-----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, GR0Ex4CcRG7diAzKMtzl+NDinP6XNypWlTXG0pc3fnE/silsN9LjRBP6prrUdZzE 1LQ5tB6qPBxwcy7PzP71pw== 0000950135-97-003929.txt : 19970925 0000950135-97-003929.hdr.sgml : 19970925 ACCESSION NUMBER: 0000950135-97-003929 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 19 FILED AS OF DATE: 19970924 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROCK OF AGES CORP CENTRAL INDEX KEY: 0000084581 STANDARD INDUSTRIAL CLASSIFICATION: CUT STONE & STONE PRODUCTS [3281] IRS NUMBER: 020212792 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-33685 FILM NUMBER: 97684566 BUSINESS ADDRESS: STREET 1: 369 NORTH STATE STREET CITY: CONCORD STATE: NH ZIP: 03301 BUSINESS PHONE: 6032258397 S-1/A 1 ROCK OF AGES FORM S-1 AMENDMENT NO. 1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 24, 1997 REGISTRATION NO. 333-33685 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ ROCK OF AGES CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) 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, P.A. ONE BEACON STREET 1221 BRICKELL AVENUE BOSTON, MASSACHUSETTS 02108 MIAMI, FLORIDA 33131 (617) 573-4800 (305) 579-0500 (617) 573-4822 (FAX) (305) 579-0717 (FAX)
------------------------ 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(2) - ------------------------------------------------------------------------------------------------------------ Class A Common Stock, par value $.01 per share............ $60,030,000 $18,191 ============================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended, and includes 435,000 shares of Class A Common Stock that may be purchased by the Underwriters pursuant to an overallotment option. (2) The total amount of the registration fee is $18,191, of which $17,273 has already been paid. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED SEPTEMBER 24, 1997 PROSPECTUS LOGO 2,900,000 Shares Rock of Ages Corporation Class A Common Stock ------------------------ Of the 2,900,000 shares of Class A Common Stock, par value $.01 per share, of Rock of Ages Corporation, a Delaware corporation ("Rock of Ages" or the "Company"), offered hereby, 2,606,101 shares are being sold by the Company and 293,899 shares are being sold by certain stockholders of the Company (the "Selling Stockholders"). The Company will not receive any of the proceeds from the sale of Class A Common Stock by the Selling Stockholders. See "Principal and Selling Stockholders." The capital stock of the Company consists of Class A Common Stock and Class B Common Stock (collectively, the "Common Stock"). The two classes are substantially identical, except that the Class A Common Stock is entitled to one vote per share and the Class B Common Stock is entitled to ten votes per share on all matters, including the election of directors, and the Class B Common Stock is convertible into Class A Common Stock and converts automatically upon a transfer to any person other than a permitted transferee. Upon consummation of this offering, holders of Class B Common Stock will hold approximately 92% of the voting power of the outstanding shares of Common Stock. See "Description of Capital Stock." Prior to this offering, there has been no public market for the Class A Common Stock. It is currently estimated that the initial public offering price of the Class A Common Stock will be between $16.00 and $18.00 per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price of the Class A Common Stock. Application has been made for listing of the Class A Common Stock on the Nasdaq National Market under the symbol "ROAC." ------------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
=========================================================================================================== 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 $1.5 million, which are payable by the Company. (3) The Company has granted the Underwriters a 30-day option to purchase up to 435,000 additional shares of Class A Common Stock on the same terms and conditions as the Class A Common Stock offered hereby solely to cover overallotments, if any. If the option is exercised in full, the total Price to Public, total Underwriting Discounts and Commissions and total Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." ------------------------ The shares of Class A Common Stock are offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by them, and subject to other conditions, including the right of the Underwriters to withdraw, cancel, modify or reject any order in whole or in part. It is expected that delivery of the shares will be made on or about , 1997 at the offices of Raymond James & Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida. RAYMOND JAMES & ASSOCIATES, INC. The date of this Prospectus is , 1997 3 [THE CRAFTSMAN PAINTING BY NORMAN ROCKWELL] [PICTURES OF MEMORIALS AND THE MEMORIAL MANUFACTURING PROCESS] "THE CRAFTSMAN" BY NORMAN ROCKWELL COMMISSIONED BY THE COMPANY IN 1957 AND ON DISPLAY AT THE COMPANY'S HEADQUARTERS IN GRANITEVILLE, VERMONT CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON STOCK OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING BIDS AND PURCHASES, SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 2 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and historical and pro forma financial statements and notes thereto appearing elsewhere in this Prospectus. Unless otherwise indicated, the information in this Prospectus assumes that (i) the Underwriters' over-allotment option has not been exercised and (ii) the Reorganization and the Acquisitions (as such terms are defined herein) have occurred. As used in this Prospectus, unless the context indicates otherwise, the term the "Company" or "Rock of Ages" refers to Rock of Ages Corporation after giving effect to the Reorganization and the Acquisitions, and its consolidated subsidiaries and their respective predecessors. THE COMPANY Rock of Ages, founded in 1885, is an integrated granite quarrier, manufacturer and distributor whose principal product is granite memorials used primarily in cemeteries. The Company believes that it is the largest quarrier, manufacturer and distributor of finished granite memorials and granite blocks for memorial use in North America, based on revenues. The Company owns and operates 13 active quarry properties and 13 manufacturing and sawing facilities in North America, principally in Vermont, Georgia and the Province of Quebec. The Company markets and distributes its memorials on a wholesale basis to approximately 2,124 independent memorial retailers in the United States and Canada, including approximately 495 independent authorized Rock of Ages retailers that are the primary outlet for the Company's branded memorials. The Company recently entered into a definitive agreement to acquire one of the largest of its authorized independent retailers, which will provide the Company with 17 owned retail outlets and mark the Company's first significant entry into retailing. The Company's memorials are marketed under the names Rock of Ages Sealmark and Colorcraft, as well as several private labels. The Company believes the Rock of Ages trademark is one of the oldest and best known brand names in the granite memorialization industry. THE DEATH CARE INDUSTRY AND GRANITE MEMORIALIZATION The death care industry has traditionally been comprised of three principal segments: (i) ceremony and tribute, generally in the form of a funeral or memorial service; (ii) disposition of remains, either through burial or cremation; and (iii) memorialization, generally through monuments, markers or inscriptions. A majority of death care industry operators consist of small, family-owned businesses. The International Cemetery and Funeral Association estimates that in the United States there are approximately 23,000 active cemeteries, 9,500 of which are commercial (as opposed to religious, family, fraternal, military or municipal) cemeteries. At the end of 1996, publicly held death care companies ("consolidators") owned less than 5% of such active cemeteries, approximately 890, or less than 10%, of such commercial cemeteries and less than 12% of the estimated 22,800 funeral homes in the United States. The death care industry has certain attractive fundamental characteristics, including highly fragmented ownership, significant barriers to entry created by local heritage, community presence and tradition, and stable, predictable demand. Generally, the granite memorialization industry shares certain of these characteristics. However, the granite memorialization industry and its principal areas (i.e., quarrying, manufacturing and retailing) have certain distinguishing characteristics that the Company believes create attractive opportunities. These characteristics include: (i) different times and points of sale than most other death care products or services, with sales of granite memorials traditionally taking place some time after the funeral service and at an independent retailer rather than at a funeral home or cemetery; (ii) fragmented groups of both manufacturers of granite memorials (approximately 140 mostly family-owned firms) and independent memorial retailers (according to Monument Builders of North America, approximately 3,000 of such retailers are located outside funeral homes and cemeteries) in North America; (iii) concentration of memorial grade granite deposits and granite memorial manufacturers in limited geographic areas in North America; (iv) significant barriers to entry to quarrying memorial grade granite, including the limited number of known commercially exploitable memorial grade granite deposits, high capital costs and stringent environmental and other permitting requirements; (v) significant barriers to entry to the manufacturing of granite memorials, including the high capital cost to establish and operate a memorial grade granite manufacturing facility and 3 5 the difficulty of attracting the requisite highly skilled work force; and (vi) the personalization, permanence and visibility of upright granite memorials, which distinguish them from most other death care products and services. The Company believes the U.S. granite memorialization industry, excluding communal interments such as community mausoleums and columbariums, had in excess of $1.0 billion in retail sales in 1996. In 1996, on a pro forma basis giving effect to the Acquisitions as if they occurred on January 1, 1996, wholesale sales of the Company's granite memorials were approximately $41.4 million, which the Company believes accounted for approximately 12% of total wholesale sales of granite memorials in North America. BUSINESS STRATEGY Rock of Ages believes it is well-positioned to capitalize on the industry characteristics described above, and seeks to establish a dominant position in the granite memorialization industry. The Company intends both to improve the efficiency of its existing operations and to expand its business significantly. The principal elements of the Company's operating and growth strategies are summarized below. Operating Strategy. The Company pursues an operating strategy that includes the following key elements: - Providing, primarily through its own quarrying and manufacturing operations, a complete line of high quality granite memorials covering all price points and major color varieties. The Company believes it is the only industry participant with both quarrying and manufacturing operations in three of the four principal granite memorial producing regions of North America. - Enhancing operational efficiencies through the continued integration of acquired quarriers and manufacturers and the rationalization of its sales and distribution efforts. - Increasing advertising and promotion of the Rock of Ages brands, including the flagship Rock of Ages Sealmark and Colorcraft brands, in order to heighten consumer awareness and increase sales of the Company's products. Growth Strategy. The Company seeks to expand the scope and profitability of its operations by implementing a growth strategy that includes forward vertical integration into retailing, thereby enabling the Company to move closer to the ultimate customer. The principal elements of this strategy include the following: - Acquiring independent granite memorial retailers in selected markets in order to develop an integrated network of owned Rock of Ages retailers and thereby capture the higher margins that have historically existed at the retail level. - Increasing sales to independent retailers that are current customers and expanding its independent retailer customer base. During the last two years, principally through acquisitions of quarriers and manufacturers, the Company has increased the number of independent retailers to which it sells its products from approximately 495 in 1995 to approximately 2,124 in 1997. - Pursuing strategic alliances with funeral home and cemetery owners, including consolidators, to supply granite memorials to or through them, in order to increase both pre-need and at-need sales of granite memorials. 4 6 RECENT AND CONCURRENT ACQUISITIONS The Company's primary means of implementing its growth strategy to date has been through acquisitions, beginning with the acquisition on December 31, 1995 of Lawson Granite Company and Anderson-Friberg Company, each based in Barre, Vermont. These acquisitions helped expand the Company's manufacturing capacity and distribution base, while also broadening its granite memorial product line to include more non-branded granite memorials at lower price points than the Company's then-existing product line. The Company has recently taken further steps to implement its growth strategy by acquiring one, and entering into a definitive agreement to acquire another, significant granite quarrier and memorial manufacturer in Elberton, Georgia, which is the largest of the four principal granite producing regions in North America. The Company has also entered into a definitive agreement to acquire a major memorial retailer that the Company believes is one of the largest independent memorial retailers in the United States. The Company believes that these acquisitions and the continued implementation of the other elements of its operating and growth strategies will enable it to: (i) expand overall industry sales of granite memorials, which heretofore have been actively marketed to consumers primarily only on an at-need basis and in a limited manner; (ii) increase its share of the granite memorial market by offering a complete product line with strong brand names through distribution channels that more directly reach the consumer; and (iii) increase both its relative and total profitability both by enhancing operational efficiencies and by capturing some of the higher margins that have historically existed at the retail level. The Company's recent and pending acquisitions are briefly described below. Keystone. In June 1997, the Company acquired the successor to Keystone Memorials, Inc. ("Keystone"), the largest granite memorial manufacturer in Elberton, Georgia (the "Keystone Acquisition"), which included Keystone's 50% ownership interest in (i) Southern Mausoleums, Inc., a manufacturer of granite mausoleums in Elberton, Georgia ("SMI"); and (ii) three granite quarrying companies operating six granite quarries located in Georgia, Pennsylvania, North Carolina, South Carolina and Oklahoma (collectively, the "Quarry Companies"). In connection with the Keystone Acquisition, the Company issued 263,441 shares of Class B Common Stock and assumed or incurred $2.7 million of indebtedness of Keystone. C&C. In June 1997, the Company entered into a definitive agreement to acquire Childs & Childs Granite Company, Inc. and a related company ("C&C," and, together with the Quarry Companies, SMI and Keystone, the "Elberton Companies"), which the Company believes is the second largest manufacturer of granite memorials in Elberton, Georgia, and the remaining 50% of the Quarry Companies and SMI owned by the stockholders of C&C (the "C&C Acquisition" and, together with the Keystone Acquisition, the "Elberton Acquisitions"). It is currently anticipated that the C&C Acquisition will close concurrently with the consummation of this offering. The Elberton Acquisitions will establish the Company as the largest granite memorial manufacturer in Elberton, Georgia, which is the largest granite producing area in North America, and will give the Company a substantially broader product line and enhanced distribution capabilities in the southern United States. The purchase price payable for C&C is $6.6 million in cash and $200,000 in shares of Class A Common Stock (valued at the initial public offering price) and approximately $780,000 to repay outstanding indebtedness of C&C. Upon the closing of the C&C Acquisition, the Company will assume $5.5 million of indebtedness of the Quarry Companies and SMI. Keith. The Company's first significant entry into memorial retailing was initiated in July 1997, when the Company entered into a definitive agreement to acquire (the "Keith Acquisition", and, together with the Elberton Acquisitions, the "Acquisitions") substantially all of the assets and liabilities of Keith Monument Co. and its affiliated companies (collectively, "Keith Monument"). It is currently anticipated that the Keith Acquisition will close concurrently with the consummation of this offering. Keith Monument, founded in 1867, has been an authorized Rock of Ages retailer for more than 50 years. The Company believes that Keith Monument is one of the largest retailers of granite memorials in the United States. Upon the closing of the Keith Acquisition, John E. Keith, a principal owner and the president of Keith Monument with over thirty years of experience in granite memorial retailing, will head the Company's retailing operations. Mr. Keith will oversee the implementation of the Company's strategy to significantly expand its retail operations both through other acquisitions of retailers and by pursuing strategic alliances with funeral home and cemetery owners, including consolidators. The purchase price payable for Keith Monument is $16.4 million, consisting 5 7 of $13.1 million in cash, $1.5 million in shares of Class A Common Stock (valued at the initial public offering price) and $1.8 million to repay outstanding indebtedness of Keith Monument asumed by the Company. See "Business -- Recent and Concurrent Acquisitions" and "Business -- Marketing and Distribution; Retailing." The Company's principal executive offices are located at 772 Graniteville Road, Graniteville, Vermont 05654 and its telephone number is (802) 476-3121. THE OFFERING Class A Common Stock offered..... 2,900,000 shares, of which 2,606,101 shares are being offered by the Company and 293,899 shares are being offered by the Selling Stockholders. Common Stock to be outstanding after the offering(1)............ 3,000,000 shares of Class A Common Stock 3,469,540 shares of Class B Common Stock Use of proceeds.................. The net proceeds to the Company of this offering will be used to fund the C&C Acquisition and the Keith Acquisition, and to repay indebtedness under the Company's existing credit facilities, including indebtedness assumed in connection with the Keystone Acquisition. See "Use of Proceeds." Proposed Nasdaq National Market symbol........................... "ROAC" - --------------- (1) Excludes 862,500 shares of Class B Common Stock issuable upon the exercise of outstanding stock options (with a weighted average exercise price of $3.31 per share) granted under the Company's 1994 Amended and Restated Stock Plan (the "1994 Plan") and 383,252 shares of Class A Common Stock issuable upon the exercise of options to be granted in connection with the Acquisitions and to two non-employee directors who will assume their positions upon consummation of the offering (with an exercise price equal to the initial public offering price). See "Certain Relationships and Related Transactions." The rights of holders of the two classes of Common Stock are substantially identical, except that (a) the Class A Common Stock is entitled to one vote per share and the Class B Common Stock is entitled to ten votes per share on all matters, including the election of directors; and (b) the Class B Common Stock is convertible into Class A Common Stock at the option of the holder and automatically upon a transfer to any person other than a Permitted Transferee, as defined herein. See "Description of Capital Stock." 6 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 1,065 573 565 Other expense.................... -- 564 -- -- -- -- -- -- Income (loss) before provision (benefit) for income taxes..... 2,392 1,754 2,552 (327) 11 5,975 1,105 1,936 Provision (benefit) for income taxes.......................... 577 358 643 (82) 3 1,625 301 527 ------- ------- ------- ------- ------- ------------ ------- ------- Net income (loss)................ 1,815 1,396 1,909 (245) 8 4,350 804 1,409 ======= ======= ======= ======= ======= ============ ======= ======= Net income (loss) per share...... .47 .35 .46 (.06) .00 .64 .12 .20 Weighted average number of shares outstanding(3)................. 3,900 4,017 4,106 4,106 4,326 6,759 6,759 7,032
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............................................................................. 57,768 86,942 Long-term debt, less current maturities.................................................. 13,897 5,419 Total stockholders' equity............................................................... 19,832 57,414
- --------------- (1) For information regarding the pro forma adjustments made to the Company's historical financial data, see "Unaudited Pro Forma Combined and Condensed Financial Data." (2) Does not include the results of operations of Keystone which was acquired as of June 28, 1997. (3) Includes 362,500 shares of Common Stock issuable upon the exercise of outstanding stock options granted December 31, 1996 and deemed to be outstanding for all periods, an additional 275,000 shares subject to options outstanding granted in 1994 and subsequent periods and 225,000 shares subject to options granted in January, 1996 (and included in 1996 and subsequent periods). See Note 9 to the Company's audited financial statements included elsewhere in this Prospectus. (4) Gives effect to the Reorganization and the consummation of the C&C Acquisition and the Keith Acquisition as if they had occurred on June 30, 1997, as adjusted to reflect the sale of 2,606,101 shares of Class A Common Stock offered hereby by the Company (at an initial public offering price of $17.00 per share) and after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company, the receipt of the net proceeds therefrom and the application of such net proceeds as described in "Use of Proceeds." See "Business -- Recent and Concurrent Acquisitions," "Certain Relationships and Related Transactions" and "Use of Proceeds." 7 9 RISK FACTORS Prospective investors should carefully consider all of the information set forth in this Prospectus, including the risk factors set forth below. RISKS RELATING TO ACQUISITIONS The Company's growth will depend in large part on its ability to acquire additional retailers, manage expansion, control costs in its operations and consolidate acquisitions into existing operations. The Company will have to review acquired operations, management infrastructure and systems and financial controls, and make any appropriate adjustments or complete reorganizations. Unforeseen capital and operating expenses, or other difficulties, complications and delays frequently encountered in connection with the expansion and integration of acquired operations could inhibit the Company's growth. The full benefits of a significant acquisition will require the integration of operational, administrative, finance, sales and marketing organizations, as well as the coordination of common sales and marketing efforts and the implementation of appropriate operational, financial and management systems and controls. This will require substantial attention from the Company's senior management team. The diversion of management attention required by the acquisition and integration of multiple companies, as in the case of the Acquisitions, as well as other difficulties that may be encountered in the transition and integration process, could have an adverse effect on the revenue and operating results of the Company. There can be no assurance that the Company will identify suitable acquisition candidates, that acquisitions will be consummated on acceptable terms or that the Company will be able to successfully integrate the operations of any acquisition. The Company's ability to continue to grow through the acquisition of additional companies will also be dependent upon the availability of suitable candidates, the Company's ability to attract and retain competent management, and the availability of capital to complete the acquisitions. See "Business -- Business Strategy." The Company intends to finance acquisitions through a combination of its available cash resources, bank borrowings and, in appropriate circumstances, the issuance of equity and/or debt securities. Acquiring additional companies will have a significant effect on the Company's financial position, and could cause substantial fluctuations in the Company's quarterly and yearly operating results. Also, acquisitions are likely to result in the recording of significant goodwill and intangible assets on the Company's financial statements, the amortization of which would reduce reported earnings in subsequent years. In connection with the Acquisitions, for example, the Company expects to record an annual non-cash amortization charge to pre-tax earnings of approximately $300,000 in each of the next forty years. In addition, in connection with the Acquisitions, the Company has executed acquisition agreements that have limitations on indemnification and no security for indemnification obligations. Moreover, the former owners of the businesses sold to the Company pursuant to the Acquisitions have or will become executive officers of the Company upon the consummation of the Acquisitions. Consequently, the Company may have little or no recourse against the prior owners of the companies acquired in the Acquisitions in the event a breach of a representation or warranty or covenant in such acquisition agreements. Any material misrepresentations, omissions or breaches of covenants could have a material adverse effect on the Company's business, financial condition or results of operations. RELATIONSHIPS WITH RETAILERS The Company's granite memorials have historically been sold to consumers by independent retailers. Accordingly, the Company is dependent on its independent retailers for the successful distribution of its products to the ultimate customer. The Company has no control over the independent retailers' operations, including such matters as retail price, advertising and marketing. Two important components of the Company's growth strategy are to acquire retailers and pursue strategic alliances with funeral homes and cemetery owners, including consolidators. The implementation of these elements of the Company's strategy may be construed by the Company's existing independent retailers as an effort to compete with them, which could adversely affect their relationship with the Company and cause them to decrease or cease their purchases of the Company's products. In addition, the granite memorial retail industry is characterized by 8 10 significant barriers to entry created by local heritage, community presence and tradition. Consequently, the Company could experience difficulty replacing a retailer or entering the retail market itself in the event of a loss of a retailer. There can be no assurance that the Company will be able to maintain its existing relationships or establish new relationships with its independent retailers as it enters the retail market. Disruption in the Company's relationships with independent retailers would have a material adverse effect on the Company's business, financial condition or results of operations. NO RETAIL EXPERIENCE A key component of the Company's growth strategy and the purpose of the Keith Acquisition is for the Company to enter the retail market for granite memorials. The Company has no prior significant retail experience, and, accordingly, is subject to the numerous risks of entering a new business. Such risks include, among others, unanticipated operating problems, lack of experience and significant competition from existing and new retailers. There can be no assurance that the Company will be able to conduct retail operations profitably. RELIANCE ON KEY PERSONNEL The Company's operations and the implementation of its operating and growth strategies, such as integration of the Acquisitions, are management intensive. The Company is substantially dependent upon the abilities and continued efforts of Kurt M. Swenson, the Company's Chairman, President and Chief Executive Officer, and the Company's other senior management. The Company's implementation of its retail operating and growth strategies will be substantially dependent on the abilities and efforts of John E. Keith, who will head the Company's retail operations. The Company's business is also dependent on its ability to continue to attract and retain a highly skilled quarrying and manufacturing workforce, including stone cutters, sand blasters, sculptors and other skilled artisans. The loss of the services of Mr. Swenson or Mr. Keith, other members of the Company's senior management or other highly skilled personnel could have a material adverse effect on the Company's business, financial condition or results of operations. The Company will enter into employment agreements with its principal executive officers prior to consummation of the offering. The Company does not maintain key person life insurance policies on its key personnel, except for policies with respect to Mr. Swenson and Mr. Keith in the amounts of $2.0 million and $300,000, respectively. The Company is or will be the sole beneficiary of these policies. See "Management -- Employment Agreements." COMPETITION The granite memorial industry is highly competitive. The Company competes with other granite quarriers and manufacturers in the sale of granite blocks on the basis of price, color, quality, geographic proximity, service, design availability and availability of supply. All of the Company's colors of granite are subject to competition from granite blocks of similar color supplied by quarriers located throughout the world. There are approximately 140 manufacturers of granite memorials in North America. There are also manufacturers of granite memorials in India, South Africa, China and Portugal who sell finished memorials in North America. The Company competes based upon price, breadth of product line and design availability as well as production capabilities and delivery options. The Company's quarrying and manufacturing competitors include both domestic and international companies, some of which may have greater financial, technical, manufacturing, marketing and other resources than the Company. Additionally, foreign competitors of the Company may have access to lower cost labor and better commercial deposits of memorial grade granite, and may be subject to less restrictive regulatory requirements than the Company. Companies in South Africa, India, China and Portugal manufacture and export finished granite memorials into North America. The competition for retail sales of granite memorials is also intense and is based on price, quality, service, design availability and breadth of product line. Competitors include funeral home and cemetery owners, including consolidators, which have greater financial resources than the Company as well as approximately 3,000 independent retailers of granite memorials located outside of cemeteries and funeral homes. There can be no assurance that domestic or foreign competition will not have a material adverse effect on the Company's business, financial condition or results of operations. See "Business -- Competition." 9 11 SEASONALITY; VARIABILITY OF QUARTERLY RESULTS Historically, the Company's operations have experienced certain seasonal patterns. Generally, the Company's net sales are highest in the third quarter and lowest in the first quarter of each year due primarily to weather. Cemeteries in northern regions generally do not accept granite memorials during winter months when the ground is frozen because they cannot be properly set. The Company typically closes certain of its Vermont and Canadian quarries during these months because of increased operating costs attributable to adverse weather conditions. The Company has historically incurred an aggregate net loss during the first six months of each calendar year. The Company's operating results may vary materially from quarter to quarter due to, among other things, acquisitions, changes in product mix and limitations on the timing of price increases, making quarterly year-to-year comparisons less meaningful. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Seasonality." CREMATION TRENDS There is an increasing trend toward cremation in the United States. According to the Cremation Association of North America ("CANA"), cremation was used in approximately 22% of the deaths in the United States in 1996, compared to approximately 10% in 1980, and CANA expects this rate to rise to 29% by 2010. To the extent increases in cremation rates result in decreases in memorialization rates, this decrease could have a material adverse effect on the Company's business, financial condition or results of operations. MEMORIALIZATION TRENDS The Company's business is subject to the risk that memorialization rates may decline over time. Certain cemeteries have in the past and may in the future limit the use of granite memorials as a memorialization option. To the extent that general memorialization rates or the willingness of cemeteries to accept granite memorials declines, this decline could have a material adverse effect on the Company's business, financial condition or results of operations. EFFECT OF CONSUMER SPENDING The success of the Company's operations depends to a significant extent upon a number of factors relating to discretionary consumer spending, including economic conditions affecting disposable consumer income such as employment, business conditions, taxation and interest rates. There can be no assurance that consumer spending will not be affected by adverse economic conditions, thereby adversely affecting the Company's business, financial condition or results of operations. OPERATING RISKS The Company's quarry and manufacturing operations are subject to numerous risks and hazards inherent in those industries, including among others, unanticipated surface or underground conditions, varying memorial grade granite recovery rates due to natural cracks and other imperfections in granite quarries, equipment failures, accidents and worker injuries, labor issues, weather conditions and events, unanticipated transportation costs and price fluctuations. As a result, actual costs and expenditures, production quantities and delivery dates, as well as revenues, may differ materially from those anticipated, which could have a material adverse effect on the Company's business, financial condition or results of operations. RISK OF INTERNATIONAL OPERATIONS The Company derived approximately 28.9% of its revenues in fiscal 1996 from sales outside the United States, with approximately 16.9% of revenues in fiscal 1996 from sales in Canada by the Company's Canadian subsidiaries. In prior years such percentage represented by international sales has been higher. Foreign sales are subject to numerous risks, including currency conversion risks, limitations (including taxes) on the repatriation of earnings, slower and more difficult accounts receivable collection and greater complication and expense in complying with foreign laws. 10 12 CYCLICAL NATURE OF ANCILLARY PRODUCT SALES The markets for the Company's industrial precision products, which include machine base and surface plates that are utilized in the automotive, aeronautic, computer, machine tool, optical, precision grinding and inspection industries, and granite press rolls used in the manufacture of paper, are subject to substantial cyclical variations. Accordingly, sales of these products may decline significantly upon a downturn in, or as a result of uncertainties regarding future economic conditions that generally affect, such industries. No assurance can be given that changes in the industries to which the Company sells its precision products will not adversely affect the Company's business, financial condition or results of operations. CONTROL BY CERTAIN STOCKHOLDERS Upon consummation of this offering and the Acquisitions, Kurt M. Swenson and his brother, Kevin C. Swenson, will collectively have 56.3% of the total voting power of all outstanding shares of Common Stock, and will therefore be in a position to control the outcome of most corporate actions requiring stockholder approval, including the election of directors and the approval of transactions involving a change in control of the Company. See "Principal and Selling Stockholders" and "Description of Capital Stock." REGULATORY MATTERS The Company's quarry and manufacturing operations are subject to substantial regulation by federal and state governmental statutes and agencies, including the federal Occupational Safety and Health Act ("OSHA"), the Mine Safety and Health Administration and similar state and Canadian authorities. The Company's operations are also subject to extensive laws, and regulations administered by the United States Environmental Protection Agency (the "EPA") and similar state and Canadian authorities, for the protection of the environment, including but not limited to those relating to air and water quality, solid and hazardous waste handling and disposal. These laws and regulations may require parties to fund remedial action or to pay damages regardless of fault. Environmental laws and regulations may also impose liability with respect to divested or terminated operations even if the operations were divested or terminated many years ago. In addition, current and future environmental or occupational health and safety laws, regulations or regulatory interpretations may require significant expenditures for compliance, which could require the Company to modify or curtail its operations. The Company cannot predict the effect of such laws, regulations or regulatory interpretations on its business, financial condition or results of operations. While the Company expects to be able to continue to comply with existing environmental and occupational health and safety laws and regulations, any material non-compliance could have a material adverse affect on the Company's business, financial condition or results of operations. See "Business -- Regulation." SHARES ELIGIBLE FOR FUTURE SALE Sales of a substantial amount of Class A Common Stock in the public market following this offering could adversely affect the market price of the Class A Common Stock. Upon completion of this offering and the C&C Acquisition and the Keith Acquisition, the Company will have 6,469,540 shares of Common Stock (6,904,540 shares if the Underwriter's over-allotment option is exercised in full) outstanding (assuming an initial public offering price of $17.00 per share). In addition, an aggregate of 1,500,000 shares of Common Stock will be reserved for issuance to employees and directors of the Company under the 1994 Plan, 1,245,752 of which shares are currently, or will upon consummation of this offering be, subject to outstanding options. See "Shares Eligible for Future Sale." As of the date of this Prospectus, such options will be vested and immediately exercisable with respect to 327,500 shares of Common Stock, all of which shares issued upon such exercise would be eligible for resale subject to compliance with Rule 701 and to the "lock-up" agreements with Raymond James & Associates, Inc. described below, if applicable. The 2,900,000 shares of Class A Common Stock (3,335,000 shares if the Underwriter's over-allotment option is exercised in full) offered hereby will be freely tradable in the United States without restriction or further registration under the Securities Act of 1933, as amended (the "Securities Act"), unless purchased or held by "affiliates" (as such term is defined under the Securities Act) of the Company. All shares of Class B Common Stock outstanding upon completion of the offering will be "restricted securities" within the meaning of Rule 144 under the 11 13 Securities Act ("Rule 144") and will not be eligible for resale to the public pursuant to Rule 144 until the first anniversary of the consummation of the offering. The Company, its executive officers and directors, and holders of more than 2% of the Common Stock prior to the consummation of the offering, have agreed with Raymond, James & Associates, Inc. not to sell, offer to sell, contract to sell, pledge or otherwise dispose of or transfer any shares of Common Stock, or any securities convertible into or exchangeable or exercisable for, or any rights to purchase or acquire, Common Stock for a period of 180 days following the date of this Prospectus without the prior written consent of Raymond James & Associates, Inc., other than, in the case of the Company, the issuance of options to purchase Common Stock or shares of Common Stock issuable upon the exercise thereof, issuances of Common Stock in connection with the C&C Acquisition and the Keith Acquisition and other issuances of capital stock of the Company in connection with other acquisitions, provided such shares of Common Stock issued upon the exercise of options and such shares of capital stock issued in connection with any such other acquisitions shall not be transferable prior to the end of the aforesaid 180-day period. Raymond James & Associates, Inc. may, in its sole discretion and at any time without notice, release all or any portion of the shares subject to such lock-up agreements. See "Shares Eligible for Future Sale" and "Underwriting." NO PRIOR MARKET FOR CLASS A COMMON STOCK; OFFERING PRICE Prior to this offering, there has been no public market for the Class A Common Stock, and there can be no assurance that an active trading market will develop or, if developed, that such market will be sustained. The initial public offering price of the Class A Common Stock will be determined through negotiations between the Company and the representative of the Underwriters. In addition, the Company believes that factors such as quarterly fluctuations in the financial results of the Company, as well as developments that affect the Company's industry in general, the overall economy and the financial markets could cause the price of the Class A Common Stock to fluctuate substantially. ANTI-TAKEOVER PROVISIONS The Company's Certificate of Incorporation and By-laws contain certain provisions that may have the effect of discouraging, delaying or preventing a change in control of the Company or unsolicited acquisition proposals that a stockholder might consider favorable. Certain of these provisions: (i) grant ten votes per share to each share of Class B Common Stock; (ii) divide the Board of Directors into three classes, each of which will have a different three-year term; (iii) provide that the stockholders may remove directors from office only for cause and by a supermajority vote; (iv) provide that special meetings of the stockholders may be called only by the Board of Directors or certain Company officers and not by stockholders; (v) establish certain advance notice procedures for nomination of candidates for election as directors and for stockholder proposals to be considered at annual stockholders' meetings; and (vi) authorize the issuance of preferred stock with such designation, rights and preferences as may be determined, from time to time by the Board of Directors. Accordingly, the Board of Directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights that could materially adversely affect the voting power or other rights of, or be dilutive to, the holders of the Company's Common Stock. Certain of these provisions, as well as certain provisions of Delaware corporation law, may have the effect of discouraging, delaying or preventing a change in control of the Company or unsolicited acquisition proposals. See "Description of Capital Stock -- Antitakeover Effects of Provisions of the Charter and By-Laws and of Delaware Law." DILUTION Investors purchasing shares of Class A Common Stock in this offering will experience immediate and substantial dilution in net tangible book value per share of $10.17 (assuming an initial public offering price of $17.00 per share). See "Dilution." DIVIDENDS The Company intends to retain its cash for the continued development of its business and currently does not intend to pay cash dividends on the Common Stock in the foreseeable future. See "Dividend Policy." 12 14 FORWARD-LOOKING STATEMENTS This Prospectus contains certain forward-looking statements relating to, among other things, future results of operations, growth plans, sales, capital requirements and general industry and business conditions applicable to the Company. These forward-looking statements are based largely on the Company's current expectations and are subject to a number of risks and uncertainties. Actual results could differ materially from those implied by these forward-looking statements. Important factors to consider in evaluating such forward-looking statements include changes in external competitive market factors, changes in the Company's business strategy or an inability to execute its strategy due to unanticipated changes in the Company's industry or the economy in general and various competitive factors that may prevent the Company from competing successfully in existing or new markets. In light of these risks and uncertainties, many of which are described in further detail above, there can be no assurance that the forward-looking statements contained in this Prospectus will in fact be realized. 13 15 USE OF PROCEEDS The net proceeds to the Company from the sale of shares of Class A Common Stock offered by the Company hereby are estimated to be approximately $39.7 million (approximately $46.6 million if the Underwriters' over-allotment option is exercised in full), assuming an initial public offering price of $17.00 per share, after deducting estimated underwriting discounts and commissions and offering expenses. Of the net proceeds to the Company from this offering, (i) approximately $7.4 million will be used to fund the C&C Acquisition, consisting of $6.6 million in cash purchase price and approximately $780,000 to repay outstanding indebtedness of C&C; (ii) approximately $5.4 million will be used to repay outstanding indebtedness of the Quarry Companies and SMI; (iii) $14.9 million will be used to fund the Keith Acquisition, consisting of $13.1 million in cash purchase price and $1.8 million to repay outstanding indebtedness of Keith Monument assumed by the Company; and (iv) approximately $11.4 million will be used to repay indebtedness outstanding under certain of the Company's existing credit facilities, consisting of $2.7 million assumed or incurred in connection with the Keystone Acquisition and the balance of which was incurred for prior acquisitions, plant improvement and working capital. Such indebtedness under such existing credit facilities matures on various dates in 1998 and 1999, and bears interest at various rates per annum ranging from prime plus .25% to prime plus 1.25%. The maturity dates and interest rates of the indebtedness to be repaid by the Company in connection with the C&C Acquisition and Keith Acquisition are: (i) for the indebtedness of C&C, maturity dates of May and November 1998 and interest rates ranging from prime plus 1.00% to 9.00%; (ii) for the indebtedness of the Quarry Companies and SMI, maturity dates of May 1997 and June 2000 and interest rates ranging from prime plus .45% to 10.50%; and (iii) for the indebtedness of Keith Monument, a maturity date of March 2004 and an interest rate of 9.00%. See "Business -- Recent and Concurrent Acquisitions." The Company has received a commitment letter for a new $50 million credit facility, subject to the consummation of the offering. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." The Company intends to use its increased borrowing capacity resulting from the intended debt repayment to finance the Company's expansion, including possible acquisitions, and for working capital and general corporate purposes. Although management regularly reviews acquisition prospects that would augment or complement the Company's existing operations, including the Company's retailing operations, the Company does not presently have any agreement with respect to any acquisition, other than the C&C Acquisition and the Keith Acquisition. The Company will not receive any proceeds from the sale of Class A Common Stock offered by the Selling Stockholders. DIVIDEND POLICY The Company does not anticipate paying cash dividends in the foreseeable future, but intends to retain any future earnings for reinvestment in its business. Any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon the Company's financial condition, results of operations, restrictions contained in credit agreements, capital requirements and such other factors as the Board of Directors deems relevant. 14 16 CAPITALIZATION The following table sets forth the borrowings under lines of credit, current portion of long-term debt and capitalization of the Company at June 30, 1997, (i) on a historical basis and (ii) pro forma as adjusted to give effect to the Reorganization, the C&C Acquisition and Keith Acquisition as if they had occurred on June 30, 1997, and to reflect the sale by the Company of 2,606,101 shares of Class A Common Stock offered hereby (at an assumed public offering price of $17.00 per share) and after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company and the application of the estimated net proceeds thereof as described in "Use of Proceeds." This table should be read in conjunction with the historical financial statements and pro forma combined and condensed financial data and the notes thereto included elsewhere in this Prospectus. See also "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
AS OF JUNE 30, 1997 ------------------------------- PRO FORMA ACTUAL AS ADJUSTED -------------- -------------- (IN THOUSANDS) Borrowings under lines of credit................................... $ 8,668 $ 8,668 Current portion of long-term debt.................................. 2,844 355 ========== ========== Long-term debt, net of current portion............................. $ 13,897 $ 5,419 Stockholders' equity: Preferred Stock, par value $.01 per share; 2,500,000 shares authorized, none outstanding; none outstanding pro forma as adjusted...................................................... -- -- Class A Common Stock, par value $.01 per share; 30,000,000 shares authorized, none outstanding; 3,000,000 shares outstanding pro forma as adjusted(1)(2)....................................... -- 30 Class B Common Stock, par value $.01 per share; 15,000,000 shares authorized, 3,763,439 shares outstanding; 3,469,540 shares outstanding pro forma as adjusted(3).......................... 38 35 Additional paid-in capital....................................... 9,174 50,557 Retained earnings................................................ 10,675 6,847 Other............................................................ (55) (55) ---------- -------- -- Total stockholders' equity.................................... 19,832 57,414 ---------- -------- -- Total capitalization..................................... $ 33,729 $ 62,833 ========== ==========
- --------------- (1) Does not include an aggregate of 862,500 shares of Class B Common Stock (which are convertible on a share-for-share basis into Class A Common Stock) issuable upon the exercise of outstanding options outstanding under the 1994 Plan and an aggregate of 383,252 shares of Class A Common Stock issuable upon the exercise of options to be granted under the 1994 Plan in connection with the Acquisitions and to two non-employee directors who will assume their positions upon consummation of the offering. (2) The pro forma as adjusted number includes the concurrent conversion of 293,899 shares of Class B Common Stock into Class A Common Stock and sale thereof by the Selling Stockholders. See "Principal and Selling Stockholders." (3) Does not include an aggregate of 862,500 shares of Class B Common Stock (which are convertible on a share-for-share basis into Class A Common Stock) issuable upon the exercise of outstanding options outstanding under the 1994 Plan. See "Management -- Incentive Plans." 15 17 DILUTION The net tangible book value of the Company as of June 30, 1997 was $17.7 million, or $4.71 per share of Common Stock. Net tangible book value per share is determined by dividing total tangible assets less total liabilities of the Company by the total number of outstanding shares of Common Stock. After giving effect to the sale of the 2,606,101 shares of Class A Common Stock offered by the Company hereby (assuming an initial public offering price of $17.00 per share), after deducting the estimated underwriting discount and estimated expenses to be paid by the Company and the application of the estimated net proceeds as set forth in "Use of Proceeds," the pro forma net tangible book value of the Company at June 30, 1997 would have been $43.5 million or $6.83 per share. This represents an immediate increase in net tangible book value of $2.12 per share to existing stockholders and an immediate dilution of $10.17 per share to new investors. The following table illustrates this dilution per share: Assumed initial public offering price per share....................... $17.00 Net tangible book value per share as of June 30, 1997............... $4.71 Increase in net tangible book value per share attributable to new investors........................................................ 2.12 Pro forma net tangible book value per share after the offering........ 6.83 ------ Dilution per share to new investors................................... $10.17 ======
16 18 SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) The selected consolidated historical financial data presented below under the captions "Statement of Operations Data" and "Balance Sheet Data" for and as of the end of each of the years in the five-year period ended December 31, 1996 are derived from the consolidated financial statements of the Company, which financial statements have been audited by KPMG Peat Marwick LLP, independent certified public accountants. The selected consolidated historical financial data for and as of the end of the six month periods ended June 30, 1996 and 1997 have been derived from unaudited consolidated financial statements which, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial information for such periods and as of such dates. The consolidated historical results for the six months ended June 30, 1996 and 1997 are not necessarily indicative of results for a full fiscal year. The consolidated financial statements as of December 31, 1995 and 1996 and for each of the years in the three-year period ended December 31, 1996, and the auditors' report thereon and as of June 30, 1997 and for the six months ended June 30, 1996 and 1997, are included elsewhere in this Prospectus. The following selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements of the Company, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations," appearing elsewhere herein.
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........................... .38 (.96) .47 .35 .46 (.06) .00 Weighted average number of shares outstanding(3)...... 3,783 3,783 3,900 4,017 4,106 4,106 4,326 PRO FORMA STATEMENT OF OPERATIONS DATA(1): Income before provision for income taxes.............. $ 5,975 $ 1,105 $ 1,936 Provision for income taxes............................ 1,625 301 527 ------- ------- ------- Net income............................................ 4,350 804 1,409 ======= ======= ======= Net income per share.................................. .64 .12 .20 Weighted average number of shares outstanding(3)...... 6,759 6,759 7,032
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 48,101 47,995 57,768 Total long-term debt, net of current maturities........... 13,067 13,162 16,655 14,657 13,054 13,897 Total stockholders' equity................................ 12,528 8,849 10,686 15,479 17,371 19,832
- --------------- (1) For information regarding the pro forma adjustments made to the Company's historical financial data, see "Unaudited Pro Forma Combined and Condensed Financial Data." (2) Does not include the results of operations of Keystone which was acquired as of June 28, 1997. (3) Includes shares of Common Stock issuable upon the exercise of outstanding stock options granted under the 1994 Plan, as described in Note 1(n) to the Company's audited financial statements included elsewhere in this Prospectus, and excludes 263,441 shares of Class B Common Stock issued on June 30, 1997 pursuant to the Keystone Acquisition. 17 19 UNAUDITED PRO FORMA COMBINED AND CONDENSED FINANCIAL DATA The following unaudited pro forma combined and condensed statements of operations for the year ended December 31, 1996 and for the six months ended June 30, 1997 and 1996 reflect the consolidated historical accounts of the Company for those periods, adjusted to give pro forma effect to the Reorganization, the Acquisitions and this offering, as if such transactions had occurred on January 1, 1996. The following unaudited pro forma combined and condensed balance sheet as of June 30, 1997 reflects the consolidated historical accounts of the Company as of that date, adjusted to give pro forma effect to the Reorganization, the C&C Acquisition and the Keith Acquisition and this offering, as if such transactions had occurred on June 30, 1997. The unaudited pro forma financial data and accompanying notes should be read in conjunction with the Consolidated Financial Statements of the Company and the related notes as well as the financial statements and related notes of Keystone, C&C, the Quarry Companies, SMI and Keith Monument, all of which are included elsewhere in this Prospectus. The Company believes that the assumptions used in the following statements provide a reasonable basis on which to present the pro forma financial data. The pro forma financial data is provided for informational purposes only and should not be construed to be indicative of the Company's financial condition or results of operations had the transactions and events described above been consummated on the dates assumed and are not intended to project the Company's financial condition on any future date or results of operations for any future period. 18 20 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 $39,710 $ (39,850)(A),(E) $ 2,833 Trade receivables, net........... 11,249 753 1,003 1,149 14,154 Due from affiliates.............. 5,375 192 49 (192) (3,690)(E),(F),(G) 1,734 Inventories...................... 13,374 1,141 1,192 611 202(E) 16,520 Current portion of notes receivable-related party....... 90 (90)(E) Current portion of notes receivable-other............... 29 29 Deferred tax assets.............. 467 10 477 Other current assets............. 837 21 98 174 1,130 ------- ------ -------- ----------- ----------- ----------- ----------- Total current assets........... 31,494 2,267 4,254 2,580 39,710 (43,428) 36,877 ------- ------ -------- ----------- ----------- ----------- ----------- Net property, plant and equipment........................ 21,230 989 1,393 4,784 5,816(E),(F) 34,212 Other assets: Cash surrender value of life insurance, net................. 959 4 164 1,127 Notes receivable-related party, excluding current portion...... 401 (401)(E) Notes receivable-other, excluding current portion................ 16 16 Goodwill, net.................... 1,731 825 1,806 9,349(E),(F) 13,711 Covenant not-to-compete.......... 388 (388)(E) Debt issuance costs, net......... 89 (89)(B) Organization costs, net.......... 190 (89)(C) 101 Deferred tax assets.............. 543 (369) 174 Intangible pension asset......... 93 93 Investments in and advances to affiliated company............. 1,408 824 (2,033)(F) 199 Other investments................ 31 319 350 Other............................ 209 (127)(E) 82 ------- ------ -------- ----------- ----------- ----------- ----------- Total other assets............. 5,044 828 2,322 1,437 6,222 15,853 ------- ------ -------- ----------- ----------- ----------- ----------- Total assets............... $57,768 $4,084 $7,969 $ 8,801 $39,710 $ (31,390) $86,942 ======== ====== ========== ============ =========== =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Borrowings under lines of credit......................... 8,668 8,668 Current installments of long-term debt........................... 2,844 278 648 (3,415)(A),(E) 355 Accounts payable................. 2,066 148 96 656 (301)(F) 2,665 Accrued expenses................. 2,358 85 629 12 (72)(E) 3,012 Dividends payable................ 86 86 Income taxes payable............. 131 (16) 115 Current portion of deferred income......................... 400 400 Customer deposits................ 1,795 845 391 3,031 ------- ------ -------- ----------- ----------- ----------- ----------- Total current liabilities.............. 18,262 233 1,918 1,707 (3,788) 18,332 ------- ------ -------- ----------- ----------- ----------- ----------- Long-term debt, excluding current installments................... 13,897 786 1,840 5,446 (16,550)(A),(D),(G) 5,419 Deferred compensation............ 3,566 3,566 Deferred income, excluding current portion................ 200 200 Accrued pension cost............. 1,504 1,504 Accrued postretirement benefit cost........................... 507 507 ------- ------ -------- ----------- ----------- ----------- ----------- Total liabilities.......... 37,936 1,019 3,758 7,153 (20,338) 29,528 ------- ------ -------- ----------- ----------- ----------- ----------- Stockholders' equity: Common stock..................... 38 21 180 5,502 39,710 (4,003)(D),(F) 41,448 Additional paid-in capital....... 9,174 9,174 Retained earnings................ 10,675 3,044 4,037 (3,854) (7,055)(B),(C),(F) 6,847 Treasury stock................... (6) 6(F) Cumulative translation adjustment..................... (55) (55) ------- ------ -------- ----------- ----------- ----------- ----------- Total stockholders' equity..... 19,832 3,065 4,211 1,648 39,710 (11,052) 57,414 ------- ------ -------- ----------- ----------- ----------- ----------- Total liabilities and stockholders' equity..... $57,768 $4,084 $7,969 $ 8,801 $39,710 $ (31,390) $86,942 ======== ====== ========== ============ =========== =========== ==========
19 21 - --------------- The Unaudited Pro Forma Combined Balance Sheet as of June 30, 1997 gives effect to the Reorganization and the consummation of the C&C Acquisition and the Keith Acquisition as if they had occurred on June 30, 1997 as follows: (A) Reflects this offering and the application of the proceeds therefrom as follows: Issuance of the stock.............................................. $44,304 Expenses for issuance of the stock................................. (4,594) ------- Net proceeds....................................................... 39,710 Cash paid to sellers............................................... (19,212) Cash paid to retire sellers debt................................... (2,263) Retirement of debt assumed......................................... (6,186) Retirement of current installments of long-term debt............... (2,674) Retirement of long-term debt....................................... (8,858) ------- Remaining proceeds................................................. 517 (B) Reflects the elimination of debt issuance costs.................... (89) (C) Reflects the elimination of prior organization costs............... (89) (D) Represents the Acquisitions:
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 under the purchase method of accounting in accordance with Accounting Principles Board Opinion No. 16, "Business Combinations." The purchase price is allocated first to the tangible and identifiable assets and liabilities of the acquired companies based upon preliminary estimates of their fair market values, with the remainder allocated to goodwill:
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 property, plant and equipment to fair market value............. 4,342 1,014 5,356 Increase in goodwill......................... 322 11,658 11,980 ------ ------ $ 4,664 $12,874 $17,538 ====== ====== (F) Reflects the elimination of investments in and advances between C&C, the Quarry Companies and SMI pursuant to purchase accounting. (G) Includes the elimination of $3,340,000 due from Swenson Granite Company, Inc., an affiliate, assumed by the Company during the Reorganization and the assumption of a $310,000 note payable that was the obligation of Swenson Granite Company, Inc. prior to the Reorganization.
-------------------- (1) Includes the assumption of the total debt of the Quarry Companies and SMI of $5.4 million in conjunction with the acquisition of the remaining 50% that was not acquired pursuant to the Keystone Acquisition. 20 22 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 (1,301)(D) 1,065 Income before provision (benefit) for income taxes.......................................... 2,552 419 1,119 1,885 5,975 Provision (benefit) for income taxes............. 643 156 (24) 850(E) 1,625 ------ ------ ----- ------ ------ Net income....................................... $1,909 $ 263 $1,143 $ 1,035 $ 4,350 ====== ====== ===== ====== ====== Net income per share............................. .64 Weighted average number of shares outstanding.... 6,759
- --------------- 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 the Caprice quarry................................................ 126 (C) Reflects the following: Reversal of debt issuance costs....................................................... (70) Reversal of organization costs........................................................ (33) Amortization of goodwill.............................................................. 300 Reduction in salary expense........................................................... (620) Selling, general and administrative expenses related to the Caprice quarry closure.... (35) ----- (458) (D) Reflects the elimination of interest expense.............................................. (1,301)
(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 ========= ========= ========= ==========
21 23 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 (690)(D) 565 Income before provision for income taxes....... 11 443 388 1,094 1,936 Provision for income taxes..................... 3 524(E) 527 ------ ------ ----- ------ ------ Net income..................................... $ 8 $ 443 $ 388 $ 570 $ 1,409 ====== ====== ===== ====== ====== Net income per share........................... .20 Weighted average number of shares outstanding.................................. 7,032
- --------------- 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 the Caprice quarry................................................... 175 (C) Reflects the following: Reversal of debt issuance costs.............................................................. (35) Reversal of organization costs............................................................... (17) Amortization of goodwill..................................................................... 150 Reduction in salary expense.................................................................. (310) Selling, general and administrative expenses related to the Caprice quarry closure........... (17) ---- (229) (D) Reflects the elimination of interest expense................................................. (690)
(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.............................. 3,561 3,061 4,654 11,277 Gross profit: Manufacturing......................................... 129 679 186 993 Quarrying............................................. 1,209 -- -- 1,209 Retailing............................................. -- -- -- -- ------- ------- ------- ------- Total gross profit.............................. 1,338 679 186 2,202 Selling, general and administrative expenses............ 634 375 361 1,370 --------- ------- -------- ------- Income (loss) from operations........................... 704 304 (175) 832 --------- ------- -------- ------- Interest expense........................................ 201 35 154 389 --------- -------- -------- ------- Income (loss) before provision for income taxes......... 503 269 (329) 443 Provision for income taxes.............................. -- -- -- -- --------- ------- -------- ------- Net income.............................................. $ 503 $ 269 $ (329) $ 443 ========= ========= ========= =======
22 24 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 (701)(D) 573 Income (loss) before provision (benefit) for income taxes............................... (327) 157 278 998 1,105 Provision (benefit) for income taxes......... (82) 383(E) 301 ------ ------ ----- ------ ------ Net income (loss)............................ $ (245) $ 157 $ 278 $ 615 $ 804 ====== ====== ===== ====== ====== Net income per share......................... .12 Weighted average number of shares outstanding................................ 6,759
- --------------- 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 the Caprice quarry....................................................... 64 (C) Reflects the following: Reversal of debt issuance costs.................................................................. (35) Reversal of organization costs................................................................... (17) Amortization of goodwill......................................................................... 150 Reduction in salary expense...................................................................... (310) Selling, general and administrative expenses related to the Caprice quarry closure............... (21) ------ (233) (D) Reflects the elimination of interest expense..................................................... (701) (E) Reflects the net additional income tax provision as a result of the above adjustments, at an effective tax rate of 27.2%, and provides for income tax expense for companies previously taxed as Subchapter S corporations. (F) Following is a summary of the Elberton Companies operations for the six months ended June 30, 1996:
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.......................... 3,559 2,861 4,615 11,035 Gross profit: Manufacturing..................................... 51 599 286 936 Quarrying......................................... 937 -- -- 937 Retailing......................................... -- -- -- -- --------- ------- ------- -------- Total gross profit.......................... 988 599 286 1,873 Selling, general and administrative expenses........ 646 300 430 1,376 --------- ------- ------- -------- Income (loss) from operations....................... 342 299 (144) 497 ========= ========= ======== ========== Interest expense.................................... 236 35 69 340 Income (loss) before provision for income taxes..... 106 264 (213) 157 Provision for income taxes.......................... -- -- -- -- --------- ------- ------- -------- Net income.......................................... $ 106 $ 264 $ (213) $ 157 ========= ========= ========= ==========
23 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Rock of Ages, founded in 1885, is an integrated quarrier, manufacturer and distributor of granite and products manufactured from granite. The quarry division sells granite both to the manufacturing division and to outside manufacturers, as well as to distributors in Europe and Japan. The manufacturing division's principal product is granite memorials used primarily in cemeteries, although it also manufactures some specialized granite products for industrial applications. The Company owns and operates 13 active quarry properties and 12 manufacturing and sawing facilities in North America, principally in Vermont, Georgia, and the Province of Quebec. The Company markets and distributes its memorials on a wholesale basis to approximately 2,124 independent memorial retailers in the United States and Canada, including approximately 495 independent authorized Rock of Ages retailers that are the primary outlet for the Company's branded memorials. The Company recently entered into a definitive agreement to acquire one of the largest of its authorized independent retailers, which will provide the Company with 17 owned retail outlets and mark the Company's first significant entry into retailing. The Company's memorials are marketed under the names of Rock of Ages Sealmark and Colorcraft, as well as several private labels. The Company believes that the Rock of Ages trademark is one of the oldest and best known brand names in the granite memorialization industry. Prior to 1996, the Company's quarrying and manufacturing operations were concentrated in Vermont and Quebec, and its manufacturing division produced primarily high-end branded memorials that were distributed to a relatively small percentage of the independent memorial retailers in North America. During the past 20 months, the Company has begun to implement a strategy that involves: (i) significantly expanding the breadth of its product offerings to include memorials covering all price points and major color varieties; (ii) increasing its distribution base; and (iii) vertically integrating forward into the retail distribution channel in order to move closer to the ultimate memorial customer. The steps taken by the Company so far in this regard have enabled it to increase manufacturing revenues from $17.8 million in 1995 to $32.6 million in 1996 ($48.9 million in 1996 on a pro forma basis), and to increase its distribution base from 495 independent retailers in 1995 to approximately 2,124 in 1997 including 17 Company-owned outlets. More importantly, these steps have positioned the Company favorably to capitalize on the opportunities to significantly expand its sales and profitability in the granite memorialization industry. The Company's primary means of implementing its growth strategy to date has been through acquisitions, beginning with the acquisitions on December 31, 1995 of Lawson Granite Company and Anderson-Friberg Company, each based in Barre, Vermont. These acquisitions helped expand the Company's manufacturing capacity and distribution base, while also broadening its granite memorial product line to include more non-branded granite memorials at lower price points than the Company's then-existing product line. In addition, the Company has recently taken further steps to implement its growth strategy through (i) the Keystone Acquisition, pursuant to which the Company acquired on June 30, 1997 the largest granite memorial manufacturer in Elberton, Georgia, and (ii) the execution of agreements to consummate the C&C Acquisition, pursuant to which the Company will acquire C&C, which the Company believes is the second-largest granite memorial manufacturer in Elberton. The Elberton Acquisitions will establish the Company as the largest granite memorial manufacturer in Elberton, Georgia, which is the largest granite producing area in North America and will give the Company a substantially broader product line, greater manufacturing capacity and enhanced distribution capabilities in the southern United States. The Company's first significant entry into memorial retailing was initiated in July 1997, when the Company entered into a definitive agreement to acquire Keith Monument. It is currently anticipated that the Keith Acquisition will close concurrently with the consummation of this offering. Keith Monument, founded in 1867, has been an authorized Rock of Ages retailer for more than 50 years. The Company believes that Keith Monument is one of the largest retailers of granite memorials in the United States. Upon the closing of the Keith Acquisition, John E. Keith, a principal owner and the president of Keith Monument with over 30 years of experience in granite memorial retailing, will head the Company's retailing operations. Mr. Keith 24 26 will oversee the implementation of the Company's strategy to significantly expand its retail operations both through other acquisitions of retailers and by pursuing strategic alliances with funeral home and cemetery owners, including consolidators. The Company records revenues from both manufacturing and quarrying. Manufacturing revenues are recorded when the finished product is shipped from Company facilities to an outside customer. The granite quarried by the Company is sold both to outside customers and used by the Company's manufacturing division. During 1996, 68.6% of the granite quarried by the Company was sold to outside customers. The Company records revenue and gross profit related to the sale of granite sold to an outside customer when the granite is shipped from the Company's quarry. The Company does not record a sale, nor does the Company record gross profit, at the time granite is transferred to the Company's manufacturing division. The Company records revenue and gross profit related to internally transferred granite only after the granite is manufactured into a finished product and sold to an outside customer. The following table sets forth certain historical statement of operations data as a percentage of net revenues with the exception of manufacturing gross profit and quarrying gross profit, which are shown as a percentage of manufacturing revenues and quarrying revenues, respectively.
SIX MONTHS FOR THE YEARS 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 74.3 73.6 Quarrying...................................... 49.4 46.2 27.1 25.7 26.4 ----- ----- ----- ----- ----- Total....................................... 100.0 100.0 100.0 100.0 100.0 Gross profit Manufacturing.................................. 23.4 24.4 25.3 24.3 23.8 Quarrying...................................... 35.8 39.9 42.7 32.3 28.5 Combined gross profit.......................... 29.5 31.6 30.0 26.4 25.1 Selling, general and administrative expenses..... 17.7 19.5 20.4 23.3 20.8 Income from operations........................... 11.8 12.1 9.6 3.0 4.2 Interest expense................................. 4.8 5.1 3.9 4.7 4.2 Income (loss) before provision (benefit) for income taxes................................... 7.0 5.3 5.7 (1.6) 0.1 Provision (benefit) for income taxes............. 1.7 1.1 1.4 (0.4) 0.0 Net income (loss)................................ 5.3 4.2 4.3 (1.2) 0.0
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996 Revenues for the six months ended June 30, 1997 increased 4.1% to $20.8 million from $19.9 million for the six months ended June 30, 1996. This increase was partly attributable to an increase in manufacturing revenues of $500,000 due to a greater number of memorial units sold. Although quarry revenues from the North American market experienced a slight decline during the period ended June 30, 1997, quarry revenues increased by a net $400,000 as a result of increased exports to Asia. Gross profit for the six months ended June 30, 1997 remained unchanged at $5.2 million compared to gross profit for the six months ended June 30, 1996. The gross profit percentage fell slightly to 25.1% for the six months ended June 30, 1997 from 26.4% for the six months ended June 30, 1996 but was offset by higher sales volumes during the most recent period. The gross profit margin in manufacturing declined during the six months ended June 30, 1997 as a result of a slight shift in the product mix toward lower margin products. The decrease in the quarry gross profit margin for the six months ended June 30, 1997 was a result of a shift in product mix toward lower-margin exports. Selling, general and administrative expenses for the six months ended June 30, 1997 decreased 6.9% to $4.4 million from $4.6 million for the six months ended June 30, 1996. As a percentage of sales, selling, 25 27 general and administrative expenses decreased to 20.8% from 23.3% for the prior six month period. This decrease during the most recent period compared to the prior period resulted from cost savings as a result of the integration of acquisitions consummated during 1996. Interest expense for the six month period ended June 30, 1997 decreased to $866,000 from $934,000 for the six month period ended June 30, 1996. The reduction in interest expense was the result of reduced borrowing levels during the most recent period. YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995. Revenues for the fiscal year ended December 31, 1996 increased 35.0% to $44.7 million from $33.1 million for the year ended December 31, 1995. This growth was attributable to an increase of $3.9 million in revenues from existing operations and an increase of $10.9 million in revenues from acquired manufacturing operations. This increase was offset by a decrease in quarry revenues as a result of the Company's acquisition of two manufacturers that had previously been significant customers and a $1.7 million decrease in quarry sales due to reduced exports to Japan and other Asian markets. Gross profit for 1996 compared to 1995 increased 28.3% to $13.4 million from $10.4 million in 1995. The higher total gross profit reflects an increase of $2.5 million from acquired manufacturing operations and an increase of $1.4 million from existing manufacturing operations. This increase was partly offset by reduced gross profit of $900,000 from quarrying operations due to lower revenue. The gross profit percentage fell slightly to 30.0% in 1996 from 31.6% in 1995 as a result of sales from the lower margin products of the acquired manufacturing operations. The lower gross margin in 1996 compared to 1995 was offset slightly by higher margins in the quarry operations due to a price increase that went into effect during 1996. Although gross profit margins in both manufacturing and quarrying increased for 1996 compared to 1995, the total gross profit margin declined as a result of the lower margin manufacturing business accounting for a higher percentage of total Company revenues. Selling, general and administrative expenses for 1996 increased 41.5% to $9.1 million from $6.5 million in 1995. As a percentage of net sales, selling, general and administrative expenses for 1996 increased to 20.4% from 19.5% in 1995. This increase resulted primarily from increased personnel expense necessary to support a higher rate of growth in memorial manufacturing and increased acquisition activity. Interest expense for 1996 remained unchanged from 1995 at $1.7 million. Income taxes as a percent of earnings before taxes increased from 20.4% to 25.2% in 1996. Although the Company was in an alternative minimum tax position for Federal tax purposes, the Company paid higher state taxes as a result of its income level exceeding the Company's depletion allowances. In 1995, the Company was in an alternative minimum tax position for Federal taxes and paid only a nominal amount of state taxes as a result of the magnitude of its depletion allowances. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994. Revenues for 1995 decreased 3.2% to $33.1 million from $34.2 million for the fiscal year ended December 31, 1994. The decrease was attributable to a $1.6 million reduction in quarry sales from reduced exports to Japan and other Asian markets. This decrease was slightly offset by a $500,000 increase in manufacturing sales. Gross profit for 1995 increased 3.5% to $10.4 million from $10.1 million in 1994. The increase was the result of an improvement in the gross profit percentage to 31.6% in 1995 from 29.5% in 1994. The improved gross margin was in part a reflection of manufacturing volume increases and changes in the Company's marketing and pricing strategies to deemphasize lower margin customers. Additionally, gross profit margins increased as a result of unit cost reductions in the Company's quarry operations. Selling, general and administrative expenses for 1995 increased 6.7% to $6.5 million from $6.0 million in 1994. As a percentage of net revenue, selling, general and administrative expenses for 1995 increased to 19.5% 26 28 from 17.7% in 1994. This increase resulted primarily from expenses related to the employee savings and profit sharing plan which was established during fiscal 1995. Interest expense, net for 1995 remained unchanged at $1.7 million from 1994. Income taxes as a percent of earnings before taxes decreased from 24.1% in 1994 to 20.4% in 1995. The decrease was the result of a lower level of taxable income in 1995 which resulted in the Company being in an alternative minimum tax position for Federal income tax purposes. During 1994, the Company was still in an alternative minimum tax position but had a higher level of taxable income which exceeded its depletion allowance for state income tax purposes. LIQUIDITY AND CAPITAL RESOURCES Liquidity. The Company considers liquidity to be its ability to meet its long and short-term cash requirements. Historically the Company has met these requirements primarily from cash generated by operating activities and periodic borrowings under commercial credit facilities. The Company's recent and pending acquisitions have increased its requirements for external sources of liquidity, and the Company anticipates that this trend will continue as it further implements its growth strategy. Six Months Ended June 30, 1997. For the six months ended June 30, 1997 net cash used in operating activities was $3.0 million. The six month period results were primarily attributable to increases in trade receivables and amounts due from affiliates. Net cash used in investing activities was $1.7 million for the six month period. The results were primarily attributable to purchase of property, plant and equipment. Net cash provided by financing activities was $4.1 million for the six month period. The results were primarily attributable to borrowings under lines of credit that were partially offset by principal payments on long-term debt. Year Ended December 31, 1996. For 1996, net cash provided by operating activities was $3.9 million. 1996 results were driven primarily by cash provided by a decrease in trade receivables which were partially offset by an increase in inventories and receivables due from affiliates. Net cash used in investing activities was $1.8 million primarily for the purchase of property, plant and equipment. Net cash used in financing activities was $3.3 million used primarily for principal repayments on long-term debt, offset by increased borrowings under lines of credit. Capital Resources. As of June 30, 1997, the Company had $6.6 million outstanding and approximately $2.9 million available under its revolving credit facility with CIT Group -- Business Credit Inc. ("CIT"). The interest rate on this facility as of such date was 9.5%, based on a formula of prime plus 1%. In addition, the Company had outstanding a term loan payable to CIT in the principal amount of $13.6 million, bearing interest at 9.75% based on prime plus 1.25%. The term loan has a final maturity of January 1, 1999, with amortization requirements of $500,000 per quarter. As of June 30, 1997, the Company had approximately $1.8 million of indebtedness outstanding under credit facilities assumed in connection with the Keystone Acquisition, with maturities in 1997, 1998 and 1999 and interest of up to 9.75% per annum (the "Keystone Indebtedness"). The Company intends to apply a portion of the net proceeds of the offering toward repayment of outstanding amounts under its credit facility and term loan with CIT and the Keystone Indebtedness, and has received a commitment letter for a new $50 million credit facility subject to consummation of the offering, borrowings under which will be used to repay all remaining amounts outstanding under the existing credit facility with CIT. As of June 30, 1997, the Company also had $2.1 million outstanding and no availability under a demand revolving line of credit with the Royal Bank of Canada. The interest rate on this facility as of such date was 6.25% based on a formula of Canadian prime plus .75%. The Company's primary need for capital will be to maintain and improve its manufacturing and quarrying facilities and to finance acquisitions as part of its growth strategy. The Company has $3.7 million budgeted for capital expenditures in 1997, of which it had spent $1.6 million through June 30, 1997. The Company believes that the combination of cash flow from operations, its existing credit facilities, the proceeds of this offering, and the new credit facility it expects to put in place will be sufficient to fund its operations for at least the next twelve months. 27 29 SEASONALITY Historically, the Company's operations have experienced certain seasonal patterns. Generally the Company's net sales have been highest in the third quarter and lowest in the first quarter of each year due primarily to weather. Cemeteries in northern areas generally do not accept granite memorials during winter months when the ground is frozen because they cannot be properly set. The Company typically closes certain of its Vermont and Canadian quarries during these months because of increased operating costs attributable to adverse weather conditions. The Company has historically incurred a net loss during the first six months of each calendar year. However, the Company believes that the variability of its operating results on a quarterly basis will be lessened as its operations become more geographically dispersed. INFLATION The Company believes that the relatively moderate rates of inflation experienced in recent years have not had a significant effect on its results of operations. NEW ACCOUNTING PRONOUNCEMENTS SFAS No. 128, Earnings Per Share, will require a different calculation of earnings per share and will require a restatement in all prior periods. This will be effective for periods ending after December 15, 1997. SFAS No. 130, Reporting Comprehensive Income, will be effective for periods beginning after December 15, 1997. SFAS No. 131, Disclosure About Segments of an Enterprise and Related Information, will be effective for periods beginning after December 15, 1997. Management does not believe that the above pronouncements will have a material effect on the Company's financial statements. 28 30 THE DEATH CARE INDUSTRY AND GRANITE MEMORIALIZATION DEATH CARE INDUSTRY OVERVIEW The death care industry has traditionally been comprised of three principal segments: (i) ceremony and tribute, generally in the form of a funeral or memorial service; (ii) disposition of remains, either through burial or cremation; and (iii) memorialization, generally through monuments, markers or inscriptions. The death care industry is relatively stable due to predictable death rates and demographics relating to aging and wealth. Certain characteristics generally applicable to the death care industry are summarized below. Fragmented nature. Ownership in the death care industry is generally highly fragmented. With the exception of bronze memorial suppliers (two companies with an estimated market share of in excess of 80%) and casket manufacturers (three companies with an estimated 60% market share), the majority of death care operators are small, privately-owned family companies. At the end of 1996, consolidators owned (i) less than 12% of the estimated 22,800 funeral homes, (ii) approximately 890, or less than 10%, of the estimated 9,500 commercial cemeteries, and (iii) less than 5% of the total estimated 23,000 active cemeteries, in the United States. Barriers to entry. Death care businesses have traditionally been transferred to successive generations within a family and in most cases have a heritage, community presence and tradition that act as formidable barriers for new entrants into existing markets. Presence and tradition afford established industry operators an important local franchise and provide the opportunity for significant referral business. Stability. Death rates in the United States and Canada are fairly predictable and are expected to rise approximately 1% per year between 1996 and 2010. The general death care industry is therefore relatively stable and fairly predictable. Business failures are generally uncommon among retailers of death care products and services, with ownership traditionally passing from generation to generation. Consolidation. Consolidators are actively consolidating the funeral home and cemetery segments of the death care industry; the Company believes this consolidation will occur in all areas of the death care industry. Pre-need marketing and selling. An increasing number of general death care products and services, especially funeral products and services and cemetery lots controlled by consolidators, are being sold prior to the time of death ("pre-need") rather than at the time of death ("at-need"). Trend toward cremation. In recent years, there has been a steady, gradual growth in the number of families that have chosen cremation as an alternative to traditional methods of burial. According to CANA, cremations represented approximately 22% of the United States burial market in 1996 compared to approximately 10% in 1980, and CANA expects this rate to rise to 29% by 2010. Cremation rates vary dramatically by state for religious, cultural and other reasons. Cremation is generally marketed as a less costly alternative to interment; in addition, it is increasingly being marketed as a part of a death care program that incorporates a traditional service and memorialization. THE GRANITE MEMORIALIZATION INDUSTRY General. In 1995, there were approximately 1.8 million interments in the United States. Of these, the Company believes at least 50% were memorialized in some sort of permanent manner. These memorializations take a number of forms, depending on the type of interment. Individual cemetery lots typically have granite or bronze memorials, while communal interments such as community mausoleums, cremation niches and columbariums have a range of stone, masonry and wood construction. The Company believes the North American granite memorialization industry, excluding communal interments such as community mausoleums and columbariums, is in excess of $1.0 billion in annual retail sales in 1996. Granite memorials are manufactured in a wide variety of sizes, designs and colors, depending on the degree of personalization desired by the customer. The Company believes the largest selling colors, in descending order of magnitude, are Elberton Gray, Barre Gray, Black, Dakota Mahogany, Pink and Red, based on the Company's sales and market information. While there are a number of standard types of 29 31 memorials, including flush grass markers and various types of upright granite memorials, their size varies slightly from region to region. The granite memorialization industry is comprised of three principal areas: (i) quarrying of the granite; (ii) manufacture and wholesale distribution of the memorials; and (iii) retail sales of the memorials. The granite memorialization industry shares some of the fundamental characteristics of the death care industry, including barriers to entry created by local heritage, community presence and tradition, structural fragmentation and stable, predictable demand. However, the granite memorialization industry and its three principal areas have certain distinguishing characteristics that the Company believes create attractive opportunities. These characteristics include the following: Timing and point of sale. Unlike most death care products and services, the purchase of granite memorials by consumers is typically separated both physically and chronologically from the funeral planning and service process. Granite memorials have traditionally been sold primarily through independent monument retailers rather than at or through funeral homes or cemeteries (approximately 3,000 of such independent memorial retailers are located outside funeral homes and cemeteries, according to the Monument Builders of North America). In addition, granite memorials historically have been sold some time after the funeral or interment service. Additional barriers to entry. As in the death care industry generally, local heritage, community presence and tradition deter entry into the granite memorialization industry. However, the most significant barriers to entry to the quarrying of granite include: (i) the limited number of known commercially exploitable memorial grade granite deposits; (ii) stringent federal, state and local zoning and environmental laws; and (iii) substantial capital requirements. Barriers to entry in the manufacture of granite memorials include (a) the need to be in reasonable proximity to granite quarries producing memorial grade granite due to the high freight costs associated with transporting granite blocks; (b) substantial capital costs in establishing and operating a memorial grade granite manufacturing facility; and (c) the need for highly skilled stone cutters, sandblasters, sculptors and other skilled artisans necessary to produce granite memorials. Ownership structure. The granite memorialization industry is characterized by increasing fragmentation as one moves closer to the ultimate customer. The Company estimates that there are approximately 50 quarriers and 140 manufacturers of memorial grade granite in North America. The Company believes that it is the largest manufacturer of memorial grade granite in North America, based on revenues. According to the Monument Builders of North America, there are approximately 3,000 retailers of granite memorials in North America located outside funeral homes and cemeteries. Most of these quarrying, manufacturing and retail businesses are privately owned and family run. Geographic concentration and production costs. The quarrying and manufacture of granite memorials in North America are concentrated in four geographic areas: Barre, Vermont; Beebe, Quebec; Elberton, Georgia; and the area encompassing Milbank, South Dakota, Cold Spring and St. Cloud, Minnesota and Wausau, Wisconsin (known in the trade as the "Northwest"). Generally, granite quarriers and manufacturers in each area have the strongest market shares in the neighboring geographic regions because of the relatively high freight costs involved in shipping granite. The low cost and low price production area is Elberton, while the other three regions generally have similar costs and selling prices. Competing products. The primary competition for granite memorialization on individual cemetery lots comes from bronze products which currently constitute approximately one-third of the aggregate memorialization business, measured in retail sales dollars. Bronze markers are generally flush rather than upright and are typically offered in a limited number of styles and designs, with relatively little opportunity for personalization. Unlike granite memorials, bronze markers are sold primarily through cemeteries where they have traditionally been marketed to the consumer as a lower cost alternative to granite and to the cemeterian as a lower cost cemetery maintenance option. To a lesser extent, marble is also used as a substitute for granite in memorialization. See "Business -- Competition." 30 32 OPPORTUNITIES The Company believes that the aforementioned industry characteristics present it with the opportunity to: - Serve the geographically dispersed and fragmented memorial retailers by offering a full line of granite memorials throughout North America. The Company is the leading quarrier and manufacturer of granite memorials in three of the four principal granite memorial producing regions of North America. Accordingly, the Company is well positioned to provide, primarily through its own quarrying and manufacturing operations, a complete line of high quality, granite memorials covering all price points and major color varieties to North American retailers and to cemetery and funeral home owners, including consolidators. - Capitalize on the fragmented nature of granite memorial retailing and the Company's existing relationships with over 2,100 independent retailers by making strategic acquisitions of independent retailers in order to build an integrated network of owned Rock of Ages retailers and thereby capture the higher margins that have historically existed at the retail level. - Capitalize on the trend toward cremation by attracting consumer dollars otherwise spent on casket and burial vault expenses. The Company believes that with enhanced distribution capabilities, promotion, advertising and consumer awareness of memorialization, more consumers who have elected cremation may opt for personalized upright granite memorials. 31 33 BUSINESS GENERAL Rock of Ages, founded in 1885, is an integrated granite quarrier, manufacturer and distributor whose principal product is granite memorials used primarily in cemeteries. The Company believes that it is the largest quarrier, manufacturer and distributor of finished granite memorials and granite blocks for memorial use in North America, based on revenues. The Company owns and operates 13 active quarry properties and 13 manufacturing and sawing facilities in North America, principally in Vermont, Georgia and the Province of Quebec. The Company markets and distributes its memorials on a wholesale basis to approximately 2,124 independent memorial retailers in the United States and Canada, including approximately 495 independent authorized Rock of Ages retailers that are the primary outlet for the Company's branded memorials. The Company recently entered into a definitive agreement to acquire one of the largest of its authorized independent retailers, which will provide the Company with 17 owned retail outlets and mark the Company's first significant entry into retailing. The Company's memorials are marketed under the names Rock of Ages Sealmark and Colorcraft, as well as several private labels. The Company believes the Rock of Ages trademark is one of the oldest and best known brand names in the granite memorialization industry. BUSINESS STRATEGY Rock of Ages believes it is well-positioned to capitalize on the industry characteristics described previously, and seeks to establish a dominant position in the granite memorialization industry. The Company intends both to improve the efficiency of its existing operations and to expand its business significantly. The principal elements of the Company's operating and growth strategies are summarized below. Operating Strategy. The Company pursues an operating strategy that includes the following key elements: - Providing, primarily through its own quarrying and manufacturing operations, a complete line of high quality granite memorials covering all price points and major color varieties. The Company believes it is the only industry participant with both quarrying and manufacturing operations in three of the four principal granite memorial producing regions of North America. - Enhancing operational efficiencies through the continued integration of acquired quarriers and manufacturers and the rationalization of its sales and distribution efforts. - Increasing advertising and promotion of the Rock of Ages brands, including the flagship Rock of Ages Sealmark and Colorcraft brands, in order to heighten consumer awareness and increase sales of the Company's products. Growth Strategy. The Company seeks to expand the scope and profitability of its operations by implementing a growth strategy that includes forward vertical integration into retailing, thereby enabling the Company to move closer to the ultimate customer. The principal elements of this strategy include the following: - Acquiring independent granite memorial retailers in selected markets in order to develop an integrated network of owned Rock of Ages retailers and thereby capture the higher margins that have historically existed at the retail level. - Increasing sales to independent retailers that are current customers and expanding its independent retailer customer base. During the last two years, principally through acquisitions of quarriers and manufacturers, the Company has increased the number of independent retailers to which it sells its products from approximately 495 in 1995 to approximately 2,124 in 1997. - Pursuing strategic alliances with funeral home and cemetery owners, including consolidators, to supply granite memorials to or through them, in order to increase both pre-need and at-need sales of granite memorials. 32 34 RECENT AND CONCURRENT ACQUISITIONS The Company's primary means of implementing its growth strategy to date has been through acquisitions, beginning with the acquisition on December 31, 1995 of Lawson Granite Company and Anderson-Friberg Company, each based in Barre, Vermont. These acquisitions helped expand the Company's manufacturing capacity and distribution base, while also broadening its granite memorial product line to include more non-branded granite memorials at lower price points than the Company's then-existing product line. The Company has recently taken further steps to implement its growth strategy through the Keystone Acquisition and the proposed C&C Acquisition and Keith Acquisition. The Company believes that these acquisitions and the continued implementation of the other elements of its operating and growth strategies will enable it to: (i) expand overall industry sales of granite memorials, which heretofore have been actively marketed to consumers primarily only on an at-need basis and in a limited manner; (ii) increase its share of the granite memorial market by offering a complete product line with strong brand names through distribution channels that more directly reach the consumer; and (iii) increase both its relative and total profitability by capturing some of the higher margins that have historically existed at the retail level. Keystone. In June 1997, the Company acquired Keystone, the largest memorial manufacturer in Elberton, Georgia, including Keystone's 50% ownership interest in each of SMI and the Quarry Companies. Keystone had revenues of $9.3 million for the year ended December 31, 1996. The Company made the Keystone Acquisition in order to: (i) become the largest manufacturer of granite memorials in the largest granite producing area of North America; (ii) expand the Company's product offering to its and Keystone's customers by combining the product lines of the two companies and thereby offering easy "one-stop-shopping" to retailers; (iii) obtain immediate access to an expanded customer base of independent retailers; (iv) reduce raw material and production costs for certain granite; and (v) reduce transportation costs and enhance transportation capabilities. In connection with the Keystone Acquisition, the Company issued 263,441 shares of Class B Common Stock and assumed or incurred $2.7 million of indebtedness of Keystone. C&C. In June 1997, the Company also entered into a definitive agreement to acquire C&C, which the Company believes is the second largest manufacturer of granite memorials in Elberton, Georgia, and the remaining 50% of each of SMI and the Quarry Companies owned by the stockholders of C&C. It is expected that the C&C Acquisition will close concurrently with the consummation of this offering. C&C had revenues of $5.9 million for the year ended December 31, 1996. The Company believes that the C&C Acquisition by itself offers many of the same benefits that the Keystone Acquisition provides, and, in combination with the Keystone Acquisition, solidifies the Company's position as the largest granite memorial manufacturer in the Elberton region. The purchase price payable for C&C is $6.6 million in cash and $200,000 in shares of Class A Common Stock (valued at the initial public offering price) and approximately $780,000 to repay outstanding indebtedness of C&C. Quarry Companies and SMI. As part of the Keystone Acquisition and the C&C Acquisition, the Company will also acquire the Quarry Companies and SMI and assume $5.4 million of indebtedness of such companies upon the closing of the C&C Acquisition. The Quarry Companies and SMI had sales of $6.8 million for the year ended December 31, 1996. The Quarry Companies own and operate six quarries located in Georgia, Pennsylvania, North Carolina, South Carolina and Oklahoma. The Quarry Companies offer the Company an internal source of a variety of colored granite, including American Black, Salisbury Pink, Autumn Rose and Kershaw Pink. These colors supplement the Company's product line for both granite memorials and mausoleums. With the acquisition of SMI, the Company will obtain a manufacturing facility dedicated primarily to the construction of mausoleums, which are a more expensive and higher margin product than most other types of granite memorials. Keith Monument. In July 1997, the Company entered into a definitive agreement to acquire substantially all of the assets and liabilities of Keith Monument. Keith Monument has been an authorized Rock of Ages retailer for more than 50 years and, the Company believes, is one of the largest retailers of granite memorials in the United States. It is expected that the Keith Acquisition will close concurrently with the consummation of this offering. Keith Monument had revenues of $7.8 million for the year ended June 30, 1997. The Keith Acquisition offers the Company an immediate presence in memorial retailing and provides 33 35 the Company with management expertise in the retailing sector. The purchase price payable for Keith Monument is $16.4 million, consisting of $13.1 million in cash, $1.5 million in shares of Class A Common Stock (valued at the initial public offering price) and $1.8 million to repay outstanding indebtedness of Keith Monument assumed by the Company. Upon the closing of the Keith Acquisition, John E. Keith, a principal owner and the president of Keith Monument with over thirty years of experience in granite memorial retailing, will head the Company's retailing operations. Mr. Keith will oversee the implementation of the Company's strategy to significantly expand its retail operations both through other acquisitions of retailers and by pursuing strategic alliances with funeral home and cemetery owners, including consolidators. QUARRYING AND MANUFACTURING OPERATIONS Quarrying. The Company owns and operates 13 active quarries producing, or has supply agreements to obtain, each of the largest selling granite memorial colors in North America (Elberton Gray, Barre Gray, Black, Dakota Mahogany, Pink and Red, in that order). In 1996, on a pro forma basis assuming the Acquisitions occurred on January 1, 1996, the Company quarried in excess of 1,500,000 cubic feet of saleable granite from its quarries in Georgia, Vermont, Pennsylvania, North Carolina, South Carolina, Oklahoma and the Province of Quebec. The Company estimates that its U.S. production represents approximately 19% of the total U.S. output of dimension granite for all uses and at least 25% of the U.S. output for memorial use. The Company believes it is the largest quarrier of granite for memorial use in the U.S. based on quantity of output and revenues. The Company owns a large quarry complex in Barre, Vermont and is currently the only quarrier of Barre, Vermont gray granite. In 1996, on a pro forma basis assuming the Acquisitions occurred on January 1, 1996, over 50% of the Company's U.S. output came from its Barre quarries. The Company also owns three quarries in the Elberton, Georgia area. While most black granite for memorial use comes from Africa and India, the Company owns a quarry in Pennsylvania that produces the largest selling black granite for memorial use quarried in North America. The Company also owns quarries in North Carolina and Canada that produce pink granite, and a quarry in Bethel, Vermont that produces Bethel white granite used primarily for building purposes outside North America. The quarrying of granite involves three major processes. The first major process is to prepare the granite for extraction. The initial step in this process is to free a mass of stone from the quarry by cutting deep vertical channels in the stone with jet channeling torches, pneumatic slot-drills or diamond-wire saws. Next, a series of horizontal "lift" holes are drilled in the mass. Several of the lift holes are then filled with primer cord explosives which, after detonation, cause the granite mass to crack along the line where the holes have been drilled and to lift the mass free from the granite below it. Occasionally, these horizontal cuts are made with diamond wire saws. After the granite mass has been separated, pneumatic drills are used to drill a series of vertical holes to break the mass into large vertical pieces. Horizontal holes are then drilled to break these pieces into standard size saw blocks, known as "dimensioned blocks," which are typically ten feet by five feet by five feet and weigh approximately twenty-five tons. The second major process in quarrying granite is to extract the dimensioned block from the quarry. Extraction involves removing the dimensioned blocks from the quarry with very large forklifts or, in deeper quarries, with cinching notched wire cable around the block and then hoisting the blocks with very large derricks, or fixed cranes, or mobile cranes. These derricks range to up to 160 feet in height and up to 250 tons in lifting capacity. Most of the Company's quarries utilize forklifts for extraction or a combination of forklifts and fixed or mobile cranes. The third major process is to transport the dimensioned blocks. Once lifted from the quarry, the blocks are handled and transported by heavy duty diesel trucks and fork lifts. These vehicles transport the blocks either to an inventory area or directly to the manufacturer. Much of the granite quarried is not suitable for use as a finished memorial product due to cracks, spots, discoloration and other natural imperfections. The amount of usable granite varies markedly from quarry to quarry. Some of the granite not used for memorials is sold to other companies for use in buildings and other 34 36 non-memorial products. Unusable stone, or "grout," is stored in areas not expected to be quarried in the future. It is suitable for bridge piers, erosion control and other uses but the market for this product is very limited. The granite blocks sold by the Company are delivered to the Company's manufacturing division as well as to other granite manufacturers in Vermont via Company owned trucks. Blocks for delivery outside of the production areas are delivered via common carrier. Barre, Vermont, Elberton, Georgia and Beebe, Quebec all have at least two large regional or national trucking companies and a number of independent truckers. Manufacturing. The Company owns and operates 13 manufacturing and sawing facilities in North America, principally in Vermont, Georgia and the Province of Quebec. The Company is in the process of a $3.2 million expansion and improvement program for its Barre and Canadian manufacturing facilities to add 50,000 square feet of space and manufacturing and sawing equipment and to reconfigure production. In addition, the Company has ordered $600,000 of polishing equipment for the manufacturing facilities in Elberton and anticipates dedicating sawing equipment currently used for curb slabs to memorial slabs. The Company believes that these improvements and operational changes will increase memorial production significantly and allow the Company to meet its anticipated production requirements for the near future. The manufacture of memorials starts with quarried granite blocks, which are sawed into slabs of varying thicknesses with computer operated diamond saws and wire saws at Company saw plants. Once a block has been cut into slabs, the slabs are transported to nearby manufacturing plants such as the Company's Craftsman Center in Barre, Vermont. At the manufacturing plant, slabs are manufactured into memorials and other products. To manufacture a granite slab four to 12 inches thick into a memorial, the slabs are first polished at the manufacturing plant by various automatic polishing machines. Polished slabs are then inspected for flaws and defects and dimensioned with a hydraulic guillotine machine. Granite is like wood in that it splits uniformly along the grain. After dimensioning, the granite pieces are taken to stations to be shaped by stonecutting wire saws, diamond saws and carborundum wheels. Once shaped, memorials may be hand-carved into virtually any desired shape. This hand carving is generally done by the Company. The final step in memorial manufacturing is to sandblast the semi-finished memorial with a silicon carbide abrasive which etches the desired design into the memorial. This sandblasting step may be done by the Company or a retailer. Once complete, the memorial is inspected and branded products are then sandblasted with the Rock of Ages or other seal. Finished products are then crated and shipped to customers. In addition to granite memorials, the Company also manufactures precision industrial granite products, such as machine bases and surface plates, which are utilized in the automotive, aeronautic, computer, machine tool, optical, precision grinding and inspection industries, as well as granite press rolls used in the manufacture of paper. These are small but profitable niche markets within the granite industry with limited competition and limited growth prospects. The Company's granite deposits in Georgia, Vermont, Pennsylvania, North Carolina, South Carolina, Oklahoma and the Province of Quebec are expected to continue to meet the Company's current and anticipated raw materials needs for many years, and the Company believes it will continue to have access to adequate quantities of other granite at competitive prices. The Company has entered into a Supply and Distribution Agreement with Missouri Red Quarries, Inc., the owner of Keystone immediately prior to the Keystone Acquisition ("Missouri Red"), and G. Thomas Oglesby, Jr., who controls Missouri Red (the "Missouri Red Supply Agreement"), and a Supply and Distribution Agreement with Keystone Granite Company, Inc., an affiliate of Missouri Red ("KGCI"), and Missouri Red (the "Keystone Supply Agreement", and, together with the Missouri Red Supply Agreement, the "Supply Agreements"). Under the Missouri Red Supply Agreement, Missouri Red has agreed, for a 20-year term, to supply the Company at specified prices with the Company's requirements of Missouri Red granite blocks for memorial use, and has appointed the Company as its exclusive distributor to buy and sell all grades of Missouri Red granite for memorial use in the specified territory. The Company has agreed to purchase certain minimum annual amounts of Missouri Red granite blocks, and such supply arrangements are exclusive for memorial use so long as the Company purchases certain minimum amounts of Missouri Red 35 37 granite blocks within specified periods of time, provided that in any event the Company has a first priority to purchase all monumental grade Missouri Red granite quarried by Missouri Red during the term of the Missouri Red Supply Agreement. The terms of the Keystone Supply Agreement are substantially similar to the Missouri Red Supply Agreement, including the 20-year term, except that the Keystone Supply Agreement applies to KGCI granite blocks, any other granite blocks quarried at the KGCI quarries and Topaz granite blocks (collectively, "Topaz") and the Company has agreed to purchase all monumental grade Topaz produced by KGCI during the term of the Keystone Supply Agreement. Should the Company fail to purchase the specified minimum quantity of Topaz, then KGCI has the right to sell to others subject to the Company's right to supply priority. \Pursuant to the Supply Agreements, the Company has a right of refusal with respect to any sale of the quarries, land, buildings or equipment, or the stock of, Missouri Red or KGCI outside the Oglesby family. The Company also has a mutual supply agreement (the "Dakota Agreement") with Dakota Granite Company ("Dakota Granite"), whereby Dakota Granite has agreed to supply the Company with its requirements for Dakota Mahogany blocks, slabs and finished monuments, and the Company has agreed to supply Dakota Granite with its requirements for Barre Gray blocks, slabs and finished monuments, and each party has agreed to purchase such requirements exclusively from the other. The Dakota Agreement is terminable by either party upon 180-days prior notice. Other significant raw materials which the Company uses in its manufacturing operations include industrial diamond segments for saw blades and wires and abrasives. There are a number of sources for these raw materials and the Company believes it will continue to have access to adequate quantities of such materials at competitive prices. The Company had manufacturing backlogs of $13,833,000 as of June 30, 1997 and $14,386,000 as of June 30, 1996. These backlogs occurred in the normal course of business. The Company does not have a material backlog in its quarrying operations. As noted above, regional and national trucking companies are readily available to deliver granite memorials. Also, the Company owns eight trucks for delivery of finished memorials to customers. In addition, as a result of the Acquisitions, the Company will be able to ship full truckload quantities of memorials from Barre to Elberton and back via dedicated trucks, which the Company believes will improve the efficiency of national delivery of its products. As a result, the Company believes it will have a significant competitive cost advantage in the transportation of memorials. The Company does not normally maintain a significant inventory of finished manufactured products in anticipation of future orders. Approximately 75% of the Company's orders are delivered within two to twelve weeks, as is customary in the granite memorial industry. The Company does accumulate inventory of granite blocks from September through December in preparation for the winter months when its northern quarries are inactive. During the winter months, the Company offers a special payment plan to granite block customers ordering in December by giving 90-day payment terms. Additionally, any orders for granite memorials placed after September 1st but before February 1st may receive special payment terms allowing payment on the following June 1st. The Company is entitled to make delivery at its discretion no later than April of the following year. The winter payment terms accounted for approximately $2 million in Company sales in 1996. MARKETING AND DISTRIBUTION; RETAILING The Company is best known for its granite memorials. Rock of Ages produces each of the standard types of memorials, including flush grass markers and various types of upright memorials, and is recognized for its ability to manufacture highly personalized granite memorials designed to meet the specific needs of individual customers. For example, the Company has built a full size granite replica of a Mercedes Benz for a customer. Rock of Ages currently sells its granite memorial products to an estimated 2,124 independent memorial retailers in North America. Its flagship brands bearing the Rock of Ages seal are sold only to approximately 495 independent authorized Rock of Ages retailers who have written supply agreements with the Company. These branded Rock of Ages memorials are made of the highest quality granite available and are guaranteed in perpetuity to the customer and the cemetery against defects in the granite (including discoloration) or workmanship. The Company believes its warranty is the strongest in the memorial industry. 36 38 The Company generally limits the number of retailers authorized to sell branded Rock of Ages products in any geographic region. The Company seeks to select as its authorized retailers large and well-established companies that can provide high levels of design assistance, personalization and high quality sandblast carving and lettering, as well as the service of setting the memorial in the cemetery. Authorized retailer agreements may be terminated by either the Company or the retailer upon 30 days' notice. Under these agreements, the authorized retailer is free to purchase granite memorials from any source, but the Company expects its authorized retailers to promote the Rock of Ages brand and purchase reasonable quantities of its branded and unbranded granite memorials annually. Most authorized Rock of Ages retailers purchase both branded and lower-priced unbranded memorials from the Company. The Company also supplies private label and unbranded granite memorials not bearing the various Rock of Ages seals to a large number of other retailers. The Company's growth strategy principally involves vertically integrating forward into retailing. Pursuant to the Keith Acquisition, the Company will acquire what it believes is one of the largest retailers of granite memorials in the United States. Upon the closing of the Keith Acquisition, John E. Keith, a principal owner and president of Keith Monument with over 30 years experience in granite memorial retailing, will head the Company's retailing operations. Mr. Keith will oversee the implementation of the Company's strategy to significantly expand its retail operations both through other acquisitions of other independent retailers and by pursuing strategic alliances with funeral home and cemetery owners, including consolidators. While the Company currently supplies a limited amount of granite memorials to funeral homes and cemetery owners, including consolidators, the Company has not yet established a strategic alliance with any such group. The Company will seek to acquire well established full service granite memorial retailers with experienced personnel and strong market share in their marketing region, including both its existing authorized Rock of Ages retailers and other independent retailers. All owned retailers will be positioned as Rock of Ages retailers and will offer Rock of Ages branded products as well as other brands provided by the Company. The Company recognizes that certain of its customers, including both authorized Rock of Ages retailers and its other retailers, will prefer to remain as independently owned retailers or may not be viable acquisition targets for the Company due to price, size, location or other reasons. The Company believes the opportunity to become a part of an integrated quarrier, manufacturer and retailer of granite memorials promoting Rock of Ages branded memorials will be an attractive option for many granite memorial retailers who are currently customers of the Company. Likewise, the Company believes its improved knowledge of the retail market gained from owning retailers and the presence of John E. Keith, a prominent memorial retailer, as an officer and director will help it to better serve and be more responsive to the needs of its customers who remain independently owned. Since most independent retailers have competed with Rock of Ages authorized retailers for many years, the Company believes that the establishment of an owned Rock of Ages retail network through acquisition of existing granite memorial retail outlets should not disrupt the market in a fashion that would occur if a new entrant to the market entered the business or a manufacturer established new outlets instead of acquiring existing outlets. COMPETITION The granite memorial industry is highly competitive. The Company competes with other granite quarriers and manufacturers in the sale of granite blocks on the basis of price, color, quality, geographic proximity, service, design availability and availability of supply. All of the Company's colors of granite are subject to competition from granite blocks of similar color supplied by quarriers located throughout the world. There are approximately 140 manufacturers of granite memorials in North America. There are also manufacturers of granite memorials in India, South Africa, China and Portugal who sell finished memorials in North America. The Company competes based upon price, breadth of product line and design availability as well as production capabilities and delivery options. The Company's quarrying and manufacturing competitors include both domestic and international companies, some of which may have greater financial, technical, manufacturing, marketing and other resources than the Company. Additionally, foreign competitors of the Company may have access to lower cost labor and better commercial deposits of certain colors of memorial 37 39 grade granite, and may be subject to less restrictive regulatory requirements than the Company. Companies in South Africa, India, China and Portugal manufacture and export finished granite memorials into North America. See "Risk Factors -- Competition." The competition for retail sales of granite memorials is also intense and is based on price, quality, service, design availability and breadth of product line. Competitors include funeral home and cemetery owners, including consolidators, which have greater financial resources than the Company as well as approximately 3,000 independent retailers of granite memorials located outside funeral homes and cemeteries. See "Risk Factors -- Relationships with Retailers". PATENTS, TRADEMARKS AND LICENSES The Company holds a number of domestic and foreign patents, trademarks and copyrights, including the original registered trademark "Rock of Ages" which the Company first registered in 1914. The Company believes the loss of a single patent, trademark or copyright, other than the "Rock of Ages" trademarks, would not have a material adverse effect on the Company's business, financial condition or results of operations. EMPLOYEES As of September 22, 1997, the Company had approximately 580 employees. After the consummation of the C&C Acquisition and the Keith Acquisition, the Company will have approximately 795 employees. The Company believes its relationship with its employees is good. A significant number of the Company's employees in Barre and Canada are represented by one of two labor unions. Some of the Company's employees in Elberton are also represented by a union. The Company has recently entered into collective bargaining agreements with its employees in Barre which are scheduled to expire in 2000, and the Company's collective bargaining agreements with its employees in Canada are scheduled to expire in 1999. PROPERTIES Following consummation of the Acquisitions, the Company will own the following quarry and manufacturing properties:
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
38 40
PROPERTY FUNCTION - -------------------------------------------------------- -------------------------------------------------------- Elberton Manufacturing Properties Southern Mausoleum Plant.......................... Manufacturing of memorials Keystone Memorials Plant.......................... Manufacturing of memorials Keywest Plant..................................... Manufacturing of memorials Childs & Childs Plant............................. Manufacturing of memorials CANADA Stanstead, Quebec Quarry Properties Stanstead Quarry.................................. Quarrying of dimensional Stanstead Gray granite blocks Guenette, Quebec Quarry Properties Laurentian Quarry................................. Quarrying of dimensional Laurentian Rose granite blocks Beebe Plain, Quebec Manufacturing Properties Rock of Ages Manufacturing Plant.................. Manufacturing of memorials Adru Manufacturing Plant.......................... Manufacturing of memorials PENNSYLVANIA St. Peters Quarry Properties American Black Quarry............................. Quarrying of dimensional black granite blocks Manufacturing Properties Saw Plant......................................... Slabbing of granite blocks NORTH CAROLINA Salisbury Quarry Properties Salisbury Pink Quarry............................. Quarrying of dimensional Salisbury Pink granite blocks Manufacturing Properties Carolina Plant.................................... Manufacturing of flush and granite under bronze markers OKLAHOMA Mill Creek Quarry Properties Autumn Rose Quarry................................ Quarrying of dimensional Autumn Rose granite blocks SOUTH CAROLINA Kershaw County Quarry Properties Kershaw Quarry.................................... Quarrying of dimensional Kershaw granite blocks Lancaster County Quarry Properties Coral Gray Quarry................................. Quarrying of dimensional Coral Gray granite blocks
In addition, upon consummation of the Keith Acquisition, the Company will own or lease 17 retail outlets and a sandblasting facility in Kentucky. 39 41 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.
TOTAL NET SALEABLE NET SALEABLE APPROXIMATE DATE ORIGINAL COST RECOVERABLE RECOVERABLE OF COMMENCEMENT PRIOR OWNER, MEANS OF OF RESERVES(1) RESERVES QUARRY OF OPERATIONS (DATE ACQUIRED) ACCESS EACH PROPERTY (CUBIC FEET) (YEARS)(2) - ------------------- ----------------- ----------------------- ----------- ------------- --------------- ------------ E.L. Smith......... 1880 E.L. Smith Quarry Co. Paved road $ 7,562,676 2,460,000,000 4,920 (1948) Adam-Pirie......... 1880 J.K. Pirie Quarry Paved road $ 4,211,363 985,000,000 6,560 (1955) Bethel............. 1900 Woodbury Granite Dirt road $ 174,024 76,665,000 383 Company, Inc. (1957) Royalty/Berkeley... 1923 Coggins Granite (1991) Paved road $ 2,794,500 6,695,000 67 Millstone.......... 1985 Coggins Granite (1991) Paved road $ 1,195,900 5,663,000 56 Caprice............ 1968 Caprice Blue Quarry Paved road $ 0 No estimate No estimate Inc.(1997) Stanstead.......... 1920 Brodies Limited and Paved road $ 505,453 32,670,000 217 Stanstead Granite Company (1960) Laurentian......... 1944 Brodies Limited (1960) Paved road $ 860,115 3,920,000 52 American Black..... 1973 Pennsylvania Granite Paved road $ 2,900,000 14,701,000 98 Inc. (1997) Salisbury.......... 1918 Pennsylvania Granite Paved road $ 3,886,592 19,602,000 87 Inc. (1997) Autumn Rose........ 1969 Autumn Rose Quarry Inc. Paved road $ 200,000 735,000 21 (1997) Kershaw............ 1955 Pennsylvania Granite Paved road $ 200,000 635,000 22 Inc. (1997) Coral Gray......... 1955 Pennsylvania Granite Paved road $ 200,000 No estimate No estimate Inc. (1997)
- --------------- (1) Net saleable reserves are based on internal Company estimates, except for the reserves for the E.L. Smith, Adam-Pirie and Bethel quarries, which are based on independent assessments by CA Rich Consultants, Inc. (2) Based on internal Company estimates using current production levels. The estimates of saleable reserves of the Company are based on historical quarry operations, workable reserves in the existing quarries and immediately adjacent areas, current work force sizes and current demand. While quarry operations decrease the granite deposits, the size of the granite deposits in which the Company's quarries are located are large and extend well beyond existing working quarry perimeters. The Company has historically expanded quarry perimeters or opened other quarries in the deposit as necessary to utilize reserves and the Company has adequate acreage for expansions as and when necessary. Most of the Company's quarries have operating histories dating back 50 or more years. The Company has no reason to believe that it will deplete its granite reserves at any time in the foreseeable future. Dimension granite is not considered a valuable mineral or commodity such as gold, nor is it traded on any commodities exchange. The prices charged by the Company to third parties for granite blocks depend on the characteristics of (such as color) and costs to quarry each granite block. The price per cubic foot currently charged by the Company for its granite blocks is generally comparable to other granite suppliers and typically does not exceed $30. REGULATION The Company's quarry and manufacturing operations are subject to substantial regulation by federal and state governmental statutes and agencies, including OSHA, the Mine Safety and Health Administration and similar state and Canadian authorities. The Company's operations are also subject to extensive laws, and regulations administered by the EPA and similar state and Canadian authorities for the protection of the 40 42 environment, including but not limited to those relating to air and water quality, solid and hazardous waste handling and disposal. These laws and regulations may require parties to fund remedial action or to pay damages regardless of fault. Environmental laws and regulations may also impose liability with respect to divested or terminated operations even if the operations were divested or terminated many years ago. In addition, current and future environmental or occupational health and safety laws, regulations or regulatory interpretations may require significant expenditures for compliance which could require the Company to modify or curtail its operations. The Company cannot predict the effect of such laws, regulations or regulatory interpretations on its business, financial condition, results of operations. While the Company expects to be able to continue to comply, in all material respects, with existing laws and regulations, any material non-compliance could have a material adverse affect on the Company's business, financial condition and results of operations. LEGAL MATTERS The Company is a party to legal proceedings that arise from time to time in the ordinary course of its business. While the outcome of these proceedings cannot be predicted with certainty, management does not expect these matters to have a material adverse effect on the Company. The Company carries insurance with coverages that it believes to be customary in its industry. Although there can be no assurance that such insurance will be sufficient to protect the Company against all contingencies, management believes that its insurance protection is reasonable in view of the nature and scope of the Company's operations. 41 43 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(1) George R. Anderson........................ 57 Senior Vice President, Chief Financial Officer, Treasurer, Director James L. Fox(2)........................... 45 Director Peter A. Friberg.......................... 46 Senior Vice President -- Memorial Sales, Director Mark A. Gherardi.......................... 39 Senior Vice President -- Barre and Canada Manufacturing Operations, Director Jon M. Gregory............................ 48 President -- Quarry Division, Director John E. Keith(2).......................... 50 President -- Retail Division, Director Richard C. Kimball........................ 57 President -- Memorials Division, Vice Chairman of the Board of Directors G. Thomas Oglesby, Jr. ................... 51 President -- Keystone Division, Director Kurt M. Swenson........................... 52 President and Chief Executive Officer, Chairman of the Board of Directors Charles M. Waite.......................... 64 Director Fredrick E. Webster, Jr.(2)............... 59 Director OTHER OFFICERS Robert Otis Childs, III(2)................ 38 President -- C&C Division Albert Gherardi, Jr. ..................... 61 Vice President -- Facilities Management Edward E. Haydon.......................... 57 Senior Vice President -- National Accounts Manager John R. Monson............................ 56 Secretary and General Counsel George T. Oglesby, III.................... 27 Vice President -- Keystone Division Gerald E. Parrott......................... 48 Vice President -- Precision Products
- --------------- (1) Each officer serves for a term of one year. (2) Messrs. Childs, Fox, Keith and Webster will assume their respective positions upon consummation of this offering. George R. Anderson has been the Senior Vice President, Chief Financial Officer and a director of the Company since 1984. Mr. Anderson joined the Company in 1969 as the Chief Accountant and subsequently held the positions of Controller and Treasurer. He has been a director of the Barre Granite Association and a trustee of the Granite Group Insurance Trust and the Barre Belt Multi-Employer Pension Plan. Mr. Anderson's term as a director will expire in 1999. Robert Otis Childs, III will become, upon consummation of the C&C Acquisition, President -- C&C Division. Since 1983, Mr. Childs has been Vice President for Marketing of C&C. He has been President and a member of the Board of Directors of the American Monument Association, and is the President-elect and a director of the Manufacturers and Wholesalers Division of the Monument Builders of North America. James L. Fox. Since 1989, Mr. Fox has been Executive Vice President and General Manager of First Data Investor Services Group, a division of First Data Corporation. Mr. Fox's term as a director of the Company will expire in 1999. Peter A. Friberg has been Senior Vice President -- Memorial Sales, of the Company since 1996 and a director of the Company since January 1996. From 1975 to 1995, Mr. Friberg co-owned and co-managed the Anderson-Friberg Company, a memorial manufacturing company, in Barre, Vermont, serving as President 42 44 from 1991 to 1995. From 1991 to 1993, Mr. Friberg was President of the Barre Granite Association. Mr. Friberg's term as a director of the Company will expire in 1998. Albert Gherardi, Jr. has been Vice President, Facilities Management of the Company since 1996. Prior to 1996, Mr. Gherardi held various positions over a 40-year period with Lawson Granite Company, a memorials company that the Company acquired in 1996. Albert Gherardi, Jr. is the father of Mark A. Gherardi. Mark A. Gherardi has been Senior Vice President, Barre and Canada Manufacturing Operations and a director of the Company since 1996. Prior to 1996, Mr. Gherardi held various sales and production positions over a 20-year period with Lawson Granite Company. Mr. Gherardi's term as a director of the Company will expire in 1998. Mark Gherardi is the son of Albert Gherardi, Jr. Jon M. Gregory has been President -- Quarry Division since 1993 and has been a director of the Company since 1995. Since joining the Company in 1975, Mr. Gregory has served in various positions including Senior Vice President of the Memorials Division, Manager of Manufacturing and line production supervisor. Mr. Gregory's term as a director of the Company will expire in 1998. Edward E. Haydon has been Senior Vice President -- National Accounts Manager since 1996 and President of Rock of Ages Canada, Inc. since 1985. In addition, Mr. Haydon was also Senior Vice President, Memorial Operations from 1991 to 1993. Mr. Haydon is also a Director of the Canadian Stone Association, and a Trustee of the Manufacturers and Wholesalers Division of Monument Builders of North America. John E. Keith will become, upon consummation of the Keith Acquisition, the President -- Retail Division and a director of the Company. Mr. Keith has been an owner of and President of Keith Monument since 1989. From 1965 to 1989, Mr. Keith held various officer positions with Keith Monument. Mr. Keith's term as a director of the Company will expire in 2000. Richard C. Kimball has been President -- Memorials Division, and Vice Chairman of the Board of Directors since 1993 and a director of the Company since 1986. Prior to joining the Company, Mr. Kimball served as a director, principal and President of The Bigelow Company, Inc., a strategic planning and investment banking firm from 1972 until 1993. Mr. Kimball's current term as a director of the Company will expire in 2000. John R. Monson has been Secretary of the Company since 1984 and General Counsel of the Company since August, 1996. Since 1974, Mr. Monson has been a partner, director and member of Wiggin & Nourie, P.A., a law firm located in Manchester, New Hampshire that has represented the Company since 1984. G. Thomas Oglesby, Jr. became the President -- Keystone Division and a director of the Company in connection with the consummation of the Keystone Acquisition in June 1997. Since 1982, Mr. Oglesby has been President of Keystone Memorials Inc. Mr. Oglesby was a member of the Board of Directors and served four separate terms as President of the Elberton Granite Association from 1979 until 1996. He is a director of the American Monument Association and the Manufacturers and Wholesalers Division of the Monument Builders of North America. He is the father of George T. Oglesby, III. Mr. Oglesby's current term as a director of the Company will expire in 1999. George T. Oglesby, III was elected Vice President -- Keystone Division in connection with the consummation of the Keystone Acquisition in June 1997. Since 1992, Mr. Ogelsby has held various sales and management positions with Keystone Memorials Inc. He is a member of the Board of Directors of the Elberton Granite Association. Gerald E. Parrott has been Vice President -- Precision Products since 1992. From 1976 to 1992 he was Chief Engineer of the Company. Kurt M. Swenson has been the President and Chief Executive Officer and Chairman of the Board of Directors of the Company since 1984. Mr. Swenson has been the Chief Executive Officer and a director of Swenson Granite Company, Inc. since 1974. He is also a director of the American Monument Association, the Funeral and Memorial Information Council, the National Building Granite Quarriers Association and Group Polycor International. Mr. Swenson is also a director and the President of the StonExpo Federation and a 43 45 trustee of the Manufacturers and Wholesalers' Division of Monument Builders of North America. Mr. Swenson's current term as a director of the Company will expire in 2000. Charles M. Waite has been a director of the Company since 1985. Since 1989, Mr. Waite has been managing partner of Chowning Partners, a financial consulting firm that provides consulting services to New England companies. Mr. Waite's current term as a director will expire in 2000. Fredrick E. Webster, Jr., Ph.D. has been a Professor of Management at the Amos Tuck School of Business Administration of Dartmouth College since 1965. He is also a management consultant and lecturer. Dr. Webster serves as a director of Vermont Public Radio and the American Marketing Association. He is also a member of the Corporation of Mary Hitchcock Memorial Hospital. Mr. Webster's term as a director will expire in 1999. COMMITTEES OF THE BOARD OF DIRECTORS The principal function of the Audit Committee, which, upon consummation of this offering, will consist of Messrs. Fox and Waite, is to endeavor to assure the integrity and adequacy of financial statements issued by the Company. It is intended that the Audit Committee will review internal auditing systems and procedures as well as the activities of the public accounting firm performing the external audit. The principal function of the Compensation Committee, which, upon consummation of this offering, will consist of Messrs. Fox, Waite and Webster, is to review periodically the suitability of the remuneration arrangements (including benefits) for the executive officers of the Company and to administer the 1994 Plan. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During 1996, the Compensation Committee of the Board of Directors was comprised of Kurt Swenson, Guy A. Swenson, Jr. and Charles M. Waite. During his 1996 service on the Compensation Committee, Mr. Swenson was the President and Chief Executive Officer of the Company and Mr. Swenson participated in all compensation decisions, including those related to his own compensation. COMPENSATION OF DIRECTORS Directors who are not also officers of the Company are paid annual directors' retainers of $5,000, and $250 for each meeting of the Board, including committee meetings. Directors are also eligible for stock option grants under the 1994 Plan. 44 46 EXECUTIVE COMPENSATION The following table sets forth information with respect to the Chief Executive Officer of the Company and each of the four other most highly compensated executive officers of the Company (the "Named Executive Officers") for the year ended December 31, 1996. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION --------------------- -------------------- SECURITIES UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) 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 45 47 on the future performance of the Common Stock. There can be no assurance that the amounts reflected in the table will be the actual amounts achieved. The following table sets forth information concerning the fiscal year-end value of unexercised options held at December 31, 1996 by each of the Named Executive Officers, using the exercise price of options granted in December, 1996 as the fiscal year-end value per share of Common Stock. Each of the stock options set forth below represents the right to acquire Class B Common Stock. During 1996, no stock options were exercised by any of the Named Executive Officers. The Company has not granted any stock appreciation rights. FISCAL YEAR-END OPTION VALUES
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
46 48 These calculations are based on the retirement formula in effect as of December 31, 1996, which provides an annual life annuity at age 65 equal to 1.8% of a participant's final five-year average compensation (excluding bonus) plus .4% of a participant's final five-year average compensation in excess of Social Security Covered Compensation times years of service to a maximum of 30 years. Estimated years of continuous service for each of the Named Executive Officers, as of December 31, 1996 and rounded to the full year, are: Mr. G. Anderson, 28 years; Mr. J. Gregory, 21 years; Mr. M. Gherardi, 16 years; Mr. R. Kimball, 4 years; and Mr. K. Swenson, 13 years. In addition, the Company's Salary Continuation Agreements provide for supplemental pension benefits to certain executive officers of the Company, including the Named Executive Officers. The following table sets forth the supplemental pension benefits for the Named Executive Officers.
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 47 49 generally be entitled to receive an additional payment such that after payment by Mr. Swenson of all taxes, Mr. Swenson retains an amount of the additional payment equal to the excise tax imposed. The Company has entered into an employment agreement with G. Thomas Oglesby, Jr. and George T. Oglesby, III and will enter into employment agreements with each of Robert Otis Childs, III, John E. Keith and Roy H. Keith, Jr. (such persons, together with G. Thomas Oglesby, Jr., being referred to as the "Acquisition Executives" and such employment agreements with the Acquisition Executives being referred to collectively as the "Acquisition Employment Agreements"), upon consummation of the C&C Acquisition and Keith Acquisition. The Acquisition Employment Agreement with Mr. Oglesby provides for an initial five-year term commencing on June 27, 1997, and each of the other Acquisition Employment Agreements provides, in effect, for an initial five-year term commencing on the date of the offering. Pursuant to the Acquisition Employment Agreements, the Executives will hold the respective positions listed for such persons under "Management -- Directors and Officers". The Acquisition Employment Agreements provide for benefits of the type generally provided to key executives of the Company, and for continued payment of salary and benefits over the remainder of the term if the Executive's employment is terminated by the Company without Cause. The Acquisition Employment Agreements and related undertakings generally prohibit the Executives from competing with the Company during the term of employment and for two years thereafter, and contain customary confidentiality provisions in favor of the Company. In addition, the Acquisition Employment Agreements of G. Thomas Oglesby, Jr. and John E. Keith provide that, so long as they remain employed under their respective Acquisition Employment Agreements, they will be nominated for election to the Board of Directors of the Company, subject to certain conditions. The Company will also enter into employment agreements with Richard C. Kimball, George R. Anderson, Jon Gregory and Edward E. Haydon (the "Officer Employment Agreements"), effective upon consummation of this offering. The Officer Employment Agreements will contain substantially the same terms as the Acquisition Employment Agreements, except that they will not include any right to be nominated for election to the Company's Board of Directors. In connection with the acquisitions of Lawson Granite Company and the Anderson Friberg Company, the Company on January 1, 1996 entered into five-year employment agreements (the "Lawson-AFCO Employment Agreements") with Peter Friberg, Albert Gherardi, Jr., Mark Gherardi and Paula Plante (the "Lawson-AFCO Employees") providing for the employment of such persons in their current positions. The Lawson-AFCO Employment Agreements contain substantially the same terms as the Acquisition Employment Agreements except that they provide for certain severance payments upon certain conditions occurring. INCENTIVE PLAN 1994 Amended and Restated Stock Plan. Under the 1994 Plan, 1,500,000 shares of Common Stock have been reserved for issuance to officers, directors, employees and consultants of the Company and its subsidiaries. Awards under the 1994 Plan made by the Board of Directors prior to the consummation of this offering will be satisfied in shares of Class B Common Stock and awards made under the 1994 Plan made on or after that date will be satisfied in shares of Class A Common Stock. As of the date of this Prospectus, options for 862,500 shares of Class B Common Stock have been granted and were outstanding under the 1994 Plan and no such options have been exercised. Options for 383,252 shares of Class A Common Stock will be granted in connection with the Acquisitions and to two non-employee directors who will assume their positions upon consummation of this offering. In addition, as of the date of this Prospectus, options to acquire 254,248 shares of Class A Common Stock remained available for future issuance under the 1994 Plan. Under the terms of the 1994 Plan, "incentive stock options" ("ISOs") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), "nonqualified stock options" or options which do not qualify as ISOs ("NQSOs"), awards of Common Stock, and opportunities to make direct purchases, of Common Stock ("Awards") may be granted by the Board of Directors to employees (including officers and directors who are employees), directors and consultants of the Company, except that ISOs may be granted only to persons who are employees of the Company at the time the ISOs are granted. Initially, each ISO will be exercisable over a period, determined by the Board of Directors in its discretion, not to exceed ten years from the date of grant, as required by the Code. In addition, in the case of an ISO granted to an individual who, at the time such ISO is granted, owns shares of capital stock of the 48 50 Company representing more than ten percent of the total combined voting power of all classes of stock of the Company, the exercise period for an ISO may not exceed five years from the date of grant. Options may be exercisable during the exercise period at such times, in such amount, in accordance with such terms and conditions, and subject to such restrictions as are set forth in the option agreement evidencing the grant of such options. The Board of Directors generally has the right to accelerate the exercisability of any options granted under the 1994 Plan which would otherwise be unexercisable. Upon certain consolidations or mergers, the board of directors of any entity assuming the obligations of the Company may make equitable adjustments to the options, accelerate the exercisability of options or terminate them in exchange for a cash payment. The 1994 Plan shall expire at the end of the day on November 20, 2004, except with respect to options or Awards outstanding on such date. The Board of Directors may terminate the 1994 Plan sooner at any time or amend the Plan at any time, subject to the terms of the 1994 Plan. LIMITATION OF LIABILITY AND INDEMNIFICATION The Company's Amended and Restated Certificate of Incorporation (the "Certificate of Incorporation") provides that no director of the Company shall be personally liable to the Company or to any stockholder for monetary damages arising out of such director's breach of fiduciary duty, except to the extent that the elimination or limitation of liability is not permitted by the Delaware General Corporation Law. The Delaware General Corporation Law, as currently in effect, permits charter provisions eliminating the liability of directors for breach of fiduciary duty, except that such charter provisions may not eliminate or limit the liability of directors for: (i) any breach of the director's duty of loyalty to a corporation or its stockholders; (ii) any acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) any payment of a dividend or approval of a stock purchase or other transaction that is illegal under Section 174 of the Delaware General Corporation Law; or (iv) any transaction from which the director derived an improper personal benefit. A principal effect of this provision of the Certificate of Incorporation is to limit or eliminate the potential liability of the Company's directors for monetary damages arising from any breach of their duty of care, unless the breach involves one of the four exceptions described in clauses (i) through (iv) of the immediately preceding sentence. The Certificate of Incorporation and the Company's By-laws further provide for the indemnification of the Company's directors and officers to the fullest extent permitted by Section 145 of the Delaware General Corporation Law, including circumstances in which indemnification is otherwise discretionary. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. At the present time, there is no pending litigation or proceeding involving any director, officer, employee or agent of the Company in which indemnification will be required or permitted. The Company is not aware of any threatened litigation or proceeding which may result in a claim for such indemnification. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Prior to the closing of the offering, the Company will effect a reorganization (the "Reorganization") as follows: (i) the reincorporation merger of Rock of Ages Corporation, a Vermont corporation and the immediate predecessor to the Company ("ROA Vermont"), with and into a newly-formed Delaware corporation, with the Company surviving as a Delaware corporation (the "Reincorporation Merger"), which occurred on August 12, 1997, whereby the Class A and Class B Common Stock was created and each outstanding share of common stock of ROA Vermont was converted into one half of a share of Class B Common Stock; (ii) the merger of Swenson Granite Company ("Swenson Granite") with and into the Company, with the Company as the surviving corporation (the "Swenson Merger"), in which Swenson Granite's stockholders will receive 1,618.123 shares of Class B Common Stock for each share of Swenson Granite capital stock held by them; and (iii) immediately prior to the Swenson Merger, Swenson Granite will distribute its curb and landscaping business (essentially all of its operating assets and operating liabilities) to its stockholders (the "Swenson Granite Distribution") through a pro rata distribution of all of the member 49 51 interests in a newly formed limited liability company to be named Swenson Granite Company LLC ("Swenson LLC"). Following the Swenson Granite Distribution and prior to the Swenson Merger, the sole asset of Swenson Granite will be its 93% stock interest in the Company and its only liabilities will be an intercompany payable to the Company and a note payable described below. Kurt M. Swenson and his brother Kevin C. Swenson own in the aggregate approximately 60.6% of Swenson Granite. Robert Pope, a security holder of more than five percent of the Class B Common Stock of the Company, will become President and Chief Executive Officer of Swenson LLC following the Swenson Granite Distribution. Swenson Granite is a party to certain financing agreements of the Company with CIT and is a co-maker and/or guarantor of all indebtedness of the Company due to CIT. See "Management's Discussion and Analysis -- Liquidity and Capital Resources". Upon consummation of the Swenson Granite Distribution and the offering, Swenson LLC will be released by CIT as a party, co-maker and/or guarantor of the Company's indebtedness to CIT, and the Company will remain liable with respect thereto. As of June 30, 1997, the Company carried on its books approximately $4.6 million due from Swenson Granite with respect to borrowings by the Company under these credit facilities and advanced by the Company to Swenson Granite. Of this amount, approximately $3.3 million will not be assumed or repaid by Swenson LLC in connection with the Swenson Granite Distribution and will remain an obligation of the Company. The balance of approximately $1.3 million, together with any net advances from the Company to Swenson Granite from and after June 30, 1997 to the date of the Swenson Granite Distribution and the consummation of the offering, will be repaid by Swenson LLC to the Company on or before December 31, 1997. In connection with the Company's acquisition of Lawson Granite Company and Anderson Friberg Company in December 1995, Swenson Granite is obligated under certain notes and agreements related thereto (the "Lawson-Anderson Friberg Obligations"). Except for certain employment agreement and other obligations to Robert F. Pope (the "Pope Obligations"), the Chief Operating Officer of Swenson Granite who, effective upon the Swenson Granite Distribution, will become President and Chief Executive Officer of Swenson LLC, none of the Lawson-Anderson Friberg Obligations, including but not limited to a note payable to Paula Plante in the amount of $310,000, will be assumed by Swenson LLC and will become direct obligations of the Company as a result of the Swenson Merger. The Company will indemnify Swenson LLC with respect to such obligations, other than the Pope Obligations as to which Mr. Pope will release, and Swenson LLC will provide an indemnity to, Swenson Granite and the Company. Swenson LLC will own two granite quarries, one in Concord, New Hampshire and other in Woodbury, Vermont. Both have been owned by Swenson Granite for more than 40 years. The Company anticipates that it will continue to purchase Woodbury granite from Swenson LLC at the same price Swenson LLC charges its landscape manufacturing operations. The Company expects that it will continue to be able to purchase all of the excess output of the Woodbury quarry (beyond that required by Swenson LLC for its curb and landscaping operations) for resale for both memorial and other uses. Because of the proximity of the Woodbury quarry to Barre, Vermont, the Company has provided, and expects to continue to provide, certain maintenance services and equipment to the Woodbury quarry. Both the Company and Swenson LLC will have the right to terminate these services at any time and the Company will have no obligation to purchase or continue to purchase Woodbury granite from Swenson LLC. The Company's sales of Woodbury granite provided by Swenson Granite represented 1.8% of 1996 sales of the Company (1.1% assuming the Acquisitions occurred as of January 1, 1996). The Company believes these arrangements with Swenson LLC are as favorable, or more favorable, than would be available from an unrelated party for comparable granite blocks. It is expected that, effective upon the Swenson Granite Distribution, ongoing pension liabilities under the Pension Plan (which is sponsored jointly by the Company and Swenson Granite) in respect of the employees of Swenson Granite will be assumed by Swenson LLC, and appropriate assets, determined in accordance with applicable law, will be transferred from the Pension Plan to a pension plan established by Swenson LLC. It is anticipated that in connection with the Swenson Granite Distribution, the 401(k) accounts of Swenson Granite employees who participate in 401(k) plans jointly sponsored by the Company and Swenson Granite will remain in a jointly sponsored plan since each employee's account is fully funded and vested as each contribution is made. 50 52 Upon consummation of the Swenson Granite Distribution, Kurt M. Swenson, the Company's Chairman and Chief Executive Officer, will own approximately 30% of all outstanding member interests of Swenson LLC. Mr. Swenson, who has served as Chairman of the Board and Chief Executive Officer of Swenson Granite since 1974, will resign as President, Chief Executive Officer of Swenson Granite, effective upon the consummation of the Swenson Granite Distribution. However, Mr. Swenson will continue to serve as a non-officer Chairman of the Board of Swenson LLC, but will have no involvement with the day to day operations of Swenson LLC. Neither Mr. Swenson nor any other officer of the Company, will receive salary, bonus, expenses or other compensation from Swenson LLC except for any pro rata share of earnings attributable to their ownership interest. In connection with the Keystone Acquisition, the Company entered into the Supply Agreements with Missouri Red and KGCI. See "Business -- Quarrying and Manufacturing Operations". G. Thomas Oglesby, Jr. is the sole owner of Missouri Red and the trustee of a trust for the benefit of his mother and others which hold 100% of KGCI. G. Thomas Oglesby, Jr. is an officer of the Company. The Company believes the terms and conditions of the Supply Agreements are as favorable as would be available from unrelated suppliers. Also in connection with the Keystone Acquisition, the Company agreed to grant to G. Thomas Oglesby, Jr. and George T. Oglesby, III, principal owners and officers of Keystone, options under the 1994 Plan to purchase 75,000 shares and 50,000 shares, respectively, at an exercise price per share equal to the initial public offering price per share of the Class A Common Stock. See "Management -- Directors and Officers." In connection with the C&C Acquisition, the Company has agreed to grant to Robert Otis Childs, III, one of the principal owners of C&C, an option under the 1994 Plan to purchase 75,000 shares of Class A Common Stock at an exercise price per share equal to the initial public offering price per share of the Class A Common Stock. See "Management -- Directors and Officers." In connection with the Keith Acquisition, the Company agreed to (i) enter into a five year triple net lease agreement with John E. Keith, who will become an officer and director of the Company upon consummation of the Keith Acquisition, and Roy Keith, Jr., the principal owners of Keith Monument, for office buildings and retail locations containing 28,000 square feet at an annual rent of $120,000; and (ii) grant to John E. Keith and Roy Keith, Jr. options under the 1994 Plan to purchase an aggregate of 125,000 shares of Class A Common Stock at an exercise price per share equal to the initial public offering price per share of the Class A Common Stock. See "Management -- Directors and Officers." Upon consummation of the offering, the Company will grant to each of James L. Fox and Frederick E. Webster, Jr., each of whom will become non-employee directors of the Company at that time, options under the 1994 Plan to purchase 29,126 shares of Class A Common Stock at an exercise price per share equal to the initial public offering price per share of the Class A Common Stock. The Company has adopted a policy pursuant to which any future transaction with one of its officers, directors or affiliates will be on terms no less favorable to the Company than could be obtained from unrelated third parties and will be approved by a majority of the disinterested members of the Board of Directors. 51 53 PRINCIPAL AND SELLING STOCKHOLDERS The following tables set forth certain information as to the beneficial ownership of the Common Stock as of September 22, 1997, and as adjusted to reflect the sale of 2,900,000 shares of Class A Common Stock offered hereby, by (i) each person known by the Company to be the beneficial owner of 5% or more of Common Stock; (ii) each director of the Company; (iii) each of the executive officers of the Company; (iv) all directors and executive officers as a group; and (v) each Selling Stockholder. Unless otherwise indicated, the Company believes all persons listed have sole voting power and sole investment power with respect to the shares shown.
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)+..................... 1,143,989 27.6 -- 1,143,989 16.5 Kevin C. Swenson(4)..................... 1,061,489 25.6 -- 1,061,489 15.3 Mark A. Gherardi(5)+.................... 277,573 6.7 -- 277,573 4.0 Missouri Red Quarries, Inc.(6).......... 263,441 6.4 -- 263,441 3.8 G. Thomas Oglesby, Jr.(7)+.............. 263,441 6.4 -- 278,441 4.0 George T. Oglesby, III(8)............... -- * -- 10,000 * Peter A. Friberg(9)+.................... 206,375 5.0 -- 206,375 3.0 Robert L. Pope(10)...................... 206,375 5.0 -- 206,375 3.0 Richard C. Kimball(11)+................. 91,626 2.2 -- 91,626 1.3 George R. Anderson(12)+................. 74,126 1.8 -- 74,126 1.1 Jon M. Gregory(13)+..................... 54,126 1.4 -- 59,126 * Charles M. Waite+....................... 29,126 * -- 29,126 * John E. Keith(14)+...................... -- * -- 100,735 1.5 James L. Fox(14)+....................... -- * -- 5,825 * Frederick E. Webster, Jr.(14)+.......... -- * -- 5,825 * Guy A. Swenson, III(15)................. 48,544 1.2 32,000 16,544 * Guy A. Swenson, Jr. (15)................ 45,307 1.1 30,307 15,000 * Peter B. Moore(15)...................... 40,453 1.0 8,000 32,453 * John D. Swenson(15)..................... 32,362 * 27,362 5,000 * George M. Karnedy....................... 29,126 * 26,126 3,000 * Christian P. Swenson(15)................ 24,272 * 17,272 7,000 * Jeanette Swenson Sumner Trust (15)...... 19,417 * 18,417 1,000 * Melvin A. Friberg Irrevocable Trust for the benefit of Andrew C. Friberg(9)... 12,945 * 12,945 -- * Melvin A. Friberg Irrevocable Trust for the benefit of Lindsay S. Friberg(9)............................ 12,945 * 12,945 -- * Melvin A. Friberg Irrevocable Trust for the benefit of Elizabeth F. Pope(10).............................. 12,945 * 12,945 -- * Melvin A. Friberg Irrevocable Trust for the benefit of Gregory J. Pope(10).... 12.945 * 12,945 -- * Melvin A. Friberg Irrevocable Trust for the benefit of Michael R. Pope(10).... 12,945 * 12,945 -- * Melvin A. Friberg Irrevocable Trust for the benefit of Joseph Yalicki......... 12,945 * 12,945 -- * Carolyn Friberg(9)...................... 9,709 * 9,709 -- * Merilyn Friberg(9)...................... 9,709 * 9,709 -- * Sally S. Friberg(9)..................... 9,709 * 9,709 -- * Nancy F. Pope(10)....................... 9,709 * 9,709 -- * Susan S. Vogelsang(15).................. 9,709 * 200 9,509 *
52 54
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 - ---------------------------------------- --------- ------- ------------ --------- ------- Carl Yalicki............................ 9,709 * 9,709 -- * J. Malcolm Swenson...................... 8,091 * 8,000 91 * All directors and executive officers as a group (11 persons).................. 2,145,382 51.7 -- 2,272,767 32.8
- --------------- + Executive Officer and/or Director * Less than 1% (1) The business address of each director, executive officer and 5% stockholder of the Company is c/o Rock of Ages Corporation, 772 Graniteville Road, Graniteville, Vermont 05654. (2) The listed persons hold Class B Common Stock except as otherwise specified. Shares of Class B Common Stock held by the Selling Stockholders will automatically convert into Class A Common Stock on a share-for-shares basis upon the sale by the Selling Stockholders of such shares pursuant to the offering. (3) Includes (i) 82,500 shares subject to stock options exercisable within 60 days and (ii) 18,750 shares held by a trust for the benefit of the children of Kurt M. Swenson of which John R. Monson is the sole trustee. Mr. Monson is Secretary and General Counsel to the Company. Mr. Swenson disclaims any voting power or beneficial interest in the 18,750 shares held by the trust. Kurt M. Swenson is the brother of Kevin C. Swenson. (4) Includes 18,750 shares held by a trust for the benefit of the children of Kevin C. Swenson of which John R. Monson is the sole trustee. Mr. Swenson disclaims any voting power or beneficial interest in these shares. Kevin C. Swenson is the brother of Kurt M. Swenson. (5) Includes 30,000 shares subject to currently exercisable stock options. (6) Missouri Red Quarries, Inc. is 100% owned by G. Thomas Oglesby, Jr. who is its President and the sole director of Missouri Red Quarries, Inc. (7) Includes 263,441 shares owned by Missouri Red Quarries, Inc. Common Stock Beneficially Owned After Offering also includes 15,000 shares of Class A Common Stock subject to options which will be granted and exercisable upon consummation of the offering. G. Thomas Oglesby, Jr. is the father of George T. Oglesby, III. (8) Represents shares of Class A Common Stock subject to stock options that will be granted and exercisable upon consummation of the offering. (9) Includes 30,000 shares subject to currently exercisable options. Excludes 25,890 shares held by trusts established by Melvin A. Friberg for the benefit of his children of which Peter A. Friberg is Trustee and 9,709 owned by each of his wife, sister and mother all listed as Selling Stockholders. Mr. Friberg disclaims any beneficial interest in such shares being sold. (10) Includes 30,000 shares subject to currently exercisable options. Excludes 38,835 shares held by trusts established by Melvin A. Friberg for the benefit of his children of which Robert L. Pope is Trustee and 9,709 shares held by his wife all listed as Selling Stockholders. Mr. Pope disclaims any beneficial interest in such shares being sold. (11) Includes 62,500 shares subject to currently exercisable stock options. (12) Includes 45,000 shares subject to currently exercisable stock options. (13) Includes 30,000 shares subject to currently exercisable stock options. (14) Represents shares of Class A Common Stock subject to stock options that will be granted and exercisable upon consummation of the offering. Also includes 88,235 shares of Class A Common Stock to be issued to National Memorial Corporation in connection with the Keith Acquisition. Mr. Keith is the president and a 50% owner of National Memorial Corporation. (15) The listed holder, or beneficiaries of the listed trusts are relatives of Kurt M. Swenson and his brother Kevin C. Swenson. 53 55 DESCRIPTION OF CAPITAL STOCK The following summarizes the material terms of the capital stock of the Company. GENERAL The authorized capital stock of the Company consists of 30,000,000 shares of Class A Common Stock, par value $.01 per share, 3,000,000 shares of which will be issued and outstanding upon the consummation of this offering (assuming an initial offering price of $17.00 per share); 15,000,000 shares of Class B Common Stock, par value $.01 per share, 3,469,540 shares of which will be issued and outstanding upon consummation of this offering; and 2,500,000 shares of Preferred Stock, par value $.01 per share, none of which will be outstanding upon consummation of this offering. As of September 22, 1997 there were 3,763,441 shares of Class B Common Stock outstanding, all of which were held by Swenson Granite and Missouri Red, no shares of Class A Common Stock outstanding and no shares of Preferred Stock outstanding. CLASS A COMMON STOCK AND CLASS B COMMON STOCK The shares of Class A Common Stock and Class B Common Stock are substantially identical, except for voting rights and certain conversion rights, as described below. Voting Rights. Each share of Class A Common Stock entitles the holder to one vote on each matter submitted to a vote of the Company's stockholders and each share of Class B Common Stock entitles the holder to ten votes on each such matter, in each case including the election of directors. Except as required by applicable law, holders of the Class A Common Stock and Class B Common Stock will vote together as a single class on all matters submitted to a vote of the stockholders. Neither the Class A Common Stock nor the Class B Common Stock has cumulative voting rights. See "Risk Factors -- Control by Existing Stockholders" and "Anti-Takeover Effects of Certain Provisions of the Charter and By-laws and of Delaware Law." Any action that can be taken at a meeting of the stockholders may be taken by written consent in lieu of the meeting if the Company receives consents signed by stockholders having the minimum number of votes that would be necessary to approve the action at a meeting at which all shares entitled to vote on the matter were present. This could permit the holders of Class B Common Stock to take all actions required to be taken by the stockholders without providing the other stockholders the opportunity to vote or raise other matters at a meeting. Dividends. Holders of Class A Common Stock and Class B Common Stock are entitled to receive dividends at the same rate if and when declared by the Board of Directors out of funds legally available therefor, subject to the dividend and liquidation rights of any Preferred Stock that may be issued and outstanding. If a dividend or distribution payable in Class A Common Stock is made on the Class A Common Stock, the Company must also make a pro rata and simultaneous dividend or distribution on the Class B Common Stock payable in shares of either Class A Common Stock or Class B Common Stock. Conversely, if a dividend or distribution payable in Class B Common Stock is made on the Class B Common Stock, the Company must also make a pro rata and simultaneous dividend or distribution on the Class A Common Stock payable solely in shares of Class A Common Stock. Conversion. Class A Common Stock has no conversion rights. Class B Common Stock will be convertible into Class A Common Stock, in whole or in part, at any time and from time to time at the option of the holder on the basis of one share of Class A Common Stock for each share of Class B Common Stock converted. Each share of Class B Common Stock will also automatically convert into one share of Class A Common Stock upon transfer to any person or entity other than a "Permitted Transferee." For this purpose, a Permitted Transferee is (i) a spouse or lineal descendant of any person duly holding shares of Class B Common Stock (a "Qualified Holder") and any spouse of such lineal descendant (all such spouses and lineal descendants, collectively, "Family Members"), (ii) the trustee of a trust for the sole benefit of a Qualified Holder or Family Member, (iii) a partnership comprised exclusively of Qualified Holders or Family members or other entity wholly owned by Qualified Holders or Family Members, or (iv) the executor, administrator or 54 56 personal representative of the estate of a Qualified Holder or Family Member, or the guardian or conservator of a Qualified Holder or any Family Member who has been adjudged disabled by a court of competent jurisdiction. Liquidation. In the event of liquidation of the Company, after payment of the debts and other liabilities of the Company and after making provision for the holders of Preferred Stock, if any, the remaining assets of the Company will be distributable ratably among the holders of the Class A Common Stock and Class B Common Stock treated as a single class. Other Provisions. The holders of shares of the Common Stock are not entitled to preemptive rights. Neither the Class A Common Stock nor the Class B Common Stock may be subdivided or combined in any manner unless the other class is subdivided or combined in the same proportion. PREFERRED STOCK The Board of Directors may, without further action by the Company's stockholders, from time to time, direct the issuance of shares of Preferred Stock in series and may, at the time of issuance, determine the rights, preferences and limitations of each series. Satisfaction of any dividend preferences of outstanding shares of Preferred Stock would reduce the amount of funds available for the payment of dividends on shares of Common Stock. Holders of shares of Preferred Stock may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding-up of the Company before any payment is made to the holders of shares of Common Stock. Under certain circumstances, the issuance of shares of Preferred Stock may render more difficult or tend to discourage a merger, tender offer or proxy contest, the assumption of control by a holder of a large block of the Company's securities or the removal of incumbent management. The Board of Directors, without stockholder approval, may issue shares of Preferred Stock with voting and conversion rights which could adversely affect holders of shares of Common Stock. Upon consummation of the offering, there will be no shares of Preferred Stock outstanding, and the Company has no present intention to issue any shares of Preferred Stock. ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CHARTER AND BY-LAWS AND OF DELAWARE LAW Charter and By-Laws The Certificate of Incorporation and the By-laws, together with certain provisions of Delaware law, contain certain provisions that could discourage potential takeover attempts and make more difficult the acquisition of a substantial block of the Common Stock. The Certificate of Incorporation provides for a Board of Directors that is divided into three classes. The directors in Class I hold office until the first annual meeting of stockholders following this offering, the directors in Class II hold office until the second annual meeting of stockholders following this offering, and the directors in Class III hold office until the third annual meeting of stockholders following this offering (or, in each case, until their successors are duly elected and qualified or until their earlier resignation, removal from office for cause or death), and, after each such election, the directors in each such class will then serve in succeeding terms of three years and until their successors are duly elected and qualified. The classification system of electing directors, the ability of stockholders to remove directors only for cause (and only upon a two-thirds vote) and the inability of stockholders to call a special meeting may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of the Company and may maintain the incumbency of the Board of Directors, as the classification of the Board of Directors and such other provisions generally increase the difficulty of, or may delay, replacing a majority of the directors. In addition, such classification system and such other provisions may be amended only upon an 85% stockholder vote. The Certificate of Incorporation authorizes the directors to issue, without stockholder approval, shares of Preferred Stock in one or more series and to fix the voting powers, designations, preferences and relative, participating, optional or other special rights (and the qualifications, limitations or restrictions of such preferences and rights) of the shares of each such series. The Certificate of Incorporation and By-laws provide that special meetings of the Company's stockholders may be called only by the Chairman of the Board, (if there is one), or the President, any Vice President, (if there is one), the Secretary or any Assistant Secretary, 55 57 (if there is one), and shall be called by any such officer at the written request of a majority of the directors. The By-laws also provide that nominations for directors may not be made by stockholders at any annual or special meeting thereof unless the stockholder intending to make a nomination notifies the Company of its intentions a specified number of days in advance of the meeting and furnishes to the Company certain information regarding itself and the intended nominee. The By-laws also require a stockholder to provide to the Secretary of the Company advance notice of business to be brought by such stockholder before any annual or special meeting of stockholders as well as certain information regarding such stockholder and others known to support such proposal and any material interest they may have in the proposed business. These provisions could delay stockholder actions that are favored by the holders of a majority of the outstanding stock of the Company until the next stockholders' meeting. Delaware Anti-Takeover Statute The Company is subject to Section 203 of the Delaware General Corporation Law which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder, unless: (i) prior to such time, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (x) by persons who are directors and also officers and (y) by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder. The application of Section 203 may limit the ability of stockholders to approve a transaction that they may deem to be in their best interests. In general, Section 203 defines "business combination" to include: (i) any merger or consolidation involving the corporation and the interested stockholder; (ii) any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation to or with the interested stockholder; (iii) subject to certain exceptions, any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or (v) the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. In general, Section 203 defines an "interested stockholder" as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person associated with, affiliated with or controlling or controlled by such entity or person. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is American Stock Transfer & Trust Company. 56 58 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering and the C&C Acquisition and Keith Acquisition, the Company will have 6,469,540 shares of Common Stock (6,904,540 shares if the Underwriters' over-allotment option is exercised in full) outstanding. The 2,900,000 shares of Class A Common Stock (3,335,000 shares if the Underwriters' over-allotment option is exercised in full) offered hereby will be freely tradable in the United States without restriction or further registration under the Securities Act, unless purchased or held by "affiliates" (as such term is defined in Rule 144) of the Company. All 3,469,540 shares of Class B Common Stock outstanding upon completion of this offering and 100,000 shares of Class A Common Stock to be issued pursuant to the C&C Acquisition and the Keith Acquisition (assuming an initial public offering price of $17 per share) will be "restricted securities" within the meaning of Rule 144 (the "Restricted Shares"). Restricted Shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144 or 701 promulgated under the Securities Act, which are summarized below. Sales of the Restricted Shares in the public market, or the availability of such shares for sale, could adversely affect the market price of the Class A Common Stock. Of the 3,569,540 Restricted Shares, 263,441 shares will be eligible for sale in the public market pursuant to Rule 144 after June 30, 1998. The remaining 3,306,099 Restricted Shares will be eligible for sale in the public market pursuant to Rule 144 upon the first anniversary of the consummation of the offering. In addition, 459,150 shares of Common Stock that are reserved for issuance pursuant subject to vested options granted pursuant to the 1994 Plan will be available for sale 90 days after the Effective Date, subject to compliance with Rule 701 and the lock-up agreements described below, if applicable. In general, under Rule 144, as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned Restricted Shares for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: (i) one percent of the number of shares of Common Stock then outstanding (which will equal approximately 30,000 shares of Class A Common Stock and 34,695 shares of Class B Common Stock immediately after this offering); or (ii) the average weekly reported trading volume during the four calendar weeks preceding the filing of a Form 144 with respect to such sale. Sales under Rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about the Company. Under Rule 144(k), a person who is not deemed to have been an affiliate of the Company at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. In general, under Rule 701, beginning 90 days after the Effective Date, certain shares issued upon the exercise of options granted by the Company prior to the date of this Prospectus will also be available for sale in the public market. Any employee, officer or director of or consultant to the Company who purchased his or her shares pursuant to a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits affiliates and non-affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. Rule 701 further provides that non-affiliates may sell such shares in the public market in reliance on Rule 144 without having to comply with the public information, volume limitation or notice provisions of Rule 144. In both cases, a holder of Rule 701 shares is required to wait until 90 days after the date of this Prospectus before selling such shares in the public market. An aggregate of 1,500,000 shares of Common Stock will be reserved for issuance to employees and directors of the Company pursuant to the 1994 Plan. Currently, 862,500 shares of Class B Common Stock are issuable under existing options granted to employees pursuant to the 1994 Plan. In addition, upon consummation of the offering, options exercisable for a total of 383,252 shares of Class A Common Stock will be granted under the 1994 Plan to employees in connection with the Acquisitions and to two new directors. After consummation of the offering, the Company intends to file one or more registration statements on Form S-8 with respect to shares of Common Stock issuable under the 1994 Plan. See "Management -- Incentive Plan." Shares covered by any such registration statement will be eligible for sale in the public market upon the effectiveness of such registration statement (which occurs immediately upon filing), subject 57 59 to the limitations of Rule 144 that are applicable to affiliates and to the lock-up agreements described below, if applicable. Upon the expiration of the lock-up agreements, 399,650 shares of Common Stock subject to vested options granted pursuant to the 1994 Plan will be available for public sale, subject to effectiveness of such a registration statement with respect to such shares or compliance with Rule 701. The Company, and the executive officers and directors and holders of more than 2% of the Common Stock have agreed with Raymond, James & Associates, Inc. not to sell, offer to sell, contract to sell, pledge or otherwise dispose of or transfer any shares of Common Stock, or any securities convertible into or exchangeable or exercisable for or any rights to purchase or acquire Common Stock for a period of 180 days following the date of this Prospectus without the prior written consent of Raymond James & Associates, Inc., other than, in the case of the Company, the issuance of options to purchase Common Stock or shares of Common Stock issuable upon the exercise thereof, issuances of Common Stock in connection with the C&C Acquisition and the Keith Acquisition and other issuances of capital stock in connection with other acquisitions, provided such shares of Common Stock issued upon the exercise of options and such shares of capital stock issued in connection with any such other acquisitions shall not be transferable prior to the end of the aforesaid 180-day period. Raymond James & Associates, Inc. may, in its sole discretion and at any time without notice, release all or any portion of the securities subject to lock-up agreements. Prior to the offering, there has been no market for the Class A Common Stock. No predictions can be made of the effect, if any, that market sales of shares of Class A Common Stock or the availability of such shares for sale will have on the market price prevailing from time to time. Nevertheless, sales of significant amounts of Class A Common Stock could adversely affect the prevailing market price of Class A Common Stock, as well as impair the ability of the Company to raise capital through the issuance of additional equity securities. 58 60 CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS The following is a general summary of certain United States federal income and estate tax consequences of the purchase, ownership, sale or other taxable disposition of the Class A Common Stock by any person or entity other than (a) a citizen or resident of the United States, (b) a corporation created or organized in or under the laws of the United States or of any state thereof and (c) a person or entity otherwise subject to United States federal income taxation on income from sources outside the United States (a "non-U.S. Holder"). This summary does not address all United States federal tax considerations that may be relevant to non-U.S. Holders in light of their particular circumstances or to certain non-U.S. Holders that may be subject to special treatment under United States federal income or estate tax laws. This summary is based upon the Internal Revenue Code of 1986, as amended, existing, temporary and proposed regulations promulgated thereunder and administrative and judicial decisions, all of which are subject to change, possibly with retroactive effect. In addition, this summary does not address the effect of any state, local or foreign tax laws. Each prospective purchaser of the Class A Common Stock should consult its tax advisor with respect to the tax consequences of purchasing, owning and disposing of the Class A Common Stock. DIVIDENDS Dividends paid to a non-U.S. Holder of Class A Common Stock generally will be subject to a withholding of United States federal income tax at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty) unless the dividend is effectively connected with the conduct of a trade or business of the non-U.S. Holder within the United States in which case the dividend will be taxed at ordinary federal income tax rates. If the non-U.S. Holder is a corporation, such effectively connected income may also be subject to an additional "branch profits tax." A non-U.S. Holder may be required to satisfy certain certification requirements in order to claim treaty benefits or otherwise claim a reduction of, or exemption from, the withholding described above. SALE OR OTHER DISPOSITION OF CLASS A COMMON STOCK A non-U.S. Holder generally will not be subject to United States federal income tax in respect of any gain recognized on the sale or other taxable disposition of Class A Common Stock unless (i) the gain is effectively connected with the conduct of a trade or business of the non-U.S. Holder within the United States, (ii) in the case of a non-U.S. Holder who is an individual and holds the Class A Common Stock as a capital asset, the holder is present in the United States for 193 or more days in the taxable year of the disposition and the gain is considered derived from sources within the United States, (iii) the non-U.S. Holder is subject to tax pursuant to the provisions of United States federal income tax law applicable to certain United States expatriates or (iv) the Company is or has been during certain periods preceding the disposition a "U.S. real property holding corporation" for United States federal income tax purposes and certain other requirements are met. The Company does not believe that it has ever been, or is likely to become, a U.S. real property holding corporation. ESTATE TAX Class A Common Stock owned or treated as owned by an individual non-U.S. Holder at the time of death will be includible in the individual's gross estate for United States federal estate tax purposes, unless an applicable treaty provides otherwise, and may be subject to United States federal estate tax. BACKUP WITHHOLDING AND INFORMATION REPORTING Dividends. United States backup withholding tax generally will not apply to dividends paid on the Class A Common Stock to a non-U.S. Holder at an address outside the United States. The Company must report annually to the Internal Revenue Service and to each nonU.S. Holder the amount of dividends paid to, and the tax withheld with respect to, such holder, regardless of whether any tax was withheld. This information may also be made available to the tax authorities in the non-U.S. Holder's country of residence. 59 61 Sale or Other Disposition of Class A Common Stock. Upon the sale or other taxable disposition of Class A Common Stock by a non-U.S. Holder to or through a United States office of a broker, the broker must backup withhold at a rate of 31% and report the sale to the Internal Revenue Service, unless the holder certifies its non-U.S. Holder status under penalties of perjury or otherwise establishes an exemption. Upon the sale or other taxable disposition of Class A Common Stock by a non-U.S. Holder to or through the foreign office of a United States broker, or a foreign broker with a certain relationship to the United States, the broker must report the sale to the Internal Revenue Service (but not backup withhold) unless the broker has documentary evidence in its files that the seller is a non-U.S. Holder and/or certain other conditions are met or the holder otherwise establishes an exemption. Amounts withheld under the backup withholding rules generally are allowable as a refund or credit against a non-U.S. Holder's United States federal income tax liability, if any, provided that the required information is furnished to the Internal Revenue Service on a timely basis. Proposed Regulations. The Department of the Treasury has issued proposed Treasury regulations concerning the non-U.S. Holder certification procedures regarding U.S. withholding tax on certain amounts paid to non-U.S. persons, which generally are proposed to be effective with respect to payments made after December 31, 1998. Prospective investors should consult their tax advisors concerning the effect, if any, of the adoption of such proposed Treasury regulations on an investment in the Class A Common Stock. 60 62 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the underwriters named below (the "Underwriters"), through their representative Raymond James & Associates, Inc. (the "Representative"), have severally agreed to purchase from the Company and the Selling Stockholders the following respective numbers of shares of Class A Common Stock at the public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus:
NUMBER OF NAME SHARES -------------------------------------------------------------------------- --------- Raymond James & Associates, Inc. ......................................... --------- Total........................................................... 2,900,000 =========
The Underwriting Agreement provides that the obligations of the several Underwriters to pay for and accept delivery of the shares of Class A Common Stock offered hereby are subject to approval of certain legal matters by their counsel and to certain other conditions. The Underwriters are obligated to take and pay for all shares of Class A Common Stock offered hereby (other than those covered by the over-allotment option described below) if any such shares are purchased. The Underwriters, through the Representative, propose to offer part of the shares of Class A Common Stock directly to the public at the public offering price set forth on the cover page of this Prospectus and part of the shares to certain dealers at a price that represents a concession not in excess of $ per share under the public offering price. The Underwriters may allow, and such dealers may re-allow, a concession not in excess of $ per share to certain other dealers. The Representative has advised the Company that the Underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. The Company has granted the Underwriters an option exercisable not later than 30 days after the date of this Prospectus, to purchase up to an aggregate of 435,000 additional shares of Class A Common Stock, at the public offering price, less the underwriting discounts and commissions set forth on the cover page of this Prospectus. To the extent that the Underwriters exercise such option, each of the Underwriters will have a firm commitment to purchase approximately the same percentage thereof as the number of shares of Class A Common Stock to be purchased by it shown in the above table bears to the total shown, and the Company will be obligated, pursuant to the option, to sell such shares to the Underwriters. The Underwriters may exercise their option only to cover over-allotments made in connection with the sale of the shares of Class A Common Stock offered hereby. If purchased, the Underwriters will sell such additional shares on the same terms as those on which the shares are being offered. The Company and the Selling Stockholders have agreed to indemnify the Underwriters against, or to contribute to, losses arising out of certain liabilities in connection with this offering, including liabilities under the Securities Act. At the request of the Company, the Underwriters have reserved for sale, at the initial public offering price, up to 250,000 shares of Class A Common Stock to be sold and offered hereby by the Company to certain employees and customers of the Company and other persons. The number of shares of Class A Common Stock available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. Any reserved shares which are not orally confirmed for purchase within one day of the pricing of the offering will be offered by the Underwriters to the general public on the same terms as the other shares offered hereby. Certain individuals purchasing reserved shares may be required to agree not to sell, offer or otherwise dispose of any shares of Class A Common Stock for a period of 180 days after the date of this Prospectus. 61 63 The Company, its executive officers and directors, and holders of more than 2% of the Common Stock prior to the consummation of the offering, have agreed not to sell, offer to sell, contract to sell, pledge or otherwise dispose of or transfer any shares of Common Stock, or any securities convertible into or exchangeable or exercisable for, or any rights to purchase or acquire, Common Stock for a period of 180 days following the date of this Prospectus without the prior written consent of Raymond James & Associates, Inc., other than, in the case of the Company, the issuance of options to purchase Common Stock or shares of Common Stock issuable upon the exercise thereof, issuances of Common Stock in connection with the C&C Acquisition and the Keith Acquisition and other issuances of capital stock of the Company in connection with other acquisitions, provided such shares of Common Stock issued upon the exercise of options and such shares of capital stock issued in connection with any such other acquisitions shall not be transferable prior to the end of the aforesaid 180-day period. Raymond James & Associates, Inc. may, in its sole discretion and at any time without notice, release all or any portion of the shares subject to such lock-up agreements. Prior to this offering, there has been no public market for the Class A Common Stock of the Company. The initial public offering price the Class A Common Stock was determined by negotiation between the Company and the Representative. Among the factors considered in such negotiations were prevailing market conditions, the value of publicly traded companies believed to be comparable to the Company, the results of operations of the Company in recent periods, estimates of the business potential of the Company, the present state of the Company's development and other factors deemed relevant. The Representative, acting on behalf of the Underwriters, may over-allot the shares offered hereby and, during the course of this offering, may engage in stabilizing and syndicate short covering and may impose a penalty bid on members of the offering syndicate. Over-allotment involves sales of shares in excess of the total number being offered, thereby creating a syndicate short position. Stabilizing involves a bid by the syndicate to purchase shares in the open market at a specified price, which may not exceed the public offering price and may be decreased but not increased. Syndicate short covering involves open market purchases of shares to cover all or a portion of the syndicate short position created by over-allotments. A penalty bid permits the Representative to reclaim selling concessions from a syndicate member when shares sold by that member in the offering are purchased by the Representative in the open market to cover a syndicate short position or pursuant to a stabilizing bid. All of these activities may cause the market price of the Class A Common Stock to be higher than otherwise might be the case in the absence of these activities. These transactions may be effected on the Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time. The foregoing includes a summary of certain principal terms of the Underwriting Agreement and does not purport to be complete. Reference is made to the copy of the Underwriting Agreement that is on file as an exhibit to the Registration Statement on Form S-1 (the "Registration Statement") under the Securities Act and filed by the Company with the Commission with respect to the shares of Class A Common Stock offered hereby, of which this Prospectus is a part. LEGAL MATTERS The validity of the issuance of the shares of Class A Common Stock offered hereby will be passed upon for the Company by Skadden, Arps, Slate, Meagher & Flom LLP, Boston, Massachusetts. Certain legal matters will be passed upon for the Underwriters by Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A., Miami, Florida. EXPERTS The audited financial statements of the Company, the audited financial statements of Keystone, the audited financial statements of C&C, and the audited financial statements of Keith Monument, have been included herein and in the Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP, independent auditors, as of the dates and for the periods indicated in their reports appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The audited financial statements of the Quarry Companies and SMI have been included herein and in the Registration Statement in reliance upon 62 64 the report of Greene and Company, L.L.P., independent certified public accountants as of the dates and for the periods indicated in their reports appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company filed with the Commission the Registration Statement under the Securities Act with respect to the shares of Class A Common Stock being offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits and schedules thereto, to which reference is hereby made. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete; with respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description thereof. The Registration Statement and the exhibits and schedules thereto may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be available for inspection and copying at the regional offices of the Commission located at 7 World Trade Center, New York, New York 10048 and at Northwestern Atrium Center, 500 West Madison Street (Suite 1400), Chicago, Illinois 60661. Copies of such material may also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Additionally, the Commission maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission at (http://www.sec.gov). Upon consummation of this offering, the Company will become subject to the information requirements of the Exchange Act, and in accordance therewith will be required to file periodic reports and other information with the Commission. The Company intends to furnish its stockholders with annual reports containing audited financial statements. 63 65 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-31 Combined Balance Sheet as of April 30, 1997 and July 31, 1997 (unaudited)............ F-32 Combined Statement of Operations for the Ten-Month Period ended April 30, 1997 and the Three-Month Periods ended July 31, 1996 and 1997 (unaudited)................... F-33 Combined Statement of Stockholder's Deficit for the Ten-Month Period ended April 30, 1997 and the Three-Month Period ended July 31, 1997 (unaudited).................... F-34 Combined Statement of Cash Flows for the Ten-Month period ended April 30, 1997 and the Three-Month Periods ended July 31, 1996 and 1997 (unaudited)................... F-35 Notes to Combined Financial Statements............................................... F-36 KEITH MONUMENT COMPANIES Independent Auditors' Report......................................................... F-41 Combined Balance Sheets as of June 30, 1996 and 1997................................. F-42 Combined Statements of Operations for the Years ended June 30, 1995, 1996 and 1997... F-43 Combined Statements of Stockholders' Equity for the Years ended June 30, 1995, 1996 and 1997........................................................................... F-44 Combined Statements of Cash Flows for the Years ended June 30, 1995, 1996 and 1997... F-45 Notes to Combined Financial Statements............................................... F-46
F-1 66
PAGE ------ PENNSYLVANIA GRANITE CORPORATION Independent Auditors' Report on Financial Statements................................. F-54 Consolidated Balance Sheets as of May 31, 1997 and April 30, 1997.................... F-55 Consolidated Statement of Operations and Accumulated Deficit for the Eleven Months ended May 31, 1997................................................................. F-56 Consolidated Statement of Operations and Accumulated Deficit for the Ten Months ended April 30, 1997..................................................................... F-57 Consolidated Statement of Cash Flows for the Eleven Months ended May 31, 1997........ F-58 Consolidated Statement of Cash Flows for the Ten Months ended April 30, 1997......... F-59 Notes to Consolidated Financial Statements........................................... F-60 PENNSYLVANIA GRANITE CORPORATION Independent Auditors' Report on Financial Statements................................. F-65 Consolidated Balance Sheet as of June 30, 1996....................................... F-66 Consolidated Statement of Operations and Accumulated Deficit for the Year ended June 30, 1996...................................................................... F-67 Consolidated Statement of Cash Flows for the Year ended June 30, 1996................ F-68 Notes to Consolidated Financial Statements........................................... F-69 CAPRICE BLUE QUARRY, INC. Independent Auditors' Report on Financial Statements................................. F-74 Balance Sheets as of May 31, 1997 and April 30, 1997................................. F-75 Statement of Operations and Accumulated Deficit for the Eleven Months ended May 31, 1997............................................................................... F-76 Statement of Operations and Accumulated Deficit for the Ten Months ended April 30, 1997............................................................................... F-77 Statement of Cash Flows for the Eleven Months ended May 31, 1997..................... F-78 Statement of Cash Flows for the Ten Months ended April 30, 1997...................... F-79 Notes to Financial Statements........................................................ F-80 AUTUMN ROSE QUARRY, INC. Independent Auditors' Report on Financial Statements................................. F-83 Balance Sheets as of May 31, 1997 and April 30, 1997................................. F-84 Statement of Operations and Accumulated Deficit for the Eleven Months ended May 31, 1997............................................................................... F-85 Statement of Operations and Accumulated Deficit for the Ten Months ended April 30, 1997............................................................................... F-86 Statement of Cash Flows for the Eleven Months ended May 31, 1997..................... F-87 Statement of Cash Flows for the Ten Months ended April 30, 1997...................... F-88 Notes to Financial Statements........................................................ F-89 SOUTHERN MAUSOLEUMS, INC. Independent Auditors' Report......................................................... F-93 Balance Sheets as of May 31, 1997 and April 30, 1997................................. F-94 Statement of Operations and Accumulated Deficit for the Eleven Months ended May 31, 1997............................................................................... F-95 Statement of Operations and Accumulated Deficit for the Ten Months ended April 30, 1997............................................................................... F-96 Statement of Cash Flows for the Eleven Months ended May 31, 1997..................... F-97 Statement of Cash Flows for the Ten Months ended April 30, 1997...................... F-98 Notes to Financial Statements........................................................ F-99
F-2 67 INDEPENDENT AUDITORS' REPORT The Board of Directors Rock of Ages Corporation: We have audited the accompanying consolidated balance sheets of Rock of Ages Corporation and Subsidiaries as of December 31, 1995 and 1996 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Rock of Ages Corporation and Subsidiaries as of December 31, 1995 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. Burlington, Vermont /s/ KPMG Peat Marwick LLP March 24, 1997, except as to Note 13 which is as of August 12, 1997 F-3 68 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........................................ 1,779,113 1,748,663 1,730,663 Debt issuance costs, less accumulated amortization of $229,976 in 1995 and $104,040 in 1996....... 157,019 123,293 88,683 Organization costs, less accumulated amortization of $26,688 in 1995 and $63,961 in 1996......... 72,644 212,799 189,985 Deferred tax assets (note 6)...................... 763,862 597,576 543,176 Intangible pension asset (note 8)................. 0 93,418 93,418 Investments in and advances to affiliated companies (note 5)............................. 378,614 217,953 1,407,760 Other investments, at cost which approximates market......................................... 109,119 59,366 30,948 Other............................................. 296,333 489,734 0 ----------- ----------- ----------- Total other assets............................. 4,308,711 4,459,939 5,044,111 ----------- ----------- ----------- Total assets (notes 3 and 4).............. $48,101,040 $47,994,776 $57,768,673 =========== =========== ===========
See accompanying notes to consolidated financial statements. F-4 69 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)...................... 3,232,094 3,504,090 3,566,431 Deferred income, excluding current portion.......... 800,000 400,000 200,000 Accrued pension cost (note 8)....................... 1,504,512 1,504,512 1,504,512 Accrued postretirement benefit cost (note 8)........ 504,750 506,938 506,938 ----------- ----------- ----------- Total liabilities......................... 32,621,834 30,623,290 37,936,891 ----------- ----------- ----------- Commitments (note 7) Stockholders' equity: Preferred stock -- $.01 par value; 2,500,000 shares authorized No shares issued or outstanding Common Stock -- Class A, $.01 par value; 30,000,000 shares authorized No shares issued or outstanding Common stock -- Class B, $.01 par value; 15,000,000 shares authorized 3,500,000 shares issued and outstanding in 1995 and 1996............................... 35,000 35,000 37,634 Additional paid-in capital........................ 5,593,843 5,593,843 9,211,641 Retained earnings................................. 9,827,918 11,736,082 10,675,378 Cumulative translation adjustment................. 22,445 6,561 (55,237) ----------- ----------- ----------- Total stockholders' equity................ 15,479,206 17,371,486 19,831,782 ----------- ----------- ----------- Total liabilities and stockholders' equity.................................. $48,101,040 $47,994,776 $57,768,673 ========== ========== ==========
See accompanying notes to consolidated financial statements. F-5 70 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......... $ .47 .35 .46 (.06) .00 Weighted average number of common shares outstanding................ 3,899,897 4,017,257 4,105,912 4,105,912 4,326,287
See accompanying notes to consolidated financial statements. F-6 71 ROCK OF AGES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 AND THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
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 3,575,564 -- -- 3,582,798 Cumulative translation adjustment.................... -- -- -- -- (61,798) (61,798) --------- ------- --------- --------- ------- ---------- Balance at June 30, 1997.......... 3,763,441 $37,634 9,211,641 10,675,378 (55,237) 19,831,782 ========= ======= ========= ========= ======= ==========
See accompanying notes to consolidated financial statements F-7 72 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 73 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................ $ -- 9,186,561 625,416 -- 6,807,521 Liabilities assumed and issued...................... -- (5,449,882) (387,106) -- (3,224,723) Capital contributed............ -- (3,381,799) -- -- -- Common stock issued............ -- -- -- -- (3,582,798) ---------- ---------- ---------- ---------- ---------- Cash paid...................... -- 354,880 238,310 -- -- Less cash acquired............. -- (357,522) -- -- (73,256) ---------- ---------- ---------- ---------- ---------- Net cash paid for (received from) acquisitions......... $ -- (2,642) 238,310 -- (73,256) ========== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements. F-9 74 ROCK OF AGES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Rock of Ages Corporation, together with its wholly-owned subsidiaries (the "Company"), Rock of Ages Canada, Inc., Royalty Granite Corporation, Rock of Ages International, and Associated Memorials, Inc. is an integrated quarrier, manufacturer and distributor of granite and products manufactured from granite. The quarry division sells granite both to the manufacturing division and to outside manufacturers, as well as to distributors in Europe and Japan. The manufacturing division's principal product is granite memorials used primarily in cemeteries, although it also manufactures some specialized granite products for industrial applications. Manufacturing revenues were approximately 50%, 60% and 60% of total revenues in 1994, 1995 and 1996 respectively, with the balance being quarry revenues. Foreign revenues represented approximately 44.9%, 40.7% and 28.9% of total revenues in 1994, 1995 and 1996, respectively. (a) Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. (b) Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. (c) Inventories Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. (d) Depreciation, Depletion and Amortization Property, plant and equipment are stated at cost. Depreciation is calculated using the straight-line and declining balance methods, based upon the following estimated useful lives: 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 75 ROCK OF AGES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) (f) Income Taxes The Company files its Federal income tax returns on a consolidated basis. Rock of Ages Canada, Inc. is responsible for income taxes in Canada. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (g) Goodwill Goodwill was recorded in 1995 as a result of two acquisitions (see Note 12) and is being amortized over 40 years using the straight-line method. Amortization expense amounted to $30,450 in 1996. The Company assesses the recoverability of this intangible asset by determining whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. The amount of goodwill impairment, if any, is measured based on projected discounted future operating cash flows using a discount rate reflecting the Company's average cost of funds. The assessment of the recoverability of goodwill will be impacted if estimated future operating cash flows are not achieved. (h) Debt Issuance Costs Debt issuance costs are amortized using the straight-line method over the term of the related borrowing. Amortization expense amounted to $40,603, $70,124 and $70,141 in 1994, 1995 and 1996, respectively. (i) Organization Costs Organization costs are amortized using the straight-line method over 60 months. Amortization expense amounted to $6,000, $20,688 and $32,534 in 1994, 1995 and 1996, respectively. (j) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on January 1, 1996. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of the Statement did not have a material impact on the Company's financial position, results of operations, or liquidity. (k) Deferred Income Deferred income represents revenues received in 1992 in relation to a distribution agreement. Revenue is being recognized over six years beginning in 1993, per the terms of the agreement. F-11 76 ROCK OF AGES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) (l) Revenue Recognition The manufacturing division recognizes revenue upon shipment of finished orders. The quarry division recognizes revenue upon sales order at which time ownership passes to the customer although the block may not be shipped until a later date. (m) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to use estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. (n) Stock-Based Employee Compensation The Company uses the intrinsic value based method per APB Opinion No. 25, Accounting for Stock Issued to Employees, for all of its stock-based employee compensation arrangements. (o) Net Income Per Share Net income per share is computed by dividing earnings available for common shares by the weighted average number of common shares outstanding during each year. Common stock equivalent shares are not included in the per share calculations where the effect of their inclusion would be antidilutive. (p) Interim Consolidated Financial Statements The consolidated financial statements for the six months ended June 30, 1996 and 1997 are unaudited but, in the opinion of management, include all normal, recurring adjustments necessary for a fair presentation of results for these interim periods. The results of operations for the interim periods are not necessarily indicative of trends or results expected for a full year. (2) INVENTORIES Inventories consist of the following at December 31, 1995 and 1996:
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. F-12 77 ROCK OF AGES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (3) LINES OF CREDIT -- (CONTINUED) Effective November 30, 1995, Rock of Ages Canada, Inc. entered into a line of credit agreement with a lending institution. Under the terms of this agreement, a maximum of approximately $2,400,000 may be advanced based on percentages of eligible accounts receivable, eligible inventory, and tangible fixed assets. The line of credit agreement will be reviewed at least annually for any revisions to the agreement, bears interest at the prime rate plus 3/4%, and is secured by substantially all assets of the subsidiaries. Amounts outstanding as of December 31, 1995 and 1996 were $1,400,000 and $1,721,313, respectively. (4) LONG-TERM DEBT Long-term debt at December 31, 1995 and 1996 consists of the following:
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
F-13 78 ROCK OF AGES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (4) LONG-TERM DEBT -- (CONTINUED)
1995 1996 ----------- ---------- 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. 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. F-14 79 ROCK OF AGES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (6) INCOME TAXES A summary of components of the provision for income taxes for the years ended December 31, 1994, 1995 and 1996 is as follows:
1994 1995 1996 -------- -------- -------- Current............................................ $496,518 $381,719 $626,857 Deferred........................................... 79,967 (23,698) 16,486 -------- -------- -------- Total.................................... $576,485 $358,021 $643,343 ======== ======== ========
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 net deferred tax assets. F-15 80 ROCK OF AGES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (7) LEASES The Company has several noncancellable operating leases for vehicles and equipment which expire over the next four years. Rental expense for operating leases was $118,211, $164,467 and $161,607 during 1994, 1995 and 1996, respectively. Future minimum lease payments under noncancellable operating leases (with initial or remaining lease terms in excess of one year) are as follows:
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 81 ROCK OF AGES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (8) PENSION AND RETIREMENT PLANS -- (CONTINUED) Net periodic pension cost for the Company's defined benefit pension plan for the years ended December 31, 1995 and 1996, charged to operations in the accompanying consolidated statements of operations, excluding the expense incurred as a result of the early retirement window described below, consisted of the following:
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 82 ROCK OF AGES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (8) PENSION AND RETIREMENT PLANS -- (CONTINUED) expenses of the Company is its share of the net periodic postretirement benefit costs of $219,428, $194,719 and $188,076 for the years ended December 31, 1994, 1995 and 1996, respectively. Net periodic postretirement benefit costs for the Company and its affiliate for the years ended December 31, 1994, 1995 and 1996 consisted of the following:
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 83 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. 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 ======== ======== ========
F-19 84 ROCK OF AGES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (8) PENSION AND RETIREMENT PLANS -- (CONTINUED) The following table sets forth the funded status of the plan as of December 31, 1995 and 1996 and amounts recognized in the accompanying consolidated balance sheets as of December 31, 1995 and 1996:
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 $2,146,609 as of December 31, 1995 and 1996, which is included in deferred compensation in the consolidated balance sheets. Savings and Profit Sharing Plan The Company has a defined contribution savings plan under Section 401(k) of the Internal Revenue Code for employees whose employment is not governed by a collective bargaining agreement and who have completed one year of service. The Company's contribution was $12,088, $19,804 and $27,587 in 1994, 1995 and 1996, respectively. The Company has a defined contribution savings plan under Section 401(k) of the Internal Revenue Code for employees covered by a collective bargaining agreement who have completed one year of service. The Company's contribution was $7,257, $13,830 and $24,362 in 1994, 1995 and 1996, respectively. (9) STOCK-BASED EMPLOYEE COMPENSATION Under the terms of the Amended and Restated 1994 Stock Plan, 1,500,000 options were reserved for issuance to key employees to purchase equivalent shares of common stock at exercise prices ranging from $2.40 to $4.12. The options granted have a five year term and vest at 20% per year over this period. The following table sets forth the stock option transactions for the years ended December 31, 1994, 1995 and 1996:
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
F-20 85 ROCK OF AGES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (9) STOCK-BASED EMPLOYEE COMPENSATION -- (CONTINUED) The Company has adopted the disclosure-only provisions of Statement of Financial Standards No. 123, Accounting for Stock-Based Compensation. Accordingly, no compensation cost has been recognized for stock options granted under the plan during 1996 as the options were all granted at exercise prices which equaled the fair value at the date of the grant. There were no awards granted during 1995 and 1994. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant date for awards during 1996 consistent with the provisions of SOFAS No. 123, the Company's net income would have been reduced to the pro forma amount indicated below: Net income, as reported.................................. $1,908,164 Net income, pro forma.................................... 1,798,619 Net income per share, pro forma.......................... $ .44
Pro forma net income reflects only options granted in 1996. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income amounts presented because compensation cost is reflected over the options' vesting periods and compensation cost for options granted prior to January 1, 1995 is not considered. The fair value of each option grant is estimated on the date of the grant using the Minimum Value Method with the following weighted-average assumptions used for grants in 1996: risk-free interest rate of 6%; dividend yield of $0; and expected lives of five (5) years. (10) RELATED PARTY TRANSACTIONS The Company is related, through common ownership, to Swenson Granite Company, Inc. (Swenson). The Company paid a management fee of $632,000, $912,000, $936,000 in 1994, 1995 and 1996, respectively. Sales to Swenson were $0, $0 and $729,611 and purchases from Swenson were $0, $0 and $197,047 in 1994, 1995 and 1996, respectively. (11) FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosures About the Fair Value of Financial Instruments", requires disclosure of information about the fair value of certain financial instruments for which it is practicable to estimate that value. For purposes of the following disclosure the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties other than in a forced sale or liquidation. Management has determined that the carrying values of its financial assets and liabilities approximate fair value at December 31, 1996. (12) ACQUISITIONS Effective December 31, 1995 Swenson Granite Company purchased all of the outstanding stock of Lawson Granite Company and Anderson-Friberg Company. The aggregate cost of these acquisitions was $5,715,288 made up of 463 shares of Swenson stock valued at $3,381,799, a $310,000 note payable, $354,880 in cash paid in 1996, and $2,146,609 in deferred compensation arrangements. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based upon their respective fair values. This treatment resulted in $1,779,113 of cost in excess of net assets acquired, or goodwill, and was accounted for under the purchase method. The net assets from the acquisition were contributed by Swenson to the Company. The following unaudited pro forma information has been prepared assuming that the acquisitions occurred at the beginning of the periods presented. The pro forma information is presented for information purposes only and is not necessarily indicative of what would have occurred if the acquisitions had been made as of those dates. F-21 86 ROCK OF AGES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (12) ACQUISITIONS -- (CONTINUED)
(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.............................. .47 .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 $3,582,798. As of June 30, 1997 investments in and advances to affiliated companies included Keystone's share of its investment in and advances to four Quarry Companies and Southern Mausoleums, Inc. The following unaudited pro forma information has been prepared assuming that the acquisitions occurred at the beginning of the periods presented. The pro forma information is presented for information purposes only and is not necessarily indicative of what would have occurred if the acquisitions had been made as of those dates.
(UNAUDITED) --------------------------- YEAR ENDED SIX MONTHS DECEMBER ENDED 31, JUNE 30, 1996 1997 ----------- ----------- Net revenues...................................... $53,972,546 $25,415,687 Net income (loss)................................. 1,711,447 (285,625) Net income (loss) per share....................... .42 (.07)
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 87 INDEPENDENT AUDITORS' REPORT The Board of Directors, Childs & Childs Granite Company, Inc. and C & C Granite Company, Inc.: We have audited the accompanying combined balance sheet of Childs & Childs Granite Company, Inc., C & C Granite Company Inc., the Quarry Companies and Southern Mausoleums, Inc. (SMI) as of May 31, 1997, and the related combined statements of operations, stockholders' equity, and cash flows for the eleven- month period ended May 31, 1997. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audit. We did not audit the financial statements of the Quarry Companies (Caprice Blue Quarry, Inc.; Autumn Rose Quarry, Inc.; and Pennsylvania Granite Corporation, including its wholly-owned subsidiary, Carolina Quarries, Inc.) or SMI. The Company's combined investment in and advances to the Quarry Companies and SMI at May 31, 1997 was $540,184 and its equity in the earnings of the Quarry Companies and SMI was $128,839 for the eleven-month period ended May 31, 1997. The financial statements of the Quarry Companies and SMI were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for the Quarry Companies and SMI, is based solely on the reports of the other auditors. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of the other auditors provides a reasonable basis for our opinion. In our opinion, based on our audit and the reports of the other auditors, the combined financial statements referred to above present fairly, in all material respects, the financial position of Childs & Childs Granite Company, Inc., C & C Granite Company, Inc., the Quarry Companies and SMI at May 31, 1997, and the results of their operations and their cash flows for the eleven-month period ended May 31, 1997 in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Atlanta, Georgia July 18, 1997 F-23 88 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 ---------- Stockholders' equity: Common stock (note 6).......................................................... 22,500 Quarry Companies' and SMI's capital............................................ 348,184 Retained earnings.............................................................. 2,205,086 ---------- Total stockholders' equity.................................................. 2,575,770 ---------- Commitment and contingency (notes 5 and 7)....................................... ---------- $3,848,359 ==========
See accompanying notes to combined financial statements. F-24 89 CHILDS & CHILDS GRANITE COMPANY, INC., C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI COMBINED STATEMENT OF OPERATIONS FOR THE ELEVEN-MONTH PERIOD ENDED MAY 31, 1997 Net revenues..................................................................... $5,606,364 Cost of goods sold (including purchases from the Quarry Companies of $1,009,448) -- (note 4)........................................................ 4,592,884 ---------- Gross profit........................................................... 1,013,480 Selling, general, and administrative expenses.................................... 701,325 ---------- Operating income....................................................... 312,155 ---------- Other income (expense): Interest expense............................................................... (58,758) Finance charge income.......................................................... 28,322 Miscellaneous income........................................................... 2,033 ---------- Net other expense...................................................... (28,403) ---------- Income before equity in earnings of investees.......................... 283,752 Equity in earnings of investees (note 4)......................................... 128,839 ---------- Net income............................................................. $ 412,591 ==========
See accompanying notes to combined financial statements. F-25 90 CHILDS & CHILDS GRANITE COMPANY, INC., C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI COMBINED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE ELEVEN-MONTH PERIOD ENDED MAY 31, 1997
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 91 CHILDS & CHILDS GRANITE COMPANY, INC., C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI COMBINED STATEMENT OF CASH FLOWS FOR THE ELEVEN-MONTH PERIOD ENDED MAY 31, 1997 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 92 CHILDS & CHILDS GRANITE COMPANY, INC., C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI NOTES TO COMBINED FINANCIAL STATEMENTS MAY 31, 1997 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Description of Business Childs & Childs Granite Company, Inc. is a manufacturer of granite monuments and memorials in Elberton, Georgia. The three stockholders of Childs & Childs Granite Company, Inc. collectively own C & C Granite Company, Inc., which is a trucking company that primarily delivers products to Childs & Childs Granite Company, Inc.'s customers. Additionally, the three stockholders of Childs & Childs Granite Company, Inc. collectively own a 50% interest in the Quarry Companies (Caprice Blue Quarry, Inc.; Autumn Rose Quarry, Inc.; and Pennsylvania Granite Corporation, including its wholly owned subsidiary, Carolina Quarries, Inc.) which operate six granite quarries in five states and Southern Mausoleum, Inc. (SMI), a mausoleum manufacturing plant. Net revenues are to various retail monument customers throughout the United States. (b) Basis of Presentation The combined financial statements include the financial statements of Childs & Childs Granite Company, Inc.; C & C Granite Company, Inc.; and the 50% ownership in the aforementioned three Quarry Companies and SMI owned by the three stockholders of Childs & Childs Granite Company, Inc. (collectively, the "Company"). Childs & Childs Granite Company, Inc., the Quarry Companies and SMI have been combined using historical costs as a result of the common ownership. The Quarry Companies and SMI are accounted for under the equity method. All significant intercompany balances and transactions have been eliminated in combination. (c) Cash Equivalents For purposes of the combined statement of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. At May 31, 1997, the Company owned no cash equivalents. (d) Inventories Inventories are stated at the lower of cost or market (net realizable value). Cost is determined using the first-in, first-out (FIFO) method for all inventories. (e) Property, Plant, and Equipment Property, plant, and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the assets on a straight-line basis. Property, plant, and equipment are depreciated over the following estimated useful lives:
YEARS Buildings.................................................... 39 Machinery and equipment...................................... 12 Vehicles..................................................... 5 Office equipment............................................. 5 to 7
F-28 93 CHILDS & CHILDS GRANITE COMPANY, INC., C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) (f) Income Taxes The stockholders of the Company have elected to have the earnings of the Company taxed under the S Corporation provisions of the Internal Revenue Code. Under the S Corporation provisions, the income taxes of the Company are the responsibility of the stockholders for Federal and state income tax purposes. Accordingly, no income tax provision or income tax balances have been recorded by the Company. (g) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on January 1, 1996. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of this statement did not have a material impact on the Company's financial position, results of operations, or liquidity. (h) Revenue Recognition Revenue is recognized upon shipment of goods. (i) Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (2) INVENTORIES The components of inventories are as follows: 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 94 CHILDS & CHILDS GRANITE COMPANY, INC., C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (4) INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES Investments in affiliated companies consist of the three stockholders' 50% of the common stock of each of the Quarry Companies and SMI. Summary unaudited financial information for the Quarry Companies and SMI as of and for the eleven-month period ended May 31, 1997 is as follows:
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 95 CHILDS & CHILDS GRANITE COMPANY, INC., C & C GRANITE COMPANY, INC., QUARRY COMPANIES AND SMI NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (5) LONG-TERM DEBT -- (CONTINUED) The aggregate maturities of long-term debt for each of the two years subsequent to May 31, 1997 are as follows: 1998, $412,185 and 1999, $500,000. Childs & Childs Granite Co., Inc. has two lines of credit with a bank for a total of $1,000,000, of which $912,185 was outstanding at May 31, 1997. The lines of credit are secured by substantially all of the assets of Childs and Childs Granite Co., Inc. The lines of credit may be prepaid at any time without penalty. (6) COMMON STOCK At May 31, 1997, the par value and the authorized shares of common stock of Childs & Childs Granite Co., Inc. were $100 and 5,000, respectively. In addition, 210 shares were issued and outstanding. At May 31, 1997, the par value and the authorized shares of common stock of C & C Granite Co., Inc. were $100 and 5,000, respectively. In addition, 15 shares were issued and outstanding. (7) SUBSEQUENT EVENT On June 28, 1997, Rock of Ages Corporation entered into a definitive agreement with the shareholders of the Company to purchase all of the outstanding stock of the Company. F-31 96 INDEPENDENT AUDITORS' REPORT The Board of Directors, Keystone Memorials, Inc.: We have audited the accompanying combined balance sheet of Keystone Memorials, Inc., the Quarry Companies and Southern Mausoleums, Inc. (SMI) as of April 30, 1997, and the related combined statements of operations, stockholder's deficit, and cash flows for the ten-month period ended April 30, 1997. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audit. We did not audit the financial statements of the Quarry Companies (Caprice Blue Quarry, Inc.; Autumn Rose Quarry, Inc.; or Pennsylvania Granite Corporation and its subsidiary, Carolina Quarries, Inc.) or SMI. The Company's combined investment in and advances to the Quarry Companies and SMI at April 30, 1997 was $585,010 and its equity in the earnings of the Quarry Companies and SMI was $55,787 for the ten-month period ended April 30, 1997. The financial statements of the Quarry Companies and SMI were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for the Quarry Companies and SMI, is based solely on the reports of the other auditors. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of the other auditors provides a reasonable basis for our opinion. In our opinion, based on our audit and the reports of the other auditors, the combined financial statements referred to above present fairly, in all material respects, the financial position of Keystone Memorials, Inc., the Quarry Companies and SMI at April 30, 1997, and the results of their operations and their cash flows for the ten-month period ended April 30, 1997 in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Atlanta, Georgia July 25, 1997 F-32 97 KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI COMBINED BALANCE SHEET
APRIL 30, JULY 31, 1997 1997 ---------- ----------- (UNAUDITED) ASSETS (NOTE 6) Current assets: Cash equivalents.................................................. $ 35,883 $ 174,596 Trade accounts receivable, less allowance for doubtful accounts of $1,282,000 at April 30 and July 31, 1997....................... 1,626,474 1,425,780 Due from employees................................................ 14,790 14,562 Prepaid expenses.................................................. 62,040 85,331 Inventories (note 2).............................................. 1,532,099 1,662,465 ---------- ---------- Total current assets........................................... 3,271,286 3,362,734 ---------- ---------- Investments in and advances to affiliated companies (note 4)........ 585,010 439,997 Property, plant, and equipment: Land.............................................................. 272,977 272,977 Buildings......................................................... 906,882 906,882 Machinery and equipment........................................... 3,293,562 3,252,032 Trucks, autos, and trailers....................................... 718,778 738,096 Furniture and fixtures............................................ 195,452 195,452 ---------- ---------- 5,387,651 5,365,439 Less accumulated depreciation..................................... 2,682,924 2,747,234 ---------- ---------- Net property, plant, and equipment............................. 2,704,727 2,618,205 ---------- ---------- $6,561,023 $ 6,420,936 ========== ========== LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY Current liabilities: Current portion of long-term debt (note 6)........................ $ 844,419 $ 1,828,116 Bank overdraft.................................................... 70,921 -- Trade accounts payable............................................ 522,088 337,053 Trade accounts payable-affiliates................................. 3,689,509 411,103 Accrued expenses.................................................. 171,464 172,879 ---------- ---------- Total current liabilities...................................... 5,298,401 2,749,151 Long-term debt, less current portion (note 6)....................... 1,745,649 775,974 ---------- ---------- Total liabilities......................................... 7,044,050 3,525,125 ---------- ---------- Stockholder's (deficit) equity: Common stock, $100 par value. Authorized 100 shares; issued and outstanding 100 shares......................................... 10,000 10,000 Additional paid-in capital (note 8)............................... -- 3,285,054 Quarry Companies and SMI's capital................................ 275,132 332,752 Accumulated deficit............................................... (768,159) (731,995) ---------- ---------- Total stockholder's (deficit) equity...................... (483,027) 2,895,811 Commitments and contingencies (notes 5 and 6)....................... ---------- ---------- $6,561,023 $ 6,420,936 ========== ==========
See accompanying notes to combined financial statements. F-33 98 KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI COMBINED STATEMENT OF OPERATIONS
THREE-MONTH TEN-MONTH PERIOD ENDED PERIOD ENDED JULY 31, APRIL 30, ------------------------- 1997 1996 1997 ------------ ---------- ---------- (UNAUDITED) Net revenues.......................................... $7,537,876 $2,321,977 $2,449,525 Cost of goods sold (including purchases from affiliated companies of $761,923 and related parties of $848,822 for the ten-month period ended April 30, 1997) -- (notes 4 and 8)............................ 6,723,718 2,169,643 2,170,555 ---------- ---------- ---------- Gross profit................................ 814,158 152,334 278,970 Selling, general, and administrative expenses......... 1,093,782 369,038 260,449 ---------- ---------- ---------- Operating (loss) income..................... (279,624) (216,704) 18,521 ---------- ---------- ---------- Other income (expense): Interest expense.................................... (186,401) (39,636) (27,580) Finance charge income............................... 92,955 35,465 24,881 Gain on sales of property and equipment............. 40,207 -- 20,342 ---------- ---------- ---------- Total other (expense) income................ (53,239) (4,171) 17,643 ---------- ---------- ---------- (Loss) income before equity in earnings of Quarry Companies and SMI and income taxes..................................... (332,863) (220,875) 36,164 Equity in earnings of Quarry Companies and SMI (note 4).................................................. 55,787 182,215 57,620 ---------- ---------- ---------- (Loss) income before income taxes........... (277,076) (38,660) 93,784 Income taxes (note 7)................................. -- -- -- ---------- ---------- ---------- Net (loss) income........................... $ (277,076) $ (38,660) $ 93,784 ========== ========== ==========
See accompanying notes to combined financial statements. F-34 99 KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI COMBINED STATEMENT OF STOCKHOLDER'S (DEFICIT) EQUITY FOR THE TEN-MONTH PERIOD ENDED APRIL 30, 1997 AND THE THREE-MONTH PERIOD ENDED JULY 31, 1997 (UNAUDITED)
QUARRY TOTAL ADDITIONAL COMPANIES' STOCKHOLDER'S COMMON PAID-IN AND SMI'S ACCUMULATED (DEFICIT) STOCK CAPITAL CAPITAL DEFICIT EQUITY ------- ---------- ---------- ----------- ------------- Balance at June 30, 1996.................. $10,000 -- 219,345 (435,296) (205,951) Net income (loss)....................... -- -- 55,787 (332,863) (277,076) ------- ------- -------- -------- Balance at April 30, 1997................. 10,000 -- 275,132 (768,159) (483,027) Net income.............................. -- -- 57,620 36,164 93,784 Conversion to capital (note 8).......... -- 3,285,054 -- -- 3,285,054 ------- ------- -------- -------- Balance at July 31, 1997 (unaudited)...... $10,000 3,285,054 332,752 (731,995) 2,895,811 ======= ======= ======== ========
See accompanying notes to the combined financial statements. F-35 100 KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI COMBINED STATEMENT OF CASH FLOWS
TEN-MONTH PERIOD THREE-MONTH PERIOD ENDED ENDED JULY 31, APRIL 30, ----------------------- 1997 1996 1997 ---------- --------- --------- (UNAUDITED) Cash flows from operating activities (note 8): Net (loss) income................................... $ (277,076) $ (38,660) $ 93,784 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation..................................... 297,023 93,740 84,652 Gain on sales of property, plant, and equipment...................................... (40,207) -- (20,342) Equity in earnings of Quarry Companies and SMI... (55,787) (182,215) (57,620) Changes in operating assets and liabilities: Trade accounts receivable and due from employees................................... (190,647) 416,447 200,922 Inventories.................................... (59,243) 89,629 (130,366) Prepaid expenses............................... 33,258 (9,218) (23,291) Trade accounts payable, trade accounts payable- affiliates, and accrued expenses............ 172,684 29,824 (116,972) ---------- -------- -------- Net cash (used in) provided by operating activities................................ (119,995) 399,547 30,767 ---------- -------- -------- Cash flows from investing activities (note 8): Additions to property, plant, and equipment......... (172,670) (118,362) (37,788) Proceeds from sales of property, plant, and equipment........................................ 185,000 -- -- (Increase) decrease in advances to affiliated companies........................................ (121,998) 39,422 202,633 ---------- -------- -------- Net cash (used in) provided by investing activities................................ (109,668) (78,940) 164,845 ---------- -------- -------- Cash flows from financing activities (note 8): Increase (decrease) in bank overdraft............... 70,921 -- (70,921) Proceeds from long-term debt........................ 1,013,458 -- 51,946 Payments on long-term debt.......................... (979,972) (79,303) (37,924) ---------- -------- -------- Net cash provided by (used in) financing activities................................ 104,407 (79,303) (56,899) ---------- -------- -------- Net change in cash equivalents.............. (125,256) 241,304 138,713 Cash equivalents at beginning of period............... 161,139 43,615 35,883 ---------- -------- -------- Cash equivalents at end of period..................... $ 35,883 $ 284,919 $ 174,596 ========== ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest......................................... $ 186,401 $ 39,636 $ 27,580 ========== ======== ======== Income taxes..................................... $ -- $ -- $ -- ========== ======== ========
See accompanying notes to the combined financial statements. F-36 101 KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI NOTES TO COMBINED FINANCIAL STATEMENTS APRIL 30, 1997 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Description of Business Keystone Memorials, Inc. is a manufacturer of granite monuments and memorials in Elberton, Georgia. Additionally, the sole stockholder of Keystone Memorials, Inc. owns a 50% interest in three Quarry Companies (Caprice Blue Quarry, Inc.; Autumn Rose Quarry, Inc.; and Pennsylvania Granite Corporation, including its wholly owned subsidiary, Carolina Quarries, Inc.) which operate six granite quarries in five states and Southern Mausoleum, Inc. (SMI), a mausoleum manufacturing plant. Net revenues are to various retail monument customers throughout the United States. (b) Basis of Presentation The combined financial statements include the financial statements of Keystone Memorials, Inc., and its 50% ownership in three Quarry Companies and SMI owned by the sole stockholder of Keystone Memorials, Inc. (collectively, the "Company"). Keystone Memorials, Inc., Quarry Companies and SMI have been combined using historical costs as a result of the common ownership. The Quarry Companies and SMI are accounted for under the equity method. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for the fair presentation of the unaudited condensed financial statements of the Company as of and for the three months ended July 31, 1996 and 1997 have been included. (c) Cash Equivalents For purposes of the combined statement of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. At April 30, 1997, the cash equivalents consisted of $35,883 invested in a money market account. (d) Inventories Inventories are stated at the lower of cost or market (net realizable value). Cost is determined using the first-in, first-out (FIFO) method for all inventories. (e) Property, Plant, and Equipment Property, plant, and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the assets on a straight-line basis. Property, plant, and equipment are depreciated over the following estimated useful lives:
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 F-37 102 KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of this statement did not have a material impact on the Company's financial position, results of operations, or liquidity. (h) Revenue Recognition Revenue is recognized upon shipment of goods. (i) Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (2) INVENTORIES The components of inventories are as follows:
APRIL 30, JULY 31, 1997 1997 ---------- ----------- (UNAUDITED) Raw materials....................................... $ 791,570 $ 815,493 Work in process..................................... 154,017 156,825 Finished goods...................................... 586,512 690,147 ---------- ---------- Total inventories......................... $1,532,099 $ 1,662,465 ========== ==========
(3) FAIR VALUE OF FINANCIAL INSTRUMENTS For cash equivalents, trade accounts receivables, due from employees, bank overdraft, trade accounts payables, trade accounts payable-affiliates, and accrued expenses, the carrying amounts approximate fair value because of the short maturity of these instruments. The carrying value of long-term debt approximates fair value based on discounted cash flow analyses. F-38 103 KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (4) INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES Investments in affiliated companies consists of the sole stockholder's 50% of the common stock of each of the Quarry Companies and SMI. Summary unaudited financial information for the Quarry Companies and SMI is as follows:
TEN-MONTH PERIOD ENDED APRIL 30, 1997 ------------------------------------------------------------------- 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 income (loss)........... $ (243,804) $ 68,394 $ (76,723) $ 382,443 $ 130,310 ======== ======== ========== ========== ===========
THREE-MONTH PERIOD ENDED JULY 31, 1996 ------------------------------------------------------------------ CAPRICE AUTUMN ROSE PENNSYLVANIA BLUE QUARRY SMI QUARRY GRANITE TOTAL ----------- ---------- ----------- ------------ ---------- Net revenues................. $ 23,678 $319,195 $ 81,507 $ 2,290,528 $2,714,908 Gross profit (loss).......... (25,759) 46,115 (39,147) 675,829 657,038 Net income (loss)............ $ (34,594) $ (5,476) $ (55,206) $ 459,706 $ 364,430 -------- -------- -------- ---------- ----------
THREE-MONTH PERIOD ENDED JULY 31, 1997 ------------------------------------------------------------------ CAPRICE AUTUMN ROSE PENNSYLVANIA BLUE QUARRY SMI QUARRY GRANITE TOTAL ----------- ---------- ----------- ------------ ---------- Net revenues................. $ 45,075 $428,875 $ 71,263 $ 1,758,703 $2,303,916 Gross profit (loss).......... (7,732) 139,434 (1,902) 269,446 399,246 Net income (loss)............ $ (14,808) $ 92,035 $ (12,300) $ 50,313 $ 115,240 -------- -------- -------- ---------- ----------
In addition, the Company has advances to the Quarry Companies and SMI totaling $300,510 at April 30, 1997. Keystone Memorials, Inc. purchases a substantial portion of its raw granite from the Quarry Companies and SMI. Such purchases amounted to $761,923 for the ten-month period ended April 30, 1997. Intercompany profits of $9,368 have been eliminated in combination. Individually, the purchases from each of the Quarry Companies and SMI are as follows: 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). F-39 104 KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (5) LEASES The Company has several noncancelable operating leases, primarily for office equipment, that expire over the next three years. Rental expense for the operating leases (except those with lease terms of a month or less that were not renewed) during the ten-month period ending April 30, 1997 was $4,000. Future minimum lease payments under noncancelable operating leases with initial or remaining lease terms in excess of one year as of April 30, 1997 are $13,000 over the next three years. (6) LONG-TERM DEBT Long-term debt at April 30, 1997 consists of the following: 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. (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 --------- $ -- =========
F-40 105 KEYSTONE MEMORIALS, INC., QUARRY COMPANIES AND SMI NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (7) INCOME TAXES -- (CONTINUED) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at April 30, 1997 are presented below. 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 for the ten-month period ended April 30, 1997 and exchanged machinery for $60,000 of trade accounts payable-affiliates for the three-month period ended July 31, 1997 (unaudited). As part of the acquisition of the Company by Rock of Ages Corporation ("Rock of Ages") (see note 9), the two related quarries converted $3,285,054 of trade accounts payable-affiliates and notes payable into additional paid-in capital. (9) SUBSEQUENT EVENT On June 30, 1997, a successor to the Company was acquired by Rock of Ages in exchange for 263,441 shares of common stock of Rock of Ages. A total of $3,273,856, included in trade accounts payable-affiliates and $11,198 included in notes payable, were not included in this transaction. F-41 106 INDEPENDENT AUDITORS' REPORT The Boards of Directors Keith Monument Companies: We have audited the accompanying combined balance sheets of Keith Monument Companies (the "Companies") as of June 30, 1997 and 1996, and the related combined statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended June 30, 1997. These combined financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Keith Monument Companies as of June 30, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 1997 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Louisville, Kentucky August 8, 1997 F-42 107 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-43 108 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-44 109 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-45 110 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-46 111 KEITH MONUMENT COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS JUNE 30, 1996 AND 1997 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Description of Business Keith Monument Companies (the Companies) are engaged in a single line of business of the engraving and selling of memorials, primarily to customers in the Commonwealth of Kentucky. (b) Principles of Combination The combined financial statements include the following Kentucky corporations, all affiliated through common ownership and control of substantially all of the issued and outstanding shares of common stock of the Companies by Messers. John E. Keith and Roy H. Keith, Jr., and their families: Keith Monument Company, National Memorial Corporation, Riehm-Gerlack Monument Company, Inc., Keith Lettering & Setting Corporation, Glasgow Monument Company, Inc. and Snyder Corporation. Keith Monument Company is a wholly-owned subsidiary of Keith National Corporation, a Kentucky corporation also controlled by Messers. Keith. All significant intercompany balances and transactions have been eliminated in the combined financial statements. (c) Cash Equivalents Cash equivalents of $415,283 and $321,572 at June 30, 1996 and 1997, respectively, consist primarily of money market funds and certificates of deposit with an initial term of less than three months. For purposes of the statements of cash flows, the Companies consider all short-term highly liquid investments with original maturities of three months or less to be cash equivalents. Cash and certificates of deposit are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. The Companies had bank balances exceeding individual FDIC insurance limits by $1,184,665 at June 30, 1997. (d) Accounts Receivable and Revenue Recognition The Companies recognize revenue upon the setting of the memorial. In certain instances, the Companies may enter into agreements with their customers which provide for extended payment terms, generally up to two years from either the date of setting of the memorial or, in certain instances, upon the settlement of an estate. Customer deposits and prepayments are recorded as a liability and recognized as revenue upon the setting of the memorial. Finance charges are recognized when received. The Companies do not require collateral or other security on accounts receivable. The credit risk on accounts is controlled by requiring significant deposits and monitoring procedures. (e) Notes Receivable Notes receivable are recorded at cost, less the related allowance for impaired notes receivable, if necessary. Management, considering current information and events regarding the borrowers' ability to repay their obligations, considers a note to be impaired when it is probable that the Companies will be unable to collect all amounts due according to the contractual terms of the note agreement. When a loan is considered to be impaired, the amount of the impairment is measured based on the present value of expected future cash flows discounted at the notes effective interest rate. No impairment losses are estimated to exist at June 30, 1996 and 1997. (f) Inventories Inventories consist primarily of memorials purchased for resale or for display purposes, and are stated at the lower of cost or market. Cost is determined using the last-in, first-out method (LIFO) for all inventories F-47 112 KEITH MONUMENT COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) except those acquired from Lexington Granite Company, Inc. (which were acquired March 31, 1997, see note 9) for which cost is determined using the first-in, first-out method (FIFO). (g) Property, Plant and Equipment and Depreciation Property, plant and equipment are stated at cost. Depreciation on plant and equipment is calculated on various accelerated methods over the estimated useful lives of the assets as follows: 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-48 113 KEITH MONUMENT COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) (l) Use of Estimates Management of the Companies has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from these estimates. (m) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of The Companies adopted the provisions of Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on July 1, 1996. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of this Statement did not have a material impact on the Companies' financial position, results of operations, or liquidity. (n) Fair Value of Financial Instruments Various methods and assumptions were used by the Companies in estimating their fair value disclosures for significant financial instruments. Fair values of cash equivalents, accounts and notes receivable, investments, trade accounts payable, accrued expenses and customer deposits approximate their carrying amount because of the short maturity of those instruments. The fair value of long-term debt is based on the present value of the underlying cash flows discounted at the current estimated borrowing rates available to the Companies. The fair value of the Companies' long-term debt at June 30, 1997 approximates the carrying value. (2) INVENTORIES Inventories consist of the following:
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-49 114 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-50 115 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-51 116 KEITH MONUMENT COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (6) STOCKHOLDERS EQUITY -- (CONTINUED) Treasury stock consists of the cost of shares purchased from shareholders of Keith Lettering & Setting Corporation and Snyder Corporation in the amounts of $4,000 (2 shares) and $2,000 (20 shares), respectively. National Memorial Corporation also has authorized 1,000 shares of no par value Class A Preferred Stock and 10,000 shares of no par value Class B Preferred Stock. None of these shares were issued on June 30, 1996 or 1997. The dividends represent distributions of Small Business Corporations. (7) INCOME TAXES Income tax expense (benefit) is attributable only to Keith Monument Company and consists of:
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-52 117 KEITH MONUMENT COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (7) INCOME TAXES -- (CONTINUED) The tax effects of temporary differences that give rise to significant portion of the deferred tax assets (liabilities) at June 30, 1996 and 1997 are presented below.
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-53 118 KEITH MONUMENT COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (8) COMMITMENTS AND CONTINGENT LIABILITIES -- (CONTINUED) In the ordinary course of business, the Companies are subject to environmental matters. Management provides for such matters when they are probable and can be reasonably estimated. Management is of the opinion there are no existing matters which would have a material impact on the Companies' financial condition or results of operations. In the ordinary course of business, the Companies are subject to litigation matters. Management provides for such matters when they are probable and can be reasonably estimated. Management is of the opinion there are no existing matters which would have a material impact on the Companies' financial condition or results of operations. The Companies participate in the Safety Association Fund (the Fund), a workers' compensation self-insurance fund organized pursuant to the regulations of the Commonwealth of Kentucky -- Department of Workers' Claims. The Companies are charged premiums for workers' compensation based on rates determined by the Fund. While significant judgmental factors are included in the determination of these premiums, management of the Companies believes the amounts paid are adequate to provide for all existing known and incurred but not reported cases, and retroactive adjustments, if any, from the Fund would not have a material impact on the Companies' financial condition or results of operations. (9) ACQUISITION On March 31, 1997, National Memorial Corporation acquired certain assets of Lexington Granite Company, Inc. for a note payable in the amount of $1,797,600 (see note 5). The acquisition has been accounted for as a purchase, with the results of operations of Lexington Granite Company, Inc. included in the combined results of operations of the Companies since April 1, 1997. The purchase price was allocated as follows: 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-54 119 KEITH MONUMENT COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (10) SUBSEQUENT EVENT -- CONTINUED defined in the agreement. The purchase price includes an amount of $1,797,600 to be used to repay the Companies' long-term debt to Lexington Granite Company, Inc. (see note 5) at the closing date of the purchase. Rock of Ages is currently planning an initial public offering, and the sale of the Companies is expected to occur concurrently with the consummation of the offering. F-55 120 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS To the Board of Directors Pennsylvania Granite Corporation St. Peters, Pennsylvania We have audited the accompanying consolidated balance sheets of Pennsylvania Granite Corporation and subsidiary as of May 31, 1997 and April 30, 1997, and the related consolidated statements of operations and accumulated deficit, and cash flows for the eleven months and ten months then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Pennsylvania Granite Corporation and subsidiary as of May 31, 1997 and April 30, 1997, and the results of their operations and their cash flows for the eleven months and ten months then ended in conformity with generally accepted accounting principles. /s/ GREENE AND COMPANY, L.L.P. -------------------------------------- GREENE AND COMPANY, L.L.P. Anderson, South Carolina July 22, 1997 F-56 121 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-57 122 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-58 123 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-59 124 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-60 125 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-61 126 PENNSYLVANIA GRANITE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1997 AND APRIL 30, 1997 NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES This summary of significant accounting policies of the Company is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management, who is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. Nature of Business The Company quarries granite dimensional blocks for monuments, industrial surface plates and building materials in Pennsylvania and North and South Carolina. These products are sold nationwide and in Europe. Use of Estimates The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Company has a money market account in the amount of $266,887 at May 31, 1997 and $66,703 at April 30, 1997. Trade Receivables The Company accounts for uncollectible trade receivables on the reserve method. Inventory Inventory of quarry product is valued at the lower of average cost or market. Average cost is the cost to quarry, which includes direct labor and overhead. Revenue Recognition Revenue is recognized upon shipment of goods. See accountants' report. F-62 127 PENNSYLVANIA GRANITE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Property and Equipment Property and equipment are stated at acquisition cost as of October 12, 1988, and cost for additions thereafter. Depreciation is computed under the straight-line method for financial reporting purposes over the following estimated useful lives:
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. Goodwill Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis over the expected periods to be benefitted. The Company assesses the recoverability of this intangible asset by determining whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. The amount of goodwill impairment, if any, is measured based on projected discounted future operating cash flows using a discount rate reflecting the Company's average cost of funds. The assessment of the recoverability of goodwill will be impacted if estimated future operating cash flows are not achieved. See accountants' report. F-63 128 PENNSYLVANIA GRANITE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on January 1, 1996. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of this statement did not have a material impact on the Company's financial position, results of operations, or liquidity. NOTE B -- PROPERTY AND EQUIPMENT Property and equipment consist of the following:
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 =========== ===========
See accountants' report. F-64 129 PENNSYLVANIA GRANITE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE C -- INTANGIBLES -- (CONTINUED) Amortization and depletion expense for the eleven months ended May 31, 1997 were $207,426 and $24,078, respectively. Amortization and depletion expense for the ten months ended April 30, 1997 were $188,569 and $22,112, respectively. NOTE D -- NOTES PAYABLE Notes Payable are as follows:
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. See accountants' report. F-65 130 PENNSYLVANIA GRANITE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE F -- INCOME TAX MATTERS A summary of the provision for income taxes is as follows:
APRIL MAY 31, 30, 1997 1997 -------- -------- Current................................................ $185,000 $110,000 Deferred............................................... 61,000 43,000 -------- -------- Provision for Income Taxes................... $246,000 $153,000 ======== ========
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. See accountants' report. F-66 131 PENNSYLVANIA GRANITE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE I -- FAIR VALUES OF FINANCIAL INSTRUMENTS The Company has a number of financial instruments, none of which are held for trading purposes. The Company estimates that the fair value of all financial instruments at May 31, 1997 and April 30, 1997 does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying balance sheets. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgement is necessarily required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange. See accountants' report. F-67 132 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS To the Board of Directors Pennsylvania Granite Corporation St. Peters, Pennsylvania We have audited the accompanying consolidated balance sheet of Pennsylvania Granite Corporation and subsidiary as of June 30, 1996, and the related consolidated statements of operations and accumulated deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Pennsylvania Granite Corporation and subsidiary as of June 30, 1996, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ GREENE AND COMPANY, L.L.P. -------------------------------------- GREENE AND COMPANY, L.L.P. Anderson, South Carolina July 22, 1997 F-68 133 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-69 134 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-70 135 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-71 136 PENNSYLVANIA GRANITE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES This summary of significant accounting policies of the Company is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management, who is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. Nature of Business The Company quarries granite dimensional blocks for monuments, industrial surface plates and building materials in Pennsylvania and North and South Carolina. These products are sold nationwide and in Europe. Use of Estimates The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Intangibles Amortization is computed under the straight-line method for financial reporting purposes over the following estimated useful lives: 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-72 137 PENNSYLVANIA GRANITE CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Trade Receivables The Company accounts for uncollectible trade receivables on the reserve method. Inventory Inventory of quarry product is valued at the lower of average cost or market. Average cost is the cost to quarry, which includes direct labor and overhead. Revenue Recognition Revenue is recognized upon shipment of goods. Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on January 1, 1996. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. The fair value of the Company's assets approximates the carrying cost at the balance sheet dates. Property and Equipment Property and equipment are stated at acquisition cost as of October 12, 1988, and cost for additions thereafter. Depreciation is computed under the straight-line method for financial reporting purposes over the following estimated useful lives: 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. Goodwill Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis over the expected periods to be benefitted. The Company assesses the recoverability of this intangible asset by determining whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. The amount of goodwill impairment, if any, is measured based on projected discounted future operating cash See accountants' report. F-73 138 PENNSYLVANIA GRANITE CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) flows using a discount rate reflecting the Company's average cost of funds. The assessment of the recoverability of goodwill will be impacted if estimated future operating cash flows are not achieved. NOTE B -- PROPERTY AND EQUIPMENT Property and equipment consist of the following: 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: See accountants' report. F-74 139 PENNSYLVANIA GRANITE CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE D -- NOTES PAYABLE -- (CONTINUED) 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 ===========
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 ========
See accountants' report. F-75 140 PENNSYLVANIA GRANITE CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE F -- INCOME TAX MATTERS -- (CONTINUED) The Company has unused net operating losses and investment tax credits available for carryforward to offset future taxable income and tax liabilities for income tax reporting purposes which expire in the following tax years:
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 ======== =======
NOTE G -- CONCENTRATION OF CREDIT RISK Cash accounts are insured by the FDIC for up to $100,000. Amount in excess of insured limits was approximately $252,014 at June 30, 1996. Sales to two major customers represented 54% of total revenues for the year ended June 30, 1996. Trade accounts receivable from major customers represented 72% of total trade accounts receivable as of June 30, 1996. NOTE H -- SUBSEQUENT EVENTS Subsequent to the date of these financial statements, the Company joined in a merger with its affiliates and other unrelated granite companies. NOTE I -- FAIR VALUES OF FINANCIAL INSTRUMENTS The Company has a number of financial instruments, none of which are held for trading purposes. The Company estimates that the fair value of all financial instruments at June 30, 1996 does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying balance sheets. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgement is necessarily required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange. See accountants' report. F-76 141 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS To the Board of Directors Caprice Blue Quarry, Inc. Elberton, Georgia We have audited the accompanying balance sheets of Caprice Blue Quarry, Inc. (an "S" corporation) as of May 31, 1997 and April 30, 1997, and the related statements of operations and accumulated deficit, and cash flows for the eleven months and ten months then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Caprice Blue Quarry, Inc. as of May 31, 1997 and April 30, 1997, and the results of its operations and its cash flows for the eleven months and ten months then ended in conformity with generally accepted accounting principles. /s/ GREENE AND COMPANY, L.L.P. -------------------------------------- GREENE AND COMPANY, L.L.P. Anderson, South Carolina July 22, 1997 F-77 142 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-78 143 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-79 144 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-80 145 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-81 146 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-82 147 CAPRICE BLUE QUARRY, INC. NOTES TO FINANCIAL STATEMENTS MAY 31, 1997 AND APRIL 30, 1997 NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES This summary of significant accounting policies of the Company is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management, who is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. Nature of Business The Company quarries granite blocks in northeast Georgia for sale to customers nationwide. Use of Estimates The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Basis of Accounting Assets, liabilities, revenues, and expenses are recognized on the accrual method of accounting. Inventory Inventories are stated at lower of cost or market with cost being determined using average cost. Revenue Recognition Revenue is recognized upon shipment of goods. Property and Equipment Property and equipment are stated at acquisition cost. Depreciation is computed under the accelerated method for financial reporting purposes over the following estimated useful lives:
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 See accountants' report. F-83 148 CAPRICE BLUE QUARRY, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) taxed individually on their proportionate share of the Company's taxable income. Therefore, no provision or liability for federal income taxes has been included in these financial statements. Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on January 1, 1996. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. The fair value of the Company's assets approximates the carrying cost at the balance sheet dates. NOTE B -- PROPERTY AND EQUIPMENT Property and equipment consist of the following:
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-84 149 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-85 150 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS To the Board of Directors Autumn Rose Quarry, Inc. Ada, Oklahoma We have audited the accompanying balance sheets of Autumn Rose Quarry, Inc. as of May 31, 1997 and April 30, 1997, and the related statements of operations and accumulated deficit, and cash flows for the eleven months and ten months then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Autumn Rose Quarry, Inc. as of May 31, 1997 and April 30, 1997, and the results of its operations and its cash flows for the eleven months and ten months then ended in conformity with generally accepted accounting principles. /s/ GREENE AND COMPANY, L.L.P. -------------------------------------- GREENE AND COMPANY, L.L.P. Anderson, South Carolina July 22, 1997 F-86 151 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-87 152 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-88 153 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-89 154 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-90 155 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-91 156 AUTUMN ROSE QUARRY, INC. NOTES TO FINANCIAL STATEMENTS MAY 31, 1997 AND APRIL 30, 1997 NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES This summary of significant accounting policies of the Company is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management, who is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. Nature of Business The Company quarries granite blocks in northeast Oklahoma for sales to customers nationwide. Use of Estimates The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Basis of Accounting Assets, liabilities, revenues, and expenses are recognized on the accrual method of accounting. Inventory Inventories are stated at lower of cost or market, with cost determined using average cost. Revenue Recognition Revenue is recognized upon shipment of goods. Property and Equipment Property and equipment are stated at acquisition cost. Depreciation is computed under the straight-line method for financial reporting purposes over the following estimated useful lives:
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 See accountants' report. F-92 157 AUTUMN ROSE QUARRY, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) overburden removal is computed using the straight-line method over ten years. Depletion of mineral rights is computed using cost depletion. Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on January 1, 1996. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. The fair value of the Company's assets approximates the carrying cost at the balance sheet dates. NOTE B -- PROPERTY AND EQUIPMENT Property and equipment consist of the following:
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 ========== ==========
See accountants' report. F-93 158 AUTUMN ROSE QUARRY, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE C -- INTANGIBLES -- (CONTINUED) Amortization and depletion expense for the eleven months ended May 31, 1997 were $4,392 and $3,360, respectively. Amortization and depletion expense for the ten months ended April 30, 1997 were $3,993 and $3,039, respectively. NOTE D -- NOTES PAYABLE Notes payable are as follows:
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. See accountants' report. F-94 159 AUTUMN ROSE QUARRY, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE G -- SUBSEQUENT EVENTS Subsequent to the date of these financial statements, the Company joined in a merger with its affiliates and other unrelated granite companies. NOTE H -- FAIR VALUES OF FINANCIAL INSTRUMENTS The Company has a number of financial instruments, none of which are held for trading purposes. The Company estimates that the fair value of all financial instruments at May 31, 1997 and April 30, 1997, does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying balance sheets. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange. NOTE I -- INCOME TAXES The Company is taxed as a corporation under the Internal Revenue Code. For federal income tax purposes, approximately $430,727 of net operating loss carryforwards exist to offset future taxable income. These carryforwards begin to expire in 2009. No tax benefit has been reported in the accompanying financial statements, however, because the Company believes that the carryforwards will expire unused. Accordingly, the $146,000 tax benefit of the cumulative carryforwards has been offset by evaluation allowance of the same amount. See accountants' report. F-95 160 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS To the Board of Directors Southern Mausoleums, Inc. Elberton, Georgia We have audited the accompanying balance sheets of Southern Mausoleums, Inc. (an "S" corporation) as of May 31, 1997 and April 30, 1997, and the related statements of operations and accumulated deficit, and cash flows for the eleven months and ten months then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Southern Mausoleums, Inc. as of May 31, 1997 and April 30, 1997, and the results of its operations and its cash flows for the eleven months and ten months then ended in conformity with generally accepted accounting principles. /s/ GREENE AND COMPANY, L.L.P. -------------------------------------- GREENE AND COMPANY, L.L.P. Anderson, South Carolina July 22, 1997 F-96 161 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-97 162 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-98 163 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-99 164 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-100 165 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-101 166 SOUTHERN MAUSOLEUMS, INC. NOTES TO FINANCIAL STATEMENTS MAY 31, 1997 AND APRIL 30, 1997 NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES This summary of significant accounting policies of the Company is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management, who is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. Nature of Business The Company saws and polishes granite into dimensional blocks for mausoleum assembly at a plant located in northeast Georgia. The completed mausoleums are sold nationwide. Use of Estimates The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Basis of Accounting Assets, liabilities, revenues, and expenses are recognized on the accrual method of accounting. Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Company has a money market account in the amount of $179,767 at May 31, 1997 and $104,543 at April 30, 1997. Trade Receivables The Company accounts for uncollectible trade receivables on the reserve method. Inventory Inventories are stated at lower of cost or market, with cost determined as follows: Finished goods....................... First-in first-out (FIFO) method Materials and work in process........ Average cost
Revenue Recognition Revenue is recognized upon shipment of goods. See accountants' report. F-102 167 SOUTHERN MAUSOLEUMS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE A -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Property and Equipment Property and equipment are stated at acquisition cost. Depreciation is computed under the straight-line method for financial reporting purposes over the following estimated useful lives:
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-103 168 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-104 169 SOUTHERN MAUSOLEUMS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE G -- RESTRICTED CASH Restricted cash balances at May 31, 1997 and April 30, 1997 were $7,115 and $6,265, respectively. These cash balances are employee savings accounts and are restricted for that purpose. NOTE H -- INVENTORY Inventory consisted of the following as of:
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-105 170 DESCRIPTION OF ARTWORK ON INSIDE BACK COVER: [Map showing locations of Independent Retailers of Rock of Ages products, Manufacturing locations, Quarry locations and Corporate headquarters.] 171 ====================================================== NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE SPECIFICALLY OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. ------------------------ TABLE OF CONTENTS
PAGE ----- Prospectus Summary.................. 3 Risk Factors........................ 8 Use of Proceeds..................... 14 Dividend Policy..................... 14 Capitalization...................... 15 Dilution............................ 16 Selected Consolidated Financial Data.............................. 17 Unaudited Pro Forma Combined and Condensed Financial Data.......... 18 Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 24 The Death Care Industry and Granite Memorialization................... 29 Business............................ 32 Management.......................... 42 Certain Relationships and Related Transactions...................... 49 Principal and Selling Stockholders...................... 52 Description of Capital Stock........ 54 Shares Eligible for Future Sale..... 57 Certain United States Tax Consequences to Non-United States Holders........................... 59 Underwriting........................ 61 Legal Matters....................... 62 Experts............................. 62 Available Information............... 63 Index to Financial Statements....... F-1
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ====================================================== ====================================================== 2,900,000 SHARES LOGO ROCK OF AGES CORPORATION COMMON STOCK --------------------- PROSPECTUS --------------------- RAYMOND JAMES & ASSOCIATES, INC. , 1997 ====================================================== 172 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Set forth below is an estimate (except for the Securities and Exchange Commission Registration Fee) of the fees and expenses all of which are payable by the Company, other than any underwriting discounts and commissions, in connection with the registration and sale of the securities being registered: Securities and Exchange Commission Registration Fee...................... $ 18,191 National Association of Securities Dealers, Inc. Filing Fee.............. 6,200 Nasdaq National Market Listing Fee....................................... 20,000 Transfer Agent and Registrar Fees and Expenses........................... 10,000 Blue Sky Fees and Expenses............................................... 5,000 Legal Fees and Expenses.................................................. 700,000 Accounting Fees and Expenses............................................. 550,000 Printing, Engraving and Mailing Expenses................................. 150,000 Miscellaneous............................................................ 40,609 ---------- Total.......................................................... $1,500,000 ==========
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-1 173 In addition, Article VIII of the By-Laws of the Registrant provides for indemnification of officers and directors of the Company and certain other persons against liabilities and expenses incurred by any of them in certain stated proceedings and under certain stated conditions. Section 9 of the Underwriting Agreement between the Company and the Representative provides for indemnification by the Company of the Representative, the Underwriters and each person, if any, who controls the Representative or any Underwriter, against certain liabilities under the Securities Act. The Underwriting Agreement also provides that the Representative and the Underwriters shall similarly indemnify the Company, its directors, officers, and controlling person, as set forth therein. The Registrant has purchased directors' and officers' liability insurance which would indemnify the directors and officers of the Company against damages arising out of certain kinds of claims which might be made against them based on their negligent acts or omissions while acting in their capacity as such. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES The following information is furnished with regard to all securities sold by the Company within the past three years which were not registered under the Securities Act. 1. As of June 27, 1997, Rock of Ages Quarries, Inc., a predecessor of the Company ("ROAQ"), and Royalty Granite Corporation, a wholly owned subsidiary of the Company, entered into an Agreement and Plan of Reorganization (the "Keystone Agreement") with KSGM, Inc. ("KSGM") and Missouri Red Quarries, Inc. ("Missouri Red") pursuant to which, effective June 28, 1997, KSGM was merged with and into Rock of Ages Corporation, a Vermont corporation and the immediate predecessor of the Company ("ROA Vermont"), and all outstanding shares of capital stock of KSGM were converted into 526,882 shares (263,441 shares after giving effect to the 1-for-2 reverse stock pursuant to the merger of ROA Vermont with and into the Company as described in 5. below) of common stock of ROA Vermont, which shares were issued to Missouri Red, as the sole stockholder of KSGM (the "Keystone Merger Shares"). The issuance of the Keystone Merger Shares was not registered under the Securities Act in reliance on the exemption provided by Section 4(2) thereof as a transaction by an issuer not involving any public offering in that (i) the Keystone Merger Shares were issued to a single entity (Missouri Red) that, at the time of entering into the Keystone Agreement, represented to the Company that it was an "accredited investor" and that it was acquiring the Keystone Merger Shares solely for investment for its own account and not with a view toward the resale or distribution thereof, (ii) at that time the Company provided written disclosure to Missouri Red stating, and Missouri Red acknowledged, that the Keystone Merger Shares were not registered under the Act and would be subject to certain restrictions on transfer, (iii) the Company placed a restricted share legend to such effect on the certificates representing the Keystone Merger Shares and (iv) the Company did not engage in any general solicitation or advertising in connection with entering into the Keystone Agreement. 2. As of June 27, 1997, ROAQ entered into a Stock Purchase Agreement with Robert Otis Childs, Jr., Robert Otis Childs, III, and Timothy Carroll Childs (the "C&C Agreement"), pursuant to which the Company will issue to Robert Otis Childs, III, contemporaneously with the consummation of the offering, $200,000 in shares of Class A Common Stock (valued at the initial public offering price per share) (the "Childs Shares") as a portion of the consideration payable in connection with the C&C Acquisition. The issuance of the Childs Shares will not be registered under the Securities Act in reliance on the exemption provided by Section 4(2) thereof as a transaction by an issuer not involving any public offering in that (i) the Childs Shares will be issued to a single investor who, at the time of entering into the C&C Agreement, represented to the Company that he was an "accredited investor" and that he would be acquiring the Childs Shares solely for investment for his own account and not with a view toward the resale or distribution thereof, (ii) at that time the Company provided written disclosure to Robert Otis Childs, III stating, and Robert Otis Childs, III acknowledged, that the Childs Shares will not be registered under the Act and will be subject to certain restrictions on transfer, (iii) the Company will place a restricted share legend to such effect on the certificate(s) representing the Childs Shares and (iv) the Company did not engage in any general solicitation or advertising in connection with entering into the C&C Agreement. II-2 174 3. Effective June 27, 1997, ROA Vermont merged with and into ROAQ and ROAQ changed its name to Rock of Ages Corporation. In connection therewith, each outstanding share of Class A Common Stock of ROAQ was converted into 72.8347276 shares of Common Stock of ROAQ ("ROAQ Shares"). The ROAQ Shares were not registered under the Securities Act in reliance on the exemption provided by Section 3(a)(9) thereof with respect to securities exchanged by the issuer with its existing security-holders exclusively in that only the shares of Class A Common Stock held by existing shareholders of ROAQ were converted into and exchanged for Common Stock and no commission or other remuneration was paid or given directly or indirectly in connection with such exchange of shares. 4. As of July 30, 1997, ROA Vermont entered into an Asset Purchase Agreement with Keith Monument (the "Keith Agreement"), pursuant to which the Company will issue to Keith Monument, contemporaneously with the consummation of the offering, $1.5 million in shares of Class A Common Stock (valued at the initial public offering price per share) (the "Keith Monument Shares") as a portion of the consideration payable in connection with the Keith Acquisition. The issuance of the Keith Monument Shares will not be registered under the Securities Act in reliance on the exemption provided by Section 4(2) thereof as a transaction by an issuer not involving any public offering in that (i) the Keith Monument Shares will be issued to a single entity (Keith Monument Corporation) that at the time of entering into the Keith Agreement represented to the Company that it was an "accredited investor" and that it would be acquiring the Keith Monument Shares solely for investment for its own account and not with a view toward the resale or distribution thereof, (ii) at that time the Company provided written disclosure to Keith Monument Corporation stating, and Keith Monument Corporation acknowledged, that the Keith Monument Shares will not be registered under the Act and will be subject to certain restrictions on transfer, (iii) the Company will place a restricted share legend to such effect on the certificate(s) representing the Keith Monument Shares and (iv) the Company did not engage in any general solicitation or advertising in connection with entering into the Keith Agreement. 5. Effective August 12, 1997, ROA Vermont became a Delaware corporation pursuant to a reincorporation merger (the "Reincorporation Merger"). In the Reincorporation Merger, each outstanding share of ROA Vermont was converted into one half of one share of Class B Common Stock of the Company. In connection therewith, an aggregate of 3,763,441 shares of Class B Common Stock of the Company were issued (the "Reincorporation Merger Shares"). The issuance of the Reincorporation Merger Shares was not registered under the Securities Act in reliance on the exemption provided by Section 4(2) thereof as a transaction by an issuer not involving any public offering in that (i) the Reincorporation Merger Shares were issued to two entities (Swenson Granite and Missouri Red) that represented to the Company that they were "accredited investors" and were acquiring the Reincorporation Merger Shares solely for investment for their own accounts and not with a view toward the resale or distribution thereof, (ii) the Company provided written disclosure to such entities stating, and such entities acknowledged, that the Reincorporation Merger Shares would not be registered under the Act and would be subject to certain restrictions on transfer, (iii) the Company placed a restricted share legend to such effect on the certificates representing the Reincorporation Merger Shares and (iv) the Company did not engage in any general solicitation or advertising in connection with the issuance of the Reincorporation Merger Shares pursuant to the Reincorporation Merger. 6. On August 13, 1997, the Company entered into an Agreement and Plan of Merger and Reorganization with Swenson Granite Company, Inc., Kurt M. Swenson and Kevin C. Swenson (the "Swenson Merger Agreement"), pursuant to which, immediately prior to consummation of the offering, each share of Swenson Granite Company, Inc. will be converted into 1,618.23 shares of Class B Common Stock of the Company (the "Reorganization Merger Shares"). The issuance of the Reorganization Merger Shares will not be registered under the Securities Act in reliance on the exemption provided by Section 4(2) thereof as a transaction by an issuer not involving any public offering in that (i) the Reorganization Merger Shares will be issued to less than thirty-five shareholders of Swenson Granite Company, Inc. who, in order to receive such shares will be required by the terms of the Swenson Merger Agreement to represent to the Company that (A) they are an "accredited investor" or have engaged a "purchaser representative" to act on their behalf, (B) they will be acquiring the Reorganization Merger Shares for investment only and not with a view to any public distribution thereof, (C) they understand that the Reorganization Merger Shares will not be registered under the Act and II-3 175 will be subject to certain restrictions on transfer, and (D) if they are not an "accredited investor," they, either alone or together with their purchaser representative, have such knowledge and experience in financial and business matters that they are capable of evaluating the merits and rights of an investment in the Reorganization Merger Shares, (ii) the Company will place a restricted share legend on the certificates representing the Reorganization Merger Shares, (iii) the Company did not engage in any general solicitation or advertising in connection with entering into the Swenson Merger Agreement and (iv) the issuance of the Reorganization Merger Shares will otherwise comply with Rule 506 under the Securities Act. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits:
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
II-4 176
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. 10.21 Commitment Letter dated as of September 14, 1997, between CIT Group/Business Credit, Inc. and Rock of Ages Corporation. 10.22 Letter Agreement dated as of September 19, 1997, by and among Rock of Ages Corporation, Richard Campbell, Robert Otis Childs, III, Timothy Carrol Childs. 11.* Statement re: computation of per share earnings 21.* Subsidiaries of the Company 23.1** Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5) 23.2 Consent of KPMG Peat Marwick LLP 23.3 Consent of KPMG Peat Marwick LLP 23.4 Consent of KPMG Peat Marwick LLP 23.5 Consent of KPMG Peat Marwick LLP 23.6 Consent of Greene and Company, L.L.P. 23.7 Consent of Greene and Company, L.L.P. 23.8 Consent of Greene and Company, L.L.P. 23.9 Consent of Greene and Company, L.L.P. 23.10* Consent of Frederick E. Webster 23.11* Consent of John E. Keith 23.12* Consent of James L. Fox 23.13* Consent of CA Rich Consultants, Inc. 24.* Power of Attorney (set forth on the signature page of this Registration Statement) 27. Financial Data Schedule
- --------------- * Previously filed ** To be filed by amendment. + Confidential treatment requested as to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. (b) Financial Statement Schedules: 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. II-5 177 ITEM 17. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to its Restated Articles of Incorporation, By-Laws, by agreement or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The Company hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance on Rule 430A and contained in a form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or Rule 497(h) under the Securities Act shall be deemed to be part of the Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To provide to the Underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. II-6 178 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Company certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Barre, Vermont on September 22, 1997. ROCK OF AGES CORPORATION By: /s/ KURT M. SWENSON ------------------------------------ Name: Kurt M. Swenson Title: President, Chief Executive Officer and Chairman of the Board of Directors Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on September 22, 1997.
SIGNATURE TITLE - ---------------------------------------- --------------------------------------------------- KURT M. SWENSON President, Chief Executive Officer and Chairman of - ---------------------------------------- the Board of Directors (Principal Executive Kurt M. Swenson Officer) * Senior Vice President, Chief Financial Officer, - ---------------------------------------- Treasurer and Director (Principal Financial George R. Anderson Officer) * Vice Chairman and President, Memorials Division, - ---------------------------------------- and Director Richard C. Kimball * President, Quarry Division and Director - ---------------------------------------- Jon M. Gregory * Senior Vice President, Barre and Canada - ---------------------------------------- Manufacturing Operations and Director Mark A. Gherardi President, Keystone Memorials, Inc. and Director - ---------------------------------------- G. Thomas Oglesby, Jr. * Senior Vice President -- Memorial Sales, Director - ---------------------------------------- Peter A. Friberg * Director - ---------------------------------------- Charles M. Waite *By: /s/ KURT M. SWENSON - ---------------------------------------- Kurt M. Swenson Attorney-in-fact
II-7 179 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-1 180 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - -------- ----------------------------------------------------------------------------------- 1. Form of Underwriting Agreement by and between the Company and Raymond James & Associates, 2.1* Agreement of Merger and Plan of Reorganization dated as of June 27, 1997 by and among Rock of Ages Quarries, Inc., to be known as Rock of Ages Corporation, KSGM, Inc., Royalty Granite Corporation and Missouri Red Quarries, Inc. 2.2* Stock Purchase Agreement dated as of June 27, 1997 by and among Rock of Ages Quarries, Inc., to be known as Rock of Ages Corporation, Robert Otis Childs, Jr., Robert Otis Childs, III and Timothy Carroll Childs 2.3* Asset Purchase Agreement dated as of July 30, 1997 by and among the Company, John E. Keith, Roy H. Keith, Jr., Glasgow Monument Co., Inc., Keith Lettering and Setting Corporation, Keith Monument Company, National Memorial Corporation, Riehm-gerlack Monument Co., and the Snyder Corporation. 2.4* Agreement and Plan of Merger and Reorganization dated as of August 13, 1997 by and among Rock of Ages Corporation, Swenson Granite Company, Inc., Kurt M. Swenson and Kevin C. Swenson 3.1* Form of Amended and Restated Certificate of Incorporation of the Company 3.2* By-laws of the Company 4. Specimen Certificate representing the Class A Common Stock 5.** Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the Company, regarding the legality of the shares of Class A Common Stock 10.1* Rock of Ages Corporation Amended and Restated 1994 Stock Plan 10.2 Employment Agreement of Kurt M. Swenson 10.3* Employment Agreement of Paula Plante 10.4* Employment Agreement of Peter Friberg 10.5* Employment Agreement of Albert Gherardi, Jr. 10.6* Employment Agreement of Mark Gherardi 10.7* Form of Acquisition Employment Agreement with G. Thomas Oglesby, Jr., George T. Oglesby, III, Robert Otis Childs, III, John E. Keith and Roy H. Keith 10.8 Form of Officer Employment Agreement with each of Richard C. Kimball, George R. Andersen, Jon M. Gregory and Edward E. Haydon 10.9*+ Supply and Distribution Agreement dated as of June 27, 1997 by and among Keystone Granite Company, Inc., the Estate of George T. Oglesby, Sr., Rock of Ages Corporation and Missouri Red Quarries, Inc. 10.10*+ Supply and Distribution Agreement dated as of June 27, 1997 by and among Missouri Red Quarries, Inc., George T. Oglesby, Jr. and Rock of Ages Corporation. 10.11*+ Letter Agreement dated as of July 25, 1997 between Rock of Ages Corporation and Dakota Granite Company 10.12* Stock Subscription Agreement and Continuity of Interest Agreement dated June 27, 1997 between Rock of Ages Corporation and Missouri Red Quarries, Inc. 10.13* Stock Subscription Agreement dated as of July 30, 1997 between Rock of Ages Corporation and National Memorial Corporation 10.14* Stock Subscription Agreement dated as of June 27, 1997 between Rock of Ages Corporation and Robert Otis Childs, III
181
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. 10.21 Commitment Letter dated as of September 14, 1997, between CIT Group/Business Credit, Inc. and Rock of Ages Corporation. 10.22 Letter Agreement dated as of September 18, 1997, by and among Rock of Ages Corporation, Richard Campbell, Robert Otis Childs, III, Timothy Carrol Childs. 11.* Statement re: computation of per share earnings 21.* Subsidiaries of the Company 23.1** Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5) 23.2 Consent of KPMG Peat Marwick LLP 23.3 Consent of KPMG Peat Marwick LLP 23.4 Consent of KPMG Peat Marwick LLP 23.5 Consent of KPMG Peat Marwick LLP 23.6 Consent of Greene and Company, L.L.P. 23.7 Consent of Greene and Company, L.L.P. 23.8 Consent of Greene and Company, L.L.P. 23.9 Consent of Greene and Company, L.L.P. 23.10* Consent of Frederick E. Webster 23.11* Consent of John E. Keith 23.12* Consent of James L. Fox 23.13* Consent of CA Rich Consultants, Inc. 24.* Power of Attorney (set forth on the signature page of this Registration Statement) 27. Financial Data Schedule
- --------------- * Previously filed ** To be filed by amendment. + Confidential treatment requested as to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. EX-1 2 UNDERWRITING AGREEMENT 1 Exhibit 1 __________ SHARES ROCK OF AGES CORPORATION CLASS A COMMON STOCK -------------------- UNDERWRITING AGREEMENT St. Petersburg, Florida , 1997 Raymond James & Associates, Inc. As Representative of the Several Underwriters c/o Raymond James & Associates, Inc. 880 Carillon Parkway St. Petersburg, Florida 33716 Ladies and Gentlemen: Rock of Ages Corporation, a Delaware corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell an aggregate of _________ shares of Class A Common Stock, $.01 par value per share (the "Common Stock"), of the Company, to the several Underwriters named in Schedule I hereto (the "Underwriters"), and certain stockholders of the Company named in Schedule II hereto (the "Selling Stockholders") propose, subject to the terms and conditions stated herein, to sell to the Underwriters an aggregate of _______ shares of the Common Stock (such _________ aggregate shares to be sold by the Company and the Selling Stockholders are hereinafter referred to as the "Firm Shares"). In addition, the Company has agreed to sell to the Underwriters, upon the terms and conditions set forth herein, up to an additional ________ shares (the "Additional Shares") of the Common Stock to cover over-allotments by the Underwriters, if any. The Firm Shares and the Additional Shares are hereinafter collectively referred to as the "Shares." The Company and the Selling Stockholders wish to confirm as follows their agreement with you and the other several Underwriters, on whose behalf you are acting, in connection with the several purchases of the Shares from the Company and the Selling Stockholders. 1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Act"), a registration statement on Form S-1 (File No. 333-_____), including a prospectus subject to completion, relating to the Shares. Such registration statement, as amended at the time when it becomes effective and as thereafter amended by post-effective amendment, is referred to in this Agreement as the "Registration Statement." The prospectus in the form included in the Registration Statement, or, if the prospectus included in the Registration Statement omits information in reliance upon Rule 430A under the Act and such information is included in a prospectus filed with the Commission pursuant to Rule 424(b) under the Act or as part of a post-effective amendment to the Registration Statement after the Registration Statement becomes effective, the prospectus as so filed, is referred to in this Agreement as the "Prospectus." If the Company elects to rely on Rule 434 under the 1 2 Act, all references to the Prospectus shall be deemed to include, without limitation, the form of prospectus and the term sheet contemplated by Rule 434, taken together, provided to the Underwriters by the Company in reliance on Rule 434 under the Act (the "Rule 434 Prospectus"). If the Company files another registration statement with the Commission to register a portion of the Shares pursuant to Rule 462(b) under the Act (the "Rule 462 Registration Statement"), then any reference to "Registration Statement" herein shall be deemed to include the registration statement on Form S-1 (File No. 333-_____) and the Rule 462 Registration Statement, as each such registration statement may be amended pursuant to the Act. The prospectus subject to completion in the form included in the Registration Statement at the time of the initial filing of such Registration Statement with the Commission and as such prospectus is amended from time to time until the date of the Prospectus are collectively referred to in this Agreement as the "Prepricing Prospectus." 2. AGREEMENTS TO SELL AND PURCHASE. The Company and the Selling Stockholders (in accordance with Schedule II hereof) hereby agree, severally and not jointly, to sell the Firm Shares to the Underwriters and, upon the basis of the representations, warranties and agreements of the Company and the Selling Stockholders herein contained and subject to all the terms and conditions set forth herein, each Underwriter agrees, severally and not jointly, to purchase from the Company and the Selling Stockholders at a purchase price of $_____ per Share (the "purchase price per Share"), the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto (or such number of Firm Shares as adjusted pursuant to Section 11 hereof). The Company hereby also agrees to sell to the Underwriters, and upon the basis of the representations, warranties and agreements of the Company and the Selling Stockholders herein contained and subject to all the terms and conditions set forth herein, the Underwriters shall have the right for 30 days from the date of the Prospectus to purchase from the Company up to _______ Additional Shares at the purchase price per Share for the Firm Shares. The Additional Shares may be purchased solely for the purpose of covering over-allotments, if any, made in connection with the offering of the Firm Shares. If any Additional Shares are to be purchased, each Underwriter, severally and not jointly, agrees to purchase the number of Additional Shares (subject to such adjustments as you may determine to avoid fractional shares) which bears the same proportion to the total number of Additional Shares to be purchased by the Underwriters as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto (or such number of Firm Shares as adjusted pursuant to Section 11 hereof) bears to the total number of Firm Shares. 3. TERMS OF PUBLIC OFFERING. The Company and the Selling Stockholders have been advised by you that the Underwriters propose to make a public offering of their respective portions of the Shares as soon after the Registration Statement and this Agreement have become effective as in your judgment is advisable and initially to offer the Shares upon the terms set forth in the Prospectus. 4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery to the Underwriters of the Firm Shares and payment therefor shall be made at the offices of Raymond James & Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida, at 10:00 a.m., St. Petersburg, Florida time, on ___________, 1997 (the "Closing Date"). The place of closing for the Firm Shares and the Closing Date may be varied by agreement between the Representatives and the Company. Delivery to the Underwriters of and payment for any Additional Shares to be purchased by the Underwriters shall be made at the offices of Raymond James & Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida, at 10:00 a.m., St. Petersburg, Florida time, on such date or dates (the "Additional Closing Date") (which may be the same as the Closing Date but shall in no event be earlier than the Closing Date nor earlier than three nor later than ten business days after the giving of the notice hereinafter referred to) as shall be specified in a written notice from you on behalf of the Underwriters to the Company of the Underwriters' determination to purchase a number, specified in such notice, of Additional Shares. Such notice may be given to the Company by you at any time within 30 days after the date of the Prospectus. The place of closing for the Additional Shares and the Additional Closing Date may be varied by agreement between you and the Company. 2 3 Certificates for the Firm Shares and for any Additional Shares to be purchased hereunder shall be registered in such names and in such denominations as you shall request prior to 1:00 p.m., St. Petersburg, Florida time, not later than the second full business day preceding the Closing Date or the Additional Closing Date, as the case may be. Such certificates shall be made available to you in St. Petersburg, Florida for inspection and packaging not later than 9:30 a.m., St. Petersburg, Florida time, on the business day immediately preceding the Closing Date or the Additional Closing Date, as the case may be. The certificates evidencing the Firm Shares and any Additional Shares to be purchased hereunder shall be delivered to you on the Closing Date or the Additional Closing Date, as the case may be, against payment of the purchase price therefor by certified or official bank check or checks payable in New York Clearing House (next day) funds. Payment for the Firm Shares sold by the Company hereunder shall be delivered by the Representatives to the Company, and payment for the Shares sold by the Selling Stockholders hereunder shall be delivered by the Representatives to the "Custodian" (as defined in the last paragraph of Section 7 hereof). 5. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company covenants and agrees with the several Underwriters as follows: (a) The Company will use its best efforts to cause the Registration Statement and any amendments thereto to become effective, if it has not already become effective, and will advise you promptly and, if requested by you, will confirm such advice in writing (i) when the Registration Statement has become effective and when any post-effective amendment thereto becomes effective, (ii) if Rule 430A under the Act is employed, when the Prospectus has been timely filed pursuant to Rule 424(b) under the Act, (iii) of any request by the Commission for amendments or supplements to the Registration Statement, any Prepricing Prospectus or the Prospectus or for additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of the suspension of qualification of the Shares for offering or sale in any jurisdiction or the initiation of any proceeding for such purposes and (v) within the period of time referred to in Section 5(e) below, of any change in the Company's condition (financial or other), business, prospects, properties, net worth or results of operations, or of any other event that comes to the attention of the Company, that results in the Registration Statement or the Prospectus (as then amended or supplemented) containing an untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make the statements therein not misleading in any material respect, or of the necessity to amend or supplement the Prospectus (as then amended or supplemented) to comply with the Act or any other law. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, the Company will make every reasonable effort to obtain the withdrawal or lifting of such order at the earliest possible time. If the Company elects to rely on Rule 434 under the Act, the Company will provide the Underwriters with copies of the form of Rule 434 Prospectus (including copies of a term sheet that complies with the requirements of Rule 434 under the Act), in such number as the Underwriters may reasonably request, and file with the Commission in accordance with Rule 424(b) of the Act the form of Prospectus complying with Rule 434(b)(2) of the Act before the close of business on the first business day immediately following the date hereof. If the Company elects not to rely on Rule 434 under the Act, the Company will provide the Underwriters with copies of the form of Prospectus, in such number as the Underwriters may reasonably request, and file with the Commission such Prospectus in accordance with Rule 424(b) of the Act before the close of business on the first business day immediately following the date hereof. (b) The Company will furnish to you, without charge, two signed duplicate originals of the Registration Statement as originally filed with the Commission and of each amendment thereto, including financial statements and all exhibits thereto, and will also furnish to you, without charge, such number of conformed copies of the Registration Statement as originally filed and of each amendment thereto as you may reasonably request. 3 4 (c) The Company will not file any Rule 462 Registration Statement or any amendment to the Registration Statement or make any amendment or supplement to the Prospectus unless (A) you shall have previously been advised thereof and given a reasonable opportunity to review such filing, amendment or supplement, and (B) you have not reasonably objected to such filing, amendment or supplement after being so advised. (d) Prior to the execution and delivery of this Agreement, the Company has delivered or will deliver to you, without charge, in such quantities as you have requested or may hereafter reasonably request, copies of each form of the Prepricing Prospectus. The Company consents to the use, in accordance with the provisions of the Act and with the securities or Blue Sky laws of the jurisdictions in which the Shares are offered by the several Underwriters and by dealers, prior to the date of the Prospectus, of each Prepricing Prospectus so furnished by the Company. (e) As soon after the execution and delivery of this Agreement as is practicable and thereafter from time to time for such period as in the reasonable opinion of counsel for the Underwriters a prospectus is required by the Act to be delivered in connection with sales by any Underwriter or a dealer, and for so long a period as you may request for the distribution of the Shares, the Company will deliver to each Underwriter and each dealer, without charge, as many copies of the Prospectus (and of any amendment or supplement thereto) as they may reasonably request. The Company consents to the use of the Prospectus (and of any amendment or supplement thereto) in accordance with the provisions of the Act and with the securities or Blue Sky laws of the jurisdictions in which the Shares are offered by the several Underwriters and by all dealers to whom Shares may be sold, both in connection with the offering and sale of the Shares and for such period of time thereafter as the Prospectus is required by the Act to be delivered in connection with sales by any Underwriter or dealer. If at any time prior to the later of (i) the completion of the distribution of the Shares pursuant to the offering contemplated by the Registration Statement or (ii) the expiration of prospectus delivery requirements with respect to the Shares under Section 4(3) of the Act and Rule 174 thereunder, any event shall occur that in the judgment of the Company or in the opinion of counsel for the Underwriters is required to be set forth in the Prospectus (as then amended or supplemented) or should be set forth therein in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary to supplement or amend the Prospectus to comply with the Act or any other law, the Company will forthwith prepare and, subject to Sections 5(a) and 5(c) hereof, file with the Commission and use its best efforts to cause to become effective as promptly as possible an appropriate supplement or amendment thereto, and will furnish to each Underwriter who has previously requested Prospectuses, without charge, a reasonable number of copies thereof. (f) The Company will cooperate with you and counsel for the Underwriters in connection with the registration or qualification of the Shares for offering and sale by the several Underwriters and by dealers under the securities or Blue Sky laws of such jurisdictions as you may reasonably designate and will file such consents to service of process or other documents as may be reasonably necessary in order to effect and maintain such registration or qualification for so long as required to complete the distribution of the Shares; provided that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to general service of process in suits, other than those arising out of the offering or sale of the Shares, in any jurisdiction where it is not now so subject. In the event that the qualification of the Shares in any jurisdiction is suspended, the Company shall so advise you promptly in writing. (g) The Company will make generally available to its security holders a consolidated earnings statement (in form complying with the provisions of Rule 158), which need not be audited, covering a twelve-month period commencing after the effective date of the Registration Statement and the Rule 462 Registration Statement, if any, and ending not later than 15 months thereafter, as soon as 4 5 practicable after the end of such period, which consolidated earnings statement shall satisfy the provisions of Section 11(a) of the Act. (h) During the period ending five years from the date hereof, the Company will furnish to you and, upon your request, to each of the other Underwriters, (i) as soon as available, a copy of each proxy statement, quarterly or annual report or other report of the Company mailed to stockholders or filed with the Commission, the National Association of Securities Dealers, Inc. (the "NASD") or The Nasdaq Stock Market or any securities exchange and (ii) from time to time such other information concerning the Company as you may reasonably request. (i) If this Agreement shall terminate or shall be terminated after execution pursuant to any provision hereof (except pursuant to a termination under Section 11 hereof) or if this Agreement shall be terminated by the Underwriters because of any inability, failure or refusal on the part of the Company or the Selling Stockholders to perform in all material respects any agreement herein or to comply in all material respects with any of the terms or provisions hereof or to fulfill in all material respects any of the conditions of this Agreement, the Company agrees to reimburse you and the other Underwriters for all out-of-pocket expenses (including travel expenses and reasonable fees and expenses of counsel for the Underwriters but excluding wages and salaries paid by you) reasonably incurred by you in connection herewith. (j) The Company will apply the net proceeds from the sale of the Shares to be sold by it hereunder in accordance in all material respects with the statements under the caption "Use of Proceeds" in the Prospectus. (k) If Rule 430A under the Act is employed, the Company will timely file the Prospectus pursuant to Rule 424(b) under the Act. (l) For a period of 180 days after the date of the Prospectus first filed pursuant to Rule 424(b) under the Act, without your prior written consent, the Company will not, directly or indirectly, issue, sell, offer or contract to sell or otherwise dispose of or transfer any shares of Common Stock or securities convertible into or exchangeable or exercisable for shares of Common Stock (collectively, "Company Securities") or any rights to purchase Company Securities, except (i) to the Underwriters pursuant to this Agreement, (ii) pursuant to and in accordance with the Company's 1994 Stock Option Plan referenced in the Registration Statement under the caption "Management -- Incentive Plans," (iii) in connection with the Keith Acquisition and the C&C Acquisition (each as defined in the Registration Statement), or (iv) up to ___ shares of Common Stock issued no earlier than 30 days after the date hereof and only in connection with the Company's acquisition of businesses, the owners of which have agreed in writing with the Representative not to directly or indirectly sell, offer or contract to sell or otherwise dispose of or transfer any Company Securities until the expiration of 180 days after the Prospectus was first filed pursuant to Rule 424(b). (m) Prior to the Closing Date or the Additional Closing Date, as the case may be, the Company will furnish to you, as promptly as possible, copies of any unaudited interim consolidated financial statements of the Company and its subsidiaries for any period subsequent to the periods covered by the financial statements appearing in the Prospectus. (n) The Company will comply with all provisions of any undertakings contained in the Registration Statement. (o) The Company will not at any time, directly or indirectly take any action designed, or which might reasonably be expected to cause or result in, or which will constitute, stabilization or 5 6 manipulation of the price of the shares of Common Stock to facilitate the sale or resale of any of the Shares. (p) The Company will use its best efforts to qualify or register its Common Stock for sale in non-issuer transactions under (or obtain exemptions from the application of) the Blue Sky laws of each state where necessary to permit market making transactions and secondary trading, and will comply with such Blue Sky laws and will continue such qualifications, registrations and exemptions in effect for a period of five years after the date hereof. (q) The Company will timely file with the National Association of Securities Dealers Automated Quotation National Market System ("NASDAQ/NMS") all documents and notices required by the NASDAQ/NMS of companies that have or will issue securities that are traded in the over-the-counter market and quotations for which are reported by the NASDAQ/NMS. (r) The Company will file with the Commission such reports on Form SR as may be required pursuant to Rule 463 under the Act. 6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each Underwriter on the date hereof, and shall be deemed to represent and warrant to each Underwriter on the Closing Date and the Additional Closing Date, that: (a) The Company satisfies all of the requirements of the Act for use of Form S-1 for the offering of Shares contemplated hereby. Each Prepricing Prospectus included as part of the Registration Statement as originally filed or as part of any amendment or supplement thereto, or filed pursuant to Rule 424(a) under the Act, complied when so filed in all material respects with the provisions of the Act, except that this representation and warranty does not apply to statements in or omissions from such Prepricing Prospectus (or any amendment or supplement thereto) made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by or on behalf of any Underwriter through you expressly for use therein. The Commission has not issued any order preventing or suspending the use of any Prepricing Prospectus. (b) The Registration Statement (including any Rule 462 Registration Statement), in the form in which it becomes effective and also in such form as it may be when any post-effective amendment thereto shall become effective, and the Prospectus, and any supplement or amendment thereto when filed with the Commission under Rule 424(b) under the Act, will comply in all material respects with the provisions of the Act and will not at any such times contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, except that this representation and warranty does not apply to statements in or omissions from the Registration Statement or the Prospectus (or any amendment or supplement thereto) made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by or on behalf of any Underwriter through you expressly for use therein. (c) The capitalization of the Company is and will be as set forth in the Prospectus as of the date set forth therein. All the outstanding shares of Common Stock of the Company have been, and as of the Closing Date will be, duly authorized and validly issued, are fully paid and nonassessable and are free of any preemptive or similar rights; except as set forth in the Prospectus, the Company is not a party to or bound by any outstanding options, warrants, or similar rights to subscribe for, or contractual obligations to issue, sell, transfer or acquire, any of its capital stock or any securities convertible into or exchangeable for any of such capital stock; the Shares to be issued and sold to the Underwriters by the Company hereunder have been duly authorized and, when issued and delivered to the Underwriters against payment therefor in accordance with the terms, claims, encumbrances, or defects in title; hereof, will be validly issued, fully paid and nonassessable and free of any preemptive or similar rights; the capital stock of the Company 6 7 conforms to the description thereof in the Registration Statement and the Prospectus (or any amendment or supplement thereto). The form of certificates for the Shares conform to the requirements of the Delaware General Corporation Law (the "DGCL"). (d) Each of the Company and its subsidiaries is a corporation duly incorporated and validly existing as a corporation in good standing under the laws of the state of its incorporation with full power and authority to own, lease and operate its properties and to conduct its business as presently conducted and as described in the Registration Statement and the Prospectus (and any amendment or supplement thereto), and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure to so register or qualify does not have a material adverse effect on the condition (financial or other), business, properties, net worth, results of operations or prospects of the Company and its subsidiaries taken as a whole (a "Material Adverse Effect"). (e) The issued shares of capital stock of each of the Company's subsidiaries have been duly authorized and validly issued, are fully paid and nonassessable and are owned by the Company, directly or indirectly, free and clear of any security interests, liens, encumbrances, equities or claims. The Company does not have any subsidiaries and does not own a material interest in or control, directly or indirectly, any other corporation, partnership, joint venture, association, trust or other business organization, except those subsidiaries set forth in Exhibit 21 to the Registration Statement. (f) There is no legal or governmental proceeding, action, suit, inquiry, proceeding or investigation pending by or before any court or governmental or other regulatory or administrative agency or commission or, to the best knowledge of the Company, threatened, against the Company or its subsidiaries or to which the Company or its subsidiaries or any of their properties are subject, (i) that is required to be described in the Registration Statement or the Prospectus (or any amendment or supplement thereto) and are not described as required by the Act; or (ii) which might individually or in the aggregate prevent the transactions contemplated by this Agreement. There are no agreements, contracts, indentures, leases or other instruments that are required to be described in the Registration Statement or the Prospectus (or any amendment or supplement thereto) or to be filed as an exhibit to the Registration Statement that are not described or filed as required by the Act. All such contracts to which the Company or any of its subsidiaries is a party have been duly authorized, executed and delivered by the Company or the applicable subsidiary, constitute valid and binding agreements of the Company or the applicable subsidiary and are enforceable against the Company or the applicable subsidiary in accordance with the terms thereof, and neither the Company or the applicable subsidiary, nor to the best of the Company's knowledge, any other party, is in breach of or default in any material respect under any of such contracts. (g) Neither the Company nor any of its subsidiaries is (i) in violation of its articles of incorporation or bylaws; (ii) in violation of any law, ordinance, administrative or governmental rule or regulation applicable to the Company or any of its subsidiaries or of any decree of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries, except to the extent such violation or violations would not have a Material Adverse Effect or in default in the performance of any obligation, agreement or condition contained in (i) any bond, debenture, note or any other evidence of indebtedness, or (ii) any agreement, indenture, lease or other instrument to which the Company or any of its subsidiaries is a party or by which any of their properties may be bound (except to the extent to any default referred to in this clause (iii) would not have a Material Adverse Effect); and there does not exist any state of facts which constitutes an event of default on the part of the Company or any of its subsidiaries as defined in such documents or which, with notice or lapse of time or both, would constitute such an event of default. (h) The Company's execution and delivery of this Agreement and the performance by the Company of its obligations under this Agreement has been duly and validly authorized by the Company, 7 8 and this Agreement has been duly executed and delivered by the Company, and this Agreement constitutes a valid and legally binding agreement of the Company, enforceable against the Company in accordance with its terms, except to the extent enforceability may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws relating to or affecting enforcement of creditors' rights generally or by general equitable principles, whether considered in a proceeding at law or in equity, and, rights to indemnification and contribution hereunder may be limited by federal or state securities laws or the public policy underlying such laws. (i) Neither the issuance and sale of the Shares, the execution, delivery or performance of this Agreement by the Company nor the consummation by the Company of the transactions contemplated hereby or thereby (i) requires any consent, approval, authorization or other order of or registration or filing with, any court, regulatory body, administrative agency or other governmental body, agency or official (except such as may be required for the registration of the Shares under the Act and compliance with the securities or Blue Sky laws of various jurisdictions, all of which will be, or have been, effected in accordance with this Agreement and except for the NASD's clearance of the underwriting terms of the offering contemplated hereby as required under the NASD's Rules of Fair Practice), (ii) conflicts with or will conflict with or constitutes or will constitute a breach of, or a default under, the articles of incorporation or bylaws of the Company or any agreement, indenture, lease or other instrument to which the Company or any of its subsidiaries is a party or by which any of its properties may be bound, (iii) violates any statute, law, regulation, ruling, filing, judgment, injunction, order or decree applicable to the Company or any of its subsidiaries or any of their properties, or (iv) results in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company. (j) No holder of securities of the Company has rights to the registration of any securities of the Company as a result of or in connection with the filing of the Registration Statement or the consummation of the transactions contemplated hereby that have not been satisfied or heretofore waived in writing. (k) KPMG Peat Marwick LLP and Green & Co., the certified public accountants who have certified the financial statements filed as part of the Registration Statement and the Prospectus (or any amendment or supplement thereto), are independent public accountants as required by the Act. (l) The financial statements and pro forma financial information, together with related schedules and notes, included in the Registration Statement and the Prospectus (and any amendment or supplement thereto), present fairly the financial position, results of operations and changes in financial position of the Company and its consolidated subsidiaries on the basis stated in the Registration Statement at the respective dates or for the respective periods to which they apply; such statements and related schedules and notes have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, except as disclosed therein; and the other financial and statistical information and data set forth in the Registration Statement and Prospectus (and any amendment or supplement thereto) is, in all material respects, accurately presented and, to the extent applicable prepared on a basis consistent with such financial statements and the books and records of the Company. No other financial statements or schedules are required to be included in the Registration Statement. (m) Except as disclosed in the Registration Statement and the Prospectus (or any amendment or supplement thereto to the extent required), subsequent to the respective dates as of which such information is given in the Registration Statement and the Prospectus (or any amendment or supplement thereto), (i) neither the Company nor any of its subsidiaries has incurred any liabilities or obligations, indirect, direct or contingent, or entered into any transaction which is not in the ordinary course of business and is material to the Company and its subsidiaries taken as a whole; (ii) neither the Company nor any of its subsidiaries has sustained any material loss or interference with its business or properties from fire, flood, 8 9 windstorm, accident or other calamity, whether or not covered by insurance; (iii) neither the Company nor any of its subsidiaries has paid or declared any dividends or other distributions with respect to its capital stock, other than pursuant to the Reorganization (as defined in the Prospectus) and the Company is not in default under the terms of any class of capital stock of the Company or any outstanding debt obligations; (iv) there has not been any change in the authorized or outstanding capital stock of the Company or any material change in the indebtedness of the Company (other than in the ordinary course of business); and (v) there has not been any change which has, or any development involving or which may reasonably be expected to involve a potential future change which would have, a Material Adverse Effect. (n) Each of the Company and its subsidiaries has, or upon the consummation of the C&C Acquisition and the Keith Acquisition (as such terms are defined in the Prospectus) will have, good and marketable title to all property (real and personal) described in the Prospectus as being owned by it, free and clear of all liens, claims, security interests or other encumbrances except (i) such as are described in the financial statements included in, or elsewhere in, the Prospectus or (ii) such as are not materially burdensome and do not interfere in any material respect with the use of the property or the conduct of the business of the Company. All property (real and personal) held under lease by the Company and its subsidiaries is held by it under valid, subsisting and enforceable leases with only such exceptions as in the aggregate are not materially burdensome and do not interfere in any material respect with the conduct of the business of the Company. (o) The Company has not distributed and will not distribute any offering material in connection with the offering and sale of the Shares other than the Prepricing Prospectus, the Prospectus, or other offering material, if any, as permitted by the Act. (p) The Company has not taken, directly or indirectly, any action which constituted, or any action designed, or which might reasonably be expected to cause or result in or constitute, under the Act or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares or for any other purpose. (q) The Company is not an "investment company," an "affiliated person" of, or "promoter" or "principal underwriter" for an investment company within the meaning of the Investment Company Act of 1940, as amended. (r) Each of the Company and its subsidiaries has or upon consummation of the C&C Acquisition and the Keith Acquisition will have all permits, licenses, franchises, approvals, consents and authorizations of governmental or regulatory authorities (hereinafter "permit" or "permits") as are necessary to own its properties and to conduct its business in the manner described in the Prospectus, subject to such qualifications as may be set forth in the Prospectus, except where the failure to have obtained any such permit has not and will not have a Material Adverse Effect; each of the Company and its subsidiaries has fulfilled and performed in all material respects all of its obligations with respect to each such permit and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination of any such permit or result in any other material impairment of the rights of the holder of any such permit, subject in each case to such qualification as may be set forth in the Prospectus; and, except as described in the Prospectus, such permits contain no restrictions that are materially burdensome to the Company. (s) Each of the Company and its subsidiaries has complied and will comply with wage and hour determinations issued by the U.S. Department of Labor under the Service Contract Act of 1965 and the Fair Labor Standards Act in paying its employees' salaries, fringe benefits, and other compensation for the performance of work or other duties in connection with contracts with the U.S. government, except where the failure to comply has not had and will not have a Material Adverse Effect. Each of the Company has complied and will comply in all material respects with the terms of all certifications and 9 10 representations made to the U.S. government in connection with the submission of any bid or proposal or any contract. The Company has complied and will comply with the requirements of the American with Disabilities Act of 1990, the Family and Medical Leave Act of 1993, the Employee Retirement Income Security Act, the Civil Rights Act of 1964 (Title VII), as amended, the Age Discrimination in Employment Act and other applicable federal and state employment and labor laws, except where the failure to comply has not had and will not have a Material Adverse Effect. (t) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorizations; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (u) Neither the Company nor any of its subsidiaries has, directly or indirectly, at any time during the past five years (i) made any unlawful contribution to any candidate for political office, or failed to disclose fully any contribution in violation of law, or (ii) made any payment to any federal, state or foreign governmental official, or other person charged with similar public or quasi-public duties (other than payments required or permitted by the laws of the United States or any jurisdiction thereof or applicable foreign jurisdictions.) (v) Each of the Company and its subsidiaries has obtained all required permits, licenses, and other authorizations, if any, which are required under federal, state, local and foreign statutes, ordinances and other laws relating to pollution or protection of the environment, including laws relating to emissions, discharges, releases, or threatened releases of pollutants, contaminants, chemicals, or industrial, hazardous, or toxic materials or wastes into the environment (including, without limitation, ambient air, surface water, ground water, land surface, or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, hazardous, or toxic materials or wastes, or any regulation, rule, code, plan, order, decree, judgment, injunction, notice, or demand letter issued, entered, promulgated, or approved thereunder ("Environmental Laws"), except where the failure to obtain any such permit, license or other authorization has not resulted in and will not result in a Material Adverse Effect. Each of the Company and its subsidiaries is in compliance with all terms and conditions of all required permits, licenses, and authorizations, except to the extent the failure to be so in compliance would not have Material Adverse Effect, and are also in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules, and timetables contained in the Environmental Laws, except to the extent the failure to be so in compliance would not have Material Adverse Effect. There is no pending or, to the best knowledge of the Company after due inquiry, threatened civil or criminal litigation, notice of violation, or administrative proceeding relating in any way to the Environmental Laws (including but not limited to notices, demand letters, or claims under the Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), the Emergency Planning and Community Right to Know Act of 1986, as amended ("EPCRA"), the Clean Air Act, as amended ("CAA"), or the Clean Water Act, as amended ("CWA") and similar federal, foreign, state, or local laws) involving the Company or any of its subsidiaries which is reasonably likely to result in a Material Adverse Effect. There have not been and there are not any past, present, or foreseeable future events, conditions, circumstances, activities, practices, incidents, actions, or plans which may interfere with or prevent continued compliance, or which may give rise to any common law or legal liability, or otherwise form the basis of any claim, action, demand, suit, proceeding, hearing, study, or investigation, based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling, or the emission, discharge, release, or threatened release into the environment, of 10 11 any pollutant, contaminant, chemical, or industrial, hazardous, or toxic material or waste, including, without limitation, any liability arising, or any claim, action, demand, suit, proceeding, hearing, study, or investigation which may be brought, under RCRA, CERCLA, EPCRA, CAA, CWA or similar federal, foreign, state or local laws which is reasonably likely to result in a Material Adverse Effect. (w) The Company owns and has full right, title and interest in and to, or has valid licenses to use, each trade name, trademark or service mark under which the Company conducts all or any part of its business, and the Company has created no lien or encumbrance on, or granted any right or license with respect to, any such trade name, trademark or service mark except to the extent that any such lack of ownership or possession, or the existence of any such lien, encumbrance, right or license would not have a Material Adverse Effect; there is no claim pending against the Company with respect to any trade name, trademark or service mark and the Company has not received notice or otherwise become aware that any trade name, trademark or service mark which it uses or has used in the conduct of its business infringes upon or conflicts with the rights of any third party. (x) All offers, sales, conversions and redemptions of the Company's capital stock and other securities through the date hereof were made in compliance with the Act and all other applicable state and federal laws or regulations, except to the extent any noncompliance would not have a Material Adverse Effect. (y) The Shares have been duly authorized for trading on the NASDAQ/NMS under the symbol "ROAC," subject to notice of issuance of the Shares being sold by the Company, and upon consummation of the offering contemplated hereby the Company will be in compliance with the designation and maintenance criteria applicable to Nasdaq National Market issuers. (z) All federal, state, local and foreign tax returns required to be filed by or on behalf of the Company and its subsidiaries (and their predecessors) with respect to all periods ended prior to the date of this Agreement have been filed (or are the subject of valid extension) with the appropriate federal, state, local and foreign authorities and all such tax returns, as filed, are accurate in all material respects. All federal, state, local and foreign taxes (including estimated tax payments) required to be shown on all such tax returns or claimed to be due from or with respect to the business of the Company and its subsidiaries (and their predecessors) have been paid or reflected as a liability on the financial statements of the Company for appropriate periods, except for those taxes or claims therefor which are being contested by the Company in good faith and for which appropriate reserves are reflected in the Company's financial statements. The Company's liability for federal, state, local or foreign taxes resulting from the transactions described under "Certain Transactions" in the Registration Statement will not exceed $_____. All deficiencies asserted as a result of any federal, state, local or foreign tax audits have been paid or finally settled and no issue has been raised in any such audit which, by application of the same or similar principles, reasonably could be expected to result in a proposed deficiency for any other period not so audited. There are no outstanding agreements or waivers extending the statutory period of limitation applicable to any federal, state, local or foreign tax return for any period. On the Closing Date, and Additional Closing Date, if any, all stock transfer and other taxes which are required to be paid in connection with the sale of the shares to be sold by the Company to the Underwriters will have been fully paid by the Company and all laws imposing such taxes will have been complied with. (aa) Except as set forth in the Prospectus, there are no transactions with "affiliates" (as defined in Rule 405 promulgated under the Act) or any officer, director or security holder of the Company (whether or not an affiliate) which are required by the Act and the applicable rules and regulations thereunder to be disclosed in the Registration Statement. (bb) The Company has preserved the written agreement of each of the Company's executive officers and directors, each stockholder holding more than two percent (2%) of the Common Stock 11 12 immediately prior to the date hereof and each of the Selling Stockholders not to (i) directly or indirectly selling, offering or contracting to sell or otherwise dispose of or transfer any shares of Company Securities owned or controlled by such persons now or hereafter or any rights to purchase Company Securities for a period of 180 days after the date of the Prospectus first filed pursuant to Rule 424(b) under the Act (the "Restriction Period"), without your prior written consent, or (ii) exercise or seek to exercise or effectuate in any manner any rights of any nature that such persons have or may hereafter have to require the Company to register under the Act any such person's sale, transfer or other disposition of any Company Securities or other securities of the Company held by any such persons, or to otherwise participate as a selling securityholder in any manner in any registration effected by the Company under the Act, including the registration to which this Agreement relates, before the expiration of the Restriction Period. (cc) All of the following transactions (collectively, the "Company Transactions") have occurred prior to the date hereof: (i) The Company has merged with and into Rock of Ages Quarries, Inc., a Vermont corporation, with Rock of Ages Quarries, Inc. as the surviving corporation, which changed its name to Rock of Ages Corporation; (ii) Rock of Ages Quarries Canada, a __________ corporation, merged with and into Rock of Ages Canada Inc., a __________ corporation, with Rock of Ages Canada Inc. as the surviving corporation; (iii) the capital stock of Royalty Granite Corporation (Georgia), a Georgia corporation, was contributed by Swenson Granite Company, Inc., a New Hampshire corporation ("Swenson"), to the Company; (iv) (A) Rock of Ages Canada Inc. transferred the shares of Norgranite, Inc., a __________ corporation, to Group Polycor International, a ____________ corporation, for nominal consideration and dividended to the Company the shares of Group Polycor International, and (B) the Company dividended such shares and a [granite memorial manufacturing] plant in Barre, Vermont acquired from Anderson-Friberg Co., Inc. and certain equipment contained therein to Swenson; (v) the Company purchased all of the shares of capital stock of Rock of Ages Asia, a ____________ corporation, owned by Quarry Capital Limited, a Bermuda ____________, for $______ in cash; (vi) (A) the Company acquired KSM, Inc., a Georgia corporation ("KSM") and the successor to Keystone Memorials, Inc., a ___________ corporation, pursuant to a merger of KSM with and into the Company with the Company as the surviving corporation; all outstanding shares of KSM capital stock are converted into 526,882 shares of the Company's Common Stock, which were issued to Missouri Red Quarries, Inc., a Georgia corporation ("Missouri Red") and the sole shareholder of KSM, (B) the Company contributed to Royalty Granite Corporation (Georgia) substantially all of the assets and liabilities of KSM, including 50% of the issued and outstanding capital stock of each of Southern Mausoleum, Inc., a Georgia corporation, Pennsylvania Granite Corporation, a Pennsylvania corporation, Caprice Blue Quarry, Inc., Georgia corporation, and Autumn Rose Quarry, Inc., a Georgia corporation (collectively, the "Quarry Companies"), and (C) Royalty Granite Corporation (Georgia) changed its name to Keystone Memorials, Inc.; and 12 13 (vii) the Company has effected a reincorporation merger with and into a newly formed wholly-owned subsidiary of the Company, incorporated under the laws of the State of Delaware, with the wholly-owned subsidiary surviving and renamed as Rock of Ages Corporation. 7. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each of the Selling Stockholders hereby severally represents and warrants to each Underwriter on the date hereof (except as otherwise set forth herein), and shall be deemed to severally represent and warrant to each Underwriter on the Closing Date and the Additional Closing Date, that: (a) Such Selling Stockholder has full right, power and authority to enter into this Agreement and the Power of Attorney and Custody Agreement, and to sell, assign, transfer and deliver the Shares to be sold by such Selling Stockholder hereunder. (b) This Agreement and the Power of Attorney and Custody Agreement have been duly authorized, executed and delivered by such Selling Stockholder and this Agreement and the Power of Attorney and Custody Agreement constitute the valid and binding agreements of such Selling Stockholder enforceable against such Selling Stockholder in accordance with their respective terms, except to the extent enforceability may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws relating to or affecting enforcement of creditors' rights generally or by general equitable principles, whether considered in a proceeding at law or in equity, and further that rights to indemnify and contribution hereunder may be limited by federal or state securities laws or the public policy underlying such laws; the performance of this Agreement and the Power of Attorney and Custody Agreement and the consummation of the transactions contemplated herein and therein will not result in a breach or violation of any of the terms or provisions of, or constitute a default under, any statute, indenture, mortgage, deed of trust, voting trust agreement, note agreement, lease or other agreement or instrument to which such Selling Stockholder is a party or by which such Selling Stockholder or such Selling Stockholder's properties are bound, or under any order, rule or regulation of any court or governmental agency or body applicable to such Selling Stockholder or the business or property of such Selling Stockholder. (c) Such Selling Stockholder has, and immediately prior to the Closing Date (and the Additional Closing Date, if any) such Selling Stockholder will have, valid and marketable title to the Shares to be sold by such Selling Stockholder hereunder, free and clear of all liens, encumbrances, equities, stockholder agreements, voting trusts or claims of any nature whatsoever, and, upon delivery of such Shares and payment therefor pursuant hereto, valid and marketable title to such Shares, free and clear of all liens, encumbrances, equities, stockholder agreements, voting trusts or claims of any nature whatsoever (other than those arising by or through the Underwriters), will pass to the several Underwriters. (d) Such Selling Stockholder will not, for a period of 180 days after the date of the Prospectus first filed pursuant to Rule 424(b) under the act (the "Restriction Period"), (i) directly or indirectly, sell, offer or contract to sell, or otherwise dispose of or transfer any shares of Company Securities owned or controlled by such Selling Stockholder now or hereafter or any rights to purchase Company Securities, without the Representative's prior written consent, or (ii) exercise or seek to exercise or effectuate in any manner any rights of any nature that such persons have or may hereafter have to require the Company to register under the Act any such person's sale, transfer or other disposition of any Company Securities or other securities of the Company held by any such persons, or to otherwise participate as a selling securityholder in any manner in any registration effected by the Company under the Act, including the registration to which this Agreement relates, before the expiration of the Restriction Period. 13 14 (e) Such Selling Stockholder has not taken, and will not take, directly or indirectly, any action designed to or which has constituted nor which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares. (f) No consent, approval, authorization or order of, or any filing or declaration with, any court or governmental agency or body is required to be made or obtained by such Selling Stockholder in connection with the execution and delivery by such Selling Stockholder of this Agreement or the Power of Attorney and Custody Agreement or for the consummation by such Selling Stockholder of the transactions on his part contemplated herein or in the Power of Attorney and Custody Agreement or the sale and delivery of the Shares to be sold by such Selling Stockholders hereunder, except such as have been obtained under the Act and such as may be required under state securities or Blue Sky laws or the by-laws and rules of the NASD in connection with the purchase and distribution by the Underwriters of the Shares to be sold by the Selling Stockholder. (g) The information with respect to such Selling Stockholder contained in the Registration Statement, the Prepricing Prospectus and the Prospectus (as amended or supplemented, if the Company shall have filed with the Commission any amendment or supplement thereto) does not contain any untrue statement of a material fact or, to such Selling Stockholder's knowledge, omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. (h) The Selling Stockholder has not distributed and will not distribute any Prepricing Prospectus, the Prospectus or any other offering material in connection with the offering and sale of the Shares, other than with your prior written consent and as permitted by the Act. (i) On the Closing Date, and on the Additional Closing Date, if any, all stock transfer and other taxes (other than income taxes) which are required to be paid in connection with the sale and transfer of the Shares to be sold by the Selling Stockholder to the several Underwriters hereunder will have been fully paid for by such Selling Stockholder and all laws imposing such taxes will have been fully complied with. In order to document the Underwriters' compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982 with respect to the transactions herein contemplated, the Selling Stockholders severally agree to deliver to you at least two days prior to the Closing Date a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof). Each of the Selling Stockholders represents and warrants that certificates in negotiable form representing all of the Shares to be sold by such Selling Stockholder hereunder (or shares of Swenson Granite Company, Inc. that will be converted into such shares as part of the Reorganization) have been placed in custody under a Power of Attorney and Custody Agreement in the form heretofore furnished to you, duly executed and delivered by such Selling Stockholder to [THE COMPANY'S TRANSFER AGENT,] as custodian (the "Custodian"), and that pursuant to such Power of Attorney and Custody Agreement such Selling Stockholder has duly appointed _________________ and ____________________ as such Selling Stockholder's attorneys-in-fact (the "Attorneys-in-Fact") with authority to execute and deliver this Agreement on behalf of such Selling Stockholder, to determine the purchase price to be paid by the Underwriters to the Selling Stockholders as provided in Section 2 hereof, to authorize the delivery of the Shares to be sold by such Selling Stockholder hereunder or otherwise to act on behalf of such Selling Stockholder in connection with the transactions contemplated by this Agreement and the Power of Attorney and Custody Agreement. Each of the Selling Stockholders specifically agrees that the Shares represented by the certificates held in custody for such Selling Stockholders under the Power of Attorney and Custody Agreement are subject to the interest of the Underwriters hereunder, and that the arrangements made by such Selling Stockholder for such custody, and the appointment by such Selling Stockholder of the Attorneys-in-Fact pursuant to the Power 14 15 of Attorney and Custody Agreement, are to that extent irrevocable. Each of the Selling Stockholders specifically agrees that the obligations of such Selling Stockholders hereunder shall not be terminated by operation of law, whether by the death or incapacity of any individual Selling Stockholder or, in the case of an estate or trust, by the death or incapacity of any executor or trustee or the termination of such estate or trust, or in the case of a partnership or corporation, by the dissolution of such partnership or corporation, or by the occurrence of any other event. If any individual Selling Stockholder or any executor or trustee should die or become incapacitated, or if any such estate or trust shall be terminated, or if any such partnership or corporation should be dissolved, or if any other such event should occur before the delivery of the Shares hereunder, certificates representing the Shares shall be delivered by or on behalf of the Selling Stockholders in accordance with the terms and conditions of this Agreement and the Power of Attorney and Custody Agreement, and actions taken by the Attorneys-in-Fact pursuant to the Power of Attorney and Custody Agreement shall be as valid as if such death, incapacity, termination, dissolution or other event had not occurred, regardless of whether or not the Custodian, the Attorneys-in-Fact, or any of them, shall have received notice of such death, incapacity, termination, dissolution or other event. 8. EXPENSES. Whether or not the transactions contemplated hereby are consummated or this Agreement becomes effective or is terminated, the Company will pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Company's counsel and accountants in connection with the registration of the Shares under the Act and all other expenses in connection with the preparation, printing and filing of the Registration Statement and the Prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof and of any Prepricing Prospectus to the Underwriters and dealers; (ii) the printing and delivery (including, without limitation, postage, air freight charges and charges for counting and packaging) of such copies of the Registration Statement, the Prospectus, each Prepricing Prospectus, the Blue Sky memoranda, the Power of Attorney and Custody Agreement, the Master Agreement Among Underwriters, this Agreement, the Selected Dealers Agreement and all amendments or supplements to any of them as may be reasonably requested for use in connection with the offering and sale of the Shares; (iii) all expenses in connection with the qualification of the Shares for offering and sale under state securities laws or Blue Sky laws, including the reasonable attorneys' fees and out-of-pocket expenses of the counsel for the Underwriters in connection therewith; (iv) the filing fees incident to securing any required review by the NASD of the terms of the sale of the Shares and the reasonable fees and disbursements of the Underwriters' counsel relating thereto; (v) the cost of preparing stock certificates; (vi) the costs and charges of any transfer agent or registrar; (vii) the cost of the tax stamps, if any, in connection with the issuance and delivery of the Shares to the respective Underwriters; (viii) all other fees, costs and expenses referred to in Item 25 of the Registration Statement, (ix) the transportation, lodging, graphics and other expenses incidental to the Company's preparation for and participation in the "roadshow" for the offering contemplated hereby, and (x) all other costs and expenses incident to the performance of the obligations of the Company hereunder which are not otherwise specifically provided for in this Section 8. Notwithstanding the foregoing, in the event that the proposed offering is terminated for the reasons set forth in Section 5(i) hereof, the Company agrees to reimburse the Underwriters as provided in Section 5(i). 9. INDEMNIFICATION AND CONTRIBUTION. Subject to the limitations in this paragraph below, the Company and the Selling Stockholders severally but not jointly, agree to indemnify and hold harmless you and each other Underwriter, the directors, officers, employees and agents of each Underwriter, and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") from and against any and all losses, claims, damages, liabilities and expenses, including, without limitation, reasonable costs of investigation and attorneys' fees and expenses (collectively, "Damages") arising out of or based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any Prepricing Prospectus or in the Registration Statement or the Prospectus or in any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except to the extent that any such Damages arise out of or are based upon an untrue statement or omission or alleged untrue statement or omission which has been made therein or omitted therefrom in reliance upon and in conformity with the information furnished in writing to the Company by or on behalf of any Underwriter through you expressly for 15 16 use in connection therewith, or (ii) any inaccuracy in or breach of the representations and warranties of the Company or the Selling Stockholders contained herein or any failure of the Company or the Selling Stockholders to perform their respective obligations hereunder or under law; PROVIDED, HOWEVER, that (A) the indemnity agreement of each Selling Stockholder contained in this paragraph shall apply only with respect to Damages arising out of or based upon any such untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information furnished by such Selling Stockholder in writing to the Company expressly for use in or in connection with the Registration Statement and the offering contemplated thereby, or arising out of or based upon any such inaccuracy or breach of such Selling Stockholder's representations and warranties contained herein or any failure of such Selling Stockholder to perform his or its obligations hereunder or under law, and (B) with respect to any untrue statement or omission made in any Prepricing Prospectus, the indemnity agreement contained in this paragraph shall not inure to the benefit of any Underwriter (or to the benefit of any person controlling such Underwriter) from whom the person asserting any such losses, claims, damages or liabilities purchased the Shares concerned if both (y) a copy of the Prospectus was not sent or given to such person at or prior to the written confirmation of the sale of such Shares to such person as required by the Act, and (z) the untrue statement or omission in the Prepricing Prospectus was corrected in the Prospectus. Notwithstanding anything in this Section 9, in no event shall any Selling Stockholder's obligation under this Section 9 exceed the total net proceeds from the offering received by such Selling Stockholder (computed without deduction for any income taxes); it being agreed that the Company shall bear the balance. In addition to its other obligations under this Section 9, the Company and the Selling Stockholders agree that, as an interim measure during the pendency of any claim, action, investigation, inquiry or other proceeding arising out of or based upon any statement or omission, or any inaccuracy in the representations and warranties of the Company or any Selling Stockholder herein or failure to perform their obligations hereunder, all as set forth in this Section 9, they will reimburse each Underwriter on a quarterly basis for all reasonable legal or other out-of-pocket expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Company's or any Selling Stockholder's obligation to reimburse each Underwriter for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. To the extent that any such interim reimbursement payment is so held to have been improper, each Underwriter shall promptly return it to the person(s) from whom it was received, together with interest compounded daily determined on the basis of the base lending rate announced from time to time by Chase Manhattan Bank, N.A. (the "Prime Rate"). Any such interim reimbursement payments which are not made to the Underwriters within 30 days of a request for reimbursement shall bear interest at the Prime Rate from the date of such request. If any action or claim shall be brought against any Underwriter or any person controlling any Underwriter in respect of which indemnity may be sought against the Company or any Selling Stockholder, such Underwriter or such controlling person shall promptly notify in writing the party(s) against whom indemnification is being sought (the "indemnifying party" or "indemnifying parties"), and such indemnifying party(s) shall assume the defense thereof, including the employment of counsel reasonably acceptable to such Underwriter or such controlling person and payment of all fees and expenses. Such Underwriter or any such controlling person shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Underwriter or such controlling person unless (i) the indemnifying party(s) has (have) agreed in writing to pay such fees and expenses, (ii) the indemnifying party(s) has (have) failed to assume the defense and employ counsel reasonably acceptable to the Underwriter or such controlling person or (iii) the named parties to any such action (including any impleaded parties) include both such Underwriter or such controlling person and the indemnifying party(s), and such Underwriter or such controlling person shall have been advised by its counsel in writing that one or more legal defenses may be available to the Underwriter which may not be available to the Company, or that representation of such indemnified party and any indemnifying party(s) by the same counsel would be inappropriate under applicable standards of professional conduct (whether or not such representation by the same counsel has been proposed) due to actual or potential differing interests between them (in which case the indemnifying party(s) shall not have the right to assume the defense of such action on behalf of 16 17 such Underwriter or such controlling person (notwithstanding its (their) obligation to bear the fees and expenses of such counsel)). It is understood, however, that the indemnifying parties shall, in connection with any one such action, suit or proceeding or separate but substantially similar or related actions, suits or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of only one separate firm of attorneys (in addition to any local counsel) at any time for all such Underwriters and controlling persons not having actual or potential differing interests. The indemnifying party(s) shall not be liable for any settlement of any such action effected without its (their) written consent, but if settled with such written consent, or if there be a final judgment for the plaintiff in any such action, the indemnifying party(s) agrees to indemnify and hold harmless any Underwriter and any such controlling person from and against any loss, claim, damage, liability or expense by reason of such settlement or judgment, but in the case of a judgment only to the extent stated in the immediately preceding paragraph. Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement, and any person who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act and the Selling Stockholders, to the same extent as the foregoing indemnity from the Company and the Selling Stockholders to each Underwriter, but only with respect to information furnished in writing by or on behalf of such Underwriter through you expressly for use in the Registration Statement, the Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto. If any action or claim shall be brought or asserted against the Company, any of its directors, any such officers, or any such controlling person or the Selling Stockholders based on the Registration Statement, the Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto, and in respect of which indemnity may be sought against any Underwriter pursuant to this paragraph, such Underwriter shall have the rights and duties given to the Company and the Selling Stockholders by the preceding paragraph (except that if the Company shall have assumed the defense thereof such Underwriter shall not be required to do so, but may employ separate counsel therein and participate in the defense thereof, but the fees and expenses of such counsel shall be at such Underwriter's expense), and the Company, its directors, any such officers, and any such controlling persons and the Selling Stockholders shall have the rights and duties given to the Underwriters by the immediately preceding paragraph. In addition to its other obligations under this Section 9, each Underwriter severally agrees that, as an interim measure during the pendency of any claim, action, investigation, inquiry or other proceeding arising out of or based upon any statement or omission, or any alleged statement or omission, described in this Section 9 which relates to information furnished to the Company in writing by or on behalf of the Underwriters through you expressly for use in the Registration Statement, it will reimburse the Company (and, to the extent applicable, each officer, director, controlling person or Selling Stockholder) on a quarterly basis for all reasonable legal or other out-of-pocket expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Underwriters' obligation to reimburse the Company (and, to the extent applicable, each officer, director, controlling person or Selling Stockholder) for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. To the extent that any such interim reimbursement payment is so held to have been improper, the Company (and, to the extent applicable, each officer, director, controlling person or Selling Stockholder) shall promptly return it to the Underwriters together with interest, compounded daily, determined on the basis of the Prime Rate. Any such interim reimbursement payments which are not made to the Company within 30 days of a request for reimbursement shall bear interest at the Prime Rate from the date of such request. If the indemnification provided for in this Section 9 is unavailable or insufficient for any reason whatsoever to an indemnified party under the first or fourth paragraph of this Section 9 in respect of any losses, claims, damages, liabilities or expenses referred to therein, then an indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other hand 17 18 from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Selling Stockholders on the one hand and the Underwriters on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and the Selling Stockholders bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus; provided that, in the event that the Underwriters shall have purchased any Additional Shares hereunder, any determination of the relative benefits received by the Company and the Selling Stockholders or the Underwriters from the offering of the Shares shall include the net proceeds (before deducting expenses) received by the Company and the Selling Stockholders, and the underwriting discounts and commissions received by the Underwriters, from the sale of such Additional Shares, in each case computed on the basis of the respective amounts set forth in the notes to the table on the cover page of the Prospectus. The relative fault of the Company and the Selling Stockholders on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and the Selling Stockholders on the one hand or by the Underwriters on the other hand and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 9 was determined by a pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities and expenses referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 9, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price of the Shares underwritten by it and distributed to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 9 are several in proportion to the respective numbers of Firm Shares set forth opposite their names in Schedule I hereto (or such numbers of Firm Shares increased as set forth in Section 11 hereof) and not joint. The indemnity, contribution and reimbursement agreements contained in this Section 9 and the representations and warranties of the Company and the Selling Stockholders, respectively, set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter, the Company, its directors or officers or any person controlling the Company or the Selling Stockholders, (ii) acceptance of any Shares and payment therefor hereunder and (iii) any termination of this Agreement. A successor to any Underwriter or any person controlling any Underwriter, or to the Company, its directors or officers, or any person controlling the Company or the Selling Stockholders, shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 9. It is agreed that any controversy arising out of the operation of the interim reimbursement arrangements set forth in the second and fifth paragraphs of this Section 9, including the amounts of any requested reimbursement payments and the method of determining such amounts, shall be settled by arbitration conducted pursuant to the Code of Arbitration Procedure of the NASD. Any such arbitration must be commenced by service of a written demand for arbitration or written notice of intention to arbitrate, therein electing the arbitration 18 19 tribunal. In the event the party demanding arbitration does not make such designation of an arbitration tribunal in such demand or notice, then the party responding to said demand or notice is authorized to do so. Such an arbitration would be limited to the operation of the interim reimbursement provisions contained in the second and fifth paragraphs of this Section 9, and would not resolve the ultimate propriety or enforceability of the obligation to reimburse expenses which is created by the provisions of the second and fifth paragraphs of this Section 9. 10. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations of the Underwriters to purchase the Firm Shares hereunder are subject to the following conditions: (a) The Registration Statement shall have become effective not later than 5:30 p.m., New York City time, on the date hereof, or at such later date and time as shall be consented to in writing by you, and all filings required by Rules 424(b), 430A and 462 under the Act shall have been timely made. (b) You shall be reasonably satisfied that since the respective dates as of which information is given in the Registration Statement and Prospectus, (i) there shall not have been any change in the capital stock (other than pursuant to the consummation of the Company Transactions as described in Section 6(dd) hereof and the Prospectus) of the Company or any material change in the indebtedness (other than in the ordinary course of business) of the Company, (ii) except as set forth or contemplated by the Registration Statement or the Prospectus, no material oral or written agreement or other transaction shall have been entered into by the Company which is not in the ordinary course of business or which could reasonably be expected to result in a material reduction in the future earnings of the Company, (iii) no loss or damage (whether or not insured) to the property of the Company shall have been sustained which had or could reasonably be expected to have a Material Adverse Effect, (iv) no legal or governmental action, suit or proceeding affecting the Company or any of its properties which is material to the Company and its subsidiaries taken as a whole or which affects or could reasonably be expected to affect the transactions contemplated by this Agreement shall have been instituted or threatened, and (v) there shall not have been any change in the condition (financial or otherwise), business, management, results or operations or prospects of the Company having a Material Adverse Effect which makes it impractical or inadvisable in your judgment to proceed with the public offering or purchase the Shares as contemplated hereby. (c) You shall have received on the Closing Date (and the Additiona l Closing Date, if any) an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, as counsel for the Company, dated the Closing Date, satisfactory to you and your counsel, to the effect that: (i) The Company has been duly incorporated and is validly existing and in good standing under the laws of the State of Delaware, with the corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus (and any amendment or supplement thereto), and is duly registered or otherwise qualified to conduct its business as a foreign corporation and is in good standing under the laws of the states listed in the Officer's Certificate to be attached to such counsel's opinion (the "Officer's Certificate"). (ii) Each of the subsidiaries is a corporation validly existing in good standing under the laws of the jurisdiction of its organization, with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus (and any amendment or supplement thereto); and is duly registered and qualified to conduct its business and is in good standing as a foreign corporation under the laws of the states listed in the Officer's Certificate; and all of the outstanding shares of capital stock of each of the subsidiaries have been duly authorized and validly issued, and are fully paid and nonassessable, and are owned by the Company directly, or indirectly through one of the other subsidiaries, free and clear of any perfected security interest, or to the best knowledge of such 19 20 counsel after reasonable inquiry, any other security interest, lien, adverse claim, equity or other encumbrance. (iii) The authorized and the outstanding capital stock of the Company conforms in all respects to the description thereof contained in the Prospectus under the captions "Capitalization" and "Description of Capital Stock." Except as set forth in the Prospectus, to the best of such counsel's knowledge, the Company is not a party to or bound by any outstanding options, warrants or similar rights to subscribe for, or contractual obligations to issue, sell, transfer or acquire, any of its capital stock or any securities convertible into or exchangeable for any of such capital stock. (iv) All shares of capital stock of the Company outstanding prior to the issuance of the Shares to be issued and sold by the Company hereunder, have been duly authorized and validly issued, and are fully paid and nonassessable and are free of any statutory preemptory rights or preemptory rights in the Company's charter or bylaws or, to the best knowledge of such counsel, similar rights that entitle or will entitle any person to acquire any shares upon the issuance thereof by the Company. (v) The Shares to be issued and sold to the Underwriters by the Company and the Selling Stockholders hereunder have been duly authorized and, when issued and delivered to the Underwriters against payment therefor in accordance with the terms hereof, such Shares will be validly issued, fully paid and nonassessable and free and clear of all liens, claims and encumbrances. (vi) The form of certificates for the Shares conforms in all material respects to the requirements of the Delaware General Corporation Law. (vii) The Registration Statement has become effective under the Act and, to the best knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose are pending before or contemplated by the Commission. (viii) The Company has the requisite corporate power and corporate authority to enter into this Agreement and to issue, sell and deliver the Shares to be sold by it to the Underwriters as provided herein, and this Agreement has been duly authorized, executed and delivered by the Company and is a valid, legal and binding agreement of the Company enforceable against the Company in accordance with its terms, except to the extent enforceability may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws relating to or affecting enforcement of creditors' rights generally or by general equitable principles, and except to the extent enforceability of the provisions relating to indemnity and contribution for liabilities under the Act may be limited by or under the Act. (ix) Neither the Company nor any of the subsidiaries is in violation of its certificate of incorporation or bylaws, and, to the best knowledge of such counsel, the Company is not in default in the performance of any obligation, agreement or condition contained in any agreement that is an exhibit to the Registration Statement where the default would have, individually or in the aggregate, a Material Adverse Effect. (x) Neither the offer, sale or delivery of the Shares, the execution, delivery or performance of this Agreement, compliance by the Company with all provisions hereof nor consummation by the Company of the transactions contemplated hereby (A) conflicts or will conflict with or constitutes or will constitute a breach of, or a default under, the certificate of 20 21 incorporation or bylaws of the Company or any agreement that is an exhibit to the Registration Statement, (B) creates or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company, or (C) violates or will result in any violation of any existing law, statute, regulation, ruling (assuming compliance with all applicable state securities and Blue Sky laws), judgment, injunction, order or decree which is known to such counsel and applicable to the Company or any of its properties. (xi) No consent, approval, authorization or other order of, or registration or filing with, any court, regulatory body, administrative agency or other governmental body, agency or official is required on the part of the Company (except such as have been obtained under the Act or such as may be required under state securities or Blue Sky laws governing the purchase and distribution of the Shares) for the valid issuance and sale of the Shares to the Underwriters under this Agreement. (xii) The Registration Statement and the Prospectus and any supplements or amendments thereto (except for the financial statements and the notes thereto and the schedules and other financial and statistical data included therein, as to which such counsel need not express any opinion) comply as to form in all material respects with the requirements of the Act. Without limiting the generality of the foregoing, any Rule 434 Prospectus conforms in all material respects with the requirements of Rule 434 under the Act. (xiii) To the best knowledge of such counsel, (A) there are no legal or governmental proceedings pending or threatened against the Company or to which the Company or any of its properties is subject, that are required to be described in the Registration Statement or Prospectus (or any amendment or supplement thereto) that are not described as required therein, and (B) there are no agreements, contracts, indentures, leases or other instruments that are required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement that are not described or filed as required, as the case may be. (xiv) To the best knowledge of such counsel, the Company is not in violation of any law, ordinance, administrative or governmental rule or regulation applicable to the Company or of any decree of any court or governmental agency or body having jurisdiction over the Company except where such violation does not and will not have a Material Adverse Effect. (xv) To the best knowledge of such counsel, the Company has such permits, licenses, franchises, approvals, consents and authorizations of governmental or regulatory authorities ("Permits"), as are necessary for the Company to own its properties and to conduct its business in the manner described in the Prospectus, except where the failure to have such Permits would not individually or in the aggregate have a Material Adverse Effect. (xvi) Such counsel has reviewed all agreements, contracts, indentures, leases or other documents or instruments described or referred to in the Registration Statement and the Prospectus (other than routine contracts entered into by the Company for the purchase of materials or the sale of products entered into in the normal course of business, although such counsel has reviewed the forms of such routine contracts), and such agreements, contracts (and forms of contracts), indentures, leases or other documents or instruments are fairly summarized or disclosed in all material respects therein, and filed as exhibits thereto as required, and such counsel does not know, after reasonable inquiry, of any agreements, contracts, indentures, leases or other documents or instruments required to be so summarized or disclosed or filed which have not been so summarized or disclosed or filed. 21 22 (xvii) The Company is not an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. In rendering such opinion, counsel may rely, to the extent they deem such reliance proper, as to matters of fact upon certificates of officers of the Company and of government officials, provided that counsel shall state their belief that they and you are justified in relying thereon. Copies of all such certificates shall be furnished to you and your counsel on the Closing Date. In rendering such opinion, in each case where such opinion is qualified by "the best knowledge of such counsel" or "known to such counsel," such counsel may rely as to matters of fact upon certificates of executive and other officers and employees of the Company as you and such counsel shall deem are appropriate and such other procedures as you and such counsel shall mutually agree; provided, however, in each such case, such counsel shall state that it has no knowledge contrary to the information contained in such certificates or developed by such procedures and knows of no reason why you should not reasonably rely upon the information contained in such certificates or developed by such procedures. Such counsel may state in such opinion that its knowledge is limited to the knowledge of its attorneys and other representatives and employees that have given attention to the Company's matters. In addition to the opinion set forth above, such counsel shall state that during the course of their participation in the preparation of the Registration Statement and the Prospectus and the amendments thereto, nothing has come to the attention of such counsel which has caused them to believe or given them reason to believe that the Registration Statement or the Prospectus or any amendment thereto (except for the financial statements and other financial and statistical information contained therein or omitted therefrom as to which no opinion need be expressed), at the date thereof, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Registration Statement or the Prospectus as of the date of the opinion (except as aforesaid), contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (d) You shall have received on the Closing Date (and the Additional Closing Date, if any) the opinion of Skadden, Arps, Slate, Meagher & Flom LLP, as counsel for the Selling Stockholders, dated the Closing Date (and the Additional Closing Date, if any) in form and substance satisfactory to you, to the effect that: (i) This Agreement, and the Power of Attorney and Custody Agreement have been duly authorized, executed and delivered by or on behalf of each of the Selling Stockholders and constitute valid and binding agreements of such Selling Stockholder enforceable in accordance with their respective terms, except to the extent enforceability may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws relating to or affecting enforcement of creditors' rights generally or by general equitable principles (regardless of whether enforcement is sought in equity or at law); and the performance of this Agreement, the Power of Attorney and Custody Agreement and the consummation of the transactions herein and therein contemplated will not result in a breach or violation of any of the terms or provisions of, or constitute a default under, any statute, indenture, mortgage, deed of trust, voting trust agreement, note agreement, lease or other agreement or instrument of which such counsel is aware and to which such Selling Stockholder is a party or by which such Selling Stockholder or its properties are bound, or any order, rule or regulation, known to such counsel of any court or governmental agency or body applicable to such Selling Stockholders or the business or property of such Selling Stockholders. 22 23 (ii) No consent, approval, authorization or order has been or is required for the consummation by the Selling Stockholders of the transactions contemplated by this Agreement, and the Power of Attorney and Custody Agreement in connection with the sale of the Shares to be sold by each of the Selling Stockholders hereunder, except consents, approvals, authorizations or orders which have been duly obtained and are in full force and effect, such as have been obtained under the Act and such as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of such Shares by the Underwriters. (iii) Immediately prior to the Closing Date, each Selling Stockholder was the sole registered owner of the Shares to be sold by such Selling Stockholder under this Agreement. Assuming the Underwriters acquired their interest in the Shares to be sold by the Selling Stockholders in good faith and without notice of any adverse claim within the meaning of Section 8-302 of the Uniform Commercial Code as in effect in the State of Massachusetts, upon delivery of the Underwriters in the State of Massachusetts of certificates representing the shares that are endorsed to the Underwriters or endorse in blank, the Underwriters will acquire all rights of the Selling Stockholders in the Shares free of any adverse claims within the meaning of Section 8-302. In rendering such opinion, such counsel may rely upon a certificate of the Selling Stockholders as to matters of fact (i) with respect to ownership of and liens, encumbrances, equities or claims on the Shares sold by the Selling Stockholders, and (ii) with respect to any agreements, mortgages, deeds of trust, voting trusts, notes, leases or other instruments, provided that such counsel shall state that they believe that both you and they are justified in relying upon such certificates. (e) You shall have received on the Closing Date an opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., as counsel for the Underwriters, dated the Closing Date with respect to the issuance and sale of the Firm Shares, the Registration Statement and other related matters as you may reasonably request, and the Company and its counsel shall have furnished to your counsel such documents as they may reasonably request for the purpose of enabling them to pass upon such matters. (f) You shall have received letters addressed to you and dated the date hereof and the Closing Date from the firms of KPMG Peat Marwick LLP and Green & Co., independent certified public accountants, substantially in the forms heretofore approved by you. (g) (i) No stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall be pending or, to the knowledge of the Company, shall be threatened or contemplated by the Commission at or prior to the Closing Date; (ii) no order suspending the effectiveness of the Registration Statement or the qualification or registration of the Shares under the securities or Blue Sky laws of any jurisdiction shall be in effect and no proceeding for such purpose shall be pending or, to the knowledge of the Company, threatened or contemplated by the Commission or the authorities of any jurisdiction; (iii) any request for additional information on the part of the staff of the Commission or any such authorities shall have been complied with to the satisfaction of the staff of the Commission or such authorities; (iv) after the date hereof no amendment or supplement to the Registration Statement or the Prospectus shall have been filed unless a copy thereof was first submitted to you and you did not object thereto in good faith; and (v) all of the representations and warranties of the Company and the Selling Stockholders contained in this Agreement shall be true and correct in all respects on and as of the date hereof and on and as of the Closing Date as if made on and as of the Closing Date, and you shall have received a certificate, dated the Closing Date and signed by the chief executive officer and the chief financial officer of the Company (or such other officers as are acceptable to you) to the effect set forth in this Section 10(g) and in Sections 10(b) and 10(h) hereof. 23 24 (h) The Company shall not have failed in any material respect at or prior to the Closing Date to have performed or complied with any of its agreements herein contained and required to be performed or complied with by it hereunder at or prior to the Closing Date. (i) You shall have received a certificate, dated on and as of the Closing Date, by or on behalf of each Selling Stockholder to the effect that as of such Closing Date such Selling Stockholders representations and warranties in this Agreement are true and correct as if made on and as of such Closing Date, and that such Selling Stockholder has performed all such Selling Stockholder's obligations and satisfied all the conditions on such Selling Stockholder's part to be performed or satisfied at or prior to the Closing Date. (j) The Company and the Selling Stockholders shall have furnished or caused to have been furnished to you such further certificates and documents as you shall have reasonably requested. (k) At or prior to the Closing Date, you shall have received the written commitment of each of the Company's officers and directors, and each of the persons and entities listed on EXHIBIT A hereto, not to (i) directly or indirectly sell, offer or contract to sell, or otherwise dispose of or transfer any shares of Common Stock or securities of the Company convertible into or exchangeable or exercisable for Common Stock (collectively, "Company Securities") owned or controlled by such persons now or hereafter or any rights to purchase Company Securities, for a period of 180 days after the date of the Prospectus first filed pursuant to Rule 424(b) under the Act (the "Restriction Period"), without your prior written consent, or (ii) exercise or seek to exercise or effectuate in any manner any rights of any nature that such persons have or may hereafter have to require the Company to register under the Act any such person's sale, transfer or other disposition of any Company Securities or other securities of the Company held by any such persons, or to otherwise participate as a selling securityholder in any manner in any registration effected by the Company under the Act, including the registration to which this Agreement relates, before the expiration of the Restriction Period. (l) At or prior to the effective date of the Registration Statement, you shall have received a letter from the Corporate Financing Department of the NASD confirming that such Department has determined to raise no objections with respect to the fairness or reasonableness of the underwriting terms and arrangements of the offering contemplated hereby. (m) The Company shall have acquired all of the outstanding capital stock of both Childs & Childs Granite Company, Inc., a Georgia corporation, and C&C Granite Company, Inc., a Georgia corporation (collectively, "Childs & Childs"), and the remaining 50% of the issued and outstanding capital stock of the Quarry Companies not acquired from KSM in exchange for (1) aggregate cash consideration of $6,800,000, (2) shares of Common Stock having an aggregate value of $200,000 based on the price at which the Common Stock is sold to the public by the Underwriters, (3) the repayment of all of the indebtedness of the Quarry Companies attributable to Childs & Childs and (4) the issuance of an option to purchase [75,000] shares of Common Stock at an exercise price equal to the price at which the Common Stock is sold to the public by the Underwriters. (n) (A) the Company shall have acquired substantially all of the assets of Keith National Corporation, a ____________ corporation, and [certain of its affiliated companies] (collectively, "Keith Monument") in exchange for (1) shares of Common Stock having an aggregate value of $1,500,000 based upon the price at which the Common Stock is sold to the public by the Underwriters, (2) aggregate cash consideration of $14,875,000, less indebtedness payable by Keith Monument, and (3) the issuance of options to purchase [125,000] shares of Common Stock at an exercise price equal to the price at which the Common Stock is sold to the public by the Underwriters, and (B) the Company shall have entered into five-year employment agreements with each of John Keith and Roy Keith, Jr. to serve as ___________ and ____________, respectively; 24 25 (o) Swenson shall have merged with and into the Company with the Company as the surviving corporation. All such opinions, certificates, letters and other documents will be in compliance with the provisions hereof only if they are reasonably satisfactory in form and substance to you and your counsel. The several obligations of the Underwriters to purchase Additional Shares hereunder are subject to the satisfaction on and as of the Additional Closing Date of the conditions set forth in this Section 10, except that, if the Additional Closing Date is other than the Closing Date, the certificates, opinions and letters referred to in paragraphs (c) through (i) shall be dated as of the Additional Closing Date and the opinions called for by paragraphs (c) and (d) shall be revised to reflect the sale of Additional Shares. If any of the conditions hereinabove provided for in this Section 10 shall not have been satisfied when and as required by this Agreement, this Agreement may be terminated by you by notifying the Company of such termination in writing or by telegram at or prior to such Closing Date, but you shall be entitled to waive any of such conditions. 11. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become effective upon the later of (a) the execution and delivery hereof by the parties hereto, and (b) release of notification of the effectiveness of the Registration Statement by the Commission; provided, however, that the provisions of Sections 8 and 9 shall at all times be effective. If any one or more of the Underwriters shall fail or refuse to purchase Firm Shares which it or they have agreed to purchase hereunder, and the aggregate number of Firm Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of the Firm Shares, each non-defaulting Underwriter shall be obligated, severally, in the proportion which the number of Firm Shares set forth opposite its name in Schedule I hereto bears to the aggregate number of Firm Shares set forth opposite the names of all non-defaulting Underwriters or in such other proportion as you may specify in the Agreement Among Underwriters, to purchase the Firm Shares which such defaulting Underwriter or Underwriters agreed, but failed or refused to purchase. If any Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Firm Shares and arrangements satisfactory to you, the Company and the Selling Stockholders for the purchase of such Firm Shares are not made within 48 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter, the Company or the Selling Stockholders. In any such case which does not result in termination of this Agreement, either you or the Company and the Selling Stockholders shall have the right to postpone the Closing Date, but in no event for longer than seven (7) days, in order that the required changes, if any, in the Registration Statement and the Prospectus or any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any such default of any such Underwriter under this Agreement. 12. TERMINATION OF AGREEMENT. This Agreement shall be subject to termination in your absolute discretion, without liability on the part of any Underwriter to the Company or the Selling Stockholders by notice to the Company and the Selling Stockholders, if prior to the Closing Date or the Additional Closing Date (if different from the Closing Date and then only as to the Additional Shares), as the case may be, (i) trading in the Company's Common Stock shall have been suspended by the Commission or the NASDAQ/NMS, (ii) trading in securities generally on the New York Stock Exchange, American Stock Exchange or NASDAQ/NMS shall have been suspended or materially limited, or minimum or maximum prices shall have been generally established on such exchange, or additional material governmental restrictions, not in force on the date of this Agreement, shall have 25 26 been imposed upon trading in securities generally by any such exchange or by order of the Commission or any court or other governmental authority, (iii) a general moratorium on commercial banking activities shall have been declared by either federal or New York State authorities or (iv) there shall have occurred any outbreak or escalation of hostilities or other international or domestic calamity, crisis or change in political, financial or economic conditions or other material event the effect of which on the financial markets of the United States is such as to make it, in your good faith judgment, impracticable or inadvisable to market the Shares or to enforce contracts for the sale of the Shares. Notice of such cancellation shall be promptly given to the Company and its counsel by telegraph, telecopy or telephone and shall be subsequently confirmed by letter. 13. INFORMATION FURNISHED BY THE UNDERWRITERS. The Company acknowledges that (i) the paragraph immediately following footnote (3) on the cover page of the Prospectus, and (ii) the third and seventh paragraphs under the caption "Underwriting" in any Prepricing Prospectus and in the Prospectus, constitute the only information furnished by or on behalf of the Underwriters through you or on your behalf as such information is referred to in Sections 6(a), 6(b) and 9 hereof. 14. MISCELLANEOUS. Except as otherwise provided in Sections 5 and 12 hereof, notice given pursuant to any of the provisions of this Agreement shall be in writing and shall be delivered (i) if to the Company or Selling Stockholders, to the office of the Company at 772 Graniteville Road, Graniteville, Vermont 05654, Attention: Kurt M. Swenson, Chief Executive Officer (with copy to Skadden, Arps, Slate, Meagher & Flom LLP,; Attention: Kent A. Coit, Esq. One Beacon Street, Boston, Massachusetts 02108), or (ii) if to you, as Representatives of the Underwriters, to Raymond James & Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida 33716, Attention: John Forney, Vice President (with copy to Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A., 1221 Brickell Avenue, Miami, Florida 33131, Attention: Jorge L. Freeland, Esq.). This Agreement has been and is made solely for the benefit of the several Underwriters, the Company, its directors and officers, and the other controlling persons referred to in Section 9 hereof, the Selling Stockholders and their respective successors and assigns, to the extent provided herein, and no other person shall acquire or have any right under or by virtue of this Agreement. Neither of the terms "successor" and "successors and assigns" as used in this Agreement shall include a purchaser from you of any of the Shares in his status as such purchaser. 15. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be governed by and construed in accordance with the laws of the State of Massachusetts without reference to choice of law principles thereunder. This Agreement may be signed in various counterparts which together shall constitute one and the same instrument. This Agreement shall be effective when, but only when, at least one counterpart hereof shall have been executed on behalf of each party hereto. The Company, the Selling Stockholders and the Underwriters each hereby irrevocably waive any right they may have to a trial by jury in respect to any claim based upon or arising out of this Agreement or the transactions contemplated hereby. 26 27 Please confirm that the foregoing correctly sets forth the agreement among the Company, the Selling Stockholders and the several Underwriters. Very truly yours, ROCK OF AGES CORPORATION By: ----------------------------------- Kurt M. Swenson Chief Executive Officer SELLING STOCKHOLDERS By: ------------------------------------ Attorney-in-Fact As Attorney-in-Fact acting on behalf of each of the Selling Stockholders named in Schedule II to this Agreement. CONFIRMED as of the date first above mentioned, on behalf of itself and the other several Underwriters named in Schedule I hereto. By: -------------------------------------- John Forney Vice President 27 28 EXHIBIT A --------- 29 SCHEDULE I NUMBER OF NAME FIRM SHARES - ----------------------------------------------------------------- ----------- Raymond James & Associates, Inc. -------------------------------- _________________ ----------------------------------------------- _________________ ----------------------------------------------- _________________ ----------------------------------------------- _________________ ----------------------------------------------- _________________ ----------------------------------------------- _________________ ----------------------------------------------- TOTAL ----------------------------------------------------------- 30 SCHEDULE II FIRM SHARES ADDITIONAL SHARES TOTAL SHARES ----------- ----------------- ------------ COMPANY ------------------------ SELLING STOCKHOLDERS ________________------------- ________________------------- ________________------------- ________________------------- ________________------------- ________________------------- ________________------------- ________________------------- ___________ _________________ ____________ ________________------------- TOTAL: =========== ================= ============ EX-4 3 SPECIMEN STOCK CERTIFICATE 1 EXHIBIT 4.1 [Horizontally Set Certificate] [ROCK OF AGES Logo] (R) NUMBER SHARES A ROCK OF AGES CORPORATION INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CLASS A COMMON STOCK SEE REVERSE FOR CERTAIN DEFINITIONS $.01 PAR VALUE - -------------------------------------------------------------------------------- This Certifies That CUSIP 772632 10 5 is the owner of - -------------------------------------------------------------------------------- FULLY PAID AND NONASSESSABLE SHARES OF THE CLASS A COMMON STOCK OF ROCK OF AGES CORPORATION (hereinafter called the "Corporation") transferable on the books of the Corporation by said owner in person or by duly authorized attorney, upon surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to all the provisions of the Certificate of Incorporation and all amendments thereto, copies of which are on file at the office of the Transfer Agent, and the holder hereof, by acceptance of this certificate, consents to and agrees to be bound by all of said provisions. This certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. Witness, the facsimile seal of the Corporation and by facsimile the signatures of its duly authorized officers. Dated: ROCK OF AGES CORPORATION CORPORATE /s/ John R. Monson SEAL /s/ Kurt M. Swenson 1997 SECRETARY DELAWARE PRESIDENT [Set on Side] Countersigned and Registered: AMERICAN STOCK TRANSFER & TRUST COMPANY (NEW YORK, NEW YORK) Transfer Agent and Registrar By: Authorized Signature 2 ROCK OF AGES CORPORATION The Corporation will furnish without charge to each stockholder who so requests, a statement of the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ____________Custodian__________ (Cust) (Minor) TEN ENT -- as tenants by the entireties under Uniform Gifts to Minors Act____________________________ JT TEN -- as joint tenants with right of (State) survivorship and not as tenants in common
Additional abbreviations may also be used though not in the above list. For Value Received ______________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------- - -------------------------------------- - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Shares of the capital stock represented by the within certificate, and do hereby irrevocably constitute and appoint - -------------------------------------------------------------------------------- Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated ------------------------------ ------------------------------------------------ NOTICE:THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. SIGNATURE(S) GUARANTEED: -------------------------------------------------------- THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT TO S.E.C. RULE 17Ad-15. EX-10.2 4 EMPLOYMENT AGREEMENT OF KURT SWENSON 1 EXHIBIT 10.2 FORM OF SWENSON EMPLOYMENT AGREEMENT ------------------------------------ THIS AGREEMENT is made as of this day of , 1997 by and between ROCK OF AGES CORPORATION, a Delaware corporation with a principal place of business at 369 North State Street, Concord, New Hampshire 03301 ("ROAC" or the "Company"), and Kurt M. Swenson ("Executive"), an individual residing at 336 Putney Hill Road, Hopkinton, New Hampshire 03229. ROAC wishes to employ Executive as President and Chief Executive Officer (the "Position"), and Executive wishes to accept such employment, subject to the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the foregoing, and the covenants and agreements of the parties herein contained, ROAC and Executive agree as follows: 1. EMPLOYMENT. (a) ROAC agrees to employ Executive in the Position, and Executive accepts employment in the Position, reporting directly to the Board of Directors of ROAC (the "Board"). As President and Chief Executive Officer, Executive shall oversee and direct the operations of ROAC, and perform such other duties consistent with the responsibilities of President and Chief Executive Officer as the Board shall determine. 2. TERM. The employment of Executive by ROAC hereunder will commence on the date (the "Commencement Date") of the consummation of ROAC's initial public offering (the "IPO") and end on the fifth anniversary of the Commencement Date, unless extended or sooner terminated as hereinafter provided (the "Term"). Commencing with the third anniversary of the Commencement Date, the Term shall automatically be extended, on each anniversary of the Commencement Date, for an additional twelve (12) months from the then current expiration date of the Term, unless either the Executive or the Company provide written notice to the other party electing not to extend the Term, such notice to be provided at least 90 days prior to the applicable anniversary date. 3. COMPENSATION. (a) BASE SALARY. During the Term, ROAC shall pay Executive an annual base salary ("Base Salary") not less than $310,320 or such higher rate as may from time to time be determined by the Board, 2 payable in equal monthly installments, or as otherwise required by law. The Base Salary may be increased from time to time and, if so increased, shall not thereafter be decreased. Executive's Base Salary will be reviewed by the Board not less often than annually during the Term. (b) BONUS. Executive may also be awarded a bonus or bonuses from time to time during the Term at such time and in such amounts as the Board may determine in its sole discretion. (c) EXPENSES. Executive shall be entitled to receive prompt reimbursement for all reasonable and customary expenses incurred by Executive during the Term in connection with his services hereunder, including, without limitation, all travel and living expenses while away from home on business or at the request of and in the service of ROAC, provided that such expenses are incurred and accounted for in accordance with policies and procedures established by ROAC. (d) EQUITY BASED AWARDS. During the Term, Executive may be granted such stock, options or other equity based awards, on such terms, as the Board may determine in its sole discretion. 4.FRINGE BENEFITS. During the Term, Executive shall be entitled to participate in such fringe benefits as, from time to time, may be applicable to ROAC's other executive officers, subject to the terms and conditions of such fringe benefit plans, including without limitation the following fringe benefits: (i) medical and major medical health insurance, paid for by ROAC; (ii) life insurance paid for by ROAC equal to one and one-half (1 1/2) times Executive's Base Salary (capped at $280,000 while Executive is employed hereunder and at $60,000 during retirement); (iii) participation in ROAC's qualified 401(k) profit sharing plan pursuant to the terms thereof; (iv) participation in ROAC's qualified defined benefits Salaried Employees Pension Plan pursuant to the terms thereof; 2 3 (v) the use of an automobile comparable to the automobiles provided to other executive officers of ROAC and payment by ROAC of the costs of operation and maintenance of the automobile; and (vi) vacation in accordance with ROAC's employee policies, in effect from time to time. 5. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's employment hereunder shall terminate automatically upon the Executive's death. If the Company determines in good faith that Disability of the Executive has occurred (pursuant to the definition of Disability set forth below), it may give to Executive written notice in accordance with Section 15(d) of this Agreement of its intention to terminate Executive's employment hereunder. In such event, Executive's employment hereunder shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) TERMINATION FOR CAUSE. Subject to Section 5(e), ROAC may terminate the employment of Executive hereunder at any time for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful failure of the Executive to perform substantially the Executive's duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), which failure is not cured within 30 days after a written demand for substantial performance is delivered to the Executive by the Board which specifically identifies the manner in which the Board believes 3 4 that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct, which is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without a reasonable belief that the Executive's action or omission was in the best interests of the Company. (c) GOOD REASON. Executive shall be entitled to terminate his employment hereunder for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 1(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities; (ii) any failure by the Company to comply with any of the provisions of Sections 3 or 4 of this Agreement or any other provision hereof requiring a payment or provision of a benefit to the Executive, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than the Company's executive offices on the date hereof in Concord, New Hampshire or any office or location less than 35 miles from such location, or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the date hereof; 4 5 (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 14(c) of this Agreement. For purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. (d) NO LIABILITY FOR TERMINATION BY EXECUTIVE. Nothing in this Agreement shall restrict the Executive from terminating his employment with the Company hereunder (including without limitation in connection with a Change in Control (as defined herein)), and no such termination by the Executive shall be deemed a breach of this Agreement. (e) NOTICE OF TERMINATION. (i) Any termination of the Executive's employment hereunder by the Company for Cause or by the Executive shall be effected by Notice of Termination to the other party hereto given in accordance with Section 15(d) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively from asserting such fact or circumstances in enforcing the Executive's or the Company's rights hereunder. 5 6 (ii) Any Notice of Termination for Cause must be given within sixty (60) days of the Board learning of the event(s) or circumstance(s) which the Board believes constitute(s) Cause. Prior to any Notice of Termination for Cause being given (and prior to any termination for Cause being effective), the Executive shall be entitled to a hearing before the Board at which he may, at his election, be represented by counsel and at which he shall have a reasonable opportunity to be heard. Such hearing shall be held on not less than fifteen days prior written notice to the Executive stating the Board's intention to terminate the Executive for Cause and stating in detail the particular event(s) or circumstance(s) which the Board believes constitute(s) Cause for termination. (f) DATE OF TERMINATION. "Date of Termination" means (i) if the Executive's employment hereunder is terminated by the Company for Cause or by the Executive, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, subject, in the case of termination by the Company, for Cause, to the Company's compliance with Section 5(e)(ii); (ii) if the Executive's employment hereunder is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination; and (iii) if the Executive's employment hereunder is terminated by reason of the Executive's death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 6. EFFECT OF TERMINATION OF EMPLOYMENT. (a) IN CONNECTION WITH A CHANGE IN CONTROL. In the event of any termination of Executive's employment hereunder (x) by the Company (other than a termination due to the Executive's death, Disability or for Cause) within 12 months after a Change in Control, or prior to a Change in Control if it is reasonably demonstrated by the Executive that such termination of employment (1) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or (2) otherwise arose in connection with or in anticipation of a Change in Control, or (y) by the Execu- 6 7 tive for any reason or no reason within 12 months after a Change in Control: (i) the Company shall pay to the Executive a lump sum in cash within 5 business days after the Date of Termination the aggregate of the following amounts: A. the sum of (1) the Executive's Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) the highest annual cash bonus paid to the Executive in the last three fiscal years prior to the Date of Termination or (II) the amount of any annual bonus payable but not yet paid, if any, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than twelve full months or during which the Executive was employed for less than twelve full months), in respect of the most recently completed fiscal year during the Term (the "Annualized Unpaid Bonus Amount"; the higher of (I) and (II) being referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 (the "Pro Ration Fraction") and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon), excluding amounts payable under the Salary Continuation Agreement between the Company and the Executive (the "Salary Continuation Agreement"), and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), and (3) being hereinafter referred to as the "Highest Accrued Obligations"), and B. the amount equal to the product of (1) three and (2) the sum of (x) the Executive's Base Salary and (y) the Highest Annual Bonus. (ii) for 36 months after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4 of this Agreement if the Executive's 7 8 employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until 36 months after the Date of Termination and to have retired on the last day of such period; and (iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). For purposes of this Agreement, a "Change in Control" shall mean: (i) The acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) after the Commencement Date of 30% or more of either (A) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this paragraph (i), the following acquisitions shall not constitute a Change in Control: (1) any acquisition directly from the Company, (2) any acquisition by the Company, (3) any acquisition 8 9 by any employee benefit plan (or related trust) sponsored or maintained by the Company or by any corporation controlled by the Company, (4) any acquisition pursuant to a transaction which satisfies the criteria set forth in clauses (A), (B) and (C) of paragraph (iii) below, or (5) any acquisition by the Executive or his siblings, any Permitted Transferee (as defined in the Company's Amended and Restated Certificate of Incorporation as in effect on the Commencement Date) of the Executive or such siblings, any Person controlled by any such Person(s) or any group of which any such Person is a member (any of the Persons described in this clause (5) being referred to as an "Excluded Person"); or (ii) Individuals who, as of the Commencement Date constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director after the Commencement Date whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Consummation by the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company, other than with or to an Excluded Person (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, of the corporation or other entity resulting from such Business Combination (which as used in this paragraph (iii) shall include, without limitation, a corporation or other entity which as a result of such transaction owns the Company or all or substantially all 9 10 of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, immediately prior to such Business Combination (B) no Person (excluding any Excluded Person, any corporation or other entity resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation or other entity resulting from such Business Combination) beneficially owns, directly or indirectly, 30% or more of, respectively, the then outstanding shares of common stock of the corporation or other entity resulting from such Business Combination, or the combined voting power of the then-outstanding voting securities of such corporation or other entity and (C) at least half of the members of the board of directors or other governing body of the corporation or other entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company, unless such transaction was initiated by an Excluded Person. Notwithstanding the foregoing, if the Executive is entitled to receive the lump sum payment provided for in this Section 6(a), he may elect, by notice to the Company prior to receipt of such payment, to receive in lieu of such lump sum payment, either (i) a lump sum payment equal to the total amount which the Executive would be entitled to receive hereunder if his employment hereunder was terminated by the Company without Cause or by the Executive for Good Reason or (ii) the amount referred to in clause (i) immediately above, paid over the remainder of the Term (without regard to the termination of the Executive's employment hereunder) as provided in Section 6(d). (b) DEATH OR DISABILITY. If Executive's employment is terminated because of Executive's death or Disability, Executive shall be entitled to (i) payment in cash in a lump sum of an amount equal to the sum of (A) the Executive's Base Salary through the Date of Termination to the extent not theretofore paid, (B) the product of (1) the Annualized Unpaid Bonus Amount and (2) the Pro Ration Fraction, and (C) any compensation previously 10 11 deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in (A), (B) and (C) being referred to as the "Accrued Obligations"), payable within 30 days of the Date of Termination, (ii) payment of the Executive's Base Salary for the remainder of the Term (without regard to such termination) and (iii) timely payment and provision of Other Benefits. (c) CAUSE; OTHER THAN FOR GOOD REASON. If Executive's employment hereunder is terminated for Cause or is voluntarily terminated by the Executive, excluding such a termination for Good Reason, as of the Date of Termination the Company shall have no further obligations to the Executive hereunder other than for Accrued Obligations which shall be paid in a lump sum within 30 days of the Date of Termination, and the timely payment or provision of Other Benefits. (d) VOLUNTARY TERMINATION BY THE COMPANY OR BY THE EXECUTIVE FOR GOOD REASON. If Executive's employment hereunder is terminated by ROAC without Cause or by Executive for Good Reason, then subject to Section 6(a), Executive shall be entitled to (i) payment in cash in a lump sum of the Highest Accrued Obligations, payable within 30 days of the Date of Termination, (ii) payment of the Executive's Base Salary for the remainder of the Term (without regard to such termination) and (iii) timely payment and provision of Other Benefits. 7. NONEXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any such plan, program, policy or practice, or any contract or agreement with the Company or any of its affiliated companies, including without limitation the Salary Continuation Agreement. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of, or any contract or agreement with, the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement, except as explicitly modified by this Agreement. 11 12 8. FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive (under this Agreement or otherwise) or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal, accounting and other fees and expenses (including, without limitation, of expert witnesses) which the Executive may reasonably incur (i) as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), (ii) in connection with the negotiation and preparation of this Agreement and (iii) in connection with the Executive's performance of his obligations under Section 9(c). 9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event that it shall be determined that any payment or distribution by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income 12 13 taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the amount of Excise Tax imposed upon the Payments; provided, however, that if Executive would not receive, after taking into account all such payments (including the Gross-Up Payment), a net after tax benefit of at least $50,000 (taking into account both income taxes and any Excise Tax) as compared to the net after-tax proceeds to the Executive resulting from an elimination of the Gross-Up Payment and a reduction of the Payments to an amount (the "Reduced Amount") such that the receipt of the Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be paid and the Payments, in the aggregate, will be reduced to the Reduced Amount. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by KPMG Peat Marwick LLP or such other certified public accounting firm as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to ROAC and Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by ROAC. In the event of a conflict of interest, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be paid solely by ROAC. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by ROAC to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon ROAC and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by ROAC should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that ROAC exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Under- 13 14 payment that has occurred and any such Underpayment shall be promptly paid by ROAC to or for the benefit of the Executive. (c) The Executive shall notify ROAC in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by ROAC of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than thirty business days after the Executive is informed in writing of such claim and shall apprise ROAC of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty-day period following the date on which he gives such notice to ROAC (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If ROAC notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give ROAC any information reasonably requested by ROAC and available to the Executive relating to such claim; (ii) take such action in connection with contesting such claim as ROAC shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by ROAC; (iii) cooperate with ROAC in good faith in order effectively to contest such claim; and (iv) permit ROAC to participate in any proceedings relating to such claim; provided, however, that ROAC shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation of the foregoing provisions of this Section 9(c), ROAC shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative 14 15 appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or to contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as ROAC shall determine; provided, however, that if ROAC directs the Executive to pay such claim and sue for a refund, ROAC shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, ROAC's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by ROAC pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to ROAC's complying with the requirements of Section 9(c) promptly pay to ROAC the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by ROAC pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and ROAC does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge 15 16 or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts or benefits otherwise payable or to be provided to the Executive under this Agreement. 11. NON-SOLICITATION OF EMPLOYEES, CLIENTS AND CUSTOMERS. During the Term, and for the period, if any, of Executive's non-competition covenant set forth in Section 12 hereof following the termination of the Executive's employment hereunder, Executive agrees not to, on his own behalf or on behalf of any other Person, directly or indirectly, solicit or induce any client, customer, employee or sales representative of Company, or of any of the Company's direct or indirect subsidiaries, affiliates, parent or their respective successors and assigns (the "ROAC Corporate Group"), to stop doing business with or to leave any of said companies for any reason whatsoever or to hire any of their employees. 12. NON-COMPETITION. The Company and the Executive acknowledge that (i) the Company and the ROAC Corporate Group are currently engaged in the business of quarrying, manufacturing, marketing and selling granite memorials and other granite products at wholesale and at retail (herein referred to as the "Restricted Business", it being understood and agreed, however, that "Restricted Business" shall not include the curb and landscape business of Swenson Granite (as defined herein) substantially as conducted on the Commencement Date), (ii) the Company and the ROAC Corporate Group are engaged in the Restricted Business in all of the states of the United States and in all of the provinces of Canada (the territory of all such states and provinces is referred to herein as the "Restricted Territory") and (iii) the Company has entered into this Agreement with the Executive to secure the Executive's services in order to expand and grow the Restricted Business in the Restricted Territory. Accordingly, 16 17 as a material and essential inducement to the Company to enter into this Agreement and in consideration of Company's agreements with the Executive hereunder, the Executive agrees that during the Term and, if the Executive's employment hereunder is terminated due to the Executive's Disability, by the Company for Cause or by the Executive other than for Good Reason pursuant to Section 5(c) and other than in connection with a Change in Control as contemplated by Sections 5(d) and 6(a), then, subject to the further provisions of this Section 12, for a period of two (2) years after the Date of Termination, the Employee will not, in the Restricted Territory, directly or indirectly, in any manner whatsoever: (a) compete with Company, its successor and assigns, or the ROAC Corporate Group, its successors and assigns, in the Restricted Business; (b) engage in the Restricted Business, except as an employee of the Company or the ROAC Corporate Group; (c) have any ownership interest in (other than the ownership of less than five percent (5%) of the ownership interests of a company whose stock or other ownership interests are publicly traded) any business entity which engages, directly or indirectly, in the Restricted Business in the Restricted Territory except for any ownership interest owned by the Executive during the Term, and after termination of Executive's employment hereunder, in the Company, any member of the ROAC Corporate Group or Swenson Granite Company, Inc. and its successors and assigns ("Swenson Granite"); (d) contract, subcontract, work for, solicit work from, solicit Company or ROAC Corporate Group employees for, or solicit customers for, advise or become affiliated with, any business entity which engages in the Restricted Business in the Restricted Territory except as an employee of Company or of the ROAC Corporate Group; or (e) lend money or provide anything of value to any entity which engages in the Restricted Business in the Restricted Territory. The term "compete" as used in this Section 12 means engage in competition, directly or indirectly, either as 17 18 an owner (except as permitted above), agent, member, consultant, partner, sole proprietor, stockholder, or any other ownership form or other capacity; provided that "compete" shall not include the Executive, and nothing contained herein shall prohibit the Executive from, (i) continuing to have an ownership interest in Swenson Granite, (ii) serving on Swenson Granite's Board of Directors or equivalent governing body (including as the Chairman thereof) as a non-employee member thereof so long as, during the Term, the Executive has no material involvement in the day-to-day management or affairs of Swenson Granite, or (iii) serving as an employee, officer or director of, or consultant to, Swenson Granite after the Date of Termination so long as during the period of such service, if the Executive's non-competition covenant set forth in this Section 12 is in effect, Swenson Granite is not engaged in the Restricted Business. While the restrictions as set forth herein are considered by the parties hereto to be reasonable in all circumstances, it is recognized that any one or more of such restrictions might fail for unforeseen reasons. Accordingly, it is hereby agreed and declared that if any of such restrictions shall be adjudged to be void as unreasonable in all circumstances for the protection of the Company and the ROAC Corporate Group and their interests, but would be valid if part of the wording thereof were deleted, the period thereof reduced, or the range of activities or area dealt with reduced in scope, such restrictions shall apply with the minimum modification as may be necessary to make them valid and effective, while still affording to Company and the ROAC Corporate Group the maximum amount of protection contemplated thereby. The Executive represents that he has carefully reviewed the non-competition covenants set forth in this Section 12 and has determined that these covenants will not impose undue hardship, financial or otherwise, on the Executive; that its Restrictive Territory and duration will not impose a hardship on the Executive; that it protects Company's and the ROAC Corporate Group's legitimate interests in their investment in the Executive and their Restricted Business; and that in the Executive's opinion the Executive not being able to compete in the Restrictive Territory for the duration of this covenant will not be injurious to the public interest. The Executive agrees that breach of his covenants in this Section 12 will cause irreparable harm to Company and the ROAC Corporate Group. 18 19 13. LOYALTY. During the Term, Employee shall devote his full time and best efforts to the performance of his employment under this Agreement. During the Term, Employee shall not at any time or place whatsoever, either directly or indirectly, engage in the Restricted Business or any other profession or active business to any extent whatsoever, except on, pursuant to or as permitted by the terms of this Agreement, or with the prior written consent of Company. Employee agrees that he will not, while employed hereunder, do any unlawful acts or engage in any unlawful habits or usages which injure, directly or indirectly, Company and its business or the ROAC Corporate Group and its businesses. 14. SUCCESSORS. (a) This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's heirs and legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, recapitalization or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid. 15. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties 19 20 hereto or their respective successors and legal representatives. (b) The descriptive headings of the several sections of this Agreement are inserted for convenience of reference only and shall not control or affect the meaning or construction of any of the provisions hereof. (c) If any provision of this Agreement shall be held invalid or unenforceable according to law, such provision shall be deemed modified to the extent necessary to bring it within the legal requirements. Any such invalidity or unenforceability shall not affect the remaining provisions of this Agreement, and such remaining provisions shall continue in full force and effect. (d) Any notice or other communication required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given (i) upon hand delivery, or (ii) on the third day following delivery to the U.S. Postal Service as certified or registered mail, return receipt requested and postage prepaid, or (iii) on the first day following delivery to a nationally recognized United States overnight courier service for next business day delivery, fee prepaid, return receipt or other confirmation of delivery requested, or (iv) when telecopied or sent by facsimile transmission if an additional notice is also delivered under (i), (ii) or (iii) above within three days thereafter. Any such notice or communication shall be directed to a party at its address (or facsimile number) set forth below or at such other address (or facsimile number) as may be designated by a party in a notice given to all other parties hereto in accordance with the provisions of this Section. To ROAC: -------- Rock of Ages Corporation 369 North State Street Concord, New Hampshire 03302 Attention: Chairman of the Compensation Committee of the Board of Directors Facsimile: (603) 225-4801 20 21 with copies to: John R. Monson, Esquire Wiggin & Nourie, P.A 20 Market Street Post Office Box 808 Manchester, New Hampshire 03105-0808 Facsimile: (603) 623-8442; and Skadden, Arps, Slate, Meagher & Flom LLP One Beacon Street 31st Floor Boston, Massachusetts 02108-3194 Attention: Kent A. Coit, Esq. Facsimile: (617) 573-4822 To the Executive: ----------------- Kurt M. Swenson 336 Putney Hill Road Hopkinton, New Hampshire 03229 Facsimile: (603) 225-4801 (e) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (f) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation the right of the Executive to terminate employment following a Change in Control pursuant to Section 5(a) or for Good Reason pursuant to Section 5(c) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (g) This Agreement contains all of the terms agreed upon by the parties with respect to the subject matter hereof and supersedes all prior agreements, representations and warranties of the parties as to the subject matter hereof. (h) This Agreement may be amended, or any provision of this Agreement may be waived, provided that 21 22 any such amendment or waiver will be binding on the party against which such amendment or waiver is sought to be enforced only if such amendment or waiver is set forth in a writing executed by such party. (i) This Agreement may be executed in counterparts, each of which shall be deemed an original but which together shall constitute a single instrument. 22 23 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. --------------------------- Kurt M. Swenson ROCK OF AGES CORPORATION By: ------------------------ Name: Title: 23 EX-10.8 5 EMPLOYMENT AGREEMENT WITH RICHARD KIMBALL 1 FORM OF EMPLOYMENT AGREEMENT THIS AGREEMENT made as of the _____ day of ___________, 1997, by and among ROCK OF AGES CORPORATION, a Delaware corporation, with a principal place of business at 369 North State Street, Concord, NH 03301 ("Company"), and _________________ ("Employee") residing at ________________________________ _________________. FACTUAL BACKGROUND: 1. Company wishes to employ Employee, initially as President of its Memorials Division reporting to the President of the Company, with principal responsibility for national memorial and other granite product manufacturing and for national and international sales and marketing of the Company's granite products (the "Position") and with such other duties and responsibilities, and such other or different positions, as Company may assign to Employee; and Employee wishes to accept such employment subject to the terms and conditions of this agreement. 2. Company and its affiliates and subsidiaries manufacture granite memorials and other granite products, perform services related thereto, and market such products and services at wholesale and retail in the United States and in various foreign countries (Company's "Business") and have accumulated valuable and confidential information including trade secrets and know-how relating to technology, manufacturing procedures, formulas, machines, marketing plans, sources of supply, business strategies and other business records. 3. The agreement by Employee to enter into the covenants contained herein is a condition precedent to the continued employment of Employee in the Position, Employee acknowledges the same and that his execution of this agreement are express conditions of his employment; and that said covenants are given as material consideration for such employment and the other benefits conferred upon him by this agreement. 4. As used herein the term "Company" shall refer to Company and where applicable to any direct or indirect subsidiary or affiliate of Company for which Employee may from time to time be performing services under this agreement. 2 NOW, THEREFORE, in consideration of such employment and other valuable consideration, receipt of which is hereby acknowledged, the parties thereto agree as follows: 1. EMPLOYMENT. Company agrees to employ Employee, and Employee accepts employment in the Position, initially reporting to the President of Company, all upon the terms and conditions hereinafter set forth. 2. DUTIES AND POLICIES. (a) DUTIES. The Employee agrees to devote his full time and best efforts to his employment duties in the Position or, subject to the rights of Company in the second sentence of this Section 2(a), in such other position to which Employee is assigned during the Term (as hereinafter defined), and to such other duties as may be assigned to him from time to time by Company. Company reserves the right in its sole discretion to request Employee to perform no duties for it under this agreement from time to time or at any time for such periods of time during the Term as it in its sole discretion may determine and in the event Company takes such action, Employee will thereafter not be eligible for any further increases in his Annual Base Salary or for any bonuses until Company requests, if ever, Employee return to active work. (b) POLICIES. Employee agrees to abide by the policies, rules, regulations or usages applicable to Employee as established by Company from time to time and provided to Employee in writing. 3. TERM. The employment of Employee by ROAC hereunder will commence on the date (the "Commencement Date") of the consummation of Company's initial public offering and end on the fifth anniversary of the Commencement Date, unless extended or sooner terminated as hereinafter provided (the "Term"). 4. COMPENSATION. For all services to be rendered by Employee in any capacity hereunder, the Company shall pay Employee the following: (a) SALARY. The Company shall pay Employee an annual salary of Two Hundred Ten Thousand Three Hundred Sixty Dollars ($210,360.00) less withholding and other taxes required by federal and state law (the "Annual Base Salary"), payable in equal monthly installments, or as otherwise required by law. Employee shall be eligible to receive increases in Employee's Annual Base Salary pursuant to periodic salary reviews consistent with Company's corporate policies; it being understood such increases are not guaranteed, but are subject to Employee's job performance and the determination - 2 - 3 by Company's Board of Directors, in its sole discretion, to award salary increases to Employee. (b) BONUS. Employee may also be awarded a bonus or bonuses from time to time during the Term in such amounts and at such time, if any, as the Company's Board of Directors may determine, in its sole discretion. (c) STANDARDS. Company agrees that the standards to be used by its Board of Directors in awarding salary increases and bonuses to Employee will be the same standards used by the Board of Directors of Company in awarding the same to its executive officers. 5. FRINGE BENEFITS. During the term of this agreement, Employee shall be entitled to participate in such fringe benefits as, from time to time, may be applicable to the Company's similarly situated executive employees, subject to the terms and conditions of such fringe benefit plans and to the following fringe benefits so long as the same may be maintained by the Company: (i) Family medical and major medical health insurance, paid for by Company; (ii) Life Insurance paid for by Company equal to one and one-half (1 1/2) times Employee's Annual Base Salary (capped at $280,000 while working and $60,000 during retirement); (iii) Participation in Company's qualified 401(k) profit sharing plan pursuant to the terms thereof; (iv) Participation in Company's qualified defined benefit Salaried Employees Pension Plan pursuant to the terms thereof; (v) Participation in Company's long term disability insurance plan pursuant to the terms thereof; (vi) The use of an automobile comparable to the automobiles provided to other executive officers of Company and payment by Company of the costs of operation and maintenance of the automobile; and (vii) Vacation in accordance with Company's employee policies, in effect from time to time. - 3 - 4 Fringe benefits provided to Employee will, in addition, generally be not less advantageous to Employee than those provided by Company to its executive employees. Fringe benefits as used in this Section do not include cash compensation, stock options or other compensation. 6. TERMINATION. (a) TERMINATION BECAUSE OF DEATH OR TOTAL DISABILITY. This agreement will terminate automatically upon the date of Employee's death or Total Disability. The Employee shall be deemed to have incurred a Total Disability: (i) if Company maintains a long term disability policy in effect for the benefit of Employee, on the date when the Employee shall have received total disability benefits under said policy for a period of six (6) months; (ii) if no such long term disability insurance policy is in effect, on the date when the Employee suffers from a physical or mental disability of such magnitude and effect that the Employee is unable to perform the essential functions of Employee's assigned position with or without reasonable accommodation and such disability continues during a period of twelve (12) continuous or noncontinuous months within the eighteen (18) month period beginning on the first day of the month in which the first day of disability occurs; (iii) if Employee illegally uses drugs and, as a result, performance of his duties and/or employment with Company is in any way impaired; or (iv) on the date when Employee receives more than 12 weeks of payments under the Social Security Act because of determination by the Social Security administration that Employee is totally disabled. Total Disability as set forth in subsections (ii) or (iii) above shall be deemed to have occurred upon the written certification to Company thereof by the Employee's personal physician, which certification may be requested in writing by Company. If the Employee does not have a personal physician or refuses to consult with his personal physician, Company may select a licensed New Hampshire physician, board-certified in internal medicine or family practice, at Employee's cost, to examine the Employee, which physician shall, for purposes hereof, be deemed to be the Employee's personal physician; provided, that if the Employee refuses to be examined by this deemed personal physician - 4 - 5 within thirty (30) days after the physician's appointment by Company, then the Employee may at Company's election be conclusively presumed to have become Totally Disabled as of the close of such thirty (30) day period. If Company disagrees with the opinion of the Employee's personal physician, then Company may select a second licensed, board-certified New Hampshire physician, at Company's cost, to examine the Employee. If said two (2) physicians disagree as to whether Employee is Totally Disabled, then the personal physician and this second physician shall then select a third licensed, board-certified New Hampshire physician, with the cost of this third physician to be split between Employee and Company, to examine the Employee. Upon examination of the Employee by the three (3) physicians, each physician shall render an opinion with respect to the condition of the Employee in regards to his Total Disability, and the opinion of a majority of the physicians shall be binding upon all parties. (b) TERMINATION WITHOUT CAUSE. Company shall not have the right to terminate this agreement and Employee's employment under this agreement except for a Termination With Cause (as defined in Section 6(c) below). (c) TERMINATION WITH CAUSE. Company may terminate this agreement and the employment of the Employee at any time with cause and without further notice upon the occurrence of any of the following events: (i) abandonment by Employee of, or chronic, habitual or continuous failure by Employee to perform, over a period of thirty (30) or more days, Employee's duties as an Employee hereunder or violation of any of Employee's covenants or agreements under this agreement; (ii) embezzlement or other theft of the property of Company, of the ROAC Corporate Group or of any predecessor to the Company or to the ROAC Corporate Group (collectively, the "Predecessors"), or the commission of other criminal activity against Company, ROAC Corporate Group or any of the Predecessors or their employees, agents and customers; or (iii) conviction of a crime which the Company's Board of Directors reasonably determines will have or has had a material adverse affect on the reputation, business and/or financial affairs of Company or the ROAC Corporate Group (any such termination is herein sometimes referred to as a "Termination With Cause" or as "Terminated With Cause"). In the event that Employee's employment is Terminated With Cause or Employee resigns in lieu of such termination, Employee shall only be entitled to be paid any expenses he has incurred prior to the termination and for which he is entitled to reimbursement hereunder, and such pro-rated salary as he may have earned up to the date of termination. (d) TERMINATION BY THE EMPLOYEE. Employee may resign from employment at any time for any reason and terminate this agreement by giving thirty (30) days' written notice to Company (any such termination is herein sometimes referred to as a "Voluntary Termination") of such intention. In such event, Company may, in its - 5 - 6 discretion, permit the Employee to work through the notice period or accept the Employee's immediate resignation. In the event of a Voluntary Termination, Employee shall not be entitled to payment of any further compensation or benefits, under the terms of this agreement. 7. ROAC CORPORATE GROUP. Company and its direct and indirect subsidiaries, affiliates, parent and successors and assigns are sometimes herein sometimes referred to as the "ROAC Corporate Group." 8. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Employee acknowledges that during his employment, he has, and will in the future continue to, become fully familiar with all aspects of the Company's Businesses and the ROAC Corporate Group's businesses and will obtain access to confidential and proprietary information relating to such businesses. Employee understands, agrees and covenants that such information is valuable and Employee has no property interest in it. Therefore, Employee covenants and agrees that during his employment with Company and the ROAC Corporate Group and thereafter Employee will not use, disclose, communicate or divulge such information to any person not employed by Company and the ROAC Corporate Group or use such information except as may be necessary to perform his duties as an Employee under this agreement. Employee's obligations in this section shall survive the expiration of the Term of this agreement and/or termination of Employee's employment under this agreement for any reason whatsoever. 9. NON-SOLICITATION OF EMPLOYEES, CLIENTS AND CUSTOMERS. During the Term of this agreement and for the period of Employee's non-competition covenant set forth in Section 11 hereof, following the termination this agreement, Employee agrees not to, on his own behalf or on behalf of any other person, corporation, firm or entity, directly or indirectly, solicit or induce any client, customer, employee or sales representative of Company or the ROAC Corporate Group to stop doing business with or to leave any of said companies for any reason whatsoever or to hire any of said companies' employees. 10. RETURN OF PROPERTY. Upon termination or nonrenewal of this agreement for any reason, Employee agrees to immediately return all Company and ROAC Corporate Group property, whether confidential or not, without keeping any copies or excerpts thereof, including, but not limited to, computers, printers, customer lists, samples, product information, financial information, price lists, marketing materials, keys, credit cards, automobiles, technical data, research, blueprints, trade secrets information, and all confidential or proprietary information. - 6 - 7 11. NON-COMPETITION COVENANT BY EMPLOYEE. Company and the Employee agree that Company is currently engaged in the business of quarrying, manufacturing, marketing and selling granite memorials and other granite products at wholesale and at retail (herein referred to as the "Restricted Business") and Company and the ROAC Corporate Group are engaged in the Restricted Business in all of the states of the United States and in all of the provinces of Canada (herein the territory of all such states and provinces is referred to as the "Restricted Territory") and has hired the Employee to expand and grow the Restricted Business in the Restricted Territory. Accordingly, as a material and essential inducement to Company to hire the Employee and in consideration of Company's agreements with the Employee under this agreement, Employee agrees that during the Term of this agreement and, if this agreement is terminated for any reason, lapses, is not renewed for any reason, or Employee is not employed by Company after the end of the Term hereof for any reason, for a period equal to two (2) years thereafter, unless this agreement in terminated within the first two (2) years of the Term hereof, in which case for the period of four (4) years thereafter, Employee will not, in the Restricted Territory, directly or indirectly, in any manner whatsoever: (a) compete with Company, its successor and assigns, or the ROAC Corporate Group, its successors and assigns, in the Restricted Business; (b) engage in the Restricted Business, except as an employee of Company or the ROAC Corporate Group; (c) have any ownership interest in (other than the ownership of less than five percent (5%) of the ownership interests of a company whose stock or other ownership interests are publicly traded) any business entity which engages, directly or indirectly, in the Restricted Business in the Restricted Territory except for any ownership interest owned by Employee during the Term of this agreement, and after termination of this agreement, in the Company or in Swenson Granite Company LLC; (d) contract, subcontract, work for, solicit work from, solicit Company or ROAC Corporate Group employees for, or solicit customers for, advise or become affiliated with, any business entity which engages in the Restricted Business in the Restricted Territory except as an employee of Company or of the ROAC Corporate Group; or (e) lend money or provide anything of value to any entity which engages in the Restricted Business in the Restricted Territory. - 7 - 8 The term "compete" as used in this Section 11 means engage in competition, directly or indirectly, either as an owner, agent, member, consultant, partner, sole proprietor, stockholder, or any other ownership form or other capacity. While the restrictions as set forth herein and in Section 9 are considered by the parties hereto to be reasonable in all circumstances, it is recognized that any one or more of such restrictions might fail for unforeseen reasons. Accordingly, it is hereby agreed and declared that if any of such restrictions shall be adjudged to be void as unreasonable in all circumstances for the protection of Company and the ROAC Corporate Group and their interests, but would be valid if part of the wording thereof were deleted, the period thereof reduced, or the range of activities or area dealt with reduced in scope, such restrictions shall apply with the minimum modification as may be necessary to make them valid and effective, while still affording to Company and the ROAC Corporate Group the maximum amount of protection contemplated thereby. Employee represents that he has carefully reviewed Employee's restrictive non-competition covenant set forth in this Section 11 and his non-solicitation covenant in Section 9 and has determined that these covenants will not impose undue hardship, financial or otherwise, on Employee; that their Restrictive Territory and duration will not impose a hardship on Employee; that they protect Company's and the ROAC Corporate Group's legitimate interests in their investment in Employee and their Restricted Business; and that in Employee's opinion Employee not being able to compete in the Restrictive Territory for the duration of this covenant will not be injurious to the public interest. Employee agrees that Employee's breach of his covenants in Sections 8, 9, 10 and 11 will cause irreparable harm to Company and the ROAC Corporate Group. 12. LOYALTY. Employee shall devote his full time and best efforts to the performance of his employment under this agreement. During the term of this agreement, Employee shall not at any time or place whatsoever, either directly or indirectly, engage in the Restricted Business or any other profession or active business to any extent whatsoever, except on or pursuant to the terms of this agreement, or with the prior written consent of Company. Employee agrees that he will not, while this agreement is in effect, do any unlawful acts or engage in any unlawful habits or usages which injure, directly or indirectly, Company and its Business or the ROAC Corporate Group and its businesses. Company agrees that if it exercises its rights in Section 2(a) hereof to have Employee perform no duties for it, then during such period of time during the Term as Employee is so not performing his duties, Employee may engage in other - 8 - 9 employment which does not violate the non-competition covenant in Section 11 and his other covenants in Sections 8, 9, 10 and 12 of this agreement. 13. GOVERNING LAW, JURISDICTION AND VENUE. This agreement shall be governed by and construed in accordance with the laws of the State of New Hampshire; and any actions brought pertaining to the same shall lie only in the Merrimack County Superior Court, New Hampshire, or the U.S. District Court for the District of New Hampshire, in said State all of which are the sole and exclusive forums for any actions or claims by the parties to this agreement and each party hereto consents to the jurisdiction of, and venue in, said courts in any action brought by another party hereto and agrees that no claims or actions relating to any matter hereunder will be brought by them in any other courts of said State, any other state or any other country. 14. HEADINGS. The descriptive headings of the several sections of this agreement are inserted for convenience of reference only and shall not control or affect the meanings or construction of any of the provisions hereof. 15. SEVERABILITY AND VIOLATION OF LAWS. If any provision of this agreement shall be held invalid or unenforceable according to law, such provision shall be modified to the extent necessary to bring it within the legal requirements. Any such invalidity or unenforceability shall not affect the remaining provisions of this agreement, and such remaining provisions shall continue in full force and effect. 16. SPECIFIC PERFORMANCE. The Employee hereby agrees and stipulates that it would be impossible to measure in monetary terms the damages which would be suffered by Company in the event of any breach by Employee of Sections 8, 9, 10, 11, 12, 13 and 16 of this agreement. Therefore, if either party hereto shall institute any action in equity to enforce such sections of this agreement, it is agreed that the other party hereto waives any claim or defense that the plaintiff has an adequate remedy at law, and the other party hereto agrees that the plaintiff is entitled to specific performance of such terms of the agreement. 17. NOTICES. Any notice or other communication required or permitted under this agreement shall be in writing and shall be deemed to have been duly given (i) upon hand delivery, or (ii) on the third day following delivery to the U.S. Postal Service as certified or registered mail, return receipt requested and postage prepaid, or (iii) on the first day following delivery to a nationally recognized United States overnight courier service for next business day delivery with fee prepaid or (iv) when telecopied or sent by facsimile transmission if an additional notice is also given under (i), (ii) or (iii) above within three days thereafter. Any such notice or communication shall be directed to a - 9 - 10 party at its address set forth below or at such other address as may be designated by a party in a notice given to all other parties hereto in accordance with the provisions of this Section. FOR THE COMPANY: Mr. Kurt M. Swenson Chairman of the Board, President and Chief Executive Officer Rock of Ages Corporation 369 North State Street Concord, NH 03301 Telephone: (603) 225-8397 Telecopy: (603) 225-4801 with a copy to: John R. Monson, Esquire Wiggin & Nourie, P.A. 20 Market Street P. O. Box 808 Manchester, NH 03105-0808 Telephone: (603) 669-2211 Telecopy: (603) 623-8442 FOR THE EMPLOYEE: with a copy to: 18. ASSIGNMENT. The rights and obligations of Company together with its obligations and all of the Employee's covenants and agreements hereunder may be assigned by Company to any third party by operation of law or by contractual - 10 - 11 assignment; and upon such assignment Company shall be relieved of all of its obligations, agreements, duties and covenants hereunder. The rights and obligations of the Employee under this agreement are not assignable. 19. COMPLETE AND ENTIRE AGREEMENT. This agreement contains all of the terms agreed upon by the parties with respect to the subject matter hereof and supersedes all prior agreements, representations and warranties of the parties as to the subject matter hereof. 20. AMENDMENTS. This agreement may be amended, or any provision of the agreement may be waived, provided that any such amendment or waiver will be binding on the parties only if such amendment or waiver is set forth in a writing executed by all parties hereto. The waiver by any party hereto of a breach of any provision of this agreement shall not operate or be construed as a waiver of any other breach. 21. TERMINATION OF OTHER EMPLOYMENT AGREEMENTS. In consideration of the terms and conditions of this agreement, on the Commencement Date, Company and Employee agree that all other agreements relating to Employee's employment between them, or between Employee and any of the Predecessors, will be terminated and thereafter be null, void and of no further force and effect and each party hereto releases the other from any claims, obligations or duties either party hereto had or might have had under all other such agreements. 22. SURVIVAL. Sections 8, 9, 10, 11, 12, 13, 15, 16, 17, 21 and 22 shall survive expiration of the Term of this agreement and/or termination of Employee's employment under this agreement. - 11 - 12 IN WITNESS WHEREOF, the parties hereto have executed this agreement, all as of the date first written above. WITNESS: ROCK OF AGES CORPORATION ______________________________ By: ___________________________________ Kurt M. Swenson, Chairman of the Board, President and Chief Executive Officer WITNESS: ______________________________ ________________________________________ Employee - 12 - EX-10.18 6 CUSTODY AGREEMENTS & POWER OF ATTORNEY 1 Exhibit 10.18 ----------------------------- (Name of Selling Stockholder) CUSTODY AGREEMENT AND POWER OF ATTORNEY for Sale of Common Stock of ROCK OF AGES CORPORATION Kurt M. Swenson George R. Anderson AS ATTORNEYS-IN-FACT c/o Rock of Ages Corporation 369 North State Street Concord, New Hampshire 03301 American Stock Transfer & Trust Company 40 Wall Street New York, New York 10005 Gentlemen: Rock of Ages Corporation, a Delaware corporation (the "Company"), the undersigned and certain other stockholders of Swenson Granite Company, Inc., a New Hampshire corporation ("Swenson"), (the undersigned and such other stockholders being hereinafter referred to as the "Selling Stockholders") propose to sell certain shares of Common Stock, $.01 par value per share, of the Company ("ROA Common Stock") to Raymond James & Associates, Inc. (the "Underwriter") for distribution under a Registration Statement on Form S-1 (the "Registration Statement") to the public at a price and on terms to be hereafter determined. It is understood that at this time there is no commitment on the part of the Underwriter to purchase any shares of ROA Common Stock and no assurance that an offering of ROA Common Stock will take place. The shares of ROA Common Stock which the undersigned proposes to sell to the Underwriter pursuant to the Underwriting Agreement hereinafter mentioned are referred to herein as the "ROA Shares." The merger of Swenson with and into the Company, with the Company as the surviving corporation (the "Merger"), is a condition precedent to the sale of the ROA Shares to the Underwriter pursuant to the Underwriting Agreement. The ROA Shares are to be issued to the undersigned pursuant to the Merger in exchange for shares of the Common Stock, $10.00 par value per share, of Swenson ("Swenson Common Stock") currently held by the undersigned. The shares of Swenson Common Stock which are delivered by the undersigned to the Company in exchange for the ROA Shares pursuant to the Merger are referred to herein as the "Swenson Shares." As provided in the Underwriting Agreement, the ROA Shares will constitute a portion of the "Firm Shares" and/or "Additional Shares" to be sold pursuant to the Underwriting Agreement. 2 1. Appointment and Powers of Attorneys-in-Fact. ------------------------------------------- A. The undersigned hereby irrevocably constitutes and appoints Kurt M. Swenson and George R. Anderson (the "Attorneys-in-Fact"), and each of them, as its, his or her agent and attorney-in-fact, with full power of substitution, with respect to all matters arising in connection with the Merger and the public offering and sale of the ROA Shares, including, but not limited to, the power and authority on behalf of the undersigned to do or cause to be done any of the following things: (i) in connection with the Merger, deliver the Swenson Shares and certificates representing them to the Company, including the execution of stock powers and other instruments, and receive the ROA Shares and certificates representing them in exchange therefor; (ii) negotiate, determine and agree upon (a) the price at which the ROA Shares will be initially offered to the public by the Underwriter pursuant to the Underwriting Agreement, as hereinafter defined, (b) the underwriting discount with respect to the ROA Shares, and (c) the price at which the ROA Shares will be sold to the Underwriter by the undersigned pursuant to the Underwriting Agreement; (iii) prepare, execute and deliver an Underwriting Agreement (the "Underwriting Agreement"), substantially in the form of the draft dated __________, 1997, delivered to the undersigned herewith, receipt of which is acknowledged, but with such insertions, changes, additions or deletions as the Attorneys-in-Fact shall approve (which may include a decrease, but not an increase, in the number of shares of ROA Common Stock to be sold by the undersigned), such approval to be conclusively evidenced by the execution and delivery of the Underwriting Agreement by an Attorney-in-Fact, including the making of all representations and agreements provided in the Underwriting Agreement to be made by, and the exercise of all authority thereunder vested in, the undersigned; (iv) sell, assign, transfer and deliver the ROA Shares to the Underwriter pursuant to the Underwriting Agreement and deliver to the Underwriter certificates for the ROA Shares so sold, including the execution of stock powers and other instruments; (v) to make, execute, acknowledge and deliver all such other (a) contracts, orders, receipts, notices, requests, instructions, certificates, letters and other writings, including, without limitation, representations to the United States Securities and Exchange Commission (the "SEC") concerning the reasons for the sale of the shares by the undersigned, familiarity with the Registration Statement, and the absence of material adverse information concerning the Company; (b) communications, assurances and requests for acceleration of the effective date of the Registration Statement to the SEC; (c) amendments to the Underwriting Agreement; and (d) certificates to be delivered by the undersigned pursuant to the Underwriting Agreement; and in general to do such other things and to take such further action as the Attorneys-in-Fact, in their sole and absolute discretion, may consider necessary or proper in connection with or to carry out the contemplated sale of the ROA Shares to the Underwriter; (vi) to make, execute, acknowledge, verify and file on behalf of the undersigned, applications, consents to service of process and such other undertakings or reports 2 3 as may be required by law with the state commissions or officers administering state securities laws, and, without limiting the generality of the foregoing, to execute and file an application for qualification of the Shares and a consent to the service of process on behalf of the undersigned pursuant to applicable provisions of applicable law, as fully as could the undersigned if personally present and acting. (vii) instruct the Company and the Custodian, as hereinafter defined, on all matters pertaining to the Merger and the sale of the ROA Shares and delivery of certificates therefor; (viii) provide, in accordance with the Underwriting Agreement, for the payment of expenses of the offering and sale of the ROA Common Stock covered by the Registration Statement; (ix) otherwise take all actions and do all things necessary or proper, required, contemplated or deemed advisable or desirable by the Attorneys-in-Fact in their discretion, including the execution and delivery of any documents, and generally act for and in the name of the undersigned with respect to the Merger and the sale of the ROA Shares to the Underwriter and the reoffering of the ROA Shares by the Underwriter as fully as could the undersigned if then personally present and acting; and (x) appoint a new Custodian if the Custodian is unable to perform its obligations under this Custody Agreement and Power of Attorney (the "Agreement"), including any amendment of this Agreement. B. Each Attorney-in-Fact may act alone in exercising the rights and powers conferred on the Attorneys-in-Fact by this Custody Agreement and Power of Attorney, and the act of any Attorney-in-Fact shall be the act of the Attorneys-in-Fact. Each Attorney-in-Fact is hereby empowered to determine, in his or her sole and absolute discretion, the time or times when, the purposes for which, and the manner in which, any power herein conferred upon the Attorneys-in-Fact shall be exercised. C. The Custodian, the Underwriter, the Company and all other persons dealing with the Attorneys-in-Fact as such may rely and act upon any writing believed in good faith to be signed by one or more of the Attorneys-in-Fact. D. The Attorneys-in-Fact shall not receive any compensation for their services rendered hereunder. 3 4 2. Appointment of Custodian; Deposit of Shares. ------------------------------------------- A. In connection with and to facilitate the Merger and the sale of the ROA Shares to the Underwriter, the undersigned hereby appoints American Stock Transfer & Trust Company as custodian (the "Custodian") and herewith deposits with the Custodian one or more certificates for Swenson Common Stock which represent not less than the total number of Swenson Shares which will be delivered by the undersigned in exchange for the number of ROA Shares to be sold by the undersigned to the Underwriter, which numbers are set forth on Schedule I hereto. Each such certificate so deposited is in negotiable and proper deliverable form endorsed in blank with the signature of the undersigned thereon guaranteed by an eligible guarantor institution which is a participant in a Securities Transfer Association recognized program, including any commercial bank or trust company in the United States or by a member firm of the New York Stock Exchange that is such an eligible guarantor, or is accompanied by a duly executed stock power or powers in blank, bearing the signature of the undersigned so guaranteed. The Custodian is hereby authorized and directed, subject to the instructions of the Attorneys-in-Fact, (a) to hold in custody the certificate or certificates deposited herewith and the certificates received in exchange therefor pursuant to the Merger (or replacement certificates therefor), (b) to deliver the certificate or certificates deposited hereunder (or replacement certificate(s) therefor) to or at the direction of the Attorneys-in-Fact for delivery to the Company in accordance with the terms of the Merger, (c) to deliver the certificate or certificates received in connection with the Merger (or replacement certificate(s) therefor) to or at the direction of the Attorneys-in-Fact in accordance with the terms of the Underwriting Agreement and (d) to return to the undersigned new certificate(s) for the shares of ROA Common Stock represented by any certificate received in connection with the Merger which are not sold pursuant to the Underwriting Agreement. B. Until the Swenson Shares have been delivered to the Company in exchange for the ROA Shares in accordance with the Merger, the undersigned shall retain all rights of ownership with respect to the Swenson Shares deposited hereunder, including the right to vote and to receive all dividends and payment thereon, except the right to retain custody of or dispose of such Swenson Shares, which right is subject to this Agreement. Until the Shares have been delivered to the Underwriter against payment therefor in accordance with the Underwriting Agreement, the undersigned shall retain all rights of ownership with respect to the ROA Shares deposited hereunder, including the right to vote and to receive all dividends and payment thereon, except the right to retain custody of or dispose of such ROA Shares, which right is subject to this Agreement and the Underwriting Agreement. C. If a controversy arises between two or more of the Selling Stockholders, or between any of the Selling Stockholders and any other person, as to whether or not or to whom the Custodian shall deliver the certificates for the ROA Shares or the Swenson Shares or any funds held by it, or as to any other matter arising out of or relating hereto or to the property held by the Custodian hereunder or as to the interpretation of this Agreement regarding the duties or obligations of the Custodian hereunder, the Custodian shall not be required to determine the same and need not make any delivery of the property or any portion thereof but may retain it, subject to the provisions of Section 6.B., below, until the rights of the parties to the dispute shall have finally been determined by agreement or by final order of a court of competent jurisdiction; provided, however, that the time for appeal for any such final order shall 4 5 have expired without an appeal having been made. The Custodian shall deliver the property or any portion thereof within 15 days after it has received written notice of any such agreement or final order (accompanied by an affidavit that the time for appeal has expired without an appeal having been made) in accordance with the terms of the final agreement or order. The Custodian shall be entitled to assume that no such controversy has arisen unless it has received a written notice that such a controversy has arisen which refers specifically to this Agreement and identifies by name and address the adverse claimants to the controversy. D. The Custodian will acknowledge in writing to the undersigned receipt by physical delivery of any certificates representing the undersigned's ROA Shares or Swenson Shares, as the case may be, when such certificates are received. 3. MERGER. The Attorneys-in-Fact are hereby authorized and directed to deliver or cause the Custodian to deliver certificates for the Swenson Shares to the Company, pursuant to the Merger, against delivery to the Attorneys-in-Fact for the account of the undersigned of the certificates representing the ROA Shares. The Attorneys-in-Fact are authorized, on behalf of the undersigned, to accept and acknowledge receipt of the certificates representing the ROA Shares and shall promptly deposit such certificates with the Custodian. 4. Sale of Shares; Remitting Net Proceeds. -------------------------------------- A. The Attorneys-in-Fact are hereby authorized and directed to deliver or cause the Custodian to deliver certificates for the ROA Shares to the Underwriter, as provided in the Underwriting Agreement, against delivery to the Attorneys-in-Fact for the account of the undersigned of the purchase price of the ROA Shares, which purchase price shall be net of underwriting discounts and commissions, at the time and in the funds specified in the Underwriting Agreement. The Attorneys-in-Fact are authorized, on behalf of the undersigned, to accept and acknowledge receipt of the payment of such purchase price for the ROA Shares and shall promptly deposit such proceeds with the Custodian or such other bank or financial institution designated by the undersigned. After receiving payment for expenses as provided below, the Custodian shall promptly remit to the undersigned its, his or her share of the proceeds. B. Before any proceeds of the sale of the ROA Shares are remitted to the undersigned, the Company shall have paid to the Custodian and the Attorneys-in-Fact amounts equal to the undersigned's proportionate share of all of their respective fees and expenses for the performance of their obligations under this Agreement. After payment of such fees and expenses by the Company, the Custodian will remit to the undersigned the purchase price for the ROA Shares. 5. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The undersigned represents and warrants to, and agrees with, the other Selling Stockholders, the Company, the Attorneys-in-Fact and the Custodian as follows: A. The undersigned has full legal right, power and authority to enter into and perform this Agreement. The undersigned agrees to deliver to the Attorneys-in-Fact such additional documentation as the Attorneys-in-Fact, or either of them, or the Company, the 5 6 Custodian or any of their respective counsel may request to effectuate or confirm compliance with any of the provisions hereof or of the Underwriting Agreement. If the undersigned is acting as a fiduciary, officer, partner or agent, the undersigned is enclosing with this Agreement certified copies of the appropriate instruments pursuant to which the undersigned is authorized to act hereunder. If the undersigned is an individual and is married, the undersigned is enclosing with this Agreement a duly completed and executed consent of his or her spouse, in the form attached to this Agreement as Annex A. B. The undersigned will promptly notify the Attorneys-in-Fact of any development that would make any representation and warranty to be made by the undersigned as a Selling Stockholder contained in the Underwriting Agreement untrue. C. The undersigned has reviewed the Registration Statement, including the preliminary prospectus included therein, and (i) the undersigned has no knowledge of any material adverse information with regard to the current and prospective operations of the Company or its subsidiaries except as disclosed in such preliminary prospectus, (ii) the information contained in such preliminary prospectus with respect to the undersigned is true and correct, and (iii) to the best of the knowledge and belief of the undersigned, such preliminary prospectus does not contain any misstatement of a material fact or omit to state any material fact required to be stated therein or any information necessary to make the statements therein not misleading. D. The undersigned is not directly or indirectly an affiliate of or associated with any member of the National Association of Securities Dealers, Inc. E. The undersigned will not sell, offer to sell, solicit an offer to buy, contract to sell, grant any option to purchase or otherwise transfer or dispose of any shares of ROA Common Stock or Swenson Common Stock, or any securities convertible into or exercisable or exchangeable for shares of ROA Common Stock or Swenson Common Stock, for a period of 180 days after the date of the Prospectus (as defined in the Underwriting Agreement), except as permitted by Section 2 of the Underwriting Agreement. F. The undersigned agrees to deliver to the Attorneys-in-Fact such documentation as the Attorneys-in-Fact, the Company or the Selling Stockholders or any of their respective counsel may reasonably request in order to effectuate any of the provisions hereof or of the Underwriting Agreement, all of the foregoing to be in form and substance satisfactory in all respects to the Attorneys-in-Fact. G. The undersigned has, and at the time of delivery of the Swenson Shares pursuant to the Merger (the "Merger Date") will have, valid, marketable title to the Swenson Shares, and will have on the Merger Date full legal right and power to sell, transfer and deliver such Swenson Shares, and all authorizations and approvals required by law with respect thereto and with respect to the undersigned's right and power to make the representations and warranties set forth herein and in the Underwriting Agreement will have been obtained; and upon delivery of the Swenson Shares in exchange for the ROA Shares, the undersigned will have valid, marketable title thereto, free and clear of all liens, security interests, encumbrances, equities and claims whatsoever. 6 7 H. The consummation of the transactions contemplated by this Agreement and the fulfillment of the terms hereof will not result in a breach of any of the terms or provisions of, or constitute a default under, any agreement, indenture or other instrument to which the undersigned is a party or by which the undersigned is bound, or any statute or ruling, decree, judgment, order or regulation now in effect of any governmental authority having jurisdiction over the undersigned or its, his or her property. I. The undersigned has not taken and will not take, directly or indirectly, any action designed to, or that might reasonably be expected to, cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the ROA Common Stock pursuant to the distribution contemplated by the Underwriting Agreement; and, other than as permitted under the Act, the undersigned has not and will not distribute any prospectus or other offering material in connection with the offering and sale of the Shares. J. Until payment in full for the Shares has been received by the Attorneys-in-Fact from the Underwriter, or until the Underwriting Agreement or this Agreement have been terminated, the undersigned agrees and acknowledges that the undersigned will not have the right or power to sell, transfer, pledge, hypothecate, grant liens on, deal with or contract with respect to, the ROA Shares, the Swenson Shares or any interest therein. K. When the Registration Statement covering the ROA Shares becomes effective, the parts thereof that provide information specifically relating to the undersigned will not contain any untrue statement of material fact or omit to state any material fact required to be stated therein or any information necessary to make the statements therein not misleading. For purposes of rendering any opinion pursuant to the Underwriting Agreement, Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden Arps") may rely on the certifications, representations, warranties and statements of the undersigned set forth in this Agreement or in any other document delivered by or on behalf of the undersigned in connection with the registration or sale of the ROA Shares, as if such certifications, representations, warranties and statements were set forth in a separate certificate directed to Skadden Arps at and as of the Closing Date. The foregoing representations, warranties and agreements are made for the benefit of, and may be relied upon by, the other Selling Stockholders, the Attorneys-in-Fact, the Company, the Custodian and their respective representatives, agents and counsel and are in addition to, and not in limitation of, the representations, warranties and agreements of the Selling Stockholders in the Underwriting Agreement. 6. Irrevocability of Instruments; Termination of this Agreement. ------------------------------------------------------------ A. This Agreement, the deposit of the ROA Shares and the Swenson Shares pursuant hereto and all authority hereby conferred, is granted, made and conferred subject to and in consideration of (i) the interests of the Attorneys-in-Fact, the Underwriter, the Company and the other Selling Stockholders who may become parties to the Underwriting Agreement in and for the purpose of completing the transactions contemplated hereunder and by the Underwriting Agreement and (ii) the completion of the registration of ROA Common Stock pursuant to the Registration Statement, the Merger and the other acts of the above-mentioned parties from the date hereof to and including the execution and delivery of the Underwriting Agreement in anticipation of the sale of ROA Common Stock, including the ROA Shares, to the 7 8 Underwriter; and the Attorneys-in-Fact are hereby further vested with an estate, right, title and interest in and to the ROA Shares and the Swenson Shares deposited herewith for the purpose of irrevocably empowering and securing to them authority sufficient to consummate said transactions. Accordingly, this Agreement shall be irrevocable and shall remain in full force and effect unless the Underwriter (i) terminates the Underwriting Agreement prior to the closing of the sale of ROA Shares on the Closing Date, or (ii) does not purchase the Firm Shares prior to December 31, 1997. The undersigned further agrees that this Agreement shall not be terminated by operation of law or upon the occurrence of any event whatsoever, including the death, disability or incompetence of the undersigned or any other Selling Stockholder or, if the undersigned or any other Selling Stockholder is not a natural person, upon any dissolution, winding up, distribution of assets or other event affecting the legal existence of the undersigned or such Selling Stockholder. If any event referred to in the preceding sentence shall occur, whether with or without notice thereof to the Attorneys-in-Fact, the Underwriter or any other person, the Attorneys-in-Fact shall nevertheless be authorized and empowered to deliver and deal with the ROA Shares and the Swenson Shares deposited under this Agreement in accordance with the terms and provisions of the Underwriting Agreement and this Agreement as if such event had not occurred. B. If the sale of the Firm Shares contemplated by the Underwriting Agreement is not completed by December 31, 1997, this Agreement shall terminate (without affecting any lawful action of the Attorneys-in-Fact or the Custodian prior to such termination), and the Attorneys-in-Fact shall cause the Custodian to return to the undersigned all certificates for the ROA Shares or the Swenson shares, as the case may be, deposited hereunder, but only after the Custodian and the Attorneys-in-Fact have received payment of the undersigned's proportionate share of all of their respective fees and expenses for the performance of their obligations hereunder. 7. LIABILITY AND INDEMNIFICATION OF THE ATTORNEYS-IN-FACT AND CUSTODIAN. The Attorneys-in-Fact and the Custodian assume no responsibility or liability to the undersigned or to any other person, other than to deal with the ROA Shares, the Swenson Shares, the proceeds from the sale of the ROA Shares and any other shares of ROA Common Stock or Swenson Common Stock deposited with the Custodian pursuant to the terms of this Agreement in accordance with the provisions hereof. The undersigned hereby agrees to indemnify and hold harmless the Attorneys-in-Fact and the Custodian, and their respective officers, agents, successors, assigns and personal representatives with respect to any act or omission of or by any of them in good faith in connection with any and all matters contemplated by this Agreement or the Underwriting Agreement. 8 9 8. Interpretation. -------------- A. The representations, warranties and agreements of the undersigned contained herein shall survive the sale and delivery of the ROA Shares and the termination of this Agreement. B. The validity, enforceability, interpretation and construction of this Agreement shall be determined in accordance with the laws of the State of Massachusetts applicable to contracts made and to be performed within the State of Florida and this Agreement shall inure to the benefit of, and be binding upon, the undersigned and the undersigned's heirs, executors, administrators, successors and assigns, as the case may be. C. Wherever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any such provision shall be prohibited by or invalid under applicable law, it shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. D. The use of the masculine gender in this Agreement includes the feminine and neuter, and the use of the singular includes the plural, wherever appropriate. IN WITNESS WHEREOF, the undersigned has executed this Custody Agreement and Power of Attorney this ___ day of _________, 1997. Selling Stockholder -------------------------------------------- Signature of Selling Stockholder (Please sign exactly as your name appears on Guaranteed by: your stock certificate(s).) Name and address to which notices and funds shall be sent. -------------------------------------------- (NAME) -------------------------------------------- (STREET) -------------------------------------------- (CITY) (STATE) (ZIP) 9 10 (NOTE: The signature must be guaranteed by a commercial bank or trust company in the United States or by a member firm of the New York Stock Exchange or other eligible guarantor institution which is a participant in a Securities Transfer Association recognized program.) ACCEPTED by the Attorneys-in-Fact as of the date above set forth: ACCEPTED by the Custodian as of the date above set forth:~ _____________________________ AMERICAN STOCK TRANSFER & TRUST [Attorney-in-Fact] COMPANY _____________________________ By: [Attorney-in-Fact] Name: Title: SEE THE ATTACHED INSTRUCTIONS 10 11 INSTRUCTIONS (For completing the Custody Agreement and Power of Attorney) A. You have been sent six copies of the Custody Agreement and Power of Attorney (the "Agreement"). Please complete and return five copies of the Agreement and stock certificate(s) as set forth in paragraph D below. A fully executed copy of the Agreement will be returned to you; a fully executed copy of the Agreement and your stock certificate(s) will be retained by the Custodian; and a fully executed copy of the Agreement will be delivered to the Attorneys-in-Fact and to the Underwriter and the Company. B. Complete Schedule I attached hereto. C. Each copy of the Agreement and each stock certificate or stock power deposited hereunder must be executed by you with your signature on the Agreement and the stock certificate(s) or the accompanying stock power guaranteed by a commercial bank or trust company in the United States or any broker which is a member firm of the New York Stock Exchange or other eligible guarantor institution which is a participant in a Securities Transfer Association recognized program. Please sign the stock certificate(s) or stock power and the Agreement exactly as your name appears on your stock certificate(s). D. Endorsed stock certificate(s) or stock certificate(s) with stock powers attached along with all five executed copies of the completed Agreement should be promptly returned by hand delivery or by certified mail appropriately insured to: American Stock Transfer & Trust Company 40 Wall Street New York, New York 10005 Attention: Susan Salber If sent through the mail, it is recommended that the certificate(s) not be endorsed, but an executed stock power be sent under separate cover from the certificate(s). E. If any certificate that you submit represents a greater number of Swenson Shares than the number of Swenson Shares that corresponds to the number of ROA Shares which you agree to sell pursuant to the Underwriting Agreement [(including any Additional Shares which you agree to sell)], the Custodian will cause to be delivered to you in due course, but not earlier than ten days after the closing for the purchase of Firm Shares by the Underwriter [(or ten days after the final closing for Additional Shares, if the ROA Shares are subject to the Underwriter's overallotment option)], a certificate for the excess number of shares of ROA Common Stock. F. Please contact Rock of Ages Corporation and Skadden, Arps, Slate, Meagher & Flom LLP at the respective addresses and to the attention of the appropriate persons as set forth in Section 14 of the Underwriting Agreement, if any information or representation included in the foregoing Agreement or the Underwriting Agreement should change, or if you 11 12 become aware of any new information, at any time prior to termination of the period referred to in Section 12 of the Underwriting Agreement. ----------------------------- (Name of Selling Stockholder) SCHEDULE I Certificate(s) for Shares of Common Stock of SWENSON GRANITE COMPANY, INC. deposited under Custody Agreement and Power of Attorney Number of Shares of Number of Shares of Swenson Swenson Common Stock Certificate Common Stock Represented from this Certificate To Number by Certificate Be Sold* - -------------------------------------------------------------------------------- - ----------- --------------------- ------------------- - ----------- --------------------- ------------------- - ----------- --------------------- ------------------- - ----------- --------------------- ------------------- - ----------- --------------------- ------------------- - ----------- --------------------- ------------------- Total: ___________________ *If fewer than all shares represented by a certificate are to be sold, indicate below, if desired for income tax purposes, the date of purchase or purchase price of the particular shares to be sold. 12 13 ANNEX A Instruction: See Section 4, paragraph A, of the CUSTODY AGREEMENT AND POWER OF ATTORNEY. CONSENT OF SPOUSE ----------------- I am the spouse of ___________________. On behalf of myself, my heirs, legatees, and assigns, I hereby join in and consent to the terms of the foregoing Custody Agreement and Power of Attorney and agree to the sale of the shares of Common Stock of Rock of Ages Corporation, to be issued pursuant to the Merger referred to in the Custody Agreement and Power of Attorney in exchange for Common Stock of Swenson Granite Company, Inc. registered in the name of my spouse or otherwise registered, which my spouse proposes to sell, or to agree to sell, pursuant to the Underwriting Agreement referred to in the Custody Agreement and Power of Attorney. Dated: ____________, 1997 ------------------------------- (Signature of Spouse) Print Name: 13 EX-10.19 7 FINANCING AGREEMENT 1 EXHIBIT 10.19 FINANCING AGREEMENT ------------------- THE CIT GROUP/BUSINESS CREDIT, INC. (AS LENDER) AND ROCK OF AGES QUARRIES, INC. AND SWENSON GRANITE COMPANY, INC. AND ROYALTY GRANITE CORPORATION (as Borrowers) DATED: AUGUST 25, 1994 -1- 2 TABLE OF CONTENTS Page ---- SECTION 1. Definitions ................................................. 3 SECTION 2. Conditions Precedent ........................................ 11 SECTION 3. Revolving Loans ............................................. 13 SECTION 4. Term Loan ................................................... 16 SECTION 5. Letters of Credit ........................................... 17 SECTION 6. Collateral .................................................. 19 SECTION 7. Representations, Warranties and Covenants ................... 22 SECTION 8. Interest, Fees and Expenses ................................. 31 SECTION 9. Powers ...................................................... 32 SECTION 10. Events of Default and Remedies .............................. 33 SECTION 11. Termination ................................................. 35 SECTION 12. Miscellaneous ............................................... 36 EXHIBIT - ------- Exhibit A - Form of Promissory Note -2- 3 THE CIT GROUP/BUSINESS CREDIT, INC., a New York corporation, (hereinafter "CITBC") with offices located at 1211 Avenue of the Americas New York, New York 10036, is pleased to confirm the terms and conditions under which CITBC shall make a term loan and revolving loans, advances and other financial accommodations to ROCK OF AGES QUARRIES, INC., a Vermont Corporation (herein "ROA Quarries"), having a principal place of business at Main Street, Graniteville, Vermont 05654; SWENSON GRANITE COMPANY, INC., a New Hampshire Corporation (herein "Swenson"), having a principal place of business at 369 North State Street, Concord, New Hampshire 03301; and ROYALTY GRANITE CORPORATION, a Georgia corporation (herein "Royalty"), having a principal place of business at SR 294 Berkley Quarry Road, Carlton, Georgia 30627 (ROA Quarries, Swenson and Royalty are hereafter individually referred to as "Company" and collectively referred to as the "Companies"). WHEREAS, ROA Quarries, Swenson and Royalty have entered into written arrangements to enhance their operations, reduce operating costs, increase efficiencies and increase sales; WHEREAS, ROA Quarries will provide centralized financial and cash management services and centralized cash disbursement and payables services to Swenson and Royalty; WHEREAS, CITBC currently finances Swenson and Royalty (the "Existing Financing") and which Existing Financing will be terminated and replaced, in part, by this financing arrangement; NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in this Financing Agreement, and for other good and valuable consideration, the receipt of which is hereby acknowledged, CITBC and each of the Companies hereby agree as follows: SECTION 1. DEFINITIONS ACCOUNTS shall mean all of each Company's now existing and future: (a) accounts receivable, (whether or not specifically listed on schedules furnished to CITBC), and any and all instruments, documents, contract rights, chattel paper, general intangibles, including, without limitation, all accounts created by or arising from each Company's sales of goods or rendition of services to its customers, and all accounts arising from sales or rendition of services made under any Company's trade names or styles, or through any of a Company's divisions; (b) unpaid seller's rights (including rescission, replevin, reclamation and stoppage in transit) relating to the foregoing or arising therefrom; (c) rights to any goods represented by any of the foregoing, including rights to returned or repossessed goods; (d) reserves and credit balances arising hereunder; (e) guarantees or collateral for any of the foregoing; (f) insurance policies or rights relating to any of the foregoing; and (g) cash and non-cash proceeds of any and all the foregoing. ANNIVERSARY DATE shall mean the date occurring five (5) years from the date hereof and the same date in every year thereafter. ANNUM shall mean a year consisting of three hundred and sixty (360) days. -3- 4 AVAILABILITY shall mean at any time of determination the excess of the sum of a) Eligible Accounts Receivable multiplied by the percentage provided for in clause (a) of paragraph 1 of Section 3 of this Financing Agreement and b) Eligible Inventory multiplied by the percentage provided for in clause (b) of paragraph 1 of Section 3 of this Financing Agreement over the sum of x) the outstanding aggregate amount of all Obligations (other than the Term Loan) and y) the Availability Reserve. AVAILABILITY RESERVE shall mean, at any time of determination, the then outstanding amount of all Letters of Credit. BUSINESS DAY shall mean any day on which both CITBC and Chemical Bank are open for business. CAPITAL EXPENDITURES for any period shall mean the aggregate of all expenditures of the Companies during such period that in conformity with GAAP are required to be included in or reflected by the property, plant or equipment or similar fixed asset account reflected in the balance sheets of the Companies. CAPITAL LEASE shall mean any lease of property (whether real, personal or mixed) which, in conformity with GAAP, is accounted for as a capital lease or a Capital Expenditure on the balance sheets of the Companies. CHEMICAL BANK RATE shall mean the rate of interest per annum announced by Chemical Bank from time to time as its prime rate in effect at its principal office in the City of New York. (The prime rate is not intended to be the lowest rate of interest charged by Chemical Bank to its borrowers). COLLECTERAL shall mean all present and future Accounts, Equipment, Inventory, Documents of Title, General Intangibles and Real Estate of the Company. COLLATERAL MANAGEMENT FEE shall mean the sum of $1,000.00 which shall be paid to CITBC in accordance with paragraph 8 of Section 8 hereof to offset the expenses and costs of CITBC in connection with record keeping, periodic examinations, analyzing and evaluating the Collateral. CONSOLIDATED BALANCE SHEET shall mean a consolidated balance sheet of the Companies and their consolidated subsidiaries eliminating all inter-company transactions and prepared in accordance with GAAP. CONSOLIDATING BALANCE SHEET shall mean a Consolidated Balance Sheet plus individual balance sheets for the Companies and their subsidiaries showing all eliminations of inter-company transactions and prepared in accordance with GAAP and including a balance sheet for EACH Company exclusively. CURRENT ASSETS shall mean, wherever used throughout this Financing Agreement, those assets of the Companies, which in accordance with GAAP, are classified as "current". CURRENT LIABILITIES shall mean, wherever used throughout this Financing Agreement, those liabilities of the Companies, which in accordance with GAAP, are classified as "current", provided, however, that notwithstanding GAAP, the Revolving Loans and the current portion of Permitted Indebtedness shall be considered "current liabilities". -4- 5 CUSTOMARILY PERMITTED LIENS shall mean - --------------------------- (a) liens of local or state authorities for franchise or other like taxes provided the aggregate amounts of such liens shall not exceed $100,000.00 in the aggregate at any one time; (b) statutory liens of landlords and liens of carriers, warehousemen, mechanics, materialmen and other like liens imposed by law, created in the ordinary course of business and for amounts not yet due (or which are being contested in good faith by appropriate proceedings or other appropriate actions which are sufficient to prevent imminent foreclosure of such liens) and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP; (c) deposits made (and the liens thereon) in the ordinary course of business (including, without limitation, security deposits for leases, surety bonds and appeal bonds) in connection with workers' compensation, unemployment insurance and other types of social security benefits or to secure the performance of tenders, bids, contracts (other than for the repayment or guarantee of borrowed money or purchase money obligations), statutory obligations and other similar obligations arising as a result of progress payments under government contracts; and (d) easements (including, without limitation, reciprocal easement agreements and utility agreements), encroachments, minor defects or irregularities in title, variations and other restrictions, charges or encumbrances (whether or not recorded) affecting the Real Estate and which are listed in Schedule B of the title insurance policies delivered to CITBC herewith. DEFAULT shall mean any event specified in Section 10 hereof, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, event or act, has been satisfied. DEFAULT RATE OF INTEREST shall mean a rate of interest per annum equal to the sum of: a) two and one-half percent (2 1/2%) and b) the Chemical Bank Rate, which CITBC shall be entitled to charge on all Obligations due CITBC by the Companies to the extent provided in paragraph 2 of Section 10 of this Financing Agreement. DEPOSITORY ACCOUNT shall mean those accounts owned by CITBC and designated for the deposit of proceeds of Collateral. DOCUMENTATION FEE shall mean i) the sum of $7,500.00 intended to compensate CITBC for the use of CITBC's in-house Legal Department and facilities in documenting, in whole or in part, the initial transaction solely on behalf of CITBC, exclusive of Out-of-Pocket Expenses, and ii) CITBC's standard fees relating to any and all modifications, waivers, releases, amendments or additional collateral with respect to this Financing Agreement, the Collateral and/or the Obligations. -5- 6 DOCUMENTS OF TITLE shall mean all present and future warehouse receipts, bills of lading, shipping documents, chattel paper, instruments and similar documents, all whether negotiable or not and all goods and Inventory relating thereto and all cash and non-cash proceeds of the foregoing. EARLY TERMINATION DATE shall mean the date on which ROA Quarries terminates this Financing Agreement or the Line of Credit which date is prior to the first Anniversary Date. EARLY TERMINATION FEE shall: i) mean the fee CITBC is entitled to charge in the event ROA Quarries terminates the Line of Credit or this Financing Agreement on a date prior to the first Anniversary Date; and ii) be determined by calculating the average daily loan balance under the Revolving Loan for the period from the date of this Financing Agreement to the Early Termination Date and multiplying that number by one percent (1%) per annum for the number of days from the Early Termination Date to the first Anniversary Date. EBIT shall mean, in any period, all earnings of the Companies before all interest and tax obligations of the Companies for said period, determined in accordance with GAAP. EVENT(S) OF DEFAULT shall have the meaning provided for in Section 10 of this Financing Agreement. ELIGIBLE ACCOUNTS RECEIVABLE shall mean, in the aggregate, the gross amount of each Company's accounts receivable provided, however, that in each instance the accounts receivable conform to the warranties contained herein and at all times continue to be acceptable to CITBC in the exercise of its reasonable business judgment, less, without duplication, the sum of: a) any returns, discounts, claims, credits and allowances of any nature (whether issued, owing, granted or outstanding) and b) reserves for: i) sales to the United States of America or to any agency, department or division thereof; ii) foreign sales other than sales x) secured by stand-by letters of credit (in form and substance satisfactory to CITBC) issued or confirmed by, and payable at, banks having a place of business in the United States of America and payable in United States currency, or y) to customers residing in Canada provided such sales otherwise comply with all of the other criteria for eligibility hereunder, are payable in United States currency and such sales do not exceed $3,000,000.00 in the aggregate at any one time; iii) accounts that remain unpaid more than the greater of a) ninety (90) days from invoice date or b) sixty (60) days from due date but in no event more than one hundred and eighty (180) days from invoice date; iv) contras; v) sales to any Company, any subsidiary, or to any company affiliated with a Company in any way other than sales to any foreign company (other than ROA Canada) affiliated with a Company or ROA provided such sales x) are on terms no less beneficial to the Company than sales to companies not affiliated with the Company and y) are secured by stand-by letters of credit issued or confirmed by, and payable at, banks having a place of business in the United States and payable in United States currency; vi) bill and hold (deferred shipment) or consignment sales; vii) sales to any customer which is a) insolvent, b) the debtor in any bankruptcy, insolvency, arrangement, reorganization, receivership or similar proceedings under any federal or state law, c) negotiating, or has called a meeting of its creditors for purposes of negotiating, a compromise of its debts or d) financially unacceptable to CITBC or has a credit rating unacceptable to CITBC; viii) all sales to any customer if fifty percent (50%) or more of either x) all outstanding invoices or y) the aggregate dollar amount of all outstanding invoices, are unpaid more than the greater of a) ninety (90) days from invoice date or b) sixty (60) days from due date but in no event more than -6- 7 one hundred and eighty (180) days from invoice date; ix) any other reasons deemed necessary by CITBC in its reasonable business judgment and which are customary either in the commercial finance industry or in the lending practices of CITBC; and x) an amount representing, historically, returns, discounts, claims, credits and allowances. ELIGIBLE INVENTORY shall mean, in the aggregate, the gross amount of each Company's Inventory provided, however, that in each instance the Inventory conforms to the warranties contained herein and which at all times continue to be acceptable to CITBC in the exercise of its reasonable business judgment less any work-in-process, goods not present in the United States of America, goods returned or rejected by customers of a Company, other than goods that are undamaged and resalable in the normal course of business, goods to be returned to the suppliers of a Company, goods in transit to third parties (other than to agents or warehouses of a Company) and less any reserves required by CITBC in its reasonable discretion for special order goods, market value declines and bill and hold (deferred shipment) or consignment sales. EQUIPMENT shall mean all present and hereafter acquired machinery, equipment, furnishings and fixtures, and all additions, substitutions and replacements thereof, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto and all proceeds of whatever sort. FIXED CHARGE COVERAGE RATIO shall mean, for any period of computation, a ratio determined by dividing the sum of x) EBIT, y) depreciation and z) amortization of General Intangibles by the sum of i) all interest expense on Permitted Indebtedness, ii) cash capital expenditures, iii) principal repaid on the Term Loan and iv) taxes paid or accrued. ERISA shall mean the Employee Retirement Income Security Act or 1974, as amended from time to time and the rules and regulations promulgated thereunder from time to time. GAAP shall mean generally accepted accounting principles in the United States of America as in effect on the date of this Financing Agreement. GENERAL INTANGIBLES shall have the meaning set forth in the Uniform Commercial Code as in effect in the State of New York and shall include, without limitation, all present and future right, title and interest in and to all tradenames, trademarks (together with the goodwill associated therewith), patents, licenses (other than licenses which are not assignable and for which consents to any assignment have not been obtained), customer lists, distribution agreements, supply agreements and tax refunds, together with all monies and claims for monies now or hereafter due and payable in connection with any of the foregoing or otherwise, and all cash and non-cash proceeds thereof. GUARANTORS shall mean i) the Companies, ii) ROA, iii) Kurt M. Swenson, and iv) Kevin C. Swenson and v) ROA Canada. INDEBTEDNESS shall mean, without duplication, all liabilities, contingent or otherwise, which are any of the following: (a) obligations in respect of borrowed money or for the deferred purchase price of property, -7- 8 services or assets, other than Inventory, or (b) lease obligations which, in accordance with GAAP, have been, or which should be, capitalized. INTEREST EXPENSE shall mean, in the aggregate, the total interest obligations (paid or accrued) of the Companies determined in accordance with GAAP on a basis consistent with the latest audited statements of the Companies. INVENTORY shall mean all of each Company's present and hereafter acquired merchandise, inventory and goods, and all additions, substitutions and replacements thereof, wherever located, together with all goods and materials used or usable in manufacturing, processing, packaging or shipping same, in all stages of production--from raw materials through work-in-process to finished goods--and all proceeds thereof of whatever sort. ISSUING BANK shall mean the bank issuing Letters of Credit for a Company. LETTERS OF CREDIT shall mean all letters of credit issued with the assistance of CITBC by the Issuing Bank for or on behalf of a Company. LETTER OF CREDIT GUARANTY shall mean the guaranty or obligation delivered by CITBC to the Issuing Bank of a Company's reimbursement obligation under the Issuing Bank's Reimbursement Agreement, Application for Letter of Credit or other like document. LETTER OF CREDIT GUARANTY FEE shall mean the fee CITBC may charge under paragraph 3 of Section 8 of this Financing Agreement for: i) issuing the Letter of Credit Guaranty or ii) otherwise aiding a Company in obtaining Letters of Credit. LEVERAGE RATIO shall mean the ratio determined by dividing Total Liabilities by Net Worth. LINE OF CREDIT shall mean the commitment of CITBC to make loans and advances pursuant to Section 3 of this Financing Agreement and to assist the Companies in obtaining Letters of Credit under Section 4 of this Financing Agreement in an amount equal to $4,000,000.00. LINE OF CREDIT FEE shall: i) mean the fee due CITBC at the end of each month for the Line of Credit, and ii) be determined by multiplying the difference between the Line of Credit, and the average daily Revolving Loans for said month by one-quarter of one percent (1/4 of 1%) per annum TIMES the number of days in said month. LOAN FACILITY FEE shall mean the fee payable to CITBC in accordance with, and pursuant to, the provisions of paragraph 7 of Section 8 of this Financing Agreement. MANDATORY PREPAYMENT shall: i) mean the amount by which the Companies must prepay the Term Loan on or before the 90th day after the end of the Companies' fiscal year and which payment shall not be subject to -8- 9 the Prepayment Premium; and ii) be determined as set forth in Section 4, paragraph 6 of this Financing Agreement. NET WORTH shall mean assets in excess of liabilities, determined in accordance with GAAP, on a consistent basis with the latest audited statements. OBLIGATIONS shall mean all loans and advances made or to be made by CITBC to a Company or to others for a Company's account; any and all indebtedness and obligations which may at any time be owing by the Companies to CITBC howsoever arising, whether now in existence or incurred from time to time hereafter; whether secured by pledge, lien upon or security interest in any Company's assets or property or the assets or property of any other person, firm, entity or corporation; whether such indebtedness is absolute or contingent, joint or several, matured or unmatured, direct or indirect and whether a Company is liable to CITBC for such indebtedness as principal, surety, endorser, guarantor or otherwise. Obligations shall also include indebtedness owing to CITBC by the Companies under this Financing Agreement or under any other agreement or arrangement now or hereafter entered into between the Companies and CITBC; indebtedness or obligations incurred by, or imposed on, CITBC as a result of environmental claims (other than as a result of actions of CITBC) arising out of any Company's operations, premises or waste disposal practices or sites; a Company's liability to CITBC as maker or endorser on any promissory note or other instrument for the payment of money; a Company's liability to CITBC under any instrument of guaranty or indemnity, or arising under any guaranty, endorsement or undertaking which CITBC may make or issue to others for any Company's account, including any accommodation extended with respect to applications for Letters of Credit, CITBC's acceptance of drafts or CITBC's endorsement of notes or other instruments for any Company's account and benefit. OPERATING LEASES shall mean all leases of property (whether real, personal or mixed) other than Capital Leases. OUT-OF-POCKET EXPENSES shall mean all of CITBC's present and future reasonable expenses incurred relative to this Financing Agreement, whether incurred heretofore or hereafter, which expenses shall include, without being limited to, the cost of record searches, all costs and expenses incurred by CITBC in opening bank accounts, depositing checks, receiving and transferring funds, and any charges imposed on CITBC due to "insufficient funds" of deposited checks and CITBC's standard fee relating thereto, any amounts paid by CITBC, incurred by or charged to CITBC by the Issuing Bank under the Letter of Credit Guaranty or a Company's Reimbursement Agreement, Application for Letter of Credit or other like document which pertain either directly or indirectly to such Letters of Credit, and CITBC's standard fees relating to the Letters of Credit and any drafts thereunder, reasonable local counsel fees, title insurance premiums, real estate survey costs, the Georgia General Intangible Tax, fees and taxes relative to the filing of financing statements, costs of preparing and recording mortgages/deeds of trust against the Real Estate and all expenses, costs and fees set forth in paragraph 3 of Section 10 of this Financing Agreement. PERMITTED ENCUMBRANCES shall mean: i) liens expressly permitted, or consented to, by CITBC; ii) Purchase Money Liens; iii) Customarily Permitted Liens; iv) liens granted CITBC by the Companies; v) liens of judgment creditors provided such liens do not exceed, in the aggregate, at any time, $100,000.00 (other than -9- 10 liens bonded or insured to the reasonable satisfaction of CITBC); and vi) liens for taxes not yet due and payable or which are being diligently contested in good faith by any Company by appropriate proceedings and which liens are not x) other than with respect to Real Estate, senior to the liens of CITBC or y) for taxes due the United States of America. PERMITTED INDEBTEDNESS, shall mean: i) current indebtedness maturing in less than one year and incurred in the ordinary course of business for raw materials, supplies, equipment, services, taxes or labor; ii) the indebtedness secured by the Purchase Money Liens; iii) indebtedness of any Company which is unsecured and subordinated to the prior payment and satisfaction of the Obligations due CITBC by the Companies by means of a subordination agreement in form and substance satisfactory to CITBC; iv) indebtedness arising under the Letters of Credit and this Financing Agreement; v) deferred taxes and other expenses incurred in the ordinary course of business; and vi) other indebtedness existing on the date of execution of this Financing Agreement and listed in the most recent financial statement delivered to CITBC or otherwise disclosed to CITBC in writing or which is not material to the financial condition of the Companies. PREPAYMENT PREMIUM shall: i) mean the amount due CITBC upon a voluntary prepayment, in whole or in part, of the Term Loan, prior to the first Anniversary Date, provided, however, that no such Prepayment Premium shall be due if the proceeds for such prepayment are derived solely from x) Surplus Cash, y) sales of Equipment and/or Real Estate or z) the public or private placement of the stock or subordinated and unsecured notes of a Company provided a) the Financing Agreement is not terminated and b) CITBC continues to be the primary lender of the Companies notwithstanding such prepayment, and ii) be computed by multiplying the amount so prepaid by one and one-half percent (1 1/2%) if the prepayment occurs prior to the first Anniversary Date. PROMISSORY NOTE shall mean the note, in the form of Exhibit A attached hereto, delivered by the Companies to CITBC to evidence the Term Loan pursuant to, and repayable in accordance with, the provisions of Section 4 of this Financing Agreement. PURCHASE MONEY LIENS shall mean liens on any item of Equipment acquired after the date of this Financing Agreement provided that i) each such lien shall attach only to the property to be acquired, ii) a description of the property so acquired is furnished to CITBC, and iii) the debt incurred in connection with such acquisitions shall not exceed, in the aggregate, $250,000.00 in any fiscal year. Real Estate shall mean the fee and/or leasehold interests in the real property which have been, or will be, encumbered, mortgaged, pledged or assigned to CITBC or its designee. REVOLVING LOANS shall mean the loans and advances made, from time to time, to or for the account of the Companies, or any one of them, by CITBC pursuant to Section 3 of this Financing Agreement. ROA shall mean Rock of Ages Corporation, a Vermont corporation. ROA CANADA shall mean Rock of Ages Canada Quarries Inc., a corporation formed under the federal laws of Canada. -10- 11 ROA FINANCING AGREEMENT shall mean the Financing Agreement, of even date herewith, between ROA and CITBC. SURPLUS CASH shall mean for any fiscal year the sum of i) EBIT, ii) depreciation and iii) other non-cash charges less the sum of a) all interest obligations paid or due CITBC by the Companies, b) the amount of principal repaid CITBC on the Term Loan, c) capital expenditures of the Companies, and d) all federal, state and local tax obligations of the Companies. Term Loan shall mean the term loan in the principal amount of $15,400,000.00 made by CITBC pursuant to, and repayable in accordance with, the provisions of Section 4 of this Financing Agreement. TOTAL LIABILITIES shall mean, in the aggregate, the total liabilities of the Companies, determined in accordance with GAAP, on a basis consistent with the latest audited statements of the Companies. WORKING CAPITAL shall mean Current Assets in excess of Current Liabilities. SECTION 2. CONDITIONS PRECEDENT The obligation of CITBC to make loans hereunder is subject to the satisfaction of, or waiver of, immediately prior to or concurrently with the making of such loans, the following conditions precedent: a) LIEN SEARCHES - CITBC shall have received tax, judgment and Uniform Commercial Code searches satisfactory to CITBC for all locations presently occupied or used by the Companies. b) CASUALTY INSURANCE - The Companies shall have delivered to CITBC evidence satisfactory to CITBC that casualty insurance policies listing CITBC as loss payee or mortgagee, as the case may be, are in full force and effect, all as set forth in Section 7, paragraph 5 of this Financing Agreement. c) MORTGAGES/DEEDS OF TRUST - The Companies shall have executed and delivered to either CITBC or an agent of CITBC or of a title insurance company acceptable to CITBC such mortgages and deeds of trust as CITBC may reasonably require to obtain first liens on. the Real Estate. d) UCC FILINGS - Any documents (including without limitation, financing statements) required to be filed in order to create, in favor of CITBC, a first and exclusive perfected security interest in the Collateral with respect to which a security interest may be perfected by a filing under the Uniform Commercial Code shall have been properly filed in each office in each jurisdiction required in order to create in favor of CITBC a perfected lien on the Collateral. CITBC shall have received acknowledgement copies of all such filings (or, in lieu thereof, CITBC shall have received other evidence satisfactory to CITBC that all such filings have been made); and CITBC shall have received evidence that all necessary filing fees and all taxes or other expenses related to such filings have been paid in full. e) TITLE INSURANCE POLICIES - CITBC shall have received, in respect of each mortgage or deed of trust, a new or updated mortgagee's title policy or marked-up unconditional binder for such insurance substantially similar to those delivered to CITBC in connection with the Existing Financing. Each such policy shall (i) be in an amount satisfactory to CITBC; (ii) insure that the mortgage or deed of trust insured thereby creates a valid first lien on the property covered by such mortgage or deed of trust, free and clear of all defects and encumbrances except those x) acceptable to CITBC or y) currently listed in the title policies delivered to -11- 12 CITBC in connection with the Existing Financing; (iii) name CITBC as the insured thereunder; and (iv) contain such endorsements and effective coverage as CITBC currently has in the title policies delivered to CITBC in connection with the Existing Financing, including, without limitation, the revolving line of credit endorsement. CITBC shall also have received evidence that all premiums in respect of such policies have been paid and that all charges for mortgage recording taxes, if any, shall have been paid. f) SURVEYS - CITBC and the title insurance company issuing each policy referred to in the immediately preceding paragraph (each a "TITLE INSURANCE Company") shall have received copies of the currently existing maps or plats of a perimeter or boundary of the site of each of the properties covered by the mortgages or deeds of trust. g) EXAMINATION & VERIFICATION - CITBC shall have completed, to the satisfaction of CITBC, an examination and verification of the Accounts, Inventory, books and records of each Company. h) GUARANTIES - The Guarantors shall have executed and delivered to CITBC guaranties, in form acceptable to CITBC, guaranteeing all present and future Obligations of the Companies to CITBC. i) OPINIONS - Counsel for the Companies shall have delivered to CITBC opinions satisfactory to CITBC opining, inter alia, that, subject to the i) filing, priority and remedies provisions of the Uniform Commercial Code, ii) the provisions of the Bankruptcy Code, insolvency statutes or other like laws, iii) the equity powers of a court of law and iv) such other matters as may be agreed upon with CITBC: a) the Guaranty of the Guarantors is valid, binding and enforceable according to its terms; b) all documents of each Company are x) valid, binding and enforceable according to their terms, y) are duly authorized and z) do not violate any terms, provisions, representations or covenants in the charter or by-laws of any Company or, to the best knowledge of such counsel, of any loan agreement, mortgage, deed of trust, note, security or pledge agreement or indenture to which any Company is a signatory or by which any Company or its assets are bound. j) PLEDGE AGREEMENT - Kurt M. Swenson and Kevin C. Swenson shall x) execute and deliver to CITBC an unconditional pledge, as additional security for the Obligations, of certain personal assets, in form acceptable to CITBC, having a then face value of not less than $1,800,000.00 and y) deliver to CITBC the additional security with, to the extent applicable, executed stock powers and/or endorsements. ROA shall x) execute and deliver to CITBC i) an unconditional pledge, as additional security for the Obligations, of all of the issued and outstanding capital stock of ROA Canada and ii) blank stock powers for each stock certificate so pledged and y) deliver to CITBC the original stock certificates so pledged. k) ADDITIONAL DOCUMENTS - The Companies shall have executed and delivered to CITBC all loan documents necessary to consummate the lending arrangement contemplated between the Companies and CITBC. 1) BOARD RESOLUTION - CITBC shall have received a copy of the resolutions of the Board of Directors of each Company authorizing the execution, delivery and performance of (i) this Financing Agreement, and (ii) any related agreements, in each case certified by the Secretary or Assistant Secretary of the applicable Company, together with a certificate of the Secretary or Assistant Secretary of each Company as to the incumbency and signature of the officers of the Company executing this Financing Agreement and any certificate or other documents to be delivered by it pursuant hereto, together with evidence of the incumbency of such Secretary or Assistant Secretary. m) CORPORATE ORGANIZATION - CITBC shall have received (i) a copy of the Certificate of Incorporation of each Company certified by the Secretary of State of its incorporation, and (ii) a copy of the By-Laws (as -12- 13 amended through the date hereof) of each Company certified by the Secretary or Assistant Secretary of the Company. n) OFFICER'S CERTIFICATE - CITBC shall have received an executed Officer's Certificate of each Company, satisfactory in form and substance to CITBC, certifying that (i) the representations and warranties contained herein are true and correct in all material respects on and as of the date hereof; (ii) each Company is in compliance with all of the terms and provisions set forth herein; and (iii) no Event of Default, or any event which, with the giving of notice or the passage of time or both would constitute an Event of Default, has occurred. o) ABSENCE OF DEFAULT - No Default, Event of Default or material adverse change in the financial condition, business, prospects, profits, operations or assets of any Company shall have occurred. p) LEGAL RESTRAINTS/LITIGATION - At the date of execution of this Financing Agreement, there shall be no x) litigation, investigation or proceeding (judicial or administrative) pending or threatened against any Company, or its assets, by any agency, division or department of any county, city, state or federal government arising out of this Financing Agreement, y) injunction, writ or restraining order restraining or prohibiting the consummation of the financing arrangements contemplated under this Financing Agreement or z) any suit, action, investigation or proceeding (judicial or administrative) pending or threatened against any Company, or its assets, which, in the opinion of CITBC, if adversely determined could have a material adverse effect on the business, operation, assets, financial condition or Collateral of any Company. q) DISBURSEMENT AUTHORIZATION - ROA Quarries shall have delivered to CITBC all information necessary for CITBC to issue wire transfer instructions on behalf of the Companies for the initial and subsequent loans and/or advances to be made under this Agreement including, but not limited to, disbursement authorizations in form acceptable to CITBC. Upon the execution of this Financing Agreement and the initial disbursement of loans hereunder, all of the above Conditions Precedent shall have been deemed satisfied except as the Companies and CITBC shall otherwise agree herein or in a separate writing. SECTION 3. REVOLVING LOANS 1. CITBC agrees, subject to the terms and conditions of this Financing Agreement from time to time, and within x) the Availability and y) the Line of Credit, but subject to CITBC's right to make "overadvances", to make loans and advances to ROA Quarries to and for the benefit of the Companies on a revolving basis (i.e. subject to the limitations set forth herein, the Companies may, through ROA Quarries, borrow, repay and re-borrow Revolving Loans). Such loans and advances shall be in amounts up to: a) eighty percent (80%) of the outstanding Eligible Accounts Receivable, in the aggregate, of the Companies, and b) fifty percent (50%) of the value of Eligible Inventory, in the aggregate, of the Companies as determined at the lower of cost or market, provided, however, that in no event may advances under this clause b exceed $2,000,000.00 in the aggregate at any one time. All requests for loans and advances must be received by an officer of CITBC no later than 1:00 p.m., New York time, of the Business Day on which such loans and advances are required. Should CITBC for any reason honor requests for advances in excess of the limitations set forth herein, such advances shall be considered "overadvances" and shall be made in CITBC's sole discretion, subject to any additional terms CITBC deems necessary. No single advance or overadvance hereunder may be outstanding more than thirty-six (36) months from the date of such advance. -13- 14 2. In furtherance of the continuing assignment and security interest in each Company's Accounts, each Company will, upon the creation of Accounts, execute and deliver to CITBC in such form and manner as CITBC may reasonably require, solely for CITBC's convenience in maintaining records of collateral, such confirmatory schedules of Accounts as CITBC as were submitted to CITBC under the Existing Financing, and such other appropriate reports designating, identifying and describing the Accounts as CITBC may reasonably require. In addition, upon CITBC's request, each Company shall provide CITBC with copies of agreements with, or purchase orders from, that Company's customers, and copies of invoices to customers, proof of shipment or delivery and such other documentation and information relating to said Accounts and other collateral as CITBC may reasonably require. Failure to provide CITBC with any of the foregoing shall in no way affect, diminish, modify or otherwise limit the security interests granted herein. Each Company hereby authorizes CITBC to regard that Company's printed name or rubber stamp signature on assignment schedules or invoices as the equivalent of a manual signature by that Company's authorized officers or agents. 3. Each Company hereby represents and warrants that: each Account is based on an actual and bona fide sale and delivery of goods or rendition of services to customers, made by a Company in the ordinary course of business; the goods and inventory being sold and the Accounts created are the exclusive property of the Company so selling the inventory, and are not and shall not be subject to any lien, consignment arrangement, encumbrance, security interest or financing statement whatsoever, other than the Permitted Encumbrances; the invoices evidencing such Accounts are in the name of the Company so selling the inventory; and the customers of that Company have accepted the goods or services, owe and are obligated to pay the full amounts stated in the invoices according to their terms, without dispute, offset, defense, counterclaim or contra, except for disputes and other matters arising in the ordinary course of business of which a Company advised CITBC pursuant to paragraph 5 of this Section 3. Each Company confirms to CITBC that any and all taxes or fees relating to its business, its sales, the Accounts or goods relating thereto, are its sole responsibility and that same will be paid by the Companies when due and that none of said taxes or fees represent a lien on or claim against the Accounts. Each Company also warrants and represents that it is a duly and validly existing corporation and is qualified in all states where the failure to so qualify would have an adverse effect on the business of such Company or the ability of such Company to enforce collection of Accounts due from customers residing in that state. Each Company agrees to maintain such books and records regarding Accounts as CITBC may reasonably require and agrees that the books and records of such Company will reflect CITBC's interest in the Accounts. All of the books and records of each Company will be available to CITBC at normal business hours, including any records handled or maintained for the Company by any other company or entity. 4. Until CITBC has advised a Company to the contrary after the occurrence of an Event of Default, each Company may, and will, enforce, collect and receive all amounts owing on the Accounts for CITBC's benefit and on CITBC's behalf, but at the expense of such Company. Such privilege shall terminate automatically upon the institution by or against any Company of any proceeding under any bankruptcy or insolvency law or, at the election of CITBC, upon the occurrence of any other Event of Default and until such Event of Default is waived. Any checks, cash, notes or other instruments or property received with respect to any Accounts shall be held by the Company in trust for CITBC, separate from its own property and funds, and immediately turned over to CITBC with proper assignments or endorsements by deposit to the Depository -14- 15 Accounts. All amounts received by CITBC in payment of Accounts will be credited to the loan account upon CITBC's receipt of "collected funds" at CITBC's bank account in New York, New York on the Business Day of receipt if received no later than 1:00 pm or on the next succeeding Business Day if received after 1:00 pm. No checks, drafts or other instrument received by CITBC shall constitute final payment to CITBC unless and until such instruments have actually been collected. 5. Each Company agrees to notify CITBC promptly of any matters materially affecting the value, enforceability or collectibility of any material Account and of all material customer disputes, offsets, defenses, counterclaims, returns, rejections and all reclaimed or repossessed merchandise or goods. Each Company agrees to issue credit memoranda promptly (with duplicates to CITBC upon request after the occurrence of an Event of Default) upon accepting material returns or granting material allowances, and may continue to do so until CITBC has notified such Company that an Event of Default has occurred and that all future credits or allowances are to be made only after CITBC's prior written approval. Upon the occurrence of an Event of Default and until such time as such Event of Default is waived and on notice from CITBC, each Company agrees that all returned, reclaimed or repossessed merchandise or goods shall be set aside by such Company, marked with CITBC's name and held by such Company for CITBC's account as owner and assignee. 6. In order to utilize the collective borrowing powers of the Companies in the most efficient and economical manner, and in order to facilitate the handling of the accounts of the Companies on CITBC's books, the Companies have requested CITBC, and CITBC has agreed, to handle the accounts of all Companies on CITBC's books on a combined basis, in accordance with the following provisions: (i) in lieu of maintaining separate accounts on CITBC'S books in the name of each of the Companies, CITBC shall maintain a single account under the name: Rock of Ages Quarries, Inc. (herein the "Collective Loan Account"); ii) loans and advances made by CITBC to, or for, any of the Companies will be charged to the Collective Loan Account, along with all charges and expenses under this Financing Agreement; (iii) the Collective Loan Account will be credited with all amounts received by CITBC from any of the Companies or from others for the account of any Company including all amounts received by CITBC in accordance with the terms of paragraph 4 hereof and as provided in this Financing Agreement; iv) each month CITBC will render to ROA Quarries to and for the benefit of the Companies one extract of the combined Collective Loan Account, which shall be deemed to be an account stated as to each of the Companies and which will be deemed correct and accepted by all of the Companies unless ROA Quarries has forwarded to CITBC a written statement of exceptions within thirty (30) days after such extract, or any corrected extract; v) it is expressly understood and agreed by each of the Companies that CITBC shall have no obligation to account separately to any of the Companies; vi) requests for loans and advances may be made by any of the Companies and CITBC is hereby authorized and directed to accept, honor and rely on such instructions and requests, subject to the limitation and provisions set forth in this Financing Agreement; vii) it is expressly understood and agreed by each of the Companies that CITBC shall have no responsibility to inquire into the correctness of the apportionment, allocation, or disposition of (A) any loans and advances made to any of the Companies or (B) any of CITBC's expenses and charges relating thereto; viii) all loans and advances are made for the collective benefit of the Companies; ix) the Companies jointly and severally unconditionally guarantee to CITBC the prompt payment in full of (A) all loans and advances made and to be made by CITBC to any of them under this Financing Agreement, as well as (B) all other Obligations of the Companies -15- 16 to CITBC and hereby expressly confirm in all respects the guarantees executed by each of the Companies in CITBC's favor of even date herewith (the "Guarantees"), as more fully set therein; x) all Collateral assigned to CITBC by any of the Companies and any other collateral security now or hereafter given to CITBC by any of the Companies, shall secure all loans and advances made by CITBC to, or for, any Company, and shall be deemed to be pledged to CITBC as security for any and all other Obligations of the Companies to CITBC as set forth under this Financing Agreement, the Guarantees, or any other agreements between CITBC and any Company; and xi) it is understood that the handling of the account of the Companies in a combined fashion, as more fully set forth herein, is done solely as an accommodation to the Companies and at their request, and that CITBC shall incur no liability to the Companies as a result of such combination. To induce CITBC to do so, and in consideration thereof, each Company hereby agrees to indemnify CITBC and hold CITBC harmless against any and all liability, expense, loss or claim of damage or injury, except for any liability, injury, expense, loss or claim of damages arising by reason of CITBC's negligence or misconduct, made against CITBC by any Company or by any third party whosoever, arising from or incurred by reason of (A) CITBC handling the accounts of the Companies as herein provided, (B) CITBC relying on any instructions of any of the Companies, or (c) any other reasonable action taken by CITBC in accordance with this paragraph 6 of Section 3 of this Financing Agreement. In no event shall prior recourse to any Accounts or other security granted to or by any Company be a prerequisite to CITBC's right to demand payment of any Obligation. Further, it is understood that CITBC shall have no obligation whatsoever to perform in any respect any Company's contracts or obligations relating to the Accounts. The foregoing request was made because the Companies are engaged in an integrated operation that requires financing on a basis permitting the availability of credit from time to time to each of the Companies as required for the continued successful operation of each Company and the integrated operation. Each Company expects to derive benefit, directly or indirectly, from such availability since the successful operation of each Company is dependent on the continued successful performance of the functions of the integrated group. SECTION 4. TERM LOAN 1. Each Company hereby agrees to execute and deliver to CITBC the Promissory Note, in the form of Exhibit A attached hereto, to evidence the Term Loan to be extended by CITBC. Each Company shall be jointly and severally liable for the Term Loan. 2. Upon receipt of such Promissory Note, CITBC hereby agrees to extend to the Companies the Term Loan in the principal amount of $15,400,000.00. 3. The principal amount of the Term Loan shall be repaid CITBC by the Companies by: i) one (1) principal installment of $500,000.00 due and payable on September 1, 1994; ii) one (1) principal installment of $500,000.00 due and payable on the first Business Day of October, 1994; iii) four (4) equal quarterly principal installments of $300,000.00 each on the first Business Day of January, April, July and October of 1995; iv) twelve (12) equal quarterly principal installments of $400,000.00 each on the first Business Day of each January, April, July and October of 1996, 1997 and 1998, followed by v) one (1) installment of $8,400,000.00 on the first Business Day of January, 1999. -16- 17 4. In the event this Financing Agreement or the Line of Credit is terminated by either CITBC or ROA Quarries for any reason whatsoever, the Term Loan shall become due and payable on the effective date of such termination notwithstanding any provision to the contrary in the Promissory Note or this Financing Agreement. 5. The Companies may prepay at any time, at their option, in whole or in part, the Term Loan, provided that on each such prepayment, the Companies shall pay: i) accrued interest on the principal so prepaid to the date of such prepayment and ii) the Prepayment Premium, if any. 6. In the event the Companies have, on a consolidated basis, Surplus Cash in any fiscal year, commencing with the fiscal year beginning January 1, 1995, in excess of $250,000.00, the Companies must make a Mandatory Prepayment of the Term Loan by an amount equal to fifty percent (50%) of said Surplus Cash in excess of $250,000.00. 7. Each prepayment shall be applied to the then last maturing installments of principal of the Term Loan. 8. ROA Quarries, on behalf of each Company, hereby authorizes CITBC to charge the Collective Loan Account with the amount of all amounts due under this Section 4 as such amounts become due. Each Company confirms that any charges which CITBC may so make to the account as herein provided will be made as an accommodation to the Companies and solely at CITBC's discretion. SECTION 5. LETTERS OF CREDIT In order to assist a Company in establishing or opening Letters of Credit with an Issuing Bank to cover the purchase of Inventory, Equipment or otherwise, the Company has requested CITBC to join in the applications for such Letters of Credit, and/or guarantee payment or performance of such Letters of Credit and any drafts or acceptances thereunder through the issuance of the Letters of Credit Guaranty, thereby lending CITBC's credit to the Company and CITBC has agreed to do so. These arrangements shall be handled by CITBC subject to the terms and conditions set forth below. 1. The amount, purpose and extent of the Letters of Credit and changes or modifications thereof by the Company and/or the Issuing Bank of the terms and conditions thereof shall in all respects be subject to the prior approval of CITBC provided however that: a) in no event may the aggregate amount of all such outstanding Letters of Credit exceed, in the aggregate, at any one time $2,000,000.00, and b) the Letter of Credit and all documentation in connection therewith shall be in form and substance satisfactory to the applicable Company, CITBC and the Issuing Bank. 2. CITBC shall have the right, without notice to the applicable Company, to charge the Collective Loan Account with the amount of any and all indebtedness, liability or obligation of any kind incurred by CITBC under the Letters of Credit Guaranty at the earlier of a) payment by CITBC under the Letters of Credit Guaranty, or b) the termination of this Financing Agreement. Any amount charged to the Collective Loan -17- 18 Account shall be deemed a Revolving Loan hereunder and shall incur interest at the rate provided in Section 8, paragraph 1 of this Financing Agreement. 3. Each Company unconditionally indemnifies CITBC and holds CITBC harmless from any and all loss, claim or liability incurred by CITBC arising from any transactions or occurrences relating to Letters of Credit established or opened hereunder, the collateral relating thereto and any drafts or acceptances thereunder, and all Obligations thereunder, including any such loss or claim due to any errors or omission, negligence or misconduct by, or any action taken by, any Issuing Bank, other than for any such loss, claim or liability arising out of the negligence or misconduct by CITBC under the Letters of Credit Guaranty. Each Company's unconditional obligation to CITBC hereunder shall not be modified or diminished for any reason or in any manner whatsoever, other than as set forth in the prior sentence. Each Company agrees that any charges incurred by, or imposed on, CITBC by the Issuing Bank shall be conclusive on CITBC and may be charged to the Collective Loan Account. 4. CITBC shall not be responsible for: the existence, character, quality, quantity, condition, packing, value or delivery of the goods purporting to be represented by any documents; any difference or variation in the character, quality, quantity, condition, packing, value or delivery of the goods from that expressed in the documents; the validity, sufficiency or genuineness of any documents or of any endorsements thereon, even if such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged; the time, place, manner or order in which shipment is made; partial or incomplete shipment, or failure or omission to ship any or all of the goods referred to in the Letters of Credit or documents; any deviation from instructions; delay, default, or fraud by the shipper and/or anyone else in connection with the Collateral or the shipping thereof; or any breach of contract between the shipper or vendors and the Company. 5. Each Company agrees that any action taken by CITBC, if taken in good faith, or any action taken by any Issuing Bank, under or in connection with the Letters of Credit, the guarantees, the drafts or acceptances, or the Collateral, shall be binding on each Company and shall not put CITBC in any resulting liability to any Company. In furtherance thereof, CITBC shall have, subject to paragraph 6 below, the full right and authority to clear and resolve any questions of non-compliance of documents; to give any instructions as to acceptance or rejection of any documents or goods; to execute any and all steamship or airways guaranties (and applications therefore), indemnities or delivery orders; to grant any extensions of the maturity of, time of payment for, or time of presentation of, any drafts, acceptances, or documents; and to agree to any amendments, renewals, extensions, modifications, changes or cancellations of any of the terms or conditions of any of the applications, Letters of Credit, drafts or acceptances; all in CITBC's sole name, and the Issuing Bank shall be entitled to comply with and honor any and all such documents or instruments executed by or received solely from CITBC, all without any notice to or any consent from any Company. 6. Without CITBC's express consent and endorsement in writing, each Company agrees: a) not to execute any and all applications for steamship or airway guaranties, indemnities or delivery orders; to grant any extensions of the maturity of, time of payment for, or time of presentation of, any drafts, acceptances or documents; or to agree to any amendments, renewals, extensions, modifications, changes or cancellations of any of the terms or conditions of any of the applications, Letters of Credit, drafts or acceptances; and b) after the occurrence of an Event of Default which is not waived by CITBC, not to i) clear and resolve any -18- 19 questions of non-compliance of documents, or ii) give any instructions as to acceptances or rejection of any documents or goods. 7. Each Company agrees that any necessary import, export or other licenses or certificates for the import or handling of the Collateral will have been promptly procured; all foreign and domestic governmental laws and regulations in regard to the shipment and importation of the Collateral, or the financing thereof will have been promptly and full complied with; and any certificates in that regard that CITBC may at any time request will be promptly furnished. In this connection, each Company warrants and represents that it has no knowledge that any shipments made under any such Letters of Credit are not in accordance with the laws and regulations of the countries in which the shipments originate and terminate, or are prohibited by any such laws and regulations. Each Company assumes all risk, liability and responsibility for, and agrees to pay and discharge, all present and future local, state, federal or foreign taxes, duties, or levies. Any embargo, restriction, laws, customs or regulations of any country, state, city, or other political subdivision, where such Collateral is or may be located, or wherein payments are to be made, or wherein drafts may be drawn, negotiated, accepted, or paid, shall be solely the Company's risk, liability and responsibility. 8. Upon any payments made to the Issuing Bank under the Letter of Credit Guaranty, CITBC shall acquire by subrogation, any rights, remedies, duties or obligations granted or undertaken by such Company to the Issuing Bank in any application for Letters of Credit, any standing agreement relating to Letters of Credit or otherwise, all of which shall be deemed to have been granted to CITBC and apply in all respects to CITBC and shall be in addition to any rights, remedies, duties or obligations contained herein. SECTION 6. COLLATERAL 1. As security for the prompt payment in full of all loans and advances made and to be made to, or for the benefit of, the Companies from time to time by CITBC pursuant hereto, as well as to secure the payment in full of the other Obligations, each Company hereby pledges and grants to CITBC a continuing general lien upon and security interest in all of its: (a) present and hereafter acquired Inventory; (b) present and hereafter acquired Equipment; (c) present and future Accounts; (d) present and future Documents of Title; (e) present and future General Intangibles; and (f) Real Estate. 2. The security interests granted hereunder shall extend and attach to: -19- 20 (a) All Collateral which is presently in existence and which is owned by any Company or in which any Company has any interest, whether held by such Company or others for its account, and, if any Collateral is Equipment, whether such Company's interest in such Equipment is as owner or lessee or conditional vendee; (b) All Equipment whether the same constitutes personal property or fixtures, including, but without limiting the generality of the foregoing, all dies, jigs, tools, benches, tables, accretions, component parts thereof and additions thereto, as well as all accessories, motors, engines and auxiliary parts used in connection with or attached to the Equipment; and (c) All Inventory and any portion thereof which may be returned, rejected, reclaimed or repossessed by either CITBC or any Company from a Company's customers, as well as to all supplies, goods, incidentals, packaging materials, labels and any other items which contribute to the finished goods or products manufactured or processed by any Company, or to the sale, promotion or shipment thereof. 3. Each Company agrees to safeguard, protect and hold all Inventory for CITBC's account and make no disposition thereof except in the regular course of the business of such Company as herein provided. Until CITBC has given such Company notice to the contrary, as provided for below, any Inventory may be sold and shipped by such Company to its customers in the ordinary course of such Company's business, for cash or on open account and on terms currently being extended by such Company to its customers, provided that all proceeds of all sales (including cash, accounts receivable, checks, notes, instruments for the payment of money and similar proceeds) are forthwith transferred, endorsed, and turned over and delivered to CITBC in accordance with paragraph 4 of Section 3 of this Financing Agreement. CITBC shall have the right to withdraw this permission at any time upon the occurrence of an Event of Default and until such time as such Event of Default is waived in which event no further disposition shall be made of the Inventory by any Company without CITBC's prior written approval. Sales of Inventory in which a lien upon, or security interest in, Inventory is retained by the Company shall be made by such Company only with the approval of CITBC, and the proceeds of such sales shall not be commingled with such Company's other property, but shall be segregated, held by such Company in trust for CITBC as CITBC's exclusive property, and shall be delivered immediately by such Company to CITBC in the identical form received by such Company by deposit to the Depository Accounts. Upon the sale, exchange, or other disposition of Inventory, as herein provided, the security interest in such Company's Inventory provided for herein shall, without break in continuity and without further formality or act, continue in, and attach to, all proceeds, including any instruments for the payment of money, accounts receivable, contract rights, documents of tide, shipping documents, chattel paper and all other cash and non-cash proceeds of such sale, exchange or disposition. As to any such sale, exchange or other disposition, CITBC shall have all of the rights of an unpaid seller, including stoppage in transit, replevin, rescission and reclamation. 4. Each Company agrees at its own cost and expense to keep the Equipment in as good and substantial repair and condition as the same is now or at the time the lien and security interest granted herein shall attach thereto, reasonable wear and tear excepted, making any and all repairs when and where necessary. Each Company also agrees to safeguard, protect and hold all Equipment for CITBC's account and make no disposition thereof unless such Company first obtains the prior written approval of CITBC. Any sale, exchange or other disposition of any Equipment shall only be made by a Company with the prior written -20- 21 approval of CITBC, and the proceeds of any such sales shall not be commingled with such Company's other property, but shall be segregated, held by such Company in trust for CITBC as CITBC's exclusive property, and shall be delivered immediately by such Company to CITBC in the identical form received by such Company by deposit to the Depository Accounts to be applied first to the then last maturity installments of principal of the Term Loan and then, after payment in full of the Term Loan, to payment of the Revolving Loans. Upon the sale, exchange, or other disposition of the Equipment, as herein provided, the security interest provided for herein shall, without break in continuity and without further formality or act, continue in, and attach to, all proceeds, including any instruments for the payment of money, accounts receivable, contract rights, documents of title, shipping documents, chattel paper and all other cash and non-cash proceeds of such sales, exchange or disposition. As to any such sale, exchange or other disposition, CITBC shall have all of the rights of an unpaid seller, including stoppage in transit, replevin, rescission and reclamation. Notwithstanding anything hereinabove contained to the contrary, the Companies may sell, exchange or otherwise dispose of obsolete Equipment or Equipment no longer needed in a Company's operations, provided, however, that (a) the then book value of the Equipment so disposed of does not exceed $200,000.00 in the aggregate in any fiscal year and (b) the proceeds of such sales or dispositions are delivered to CITBC in accordance with the foregoing provisions of this paragraph. 5. The rights and security interests granted to CITBC hereunder are to continue in full force and effect, notwithstanding the termination of this Financing Agreement or the fact that the Collective Loan Account maintained on the books of CITBC may from time to time be temporarily in a credit position, until the final payment in full to CITBC of all Obligations and the termination of this Financing Agreement. Any delay, or omission by CITBC to exercise any right hereunder, shall not be deemed a waiver thereof, or be deemed a waiver of any other right, unless such waiver be in writing and signed by CITBC. A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion. 6. To the extent that the Obligations are now or hereafter secured by any assets or property other than the Collateral or by the guarantee, endorsement, assets or property of any other person, then CITBC shall have the right in its sole discretion to determine which rights, security, liens, security interests or remedies CITBC shall at any time pursue, foreclose upon, relinquish, subordinate, modify or take any other action with respect to, without in any way modifying or affecting any of them, or any of CITBC's rights hereunder. 7. Any reserves or balances to the credit of any Company and any other property or assets of any Company in the possession of CITBC may be held by CITBC as security for any Obligations and applied in whole or partial satisfaction of such Obligations when due but shall be returned to the applicable Company on request unless an Event of Default has occurred and has not been waived. The liens and security interests granted herein and any other lien or security interest CITBC may have in any other assets of any Company, shall secure payment and performance of all now existing and future Obligations. CITBC may in its discretion charge any or all of the Obligations to the Collective Loan Account when due. 8. This Financing Agreement and the obligation of each Company to perform all of the covenants and obligations hereunder are further secured by a mortgage, deed of trust or assignment on the Real Estate. -21- 22 9. Each Company shall give to CITBC from time to time such mortgage, deed of trust or assignment on the Real Estate or real estate acquired after the date hereof as CITBC shall require to obtain a valid first lien thereon subject only to those exceptions of title as set forth in future title insurance policies that are satisfactory to CITBC. 10. Each Company shall give to CITBC, and/or shall cause the appropriate party to give to CITBC, from time to time such pledge or security agreements with respect to General Intangibles and capital stock of ROA Canada as CITBC shall require to obtain valid first liens thereon. SECTION 7. REPRESENTATIONS, WARRANTIES AND COVENANTS 1. Each Company hereby warrants and represents and/or covenants that on a consolidated basis i) the fair value of the Companies' assets exceeds the book value of the Companies' liabilities; ii) the Companies are generally able to pay their debts as they become due and payable; and iii) the Companies do not have unreasonably small capital to carry on their business as currently conducted absent extraordinary and unforeseen circumstances. Each Company further warrants and represents that except for the Permitted Encumbrances, the security interests granted herein constitute and shall at all times constitute the first and only liens on the Collateral; that, except for the Permitted Encumbrances, each Company is or will be at the time additional Collateral is acquired by it, the absolute owner of the Collateral with full right to pledge, sell, consign, transfer and create a security interest therein, free and clear of any and all claims or liens in favor of others; that each Company will at its expense forever warrant and, at CITBC's request, defend the same from any and all claims and demands of any other person other than the holders of the Permitted Encumbrances; that each Company will not grant, create or permit to exist, any lien upon or security interest in the Collateral, or any proceeds thereof, in favor of any other person other than the holders of the Permitted Encumbrances; and that the Equipment does not comprise a part of the Inventory of each Company and that the Equipment is and will only be used by each Company in its business and will not be held for sale or lease, or removed from its premises, or otherwise disposed of by each Company without the prior written approval of CITBC except as otherwise permitted in paragraph 4 of Section 6 of this Financing Agreement. 2. Each Company agrees to maintain books and records pertaining to the Collateral in such detail, form and scope as the Companies are currently keeping them as of the date hereof. Each Company agrees that CITBC or its agents may enter upon such Company's premises at any time during normal business hours, and from time to time, for the purpose of inspecting the Collateral, and any and all records pertaining thereto. Each Company agrees to afford CITBC prior written notice of any change in the location of any Collateral (other than a temporary change in the location of mobile Equipment) other than to locations, that as of the date hereof, are known to CITBC and at which CITBC has filed financing statements and otherwise fully perfected its liens thereon. Each Company is also to advise CITBC promptly, in sufficient detail, of any material adverse change relating to the type, quantity or quality of the Collateral or to the security interests granted to CITBC therein. 3. Each Company agrees to: execute and deliver to CITBC, from time to time, solely for CITBC's convenience in maintaining a record of the Collateral, such written statements, and schedules as CITBC may reasonably require, designating, identifying or describing the Collateral pledged to CITBC hereunder. The -22- 23 Company's failure, however, to promptly give CITBC such statements or schedules shall not affect, diminish, modify or otherwise limit CITBC's security interests in the Collateral. 4. Each Company agrees to comply with the requirements of all state and federal laws in order to grant to CITBC valid and perfected first security interests in the Collateral, subject only to the Permitted Encumbrances. CITBC is hereby authorized by each Company to file any financing statements coveting the Collateral whether or not such Company's signature appears thereon. Each Company agrees to do whatever CITBC may reasonably request, from time to time, by way of: filing notices of liens, financing statements, amendments, renewals and continuations thereof; cooperating with CITBC's custodians; keeping Inventory records; transferring proceeds of Collateral to CITBC's possession; and performing such further acts as CITBC may reasonably require in order to effect the purposes of this Financing Agreement. 5.(a) Each Company agrees to maintain insurance on the Real Estate, Equipment and Inventory under such policies of insurance, with such insurance companies, in such reasonable amounts and covering such insurable risks as are at all times reasonably satisfactory to CITBC and as to Inventory specifically, as is customary in such Company's business. All policies covering the Real Estate, Equipment and Inventory are, subject to the fights of any holders of Permitted Encumbrances holding claims senior to CITBC, to be made payable to CITBC, in case of loss, under a standard non-contributory "mortgagee", "lender" or "secured party" clause and are to contain such other provisions as CITBC may require to fully protect CITBC's interest in the Real Estate, Inventory and Equipment and to any payments to be made under such policies. All original policies or true copies thereof are to be delivered to CITBC, premium prepaid, with the loss payable endorsement in CITBC's favor, and shall provide for not less than ten (10) days prior written notice to CITBC of the exercise of any fight of cancellation. At any Company's request, or if any Company fails to maintain such insurance, CITBC may arrange for such insurance, but at such Company's expense and without any responsibility on CITBC's part for: obtaining the insurance, the solvency of the insurance companies, the adequacy of the coverage, or the collection of claims. Upon the occurrence of an Event of Default which is not waived, CITBC shall, subject to the rights of any holders of Permitted Encumbrances holding claims senior to CITBC, have the sole fight, in the name of CITBC or any Company, to file claims under any insurance policies, to receive, receipt and give acquittance for any payments that may be payable thereunder, and to execute any and all endorsements, receipts, releases, assignments, reassignments or other documents that may be necessary to effect the collection, compromise or settlement of any claims under any such insurance policies. (b)(i) In the event of any loss or damage by fire or other casualty, insurance proceeds relating to Inventory shall first reduce the Revolving Loan and then the Term Loan; ii) In the event any part of a Company's Real Estate or Equipment is damaged by fire or other casualty and the insurance proceeds for such damage or other casualty (the "Proceeds") is less than or equal to $100,000.00, CITBC shall promptly apply such Proceeds to reduce the Revolving Loan; iii) As long as an Event of Default has not occurred (which is not waived), the Company suffering a casualty loss has sufficient business interruption insurance to replace the lost profits of any of such Company's facilities, and the Proceeds are in excess of $100,000.00, such Company may elect (by delivering -23- 24 written notice to CITBC) to replace, repair or restore such Real Estate or Equipment to substantially the equivalent condition prior to such fire or other casualty as set forth herein. If such Company does not, or cannot, elect to use the Proceeds as set forth above, CITBC may, subject to the fights of any holders of Permitted Encumbrances holding claims senior to CITBC, apply the Proceeds to the payment of the Obligations in such manner and in such order as CITBC may reasonably elect; and iv) If the Company suffering a casualty loss elects to use the Proceeds for the repair, replacement or restoration of any Real Estate or Equipment, and there is then no Event of Default, i) proceeds of insurance on Equipment and Real Estate in excess of $100,000.00 will be applied to the reduction of the Revolving Loans and ii) CITBC may set up a reserve against Availability for an amount equal to the proceeds referred to in clause i) hereof. The reserve will be reduced dollar-for-dollar upon receipt of non-cancelable executed purchase orders, delivery receipts or contracts for the replacement, repair or restoration of Equipment or the Real Estate and disbursements in connection therewith. Prior to the commencement of any restoration, repair or replacement of Real Estate, such Company shall provide CITBC with a restoration plan and a total budget certified by an independent third party experienced in construction costing. If there are insufficient Proceeds to cover the cost of restoration as so determined, such Company shall be responsible for the amount of any such insufficiency, prior to the commencement of restoration and shall demonstrate evidence of such before the reserve will be reduced. Completion of restoration shall be evidenced by a final, unqualified certification of the design architect employed, if any; an unconditional Certificate of Occupancy, if applicable; such other certification as may be required by law; or if none of the above is applicable, a written good faith determination of completion by such Company (herein collectively the "Completion"). Upon Completion, any remaining reserve against Availability as established hereunder will be automatically released. 6. Each Company agrees to pay, when due, all taxes, assessments, claims and other charges (herein "taxes") lawfully levied or assessed upon any Company or the Collateral and if such taxes remain unpaid after the date fixed for the payment thereof unless such taxes are being diligently contested in good faith by such Company by appropriate proceedings or if any lien shall be claimed thereunder x) for taxes due the United States of America or y) which in CITBC's opinion might create a valid obligation having priority over the rights granted to CITBC herein, CITBC may, on such Company's behalf, pay such taxes, and the amount thereof shall be an Obligation secured hereby and due to CITBC on demand. 7. Each Company: (a) agrees to comply with all material acts, rules, regulations and orders of any legislative, administrative or judicial body or official, which the failure to comply with would have a material and adverse impact on the Collateral, or any material part thereof, or on the operation of any Company's business, provided that a Company may contest any acts, rules, regulations, orders and directions of such bodies or officials in any reasonable manner which will not, in CITBC's reasonable opinion, materially and adversely effect CITBC's rights or priority in the Collateral; (b) agrees to comply with all environmental statutes, acts, rules, regulations or orders as presently existing or as adopted or amended in the future, applicable to the ownership and/or use of its real property and operation of its business, which the failure to comply with would have a material and adverse impact on the Collateral, or any material part thereof, or on the operation of the business of such Company. Each Company hereby indemnifies CITBC and agrees to defend and hold CITBC harmless from and against any and all loss, damage, claim, liability, injury or expense which CITBC may sustain or incur (other than as a result of actions of CITBC) in connection with: -24- 25 any claim or expense asserted against CITBC as a result of any environmental pollution, hazardous material or environmental clean-up of any Company's real property; or any claim or expense which results from any Company's operations (including, but not limited to, any Company's off-site disposal practices) and each Company further agrees that this indemnification shall survive termination of this Financing Agreement as well as the payment of all Obligations or amounts payable hereunder; and (c) shall not be deemed to have breached any provision of this paragraph 7 if (i) the failure to comply with the requirements of this paragraph 7 resulted from good faith error or innocent omission, and (ii) a Company promptly commences and diligently pursues a cure of such breach and such cure is eventually, within a reasonable time based upon the circumstances and the amount of work required, completed. 8. Until termination of the Financing Agreement and payment and satisfaction of all Obligations due hereunder, each Company agrees that, unless CITBC shall have otherwise consented in writing, ROA Quarries will, and if it does not do so, then any Company will, furnish to CITBC, within ninety-five (95) days after the end of each fiscal year of the Companies, an audited Consolidated Balance Sheet and an audited Consolidating Balance Sheet as at the close of such year, and statements of profit and loss, cash flow and reconciliation of surplus of the Companies and all subsidiaries for such year, audited by independent public accountants selected by ROA Quarries and satisfactory to CITBC; and within thirty (30) days after the end of each month x) a Consolidated Balance Sheet as at the end of such period and statements of profit and loss, cash flow and surplus of the Companies and all subsidiaries for such period and y) a financial covenant compliance report, in each instance, certified by an authorized financial or accounting officer of ROA Quarries; and from time to time, such further information regarding the business affairs and financial condition of the Companies, or any one of them, as CITBC may reasonably request, including without limitation annual cash flow projections in form satisfactory to CITBC. Each financial statement required hereunder must be accompanied by an officer's certificate, signed by the President, Vice President, Controller, or Treasurer, pursuant to which any one such officer must certify to the best of such officer's knowledge that: (i) the financial statement(s) fairly and accurately represent(s) the Companies' financial condition at the end of the particular accounting period, as well as the Companies' operating results during such accounting period, subject to year-end audit adjustments; (ii) during the particular accounting period: (x) there has been no Default or Event of Default under this Financing Agreement, provided, however, that if any such officer has knowledge that any such Default or Event of Default, has occurred during such period, the existence of and a detailed description of same shall be set forth in such officer's certificate; and (y) no Company has received any notice of cancellation with respect to its property insurance policies; and (iii) the exhibits attached to such financial statement(s) constitute detailed calculations showing compliance with all financial covenants contained in this Financing Agreement. 9. The Companies shall maintain, on an aggregate basis, at all times during the periods below, a Net Worth of not less than:
Period Net Worth ------ --------- a) For the quarter commencing July 1, 1994 and ending September 30, 1994 $3,000,000.00
-25- 26 b) For the period commencing October 1, 1994 and ending December 30, 1994 $3,000,000.00 c) As of December 31, 1994 $3,546,000.00 d) For the quarter commencing January 1, 1995 and ending March 31, 1995 $2,700,000.00 e) For the quarter commencing April 1, 1995 and ending June 30, 1995 $3,345,000.00 t) For the quarter commencing July 1, 1995 and ending September 30, 1995 $4,245,000.00 g) For the period commencing October 1, 1995 and ending December 30, 1995 $4,245,000.00 h) As of December 31, 1995 $4,757,000.00 i) For the quarter commencing January 1, 1996 and ending March 31, 1996 $4,000,000.00 j) For the quarter commencing April 1, 1996 and ending June 30, 1996 $4,550,000.00 k) For the quarter commencing July 1, 1996 and ending September 30, 1996 $5,450,000.00 1) For the period commencing October 1, 1996 and ending December 30, 1996 $5,450,000.00 m) As of December 31, 1996 $6,517,000.00 n) For the quarter commencing January 1, 1997 and ending March 31, 1997 $5,800,000.00 o) For the quarter commencing April 1, 1997 and ending June 30, 1997 $6,315,000.00 p) For the quarter commencing July 1, 1997 and ending September 30, 1997 $7,215,000.00
-26- 27 q) For the period commencing October 1, 1997 and ending December 30, 1997 $7,215,000.00 r) As of December 31, 1997 $8,087,000.00 s) For the quarter commencing January 1, 1998 and ending March 31, 1998 $7,300,000.00 t) For the quarter commencing April 1, 1998 and ending June 30, 1998 $7,885,000.00 u) For the quarter commencing July 1, 1998 and ending September 30, 1998 $8,785,000.00 v) For the period commencing October 1, 1998 and ending December 30, 1998 $8,735,000.00 w) As of December 31, 1998 $9,586,000.00 x) At all times on and after January 1, 1999 $9,000,000.00
10. Until termination of the Financing Agreement and payment and satisfaction of all Obligations due hereunder, each Company agrees that, without the prior written consent of CITBC, except as otherwise herein provided, the Companies, or any one of them, will not: A. Mortgage, assign, pledge, transfer or otherwise permit any lien, charge, security interest, encumbrance or judgment, (whether as a result of a purchase money or title retention transaction, or other security interest, or otherwise) to exist on any of its assets or goods, whether real, personal or mixed, whether now owned or hereafter acquired, except for the Permitted Encumbrances; B. Incur or create any Indebtedness other than the Permitted Indebtedness; C. Borrow any money on the security of a Company's Collateral from sources other than CITBC; D. Sell, lease, assign, transfer or otherwise dispose of i) Collateral, except as otherwise specifically permitted by this Financing Agreement, or ii) either all or substantially all of a Company's assets which do not constitute Collateral; E. Merge, consolidate or otherwise alter or modify its corporate name, principal place of business, structure, status or existence, or enter into or engage in any operation or activity materially different from that presently being conducted by the Company; F. Assume, guarantee, endorse, or otherwise become liable upon the obligations of any person, firm, entity or corporation, except by the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; G. Declare or pay any dividend of any kind on, or purchase, acquire, redeem or retire, any of the capital stock or equity interest, of any class whatsoever, whether now or hereafter outstanding provided, however, that the Companies may i) declare and pay dividends on their capital stock to enable -27- 28 Swenson to pay the income taxes due as a result of the filing of a unitary or consolidated tax return on which the Companies' income is reflected and ii) redeem the capital stock owned by its shareholders, other than Kurt M. Swenson and Kevin C. Swenson provided x) no Event of Default is then in existence or will have occurred after giving effect to such redemptions and y) the aggregate amount of all such redemptions under this clause ii does not exceed $200,000.00 in the aggregate in any fiscal year; H. Make any advance or loan to, or any investment in, any firm, entity, person or corporation in excess of $100,000.00 in the aggregate in any fiscal year other than obligations issued by, or guaranteed by, the United States of America or any agency or department thereof; or I. Permit ROA Canada to i) incur any debts, indebtedness or obligations other than the Permitted Indebtedness or ii) mortgage, pledge, assign, transfer, hypothecate or permit any lien to attach to any of its assets other than the Permitted Encumbrances. 11. Without the prior written consent of CITBC, the Companies will not: a) enter into any Operating Lease if after giving effect thereto the aggregate obligations with respect to Operating Leases of the Companies during any fiscal year would exceed $250,000.00 or b) contract for, purchase, make expenditures for, lease pursuant to a Capital Lease or otherwise incur obligations with respect to Capital Expenditures (whether subject to a security interest or otherwise) during any fiscal year in the aggregate amount in excess of: a) $600,000.00 for the fiscal year ending December 31, 1994; b) $900,000.00 for the fiscal year ending December 31, 1995; c) $900,000.00 for the fiscal year ending December 31, 1996; d) $900,000.00 for the fiscal year ending December 31, 1997, and for each fiscal year thereafter. 12. The Companies shall maintain, on an aggregate basis, at all times during the particular periods below, Working Capital of not less than:
Period WORKING CAPITAL - ------ --------------- a) For the quarter commencing July 1, 1994 and ending September 30, 1994 $3,580,000.00 b) For the period commencing October 1, 1994 and ending December 30, 1994 $3,880,000.00 c) As of December 31, 1994 $4,600,000.00 d) For the quarter commencing January 1, 1995 and ending March 31, 1995 $3,600,000.00 e) For the quarter commencing April 1, 1995 and ending June 30, 1995 $3,600,000.00
-28- 29 f) For the quarter commencing July 1, 1995 and ending September 30, 1995 $3,700,000.00 g) For the period commencing October 1, 1995 and ending December 30, 1995 $4,000,000.00 h) As of December 31, 1995 $4,595,000.00 i) For the quarter commencing January 1, 1996 and ending March 31, 1996 $3,500,000.00 j) For the quarter commencing April 1, 1996 and ending June 30, 1996 $3,500,000.00 k) For the quarter commencing July 1, 1996 and ending September 30, 1996 $3,900,000.00 1) For the period commencing October 1, 1996 and ending December 30, 1996 $4,500,000.00 m) As of December 31, 1996 $5,100,000.00 n) For the quarter commencing January 1, 1997 and ending March 31, 1997 $4,000,000.00 o) For the quarter commencing April 1, 1997 and ending June 30, 1997 $4,000,000.00 p) For the quarter commencing July 1, 1997 and ending September 30, 1997 $5,000,000.00 q) For the period commencing October 1, 1997 and ending December 30, 1997 $5,000,000.00 r) As of December 31, 1997 $5,436,000.00 s) For the quarter commencing January 1, 1998 and ending March 31, 1998 $4,400,000.00 t) For the quarter commencing April 1, 1998 and ending June 30, 1998 $4,400,000.00
-29- 30 u) For the quarter commencing July 1, 1998 and ending September 30, 1998 $4,735,000.00 v) For the period commencing October 1, 1998 and ending December 30, 1998 $5,335,000.00 w) As of December 31, 1998 $5,856,000.00 x) At all times on and after January 1, 1999 $5,800,000.00
13. The Companies shall maintain, on an aggregate basis, at the end of each fiscal year a Fixed Charge Coverage Ratio of at least:
FISCAL YEAR RATIO - ----------- ----- For the fiscal year ending December 31, 1994 .85 to 1 For the fiscal year ending December 31, 1995 .92 to 1 For the fiscal year ending December 31, 1996 and for each fiscal year thereafter 1 to 1
14. Intentionally Omitted. 15. The Companies shall maintain, on an aggregate basis, at all times during each of the following fiscal years a Leverage Ratio of not more than:
FISCAL YEAR RATIO - ----------- ----- For the fiscal year ending December 31, 1994 5.96 to 1 For the fiscal year ending December 31, 1995 4.18 to 1 For the fiscal year ending December 31, 1996 2.99 to 1 For the fiscal year ending December 31, 1997 2.19 to 1 For the fiscal year ending December 31, 1998 and for each 1.66 to 1 fiscal year thereafter.
-30- 31 16. ROA Quarries and/or Swenson shall maintain life insurance on: a) Kurt M. Swenson and b) Kevin C. Swenson, each in the amount of $2,000,000.00 and an assignment to CITBC of all rights under the aforesaid life insurance policy as additional collateral for Obligations. 17. Each Company agrees to advise CITBC in writing of: a) all expenditures (actual or anticipated) in excess of $100,000.00 for x) environmental clean-up, y) environmental compliance or z) environmental testing and the impact of said expenses on the Working Capital; and b) any notices a Company receives from any local, state or federal authority advising the Company of any environmental liability (real or potential) stemming from the Company's operations, its premises, its waste disposal practices, or waste disposal sites used by a Company and to provide CITBC with copies of all such notices if so required. 18. Without the prior written consent of CITBC, each Company agrees that it will not enter into any transaction, including, without limitation, any purchase, sale, lease, loan or exchange of property with any subsidiary or affiliate provided, however that a Company may sell to, or purchase Inventory from, any other Company, ROA Canada, or ROA provided such transactions are x) conducted on an arms length basis and y) on terms no less beneficial to the Company than the Company would have obtained from an entity that was not relating to the Company. SECTION 8. INTEREST, FEES AND EXPENSES 1. Interest on the Revolving Loan shall be payable monthly as of the end of each month and shall be an amount equal to eight and three-quarters percent (8 3/4%) per annum on the average of the net balances owing by the Companies to CITBC in the Collective Loan Account at the close of each day during such month. This rate of interest is based on the seven and three-quarters percent (7 3/4%) per annum Chemical Bank Rate as of August 17, 1994. In the event of any change in said Chemical Bank Rate, the rate hereunder shall change, as of the first of the month following any change, so as to remain one percent (1%) above the Chemical Bank Rate. The rate hereunder shall be calculated based on a 360-day year. CITBC shall be entitled to charge the Collective Loan Account at the rate provided for herein when due until all Obligations have been paid in full. 2. Interest on the Term Loan shall be payable monthly as of the end of each month on the unpaid balance or on payment in full prior to maturity in an amount equal to nine percent (9%) per annum. The rate of interest is based upon the seven and three-quarters percent (7 3/4%) per annum Chemical Bank Rate as of August 17, 1994. In the event of any change in said Chemical Bank Rate, the rate hereunder shall change, as of the first of the month following any change, so as to remain one and one-quarter percent (1 1/4%) above the Chemical Bank Rate. The rate hereunder shall be calculated based on a 360 day year. CITBC shall be entitled to charge the Collective Loan Account at the rate provided for herein when due until all Obligations have been paid in full. 3. In consideration of the Letter of Credit Guaranty of CITBC, the Companies shall pay CITBC the Letter of Credit Guaranty Fee which shall be an amount equal to one and one-quarter percent (1 1/4%) per annum, payable monthly, on the face amount of each Letter of Credit less the amount of any and all amounts previously drawn under the Letter of Credit. -31- 32 4. Any charges, fees, commissions, costs and expenses charged to CITBC for a Company's account by any Issuing Bank in connection with or arising out of Letters of Credit issued pursuant to this Financing Agreement or out of transactions relating thereto will be charged to the Collective Loan Account in full when charged to or paid by CITBC and when made by any such Issuing Bank shall be conclusive on CITBC. 5. The Companies shall reimburse or pay CITBC, as the case may be, for: i) all Out-of-Pocket Expenses of CITBC and b) any applicable Documentation Fee. 6. Upon the last Business Day of each month, commencing with August 31, 1994, the Companies shall pay CITBC the Line of Credit Fee. 7. To induce CITBC to enter into this Financing Agreement and to extend to the Companies the Revolving Loan and the Term Loan, the Companies shall pay to CITBC a Loan Facility Fee in the amount of $25,000.00 payable upon execution of this Financing Agreement. 8. Upon the date of execution of this Financing Agreement and on the first Business Day of each month thereafter, the Companies shall pay to CITBC the Collateral Management Fee. 9. The Companies shall pay CITBC's standard charges for, and the fees and expenses of, the CITBC personnel used by CITBC for reviewing the books and records of any Company and for verifying, testing protecting, safeguarding, preserving or disposing of all or any part of the Collateral provided, however, that the foregoing shall not be payable until the occurrence of an Event of Default if the Companies are paying a Collateral Management Fee. 10. Each Company hereby authorizes CITBC to charge the Collective Loan Account with CITBC with the amount of all payments due hereunder as such payments become due. Each Company confirms that any charges which CITBC may so make to the Collective Loan Account as herein provided will be made as an accommodation to the Company and solely at CITBC's discretion. SECTION 9. POWERS Each Company hereby constitutes CITBC or any person or agent CITBC may designate as its attorney-in-fact, at each Company's cost and expense, to exercise all of the following powers, which being coupled with an interest, shall be irrevocable until all of the Obligations to CITBC have been paid in full: (a) To receive, take, endorse, sign, assign and deliver, all in the name of CITBC or any Company, any and all checks, notes, drafts, and other documents or instruments relating to the Collateral; (b) To receive, open and dispose of all mail addressed to any Company and to notify postal authorities to change the address for delivery thereof to such address as CITBC may designate; (c) To request from customers indebted on Accounts at any time, in the name of CITBC or any Company or that of CITBC's designee, information concerning the amounts owing on the Accounts; -32- 33 (d) To transmit to customers indebted on Accounts notice of CITBC's interest therein and to notify customers indebted on Accounts to make payment directly to CITBC; and (e) To take or bring, in the name of CITBC or any Company, all steps, actions, suits or proceedings deemed by CITBC necessary or desirable to enforce or effect collection of the Accounts. Notwithstanding anything hereinabove contained to the contrary, the powers set forth in (b), (d) and (e) above may only be exercised after the occurrence of an Event of Default and until such time as such Event of Default is waived. SECTION 10. EVENTS OF DEFAULT AND REMEDIES 1. Notwithstanding anything hereinabove to the contrary, CITBC may terminate this Financing Agreement immediately upon the occurrence of any of the following (herein "Events of Default"): a) cessation of the business of a Company or the calling of a meeting of the creditors of any Company for purposes of compromising the debts and obligations of any Company; b) the failure of any Company to generally meet debts as they mature; c) the commencement by any Company of any bankruptcy, insolvency, arrangement, reorganization, receivership or similar proceedings under any federal or state law; d) the commencement against any Company of any bankruptcy, insolvency, arrangement, reorganization, receivership, or similar proceedings under any federal or state law, provided, however, that such Default shall not be deemed an Event of Default if such is dismissed within sixty (60) days from the date of commencement; e) material breach by any Company of any warranty, representation or covenant contained herein (other than those otherwise referred to in this paragraph 1) or in any other written agreement between any Company or CITBC, provided that such Default by any Company of any of the warranties, representations or covenants referred in this clause shall not be deemed to be an Event of Default unless and until such Default shall remain unremedied or uncured to CITBC's satisfaction for a period of thirty (30) days from the date of such breach; f) breach by any Company of any warranty, representation or covenant of Section 3, Paragraphs 3 (other than the third sentence of paragraph 3) and 4; Section 6, Paragraphs 3 and 4 (other than the first sentence of paragraph 4); Section 7, Paragraphs 1,5,6, and 9 through 16; g) failure of any Company to pay any of the Obligations within five (5) business days of the due date thereof, provided that nothing contained herein shall prohibit CITBC from charging such amounts to the Collective Loan Account on the due date thereof; h) the Companies, on a consolidated basis, sustain a loss in any fiscal year, as determined in accordance with GAAP in effect as of the date of this Financing Agreement, in excess of $500,000.00; i) any Company shall i) engage in any "prohibited transaction" as defined in ERISA, ii) have any "accumulated funding deficiency" as defined in ERISA, iii) have any Reportable Event as defined in ERISA, iv) terminate any underfunded Plan, as defined in ERISA or v) be engaged in any proceeding in which the Pension Benefit Guaranty Corporation shall seek appointment, or is appointed, as trustee or administrator of any Plan, as defined in ERISA, and with respect to this sub-paragraph i such event -33- 34 or condition x) remains uncured for a period of ninety (90) days from date of occurrence and y) could, in the reasonable opinion of CITBC, subject such Company to any tax, penalty or other liability material to the business, operations or financial condition of the Company; j) the occurrence of any Event of Default under the ROA Financing Agreement; k) Kurt M. Swenson ceases for any reason whatsoever (other than as a result of death) to be actively engaged in the management of the Companies or the stock of i) Swenson presently held by Kurt M. Swenson and/or members of his family; ii) ROA Quarries or Royalty Granite presently held by Swenson, is transferred other than to i) Kurt M. Swenson, or ii) Kevin C. Swenson or iii) members of their families or iv) trusts for the benefit of their families. i) the occurrence of any default or event of default which is not cured within any applicable grace period or waived under any instrument or agreement evidencing any other Indebtedness having a then principal balance in excess of $250,000.00 and which default or event of default gives the holder of such Indebtedness a then right to accelerate such Indebtedness. 2. Upon the occurrence of a Default and/or an Event of Default, at the option of CITBC, all loans and advances provided for in paragraph 1 of Section 3 of this Financing Agreement shall be thereafter in CITBC's sole discretion and the obligation of CITBC to make revolving loans and/or open Letters of Credit shall cease unless such Default is cured to CITBC's satisfaction or such Event of Default is waived, and at the option of CITBC upon the occurrence of an Event of Default: i) all Obligations shall become immediately due and payable; ii) CITBC may charge the Default Rate of Interest on all then outstanding or thereafter incurred Obligations in lieu of the interest provided for in paragraphs one and two of Section 8 of this Financing Agreement provided a) CITBC has given the Companies written notice of the Event of Default, provided, however, that no notice is required if the Event of Default is the Event of Default listed in paragraph l(c) or l(d) of this Section 10 and b) the Companies have failed to cure the Event of Default within ten (10) days after x) CITBC deposited such notice in the United States mail or y) the occurrence of the Event of Default listed in paragraph l(c) or l(d) of this Section 10; and iii) CITBC may immediately terminate this Financing Agreement upon notice to ROA Quarries to and for the benefit of the Companies, provided, however, that no notice of termination is required if the Event of Default is the Event of Default listed in paragraph 1(c) or l(d) of this Section 10. The exercise of any option is not exclusive of any other option which may be exercised at any time by CITBC. A Default Rate of Interest shall cease as soon as CITBC waives the Event of Default giving rise to the Default Rate of Interest. In the event the Default Rate of Interest is charged as a result of a breach or violation of paragraphs 9 and 12 through 15 of Section 7 of this Financing Agreement, the Default Rate of Interest shall cease as soon as the Companies demonstrate on the next succeeding test date that they have not breached or violated the covenants applicable for said test date and that there is not another outstanding Event of Default. 3. Immediately upon the occurrence of any Event of Default, CITBC may to the extent permitted by law: (a) remove from any premises where same may be located any and all documents, instruments, files and records, and any receptacles or cabinets containing same, relating to the Accounts, or CITBC may use, at any Company's expense, such of a Company's personnel, supplies or space at any Company's places of business or otherwise, as may be necessary to properly administer and control the Accounts or the handling of collections and realizations thereon; (b) bring suit, in the name of any Company or CITBC, and generally shall have all other fights respecting said Accounts, including, without limitation, the right to: accelerate or -34- 35 extend the time of payment, settle, compromise, release in whole or in part, any amounts owing on any Accounts and issue credits in the name of any Company or CITBC; (c) sell, assign and deliver the Collateral and any returned, reclaimed or repossessed merchandise, with or without advertisement, at public or private sale, for cash, on credit or otherwise, at CITBC's sole option and discretion, and CITBC may bid or become a purchaser at any such sale, free from any right of redemption, which right is hereby expressly waived by each Company; (d) foreclose the security interests created herein by any available judicial procedure, or to take possession of any or all of the Inventory and Equipment without judicial process, and to enter any premises where any Inventory and Equipment may be located for the purpose of taking possession of or removing the same; and (e) exercise any other fights and remedies provided in law, in equity, by contract or otherwise. CITBC shall have the right, without notice or advertisement, to sell, lease, or otherwise dispose of all or any part of the Collateral whether in its then condition or after further preparation or processing, in the name of any Company or CITBC, or in the name of such other party as CITBC may designate, either at public or private sale or at any broker's board, in lots or in bulk, for cash or for credit, with or without warranties or representations, and upon such other terms and conditions as CITBC in its sole discretion may deem advisable, and CITBC shall have the right to purchase at any such sale. If any Inventory and Equipment shall require rebuilding, repairing, maintenance or preparation, CITBC shall have the right, at its option, to do such of the aforesaid as is necessary, for the purpose of putting the Inventory and Equipment in such saleable form as CITBC shall deem appropriate. Each Company agrees, at the request of CITBC, to assemble the Inventory and Equipment and to make it available to CITBC at the premises of a Company where then located and to make available to CITBC the premises and facilities of any Company for the purpose of CITBC's taking possession of, removing or putting the Inventory and Equipment in saleable form. However, if notice of intended disposition of any Collateral is required by law, it is agreed that ten (10) days notice shall constitute reasonable notification and full compliance with the law. The net cash proceeds resulting from CITBC's exercise of any of the foregoing rights (after deducting all reasonable charges, costs and expenses, including reasonable attorneys' fees) shall be applied by CITBC to the payment of the Obligations, whether due or to become due, in such order as CITBC may elect, and each Company shall remain liable to CITBC for any deficiencies, and CITBC in turn agrees to remit to ROA Quarries to and for the benefit of the Companies or their successors or assigns, any surplus resulting therefrom. The enumeration of the foregoing rights is not intended to be exhaustive and the exercise of any right shall not preclude the exercise of any other rights, all of which shall be cumulative. The mortgage, deed of trust or assignment on the Real Estate shall govern the fights and remedies of CITBC thereto. SECTION 11. TERMINATION Except as otherwise permitted herein, CITBC may terminate this Financing Agreement and the Line of Credit only as of an Anniversary Date and then only by giving ROA Quarries at least sixty (60) days prior written notice of termination. Notwithstanding the foregoing CITBC may terminate the Financing Agreement immediately upon the occurrence of an Event of Default, provided, however, that if the Event of Default is the event listed in paragraph l(c) or l(d) of Section 10 of this Financing Agreement, CITBC may regard the Financing Agreement as terminated and notice to that effect is not required. This Financing Agreement, unless terminated as herein provided, shall automatically continue from Anniversary Date to Anniversary Date. ROA Quarries, on behalf of the Companies, may terminate this Financing Agreement and the Line of Credit at any time upon sixty (60) days' prior written notice to CITBC, provided, however, that -35- 36 if such termination is prior to the first Anniversary Date, the Companies pay to CITBC, immediately on demand, an Early Termination Fee and the Prepayment Premium, if applicable. In the event CITBC terminates this Financing Agreement for any reason whatsoever, no Early Termination Fee and/or Prepayment Premium shall be due and payable. All Obligations shall become due and payable as of any termination hereunder or under Section 10 hereof and, pending a final accounting, CITBC may withhold any balances in the Collective Loan Account (unless supplied with an indemnity satisfactory to CITBC) to cover all of the Obligations, whether absolute or contingent. All of CITBC's rights, liens and security interests shall continue after any termination until all Obligations have been paid and satisfied in full. SECTION 12. MISCELLANEOUS 1. Each Company hereby waives diligence, demand, presentment and protest and any notices thereof as well as notice of nonpayment. No delay or omission of CITBC or the Companies to exercise any right or remedy hereunder, whether before or after the happening of any Event of Default, shall impair any such right or shall operate as a waiver thereof or as a waiver of any such Event of Default. No single or partial exercise by CITBC or the Companies of any right or remedy precludes any other or further exercise thereof, or precludes any other right or remedy. 2. This Financing Agreement and the documents executed and delivered in connection therewith constitute the entire agreement between the Companies and CITBC; supersede and terminate any prior agreements, including, but not limited to, the Existing Financing; can be changed only by a writing signed by the Companies and CITBC; and shall bind and benefit the Companies and CITBC and their respective successors and assigns. 3. In no event shall any Company, upon demand by CITBC for payment of any indebtedness relating hereto, by acceleration of the maturity thereof, or otherwise, be obligated to pay interest and fees in excess of the amount permitted by law. Regardless of any provision herein or in any agreement made in connection herewith, CITBC shall never be entitled to receive, charge or apply, as interest on any indebtedness relating hereto, any amount in excess of the maximum amount of interest permissible under applicable law. If CITBC ever receives, collects or applies any such excess, it shall be deemed a partial repayment of principal and treated as such; and if principal is paid in full, any remaining excess shall be refunded to ROA Quarries to and for the benefit of the Companies. This paragraph shall control every other provision hereof and of any other agreement made in connection herewith. 4. If any provision hereof or of any other agreement made in connection herewith is held to be illegal or unenforceable, such provision shall be fully severable, and the remaining provisions of the applicable agreement shall remain in full force and effect and shall not be affected by such provision's severance. Furthermore, in lieu of any such provision, there shall be added automatically as a part of the applicable agreement a legal and enforceable provision as similar in terms to the severed provision as may be possible. 5. THE COMPANIES AND CITBC ACKNOWLEDGE THAT THE FINANCIAL COVENANTS ARE BASED ON GAAP AS IN EFFECT ON THE DATE OF THIS FINANCING AGREEMENT. FURTHERMORE, WITH RESPECT TO THE FINANCIAL COVENANTS, FINANCIAL STATEMENTS AND COVENANT COMPLIANCE TESTING, NOTWITHSTANDING ANY CHANGES IN GAAP, ARE TO BE PREPARED, -36- 37 OR TESTED, AS THE CASE MAY BE, IN ACCORDANCE WITH GAAP AS IN EFFECT ON THE DATE OF THIS FINANCING AGREEMENT. SHOULD SUBSEQUENT CHANGES IN GAAP IMPOSE AN UNDUE BURDEN ON THE COMPANIES TO REPORT AND/OR TEST IN ACCORDANCE WITH GAAP AS IN EFFECT ON THE DATE HEREOF, THEN EACH OF CITBC AND THE COMPANIES AGREE THAT THEY WILL REASONABLY, DILIGENTLY AND IN GOOD FAITH ATTEMPT TO RENEGOTIATE THE AFORESAID COVENANTS, PROVIDED, HOWEVER, THAT UNTIL SUCH TIME AS THE COVENANTS ARE SO AMENDED, THE COMPANIES WILL REPORT AND/OR TEST, AS THE CASE MAY BE, IN ACCORDANCE WITH GAAP AS IN EFFECT ON THE DATE HEREOF. 6. EACH COMPANY AND CITBC EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF THIS FINANCING AGREEMENT. EACH COMPANY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO SERVICE OF PROCESS BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED. 7. Except as otherwise herein provided, any notice or other communication required hereunder shall be in writing, and shall be deemed to have been validly served, given or delivered when hand delivered or sent by facsimile, or three days after deposit in the United State mails, with proper first class postage prepaid and addressed to the party to be notified as follows: (A) if to CITBC, at: The CIT Group/Business Credit, Inc. 1211 Avenue of the Americas New York, NY 10036 Facsimile No. (212) 536-1295 Attn: Regional Manager (B) if to any Company at: Rock of Ages Quarries, Inc. care of Swenson Granite Company, Inc. 369 North State Street Concord, NH 03301 Attn: President or to such other address as any party may designate for itself by like notice. 8. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS FINANCING AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. -37- 38 IN WITNESS WHEREOF, the parties hereto have caused this Financing Agreement to be executed, agreed to, accepted and delivered in New York, New York by their proper and duly authorized officers as of the date set forth above. THE CIT GROUP/BUSINESS CREDIT, INC. By /s/ James Conheeney --------------------------- Vice President ROCK OF AGES QUARRIES. INC. By /s/ Kurt M. Swenson /s/ John R. Monson (Seal) --------------------------- ------------------------------- Title: President Assistant Secretary SWENSON GRANITE COMPANY, INC. By /s/ Kurt M. Swenson /s/ John R. Monson (Seal) --------------------------- ------------------------------- Title: President Assistant Secretary ROYALTY GRANITE COMPANY By /s/ Kurt M. Swenson /s/ John R. Monson (Seal) --------------------------- ------------------------------- Title: President Assistant Secretary -38- EX-10.20 8 CONFIRMATION OF CREDIT FACILITIES 1 [ROYAL BANK LOGO] ROYAL BANK EXHIBIT 10.20 - -------------------------------------------------------------------------------- DENIS BARRETTE ROYAL BANK OF CANADA Senior Account Manager Place Ville Marie Business Banking Centre 1 Place Ville Marie Montreal, Quebec H3C 3E9 [ROCK OF AGES CANADA INC. SEAL] Tel.: (514)874-5524 Fax: (514) 874-3896 Rock of Ages Canada Inc. 4 Rock of Ages Street [ROCK OF AGES CANADA INC. SEAL] P.O. Box 60 Beebe, Quebec J0B 1E0 ATTENTION: MR. E.E. HAYDON, PRESIDENT - ------------------------------------- Dear Sir: SUBJECT: CONFIRMATION OF CREDIT FACILITIES - ------------------------------------------ Further to our recent discussions, we are pleased to confirm your credit facilities subject to the following terms and conditions: LENDER: Royal Bank of Canada (the "Bank") BORROWER: 1) Rock of Ages Canada Inc. ("Borrower 1") 2) Rock of Ages Quarries Canada Inc. ("Borrower 2") 3) Rock of Ages Canada Inc. ("Borrower 3") (company to be created further to the merger of Borrowers 1) and 2) and the name change of Borrower 2)). (individually a "Borrower" and collectively the "Borrowers") CREDIT FACILITIES: SEGMENT (1-10): Up to $2,450,000 credit available by way of one or more of the following methods: a) Variable-rate loans in Canadian dollars. b) Variable-rate loans in U.S. dollars. SEGMENT (1-20): Up to $100,000 Foreign Exchange Risk. The Risk amount to be determined by the Bank at its sole discretion on a transaction basis. SEGMENT (1-30): Up to $10,000 Visa expense accosts. .../2 2 1) ROCK OF AGES CANADA INC. 2) ROCK OF AGES QUARRIES CANADA INC. 3) ROCK OF AGES CANADA INC. PAGE 2 CREDIT FACILITIES: (Cont'd) SEGMENT (1-40): $45,000 - 5-year term loan. SEGMENT (1-50): $1,050,000. - Direct leasing. SEGMENT (1-60): $250,000. - Temporary Operating loans (maturing August 1st 1997) TOTAL UTILIZED UNDER SEGMENTS 1-10) AND 1-20) SHOULD NOT EXCEED $2,450,000. SEGMENT (2-10): Up to $800,000 credit available by way of one or more of the following methods: a) Variable-rate loans in Canadian dollars. b) Variable-rate loans in U.S. dollars. SEGMENT (2-20): Up to $50,000 Foreign Exchange Risk. The risk amount is determined by the Bank at its sole discretion and on a transaction basis. SEGMENT (2-30): Up to $10,000 Visa expense accounts. TOTAL UTILIZED UNDER SEGMENTS 2-10) AND 2-20) SHOULD NOT EXCEED $800,000. SEGMENT (3-10): Up to $3,500,000 credit available by way of one or more of the following methods: a) Variable-rate loans in Canadian dollars. b) Variable-rate loans in U.S. dollars. SEGMENT (3-20): Up to $150,000 Foreign Exchange Risk. The risk amount is determined by the Bank at its sole discretion and on a transaction basis. SEGMENT (3-30): Up to $20,000 Visa expense accounts. SEGMENT (3-40): $45,000 - 5-year term loan. SEGMENT (3-50): $1,050,000. - Direct leasing. TOTAL UTILIZED UNDER SEGMENTS 3-10) AND 3-20) SHOULD NOT EXCEED $3,500,000. BORROWERS 1,2 AND 3 NOT TO EXCEED $4,615,000. .../3 3 1) ROCK OF AGES CANADA INC. 2) ROCK OF AGES QUARRIES CANADA INC. 3) ROCK OF AGES CANADA INC. PAGE 3 CURRENCY: All dollar amounts stated herein refer to Canadian funds unless otherwise specified. When used herein, the expression "U.S. dollars" means the lawful money of the United States of America in same-day immediately available funds. To calculate the credit available in U.S. dollars or the total borrowings outstanding, the Bank currently uses a conversion rate of 1.35 Canadian dollar for 1.00 U.S. dollar. The Bank may change this rate at any time at its discretion and the consequences of this change take effect immediately. If, as a result of a change, the total borrowings outstanding exceed the credit available, the Borrower must, on demand, make the reimbursement required to keep within established limits. PURPOSES: Segments (1-10), (1-30), (2-10), (2-30), (3-10) and (3-30): -Financing general operations. SEGMENTS (1-20), (2-20) AND (3-20): -Foreign exchange hedging. SEGMENTS (1-40) AND (3-40): -Financing the purchase of a property adjacent to the production plant. SEGMENTS (1-50) AND (3-50): -Equipment financing on new saw and buffer. SEGMENT (1-60): -Temporary operating loans for peak period. MARGIN: BORROWER 1) - SEGMENT 1-10 -------------------------- The aggregate of loans and preferred claims are not to exceed: a) 50% of the lesser of the cost and the realizable value of the Borrower's rough and finished inventory (excluding supplies) and 25(cent)% of work in process free from any prior encumbrances and excluding any identifiable unpaid inventory within 30 days (the result will be included up to $1,000M, increased to $2,000M until segment (1-60) is outstanding); plus b) 75% of the value of the Borrower's good trade accounts receivable free from any prior encumbrances, excluding: - the total amount of any account receivable of which any portion is due for more than 120 days with some discretion left to the account manager on special circumstances; and - accounts receivable due by persons affiliated with the Borrower (within the meaning of the CANADA BUSINESS CORPORATIONS ACT); plus c) 40% of the net book value of the Borrower's tangible fixed assets (excluding the fixed assets pledged to the BFD). .../4 4 1) ROCK OF AGES CANADA INC. 2) ROCK OF AGES QUARRIES CANADA INC. 3) ROCK OF AGES CANADA INC. PAGE 4 MARGIN: (Cont'd) BORROWER 2) - SEGMENT 2-10 -------------------------- The aggregate of loans and preferred claims are not to exceed: a) 50% of the lesser of the cost and the realizable value of the Borrower's rough and finished inventory (excluding supplies) and 25% of work in process free from any prior encumbrances and excluding any identifiable unpaid inventory delivered within 30 days (the result will be included up to $500M); plus b) 75% of the value of the Borrower's good trade accounts receivable free from any prior encumbrances, excluding: - the total amount of any account receivable of which any portion is due for more than 120 days with some discretion left to the account manager on special circumstances; and - accounts receivable due by persons affiliated with the Borrower (within the meaning of the CANADA BUSINESS CORPORATIONS ACT); plus c) 40% of the net book value of the Borrower's tangible fixed assets. (Any undermargin under Borrowers 1) and 2) to be covered by any excess margin from either Borrower). BORROWER 3) - SEGMENT 3-10: -------------------------- The aggregate of loans and preferred claims are not to exceed: a) 50% of the lesser of the cost and the realizable value of the Borrower's rough and finished inventory (excluding supplies) and 25% of work in process free from any prior encumbrances and excluding any identifiable unpaid inventory delivered within 30 days (the result will be included up to $2,500M); plus b) 75% of the value of the Borrower's good trade accounts receivable free from any prior encumbrances, excluding: - the total amount of any account receivable of which any portion is due for more than 120 days with some discretion left to the account manager on special circumstances; and - accounts receivable due by persons affiliated with the Borrower (within the meaning of the CANADA BUSINESS CORPORATIONS ACT); plus c) 40% of the net book value of the Borrower's tangible fixed assets. .../5 5 1) ROCK OF AGES CANADA INC. 2) ROCK OF AGES QUARRIES CANADA INC. 3) ROCK OF AGES CANADA INC. PAGE 5 INTEREST RATES: SEGMENTS (1-10) - Prime Rate + 3/4% per annum AND (2-10): - US Base Rate + 3/4% per annum SEGMENT (1-40): - Prime Rate + 1 1/2% SEGMENT (1-50): - Standard Leasing rates SEGMENT (1-60): - Prime Rate + 1% - US Base Rate + 1% SEGMENT (3-10): - Prime Rate + 3/4% - US Base Rate + 3/4% SEGMENT (3-40): - Prime Rate + 1 1/2% SEGMENT (3-50): - Standard Leasing rates The expression "Prime Rate" means the annual rate of interest announced by the Bank from time to time as its reference rate then in effect for determining interest rates on Canadian dollar commercial loans made by the Bank in Canada. The expression "U.S. Base Rate" means the annual rate of interest announced by the Bank from time to time as its reference rate then in effect for determining interest rates on U.S. dollar commercial loans made by the Bank in Canada. The Borrower shall pay outstanding accrued interest monthly on the date fixed by the Bank. Interest shall be calculated on the daily principal balance at the aforementioned annual interest rates based on the actual number of calendar days elapsed during the period in which interest is calculated, divided by 365. The annual rates of interest, which correspond to the rates calculated as aforesaid, are the rates so determined multiplied by the actual number of days in a calendar year and divided by 365. Outstanding interest payable bears interest at the rate of interest applicable to the relative loan and is payable on demand. Interest is payable in the same currency as the relative loan. FEES: An annual standby fee of 1/4% shall be calculated daily on the unused portion of the loans under segments (1-10) and (2-10). For segment (3-10), the standby fee will apply only further to cancellation of segments (1-10) and (2-10). The accrued amount of this fee is payable monthly. .../6 6 61) ROCK OF AGES CANADA INC. 2) ROCK OF AGES QUARRIES CANADA INC. 3) ROCK OF AGES CANADA INC. PAGE 6 FEES: (Cont'd) A non-refundable fee of $9,000. will be payable upon acceptance of this confirmation of credit facility which will cover the worked involved with the annual review and the corporate restructuring asked for. LEGAL COSTS: All legal costs, fees and expenses incurred by the Bank or on its behalf for establishing the credit facilities and related documentation, including security documentation, are for the account of the Borrower and payable on demand. REPAYMENT: SEGMENTS (1-10), (1-30), {2-10), (2-30), (3-10) ----------------------------------------------- AND (3-30): ---------- -Repayment in full on demand. SEGMENTS (1-20), (2-20) AND (3-20): ---------------------------------- - Upon maturity of each contract. SEGMENTS (1-40) AND (3-40): -------------------------- - 53 months remaining on term loans (originally a 60-month term) reducing $833.33 per month + int. SEGMENTS (1-50) AND (3-50): -------------------------- - 4-year direct leasing. SEGMENT (1-60): -------------- - Maturing August 1st, 1997. COLLATERAL SECURITY: Borrower 1) ---------- a) Assignment under Section 427 of the BANK ACT (Canada) covering (for example, raw materials, goods in process, finished products and supplies of the Borrower) insured for a sufficient amount; policies must be lodged with and losses made payable to the Bank. b) Deed of Moveable Hypothec coveting the universality of present and future debts and all others assets of the Borrower with priority of rank to the BFD in reference to a specific property and to specific equipment that were previously owned by Andru Granite Inc. c) General Assignment of Book Debts registered in Ontario for the Borrower and any other province where sales are to be made. d) Guarantee and Postponement of Claim for $500,000. signed by Rock of Ages Quarries Canada Inc. supported by a directors' resolution. .../7 7 1) ROCK OF AGES CANADA INC. 2) ROCK OF AGES QUARRIES CANADA INC. 3) ROCK OF AGES CANADA INC. PAGE 7 COLLATERAL SECURITY: Borrower 1) (Cont'd) ----------- e) Deed of Immoveable Hypothec, 2nd rank for Labelle location, on all of the land and buildings of the Borrower. f) Deed of Immoveable Hypothec, 2nd rank for Standstead location), on all of the land and buildings of the borrower. g) Deed of Immoveable Hypothec, 1st rank of hypothec given by Rock of Ages Canada in the amount of $2,450,000 for all the land and buildings. h) Postponement of Claim from Rock of Ages Corporation. i) Deed of Immoveable Hypothec of 1st rank on the property located at 21 Main, Beebe, Quebec. Borrower 2) ----------- a) Assignment under Section 427 of the BANK ACT (Canada) covering (for example, raw materials, goods in process, finished products and supplies of the Borrower) insured for a sufficient amount; policies must be lodged with and losses made payable to the Bank. b) Deed of Moveable Hypothec covering the universality of present and future debts and all others assets of the Borrower. c) General Assignment of Book Debts registered in Ontario for the Borrower and any other province where sales are to be made. d) Deed of Immoveable Hypothec on all of the land and buildings of the Borrower. e) Deed of Immoveable Hypothec, 1st rank Standstead location, on all the land and buildings of the Borrower. f) Post Claim from Rock of Ages Quarries Inc. .../8 8 1) ROCK OF AGES CANADA INC. 2) ROCK OF AGES QUARRIES CANADA INC. 3) ROCK OF AGES CANADA INC. PAGE 8 COLLATERAL SECURITY: Borrower 3) ----------- a) Assignment under Section 427 of the BANK ACT (Canada) covering (for example, raw materials, goods in process, finished products and supplies of the Borrower) insured for a sufficient amount; policies must be lodged with and losses made payable to the Bank. b) Deed of Moveable Hypothec covering the universality of present and future debts and all others assets of the Borrower with priority of rank to the BFD in reference to a specific property and to specific equipment that were previously owned by Adru Granite Inc. c) General Assignment of Book Debts registered in Ontario for the Borrower and any other province where sales are to be made. d) Deed of Immoveable Hypothec, 1st rank of hypothec for all the land, buildings including the Labelle and Standstead locations plus the property located at 21 Main, Beebe, Quebec. e) Post Claim from Rock of Ages Corporation. COVENANTS: The Borrowers covenant with the Bank as follows: ON A COMBINED BASIS FOR BORROWERS (1) AND (2) AND FOR (3) AFTER (1) AND (2) ARE CANCELLED: a) To maintain a minimum current ratio (current assets to current liabilities) of 1.4:1. For the purposes of this calculation, "current assets" means inventory, accounts receivables, cash, term deposits and prepaid expenses; "current liabilities" means direct operating loans owing to the Bank and other lenders, accounts payable and accrued charges, including outstanding cheques, the portion of the term debt due within one year and all income taxes payable. b) To maintain a maximum total liabilities/ tangible net worth ratio not in excess of 1.75:1. (to include in the tangible net worth, a 50% value of the book value of the "Carrieres Norgranite Inc. Investment"). For the purposes of this calculation, "tangible net worth" is made up of capital stock, additional paid-in capital, retained earnings and formally postponed debts, excluding intangible assets, leasehold improvements, loans to affiliates and investments in subsidiaries. c) Any shortfall at year-end is to be covered by the parent companies within 90 days following the year-end. .../9 9 1) ROCK OF AGES CANADA INC. 2) ROCK OF AGES QUARRIES CANADA INC. 3) ROCK OF AGES CANADA INC. PAGE 9 COVENANTS: (Cont'd) d) The Borrowers will not lend nor guarantee any sum to third parties without the prior written approval of the Bank. e) The Borrower will deliver to the Bank such financial and other information as the Bank may reasonably require, including: (i) Audited annual financial statements within 90 days of fiscal year-end of each borrower; (ii) Combined financial statements of borrowers (1) and (2) within 90 days of fiscal year-end; (iii) Internal financial statements within 20 days of each month-end of each borrower; (iv) Combined internal financial statements of borrowers (1) and (2) within 20 days of each month-end; (v) Budget including capital expenditures of borrowers (1), (2) and (3) within 90 days of last fiscal year-end; (vi) Detailed listing of the aged accounts receivable and inventory confirmation for borrowers (1), (2) (3) within 20 days of each month-end; (vii) Audited financial statements within 120 days of fiscal year-end for Swenson Granite Company Inc. (1996 to be forwarded to the Bank by July 31, 1997). (iv) TO BE ELIMINATED UPON CANCELLATION OF BORROWERS (1) AND (2). f) The Borrower will promptly pay, when due, all income and other taxes payable. g) The Borrower agrees to remit, as prescribed under the INCOME TAX ACT (Canada), the TAXATION ACT (Quebec) and any other applicable fiscal legislation, all deductions and withholdings made by the Borrower, as they fall due and to notify the Bank immediately upon failure to do so. All above covenants shall remain in force for the benefit of the Bank regardless of the date advances are made or security taken. .../10 10 1) ROCK OF AGES CANADA INC. 2) ROCK OF AGES QUARRIES CANADA INC. 3) ROCK OF AGES CANADA INC. PAGE 10 COVENANTS: (Cont'd) Note: In respect of credit facilities repayable on ---- demand, compliance by the Borrower with the above covenants does not affect nor limit the Bank's right to demand full repayment of the facilities at its discretion and at any time, such covenants being an indication of what must be complied with for the Bank to favourably consider, without any obligation, to maintain a business relationship with the Borrower. PROVISIONS REGARDING a) The Borrower declares to the Bank that as of THE ENVIRONMENT: date hereof: - it fully complies with environmental protection laws, regulations, bylaws and other requirements applicable to its property and activities; - it has obtained the environmental protection certificates, approvals, permits, authorizations and orders required for the use of its property and for carrying out its activities, if applicable; - no notice, demand, ordinance, lawsuit or complaint was brought against it concerning environmental protection; - to its knowledge, there is no circumstance which may give rise to the revocation of the aforesaid certificates, approvals, permits, authorizations and orders or to the issue of a notice, demand, ordinance, lawsuit or complaint as aforesaid, except for those that it fully disclosed to the Bank in writing. b) The Borrower shall comply strictly and in all respects with the requirements of environmental protection laws, regulations, bylaws and other requirements applicable to its property and activities and shall notify the Bank immediately in the event of any release or discovery of any contaminant upon, under, over or within its property or any contiguous real property or any real property on or near which a contaminant could reasonably be anticipated to be released that may affect its property and activities. The Borrower shall promptly forward to the Bank copies of all notices, permits, orders, demands or other documents and reports in connection with any release or the presence of any contaminant or any matters relating to environmental protection laws or otherwise as they affect its property and activities. .../11 11 1) ROCK OF AGES CANADA INC. 2) ROCK OF AGES QUARRIES CANADA INC. 3) ROCK OF AGES CANADA INC. PAGE 11 PROVISIONS REGARDING THE ENVIRONMENT: (Cont'd) c) The Borrower shall provide the Bank, upon demand and at the Borrower's expense, with all the information that the Bank may reasonably require regarding the environmental situation of the Borrower, notably concerning the Borrower's activities, moveable and immoveable property, and all contiguous property to its properties, if applicable, including an environmental audit report prepared by an environmental engineering firm acceptable to the Bank. It will be reasonable for the Bank to periodically request from the Borrower a confirmation that the statements regarding the environment contained herein are still true and that as of the date of such confirmation, no event occurred that may affect in any way its property and activities insofar as environmental protection is concerned. d) The Borrower shall allow the Bank and its agents access to its property or to any information regarding its property or activities to enable the Bank to assess the risk that the Borrower's environmental situation represents to the Bank, to anticipate its effect or to take corrective action. e) The Borrower shall indemnify and hold the Bank harmless against and from any and all claims, suits, actions, damages, costs, judgments or other expenses sustained or incurred by the Bank either in the exercise of the rights conferred on the Bank herein, or as beneficiary of security against the property of the Borrower, or under any other circumstance relating to environmental protection affecting the Borrower's property and activities. INDEMNITY: If, in the opinion of the Bank, the Bank is now or becomes subject to, or if there is a change in: a) any reserve or similar requirement against the assets of the Bank, deposits made with or for the account of, credit extended by, or any acquisition of funds for the extension of credit by, the Bank; b) any reserve or similar requirement with respect to all or any part of the credit used by the Borrower hereunder or any unused portion of the credit facilities; c) taxation, or the basis of taxation, of any payments due to the Bank hereunder (except for taxes on the overall net income of the Bank); .../12 12 1) ROCK OF AGES CANADA INC. 2) ROCK OF AGES QUARRIES CANADA INC. 3) ROCK OF AGES CANADA INC. PAGE 12 INDEMNITY: (Cont'd) d) any requirement relating to capital adequacy; or e) any other condition prescribed by law or by the interpretation thereof by competent authority, or any other condition, whether or not having the force of law, with which financial institutions carrying on business in Canada are or were generally complying; which in the sole determination of the Bank, causes: (i) an additional cost with respect to the credit facilities, (ii) a reduction in the revenues derived therefrom, or (iii) a reduction in the effective return hereunder or on the Bank's capital to a level below that which the Bank could have otherwise achieved (using any reasonable averaging and attribution method), then, in any such event, the Borrower shall pay to the Bank, on demand, the amount which the Bank considers sufficient to compensate that additional cost, reduction in revenues, or reduction in rate of return. Absent manifest error, the amount established by the Bank shall be conclusive. EVENTS OF DEFAULT: Without limiting its right to demand at any time payment of sums which are payable on demand, the Bank may, to the extent permitted by and in compliance with applicable law, immediately terminate the right of the Borrower to make further borrowings under the credit facilities, and demand immediate payment of all sums owing thereunder, including accrued interest, and realize on all or any portion of the security granted in its favor, upon the occurrence of any of the following events: a) failure by the Borrower to pay the principal, interest or any other amount when due; b) failure by the Borrower to observe or satisfy any covenant, condition or provision in this agreement or in any other agreement with the Bank, or in any security document established in favor of the Bank; c) if the Borrower becomes insolvent, files a notice of intention to make a proposal to its creditors under the Bankruptcy and Insolvency Act, is declared bankrupt, makes an assignment of its property for the benefit of its creditors, or makes a bulk sale of any part of its assets without the prior consent of the Bank; d) if any step is taken with respect to a compromise or arrangement with the creditors of the Borrower, or to have the Borrower declared bankrupt or wound up, or if a receiver is appointed with respect to any part of the property encumbered by security in favor of the Bank, or if any encumbrancer takes possession of any part of the Borrower's assets; .../13 13 1) ROCK OF AGES CANADA INC. 2) ROCK OF AGES QUARRIES CANADA INC. 3) ROCK OF AGES CANADA INC. PAGE 13 EVENTS OF DEFAULT: (Cont'd) e) if in the opinion of the Bank, there occurs: (i) a material adverse change in the Borrower's financial condition; (ii) an unacceptable change in the ownership of the capital stock of the Borrower; (iii) the Borrower is subject to legal proceedings detrimental to its affairs; f) the breach of any law, regulation, bylaw or requirement whether federal, provincial, municipal, or otherwise, concerning pollution of the environment, toxic materials, or other environmental hazards, or public health and safety, affecting any of the Borrower's property or activities. Upon a demand for payment, whether or not pursuant to an event of default as aforesaid, the Borrower shall also pay to the Bank the aggregate face value of all bankers' acceptances and letters of guarantee or of credit which are unmatured or unexpired, as an anticipated discharge of the Borrower's obligation to indemnify the Bank in respect thereto. EVIDENCE OF INDEBTEDNESS: If loans and transactions pertaining to the credit facilities are not evidenced by promissory notes or other debt instruments, or by any other agreement with the Bank, the books and records of the Bank's unit or office in charge of the credit facilities, in which are kept the accounts and statements showing the principal amounts owing, interest thereon, fees and other sums due by the Borrower, and recorded the transactions pertaining to the credit facilities, shall, in the absence of manifest error, constitute conclusive evidence of the Borrower's indebtedness hereunder and of such transactions. The Bank shall maintain on the books of its unit of account, accounts and records evidencing the outstanding principal amount of the loan of the Bank to the Customer under this Loan Facility together with any interest in respect thereof. The Bank shall maintain a record of the amount of the balance, each advance, and each payment of principal and interest on account of the loan. The Bank's accounts and records constitute in the absence of manifest error PRIMA FACIE evidence of the indebtedness of the Customer to the Bank under this Loan Facility. 1) if such position or net position is a credit in favour of the Customer, the Bank will apply the amount of such credit or any part thereof, rounded to the nearest $10,000. as a repayment of the Loan Facility, and the Bank will debit the Account with the amount of such repayment, and .../14 14 1) ROCK OF AGES CANADA INC. 2) ROCK OF AGES QUARRIES CANADA INC. 3) ROCK OF AGES CANADA INC. PAGE 14 EVIDENCE OF INDEBTEDNESS: (Cont'd) 2) if such position or net position is a debit in favour of the Bank, the Bank will make an advance under the Loan Facility of such amount, rounded to the nearest $10,000. as is required to place the Account in such credit or net credit position as has been agreed between the Customer and the Bank from time to time. provided that at no time shall the balance owing exceed the amount of the Loan Facility. CONDITION PRECEDENT: Credit Facilities under Borrower 3) will only be available when all facilities under Borrowers 1) and 2) are fully reimbursed and cancelled to the Bank's satisfaction. REVIEW: The Bank may, at any time, revise the conditions applicable to the credit facilities and withdraw their availability, their availability. It is the Bank's practice to review credit facilities at least once annually. Unless the Borrower is in default, the conditions applicable to a term loan granted prior to the review or the withdrawal shall be maintained. GOVERNING LAW: This agreement shall be governed by the laws in force in the province of Quebec. We trust the foregoing is satisfactory to you and request that you indicate your acceptance by signing and returning the duplicate of this letter on or before July 11, 1997. Yours truly, ROYAL BANK OF CANADA /s/ Denis Barrette - --------------------------------- Denis Barrette Senior Account Manager READ AND ACCEPTED ON THIS 2 DAY OF JULY 1997 ROCK OF AGES CANADA INC. By: /s/ By: /s/ --------------------------------- --------------------------------- Title: DIR. FINANCE Title: COMPTABLE .../15 15 1) ROCK OF AGES CANADA INC. 2) ROCK OF AGES QUARRIES CANADA INC. 3) ROCK OF AGES CANADA INC. PAGE 15 ROCK OF AGES QUARRIES CANADA INC. By: /s/ YVES BROUSSEAU By: /s/ GUY DROUIN --------------------------------- --------------------------------- Title: DIR. FINANCE Title: COMPTABLE ROCK OF AGES CANADA INC. (NEW STRUCTURE) By: /s/ By: /s/ --------------------------------- --------------------------------- Title: DIR. FINANCE Title: COMPTABLE EX-10.21 9 CIT GROUP LETTER 1 Exhibit 10.21 THE CIT GROUP/BUSINESS CREDIT 1211 Avenue of the Americas New York, New York 10036 (212) 536-1200 September 14, 1997 Mr. Kurt Swenson Rock of Ages Corporation 369 North State Street Concord, NH 03301 Dear Kurt: It is with pleasure that I provide you with this commitment letter for the financing of the Rock of Ages Corporation (ROA) subsequent to the closing of ROA's public offering. In connection therewith, The CIT Group/Business Credit, Inc. (the "Lender") is pleased to inform you that we have approved a secured committed credit facility to ROA in the amount of $50,000,000.00 ("Line of Credit"), consisting of, and subject to, the following: REVOLVING LINE OF CREDIT 1. A revolving Line of Credit (the "Revolving Line of Credit") evidenced by a Financing Agreement ("Agreement") providing for revolving advances ("Revolving Loans") up to the lesser of (a) $25,000,000.00 or (b) the sum of (i) seventy five percent (75.0%) of eligible accounts receivable plus (ii) fifty percent (50.0%) of eligible inventory. LETTER OF CREDIT SUBLINE 2. Within the Revolving Line of Credit the Lender will assist ROA in opening documentary letters of credit for the importation of inventory and 2 Mr. Kurt Swenson September 14, 1997 Page 2 standby letters of credit, all in an amount not to exceed $3,000,000 in the aggregate at any one time. All letters of credit shall be reserved from availability. ACQUISITION TERM LOAN 3. The Agreement will also provide for a series of term loans not to exceed $25,000,000 in the aggregate to ROA ("Acquisition Line of Credit") subject to the fulfillment of each of the following conditions: a) each advance under the Acquisition Line of Credit (each an "Acquisition Loan" and collectively the "Acquisition Loans") must be utilized exclusively for the purchase of distributors of granite memorials, granite quarries, manufacturers and/or retailers of granite products: b) no Acquisition Loan may be less than $1,000,000.00; c) ROA must give thirty (30) days prior written notice of intent to draw down each Acquisition Loan; d) each Acquisition Loan will be disbursed concurrent with an acquisition; e) no more than two (2) Acquisition Loans per calendar quarter; provided that you may combine several acquisitions within your request for any Acquisition Loan; f) all Acquisition Loans shall be due and payable in full upon any termination of the Agreement; g) the structure of the acquisition must be acceptable to the Lender; h) assets must be acquired free and clear of liens concurrent with an acquisition; i) ROA must give the Lender liens on the assets so acquired; j) the Lender must be given thirty (30) days notice to conduct a review of the assets and the business which review must be reasonably satisfactory to the Lender; k) at the Lender's request ROA must furnish to the Lender an ap- praisal of the equipment and real estate and an environmental review of a proposed acquisition target and l) all Acquisition Loans will amortize as follows: the principal amount of each Acquisition Loan shall be repaid in quarterly installments on each March 31, June 30, September 30 and December 31 of each year commencing 3 Mr. Kurt Swenson September 14, 1997 Page 3 for each Acquisition Loan on the last day of the first full quarter after such Acquisition Loan is made (with the portion of the amortization schedule attributable to each such advance based upon a seven (7) year repayment schedule) with a final installment of the remaining principal amount outstanding, payable on September 30, 2002, provided that at your election a portion of such Acquisition Loans not to exceed $12,500,000 in the aggregate shall not amortize and shall be due and payable in full on September 30, 2002. Amounts repaid on an Acquisition Loan may not be reborrowed. The Acquisition Loans shall be subject to the Prepayment Premium described in paragraph 10. TERM 4. The Agreement shall have an initial term of five years with automatic annual renewals thereafter (each year an "Anniversary Date") unless terminated by the Lender on the fifth Anniversary Date or any subsequent Anniversary Date and then only upon sixty (60) days prior notice. The Acquisition Loans shall be due and payable in full upon any termination of the Agreement. INTEREST RATES AND FEES 5. Interest and Fees will be computed and payable monthly per the following grids: PRICING GRID #1
Premium Over Premium Funded Debt to The Chase Over Unused Line Letter of Credit Net Worth Manhattan Rate LIBOR Fee Fee --------- -------------- ----- --- --- 1.00 to 1.50 (.25) 2.25 $50,000 per annum 1.250 <1.00 (.50) 1.75 $50,000 per annum 1.125
4 Mr. Kurt Swenson September 14, 1997 Page 4 PRICING GRID #2
Premium Funded Debt to Reference Rate Over Unused Line Letter of Credit Net Worth Plus Over LIBOR Plus Fee* Fee --------- --------- ---------- ---- --- 1.00 to 2.50 .25 2.75 0.??5 1.500 .75 to 1.00 0 2.50 0.??5 1.375 .50 to .75 (.25) 2.00 0.250 1.250 .25 < .50 (.50) 1.75 0.250 1.125 < .25 (.50) 1.50 0.??0 1.125
Pricing Grid #2 will go into effect in the event the Lender has not sold down the Loans to $25,000,000 within 120 days after closing of the Agreement. The grid will become effective on the first day of the month following the 120th day. Lender will use all reasonable efforts among a group of at least five potential participants or co-lenders, otherwise acceptable to the Lender, to find a participant or co-lender agreeable to price grid #1. ROA will, if requested by Lender, assist Lender in selling down the loans by meeting with potential participants or co-lenders to explain ROA's business and its prospects. The Chase Manhattan Bank Rate is the rate of interest per annum announced by Chase Manhattan Bank from time to time as its prime rate in effect at its principal office in the City of New York. Such rate is not intended to be the lowest rate charged by Chase Manhattan Bank to its borrowers. ROA may elect to use Libor provided i) ROA gives the Lender three business days prior notice of such election and ii) there is then no unwaived or uncured default under the Agreement. In no event may ROA have more than four (4) Libor elections at any one time. Upon ROA's election of a Libor option, 5 Mr. Kurt Swenson September 14, 1997 Page 5 ROA shall i) specify a one, two, three or six month Libor period and ii) pay the Lender a $500 processing fee upon the effective date of such Libor election. 6. The Line of Credit Fee, payable at the end of each month, based on the above grid will be computed on the difference between the sum of i) the Revolving Line of Credit and ii) the Acquisition Line of Credit and the sum of (i) the average daily Revolving Loan balance due the Lender, (ii) the average daily balance of outstanding letters of credit; and iii) the principal amount of the Acquisition Loans on the dates of disbursement. 7. A Collateral Management Fee of $12,000 per year will be charged i) under Pricing Grid #1 only when Funded Debt to Net Worth exceeds 1.50 to 1; ii) at all times under pricing Grid #2. 8. A $25,000 Loan Facility Fee, payable at closing which amount includes a documentation fee for the use of the Lender's Legal Department and its facilities in documenting the proposed transaction. 9. A Syndication Fee of up to $125,000 payable to participant. 10. ROA may terminate the Agreement at any time. However, should ROA terminate the Agreement prior to the fifth Anniversary Date, the Lender shall earn an Early Termination Fee determined by multiplying the average daily Revolving Loan balance during the term of the Agreement by i) 1% if the termination date is on or before the first Anniversary Date; ii) .50% if the termination date is after the first Anniversary Date but on/or before the second Anniversary Date; and iii) .25% if the termination date is after the second Anniversary Date but prior to the fifth Anniversary Date. 6 Mr. Kurt Swenson September 14, 1997 Page 6 11. The Borrower may prepay at any time, in whole in part, the Acquisition Loans. Should ROA so prepay an Acquisition Loan in conjunction with ROA's termination of the Agreement, the Lender shall earn a Prepayment Premium determined by multiplying the amount so prepaid by one per- cent (1%), provided, however, no Prepayment Premium shall be due if such prepayment is within six (6) months before the fifth Anniver- sary Date. COLLATERAL 12. To secure the obligation due the Lender by ROA, ROA will grant the Lender a first and exclusive lien on all of ROA's present and future accounts receivable, inventory, trademarks, patents, general intangibles, equipment, and real estate (owned) and stock in any subsidiary. COVENANTS 13. The Agreement will contain such warranties, representations, covenants and events of default as are customary for financing transactions of this type. ROA will provide to the Lender, among other things, monthly interim financial statements. The year-end statements must be certified by an independent public accountant mutually acceptable to the Borrower and the Lender. CONDITIONS OF CLOSING 14. The foregoing is furnished as a means of affording ROA a guide to, and an outline of, the material terms and conditions of the commitment. Moreover, you appreciate that the foregoing is subject to: (a) successful completion of an initial public offering of ROA's common stock generating net proceeds of at least $35,000,000.00; 7 Mr. Kurt Swenson September 14, 1997 Page 7 (b) the execution and delivery of appropriate legal documentation which must be satisfactory in form and substance to ROA and Lender and to their respective counsels; (c) the Lender's satisfaction with the financial condition of ROA and an updated examination of the books and records of ROA; (d) the absence of any material adverse change in the financial condition, business, prospects, profitability, assets or operations of ROA. It is understood and agreed that any adverse change in the terms, conditions, assumptions or projections supplied to the Lender by the ROA and on which the Lender based its decision to issue this letter may, in the Lender's reasonable business discretion, be construed by the Lender as a material adverse change; and (e) the Lender's receipt of, and satisfaction with, a 12 month Cash Budget Projection. OUT OF POCKET EXPENSES 15. The Borrower shall reimburse the Lender (whether or not this transaction is consummated) for out-of-pocket costs and expenses (including reasonable fees and expenses of outside legal counsel) incurred in connection with the Agreement, including, but not limited to, those incurred by the Lender in connection with the preparation, execution and closing of this financing transaction, and the perfection of liens and security interests. COMMITMENT FEE 16. To induce the Lender to issue this commitment letter, please remit a non-refundable commitment fee in the amount of $5,000.00 (the "Commitment Fee") which will be refunded only upon consummation of the proposed financing transaction. 8 Mr. Kurt Swenson September 14, 1997 Page 8 We each hereby expressly waive any right to trial by jury of any claim, action or cause of action arising under this letter, any transaction related hereto, or any other instrument, document or agreement executed or delivered in connection herewith, whether sounding in contract, tort or otherwise. This letter (a) embodies the entire agreement and understanding between the parties hereto with respect to the subject matter of this letter and supersedes all prior agreements, commitments, arrangements, negotiations or understandings, whether oral or written, of the parties with respect thereto, and (b) can be changed only by a writing signed by each of the parties hereto and shall bind and benefit each of such parties and their respective successors and assigns. If the foregoing is acceptable to you, please so indicate by signing and returning to us the enclosed copy of this letter together with your check to our order in the amount of the Commitment Fee not later than the close of business on September 22, 1997. If not accepted by you as herein provided, this commitment shall expire at the close of business on September 22, 1997. If acceptable, the financing facility offered herein will expire at the close of business December 31, 1997 unless the documents contemplated hereunder have been fully executed. Upon our receipt from you of an executed copy of this letter together with a check for said Commitment Fee, we will sign below to confirm our acceptance and return a fully executed copy to you. We welcome the opportunity to work with you on this transaction and we hope to hear from you 9 Mr. Kurt Swenson September 14, 1997 Page 9 soon. Should you have any questions or comments, please feel free to contact us at anytime. Very truly yours, THE CIT GROUP/BUSINESS CREDIT, INC. By: /s/ James Coheeney ------------------------ Title: Vice President Read and Agreed to this __ day of September, 1997; Rock of Ages Corporation By: /S/ Kurt M. Swenson - -------------------------------- Title: President THE CIT GROUP/BUSINESS CREDIT, INC. By: ------------------------ Title: EX-10.22 10 LETTER AGREEMENT DATED SEPT. 17 1 Exhibit 10.22 WIGGIN & NOURIE, P.A. 20 Magnet Street P.O. Box 606 Manchester, NH 03105-0808 September 19, 1997 Richard Campbell, Esq. Phelps & Campbell, Esq. 313 Heard Street, P.O. Drawer 1056 Elberton, GA 30635-1056 Dear Richard: The purpose of this letter is to confirm our discussions concerning Article VI, Sections 6.1(b) and (c) of the Stock Purchase Agreement dated June 27, 1997 by and among Rock of Ages Quarries, Inc. (to be known as Rock of Ages Corporation), Robert Otis Childs, Jr., Robert Otis Childs, III, Timothy Carroll Childs and Bernita Y. Childs (the "Stock Purchase Agreement"). Upon our review of the referenced Sections of the Stock Purchase Agreement we noticed several scriveners errors in them which do not reflect the intent of the parties to the Stock Purchase Agreement. Specifically, the date September 1, 1997 appearing in the second line of Section 6.1(b) and in the first and second lines of Section 6.1(c) should have been the "Closing Date," the section numbers in the second line of Section 6.1(b) should, instead of referring to Section 3.1 or 3.3 have referred to Sections "5.1 or 5.3" and the section numbers in the second line of Section 6.1(c) should, instead of referring to Sections 3.2 or 3.3, have referred to Sections "5.2 or 5.3." We have both discussed the above matters with our clients who are parties to the Stock Purchase Agreement. They have confirmed that the corrections set forth above were their intent which was not accurately transcribed in the drafting of the Stock Purchase Agreement 2 Richard Campbell, Esq. September 19, 1997 Page 2 by our offices and have authorized us to correct these scriveners errors and insert a page reflecting the corrections in the Stock Purchase Agreement. Each of our clients have signed this letter in order to indicat their agreement to the above matters and both our office and your office have signed this letter to indicate that these changes are being made to correct scriveners errors made by us and for no other reason. Very truly yours, /s/ John R. Monson ---------------------- John R. Monson JRM/cmv Enclosure CONFIRMED AND AGREED: PHELPS & CAMPBELL By: /s/ Richard C. Campbell -------------------------------- Richard C. Campbell CONFIRMED AND AGREED: CONFIRMED AND AGREED: ROCK OF AGES CORPORATION F/K/A/ /s/ Robert Otis Childs, Jr. ROCK OF AGES QUARRIES, INC. - ----------------------------------- Robert Otis Childs, Jr. /s/ Robert Otis Childs, III By: /s/ Kurt M. Swenson - ----------------------------------- ---------------------------------- Robert Otis Childs, III Kurt M. Swenson and CEO /s/ Timothy Carroll Childs - ----------------------------------- Timothy Carroll Childs /s/ Bernita Y. Childs - ----------------------------------- Bernita Y. Childs EX-23.2 11 CONSENT 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 as to Note 13 which is as of August 12, 1997, included the related financial statement schedules as of December 31, 1996, and for each of the years in the three-year period ended December 31, 1996, included in the registration statement (or incorporated by reference in the registration statement). These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the registration statement. /s/ KPMG Peat Marwick LLP ------------------------------ KPMG Peat Marwick LLP Burlington, VT September 18, 1997 EX-23.3 12 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 registration statement. /s/ KPMG Peat Marwick LLP ------------------------------ KPMG Peat Marwick LLP Atlanta, GA September 18, 1997 EX-23.4 13 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 registration statement. /s/ KPMG Peat Marwick LLP ------------------------------ KPMG Peat Marwick LLP Atlanta, GA September 18, 1997 EX-23.5 14 CONSENT OF KPMG PEAT MARWICK, LLP 1 Exhibit 23.5 The Boards of Directors Keith Monument Companies: We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG Peat Marwick LLP ------------------------------ KPMG Peat Marwick LLP Louisville, KY September 18, 1997 EX-23.6 15 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 registration statement - amendment #1. /s/ Greene and Company, L.L.P. ------------------------------------- Greene and Company, L.L.P. Anderson, South Carolina September 22, 1997 EX-23.7 16 CONSENT OF GREENE & COMPANY, 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 registration statement - amendment #1. /s/ Greene and Company, L.L.P. ------------------------------------- Greene and Company, L.L.P. Anderson, South Carolina September 22, 1997 EX-23.8 17 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 registration statement - amendment #1. /s/ Greene and Company, L.L.P. ------------------------------------- Greene and Company, L.L.P. Anderson, South Carolina September 22, 1997 EX-23.9 18 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 registration statement - amendment #1. /s/ Greene and Company, L.L.P. ------------------------------------- Greene and Company, L.L.P. Anderson, South Carolina September 22, 1997 EX-27 19 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 11,249 564 575 11,324 13,374 24,939 31,494 37,406 41,828 18,810 20,598 47,995 57,768 11,653 18,262 0 0 0 0 0 0 35 38 17,336 19,794 47,995 57,768 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 .46 0 0 0
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