ROAC Rock of Ages (VT) (MM)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934 (Amendment No. 2)

 

Filed by the Registrant  þ

 

Filed by a Party other than the Registrant  o

 

Check the appropriate box:

 

þ   Preliminary Proxy Statement

o   Confidential, for use of the Commission Only (as permitted by Rule 14a-6(e)(2))

o   Definitive Proxy Statement

o   Definitive Additional Materials

o   Soliciting Material Pursuant to Section 240.14a-12

 

ROCK OF AGES CORPORATION

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

Rock of Ages Corporation Class A common stock, no par value (the “Class A Common Stock”); Rock of Ages Corporation Class B common stock, no par value (the “Class B Common Stock” and, together with the Class A Common Stock, the “Common Stock”); options to purchase shares of Class A Common Stock

 

 

 

 

 

The proposed maximum aggregate value of the transaction, for purposes only of calculating the filing fee, is $25,181,756, which is the sum of (a) the product of (i) the 4,707,944 shares of Common Stock, which number of shares is the difference between the number of shares of Common Stock outstanding and the Cancelled Shares, multiplied by (ii) the merger consideration of $5.25 per share of Common Stock, plus (b) $465,050, which is the total cash amount required to “cash-out” each of the 177,500 outstanding options to purchase shares of Class A Common Stock having an exercise price per share less than $5.25, at a cash-out price equal to the product of (i) the difference between the exercise price per share of such option and $5.25 per share multiplied by (ii) the number of shares subject to such option. The filing fee equals the proposed maximum aggregate value of the transaction multiplied by 0.0000713.

 

 

 

 

 

 

 

 

 

 * Pursuant to the Agreement and Plan of Merger, dated as of October 18, 2010, by and among Rock of Ages Corporation (hereinafter referred to as the “Company” or “Rock of Ages”), Swenson Granite Company LLC (“Parent”) and Granite Acquisition, LLC, a limited liability company wholly owned by Parent (“Merger Sub”), Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. At the effective time of the Merger, the shares of Common Stock held by Parent, Merger Sub or any other direct or indirect wholly owned subsidiary of Parent, as well as shares of Common Stock held in the Company’s treasury (collectively, the “Cancelled Shares”) will be cancelled without any consideration payable therefor. The aggregate number of securities to which the transaction applies excludes the anticipated number of Cancelled Shares.

 

PRELIMINARY PROXY STATEMENT — SUBJECT TO COMPLETION

 

ROCK OF AGES CORPORATION
560 GRANITEVILLE ROAD
GRANITEVILLE, VERMONT 05654

 

          , 2010

 

To the shareholders of Rock of Ages Corporation:

 

You are cordially invited to attend a special meeting of the shareholders of Rock of Ages Corporation to be held on          , 201  at 10:00 a.m., Eastern time, at our Visitor’s Center, located adjacent to the Rock of Ages Craftsman Center and main office at 558 Graniteville Road, Graniteville, Vermont 05654.

 

At the special meeting, you will be asked to consider and vote upon a proposal to approve a merger agreement by and among Rock of Ages, Swenson Granite Company LLC (“Parent”) and Granite Acquisition, LLC, a limited liability company wholly owned by Parent (“Merger Sub”) providing for the acquisition of Rock of Ages by Parent by means of a merger at a cash price of $5.25 per share of Rock of Ages’ Class A and Class B common stock. Only shareholders who hold their shares of Class A common stock or Class B common stock at the close of business on          , 2010 will be entitled to vote at the special meeting.

 

Shortly after Parent’s submission in May 2010 of a proposal to acquire Rock of Ages, our board of directors formed a special committee consisting of three independent directors, James L. Fox, Pamela G. Sheiffer and Frederick E. Webster, Jr, Ph.D., to explore and consider possible strategic alternatives for the Company while continuing to consider Parent’s acquisition proposal. The merger agreement with Parent was unanimously approved by the special committee and our board of directors following a thorough review by the special committee, with the assistance of its independent financial advisor, Covington Associates, LLC, of possible strategic alternatives, including a process to identify potential competing bidders and solicit alternative acquisition proposals. In its evaluation of the merger, the special committee and our board of directors considered, among other factors, the opinion of Covington Associates, LLC that, as of the date of the opinion and based on and subject to the assumptions, limitations and qualifications set forth in the opinion, the merger consideration of $5.25 per share in cash to be received by Rock of Ages’ shareholders in the merger is fair, from a financial point of view, to those shareholders. The Covington Associates fairness opinion is attached as Annex D to the enclosed proxy statement.

 

The special committee and our board of directors have unanimously determined that the merger is fair to and in the best interests of our shareholders who will be entitled to receive the $5.25 per share cash merger price, and recommend that you vote “FOR” approval of the merger agreement .

 

Kurt Swenson, the Chairman of Parent and non-executive Chairman of Rock of Ages, together with his brother, Kevin Swenson, Vice President of Parent, and Robert Pope, President and Chief Executive Officer of Parent, own approximately 71% of Parent. They, along with certain other members of Parent who are also Rock of Ages shareholders, have agreed with Parent to vote their shares, representing approximately 81% of the total voting power of all Rock of Ages shares, in favor of approval of the merger agreement.

 

However, under the merger agreement, consummation of the merger is conditioned upon, in addition to approval of the merger agreement by the majority vote of the Rock of Ages’ Class A and Class B common stock, voting together, approval by a majority of the outstanding shares of Class A common stock, excluding shares held by members of Parent. Thus, your vote is very important regardless of the number of shares you own. Your failure to vote will have the same effect as a vote against the merger agreement. At the special meeting you will also be asked to consider and vote on a proposal to adjourn the special meeting if necessary to permit further solicitation of proxies in the event that at the time of the special meeting there are not sufficient votes of shares of Class A common stock, excluding such shares held by members of Parent, to satisfy this condition in the merger agreement. Our board of directors unanimously recommends that you vote FOR this proposal.

 

Prior to the merger, Kurt Swenson, Kevin Swenson, Robert Pope and certain other members of Parent who are also shareholders of Rock of Ages, will contribute to Parent a total of 258,326 shares of Class A common stock and 2,449,793 shares of Class B common stock in exchange for additional shares of

membership interest in Parent, and will not receive the $5.25 per share cash merger price for those Rock of Ages shares.

 

Please sign, date and return the accompanying proxy card(s) in the enclosed envelope, or otherwise vote by proxy in accordance with the voting instructions set forth in the accompanying proxy statement and proxy card(s). Please note that separate proxy cards have been provided for Class A common stock and Class B common stock. If you are a holder of both classes of stock, please sign, date and return both proxy cards or otherwise vote by proxy in accordance with the voting instructions set forth in the accompanying proxy statement and proxy card(s), so that all of your shares are voted. If you attend the special meeting, you may vote in person whether or not you have sent in your proxy card(s).

 

The enclosed proxy statement provides you with detailed information about the proposed merger, the merger agreement and the special meeting. We urge you to read the entire document carefully, including the annexes, which constitute part of this proxy statement. If you have any questions or require assistance in voting your shares, please call The Proxy Advisory Group, LLC, our proxy solicitor for the special meeting, toll-free at (888) 557-7699 or (888) 55PROXY.

 

Sincerely,

 

James L. Fox

Chairman of the Special Committee

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION OR PASSED UPON THE MERITS OR FAIRNESS OF THIS TRANSACTION OR THE ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THE ENCLOSED PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE .

 

The enclosed proxy statement is dated          , 2010 and is first being mailed to shareholders on or about          , 2010.

 

PRELIMINARY PROXY STATEMENT — SUBJECT TO COMPLETION

 

ROCK OF AGES CORPORATION
560 GRANITEVILLE ROAD
GRANITEVILLE, VERMONT 05654

 

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Be Held          , 201 

 

 

To the shareholders of Rock of Ages Corporation:

 

A special meeting of shareholders of Rock of Ages Corporation (the “Company,” “we,” and “our”) will be held on          , 201   at 10:00 a.m., Eastern time, at our Visitor’s Center, located adjacent to the Rock of Ages Craftsman Center and main office at 558 Graniteville Road, Graniteville, Vermont 05654.

 

The purpose of the meeting is:

 

1. to consider and vote upon a proposal to approve the Agreement and Plan of Merger, dated as of October 18, 2010, which we refer to as the “merger agreement”, that we entered into with Swenson Granite Company LLC (“Parent”) and Granite Acquisition, LLC, a limited liability company wholly owned by Parent;

 

2. to consider and vote upon a proposal to adjourn the special meeting if necessary to permit further solicitation of proxies in the event there are not sufficient votes of shares of Class A common stock at the time of the special meeting to satisfy the condition in the merger agreement that the merger agreement be approved by a majority of the outstanding shares of our Class A common stock, not including (in the number of outstanding shares of Class A common stock, or in the number of shares of Class A common stock voted in favor of the merger agreement) shares of Class A common stock owned directly or through a broker or other nominee by members of Parent; and

 

3. to transact such other business as may properly come before the special meeting or any adjournments or postponements of the special meeting.

 

We have described the merger agreement and the merger in the accompanying proxy statement, which you should read in its entirety before voting. A copy of the merger agreement is attached as Annex A to the proxy statement. The record date to determine shareholders entitled to vote at the special meeting is [          ], 2010. Only holders of our Class A or Class B common stock at the close of business on the record date are entitled to notice of, and to vote at, the special meeting.

 

Shareholders of the Company may be entitled to assert dissenters’ rights under Chapter 13 of the Vermont Business Corporation Act. See the enclosed proxy statement, which includes as Annex E Chapter 13 of the Vermont Business Corporation Act, for more information.

 

Regardless of the number of shares you own, your vote is very important. Please sign, date and return the accompanying proxy card(s) in the enclosed envelope, or otherwise vote by proxy in accordance with the voting instructions set forth in the accompanying proxy statement and proxy card(s). Please note that separate proxy cards have been provided for Class A common stock and Class B common stock. If you are a holder of both classes of common stock, please sign, date and return both proxy cards or otherwise vote by proxy in accordance with the voting instructions set forth in the accompanying proxy statement and proxy card(s), so that all of your shares are voted. If you attend the special meeting, you may vote in person whether or not you have sent in your proxy card(s).

 

By Order of the Board of Directors

 

Richard C. Kimball

Secretary

 

TABLE OF CONTENTS

 

 

You are being asked to consider and vote upon a proposal to approve a merger agreement by and among Rock of Ages Corporation, Swenson Granite Company LLC (“Parent”) and Granite Acquisition, LLC, a limited liability company wholly owned by Parent (“Merger Sub”). This agreement is referred to in this proxy statement as the “merger agreement,” and is attached to this proxy statement as Annex A. The merger agreement provides for the merger of Merger Sub with and into Rock of Ages. Rock of Ages will be the surviving corporation in the merger and, immediately following the merger, Parent will own all of the outstanding capital stock of Rock of Ages. This summary term sheet briefly describes the most material terms of the proposed merger and may not contain all of the information that is important to you. We urge you to read carefully the entire proxy statement, including the annexes, which constitute part of this proxy statement.

 

In this proxy statement, the terms “Rock of Ages,” the “Company,” “we,” “our” and “us” refer to Rock of Ages Corporation and its subsidiaries .

 

 

The members of the Swenson Granite Group have agreed to, prior to the effective time of the merger, contribute some or all of their shares of Company common stock in exchange for additional shares of membership interest in Parent, pursuant to the terms of contribution agreements entered into by and between Parent and each such person (the form of which is attached to this proxy statement as Annex C). Parent has advised us that the members of the Swenson Granite Group will contribute to Parent prior to the effective time

of the merger, in the aggregate, 258,326 shares of Class A common stock and 2,449,793 shares of Class B common stock.

 

 

 

Each share of Class A common stock entitles the holder thereof to one vote and each share of Class B common stock entitles the holder thereof to 10 votes on all matters on which the holders of Class A common stock and Class B common stock vote together as a single voting group.

 

 

You may also vote by proxy through the Internet at www.voteproxy.com (by following the on-screen instructions) or by telephone by calling toll-free 1-800-PROXIES from any touch-tone telephone and following the instructions. You should have your proxy card(s) available when you access the web page or call. You may also wish to check the voting form used by the firm that holds your shares to see if it offers telephone or Internet voting.

 

If you sign your proxy and do not indicate how you want to vote, your shares will be voted FOR the approval of the merger agreement, FOR the adjournment of the special meeting, if necessary to solicit additional proxies, and in accordance with the recommendations of the Company’s board of directors on any other matters properly brought before the special meeting for a vote.

 

 

The proposed transaction is a merger of Merger Sub with and into the Company, with the Company surviving the merger as a wholly owned subsidiary of Parent.

 

The principal steps that will accomplish the transaction are as follows:

 

 

 

Our purpose in undertaking the merger is to allow our shareholders (other than the members of the Swenson Granite Group to the extent they contribute their Company shares to Parent pursuant to contribution agreements described above under “SUMMARY TERM SHEET — Structure of the Transaction — Contribution of Shares”) to realize the value of their investment in Rock of Ages in cash at a price that represents a 57% premium to the average closing market price of our Class A common stock for the 30 trading days prior to, and an 84% premium to the average closing price of our Class A common stock for the twelve months prior to, the May 7, 2010 public announcement of the initial proposal by Parent to acquire 100% ownership of Rock of Ages.

 

For Parent, the purposes of the merger include, but are not limited to, the following:

 

 

Among other results of the merger, our shareholders (other than those shareholders who are also members of Parent) will no longer have any interest in, and will no longer be shareholders of, the Company and will not participate in any of our future earnings or growth; following the merger, Parent will own all of the outstanding shares of the Company. Also, following the merger, the Company’s Class A common stock will no longer be publicly traded, and the Company will no longer file periodic reports with the Securities and Exchange Commission (the “SEC”).

 

Because certain members of the Company’s board of directors have actual or potential conflicts of interest in evaluating the merger, the board of directors appointed a special committee of independent directors, consisting of James L. Fox, Pamela G. Sheiffer and Frederick E. Webster, Jr., Ph.D., to evaluate the merger and the Company’s other strategic alternatives and make recommendations to the board of directors with respect thereto.

 

The special committee, after careful consideration of numerous factors, unanimously determined that the merger is fair to and in the best interests of the Company’s shareholders (other than the members of the Swenson Granite Group to the extent they contribute their Company shares to Parent pursuant to contribution agreements described above under “SUMMARY TERM SHEET — Structure of the Transaction — Contribution of Shares”), adopted the merger agreement and recommends that the Company’s shareholders vote in favor of approval of the merger agreement. The special committee also recommended that the board of directors adopt the merger agreement and recommends that the Company’s shareholders vote in favor of approval of the merger agreement.

 

 

Based in part on the recommendation of the special committee, the board of directors unanimously determined that the merger is fair to and in the best interests of the Company’s shareholders (other than the members of the

Swenson Granite Group to the extent they contribute their Company shares to Parent pursuant to contribution agreements described above under “SUMMARY TERM SHEET — Structure of the Transaction — Contribution of Shares”). The board of directors, based in part on the unanimous approval and recommendation of the special committee, unanimously recommends that the Company’s shareholders vote FOR the approval of the merger agreement.

 

 

Covington Associates, LLC, the special committee’s independent financial advisor (“Covington”), has delivered a written opinion to the special committee and the board of directors to the effect that, as of October 15, 2010, and based on and subject to the assumptions, limitations and qualifications set forth in the opinion, the $5.25 per share merger consideration to be received by the Company’s shareholders in the merger is fair, from a financial point of view, to such shareholders. Covington’s opinion was provided to the special committee and the board of directors in connection with the special committee’s and the board of directors’ evaluation of the merger consideration to be paid in the merger, did not address any other aspect of the merger and did not constitute a recommendation to any holder of the Company’s common stock as to how such holder should vote or act with respect to any matters relating to the merger. The full text of Covington’s written opinion is included in this proxy statement as Annex D. You should read the opinion carefully in its entirety.

 

In the special committee’s engagement letter with Covington, the Company agreed to pay Covington $250,000 upon rendering its written opinion, whether or not the opinion was favorable. The Company has also agreed to pay Covington a success fee upon completion of the merger, and to reimburse Covington for its out-of-pocket expenses incurred in connection with its engagement as the special committee’s financial advisor.

 

Parent, Merger Sub and the members of the Swenson Granite Group believe that the merger is substantively and procedurally fair to the Company’s shareholders to the extent their shares of Company common stock are converted in the merger into the right to receive the merger consideration. In arriving at their position as to the fairness of the merger, Parent, Merger Sub and the members of the Swenson Granite Group considered the factors considered by the special committee and the board of directors discussed in the section entitled “SPECIAL FACTORS — Recommendations of the Special Committee and the Board of Directors; Reasons for Recommending Approval of the Merger Agreement to the Company’s Shareholders,” as well as the other factors discussed in the section entitled “SPECIAL FACTORS — Position of Parent, Merger Sub and the members of the Swenson Granite Group as to the Fairness of the Merger to the Company’s Shareholders that are Receiving the Merger Consideration.”

 

In considering the recommendations of our board of directors, you should be aware that certain of the Company’s executive officers and directors have interests in the transaction that are different from, or are in addition to, the interests of the Company’s shareholders generally. The special committee and the board of directors were aware of these potential or actual conflicts of interest and considered them along with other matters when they resolved to recommend that the Company’s shareholders vote in favor of approval of the merger agreement. These interests, which are discussed in detail in the section entitled “SPECIAL FACTORS — Interests of Certain Persons in the Merger,” include the following:

 

 

 

The merger is not subject to a financing contingency. However, Parent is seeking debt financing in connection with the merger and will require that financing in order to consummate the merger and related transactions. Parent has received an amended and restated commitment letter from the Lenders (the “commitment letter”), pursuant to which the Lenders have committed, subject to certain specified conditions discussed elsewhere in this proxy statement, to enter into a definitive financing agreement (in the form attached to the commitment letter) to provide financing for the merger (the “Financing”). The commitment letter will remain outstanding through February 18, 2011 unless extended by the Lenders. In the merger agreement, Parent has agreed to use its best efforts to maintain in effect the commitment letter and, prior to the effective time of the merger, execute the definitive financing agreement attached to the commitment letter and consummate the Financing. The Financing is expected to consist of:

 

 

Under the terms of the Financing, interest on the Revolving Loan is payable monthly, and principal is payable on a revolving basis. All outstanding principal balances and any accrued interest with respect to the Revolving Loan will be due at maturity three years from the date of closing. Each Term Loan will fully amortize over a ten-year term with installments of principal and interest payable monthly. The Financing will be subject to certain financial covenants and conditions, and will be collateralized by a perfected first lien (including first mortgages) on all real and personal property of Parent, Rock of Ages (as the surviving corporation) and the United States subsidiaries of Rock of Ages.

 

The merger agreement contains no prohibition on the Company seeking , or entering into discussions or negotiations concerning, other acquisition offers or proposals, and the Company may provide material non-public information to a potential competing acquirer. However, the Company is required to give Parent notice of any Acquisition Proposal (as such term is defined in the merger agreement and below, under the heading “THE MERGER AGREEMENT — Acquisition Proposals”) or of the Company’s decision to enter into discussions or negotiations with any person regarding an Acquisition Proposal.

 

Before the Company’s shareholders approve the merger agreement, the Company may withdraw or modify its recommended approval of the merger agreement and/or terminate the merger agreement in order to enter into an agreement that contemplates a Superior Proposal (as determined under the terms of the merger agreement and defined below, under the heading “THE MERGER AGREEMENT — Acquisition Proposals”), if the special committee or a majority of the (but not less than two) “qualified directors” (as that term is used in the VBCA), and the Company’s board of directors if required by applicable provisions of the VBCA or the Company’s bylaws, determines in good faith, after consultation with its outside counsel and after taking into account any changes to the terms and conditions of the merger agreement that may be proposed by Parent, that the failure to take such action would reasonably be expected to be inconsistent with the fiduciary duties of the Company’s directors under applicable law. The Company must provide at least five business days’ notice to Parent before changing its recommendation in favor of the merger agreement or terminating the merger agreement, which notice must indicate that the Company intends to take such action and the reasons therefor including, if the basis of the proposed action is receipt of a Superior Proposal, the material terms and conditions of such Superior Proposal.

 

The obligations of Parent, Merger Sub and/or the Company to complete the merger are subject to the satisfaction or waiver of various conditions specified in the merger agreement, including:

 

 

The parties do not have any present intention to waive any of the conditions to the merger.

 

The merger agreement may be terminated at any time prior to the effective time of the merger by the mutual written consent of the Company and Parent. Either the Company or Parent may also generally terminate the merger agreement at any time prior to the effective time of the merger in the event:

 

 

In addition, Parent may terminate the merger agreement at any time prior to the effective time of the merger:

 

 

Further, the Company may terminate the merger agreement at any time prior to the effective time of the merger:

 

 

The Company must reimburse Parent for all of its reasonable and documented out-of-pocket costs and expenses incurred in connection with the merger agreement and the transactions contemplated by the merger agreement if:

 

 

Parent must reimburse the Company for all of its reasonable and documented out-of-pocket costs and expenses incurred in connection with the merger agreement and the transactions contemplated by the merger agreement if the Company terminates the merger agreement upon a breach by Parent or Merger Sub of any of their covenants or agreements and the breach is either not cured by the End Date or is not capable of being cured by the End Date. Such expense reimbursement is in addition to the Company’s other remedies for such breach.

 

Further, if the Company terminates the merger agreement, and as of the date of termination (1) all of the conditions to the closing of the merger have been satisfied or waived (other than those conditions that, while they are capable of being satisfied as of the date of termination, by their terms are to be satisfied at the closing of the merger) and (2) the merger shall not have been consummated on or prior to the End Date because Parent has failed to obtain the proceeds of the financing related to the merger, then Parent is required to pay the Company a termination fee, which termination fee will equal the greater of (x) the Company’s reasonable and documented out-of-pocket costs and expenses incurred in connection with the merger agreement and the transactions contemplated by the merger agreement or (y) $2,518,000. If the Company is entitled to and receives the termination fee, then the termination fee will be the Company’s sole remedy and recourse against Parent, Merger Sub and their respective representatives and affiliates for any losses or liabilities relating to the merger agreement or the failure of the merger to be consummated.

 

In connection with the merger, the Company will be required to make certain filings with, and comply with certain laws of, various federal and state governmental agencies. It is currently expected that no prior regulatory approvals, including under antitrust laws and regulations, will be required in order to complete the merger.

 

The members of the Swenson Granite Group have entered into voting agreements with Parent. The voting agreements require that each member of the Swenson Granite Group vote all of the Company’s common stock that is beneficially owned by such member in favor of the merger agreement and against any alternate Acquisition Proposal. Each member of the Swenson Granite Group has also granted Parent an irrevocable proxy to vote their shares in favor of the merger agreement. The form of the voting agreements is attached to this proxy statement as Annex B.

 

The members of the Swenson Granite Group collectively control approximately 81% of the total voting power of our Class A and Class B common stock. Accordingly, provided the terms of the voting agreements are enforced, the statutorily required shareholder approval (but not the majority of the minority approval) is assured of being obtained.

 

The members of the Swenson Granite Group have entered into contribution agreements with Parent pursuant to which, prior to the effective time of the merger, those shareholders will contribute or cause to be contributed to Parent some or all of the shares of the Company’s common stock beneficially owned by them, in exchange for additional shares of membership interest in Parent. Since those shares of Company common stock will be held by Parent at the effective time of the merger, at that time those shares will be cancelled and will not be converted into the right to receive the $5.25 per share merger consideration. The form of the contribution agreements is attached to this proxy statement as Annex C.

 

A purported shareholder class action lawsuit was commenced against the Company, all of the members of our board of directors, certain of our officers and Parent in connection with Parent’s initial proposal, submitted to the board of directors on May 6, 2010, to acquire the Company at $4.38 per share of Company common stock. A second purported shareholder class action lawsuit was also commenced against most of the same defendants shortly after the merger was announced on October 18, 2010. Each plaintiff seeks, among other things, damages and injunctive relief against the consummation of such transaction proposed by Parent. The Company believes each action is without merit and is vigorously defending. Both actions are currently before the Federal District Court of Vermont. See “SPECIAL FACTORS — Litigation Related to the Merger.”

 

The receipt of cash by a United States holder in exchange for the Company’s common stock will be a taxable transaction for U.S. federal income tax purposes and may also be taxable under applicable state, local, foreign or other tax laws. In general, United States holders of the Company’s common stock who receive cash in exchange for their shares pursuant to the merger (including any cash received in connection with the exercise of dissenters’ rights) should be deemed to have received cash from the Company pursuant to a redemption of the shares held by such shareholder. If the deemed redemption of the shares held by a particular United States holder qualifies as an “exchange” under section 302(b) of the Internal Revenue Code of 1986, as amended, which is referred to as the “Code” in this proxy statement, the United States holder will recognize gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the holder’s adjusted tax basis in the shares and the amount of cash received. If the United States holder holds the Company’s common stock as a capital asset, any gain or loss should generally be a capital gain or loss. If the United States holder has held the shares for more than 1 year, any gain or loss should generally be a long-term gain or loss. The deductibility of capital losses is subject to limitations.

 

The contribution by members of the Swenson Granite Group of Company common stock in exchange for additional shares of membership interest in Parent will be treated as a non-taxable exchange under Section 721 of the Code. As a result, each such person will recognize no gain or loss on the exchange (except for cash in lieu of fractional shares, of membership interest in Parent) and his or her basis in his or her Company common stock will be carried over as basis in his or her shares of membership interest in Parent received in such exchange.

 

Tax matters are very complex, and the tax consequences of the merger to you will depend on the facts of your own situation. You should consult your tax advisor for a full understanding of the tax consequences of the merger to you, including the federal, state, local and foreign tax consequences of the merger . See “SPECIAL FACTORS — Certain Material U.S. Federal Income Tax Consequences.”

 

If the Company is insolvent at the time of the merger or becomes insolvent because of the merger, the funds paid to shareholders upon completion of the merger may be deemed to be a “fraudulent conveyance” under applicable law and therefore may be subject to the claims of the Company’s creditors. If such claims are asserted by the Company’s creditors, there is a risk that persons who were shareholders at the effective time of the merger would be ordered by a court to return to the Company’s trustee in bankruptcy all or a portion of the funds received upon the completion of the merger. The board of directors presently has no reason to

believe that the Company and its subsidiaries, on a consolidated basis, will be insolvent immediately after giving effect to the merger.

 

In the merger agreement Parent has represented and warranted to us that, assuming the accuracy of our representations and warranties in the merger agreement and of our financial statements included in our periodic reports filed with the SEC since January 1, 2010, immediately after giving effect to the debt financing in connection with the merger, the payment of the $5.25 per share merger consideration, the cash-out of “in-the-money” Company options and the payment of related fees and expenses, Parent, the Company, as the surviving corporation in the merger, and their respective subsidiaries, taken as a whole, will be solvent (as such term is defined in the merger agreement).

 

If you provide written notice to the Company, before the vote is taken at the special meeting on approval of the merger agreement, of your intent to demand payment for your shares of our common stock, do not vote in favor of approval of the merger agreement and fulfill other procedural requirements, the VBCA entitles you to a judicial appraisal of the fair value of your shares of our common stock. See “SPECIAL FACTORS — Dissenters’ Rights.”

 

The following questions and answers, presented for your convenience only, briefly address some commonly asked questions about the merger. You should still carefully read the entire proxy statement, including the annexes, which constitute part of this proxy statement .

 

 

 

 

The proposed transaction is a merger of Merger Sub with and into Rock of Ages, which will survive the merger as a wholly owned subsidiary of Parent.

 

The principal steps that will accomplish the merger are as follows:

 

Debt Financing.   The merger agreement is not subject to a financing contingency. However, Parent is seeking debt financing in connection with the merger and will require that financing in order to consummate the merger and related transactions. Parent has received a commitment letter from the Lenders, pursuant to which the Lenders have committed, subject to certain specified conditions discussed elsewhere in this proxy statement, to enter into a definitive financing agreement (in the form attached to the commitment letter) to provide the Financing. The commitment letter will remain outstanding through February 18, 2011 unless extended by the Lenders. In the merger agreement, Parent has agreed to use its best efforts to maintain in effect the commitment letter and, prior to the effective time of the merger, execute the definitive financing agreement attached to the commitment letter and consummate the Financing. The Financing is expected to consist of:

 

 

Under the terms of the Financing, interest on the Revolving Loan is payable monthly, and principal is payable on a revolving basis. All outstanding principal balances and any accrued interest with respect to the Revolving Loan will be due at maturity three years from the date of closing. Each Term Loan will fully amortize over a ten-year term with installments of principal and interest payable monthly. The Financing will be subject to certain financial covenants and conditions, and will be collateralized by a perfected first lien (including first mortgages) on all real and personal property of Parent, Rock of Ages (as the surviving corporation) and the United States subsidiaries of Rock of Ages. For additional details regarding the terms and structure of the debt financing see “SPECIAL FACTORS — Financing of the Merger.”

 

Contribution of Shares.   Prior to the merger, the members of the Swenson Granite Group will contribute or cause to be contributed to Parent an aggregate of 258,326 shares of Class A common stock and 2,449,793 shares of Class B common stock in exchange for additional shares of membership interest in Parent. Such contributions will take place subject to the terms of contribution agreements by and between Parent and each such member of the Swenson Granite Group.

 

For additional details regarding the terms of the contribution agreements, see “VOTING AND CONTRIBUTION AGREEMENTS — Contribution Agreements.”

 

For additional details regarding the interests of the members of the Swenson Granite Group in the transaction, see “SPECIAL FACTORS — Interests of Certain Persons in the Merger.”

 

The Merger.   Following the satisfaction or waiver of all conditions to the merger, including the approval of the Company’s shareholders as described elsewhere in this proxy statement, the following will occur at the effective time of the merger:

 

 

 

For additional details regarding the terms and structure of the merger, see “THE MERGER AGREEMENT.”

 

As a result of the merger:

 

 

Board of Directors of Rock of Ages.   The board of directors of Rock of Ages after the effective time of the merger will initially consist of the managers of Merger Sub at the effective time of the merger. These members include Kurt Swenson, Kevin Swenson and Robert Pope, each of whom will serve until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal.

 

Officers of Rock of Ages.   The current officers of the Company are Donald Labonte, President and Chief Executive Officer, Laura Plude, Vice President of Finance and Chief Financial Officer, Paul H. Hutchins, Vice President/Administration, Peter Friberg, Vice President-Wholesale Sales, and Robert Campo, Vice President-Quarry Sales and Marketing. These officers will continue as the officers of the Company after the effective time of the merger, however Mr. Labonte’s title will be President and Chief Operating Officer (rather than Chief Executive Officer). At the effective time of the merger, Robert Pope will become Chief Executive Officer of the Company and will continue to serve as President and Chief Executive Officer of Parent. These officers of the Company after the effective time of the merger will serve until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal.

 

Rock of Ages’ Purpose and Reasons for the Merger

 

Our purpose in undertaking the merger is to allow our shareholders (other than the members of the Swenson Granite Group, to the extent they contribute their Company shares to Parent prior to the merger pursuant to the contribution agreements) to realize the value of their investment in the Company in cash at a price that represents a 57% premium and an 84% premium, respectively, to the average closing price of our Class A common stock for the 30 trading days and over the twelve months prior to the May 7, 2010 public announcement of the initial proposal by Parent to acquire 100% ownership of Rock of Ages. The special committee and the board of directors of Rock of Ages believe, based upon the reasons discussed under “SPECIAL FACTORS — Recommendations of the Special Committee and the Board of Directors; Reasons for Recommending Approval of the Merger Agreement to the Company’s Shareholders,” that the merger is fair to and in the best interests of the Company’s shareholders, to the extent such shareholders’ shares are converted in the merger into the right to receive the $5.25 per share merger consideration.

 

Additionally, for the Company, becoming a private company is expected to reduce costs related to our being a public company, including but not limited to legal costs, the costs of certain accounting and auditing activities and internal controls, the cost of annual and special meetings, the cost of preparing, printing and mailing corporate reports and proxy statements, and the expense of a transfer agent. Further, following the merger, at such time as Rock of Ages is no longer subject to the reporting requirements of the Exchange Act, we will be able to eliminate a good portion of the time devoted by our management and some of its other employees to matters that relate exclusively to Rock of Ages being a public company. As a result, Rock of Ages may be better able to focus its resources on its business and operations as a private company, and the merger may advance these objectives, as noted above.

 

Parent’s, Merger Sub’s and Swenson Granite Group’s Purpose and Reasons for the Merger

 

Parent and Merger Sub intend to effect the merger and acquire all of the outstanding shares of common stock of Rock of Ages that Parent does not already own at the effective time of the merger (in addition to the shares of Company acquired by Parent from the members of the Swenson Granite Group, in exchange for additional shares of membership interest in Parent) because they, along with the members of the Swenson Granite Group, believe that it is best for Rock of Ages to operate as a privately-held entity. Parent, Merger Sub and the members of Swenson Granite Group have determined to pursue the merger at this time and believe that it is best for Rock of Ages to operate as a privately-held entity for the following reasons:

 

 

In addition to the foregoing factors, Parent, Merger Sub and the members of the Swenson Granite Group considered, among others, the following positive factors:

 

 

Parent, Merger Sub and the members of Swenson Granite Group also considered, among others, the following negative factors:

 

 

Parent, Merger Sub and the members of Swenson Granite Group ultimately concluded that the potential detriments of the merger to it were outweighed by the potential benefits of the merger to it.

 

The corporate predecessor of Parent first acquired majority control of Rock of Ages in February of 1984 and Rock of Ages became a wholly-owned subsidiary of the corporate predecessor of Parent in approximately 1986. Rock of Ages became a public company in October 1997 when we completed an initial public offering of our Class A common stock for the purpose of embarking on a strategy of vertically integrating into the retailing of memorials by acquiring or otherwise opening retail outlets selling granite memorials. In connection with, and to facilitate, our initial public offering, the corporate predecessor of Parent distributed to its shareholders its operating assets and liabilities through a pro rata distribution of member interests in Parent. As a result of these transactions, and since our initial public offering, Kurt Swenson, the Company’s former President and Chief Executive Officer and now non-executive Chairman and the Chairman of Parent, together with his brother, Kevin Swenson, Vice President and a director of Parent, Robert Pope, President and Chief Executive Officer and a director of Parent, and their respective family members and related trusts, have continued to own a substantial majority equity interest in Parent and, through their ownership of Company Class B common stock, substantial majority voting control of the Company.

 

In late 2007, following an extensive review of strategic and business alternatives, our board of directors determined that, given the continuing losses being incurred by the Company’s retail division, the Company’s shareholders would be best served by disposing of our retail operations, reducing debt and operating expenses and returning our focus to our core quarrying and manufacturing businesses, including our wholesale memorial distribution system in North America. Accordingly, in January 2008, we sold our retail division.

 

In the spring of 2008, Kurt Swenson advised the board of directors of his intention to retire as the Company’s Chief Executive Officer, and in late April 2008, the Company entered into a retirement agreement with Mr. Swenson, providing for his retirement as Chief Executive Officer, effective June 30, 2008. Mr. Swenson remained the Chairman of the Board in a non-executive capacity. Donald Labonte, then the Company’s President and Chief Operating Officer, succeeded Mr. Swenson as Chief Executive Officer and was elected to the board of directors.

 

During 2008 and 2009, the Company pursued its new operating plan, significantly reducing operating expenses and debt. In 2009, while revenues decreased compared to 2008, the Company returned to profitability, reporting net income from continuing operations of approximately $800,000, or approximately $0.11 per diluted share.

These results for 2009 and the continued lack of improvement in the trading prices for our Class A common stock were disappointing to Kurt and Kevin Swenson, as controlling shareholders of the Company. Despite the successful reduction of operating costs and debt implemented by the Company’s management, and the return to modest profitability, the continuing costs associated with the Company operating as a public company, including the time devoted by Company management to compliance and other public company matters, appeared to them to be impediments to significantly increasing and sustaining profitability, and thus outweighed the benefits to Rock of Ages of being a public company, especially given the historically small public float and illiquidity of the Company’s Class A common stock.

 

In the past, various institutional investors had noted to Kurt Swenson that the minimal public float and illiquidity of the Class A common stock meant that, absent a liquidity event transaction for all shareholders, investors in the Company’s Class A common stock effectively had little ability to monetize significant holdings of such shares. One of the Company’s major institutional investors reiterated this point to Mr. Swenson shortly after the Company’s public announcement in March 2010 of its 2009 results.

 

In light of these considerations, in April 2010, after informally consulting with Kevin Swenson and Robert Pope and receiving their preliminary indication of support, Kurt Swenson began taking preliminary steps to determine the feasibility and advisability of submitting to the Company’s board of directors, on behalf of Parent, a proposal to acquire the Company in an all-cash transaction, with a view to providing the Company’s shareholders with a liquidity event at an attractive price, either through an acquisition of the Company by Parent or by another bidder that would be identified through a process to explore strategic alternatives that Mr. Swenson expected would be pursued following Parent’s submission of an offer. These steps included preliminary discussions by Kurt Swenson with Parent’s existing lender, including a meeting with its representatives on April 6, 2010 regarding the possibility of financing such an acquisition. This lender, which had no lending relationship with the Company, undertook to analyze the proposed transaction on a preliminary basis. Following the analysis, the lender expressed interest in exploring the possibility of funding a transaction between Parent and the Company.

 

Mr. Swenson then contacted, and later in April Mr. Swenson and Mr. Pope met with, a representative of Sheehan Phinney Bass + Green PA (“Sheehan Phinney”), a firm with which Mr. Swenson was familiar and which he understood had never represented the Company, to discuss retaining Sheehan Phinney as legal counsel to represent Parent in connection with a possible proposal to acquire the Company. Parent retained Sheehan Phinney, and Messrs. Swenson and Pope, with Sheehan Phinney’s assistance, began preparing an acquisition proposal letter, with a view to submitting the letter to the Company’s board of directors at its next regularly scheduled meeting on May 6, 2010.

 

At that regularly scheduled meeting of the board on May 6 ^th , without prior notice to any other Company director other than Mr. Labonte, who Mr. Swenson advised earlier in the week of the possibility that Parent would submit an acquisition proposal, Mr. Swenson submitted, on behalf of Parent, a letter containing a proposal to acquire the Company (the “Swenson Proposal”). The Swenson Proposal contemplated the acquisition by Parent of all outstanding shares of Company common stock, including shares underlying vested options, at a price of $4.38 per share in cash. According to the proposal letter, as part of the transaction, Kurt Swenson, Kevin Swenson and Mr. Pope would exchange all of their shares of Class B common stock for additional shares of membership interest in Parent, and thus would not receive cash for those shares. In order to facilitate the financing of the proposed transaction, other holders of Class B common stock who also owned shares of membership interest in Parent would also be offered the opportunity to exchange their shares of Class B common stock in lieu of receiving the $4.38 per share price. The Swenson Proposal indicated that the proposed acquisition by Parent was conditioned on, among other things, lender due diligence, negotiation of a definitive structure and terms to be set forth in a definitive acquisition agreement and Parent obtaining financing for the transaction in an amount sufficient to fund the purchase price and the ongoing operations of the two companies. The proposal letter also stated that, “[W]e think that the company would be well-served by the board conducting a process of exploring its strategic options for maximizing shareholder value, including a consideration of our offer.” The proposal letter also indicated that Parent intended to offer Mr. Labonte the opportunity to buy shares of membership interest in Parent if Parent acquired the Company. Finally, the proposal letter noted Parent’s desire, prior to entering into a definite agreement, to ascertain whether the

proposed transaction would be viewed favorably by specified institutional investors which have substantial holdings of Class A common stock.

 

In response to the Swenson Proposal, at its May 6 ^th meeting, the board of directors established a special committee comprised of independent directors James L. Fox, Pamela G. Sheiffer and Frederick E. Webster Jr., Ph.D., to consider and evaluate the Swenson Proposal and determine how to proceed in the best interests of the Company’s shareholders.

 

On May 7, 2010, the Company issued a press release announcing receipt of the Swenson Proposal and the formation of the special committee. The release contained the full text of the proposal letter from Parent.

 

On May 10, 2010, a telephonic meeting of the special committee was held. All of the members of the special committee were present. Mr. Fox was appointed Chairman, and the special committee considered and discussed the retention of independent legal counsel and financial advisors. At the invitation of the special committee, a representative of Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”), which the special committee was considering retaining, attended the meeting. He discussed Skadden’s expertise in mergers and acquisitions and securities law and in representing special committees of boards of directors of public companies in going-private transactions. He also discussed Skadden’s prior representation of the Company as special outside counsel in the past, including advising the board of directors during its consideration of strategic and business alternatives which ultimately resulted in the sale of the Company’s retail division in 2008. Skadden’s representation of the Company after this had diminished significantly, and the firm had performed no services for the Company since March 2009. The Skadden representative indicated that the special committee should consider whether, in their view, such prior representation would in any way compromise Skadden’s vigorous representation of the special committee.

 

The special committee also discussed the possible engagement of Covington Associates LLC (“Covington”), an investment banking firm, to serve as independent financial advisor to the special committee. Covington had also previously advised the Company during its earlier consideration of strategic and business alternatives that culminated in the sale of the retail division, and thus it was noted that both the potential benefits and possible drawbacks associated with engaging Covington in light of this prior involvement with the Company should be taken into account in considering engaging Covington.

 

In addition to considering the retention of legal and financial advisors, the special committee also considered and discussed whether the Company’s regular outside counsel, McLane, Graf, Raulerson & Middleton PA (“McLane”), should represent the Company in connection with the Swenson Proposal and related matters. A representative of McLane was present at the meeting and reviewed for the special committee McLane’s prior and ongoing representation of the Company in matters unrelated to the Swenson Proposal, and its prior representation of Kurt Swenson and Kevin Swenson in estate planning matters and prior representation of Parent in one brief and immaterial intellectual property matter.

 

The special committee then adjourned the meeting to consider further the special committee’s possible engagement of Skadden and McLane’s possible continued representation of the Company, or the engagement of other firms having no prior background or relationship with the Company, and also to give further consideration to the possible engagement of Covington or another financial advisory firm.

 

On May 11, 2010, another telephonic meeting of the special committee was convened. In addition to the members of the special committee and at their invitation, representatives of Skadden and McLane attended the meeting. At this meeting, the special committee unanimously determined that McLane should continue to represent the Company with respect to the Swenson Proposal and related matters, and that Skadden and Covington would be retained as the special committee’s independent special counsel and independent financial advisor, respectively.

 

With respect to McLane’s continued representation of the Company, it was determined that McLane’s estate planning services for Mr. Swenson and his brother and its brief and immaterial services for Parent on an intellectual property matter were not disabling conflicts or otherwise relevant to McLane’s ability to effectively represent the Company with respect to the Swenson Proposal and related matters. The special committee considered McLane’s in-depth knowledge of the Company’s operations, coupled with its excellent working

relationship with the Company’s senior management, as positive factors that would benefit the Company and its stockholders in responding to the Swenson Proposal and in any process that might be initiated to explore strategic alternatives. The special committee also concluded that Skadden’s prior representation of the Company in various matters prior to March 2009 would in no way compromise Skadden’s ability to provide independent, objective and vigorous representation of the special committee. The firm’s experience in representing special committees of public companies, along with its knowledge of the Company and the members’ of the special committee familiarity with and confidence in the Skadden partner that would lead the engagement, were also important factors in the special committee’s unanimous decision to engage Skadden as its legal advisor.

 

With respect to Covington, the special committee concluded that its previous engagement by the Company meant that Covington already had a detailed knowledge of the Company’s business and financial strategy, and thus it would be well positioned to work efficiently. This fact, along with the excellent service and advice provided by Covington to the Company during the Company’s earlier consideration of strategic and business alternatives that resulted in the sale of the retail division, were also important factors in the special committee’s unanimous decision to select Covington as its independent financial advisor. After reviewing Covington’s prior representation of the Company, the special committee concluded that Covington would be able to provide objective and independent advice to the special committee in connection with this engagement.

 

On May 14, 2010, another telephonic meeting of the special committee was convened. In addition to the members of the special committee, representatives of Skadden and McLane attended the meeting. At this meeting, the special committee reviewed and discussed draft protocols, rules and procedures developed by Skadden, to be agreed to by Parent, on behalf of itself and certain members of Parent identified in the Swenson Proposal, including Kurt Swenson (together with Parent, the “Swenson Group”), with respect to Parent’s pursuit of its acquisition proposal, including interactions by officers and representatives of Parent with the Company, Company management and Company shareholders regarding due diligence, employment matters, disclosure and other matters. These protocols, rules and procedures outlined the special committee’s understanding of how the Swenson Group would be required to conduct themselves in pursuing the Swenson Proposal, with the objective of, among other things, achieving an evenhanded, orderly and efficient process for dealing with the Swenson Proposal and, if applicable, other proposals that might be considered by the special committee. Among other things, these protocols, rules and procedures required the Swenson Group to assure the confidentiality of Company information received by it and provided by the Swenson Group to potential investors or lenders, keep the special committee and its advisors apprised of such information so provided, forward to the special committee and its advisors any inquiries, offers, proposals, solicitations, bids or other related communications from any prospective third party acquirer or group received by any member of the Swenson Group pertaining to the acquisition of the Company or any of its securities or assets, and allow the special committee to designate a representative to be present at meetings involving any member of the Swenson Group and potential lenders or investors at which Company information was expected to be discussed. These protocols, rules and procedures also prohibited the Swenson Group from discussing with members of the Company’s management any employment, retention or equity incentive arrangements. The special committee also reviewed and approved the engagement letters finalizing the engagements of Skadden and Covington and discussed the next steps with respect to the Swenson Proposal.

 

Following this meeting, after further discussions between Skadden and Sheehan Phinney, a letter embodying the protocols, rules and procedures described above was executed by Chairman Fox, on behalf of the special committee, and Kurt Swenson, on behalf of the Swenson Group, on May 18, 2010 with effect as of May 14, 2010. A confidentiality agreement between Parent and the Company, which was contemplated by this letter, was also executed on and as of the same dates.

 

Also on May 14, 2010, Covington met with the Company’s senior management at the Company’s headquarters in Barre, Vermont to conduct an “on site” due diligence review of the Company’s operations.

 

On May 18, 2010, at the request of the special committee, a special telephonic meeting of the board of directors was held to more fully set forth the nature and scope of the special committee’s authority with respect to the Swenson Proposal and related matters. In addition to all of the directors, representatives of

Skadden and McLane attended the meeting. At this meeting, the board of directors unanimously authorized the special committee to take any and all actions arising out of or relating to the Swenson Proposal as the special committee deemed to be in the best interest of the Company and its shareholders, including shareholders who were not affiliated with Parent. Pursuant to this authority the special committee was empowered to engage, in its sole discretion, in a strategic alternatives exploration process to solicit alternative transactions to the Swenson Proposal for the acquisition of all or a majority of the outstanding common stock of the Company or of all or a significant portion of the Company’s assets. The board of directors also authorized the special committee to evaluate and negotiate the terms of the Swenson Proposal or any alternative proposal received as a result of the special committee’s strategic alternatives exploration process, and to recommend to the board of directors, what action, if any, should be taken with respect to the Swenson Proposal or any such alternative proposal, and also ratified and confirmed the special committee’s actions to date, including the retention of financial advisors and legal counsel. The board of directors also resolved to not recommend or approve the Swenson Proposal or any alternative proposal received as a result of any strategic alternatives exploration process undertaken by the special committee, without a prior favorable recommendation of such proposal by the special committee.

 

In consideration of the substantial time and effort that would be required of the members of the special committee generally, and the chairman of the special committee in particular, the board of directors also determined that the chairman of the special committee would receive a one-time fixed fee of $50,000 and each other member of the special committee would receive a one-time fixed fee of $35,000, as compensation for their service on the special committee, irrespective of whether or not the special committee approved the Swenson Proposal or any alternative transaction. These fees were paid by the Company to the special committee members on June 28, 2010. In addition, the board of directors approved the reimbursement to the members of the special committee of reasonable expenses incurred by them in connection with their service on the special committee.

 

On May 20, 2010, a telephonic meeting of the special committee was convened. In addition to the members of the special committee, representatives of Skadden and Covington attended the meeting. Covington provided the special committee with an overview of its initial analysis of the Company, and its business and prospects, based on its May 14th visit to the Company and discussions with the Company’s management. Covington also provided the special committee with its preliminary analysis of the Swenson Proposal and the market for possible strategic alternatives. After reviewing and considering Covington’s overview of the Company and its preliminary views regarding possible strategic alternatives to the Swenson Proposal, the special committee concluded that it would be in the best interests of the Company and shareholders who were not affiliated with the Swenson Group, to explore strategic alternatives to the Swenson Proposal. Accordingly, the special committee unanimously resolved that, with the assistance of Covington, it would commence a process to explore and consider possible strategic alternatives for the Company while continuing to consider the Swenson Proposal. At the May 20th meeting, the special committee also discussed engaging Dinse, Knapp & McAndrew, P.C. (“Dinse”) of Burlington, Vermont to serve as the special committee’s special Vermont counsel. Subject to Skadden confirming that Dinse had no disabling conflicts of interest in the matter, the members of the special committee unanimously agreed to retain Dinse as special Vermont counsel to the special committee. Dinse was formally engaged by the special committee pursuant to an engagement letter dated May 24, 2010.

 

On May 20, 2010, the Company issued a press release announcing the special committee’s decision to commence a process to explore and consider possible strategic alternatives to the Swenson Proposal and its engagement of Covington and counsel.

 

Between May 20 and June 2, 2010, Covington continued its due diligence review of the Company.

 

On May 25, 2010, the Company issued a press release announcing that a purported class action shareholder suit had been filed on May 19, 2010, in Vermont Superior Court, Washington County. The complaint named as defendants the Company, all the directors and certain officers of the Company, and Parent. The plaintiff, Todd Semon, alleges in the complaint that, among other things, the directors and named officer defendants of the Company breached their fiduciary duties in connection with the Swenson Proposal, that the

proposed consideration offered by Parent was inadequate, and that the Swenson Group, which includes controlling shareholders of the Company, would benefit from the proposed transaction to the detriment of the Company’s other shareholders. The shareholder litigation is more fully described under the heading “SPECIAL FACTORS — Litigation Related to the Merger” on page 62.

 

On June 2, 2010, a telephonic meeting of the special committee was held. In addition to all the members of the special committee, representatives of Skadden and Covington attended the meeting. Covington reviewed with the special committee previously distributed presentation materials regarding Covington’s analysis of the Company’s operations and future profitability and the market for possible strategic alternatives. Based on its due diligence, Covington concluded that the best strategic alternative available to the Company would be the sale of the Company to either a strategic or financial buyer if a transaction could be developed which was fair and in the best interests of the Company and its shareholders, including shareholders unaffiliated with Parent. After further considering Covington’s presentation and its recommendation, the special committee directed Covington to proceed with contacting various potential strategic and financial buyers identified in its presentation materials to inquire about their interest, if any, in pursuing a possible transaction with the Company.

 

On June 10, 2010, Parent was provided access to an on-line data room set up by the Company, and continued its ongoing financial and operational due diligence.

 

On June 16, 2010, Covington participated in a due diligence meeting requested by Parent in Barre, Vermont. Kurt Swenson and Robert Pope participated in this meeting on behalf of Parent, and Donald Labonte and Laura Plude, the Company’s Chief Financial Officer, participated on behalf of the Company.

 

Commencing in July, and continuing through August 19, 2010, Parent held a series of telephone conferences and face to face meetings with four prospective lenders to discuss and explore the terms and structure of possible financing for the Swenson Proposal. The prospective lenders included the Company’s two existing lenders. During this period, these prospective lenders also engaged in preliminary due diligence of Parent and the Company.

 

On July 1, 2010, following a series of letters and emails between Skadden and plaintiff Todd Semon’s counsel, Wolf Popper LLP (“Wolf Popper”), Skadden and Covington received valuation analyses and other materials from Wolf Popper, purporting to show that the Swenson Proposal’s $4.38 per share price substantially undervalued the Company. This correspondence, these valuation analyses, and Covington’s and the special committee’s review and conclusions regarding these valuation analyses, are described in detail under “SPECIAL FACTORS — Litigation Related to the Merger.”

 

On July 8, 2010, another telephonic meeting of the special committee was convened. In addition to all of the members of the special committee, Skadden and Covington attended this meeting. At this meeting, Covington reviewed with the special committee the solicitation process it had undertaken in which it had contacted 64 potentially interested parties, including Parent, since June 2nd, and the responses of the contacted parties. Of these 64 parties, comprised of 54 financial and 10 strategic parties, 35 parties had declined the opportunity, 11 parties had failed to respond after being contacted numerous times and 18 parties continued to express some level of interest. As next steps, Covington recommended, and the special committee approved, Covington’s continuing to work the potentially interested parties list, soliciting potentially interested parties to schedule management meetings and calls within the ensuing two weeks, and sending a letter during the week of July 12 ^th to remaining interested parties inviting them to submit non-binding indications of interest by July 29 ^th .

 

At the special committee meeting on July 8, 2010, Covington also reviewed with the special committee its analysis of the valuation analyses provided by Wolf Popper, which valuation analyses were distributed to the special committee members in advance of the meeting. Covington noted certain key, and, what it considered, unjustified, assumptions in the valuations provided by Wolf Popper that resulted in per share value ranges for the Company common stock that were well above the value ranges arrived at by Covington when it conducted similar analyses. For a more complete description of Covington’s analysis, and the special

committee’s conclusions, regarding the valuations provided by Wolf Popper, see “SPECIAL FACTORS — Litigation Related to the Merger.”

 

On July 14, 2010, Covington distributed an indication of interest procedures letter to eight parties, including Parent, which, because ten additional parties had withdrawn from the process between the July 8 ^th special committee meeting and July 14 ^th , were all of the parties who remained interested in acquiring the Company as of that date. Of these eight parties three, including Parent, were strategic parties and five were financial parties. The letters invited the submission of nonbinding indications of interest by July 29, 2010.

 

On July 22, 2010, Sheehan Phinney obtained access to the on-line data room and continued its legal diligence on behalf of Parent.

 

On July 27, 2010, Covington had a teleconference with Kurt Swenson and Robert Pope to discuss Parent’s possible submission of an indication of interest (“IOI”) in response to Covington’s invitation. Messrs. Swenson and Pope advised Covington that Parent anticipated submitting an IOI at the same $4.38 per share price as in the original Swenson Proposal, and requested that Covington include Parent in any further round of bidding. Covington indicated that it was unable to predict what IOI’s would be submitted by the July 29 ^th deadline and at what value levels, and that after reviewing the submissions, it would meet with the special committee and determine how to proceed with a view to maximizing value for the Company’s shareholders.

 

By July 29, 2010, the deadline to submit nonbinding indications of interest, Covington had received only two IOIs. One IOI was submitted by Parent at the same $4.38 per share price as the Swenson Proposal submitted in May 2010 (the “Parent IOI”). The other IOI was submitted by a private equity firm that proposed to acquire only the Company’s manufacturing business at a price range of $7-9 million.

 

On August 3, 2010, Covington, Kurt Swenson and Mr. Pope had a teleconference during which Covington sought to clarify certain aspects of the Parent IOI. During this discussion, Mr. Swenson and Mr. Pope reaffirmed the $4.38 per share price set forth in the Parent IOI, but indicated that, depending on the circumstances as the process unfolded, it was possible that Parent might have some price flexibility. Mr. Swenson and Mr. Pope also indicated that if Parent and the Company were able to reach agreement on price and other terms for a transaction, it would be important to seek to obtain the support of the Company’s most significant institutional investors. Mr. Swenson and Mr. Pope also confirmed that Parent was making progress with respect to obtaining financing to fund the proposed transaction, stating that Parent hoped to have firm commitments from lenders by the end of the month.

 

On August 4, 2010, the special committee held another telephonic meeting. In addition to all of the members of the special committee, representatives of Skadden and Covington attended this meeting. At this meeting, Covington again reviewed the solicitation process it had undertaken, including Covington’s discussions with potentially interested parties, as well as the fact that Covington had encouraged such parties to make a bid for less than the entire company, if they so desired. Covington then reviewed with the special committee the Parent IOI and the other IOI it had received. In Covington’s view, the IOI from the private equity firm that proposed to acquire only the Company’s manufacturing business was a non-viable proposal as compared to Parent’s IOI or to the Company continuing as a public company. Covington noted that the offer price for the manufacturing division was not competitive with the value for that division implied by the $4.38 per share offer price in Parent’s IOI, and disposing of manufacturing would result in the Company continuing to have the burdens and expense of being a public reporting company with the same, or worse, strategic and operational issues and risks, and the same, or worse, illiquidity of its stock, as it then faced. Skadden also reviewed with the special committee the various terms and conditions included in the Parent IOI that the Swenson Group expected would be included in a definitive merger agreement between the parties. In light of the fact that only one viable IOI had been received, Skadden reiterated to the special committee that they were under no affirmative obligation to approve or recommend the proposed transaction with Parent, and the special committee considered that fact.

 

After further considering the advice and information provided by Covington and Skadden, at its meeting on August 4, 2010, the members of the special committee decided not to pursue at that time the IOI submitted by the private equity firm to acquire only the Company’s manufacturing division, noting that moving forward with the Parent IOI by no means foreclosed any alternative that might be or become available to the Company,

including continuing to operate as a public company. At this meeting, the special committee instructed its advisors to contact Parent and its counsel to further discuss the terms of the Parent IOI and, in particular, to determine the status and likelihood of success of Parent’s efforts to secure financing for the transaction, and to confirm that Parent understood that the special committee would likely require an increase in the per share price reflected in Parent’s IOI and minimal conditions to Parent’s obligation to close, with a view to determining whether to proceed to try to negotiate a definitive transaction agreement with Parent. The advisors were instructed to report to Chairman Fox the results of their discussions with Parent and its counsel, who would then determine, on behalf of the special committee and after consultation with the other members of the special committee, whether to engage further with Parent and its counsel based on Parent’s IOI.

 

During this August 4th meeting of the special committee, Covington also reviewed with the special committee certain presentation materials regarding the aforementioned valuation analyses provided by Wolf Popper. These presentation materials essentially summarized the oral presentation Covington had provided to the special committee on this same topic at its July 8, 2010 meeting and confirmed the deficiencies and lack of credibility of these valuations. In addition, Covington addressed a purported valuation of Rock of Ages set forth in a letter dated July 23, 2010 to the special committee from a shareholder of the Company who indicated in the letter that he owned 156,000 shares of the Company. Covington noted that this purported valuation, which yielded a value range of $13.74-$17.74 per share of Company common stock, was based on assumptions and valuation methodologies that were both inaccurate and unclear. In particular, Covington highlighted that the purported valuation utilized a price/earnings multiple of ten without support or explanation, and applied that to estimated earnings of $.55 per share to arrive at an estimated price for the common stock of $5.50 per share. Also, in this purported valuation, again without support or explanation and resulting in “double counting” wholly inconsistent with accepted valuation methodologies, the shareholder separately added to this $5.50 per share his estimate of a range of $6.00 to $10.00 per share for the value of the Company’s quarries and, again applying a price/earnings multiple of ten, $2.24 per share reflecting approximately $11.6 million ($1.16 million annually) in interest savings resulting from assumed and unexplained future debt repayment and $5 million ($500,000 annually) in cost savings from ceasing to be a public company. Based on Covington’s analysis, the special committee concluded that this purported valuation was not credible and did not rely on it in any manner.

 

On August 5, 2010, in accordance with the special committee’s instructions, Covington had a teleconference with Kurt Swenson and Robert Pope. They discussed the status of Parent’s financing efforts, and Messrs. Swenson and Pope indicated that Parent expected to receive by August 15, 2010 a term sheet from People’s United setting forth the terms of financing for the proposed transaction. Mr. Swenson also indicated that, while he could not agree or make any commitment at this time, he anticipated that if an acceptable definitive acquisition agreement could be negotiated and financing secured, and further assuming that the Company continued to perform at or better than plan levels and that the number of Company shares which Parent’s members elected to contribute to Parent in exchange for additional shares of membership interest in Parent was substantially as expected, he anticipated that Parent would likely have some measure of flexibility regarding an increase in its proposed acquisition price.

 

On August 9, 2010, representatives of Skadden contacted Sheehan Phinney and discussed various terms, most importantly, the closing conditions, included in Parent’s IOI. They emphasized that in order for the special committee to approve a definitive agreement with Parent, in addition to a fair price being obtained and the transaction being approved by a majority of the outstanding shares of Class A common stock held by shareholders who were not affiliated with Parent, the Company and its shareholders would need to have a high degree of certainty that the transaction would be consummated. Sheehan Phinney indicated that Parent would agree to requiring a majority vote of the outstanding shares of Class A common stock held by shareholders who were not affiliated with Parent to approve the transaction and understood the special committee’s need for substantial certainty regarding closing.

 

Based on the favorable report of these discussions from Covington and Skadden, Chairman Fox, after consultation with the other members of the special committee, directed Skadden to prepare a draft merger agreement for distribution to Parent and its counsel.

On August 20, 2010, Covington received via email a letter from Kurt Swenson summarizing Parent’s progress to date in procuring financing for the proposed transaction. The letter noted that after approaching several lenders all of whom were interested in providing financing to Parent for the proposed transaction, Parent had chosen to pursue a credit facility with People’s United as its lead lender based on a non-binding proposal from People’s United dated August 19, 2010 that contemplated a $50 million loan facility to fund the proposed acquisition and pay transaction expenses, as well as to fund working capital, capital expenditures and other operational needs of the combined companies going forward.

 

On August 27, 2010, Covington had a teleconference with Kurt Swenson and Robert Pope to discuss the status of Parent’s financing efforts, and the likely timing for Parent to receive a binding commitment letter from People’s United and to negotiate definitive forms of loan agreements.

 

On August 30, 2010, People’s United provided Parent with a lender “due diligence letter.” On September 1, 2010, the letter was provided to Covington and Skadden for distribution to the special committee. The letter confirmed that Parent had accepted the non-binding August 19, 2010 proposal provided by People’s United. The letter also outlined the conditions to closing the acquisition financing and confirmed People’s United view that there was a “high probability” that financing for the acquisition of the Company would be made available to Parent on the terms previously provided to Parent.

 

From the end of August 2010 through September 2010, People’s United conducted a due diligence review of the Company and Parent. During this time, through the evening of October 17, 2010, Sheehan Phinney, on behalf of Parent, negotiated with lenders’ counsel, Blank Rome LLP (“Blank Rome”), the terms and conditions of a commitment letter and the form of definitive loan agreements for the proposed credit facility.

 

On September 1, 2010, Skadden provided Sheehan Phinney with a draft of a merger agreement for the proposed transaction.

 

On September 8, 2010, another telephonic meeting of the special committee was convened. In addition to all of the members of the special committee, representatives of Skadden and Covington attended this meeting. Covington gave an overview of Parent’s progress toward obtaining financing, including Parent’s selection of People’s United as the lead bank and People’s United’s selection of Key Bank, as the second lender, and reviewed with the special committee the August 30, 2010 lender “due diligence letter” provided by People’s United to Parent. Skadden then updated the special committee on the status of the draft merger agreement sent to Sheehan Phinney on September 1, 2010. Skadden also discussed with the special committee the main issues that were likely to arise out of Sheehan Phinney’s review of the draft merger agreement, including, most importantly, the minimal conditions to closing included in the draft. After further considering the information provided by Covington and Skadden on the status of the proposed transaction, the special committee reiterated its view that there would need to be a significant increase in the proposed acquisition price in order for the special committee to approve and recommend the proposed transaction with Parent to the Company’s board of directors and shareholders.

 

On September 10, 2010, Parent received a letter from People’s United regarding its offer to finance the proposed acquisition of the Company. This “interim” commitment letter contained the key terms of the proposed $50 million credit facility.

 

On September 14, 2010, Parent sent a letter to People’s United responding to the “interim” commitment letter. In the September 14 response letter, Parent reiterated that in order for a merger agreement to be entered into with the Company, Parent would need to have an updated commitment letter, with definitive financing agreements attached as exhibits, in place with People’s United at or prior to the time of signing the merger agreement.

 

Also on September 14, 2010, Parent provided the “interim” commitment letter and its September 14 ^th response letter to Covington. On September 17, 2010, Covington reviewed the terms of the proposed credit facility with the Company’s Chief Financial Officer.

 

On September 15, 2010, Sheehan Phinney provided Skadden with its comments to the draft merger agreement.

On September 20, 2010, a telephonic meeting of the special committee was convened. In addition to all of the members of the special committee, representatives of Skadden and Covington attended this meeting. Covington reviewed with the special committee the terms of the proposed credit facility, as outlined in the “interim” commitment letter from People’s United, a copy of which, together with Parent’s September 14 ^th response letter, had been distributed to the members of the special committee prior to the meeting. Covington noted that based on its initial review and its discussion with the Company’s Chief Financial Officer, the terms of the proposed credit facility appeared to be comparable to or more favorable than the terms of the Company’s current credit facility. Skadden then reviewed with the special committee the comments received from Sheehan Phinney on the draft merger agreement. Skadden noted that there were a number of material issues that needed to be resolved, including pricing for the deal, conditions to closing and expense reimbursement and other remedies upon termination of the merger agreement under various circumstances. Skadden noted that a call to attempt to resolve these outstanding issues was scheduled for the next day.

 

On September 21, 2010, representatives of Skadden, on behalf of the special committee, discussed and negotiated the draft merger agreement with Sheehan Phinney by telephone. Based on the parties’ discussion, and after consultation with Chairman Fox, Skadden circulated a revised draft of the merger agreement to Sheehan Phinney later that day.

 

On September 28, 2010, Sheehan Phinney provided Skadden with a markup of the draft merger agreement that Skadden had provided to them a week earlier. A telephonic meeting was held later that day between Skadden and Sheehan Phinney to further negotiate the terms of the agreement. Kurt Swenson, Mr. Pope, Chairman Fox and a representative of Covington also attended this meeting. This discussion focused on, among other terms, conditions to closing and expense reimbursement and other remedies upon termination of the merger agreement under various circumstances. Later that day, Skadden discussed by telephone various provisions of the draft merger agreement with People’s United’s counsel, Blank Rome.

 

On September 29, 2010, the special committee held another telephonic meeting. In addition to all of the members of the special committee, Skadden and Covington attended this meeting. Covington provided the special committee with an update on Parent’s progress to date toward obtaining financing. Based on information provided earlier to Covington by Parent, several preliminary conditions precedent to the closing of the acquisition financing had been met. Skadden then discussed with the special committee the status of the draft merger agreement, including the comments received from Sheehan Phinney on September 28, 2010. Skadden acknowledged that the parties’ negotiations on the various representations, warranties and conditions in the draft merger agreement would continue to evolve alongside Parent’s negotiations with People’s United on the terms and conditions of the draft financing agreements. After further considering the progress made to date, the special committee reviewed with its advisors next steps to continue forward with a possible transaction with Parent.

 

After the special committee’s meeting on September 29, 2010, Skadden and Sheehan Phinney held another telephonic meeting to discuss and further negotiate outstanding issues in the merger agreement. Based on the outcome of these negotiations, on September 30, 2010, Skadden circulated a revised draft of the merger agreement to Sheehan Phinney. Between September 30, 2010, and October 15, 2010, Skadden and Sheehan Phinney continued to discuss and negotiate the draft merger agreement.

 

During the week of October 4, 2010, Skadden had discussions with Chairman Fox and Covington, and with Sheehan Phinney, regarding possible timing for a special committee and board of directors meeting to approve a transaction, if agreement could be reached on price and other remaining open issues, and if the bank commitment letter and the form of definitive credit agreement to be attached thereto could be finalized. There was preliminary concurrence on a target date of October 15, 2010 for these meetings. During that week, Sheehan Phinney continued negotiations with Blank Rome with respect to the bank commitment letter and related loan agreement.

 

On Monday, October 11, 2010, Covington met with Kurt Swenson and Mr. Pope at Parent’s offices in Concord, New Hampshire. Covington reviewed with them various balance sheet and operating results assumptions on which Parent had based its $4.38 per share offer, as set forth in the original Swenson Proposal and the Swenson IOI, noting that the Company’s actual 2010 nine-month results and expected 2010 year end

results and financial position were more favorable than Parent’s assumptions and supported a price greater than $4.38 per share. Covington did not, however, have a balance sheet for the period ending September 30, 2010 which Mr. Pope and Mr. Swenson said was critical for their analysis of funds that could be available to support a possible price improvement. Covington also pointed out that, since under the merger agreement the majority of the minority approval would need to be obtained to consummate the merger, in their view a meaningful increase to their $4.38 per share offer — in all likelihood significantly into the $5.00 per share range — could well be necessary to be reasonably confident that that vote requirement would be met. No agreement on price was reached at this meeting. However, Mr. Swenson indicated that, in light of Covington’s discussion, and once he had the September 30 balance sheet of the Company and a more complete understanding of the total number of shares of Company common stock that members of Swenson Granite intended to contribute to Parent in exchange for additional shares of membership interest in Parent, and thus could re-evaluate Parent’s overall cash requirements and borrowing capacity under the proposed loan facility with People’s United and Key Bank, he believed Parent might be able to revise its offer to at least $5.00 per share. He noted that, of course, definitive loan agreements needed to be finalized and a definitive commitment letter executed by the lending banks. Mr. Swenson also indicated that, especially in light of the majority of the minority vote that would be required for the transaction to be consummated, it would be important for Parent, prior to entering into a definitive agreement, to have an indication as to whether a transaction at a particular price or within a range of prices would be viewed favorably by the Company’s most significant institutional investor. Covington indicated that this was also important to the special committee as a matter of obtaining reasonable certainty as to shareholder approval and thus as to closing, and the special committee had planned that Covington would seek to have a meeting and confidential discussion with representatives of that institutional investor for this purpose later in the week.

 

This same day, Covington reported the results of its meeting with Mr. Swenson and Mr. Pope to Chairman Fox and Skadden. Based on this, Chairman Fox instructed Skadden to advise the other members of the special committee to plan for convening a special committee meeting on Friday afternoon, October 15, 2010, to consider a transaction with Parent, and to advise McLane that, assuming the special committee approved a transaction, a meeting of the board of directors would be convened immediately following the special committee meeting to consider the transaction. Chairman Fox noted his expectation that, prior to the special committee meeting, further negotiations with Mr. Swenson could achieve a price significantly into the $5.00 per share range.

 

For the remainder of that week Skadden worked with Sheehan Phinney to finalize the merger agreement and its exhibits. In addition, materials for the special committee and board meeting were prepared and distributed to the directors.

 

On October 14, 2010, Parent received a revised draft of a definitive commitment letter and credit agreement from People’s United. Copies of these drafts were provided to Skadden later that day, and forwarded to the Company’s directors as part of the information and materials for the scheduled special committee and board meetings the following afternoon. On that same day, as instructed by the special committee and on its behalf, a representative of Covington met with representatives of the affiliated institutional investors which hold a substantial number and percentage of the outstanding shares of Class A common stock, and had a confidential discussion regarding their willingness to support an acquisition of the Company by Parent at price ranges above the $4.38 per share price initially proposed by Parent and which had not yet been revised. The representatives of these investors indicated to the representative of Covington that they would contact him after considering and discussing the matter amongst themselves. In the evening on that same day, the representative of Covington received a telephone call from one of the representatives of the affiliated institutional investors, indicating that, if a price into the $5.00 per share range could be negotiated, he anticipated that he could be supportive of the transaction.

 

In the morning of October 15, 2010 at approximately 10:00 a.m., a meeting of the members of Parent was convened at Parent’s offices in Concord, New Hampshire. At this meeting, Parent’s proposed acquisition of the Company pursuant to the merger agreement was approved by Parent’s members. Also at this meeting, Parent finalized with its members the number of shares of Company common stock that each member had elected to contribute to Parent in exchange for additional shares of membership interest in Parent, and the

contribution agreements reflecting these elections, as well as the voting agreements, were entered into, to become effective upon the execution and delivery of the merger agreement.

 

Shortly after noon on this same day, a representative of Covington, after consultation with Chairman Fox, telephoned Kurt Swenson and advised him that he believed the special committee would approve the proposed transaction and recommend its approval by the board if the proposed merger consideration were increased to $5.50 per share. The Covington representative also advised Mr. Swenson that he believed the Company’s most significant institutional shareholder would support the transaction at that price.

 

Shortly after this call with Covington, Mr. Swenson participated with Sheehan Phinney on a conference call with Skadden in order to resolve the other remaining open matters on the merger agreement and the related disclosure schedule, including the “appraisal rights” condition to closing and the Company’s estimate of transaction expenses. At the outset of this call, Mr. Swenson informed the representative of Skadden that Parent could not agree to $5.50 per share, and that Parent’s maximum offer was $5.07 per share. During the remainder of this call, the remaining items on the merger agreement and the disclosure schedule intended to be addressed on the call were resolved, other than the appraisal rights condition, as to which it was agreed that it would be settled later if an agreement on price could be reached.

 

Shortly after this call, the Skadden representatives met with Chairman Fox who had arrived at Skadden’s Boston office early for the scheduled special committee meeting. They discussed Mr. Swenson’s revised offer price, and placed calls to the representative of Covington who had spoken with Mr. Swenson earlier, and who was then traveling by air from New York to Boston, to obtain his input and recommendation as to how to respond to Mr. Swenson. Pending his availability, Chairman Fox requested that the meeting of the special committee be convened in order to cover those aspects of the transaction that could properly be reviewed and considered while a final price was still being negotiated. Accordingly, at approximately 3:45 p.m. on October 15, 2010, a meeting of the special committee was convened at the offices of Skadden in Boston, Massachusetts. Chairman Fox and Ms. Sheiffer were present in person for the meeting, with Dr. Webster participating by telephone. A representative from Dinse was present for the preliminary portion of the meeting while Skadden was present for the duration of the meeting. Covington joined the meeting later in the early evening after the parties reached a final agreement as to the merger consideration.

 

During this initial part of the meeting, Skadden provided the special committee with an overview of the terms of the proposed merger agreement. With the exception of the merger consideration, the parties had tentatively agreed to these terms for the proposed transaction. Dinse also provided the special committee with a presentation on the special committee members’ fiduciary duties under Vermont law for the proposed acquisition.

 

During this part of the meeting, the Covington representative arrived at Covington’s office in Boston, Massachusetts and the special committee and Skadden had several conference calls with Covington to discuss the possible rationales for Mr. Swenson’s statement that $5.07 per share was the maximum Parent could pay.

 

After further phone discussions between Covington and Mr. Swenson, who was then traveling by car from Parent’s office to Skadden’s office for the Board meeting scheduled at 4:00 p.m., Covington called into the special committee meeting and reported that, after additional discussion and review of Parent’s cash needs to accomplish the transaction and borrowing capability under the People’s United loan facility, Mr. Swenson had agreed, as his best and final offer, to increase the merger consideration to $5.20 per share. Mr. Swenson indicated to Covington that the holders of Company shares who were part of the Swenson Group had elected to receive cash, instead of contributing their Company shares to Parent in exchange for additional shares of membership interest in Parent, in an amount greater than previously expected. As a result, a greater amount of the acquisition financing than he had anticipated would need to be devoted to the cash merger consideration.

 

After discussion with Covington and Skadden, the special committee members agreed that Mr. Fox should meet with Kurt Swenson to attempt to negotiate a final price of at least $5.25 per share. The special committee took a break at this point in time to allow Chairman Fox to meet with Kurt Swenson, who had arrived at Skadden’s offices in order to attend the board meeting that had been tentatively scheduled for 4:00 p.m. Chairman Fox met alone with Kurt Swenson in a private office at Skadden at approximately 5:30 pm. Mr. Fox

advised Mr. Swenson that the special committee would not support a transaction unless the price was raised to at least $5.25 per share. Mr. Swenson advised Mr. Fox that the required cash to fund the acquisition had increased significantly due to fewer Company shares being contributed to Parent in exchange for additional shares of membership interest in Parent interests than expected, as well as the increase up to the $5.20 per share price he had already made. He advised Mr. Fox that if he were to increase the price to $5.25, it would be the final offer and he needed reasonable assurance that (1) it was the last increase that would be requested by the special committee and (2) that to the best of Mr. Fox’s knowledge based on discussions with Covington, the $5.25 price and the merger transaction would be supported by the Company’s most significant institutional investor. Mr. Fox responded that he would recommend that the other members of the special committee vote to approve the transaction at the $5.25 price, and that, based on his discussions with Covington, the institutional shareholder support for the transaction at that price would be forthcoming. Mr. Swenson, on behalf of Parent, agreed to the merger consideration of $5.25 per share as Parent’s final offer.

 

The special committee reconvened at approximately 6:45 p.m., after Chairman Fox returned from his negotiations with Mr. Swenson and the representatives of Covington arrived at the offices of Skadden. Covington gave a presentation with respect to the financial aspects of the proposed transaction and delivered its opinion, that as of that date, the proposed merger consideration to be received by the Company’s shareholders in the merger was fair, from a financial point of view, to such holders. After further considering the proposed price of $5.25 per share, the terms of the merger agreement, the various presentations of Covington, Skadden and Dinse, and such other factors, considerations, documents, information and advice as the special committee deemed necessary or appropriate, the special committee unanimously determined that the merger was fair to and in the best interest of the Company’s shareholders to the extent such shareholders’ shares of common stock are converted in the merger into the right to receive the merger consideration. Contingent upon a definitive commitment letter being executed by Parent and People’s United and a copy thereof being provided to the Company, the special committee also unanimously adopted the merger agreement and recommended that shareholders of the Company vote in favor of approval of the merger agreement at a special meeting of the Company’s shareholders. Subject to receipt of a copy of the executed definitive commitment letter, the special committee also unanimously recommended to the board of directors that it adopt the merger agreement and that it recommend to the Company’s shareholders that they vote in favor of approval of the merger agreement.

 

The October 15, 2010 meeting of the special committee was followed immediately by a special meeting of the Company’s board of directors which was called to order at approximately 7:45 p.m. All members of the board were present for the meeting, including Dr. Webster, who again participated by telephone. At the invitation of the board, representatives from Skadden, McLane and Covington were also present. At this meeting, McLane discussed the directors’ fiduciary duties under Vermont law in connection with the proposed transaction. Skadden provided the board with an overview of the terms of the final draft merger agreement. Chairman Fox presented the special committee’s recommendations to the board of directors with respect to the merger agreement. Covington then provided the board of directors with a presentation regarding the financial aspects of the proposed transaction and reiterated its opinion previously given to the special committee regarding the fairness of the proposed merger consideration. After considering the special committee’s recommendations, the terms of the proposed merger agreement, the presentations by McLane, Skadden and Covington, and such other factors, considerations, documents, information and advice as the board of directors deemed necessary or appropriate, the board of directors unanimously determined that the merger was fair to and in the best interests of the Company’s shareholders to the extent such shareholders’ shares of common stock are converted in the merger into the right to receive the merger consideration. Contingent upon a definitive commitment letter being executed by Parent, People’s United and Key Bank and a copy thereof being provided to the Company, the board of directors also unanimously adopted the merger agreement and recommended to shareholders that they vote in favor of approval of the merger agreement at a special meeting of the Company’s shareholders.

 

The board of directors then adjourned its meeting at approximately 10:00 p.m.

 

Following further negotiations between Parent and People’s United on October 16th and 17th, in the evening on October 17th, Parent, People’s United and Key Bank executed a definitive commitment letter, a

copy of the letter was provided to the Company and to Skadden on behalf of the special committee, and the signature pages to the merger agreement were released to effect the execution of the merger agreement.

 

On October 18, 2010, prior to the opening of trading on The NASDAQ Global Market, Rock of Ages issued a press release announcing that it had entered into the merger agreement.

 

The special committee of the board of directors of Rock of Ages has unanimously determined that the merger is fair to and in the best interests of the Company’s shareholders, to the extent such shareholders’ shares of common stock are converted in the merger into the right to receive the $5.25 per share merger consideration.

 

Additionally, the special committee unanimously adopted the merger agreement, recommends that the Company’s shareholders approve the merger agreement and recommended that the board of directors:

 

 

After considering the unanimous recommendations of the special committee and also considering various additional factors, including Covington’s fairness opinion (as described below, under “SPECIAL FACTORS — Opinion of the Financial Advisor to the Special Committee”), the board of directors, based in part on the recommendation of the special committee:

 

 

Reasons for the Special Committee Adopting the Merger Agreement, Recommending that the Company’s Shareholders Approve the Merger Agreement, and Recommending that the Board of Directors Adopt the Merger Agreement and Recommend Approval of the Merger Agreement by the Company’s Shareholders

 

In reaching its conclusions and making its recommendations to the board of directors, the special committee considered factors including, but not limited to, the following:

 

 

 

 

 

The special committee believes that each of these factors supported its determination that the merger is fair to and in the best interests of the Company’s shareholders (other than the members of the Swenson Granite Group, to the extent they contribute their Company shares to Parent prior to the merger pursuant to the contribution agreements), and to adopt the merger agreement and recommend to the Company’s shareholders that they vote in favor of approval of the merger agreement, as well as its recommendation to the board of directors that it determine that the merger is fair to and in the best interests of the Company’s shareholders (other than the members of the Swenson Granite Group, to the extent they contribute their Company shares to Parent prior to the merger pursuant to the contribution agreements), adopt the merger agreement and recommend to the Company’s shareholders that they vote in favor of approval of the merger agreement.

 

In evaluating the fairness of the merger, the special committee did not consider:

 

 

In addition, the special committee did not establish, and did not consider, a pre-merger going concern value for the equity of Rock of Ages and does not believe there is a single method of determining going concern value, although the special committee believes the analyses of Covington in their totality may, to some degree, be generally reflective of going concern value.

 

The special committee also considered a variety of risks and other potentially negative factors concerning the merger agreement and the transactions contemplated by it, including the merger. These factors included, but were not limited to, the following:

 

 

This discussion of the information and factors considered by the special committee in reaching its conclusions and recommendations includes all of the material factors considered by the special committee, but is not intended to be exhaustive. In view of the wide variety of factors considered by the special committee in evaluating the merger agreement and the transactions contemplated by it, including the merger, and the complexity of these matters, the special committee did not find it practicable, and did not attempt, to quantify, rank or otherwise assign relative weight to those factors. In addition, different members of the special committee may have given different weight to different factors.

 

The special committee believes that sufficient procedural safeguards were and are present to ensure the fairness of the merger to the Company’s shareholders who are not affiliates of the Company and to permit the special committee to effectively represent the interests of such shareholders. These procedural safeguards include the following:

 

 

 

In light of the procedural safeguards described above, the special committee did not consider it necessary to retain an unaffiliated representative to act solely on behalf of those Company shareholders not affiliated with Parent for purposes of negotiating the terms of the merger agreement or preparing a report concerning the fairness of the merger agreement and the merger.

 

Reasons for the Board of Directors Adopting the Merger Agreement and Recommending that the Company’s Shareholders Approve the Merger Agreement

 

In reaching its determination that the merger is fair to and in the best interests of the Company’s shareholders, to the extent such shareholders’ shares of common stock are converted in the merger into the right to receive the $5.25 per share merger consideration, and its determination to adopt the merger agreement and recommend approval of the merger agreement by the Company’s shareholders, the board of directors determined that the analysis of the special committee was reasonable, adopted the determination of the special committee as to the substantive and procedural fairness of the merger to the Company’s shareholders, to the extent such shareholders’ shares of common stock are converted in the merger into the right to receive the merger consideration, and the special committee’s reasons for such determination, as described above under “SPECIAL FACTORS — Recommendations of the Special Committee and the Board of Directors; Reasons for Recommending Approval of the Merger Agreement to the Company’s Shareholders.” Accordingly, the board of directors believes the merger is fair to the Company’s shareholders who are not affiliates of the Company. In determining the reasonableness of and adopting the special committee’s determination and the reasons therefor, the board of directors carefully evaluated and considered such factors, including the

potentially negative factors, considered by the special committee. In addition, the board of directors considered the advice of the Company’s regular outside counsel, McLane, as to directors’ duties under the VBCA.

 

In evaluating the merger, the board of directors did not consider the Company’s net book value, liquidation value or the pre-merger going concern value for the equity of the Company, for the same reasons that the special committee did not consider such factors, as described above on page 34 under “SPECIAL FACTORS — Recommendations of the Special Committee and the Board of Directors; Reasons for Recommending Approval of the Merger Agreement to the Company’s Shareholders.”

 

In light of the procedural protections described above starting on page 34 under “SPECIAL FACTORS — Recommendations of the Special Committee and the Board of Directors; Reasons for Recommending Approval of the Merger Agreement to the Company’s Shareholders,” the board of directors did not consider it necessary to retain an unaffiliated representative to act solely on behalf of those Company shareholders not affiliated with Parent for purposes of negotiating the terms of the merger agreement or preparing a report concerning the fairness of the merger agreement and the merger.

 

In view of the wide variety of factors considered by the board of directors in evaluating the merger and the complexity of these matters, the board of directors did not find it practicable, and did not attempt, to quantify, rank or otherwise assign relative weight to those factors. In addition, different members of the board of directors may have given different weight to different factors.

 

Based in part upon the recommendation of the special committee, the board of directors unanimously determined that the merger is fair to and in the best interest of the Company’s shareholders (other than the members of the Swenson Granite Group, to the extent they contribute their Company shares to Parent prior to the merger pursuant to the contribution agreements), adopted the merger agreement and recommends that you vote FOR approval of the merger agreement . This recommendation of the board of directors was made after consideration of all the material factors, both positive and negative, as described above. Our board of directors also recommends that you vote FOR the proposal to adjourn the special meeting, if necessary, to permit further solicitation of proxies in the event there are not sufficient votes of shares of Class A common stock at the time of the special meeting to satisfy the condition in the merger agreement that the majority of the minority approval be obtained (whereby the merger agreement must be approved by a majority of the outstanding shares of our Class A common stock not owned by members of Parent). This recommendation of the board of directors was made after consideration of all the material factors, both positive and negative, as described above.

 

If the merger is consummated, the members of the Company’s board of directors, other than Kurt Swenson and Richard Kimball (who, as members of the Swenson Granite Group, will contribute all of their Company common stock to Parent prior to the effective time of the merger), will be entitled to receive an aggregate of approximately $317,200 based on their ownership of shares of Rock of Ages common stock and options. $78,750 of this amount would be received by members of the special committee. See “SPECIAL FACTORS — Interests of Certain Persons in the Merger.”

 

Parent, Merger Sub and the members of the Swenson Granite Group did not undertake any independent evaluation of the fairness of the proposed merger to those Company shareholders whose shares of common stock are converted in the merger into the right to receive the merger consideration or engage a financial advisor specifically for such purposes. Parent, Merger Sub and the members of the Swenson Granite Group did not participate in the deliberations of the special committee regarding, and did not receive advice from the special committee’s legal or financial advisors as to, the fairness of the merger. Nevertheless, Parent, Merger Sub and the members of the Swenson Granite Group found persuasive, and have adopted, the determination of the special committee as to the substantive and procedural fairness of the merger to the Company’s shareholders, to the extent such shareholders’ shares of common stock are converted in the merger into the right to receive the merger consideration, and the special committee’s reasons for such determination, as described above under “SPECIAL FACTORS — Recommendations of the Special Committee and the Board

of Directors; Reasons for Recommending Approval of the Merger Agreement to the Company’s Shareholders.” Accordingly, Parent, Merger Sub and the members of the Swenson Granite Group believe the merger is fair to the Company’s shareholders who are not affiliates of the Company. This belief is also based on the following additional factors considered by Parent, Merger Sub and the members of the Swenson Granite Group:

 

 

The foregoing discussion of the information and factors considered by Parent, Merger Sub and the members of the Swenson Granite Group in connection with the fairness of the merger is not intended to be exhaustive. Because of the variety of factors considered, Parent, Merger Sub and the members of the Swenson Granite Group did not find it practicable to and did not attempt to, make specific assessments of, quantify, rank or otherwise assign relative weights to, the specific factors considered in reaching their determination. Parent, Merger Sub and the members of the Swenson Granite Group felt that there was no need to retain any additional unaffiliated representatives to act on behalf of those Company shareholders that are not affiliated with Parent, Merger Sub or are members of the Swenson Granite Group, because the independence of the members of the special committee and the retention by the special committee of its own legal counsel and financial advisor permitted the special committee to effectively represent the interests of such shareholders and because the merger agreement explicitly requires obtaining the majority of the minority approval as a condition to the consummation of the merger.

 

Parent, Merger Sub and the members of the Swenson Granite Group did not consider net book value in evaluating the fairness of the merger to the Company’s shareholders to the extent their shares of Company common stock are converted in the merger into the right to receive the merger consideration, because they believe that net book value is not a material indicator of the value of the Company’s common stock, but rather an accounting concept indicative of historical asset costs. Similarly, Parent, Merger Sub and the members of the Swenson Granite Group did not consider liquidation value in evaluating the fairness of the merger to the Company’s shareholders to the extent their shares of common stock are converted in the merger into the right to receive the merger consideration because they believe, based on Parent’s extensive knowledge of the Company’s quarries and manufacturing assets, that a liquidation of such quarries and assets would likely result in value to shareholders significantly below the $5.25 merger consideration, as well as their belief that a liquidation would be time consuming, entail significant cost and expense and subject the Company’s shareholders to transaction risk with respect to each asset being sold and substantial delay and uncertainty in receiving the proceeds of such sales as liquidating distributions.

 

In addition, in evaluating the fairness of the merger to the Company’s shareholders to the extent their shares of common stock are converted in the merger into the right to receive the merger consideration, Parent, Merger Sub and the members of the Swenson Granite Group did not establish or consider a particular pre-merger going concern value for the equity of the Company and do not believe there is a single method of determining going concern value. However, they do believe that the valuation analyses and methodologies normally employed by investment bankers such as Covington may, to some degree, be generally reflective of going concern value.

 

In connection with Parent’s and Merger Sub’s review of Rock of Ages and in the course of the negotiations between the special committee and Parent and Merger Sub as described in “SPECIAL FACTORS — Background of the Merger,” Rock of Ages provided Parent and Merger Sub with non-public business and financial information. The non-public information included projections of the Company’s future operating performance. Such projections also were provided to Covington in its capacity as financial advisor to the special committee. The information set forth below has been excerpted from the materials provided to Parent, Merger Sub and Covington, and does not give effect to the transactions contemplated by the merger agreement, including the merger, or the Financing. These projections, as summarized below, have been provided to give Rock of Ages’ stockholders access to certain nonpublic information that was provided to Parent and Covington for the purpose of considering and evaluating the merger.

 

Rock of Ages does not, as a matter of course, publicly disclose projections of future revenues or earnings. However, as requested, our management did provide financial forecasts to Parent and Covington.

 

The projections were not prepared with a view to public disclosure and are included in this proxy statement only because such information was made available to Parent in connection with its due diligence investigation of Rock of Ages and to Covington. The projections were not prepared with a view to compliance with the published guidelines of the SEC regarding projections, nor were they prepared in accordance with the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial projections.

 

The projections in this proxy statement have been prepared by, and are the responsibility of our management. Grant Thornton LLP, the Company’s independent registered public accounting firm, has neither examined nor compiled the projections, and accordingly, Grant Thornton LLP does not express an opinion or any other form of assurance with respect to the projections. The audit report related to the Company’s historical financial information, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 which is included as Annex F of this proxy statement, does not extend to the projections and should not be read to do so.

 

In compiling the projections, our management took into account historical performance, combined with projections regarding development activities. The projections were developed in a manner consistent with management’s historical development of budgets and long-range operating projections and were not developed for public disclosure. Although the projections were presented with numerical specificity, the projections reflect numerous assumptions and estimates as to future events made by our management that our management believed were reasonable at the time the projections were prepared. Failure to achieve any such assumptions would impact the accuracy of the projections. In addition, factors such as industry performance and general business, economic, regulatory, market and financial conditions, all of which are difficult to predict and beyond the control of our management, may cause the projections or the underlying assumptions to be inaccurate. Accordingly, there can be no assurance that the projections will be realized, and actual results may be materially greater or less than those contained in the projections. Because the projections cover multiple years, such information by its nature becomes less predictive with each successive year. None of Rock of Ages or Parent or any of their affiliates, advisors or representatives has made or makes any representation to any stockholder regarding our ultimate performance compared to the information contained in these projections. See “FORWARD-LOOKING STATEMENTS” on page 70.

 

Rock of Ages does not intend to update or otherwise revise the projections to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even if any or all of the assumptions underlying the projections are shown to be in error.

The projections Rock of Ages provided to Parent and Covington included estimates for fiscal years 2010, 2011, 2012, 2013, 2014 and 2015 revenues, gross profit, operating income and net income. The most recent such estimates by Rock of Ages to Parent and Covington are set forth in the table below:

 

 

The table above reflects projections prepared by the Company that were provided to Parent shortly before Parent’s meeting with Covington on October 11, 2010 as described under “SPECIAL FACTORS — Background of the Merger,” and which Covington used and relied upon in the preparation and delivery of its opinion as to the fairness, from a financial point of view, of the $5.25 per share merger consideration to be received by Company shareholders. These projections were prepared by the Company by updating, to reflect the Company’s actual performance for the first three quarters of 2010, earlier projections prepared by the Company which were reviewed by the Company’s board of directors at a regular meeting in February, 2010 and were made available to Covington at the outset of its engagement. The Company’s actual performance through the third quarter of 2010 varied from the estimates reflected in such earlier projections, and as a result, the projections in the table above vary from those earlier projections. The earlier projections forecast, for the years 2010, 2011, 2012, 2013, 2014 and 2015, revenues of $50.9 million, $53.4 million, $56.1 million, $58.9 million, $61.9 million, and $65.0 million, respectively, EBIT of $5.8 million, $6.0 million, $6.5 million, $7.0 million, $7.5 million, and $8.0 million, respectively, and net income of $4.5 million, $5.0 million, $5.6 million, $6.3 million, $6.8 million, $7.4 million, respectively. In June 2010, updated projections for 2010 only were made available to Covington and Parent and to various other parties which had indicated an interest

in possibly submitting an acquisition proposal as part of the strategic alternatives exploration process undertaken by Covington at the direction of the special committee. These updated 2010 projections forecast revenues of $50.4 million, EBIT of $5.7 million and net income of $4.4 million.

 

The special committee retained Covington to act as its financial advisor in connection with the exploration of one or more strategic alternatives for the Company and to render an opinion as to the fairness, from a financial point of view, of the $5.25 per share merger consideration to be received by the Company’s shareholders in the merger. On October 15, 2010, Covington delivered to the Company’s special committee and board of directors its oral opinion, confirmed by its written opinion of the same date, that, as of that date and based upon and subject to the assumptions, limitations, qualifications, and other conditions set forth in its written opinion, the $5.25 per share merger consideration to be received by the Company’s shareholders is fair, from a financial point of view, to such shareholders.

 

Covington’s opinion was only one of many factors taken into consideration by our special committee and our board of directors in making their determinations to adopt the merger agreement and recommend that the Company’s shareholders vote in favor of approval of the merger agreement. The terms of the merger agreement, however, including the $5.25 per share merger consideration were determined through negotiations between our special committee, Parent and Merger Sub, and were ultimately approved by the special committee and our board of directors. Covington also did not recommend any specific form of consideration to the Company’s special committee or board of directors or state that any specific form of consideration constituted the only appropriate consideration with respect to the merger agreement and the transactions contemplated thereby, including the merger.

 

The full text of Covington’s written opinion, dated October 15, 2010, is attached as Annex D to this proxy statement and is incorporated herein by reference. We urge you to read the full text of the opinion. Covington has consented to the inclusion in this proxy statement of the full text of its opinion, and to the inclusion as exhibits to the Schedule 13E-3 Transaction Statement, as amended (the “Schedule 13E-3”), filed by the Company, Parent, Merger Sub and the members of the Swenson Granite Group in connection with the proposed merger, of various presentations made by Covington to the special committee.

 

Covington’s opinion was addressed to, and for the use and benefit of, the Company’s special committee and its board of directors, and is limited only to the fairness of the cash merger consideration, from a financial point of view, to the Company shareholders that are to receive the $5.25 per share cash merger consideration. The opinion does not address the relative merits of the other transactions contemplated by the merger agreement or the other business strategies that the board of directors has considered, nor does it address the decisions of the special committee and the board of directors to proceed with the merger. The opinion does not address the fairness of the merger, or any consideration received in connection therewith, to the holders of any other class of the Company’s securities, to the Company’s creditors or to other constituencies of the Company. The opinion also does not address the fairness of the merger to the members of the Swenson Granite Group who have agreed to, prior to the effective time of the merger, contribute some or all of their shares of our common stock in exchange for additional shares of membership interest in Parent. As a result, Covington’s opinion does not express a view as to the fairness of the $5.25 cash merger consideration relative to the additional shares of membership interest in Parent to be received by the members of the Swenson Granite Group in exchange for the Company shares they contribute to Parent. The opinion also does not address the fairness of the contemplated benefits of the merger. Covington expresses no opinion as to the merits of the underlying decision by the Company to engage in the merger or how any holder of shares of the Company common stock should vote, or take any action, with respect to the merger, the approval of the merger agreement or any other matter. Furthermore, Covington does not express any view or opinion as to the fairness, financial or otherwise, of the amount or nature of any compensation payable to or to be received by any of the Company’s officers, directors, or employees, or any class of such persons, in connection with the merger, whether relative to the cash merger consideration pursuant to the merger agreement or otherwise. Covington does not express any opinion as to the price at which shares of the Company’s common stock

would trade at any time. For purposes of the opinion, Covington has assumed that the cash merger consideration that is paid for each share of the Company’s common stock outstanding immediately prior to the closing of the merger will be equal to $5.25 per share.

 

In arriving at its opinion, Covington, among other things:

 

 

Covington relied upon and assumed, without independent verification, the accuracy and completeness of all data, material and other information furnished, or otherwise made available, to it, discussed with or reviewed by it, or publicly available, and Covington does not assume any responsibility with respect to such data, material and other information. In addition, the Company’s management advised Covington, and Covington has assumed, that the Financial Projections reviewed by it have been reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of such management as to the future financial results and condition of the Company, and Covington expresses no opinion with respect to such projections or the assumptions on which they are based. Covington has relied upon and assumed, without independent verification, that the historical financial statements of the Company provided to it have been prepared in accordance with United States generally accepted accounting principles, and that, to the knowledge of Company management, there has been no change in the business, assets, liabilities, financial condition, results of operations, cash flows or prospects of the Company since the date of the most recent financial statements provided to it that would be material to its analyses or opinion, and that there is no information or any facts that would make any of the information reviewed by it incomplete or misleading.

 

Furthermore, in connection with the opinion, Covington has not been requested to make, and has not made, any physical inspection or independent appraisal or evaluation of any of the assets, properties or liabilities (fixed, contingent, derivative, off-balance-sheet or otherwise) of the Company or any other party, nor was it provided with any such appraisal or evaluation. Covington did not estimate, and expresses no opinion regarding, the liquidation value of any entity or business. Covington has undertaken no independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which the Company is or may be a party or is or may be subject, or of any governmental investigation of any possible unasserted claims or other contingent liabilities to which the Company is or may be a party or is or may be subject.

 

Covington’s opinion is necessarily based on financial, economic, market and other conditions existing on, and the information made available to Covington as of, the date of the opinion. Covington has not undertaken,

and is under no obligation, to update, revise, reaffirm or withdraw the opinion, or otherwise comment on or consider events occurring or coming to its attention after the date hereof.

 

In connection with rendering its opinion, Covington performed certain financial, comparative and other analyses as summarized below. The following summary does not purport to be an exhaustive description of the analyses performed by Covington, nor does the order of analyses described represent relative importance or weight given to those analyses by Covington.

 

In arriving at its opinion, Covington did not attribute any particular weight to any analysis, methodology, or factor considered by it, and the fact that any specific analysis has been referred to in the summary below is not meant to indicate that such analysis was given greater weight than any other analysis. Rather, Covington made qualitative judgments as to the significance and relevance of each analysis and factor relative to all other analyses and factors performed and considered by it and in the context of the circumstances of the particular transaction. Accordingly, Covington believes that its analyses must be considered as a whole and that selecting portions of its analyses or the factors it considered, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying its analyses and opinion. Certain financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses used by Covington, the tables must be read together with the text of each summary, as the tables alone do not constitute a complete description of the financial analyses. Covington believes that each analysis performed by it is a common methodology utilized in determining valuations in similar circumstances. Although other valuation techniques may exist, Covington believes that the analyses described below, when taken as a whole, provide the most appropriate analyses for Covington to arrive at the opinion.

 

Comparable Public Company Analysis

 

Comparable public company analysis is a method of valuing an entity relative to publicly traded companies that service similar customers, offer similar products or services or have similar operating or financial characteristics. Using publicly available information, Covington reviewed and compared selected Rock of Ages financial data with similar data for fourteen publicly-traded companies deemed by Covington to be comparable to the Company. In selecting these fourteen companies, Covington reviewed publicly available information to identify building materials, quarrying, and death care companies that serve similar customers, offer similar products and services or have similar operating or financial characteristics as those of Rock of Ages. These criteria were consistently applied in this review, and no companies which met some or all of these criteria were deliberately excluded from the scope of this review or from being selected. Covington selected the following companies, because, among other reasons, they are publicly traded companies with operations that for purposes of analysis may be considered similar to certain aspects of the Company’s operations: Arbor Memorial Services Inc., Boral LTD, Carriage Services Inc., Granitifiandre s.p.a., HeidelbergCement AG, InvoCare LTD, Lafarge SA, Martin Marietta Materials Inc., Matthews International Corporation, Rocamat, Service Corp. International, Stewart Enterprises Inc., Stonemor Partners LP, and Vulcan Materials Company.

 

No company utilized in the comparable public company analysis is identical to the Company. Covington made judgments and assumptions with regard to industry performance, general business, economic, market, and financial conditions, and other matters, many of which are beyond the control of the Company. Mathematical analysis of comparable public companies (such as determining means and medians) in isolation from other analyses is, in the opinion of Covington, not an effective method of evaluating transactions.

 

For each of the comparable companies, Covington calculated that company’s total enterprise value as that company’s equity market value, plus total debt, less cash. For purposes of this calculation, equity market values were calculated as of the close of market trading on October 13, 2010, and cash and debt values were calculated based on reported levels as of June 30, 2010 (for Boral LTD, Carriage Services Inc., Granitifiandre s.p.a., HeidelbergCement AG, InvoCare LTD, Lafarge SA, Martin Marietta Materials Inc., Matthews International Corporation, Rocamat, Service Corp. International, Stonemor Partners LP, and Vulcan Materials Company; as of July 25, 2010 (for Arbor Memorial Services Inc.); and as of July 31, 2010 (for Stewart Enterprises Inc.) Covington then calculated the multiple implied by the relation between the total enterprise

value of each of these companies and (1) each comparable company’s revenue for the twelve-month period ended June 30, 2010 (for Boral LTD, Carriage Services Inc., Granitifiandre s.p.a., HeidelbergCement AG, InvoCare LTD, Lafarge SA, Martin Marietta Materials Inc., Matthews International Corporation, Rocamat, Service Corp. International, Stonemor Partners LP, and Vulcan Materials Company), the twelve-month period ended July 25, 2010 (for Arbor Memorial Services Inc.) or for the twelve-month period ended July 31, 2010 (for Stewart Enterprises Inc.), as reflected in periodic reports filed with the SEC; (2) each comparable company’s estimated revenue for the year ending December 31, 2010, as indicated in consensus Wall Street analyst estimate reports where available; (3) each comparable company’s EBITDA for the twelve-month period ended June 30, 2010 (for Boral LTD, Carriage Services Inc., Granitifiandre s.p.a., HeidelbergCement AG, InvoCare LTD, Lafarge SA, Martin Marietta Materials Inc., Matthews International Corporation, Rocamat, Service Corp. International, Stonemor Partners LP, and Vulcan Materials Company), for the twelve-month period ended July 25, 2010 (for Arbor Memorial Services Inc.) or for the twelve-month period ended July 31, 2010 (for Stewart Enterprises Inc.), as reflected in periodic reports filed with the SEC; and (4) each comparable company’s estimated EBITDA for the year ending December 31, 2010, as indicated in consensus Wall Street analyst estimate reports where available. Covington then calculated the median and mean multiples for each revenue and EBITDA figure.

 

Covington next calculated, for reference purposes only, the Company’s total enterprise and equity values based on the Company’s share price as of the close of market trading on October 13, 2010, as well as the corresponding multiples (as described above), using (1) the Company’s net debt position as of July 3, 2010, as reflected in its quarterly 10-Q report filed with the SEC, (2) the Company’s revenue and EBITDA for the twelve-month period ended July 3, 2010, as reflected in its quarterly 10-Q report filed with the SEC; and (3) management’s financial projections for revenues and EBITDA for the Company for the year ending December 31, 2010.

The resulting multiples are set forth in the table below (categorized by industry groupings):

 

 

Based on the results of the comparable company analysis, the relevant metrics of which are described above, Covington determined that the consideration to be paid in the merger reflected trading multiples that compared favorably with the trading multiples of the comparable companies.

 

Benchmarking Analysis

 

Benchmarking analysis is a method of ranking a company against its peers according to specific financial metrics. Covington benchmarked the Company against the set of publicly listed comparable companies (as listed above), ranking the Company based on size, growth, and operational margins. The benchmarking analysis is summarized in the tables below, categorized by industry grouping:

 

Building Materials/Quarrying

 

Size (in $US millions):

 

Margins & Growth:

 

 

Death Care

 

Size (in $US millions):

 

 

Margins & Growth:

 

 

Market capitalization figures are as of October 13, 2010. Operating figures for the comparable companies have been calculated using data from the twelve-month period ended June 30, 2010 (for Boral LTD, Carriage Services Inc., Granitifiandre s.p.a., HeidelbergCement AG, InvoCare LTD, Lafarge SA, Martin Marietta Materials Inc., Matthews International Corporation, Rocamat, Service Corp. International, Stonemor Partners LP, and Vulcan Materials Company), July 25, 2010 (for Arbor Memorial Services Inc.) or July 31, 2010 (for Stewart Enterprises Inc.), as reflected in these companies’ periodic reports filed with the SEC.

 

Based on the results of the benchmarking analysis described above, Covington determined that overall, Rock of Ages consistently ranked towards the bottom of its peer group in terms of size and margins. Covington noted that, although the Company ranked towards the top of its peer group in terms of revenue

growth, management considered its industry a low growth industry and was projecting lower growth in future years. Covington determined that these findings confirmed that the consideration to be paid in the merger reflected multiples that were favorable and thus supported its opinion.

 

Comparable Transaction Analysis

 

Covington also reviewed publicly available information to identify transactions involving building materials, quarrying, and death care companies similar to the Company in that they serve similar customers, offer similar products and services, or have similar operating or financial characteristics. These criteria were consistently applied in this review, and no transactions involving companies which met some or all of these criteria were deliberately excluded from the scope of this review or from being selected. This review targeted transactions during approximately the three year period prior to the announcement on May 7, 2010 of Parent’s initial acquisition proposal, based on Covington’s view that older transactions could be considered stale or irrelevant. Covington selected, and analyzed publicly available financial information for, the following twelve merger and acquisition transactions completed no earlier than May 2007, involving building materials, quarrying, and death care companies (the transactions are categorized by the industry grouping of each target company):

 

Building Materials/Quarrying

 

 

Death Care

 

 

Covington considered certain financial data relating to each merger or acquisition transaction, including the target company’s actual revenue and EBITDA for the most recent fiscal trailing twelve-month period prior to the announcement of each transaction as well as each target company’s total enterprise value. As noted above, total enterprise value is defined as the market price paid for a company’s equity, plus total assumed debt, less cash, where such data was available. For each comparable transaction, Covington then calculated total enterprise value as a multiple of that target company’s revenue and EBITDA for the most recent fiscal trailing twelve-month period prior to the announcement of the transaction, where such data was available. Covington then calculated the median and mean figures for each case.

The resulting multiples are set forth in the table below, categorized by the target company’s industry grouping:

 

Building Materials/Quarrying

 

 

Death Care

 

 

Based on the results of the comparable transaction analysis described above, Covington determined that the consideration to be paid in the merger reflected multiples that were consistent with multiples paid for similar companies over the three year period prior to the announcement on May 7, 2010 of Parent’s initial acquisition proposal.

 

The transactions utilized in the comparable transaction analysis are not identical to the proposed merger. In evaluating the transactions, Covington made judgments and assumptions with regard to industry performance, general business, economic, market, and financial conditions and other matters, many of which are beyond the control of the Company. Covington believes that mathematical analysis of comparable transactions (such as determining means and medians) in isolation from other analyses is not an effective method of evaluating transactions.

 

Discounted Cash Flow Analysis

 

Covington performed a discounted cash flow analysis of the Company’s estimated after-tax free cash flows for the fiscal years 2010 to 2014 based on both the Company’s management projections and its historical operations. The management projections utilized in the discounted cash flow analysis are set forth in this proxy statement under “SPECIAL FACTORS — Financial Projections”, beginning at page 42. The discounted cash flow analysis was performed to establish a range for the potential equity value of the Company by determining a range for the net present value of the Company’s projected future cash flows. Covington arrived at its 2010-2014 after-tax free cash flow estimates by adjusting after-tax operating earnings reflected in the management projections for certain non-cash expenses and uses of cash not reflected in the Company’s income statement, including: adjustments for depreciation and amortization, changes in net working capital, and capital expenditures. The resulting 2010-2014 free cash flow estimates were $4.8 million, $5.3 million, $5.7 million, $6.1 million, and $6.6 million, respectively.

 

Covington calculated indications of net present value of the Company’s projected, after-tax free cash flows through December 31, 2014 using discount rates ranging from 13% to 15%. The range of discount rates was calculated using a weighted average cost of capital analysis which took into account the comparable companies discussed above. Covington utilized these comparable companies in order to determine the optimal capital structure of the Company. Covington then utilized the average debt/total capital and equity/total capital ratios of these companies, as well as Company-specific estimates of cost of debt and equity, to determine a

weighted average cost of capital. Based on this calculation, Covington determined that a range of discount rates of 13%-15% was appropriate.

 

As described above, after-tax free cash flows were calculated as the after-tax operating earnings of the Company adjusted to add back non-cash expenses and to deduct uses of cash not reflected in the income statement. Covington then added to the present value of the after-tax free cash flows the terminal value of the Company at December 31, 2014, discounted back to the present using the same discount rates. The terminal value was computed by applying an EBITDA exit multiple of 6.0x — 8.0x. Covington determined that this range of exit multiples was appropriate based on a review of the trading multiples of the smaller capitalization companies included in the group of twelve comparable companies discussed above. Covington considered these to be reasonable multiples that it would expect the Company to sell for in the future, based on Covington’s analyses and experience. Covington then subtracted the Company’s net debt calculated as total debt less cash. This analysis resulted in an illustrative range of equity values of the Company ranging from $24.259 million to $39.229 million, based on a discounted cash flow analysis using the Company’s projections. Covington determined that this range supported its opinion as to fairness, as the high end of the illustrative equity range was less than consideration to be paid for the equity of the Company in the merger. The terminal value of the Company was also computed by discounting the projected, after-tax free cash flows through perpetuity, assuming perpetual growth rates ranging from 2.0% to 4.0% per year and using discount rates of 13% to 15%. Based on the fact that the Company operates in a low to no growth industry and that the Company’s management projected 5% growth in the near future, Covington determined that a range of perpetual growth rates from 2%-4% was appropriate. This analysis resulted in an illustrative range of equity values of the Company ranging from $18.823 million to $34.384 million based on a discounted cash flow analysis of the Company’s projections. Covington determined that this range supported its opinion, as the high end of the illustrative equity range was less than consideration to be paid for the equity of the Company in the merger.

 

Trading Price Premium Analysis

 

Covington also reviewed closing price trading averages for the Company’s shares of Class A common stock. Covington considered the five trading day, 30 trading day, three-month, six-month, and 12-month average closing prices for each respective trading period ending on May 7, 2010, the day of the last trading session prior to the public announcement of Parent’s initial proposal to acquire 100% ownership of Rock of Ages. The average closing prices for these time periods were $3.43, $3.35, $3.24, $3.14, and $2.85 respectively. Covington considered the fact that the $5.25 price per share offered by Parent represented 53%, 57%, 62%, 67%, and 84% premiums respectively, to the respective average closing price over these time periods and determined that these premiums supported its opinion.

 

Conclusion

 

Based on the foregoing analyses, on October 15, 2010, Covington delivered to the Company’s special committee and board of directors Covington’s oral opinion, subsequently confirmed in writing, that, as of the date of its opinion, based upon and subject to the assumptions, limitations, qualifications, and factors contained in its opinion, the $5.25 per share merger consideration to be received by the Company’s shareholders in the merger is fair, from a financial point of view, to such shareholders.

 

In performing its analyses, Covington made numerous judgments and assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the Company. Any estimates contained in or underlying these analyses, including estimates of the Company’s future performance, are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those estimates. Additionally, analyses relating to the values of businesses or assets do not purport to be appraisals or necessarily reflect the prices at which businesses or assets may actually be sold or the prices at which any securities have traded or may trade at any time in the future. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty.

 

The foregoing description of Covington’s analyses in connection with the rendering of its opinion is a summary only. You should be aware that the preparation of a fairness opinion is a complex analytical process involving various determinations as to the most appropriate and relevant quantitative and qualitative methods of financial analyses and the application of those methods to the particular circumstances.

 

Covington was retained to act as the financial advisor to the Company’s special committee, based on Covington’s familiarity with the Company and experience in transactions similar to the merger. Pursuant to the engagement letter with Covington, as compensation for its services in connection with the proposed transaction, the Company will pay Covington a fee in an amount equal to 1.5% of the Purchase Consideration (as defined in the Covington engagement letter), which amount is estimated to be approximately $[    •    ] and payment of which is contingent upon consummation of the merger. In the Covington engagement letter, the Company also agreed to pay Covington $250,000 upon rendering its written opinion, whether or not the opinion was favorable. The Company has also agreed to reimburse Covington for its out-of-pocket expenses incurred in connection with its engagement as the special committee’s financial advisor, including the fees and disbursements of counsel, and to indemnify Covington and related persons against certain liabilities relating to or arising out of services performed by Covington as financial advisor to the Company.

 

Covington has, from time to time, provided certain investment banking and other financial services to the Company or its affiliates and has received compensation for such services. In the ordinary course of its business, Covington may trade in the securities and other instruments and obligations of the Company for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities, instruments and obligations.

 

Parent and the members of the Swenson Granite Group chose the merger structure because it was the most efficient means to acquire the entire equity interest in the Company and provide cash to the Company’s shareholders to the extent such shareholders’ shares are converted in the merger into the right to receive the $5.25 per share merger consideration. The merger transaction described in this proxy statement was selected in part because it required only one step instead of two steps, without the necessity of acquiring enough shares to execute a back-end, short-form merger as would have been required if a tender offer were employed, and could be coordinated with the timing of the proposed Financing for the merger.

 

Because the members of the Swenson Granite Group did not envision a transaction that would have allowed any of the Company’s shareholders not affiliated with Parent to retain a direct or indirect ownership interest in Rock of Ages or that would have resulted in Rock of Ages having publicly-traded securities if Parent’s offer to acquire the Company was accepted and recommended by the special committee and approved by the Company’s board of directors, they concluded that bank financing without any public equity financing component was the only feasible financing strategy for the merger.

 

In light of the fact that over the course of a lengthy process to solicit parties interested in acquiring the Company conducted by the special committee with Covington’s assistance, no alternative proposal to acquire the Company was submitted, the Company’s most likely alternative to the merger described herein would be to continue to operate as a public company. See “SPECIAL FACTORS — Plans for Rock of Ages if the Merger is Not Completed.”

 

Conversion of Outstanding Rock of Ages Common Stock and Cash-Out of Stock Options

 

If the merger agreement is approved by the Company’s shareholders and the other conditions to the closing of the merger are either satisfied or waived, Merger Sub will be merged with and into the Company, with the Company surviving the merger as a wholly owned subsidiary of Parent.

When the merger is completed, (1) all shares of the Company’s common stock that are held in the Company’s treasury, or by Parent, Merger Sub or by any wholly owned subsidiary of Parent, will be cancelled and retired and will cease to exist without any consideration payable therefor; (2) each other share of the Company’s common stock issued and outstanding immediately prior to the effective time of the merger (other than any share as to which a dissenting shareholder has properly asserted dissenters’ rights under the VBCA) will be converted into the right to receive the merger consideration in cash without interest and subject to any withholding taxes required by applicable tax law; and (3) the limited liability company interests of Merger Sub issued and outstanding immediately prior to the effective time of the merger shall be converted into and become one validly issued, fully paid and non-assessable share of the Company’s Class B common stock.

 

From and after the effective time of the merger, each holder of shares of our common stock will cease to have any rights with respect to the shares other than the right to receive the merger consideration or to receive payment of the appraised value of the shares if the holder of such shares has properly asserted his or her dissenters’ rights and demanded payment under Section 13.21 of the VBCA.

 

Prior to the effective time of the merger, the Company will cause each outstanding option to purchase shares of the Company’s Class A common stock issued under any Company equity plan to become fully vested and exercisable. At the effective time of the merger, each such option outstanding as of immediately prior to the effective time of the merger will be cancelled and the holder of such option will be entitled to receive with respect to each such option only a cash payment from the Company, as the surviving corporation, equal to the product of (1) the excess, if any, of the merger consideration over the per-share exercise price of such stock option, multiplied by (2) the number of Company shares issuable under such stock option (which amount will be payable without interest, net of any withholding tax). Options to purchase shares of the Company’s Class A common stock which have an exercise price per share equal to or greater than the merger consideration will be cancelled as of the effective time of the merger without the payment of any consideration. Parent and the Company, as the surviving corporation, will cause, and will make appropriate arrangements as may be necessary to allow, the lump sum cash payments required to be paid with respect to the outstanding options to be paid within five business days of the effective time of the merger.

 

See “THE MERGER AGREEMENT” for a more detailed description of the effects of the merger.

 

Effect on Ownership Structure of Rock of Ages

 

At the effective time of the merger, the Company’s current shareholders (other than those shareholders who are members of Parent at the effective time of the merger) will cease to have ownership interests in the Company or rights as Rock of Ages shareholders. Therefore, current shareholders of the Company that are not members of Parent at the effective time of the merger will not participate in any earnings or growth of Rock of Ages following the effective time of the merger and will not benefit from any increase in the value of Rock of Ages following the effective time of the merger.

 

Effect on Listing, Registration and Status of the Company’s Common Stock

 

The Company’s Class A common stock is currently registered under the Exchange Act and is quoted on The NASDAQ Global Market under the symbol “ROAC.” As a result of the merger, the Company will be a privately-held, wholly owned subsidiary of Parent, and there will be no public market for its common stock. After the merger, the Company’s Class A common stock will cease to be quoted on The NASDAQ Global Market, and price quotations with respect to sales of shares of the Company’s Class A common stock in the public market will no longer be available. In addition, registration of the Class A common stock under the Exchange Act will be terminated. This termination will make certain provisions of the Exchange Act, such as the requirement of furnishing a proxy or information statement in connection with shareholders’ meetings, no longer applicable to the Company. After the effective time of the merger, Rock of Ages will also no longer be required to file periodic reports with the SEC.

Effect on Organization and Management of Rock of Ages

 

The articles of incorporation and bylaws of the Company, in each case as in effect immediately prior to the effective time of the merger, will be the articles of incorporation and bylaws of the Company, as the surviving corporation. The managers of Merger Sub and the officers of the Company immediately prior to the effective time of the merger will, from and after the effective time of the merger, be the initial directors and officers, respectively, of the Company, as the surviving corporation, until their successors are duly elected or appointed and qualified or until their earlier death, resignation or removal. The officers and directors of Rock of Ages, as the surviving corporation, will hold office in accordance with the articles of incorporation and bylaws of the Company, as the surviving corporation.

 

It is expected that, upon consummation of the merger, the operations of Rock of Ages will be conducted substantially as they currently are being conducted; however, Rock of Ages will not be subject to the obligations and constraints, and the related direct and indirect costs and personnel requirements, associated with being a public company. The management of Parent has advised the Company that it does not have any present plans or proposals that relate to, or would result in, an extraordinary corporate transaction following completion of the merger involving the Company’s corporate structure, business or management, such as a merger, reorganization, liquidation, relocation of any operations or sale or transfer of a material amount of assets. It is expected, however, that following the merger, the Company’s management will continuously evaluate and review the Company’s business and operations and may develop new plans and proposals that they consider appropriate to maximize the value of the Company. Parent reserves the right to make any changes deemed appropriate in light of its evaluation and review or in light of future developments.

 

Beneficial and Detrimental Effects

 

The benefits of the merger to the Company’s shareholders whose shares are converted into the right to receive the $5.25 per share merger consideration are the right to receive such merger consideration for their shares of our common stock, representing a substantial premium to historical trading prices for the Class A common stock, and the elimination of the risk of continuing their investment in Rock of Ages. The detriments of the merger to such shareholders (other than shareholders who are members of Parent as of the effective time of the merger) are that they will cease to participate in our future earnings and growth, if any, and that the receipt of the payment for their shares in the merger could be a taxable event for federal income tax purposes. See “SPECIAL FACTORS — Certain Material U.S. Federal Income Tax Consequences.”

 

A benefit of the merger to the Company’s shareholders who are also members of Parent is that, as members of Parent, they will continue to indirectly participate in the Company’s future earnings and growth, while our shareholders who are not members of Parent will no longer be able to participate in the Company’s future earnings and growth, if any. Benefits of the merger to Parent include the fact that Parent will own 100% of the outstanding capital stock of the Company and accordingly, will benefit directly from the Company’s future earnings and growth.

 

Detriments of the merger to Parent and its members include the lack of liquidity for the Company’s common stock following the merger, the risk that the Company will decrease in value following the merger, the incurrence of debt to finance the merger, the payment by the Company of approximately $[ • ] million in transaction costs and estimated fees and the expenses related to the merger and financing transactions. See “SPECIAL FACTORS — Financing of the Merger” and “SPECIAL FACTORS — Estimated Fees and Expenses of the Merger.”

 

Effect on the Swenson Granite Group’s Interest in Net Book Value and Net Earnings

 

After consummation of the merger, Parent will own all of the outstanding common stock of the surviving corporation and will benefit from any future earnings or growth of Rock of Ages. From and after the effective time of the merger, the Swenson Granite Group members’ indirect interest in the net book value and net earnings of Rock of Ages will be 91.22%, based on their holdings of Parent’s outstanding capital stock. The Company’s public shareholders, to the extent such shareholders’ shares are converted in the merger into the

right to receive the $5.25 per share merger consideration, will no longer hold any direct or indirect equity interest in Rock of Ages and therefore will no longer own any interest in its net book value or net earnings.

 

Immediately after the merger, based on the Company’s audited financial statements for the fiscal year ended December 31, 2009, the members of the Swenson Granite Group would have an interest equal to approximately $24,178,053 in the Company’s net book value and $731,915 in the surviving corporation’s net earnings. The members of the Swenson Granite Group would also have an interest equal to approximately $25,990,444 in the Company’s net book value as of October 2, 2010. The following table sets forth the effect of the merger on the interest of each member of the Swenson Granite Group in the net book value and net earnings of Rock of Ages, based on each Swenson Granite Group member’s holdings of Parent’s outstanding capital stock immediately after the effective time of the merger. The amounts set forth in this paragraph and in the following table do not give effect to the indebtedness that Parent and the Company, as the surviving company in the merger, will incur in connection with the merger.

 

 

In considering the recommendations of the board of directors, you should be aware that certain of the Company’s executive officers and directors have interests in the transaction that are different from, or are in addition to, the interests of the Company’s shareholders generally. The special committee and the board of directors were aware of these potential or actual conflicts of interest and considered them along with other matters when they determined to recommend the merger. See “SPECIAL FACTORS — Background of the Merger.”

 

Ownership of Parent and the Members of the Swenson Granite Group in the Surviving Corporation Following the Merger.

 

Kurt Swenson, the Chairman of Parent and non-executive Chairman of Rock of Ages, together with his brother, Kevin Swenson, Vice President and a director of Parent, and Robert Pope, President and Chief Executive Officer and a director of Parent, own approximately 71% of Parent and approximately 31% of all outstanding shares of common stock of Rock of Ages.

Prior to the merger, they, together with the other members of the Swenson Granite Group, will contribute to Parent a total of 258,326 Class A shares and 2,449,793 Class B shares of Rock of Ages in exchange for additional shares of membership interest in Parent in accordance with the terms of the contribution agreements each member of the Swenson Granite Group has entered into with Parent, and will not receive the merger consideration for those Rock of Ages shares contributed to Parent. See “VOTING AND CONTRIBUTION AGREEMENTS — Contribution Agreements.”

 

As members of Parent, Kurt Swenson, Kevin Swenson, Robert Pope and all other members of the Swenson Granite Group, as well as all other shareholders of the Company who are also members of Parent, will continue to indirectly benefit from the Company’s future earnings and growth. Further, as controlling members of Parent after the effective time of the merger, Kurt Swenson, Kevin Swenson and Robert Pope will effectively control the Company.

 

Interests of Rock of Ages Officers and Directors

 

As shareholders in the Company, the directors and executive officers of the Company, other than Kurt Swenson, our non-executive Chairman, and Richard Kimball, one of our directors, will be entitled to receive the merger consideration upon surrendering the shares of Rock of Ages common stock held by them at the effective time of the merger. As noted above, Kurt Swenson and Richard Kimball, as members of the Swenson Granite Group, will not receive the merger consideration with respect to any shares they contribute to Parent prior to the merger in exchange for shares of membership interest in Parent under the contribution agreements. Under the terms of a contribution agreement, Kurt Swenson will contribute 130,000 Class A and 1,005,000 Class B shares of our common stock in exchange for additional shares of membership interest in Parent and Richard Kimball, together with his wife, will contribute 72,126 Class A shares of our common stock in exchange for additional shares of membership interest in Parent.

 

In addition to enjoying the benefits of the merger as shareholders of the Company generally, Rock of Ages’ officers and directors will also benefit from the acceleration of their stock options in connection with the merger. In connection with the merger, prior to the effective time of the merger, the Company will cause each outstanding option to purchase shares of the Company’s Class A common stock under any Company equity plan to become fully vested and exercisable. At the effective time of the merger, each such option outstanding as of immediately prior to the effective time of the merger will be cancelled and the holder of such option will be entitled to receive with respect to each such option only a cash payment from the Company, as the surviving corporation, equal to the product of (1) the excess, if any, of the merger consideration over the exercise price per share of such option multiplied by (2) the number of shares of the Company’s Class A common stock issuable upon exercise of such option. Options to purchase shares of the Company’s Class A common stock which have an exercise price per share equal to or greater than the merger consideration will be cancelled as of the effective time of the merger without the payment of any consideration. See “THE MERGER AGREEMENT — Treatment of Stock Options.”

 

In addition, it is expected that upon consummation of the merger, Donald Labonte, the Company’s President and Chief Executive Officer and a director of the Company, will become the Chief Operating Officer of the Company, reporting to Robert Pope, the President and Chief Executive Officer of Parent. In that capacity, as set forth in the initial Swenson Proposal submitted to the Company’s board of directors on May 6, 2010, Mr. Labonte will be offered the opportunity to purchase shares of membership interest in Parent on similar terms as key officers of Parent have purchased such shares. Parent has no agreement or understanding with Mr. Labonte as to the terms of such offer or whether he will accept such offer.

The following table reflects the total amount of cash that each director and named executive officer (as defined in Item 402(a)(3) of Regulation S-K) will receive as merger consideration, based on their holdings as of October 29, 2010: