party in a notice given to all other parties hereto in accordance with the provisions of this Section. For the ROAC: Mr. Kurt M. Swenson Chairman and Chief Executive Officer Swenson Granite Company, Inc. 369 North State Street Concord, NH 03302 - 8 - 9 with a copy to: John R. Monson, Esquire Wiggin & Nourie, P.A. 20 Market Street, P. O. Box 808 Manchester, New Hampshire 03105-0808 For the Employee: Mr. Albert Gherardi, Jr. Harborwatch Condominium Apt. 14 Burlington, Vermont 05401 with a copy to: John R. Nicholls, Esq. Abare, Nicholls & Parker, P.C. 59 North Main Street Barre, VT 05641 19. Assignment. The rights and obligations of ROAC together with its obligations and all of the Employee's covenants and agreements hereunder may be assigned by ROAC to any third party by operation of law or by contractual assignment; provided, however, that Swenson remains liable under this agreement after such assignment as set forth in Section 23 hereof and upon such assignment ROAC shall be relieved of all of its obligations, agreements, duties and covenants hereunder. The rights and obligations of the Employee under this agreement are not assignable. 20. Complete and Entire Agreement. This agreement contains all of the terms agreed upon by the parties with respect to the subject matter hereof and supersedes all prior agreements, representations and warranties of the parties as to the subject matter hereof. 21. Amendments. This agreement may be amended, or any provision of the agreement may be waived, provided that any such amendment or waiver will be binding on the parties only if such amendment or waiver is set forth in a writing executed by all parties hereto. The waiver by any party hereto of a breach of any provision of this agreement shall not operate or be construed as a waiver of any other breach. 22. Survival. Sections 8, 9, 10, 11, 12, 14, 16 and 17 shall survive expiration of the term of this agreement and/or termination of Employee's employment under this agreement. - 9 - 10 23. Swenson as a Party. Swenson hereby agrees to joint and several liability with ROAC for all of ROAC's agreements, covenants, duties and undertakings under this agreement and Employee agrees that Swenson has all of ROAC's rights under this agreement. IN WITNESS WHEREOF, the parties hereto have executed this agreement, all as of the date first written above. WITNESS: ROCK OF AGES CORPORATION /s/ By: /s/ Kurt M. Swenson - ------------------------------- ------------------------------- Kurt M. Swenson, Chairman and Chief Executive Officer WITNESS: SWENSON GRANITE COMPANY, INC. /s/ By: /s/ Kurt M. Swenson - ------------------------------- ------------------------------- Kurt M. Swenson, President WITNESS: EMPLOYEE /s/ /s/ Albert Gherardi, Jr. - ------------------------------- ------------------------------- Albert Gherardi, Jr. - 10 - EX-10.6 12 EMPLOYMENT AGMT - MARK GHERARDI 1 Exhibit 10.6 EMPLOYMENT AGREEMENT THIS AGREEMENT made as of the 3rd day of January, 1996, and effective as of January 1, 1996, by and among SWENSON GRANITE COMPANY, INC., a New Hampshire corporation, with a principal place of business at 369 North State Street, Concord, NH 03301 ("Swenson"), ROCK OF AGES CORPORATION, a Vermont corporation, with a principal place of business at Main Street, Graniteville, Barre, Vermont 05654 ("ROAC") and MARK A. GHERARDI ("Employee") residing at Grandview Farm Road, Barre, Vermont 05641. FACTUAL BACKGROUND: 1. ROAC wishes to employ Employee, initially as Senior Vice President of Manufacturing (the "Position") and with such other duties and responsibilities, and such other or different positions, as ROAC may assign to Employee; and Employee wishes to accept such employment subject to the terms and conditions of this agreement. 2. ROAC manufactures granite memorials and other granite products, performs services related thereto, and markets such products and services in the United States and in various foreign countries (ROAC's "Business") and has accumulated valuable and confidential information including trade secrets and know-how relating to technology, manufacturing procedures, formulas, machines, marketing plans, sources of supply, business strategies and other business records. 3. Agreement by Employee to enter into the covenants contained herein is a condition precedent to the employment of Employee in the Position. Employee acknowledges that the same and his execution of this agreement are express conditions of his employment; and that said covenants are given as material consideration for such employment and the other benefits conferred upon him by this agreement. 4. Swenson is a party to this agreement solely for purposes of agreeing to and undertaking joint and several responsibility with ROAC for ROAC's agreements, covenants, duties and undertakings hereunder and agreeing to the provisions of Section 7 hereof. NOW, THEREFORE, in consideration of such employment and other valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Employment. ROAC agrees to employ Employee, and Employee accepts employment in the Position, initially reporting to the President and COO of ROAC, all upon the terms and conditions hereinafter set forth. ROAC agrees that Employee's employment hereunder shall not require him to relocate from the Central Vermont geographic region. 2 2. Duties and Policies. (a) Duties. The Employee agrees to devote his full time and best efforts to his employment duties in the Position or, subject to the rights of ROAC in the second sentence of this Section 2(a), in such other comparable position to which Employee is assigned during the Term (as hereinafter defined), and to such other comparable duties as may be assigned to him from time to time by ROAC. ROAC reserves the right in its sole discretion to request Employee to perform no duties for it under this agreement from time to time or at any time for such periods of time during the Term as it in its sole discretion may determine and in the event ROAC takes such action, Employee will thereafter not be eligible for any further increases in his Annual Base Salary or for any bonuses until ROAC requests, if ever, Employee return to active work. (b) Policies. Employee agrees to abide by the policies, rules, regulations or usages applicable to Employee as established by ROAC from time to time and provided to Employee in writing. 3. Term. The term of this agreement (the "Term") shall be five (5) years, beginning with the day after the date on which the Effective Time (as defined in the Agreement and Plan of Reorganization by and among ROAC, Swenson, Rock of Ages Quarries, Inc. ("ROAQ"), Lawson Granite Company, Inc., Employee and others) occurs, unless terminated earlier pursuant to the provisions of Section 6 below. 4. Compensation. For all services to be rendered by Employee in any capacity hereunder, the Company shall pay Employee the following: (a) Salary. The Company shall pay Employee an annual salary of One Hundred Forty Thousand Dollars ($140,000) less withholding and other taxes required by federal and state law (the "Annual Base Salary"), payable in equal monthly installments, or as otherwise required by law. Employee shall be eligible to receive increases in Employee's Annual Base Salary pursuant to periodic salary reviews consistent with ROAC's corporate policies; it being understood such increases are not guaranteed, but are subject to Employee's job performance and the determination by ROAC's Board of Directors, in its sole discretion, to award salary increases to Employee. (b) Bonus. Employee may also be awarded a bonus or bonuses from time to time during the Term at such time, if any, as ROAC's Board of Directors may determine, in its sole discretion, to award such bonuses. (c) Standards. ROAC agrees that the standards to be used by its Board of Directors in awarding salary increases and bonuses to Employee will be the same standards used by the Boards of Swenson and ROAQ (as hereinafter defined) in awarding the same to executive officers of those corporations, provided, however, that such salary increases and bonuses will be based on the performance of the Swenson Corporate Group. - 2 - 3 5. Fringe Benefits. During the term of this agreement, Employee shall be entitled to participate in such fringe benefits as, from time to time, may be applicable to the Company's similarly situated executive employees, subject to the terms and conditions of such fringe benefit plans and to the following fringe benefits: (i) Medical and major medical health insurance, paid for by ROAC; (ii) Life Insurance paid for by ROAC equal to one and one-half (1 1/2) times Employee's Annual Base Salary; (iii) Participation in ROAC's qualified 401(k) profit sharing plan pursuant to the terms thereof; (iv) Participation in ROAC's qualified defined benefit Salaried Employees Pension Plan pursuant to the terms thereof; (v) The use of an automobile comparable to the automobiles provided to other executive officers of ROAC and payment by ROAC of the costs of operation and maintenance of the automobile; (vi) Vacation in accordance with ROAC's employee policies, in effect from time to time with credit given for years of service for Employee's service with Lawson Granite Company, Inc.; and (vii) Participation in an ROAC Salary Continuation Agreement pursuant to the terms thereof. Fringe benefits provided to Employee will, in addition, generally be not less advantageous to Employee than those provided by Swenson to its executive employees. Fringe benefits as used in this Section do not include cash compensation, stock options or other compensation. 6. Termination. (a) Termination because of Death or Total Disability. This agreement will terminate automatically upon the date of Employee's death or Total Disability. The Employee shall be deemed to have incurred a Total Disability: (i) if ROAC maintains a long term disability policy in effect for the benefit of Employee, on the date when the Employee shall have received total disability benefits under said policy for a period of six (6) months; - 3 - 4 (ii) if no such long term disability insurance policy is in effect, on the date when the Employee suffers from a physical or mental disability of such magnitude and effect that the Employee is unable to perform the essential functions of Employee's assigned position with or without reasonable accommodation and such disability continues during a period of twelve (12) continuous or noncontinuous months within the eighteen (18) month period beginning on the first day of the month in which the first day of disability occurs; (iii) if Employee illegally uses drugs and, as a result, performance of his duties and/or employment with ROAC is in any way impaired; or (iv) on the date when Employee receives his first payment under the Social Security Act because of determination by the Social Security administration that Employee is totally disabled. Total Disability as set forth in subsections (ii), (iii) or (iv) above shall be deemed to have occurred upon the written certification to ROAC thereof by the Employee's personal physician, which certification may be requested in writing by ROAC. If the Employee does not have a personal physician or refuses to consult with his personal physician, ROAC may select a licensed Vermont physician, board-certified in internal medicine or family practice, to examine the Employee, which physician shall, for purposes hereof, be deemed to be the Employee's personal physician; provided, that if the Employee refuses to be examined by this deemed personal physician within thirty (30) days after the physician's appointment by ROAC, then the Employee may at ROAC's election be conclusively presumed to have become Totally Disabled as of the close of such thirty (30) day period. If ROAC disagrees with the opinion of the Employee's personal physician, then ROAC may select a second licensed, board-certified Vermont physician to examine the Employee. The personal physician and this second physician shall then select a third licensed, board-certified Vermont physician to examine the Employee. Upon examination of the Employee by the three (3) physicians, each physician shall render an opinion with respect to the condition of the Employee in regards to his Total Disability, and the opinion of a majority of the physicians shall be binding upon all parties. (b) Termination Without Cause. ROAC shall not have the right to terminate this agreement and Employee's employment under this agreement except for a Termination for Cause (as defined in Section 6(c) below) unless ROAC pays Employee the severance payments set forth in Section 8 hereof on the terms and conditions of said Section 8 (any such termination by ROAC is herein sometimes referred to as a "Termination Without Cause"). It shall also be deemed a Termination Without Cause by ROAC if Employee shall voluntarily resign from employment because of a required relocation contrary to the provisions of Section 1 of this agreement or a violation by ROAC of the provisions of Section 2(a) regarding assigning Employee to a position not comparable to the Position or to duties not comparable to the Position. - 4 - 5 (c) Termination With Cause. ROAC may terminate this agreement and the employment of the Employee at any time with cause and without further notice upon the occurrence of any of the following events: (i) abandonment by Employee of, or chronic, habitual or continuous failure by, Employee to perform, over a period of thirty (30) or more days, Employee's duties as an Employee hereunder; (ii) embezzlement or other theft of ROAC's property or the commission of other criminal activity against ROAC or its employees, agents and customers; or (iii) conviction of a crime which ROAC's Board of Directors reasonably determines will have a material adverse affect on the reputation, business and/or financial affairs of ROAC or the Swenson Corporate Group (as defined in Section 7 hereof) (any such termination is herein sometimes referred to as a "Termination With Cause" or as "Terminated With Cause"). In the event that Employee's employment is Terminated With Cause or Employee resigns in lieu of such termination, Employee shall only be entitled to be paid any expenses he has incurred prior to the termination and for which he is entitled to reimbursement hereunder, and such pro-rated salary as he may have earned up to the date of termination. (d) Termination by the Employee. Employee may resign from employment at any time for any reason and terminate this agreement by giving thirty (30) days' written notice to ROAC (any such termination is herein sometimes referred to as a "Voluntary Termination") of such intention. In such event, ROAC may, in its discretion, permit the Employee to work through the notice period or accept the Employee's immediate resignation. In the event of a Voluntary Termination, Employee shall not be entitled to payment of any further compensation or benefits under the terms of this agreement, except for salary earned, and bonuses declared, if any, prior to the date thereof. 7. Board of Directors Positions. As long as Employee is an employee of ROAC under this agreement and is not prohibited by law from serving as a member of the Boards of Directors hereafter named, Swenson will cause Rock of Ages Quarries, Inc. ("ROAQ") and ROAC to elect Employee to their respective Boards of Directors. A separate agreement between Employee and others governs Employee's election as a member of the Board of Directors of Swenson. Employee agrees that if he incurs a Voluntary Termination hereunder he will submit his resignation from all of the above-referenced Boards of Directors, including Swenson's, simultaneously with his Voluntary Termination. ROAC, ROAQ and Swenson and their direct and indirect subsidiaries, affiliates and successors and assigns are sometimes herein sometimes referred to as the "Swenson Corporate Group." 8. Severance Payments. If Employee's employment under this agreement and this agreement are terminated because of Employee's death or Total Disability or by ROAC by virtue of a Termination Without Cause under Section 6(c) hereof, then in consideration thereof and as liquidated damages incurred by Employee because of such termination and not as a penalty, Employee agrees to accept and ROAC agrees to pay to Employee, as Employee's sole entitlement because of the Termination Without Cause, severance payments (the "Severance Payment") pursuant to the following schedule: - 5 - 6 Termination Without Cause Severance Payment Equal to: during the: First Year of the Term: $840,000 Second Year of the Term: $700,000 Third Year of the Term $560,000 Fourth Year of the Term $420,000 Fifth Year of the Term Severance Payment Equal to the sum of: the balance of Annual Base Salary owed from date of termination to end of 5th year and $280,000
In addition, ROAC agrees that if at the end of the Term of this agreement, ROAC does not offer Employee an Employment Agreement for at least an additional two (2) years at a Base Annual Salary equal to Employee's Annual Base Salary in the fifth (5th) year of the Term, but having other provisions deemed necessary, appropriate and in ROAC's best interests, none of which will necessarily be similar or the same as the other provisions of this agreement (the "New Agreement") then ROAC will pay a $280,000 severance payment payable monthly as hereinafter indicated to Employee; provided however, that if ROAC offers such a New Agreement and Employee does not accept it no such additional $280,000 will be paid to Employee and no other severance payment will be due Employee under the New Agreement, irrespective of how it may be terminated thereafter by either party to it or upon its nonrenewal at the end of its term. Employee agrees that any Severance Payments payable under this Section may be paid at the rate of $11,667 per month, commencing on the first day of the month after the month in which the Termination Without Cause occurs or on the first day of the month after the end of the Term of this agreement. Employee further agrees that no Severance Payments are due to Employee under this Section if Employee's employment is terminated because of Employee's death, Total Disability, Termination With Cause or Voluntary Termination. Employee, in consideration of the payment of the severance payments set forth in this Section 8, hereby waives and releases, all members of the Swenson Corporate Group from any and all lawsuits, claims, damages, expenses, costs, (including attorneys fees) which Employee may incur or suffer because of Employee's Termination Without Cause. 9. Non-Disclosure of Confidential Information. Employee acknowledges that during his employment, he will become fully familiar with all aspects of the ROAC's Businesses and the Swenson Corporate Group's businesses and will obtain access to confidential and proprietary information relating to such businesses. Employee understands and agrees that such information is valuable and Employee has no property interest in it. - 6 - 7 Therefore, Employee covenants and agrees that during his employment with ROAC and thereafter Employee will not use, disclose, communicate or divulge such information to any person not employed by ROAC or use such information except as may be necessary to perform his duties as an Employee under this agreement. Such obligation shall survive the expiration of the term of this agreement and/or termination of Employee's employment with ROAC for any reason whatsoever. 10. Non-Solicitation of Employees, Clients and Customers. During the Term of this agreement and for the period of Employee's non-competition covenant set forth in Section 12 hereof, following the termination this agreement, Employee agrees not to, on his own behalf or on behalf of any other person, corporation, firm or entity, directly or indirectly, solicit or induce any client, customer, employee or sales representative of ROAC or the Swenson Corporate Group to stop doing business with or to leave any of said companies for any reason whatsoever or to hire any of their employees. 11. Return of Company Property. Upon termination or nonrenewal of this agreement for any reason, Employee agrees to immediately return all ROAC and Swenson Corporate Group property, whether confidential or not, without keeping any copies or excerpts thereof, including but not limited to computers, printers, customer lists, samples, product information, financial information, price lists, marketing materials, keys, credit cards, automobiles, technical data, research, blueprints, trade secrets information, and all confidential or proprietary information. 12. Non-Competition Covenant by Employee. ROAC and the Employee agree that ROAC is currently engaged in the business of manufacturing, marketing and selling granite memorials and other granite products (herein referred to as the "Restricted Business") and ROAC is engaged in the Restricted Business in all of the states of the United States and in all of the provinces of Canada (herein the territory of all such states and provinces is referred to as the "Restricted Territory") and has hired the Employee to expand and grow the Restricted Business in the Restricted Territory. Accordingly, as a material and essential inducement to ROAC to hire the Employee and in consideration of ROAC's and Swenson's agreements with the Employee under this agreement, including without limitation the Severance Payments, Employee agrees that during the Term of this agreement and, if this agreement is terminated for any reason, lapses, is not renewed for any reason, or Employee is not employed by ROAC after the end of the Term hereof for any reason, for a period equal to the greater of (a) two (2) years; or (b) the periods during which ROAC is paying Severance Payments to Employee pursuant to Section 8 hereof, the Employee will not, in the Restricted Territory, directly or indirectly, in any manner whatsoever: (a) compete with ROAC, its successor and assigns, or the Swenson Corporate Group, its successors and assigns, in the Restricted Business; (b) engage in the Restricted Business, except as an employee of ROAC or the Swenson Corporate Group; - 7 - 8 (c) have any ownership interest in (other than the ownership of less than five percent (5%) of the ownership interests of a company whose stock or other ownership interests are publicly traded) any business entity which engages in the Restricted Business in the Restricted Territory except for any ownership interest owned by Employee during the Term of this agreement, and after termination of this agreement, in any member of the Swenson Corporate Group; (d) contract, subcontract, work for, solicit work from, solicit ROAC or Swenson Corporate Group employees for, or solicit customers for, advise or become affiliated with, any business entity which engages in the Restricted Business in the Restricted Territory except as an employee of ROAC or of the Swenson Corporate Group; or (e) lend money or provide anything of value to any entity which engages in the Restricted Business in the Restricted Territory. The term "compete" as used in this Section 12 means engage in competition, either as an owner, agent, member, consultant, partner, sole proprietor, stockholder, or any other ownership or other capacity. While the restrictions as set forth herein are considered by the parties hereto to be reasonable in all circumstances, it is recognized that any one or more of such restrictions might fail for unforeseen reasons. Accordingly, it is hereby agreed and declared that if any of such restrictions shall be adjudged to be void as unreasonable in all circumstances for the protection of ROAC and the Swenson Corporate Group and their interests, but would be valid if part of the wording thereof were deleted, the period thereof reduced, or the range of activities or area dealt with reduced in scope, such restrictions shall apply with the minimum modification as may be necessary to make them valid and effective, while still affording to ROAC and the Swenson Corporate Group the maximum amount of protection contemplated thereby. Employee represents that he has carefully reviewed Employee's restrictive non-competition covenant set forth in this Section 12 and has determined that this covenant will not impose undue hardship, financial or otherwise, on Employee; that its Restrictive Territory and duration will not impose a hardship on Employee; that it protects ROAC's and the Swenson Corporate Group's legitimate interests in their investment in Employee and their Restricted Business; and that in Employee's opinion Employee not being able to compete in the Restrictive Territory for the duration of this covenant will not be injurious to the public interest. Employee agrees that Employee's breach of his covenants in this Section 12 will cause irreparable harm to ROAC and the Swenson Corporate Group. Employee, therefore, further agrees that if he so breaches, ROAC may cease to make any Severance Payments remaining due to Employee on the date of the breach and ROAC's obligation to make any - 8 - 9 further Severance Payments to Employee will, therefore, terminate and be null, void and of no further force and effect. 13. Loyalty. Employee shall devote his full time and best efforts to the performance of his employment under this agreement. During the term of this agreement, Employee shall not at any time or place whatsoever, either directly or indirectly, engage in the Restricted Business or any other profession or active business to any extent whatsoever, except on or pursuant to the terms of this agreement, or with the prior written consent of ROAC. Employee agrees that he will not, while this agreement is in effect, do any unlawful acts or engage in any unlawful habits or usages which injure, directly or indirectly, ROAC and its business. ROAC agrees that if it exercises its rights in Section 2(a) hereof to have Employee perform no duties for it, then during such period of time during the Term as Employee is so not performing his duties, Employee may engage in other employment which does not violate his non-competition covenant in Section 12 and his other covenants in Sections 9, 10 and 11 of this agreement. 14. Governing Law, Jurisdiction and Venue. This agreement shall be governed by and construed in accordance with the laws of the state of Vermont. The parties agree that because performance of this agreement will take place predominantly in Washington County, Vermont, the Washington County Superior Court, Vermont, or the U.S. District Court for the District of Vermont, in said State are the sole and exclusive forums for any actions or claims by the parties of this agreement and each party hereto consents to the jurisdiction of said courts in any action brought by another party hereto and agrees that no claims or actions relating to any matter hereunder will be brought by them in any other courts in this State, any other state or any other country. 15. Headings. The descriptive headings of the several sections of this agreement are inserted for convenience of reference only and shall not control or affect the meanings or construction of any of the provisions hereof. 16. Severability and Violation of Laws. If any provision of this agreement shall be held invalid or unenforceable according to law, such provision shall be modified to the extent necessary to bring it within the legal requirements. Any such invalidity or unenforceability shall not affect the remaining provisions of this agreement, and such remaining provisions shall continue in full force and effect. 17. Specific Performance. The Employee hereby agrees and stipulates that it would be impossible to measure in monetary terms the damages which would be suffered by ROAC in the event of any breach by Employee of Sections 8, 9, 10, 11, 12 and 13 of this agreement. Therefore, if ROAC shall institute any action in equity to enforce such sections of this agreement, it is agreed that the Employee waives any claim or defense that ROAC has an adequate remedy at law, and Employee agrees ROAC is entitled to specific performance of such terms of the agreement. - 9 - 10 18. Notices. Any notice or other communication required or permitted under this agreement shall be in writing and shall be deemed to have been duly given (i) upon hand delivery, or (ii) on the third day following delivery to the U.S. Postal Service as certified or registered mail, return receipt requested and postage prepaid, or (iii) on the first day following delivery to a nationally recognized United States overnight courier service for next business day delivery, fee prepaid, return receipt or other confirmation of delivery requested or (iv) when telecopied or sent by facsimile transmission if an additional notice is also given under (i), (ii) or (iii) above within three days thereafter. Any such notice or communication shall be directed to a party at its address set forth below or at such other address as may be designated by a party in a notice given to all other parties hereto in accordance with the provisions of this Section. For the ROAC: Mr. Kurt M. Swenson Chairman and Chief Executive Officer Swenson Granite Company, Inc. 369 North State Street Concord, NH 03302 with a copy to: John R. Monson, Esquire Wiggin & Nourie, P.A. 20 Market Street P. O. Box 808 Manchester, New Hampshire 03105-0808 For the Employee: Mr. Mark A. Gherardi Grandview Farm Road Barre, Vermont 05641 with a copy to: John R. Nicholls, Esq. Abare, Nicholls & Parker, P.C. 59 North Main Street Barre, VT 05641 19. Assignment. The rights and obligations of ROAC together with its obligations and all of the Employee's covenants and agreements hereunder may be assigned by ROAC to any third party by operation of law or by contractual assignment; provided, however, that - 10 - 11 Swenson remains liable under this agreement after such assignment as set forth in Section 24 hereof and upon such assignment ROAC shall be relieved of all of its obligations, agreements, duties and covenants hereunder. The rights and obligations of the Employee under this agreement are not assignable. 20. Complete and Entire Agreement. This agreement contains all of the terms agreed upon by the parties with respect to the subject matter hereof and supersedes all prior agreements, representations and warranties of the parties as to the subject matter hereof. 21. Amendments. This agreement may be amended, or any provision of the agreement may be waived, provided that any such amendment or waiver will be binding on the parties only if such amendment or waiver is set forth in a writing executed by all parties hereto. The waiver by any party hereto of a breach of any provision of this agreement shall not operate or be construed as a waiver of any other breach. 22. Officer Shareholder Agreement. In consideration of ROAC and Swenson entering into this agreement and ROAC employing Employee hereunder, Employee agrees to enter into an Officer Shareholder Agreement with Swenson dated even date herewith. 23. Survival. Sections 8, 9, 10, 11, 12, 14, 16 and 17 shall survive expiration of the term of this agreement and/or termination of Employee's employment under this agreement. 24. Swenson as a Party. Swenson hereby agrees to joint and several liability with ROAC for all of ROAC's agreements, covenants, duties and undertakings under this agreement and Employee agrees that Swenson has all of ROAC's rights under this agreement. IN WITNESS WHEREOF, the parties hereto have executed this agreement, all as of the date first written above. WITNESS: ROCK OF AGES CORPORATION /s/ By: /s/ Kurt M. Swenson - -------------------------- ------------------------------- Kurt M. Swenson, Chairman and Chief Executive Officer WITNESS: SWENSON GRANITE COMPANY, INC. /s/ By: /s/ Kurt M. Swenson - -------------------------- ------------------------------- Kurt M. Swenson, President - 11 - 12 WITNESS: EMPLOYEE /s/ /s/ Mark A. Gherardi - -------------------------- ------------------------------- Mark A. Gherardi - 12 - EX-10.7 13 FORM OF ACQUISITION EMPLOYMENT AGREEMENT 1 EXHIBIT 10.7 EMPLOYMENT AGREEMENT -------------------- THIS AGREEMENT made as of the _____ day of ___________, 1997, by and among ROCK OF AGES CORPORATION, a Vermont corporation, with a principal place of business at 369 North State Street, Concord, NH 03301 ("Company"), and ___________________ ("Employee") residing at _________________________________________. FACTUAL BACKGROUND: 1. Company wishes to employ Employee, initially as ______________________, reporting to the President of the Company, with principal responsibility for national retail memorial sales by ROAM and with responsibility for identifying and acquiring additional companies in the retail monument business and after their acquisition installing sales and pricing systems in the acquired businesses (the "Position") and with such other duties and responsibilities, and such other or different positions, as Company may assign to Employee; and Employee wishes to accept such employment subject to the terms and conditions of this agreement. 2. Employee was a Principal Shareholder of Keith National Corporation ("KNC") and certain other corporations (KNC and its wholly owned subsidiary Keith Monument Company ("KMC"), all of said other corporations and Keith Lettering and Setting Corporation, ("KLS") being collectively referred to herein as the "KMC Group") the Assets of which, along with the assets of KMC and KLS, were acquired by Company pursuant to that certain Asset Purchase Agreement dated July 30, 1997 (the "Asset Purchase Agreement") under which the members of the KMC Group sold substantially all their Assets to Company because Company desired to obtain the Assets and Businesses of the KMC Group and the services of Employee for the ROAC Corporate Group (hereinafter in Section 7 defined). 3. Company and its affiliates and subsidiaries, including ROAM, quarry, manufacture granite memorials and other granite products, perform services related thereto, and market such products and services at wholesale and retail in the United States and in various foreign countries (Company's "Business") and have accumulated valuable and confidential information including trade secrets and know-how relating to technology, manufacturing procedures, formulas, machines, marketing plans, sources of supply, business strategies and other business records. 2 4. The agreement by Employee to enter into the covenants contained herein is a condition precedent to the employment of Employee in the Position, Employee acknowledges that the same and that his execution of this agreement are express conditions of his employment; and that said covenants are given as material consideration for such employment and the other benefits conferred upon him by this agreement and the Asset Purchase Agreement. 5. As used herein the term Company shall refer to Company and where applicable to any direct or indirect subsidiary or parent of Company for which Employee may from time to time be performing services under this agreement. 6. Terms used herein and not defined herein shall have the meanings ascribed to them in the Asset Purchase Agreement. NOW, THEREFORE, in consideration of such employment and other valuable consideration, receipt of which is hereby acknowledged, the parties thereto agree as follows: 1. EMPLOYMENT. Company agrees to employ Employee, and Employee accepts employment in the Position, initially reporting to the President of Company, all upon the terms and conditions hereinafter set forth. 2. DUTIES AND POLICIES. (a) DUTIES. The Employee agrees to devote his full time and best efforts to his employment duties in the Position or, subject to the rights of Company in the second sentence of this Section 2(a), in such other position to which Employee is assigned during the Term (as hereinafter defined), and to such other duties as may be assigned to him from time to time by Company. Company reserves the right in its sole discretion to request Employee to perform no duties for it under this agreement from time to time or at any time for such periods of time during the Term as it in its sole discretion may determine and in the event Company takes such action, Employee will thereafter not be eligible for any further increases in his Annual Base Salary or for any bonuses until Company requests, if ever, Employee return to active work. (b) POLICIES. Employee agrees to abide by the policies, rules, regulations or usages applicable to Employee as established by Company from time to time and provided to Employee in writing. 3. TERM. The term of this agreement (the "Term") shall be five (5) years, beginning with the day after the date on which the Closing Date occurs, unless terminated earlier pursuant to the provisions of Section 6 below. 4. COMPENSATION. For all services to be rendered by Employee in any capacity hereunder, the Company shall pay Employee the following: -2- 3 (a) SALARY. The Company shall pay Employee an annual salary of One Hundred Sixty-Five Thousand Dollars ($165,000.00) less withholding and other taxes required by federal and state law (the "Annual Base Salary"), payable in equal monthly installments, or as otherwise required by law. Employee shall be eligible to receive increases in Employee's Annual Base Salary pursuant to periodic salary reviews consistent with Company's corporate policies; it being understood such increases are not guaranteed, but are subject to Employee's job performance and the determination by Company's Board of Directors, in its sole discretion, to award salary increases to Employee. (b) BONUS. Employee may also be awarded a bonus or bonuses from time to time during the Term at such time, if any, as ROAC Corporate Group's (as hereinafter in Section 7 defined) Boards of Directors may determine, in its sole discretion, to award such bonuses. (c) STANDARDS. Company agrees that the standards to be used by its Board of Directors in awarding salary increases and bonuses to Employee will be the same standards used by the Board of Directors of Company in awarding the same to its executive officers, provided, however, that such salary increases and bonuses will be based on the performance of ROAM as a part of the ROAC Corporate Group. (d) INCENTIVE STOCK OPTIONS. Company agrees to grant Employee, under its 1994 Stock Plan, as amended from time to time, (the "Plan") for employees, an option to purchase a maximum of 125,000 shares of the class of common stock of the Company prior to the IPO (as defined below) and prior to an anticipated reverse stock split in anticipation of the IPO which will reduce the number of shares offered under this option to approximately 62,500 shares of the class of common stock offered to the public in the Company's initial public offering of said class of common stock by the Company (the "IPO"). The exercise price per share for this option will be the initial public offering price per share to the public in the IPO, provided, however, that in the event the IPO does not take place by December 20, 1997 and Employee is an employee of the Company under this agreement on December 20, 1997, then the exercise price per share for this option will be set by the Company's Board of Directors in accordance with the Plan. The grant of this option will be pursuant to the Plan and the Incentive Stock Option Agreement, substantially in the form attached hereto as Exhibit A; provided that the number of shares subject to the option and the class of shares will be adjusted in Exhibit A in accordance with the provisions thereof depending upon when the option is granted by Company. 5. FRINGE BENEFITS. During the term of this agreement, Employee shall be entitled to participate in such fringe benefits as, from time to time, may be applicable to the Company's similarly situated executive employees, subject to the terms and conditions of such fringe benefit plans and to the following fringe benefits: (i) Family medical and major medical health insurance, paid for by Company; -3- 4 (ii) Life Insurance paid for by Company equal to one and one-half (1 1/2) times Employee's Annual Base Salary (capped at $280,000 while working and $60,000 during retirement); (iii) Participation in Company's qualified 401(k) profit sharing plan pursuant to the terms thereof; (iv) Participation in Company's qualified defined benefit Salaried Employees Pension Plan pursuant to the terms thereof; (v) Participation in Company's long term disability insurance plan pursuant to the terms thereof; (vi) The use of an automobile comparable to the automobiles provided to other executive officers of Company and payment by Company of the costs of operation and maintenance of the automobile; and (vii) Vacation in accordance with Company's employee policies, in effect from time to time with credit given for years of service for Employee's service with Keith Monument Company. Fringe benefits provided to Employee will, in addition, generally be not less advantageous to Employee than those provided by Company to its executive employees. Fringe benefits as used in this Section do not include cash compensation, stock options or other compensation. 6. TERMINATION. (a) TERMINATION BECAUSE OF DEATH OR TOTAL DISABILITY. This agreement will terminate automatically upon the date of Employee's death or Total Disability. The Employee shall be deemed to have incurred a Total Disability: (i) if Company maintains a long term disability policy in effect for the benefit of Employee, on the date when the Employee shall have received total disability benefits under said policy for a period of six (6) months; (ii) if no such long term disability insurance policy is in effect, on the date when the Employee suffers from a physical or mental disability of such magnitude and effect that the Employee is unable to perform the essential functions of Employee's assigned position with or without reasonable accommodation and such disability continues during a period of twelve (12) continuous or noncontinuous months within the eighteen (18) month period beginning on the first day of the month in which the first day of disability occurs; -4- 5 (iii) if Employee illegally uses drugs and, as a result, performance of his duties and/or employment with Company is in any way impaired; or (iv) on the date when Employee receives more than 12 weeks of payments under the Social Security Act because of determination by the Social Security administration that Employee is totally disabled. Total Disability as set forth in subsections (ii) or (iii) above shall be deemed to have occurred upon the written certification to Company thereof by the Employee's personal physician, which certification may be requested in writing by Company. If the Employee does not have a personal physician or refuses to consult with his personal physician, Company may select a licensed Kentucky physician, board-certified in internal medicine or family practice, at Employee's cost, to examine the Employee, which physician shall, for purposes hereof, be deemed to be the Employee's personal physician; provided, that if the Employee refuses to be examined by this deemed personal physician within thirty (30) days after the physician's appointment by Company, then the Employee may at Company's election be conclusively presumed to have become Totally Disabled as of the close of such thirty (30) day period. If Company disagrees with the opinion of the Employee's personal physician, then Company may select a second licensed, board-certified Kentucky physician, at Company's cost, to examine the Employee. If said two (2) physicians disagree as to whether Employee is Totally Disabled, then the personal physician and this second physician shall then select a third licensed, board-certified Kentucky physician, with the cost of this third physician to be split between Employee and Company, to examine the Employee. Upon examination of the Employee by the three (3) physicians, each physician shall render an opinion with respect to the condition of the Employee in regards to his Total Disability, and the opinion of a majority of the physicians shall be binding upon all parties. (b) TERMINATION WITHOUT CAUSE. Company shall not have the right to terminate this agreement and Employee's employment under this agreement except for a Termination With Cause (as defined in Section 6(c) below). (c) TERMINATION WITH CAUSE. Company may terminate this agreement and the employment of the Employee at any time with cause and without further notice upon the occurrence of any of the following events: (i) abandonment by Employee of, or chronic, habitual or continuous failure by Employee to perform, over a period of thirty (30) or more days, Employee's duties as an Employee hereunder or violation of any of Employee's covenants under this agreement; (ii) embezzlement or other theft of the property of Company, of the ROAC Corporate Group or of the KMC Group or of any predecessor to the Company, to the ROAC Corporate Group or to the KMC Group (collectively, the "Predecessors"), or the commission of other criminal activity against Company, ROAC Corporate Group, the KMC Group, or any of the Predecessors or their employees, agents and customers; or (iii) conviction of a crime which after all appeals the Company's Board of Directors reasonably determines will have or has had a material adverse affect on the reputation, business and/or financial affairs of Company, the ROAC Corporate Group or the -5- 6 KMC Group (any such termination is herein sometimes referred to as a "Termination With Cause" or as "Terminated With Cause"). In the event that Employee's employment is Terminated With Cause or Employee resigns in lieu of such termination, Employee shall only be entitled to be paid any expenses he has incurred prior to the termination and for which he is entitled to reimbursement hereunder, and such pro-rated salary as he may have earned up to the date of termination. (d) TERMINATION BY THE EMPLOYEE. Employee may resign from employment at any time for any reason and terminate this agreement by giving thirty (30) days' written notice to Company (any such termination is herein sometimes referred to as a "Voluntary Termination") of such intention. In such event, Company may, in its discretion, permit the Employee to work through the notice period or accept the Employee's immediate resignation. In the event of a Voluntary Termination, Employee shall not be entitled to payment of any further compensation or benefits, under the terms of this agreement. 7. BOARD OF DIRECTORS POSITIONS AND ROAC CORPORATE GROUP. As long as Employee is an employee of Company under this agreement and is not prohibited by law from serving as a member of the Board of Directors of Company, and subject to the fiduciary duties of the Board of Directors of the Company, Company will nominate Employee for election to its Board of Directors by its shareholders. Employee agrees that if he incurs a Voluntary Termination hereunder, is Terminated With Cause or is requested by the Company to perform no services for it pursuant to the second sentence of Section 2(a), he will immediately submit his resignation from the Board of Directors of Company. Company and its direct and indirect subsidiaries, affiliates, parent and successors and assigns are sometimes herein sometimes referred to as the "ROAC Corporate Group." 8. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Employee acknowledges that during his employment, he will become fully familiar with all aspects of the Company's Businesses and the ROAC Corporate Group's businesses and will obtain access to confidential and proprietary information relating to such businesses. Employee understands, agrees and covenants that such information is valuable and Employee has no property interest in it. Therefore, Employee covenants and agrees that during his employment with Company and the ROAC Corporate Group and thereafter Employee will not use, disclose, communicate or divulge such information to any person not employed by Company and the ROAC Corporate Group or use such information except as may be necessary to perform his duties as an Employee under this agreement. Employee's obligations in this section shall survive the expiration of the Term of this agreement and/or termination of Employee's employment under this agreement for any reason whatsoever. 9. NON-SOLICITATION OF EMPLOYEES, CLIENTS AND CUSTOMERS. During the Term of this agreement and for the period of Employee's non-competition covenant set forth in Section 10 hereof, following the termination this agreement, Employee agrees not to, on his own behalf or on behalf of any other person, corporation, firm or entity, directly or indirectly, solicit or induce any client, customer, employee or sales representative of -6- 7 Company or the ROAC Corporate Group to stop doing business with or to leave any of said companies for any reason whatsoever or to hire any of their employees. 10. RETURN OF PROPERTY. Upon termination or nonrenewal of this agreement for any reason, Employee agrees to immediately return all Company and ROAC Corporate Group property, whether confidential or not, without keeping any copies or excerpts thereof, including, but not limited to, computers, printers, customer lists, samples, product information, financial information, price lists, marketing materials, keys, credit cards, automobiles, technical data, research, blueprints, trade secrets information, and all confidential or proprietary information. 11. NON-COMPETITION COVENANT BY EMPLOYEE. Company and the Employee agree that Company is currently engaged in the business of quarrying, manufacturing, marketing and selling granite memorials and other granite products at wholesale and at retail (herein referred to as the "Restricted Business") and Company and the ROAC Corporate Group are engaged in the Restricted Business in all of the states of the United States and in all of the provinces of Canada (herein the territory of all such states and provinces is referred to as the "Restricted Territory") and has hired the Employee to expand and grow the Restricted Business in the Restricted Territory. Accordingly, as a material and essential inducement to Company to hire the Employee and in consideration of Company's agreements with the Employee under this agreement, Employee agrees that during the Term of this agreement and, if this agreement is terminated for any reason, lapses, is not renewed for any reason, or Employee is not employed by Company after the end of the Term hereof for any reason, for a period equal to two (2) years thereafter, unless this agreement in terminated within the first two (2) years of the Term hereof, in which case for the period of four (4) years thereafter, Employee will not, in the Restricted Territory, directly or indirectly, in any manner whatsoever: (a) compete with Company, its successor and assigns, or the ROAC Corporate Group, its successors and assigns, in the Restricted Business; (b) engage in the Restricted Business, except as an employee of Company or the ROAC Corporate Group; (c) have any ownership interest in (other than the ownership of less than five percent (5%) of the ownership interests of a company whose stock or other ownership interests are publicly traded) any business entity which engages, directly or indirectly, in the Restricted Business in the Restricted Territory except for any ownership interest owned by Employee during the Term of this agreement, and after termination of this agreement, in the Company or in any member of the ROAC Corporate Group; (d) contract, subcontract, work for, solicit work from, solicit Company or ROAC Corporate Group employees for, or solicit customers for, advise or become -7- 8 affiliated with, any business entity which engages in the Restricted Business in the Restricted Territory except as an employee of Company or of the ROAC Corporate Group; or (e) lend money or provide anything of value to any entity which engages in the Restricted Business in the Restricted Territory. The term "compete" as used in this Section 11 means engage in competition, directly or indirectly, either as an owner, agent, member, consultant, partner, sole proprietor, stockholder, or any other ownership form or other capacity. While the restrictions as set forth herein are considered by the parties hereto to be reasonable in all circumstances, it is recognized that any one or more of such restrictions might fail for unforeseen reasons. Accordingly, it is hereby agreed and declared that if any of such restrictions shall be adjudged to be void as unreasonable in all circumstances for the protection of Company and the ROAC Corporate Group and their interests, but would be valid if part of the wording thereof were deleted, the period thereof reduced, or the range of activities or area dealt with reduced in scope, such restrictions shall apply with the minimum modification as may be necessary to make them valid and effective, while still affording to Company and the ROAC Corporate Group the maximum amount of protection contemplated thereby. Employee represents that he has carefully reviewed Employee's restrictive non-competition covenant set forth in this Section 11 and has determined that this covenant will not impose undue hardship, financial or otherwise, on Employee; that its Restrictive Territory and duration will not impose a hardship on Employee; that it protects Company's and the ROAC Corporate Group's legitimate interests in their investment in Employee and their Restricted Business; and that in Employee's opinion Employee not being able to compete in the Restrictive Territory for the duration of this covenant will not be injurious to the public interest. Company has also requested and Employee has covenanted and agreed to give his restrictive non-competition covenant set forth in this Section 11 ancillary to the sale of the Assets of each member of the KMC Group to the Company for the Purchase Price set forth in the Asset Purchase Agreement. Employee agrees that Employee's breach of his covenants in this Section 11 will cause irreparable harm to Company and the ROAC Corporate Group. 12. LOYALTY. Employee shall devote his full time and best efforts to the performance of his employment under this agreement. During the term of this agreement, Employee shall not at any time or place whatsoever, either directly or indirectly, engage in the Restricted Business or any other profession or active business to any extent whatsoever, except on or pursuant to the terms of this agreement, or with the prior written consent of -8- 9 Company. Employee agrees that he will not, while this agreement is in effect, do any unlawful acts or engage in any unlawful habits or usages which injure, directly or indirectly, Company and its Business or the ROAC Corporate Group and its businesses. Company agrees that if it exercises its rights in Section 2(a) hereof to have Employee perform no duties for it, then during such period of time during the Term as Employee is so not performing his duties, Employee may engage in other employment which does not violate the non-competition covenant in Section 11 and his other covenants in Sections 8, 9, 10 and 12 of this agreement. 13. GOVERNING LAW, JURISDICTION AND VENUE. This agreement shall be governed by and construed in accordance with the laws of the State of New Hampshire; and any actions brought pertaining to the same shall lie only in the Hardin County Circuit Court, Kentucky, or the U.S. District Court for the Western District of Kentucky, in said States all of which are the sole and exclusive forums for any actions or claims by the parties to this agreement and each party hereto consents to the jurisdiction of, and venue in, said courts in any action brought by another party hereto and agrees that no claims or actions relating to any matter hereunder will be brought by them in any other courts of said States, any other state or any other country. 14. HEADINGS. The descriptive headings of the several sections of this agreement are inserted for convenience of reference only and shall not control or affect the meanings or construction of any of the provisions hereof. 15. SEVERABILITY AND VIOLATION OF LAWS. If any provision of this agreement shall be held invalid or unenforceable according to law, such provision shall be modified to the extent necessary to bring it within the legal requirements. Any such invalidity or unenforceability shall not affect the remaining provisions of this agreement, and such remaining provisions shall continue in full force and effect. 16. SPECIFIC PERFORMANCE. The Employee hereby agrees and stipulates that it would be impossible to measure in monetary terms the damages which would be suffered by Company in the event of any breach by Employee of Sections 8, 9, 10, 11, 12, 13 and 16 of this agreement. Therefore, if either party hereto shall institute any action in equity to enforce such sections of this agreement, it is agreed that the other party hereto waives any claim or defense that the plaintiff has an adequate remedy at law, and the other party hereto agrees that the plaintiff is entitled to specific performance of such terms of the agreement. 17. NOTICES. Any notice or other communication required or permitted under this agreement shall be in writing and shall be deemed to have been duly given (i) upon hand delivery, or (ii) on the third day following delivery to the U.S. Postal Service as certified or registered mail, return receipt requested and postage prepaid, or (iii) on the first day following delivery to a nationally recognized United States overnight courier service for next business day delivery, fee prepaid, return receipt or other confirmation of delivery requested or (iv) when telecopied or sent by facsimile transmission if an additional notice is also given -9- 10 under (i), (ii) or (iii) above within three days thereafter. Any such notice or communication shall be directed to a party at its address set forth below or at such other address as may be designated by a party in a notice given to all other parties hereto in accordance with the provisions of this Section. For The Company: ---------------- Mr. Kurt M. Swenson Chairman of the Board, President and Chief Executive Officer Rock of Ages Corporation 369 North State Street Concord, NH 03301 Telephone: (603) 225-8397 Telecopy: (603) 225-4801 with a copy to: John R. Monson, Esquire Wiggin & Nourie, P.A. 20 Market Street P. O. Box 808 Manchester, NH 03105-0808 Telephone: (603) 669-2211 Telecopy: (603) 623-8442 For The Employee: ----------------- with a copy to: James T. Whitlow, Esq. Whitlow & Scott 45 Lincoln Square Hodgenville, KY 42748 Telephone: (502) 358-4344 Telecopy: (502) 358-4536 18. ASSIGNMENT. The rights and obligations of Company together with its obligations and all of the Employee's covenants and agreements hereunder may be assigned by Company to any third party by operation of law or by contractual assignment; and upon -10- 11 such assignment Company shall be relieved of all of its obligations, agreements, duties and covenants hereunder. The rights and obligations of the Employee under this agreement are not assignable. 19. COMPLETE AND ENTIRE AGREEMENT. This agreement contains all of the terms agreed upon by the parties with respect to the subject matter hereof and supersedes all prior agreements, representations and warranties of the parties as to the subject matter hereof. 20. AMENDMENTS. This agreement may be amended, or any provision of the agreement may be waived, provided that any such amendment or waiver will be binding on the parties only if such amendment or waiver is set forth in a writing executed by all parties hereto. The waiver by any party hereto of a breach of any provision of this agreement shall not operate or be construed as a waiver of any other breach. 21. SURVIVAL. Sections 8, 9, 10, 11, 12, 13, 15, 16, 17 and 21 shall survive expiration of the Term of this agreement and/or termination of Employee's employment under this agreement. IN WITNESS WHEREOF, the parties hereto have executed this agreement, all as of the date first written above. WITNESS: ROCK OF AGES CORPORATION: - -------- ------------------------- By: /S/ Kurt M. Swenson - ----------------------------------- --------------------------------- Kurt M. Swenson, Chairman of the Board, President and Chief Executive Officer WITNESS: - -------- - ----------------------------------- ------------------------------------- Employee -11- EX-10.9 14 SUPPLY & DISTRIBUTION AGREEMENT - KEYSTONE 1 EXHIBIT 10.9 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. KEYSTONE GRANITE COMPANY, INC. SUPPLY AND DISTRIBUTION AGREEMENT This Supply and Distribution Agreement made as of June 27, 1997 to be effective as of the 30th day of June, 1997, by and among KEYSTONE GRANITE COMPANY, INC., a Georgia corporation, with with an address of P. O. Box 516, Elberton, Georgia 30635 (hereinafter referred to as "Keystone"), THE ESTATE OF GEORGE T. OGLESBY, SR., deceased, with an address of P. O. Box 516, Elberton, Georgia 30635 (hereinafter referred to as "Oglesby"), ROCK OF AGES CORPORATION, a Vermont corporation, with a principal office located at 269 North Main Street, Concord, New Hampshire 03301 (hereinafter referred to as "Rock of Ages") and MISSOURI RED QUARRIES, INC., a Georgia corporation, with an address of P. O. Box 6077, Elberton, Georgia 30635 (hereinafter referred to as "Missouri Red"). RECITALS: Missouri Red is Keystone's exclusive sales agent for Topaz. Keystone, Missouri Red and Rock of Ages believe it is in their best long term interests for Keystone and Missouri Red to supply Rock of Ages with Keystone granite blocks and any other blocks quarried at the Keystone quarries and Topaz granite blocks (collectively "Topaz") quarried by Keystone as required to meet Rock of Ages, long-term requirements at prices agreed in advance, all upon the terms and conditions as hereinafter set forth. In addition, Keystone and Missouri Red wish to provide to Rock of Ages certain exclusive rights to sell Topaz outside of North America and the parties hereto wish to evidence other agreements among them, all upon and in the terms and conditions as hereinafter set forth. Now, therefore, for good and valuable consideration, the receipt and sufficiency of which are herein acknowledged, the parties hereto agree as follows: 1. SUPPLY OF TOPAZ REQUIREMENTS. Keystone through Missouri Red and Missouri Red agree to supply Rock of Ages and its subsidiaries, affiliates and designees (hereinafter in this agreement, the term "Rock of Ages" shall be deemed to include Rock of Ages and its subsidiaries, affiliates and designees) with its requirements for Topaz for a term (herein the "Term") equal to the greater of: (a) 20 years; or (b) the period of time while Keystone is 2 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. owned to any extent by Oglesby, George T. Olgesby, Jr. and George T. Oglesby, III (said Oglesby and all of said individuals being herein sometimes referred to as the "Oglesby Family"). Rock of Ages agrees to purchase a minimum of *** cubic feet of Topaz during each year of the Term and if in any *** (***) *** period Rock of Ages does not purchase an aggregate of *** cubic feet of Topaz, Keystone and Missouri Red can thereafter sell to other customers subject to Rock of Ages' priority to purchase Topaz set forth in Section 3 of this agreement. 2. PRICE FOR TOPAZ. The price to be charged by Missouri Red or Keystone for Topaz supplied to Rock of Ages pursuant to Section 1 of this agreement shall be initially fixed at *** ($***) per cubic foot, FOB quarry ("Initial Price"). The Initial Price will be in force for *** (***) *** from the date of this agreement. Keystone, Missouri Red and Rock of Ages will negotiate an adjustment to the Initial Price at the end of each successive *** (***) *** period during the Term. The Initial Price and subsequent prices for Topaz will be increased based on the increased production costs of Keystone for Topaz; provided, however, that the price for each *** (***) *** period after the first *** (***) *** period during the Term cannot increase by more than *** percent (***%) over the price for the preceding *** (***) *** period. Missouri Red will invoice Rock of Ages on the first day of each calendar month during the Term for all Topaz shipped during the previous month, which invoice shall be payable within thirty (30) days during the first year of the Term and thereafter within sixty (60) days from invoice date on a net basis. 3. ROCK OF AGES EXCLUSIVE RIGHT TO PURCHASE MONUMENTAL GRADE TOPAZ. Keystone and Missouri Red agree that Rock of Ages will have the exclusive right to purchase all monumental grade Topaz quarried by Keystone during the Term and Rock of Ages agrees to purchase all monumental grade Topaz produced by Keystone during the Term. 4. USE OF NAME. Keystone agrees after its execution of this agreement that it will not market its granite products in a fashion which will cause confusion between the name "Keystone" used by Rock of Ages for its granite products and Keystone's granite products. 5. ADVICE RE: NONMONUMENTAL SALES OF TOPAZ. Keystone and/or Missouri Red agrees to advise Rock of Ages within ten (10) days after the end of each calendar quarter of all sales of nonmonumental Topaz to third parties. Information to be included in the written advice of said sale will include the quantity of nonmonumental Topaz sold, the price charged, the shipping terms, and the name of the purchaser. - 2 - 3 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 6. SIZE ALLOWANCE FOR TOPAZ BLOCKS. Keystone agrees that all monumental and nonmonumental Topaz blocks sold to Rock of Ages will have size allowances of a minimum of ****** on each dimension. 7. EXCLUSIVE SALE RIGHTS OUTSIDE NORTH AMERICA. Keystone and Missouri Red hereby appoint Rock of Ages as the exclusive distributor to buy and to sell all grades of Topaz in the territory comprised of all of the world. The price to be charged to Rock of Ages for Topaz to be sold and distributed by Rock of Ages pursuant to this exclusive distributorship shall be the prices set forth in Exhibit 7 to this agreement for the first *** (***) *** of the Term (the "Initial Outside Sale Price"). Keystone, Missouri Red and Rock of Ages will negotiate an adjustment to the Initial Outside Sale Price at the end of each succeeding *** (***) *** period during the Term. The Initial Outside Sale Price and subsequent prices will be increased based on the increased production costs for Topaz; provided that the price for each *** (***) *** period after the first *** (***) *** period during the Term cannot increase by more than *** percent (***%) over the price for the preceding *** (***) year period. Missouri Red will invoice Rock of Ages on the first day of each calendar month for Topaz of any grade shipped to destinations outside of North America during the previous month which invoice shall be payable within thirty (30) days during the first year of the Term and thereafter within sixty (60) days from invoice date on a net basis. 8. RIGHT OF FIRST REFUSAL. In consideration of Rock of Ages acceptance of its appointment as Keystone's exclusive sales distributor of Topaz and of the merger of Keystone Memorials, Inc., a Georgia corporation, into Rock of Ages pursuant to an Agreement and Plan of Reorganization dated on or about the date hereof to which Missouri Red is a party and the importance of the MRG to Rock of Ages, Keystone hereby grants Rock of Ages a right of first refusal on any sale or other disposition by it of any of its quarries, land, buildings, or equipment and Oglesby and the Oglesby Family, the only permitted future owners of said capital stock, the current owner of all of the outstanding capital stock of Keystone, hereby grants to Rock of Ages, on its own behalf and on behalf of the Oglesby Family, a right of first refusal on any sale or other disposition, including any disposition by gift, bequest or interstate distribution, by them, of all or by any portion of the capital stock of Keystone; provided, however, that this right of first refusal shall not apply to the sale or other disposition of any of said capital stock by Oglesby to either member of the Oglesby Family or by George T. Oglesby Jr. to George T. Oglesby, III. In the event of any proposed bona fide sale or other disposition by Keystone or by Oglesby or any member of the Oglesby Family of the assets or stock of Keystone which is subject to this Section 8, they agree to give Rock of Ages written notice of the same (hereinafter referred to as the "Rights Notice") and of the terms and conditions of the proposed sale or other disposition. Rock of Ages will have ninety (90) days after receipt of a Rights Notice to indicate in writing to the sender of the Rights Notice (the "Sender") its exercise of its right of first - 3 - 4 refusal with respect to the transaction described in the Rights Notice (the "Acceptance Notice"). Within thirty (30) days of receipt of the Acceptance Notice, the Sender will schedule a closing and notify Rock of Ages in writing thereof. Subject to the next following sentence, at the closing the stock or asset being sold or otherwise disposed of by the Sender will be purchased by Rock of Ages on the terms set forth in the Rights Notice and the Sender will sell to Rock of Ages the stock or asset being sold or otherwise disposed of free and clear of any rights, charges, encumbrances or liens so that Rock of Ages will receive good and marketable title thereto at the closing. In the event that the disposition is a gift, bequest or interstate distribution of capital stock of Keystone, then Rock of Ages will pay the Sender the book value of the capital stock being acquired as of the fiscal year end preceding the date of the closing. Keystone agrees to execute an instrument in writing satisfactory to Rock of Ages to record the existence of Rock of Ages' right of first refusal set forth herein in each Registry of Deeds or other appropriate recording office for each country and city in which Keystone owns real estate. Oglesby and the Oglesby Family members also agrees that a legend satisfactory to Rock of Ages shall be applied to all Keystone capital stock certificates evidencing the right of first refusal granted to Rock of Ages by Oglesby and the Oglesby Family so that all permitted future holders thereof will take and hold their shares of capital stock in Keystone subject to the right of first refusal set forth herein. 9. COMPENSATION LIMITATIONS. In consideration of Rock of Ages' agreements and obligations in this agreement, Keystone agrees that it will not pay, directly or indirectly, G. Thomas Oglesby or George T. Oglesby, III, any salary, bonus, expense reimbursement, or other compensation payment for services rendered of any kind for any purpose without the prior written consent of Rock of Ages. 10. ASSIGNMENT, SUCCESSORS AND ASSIGNS. This agreement is binding upon and shall inure to the benefit of the parties hereto and their successors, permitted assigns, heirs and personal representatives; provided, however, that Keystone, Oglesby and the Oglesby Family, may not assign any of their rights, duties and obligations under this agreement without the prior written consent of Rock of Ages, but Rock of Ages may assign this agreement without limitation; provided, however that Rock of Ages will remain liable hereunder after any assignment by it of this agreement to a third party if Rock of Ages survives said assignment. 11. NOTICES. Any notice or other communication required or permitted under this agreement shall be in writing and shall be deemed to have been duly given (i) upon hand delivery, or (ii) on the third day following delivery to the U.S. Postal Service as certified or registered mail, return receipt requested and postage prepaid, or (iii) on the first day following delivery to a nationally recognized United States overnight courier service, fee prepaid, return receipt or other confirmation of delivery requested or (iv) when telecopied or sent by facsimile transmission if an additional notice is also given under (i), (ii) or (iii) above within three days thereafter. Any such notice or communication shall be directed to a party at its address set forth below or at such other address as may be designated by a party in a notice given to all other parties hereto in accordance with the provisions of this Section. - 4 - 5 If to Keystone: Keystone Granite Company, Inc. P. O. Box 516 Elberton, GA 30635 Phone: If to Oglesby: The Estate of George T. Oglesby, Sr., deceased c/o George T. Oglesby, Jr., Executor P. O. Box 516 Elberton, GA 30635 Phone: with, in the case of notice R. Chris Phelps, Esq. to Keystone and Phelps & Campbell Oglesby, a copy to P. O. Drawer 1056 (which shall not Elberton, GA 30635 constitute notice): Phone: 706-283-5000 Fax: 706-283-5002 If to Rock of Ages: Kurt M. Swenson, Chairman and Chief Executive Officer Rock of Ages Corporation 369 North State Street Concord, NH 03301 Phone: 603-225-8397 Fax: 603-225-4801 with a copy to: John R. Monson, Esq. (which shall not Wiggin & Nourie, P.A. constitute notice) P.O. Box 808 Manchester, NH 03105 Phone: 603-669-2211 Fax: 603-623-8442 12. SECTION HEADINGS. Section headings are employed in this agreement for reference purposes only and shall not affect the interpretation or meaning of this agreement. 13. COMPLETE AGREEMENT. Neither this agreement nor any provision hereof may be changed, waived, modified, discharged, amended or terminated orally but only by an instrument in writing signed by all parties hereto. The waiver by any party hereto of a breach of any provision of this agreement shall not operate or be construed as a waiver of any other or any subsequent breach. The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect its right at a later time to enforce the same. This agreement, together with the Exhibits attached hereto or incorporated herein pursuant to Section - 5 - 6 16 hereof, constitutes the only agreement among the parties hereto concerning the subject matter hereof and supersedes all prior agreements, whether written or oral, relating thereto. 14. GOVERNING LAW, JURISDICTION AND VENUE. This agreement shall be governed by and construed in accordance with the laws of the State of New Hampshire; and any actions brought pertaining to the same shall lie only in the Merrimack County, New Hampshire Superior Court, in the United States District Court for the District of New Hampshire, the Elbert County Superior Court, Georgia, or the U.S. District Court for the Middle District of Georgia, all of which courts are the sole and exclusive forums for any actions or claims by the parties to this agreement; and each party hereto consents to the jurisdiction of, and venue in, said courts in any action brought by another party hereto and agrees that no claims or actions relating to any matter hereunder will be brought by them in any other courts of said States, any other state or any other country. 15. COUNTERPARTS. This agreement may be executed in counterparts and by different parties on different counterparts with the same effect as if the signatures were on the same instrument. This agreement shall be effective and binding upon all parties hereto as of the time when all parties have executed a counterpart of this agreement. 16. EXHIBITS. Each Exhibit or Schedule delivered pursuant to the terms of this agreement shall be in writing and shall constitute a part of this agreement. The parties may agree with respect to any Schedule or Exhibit required to be attached to this agreement, that such Schedule or Exhibit, if mutually satisfactory, may be attached to this agreement after the date of execution hereof and after mutual approval thereof, such subsequently attached Schedule or Exhibit shall be treated as if it were attached to this agreement as of the date of execution of this agreement. All Exhibits and Schedules attached hereto are specifically incorporated herein by reference and made a part hereof. The words "agreement," "herein" and "hereof" as used herein shall in all respects include the entirety of this agreement together with all Exhibits and Schedules attached hereto and all documents required or permitted to be delivered hereunder. 17. SPECIFIC PERFORMANCE. The parties hereto hereby agree and stipulate it would be impossible to measure in monetary terms the damages which will be suffered by any party hereto in the event of any breach by any of them of any provision of this agreement. Therefore, if any party hereto should institute any action in equity to enforce the provisions of this agreement, it is hereby agreed by the other parties hereto, that they waive any claim or defense that the party bringing the action has an adequate remedy at law and agree that the party bringing the action is entitled to specific performance of the terms of this agreement. - 6 - 7 IN WITNESS WHEREOF, the parties hereto have executed this agreement all as of the date first above written. WITNESS ROCK OF AGES CORPORATION /s/ By: /s/ Kurt M. Swenson - ------------------------------- -------------------------------- Kurt M. Swenson, Chairman of the Board and Chief Executive Officer KEYSTONE GRANITE COMPANY, INC. /s/ By: /S/ Josephine F. Oglesby - ------------------------------- -------------------------------- Josephine F. Oglesby, President /s/ /s/ George T. Oglesby, Jr. - ------------------------------- ------------------------------------ George T. Oglesby, Jr. /s/ /s/ George T. Oglesby, III - ------------------------------- ------------------------------------ George T. Oglesby, III THE ESTATE OF GEORGE T. OGLESBY, SR., deceased /s/ By: /s/ George T. Oglesby, Jr. - ------------------------------- -------------------------------- George T. Oglesby, Jr., Executor - 7 - 8 EXHIBIT 7 TO SUPPLY AND DISTRIBUTION AGREEMENT The Initial Outside Sale Price will be negotiated on a case by case basis by Keystone, Missouri Red and Rock of Ages for all grades of Topaz to be sold and distributed pursuant to Rock of Ages' exclusive sale rights set forth in Section 7 and once negotiated will then be adjusted as set forth in Section 7. EX-10.10 15 SUPPLY AGREEMENT, MISSOURI RED QUARRIES, INC. 1 EXHIBIT 10.10 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. MISSOURI RED QUARRIES, INC. SUPPLY AND DISTRIBUTION AGREEMENT This Supply and Distribution Agreement made as of June 27, 1997 to be effective on the 30th day of June, 1997, by and among MISSOURI RED QUARRIES, INC., a Georgia corporation, with its principal office located at 1595 Washington Highway, Elberton, Georgia 30635 (hereinafter referred to as "Missouri Red"), GEORGE T. OGLESBY, JR. with an address of P. O. Box 6077, Elberton, Georgia 30635 (hereinafter referred to as "Oglesby") and ROCK OF AGES CORPORATION, a Vermont corporation, with a principal office located at 269 North Main Street, Concord, New Hampshire 03301 (hereinafter referred to as "Rock of Ages"). RECITALS: Missouri Red and Rock of Ages believe it is in their best long term interests for Missouri Red to supply Rock of Ages with Missouri Red Granite Blocks ("MRG") quarried by Missouri Red as required to meet Rock of Ages, long-term requirements at prices agreed in advance, all upon the terms and conditions as hereinafter set forth. In addition, Missouri Red wishes to provide to Rock of Ages certain exclusive rights to sell MRG outside of North America and the parties hereto wish to evidence other agreements among them, all upon and in the terms and conditions as hereinafter set forth. Now, therefore, for good and valuable consideration, the receipt and sufficiency of which are herein acknowledged, the parties hereto agree as follows: 1. PURCHASE AND SUPPLY OF MRG REQUIREMENTS. Missouri Red agrees to supply Rock of Ages and its subsidiaries, affiliates and designees (hereinafter in this agreement, the term "Rock of Ages" shall be deemed to include Rock of Ages and its subsidiaries, affiliates and designees) with its requirements for MRG for a term (herein the "Term") equal to the greater of: (a) 20 years; or (b) the period of time while Missouri Red is owned to any extent by Oglesby, his spouse, his ancestors, his siblings and his descendants and any of their spouses (all of said individuals being herein sometimes referred to as the "Oglesby Family"). Rock of Ages agrees to purchase a minimum of *** cubic feet of MRG during each year of the Term and if in any *** (***) *** period Rock of Ages does not purchase an aggregate of *** cubic feet of MRG, Missouri Red can thereafter sell to other customers, subject to Rock of Ages' priority to purchase MRG set forth in Section 3 of this agreement. - 1 - 2 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 2. PRICE FOR MRG. The price to be charged by Missouri Red for MRG supplied to Rock of Ages pursuant to Section 1 of this agreement shall be initially fixed at *** ($***) per cubic foot, FOB quarry ("Initial Price"). The Initial Price will be in force for *** (***) *** from the date of this agreement. Missouri Red and Rock of Ages will negotiate an adjustment to the Initial Price at the end of each successive *** (***) *** period during the Term. The Initial Price and subsequent prices for MRG will be increased based on the increased production costs of Missouri Red for MRG; provided, however, that the price for each *** (***) *** period after the first *** (***) *** period during the Term cannot increase by more than *** percent (***%) over the price for the preceding *** (***) *** period. Missouri Red will invoice Rock of Ages on the first day of each calendar month during the Term for all MRG shipped during the previous month, which invoice shall be payable within thirty (30) days during the first year of the Term and thereafter within sixty (60) days from invoice date on a net basis. 3. ROCK OF AGES PRIORITY FOR MONUMENTAL GRADE MRG. Missouri Red agrees that Rock of Ages will have first priority to purchase all monumental grade MRG quarried by Missouri Red during the Term and only after Rock of Ages has declined in writing to purchase any such monumental grade MRG will Missouri Red, subject to Section 4 below, have the right to sell the same to third parties. 4. SALE OF MONUMENTAL GRADE MRG TO THIRD PARTIES. Missouri Red agrees that all monumental grade MRG sold to third parties will be sold to them through Rock of Ages, and Rock of Ages may make an invoicing and administration charge of at least *** ($***) per cubic foot for its services on each such block of MRG so sold by it. Rock of Ages agrees to honor Missouri Red's commitment to Anderson Quarries in Ada, Oklahoma. 5. ADVICE RE: NONMONUMENTAL SALES OF MRG. Missouri Red agrees to advise Rock of Ages within ten (10) days after the end of each calendar quarter of all sales of nonmonumental MRG to third parties. Information to be included in the written advice of said sale will include the quantity of nonmonumental MRG sold, the price charged, the shipping terms, and the name of the purchaser. 6. SIZE ALLOWANCE FOR MRG BLOCKS. Missouri Red agrees that all monumental and nonmonumental blocks sold by it to Rock of Ages or sold by Rock of Ages pursuant to the provisions of Section 4 of this agreement to third parties will have size allowances of a minimum ******* on each dimension. 7. EXCLUSIVE SALE RIGHTS. Missouri Red hereby appoints Rock of Ages as its exclusive distributor for monumental granites of MRG to buy and to sell all grades of MRG in the territory comprised of all of the world. Any non-monumental grade MRG sales to Eurimex - 2 - 3 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. or to Japan will go through Rock of Ages in the same fashion as is set forth in Section 4. The price to be charged by Missouri Red to Rock of Ages for MRG to be sold and distributed by Rock of Ages pursuant to this exclusive distributorship shall be the prices set forth in Exhibit 7 to this agreement for the first *** (***) *** of the Term (the "Initial Outside Sale Price"). Missouri Red and Rock of Ages will negotiate an adjustment to the Initial Outside Sale Price at the end of each succeeding *** (***) *** period during the Term. The Initial Outside Sale Price and subsequent prices will be increased based on the increased production costs of Missouri Red for MRG; provided that the price for each *** (***) *** period after the first *** (***) *** period during the Term cannot increase by more than *** percent (***%) over the price for the preceding *** (***) *** period. Missouri Red will invoice Rock of Ages on the first day of each calendar month for MRG of any grade shipped to destinations outside of North America during the previous month which invoice shall be payable within thirty (30) days during the first year of the Term and thereafter within sixty (60) days from invoice date on a net basis; provided, however that the price to be charged to Eurimex and to customers in Japan for non- monumental MRG will be negotiated between Missouri Red and Rock of Ages on a case by case basis. 8. RIGHT OF FIRST REFUSAL. In consideration of Rock of Ages acceptance of its appointment as Missouri Red's exclusive sales distributor of MRG and of the merger of Keystone Memorials, Inc., a Georgia corporation, into Rock of Ages pursuant to an Agreement and Plan of Reorganization dated on or about the date hereof to which Missouri Red is a party and the importance of the MRG to Rock of Ages, Missouri Red hereby grants Rock of Ages a right of first refusal on any sale or other disposition by it of any of its quarries, land, buildings, or equipment and Oglesby, the current owner of all of the outstanding capital stock of Missouri Red, hereby grants to Rock of Ages, on his own behalf and on behalf of the Oglesby Family, a right of first refusal on any sale or other disposition, other than a gift or transfer to a member of the Oglesby Family or to a trust for the benefit of a member of the Oglesby Family by him or any successor to him in ownership of said capital stock in the Oglesby Family, of all or any portion of the capital stock of Missouri Red. In the event of any proposed bona fide sale or other disposition by Missouri Red or any member of the Oglesby Family of the assets or stock of Missouri Red which is subject to this Section 8, they agree to give Rock of Ages written notice of the same (hereinafter referred to as the "Rights Notice") and of the terms and conditions of the proposed sale or other disposition. Rock of Ages will have ninety (90) days after receipt of a Rights Notice to indicate in writing to the sender of the Rights Notice (the "Sender") its exercise of its right of first refusal with respect to the transaction described in the Rights Notice (the "Acceptance Notice"). Within thirty (30) days of receipt of the Acceptance Notice, the Sender will schedule a closing and notify Rock of Ages in writing thereof. At the closing the stock or asset being sold by the Sender will be purchased by Rock of Ages on the terms set forth in the Rights Notice and the Sender will sell to Rock of Ages the stock or asset - 3 - 4 being sold free and clear of any rights, charges, encumbrances or liens so that Rock of Ages will receive good and marketable title thereto at the closing. Missouri Red agrees to execute an instrument in writing satisfactory to Rock of Ages to record the existence of Rock of Ages' right of first refusal set forth herein in each Registry of Deeds or other appropriate recording office for each country and city in which Missouri Red owns real estate. Oglesby will notify Rock of Ages in writing of any disposition of Missouri Red capital stock not subject to Rock of Ages right of first refusal set forth in this Section. Oglesby also agrees that a legend satisfactory to Rock of Ages shall be applied to all Missouri Red capital stock certificates evidencing the right of first refusal granted to Rock of Ages by Oglesby so that all future holders thereof will take and hold their shares of capital stock in Missouri Red subject to the right of first refusal set forth herein. 9. COMPENSATION LIMITATIONS. In consideration of Rock of Ages' agreements and obligations in this agreement, Missouri Red agrees that it will not pay, directly or indirectly, Oglesby or George T. Oglesby, III, any salary, bonus, expense reimbursement, or other compensation payment for services rendered of any kind for any purpose without the prior written consent of Rock of Ages. 10. ASSIGNMENT, SUCCESSORS AND ASSIGNS. This agreement is binding upon and shall inure to the benefit of the parties hereto and their successors, permitted assigns, heirs and personal representatives; provided, however, that Missouri Red and Oglesby, may not assign any of their rights, duties and obligations under this agreement without the prior written consent of Rock of Ages, but Rock of Ages may assign this agreement without limitation; provided, however, that Rock of Ages will remain liable hereunder after any amount by it of this agreement to a third party if Rock of Ages survives said assignment. 11. NOTICES. Any notice or other communication required or permitted under this agreement shall be in writing and shall be deemed to have been duly given (i) upon hand delivery, or (ii) on the third day following delivery to the U.S. Postal Service as certified or registered mail, return receipt requested and postage prepaid, or (iii) on the first day following delivery to a nationally recognized United States overnight courier service, fee prepaid, return receipt or other confirmation of delivery requested or (iv) when telecopied or sent by facsimile transmission if an additional notice is also given under (i), (ii) or (iii) above within three days thereafter. Any such notice or communication shall be directed to a party at its address set forth below or at such other address as may be designated by a party in a notice given to all other parties hereto in accordance with the provisions of this Section. If to Missouri Red: Missouri Red Quarries, Inc. P. O. Box 6077 Elberton, GA 30635 Phone: (706) 283-5402 Telecopy: (706) 283-4758 If to George T. Oglesby, Jr.: Mr. George T. Oglesby, Jr. - 4 - 5 P. O. Box 6077 Elberton, GA 30635 Phone: (706) 283-5402 Telecopy: (706) 283-4758 with, in the case of notice R. Chris Phelps, Esq. to Missouri Red and Phelps & Campbell George T. Oglesby, Jr., P. O. Drawer 1056 a copy to (which shall not Elberton, GA 30635 constitute notice): Phone: 706-283-5000 Fax: 706-283-5002 If to Rock of Ages: Kurt M. Swenson, Chairman and Chief Executive Officer Rock of Ages Corporation 369 North State Street Concord, NH 03301 Phone: 603-225-8397 Fax: 603-225-4801 with a copy to: John R. Monson, Esq. (which shall not Wiggin & Nourie, P.A. constitute notice) P.O. Box 808 Manchester, NH 03105 Phone: 603-669-2211 Fax: 603-623-8442 12. SECTION HEADINGS. Section headings are employed in this agreement for reference purposes only and shall not affect the interpretation or meaning of this agreement. 13. COMPLETE AGREEMENT. Neither this agreement nor any provision hereof may be changed, waived, modified, discharged, amended or terminated orally but only by an instrument in writing signed by all parties hereto. The waiver by any party hereto of a breach of any provision of this agreement shall not operate or be construed as a waiver of any other or any subsequent breach. The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect its right at a later time to enforce the same. This agreement, together with the Exhibits attached hereto or incorporated herein pursuant to Section 16 hereof, constitutes the only agreement among the parties hereto concerning the subject matter hereof and supersedes all prior agreements, whether written or oral, relating thereto. 14. GOVERNING LAW, JURISDICTION AND VENUE. This agreement shall be governed by and construed in accordance with the laws of the State of New Hampshire; and any actions brought pertaining to the same shall lie only in the Merrimack County, New Hampshire Superior Court, in the United States District Court for the District of New Hampshire, the Elbert County - 5 - 6 Superior Court, Georgia, or the U.S. District Court for the Middle District of Georgia, all of which courts are the sole and exclusive forums for any actions or claims by the parties to this agreement; and each party hereto consents to the jurisdiction of, and venue in, said courts in any action brought by another party hereto and agrees that no claims or actions relating to any matter hereunder will be brought by them in any other courts of said States, any other state or any other country. 15. COUNTERPARTS. This agreement may be executed in counterparts and by different parties on different counterparts with the same effect as if the signatures were on the same instrument. This agreement shall be effective and binding upon all parties hereto as of the time when all parties have executed a counterpart of this agreement. 16. EXHIBITS. Each Exhibit or Schedule delivered pursuant to the terms of this agreement shall be in writing and shall constitute a part of this agreement. The parties may agree with respect to any Schedule or Exhibit required to be attached to this agreement, that such Schedule or Exhibit, if mutually satisfactory, may be attached to this agreement after the date of execution hereof and after mutual approval thereof, such subsequently attached Schedule or Exhibit shall be treated as if it were attached to this agreement as of the date of execution of this agreement. All Exhibits and Schedules attached hereto are specifically incorporated herein by reference and made a part hereof. The words "agreement," "herein" and "hereof" as used herein shall in all respects include the entirety of this agreement together with all Exhibits and Schedules attached hereto and all documents required or permitted to be delivered hereunder. 17. SPECIFIC PERFORMANCE. The parties hereto hereby agree and stipulate it would be impossible to measure in monetary terms the damages which will be suffered by the party bringing the action in the event of any breach by any of them of any provision of this agreement. Therefore, if any party hereto should institute any action in equity to enforce the provisions of this agreement, it is hereby agreed by the other parties hereto, that they waive any claim or defense that the party bringing the action has an adequate remedy at law and agree that the party bringing the action is entitled to specific performance of the terms of this agreement. IN WITNESS WHEREOF, the parties hereto have executed this agreement all as of the date first above written. WITNESS ROCK OF AGES CORPORATION /s/ By: /S/ Kurt M. Swenson -------------------------------- ------------------------- Kurt M. Swenson, Chairman of the Board and Chief Executive Officer MISSOURI RED QUARRIES, INC. - 6 - 7 /s/ By: /s/ George T. Oglesby, Jr. -------------------------------- ---------------------------------- George T. Oglesby, Jr., President /s/ /s/ George T. Oglesby, Jr. -------------------------------- ------------------------------------- George T. Oglesby, Jr. - 7 - 8 EXHIBIT 7 TO SUPPLY AND DISTRIBUTION AGREEMENT The Initial Outside Sales Price will be negotiated on a case-by-case basis by Missouri Red and Rock of Ages for all grades of MRG to be sold and distributed pursuant to Rock of Ages' exclusive sale rights set forth in Section 7 and once negotiated will then be adjusted as set forth in Section 7. EX-10.11 16 LETTER AGREEMENT 7/25/97 - DAKOTA 1 EXHIBIT 10.11 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. July 25, 1997 Mr. Chuck Monson DAKOTA GRANITE CO., INC. PO Box 1351 Milbank, SD 57252 Dear Chuck This letter will outline our agreement that Dakota Granite Co., Inc. (DGC) will purchase from Rock of Ages Corporation (ROA) its requirements for Barre granite monuments, either blank or sandblasted as DGC requests, and that ROA will purchase from DGC its requirements of Dakota Mahogany granite monuments, either blank or sandblasted as ROA requests, on the following terms and conditions. 1. EXCLUSIVE SOURCING. ROA agrees that it will source its blocks, slabs and finished monuments of Dakota Mahogany granite exclusively from DGC, and DGC agrees that it will source its blocks, slabs, and finished monuments of Barre Gray exclusively from ROA during the term of this agreement. Both DGC and ROA retain the right to manufacture monuments from each other's blocks or slabs in their own plants during the term of this agreement. DGC and ROA agree to supply the other with blocks, slabs and finished monuments of the highest quality available in the requested grade of granite. ROA and DGC will also supply the other with finished monuments made of other granites manufactured by them if adequate supplies of that granite are available. 2. MINIMUM REQUIRED INVENTORIES OF FINISHED MONUMENTS. ROA agrees to purchase and maintain in its Barre, Elberton or Canada facilities a minimum required inventory of finished Dakota Mahogany monuments manufactured by DGC of a cost basis of $*** F.O.B. Milbank, and DGC agrees to purchase and maintain a minimum required inventory in its Milbank facilities finished unbranded Barre Gray monuments manufactured by ROA of a cost basis of $*** F.O.B. Barre. The said monuments will be of a size, design and quantity determined solely by ROA with respect to its required inventory of Dakota Mahogany monuments and by DGC with respect to its inventory of Barre Gray monuments. The initial required inventories of ROA and DGC will be shipped, billed and paid within the same month. 3. ADDITIONAL INVENTORIES OF FINISHED MONUMENTS. ROA and DGC agree that ROA may ship at its expense and store at DGC an 2 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. Mr. Chuck Monson July 25, 1997 Page 2 additional inventory of finished monuments and that DGC may ship at its expense and store at ROA in Barre an additional inventory of finished monuments. These additional inventories shipped for storage shall remain the inventory of the shipper. In such case, DGC and ROA agree they will store such inventory segregated from their own inventory at no charge and expense. Such additional inventory shall be available for sale by the shipper to its customers or for transfer to the storer on the storer's request to purchase units from the additional inventory. 4. PRICES OF FINISHED MONUMENTS. The price for finished monuments sold from ROA to DGC and from DGC to ROA will be ********. DGC and ROA agree that neither will provide the other with their branded monuments and both ROA and DGC agree they are not authorized to apply any seal or use any trademark of the other in regard to the resale of the monuments. The resale price of the monuments purchased by DGC from ROA or by ROA from DGC when sold to retailers shall be determined and set in the sole discretion of the reselling party. 5. SALES TO RETAILERS. ROA and DGC agree that DGC may sell Barre Gray monuments purchased by it from ROA and ROA may sell Dakota Mahogany monuments purchased by it from DGC to any retail customer located anywhere in North America. Neither DGC nor ROA will resell monuments purchased from the other outside North America without the prior written consent of the other. 6. MANUFACTURING ACCOMMODATIONS. DGC and ROA understand and agree that their respective sales forces may sell finished monuments manufactured by the other party to this agreement that are not in the required or additional inventory. DGC and ROA agree that in such case they will use their best efforts to provide a delivery date to meet the requirements of the sale upon receipt of the order for that unit. 7. SHIPPING ACCOMMODATIONS. ROA and DGC understand that the DGC sales force may sell a Barre Gray monument to a customer in closer proximity to Barre than to Milbank and the ROA sales force may sell a Dakota Mahogany monument to a customer in closer proximity to Milbank than Barre. Likewise, their respective sales forces may sell monuments owned by them but stored at the other's location as additional inventory in accordance with paragraph 3. In such cases, DGC and ROA agree to accommodate the other by either 3 Mr. Chuck Monson July 25, 1997 Page 3 manufacturing the unit and invoicing the other therefor, or removing the unit from the other's additional inventory and shipping it directly to the retailer as mutually agreed on a case by case basis to reduce the shipping expense and the delivery time. A handling charge of $10 will be applied to monuments shipped from the others additional inventory. Freight will be paid by the retailer. 8. BLOCKS AND SLABS. It is understood and agreed that from time to time DGC may purchase such number of Barre Gray blocks and slabs from ROA and ROA may purchase such number of Dakota Mahogany blocks and slabs from DGC as they deem appropriate. Prices for blocks and slabs shall be *******. ROA and DGC agree that ROA may manufacture monuments of Dakota Mahogany and DGC may manufacture monuments of Barre Gray in their own plants during the term of this agreement. 9. INVOICING AND PAYMENTS. Each party will invoice the other for any charges during a particular month within ten days of the close of the month. All payments shall be due 30 days from the invoice date. 10. AGREEMENT REPRESENTATIVES. To assure the agreement is mutually beneficial to both parties and to create a clear line of communication, ROA names Peter Friberg and DGC names Bill Ruoff as their representatives and contacts with responsibility for implementing and maintaining the terms of this agreement. Any customer of either DGC or ROA which sells primarily at retail will not be considered a distributor or wholesaler and a resale between a parent company and its subsidiary companies will not be considered a wholesale sale or a sale by a distributor. 11. EFFECTIVE DATE AND TERMINATION. This agreement shall commence August 1, 1997 and may be terminated by either party at any time on 180 days prior written notice. Upon termination, any required inventory owned by DGC and ROA at their locations will remain their property. Any additional inventory under paragraph 3 owned by ROA and stored at DGC or owned by DGC and stored at ROA will be shipped from the other's property within the 180 day notice period prior to termination. In the event the owner of the additional inventory fails to ship it out of the storer's facility prior to termination, it shall become the property of the storer free and clear of any claim of the owner. If this letter correctly sets forth our understanding, please sign on the line indicated and return one copy to me. We look forward to working together to make this agreement successful for 4 Mr. Chuck Monson July 25, 1997 Page 4 both parties. Sincerely, ROCK OF AGES CORPORATION By: /s/ Kurt M. Swenson --------------------------- Kurt M. Swenson AGREED: DAKOTA GRANITE CO., INC. By: /s/ Chuck Monson --------------------------- Chuck Monson EX-10.12 17 STOCK SUBSCRIPTION AGREEMENT & CONTINUITY 1 Exhibit 10.12 STOCK SUBSCRIPTION AND CONTINUITY OF INTEREST AGREEMENT This Stock Subscription and Continuity of Interest Agreement is dated as of June 27, 1997 by and among ROCK OF AGES CORPORATION, a Vermont corporation (the "Acquiror"), and MISSOURI RED QUARRIES, INC., a Georgia corporation, (the "Shareholder"), which is the sole shareholder of KSGM, INC., a Georgia corporation (the "Target"). RECITALS: 1. On the date of this agreement, the Acquiror, the Target and the Shareholder have entered into an Agreement and Plan of Reorganization (the "Plan") whereby (i) the Target shall merge into the Acquiror (the "Merger") and cease to exist as a separate corporation, and (ii) all issued and outstanding shares of the Target's common stock no par value ("Target Common Stock") shall be converted into and exchanged for shares of validly issued, fully paid and nonassessable common stock, no par value, of the Acquiror (the "Acquiror Common Stock" or the "Shares") as set forth in the Plan. 2. The Acquiror and the Shareholder are willing to enter into the Plan and consummate the merger only if the Merger will qualify as a tax-free reorganization under Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"), and, in furtherance of that goal, the parties have incorporated into this agreement certain continuity of interest representations and covenants. 3. The Acquiror and the Shareholder also intend that the Acquiror's issuance of the Shares to the Shareholder pursuant to the Merger constitutes a so-called "private placement" exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act") and constitutes a transaction exempt from the registration requirements of the Georgia Securities Act of 1973 (the "Georgia Act") pursuant to Section 10-5-9(12) of the Georgia Act and, in furtherance of that goal, the Acquiror has requested that the Shareholder, and the Shareholder has agreed to, enter into this agreement and to make certain representations and covenants describing the Shareholder's access to the Acquiror's financial and other information reasonably necessary to the Shareholder's ability to make an informed business decision whether to invest in the Acquiror and describing the Shareholder's subscription for the Acquiror Stock and willingness to hold the Acquiror Stock for investment and not for resale. 4. Terms used herein and not defined herein shall have the meanings ascribed to them in the Plan. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, intending to be legally bound the Shareholder, hereby agrees with the Acquiror as follows: 2 1. Investment Representations. The Shareholder hereby represents and warrants to the Acquiror as follows: (a) The Shareholder has adequate financial means of providing for the Shareholder's current business needs and possible business contingencies, has no need for liquidity of this investment in the Acquiror Common Stock, and is able to bear the economic risks of this investment to the possible extent of a total loss of this investment. The Shareholder is an "accredited investor", within the meaning of Rule 501(a) of Regulation D under the Securities Act. (b) The Shareholder has been afforded the opportunity by Acquiror to ask questions and request information in order to acquire detailed knowledge and information concerning the business affairs and operations of Acquiror and its direct or indirect subsidiaries, parent and affiliates and their financial condition and prospects; and, as a result of such opportunity to ask questions and review information and the Shareholder's business, the Shareholder is in a position to weigh, and assess such knowledge and information in a meaningful fashion. (c) The Shareholder acknowledges that any business and financial projections of Acquiror that may have been provided by or on behalf of Acquiror are solely for purposes of describing Acquiror's future business and financial goals and are not intended to be, nor are they, representations or guaranties of Acquiror 's future performance. (d) The Shareholder understands that none of the Acquiror's Common Stock (including the Shares) have been registered under the Securities Act or any state securities laws and that the Shares are offered in reliance on exemptions for private offerings under the Securities Act and exemptions for merger transactions under such state laws. The Shareholder acknowledges that the Shareholder is acquiring the Shares without being furnished any offering literature or memorandum. (e) The Shareholder is acquiring and purchasing the Shares solely for investment for his own account and the Shares are not being purchased with a view to or for the resale, distribution, subdivision, or fractionalization of the Shares. (f) The Shareholder acknowledges that Shareholder has received and examined copies of the Acquiror 's Certificate of Incorporation, Articles and Bylaws, all as amended to date, as well as minutes of all shareholder and director meetings relevant to the Merger and the issuance of Shares to the Shareholder pursuant to the Merger. The Shareholder further acknowledges that Shareholder has been given full opportunity to receive copies of or examine any and all other minutes of shareholder and director meetings of the Acquiror. (g) The Shareholder acknowledges that (A) there are substantial restrictions on the transferability of the Shares, (B) the Shares will not be, and investors in the Acquiror - 2 - 3 have no rights to require that the Shares be, registered under the Securities Act or any state securities laws, and (C) there will be no public market for the Shares and, accordingly, the Shareholder may have to hold the Shares indefinitely without the possibility of liquidating the Shareholder's investment in the Acquiror. 2. Representations as to Authority and Enforceability. The Shareholder hereby represents to the Acquiror as follows: this agreement constitutes the valid and binding obligation of the Shareholder enforceable in accordance with its terms. The Shareholder's execution and delivery of this agreement, and compliance with the provisions of this agreement will not violate or constitute a breach of Shareholder's Articles of Incorporation or Bylaws or any provision of law applicable to it and will not conflict with or result in any breach of any of the terms, conditions, or provisions of, or constitute a default under, any contractual obligations of Shareholder nor any court or other governmental order applicable to the Shareholder. 3. Continuity of Interest Representations and Covenants. Shareholder represents and warrants to, and covenants and agrees with, Acquiror as follows: (a) Continuity of Interest Representations. (i) The Shareholder has, and as of the Effective Time will have, no present plan, intention or arrangement to sell, transfer or otherwise dispose of that number of the Shares as would reduce Shareholder's ownership of the Acquiror Common Stock, collectively, to a number of Shares having a value (as of the Effective Time) of less than 50% of the value of all of the issued and outstanding Target Common Stock immediately prior to the Effective Time. For purposes of this agreement, shares of Target Common Stock exchanged for cash or other property, surrendered by dissenters, or exchanged for cash in lieu of fractional shares of Acquiror Common Stock will be treated as outstanding Target Common Stock at the Effective Time. Moreover, shares of Target Common Stock and Shares of Acquiror Common Stock held by the Shareholder and otherwise sold, redeemed, or disposed of prior or subsequent to the Effective Time will be considered as outstanding for purposes of this agreement. (ii) As of the date of this agreement, the Shareholder owns the number of shares of Target Common Stock set forth opposite Shareholder's name on Exhibit 1(a). (b) Covenant Pending Closing. Prior to the Effective Time, the Shareholder will not sell, transfer, encumber or otherwise dispose of by any means any Target Common Stock. - 3 - 4 (c) Post-merger Restrictions on Transfer. For a period of two years after the Effective Time (the "Post-merger Continuity Period") the Shareholder shall not sell, transfer or otherwise dispose of an aggregate number of Shares having a value, as of the Effective Time, of more than 50% of the value of all of the issued and Target Common Stock of the Target immediately prior to the Effective Time. For purposes of this agreement, shares of Target Common Stock exchanged for cash or other property, surrendered by dissenters, or exchanged for cash in lieu of fractional shares of Acquiror Common Stock will be treated as outstanding Target Common Stock at the Effective Time. Moreover, shares of Target Common Stock and Shares of Acquiror Common Stock held by Shareholder and otherwise sold, redeemed or disposed of prior or subsequent to the Effective Time will be considered as outstanding for purposes of this agreement. The term "transfer" as used anywhere in this agreement means any voluntary disposition of any legal or equitable interest in any Shares, whether by sale, pledge, gift, assignment, in trust to or for the benefit of the Shareholder or a third party, or otherwise. (d) Pledges of Shares. Nothing in this agreement shall prohibit the Shareholder from pledging any or all of Shareholder's Shares as collateral to secure a bona fide indebtedness of the Shareholder to a financial institution, provided that such institution agrees to be subject to restrictions on the sale, transfer or disposal of any such Shares which are similar to those set forth in this agreement, except that no such restrictions shall apply to the financial institution's ability to seize and dispose of its collateral in the event of default in accordance with its loan agreement and applicable law. (e) Permitted Transfers. The Shareholder agrees to deliver written notice to Acquiror thirty (30) days prior to disposing of any Shares during the Post-merger Continuity Period, in accordance with and as permitted by Section 3(c) or 3(d), above, stating the number of Shares disposed of and the manner of disposition. 4. Inspection Rights; Non-Marketability of Shares; Restrictions on Transfer. The Shareholder acknowledges and agrees that: (a) Inspection Rights. Prior to the date hereof, all documents, information, records, and books pertaining to this investment have been, and will continue to be, made available for inspection by Shareholder, and the Shareholder's attorney and/or accountant. (b) Non-Marketability of Shares. No representations or promises have been made concerning the marketability or value of the Shares. The Shareholder agrees that because the Shares have not been registered under the Securities Act or relevant state securities laws, they cannot be resold or transferred unless: (i) they are subsequently registered under such laws or exemptions from registration are available; and (ii) Acquiror receives an opinion of counsel satisfactory to it and its counsel that such transfer complies with Federal and state securities laws. Neither Acquiror nor any of its officers, directors, or shareholders have represented to the Shareholder that the Shares will be registered under the Securities Act or relevant state securities laws at any time in the future or otherwise qualified - 4 - 5 for sale under applicable securities laws. Acquiror does not presently intend to make available to the public information concerning itself so as to permit shareholders to use Rule 144 of the Rules and Regulations under the Securities Act for transfer of the Shares. (c) Restrictions on Transfer. Shareholder agrees to the following restrictions on the transfer of the Shares, in addition to the restrictions on transfer set forth in Section 3(c), above and in any other agreement between Acquiror and the Shareholder: (i) No transfer will be permitted: (A) which would violate any applicable law, statute, or regulation, including, but not limited to, any Federal or state securities laws; or (B) which would require registration under any Federal or state securities laws. With respect to any proposed transfer, Acquiror may, at its option, require an opinion of counsel acceptable to it to the effect that any proposed transfer is not prohibited under items (A) or (B), above. (d) Legends on Certificates. Any stock certificates evidencing the Shares shall bear the following legends: The securities represented hereby have not been registered under the Securities Act of 1933 (the "Act") or any state securities law and may not be sold or transferred unless (i) a registration statement covering these securities is effective under the Act or (ii) the transaction is exempt from registration under the Act and any applicable state securities laws and, if the corporation requests, an opinion satisfactory to the corporation to such effect has been rendered to the corporation by counsel satisfactory to the corporation. The securities represented hereby are subject to restrictions on transfer and may not be sold, exchanged, transferred, pledged, hypothecated, or otherwise disposed of except in accordance with and subject to all the terms and conditions of a certain Stock Subscription and Continuity of Interest Agreement dated June 27, 1997, a copy of which the corporation will furnish to the holder upon request and without charge. Further restrictive legends may also be inscribed as in the opinion of counsel are necessary to comply with Federal and state securities laws. 5. Lock-up Agreement. In the event of an underwritten public offering of Acquiror's securities, the Shareholder (and any permitted transferee thereof), whether or not any shares of capital stock of Acquiror owed by Shareholder (or any permitted transferee thereof) are included in such registration, hereby agrees not to effect any public sale or distribution, including any sale pursuant to Rule 144 under the Act, of any equity securities or Acquiror (other than as part of such underwritten offering), without the consent of the managing underwriter(s) for such offering (the "Managing Underwriter"), during a period - 5 - 6 commencing on the effective date of such registration and ending 180 calendar days thereafter, or such lesser period as the Board of Directors of Acquiror and the Managing Underwriter shall reasonably determine is required to effect a successful offering. 6. Miscellaneous. (a) Amendment. This agreement may not be amended, in whole or in part, except by an instrument in writing signed by the Acquiror and the Shareholder. In the event of the termination of the Plan according to its terms this agreement shall also terminate and the parties shall have no further obligations to each other hereunder except for prior breach hereof. (b) Binding Effect. This agreement shall be binding on and for the benefit of the parties hereto and their respective successors, and permitted assigns; provided, that the Shareholder shall not be entitled to assign or delegate any of the Shareholder's rights or obligations under this agreement without the prior written consent of Acquiror. (c) Counterparts. This agreement may be executed in one or more counterpart copies, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. (d) Entire Agreement. Any oral or written statements, understandings, correspondence, or agreements previously made by any party with respect to the subject matter of this agreement are superseded by this agreement (including any Exhibits attached hereto and specifically referenced by this agreement), which alone fully and completely expresses the parties' respective obligations. This agreement is entered into by each party after opportunity for investigation, and each party represents that such party is not relying upon any statements, understandings, correspondence, or agreements not embodied in this agreement and made by any other party or on any other party's behalf. (e) Governing Law. This agreement shall be governed exclusively by Vermont law. (f) Notices. Any notice or other communication required or permitted under this agreement shall be in writing and shall be deemed to have been duly given (i) upon hand delivery, or (ii) on the third day following delivery to the U.S. Postal Service as certified or registered mail, return receipt requested and postage prepaid, or (iii) on the first day following delivery to a nationally recognized United States overnight courier service, fees prepaid, return receipt or other confirmation of delivery requested or (iv) when telecopied or sent by facsimile transmission if an additional notice is also given under (i), (ii) - 6 - 7 or (iii) above within three days thereafter. Any such notice or communication shall be directed to a party at its address set forth below or at such other address as may be designated by a party in a notice given to all other parties hereto in accordance with the provisions of this Section. Acquiror: Rock of Ages Corporation 369 North State Street Concord, NH 03301 Attn.: Mr. Kurt M. Swenson, Chairman of the Board and Chief Executive Officer Shareholder: See Exhibit 1(a) (g) Severability. Each term, condition, and provision of this agreement shall be valid and enforced to the fullest extent permitted by law. If there is any conflict between any term, condition, or provision of this agreement and any statute, law, ordinance, order, rule, or regulation, the latter shall prevail; provided, that any such conflicting term, condition, or provision shall be curtailed and limited only to the extent necessary to bring it within the legal requirements and the remainder of this agreement shall not be affected thereby. (h) Waiver. No waiver by any party of any breach or default by any other party of any of such other party's obligations under this agreement shall be deemed to be a waiver of any other breach or default of the same or any other nature. No failure by any party on any one or more occasions to exercise any right or remedy provided in this agreement shall preclude the exercise of such right or remedy on any other occasion. (i) Survival of Covenants and Representations. All covenants and representations of the parties contained in this agreement shall survive the execution and delivery of this agreement and the closing of the transactions contemplated hereby. - 7 - 8 IN WITNESS WHEREOF, the parties have executed this agreement all as of the date first above-written. Acquiror: Witness: ROCK OF AGES CORPORATION - ------------------------------ By: /s/ Kurt M. Swenson - ------------------------------ -------------------------------- [Print Name] Kurt M. Swenson, Chairman of the Board President and Chief Executive Officer Shareholder: MISSOURI RED QUARRIES, INC. - ------------------------------ By: /s/ George T. Oglesby, Jr. - ------------------------------ -------------------------------- [Print Name] George T. Oglesby, Jr., President - 8 - 9 EXHIBIT 1-a
- ------------------------------------------------------------------------------------ Shareholder Name & Address No. Shares of Target No. Shares of Acquiror Common Stock Common Stock - ------------------------------------------------------------------------------------ Missouri Red Quarries, Inc. 526,882 526,882 P. O. Box 6077 Elberton, Georgia 30635 Facsimile No.: (706) 283-4758 - ------------------------------------------------------------------------------------
- 9 - EX-10.13 18 STOCK SUBSCRIPTION AGREEMENT 7/30/97 1 Exhibit 10.13 STOCK SUBSCRIPTION AGREEMENT This Stock Subscription Agreement is dated as of July 30, 1997 and is by and among ROCK OF AGES CORPORATION, a Vermont corporation (the "Buyer"), and National Memorial Corporation, a Kentucky corporation with an address of 1020 North Dixie, Elizabethtown, Kentucky 42701 (the "Seller"), which is one of the corporations which are members of the KMC Group. RECITALS: 1. On the date of this agreement, the Buyer, the Seller and the other members of the KMC Group (the "Sellers") executed a Asset Purchase Agreement (the "Asset Purchase Agreement") whereby (a) the Buyer has agreed to purchase from the Sellers, and the Sellers have agreed to sell to the Buyer substantially all of their Assets, and (b) the Buyer has agreed to issue to Seller, and Seller has agreed to accept from Buyer, certain shares of Buyer's common stock (the "Common Stock" or the "Shares") as part of the purchase price to be paid to Seller for its portion of the Assets being sold to Buyer. 2. The Buyer and Seller intend that the issuance to Seller of the Shares constitute a so-called "private placement" exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act") and a transaction exempt from the offer and registration requirements of the Securities Act of Kentucky, KRS Chapter 292 (the "Kentucky Act"), and, accordingly, the Buyer has requested that the Seller, and the Seller has agreed to, enter into this agreement and to make certain representations and covenants describing the Seller's access to the Buyer's financial and other information reasonably necessary to the Seller's ability to make an informed business decision whether to invest in the Buyer and describing the Seller's subscription for the Common Stock and willingness to hold the Common Stock for investment and not for resale. 3. Terms used herein and not defined herein shall have the meanings ascribed to them in the Asset Purchase Agreement. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, and intending to be legally bound, Seller hereby agrees with the Buyer as follows: 1. Investment Representations of the Seller. The Seller hereby represents and warrants to the Buyer as follows: (a) The Seller has adequate financial means of providing for the Seller's current business needs and possible business contingencies, has no need for liquidity of this 2 investment in the Buyer's Common Stock, and is able to bear the economic risks of this investment to the possible extent of a total loss of this investment. The Seller is an "accredited investor", within the meaning of Rule 501(a) of Regulation D under the Securities Act. (b) The Seller has been afforded the opportunity by Buyer to ask questions and request information in order to acquire detailed knowledge and information concerning the business affairs and operations of Buyer and its direct or indirect subsidiaries, parent and affiliates and their financial condition and prospects; and, as a result of such opportunity to ask questions and review information and the Buyer's business, the Seller is in a position to weigh, and assess such knowledge and information in a meaningful fashion. (c) The Seller acknowledges that any business and financial projections of Buyer that may have been provided by or on behalf of Buyer are solely for purposes of describing Buyer's future business and financial goals and are not intended to be, nor are they, representations or guaranties of Buyer's future performance. (d) The Seller understands that none of the Buyer's Common Stock (including the Shares) have been registered under the Securities Act or any state securities laws and that the Shares are offered in reliance on exemptions for private offerings under the Securities Act and exemptions for sales transactions under state laws. The Seller acknowledges that the Seller is acquiring the Shares without being furnished any offering literature or memorandum. (e) The Seller is acquiring and purchasing the Shares solely for investment for its own account and the Shares are not being purchased with a view to or for the resale, distribution, subdivision, or fractionalization of the Shares. (f) The Seller acknowledges that Seller has received and examined copies of the Buyer's Certificate of Incorporation, Articles and Bylaws, all as amended to date, as well as minutes of all shareholder and director meetings relevant to the Asset Purchase Agreement and the issuance of Shares to the Shareholder pursuant to the Asset Purchase Agreement. The Seller further acknowledges that Seller has been given full opportunity to receive copies of or examine any and all other minutes of shareholder and director meetings of the Buyer. (g) The Seller acknowledges that (A) there are substantial restrictions on the transferability of the Shares, (B) the Shares will not be, and investors in the Buyer have no rights to require that the Shares be, registered under the Securities Act or any state securities laws, and (C) there will be no public market for the Shares and, accordingly, the Seller may have to hold the Shares indefinitely without the possibility of liquidating the Seller's investment in the Buyer. - 2 - 3 2. Representations as the Authority and Enforceability. The Seller hereby represents to the Buyer as follows: this agreement constitutes the valid and binding obligation of the Seller enforceable in accordance with its terms. The Seller's execution and delivery of this agreement, and compliance with the provisions of this agreement will not violate any provision of law applicable to it and will not conflict with or result in any breach of any of the terms, conditions, or provisions of, or constitute a default under, any contractual obligations of Seller nor any court or other governmental order applicable to the Seller. 3. Inspection Rights; Non-Marketability of Shares; Restrictions on Transfer. The Seller acknowledges and agrees that: (a) Inspection Rights. Prior to the date hereof, all documents, information, records, and books pertaining to this investment have been made available for inspection by Seller and the Seller's attorney and/or accountant. (b) Non-Marketability of Shares. No representations or promises have been made concerning the marketability or value of the Shares. The Seller agrees that because the Shares have not been registered under the Securities Act or relevant state securities laws, they cannot be resold or transferred unless: (i) they are subsequently registered under such laws or exemptions from registration are available; and (ii) Buyer receives an opinion of counsel satisfactory to it and its counsel that such transfer complies with Federal and state securities laws. Neither Buyer nor any of its officers, directors, or shareholders have represented to the Seller that the Shares will be registered under the Securities Act or relevant state securities laws at any time in the future or otherwise qualified for sale under applicable securities laws. Buyer does not presently intend to make available to the public information concerning itself so as to permit shareholders to use Rule 144 of the Rules and Regulations under the Securities Act for transfer of the its equity securities. (c) Restrictions on Transfer. Seller agrees to the following restrictions on the transfer of the Shares, and in any other agreement between Buyer and the Seller: No transfer will be permitted: (A) which would violate any applicable law, statute, or regulation, including, but not limited to, any Federal or state securities laws; or (B) which would require registration under any Federal or state securities laws. With respect to any proposed transfer, Buyer may, at its option, require an opinion of counsel acceptable to it to the effect that any proposed transfer is not prohibited under items (A) or (B), above. (d) Legends on Certificates. Any stock certificates evidencing the Shares shall bear the following legends: The securities represented hereby have not been registered under the Securities Act of 1933 (the "Act") or any state securities law and may not be sold or transferred unless - 3 - 4 (i) a registration statement covering these securities is effective under the Act or (ii) the transaction is exempt from registration under the Act and any applicable state securities laws and, if the corporation requests, an opinion satisfactory to the corporation to such effect has been rendered to the corporation by counsel satisfactory to the corporation. The securities represented hereby are subject to restrictions on transfer and may not be sold, exchanged, transferred, pledged, hypothecated, or otherwise disposed of except in accordance with and subject to all the terms and conditions of a certain Asset Purchase Agreement dated July 30, 1997, a copy of which the corporation will furnish to the holder upon request and without charge. Further restrictive legends may also be inscribed as in the opinion of counsel are necessary to comply with Federal and state securities laws. 4. Lock-Up Agreement. In the event of an underwritten public offering of Buyer's securities, Seller (and any permitted transferee thereof), whether or not any shares of capital stock of the Buyer owned by the Seller (or any permitted transferee thereof) are included in such registration, hereby agrees not to effect any public sale or distribution, including any sale pursuant to Rule 144 under the Securities Act, of any equity securities of Buyer (other than as part of such underwritten offering), without the consent of the managing underwriter(s) for such offering (the "Managing Underwriter"), during a period commencing on the effective date of such registration and ending 180 calendar days thereafter, or such lesser period as the Board of Directors of Buyer and the Managing Underwriter shall determine is required to effect a successful offering. 5. Miscellaneous. (a) Amendment. This agreement may not be amended, in whole or in part, except by an instrument in writing signed by the Buyer and the Seller. In the event of termination of the Asset Purchase Agreement according to its terms, this agreement shall also terminate and the parties shall have no further obligations to each other hereunder except for prior breach hereof. (b) Binding Effect. This agreement shall be binding on and for the benefit of the parties hereto and their respective successors, heirs, personal representatives and permitted assigns; provided, that the Seller shall not be entitled to assign or delegate any of the Seller's rights or obligations under this agreement without the prior written consent of Buyer. (c) Counterparts. This agreement may be executed in one or more counterpart copies, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. - 4 - 5 (d) Entire Agreement. Any oral or written statements, understandings, correspondence, or agreements previously made by any party with respect to the subject matter of this agreement are superseded by this agreement (including any Exhibits attached hereto and specifically referenced by this agreement), which alone fully and completely expresses the parties' respective obligations. This agreement is entered into by each party after opportunity for investigation, and each party represents that such party is not relying upon any statements, understandings, correspondence, or agreements not embodied in this agreement and made by any other party or on any other party's behalf. (e) Governing Law. This agreement shall be governed exclusively by Vermont law. (f) Notices. Any notice or other communication required or permitted under this agreement shall be in writing and shall be deemed to have been duly given (i) upon hand delivery, or (ii) on the third day following delivery to the U.S. Postal Service as certified or registered mail, return receipt requested and postage prepaid, or (iii) on the first day following delivery to a nationally recognized United States overnight courier service, fees prepaid, return receipt or other confirmation of delivery requested or (iv) when telecopied or sent by facsimile transmission if an additional notice is also given under (i), (ii) or (iii) above within three days thereafter. Any such notice or communication shall be directed to a party at its address set forth below or at such other address as may be designated by a party in a notice given to all other parties hereto in accordance with the provisions of this Section. Buyer: Rock of Ages Corporation 369 North State Street Concord, NH 03301 Attn.: Mr. Kurt M. Swenson, Chairman of the Board, President and Chief Executive Officer Shareholder: See Exhibit 1(a) (g) Severability. Each term, condition, and provision of this agreement shall be valid and enforced to the fullest extent permitted by law. If there is any conflict between any term, condition, or provision of this agreement and any statute, law, ordinance, order, rule, or regulation, the latter shall prevail; provided, that any such conflicting term, condition, or provision shall be curtailed and limited only to the extent necessary to bring it within the legal requirements and the remainder of this agreement shall not be affected thereby. (h) Waiver. No waiver by any party of any breach or default by any other party of any of such other party's obligations under this agreement shall be deemed to be a waiver of any other breach or default of the same or any other nature. No failure by any - 5 - 6 party on any one or more occasions to exercise any right or remedy provided in this agreement shall preclude the exercise of such right or remedy on any other occasion. (i) Survival of Covenants and Representations. All covenants and representations of the parties contained in this agreement shall survive the execution and delivery of this agreement and the closing of the transactions contemplated hereby. IN WITNESS WHEREOF, the parties have executed this agreement all as of the date first above-written. Buyer: Witness: ROCK OF AGES CORPORATION - -------------------------------- By: /s/ Kurt M. Swenson - -------------------------------- -------------------------------- [Print Name] Kurt M. Swenson, Chairman of the Board, President and Chief Executive Officer SELLER: NATIONAL MEMORIAL CORPORATION - -------------------------------- By: /s/ Roy H. Keith, Jr. - -------------------------------- -------------------------------- [Print Name] Roy H. Keith, Jr., President - 6 - 7 EXHIBIT 1-a -------------------------------------------- Seller Name & Address -------------------------------------------- National Memorial Corporation 1020 North Dixie Elizabethtown, KY 42701 -------------------------------------------- - 7 - EX-10.14 19 STOCK SUBSCRIPTION AGREEMENT 6/27/97 - CHILDS 1 Exhibit 10.14 STOCK SUBSCRIPTION AGREEMENT This Stock Subscription Agreement is dated as of June 27, 1997 and is by and among ROCK OF AGES QUARRIES, INC., which on June 27, 1997 will, pursuant to an amendment to its Articles of Incorporation made in connection with the merger of its wholly owned subsidiary ROCK OF AGES CORPORATION into it, change its name to ROCK OF AGES CORPORATION, a Vermont corporation (the "Buyer"), and ROBERT OTIS CHILDS, III, an individual residing in Elberton, Georgia (the "Shareholder"), who is a shareholder of CHILDS & CHILDS GRANITE CO., INC., C&C GRANITE COMPANY, INC. both Georgia corporations and of the Joint Venture Companies (collectively, the "Childs Group"). RECITALS: 1. On the date of this agreement, the Buyer, the Shareholder and other shareholders of the Childs Group (the "Shareholders") executed a Stock Purchase Agreement (the "Stock Purchase Agreement") whereby (i) the Buyer has agreed to purchase from the Shareholder and other shareholders, and the Shareholder and such other shareholders have agreed to sell to the Buyer, all of their capital stock in the Childs Group, and (ii) the Buyer has agreed to issue to Shareholder, and Shareholder has agreed to accept from Buyer, certain shares of Buyer's common stock (the "Common Stock" or the "Shares") as part of the purchase price to be paid to Shareholder for his shares in the Childs Group. 2. The Buyer and the Shareholder intend that the issuance to Shareholder of the Shares constitute a so-called "private placement" exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act") and a transaction exempt from the registration requirements of the Georgia Securities Act of 1973 (the "Georgia Act") pursuant to Section 10-5-9(13) of the Georgia Act and, accordingly, the Buyer has requested that the Shareholder, and the Shareholder has agreed to, enter into this agreement and to make certain representations and covenants describing the Shareholder's access to the Buyer's financial and other information reasonably necessary to the Shareholder's ability to make an informed business decision whether to invest in the Buyer and describing the Shareholder's subscription for the Common Stock and willingness to hold the Common Stock for investment and not for resale. 3. Terms used herein and not defined herein shall have the meanings ascribed to them in the Stock Purchase Agreement. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, and intending to be legally bound, the Shareholder hereby agrees with the Buyer as follows: 2 1. Investment Representations of the Shareholder. The Shareholder hereby represents and warrants to the Buyer as follows: (a) The Shareholder has adequate financial means of providing for the Shareholder's current business needs and possible business contingencies, has no need for liquidity of this investment in the Buyer's Common Stock, and is able to bear the economic risks of this investment to the possible extent of a total loss of this investment. The Shareholder is an "accredited investor", within the meaning of Rule 501(a) of Regulation D under the Securities Act, of the category or categories set forth in clause (5) or clause (6) of such Rule. (b) The Shareholder has been afforded the opportunity by Buyer to ask questions and request information in order to acquire detailed knowledge and information concerning the business affairs and operations of Buyer and its direct or indirect subsidiaries, parent and affiliates and their financial condition and prospects; and, as a result of such opportunity to ask questions and review information and the Shareholder's business, the Shareholder is in a position to weigh, and assess such knowledge and information in a meaningful fashion. (c) The Shareholder acknowledges that any business and financial projections of Buyer that may have been provided by or on behalf of Buyer are solely for purposes of describing Buyer's future business and financial goals and are not intended to be, nor are they, representations or guaranties of Buyer's future performance. (d) The Shareholder understands that none of the Buyer's Common Stock (including the Shares) have been registered under the Securities Act or any state securities laws and that the Shares are offered in reliance on exemptions for private offerings under the Securities Act and exemptions for sales transactions under state laws. The Shareholder acknowledges that the Shareholder is acquiring the Shares without being furnished any offering literature or memorandum. (e) The Shareholder is acquiring and purchasing the Shares solely for investment for his own account and the Shares are not being purchased with a view to or for the resale, distribution, subdivision, or fractionalization of the Shares. (f) The Shareholder acknowledges that Shareholder has received and examined copies of the Buyer's Certificate of Incorporation, Articles and Bylaws, all as amended to date, as well as minutes of all shareholder and director meetings relevant to the Stock Purchase Agreement and the issuance of Shares to the Shareholder pursuant to the Stock Purchase Agreement. The Shareholder further acknowledges that Shareholder has been given full opportunity to receive copies of or examine any and all other minutes of shareholder and director meetings of the Buyer. - 2 - 3 (g) The Shareholder acknowledges that (A) there are substantial restrictions on the transferability of the Shares, (B) the Shares will not be, and investors in the Buyer have no rights to require that the Shares be, registered under the Securities Act or any state securities laws, and (C) there will be no public market for the Shares and, accordingly, the Shareholder may have to hold the Shares indefinitely without the possibility of liquidating the Shareholder's investment in the Buyer. 2. Representations as the Authority and Enforceability. The Shareholder hereby represents to the Buyer as follows: this agreement constitutes the valid and binding obligation of the Shareholder enforceable in accordance with its terms. The Shareholder's execution and delivery of this agreement, and compliance with the provisions of this agreement will not violate any provision of law applicable to him and will not conflict with or result in any breach of any of the terms, conditions, or provisions of, or constitute a default under, any contractual obligations of Shareholder nor any court or other governmental order applicable to the Shareholder. 3. Inspection Rights; Non-Marketability of Shares; Restrictions on Transfer. The Shareholder acknowledges and agrees that: (a) Inspection Rights. Prior to the date hereof, all documents, information, records, and books pertaining to this investment have been, made available for inspection by Shareholder, and the Shareholder's attorney and/or accountant. (b) Non-Marketability of Shares. No representations or promises have been made concerning the marketability or value of the Shares. The Shareholder agrees that because the Shares have not been registered under the Securities Act or relevant state securities laws, they cannot be resold or transferred unless: (i) they are subsequently registered under such laws or exemptions from registration are available; and (ii) Buyer receives an opinion of counsel satisfactory to it and its counsel that such transfer complies with Federal and state securities laws. Neither Buyer nor any of its officers, directors, or shareholders have represented to the Shareholder that the Shares will be registered under the Securities Act or relevant state securities laws at any time in the future or otherwise qualified for sale under applicable securities laws. Buyer does not presently intend to make available to the public information concerning itself so as to permit shareholders to use Rule 144 of the Rules and Regulations under the Securities Act for transfer of the Shares. (c) Restrictions on Transfer. Shareholder agrees to the following restrictions on the transfer of the Shares, and in any other agreement between Buyer and the Shareholder: No transfer will be permitted: (A) which would violate any applicable law, statute, or regulation, including, but not limited to, any Federal or state securities laws; or (B) which would require registration under any Federal or state securities laws. - 3 - 4 With respect to any proposed transfer, Buyer may, at its option, require an opinion of counsel acceptable to it to the effect that any proposed transfer is not prohibited under items (A) or (B), above. (d) Legends on Certificates. Any stock certificates evidencing the Shares shall bear the following legends: The securities represented hereby have not been registered under the Securities Act of 1933 (the "Act") or any state securities law and may not be sold or transferred unless (i) a registration statement covering these securities is effective under the Act or (ii) the transaction is exempt from registration under the Act and any applicable state securities laws and, if the corporation requests, an opinion satisfactory to the corporation to such effect has been rendered to the corporation by counsel satisfactory to the corporation. THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF CODE SECTION 10-5-9 OF THE "GEORGIA SECURITIES ACT OF 1973," AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT. The securities represented hereby are subject to restrictions on transfer and may not be sold, exchanged, transferred, pledged, hypothecated, or otherwise disposed of except in accordance with and subject to all the terms and conditions of a certain Stock Subscription Agreement dated June 27, 1997, a copy of which the corporation will furnish to the holder upon request and without charge. Further restrictive legends may also be inscribed as in the opinion of counsel are necessary to comply with Federal and state securities laws. 4. Lock-Up Agreement. In the event of an underwritten public offering of Buyer's securities, the Shareholder (and any permitted transferee thereof), whether or not any shares of capital stock of the Buyer owned by the Shareholder (or any permitted transferee thereof) are included in such registration, hereby agrees not to effect any public sale or distribution, including any sale pursuant to Rule 144 under the Securities Act, of any equity securities of Buyer (other than as part of such underwritten offering), without the consent of the managing underwriter(s) for such offering (the "Managing Underwriter"), during a period commencing on the effective date of such registration and ending 180 calendar days thereafter, or such lesser period as the Board of Directors of Buyer and the Managing Underwriter shall determine is required to effect a successful offering. 5. Miscellaneous. - 4 - 5 (a) Amendment. This agreement may not be amended, in whole or in part, except by an instrument in writing signed by the Buyer and the Shareholder. In the event of termination of the Stock Purchase Agreement according to its terms, this agreement shall also terminate and the parties shall have no further obligations to each other hereunder except for prior breach hereof. (b) Binding Effect. This agreement shall be binding on and for the benefit of the parties hereto and their respective successors, heirs, personal representatives and permitted assigns; provided, that the Shareholder shall not be entitled to assign or delegate any of the Shareholder's rights or obligations under this agreement without the prior written consent of Buyer. (c) Counterparts. This agreement may be executed in one or more counterpart copies, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. (d) Entire Agreement. Any oral or written statements, understandings, correspondence, or agreements previously made by any party with respect to the subject matter of this agreement are superseded by this agreement (including any Exhibits attached hereto and specifically referenced by this agreement), which alone fully and completely expresses the parties' respective obligations. This agreement is entered into by each party after opportunity for investigation, and each party represents that such party is not relying upon any statements, understandings, correspondence, or agreements not embodied in this agreement and made by any other party or on any other party's behalf. (e) Governing Law. This agreement shall be governed exclusively by Vermont law. (f) Notices. Any notice or other communication required or permitted under this agreement shall be in writing and shall be deemed to have been duly given (i) upon hand delivery, or (ii) on the third day following delivery to the U.S. Postal Service as certified or registered mail, return receipt requested and postage prepaid, or (iii) on the first day following delivery to a nationally recognized United States overnight courier service, fees prepaid, return receipt or other confirmation of delivery requested or (iv) when telecopied or sent by facsimile transmission if an additional notice is also given under (i), (ii) or (iii) above within three days thereafter. Any such notice or communication shall be directed to a party at its address set forth below or at such other address as may be designated by a party in a notice given to all other parties hereto in accordance with the provisions of this Section. Buyer: Rock of Ages Corporation 369 North State Street Concord, NH 03301 Attn.: Mr. Kurt M. Swenson, - 5 - 6 Chairman of the Board and Chief Executive Officer Shareholder: See Exhibit 1(a) (g) Severability. Each term, condition, and provision of this agreement shall be valid and enforced to the fullest extent permitted by law. If there is any conflict between any term, condition, or provision of this agreement and any statute, law, ordinance, order, rule, or regulation, the latter shall prevail; provided, that any such conflicting term, condition, or provision shall be curtailed and limited only to the extent necessary to bring it within the legal requirements and the remainder of this agreement shall not be affected thereby. (h) Waiver. No waiver by any party of any breach or default by any other party of any of such other party's obligations under this agreement shall be deemed to be a waiver of any other breach or default of the same or any other nature. No failure by any party on any one or more occasions to exercise any right or remedy provided in this agreement shall preclude the exercise of such right or remedy on any other occasion. (i) Survival of Covenants and Representations. All covenants and representations of the parties contained in this agreement shall survive the execution and delivery of this agreement and the closing of the transactions contemplated hereby. IN WITNESS WHEREOF, the parties have executed this agreement all as of the date first above-written. Buyer: Witness: ROCK OF AGES QUARRIES, INC. - ------------------------------ By: /s/ Kurt M. Swenson - ------------------------------ -------------------------------- [Print Name] Kurt M. Swenson, Chairman of the Board President and Chief Executive Officer - ------------------------------ /s/ Robert Otis Childs, III - ------------------------------ ---------------------------------- [Print Name] Robert Otis Childs, III - 6 - 7 EXHIBIT 1-a -------------------------------------------- Shareholder Name & Address -------------------------------------------- Robert Otis Childs, III 270 Dogwood Elberton, Georgia 30635 -------------------------------------------- - 7 - EX-10.15 20 FORM OF SALARY CONTINUATION AGREEMENT 1 Exhibit 10.15 ROCK OF AGES CORPORATION SALARY CONTINUATION AGREEMENT AGREEMENT entered into this 30th day of June, 1997, between ROCK OF AGES CORPORATION, a Vermont corporation having a place of business at 369 North Main Street, Concord, New Hampshire 03301 (hereinafter referred to as the "Company") and ______________________ (hereinafter referred to as the "Employee"). WITNESSETH: WHEREAS, the Employee is employed by the Company and by reason thereof has acquired experience and knowledge of considerable value to the Company; and WHEREAS, the Company and the Employee wish to enter into this Salary Continuation Agreement ("Agreement"), intended to offer an inducement to the Employee to remain in the employ of the Company by compensating the Employee beyond his or her regular salary for services which the Employee will hereafter render; NOW, THEREFORE, in consideration of the foregoing, the Company and the Employee do hereby mutually agree as follows: 1. Salary Continuation Benefits. (a) Normal Retirement. If the Employee remains continuously employed by the Company and/or any affiliate thereof on a full-time basis until termination of active employment on or after the first day of the month coinciding with or next following his or her sixty-fifth (65th) birthday, for any reason other than death or reasons constituting grounds for forfeiture of benefits under Section 3 hereof ("Normal Retirement"), then beginning in the month of such retirement the Company will pay to the Employee a monthly benefit equal to six tenths of one percent (.6%) of the Employee's highest annual base compensation for any calendar year during the last ten (10) years of employment with the Company and/or any affiliate thereof, divided by twelve (12) and multiplied by the number of full calendar years of service completed by the Employee with the Company and/or any affiliate, predecessor or acquired business thereof since ____________. Such monthly benefit shall be payable in the form of an annuity for the life of the Employee or, if the Employee is married at the date benefits commence, in the form of a joint and one hundred percent (100%) survivor annuity for the lives of the Employee and his or her spouse; provided that if the spouse is ten (10) or more years younger than the Employee the annuity payable to the Employee and spouse shall be actuarially reduced as provided in Exhibit A attached hereto and by this reference made a part hereof. 2 (b) Early Retirement. If the Employee attains age fifty-five (55) and his or her employment with the Company or any affiliate thereof is thereafter terminated prior to Normal Retirement for any reason other than death or reasons constituting grounds for forfeiture of benefits under Section 3 hereof ("Early Retirement"), the Employee may, with the approval of the Board of Directors of the Company or of the appropriate committee thereof, begin to receive monthly payments of the benefits accrued to date under paragraph (a) in accordance with the provisions thereof, without reduction. (c) Disability Retirement. If the Employee terminates employment with the Company or any affiliate thereof prior to attaining age fifty-five (55) due to disability and no grounds exist for forfeiture of benefits under Section 3 hereof ("Disability Retirement"), beginning at age fifty-five (55) the Employee may begin to receive monthly payments of the benefits accrued at the time of Disability Retirement under paragraph (a) in accordance with the provisions thereof, without reduction, provided the Employee is then still disabled. For purposes hereof, disability shall be defined in the same manner as in the Company's Salaried Employees' Retirement Plan or, if such plan does not then exist, in such other retirement plan as may from time to time be maintained by the Company in which the Employee participates. (d) Other Termination of Employment. If the Employee terminates employment with the Company or an affiliate thereof prior to attaining age fifty-five (55) for any reason other than death or disability, this Agreement shall be deemed to have terminated pursuant to Section 5 hereof, and the Employee and his beneficiaries shall be entitled to no rights or benefits hereunder, other than the right to purchase insurance policies as provided in said Section 5. 2. Death Benefits. (a) Benefits. If the Employee dies while employed by the Company or an affiliate thereof, or following Disability Retirement but prior to commencement of benefits hereunder, and no grounds exist for forfeiture of benefits under Section 3 hereof, the Employee's beneficiary or beneficiaries shall receive monthly payments of the benefits accrued under Section 1(a) at the time of the Employee's death. If the Employee was married at the time of his or her death, such monthly benefit shall be paid to the surviving spouse in the form of a one hundred percent (100%) survivor annuity for the life of such spouse; provided that if such spouse is ten (10) or more years younger than the Employee the survivor annuity payable to such spouse shall be actuarially reduced as prescribed in Section 1(a) hereof. If the Employee was unmarried at the time of death, monthly payments shall be made to the beneficiary or beneficiaries designated in accordance with paragraph (b) of this Section for a period certain of one hundred eighty (180) months. - 2 - 3 (b) Designation of Beneficiary. The Employee may by written notice to the Company designate one or more beneficiaries (including a trust or trusts) to receive any non-spousal payments due under paragraph (a) above, and the proportionate share to be paid to each beneficiary if more than one is designated. The Employee may also designate contingent beneficiaries to receive benefits should the Employee outlive the primary beneficiaries. If the Employee has designated more than one beneficiary, the benefits will be divided among the beneficiaries in any proportion designated by the Employee, and equally if no proportions have been designated. If more than one primary beneficiary has been designated and a primary beneficiary dies before all benefits are paid, benefits will thereafter be divided and paid equally among any surviving primary beneficiaries unless the Employee otherwise designates. If all primary beneficiaries have died before all benefits are paid, the same will thereafter be divided and paid equally among any surviving contingent beneficiaries unless the Employee otherwise designates. If no beneficiaries are designated or if none of the beneficiaries designated survives the Employee, then benefits will be paid to the Employee's spouse (unless divorce or separation proceedings are then in progress), or if none, to his descendants, or if none, to his parents, or if none, to his estate. 3. Forfeiture. Notwithstanding any other provision hereof, the Employee and his beneficiaries shall forfeit all rights in and to any benefits otherwise payable hereunder if the Employee's employment with the Company or any affiliate thereof is or could have been terminated by his employer for (1) ENGAGING IN UNAUTHORIZED BUSINESS ACTIVITIES COMPETITIVE WITH THOSE OF HIS EMPLOYER OR ANY AFFILIATE THEREOF WHILE ITS EMPLOYEE, (2) DISHONESTY, (3) COMMISSION OF A MISDEMEANOR OR FELONY, (4) UNAUTHORIZED DISCLOSURE OF CONFIDENTIAL INFORMATION OR TRADE SECRETS OF HIS EMPLOYER OR ANY AFFILIATE THEREOF, OR (5) THE BREACH BY THE EMPLOYEE OF ANY EXPRESS OR IMPLIED AGREEMENT OF EMPLOYMENT WITH HIS EMPLOYER OR ANY AFFILIATE THEREOF. IN THE EVENT THE EMPLOYEE'S EMPLOYMENT IS NOT SO TERMINATED, BUT SUBSEQUENT TO ANY TERMINATION OF EMPLOYMENT FOR OTHER REASONS THE EMPLOYEE IS FOUND TO HAVE BEEN ENGAGED IN ANY OF THE ACTIVITIES OR OFFENSES ENUMERATED ABOVE DURING THE PERIOD OF HIS EMPLOYMENT WITH THE COMPANY OR ANY AFFILIATE THEREOF, NO BENEFITS SHALL BE PAYABLE HEREUNDER TO THE EMPLOYEE OR HIS BENEFICIARIES. 4. Insurance. If the Company or any affiliate thereof shall acquire an insurance policy or any other asset in connection with its liabilities hereunder, it is expressly understood and agreed that neither the Employee nor any beneficiary thereof shall have any right with respect to, or claim against, such policy or other asset, except as expressly provided by the terms of such policy or in the title to such other asset. Such policy or asset - 3 - 4 shall not be deemed to be held under any trust for the benefit of the Employee or his or her beneficiaries or to be held in any way as collateral security for the fulfilling of the obligations of the Company or any affiliate thereof hereunder, except as may be expressly provided by the terms of such policy or title to such other asset, which shall otherwise be and remain general, unpledged, unrestricted assets of the owner thereof. Any rights accruing to the Employee or any other person hereunder are solely those of any unsecured general creditor of the Company. 5. Termination and Amendment. The Company reserves the right at any time and from time to time to terminate or amend in whole or in part any or all of the provisions hereof by resolution of its Board of Directors, and such termination or amendment shall become effective as of the date specified by the Board of Directors in said resolution. Upon such termination the Employee shall have the right to purchase any transferable insurance policy maintained pursuant to Section 4, which right must be exercised within sixty (60) days after termination of employment. If the Employee elects to exercise such purchase right, the purchase price of the policy shall be the interpolated terminal reserve of such policy as of the date of such termination. 6. Administration. The Company shall be the Administrator and Named Fiduciary hereunder. The Company may delegate its responsibilities by written agreement with the person or persons to whom such responsibilities are so delegated. The Company is hereby designated as the agent for service of legal process. 7. Claims Procedure. The Employee or his or her beneficiaries hereunder shall make a claim for benefits and have such claim reviewed under the following procedure: (a) The claimant shall make a claim for benefits by filing a written request with the Administrator upon a form to be furnished by him for such purpose. Any claimant shall submit to the Administrator a death certificate or such other documents as may be required by the Company or its insurers to verify the claim prior to payment. Any failure to comply with this requirement within a reasonable time may, within the discretion of the Board of Directors of the Company, terminate such claimant's right to benefits hereunder. (b) If a claim is wholly or partially denied, the Administrator shall furnish the claimant with written notice of the denial within ninety (90) days of the date the original claim was filed. This notice of denial shall provide (1) the reason for the denial, (2) specific reference to the pertinent provisions hereof on which the denial is based, (3) a description of any additional information needed to perfect the claim and an explanation of why such information is necessary, and (4) an explanation of the claim procedure hereunder. - 4 - 5 (c) The claimant shall have sixty (60) days from receipt of the denial notice in which to make written application for review by the Administrator. The claimant may request that the review be in the nature of a hearing. The claimant shall have the right (1) to representation, (2) to review pertinent documents, and (3) to submit comments in writing. (d) The Administrator shall issue a decision on such review within sixty (60) days (one hundred twenty (120) days, if a hearing is requested and held) after receipt of an application for review as provided in paragraph (c). 8. General Provisions. (a) The stockholders, Board of Directors and officers of the Company do not in any way guarantee to Employee or his beneficiaries the payment to Employee or his beneficiaries of any benefit or amount which may become due in accordance with the terms hereof. (b) All payments made by the Company hereunder shall be voluntary. Nothing contained in this instrument shall be construed to commit the Company to any liability for any payment now or hereafter. (c) This agreement shall not be considered a guarantee of employment for any period of time whatsoever, and does not insure the Employee's retention as an employee of the Company or of his continued participation herein. (d) All section headings herein are intended merely for convenience and shall in no way be deemed to modify or supplement the actual terms and provisions set forth. (e) The benefits provided hereunder shall be in addition to the Employee's salary as determined by the Board of Directors of the Company, and shall not affect the right of the Employee to participate in any current or future retirement or other employee benefit plan sponsored by the Company or in any supplemental compensation arrangement which constitutes a part of the Company's regular compensation structure. (f) Neither the Employee nor any beneficiary thereof shall have any right to commute, sell, assign, transfer or otherwise convey the right to receive any payments hereunder, which payments and the right thereto are expressly declared to be non-assignable and non-transferable; and in the event of any attempted assignment or transfer the Company shall have no further liability hereunder. - 5 - 6 (g) The terms, provisions and conditions hereof shall be binding upon and inure to the benefit of the Company and its assigns, successors and the Employee and his or her beneficiaries, administrators and executors. (h) If any provision hereof is held invalid or unenforceable, the other provisions will not be affected, and this Agreement will be construed and enforced as if the invalid or unenforceable provision had not been included. (i) This Agreement shall be construed, administered and enforced according to the laws of the United States of America and the State of Vermont. (j) Nothing in this section is intended or is to be construed as requiring the Company to accelerate the payment dates or increase the installment payment amounts of any benefits payable under this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement to be effective as of the day and year first written above. ROCK OF AGES CORPORATION By: --------------------------------------- Kurt M. Swenson, Chairman of the Board President and Chief Executive Officer ------------------------------------- Employee - 6 - 7 EXHIBIT A TO ROCK OF AGES CORPORATION SALARY CONTINUATION AGREEMENT Factors Applicable to Benefit Payable Under 100% Joint and Survivor Normal Form
Number of Years By Which Participant's Attained Age Attained Age Exceeds of Participant Beneficiary's Attained at Retirement Age at Retirement Applicable Factor - ------------- ----------------- ----------------- 55 - 59 Less than 10 1.00 10 - 19 0.93 20 - 29 0.90 30 or more 0.89 60 - 64 Less than 10 1.00 10 - 19 0.90 20 - 29 0.86 30 or more 0.85 65 or older Less than 10 1.00 10 - 19 0.89 20 - 29 0.84 30 or more 0.83
Note: To determine the amount of the joint and survivor benefit payable to the Employee and his or her surviving spouse, multiply the Employee's accrued benefit, determined in accordance with Section 1(a) of the Agreement, by the Applicable Factor shown above. 8 ROCK OF AGES CORPORATION SALARY CONTINUATION AGREEMENT Designation of Beneficiary I hereby designate the following to receive any and all amounts which may become payable after my death to any beneficiary other than my surviving spouse under the Rock of Ages Corporation Salary Continuation Agreement, superseding any prior designations.
Primary Beneficiary Relationship Share (%) - ------------------- ------------ --------- - ------------------------------- ----------------------- ------------ - ------------------------------- ----------------------- ------------ - ------------------------------- ----------------------- ------------
Contingent Beneficiary Relationship Share (%) - ------------------------------- ----------------------- ------------ - ------------------------------- ----------------------- ------------ - ------------------------------- ----------------------- ------------
Date: , 19 --------------------------------- ---------------------- -- Employee Signature EX-10.16 21 SALARY CONTINUATION AGREEMENT OF MARK GHERARDI 1 Exhibit 10.16 ROCK OF AGES CORPORATION SALARY CONTINUATION AGREEMENT AGREEMENT entered into this 3rd day of January, 1996, but effective as of January 1, 1996, between ROCK OF AGES CORPORATION, a Vermont corporation having its principal place of business at Main Street, Graniteville, Barre, Vermont 05654 (hereinafter referred to as the "Company") and MARK A. GHERARDI (hereinafter referred to as the "Employee"). WITNESSETH: WHEREAS, the Employee is employed by the Company and by reason thereof has acquired experience and knowledge of considerable value to the Company; and WHEREAS, the Company and the Employee wish to enter into this Salary Continuation Agreement ("Agreement"), intended to offer an inducement to the Employee to remain in the employ of the Company by compensating the Employee beyond his or her regular salary for services which the Employee will hereafter render; NOW, THEREFORE, in consideration of the foregoing, the Company and the Employee do hereby mutually agree as follows: 1. Salary Continuation Benefits. (a) Normal Retirement. If the Employee remains continuously employed by the Company and/or any affiliate thereof on a full-time basis until termination of active employment on or after the first day of the month coinciding with or next following his or her sixty-fifth (65th) birthday, for any reason other than death or reasons constituting grounds for forfeiture of benefits under Section 3 hereof ("Normal Retirement"), then beginning in the month of such retirement the Company will pay to the Employee a monthly benefit equal to six tenths of one percent (.6%) of the Employee's highest annual base compensation for any calendar year during the last ten (10) years of employment with the Company and/or any affiliate thereof, divided by twelve (12) and multiplied by the number of full calendar years of service completed by the Employee with the Company and/or any affiliate, predecessor or acquired business thereof since January 1, 1996. Such monthly benefit shall be payable in the form of an annuity for the life of the Employee or, if the Employee is married at the date benefits commence, in the form of a joint and one hundred percent (100%) survivor annuity for the lives of the Employee and his or her spouse; provided that if the spouse is ten (10) or more years 1 2 younger than the Employee the annuity payable to the Employee and spouse shall be actuarially reduced as provided in Exhibit A attached hereto and by this reference made a part hereof. (b) Early Retirement. If the Employee attains age fifty-five (55) and his or her employment with the Company or any affiliate thereof is thereafter terminated prior to Normal Retirement for any reason other than death or reasons constituting grounds for forfeiture of benefits under Section 3 hereof ("Early Retirement"), the Employee may, with the approval of the Board of Directors of the Company or of the appropriate committee thereof, begin to receive monthly payments of the benefits accrued to date under paragraph (a) in accordance with the provisions thereof, without reduction. (c) Disability Retirement. If the Employee terminates employment with the Company or any affiliate thereof prior to attaining age fifty-five (55) due to disability and no grounds exist for forfeiture of benefits under Section 3 hereof ("Disability Retirement"), beginning at age fifty-five (55) the Employee may begin to receive monthly payments of the benefits accrued at the time of Disability Retirement under paragraph (a) in accordance with the provisions thereof, without reduction, provided the Employee is then still disabled. For purposes hereof, disability shall be defined in the same manner as in the Company's Salaried Employees' Retirement Plan or, if such plan does not then exist, in such other retirement plan as may from time to time be maintained by the Company in which the Employee participates. (d) Other Termination of Employment. If the Employee terminates employment with the Company or an affiliate thereof prior to attaining age fifty-five (55) for any reason other than death or disability, this Agreement shall be deemed to have terminated pursuant to Section 5 hereof, and the Employee and his beneficiaries shall be entitled to no rights or benefits hereunder, other than the right to purchase insurance policies as provided in said Section 5. 2. Death Benefits. (a) Benefits. If the Employee dies while employed by the Company or an affiliate thereof, or following Disability Retirement but prior to commencement of benefits hereunder, and no grounds exist for forfeiture of benefits under Section 3 hereof, the Employee's beneficiary or beneficiaries shall receive monthly payments of the benefits accrued under Section 1(a) at the time of the Employee's death. If the Employee was married at the time of his or her death, such monthly benefit shall be paid to the surviving spouse in the form of a one hundred percent (100%) survivor annuity for the life of such spouse; provided that if such spouse is ten (10) or more years younger 2 3 than the Employee the survivor annuity payable to such spouse shall be actuarially reduced as prescribed in Section 1(a) hereof. If the Employee was unmarried at the time of death, monthly payments shall be made to the beneficiary or beneficiaries designated in accordance with paragraph (b) of this Section for a period certain of one hundred eighty (180) months. (b) Designation of Beneficiary. The Employee may by written notice to the Company designate one or more beneficiaries (including a trust or trusts) to receive any non-spousal payments due under paragraph (a) above, and the proportionate share to be paid to each beneficiary if more than one is designated. The Employee may also designate contingent beneficiaries to receive benefits should the Employee outlive the primary beneficiaries. If the Employee has designated more than one beneficiary, the benefits will be divided among the beneficiaries in any proportion designated by the Employee, and equally if no proportions have been designated. If more than one primary beneficiary has been designated and a primary beneficiary dies before all benefits are paid, benefits will thereafter be divided and paid equally among any surviving primary beneficiaries unless the Employee otherwise designates. If all primary beneficiaries have died before all benefits are paid, the same will thereafter be divided and paid equally among any surviving contingent beneficiaries unless the Employee otherwise designates. If no beneficiaries are designated or if none of the beneficiaries designated survives the Employee, then benefits will be paid to the Employee's spouse (unless divorce or separation proceedings are then in progress), or if none, to his descendants, or if none, to his parents, or if none, to his estate. 3. Forfeiture. Notwithstanding any other provision hereof, the Employee and his beneficiaries shall forfeit all rights in and to any benefits otherwise payable hereunder if the Employee's employment with the Company or any affiliate thereof is or could have been terminated by his employer for (1) ENGAGING IN UNAUTHORIZED BUSINESS ACTIVITIES COMPETITIVE WITH THOSE OF HIS EMPLOYER OR ANY AFFILIATE THEREOF WHILE ITS EMPLOYEE, (2) DISHONESTY, (3) COMMISSION OF A MISDEMEANOR OR FELONY, (4) UNAUTHORIZED DISCLOSURE OF CONFIDENTIAL INFORMATION OR TRADE SECRETS OF HIS EMPLOYER OR ANY AFFILIATE THEREOF, OR (5) THE BREACH BY THE EMPLOYEE OF ANY EXPRESS OR IMPLIED AGREEMENT OF EMPLOYMENT WITH HIS EMPLOYER OR ANY AFFILIATE THEREOF. IN THE EVENT THE EMPLOYEE'S EMPLOYMENT IS NOT SO TERMINATED, BUT SUBSEQUENT TO ANY TERMINATION OF EMPLOYMENT FOR OTHER REASONS THE EMPLOYEE IS FOUND TO HAVE BEEN ENGAGED IN ANY OF THE ACTIVITIES OR OFFENSES ENUMERATED ABOVE DURING THE PERIOD OF HIS EMPLOYMENT WITH THE COMPANY OR ANY AFFILIATE THEREOF, NO BENEFITS SHALL BE PAYABLE HEREUNDER TO THE EMPLOYEE OR HIS BENEFICIARIES. 4. Insurance. If the Company or any affiliate thereof shall 3 4 acquire an insurance policy or any other asset in connection with its liabilities hereunder, it is expressly understood and agreed that neither the Employee nor any beneficiary thereof shall have any right with respect to, or claim against, such policy or other asset, except as expressly provided by the terms of such policy or in the title to such other asset. Such policy or asset shall not be deemed to be held under any trust for the benefit of the Employee or his or her beneficiaries or to be held in any way as collateral security for the fulfilling of the obligations of the Company or any affiliate thereof hereunder, except as may be expressly provided by the terms of such policy or title to such other asset, which shall otherwise be and remain general, unpledged, unrestricted assets of the owner thereof. Any rights accruing to the Employee or any other person hereunder are solely those of any unsecured general creditor of the Company. 5. Termination and Amendment. The Company reserves the right at any time and from time to time to terminate or amend in whole or in part any or all of the provisions hereof by resolution of its Board of Directors, and such termination or amendment shall become effective as of the date specified by the Board of Directors in said resolution. Upon such termination the Employee shall have the right to purchase any transferable insurance policy maintained pursuant to Section 4, which right must be exercised within sixty (60) days after termination of employment. If the Employee elects to exercise such purchase right, the purchase price of the policy shall be the interpolated terminal reserve of such policy as of the date of such termination. 6. Administration. The Company shall be the Administrator and Named Fiduciary hereunder. The Company may delegate its responsibilities by written agreement with the person or persons to whom such responsibilities are so delegated. The Company is hereby designated as the agent for service of legal process. 7. Claims Procedure. The Employee or his or her beneficiaries hereunder shall make a claim for benefits and have such claim reviewed under the following procedure: (a) The claimant shall make a claim for benefits by filing a written request with the Administrator upon a form to be furnished by him for such purpose. Any claimant shall submit to the Administrator a death certificate or such other documents as may be required by the Company or its insurers to verify the claim prior to payment. Any failure to comply with this requirement within a reasonable time may, within the discretion of the Board of Directors of the Company, terminate such claimant's right to benefits hereunder. (b) If a claim is wholly or partially denied, the Administrator shall furnish the claimant with written notice of the denial within ninety (90) days of the date the original claim 4 5 was filed. This notice of denial shall provide (1) the reason for the denial, (2) specific reference to the pertinent provisions hereof on which the denial is based, (3) a description of any additional information needed to perfect the claim and an explanation of why such information is necessary, and (4) an explanation of the claim procedure hereunder. (c) The claimant shall have sixty (60) days from receipt of the denial notice in which to make written application for review by the Administrator. The claimant may request that the review be in the nature of a hearing. The claimant shall have the right (1) to representation, (2) to review pertinent documents, and (3) to submit comments in writing. (d) The Administrator shall issue a decision on such review within sixty (60) days (one hundred twenty (120) days, if a hearing is requested and held) after receipt of an application for review as provided in paragraph (c). 8. General Provisions. (a) The stockholders, Board of Directors and officers of the Company do not in any way guarantee to Employee or his beneficiaries the payment to Employee or his beneficiaries of any benefit or amount which may become due in accordance with the terms hereof. (b) All payments made by the Company hereunder shall be voluntary. Nothing contained in this instrument shall be construed to commit the Company to any liability for any payment now or hereafter. (c) This agreement shall not be considered a guarantee of employment for any period of time whatsoever, and does not insure the Employee's retention as an employee of the Company or of his continued participation herein. (d) All section headings herein are intended merely for convenience and shall in no way be deemed to modify or supplement the actual terms and provisions set forth. (e) The benefits provided hereunder shall be in addition to the Employee's salary as determined by the Board of Directors of the Company, and shall not affect the right of the Employee to participate in any current or future retirement or other employee benefit plan sponsored by the Company or in any supplemental compensation arrangement which constitutes a part of the Company's regular compensation structure. 5 6 (f) Neither the Employee nor any beneficiary thereof shall have any right to commute, sell, assign, transfer or otherwise convey the right to receive any payments hereunder, which payments and the right thereto are expressly declared to be non-assignable and non-transferable; and in the event of any attempted assignment or transfer the Company shall have no further liability hereunder. (g) The terms, provisions and conditions hereof shall be binding upon and inure to the benefit of the Company and its assigns, successors and the Employee and his or her beneficiaries, administrators and executors. (h) If any provision hereof is held invalid or unenforceable, the other provisions will not be affected, and this Agreement will be construed and enforced as if the invalid or unenforceable provision had not been included. (i) This Agreement shall be construed, administered and enforced according to the laws of the United States of America and the State of New Hampshire. (j) Nothing in this section is intended or is to be construed as requiring the Company to accelerate the payment dates or increase the installment payment amounts of any benefits payable under this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement to be effective as of the day and year first written above. ROCK OF AGES CORPORATION By: /s/ Kurt M. Swenson ----------------------------- Kurt M. Swenson, Chairman and Chief Executive Officer /s/ Mark A. Gherardi ----------------------------- Mark A. Gherardi, Employee 6 7 EXHIBIT A TO ROCK OF AGES CORPORATION SALARY CONTINUATION AGREEMENT Factors Applicable to Benefit Payable Under 100% Joint and Survivor Normal Form
Number of Years By Which Participant's Attained Age Attained Age Exceeds of Participant Beneficiary's Attained at Retirement Age at Retirement Applicable Factor - ------------- ----------------- ----------------- 55 - 59 Less than 10 1.00 10 - 19 0.93 20 - 29 0.90 30 or more 0.89 60 - 64 Less than 10 1.00 10 - 19 0.90 20 - 29 0.86 30 or more 0.85 65 or older Less than 10 1.00 10 - 19 0.89 20 - 29 0.84 30 or more 0.83
Note: To determine the amount of the joint and survivor benefit payable to the Employee and his or her surviving spouse, multiply the Employee's accrued benefit, determined in accordance with Section 1(a) of the Agreement, by the Applicable Factor shown above. 8 ROCK OF AGES CORPORATION SALARY CONTINUATION AGREEMENT Designation of Beneficiary I hereby designate the following to receive any and all amounts which may become payable after my death to any beneficiary other than my surviving spouse under the Rock of Ages Corporation Salary Continuation Agreement, superseding any prior designations.
Primary Beneficiary Relationship Share (%) ------------------- ------------ --------- ------------------------------------------- ----------------------------- ---------------------------- ------------------------------------------- ----------------------------- ---------------------------- ------------------------------------------- ----------------------------- ---------------------------- Contingent Beneficiary Relationship Share (%) ---------------------- ------------ --------- ------------------------------------------- ----------------------------- ---------------------------- ------------------------------------------- ----------------------------- ---------------------------- ------------------------------------------- ----------------------------- ----------------------------
Date: , 19 - ---------------------- ---- Employee Signature - ------------------------------ EX-10.17 22 SALARY CONTINUATION AGREEMENT MELVIN FRIBERG 1 Exhibit 10.17 ROCK OF AGES CORPORATION SALARY CONTINUATION AGREEMENT AGREEMENT entered into this 3rd day of January, 1996, and effective January 1, 1996, by and among ROCK OF AGES CORPORATION, a Vermont corporation having its principal place of business at Main Street, Graniteville, Barre, Vermont 05654 (hereinafter referred to as the "Company") and ROCK OF AGES QUARRIES, INC., a Vermont corporation having its principal place of business at Main Street, Graniteville, Barre, Vermont 05654 (hereinafter referred to as "ROAQ") and MELVIN FRIBERG residing at 58 Wildersburg Common, Barre, VT 05641 (hereinafter referred to as the "Employee"). WITNESSETH: WHEREAS, the Employee is employed by the Company and by reason thereof has acquired experience and knowledge of considerable value to the Company; and WHEREAS, Employee requires additional inducement to agree to the non-competition and related provisions of the Employment Agreement (the "Employment Agreement") that he is concurrently entering into with Company, and such inducement is intended to be provided hereby; and WHEREAS, the benefits provided herein are offered to Employee in replacement of the benefits to have been provided to Employee under a certain Deferred Compensation Agreement, effective as of December 1, 1994, (the "AFCO Agreement") between Employee and Anderson-Friberg Company, Inc. ("AFCO") and by ROAQ as successor in interest of AFCO under the AFCO Agreement; and WHEREAS, the Company and the Employee wish to enter into this Salary Continuation Agreement ("Agreement"), intended to offer an inducement to the Employee to remain in the employ of the Company by compensating the Employee beyond his regular salary for services which the Employee will hereafter render; NOW, THEREFORE, in consideration of the foregoing, the Company and the Employee do hereby mutually agree as follows: 1. Benefits. (a) Salary on Retirement. Upon termination of the Employment Agreement; for any reason other than death ("Retirement"), then beginning in the first month after Retirement the Company will pay to the Employee a yearly benefit of Fifty Thousand and 00/100 Dollars ($50,000) in equal monthly installments. Such monthly benefit shall be payable in the form of an annuity for a period of twenty (20) years from the date of the Employee's Retirement. If the Employee dies before the - 1 - 2 end of the twenty (20) year period, the benefit shall continue to be payable for the balance of the twenty (20) year period to the Employee's spouse or other beneficiary as discussed in and designated pursuant to Section 2 (discussing the payment of benefits upon the Employee's death before Retirement). (b) Other Benefits on Retirement. Beginning in the month of his Retirement, the Company will: (i) grant the Employee the use of a company car of a quality comparable to the car used by the Employee during his active employment for so long as the Employee retains a valid Vermont driver's license from a state of the United States and/or until his death, and (ii) pay the Employee's health insurance premium until his death for a Medicare supplement policy which will, when combined with the Employee's Medicare benefits, afford the Employee health insurance coverage substantially similar to the coverage afforded the Employee in the last year of his active employment by the Company. 2. Death Benefits. (a) Benefits. If the Employee dies while employed by the Company or an affiliate thereof, the Employee's beneficiary or beneficiaries shall receive the Fifty Thousand and 00/100 Dollar per year benefit payable in equal monthly installments for a period of twenty (20) years from the date of the Employee's death. If the Employee was married at the time of his death, such monthly benefit shall be paid to the surviving spouse in the form of a one hundred percent (100%) survivor annuity for the twenty (20) years. If the Employee was unmarried at the time of death, monthly payments shall be made to the beneficiary or beneficiaries designated in accordance with Section 2(b). (b) Designation of Beneficiary. The Employee may by written notice to the Company designate one or more beneficiaries (including a trust or trusts) to receive any non-spousal payments due under paragraph (a) above, and the proportionate share to be paid to each beneficiary if more than one is designated. The Employee may also designate contingent beneficiaries to receive benefits should the Employee outlive the primary beneficiaries. If the Employee has designated more than one beneficiary, the benefits will be divided among the beneficiaries in any proportion designated by the Employee, and equally if no proportions have been designated. If more than one primary beneficiary has been designated and a primary beneficiary dies before all benefits are paid, benefits will thereafter be divided and paid equally among any surviving primary beneficiaries unless the Employee otherwise designates. If all primary beneficiaries have died before all benefits are paid, the same will thereafter be divided and paid equally among any surviving contingent beneficiaries unless the Employee otherwise designates. If no beneficiaries are designated or if none of the beneficiaries designated survives the Employee, then benefits will be paid to the Employee's spouse (unless divorce or separation proceedings are then in progress), or if none, to his descendants, or if none, to his parents, or if none, to his estate. 3. Insurance. If the Company or any affiliate thereof shall acquire an insurance policy or any other asset in connection with its liabilities hereunder, it is expressly understood and agreed that neither the Employee nor any beneficiary thereof shall have any right with respect to, or claim against, such policy or other asset, except as expressly provided by the - 2 - 3 terms of such policy or in the title to such other asset. Such policy or asset shall not be deemed to be held under any trust for the benefit of the Employee or his or her beneficiaries or to be held in any way as collateral security for the fulfilling of the obligations of the Company or any affiliate thereof hereunder, except as may be expressly provided by the terms of such policy or title to such other asset, which shall otherwise be and remain general, unpledged, unrestricted assets of the owner thereof. Any rights accruing to the Employee or any other person hereunder are solely those of any unsecured general creditor of the Company. 4. Interpretation; Termination of AFCO Agreement. The Employee's Employment Agreement with the Company permits the termination of the Employee's services at will. For all purposes of this Agreement the Employee will be deemed to have been employed by the Company for at least one year during which the Employee will be deemed to have received all compensation and benefits under the Employment Agreement as provided therein, provided that such assumption shall not effect a delay in the commencement of benefits under this Agreement. The Employee, the Company and ROAQ hereby agree that the AFCO Agreement is hereby terminated and replace hereby. 5. Administration. The Company shall be the Administrator and Named Fiduciary hereunder. The Company may delegate its responsibilities by written agreement with the person or persons to whom such responsibilities are so delegated. The Company is hereby designated as the agent for service of legal process. 6. Claims Procedure. The Employee or his beneficiaries hereunder shall make a claim for benefits and have such claim reviewed under the following procedure: (a) The claimant shall make a claim for benefits by filing a written request with the Administrator upon a form to be furnished by him for such purpose. Any claimant shall submit to the Administrator a death certificate or such other documents as may be required by the Company or its insurers to verify the claim prior to payment. Any failure to comply with this requirement within a reasonable time may, within the discretion of the Board of Directors of the Company, terminate such claimant's right to benefits hereunder. (b) If a claim is wholly or partially denied, the Administrator shall furnish the claimant with written notice of the denial within ninety (90) days of the date the original claim was filed. This notice of denial shall provide (1) the reason for the denial, (2) specific reference to the pertinent provisions hereof on which the denial is based, (3) a description of any additional information needed to perfect the claim and an explanation of why such information is necessary, and (4) an explanation of the claim procedure hereunder. (c) The claimant shall have sixty (60) days from receipt of the denial notice in which to make written application for review by the Administrator. The claimant may request that the review be in the nature of a hearing. The claimant shall have the right (1) to representation, (2) to review pertinent documents, and (3) to submit comments in writing. - 3 - 4 (d) The Administrator shall issue a decision on such review within sixty (60) days (one hundred twenty (120) days, if a hearing is requested and held) after receipt of an application for review as provided in paragraph (c). 7. General Provisions. (a) The Board of Directors and officers of the Company, ROAQ and Swenson do not in any way guarantee to Employee or his beneficiaries the payment to Employee or his beneficiaries of any benefit or amount which may become due in accordance with the terms hereof. (b) This agreement shall not be considered a guarantee of employment for any period of time whatsoever, and does not insure the Employee's retention as an employee of the Company or of his continued participation herein. (c) All section headings herein are intended merely for convenience and shall in no way be deemed to modify or supplement the actual terms and provisions set forth. (d) The benefits provided hereunder shall be in addition to the Employee's salary as determined by the Board of Directors of the Company, and shall not affect the right of the Employee to participate in any current or future retirement or other employee benefit plan sponsored by the Company or in any supplemental compensation arrangement which constitutes a part of the Company's regular compensation structure. (e) Neither the Employee nor any beneficiary thereof shall have any right to commute, sell, assign, transfer or otherwise convey the right to receive any payments hereunder, which payments and the right thereto are expressly declared to be non- assignable and non-transferable; and in the event of any attempted assignment or transfer the Company shall have no further liability hereunder. (f) The terms, provisions and conditions hereof shall be binding upon and inure to the benefit of the Company and its assigns, successors and the Employee and his or her beneficiaries, administrators and executors. (g) If any provision hereof is held invalid or unenforceable, the other provisions will not be affected, and this Agreement will be construed and enforced as if the invalid or unenforceable provision had not been included. (h) This Agreement shall be construed, administered and enforced according to the laws of the United States of America and the State of Vermont. (i) Nothing in this section is intended or is to be construed as requiring the Company to accelerate the payment dates or increase the installment payment amounts of any benefits payable under this Agreement. 8. ROAQ as a Party. ROAQ hereby agrees to joint and several liability with Company for all of Company's agreements, covenants, duties and undertakings under this - 4 - 5 Agreement and Employee agrees that ROAQ has all of Company's rights under this agreement. IN WITNESS WHEREOF, the parties have executed this Agreement to be effective as of the day and year first written above. ROCK OF AGES CORPORATION /s/ Melvin Friberg By: /s/ Kurt M. Swenson - ------------------------ -------------------------------------- MELVIN FRIBERG, Employee Kurt M. Swenson, Chairman of the Board and Chief Executive Officer ROCK OF AGES QUARRIES, INC. By /s/ Kurt M. Swenson -------------------------------------- Kurt M. Swenson, Chairman of the Board and Chief Executive Officer - 5 - 6 ROCK OF AGES CORPORATION SALARY CONTINUATION AGREEMENT Designation of Beneficiary I hereby designate the following to receive any and all amounts which may become payable after my death to any beneficiary other than my surviving spouse under the Rock of Ages Corporation Salary Continuation Agreement, superseding any prior designations.
Primary Beneficiary Relationship Share (%) ------------------- ------------ --------- ---------------------------------- ------------------------- -------------------- ---------------------------------- ------------------------- -------------------- ---------------------------------- ------------------------- -------------------- Contingent Beneficiary Relationship Share (%) ---------------------- ------------ --------- ---------------------------------- ------------------------- -------------------- ---------------------------------- ------------------------- -------------------- ---------------------------------- ------------------------- --------------------
Date: , 19 ----------------- ---- --------------------------------- Employee Signature EX-11 23 COMPUTATION OFPER SHARE EARNINGS 1 EXHIBIT 11 ROCK OF AGES CORPORATION NET INCOME PER COMMON SHARE FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 1996
1994 1995 1996 ---------- ---------- ---------- Shares of common stock outstanding at beginning of year.......................... 3,500,000 3,500,000 3,500,000 Plus weighted shares of common stock issued in the period.............................. -- -- 4,366 Plus weighed shares of common stock options.................................... 529,744 529,744 712,243 --------- --------- --------- Weighted average shares outstanding at end of year....................................... $4,029,744 $4,029,744 $4,216,609 Net income for the period.................... $1,815,281 $1,395,498 $1,908,164 Net income per common share.................. .45 .35 .45
EX-21 24 SUBSIDIARIES OF THE COMPANY 1 Exhibit 21
Subsidiaries of the Company State of Incorporation - --------------------------- ---------------------- Royalty Granite Corporation Georgia Rock of Ages International, Ltd. U.S. Virgin Islands Rock of Ages Canada Inc. Canada Associated Memorials, Inc. Vermont Kabushiki Kaisha Rock of Ages Asia Japan Southern Mausoleums, Inc. Georgia Autumn Rose Quarry, Inc. Georgia Caprice Blue Quarry, Inc. Georgia Pennsylvania Granite Corporation Pennsylvania Carolina Quarries, Inc., a subsidiary Georgia of Pennsylvania Granite Corporation
EX-23.2 25 CONSENTS OF KPMG PEAT MARWICK LLP 1 Exhibit 23.2 The Board of Directors Rock of Ages Corporation: The audits referred to in our report dated March 24, 1997, except for note 13 which is as of August 12, 1997, included the related financial statement schedules as of December 31, 1996, and for each of the years in the three-year period ended December 31, 1996, included in the registration statement. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG Peat Marwick LLP ------------------------------ KPMG Peat Marwick LLP Burlington, Vermont August 13, 1997 EX-23.3 26 CONSENT OF KPMG PEAT MARWICK LLP 1 Exhibit 23.3 The Board of Directors Keystone Memorials, Inc.: We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG Peat Marwick LLP ------------------------------ KPMG Peat Marwick LLP Atlanta, GA August 13, 1997 EX-23.4 27 CONSENT OF KPMG PEAT MARWICK LLP 1 Exhibit 23.4 The Board of Directors Childs & Childs Granite Company, Inc. and C&C Granite Company, Inc.: We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG Peat Marwick LLP ------------------------------ KPMG Peat Marwick LLP Atlanta, GA August 13, 1997 EX-23.5 28 CONSENT OF KPMG PEAT MARRICK 1 Exhibit 23.5 The Boards of Directors Keith Monument Companies: We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG Peat Marwick LLP ------------------------------ KPMG Peat Marwick LLP Louisville, KY August 13, 1997 EX-23.6 29 CONSENT OF GREENE & COMPANY, LLP 1 Exhibit 23.6 INDEPENDENT AUDITORS' CONSENT The Board of Directors Southern Mausoleums, Inc. We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the prospectus. /s/ Greene and Company, L.L.P. ------------------------------------- Greene and Company, L.L.P. Anderson, South Carolina August 13, 1997 EX-23.7 30 CONSENT OF GREENE & CO. LLP 1 Exhibit 23.7 INDEPENDENT AUDITORS' CONSENT The Board of Directors Autumn Rose Quarry, Inc. We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the prospectus. /s/ Greene and Company, L.L.P. ------------------------------------- Greene and Company, L.L.P. Anderson, South Carolina August 13, 1997 EX-23.8 31 CONSENT OF GREENE & COMPANY, LLP 1 Exhibit 23.8 INDEPENDENT AUDITORS' CONSENT The Board of Directors Caprice Blue Quarry, Inc. We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the prospectus. /s/ Greene and Company, L.L.P. ------------------------------------- Greene and Company, L.L.P. Anderson, South Carolina August 13, 1997 EX-23.9 32 CONSENT OF GREENE & COMPANY LLP 1 ================================================================================ Exhibit 23.9 INDEPENDENT AUDITORS' CONSENT The Board of Directors Pennsylvania Granite Corporation We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the prospectus. /s/ Greene and Company, L.L.P. ------------------------------------- Greene and Company, L.L.P. Anderson, South Carolina August 13, 1997 EX-23.10 33 CONSENT OF FREDERICK E. WEBSTER 1 EXHIBIT 23.10 August 13, 1997 Board of Directors Rock of Ages Corporation 772 Graniteville Road Graniteville, Vermont 05654 Gentlemen: I hereby consent to being named as a director in the Registration Statement on Form S-1 pertaining to the proposed initial public offering of shares of Class A Common Stock of Rock of Ages Corporation. Very truly yours, /s/ Frederick E. Webster, Jr. ----------------------------- Frederick E. Webster EX-23.11 34 CONSENT OF JOHN KEITH 1 EXHIBIT 23.11 August 13, 1997 Board of Directors Rock of Ages Corporation 772 Graniteville Road Graniteville, Vermont 05654 Gentlemen: I hereby consent to being named as a director in the Registration Statement on Form S-1 pertaining to the proposed initial public offering of shares of Class A Common Stock of Rock of Ages Corporation. Very truly yours, /s/ John E. Keith ----------------- John E. Keith EX-23.12 35 CONSENT OF JAMES L FOX 1 EXHIBIT 23.12 August 13, 1997 Board of Directors Rock of Ages Corporation 772 Graniteville Road Graniteville, Vermont 05654 Gentlemen: I hereby consent to being named as a director in the Registration Statement on Form S-1 pertaining to the proposed initial public offering of shares of Class A Common Stock of Rock of Ages Corporation. Very truly yours, /s/ James L. Fox ---------------- James L. Fox EX-23.13 36 CONSENT OF RICH CONSULTANTS, INC. 1 Exhibit 23.13 August 13, 1997 We hereby consent to the use of our firm's name in the Form S-1 Registration Statement, and any amendments thereto, of Rock of Ages Corporation, a Delaware Corporation, with reference to this firm's assesment of the saleable reserves for the E.L. Smith, Adam-Pirie and Bethel quarries in such Registration Statement. CA Rich Consultants, Inc. By: /s/ Charles Rich ----------------------------- Name: Charles Rich Title: President EX-27 37 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED FINANCIAL STATEMENTS OF ROCK OF AGES CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM S-1 REGISTRATION STATEMENT. 1000 U.S. DOLLARS YEAR 6-MOS DEC-31-1996 DEC-31-1997 JAN-01-1996 JAN-01-1997 DEC-31-1996 JUN-30-1997 1 1 763 192 0 0 8,525 5,375 564 575 11,324 13,374 24,939 31,494 37,406 42,204 18,810 20,598 47,517 57,501 11,653 18,262 0 0 0 0 0 0 35 38 17,336 20,005 47,517 57,501 44,669 20,767 44,669 20,767 31,263 15,562 31,263 15,562 9,131 4,328 181 75 1,723 866 2,552 11 643 3 1,909 8 0 0 0 0 0 0 1,909 8 .45 0 0 0
-----END PRIVACY-ENHANCED MESSAGE-----