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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 ( d )
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1999
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Commission file number 0-2655
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DIXON TICONDEROGA COMPANY
- - -------------------------------------------------------------------------------
(Exact name of Company as specified in its charter)
Form 10-K
__X_ Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 (Fee Required) for the fiscal year ended September 30, 1999.
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____ Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 (No Fee Required) for the transaction period from _____ to
_____.
Delaware 23-0973760
- - --------------------------------------------- ---------------------------------
(State or other jurisdiction of (I.R. S. Employer
incorporation or organization) Identification Number)
195 International Parkway, Heathrow, FL 32746
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (407) 829-9000
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Title of each class Name of each exchange on which registered
- - -------------------------------- -----------------------------------------
Common Stock, $1.00 par value American Stock Exchange
- - -------------------------------- -----------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Based on the closing sales price on December 3, 1999, the aggregate market value
of the voting stock held by non-affiliates of the Company was $14,419,072.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of December 3, 1999: 3,283,906 shares of common stock, $1.00
Par Value.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of Form 10-K or any amendment to this Form
10-K. [ ]
Documents Incorporated by Reference:
Proxy statement to security holders incorporated into Part III for the fiscal
year ended September 30, 1999.
PART I
---- -
ITEM 1. BUSINESS
- - ------- --------
RECENT EVENTS AND STRATEGIES
------ ------ --- ----------
Dixon Ticonderoga Company (hereinafter the "Company") achieved record
earning of approximately $6.7 million in its fiscal year ended September 30,
1999, largely due to the successful sale of its U.S. Graphite and Lubricants
division for $23.5 million in March 1999. Management believes the sale of the
these Industrial Group assets has significantly strengthened its financial
position, thus allowing for expanded opportunities for growth of its Consumer
Group, both internally and through possible acquisitions and joint ventures.
Moreover, the Company's improved capitalization will make possible more
aggressive restructuring of its Consumer Group operations to improve efficiency
and reduce further operating costs to facilitate these growth strategies.
Operating income of the Consumer Group (exclusive of restructuring costs
discussed below) increased approximately 4.4% to $10.7 million in fiscal 1999.
The improvement is attributable to the success of many of the Company's
strategic objectives over the past several years. Earlier in 1999, the Consumer
Group management team was reorganized to acquire additional expertise in
consumer products sales and marketing. The Company introduced new promotional
programs to increase its penetration of the educational and mass markets in
North America. The Company also continued its emphasis on improving its
distribution and customer service systems and processes through technology
enhancements and training at its new modernized distribution center. Management
believes its current service levels with its major customers to be among the
best in its industry.
In 1999, the Company has also embarked on an extensive Restructuring and
Cost Reduction Program directed toward improving its overall financial
performance in the near future. Key actions adopted include Consumer plant
closure and consolidation, as well as personnel reduction in manufacturing,
sales and marketing and corporate activities. In connection with this
initiative, the Company recorded non-recurring charges of approximately $1.9
million during 1999. When fully implemented, the annualized cost savings from
these actions are expected to approximate $1.5 million.
The Company also announced a Stock Repurchase Program authorizing the
acquisition of up to $3 million in Dixon Ticonderoga Company stock. To date, the
Company has repurchased approximately 298,000 shares at a cost of approximately
$2.6 million. In addition, the Company repurchased 5,722,760 (or approximately
17.2%) of the outstanding shares of its Mexican subsidiary, Grupo Dixon, S.A. de
C.V. for approximately $3.7 million. The repurchase increases the Company's
ownership in its subsidiary to 97%. Company management believes the repurchase
program will enhance earnings over the long-term.
In addition, the Company recently completed the recapitalization of its
U.S. debt, including a new five-year $42.5 million credit agreement with a
consortium of lenders, at more favorable terms than its previous principal
financing arrangements. The Company also continued its human resources
initiatives to enhance training, personal development, benefits and incentive
compensation of its employees.
Further information regarding these matters is included elsewhere in this Annual
Report on Form 10-K.
COMPANY ORGANIZATION
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Dixon Ticonderoga Company
(Parent)
-----------------------------------------------------------------
| | | |
| | | |
Dixon Ticonderoga, Inc. Dixon Europe, Ltd. Dixon Industrial Ticonderoga
Canada (Wholly-Owned) (Wholly-Owned) Mexico, Graphite,
S.A. de C.V. Inc./Inactive
| (Wholly-Owned) (Wholly-Owned)
|
Grupo Dixon S.A. de C.V.
and subsidiaries
(97% Owned)
INDUSTRY SEGMENTS
-------- --------
The Company has two principal continuing business segments: its Consumer
Group and Industrial Group. These segments, and the primary operations of each,
are as follows:
BUSINESS SEGMENTS OPERATIONS
-------- -------- ----------
Consumer Group Manufacture and sale of writing and drawing
pencils, pens, artist materials, felt tip markers,
industrial markers, lumber crayons, correction
materials and allied products.
Industrial Group Manufacture and sale to industry of
amorphous graphite, clay and graphite stopper
heads, firebrick, silicon-carbide brick,
non-graphitic refractory kiln furniture and
furnace linings.
Financial information regarding net revenues, operating profits and
identifiable assets related to the Company's industry segments for the years
ended September 30, 1999, 1998, and 1997, is contained in Note 13 to
Consolidated Financial Statements.
The Company's international operations are subject to certain risks
inherent in carrying on business abroad, including the risk of currency
fluctuations, currency remittance restrictions and unfavorable political
conditions. It is the Company's opinion that there are presently no material
political risks involved in doing business in the foreign countries (i.e.
Mexico, Canada and Europe) in which its operations are being conducted.
CONSUMER GROUP
- - -------- -----
The Company manufactures its leading brand Ticonderoga(R) and a full line
of pencils in Versailles, Missouri. The Company manufactures and markets
advertising specialty pencils, pens and markers through its promotional products
division. The Company also manufactures and markets Wearever(R) and Dixon(R) pen
writing products as well as Prang(R) and Ticonderoga(R) lines of markers,
mechanical pencils and allied products.
In Sandusky, Ohio, the Company manufactures (mainly for wholesale school
suppliers and retailers) its Prang(R) brand of soy-bean based and wax crayons,
chalks, dry and liquid tempera, water colors and art materials. This division
also manufactures special markers for industrial use, all of which are marketed
and sold together with the products discussed above, by the U.S. Consumer
division.
Under an agreement with Warner Bros. Consumer Products, the Company also
manufactures and markets in the U.S., Canada and Mexico a complete product line
of pencils, pens, crayons, chalks, markers, paints, art kits and related items
featuring the famous Looney Tunes(R) and Scooby Doo(R) characters. (See Note 14
to Consolidated Financial Statements.)
Dixon Ticonderoga Inc., a wholly-owned subsidiary with a distribution
center in Newmarket, Ontario, and a manufacturing plant in Acton Vale, Quebec,
Canada, is engaged in the sale in Canada of black and color writing and drawing
pencils, pens, lumber crayons, correction materials, erasers, rubber bands and
allied products. It also distributes certain of the school product lines. The
Acton Vale plant also produces eraser products and correction materials for
distribution by the U.S. Consumer group.
Grupo Dixon, S.A. de C.V., a majority-owned subsidiary (97%), is engaged,
through its subsidiaries, in the manufacture and sale in Mexico of black and
color writing and drawing pencils, correction materials, lumber crayons and
allied products. Grupo Dixon also manufactures and sells in Mexico, under its
Vinci(R) brand, certain products of the type manufactured at the Sandusky
facility, as well as marker products and modeling clay.
Dixon Europe, Limited, a wholly-owned subsidiary of the Company is engaged
in the distribution of many Dixon consumer products in the United Kingdom and
other European countries.
INDUSTRIAL GROUP
- - ---------- -----
The New Castle Refractories division, with plants located in Ohio,
Pennsylvania and West Virginia, manufactures various types of non-graphitic
refractory kiln furniture used by the ceramic and glass industries; firebrick,
silicon-carbide brick, various types and designs of non-graphitic refractory
special shapes for ferrous and nonferrous metal industries; refractory shapes
for furnace linings and industrial furnace construction; various grades of
insulating firebrick and graphite stopper heads.
Prior to the sale of the Company's U.S. Graphite and Lubricants Division in
March 1999, the Industrial Group manufactured and sold processed natural and
synthetic bulk graphite, graphite oil, solvent and water-based lubricants and
colloidal graphitic suspensions.
Dixon Industrial Mexico, S.A. de C.V., operates an amorphous graphite
processing facility in Hermosillo, Mexico and is engaged in related activities.
DISTRIBUTION
------------
Consumer products manufactured in the Company's U.S. facilities are
distributed nationally through wholesale, commercial and retail stationers,
school supply houses, industrial supply houses, blueprint and reproduction
supply firms, art material distributors and retailers. In an effort to enhance
service levels (especially with large retail customers), the Company leased a
central distribution center in Macon, Georgia. The consumer products
manufactured at the Canadian and Mexican plants are distributed nationally in
these countries through wholesalers, distributors, school supply houses and
retailers. The Mexico subsidiary also operates a distribution center in Mexico
City.
The industrial products manufactured at various plants are sold by direct
sales, manufacturers' representatives and industrial distributors in North
America.
RAW MATERIALS
--- ---------
Wood slats for pencil manufacturing can be considered a strategic raw
material for the Company's business and are purchased from various suppliers in
the U.S., Indonesia and China. Graphite, used in the manufacture of refractory
products and leads for wood-cased pencils, is purchased principally in the U.S.
There were no significant raw material shortages of any consequence during 1999
nor are any expected for future periods. However, as a safeguard, the Company
purchased additional strategic raw materials in anticipation of Year 2000.
TRADEMARKS, PATENTS AND COPYRIGHTS
----------- ------- --- ----------
The Company owns a large number of trademarks, patents and copyrights in
each industry segment related to products manufactured and marketed by it, which
have been secured over many years. These have been of value in the growth of the
business and should continue to be of value in the future. However, in the
opinion of the Company, its business generally is not dependent upon the
protection of any patent or patent application or the expiration of any patent.
SEASONAL ASPECTS OF THE BUSINESS
-------- ------- -- --- --------
The Consumer Group reflects greater portions (approximately 63% in 1999) of
its sales in the third and fourth fiscal quarters of the year due to shipments
of school orders to its distribution network. This practice, which is standard
for this industry, usually causes the Company to incur additional bank
borrowings during the period between shipment and payment.
The Industrial Group has no material seasonal aspects.
COMPETITION
-----------
Both of the Company's industry segments are engaged in a highly competitive
business with a number of competitors, some of whom are larger and have greater
resources than the Company. Important to the Company's market position are the
quality and performance of its products, its marketing and distribution systems,
and the reputation developed over the many years that the Company has been in
business.
RESEARCH AND DEVELOPMENT
-------- --- -----------
The Company employs approximately 18 full-time professional employees in
the area of quality control and product development. The Company has established
a centralized research and development laboratory in its Sandusky, Ohio
facility. For accounting purposes, research and development expenses in any year
presented in the accompanying Consolidated Financial Statements do not represent
more than 1% of revenues.
EMPLOYEES
---------
The total number of persons employed by the Company was approximately 1,354
of which 604 were employed in the United States.
ITEM 2. PROPERTIES
- - ------- ----------
The properties of the Company, set forth in the following table are owned
and are collateralized or pledged under the Company's loan agreement with a
consortium of lenders (First Union Capital Corporation as agent), and its
Heathrow, Florida, property, is subject to a separate mortgage agreement. See
Notes 3 and 4 to Consolidated Financial Statements. Most of the buildings are of
steel frame and masonry or concrete construction.
SQUARE FEET
LOCATION OF FLOOR SPACE
-------- --------------
Heathrow, Florida (Corporate Headquarters) 33,000
Sandusky, Ohio (Consumer) 276,000
New Castle, Pennsylvania (Refractories division) 131,000
Newell, West Virginia (Refractories division) 45,000
Massillon, Ohio (Refractories division) 113,000
Zoar, Ohio (Refractories division) 65,000
Acton Vale, Quebec, Canada (Dixon Ticonderoga Inc.) (Consumer) 32,000
Tlalnepantla, D.F., Mexico (Grupo Dixon, S.A. de C.V.) (Consumer) 55,000
Mexico City, D.F., Mexico (Grupo Dixon, S.A. de C.V.)(Consumer) 64,000
Versailles, Missouri (Consumer) 120,000
Deer Lake, Pennsylvania (Consumer) 150,000
The Company leases approximately 100,000 square feet in Macon, Georgia for
its U.S. Consumer central distribution center and 44,000 square feet in Mexico
City for its Mexico distribution center. In addition, the Company's Dixon
Industrial Mexico, S.A. de C.V., subsidiary leases 9,000 square feet in
Hermosillo, Mexico.
ITEM 3. LEGAL PROCEEDINGS
- - ------- ----- -----------
In March 1986, The Dixon Venture ("Venture") (an unrelated company) filed a
civil action in the New Jersey Superior Court seeking recovery of damages and
costs allegedly incurred by Venture in connection with the clean-up of
industrial property acquired from the Company in Jersey City, New Jersey in
February, 1984. Venture's claims were brought pursuant to the New Jersey
Environmental Clean-up Responsibility Act ("ECRA"), an environmental remedial
statute dealing with the transfer of industrial property.
On April 24, 1996, a decision was rendered by the Superior Court of New
Jersey in Hudson County finding the Company responsible for $1.94 million in
certain environmental clean-up costs relating to this matter. In January 1998,
the Company paid $3.6 million to satisfy this claim in full, including all
accrued interest. The Company has continued to pursue other responsible parties
for indemnification and/or contribution to the payment of this claim (including
its insurance carriers) and a legal malpractice action against its former
attorneys. In 1999, the pending malpractice suit was dismissed and the Company
has appealed the decision.
Also see Note 14 to Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
- - ------- ---------- -- ------- -- ---- -- -------- -------
None.
PART II
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ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
- - ------- ------ --- --- --------- ------ ----- --- ------- -------- ------
MATTERS
-------
Dixon Ticonderoga Company common stock is traded on the American Stock
Exchange under the symbol "DXT". The following table sets forth the low and high
per share prices as per the American Stock Exchange closing prices for the
applicable quarter.
FISCAL FISCAL
QUARTER ENDING 1999 1998
-------------- ---- ----
LOW HIGH LOW HIGH
----- ------ ------- -------
December 31 $7.88 $11.75 $12.88 $16.94
March 31 8.56 11.75 12.63 15.00
June 30 9.81 12.13 12.38 15.56
September 30 8.00 11.85 9.13 14.00
Since fiscal 1990, the Board of Directors has suspended payment of
dividends. The Board will continue to review the Company's future performance
and determine the dividend policy on a quarter-to-quarter basis. The Company's
debt agreements restrict the amount of dividends, which can be paid in the
future. (See Notes 3 and 4 to Consolidated Financial Statements).
The number of record holders of the Company's common stock at December 1,
1999 was 418.
ITEM 6. SELECTED FINANCIAL DATA
- - ------- -------- --------- ----
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
FOR THE FIVE YEARS ENDED SEPTEMBER 30, 1999
(in thousands, except per share amounts)
1999 1998 1997 1996 1995
-------- -------- -------- -------- -------
REVENUES $114,689 $124,722 $115,055 $106,696 $95,565
======== ========== ======== ======== =======
INCOME FROM
CONTINUING OPERATIONS $ 6,682 $ 3,136 $ 3,601 $ 1,168 $ 1,658
LOSS FROM DISCONTINUED
OPERATIONS - - - - (595)
EXTRAORDINARY ITEM - - - (282) -
-------- -------- -------- -------- --------
NET INCOME $ 6,682 $ 3,136 $ 3,601 $ 886 $ 1,063
======== ========= ======== ======== ========
EARNINGS (LOSS) PER
COMMON SHARE (BASIC):
CONTINUING OPERATIONS $ 1.95 $ .93 $ 1.08 $ .36 $ .51
DISCONTINUED OPERATIONS - - - - (.18)
EXTRAORDINARY ITEM - - - (.09) -
-------- --------- -------- -------- --------
NET INCOME $ 1.95 $ .93 $ 1.08 $ .27 $ .33
======== ========= ======== ======== ========
EARNINGS (LOSS) PER
COMMON SHARE (DILUTED):
CONTINUING OPERATIONS $ 1.87 $ .85 $ 1.05 $ .36 $ .52
DISCONTINUED OPERATIONS - - - - (.19)
EXTRAORDINARY ITEM - - - (.09) -
-------- -------- -------- -------- --------
NET INCOME $ 1.87 $ .85 $ 1.05 $ .27 $ .33
======== ======== ======== ======== =======
TOTAL ASSETS $ 92,888 $ 92,630 $ 84,161 $ 77,848 $70,158
======== ======== ======== ======== =======
LONG-TERM DEBT $ 39,400(1) $ 21,927 $ 23,556 $ 25,119 $14,541
======== ======== ======== ======== =======
DIVIDENDS PER
COMMON SHARE $ - $ - $ - $ - $ -
======= ========= ======== ======== =======
(1) The increase in long-term debt in 1999 is attributable to the refinancing
of the Company's previous revolving credit agreement under a new five-year
facility. (See Notes 3 and 4 to Consolidated Financial Statements.)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- - ------- ------------ ---------- --- -------- -- --------- --------- ---
RESULTS OF OPERATIONS
------- -- ----------
SUMMARY OF RESULTS OF OPERATIONS
- - ------- -- ------- -- ----------
1999 vs. 1998:
- - ---- --- -----
Income before income taxes and minority interest increased $6,274,000 in
1999. Gain from the sale of the U.S. Graphite and Lubricants division in 1999
was $9,636,000. In 1999, the Company recorded a $1,917,000 pre-tax provision for
restructuring and related costs associated with plant consolidation and a
company - wide cost reduction program designed to improve overall financial
performance in the future. Restructuring costs principally include anticipated
losses from the sale or abandonment of property and equipment (approximating
$1,330,000) and severance costs for affected employees (approximating $587,000).
Through September 30, 1999, approximately $213,000 has been charged against the
severance cost accrual, substantially related to costs associated with planned
personnel reductions. (See Note 12 to Consolidated Financial Statements.) There
was a $2,163,000 decrease in the Industrial operating profits primarily due to
the sale of the U.S. Graphite and Lubricants division and weakness in the
industries served by the Refractories division. Decreased U.S. interest expense,
primarily due to proceeds from the division sale were offset by higher interest
expense in Mexico, reflecting increased borrowings since it acquisition of Vinci
(see Note 10 to Consolidated Financial Statements) and higher inventory levels.
Income taxes increased principally due to significantly higher pre-tax income.
1998 vs. 1997:
- - ---- --- -----
Income before income taxes and minority interest decreased $1,683,000 in
1998. Foreign currency losses increased $1,717,000 (see Note 1 to Consolidated
Financial Statements). Revenue increases in Mexico, due to the acquisition of
Vinci (see Note 10 to Consolidated Financial Statements) and in the mass market,
increased foreign operating profits $1,350,000, excluding currency losses. U.S.
Consumer operating profits remained constant in spite of a revenue increase of
$5,073,000 due to higher distribution, marketing and sales costs, (including
costs incurred to close its previous distribution center and open a new facility
operated by a third party) which offset higher gross profit margins. Legal and
professional expenses increased $540,000 due primarily to ongoing legal costs
incurred in an effort to recover from other responsible parties for the claim
previously paid under ECRA as described in Item 3 and Note 14 to Consolidated
Financial Statements. Interest expense increased $870,000 on higher U.S. and
Mexico borrowings. Income tax expense decreased due to lower before tax income
and lower effective foreign tax rates.
1997 vs. 1996:
- - ---- --- -----
Income before income taxes and minority interest increased $4,153,000 in
1997. In 1996, there were provisions for litigation settlements and legal costs
of $2,039,000 (see Item 3 and Note 14 to Consolidated Financial Statements).
Revenue increases of $5,715,000 in the foreign operations contributed to an
increase in operating profits of $2,815,000. Manufacturing efficiencies and
higher volume increased U.S. Consumer operating profits by $1,011,000. Higher
employee benefit and insurance costs, consulting and professional expenses, and
amortization of loan fees increased corporate administrative expenses by
$870,000. Operating profits in the Industrial segment decreased $464,000 with
gains in the Refractories division being more than offset by a decrease in the
Graphite and Lubricants division operating profit, which suffered from
competitive pricing pressures. Interest expense increased $380,000 on higher
average borrowing rates during the year. The 1997 effective tax rates increased
to more normal U.S. statutory and state tax rates overall, compared with 1996
which was favorably affected by lower foreign tax rates.
REVENUES
- - --------
Overall 1999 revenues decreased $10,033,000 from the prior year. The
changes by segment are as follows:
Increase(Decrease) % Increase (Decrease)
(in thousands) Total Volume Price / Mix
-------------- ----- ------ -----------
Consumer U.S. $(3,875) (6) (5) (1)
Consumer Foreign 1,373 5 2 3
Industrial (7,531) (30) (29) (1)
The U.S. Consumer revenue decrease was strictly in the mass retail
(principally mega-store) market where customer consolidation and inventory
reductions affected sales during the back-to-school buying season. Foreign
Consumer revenues increased in Mexico by $944,000 and in Canada by $406,000,
reflecting continuing success in their respective mass retail markets. The
decrease in Industrial revenue was primarily due to the sale of the U.S.
Graphite and Lubricants division and, to a lesser degree, weakness in the
industries served by the Refractories division.
While the Company has operations in Canada, Mexico and the U.K.,
historically only the operating results in Mexico have been materially impacted
by currency fluctuations. There has been a significant devaluation of the
Mexican peso at least once in each of the last three decades, the last one being
in August of 1998. In the short term after such devaluations, consumer
confidence has been shaken, leading to an immediate reduction in revenues in the
months following the devaluation. Then, after the immediate shock, and as the
peso stabilizes, revenues tend to grow. Selling prices tend to rise over the
long term to offset any inflationary increases in costs. The peso, as well as
any currency value, depends on many factors including international trade,
investor confidence and government policy, to name a few. These factors are
impossible for the Company to predict, and thus, an estimate of potential effect
on results of operations for the future cannot be made. This currency risk in
Mexico is presently managed through local currency financing and by export sales
to the U.S. denominated in U.S. dollars.
Revenues in 1998 increased $9,667,000 over the prior year. The changes by
segment are as follows:
Increase(Decrease) % Increase (Decrease)
(in thousands) Total Volume Price/Mix
-------------- ----- ------ ---------
Consumer U.S. $5,073 8 8 -
Consumer Foreign 5,385 22 40 (18)
Industrial (791) (3) (3) -
The U.S. Consumer increase was primarily in the educational market due to
more aggressive promotional programs and restructured sales force. The increase
in Foreign Consumer revenues reflects the acquisition of Vinci (see Note 10 to
Consolidated Financial Statements) and increases in the mass market in Mexico.
Decreases of $1,600,000 and $498,000 in the revenue of Mexico and Canada,
respectively, were due to the decline in their local currencies compared to the
U.S. dollar. The Industrial revenue decrease was in the bulk graphite markets,
due primarily to weakness in the automotive industry and continuing competitive
pricing pressures.
Overall 1997 revenues increased $8,359,000 over the prior year. The changes
by segment are as follows:
Increase(Decrease) % Increase (Decrease)
(in thousands) Total Volume Price/Mix
-------------- ----- ------ ---------
Consumer U.S. $1,945 3 2 1
Consumer Foreign 5,715 30 22 8
Industrial 699 3 4 (1)
U.S. Consumer revenue increased primarily in the educational, mass retail
and commercial office supply mega-store markets. Revenue in Mexico and Canada
increased $4,168,000 and $1,326,000, respectively. In both geographic areas
there were aggressive efforts in the mass retail market. In Mexico, there was a
decrease of $425,000 in revenue due to the decline in value of the peso compared
to the U.S. dollar. The Industrial increase was primarily due to higher volume
in the Refractories division.
OPERATING PROFITS
- - --------- -------
Operating profits (exclusive of the gain on sale of assets of $9,636,000
and provision for restructuring and related costs of $1,917,000) decreased
$1,346,000 from 1998. Industrial operating profits decreased $2,163,000,
primarily due to the sale of the U.S. Graphite and Lubricants division in March,
1999 and lower Refractories division profits due to weakness in the industries
it serves. The reduction in Industrial gross profits substantially contributed
to the relative increase in total cost of goods sold in 1999 (62.9% of sales as
compared with 61.2% in 1998). As discussed above, U.S. Consumer revenue
decreased significantly, yet operating profits only deceased $206,000 due to
lower selling and administrative expenses from cost reduction efforts. Foreign
operating profits increased $659,000 primarily due to higher revenues and more
favorable foreign currency effects. General corporate expenses were also reduced
by $364,000 reflecting cost reduction activities. The aforementioned gain on
sale of assets relates to the sale of the U.S. Graphite and Lubricants Division.
The provision for restructuring and related costs under the Company's cost
reduction program principally represents anticipated impairment losses due to
plant closures and consolidation, as well as employee severance costs. The
aforementioned cost reduction efforts contributed to lower relative selling and
administrative costs (29.5% of sales in 1999 compared to 30.8% of sales in
1998).
There was a decrease of $811,000 in operating profits in 1998. The Company
recorded foreign currency losses of $1,604,000 and $194,000 in Mexico and
Canada, respectively, as discussed in Note 1 to Consolidated Financial
Statements. Foreign Consumer operating profit, excluding the foreign currency
losses, increased approximately $1.9 million. This increase occurred in Mexico
where the addition of Vinci (see Note 10 to Consolidated Financial Statements)
added $1,220,000. The remainder of the increase was due to higher revenues and
manufacturing efficiencies. U.S. Consumer operating profit increased $250,000
over the prior year as higher gross profit margins were partially offset by
increased distribution, marketing and sales costs. Higher distribution costs,
adversely impacted U.S. operating profit this year, caused in part by the
closing of its previous distribution center and related start-up costs of a new
facility operated by a third party. In addition, higher marketing and
promotional costs had a negative impact on operating profit. Legal and
professional services increased $540,000 primarily due to ongoing legal costs
incurred in an effort to recover from other responsible parties for the claim
paid under ECRA, as described in Item 3 and Note 14 to Consolidated Financial
Statements. These above mentioned factors caused selling and administrative
costs to increase (30.7% of sales in 1998 compared to 27.2% in 1997). Operating
profit in the Industrial segment decreased $350,000 due to the decline in
graphite revenue.
There was an increase of $3,362,000 in operating profits in 1997 (exclusive
of provisions for litigation settlements and related costs). Foreign operations
increased $2,815,000. Mexico operating profit increased $2,393,000 and Canada
increased $368,000 on revenue increases of 45% and 15%, respectively. U.S.
Consumer operating profit increased $1,011,000 (exclusive of provisions for
litigation settlements and related costs in 1996), primarily due to increased
manufacturing efficiencies and higher volume. Industrial operating profit
decreased $464,000 primarily due to competitive pricing pressures in the
Graphite and Lubricants division. Total cost of goods sold in 1997 decreased
(63.4% of sales as compared with 65.9% in 1996) due primarily to the
aforementioned manufacturing efficiencies.
MINORITY INTEREST
- - -------- --------
Minority interest represents 3% of the net income of the consolidated
subsidiary, Grupo Dixon, S.A. de C.V., since September, 1999, 20.2% from
February 1997 and 49.9% prior thereto ($402,135, $704,940 and $808,536 in fiscal
1999, 1998 and 1997, respectively), equivalent to the extent of the investment
of the minority shareholders. As described in Note 8 to Consolidated Financial
Statements, this minority interest was created by an initial public offering in
1994. The Company has repurchased approximately 47% of its subsidiaries shares
since February 1997.
EFFECT OF CERTAIN NEW ACCOUNTING PRONOUNCEMENTS
- - ------ -- ------- --- ---------- --------------
In 1998, the FASB issued Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which is effective for the Company in fiscal
2001. This statement requires all derivative instruments to be recognized in the
balance sheet as either assets or liabilities at fair value. The Company
currently uses cash flow hedges to convert variable rate debt to fixed rate
debt, but does not expect the prescribed accounting for these instruments to
materially affect its financial position or results of operations when adopted.
LIQUIDITY AND CAPITAL RESOURCES
- - --------- --- ------- ---------
The Company's cash flows used in operating activities increased $4.8
million in fiscal 1999, due principally to higher inventory levels in its
Consumer Group. U.S. and Mexico Consumer inventories increased approximately $8
million due to the following factors: planned increases in strategic raw
materials in anticipation of Year 2000; planned increases in certain finished
goods to facilitate plant consolidation activities and new product
introductions; and less than forecasted back-to-school shipments due to major
customer consolidation and inventory reduction efforts. Management expects to
reverse the trend of increasing inventories and improve operating cash flows in
fiscal 2000, as new material and finished goods levels normalize based upon
forecasted production and sales. The increase in inventories was partially
offset by increased accounts receivable collections in fiscal 1999. As is the
case historically, cyclical short-term borrowings (see below) financed peak
mid-year working capital requirements. Total net cash flows used in operating
activities of $10.4 million excludes the effects of the sale of assets of the
Company's U.S. Graphite and Lubricants division.
The Company's 1999 investing activities included approximately $1,010,000
in purchases of property and equipment (before net disposals of $370,000) as
compared with $1,351,000 in the prior year. There has been a lower level of
purchases as compared with prior years, due to better capital budgeting and the
continued use of leasing as a financing alternative to acquiring equipment.
Since 1997, the Company has financed in excess of $3 million of strategic
manufacturing equipment under long-term operating lease arrangements. (See Note
14 to Consolidated Financial Statements.) Generally, all major capital projects
are discretionary in nature and thus no material purchase commitments exist.
Capital expenditures will continue to be funded from operations and existing
financing or new leasing arrangements. Total cash provided from investing
activities increased dramatically due to the cash proceeds of approximately
$19.6 million from the sale of the U.S. Graphite and Lubricants division. These
proceeds (net of escrowed funds and income tax payments) were initially used to
reduce short-term indebtedness described below. In addition, in 1998, the
Company's Mexico subsidiary acquired the stock of Vinci de Mexico, S.A. de C.V.,
for approximately $3.3 million.
In September 1999, the Company entered into new primary financing
arrangements with a consortium of lenders, providing a total of up to $42.5
million in financing through September 2004. The underlying loan and security
agreements include a revolving line of credit facility in the amount of $35
million which bears interest at either the prime rate (8.5% at September 30,
1999) plus 0.25%, or the prevailing LIBOR rate (approximately 5.4% at September
30, 1999) plus 1.75% through December 2000. Borrowings under the new revolving
credit facility are based upon eligible accounts receivable and inventories of
the Company's U.S. and Canada operations, as defined. The Company has previously
executed an interest rate swap agreement which effectively fixes the rate of
interest on $5 million of the revolver debt at 8.12% through 2000. The loan and
security agreements also include a term loan in the amount of $7.5 million. The
term loan is payable in monthly installments of $125,000, plus interest, through
September 2004. The loan bears interest based upon the same prevailing rate
described above in connection with the revolving credit facility. The Company
has previously executed an interest rate swap agreement which effectively fixes
the rate of interest on approximately $2.8 million of the term loan at 8%
through 2000.
These financing arrangements are collateralized by the tangible and
intangible assets of the U.S. and Canada operations (including accounts
receivable, inventories, property, plant and equipment, patents and trademarks)
and a pledge of the capital stock of the Company's subsidiaries. The loan and
security agreement contains provisions pertaining to the maintenance of certain
financial ratios and annual capital expenditure levels, as well as restrictions
as to payment of cash dividends. The Company is presently in compliance with all
such provisions. As of September 30, 1999, the Company had approximately $20
million of unused lines of credit available under the revolving credit facility.
In addition, the Company's Mexico subsidiary has $7 million in bank lines of
credit ($4.5 million unused as of September 30, 1999) which bear interest at a
rate based upon enter a floating U.S. bank rate or the rate of certain Mexican
government securities.
In 1996, the Company completed the private placement of $16.5 million of
12% Senior Subordinated Notes valued at their face amount, due 2003. In
connection with the private placement, the Company issued to noteholders
warrants to purchase 300,000 shares of Company stock at $7.24 per share. In
1998, the Company canceled a reverse interest rate swap agreement (which had
originally converted $10 million of the notes to a floating rate of interest)
resulting in a deferred gain of approximately $375,000, which is being
recognized over the remaining original term of the notes. The note agreement, as
amended, contains provisions which limit the payment of dividends and require
the maintenance of certain financial covenants and ratios. The Company is
presently in compliance with all such provisions.
The Company entered into the aforementioned interest rate swap agreement to
balance and manage overall interest rate exposure and minimize overall cost of
borrowings. The swaps are not presently expected to have a material effect on
total interest expense over the term of the underlying agreements.
The Company's repurchases of its stock and the stock of its Mexico
subsidiary (See Notes 7 and 8 to Consolidated Financial Statements) were
financed through the aforementioned and previous U.S. revolving line of credit
facilities.
The Mexico subsidiary's acquisition of Vinci (See Note 10 to Consolidated
Financial Statements) was financed initially through on-hand cash and cash
equivalents. The additional working capital needs in Mexico are financed through
the U.S. and Mexico bank lines of credit discussed above.
Refer to Notes 3 and 4 to Consolidated Financial Statements for further
description of the aforementioned financing arrangements.
The existing sources of financing and cash expected to be generated from
future operations and / or assets sales will, in management's opinion, be
sufficient to fulfill all current and anticipated requirements of the Company's
ongoing business and to meet all of its obligations.
YEAR 2000 READINESS DISCLOSURE
- - ---- ---- --------- ----------
The Year 2000 issue relates to the way computer systems and programs define
calendar dates; they could fail or make miscalculations while interpreting a
date including "00" to mean 1900, not 2000. Also, many systems and equipment
that are not typically thought of as `computer related' (referred to as
`non-IT') may contain embedded hardware or software that may have a time element
dependency.
Dixon began work on the Year 2000 (Y2K) compliance issue in 1998. The scope
of the project includes addressing the compliance of all applications, operating
systems, and hardware on mid-range, PC and Local area network platforms;
addressing issues related to non-IT embedded hardware and software; and
addressing the compliance of business partners.
The project has five phases: assessment of systems and equipment affected
by the Y2K issue; definition of strategies to address affected systems and
equipment; remediation of systems; testing of systems; and certification of
systems. To certify that all IT systems are Y2K compliant, each system will be
tested using a standard testing methodology which includes millennium testing,
millennium leap year testing and cross-over year testing. Testing will be
performed on each system as remediation is completed.
Dixon has completed all phases for its U.S. and Canadian operations. Its
Mexican operations have been brought into compliance by a complete system
replacement. Dixon's non-IT related systems and equipment are currently Y2K
compliant. This statement is based primarily upon communication with the vendors
as well as physical inspection, assessment, remediation and testing of equipment
and related controlling software.
With respect to key business suppliers, the assessment and strategy phases
are underway with approximately 67% of all vendors and approaching 100% of
critical vendors certifying compliance. In addition, any non-responding critical
suppliers have been identified and additional steps are underway to insure that
there will be no interruption of services before, during and after January 1,
2000. Contingency planning and testing will continue for the rest of 1999.
We are also dependent upon our customers for sales and cash flow. Y2K
interruptions in our customers' operations could result in reduced sales,
increase inventory or receivable levels and cash flow reductions. While these
events are possible, our customer base is broad enough to minimize the effects
of a single occurrence. We are taking steps to monitor the status of our
customers as a means of determining risks and alternatives.
Dixon utilizes an IBM AS/400 system along with J. D. Edwards software for
its core business applications. These systems have been assessed, upgraded,
corrected where necessary and tested to insure continuous and accurate
processing of information.
Since the inception of the project, the company has incurred approximately
$130,000 in costs directly related to Y2K compliance. These costs were outside
the normal and previously planned upgrades of systems. Based on assessments of
equipment and systems, the company expects additional Y2K expense to be less
than $10,000, which will not have a material affect on the Company's operations
or financial condition. In addition, there will not be adverse impact due to
postponement of IT projects because of resource constraints caused by the Y2K
project.
The Company presently believes that its business-critical computer systems
as well as non-IT related systems and equipment are Y2K compliant. Based on the
progress the Company has made in addressing its Y2K issues and the Company's
efforts to complete its contingency planning, the Company does not foresee
significant risks associated with Y2K compliance at this time.
FORWARD-LOOKING STATEMENTS
- - --------------- ----------
Any "forward-looking statements" contained in this Annual Report on Form
10-K (including without limitation, management's expectation with respect to the
Company's ability to meet its current and anticipated obligations, the Company's
expectation as to the effect of new accounting pronouncements on its financial
position or results of operations, and its readiness with respect to Y2K, among
others) involve known and unknown risks, uncertainties and other factors that
could cause the actual results to differ materially from those expressed or
implied by such forward-looking statements. Such risks include (but are not
limited to) certain foreign currency exchange risk, interest rate fluctuation
risk and Y2K compliance risks.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- - ---- --- ------------ --- ----------- ----------- ----- ------ ----
As discussed elsewhere, the Company is exposed to the following principal
market risks (i.e. risks of loss arising from adverse changes in market rates):
foreign exchange rates and interest rates on debt.
The Company's exposure to foreign currency exchange rate risk in its
international operations is principally limited to Mexico and, to a lesser
degree, Canada. Approximately 32% of the Company's fiscal 1999 net revenues were
derived in Mexico and Canada, combined (exclusive of intercompany activities).
Foreign exchange transaction gains and losses arise from monetary assets and
liabilities denominated in currencies other than the business unit's functional
local currency. It is estimated that a 10% change in both the Mexican peso and
Canadian dollar would impact reported operating profit by $300,000. This
quantitative measure has inherent limitations because it does not take into
account the changes in customer purchasing patterns or any adjustment to the
Company's financing or operating strategies in response to such a change in
rates. Moreover, this measure does not take into account the possibility that
these currency rates can move in opposite directions, such that gains from one
may offset losses from another.
In addition, the Company's cash flows and earnings are subject to changes
in interest rates. As of September 30, 1999, approximately 45% of total short
and long-term debt is fixed, at rates between 8% and 12%. The balance of the
Company debt is variable, principally based upon the prevailing U.S. bank prime
rate or LIBOR rate. Certain interest rate swaps, which expire in 2000, fix the
rate of interest on $7.8 million of this debt at approximately 8%. A change in
the average prevailing interest rates of the remaining debt of 1% would not have
a material effect upon the Company's results of operations or cash flows. This
quantitative measure does not take into account the possibility that the
prevailing rates (U.S. bank prime and LIBOR) can move in opposite directions and
that the Company has, in most cases, the option to elect either as the
determining interest rate factor.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- - ------- --------- ---------- --- ------------- ----
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
PAGE
----
Report of Independent Certified Public Accountants 18
Consolidated Balance Sheets as of
September 30, 1999 and 1998 19-20
Consolidated Statements of Operations For the Years
Ended September 30, 1999, 1998 and 1997 21
Consolidated Statements of Comprehensive Income
For the Years Ended September 30, 1999, 1998 and 1997 22
Consolidated Statements of Shareholders' Equity
For the Years Ended September 30, 1999, 1998 and 1997 23
Consolidated Statements of Cash Flows For the
Years Ended September 30, 1999, 1998 and 1997 24-25
Notes to Consolidated Financial Statements 26-39
Schedule For the Years Ended September 30, 1999, 1998, and 1997:
II. Valuation and Qualifying Accounts 40
Information required by other schedules called for
under Regulation S-X is either not applicable or is
included in the Consolidated Financial Statements or
Notes thereto.
Consent of Independent Certified Public Accountants 41
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors of
Dixon Ticonderoga Company
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Dixon Ticonderoga Company and its subsidiaries at September 30, 1999
and 1998, and the results of their operations, their comprehensive income and
their cash flows for each of the three years in the period ended September 30,
1999, in conformity with generally accepted accounting principles in the United
States. In addition, in our opinion, the financial statement schedule listed in
the accompanying index presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Orlando, Florida
November 24, 1999
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
1999 1998
ASSETS: ----------- ------------
------
CURRENT ASSETS:
Cash and cash equivalents $ 935,413 $ 2,853,281
Receivables, less allowance for doubtful
accounts of $1,428,541 in 1999 and 29,343,196 31,810,617
$1,369,815 in 1998
Inventories 39,425,594 37,445,502
Other current assets 2,381,518 1,630,381
------------ ------------
Total current assets 72,085,721 73,739,781
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings 13,413,125 14,847,930
Machinery and equipment 17,661,335 21,182,762
Furniture and fixtures 1,753,765 1,213,662
------------ ------------
32,828,225 37,244,354
Less accumulated depreciation (19,004,402) (20,975,708)
------------ ------------
13,823,823 16,268,646
------------ ------------
OTHER ASSETS 6,978,123 2,621,460
------------ ------------
$92,887,667 $92,629,887
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY: 1999 1998
----------- --- ------------- ------- ------------ ------------
CURRENT LIABILITIES:
Notes payable $2,578,467 $26,031,951
Current maturities of long-term debt 1,638,835 1,879,775
Accounts payable 6,143,136 7,765,451
Accrued liabilities 12,268,095 8,482,278
------------ ------------
Total current liabilities 22,628,533 44,159,455
------------ ------------
LONG-TERM DEBT 39,399,795 21,927,289
------------ ------------
DEFERRED INCOME TAXES AND OTHER 96,843 776,100
------------ ------------
MINORITY INTEREST 533,390 2,711,805
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, par $1, authorized 100,000
shares, none issued - -
Common stock, par $1, authorized 8,000,000
shares, issued 3,688,559 shares in 1999 and
3,654,558 shares in 1998 3,688,559 3,654,558
Capital in excess of par value 3,586,471 3,327,755
Retained earnings 26,945,792 20,264,057
Accumulated comprehensive income (loss) (2,416,475) (3,373,837)
------------ -----------
31,804,347 23,872,533
Less treasury stock, at cost (292,789 shares
in 1999 and 222,841 shares in 1998) (1,575,241) (817,295)
------------ ------------
30,229,106 23,055,238
------------ ------------
$92,887,667 $92,629,887
============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
1999 1998 1997
------------- ------------ -----------
REVENUES $114,689,474 $124,721,758 $115,054,806
------------- ------------ ------------
COSTS AND EXPENSES:
Cost of goods sold 72,170,810 76,296,877 72,916,837
Selling and administrative expenses 33,789,975 38,349,867 31,252,037
Provision for restructuring and
related costs 1,916,800 - -
------------- ------------ -----------
107,877,585 114,646,744 104,168,874
------------- ------------ -----------
GAIN ON SALE OF ASSETS 9,636,318 - -
------------- ------------ -----------
OPERATING INCOME 16,448,207 10,075,014 10,885,932
INTEREST EXPENSE 4,771,109 4,671,646 3,799,760
------------- ------------ -----------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 11,677,098 5,403,368 7,086,172
INCOME TAXES 4,593,228 1,562,069 2,676,458
------------- ------------ -----------
7,083,870 3,841,299 4,409,714
MINORITY INTEREST 402,135 704,940 808,536
------------- ------------ -----------
NET INCOME $ 6,681,735 $ 3,136,359 $ 3,601,178
============= ============ ===========
EARNINGS PER COMMON SHARE (BASIC) $ 1.95 $ .93 $ 1.08
============= ============ ===========
EARNINGS PER COMMON SHARE (DILUTED) $ 1.87 $ .85 $ 1.05
============= ============ ===========
The accompanying notes are an integral part of the
consolidated financial statements.
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED SEPTEMBER 30,1999, 1998, AND 1997
1999 1998 1997
----------- ------------ ------------
NET INCOME $6,681,735 $ 3,136,359 $ 3,601,178
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation
adjustments 957,362 (604,981) (99,825)
----------- ------------ -----------
TOTAL COMPREHENSIVE INCOME $7,639,097 $ 2,531,378 $ 3,501,353
=========== ============ ===========
The accompanying notes are an integral part of the
consolidated financial statements.
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
Common Capital in Accumulated
Stock $1 Excess of Retained Comprehensive Treasury
Par Value Par Value Earnings Income (Loss) Stock
------------ ------------ ------------ --------------- -------------
BALANCE, September 30, 1996 $ 3,537,211 $ 2,489,674 $ 13,526,520 $ (2,669,031) $ (892,818)
Net income 3,601,178
Cumulative translation adjustment (99,825)
Employee stock options exercised 54,470 260,669
Employee Stock Purchase Plan
(9,339 shares) 20,325 34,252
----------- ----------- ------------ ----------- ------------
BALANCE, September 30, 1997 3,591,681 2,770,668 17,127,698 (2,768,856) (858,566)
Net income 3,136,359
Cumulative translation adjustment (604,981)
Employee stock options exercised 62,877 529,013
Employee Stock Purchase Plan
(11,253 shares) 28,074 41,271
----------- ----------- ------------ ----------- ------------
BALANCE, September 30, 1998 3,654,558 3,327,755 20,264,057 (3,373,837) (817,295)
Net income 6,681,735
Cumulative translation adjustment 957,362
Employee stock options exercised 34,001 227,094
Employee Stock Purchase Plan
(6,619 shares) 31,622 31,672
Purchase of treasury stock
(76,567 shares) (789,618)
----------- ----------- ------------ ----------- ------------
BALANCE, September 30, 1999 $ 3,688,559 $ 3,586,471 $ 26,945,792 $ (2,416,475) $ (1,575,241)
=========== =========== ============ =========== ============
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
1999 1998 1997
------------ ------------ ---------
Cash flows from operating activities:
Net income $ 6,681,735 $ 3,136,359 $ 3,601,178
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 2,607,425 2,933,660 2,571,660
Deferred taxes (889,000) 1,448,626 (228,039)
Provision for doubtful accounts
receivable 191,356 105,126 248,576
Gain on sale of assets (9,636,318) - -
Income attributable to minority
interest 402,135 704,940 808,536
(Income) loss attributable to foreign
currency exchange (127,299) 1,798,357 80,829
Changes in assets [(increase) decrease]
and liabilities [increase (decrease)]:
Receivables, net 1,677,182 (5,726,094) (2,862,231)
Inventories (7,279,117) (5,326,301) (207,379)
Other current assets (781,505) 253,571 (374,881)
Accounts payable and accrued
liabilities (1,787,274) (4,558,206) 3,703,760
Other assets (1,480,679) (437,785) (655,730)
------------ ------------ ---------
Net cash provided by (used in)
operating activities (10,421,359) (5,667,747) 6,686,279
------------ ------------ ---------
Cash flows from investing activities:
Purchases of plant and equipment, net (638,384) (1,350,855) (1,938,543)
Proceeds on sale of assets 19,596,710 1,089,399 -
Payment for purchase of Vinci de
Mexico, S.A. de C.V., net of
cash acquired - (3,289,200) -
------------ ------------ ---------
Net cash provided by (used in)
investing activities 18,958,326 (3,550,656) (1,938,543)
------------ ------------ ---------
1999 1998 1997
------------ ------------ ----------
Cash flows from financing activities:
Principal reductions of notes payable (23,361,167) - -
Proceeds from additions to long-term debt 17,523,741 - -
Proceeds from additions to notes payable - 8,672,323 1,918,202
Principal reductions of long-term debt (320,471) (1,672,606) (1,433,695)
Purchase of treasury stock (789,618) - -
Purchase of subsidiary stock (3,734,668) - (2,519,324)
Other non-current liabilities (465,169) 44,044 197,435
Employee Stock Purchase Plan 63,294 69,345 54,577
Exercise of stock options 261,095 368,103 162,512
------------ ------------ ----------
Net cash provided by (used in) financing
activities (10,822,963) 7,481,209 (1,620,293)
------------ ------------ -----------
Effect of exchange rate changes on cash 368,128 (1,017,112) (116,888)
------------ ------------ -----------
Net increase (decrease) in cash and cash
equivalents (1,917,868) (2,754,306) 3,010,555
Cash and cash equivalents, beginning of
year 2,853,281 5,607,587 2,597,032
------------ ------------ ----------
Cash and cash equivalents, end of year $ 935,413 $ 2,853,281 $ 5,607,587
============ ============ ===========
Supplemental disclosures:
Cash paid during the year for:
Interest $ 4,887,426 $ 4,690,538 $ 4,127,005
Income taxes 5,100,663 893,756 1,570,774
During fiscal 1999, the Company accepted a note receivable of $3,250,000
as partial consideration for the sale of assets of its U.S. Graphite and
Lubricants division.
The accompanying notes are an integral part of the
consolidated financial statements.
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- - --- ------- -- ----------- ---------- ---------
Business:
---------
Dixon Ticonderoga Company is a diversified manufacturer and marketer of
writing and art products as well as a producer of graphite, lubricant and
refractory products. Its largest principal customers are school products
distributors, mass merchandisers and industrial manufacturers, although
none account for over 5% of revenues.
Estimates:
----------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the
financial statements, and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
Loss contingencies:
---- --------------
The Company recognizes loss contingencies, including environmental
liabilities, when they become probable and the related amounts can be
reasonably estimated.
Principles of consolidation:
---------- -- --------------
The consolidated financial statements include the accounts of Dixon
Ticonderoga Company and all of its subsidiaries (the "Company"). All
significant intercompany transactions and balances have been eliminated in
consolidation. Minority interest represents the minority shareholders'
proportionate share of the equity of the Company's Grupo Dixon, S.A. de
C.V., subsidiary. In 1999, the Company repurchased shares of this
subsidiary on the open market, reducing the minority interest from 20.2%
to 3%.
Translation of foreign currencies:
----------- -- ------- -----------
In accordance with Financial Accounting Standards Board (FASB) Statement
No. 52, the Company has determined that each foreign subsidiary's
functional currency is their local currency. All assets and liabilities
are translated at period-end exchange rates. All revenues and expenses are
translated using average exchange rates during that period. Translation
gains and losses are reflected as a separate component of other
comprehensive income (loss), except for Mexico for the period January 1,
1997 through December 31, 1998. As of January 1, 1997 Mexico was
considered a highly inflationary economy for purposes of applying this
statement. Mexico translation gains and losses, therefore, affected
results of operations through December 31, 1998. Gains and losses from
foreign currency transactions are included in the Consolidated Statement
of Operations. Total foreign currency exchange gains (losses) included in
operating income were approximately $127,000, $(1,798,000) and ($81,000)
for fiscal years 1999, 1998 and 1997, respectively.
Cash and cash equivalents:
---- --- ---- ------------
Cash and cash equivalents include investment instruments with a maturity
of three months or less at time of purchase.
Inventories:
------------
Inventories are stated at the lower of cost or market. Certain inventories
amounting to $16,144,000 and $16,458,000 at September 30, 1999 and 1998,
respectively, are stated on the last-in, first-out (LIFO) method of
determining inventory costs. Under the first-in, first-out (FIFO) method
of accounting, these inventories would be $962,000 and $816,000 higher at
September 30, 1999 and 1998, respectively. All other inventories are
accounted for using the FIFO method.
The financial accounting basis for the LIFO inventories exceeds the LIFO
tax basis by approximately $261,000 and $1,375,000 at September 30, 1999
and 1998, respectively.
Inventories consist of (in thousands):
September 30,
1999 1998
--------- ---------
Raw material $15,246 $13,303
Work in process 5,016 4,651
Finished goods 19,164 19,492
--------- ---------
$39,426 $37,446
========= =========
Property, plant and equipment:
--------- ----- --- ----------
Property, plant and equipment are stated at cost. Depreciation is provided
principally on a straight-line basis over the estimated useful lives of
the respective assets. The range of estimated useful lives by class of
property, plant and equipment are as follows:
Buildings and improvements 10-25 years
Machinery and equipment 5-15 years
Furniture and fixtures 3-5 years
When assets are sold or retired, their cost and related accumulated
depreciation are removed from the accounts. Any gain or loss is included
in income.
Impairment of long-lived assets:
---------- -- ---------- -------
Long-lived assets used in the Company's operations, including cost in
excess of net assets of businesses acquired, are reviewed for impairment
when events and circumstances indicate that the carrying amount of an
asset may not be recoverable. The primary indicators of recoverability are
the associated current and forecasted undiscounted operating cash flows.
The Company's policy is to record an impairment loss when it is determined
it is probable that the carrying amount of the asset exceeds its fair
value.
Stock-based compensation:
----------- -------------
The Company accounts for compensation cost related to employee stock
options and other forms of employee stock-based compensation plans in
accordance with the requirements of Accounting Principles Board (APB)
Opinion 25 and related interpretations. APB 25 requires compensation cost
for stock-based compensation plans to be recognized based on the
difference, if any, between the fair market value of the stock on the date
of grant and the option exercise price. The Company provides additional
proforma disclosures as required under FASB Statement No. 123, "Accounting
For Stock-Based Compensation".
Income taxes:
------ ------
The Company recognizes deferred tax assets and liabilities for future tax
consequences of events that have been included in the financial statements
or tax returns. Under this method, amounts for deferred tax assets and
liabilities are determined based on the differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the
tax payable for the period and the change during the period in deferred
tax assets and liabilities.
(2) ACCRUED LIABILITIES:
- - --- ------- ------------
The major components of accrued liabilities are as follows (in thousands):
September 30,
1999 1998
--------- ---------
Salaries and wages $1,433 $ 2,244
Employee benefit plans 594 511
Income taxes 2,540 1,712
Other 7,701 4,015
--------- ---------
$ 12,268 $ 8,482
========= =========
(3) NOTES PAYABLE:
- - --- ---- --------
On September 30, 1999, the Company's revolving credit facility was
refinanced as long-term debt, due in 2004. Borrowings under the previous
credit facility ($23,043,000 as of September 30, 1998) were retired in
fiscal 1999 (See Note 4).
The Company's Mexican subsidiary has bank lines of credit totaling
approximately $7 million, under which $2.5 and $2.9 million of unsecured
notes payable were outstanding as of September 30, 1999 and 1998,
respectively. The notes bear interest (approximately 9.2% at September 30,
1999) based upon either a floating U.S. bank rate or the rate of certain
Mexican government securities and is renewable annually.
The weighted average interest rate of the Company's outstanding notes
payable (including foreign borrowings) was 9.3%, 10.0% and 9.0% as of
September 30, 1999, 1998 and 1997, respectively.
(4) LONG-TERM DEBT:
- - --- --------- -----
Long-term debt consists of the following (in thousands):
September 30,
1999 1998
--------- ---------
12% Senior Subordinated Notes $ 16,500 $ 16,500
Bank notes payable 14,468 -
Bank term loan 7,500 4,444
Building mortgage 2,398 2,513
Other 173 350
--------- ---------
41,039 23,807
Less current maturities (1,639) (1,880)
--------- ---------
$ 39,400 $ 21,927
========= =========
In September 1999, the Company entered into new primary financing
arrangements with a consortium of lenders, providing a total of up to
$42.5 million in financing through September 2004. The underlying loan and
security agreements include a revolving line of credit facility in the
amount of $35 million which bears interest at either the prime rate (8.5%
at September 30, 1999) plus 0.25%, or the prevailing LIBOR rate
(approximately 5.4% at September 30, 1999) plus 1.75% through December
2000. Thereafter, the interest rate can vary based upon certain financial
performance ratios (as defined in the agreement), but in no event greater
than the prime rate, plus 1% or the LIBOR rate plus 2.5%. Borrowings under
the new revolving credit facility are based upon eligible accounts
receivable and inventories of the Company's U.S. and Canada operations, as
defined. The Company has previously executed an interest rate swap
agreement which effectively fixes the rate of interest on $5 million of
the revolver debt at 8.12% through July 2000.
The loan and security agreements also include a term loan in the amount of
$7.5 million. The term loan is payable in monthly installments of
$125,000, plus interest, through September 2004. The loan bears interest
based upon the same prevailing rate described above for the revolving
credit facility. The Company has previously executed an interest rate swap
agreement which effectively fixes the rate of interest on approximately
$2.8 million of the term loan at 8% through May 2001.
These financing arrangements are collateralized by the tangible and
intangible assets of the U.S. and Canada operations (including accounts
receivable, inventories, property, plant and equipment, patents and
trademarks) and a pledge of the capital stock of the Company's
subsidiaries. The loan and security agreement contains provisions
pertaining to the maintenance of certain financial ratios and annual
capital expenditure levels, as well as restrictions as to payment of cash
dividends. At September 30, 1999, the Company had approximately $20
million of unused lines of credit available under the revolving credit
facility. A fee of 0.25% is paid on the unused portion of this facility.
In 1996, the Company completed the private placement of $16.5 million of
12% Senior Subordinated Notes valued at their face amount, due 2003. In
connection with the private placement, the Company issued to noteholders
warrants to purchase 300,000 shares of Company stock at $7.24 per share.
No value was assigned to the warrants, which expire in 2003, based on a
fair market value determination at the date of issuance. In 1998, the
Company canceled a reverse interest rate swap agreement (which had
originally converted $10 million of the notes to a floating rate of
interest) resulting in a deferred gain of approximately $375,000, which is
being recognized over the remaining original term of the notes. The note
agreement, as amended, contains provisions which limit the payment of
dividends and require the maintenance of certain financial covenants and
ratios.
In addition, in 1996 the Company entered into a mortgage agreement with
respect to its corporate headquarters building in Heathrow, Florida. The
mortgage (in the original amount of $2.73 million) is for a period of 15
years and bears interest at 8.1%.
Carrying values of the Senior Subordinated Notes, the bank notes payable
and term loan and the building mortgage are reasonable estimates of fair
value as interest rates are based on prevailing market rates. The
aggregate fair value of the Company's two remaining interest rate swap
agreements (discussed above ) is an unrecognized loss of approximately
$42,000, representing the net cost to cancel the underlying agreements as
of September 30, 1999.
In 1998, the FASB issued Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which is effective for the Company in
fiscal 2001. This statement requires all derivative instruments to be
recognized in the balance sheet as either assets or liabilities at fair
value. The Company currently uses cash flow hedges to convert variable
rate debt to fixed rate debt, but does not expect the prescribed
accounting for these instruments to materially affect its financial
position or results of operations when adopted.
Aggregate maturities of long-term debt are as follows (in thousands):
2000 $1,639
2001 7,214
2002 7,199
2003 7,185
2004 16,140
Thereafter 1,662
--------
$41,039
========
(5) INCOME TAXES:
- - --- ------ ------
The components of net deferred tax asset (liability) recognized in the
accompanying consolidated balance sheet are as follows (in thousands):
1999 1998
------------ ------------
U.S. current deferred tax assets
(included in other current assets) $ 258 $ 555
Foreign current deferred tax liability
(included in accrued liabilities) (1,343) (1,091)
U.S. and foreign, noncurrent deferred tax
asset (liability) (included in other
assets and deferred income taxes and
other, respectively) 1,156 (525)
------------ ------------
Net deferred tax asset (liability) $ 71 $ (1,061)
============ ============
Deferred tax assets:
Vacation pay $ 135 $ 266
Accrued pension 466 368
Accrued restructuring and related costs 357 -
Accrued environmental costs 148 90
Installment sale and related expenses 434 -
Other 126 45
Foreign net operating loss carryforward 509 507
Valuation allowance (509) (507)
------------ ------------
Total deferred tax asset 1,666 769
------------ ------------
Deferred tax liabilities:
Inventories (962) (1,094)
Depreciation (105) (198)
Property, plant and equipment (528) (538)
------------ ------------
Total deferred tax liability (1,595) (1,830)
------------ ------------
Net deferred tax asset (liability) $ 71 $ (1,061)
============ ============
It is the policy of the Company to accrue deferred income taxes on
temporary differences related to the financial statement carrying amounts
and tax bases of investments in foreign subsidiaries which are expected to
reverse in the foreseeable future. Certain undistributed earnings of
foreign subsidiaries that are essentially permanent in duration and not
expected to reverse in the foreseeable future approximate $21,632,000 as
of September 30, 1999. The determination of the unrecognized deferred tax
liability for such temporary differences is not practicable.
The provision for income taxes from continuing operations is comprised of
the following (in thousands):
1999 1998 1997
-------- -------- --------
Current:
U.S. Federal $3,463 $ (656) $ 773
State 491 41 85
Foreign 1,528 728 2,046
------- ------- -------
5,482 113 2,904
------- ------- -------
Deferred:
U.S. Federal (929) 916 (51)
State (110) - -
Foreign 150 533 (177)
------- ------- -------
(889) 1,449 (228)
------- ------- -------
$4,593 $1,562 $2,676
======= ======= =======
Foreign deferred tax provision (benefit) is comprised principally of
temporary differences related to Mexico asset purchases. U.S. deferred
provision in 1998 results primarily from legal expenses deducted on the
books in prior years that were deductible for tax purposes that year. The
U.S. deferred (benefit) in 1999 and 1997 result primarily from expenses
accrued but not yet deductible for taxes.
The Company has net operating loss carryforwards for its United Kingdom
subsidiary of approximately $2 million without an expiration date, for
which the related benefit is fully reserved through a valuation allowance,
as their utilization is uncertain.
The differences between the provision for income taxes on continuing
operations computed at the U.S. statutory federal income tax rate and the
provision in the consolidated financial statements are as follows (in
thousands):
1999 1998 1997
-------- -------- ---------
Amount computed using statutory rate $3,970 $1,837 $2,409
Foreign income (26) (557) 38
State taxes, net of federal benefit 252 27 56
Permanent differences 231 239 138
Others 166 16 35
-------- -------- ---------
Provision for income taxes $ 4,593 $ 1,562 $ 2,676
======== ======== =========
Permanent differences result primarily from intercompany net income that is
eliminated from the consolidated statements of operations but are taxed in
various jurisdictions.
A Revenue Canada examination with respect to its 1994 and 1995 tax years,
resulted in an assessment which was paid in fiscal 1999. The Company has an
appeal pending with Revenue Canada. All tax and interest has been provided
for and no liability or recovery is reflected in the Consolidated Financial
Statements.
(6) EMPLOYEE BENEFIT PLANS:
- - --- -------- ------- ------
The Company maintains several defined benefit pension plans covering
substantially all union employees. The benefits are based upon fixed dollar
amounts per years of service. The assets of the various plans (principally
corporate stocks and bonds, insurance contracts and cash equivalents) are
managed by independent trustees. The policy of the Company and its
subsidiaries is to fund the minimum annual contributions required by
applicable regulations.
In 1999, the Company adopted the revised disclosure requirements of FASB
Statement No.132, "Employers' Disclosures About Pensions and Other
Postretirement Benefits". This statement standardized the disclosures of
pensions and other postretirement benefits into a combined format but did
not change the accounting for these benefits. Prior years' information has
been reclassified to conform to the new disclosure format.
The following tables set forth the plans' funded status (accumulated
benefits exceed assets in all plans) and other information for the fiscal
years ended September 30, 1999 and 1998 (in thousands):
September 30,
1999 1998
--------- ---------
Change in benefit obligation:
Obligation at beginning of year $4,123 $3,428
Service cost 311 358
Interest cost 235 217
Actuarial (gain) loss (74) 362
Benefit payments (320) (242)
--------- ---------
Obligation at end of year $4,275 $4,123
========= =========
Change in market value of plan assets:
Market value at beginning of year $2,692 $2,243
Actual return on plan assets 45 268
Employer contributions 489 423
Benefit payments (320) (242)
--------- ---------
Market value at end of year $2,906 $2,692
========= =========
September 30,
1999 1998
--------- ---------
Actuarial present value of:
Accumulated benefit obligation $(4,275) $(4,123)
========= =========
Projected benefit obligation $(4,275) $(4,123)
Plan assets at market value 2,906 2,692
--------- ---------
Projected benefit obligation in excess of
plan assets (1,369) (1,431)
Unrecognized net gain from past
experience different from assumptions 875 830
Unrecognized net obligation being
recognized over periods from 10 to 16
years 730 830
--------- ---------
Prepaid pension expense $ 236 $ 229
========= =========
Net periodic pension costs include the following components (in thousands):
1999 1998 1997
--------- --------- ------
Service costs - benefits earned during period $ 311 $ 126 $ 126
Interest cost on projected benefit obligation 235 217 220
Expected return on plan assets (203) (269) (58)
Net amortization and deferral 139 190 30
--------- -------- ------
Net periodic pension cost $ 482 $ 264 $ 318
========= ========= ======
In determining the projected benefit obligation, the assumed discount rates
ranged from 4.25 % to 7.5 % for 1999, 4.25% to 6.0% for 1998 and 4.5% to
7.5% for 1997. The expected long-term rates of return on assets used in
determining net periodic pension cost ranged from 7.5 % to 8.5 % in all
years presented above. There are no assumed rates of increase in
compensation expense in any year, as benefits are fixed and do not vary
with compensation levels.
The Company also maintains a defined-contribution plan (401k) for all
non-union domestic employees who meet minimum service requirements, as well
as a supplemental deferred contribution plan for certain executives.
Company contributions under the plans consist of a basic 3% of the
compensation of participants for the plan year, and for those participants
who elected to make voluntary contributions to the plan, matching
contributions up to an additional 4 %, as specified in the plan. Charges to
operations for these plans for the years ended September 30, 1999, 1998 and
1997 were $871,000, $875,000 and $ 617,000, respectively.
(7) SHAREHOLDERS' EQUITY:
- - --- ------------- -------
The Company provides an Employee Stock Purchase Plan under which shares of
its common stock can be issued to eligible employees. Among the terms of
this plan, eligible employees may purchase through payroll deductions
shares of the Company's common stock up to 10 % of their compensation at
the lower of 85 % of the fair market value of the stock on the first or
last day of the plan year (May 1 and April 30). On May 1, 1999, 1998 and
1997, 6,619, 11,253 and 9,339 shares, respectively, were issued under this
plan. At September 30, 1999, there are 92,478 shares available for future
purchases under the plan.
The Company has also granted non-qualified options to key employees, under
the 1988 Dixon Ticonderoga Company Executive Stock Plan to purchase shares
of its common stock at the market price on the date of grant. Under the
1988 Plan (as amended) options vest 25 % after one year; 25 % after two
years; and 50 % after three years, and remain exercisable for a period of
five years from the date of vesting. All options expire three months after
termination of employment. At September 30, 1999, there were 399,625
options outstanding and no shares available for future grants under the
1988 Plan.
In addition, the Dixon Ticonderoga Company 1999 Stock Option Plan (the
"New Plan") was adopted in fiscal 1999, covering a maximum aggregate
300,000 shares. Under the New Plan, qualified incentive stock options or
non-qualified stock options can be granted to employees at the market
price on the date of grant and which will vest on the same bases as the
1988 Plan described above. Non-qualified options under the New Plan may
also be issued to Company outside directors at the market price on the
date of grant and which may vest over varying periods. In 1999, 30,000
non-qualified options were granted to outside directors under the New
Plan. The granted options vest over a two-year period. At September 30,
1999 there were 270,000 shares available for future grants under the New
Plan. The following table summarizes the combined stock options activity
for 1999, 1998 and 1997:
1999 1998 1997
------------------ ------------------ ----------------
Number Option Number Option Number Option
of Shares Price of Shares Price of Shares Price
--------- -------- --------- -------- ---------- -----
Options outstanding 36,817 $4.75
at beginning of 312 $7.75 18,935 $7.75 42,375 7.75
year 2,000 6.13 2,000 6.13
44,250 8.63 72,750 8.63 97,000 8.63
60,125 6.75 72,750 6.75 92,000 6.75
15,250 7.13 15,750 7.13 17,000 7.13
317,000 8.88 351,000 8.88
10,000 14.13
18,500 12.88
Options exercised (36,720) 4.75
(10,250) 6.75 (9,500) 6.75 (2,625) 6.75
(2,000) 7.13 (500) 7.13 (1,250) 7.13
(312) 7.75 (18,623) 7.75 (6,375) 7.75
(1,750) 8.63 (28,000) 8.63 (7,500) 8.63
(2,000) 6.13
(19,688) 8.88 (4,250) 8.88
Options granted 351,000 8.88
10,000 14.13
18,500 12.88
40,000 11.00
Options expired or (97) 4.75
canceled (17,065) 7.75
(750) 8.63 (500) 8.63 (16,750) 8.63
(1,250) 6.75 (3,125) 6.75 (16,625) 6.75
(24,312) 8.88 (29,750) 8.88
(2,500) 7.13
(13,000) 12.88
--------- ---------- ----------
429,625 465,437 533,185
========= ========== ==========
The Company has adopted the disclosure-only provisions of FASB Statement
No. 123 and, accordingly, there is no compensation expense recognized for
its stock option plans. Pro forma net income and earnings per share would
have been as follows if the fair market estimates were used to record
compensation expense:
1999 1998 1997
------------ ------------ ------------
Net income $ 6,476,269 $ 2,990,726 $3,503,790
============ ============ ============
Earnings per share:
Basic $ 1.89 $ .88 $ 1.05
============ ============ ============
Diluted $ 1.81 $ .81 $ 1.02
============ ============ ============
These pro forma amounts were estimated using the Black-Scholes valuation
model assuming no dividends, expected volatility of 33 %, risk-free
interest rate of 6.5 %, and expected lives of approximately six years. The
weighted average fair value estimates of options granted during 1999, 1998
and 1997 was $3.67, $4.45 and $2.98, respectively. The weighted average
remaining lives are 5.6, 6.5 and 5.75 years for options granted in 1999,
1998 and 1997, respectively.
In 1995, the Company declared a dividend distribution of one Preferred
Stock Purchase Right on each share of Company common stock. Each Right
will entitle the holder to buy one-thousandth of a share of a new series
of preferred stock at a price of $30.00 per share. The Rights will be
exercisable only if a person or group ( other than the Company's chairman,
Gino N. Pala, and his family members ) acquires 20% or more of the
outstanding shares of common stock of the Company or announces a tender
offer following which it would hold 30% or more of such outstanding common
stock. The Rights entitle the holders other than the acquiring person to
purchase Company common stock having a market value of two times the
exercise prices of the Right. If, following the acquisition by a person or
group of 20% or more of the Company's outstanding shares of common stock,
the Company were acquired in a merger or other business combination, each
Right would be exercisable for that number of the acquiring company's
shares of common stock having a market value of two times the exercise
prices of the Right. The Company may redeem the Rights at one cent per
Right at any time until ten days following the occurrence of an event that
causes the Rights to become exercisable for common stock. The Rights
expire ten years from the date of distribution.
In March, 1999, the Company announced a Stock Repurchase Program
authorizing the acquisition of up to $3 million in Dixon Ticonderoga
Company stock. Through September 30, 1999, the Company repurchased
approximately 77,000 shares at a cost of $790,000.
(8) SUBSIDIARY STOCK REPURCHASE:
- - --- ---------- ----- -----------
In fiscal 1997, the Company repurchased 9,900,000 shares (or 29.7%) of its
subsidiary, Grupo Dixon, S.A. de C.V., for approximately $2.5 million. In
fiscal 1999, the Company repurchased an additional 5,722,760 shares (or
17.2%) for approximately $3.7 million, bringing its total ownership in its
subsidiary to 97%. The shares were originally issued in 1994, when the
Company sold 16,627,760 shares of the subsidiary in an initial public
offering on the Mexico Intermediate Market. The Company applied the
purchase method of accounting to record these repurchases of subsidiary
stock.
(9) EARNINGS PER COMMON SHARE:
- - --- -------- --- ------ ------
Basic earnings per common share is calculated by dividing net income by
the weighted average number of shares outstanding. Diluted earnings per
common share is based upon the weighted average number of shares
outstanding, plus the effects of potentially dilutive common shares
[consisting of stock options (Note 7) and stock warrants (Note 4)].
Average common shares used in the calculation of earnings per share are
as follows:
Year Basic Diluted
---- --------- ---------
1999 3,420,779 3,581,062
1998 3,387,202 3,708,026
1997 3,323,261 3,433,801
(10) ACQUISITION:
- - --- ------------
In December 1997, the Company's Mexican subsidiary acquired all of the
capital stock of Vinci de Mexico, S.A. de C.V., ("Vinci"), and certain
assets of a related entity for a final total purchase price of
approximately 28.3 million pesos (approximately $3.5 million) in cash.
Vinci is a well-known manufacturer of tempera and oil paints, chalk and
modeling clay in Mexico. The company also manufactured plastic products
(such as rulers and geometric sets), water colors and crayons. The
acquisition was accounted for under the purchase method of accounting and,
accordingly, the accompanying Consolidated Balance Sheet includes the fair
value of Vinci's specific assets and liabilities, including goodwill
approximating $320,000. Goodwill is being amortized over the estimated
period of benefit of 20 years. The results of Vinci's operations have been
included in the consolidated results of operations since the date of
acquisition.
(11) SALE OF ASSETS:
- - ---- ---- -- -------
On March 2, 1999, the Company completed the sale of its U.S. Graphite and
Lubricants division for $23.5 million, plus the assumption of certain
trade obligations related to the division. Except as provided for in the
Asset Purchase Agreement, the Company generally retained all other
liabilities of the business through the closing date, including various
environmental liabilities. The purchaser paid $20.25 million in cash and
executed a five-year subordinated note for the balance of $3.25 million.
The note is unsecured and bears interest at 9%, deferred as additional
principal until September 2, 2001. Under the terms of the Asset Purchase
Agreement, the Company relinquished approximately $650,000 of the proceeds
which had been placed in escrow, pending the completion of certain
post-closing procedures. In connection with this sale, the Company
retained or accrued additional liabilities approximating $4 million for
ongoing maintenance of unsold real estate and environmental expenses,
employee severance and benefit costs and other post-closing obligations.
The Company realized a net pre-tax gain of approximately $9.6 million on
the sale.
(12) RESTRUCTURING AND RELATED COSTS:
- - ---- ------------- --- ------- ------
In fiscal 1999, the Company provided approximately $1,917,000 in
connection with its Restructuring and Cost Reduction Program, which is
intended to improve overall financial performance in the future. The
program included manufacturing plant closure and consolidation, as well as
personnel reduction in manufacturing, sales and marketing and corporate
activities. Approximately 125 employees (principally plant workers) were
affected by this program. The carrying amount of property and equipment
held for disposal approximates $3 million and its estimated fair value is
principally based upon assessments of value made by local realtors or
appraisals. Management anticipates disposal of these assets by the end of
2000. The restructuring charge and subsequent utilization is summarized as
follows:
1999 Utilized Balance at
Restructuring in Fiscal September
Charge 1999 30, 1999
------------ ------------ --------------
Employee severance and
related costs $ 587,000 $ (199,000) $ 388,000
Anticipated losses from the
sale or abandonment of
property and equipment 1,330,000 (14,000) 1,316,000
------------ ------------ --------------
$ 1,917,000 $ (213,000) $ 1,704,000
============ ============ ==============
(13) LINE OF BUSINESS REPORTING:
- - ---- ---- -- -------- ----------
The Company has adopted FASB Statement No. 131 "Disclosures About Segments
of an Enterprise and Related Information". This statement requires the
Company to report information about its operating segments under the
"management approach". The management approach is based on the manner in
which management reports segment information within the Company for making
operating decisions and assessments.
The Company has two principal business segments -- its Consumer Group and
Industrial Group. The following information sets forth certain data
pertaining to each line of business as of September 30, 1999, 1998 and
1997, and for the years then ended (in thousands).
Consumer Industrial Total
Group Group Company
---------- ---------- ----------
Net revenues:
1999 $ 97,372 $ 17,317 $114,689
1998 99,874 24,848 124,722
1997 89,416 25,639 115,055
Income before interest, taxes and minority interest:
1999 $ 8,815 $ 10,332 $ 19,147
1998 10,279 2,859 13,138
1997 9,908 3,243 13,151
A reconciliation of income before interest, taxes and minority interest
to net income follows (in thousands):
1999
-----------------------------------------
Consumer Industrial Total
Group Group Corporate Company
--------- ---------- ---------- --------
Income before interest,
taxes and minority interest $ 8,815 $10,332 ($ 2,699) $16,448
Interest expense (3,528) (430) (813) (4,771)
Income tax (expense) benefit (2,112) (3,845) 1,364 (4,593)
Minority interest (402) - - (402)
--------- ---------- ---------- -------
Net income $ 2,773 $ 6,057 ($ 2,148) $ 6,682
========= ========== ========== =======
1998
-----------------------------------------
Consumer Industrial Total
Group Group Corporate Company
--------- ---------- ---------- -------
Income before interest,
taxes and minority interest $10,279 $ 2,859 ($ 3,063) $10,075
Interest expense (3,181) (1,085) (406) (4,672)
Income tax (expense) benefit (2,199) (667) 1,304 (1,562)
Minority interest (705) - - (705)
--------- ---------- ---------- -------
Net income $ 4,194 $ 1,107 ($ 2,165) $ 3,136
========= ========== ========== =======
1997
-----------------------------------------
Consumer Industrial Total
Group Group Corporate Company
--------- ---------- ---------- -------
Income before interest,
taxes and minority interest $ 9,908 $ 3,243 ($ 2,265) $10,886
Interest expense (2,445) (963) (392) (3,800)
Income tax (expense) benefit (2,818) (857) 999 (2,676)
Minority interest (809) - - (809)
--------- ---------- ---------- -------
Net income $ 3,836 $ 1,423 ($ 1,658) $ 3,601
========= ========== ========== =======
Operating profit of the Consumer Group includes a charge for restructuring
and related costs of $1,917 and the Industrial Group includes the gain on
sale of the U.S. Graphite and Lubricants Division of $9,636 in 1999.
Certain corporate expenses have been allocated based upon respective
segment sales. Interest expense (where not specifically identified) has
been allocated based upon identifiable assets by segment. Income taxes are
determined based upon the respective effective tax rates.
Consumer Industrial Total
Group Group Company
------------ ------------ ------------
Identifiable assets:
1999 $75,609 $ 5,978 $81,587
1998 71,152 15,622 86,774
1997 64,224 14,164 78,388
Corporate assets were $11,301, $5,856 and $5,773 at September 30, 1999,
1998 and 1997, respectively.
Consumer Industrial Total
Group Group Company
------------ ------------ ------------
Depreciation and amortization:
1999 $ 1,485 $ 392 $ 1,877
1998 1,722 532 2,254
1997 1,306 500 1,806
Expenditures for plant and
equipment:
1999 $ 802 $ 150 $ 952
1998 853 502 1,355
1997 773 914 1,687
Corporate depreciation and amortization were $730, $680 and $766, for the
years ended September 30, 1999, 1998 and 1997, respectively. Corporate
expenditures for equipment were $58, $148 and $371, in 1999, 1998 and
1997, respectively.
Foreign operations:
Operating Identifiable
Revenues Profit (Loss) Assets
------------ ------------- ------------
1999
Canada $ 8,943 $ 557 $ 5,784
Mexico 22,127 4,890 22,921
United Kingdom 1,080 (13) 633
1998
Canada $ 8,537 $ 892 $ 6,712
Mexico 20,925 4,455 17,803
United Kingdom 1,056 (4) 789
1997
Canada $10,041 $ 1,038 $ 7,305
Mexico 13,714 4,339 13,140
United Kingdom 1,092 9 667
(14) COMMITMENTS AND CONTINGENCIES:
- - ---- ----------- --- --------------
Under an agreement with Warner Bros. Consumer Products, the Company
manufactures and markets in the U.S. and Canada a complete line of
products featuring the famous Looney Tunes(R) and Scooby-Doo(R)
characters. Under the terms of the agreement, as amended, the Company is
obligated to pay a total of $1 million through 2000, for the right to
market and sell all types of pencils, pens, crayons, chalks, markers,
paints, art kits and related items. Through fiscal 1999, the Company has
paid $905,000 ($774,000 earned by Warner Bros.) through September 30,
1999.
The Company has entered into employment agreements with three executives
which provide for the continuation of salary (currently aggregating
$48,000 per month) and related employee benefits for a period of 24 months
following their termination of employment under certain changes in control
of the Company. In addition, all options held by the executives would
become immediately exercisable upon the date of termination and remain
exercisable for 90 days thereafter.
The Company leases certain manufacturing equipment under a five-year
noncancelable operating lease arrangement. The rental expense under this
lease was $417,000 in 1999 and 1998 and $322,000 in 1997. Annual future
minimum rental payments are approximately $417,000 per year through 2001
and $104,000 in 2002.
The Company's New Castle Refractories Division has entered into an
agreement to perpetually license certain silicon carbide refractory brick
technology from Carborundum Corporation. Under the terms of the perpetual
license agreement, the Company is obligated to pay a fixed sum of $450,000
with payments made through 2001 or earlier, if certain stipulated sales
levels are reached. The Company also executed related agreements to, at
its option, purchase manufactured product from Carborundum Corporation,
and which require Carborundum Corporation to reimburse the Company for up
to $225,000 for product development.
The Company, in the normal course of business, is party in certain
litigation. In 1996, a decision was rendered by the Superior Court of New
Jersey in Hudson County finding the Company responsible for $1.94 million
in certain environmental clean-up costs relating to a claim under New
Jersey's Environmental Clean-Up Responsibility Act (ECRA) by a 1984
purchaser of industrial property from the Company. All subsequent appeals
were denied and the Company continues to pursue other responsible parties
for indemnification and/or contribution to the payment of this claim
(including its insurance carriers) and a legal malpractice action against
its former attorney. As a result of the judgment, the Company paid $3.6
million in 1998 to satisfy this claim in full, including all accrued
interest. No anticipated recoveries from insurance carriers or other third
parties have been recognized. In 1999, the pending malpractice suit was
dismissed and the Company has appealed the decision.
The Company has evaluated the merits of other litigation and believes
their outcome will not have a further material effect on the Company's
future results of operations or financial position.
The Company assesses the extent of environmental matters on an ongoing
basis. In the opinion of management (after taking into account accruals of
approximately $370,000 as of September 30, 1999), the resolution of these
matters will not materially affect the Company's future results of
operations or financial position.
(15) SUMMARY OF QUARTERLY FINANCIAL INFORMATION ( UNAUDITED )
- - ---- ------- -- --------- --------- ----------- -------------
( In Thousands, Except Per Share Data ):
--------------- ------ --- ----- -------
1999: First Second Third Fourth
-------- ---------- --------- --------- ---------
Revenues $22,807 $24,916 $36,916 $30,050
Operating income 110 9,180 4,841 2,317
Income before taxes and
minority interest (999) 7,937 3,474 1,265
Minority interest 35 (193) (189) (55)
Net income (loss) (600) 4,331 2,126 825
Earnings(loss) per share:(a)
Basic (.17) 1.26 .63 .24
Diluted (.17) 1.20 .59 .23
1998: First Second Third Fourth
---------- --------- --------- ---------
Revenues $23,797 $24,853 $38,503 $37,569
Operating income 1,288 1,360 4,699 2,728
Income before taxes and
minority interest 497 264 3,406 1,236
Minority interest 118 187 293 107
Net income 305 120 2,015 696
Earnings(loss) per share:(a)
Basic .09 .04 .60 .20
Diluted .08 .03 .54 .19
(a)Calculated independently for each period, and consequently, the sum of
the quarters may differ from the annual amount.
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
Balance at Additions Additions to Balance
Beginning Charged (Deductions at Close
Description Of Period to Income From) Reserves of Period
- - ------------------- ------------ ---------- --------------- ---------------
Allowance for Doubtful Accounts:
- - --------- --- -------- ---------
Year Ended
September 30, 1999 $1,369,815 $ 191,356 $(132,630) (2) $1,428,541
========== ========= ========== ==========
Year Ended $ 616,205 (1)
September 30, 1999 $1,004,537 $ 105,126 $(356,053) (2) $1,369,815
========== ========= ========== ==========
Year Ended
September 30, 1999 $1,352,411 $ 248,576 $(596,450) (2) $1,004,537
========== ========= ========== ==========
(1) Additions to reserve of Mexico subsidiary from acquisition of Vinci de
Mexico, SA. de C.V., and other adjustments.
(2) Write off of accounts considered to be uncollectible (net of recoveries).
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors of
Dixon Ticonderoga Company
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Nos. 33-20054, 33-23380 and 333-22205) and on
Form S-2 (File No. 333-22119) of Dixon Ticonderoga Company of our report,
dated November 24, 1999, relating to the financial statements and financial
statement schedule, which appear in this Form 10-K.
PricewaterhouseCoopers LLP
Orlando, Florida
December 29, 1999
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- - ------- ------- -- --- ------------- ---- ----------- -- --------------
FINANCIAL DISCLOSURES
--------- -----------
None.
PART III
---- ---
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
- - -------- --------- --- --------- -------- -- --- -------
Certain information required under this Item with respect to Directors and
Executive Officers will be contained in the Company's 1999 Proxy Statement,
pursuant to Regulation 14A, which is incorporated herein by reference.
The following table sets forth the names and ages of the Company's Executive
Officers, together with all positions and offices held with the Company by such
Executive Officers. All Executive Officers are subject to re-election or
re-appointment by the Board of Directors at the first Directors' Meeting
succeeding the next Annual Meeting of shareholders.
Name Age Title
---- --- -----
Gino N. Pala 71 Chairman of the Board since February
(Father-in-law of Richard F. 1989; President and Chief Executive
Joyce) Officer or Co-Chief Executive Officer
since 1978.
Richard F. Joyce 44 Vice Chairman of the Board since
(Son-in-law of Gino N. Pala) January 1990; President and Co-Chief
Executive Officer since March 1999;
prior thereto President and Chief
Operating Officer, Consumer Group, since
March,1996; Executive Vice President and
Chief Legal Executive since February
1991; Corporate Counsel since July 1990.
Richard A. Asta 43 Executive Vice President of Finance and
Chief Financial Officer since February
1991; prior thereto Senior Vice
President - Finance and Chief Financial
Officer since March 1990.
Leonard D. Dahlberg, Jr. 48 Executive Vice President of Procurement
since April 1999; prior thereto
Executive Vice President, Industrial
Group, since March 1996; Executive Vice
President of Manufacturing/Consumer
Products division since August 1995;
Senior Vice President of Manufacturing
since February 1993; Vice President of
Manufacturing since March 1990.
Laura Hemmings 48 Corporate Secretary since January 1986;
prior thereto secretary to President
and Chief Executive Officer since
February 1982.
John Adornetto 58 Vice President and Corporate Controller
since January 1991; prior thereto
Corporate Controller since September
1978.
ITEM 11. EXECUTIVE COMPENSATION
- - -------- --------- ------------
Information required under this Item will be contained in the Company's
1999 Proxy Statement which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- - -------- -------- --------- -- ------- ---------- ------ --- ----------
Information required under this Item will be contained in the Company's
1999 Proxy Statement which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - -------- ------- ------------- --- ------- ------------
Information required under this Item will be contained in the Company's
1999 Proxy Statement which is incorporated herein by reference.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
- - -------- --------- --------- --------- --------- --- ------- -- --------
(a) Documents filed as part of this report:
--------- ----- -- ---- -- ---- -------
1. Financial statements
--------- ----------
See index under Item 8. Financial Statements and Supplementary Data.
2. Exhibits
--------
The following exhibits are required to be filed as part of this
Annual Report on Form 10-K:
(2) a. Share Purchase Agreement by and among Dixon Ticonderoga de
Mexico, S.A. de C.V., and by Grupo Ifam, S.A. de C.V., and Guillermo
Almazan Cueto with respect to the capital stock of Vinci de Mexico,
S.A. de C.V., (English translation).4
(2) b. Asset Purchase Agreement dated February 9, 1999, by and
between Dixon Ticonderoga Company, as Seller and Asbury Carbons,
Inc., as Buyer.6
(3) (i) Restated Certificate of Incorporation2
(3) (ii) Amended and Restated Bylaws1
(4) a. Specimen Certificate of Company Common Stock2
(4) b. Amended and Restated Stock Option Plan3
(10) a. First Modification of Amended and Restated Revolving Credit
Loan and Security Agreement by and among Dixon Ticonderoga Company,
Dixon Ticonderoga, Inc., First Union Commercial Corporation, First
National Bank of Boston and National Bank of Canada1
(10) b. 12.00% Senior Subordinated Notes, Due 2003, Note and Warrant
Purchase Agreement1
(10) c. 12.00% Senior Subordinated Notes, Due 2003, Common Stock
Purchase Warrant Agreement1
(10) d. License and Technological Agreement between Carborundum
Corporation and New Castle Refractories Company, a division of Dixon
Ticonderoga Company1
(10) e. Equipment Option and Purchase Agreement between Carborundum
Corporation and New Castle Refractories Company, a division of Dixon
Ticonderoga Company1
(10) f. Product Purchase Agreement between Carborundum Corporation
and New Castle Refractories Company, a division of Dixon Ticonderoga
Company1
(10) g. Second Modification of Amended and Restated Revolving Credit
Loan and Security Agreement by and among Dixon Ticonderoga Company,
Dixon Ticonderoga, Inc., First Union Commercial Corporation, First
National Bank of Boston and National Bank of Canada5
(10) h. Third Modification of Amended and Restated Revolving Credit
Loan and Security Agreement, Amendment to Loan Documents and
Assignment by and among Dixon Ticonderoga Company, Dixon
Ticonderoga, Inc., First Union Commercial Corporation, BankBoston,
N.A., National Bank of Canada and LaSalle Bank.
(10) i. First Modification of Amended and Restated Term Loan
Agreement and Assignment by and among Dixon Ticonderoga Company,
Dixon Ticonderoga, Inc., First Union Commercial Corporation,
BankBoston, N.A., National Bank of Canada and LaSalle Bank.
(10) j. Amendment No. 1 to 12.00% Senior Subordinated Notes, Due
2003, Note and Warrant Purchase Agreement.
(21) Subsidiaries of the Company
(27) Financial Data Schedule7
1Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 1996, file number 0-2655, filed in Washington, D.C.
2Incorporated by reference to the Company's quarterly report on Form 10-Q for
the period ended March 31, 1997, file number 0-2655, filed in Washington, D.C.
3Incorporated by reference to Appendix 3 to the Company's Proxy Statement dated
January 27, 1997, filed in Washington, D.C.
4Incorporated by reference to the Company's current report on Form 8-K dated
December 12, 1997, filed in Washington D.C.
5Incorporated by reference to the Company's Annual report on Form 10-K for the
year ended September 30, 1998, file number 0-2615, filed in Washington, D.C.
6Incorporated by reference to the Company's current report on Form 8-K dated
March 2, 1999, filed in Washington D.C.
7Filed electronically via EDGAR.
(b) Reports on Form 8-K:
------- -- ---- ----
None.
SIGNATURES
Pursuant to the requirements of Section 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Annual Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.
DIXON TICONDEROGA COMPANY
/s/ Gino N. Pala
----------------------
Gino N. Pala, Chairman of Board and
Co-Chief Executive Officer
Pursuant to the Securities Exchange Act of 1934, this Annual Report on
Form 10-K has been signed below by the following persons on behalf of the
Company in the capacities indicated.
/s/ Gino N. Pala
----------------------
Gino N. Pala Chairman of Board, Co-Chief
Executive Officer and Director
Date: December 29, 1999
/s/ Richard F. Joyce
----------------------
Richard F. Joyce Vice Chairman of Board, Co-Chief
Executive Officer, President and Director
Date: December 29, 1999
/s/ Richard A. Asta
----------------------
Richard A. Asta Executive Vice President of Finance,
Chief Financial Officer and Director
Date: December 29, 1999
/s/ Harvey L. Massey
----------------------
Harvey L. Massey Director
Date: December 29, 1999
/s/ Philip M. Shasteen
----------------------
Philip M. Shasteen Director
Date: December 29, 1999
/s/ Ben Berzin, Jr.
----------------------
Ben Berzin, Jr. Director
Date: December 29, 1999
/s/ John E. Romondo
----------------------
John E. Romondo Director
Date: December 29, 1999
/s/ Kent Kramer
----------------------
Kent Kramer Director
Date: December 29, 1999
/s/ John Ritenour
----------------------
John Ritenour Director
Date: December 29, 1999
Exhibit (10) h
THIRD MODIFICATION OF AMENDED AND RESTATED
REVOLVING CREDIT LOAN AND SECURITY AGREEMENT,
AMENDMENT TO LOAN DOCUMENTS
AND
ASSIGNMENT
This Third Modification of Amended and Restated Revolving Credit Loan and
Security Agreement, Amendment to Loan Documents and Assignment (this "Third
Modification") dated as of September 30, 1999 (the "Effective Date"), is by and
among DIXON TICONDEROGA COMPANY, a Delaware corporation ("DTC"), and DIXON
TICONDEROGA INC., an Ontario corporation ("DTI"; DTC and DTI, are collectively
referred to hereinafter as the "Borrower"), the lenders identified on the
signature pages hereto as Existing Lenders (the "Existing Lenders"), the Persons
identified on the signature pages hereto as New Lenders (the "New Lenders", and
together with the Existing Lenders, the "Lenders") and FIRST UNION COMMERCIAL
CORPORATION, a North Carolina corporation ("FUCC"), as Agent for the Lenders (in
its capacity as Agent, the "Agent").
W I T N E S S E T H:
WHEREAS, the Borrower has entered into an Amended and Restated Revolving
Credit Loan and Security Agreement, dated as of July 10, 1996, as amended
September 26, 1996 and May 19, 1998 (said Agreement as it may be further
amended, restated or otherwise modified from time to time, being hereinafter
called the "Revolving Credit Agreement") by and among the Borrower, the Existing
Lenders and the Agent, pursuant to which the Existing Lenders extended financial
accommodations to Borrower in the form of a U.S. $45,000,000 revolving line of
credit and letter of credit facility in accordance with, and subject to, the
terms and conditions of the Revolving Credit Agreement; and
WHEREAS, the parties to the Revolving Credit Agreement have agreed to
amend the Revolving Credit Agreement as provided herein;
WHEREAS, the parties to the Revolving Credit Agreement and the New Lender
have agreed that the New Lender shall become a party to the Revolving Credit
Agreement (as amended hereby) by way of assignment by National Bank of Canada
(the "Assigning Lender") of its Revolving Credit Commitment;
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
SECTION 1. DEFINED TERMS. Capitalized terms used in this Third Modification and
not otherwise defined herein, shall have the meanings ascribed to them in the
Revolving Credit Agreement.
SECTION 2. AMENDMENT TO DEFINITIONS. Section 1.1 (Definitions) of the Revolving
Credit Agreement is hereby amended as follows:
a. The definition of "Adjusted LIBOR Rate" is hereby deleted in its
entirety and replaced with the following:
"Adjusted LIBOR Rate" shall mean the LIBOR Rate plus the
Applicable Percentage for Loans which are LIBOR Loans.
b. The definition of "Adjusted Prime Rate" is hereby deleted in its
entirety and replaced with the following:
"Adjusted Prime Rate" shall mean the Prime Rate plus the
Applicable Percentage for Loans which are Prime Rate Loans.
c. The definition of "Fixed Charges" is hereby deleted in its
entirety and replaced with the following:
"Fixed Charges" shall mean, for any period, the aggregate of (i)
Borrower's interest expense, (ii) non-financed Capital
Expenditures, including those made with proceeds from the
Revolving Credit Loans and not subsequently refinanced within the
applicable period (including, to the extent not otherwise
included in Fixed Charges, payments under Capital Leases), (iii)
scheduled payments of principal on all Indebtedness for borrowed
money during such period; provided, however, that for each period
ending on or after June 30, 2001, such scheduled payments of
principal shall be calculated for the twelve month period
immediately succeeding such period, (iv) and payments of all
taxes on or measured by income, all determined in accordance with
GAAP less, for any period ending on or before September 30, 1997,
the amount of Capital Expenditures relating to the construction
of the Heathrow Facility, made during the twelve month period
immediately preceding the last day of such period.
d. The definition of "NBC" is hereby deleted, and the following new
definition is added in the alphabetically appropriate place:
"LaSalle" shall mean LaSalle Bank, National Association, a
national banking association, and having an office at
135 S. LaSalle Street, Chicago, Illinois 60603.
e. The definition of "Overadvance" is hereby deleted in its
entirety.
f. The definition of "Revolving Credit Commitment" is hereby deleted
in its entirety and replaced with the following:
"Revolving Credit Commitment" shall mean the commitments of each
of the Lenders pursuant to Section 2.1 hereof to make the
Revolving Credit Loans to the Borrower, to wit: FUCC, $17,616,375
or 50.3325% of the Revolving Credit Loans; BankBoston,
$11,593,750 or 33.125% of the Revolving Credit Loans; and NBC,
$5,789,875 or 16.5425% of the Revolving Credit Loans.
g. The following new definitions are added in the alphabetically
appropriate places:
"Applicable Percentage" shall mean, for any day, the rate per
annum set forth below opposite the applicable Category then in
effect, it being understood that the Applicable Percentage for
(i) Loans which are Prime Rate Loans shall be the percentage set
forth under the column "Prime Rate Loans" and (ii) Loans which
are LIBOR Loans shall be the percentage set forth under the
column "LIBOR Loans":
Fixed Charge Prime LIBOR
Category Coverage Ratio Leverage Ratio Rate Loans Loans
-------- -------------- -------------- ---------- -----
- - ------------------------------------------------------------------------
1 < 1.30 To 1.0 Or > 4.0 to 1.0 1.00% 2.50%
- - ------------------------------------------------------------------------
2 > 1.30 to 1.0 but < 4.0 to 1.0 but
< 1.40 to 1.0 and > 3.75 to 1.0 .75% 2.25%
- - ------------------------------------------------------------------------
> 1.40 to 1.0 but < 3.75 to 1.0 but
3 < 1.50 to 1.0 and > 3.50 to 1.0 .50% 2.00%
- - ------------------------------------------------------------------------
4 > 1.50 to 1.0 but < 3.50 to 1.0 but
< 1.60 to 1.0 and > 3.25 to 1.0 .25% 1.75%
- - ------------------------------------------------------------------------
5 > 1.60 to 1.0 and < 3.25 to 1.0 0% 1.50%
The Applicable Percentage shall, in each case, be determined and
adjusted annually on the date five (5) Business Days after the
date on which the Agent has received from the Borrower the annual
financial information and certifications required to be delivered
to the Agent and the Lenders in accordance with the provisions of
Section 7.3 (each an "Interest Determination Date"). Such
Applicable Percentage shall be effective from such Interest
Determination Date until the next such Interest Determination
Date. The initial Applicable Percentages shall be based on
Category 4 until the first Interest Determination Date occurring
after December 31, 2000. After the Closing Date, if the Borrower
shall fail to provide the quarterly financial information and
certifications in accordance with the provisions of Section 7.3,
the Applicable Percentage from such Interest Determination Date
shall, on the date five (5) Business Days after the date by which
the Borrower was so required to provide such financial
information and certifications to the Agent and the Lenders, be
based on Category 1 until such time as such information and
certifications are provided, whereupon the Category shall be
determined by the then current Leverage Ratio and Fixed Charge
Coverage Ratio. For purposes hereof, in the event the financial
calculations on any Interest Determination Date fall within two
different Categories, the greater of the two Applicable
Percentages shall be applied.
"Dollars" and "$" shall mean dollars in lawful currency of the
United States of America, unless otherwise specifically provided
herein.
"Fixed Charge Coverage Ratio" shall mean the ratio of EBITDA to
Fixed Charges.
"Leverage Ratio" shall mean the ratio of Funded Debt to EBITDA.
"Permitted Acquisition" shall mean the acquisition of the
business or substantially all of the assets or stock of any
Person, provided that the following conditions are met:
(i)the total purchase price for such acquisition shall not
exceed $5,000,000, and the aggregate purchase price for all
acquisitions made in any fiscal year shall not exceed
$10,000,000;
(ii) the Borrower shall give the Agent written notice not less
than 15 days in advance of the making of such acquisition,
which notice shall include the date and details regarding the
form of the acquisition, a description of the stock or assets
to be acquired and the location of the assets to be acquired.
(iii) the assets or business to be acquired shall be in
substantially the same or similar line of business as that
engaged in by the Borrower;
(iv) the Agent, on behalf of the Lenders, shall be granted a
first priority perfected security interest in the assets
acquired;
(v)no Event of Default exists prior to or immediately after
giving effect to such acquisition (subject to the provisions
of Section 1.2 hereof);
(vi) the Borrower shall have delivered to the Agent a compliance
certificate demonstrating that, on a pro forma basis, such
acquisition will not create a default under any financial
covenant contained herein for the four fiscal quarters ended
immediately prior to the proposed date of such acquisition;
(vii) after giving effect to such acquisition, Availability shall
be no less than $5,000,000.
SECTION 3. AMENDMENTS TO ACCOUNTING TERMS. Section 1.2 (Accounting Terms) of the
Revolving Credit Agreement is hereby amended by adding the following new
paragraph to the end thereof:
Notwithstanding the above, the parties hereto acknowledge and agree
that, for purposes of all calculations made in determining
compliance for any applicable period with the financial covenants
set forth herein (including without limitation for purposes of the
definition of "Applicable Percentage" set forth in Section 1.1), any
Indebtedness of a company acquired pursuant to a Permitted
Acquisition (a "Newly Acquired Company") which is retired in
connection with such Permitted Acquisition shall be excluded from
such calculations and deemed to have been retired as of the first
day of such applicable period and income statement items and other
balance sheet items (whether positive or negative) attributable to
the Newly Acquired Company acquired in such transaction shall be
included in such calculations to the extent relating to such
applicable period, subject to adjustments mutually acceptable to the
Agent and the Borrower.
SECTION 4. AMENDMENTS TO GENERAL LOAN PROVISIONS.
Section 2 of the Revolving Credit Agreement is hereby amended as
follows:
a. Section 2.1 (Revolving Line of Credit) of the Revolving Credit
Agreement is amended by replacing the reference to "Forty-Five
Million U.S. Dollars ($45,000,000)" with a reference to
"Thirty-Five Million U.S. Dollars ($35,000,000)".
b. Section 2.2 (Maximum Revolving Credit Facility) of the Revolving
Credit Agreement is amended by replacing the reference to
"Forty-Five Million U.S. Dollars ($45,000,000)" with a reference
to "Thirty-Five Million U.S. Dollars ($35,000,000)".
c. Section 2.5(b) (LIBOR Option) of the Revolving Credit Agreement
is hereby amended by deleting the second sentence thereof in its
entirety and replacing it with the following:
Interest on LIBOR Loans will be calculated on the basis of a
360-day year for the actual days elapsed and shall be due and
payable on the last day of the applicable LIBOR Period.
d. Section 2.9 (Loan Purposes) of the Revolving Credit Agreement is
hereby amended by inserting the words ", seasonal requirements
and other cash flow requirements" following the words "working
capital needs".
e. Section 2.10 (Optional Prepayments) of the Revolving Credit
Agreement is hereby deleted in its entirety and replaced with the
following:
Section 2.10: Optional Prepayments. The Borrower shall have the
right at any time, on 90 days' prior written notice to Agent, to
voluntarily prepay the entire principal balance of the Loans then
outstanding, and, upon such prepayment, (a) Borrower's right to
receive advances under the Revolving Credit Loans and obtain the
issuance of Letters of Credit hereunder shall simultaneously
terminate and (b) if prepaid by refinancing the Loans by a source
other than the Lenders, the Borrower shall pay to the Lenders a
prepayment fee equal to (i) 1.5%, if such prepayment occurs on or
before September 30, 2000, (ii) 1.0%, if such prepayment occurs
after September 30, 2000 but on or before September 30, 2002, or
(iii) 0.5%, if such prepayment occurs after September 30, 2002
but on or before September 30, 2004, in each case of the average
outstanding principal balance of the Loans during the twenty-four
(24) month period preceding such prepayment.
SECTION 5. AMENDMENTS TO PAYMENT PROVISIONS. Section 3.1 (Payments) of the
Revolving Credit Agreement is hereby amended by adding the following sentence to
the end thereof:
All payments hereunder shall be made without setoff, deduction,
counterclaim or withholding of any kind.
SECTION 6. AMENDMENTS TO REPRESENTATIONS AND WARRANTIES. Section 6
(Representations and Warranties) of the Revolving Credit Agreement is hereby
amended by adding the following new subsection 6.19 thereto:
6.19 Year 2000 Issue. Any reprogramming and related testing
necessary to permit the proper functioning of each of the Borrower's
computer systems in and following the year 2000 will be completed in
all material respects prior to October 31, 1999 (that is, the
Borrower will be "Year 2000 Compliant"), and the cost to the
Borrower of becoming Year 2000 Compliant will not result in an Event
of Default or have a material adverse effect upon the business,
operations, property, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries taken as a whole.
Except for becoming Year 2000 Compliant as described above, the
computer and management information systems of the Borrower are and,
with ordinary course upgrading and maintenance, will continue for
the term of this Agreement to be, adequate for the conduct of its
business.
SECTION 7. AMENDMENTS TO AFFIRMATIVE COVENANTS. Subsection (f) of Section 7.3
(Financial and Business Information of the Borrower) of the of the Revolving
Credit Agreement is hereby deleted in its entirety and replaced with the
following:
(f)At such times as determined by reference to Availability as set
forth in the schedule below, a Borrowing Base Certificate
reflecting information as of the close of business on the
immediately preceding Business Day for the applicable monthly,
weekly or daily period, as the case may be:
Availability Reporting Frequency
------------ -------------------
> $10,000,000 Monthly
< $10,000,000 but Weekly
> $5,000,000
< $5,000,000 Daily
;provided, however, that upon and during the continuation of an
Event of Default, the Borrower shall deliver a Borrowing Base
Certificate on a daily basis.
SECTION 8. AMENDMENTS TO NEGATIVE COVENANTS.
(a)Section 8.2 (Acquisitions) of the Revolving Credit Agreement is
hereby amended by deleting the proviso thereto and adding the
words "except for Permitted Acquisitions" in its place.
(b) The following new section 8.29 is hereby added to the end of
Section 8:
8.29 Additional Indebtedness. Contract, create, incur, assume or
permit to exist any additional Indebtedness in connection with
the mortgaged property of the Borrower located in Heathrow,
Florida.
(c) The following new section 8.30 is hereby added to the end of
Section 8:
8.30 Inactive Subsidiaries. Cause or permit either of the
Borrower's Subsidiaries, Bryn Mawr Ocean Resorts Inc. or
Ticonderoga Graphite, Inc., to engage in any business or own any
assets valued in excess of $10,000 without the consent of the
Required Lenders.
SECTION 9. AMENDMENTS TO FINANCIAL COVENANTS. The following sections of the
Revolving Credit Agreement are amended in their entirety to read as follows:
8.9 Tangible Net Worth. The existing covenant is hereby deleted
and replaced with the following:
Tangible Capital Funds. Permit Net Worth less Intangible Assets
plus Subordinated Debt less foreign currency translation effects
to be less than the following:
September 30, 1999 $39,000,000
September 30, 2000 $41,000,000
September 30. 2001 $43,000,000
September 30, 2002 $45,000,000
September 30, 2003 $47,000,000
September 30, 2004 $49,000,000
8.10 Current Ratio. The existing covenant is hereby deleted
and replaced with the following:
Leverage Ratio. At any time, permit the Leverage Ratio to be
greater than 4.25 to 1.0 (to be determined on a rolling four
quarter basis).
8.11 Fixed Charge Coverage Ratio. At any time, permit the ratio
of EBITDA to Fixed Charges for the twelve (12) months immediately
preceding the date of calculation to be less than 1.20 to 1.0 (to
be determined on a rolling four quarter basis).
8.l2 Interest and Dividend Coverage. [The existing covenant is
deleted].
8.13 Ratio of EBIT to Interest on Indebtedness. [The existing
covenant is deleted].
8.16 Debt to Equity Ratio. [The existing covenant is deleted].
8.17 Pro Forma Debt Coverage Ratio. [The existing covenant is
deleted].
SECTION 10. AMENDMENT TO TERM OF AGREEMENT. Section 12.1 (Term) of the Revolving
Credit Agreement is hereby amended by deleting the words "three (3) years from
the Closing Date" and inserting the words "September 30, 2004" in their place.
SECTION 11. AMENDMENTS TO EVENTS OF DEFAULT. Section 13.1 (Event of Default) of
the Revolving Credit Agreement is hereby amended as follows:
(a) Subsection (h) is amended by deleting the words "or
DT-Mexico" and inserting the words "or any Guarantor" in
their place.
(b) Subsection (i) is amended by deleting the words "or
DT-Mexico" and inserting the words "or any Guarantor" in
their place.
(c) Subsection (j) is amended by inserting the words "or any
Guarantor" following the word "Borrower".
SECTION 12. AMENDMENTS TO PROVISIONS FOR PAYMENT OF EXPENSES. Section 15
(Payment of Expenses) is hereby amended by adding the following new Section 15.4
thereto:
15.4 Taxes. All payments made by the Borrower under this Agreement,
any Notes and any documents relating hereto shall be made free and
clear of, and without deduction or withholding for or on account of,
any present or future income, stamp or other taxes, levies, imposts,
duties, charges, fees, deductions or withholdings, now or hereafter
imposed, levied, collected, withheld or assessed by any court, or
governmental body, agency or other official, including interest,
penalties and liabilities with respect thereto, excluding income
taxes of the Lenders or the Agent ("Taxes"). If any such Taxes are
required to be withheld from any amounts payable to the Agent or any
Lender hereunder or under any Notes or other documents relating
thereto, (A) the Borrower shall withhold and remit such Taxes to the
relevant authority when and as due, (B) the amounts so payable to
the Agent or such Lender shall be increased to the extent necessary
to yield to the Agent or such Lender interest or any such other
amounts payable hereunder or under the Notes or any other document
relating hereto at the rates or in the amounts specified in this
Agreement and any Notes, and (C) as promptly as possible thereafter
the Borrower shall send to the Agent for its own account or for the
account of such Lender, as the case may be, a certified copy of an
original official receipt received by the Borrower showing prompt
payment thereof. If the Borrower fails to pay any Taxes when due to
the appropriate taxing authority or fails to remit to the Agent the
required receipts or other required documentary evidence, the
Borrower shall indemnify the Agent and any Lender for any
incremental Taxes, interest or penalties that may become payable by
the Agent or any Lender as a result of any such failure. The
agreements in this subsection shall survive the termination of this
Agreement and the payment of the Loans and all other amounts payable
hereunder.
SECTION 13. AMENDMENTS TO MISCELLANEOUS PROVISIONS. Section 17 of the Revolving
Credit Agreement is hereby amended as follows:
a. Section 17.2 (Governing Law; Waiver of Jury Trial) of the
Revolving Credit Agreement is hereby amended by inserting the
words "OR ANY STATE OR FEDERAL COURT LOCATED WITHIN MECKLENBURG
COUNTY, STATE OF NORTH CAROLINA" following the words "STATE OF
FLORIDA".
b. A new section 17.3 (Arbitration) is inserted following Section
17.2, and the remaining sections are renumbered accordingly:
17.3 Arbitration.
(a)Notwithstanding the provisions of Section 17.2 to the
contrary, upon demand of any party hereto, whether made before or
after institution of any judicial proceeding, any dispute, claim
or controversy arising out of, connected with or relating to this
Agreement and the other documents executed in connection
therewith including all promissory notes and collateral documents
("Disputes") between or among parties to this Agreement shall be
resolved by binding arbitration as provided herein. Institution
of a judicial proceeding by a party does not waive the right of
that party to demand arbitration hereunder. Disputes may include,
without limitation, tort claims, counterclaims, disputes as to
whether a matter is subject to arbitration, claims brought as
class actions, claims arising from credit documents executed in
the future, or claims arising out of or connected with the
transaction reflected by this Agreement.
(b) Arbitration shall be conducted under and governed by the
Commercial Financial Disputes Arbitration Rules (the "Arbitration
Rules") of the American Arbitration Association (the "AAA") and
Title 9 of the U.S. Code. All arbitration hearings shall be
conducted in Charlotte, North Carolina. A hearing shall begin
within 90 days of demand for arbitration and all hearings shall
be concluded within 180 days of demand for arbitration. These
time limitations may not be extended unless a party shows cause
for extension and then no more than a total extension of 60 days.
The expedited procedures set forth in Rule 51 et seq. of the
Arbitration Rules shall be applicable to claims of less than
$1,000,000. All applicable statutes of limitation shall apply to
any Dispute. A judgment upon the award may be entered in any
court having jurisdiction. The panel from which all arbitrators
are selected shall be comprised of licensed attorneys selected
from the Commercial Financial Dispute Arbitration Panel of the
AAA. The single arbitrator selected for expedited procedure shall
be a retired judge from the highest court of general
jurisdiction, state or federal, of the state where the hearing
will be conducted or if such person is not available to serve,
the single arbitrator may be a licensed attorney. The parties
hereto do not waive applicable Federal or state substantive law
except as provided herein. Notwithstanding the foregoing, this
arbitration provision does not apply to disputes under or related
to interest rate protection agreements entered into by any Lender
and Borrower.
(c) Notwithstanding the preceding binding arbitration provisions,
the parties hereto agree to preserve, without diminution, certain
remedies that the Agent or the Lenders may employ or exercise
freely, independently or in connection with an arbitration
proceeding or after an arbitration action is brought. The Agent
and the Lenders shall have the right to proceed in any court of
proper jurisdiction or by self-help to exercise or prosecute the
following remedies, as applicable: (i) all rights to foreclose
against any real or personal property or other security by
exercising a power of sale granted under any loan document or
under applicable law or by judicial foreclosure and sale,
including a proceeding to confirm the sale; (ii) all rights of
self-help including peaceful occupation of real property and
collection of rents, set-off, and peaceful possession of personal
property; and (iii) obtaining provisional or ancillary remedies
including injunctive relief, sequestration, garnishment,
attachment, appointment of receiver and filing an involuntary
bankruptcy proceeding. Preservation of these remedies does not
limit the power of an arbitrator to grant similar remedies that
may be requested by a party in a Dispute.
(d) The parties hereto agree that they shall not have a remedy of
punitive or exemplary damages against the other in any Dispute
and hereby waive any right or claim to punitive or exemplary
damages they have now or which may arise in the future in
connection with any Dispute, whether the Dispute is resolved by
arbitration or judicially.
(e) By execution and delivery of this Agreement, each of the
parties hereto accepts, for itself and in connection with its
properties, generally and unconditionally, the non-exclusive
jurisdiction relating to any arbitration proceedings conducted
under the Arbitration Rules in Charlotte, North Carolina and
irrevocably agrees to be bound by any final judgment rendered
thereby in connection with this Agreement from which no appeal
has been taken or is available.
c. Section 17.3 (Notice) of the Revolving Credit Agreement is hereby
amended by deleting the notice information for NBC and replacing
it with the following:
If to LaSalle: LaSalle Bank, National Association
135 S. LaSalle Street
Chicago, Illinois 60603
Attention: Helen Coufoudakis
Facsimile Number: (312) 904-1338
SECTION 14. AMENDMENT TO LOAN DOCUMENTS. All references in the Loan Documents to
National Bank of Canada are hereby deleted and replaced with references to
LaSalle Bank, National Association. All references in the Loan Documents to
"NBC" are hereby deleted and replaced with references to "LaSalle".
SECTION 15. AMENDMENTS TO EXHIBITS. Exhibit A to the Revolving Credit Agreement
is hereby deleted and replaced with Exhibit A attached hereto.
SECTION 16. RATIFICATION: EFFECT ON TERM LOAN AGREEMENT. The terms and
conditions of the Loan Agreements and the other Loan Documents shall remain in
full force and effect and are hereby ratified and confirmed in all respects,
except that all references contained therein to "Revolving Credit Agreement"
shall refer to the Revolving Credit Agreement as modified by this Third
Modification and any reference to $45,000,000 contained therein shall refer to
$35,000,000. To the extent that any of the amendments of the Revolving Credit
Agreement contained in this Third Modification are amendments of provisions
which are incorporated by reference in the Term Loan Agreement, the Term Loan
Agreement shall be deemed to be similarly amended.
SECTION 17. REPRESENTATIONS AND WARRANTIES. The Borrower represents warrants to,
and agrees with, the Agent and the Lenders and for the benefit of First Union
that (i) it has no defenses, set-offs, or counterclaims of any kind or nature
whatsoever against the Agent, the Lenders or First Union with respect to the
Obligations, any of the agreements among the parties hereto, including, without
limitation, the obligations of the Borrower under the Loan Agreements, the
Notes, this Third Modification or any other Loan Document, or any action
previously taken or not taken by the Agent or any Lender with respect thereto or
with respect to any Lien or Collateral in connection therewith to secure the
Obligations, and (ii) this Third Modification has been duly authorized by all
necessary corporate action on the part of the Borrower, has been duly executed
by a duly authorized officer of each entity comprising the Borrower, and
constitutes the valid and binding obligation of the Borrower, enforceable
against each entity comprising the Borrower in accordance with the terms hereof.
SECTION 18. LOAN AGREEMENT REPRESENTATIONS AND WARRANTIES. The Borrower hereby
certifies that the representations and warranties contained in the Loan
Agreements, as amended herein, continue to be true and correct and that no Event
of Default, or event which with the passage of time or the giving of notice, or
both, would constitute an Event of Default has occurred.
SECTION 19. CONDITIONS PRECEDENT TO EFFECTIVENESS OF MODIFICATION. It shall be a
condition precedent to the effectiveness of this Third Modification that the
Borrower and each Guarantor shall have complied with each of the following:
(a)Executed Documents. The Agent shall have received executed
originals of (i) this Third Modification together with the
Consent attached hereto, (ii) Revolving Credit Notes in favor of
each of the Lenders (other than the Assigning Lender) and (iii)
recorded modifications of the Mortgages.
(b)Certificates of Secretaries of the Borrower and Guarantors.
The Agent shall have received a certificate of the Secretary or
an Assistant Secretary of each entity comprising the Borrower and
of each Guarantor, certifying (a) with respect to each such
Guarantor, that attached thereto is a true and complete copy of
resolutions adopted by the Board of Directors and sole
shareholder of such Guarantor authorizing the execution, delivery
and performance by such Guarantor of this Third Modification, (b)
that attached thereto is a true and complete copy of resolutions
adopted by the Board of Directors of each entity comprising the
Borrower authorizing the execution delivery and performance of
this Third Modification by such entity; and (c) as to the
incumbency and genuineness of the signature of each officer of
the Borrower and each Guarantor executing this Third Modification
and any other documents executed in connection therewith.
(c)Certificates of Borrower and Guarantors. The Agent shall have
received a certificate from each entity comprising the Borrower
and from each Guarantor, signed by the Chief Executive Officer
and Secretary of such entity, in form and substance satisfactory
to the Agent and its special counsel, to the effect that all
representations and warranties of the Borrower contained in this
Third Modification are true, correct and complete as of the
Effective Date; that such entity is not in violation of any of
the covenants contained in any of the Loan Documents to which it
is a party; that, giving effect to the transactions contemplated
by this Third Modification, no Event of Default or any event or
condition which with notice, lapse of time, or both would
constitute such an Event of Default, has occurred and is
continuing; and that such entity has satisfied each of the
closing conditions set forth in this Section 17.
(d)Opinion of Counsel to the Borrower and Guarantors. The Agent
shall have received the opinion of counsel for the Borrower and
the Guarantors dated the Effective Date, as to the transactions
contemplated by this Third Modification, in form and substance
satisfactory to the Agent and its special counsel.
(e) Delivery of Collateral. The Agent shall have received stock
certificate and undated stock powers executed in blank in
connection with the pledge of (i) 47% of DTC's interest in Grupo
Dixon, S.A. de C.V. and (ii) 18% of DTC's interest in DTI.
(f) Organizational Structure. The Agent shall have received an
organizational chart showing the current structure of the
Borrower and its Subsidiaries.
(g)Amendment to Pledge Agreement. The Agent shall have received a
pledge amendment, dated as of the date hereof, in the form
attached to the Amended and Restated Stock Pledge and Security
Agreement dated as of July 10, 1996 made by the Borrower to the
Agent and the Lenders, setting forth all of the Pledged
Collateral as of the date hereof.
(h)Letter to Accountants. The Borrower shall have executed and
delivered a letter addressed to its certified public accountants,
authorizing such accountants to discuss the finances and
financial affairs of the Borrower with LaSalle as set forth in
the letter from the Borrower to PricewaterhouseCoopers dated
September 30, 1999.
(i)Modification of Term Loan Agreement. All conditions to the
First Modification of Amended and Restated Term Loan Agreement
dated as of the date hereof by and among the Borrower, the
Lenders and the Agent shall have been fulfilled.
SECTION 20. ASSIGNMENT AND ASSUMPTION. The Assigning Lender hereby sells and
assigns, without recourse, to the New Lender, and the New Lender hereby
purchases and assumes, without recourse, from the Assigning Lender, effective as
of the date hereof, such interests in the Assigning Lender's rights and
obligations under the Revolving Credit Agreement (including, without limitation,
the Revolving Credit Commitment of the Assigning Lender on the date hereof and
the Revolving Credit Loans and Letter of Credit Obligations owing to the
Assigning Lender which are outstanding on the date hereof) as shall be necessary
in order to give effect to the reallocations of the Revolving Credit Commitments
effected by the amendment to the definition of "Revolving Credit Commitment"
pursuant to Section 2 hereof. From and after the date hereof (i) the New Lender
shall be a party to and be bound by the provisions of the Revolving Credit
Agreement (as amended hereby) and, to the extent of the interests assigned
hereby, have the rights and obligations of a Lender thereunder and under the
other Loan Documents and (ii) the Assigning Lender shall, to the extent of the
interests assigned hereby, relinquish its rights and be released from its
obligations under the Revolving Credit Agreement. The Assigning Lender (i)
represents and warrants that it is the legal and beneficial owner of the
interest being assigned by it hereunder and that such interest is free and clear
of any adverse claim; (ii) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Loan Documents or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Loan
Documents or any other instrument or document furnished pursuant thereto; and
(iii) makes no representation or warranty and assumes no responsibility with
respect to the financial condition of any Borrower or Guarantor or the
performance or observance by any Borrower or Guarantor of any of its obligations
under the Loan Documents or any other instrument or document furnished pursuant
thereto. The New Lender (i) confirms that it has received a copy of the
Revolving Credit Agreement (as amended hereby) together with such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Third Modification; (ii) agrees that it
will, independently and without reliance upon the Agent, the Assigning Lender or
any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Revolving Credit Agreement; (iii) appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers and discretion under the Revolving Credit Agreement as are delegated
to the Agent by the terms thereof, together with such powers and discretion as
are reasonably incidental thereto; (iv) agrees that it will perform in
accordance with their terms all of the obligations that by the terms of the
Revolving Credit Agreement are required to be performed by it as a Lender; and
(v) attaches any U.S. Internal Revenue Service or other forms required under the
Revolving Credit Agreement.
SECTION 21. MODIFICATION TO FOREIGN EXCHANGE AGREEMENT. The Borrower and FUCC
hereby agree to modify the Foreign Exchange Agreement as follows: (a) all
references to the "Credit Agreement" contained therein shall refer to the
Revolving Credit Agreement as modified pursuant to this Third Modification and
(b) the reference to "$45,000,000" contained in the third WHEREAS paragraph on
page 1 shall be changed to "$35,000,000".
SECTION 22. FEES. The Borrower agrees to pay to the Agent, for the ratable
benefit of the Lenders, a fee on the date of this Third Modification in an
amount equal to $122,500.
SECTION 23. PAYMENT OF EXPENSES. Borrower agrees to pay, upon receipt of an
invoice therefor, all fees and expenses of separate legal counsel for the Agent
and the Lenders in connection with the preparation, negotiation or execution of
this Third Modification.
SECTION 24. COUNTERPARTS. This Third Modification may be executed in any
number of counterparts which, when taken together, shall constitute one
original.
SECTION 25. GOVERNING LAW; SEVERABILITY. This Third Modification shall be
governed by, and construed and interpreted in accordance with, the law of the
State of Florida. Wherever possible, each provision of this Third Modification
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Third Modification shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity and without
invalidating the remaining provisions of this Third Modification.
SECTION 26. WAIVER OF TRIAL BY JURY. Each of the Borrower, the Agent and the
Lenders hereby knowingly, voluntarily, irrevocably and intentionally waives the
right it may have to a trial by jury in respect to any action, proceeding,
counterclaim or other litigation based hereon, or arising out of, under or in
connection with this Third Modification, the Loan Agreements or any other Loan
Documents or any course of conduct, course of dealing, statements (whether oral
or written) or actions of any party hereto. This provision is a material
inducement of the parties to enter into this Third Modification.
SECTION 27. TITLES. The section titles contained in this Third Modification are
and shall be without substantive meaning or content of any kind whatsoever and
are not part of this Third Modification.
IN WITNESS WHEREOF, the Borrower, the Existing Lenders, the New Lender and
the Agent have caused this Third Modification to be executed as of the date
first above written.
BORROWER:
DIXON TICONDEROGA COMPANY,
a Delaware corporation
By: /s/ Richard A. Asta
---------------------------------------------
Name: Richard A. Asta
Title: Executive Vice President of Finance
and Chief Financial Officer
DIXON TICONDEROGA INC.,
an Ontario corporation
By: /s/ Richard A. Asta
-----------------------------------------------
Name: Richard A. Asta
Title: Executive Vice President of Finance
and Chief Financial Officer
AGENT:
FIRST UNION COMMERCIAL CORPORATION,
a North Carolina corporation, as Agent
By: /s/ Robert L. Dean
----------------------
Name: Robert L. Dean
Title: VP
EXISTING LENDERS:
FIRST UNION COMMERCIAL CORPORATION,
a North Carolina corporation, as a Lender
By: /s/ Robert L. Dean
----------------------
Name: Robert L. Dean
Title: VP
BANKBOSTON, N.A.,
a national banking association
By: /s/ Stephen Y. McGehee
--------------------------
Name: Stephen Y. McGehee
Title: Managing Director
NATIONAL BANK OF CANADA,
a Canadian chartered bank
By: /s/ E. Lynn Forgosh
-----------------------
Name: E. Lynn Forgosh
Title: Group V.P.
NEW LENDER:
LASALLE BANK NATIONAL ASSOCIATION
By: /s/ Meg Marion
------------------
Name: Meg Marion
Title: Senior V.P.
CONSENT
-------
This Consent (the "Consent"), dated September 30, 1999, is delivered in
connection with the Third Modification of Amended and Restated Revolving Credit
Loan and Security Agreement and Assignment, dated as of the date hereof (the
"Third Modification"). Each of the undersigned hereby confirms and agrees that
the Guaranty previously executed by it is, and shall continue to be, in full
force and effect, and hereby ratifies and confirms in all respects its
obligations thereunder, except that upon the effectiveness of, and on and after
the date of, the Third Modification, all references in each Guaranty to the
"Revolving Credit Agreement" shall mean the Revolving Credit Agreement as
modified by the Third Modification and any reference to "$45,000,000" shall
refer to "$35,000,000".
DIXON EUROPE, LIMITED
By: /s/ Richard A. Asta
---------------------------------------------
Title: Secretary
GRUPO DIXON, S.A. de C.V.
By: /s/ Diego Cespedes Creixell
-------------------------------
Title:
VINCI de MEXICO, S.A. de C.V.
By: /s/ Diego Cespedes Creixell
-------------------------------
Title:
VINCI MANUFACTURA, S.A. de C.V.
By: /s/ Diego Cespedes Creixell
-------------------------------
Title:
COMERCIALIZADORA DIXON, S.A. de C.V.
By: /s/ Diego Cespedes Creixell
-------------------------------
Title:
SERVIDIX, S.A. de C.V.
By: /s/ Diego Cespedes Creixell
-------------------------------
Title:
DIXON INDUSTRIAL MEXICO, S.A. de C.V.
By: /s/ Diego Cespedes Creixell
-------------------------------
Title:
DIXON TICONDEROGA de MEXICO, S.A. de C.V.
By: /s/ Diego Cespedes Creixell
-------------------------------
Title:
Exhibit A
Borrowing Base/Availability
I. BORROWING BASE. The "Borrowing Base" for the Revolving Credit Loans and
Letters of Credit at any date shall be the sum of the following as the same
exists on that date:
(a) eighty percent (80%) of the face amount of Eligible Accounts; plus
(b)eighty percent (80%) of the face amount of Eligible Foreign Accounts; plus
(c) fifty percent (50%) of the FIFO cost of Eligible Inventory consisting of
raw materials and packaged finished goods; plus
(d) forty percent (40%) of the FIFO cost of Eligible Inventory consisting of
unpackaged finished goods; plus (e) forty percent (40%) of the FIFO cost
of Eligible Inventory consisting of packaging materials;
provided, however, that the aggregate amount of Revolving Credit Loans
shall not exceed the following sublimits which can be advanced against the
following categories of Collateral: (i) against Eligible Inventory, the
sublimit is Twenty Million U.S. Dollars ($20,000,000), and (ii) against
Eligible Inventory of packaging materials, the sublimit is Seven Hundred
Fifty Thousand U.S. Dollars ($750,000).
If the results of any two (2) consecutive field audits conducted by the Agent
reveal a Dilution Percentage equal to or greater than twelve percent (12%),
the Agent reserves the right, in its sole discretion, to reduce the foregoing
advance rates applicable to Eligible Accounts and Eligible Foreign Accounts
from time to time upon any increase occurring in the Dilution Percentage of
the Eligible Accounts or Foreign Eligible Accounts. No such reduction shall
establish a custom, and each such modification shall become effective
immediately for purposes of calculating new Loans hereunder.
The Agent may, in its sole discretion, at any time or times after the Closing
Date, decrease the ratio (i.e., advance rate) of its Loans against Eligible
Accounts, Eligible Foreign Accounts or Eligible Inventory for any reason the
Agent shall deem necessary without establishing a custom, and each such
decrease shall become effective immediately for purposes of calculating the
new Loans hereunder.
In addition, the Agent may, with the consent of the Required Lenders, exclude
any assets acquired pursuant to a Permitted Acquisition from calculation of
the Borrowing Base.
In addition, the Agent may, at any time or times after the Closing Date,
establish one or more reserves against the Borrowing Base in its sole
discretion.
II.AVAILABILITY. "Availability" at any date shall be the Borrowing Base at such
date less the sum of the following as the same exist on that date: (a) one
hundred percent (100%) of the aggregate amount of all outstanding Revolving
Credit Loans; plus (b) one hundred percent (100%) of the aggregate amount of
all undrawn Standby Letters of Credit issued pursuant to Section 2.1.1 of the
Agreement; plus (c) fifty percent (50%) of the aggregate amount of all
undrawn Trade Letters of Credit issued pursuant to Section 2.1.1 of the
Agreement; plus (d) (i) one hundred percent (100%) of all outstanding Spot
Foreign Exchange Contracts, and (ii) twenty percent (20%) of all outstanding
Forward Foreign Exchange Contracts until two (2) days prior to the value
date, at which time, the reserve shall equal one hundred percent (100%) plus
(e) one hundred percent (100%) of the amount which the Agent, in its sole
discretion, determines to be the aggregate amount of the "Loss", "Settlement
Amount" and "Unpaid Amount", as such terms are defined in the Interest Rate
Swap Agreement.
Exhibit (10) i
FIRST MODIFICATION OF
AMENDED AND RESTATED TERM LOAN AGREEMENT
AND ASSIGNMENT
This Modification of Amended and Restated Term Loan Agreement and
Assignment (this "First Modification") dated as of September 30, 1999 (the
"Effective Date"), is by and among DIXON TICONDEROGA COMPANY, a Delaware
corporation ("DTC"), and DIXON TICONDEROGA INC., an Ontario corporation ("DTI";
DTC and DTI, are collectively referred to hereinafter as the "Borrower"), the
lenders identified on the signature pages hereto as Existing Lenders (the
"Existing Lenders"), the Persons identified on the signature pages hereto as New
Lenders (the "New Lenders", and together with the Existing Lenders, the
"Lenders") and FIRST UNION COMMERCIAL CORPORATION, a North Carolina corporation
("FUCC"), as Agent for the Lenders (in its capacity as Agent, the "Agent").
W I T N E S S E T H:
WHEREAS, the Borrower has entered into an Amended and Restated Term Loan
Agreement, dated as of July 10, 1996 (said Agreement as it may be further
amended, restated or otherwise modified from time to time, being hereinafter
called the "Term Loan Agreement"), by and among the Borrower, the Existing
Lenders and the Agent, pursuant to which the Lenders extended financial
accommodations to Borrower in the form of a $7,750,000.08 term loan facility in
accordance with, and subject to, the terms and conditions of the Term Loan
Agreement; and
WHEREAS, the parties to the Term Loan Agreement have agreed to amend the
Term Loan Agreement as provided herein;
WHEREAS, the parties to the Term Loan Agreement and the New Lender have
agreed that the New Lender shall become a party to the Term Loan Agreement (as
amended hereby) by way of assignment by National Bank of Canada (the "Assigning
Lender") of its Term Loans;
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
SECTION 1. DEFINED TERMS. Capitalized terms used in this First Modification and
not otherwise defined herein, shall have the meanings ascribed to them in the
Term Loan Agreement.
SECTION 2. AMENDMENT TO DEFINITIONS. Section 1.1 of the Term Loan Agreement is
hereby amended as follows:
(a)The following new definition is added in the alphabetically
appropriate place:
"Dollars" and "$" shall mean dollars in lawful currency of the
United States of America, unless otherwise specifically provided
herein.
(b)The definition of "Term Loan" is hereby amended by deleting the
word "7,750,000.08" and inserting the word "$7,500,000" in its
place.
SECTION 3. AMENDMENTS TO TERM LOAN PROVISIONS. Section 2.1 (Term Loan) of the
Term Loan Agreement is hereby amended by as follows:
(a)Section 2.1(a) is hereby amended by deleting the word
"$3,900,768.79" and inserting the word "$3,774,937.50" in its
place.
(b)Section 2.1(b) is hereby amended by deleting the word
"$2,567,187.53 and inserting the word "$2,484,375" in its place.
(c)Section 2.1(c) is hereby amended by deleting the word
"$1,282,043.76 and inserting the word "$1,240,687.50" in its
place.
SECTION 4. AMENDMENTS TO PAYMENT PROVISIONS. Section 3 of the Term Loan
Agreement is amended as follows:
(a)Section 3.1 (Payments) of the Term Loan Agreement is hereby
amended by (i) deleting the words "200 South Biscayne Boulevard,
11th Floor, MC: FL6090, Miami, Florida, 33131" and inserting the
words "One First Union Center, 300 S. College Street, DC-4,
Charlotte, NC 28288" in their place and (ii) adding the following
sentence to the end thereof:
All payments hereunder shall be made without setoff, deduction,
counterclaim or withholding of any kind.
(b)Section 3.3 (Principal Payments) of the Term Loan Agreement is
hereby deleted in its entirety and replaced with the following:
3.3 Principal Payments. In addition to and concurrently with the
monthly payments of Interest, Borrower shall pay to Agent monthly
installments of Principal in an amount equal to $125,000 from
October 1, 1999 through September 1, 2004.
SECTION 5. AMENDMENTS TO TAX PROVISIONS. Section 12 (Taxes) of the Term Loan
Agreement is hereby deleted in its entirety and replaced with the following:
All payments made by the Borrower under this Agreement, any Notes
and any documents relating hereto shall be made free and clear of,
and without deduction or withholding for or on account of, any
present or future income, stamp or other taxes, levies, imposts,
duties, charges, fees, deductions or withholdings, now or hereafter
imposed, levied, collected, withheld or assessed by any court, or
governmental body, agency or other official, including interest,
penalties and liabilities with respect thereto, excluding income
taxes of the Lenders or the Agent ("Taxes"). If any such Taxes are
required to be withheld from any amounts payable to the Agent or any
Lender hereunder or under any Notes or other documents relating
thereto, (A) the Borrower shall withhold and remit such Taxes to the
relevant authority when and as due, (B) the amounts so payable to
the Agent or such Lender shall be increased to the extent necessary
to yield to the Agent or such Lender interest or any such other
amounts payable hereunder or under the Notes or any other document
relating hereto at the rates or in the amounts specified in this
Agreement and any Notes, and (C) as promptly as possible thereafter
the Borrower shall send to the Agent for its own account or for the
account of such Lender, as the case may be, a certified copy of an
original official receipt received by the Borrower showing prompt
payment thereof. If the Borrower fails to pay any Taxes when due to
the appropriate taxing authority or fails to remit to the Agent the
required receipts or other required documentary evidence, the
Borrower shall indemnify the Agent and any Lender for any
incremental Taxes, interest or penalties that may become payable by
the Agent or any Lender as a result of any such failure. The
agreements in this subsection shall survive the termination of this
Agreement and the payment of the Loans and all other amounts payable
hereunder.
SECTION 6. AMENDMENTS TO MISCELLANEOUS PROVISIONS. Section 13 of the Term Loan
Agreement is hereby amended as follows:
a. Section 13.2 (Governing Law; Waiver of Jury Trial) of the
Revolving Credit Agreement is hereby amended by inserting the
words "OR ANY STATE OR FEDERAL COURT LOCATED WITHIN MECKLENBURG
COUNTY, STATE OF NORTH CAROLINA" following the words "STATE OF
FLORIDA".
b. A new section 13.3 is inserted following Section 13.2, and the
remaining sections are renumbered accordingly:
13.3 Arbitration.
(a)Notwithstanding the provisions of Section 13.2 to the
contrary, upon demand of any party hereto, whether made before
or after institution of any judicial proceeding, any dispute,
claim or controversy arising out of, connected with or
relating to this Agreement and the other documents executed in
connection therewith including all promissory notes and
collateral documents ("Disputes") between or among parties to
this Agreement shall be resolved by binding arbitration as
provided herein. Institution of a judicial proceeding by a
party does not waive the right of that party to demand
arbitration hereunder. Disputes may include, without
limitation, tort claims, counterclaims, disputes as to whether
a matter is subject to arbitration, claims brought as class
actions, claims arising from credit documents executed in the
future, or claims arising out of or connected with the
transaction reflected by this Agreement.
(b)Arbitration shall be conducted under and governed by the
Commercial Financial Disputes Arbitration Rules (the
"Arbitration Rules") of the American Arbitration Association
(the "AAA") and Title 9 of the U.S. Code. All arbitration
hearings shall be conducted in Charlotte, North Carolina. A
hearing shall begin within 90 days of demand for arbitration
and all hearings shall be concluded within 180 days of demand
for arbitration. These time limitations may not be extended
unless a party shows cause for extension and then no more than
a total extension of 60 days. The expedited procedures set
forth in Rule 51 et seq. of the Arbitration Rules shall be
applicable to claims of less than $1,000,000. All applicable
statutes of limitation shall apply to any Dispute. A judgment
upon the award may be entered in any court having
jurisdiction. The panel from which all arbitrators are
selected shall be comprised of licensed attorneys selected
from the Commercial Financial Dispute Arbitration Panel of the
AAA. The single arbitrator selected for expedited procedure
shall be a retired judge from the highest court of general
jurisdiction, state or federal, of the state where the hearing
will be conducted or if such person is not available to serve,
the single arbitrator may be a licensed attorney. The parties
hereto do not waive applicable Federal or state substantive
law except as provided herein. Notwithstanding the foregoing,
this arbitration provision does not apply to disputes under or
related to interest rate protection agreements entered into by
any Lender and Borrower.
(c)Notwithstanding the preceding binding arbitration provisions,
the parties hereto agree to preserve, without diminution,
certain remedies that the Agent or the Lenders may employ or
exercise freely, independently or in connection with an
arbitration proceeding or after an arbitration action is
brought. The Agent and the Lenders shall have the right to
proceed in any court of proper jurisdiction or by self-help to
exercise or prosecute the following remedies, as applicable:
(i) all rights to foreclose against any real or personal
property or other security by exercising a power of sale
granted under any loan document or under applicable law or by
judicial foreclosure and sale, including a proceeding to
confirm the sale; (ii) all rights of self-help including
peaceful occupation of real property and collection of rents,
set-off, and peaceful possession of personal property; and
(iii) obtaining provisional or ancillary remedies including
injunctive relief, sequestration, garnishment, attachment,
appointment of receiver and filing an involuntary bankruptcy
proceeding. Preservation of these remedies does not limit the
power of an arbitrator to grant similar remedies that may be
requested by a party in a Dispute.
(d)The parties hereto agree that they shall not have a remedy of
punitive or exemplary damages against the other in any Dispute
and hereby waive any right or claim to punitive or exemplary
damages they have now or which may arise in the future in
connection with any Dispute, whether the Dispute is resolved
by arbitration or judicially.
(e)By execution and delivery of this Agreement, each of the
parties hereto accepts, for itself and in connection with its
properties, generally and unconditionally, the non-exclusive
jurisdiction relating to any arbitration proceedings conducted
under the Arbitration Rules in Charlotte, North Carolina and
irrevocably agrees to be bound by any final judgment rendered
thereby in connection with this Agreement from which no appeal
has been taken or is available.
SECTION 7. RATIFICATION: EFFECT ON REVOLVING CREDIT AGREEMENT. The terms and
conditions of the Loan Agreements and the other Loan Documents shall remain in
full force and effect and are hereby ratified and confirmed in all respects,
except that all references contained therein to "Term Loan Agreement" shall
refer to the Term Loan Agreement as modified by this First Modification. To the
extent that any of the amendments of the Term Loan Agreement contained in this
First Modification are amendments of provisions which are incorporated by
reference in the Revolving Credit Agreement, the Revolving Credit Agreement
shall be deemed to be similarly amended.
SECTION 8. REPRESENTATIONS AND WARRANTIES. The Borrower represents warrants to,
and agrees with, the Agent and the Lenders and for the benefit of First Union
that (i) it has no defenses, set-offs, or counterclaims of any kind or nature
whatsoever against the Agent, the Lenders or First Union with respect to the
Obligations, any of the agreements among the parties hereto, including, without
limitation, the obligations of the Borrower under the Loan Agreements, the
Notes, this First Modification or any other Loan Document, or any action
previously taken or not taken by the Agent or any Lender with respect thereto or
with respect to any Lien or Collateral in connection therewith to secure the
Obligations, and (ii) this First Modification has been duly authorized by all
necessary corporate action on the part of the Borrower, has been duly executed
by a duly authorized officer of each entity comprising the Borrower, and
constitutes the valid and binding obligation of the Borrower, enforceable
against each entity comprising the Borrower in accordance with the terms hereof.
SECTION 9. LOAN AGREEMENT REPRESENTATIONS AND WARRANTIES. The Borrower hereby
certifies that the representations and warranties contained in the Loan
Agreements, as amended herein, continue to be true and correct and that no Event
of Default, or event which with the passage of time or the giving of notice, or
both, would constitute an Event of Default has occurred.
SECTION 10. CONDITIONS PRECEDENT TO EFFECTIVENESS OF MODIFICATION. It shall be a
condition precedent to the effectiveness of this First Modification that the
Borrower shall have complied with each of the following:
(a)Executed Documents. The Agent shall have received executed
originals of (i) this First Modification together with the
Consent attached hereto, (ii) Term Notes in favor of each of the
Lenders (other than the Assigning Lender) and (iii) recorded
modifications of the Mortgages.
(b)Certificates of Secretaries of the Borrower and Guarantors. The
Agent shall have received a certificate of the Secretary or an
Assistant Secretary of each entity comprising the Borrower and of
each Guarantor, certifying (a) with respect to each such
Guarantor, that attached thereto is a true and complete copy of
resolutions adopted by the Board of Directors and sole
shareholder of such Guarantor authorizing the execution, delivery
and performance by such Guarantor of this First Modification, (b)
that attached thereto is a true and complete copy of resolutions
adopted by the Board of Directors of each entity comprising the
Borrower authorizing the execution delivery and performance of
this First Modification by such entity; and (c) as to the
incumbency and genuineness of the signature of each officer of
the Borrower and each Guarantor executing this First Modification
and any other documents executed in connection therewith.
(c)Certificates of Borrower and Guarantors. The Agent shall have
received a certificate from each entity comprising the Borrower
and from each Guarantor, signed by the Chief Executive Officer
and Secretary of such entity, in form and substance satisfactory
to the Agent and its special counsel, to the effect that all
representations and warranties of the Borrower contained in this
First Modification are true, correct and complete as of the
Effective Date; that such entity is not in violation of any of
the covenants contained in any of the Loan Documents to which it
is a party; that, giving effect to the transactions contemplated
by this First Modification, no Event of Default or any event or
condition which with notice, lapse of time, or both would
constitute such an Event of Default, has occurred and is
continuing; and that such entity has satisfied each of the
closing conditions set forth in this Section 9.
(d)Opinion of Counsel to the Borrower and Guarantors. The Agent
shall have received the opinion of counsel for the Borrower and
the Guarantors dated the Effective Date, as to the transactions
contemplated by this First Modification, in form and substance
satisfactory to the Agent and its special counsel.
(e)Modification of Revolving Credit Agreement. All conditions to
the Third Modification of Amended and Restated Revolving Credit
Agreement and Assignment dated as of the date hereof by and among
the Borrower, the Lenders and the Agent shall have been
fulfilled.
SECTION 11. ASSIGNMENT AND ASSUMPTION. The Assigning Lender hereby sells and
assigns, without recourse, to the New Lender, and the New Lender hereby
purchases and assumes, without recourse, from the Assigning Lender, effective as
of the date hereof, such interests in the Assigning Lender's rights and
obligations under the Term Loan Agreement (including, without limitation, the
Term Loans owing to the Assigning Lender which are outstanding on the date
hereof) as shall be necessary in order to give effect to the reallocations of
the Term Loans effected by the amendment to Section 2.1(a), (b) and (c) of the
Term Loan Agreement pursuant to Section 3 hereof. From and after the date hereof
(i) the New Lender shall be a party to and be bound by the provisions of the
Term Loan Agreement (as amended hereby) and, to the extent of the interests
assigned hereby, have the rights and obligations of a Lender thereunder and
under the other Loan Documents and (ii) the Assigning Lender shall, to the
extent of the interests assigned hereby, relinquish its rights and be released
from its obligations under the Term Loan Agreement. The Assigning Lender (i)
represents and warrants that it is the legal and beneficial owner of the
interest being assigned by it hereunder and that such interest is free and clear
of any adverse claim; (ii) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Loan Documents or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Loan
Documents or any other instrument or document furnished pursuant thereto; and
(iii) makes no representation or warranty and assumes no responsibility with
respect to the financial condition of any Borrower or Guarantor or the
performance or observance by any Borrower or Guarantor of any of its obligations
under the Loan Documents or any other instrument or document furnished pursuant
thereto. The New Lender (i) confirms that it has received a copy of the Term
Loan Agreement (as amended hereby) together with such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Third Modification; (ii) agrees that it will,
independently and without reliance upon the Agent, the Assigning Lender or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Term Loan Agreement; (iii) appoints and authorizes
the Agent to take such action as agent on its behalf and to exercise such powers
and discretion under the Term Loan Agreement as are delegated to the Agent by
the terms thereof, together with such powers and discretion as are reasonably
incidental thereto; (iv) agrees that it will perform in accordance with their
terms all of the obligations that by the terms of the Term Loan Agreement are
required to be performed by it as a Lender; and (v) attaches any U.S. Internal
Revenue Service or other forms required under the Term Loan Agreement or the
Revolving Credit Agreement.
SECTION 12. MODIFICATION TO FOREIGN EXCHANGE AGREEMENT. The Borrower and FUCC
hereby agree to modify the Foreign Exchange Agreement as follows: (a) all
references to the "Term Loan Agreement" contained therein shall refer to the
Term Loan Agreement as modified pursuant to this First Modification and (b) the
reference to "$7,750,000.08" contained in the third WHEREAS paragraph on page 1
shall be changed to "$7,500,000".
SECTION 13. FEES. The Borrower agrees to pay to the Agent, for the ratable
benefit of the Lenders, a fee on the date of this First Modification in an
amount equal to $26,250.
SECTION 14. PAYMENT OF EXPENSES. Borrower agrees to pay, upon receipt of an
invoice therefor, all fees and expenses of separate legal counsel for the Agent
and the Lenders in connection with the preparation, negotiation or execution of
this First Modification.
SECTION 15. COUNTERPARTS. This First Modification may be executed in any number
of counterparts which, when taken together, shall constitute one original.
SECTION 16. GOVERNING LAW; SEVERABILITY. This First Modification shall be
governed by, and construed and interpreted in accordance with, the law of the
State of Florida. Wherever possible, each provision of this First Modification
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this First Modification shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity and without
invalidating the remaining provisions of this First Modification.
SECTION 17. WAIVER OF TRIAL BY JURY. Each of the Borrower, the Agent and the
Lenders hereby knowingly, voluntarily, irrevocably and intentionally waives the
right it may have to a trial by jury in respect to any action, proceeding,
counterclaim or other litigation based hereon, or arising out of, under or in
connection with this First Modification, the Loan Agreements or any other Loan
Documents or any course of conduct, course of dealing, statements (whether oral
or written) or actions of any party hereto. This provision is a material
inducement of the parties to enter into this First Modification.
SECTION 18. TITLES. The section titles contained in this First Modification are
and shall be without substantive meaning or content of any kind whatsoever and
are not part of this First Modification.
IN WITNESS WHEREOF, the parties hereto have caused this First
Modification to be executed as of the date first above written.
BORROWER:
DIXON TICONDEROGA COMPANY,
a Delaware corporation
By: /s/ Richard A. Asta
-----------------------------------------------
Title: Treasurer
DIXON TICONDEROGA INC.,
an Ontario corporation
By: /s/ Richard A. Asta
-----------------------------------------------
Title: Treasurer
AGENT:
FIRST UNION COMMERCIAL CORPORATION,
a North Carolina corporation, as Agent
By: /s/ Robert L. Dean
----------------------
Title: VP
EXISTING LENDERS:
FIRST UNION COMMERCIAL CORPORATION,
a North Carolina corporation, as a Lender
By: /s/ Robert L. Dean
----------------------
Title: VP
BANKBOSTON, N.A.,
a national banking association
By: /s/ Stephen Y. McGehee
--------------------------
Title: Managing Director
NATIONAL BANK OF CANADA,
a Canadian chartered bank
By: /s/ E. Lynn Forgosh /s/ Frank Johnson
--------------------------------------------------
Title: Group V.P. Group V.P.
NEW LENDER:
LASALLE BANK NATIONAL ASSOCIATION
By: /s/ Meg Marion
------------------
Title: Senior V.P.
CONSENT
-------
This Consent (the "Consent"), dated September 30, 1999, is delivered in
connection with the First Modification of Amended and Restated Term Loan
Agreement and Assignment, dated as of the date hereof (the "First
Modification"). Each of the undersigned hereby confirms and agrees that the
Guaranty previously executed by it is, and shall continue to be, in full force
and effect, and hereby ratifies and confirms in all respects its obligations
thereunder, except that upon the effectiveness of, and on and after the date of,
the First Modification, all references in each Guaranty to the "Term Loan
Agreement" shall mean the Term Loan Agreement as modified by the First
Modification and any reference to "$7,750,000" shall refer to "$7,500,000".
DIXON EUROPE, LIMITED
By: /s/ Richard A. Asta
-----------------------
Title: Secretary
GRUPO DIXON, S.A. de C.V.
By: /s/ Diego Cespedes Creixell
-------------------------------
Title:
VINCI de MEXICO, S.A. de C.V.
By: /s/ Diego Cespedes Creixell
-------------------------------
Title:
VINCI MANUFACTURA, S.A. de C.V.
By: /s/ Diego Cespedes Creixell
-------------------------------
Title:
COMERCIALIZADORA DIXON, S.A. de C.V.
By: /s/ Diego Cespedes Creixell
-------------------------------
Title:
SERVIDIX, S.A. de C.V.
By: /s/ Diego Cespedes Creixell
-------------------------------
Title:
DIXON INDUSTRIAL MEXICO, S.A. de C.V.
By: /s/ Diego Cespedes Creixell
-------------------------------
Title:
DIXON TICONDEROGA de MEXICO, S.A. de C.V.
By: /s/ Diego Cespedes Creixell
-------------------------------
Title:
Exhibit (10) j
DIXON TICONDEROGA COMPANY
195 INTERNATIONAL PARKWAY
HEATHROW, FLORIDA 32746
Dated as of November 18, 1999
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A
Amendment No. 1 to
Note and Warrant Purchase Agreement
Ladies and Gentlemen:
Reference is made to the Note and Warrant Purchase Agreement, dated as of
September 26, 1996 (the "Note Agreement"), among Dixon Ticonderoga Company, a
Delaware corporation (the "Company"), and The Equitable Life Assurance Society
of the United States, John Hancock Mutual Life Insurance Company and Signature
1A (Cayman), Ltd. (collectively, the "Purchasers"). The Purchasers hold 100% of
the Notes outstanding under the Note Agreement. Capitalized terms used herein
without definition have the meanings specified therefor in the Note Agreement.
The Company requests the consent of the Purchasers to certain amendments
of the Note Agreement, and the Purchasers are willing to consent to such
amendments, on the terms and subject to the conditions set forth herein.
The parties agree as follows:
1. Amendments. 1.1. Amendment of Section 10.1(b). Section 10.1(b) of the
Note, Agreement is hereby amended and restated to read in its entirety as
follows:
"(b) the Company and its subsidiaries may become and remain liable
with respect to Debt outstanding pursuant to the Credit
Agreement in an aggregate outstanding principal amount not to
exceed at any time of determination $42,500,000;"
1.2. Amendment of Section 10.1(h). Section 10.1(h) of the Note Agreement
is hereby amended and restated to read in its entirety as follows:
"(h) Dixon Mexico may become and remain liable with respect to Debt
in an aggregate principal amount outstanding not to exceed at
any time of determination $8,000,000;"
1.3. Amendment to Section 10.4(b). Section 10.4(b) of the Note Agreement
is hereby amended and restated to read in its entirety as follows:
"(b) The provisions of section 10.4(a) shall not, so long as no
condition or event shall exist which constitutes an Event of
Default or Potential Event of Default, prevent the acquisition
by the Company for consideration (other than in shares of its
capital stock) of shares of the capital stock of Dixon Mexico
from Persons other than Affiliates in an aggregate amount of
not more than $7,000,000."
1.4. Amendment of Section 10.6. Section 10.6 of the Note Agreement is
hereby amended and restated to read in its entirety as follows:
"10.6. Interest and Dividend Coverage. The Company will not at any
time permit the Consolidated Interest and Dividend Coverage
Ratio to be less than 1.70 to 1.0 (if the date of determination
occurs on or prior to September 30, 1996); 1.85 to 1.0 (if the
date of determination occurs after September 30, 1997 and on or
prior to September 30, 1998); and 2.30 to 1.0 (if the date of
determination occurs after September 30, 1998)."
1.5. Amendment of Certain Definitions. The following defined term is
hereby amended and restated to read in its entirety as follows:
"Consolidated Interest and Dividend Coverage Ratio: for any
Reference Period, the ratio of (a) (x) for purposes of section
10.1(k), Adjusted EBIT and (y) for purposes of section 10.6, EBITDA,
for such Reference Period to (b) the sum of (i) Consolidated
Interest Expense for such Reference Period, plus (ii) Capitalized
Interest for such Reference Period, plus (iii) all cash dividends
accrued or paid on capital stock, including Disqualified Stock, of
the Company during such Reference Period."
1.6. Additional Definitions. The following defined term is hereby
added to section 14 of the Note Agreement in the appropriate
alphabetical order:
"EBITDA: has the meaning specified in the Credit Agreement as in
effect on September 30, 1999."
2. Conditions to Effectiveness. The effectiveness of the amendments and
other agreements contemplated hereby is subject to the fulfillment to the
satisfaction of the Purchasers of the following conditions:
2.1. No Defaults. As of the date hereof (after giving effect to the
amendments provided herein), no Event of Default or Potential Event
of Default shall have occurred or be continuing.
2.2. Representations and Warranties. The representations and warranties
of the Company contained in the Note Agreement shall be correct when
made and at the date hereof, except to the extent a particular
representation and warranty expressly relates solely to an earlier
date.
2.3. Credit Agreement. The amendments to the several agreements
constituting the Credit Agreement as defined in the Note Agreement
shall be reasonably satisfactory in form and substance to the
Purchasers. A complete and correct copy of each such agreement as
amended in effect on the effective date hereof shall have been
delivered to the Purchasers, and no other agreements or instruments
shall exist relating to the terms of such borrowings.
2.4. Consents, Agreements. The Company shall have obtained all other
consents and waivers necessary in connection with the transactions
contemplated hereby, and such consents and waivers shall be in full
force and effect on the date hereof. A complete and correct copy of
each of such consents and waivers shall have been delivered to the
Purchasers.
2.5. Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated by this Agreement and
all documents and instruments incident to such transactions shall be
satisfactory to the Purchasers and their special counsel, and the
Purchasers and their special counsel shall have received all such
counterpart originals or certified or other copies of such documents
as it or they may reasonably request.
2.6. Fees.
(a) The Company shall have paid to each Purchaser (or to the Person
designated by such Purchaser for payment in Schedule A), in
immediately available funds, a transaction fee equal to .125%
of the aggregate principal amount of the Notes held by such
Purchaser on the date hereof, by crediting the account
specified below its name in Schedule A for the payment of
transaction fees.
(b) The Company shall have paid the fees and disbursements of the
Purchasers' special counsel incurred in connection with the
transactions contemplated by this Agreement and set forth in a
statement delivered to the Company on or prior to the date
hereof.
3. Ratification. Except as amended hereby, all of the provisions of the Note
Agreement shall remain in full force and effect.
4. Miscellaneous. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective successors and assigns of
the parties hereto, whether so expressed or not. THIS AGREEMENT SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK. The headings in this Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning
hereof. This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall
constitute one instrument.
[signatures on following page]
If the Purchasers are in agreement with the foregoing, please sign the
form of agreement on the accompanying counterparts of this letter and return one
of the same to the Company, whereupon this letter shall become a binding
agreement between the Purchasers and the Company.
Very truly yours,
DIXON TICONDEROGA COMPANY
By: /s/ Richard A. Asta
------------------------
Title: CFO
The foregoing Amendment is
hereby agreed to as of the
date hereof.
THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES
By: /s/ Peter C. Gummeson
- - ------------------------------
Name: Peter C. Gummeson
Title: Senior Vice President
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
By: /s/ D. Donovan
- - -----------------------------
Name: D. Donovan
Title: Sr. Investment Officer
SIGNATURE 1A (CAYMAN), LTD.
By: John Hancock Mutual Life Insurance Company, Portfolio Advisor
By: /s/ George A. Braun
- - --------------------------
Name: George A. Braun
Title: Vice President
SCHEDULE A
SCHEDULE OF PURCHASERS
The Equitable Life Assurance Society of the United States
John Hancock Mutual Life Insurance Company
Signature 1A (Cayman), Ltd.
Exhibit (21)
1999 ANNUAL REPORT ON FORM 10-K
SUBSIDIARIES OF THE COMPANY
All of the Registrant's subsidiaries as of September 30, 1999, are listed below.
Subsidiaries of a subsidiary are indented. All subsidiaries are included in the
consolidated financial statements of the Registrant.
State Or Percentage of
Jurisdiction of Voting
Organization Securities
Owned
---------------- ---------------
Dixon Ticonderoga, Inc. Canada 100%
Grupo Dixon, S.A. de C.V. (Subsidiary of
Dixon Ticonderoga, Inc.) Mexico 97%
Dixon Ticonderoga de Mexico, S.A. de
C.V. (Subsidiary of Grupo Dixon, S.A. de C.V.) Mexico 100%
Vinci de Mexico, S.A. de C.V.
(Subsidiary of Grupo Dixon, S.A. de C.V.) Mexico 100%
Vinci Manufactura, S.A. de C.V.
(Subsidiary of Grupo Dixon, S.A. de C.V.) Mexico 100%
C.V.)
Comercializadora Dixon, S.A. de C.V.
(Subsidiary of Grupo Dixon, S.A. de C.V.) Mexico 100%
C.V.)
Servidix, S.A. de C.V. (Subsidiary of
Grupo Dixon, S.A. de C.V.) Mexico 100%
Dixon Industrial Mexico, S.A. de C.V. Mexico 100%
Ticonderoga Graphite, Inc. (a) New York 100%
Dixon Europe, Limited United Kingdom 100%
(a) Inactive
Exhibit (27)