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, 2000 Commission file number 1-8689
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DIXON TICONDEROGA COMPANY
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(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, 2000 .
--- 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
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(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
--------------
Title of each class Name of each exchange on which registered
Common Stock, $1.00 par value American Stock Exchange
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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 6, 2000, the aggregate market value
of the voting stock held by non-affiliates of the Company was $7,437,634.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of December 3, 2000: 3,168,047 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, 2000.
PART I
ITEM 1. BUSINESS
--------
RECENT EVENTS AND STRATEGIES
----------------------------
In fiscal 2000, Dixon Ticonderoga Company (hereinafter the "Company")
continued its aggressive restructuring and cost reduction efforts begun in 1999.
The Company completed the consolidation of its Deer Lake, Pennsylvania Consumer
plant into other facilities in Mexico and the U.S. and carried out personnel
reduction activities as planned in the first phase of its Restructuring and Cost
Reduction Program, designed to improve overall financial performance in the
future. In the fourth quarter of fiscal 2000, the Company embarked upon the
second phase of its cost reduction program, which includes further consolidation
of certain U.S. manufacturing processes into Mexico, the consolidation of its
Mexico operations into a new 300,000 square foot facility and additional
personnel reductions in manufacturing, sales, marketing and corporate
activities. In connection with the program's second phase, the Company recorded
approximately $1.6 million in restructuring and related costs. Overall, the
Company reported a net loss of $(0.8) million (and net income of $0.3 million,
exclusive of the effects of restructuring and related costs) in fiscal 2000.
The Company also initiated a strict U.S. working capital reduction / cash
flow enhancement program in fiscal 2000. The program emphasized enhanced
inventory control and reduction, improved accounts payable management and
continued accounts receivable improvement. The Company implemented new inventory
management systems and processes and successfully reduced its U.S. inventories;
improved the days outstanding of its accounts payable; and continued its strong
accounts receivable collection practices. However, the strict inventory
reduction efforts resulted in significant plant manufacturing inefficiencies as
production levels were cut back, contributing to poor operating results in the
U.S. Consumer division. Despite the lower level of operating profits, the
aforementioned programs resulted in an increase in cash flow from operations of
approximately $13 million when compared with fiscal 1999.
In addition, in 2000, the Company created a wholly-owned subsidiary in
China. Beijing Dixon Ticonderoga Stationery Company, Ltd., is engaged in the
manufacture of wood slats for pencil manufacturing and the sourcing and
distribution of certain consumer products for international sale by the Company.
In 2000, the Company also successfully completed the disposition of its
graphite and lubricants business with the wind-up of the operations of Dixon
Industrial Mexico, S.A. de C.V. The Company sold the majority of its graphite
and lubricants business for $23.5 million in March 1999.
The Company also successfully negotiated amendments to its subordinated
and senior debt agreements to cure covenant defaults that occurred earlier in
fiscal 2000 and to avoid a complete refinancing of its debt.
Further information regarding these matters is included elsewhere in this
Annual Report on Form 10-K.
COMPANY ORGANIZATION
--------------------
Dixon Ticonderoga Company
(Parent)
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_________________________________________________________________________
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Dixon Dixon Dixon Industrial Beijing Dixon Ticonderoga
Ticonderoga, Europe, Ltd. Mexico, S.A. de C.V. Ticonderoga Graphite,
Inc. Canada (Wholly-Owned) (Wholly-Owned) Stationery Inc./Inactive
(Wholly-Owned) Company, Ltd. (Wholly-Owned)
| (Wholly-Owned)
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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, 2000, 1999 and 1998, 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.
Beijing Dixon Ticonderoga Stationery Company, Ltd., a wholly-owned
subsidiary of the Company, is engaged in the manufacture of wood slats for
pencil manufacturing and the sourcing and distribution of certain consumer
products for international sale by the Company.
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 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.
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 has recently moved its distribution operations
to a new facility 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 (including the Company's wholly-owned China
subsidiary). 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 2000 nor are any
expected in the near future.
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 58% in 2000)
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 16 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 represent less
than 1% of revenues.
EMPLOYEES
---------
The total number of persons employed by the Company was approximately
1,412 of which 535 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
Note 4 to Consolidated Financial Statements. Most of the buildings are of steel
frame and masonry or concrete construction.
SQUARE FEET
LOCATION OF FLOOR SPACE
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Heathrow, Florida (Corporate Headquarters) 33,000
Sandusky, Ohio (Consumer) 276,000
Versailles, Missouri (Consumer) 120,000
Deer Lake, Pennsylvania (Consumer) 150,000
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
Beijing, China (Beijing Dixon Ticonderoga Stationery Company,
Ltd.) (Consumer) 25,000
The Company leases approximately 100,000 square feet in Macon, Georgia for
its U.S. Consumer central distribution center. The Company's Mexico subsidiary
recently entered into a lease of a 300,000 square-foot facility in Mexico City
to be used for distribution and certain manufacturing operations, as well as its
corporate headquarters.
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 continued to pursue other responsible parties for
indemnification and/or contribution to the payment of this claim (including its
insurance carriers) and in fiscal 2000 the Company reached settlements with its
various insurers for reimbursement of legal costs in the amount of $653,000. In
1999, a pending malpractice suit against its former attorneys was dismissed and
the Company has appealed the decision. Also see Note 14 to Consolidated
Financial Statements.
Additionally, in May 2000 a news article alleged that the talc in all
domestic brands of crayons, including the Company's, contained trace amounts of
a fiber resembling asbestos. In response to these allegations, all domestic
crayon manufacturers, including the Company, the talc supplier and the United
States Consumer Product Safety Commission (CPSC) engaged in independent
laboratory testing for asbestos fibers in crayons. All test results reflected
the unequivocal absence of asbestos in domestically made crayons, including the
test results from the Government's own OSHA laboratory. In any event, all
domestic crayon manufacturers, including the Company, voluntarily agreed to
reformulate their crayons and discontinue the use of talc to eradicate any
persistent public concerns regarding crayon safety. The Company anticipates
releasing a reformulated crayon by late summer of 2001.
Each of the domestic crayon manufacturers, including the Company, and the
CPSC released press statements verifying the safety and non-toxicity of crayons
both on store and consumer shelves. Nevertheless, the Company became aware of
seven legal actions threatened against itself and other domestic crayon
manufacturers as a result of the erroneous report. Of the seven threatened legal
actions, six were filed against the Company, four of which have been dismissed.
The two legal actions remaining involve a class action suit and a misleading
advertising claim. The Company continues to deny the essential allegations of
these complaints and will vigorously continue its defense. Significantly, the
Company expects the class action claim to be dismissed during a hearing in
January 2001.
The Company believes that none of the pending actions will have a material
adverse effect on the Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
--------------------------------------------------------
None.
PART II
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 2000 1999
-------------- ---- ----
LOW HIGH LOW HIGH
--- ---- --- ----
December 31 $5.88 $10.00 $7.88 $11.75
March 31 3.88 7.13 8.56 11.75
June 30 2.88 4.19 9.81 12.13
September 30 2.75 5.44 8.00 11.85
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 Note 4 to Consolidated Financial Statements).
The number of record holders of the Company's common stock at December 6,
2000 was 433.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
FOR THE FIVE YEARS ENDED SEPTEMBER 30, 2000
(in thousands, except per share amounts)
2000 1999 1998 1997 1996
---------- --------- --------- --------- ---------
REVENUES $102,879 $114,689 $124,722 $115,055 $106,696
========== ========= ========= ========= =========
INCOME (LOSS) FROM
CONTINUING OPERATIONS ($ 798) $ 6,682 $ 3,136 $ 3,601 $ 1,168
EXTRAORDINARY ITEM - - - - (282)
---------- --------- --------- --------- ---------
NET INCOME (LOSS) ($ 798) $ 6,682 $ 3,136 $ 3,601 $ 886
========== ========= ========= ========= =========
EARNINGS (LOSS) PER
COMMON SHARE (BASIC):
CONTINUING OPERATIONS ($ .25) $ 1.95 $ .93 $ 1.08 $ .36
EXTRAORDINARY ITEM - - - - (.09)
---------- --------- --------- --------- ---------
NET INCOME (LOSS) ($ .25) $ 1.95 $ .93 $ 1.08 $ .27
========== ========= ========= ========= =========
EARNINGS (LOSS) PER
COMMON SHARE (DILUTED):
CONTINUING OPERATIONS ($ .25) $ 1.87 $ .85 $ 1.05 $ .36
EXTRAORDINARY ITEM - - - - (.09)
---------- --------- --------- --------- ---------
NET INCOME (LOSS) ($ .25) $ 1.87 $ .85 $ 1.05 $ .27
========== ========= ========= ========= =========
TOTAL ASSETS $ 86,718 $ 92,888 $ 92,630 $ 84,161 $ 77,848
========== ========= ========= ========= =========
LONG-TERM DEBT $ 30,210 $ 39,400 1 $ 21,927 $ 23,556 $ 25,119
========== ========= ========= ========= =========
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 Note 4 to Consolidated Financial Statements.)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
SUMMARY OF RESULTS OF OPERATIONS
--------------------------------
2000 vs. 1999:
--------------
Income before taxes and minority interest decreased $12,922,000 in 2000 (or
$3,286,000, exclusive of the 1999 gain on sale of the Graphite and Lubricants
division of $9,636,000). The Company recorded pre-tax provisions of $1,641,000
and $1,917,000 in 2000 and 1999, respectively, for restructuring and related
costs for a company-wide cost reduction program and plant consolidation.
Restructuring costs in 2000 include $1,173,000 for employee severance and
related costs and $468,000 for the sale or abandonment of Mexico properties. In
fiscal 2000, approximately $367,000 was charged to the 2000 severance cost
accrual and $156,000 against the accrual for property abandonment. In addition,
$1,704,000 was charged against the remaining 1999 accrual. (See Note 12 to
Consolidated Financial Statements.) U.S. Consumer operating profits decreased
primarily due to lower revenue and higher manufacturing inefficiencies due to
strict inventory reduction efforts and consolidation activities. Foreign
Consumer operating profits reflected a decrease in Mexico due to start-up
inefficiencies relating to the transfer of certain U.S. production and lower
margins due to competitive pricing pressures. Industrial operating profits
decreased principally due to lower Refractories division sales and operating
profits. Interest expense decreased $500,000 primarily due to lower foreign
borrowings and interest rates. Income taxes decreased due to the decrease in
pre-tax income.
1999 vs. 1998:
--------------
Income before income taxes and minority interest increased $6,274,000 in
1999. Gain from the sale of the 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).
In 1999, approximately $213,000 was 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
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.
REVENUES
--------
Overall 2000 revenues decreased $11,811,000 from the prior year. The
changes by segment are as follows:
Increase(Decrease) % Increase (Decrease)
(in thousands) Total Volume Price / Mix
-------------- ----- ------ -----------
Consumer U.S. $(8,725) (13) (12) (1)
Consumer Foreign 3,043 10 12 (2)
Industrial (6,129) (35) (33) (2)
U.S. Consumer revenue decreased principally in the mass retail and
wholesale club markets reflecting the effects of reduced customer inventory
levels and increased competition from imports. Foreign Consumer revenue
increased primarily in the Mexico and Canada mass markets reflecting additional
product distribution in these channels. Industrial revenue decreased $4.6
million due to the disposition of the Graphite and Lubricants business with the
balance of the decrease due to 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 occassional foreign currency hedges, local
currency financing and by export sales to the U.S. denominated in U.S. dollars.
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 Graphite and
Lubricants division and, to a lesser degree, weakness in the industries served
by the Refractories division.
OPERATING PROFITS
-----------------
Operating profits decreased $3,787,000 (exclusive of the gain on the sale
of assets) from 1999. U.S. Consumer decreased $1,560,000 due principally to the
decrease in revenues and higher manufacturing inefficiencies. Foreign Consumer
decreased $1,660,000 primarily due to competitive pricing pressures and start-up
costs resulting from production moving from the U.S. to Mexico. The higher
manufacturing costs in the U.S. and Mexico substantially contributed to the
relative increase in total cost of goods sold in 2000 (64.6% of sales as
compared with 62.9% in 1999). Industrial operating profits decreased $340,000
due to the sale of the Graphite and Lubricants division in 1999 and lower
Refractories income. General corporate expenses increased $230,000, primarily
due to higher restructuring and related personnel costs. Due to the lower
revenues, selling and administrative costs increased as a percentage of sales
(30.9% in 2000 compared to 29.5% in 1999). However, total selling and
administrative expenses decreased over $2 million in 2000, reflecting ongoing
cost reduction efforts and the sale of the Graphite and Lubricants division.
Operating profits in 1999 (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 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 decreased $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 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).
MINORITY INTEREST
-----------------
Minority interest represents 3% of the net income of the consolidated
subsidiary, Grupo Dixon, S.A. de C.V., since September, 1999 and 20.2% prior
thereto ($23,938, $402,135, and $704,940 in fiscal 2000, 1999, and 1998,
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.
EFFECT OF CERTAIN NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------------------------
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 summarizing its views of applying generally accepted
accounting principles to revenue recognition in financial statements. The
Company's policy of revenue recognition is consistent with this bulletin.
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
and to occasionally hedge certain foreign currencies, 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 from operating activities improved dramatically
(by approximately $13.2 million) despite a net loss of $798,000 in fiscal 2000.
The Company's strict inventory control and reduction efforts in the U.S. led to
an increase in cash flows related to inventories of $3.1 million in 2000, as
compared with a decrease of $7.3 million in the prior year. In addition,
improved accounts payable management in the U.S. and Mexico and continued strong
U.S. accounts receivable collection practices more than offset the effects of
higher Mexico accounts receivable in 2000.
The Company's 2000 investing activities included approximately $1.4
million in net purchases of property and equipment as compared with $638,000 in
1999. This was an historically lower level of purchases in the prior year and
2000 purchases include the acquisition of equipment for the start-up of the
Company's China operation. Management believes that capital expenditures levels
have been reduced over the past several years due to better capital budgeting
and control and the continued use of leasing as an alternative to acquiring
equipment. 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 decreased dramatically due to the
cash proceeds of approximately $19.6 million from the sale of the Graphite and
Lubricants division in 1999. A note receivable from the sale (in the amount of
$3.25 million) was collected in 2000.
The Company's primary financing arrangements are with a consortium of
lenders, providing a total of up to $42.5 million in financing through September
2004. In August 2000, certain financial covenants contained in the underlying
loan and security agreements were revised to cure a previous default and to
allow the Company to execute its reorganization and consolidation plans, as well
as other strategic initiatives. The agreements were also amended to increase the
rate of interest by 0.5% and require the payment of certain fees, including an
amendment fee of $206,875. The financing agreements, as amended, include a
revolving line of credit facility in the amount of $35 million which bears
interest at either the prime rate plus 0.75%, or the prevailing LIBOR rate plus
2.25% through September 2004. Borrowings under the 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 executed an interest rate
swap agreement that effectively fixed the rate of interest on $8 million of
these borrowings at 8.98% through August 2005. The loan and security agreements
also include a term loan in the initial 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 that effectively fixes the
rate of interest on approximately $1.1 million of the term loan at 8.5% 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. As of September 30, 2000, the Company is in
compliance with all such provisions, as amended. On January 10, 2001, the
agreement was amended to revise one financial ratio requirement for the period
ending December 31, 2000 due to the Company's expectation that it would not meet
the previous requirement as of that date. As of September 30, 2000, the Company
had approximately $23 million of unused lines of credit available under the
revolving credit facility. In addition, the Company's Mexico subsidiary has $14
million in bank lines of credit ($10 million unused as of September 30, 2000)
which bear interest at a rate based upon either a floating U.S. bank rate or the
rate of certain Mexican government securities.
The Company also has outstanding $16.5 million of 12% Senior Subordinated
Notes valued at their face amount, due 2003. In August 2000, the subordinated
note agreement was amended to revise certain financial covenants and cure a
previous default, as well as to provide the Company flexibility to execute its
strategic initiatives. The interest rate was increased to 13.5% through June
2002 and 12.25% though maturity in 2003. The exercise price of 300,000 warrants
held by the noteholders was reduced from $7.24 to $4.28. The amendment also
required payment of a fee of $50,000. The note agreement, as amended, contains
provisions that limit dividends and other payments, and require the maintenance
of certain financial covenants and ratios. The Company is in compliance with all
such provisions, as amended. The Company also incurred approximately $200,000 in
legal costs associated with the aforementioned amendments to its senior and
subordinated debt agreements.
The subordinated and senior debt have been classified, in accordance with
their terms and management's expectations as to Company performance, as
long-term in the accompanying consolidated financial statements. However, the
Company cannot assure that it will be in compliance with all covenant provisions
of its debt agreements in all future quarters and cannot assure that it will
receive waivers or amendments of any such provisions should that occur.
The Company entered into the aforementioned interest rate swap agreements
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.
In March 1999, the Company's Board of Directors approved a Stock
Repurchase Program authorizing the acquisition of up to $3 million in Dixon
Ticonderoga Company stock. Under this program, the Company repurchased 337,000
shares at a cost of $2.8 million ($2 million in fiscal 2000). These repurchases
were financed through the aforementioned and previous U.S. revolving line of
credit facilities.
Refer to Notes 3 and 4 to Consolidated Financial Statements for further
description of the aforementioned financing arrangements.
The existing sources of financing described above and cash expected to be
generated from future operations and / or asset sales would, in management's
opinion, be sufficient to fulfill all current and anticipated requirements of
the Company's ongoing business and to meet all of it obligations. However, if
future covenant violations occur with respect to its current financing
arrangements, the Company may need to pursue other sources of financing to
satisfy certain obligations before their due date.
FORWARD-LOOKING STATEMENTS
--------------------------
The statements in this Annual Report on Form 10-K that are not purely
historical are "forward-looking statements" within the meaning of section 27A of
the Securities Act of 1933 and section 21E of the Securities Exchange Act of
1934, including statements about the Company's expectations, beliefs, intentions
or strategies regarding the future. Forward-looking statements include
statements regarding, among other things, the effects of the devaluation of the
Mexican peso; the Company's ability to meet its loan covenants in the future and
its current and anticipated obligations; management's inventory reduction plan
and expectation for savings from the restructuring and cost-reduction program;
the Company's ability to increase sales in its core businesses; its expectations
as to the effect of new accounting pronouncements; and its expectations with
regards to legal proceedings. Readers are cautioned that any such
forward-looking statements are not guarantees of future performance and 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)
manufacturing inefficiencies as a result of the inventory reduction plan,
difficulties encountered with the consolidation and cost-reduction program,
increased competition, U.S. and foreign economic factors, foreign currency
exchange risk and interest rate fluctuation risk, among others.
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 33% of the Company's fiscal 2000 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 $500,000. 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, 2000, approximately 46% of total short
and long-term debt is fixed, at rates between 8% and 13.5%. 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 2001 and 2005,
fix the rate of interest on $9.1 million of this debt at approximately 9%. 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 17
Consolidated Balance Sheets as of
September 30, 2000 and 1999 18-19
Consolidated Statements of Operations For the
Years Ended September 30, 2000, 1999 and 1998 20
Consolidated Statements of Comprehensive Income (Loss) For the
Years Ended September 30, 2000, 1999 and 1998 21
Consolidated Statements of Shareholders' Equity
For the Years Ended September 30, 2000, 1999 and 1998 22
Consolidated Statements of Cash Flows For the
Years Ended September 30, 2000, 1999 and 1998 23-24
Notes to Consolidated Financial Statements 25-42
Schedule For the Years Ended September 30, 2000, 1999 and 1998:
II. Valuation and Qualifying Accounts 43
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 44
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, 2000
and 1999, 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,
2000, in conformity with generally accepted accounting principles in the United
States of America. 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
auditing standards generally accepted in the United States of America, 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 our opinion.
PricewaterhouseCoopers LLP
Tampa, Florida
December 6, 2000, except as to Note 4
for which the date is January 10, 2001
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND 1999
2000 1999
------------ -------------
ASSETS:
-------
CURRENT ASSETS:
Cash and cash equivalents $ 448,452 $ 935,413
Receivables, less allowance for doubtful
accounts of $1,418,908 in 2000 and
$1,428,541 in 1999 30,881,626 29,343,196
Inventories 36,215,931 39,425,594
Other current assets 4,171,064 2,381,518
------------ -------------
Total current assets 71,717,073 72,085,721
------------ -------------
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings 10,145,872 13,413,125
Machinery and equipment 16,054,327 17,661,335
Furniture and fixtures 1,654,404 1,753,765
------------ -------------
27,854,603 32,828,225
Less accumulated depreciation (17,572,320) (19,004,402)
------------ -------------
10,282,283 13,823,823
------------ -------------
OTHER ASSETS 4,718,379 6,978,123
------------ -------------
$86,717,735 $92,887,667
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY: 2000 1999
------------------------------------- ------------ -------------
CURRENT LIABILITIES:
Notes payable $ 3,574,929 $ 2,578,467
Current maturities of long-term debt 7,135,198 1,638,835
Accounts payable 8,068,133 6,143,136
Accrued liabilities 10,056,935 12,268,095
------------- -------------
Total current liabilities 28,835,195 22,628,533
------------- -------------
LONG-TERM DEBT 30,210,410 39,399,795
------------- -------------
DEFERRED INCOME TAXES AND OTHER 177,248 96,843
------------- -------------
MINORITY INTEREST 552,215 533,390
------------- -------------
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 3,710,309 shares in 2000 and
3,688,559 shares in 1999 3,710,309 3,688,559
Capital in excess of par value 3,700,272 3,586,471
Retained earnings 26,147,547 26,945,792
Accumulated comprehensive income (loss) (3,093,577) (2,416,475)
------------- -------------
30,464,551 31,804,347
Less treasury stock, at cost (542,262 shares
in 2000 and 292,789 shares in 1999) (3,521,884) (1,575,241)
------------- -------------
26,942,667 30,229,106
------------- -------------
$ 86,717,735 $ 92,887,667
============ =============
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, 2000, 1999 AND 1998
2000 1999 1998
------------- ------------- ------------
REVENUES $102,878,905 $114,689,474 $124,721,758
------------- ------------- ------------
COSTS AND EXPENSES:
Cost of goods sold 66,454,513 72,170,810 76,296,877
Selling and administrative expenses 31,758,925 33,789,975 38,349,867
Provision for restructuring and
related costs 1,640,895 1,916,800 -
------------- ------------- ------------
99,854,333 107,877,585 114,646,744
------------- ------------- ------------
GAIN ON SALE OF ASSETS - 9,636,318 -
------------- ------------- ------------
OPERATING INCOME 3,024,572 16,448,207 10,075,014
INTEREST EXPENSE 4,269,771 4,771,109 4,671,646
------------- ------------- ------------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST (1,245,199) 11,677,098 5,403,368
INCOME TAXES (BENEFIT) (470,892) 4,593,228 1,562,069
------------- ------------- ------------
(774,307) 7,083,870 3,841,299
MINORITY INTEREST 23,938 402,135 704,940
------------- ------------- ------------
NET INCOME (LOSS) $ (798,245) $ 6,681,735 $ 3,136,359
============= ============= ============
EARNINGS (LOSS) PER COMMON SHARE (BASIC) $ (.25) $ 1.95 $ .93
============= ============= ============
EARNINGS (LOSS) PER COMMON SHARE (DILUTED)
$ (.25) $ 1.87 $ .85
============= ============= ============
The accompanying notes are an integral part
of the consolidated financial statements.
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999, AND 1998
2000 1999 1998
----------- ------------ -----------
NET INCOME (LOSS) $ (798,245) $ 6,681,735 $ 3,136,359
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation
adjustments (677,102) 957,362 (604,981)
------------ ------------ -----------
TOTAL COMPREHENSIVE INCOME (LOSS) $(1,475,347) $ 7,639,097 $ 2,531,378
============ ============ ===========
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, 2000, 1999 AND 1998
Common Capital in Accumulated
Stock $1 Excess of Retained Comprehensive Treasury
Par Value Par Value Earnings Income (Loss) Stock
------------ ------------ ------------ --------------- -------------
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 shares) 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 shares) 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)
Net loss (798,245)
Cumulative translation
adjustment (677,102)
Employee stock options
exercised (21,750 shares) 21,750 147,094
Employee Stock Purchase
Plan (10,757 shares) (33,293) 69,867
Purchase of treasury stock
(260,230 shares) (2,016,510)
------------ ------------ ------------ --------------- -------------
BALANCE, September 30, 2000 $ 3,710,309 $ 3,700,272 $26,147,547 $ (3,093,577) $(3,521,884)
============ ============ ============ =============== =============
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
2000 1999 1998
------------ ------------ ----------
Cash flows from operating activities:
Net income (loss) $ (798,245) $ 6,681,735 $3,136,359
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 2,521,400 2,607,425 2,933,660
Deferred taxes (639,000) (889,000) 1,448,626
Provision for doubtful accounts receivable 218,795 191,356 105,126
Gain on sale of assets - (9,636,318) -
Income attributable to minority interest 23,938 402,135 704,940
(Income) loss attributable to foreign
currency exchange (78,888) (127,299) 1,798,357
Changes in assets [(increase)decrease]
and liabilities [increase (decrease)]:
Receivables, net (1,994,505) 1,677,182 (5,726,094)
Inventories 3,087,532 (7,279,117) (5,326,301)
Other current assets 17,422 (781,505) 253,571
Accounts payable and accrued liabilities 646,793 (1,787,274) (4,558,206)
Other assets (228,794) (1,480,679) (437,785)
------------ ------------ ----------
Net cash provided by (used in) operating
activities 2,776,448 (10,421,359) (5,667,747)
------------ ------------ ----------
Cash flows from investing activities:
Purchases of plant and equipment, net (1,399,403) (638,384) (1,350,855)
Proceeds on sale of assets 3,250,000 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 1,850,597 18,958,326 (3,550,656)
------------ ------------ ----------
2000 1999 1998
------------ ------------ ------------
Cash flows from financing activities:
Principal reductions of notes payable - (23,361,167) -
Proceeds from additions to long-term debt 70,715 17,523,741 -
Proceeds from additions to notes payable 1,023,554 - 8,672,323
Principal reductions of long-term debt (3,693,022) (320,471) (1,672,606)
Debt refinancing costs (369,842) - -
Purchase of treasury stock (2,016,510) (789,618) -
Purchase of subsidiary stock - (3,734,668) -
Other non-current liabilities (42,975) (465,169) 44,044
Employee Stock Purchase Plan 36,574 63,294 69,345
Exercise of stock options 168,844 261,095 368,103
------------ ------------ ------------
Net cash provided by (used in) financing
activities (4,822,662) (10,822,963) 7,481,209
------------ ------------ ------------
Effect of exchange rate changes on cash (291,344) 368,128 (1,017,112)
------------ ------------ ------------
Net decrease in cash and cash equivalents (486,961) (1,917,868) (2,754,306)
Cash and cash equivalents, beginning of
year 935,413 2,853,281 5,607,587
------------ ------------ ------------
Cash and cash equivalents, end of year $ 448,452 $ 935,413 $ 2,853,281
============ ============ ============
Supplemental disclosures:
Cash paid during the year for:
Interest $ 3,148,398 $ 4,887,426 $ 4,690,538
Income taxes 1,518,291 5,100,663 893,756
During fiscal 1999, the Company accepted a note receivable of $3,250,000
as partial consideration for the sale of assets of its Graphite and Lubricants
division. This note was paid in 2000.
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 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 $79,000, $127,000 and $(1,798,000) for
fiscal years 2000, 1999 and 1998 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 $13,813,000 and $16,144,000 at September 30, 2000 and 1999,
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 $805,000 and $962,000 higher at
September 30, 2000 and 1999, respectively. All other inventories are
accounted for using the FIFO method.
Inventories consist of (in thousands):
September 30,
2000 1999
--------- ---------
Raw material $12,839 $15,246
Work in process 3,656 5,016
Finished goods 19,721 19,164
--------- ---------
$36,216 $39,426
========= =========
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.
Asset impairments in connection with the Company's restructuring programs
are identified and measured using the estimated net proceeds from their
ultimate sale or abandonment. (See Note 12.) 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,
-------------
2000 1999
--------- ---------
Salaries and wages $ 1,462 $ 1,603
Employee benefit plans 449 594
Income taxes 1,940 2,540
Other 6,206 7,531
--------- ---------
$ 10,057 $ 12,268
========= =========
(3) NOTES PAYABLE:
--------------
The Company's Mexico subsidiary has bank lines of credit totaling
approximately $14 million, under which $3.6 and $2.6 million of unsecured
notes payable were outstanding as of September 30, 2000 and 1999,
respectively. The notes bear interest (weighted average interest rate of
approximately 11.6% and 9.2% at September 30, 2000 and 1999, respectively)
based upon either a floating U.S. bank rate or the rate of certain Mexican
government securities and are renewable annually.
(4) LONG-TERM DEBT:
---------------
Long-term debt consists of the following (in thousands):
September 30,
-------------
2000 1999
--------- ---------
Senior Subordinated Notes $ 16,500 $ 16,500
Bank notes payable 12,280 14,468
Bank term loan 6,125 7,500
Building mortgage 2,273 2,398
Other 167 173
--------- ---------
37,345 41,039
Less current maturities (7,135) (1,639)
--------- ---------
$ 30,210 $ 39,400
========= =========
The Company's primary financing arrangements are with a consortium of
lenders, providing a total of up to $42.5 million in financing through
September 2004. In August 2000, certain financial covenants contained in
the underlying loan and security agreements were revised to cure a
previous default and to allow the Company to execute its reorganization
and consolidation plans, as well as other strategic initiatives. The
agreements were also amended to increase the rate of interest by 0.5% and
require the payment of certain fees, including an amendment fee of
$206,875. The financing agreements, as amended, include a revolving line
of credit facility in the amount of $35 million which bears interest at
either the prime rate (9.5% at September 30, 2000) plus 0.75%, or the
prevailing LIBOR rate (approximately 6.6% at September 30, 2000) plus
2.25% through September 2004. Borrowings under the 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
executed an interest rate swap agreement that effectively fixed the rate
of interest on $8 million of these borrowings at 8.98% through August
2005.
The loan and security agreements also include a term loan in the initial
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 that effectively fixes the rate of interest
on approximately $1.1 million of the term loan at 8.5% 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. On January 10, 2001, the agreement was amended to revise one
financial ratio requirement for the period ending December 31, 2000. As of
September 30, 2000, the Company had approximately $23 million of unused
lines of credit available under the revolving credit facility.
The Company also has outstanding $16.5 million of 12% Senior Subordinated
Notes valued at their face amount, due 2003. 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. In August 2000, the subordinated
note agreement was also amended to revise certain financial covenants and
cure a previous default, as well as to provide the Company flexibility to
execute its strategic initiatives. The interest rate was increased to
13.5% through June 2002 and 12.25% though maturity in 2003. The exercise
price of 300,000 warrants held by the noteholders was reduced to $4.28. No
value was assigned to the warrants (which expire in 2003) based upon a
fair market value determination at the original date of issue. A
revaluation of the warrants based on the adjusted exercise price yielded
nominal value. The amendment also required payment of a fee of $50,000.
The note agreement, as amended, contains provisions that limit dividends
and other payments, and require the maintenance of certain financial
covenants and ratios.
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 interest rate swap agreements
(discussed above ) is an unrecognized loss of approximately $86,000,
representing the net cost to cancel the underlying agreements as of
September 30, 2000.
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 and to occasionally hedge certain foreign
currencies, 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):
2001 $ 7,135
2002 7,227
2003 7,218
2004 13,979
Thereafter 1,786
--------
$37,345
========
(5) INCOME TAXES:
--------------
The components of net deferred tax asset recognized in the accompanying
consolidated balance sheet are as follows (in thousands):
2000 1999
------------ ------------
U.S. current deferred tax assets
(included in other current assets) $ 831 $ 258
Foreign current deferred tax liability
(included in accrued liabilities) (1,434) (1,343)
U.S. and foreign, noncurrent deferred tax
asset (liability) (included in other
assets and deferred income taxes and
other, respectively) 1,486 1,156
------------ ------------
Net deferred tax asset $ 883 $ 71
============ ============
Deferred tax assets:
Depreciation $ 257 $ -
Vacation pay 75 135
Accrued pension 635 466
Accrued restructuring and related costs 558 357
Accrued environmental costs 49 148
Installment sale and related expenses 702 434
Other 255 126
Foreign net operating loss carryforward 511 509
Valuation allowance (511) (509)
------------ ------------
Total deferred tax asset 2,531 1,666
------------ ------------
Deferred tax liabilities:
Inventories (1,128) (962)
Depreciation - (105)
Property, plant and equipment (520) (528)
------------ ------------
Total deferred tax liability (1,648) (1,595)
------------ ------------
Net deferred tax asset $ 883 $ 71
============ ============
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 $24,730,000 as
of September 30, 2000. The determination of the unrecognized deferred tax
liability for such temporary differences is not practicable.
At September 30, 2000 and 1999, the Company had valuation allowances
against certain deferred tax assets totaling $511,000 and $509,000,
respectively. These valuation allowances relate to tax assets in
jurisdictions where it is management's best estimate that there is not a
greater than 50% probability that the benefit of the assets will be
realized in the associated tax returns.
The provision (benefit) for income taxes is comprised of the following (in
thousands):
2000 1999 1998
-------- -------- ---------
Current:
U.S. Federal $ (553) $ 3,463 $ (656)
State (124) 491 41
Foreign 845 1,528 728
-------- -------- ---------
168 5,482 113
-------- -------- ---------
Deferred:
U.S. Federal (900) (929) 916
State - (110) -
Foreign 261 150 533
-------- -------- ---------
(639) (889) 1,449
-------- -------- ---------
$ (471) $ 4,593 $ 1,562
======== ======== =========
Foreign deferred tax provision 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 2000 and 1999 result primarily from expenses accrued but not
yet deductible for taxes.
The differences between the provision (benefit) for income taxes computed
at the U.S. statutory federal income tax rate and the provision (benefit)
in the consolidated financial statements are as follows (in thousands):
2000 1999 1998
-------- -------- ---------
Amount computed using
statutory rate $ (405) $ 3,970 $ 1,837
Foreign income (169) (26) (557)
State taxes, net of federal
benefit (82) 252 27
Permanent differences 254 231 239
Others (69) 166 16
-------- -------- ---------
Provision (benefit) for
income taxes $ (471) $ 4,593 $ 1,562
======== ======== =========
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
agreed with Revenue Canada on an amended assessment and the resultant
refund of $540,000 is reflected in the consolidated financial statements
as other current assets at September 30, 2000.
(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.
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, 2000 and 1999 (in thousands):
September 30,
2000 1999
--------- ---------
Change in benefit obligation:
Obligation at beginning of year $4,275 $4,123
Service cost 180 311
Interest cost 238 235
Actuarial gain (495) (74)
Benefit payments (311) (320)
--------- ---------
Obligation at end of year $3,887 $4,275
========= =========
Change in market value of plan assets:
Market value at beginning of year $2,906 $2,692
Actual return on plan assets 219 45
Employer contributions 524 489
Benefit payments (311) (320)
--------- ---------
Market value at end of year $3,338 $2,906
========= =========
September 30,
2000 1999
--------- ---------
Actuarial present value of:
Accumulated benefit obligation $(3,887) $(4,275)
========= =========
Projected benefit obligation $(3,887) $(4,275)
Plan assets at market value 3,338 2,906
--------- ---------
Projected benefit obligation in excess of
plan assets (549) (1,369)
Unrecognized net gain from past
experience different from assumptions 334 875
Unrecognized net obligation being
recognized over periods from 10 to 16
years 631 730
--------- ---------
Prepaid pension expense $ 415 $ 236
========= =========
Net periodic pension costs include the following components (in
thousands):
2000 1999 1998
--------- --------- -------
Service costs - benefits earned during
period $ 180 $ 311 $ 126
Interest cost on projected benefit
obligation 237 235 217
Expected return on plan assets (214) (203) (269)
Net amortization and deferral 141 139 190
--------- --------- -------
Net periodic pension cost $ 344 $ 482 $ 264
========= ========= =======
In determining the projected benefit obligation, the weighted average
discount rates utilized were 6.4%, 6.7% and 6.3% for the periods ended
September 30, 2000, 1999 and 1998, respectively. 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, 2000, 1999
and 1998 were $610,000, $871,000 and $875,000, 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, 2000, 1999 and
1998, 10,757, 6,619 and 11,253 shares, respectively, were issued under
this plan. At September 30, 2000, there are 81,721 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, 2000, there were 342,375
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 basis 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 2000, 10,000
non-qualified options were granted to employees and 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,
2000 there were 262,500 shares available for future grants under the New
Plan. The following table summarizes the combined stock options activity
for 2000, 1999 and 1998.
2000 1999 1998
-------------------- ------------------- --------------------
Number Option Number Option Number Option
of Shares Price of Shares Price of Shares Price
-------------------- ------------------- --------------------
Options outstanding
at beginning of year 312 $7.75 18,935 $7.75
2,000 6.13
41,750 $8.63 44,250 8.63 72,750 8.63
48,625 6.75 60,125 6.75 72,750 6.75
10,750 7.13 15,250 7.13 15,750 7.13
273,000 8.88 317,000 8.88 351,000 8.88
10,000 14.13
5,500 12.88 18,500 12.88
10,000 11.38
40,000 11.00
Options exercised (10,000) 6.75 (10,250) 6.75 (9,500) 6.75
(2,000) 7.13 (500) 7.13
(312) 7.75 (18,623) 7.75
(11,750) 8.63 (1,750) 8.63 (28,000) 8.63
(2,000) 6.13
(19,688) 8.88 (4,250) 8.88
Options granted 10,000 14.13
18,500 12.88
10,000 11.38
40,000 11.00
10,000 4.25
Options expired
or canceled (2,500) 4.25
(3,000) 8.63 (750) 8.63 (500) 8.63
(4,500) 6.75 (1,250) 6.75 (3,125) 6.75
(15,000) 8.88 (24,312) 8.88 (29,750) 8.88
(2,500) 7.13
(10,000) 11.00
(3,000) 12.88 (13,000) 12.88
(10,000) 14.13
---------- ---------- ----------
379,875 429,625 465,437
========== ========== ==========
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 (loss) and earnings (loss)
per share would have been as follows if the fair value estimates were used
to record compensation expense:
2000 1999 1998
------------ ------------ ------------
Net income (loss) $(1,048,842) $ 6,476,269 $ 2,990,726
============ ============ ============
Earnings (loss) per share:
Basic $ (.33) $ 1.89 $ .88
============ ============ ============
Diluted $ (.33) $ 1.81 $ .81
============ ============ ============
These pro forma amounts were estimated using the Black-Scholes valuation
model assuming no dividends, expected volatility of 33%, an average
risk-free interest rate of 6.7% and expected lives of approximately six
years for all grants. The weighted average fair value estimates of options
granted during 2000, 1999 and 1998 was $2.92, $3.67 and $4.45,
respectively. The weighted average remaining lives are 5.6, 5.6 and 6.5
years for options granted in 2000, 1999 and 1998, 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. Under this program, the Company repurchased approximately
337,000 shares at a cost of $2.8 million through March 2000, when the
program was terminated.
(8) SUBSIDIARY STOCK REPURCHASE:
----------------------------
In fiscal 1999, the Company purchased 5,722,760 shares (or 17.2%) of its
subsidiary, Grupo Dixon, S.A. de C.V., 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 (loss) per common share is calculated by dividing net
income (loss) 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)]. For years ended September 30, 2000, 1999 and 1998, options and
warrants to purchase 679,875, 68,500 and 10,000 shares of common stock,
respectively, were excluded from the computation of diluted earnings
(loss) per share as such options and warrants were anti-dilutive.
Average common shares used in the calculation of earnings (loss) per share
are as follows:
Year Basic Diluted
---- ---------- ----------
2000 3,202,582 3,202,582
1999 3,420,779 3,581,062
1998 3,387,202 3,708,026
(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 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 was unsecured with interest payable at 9%, deferred as additional
principal until September 2, 2001. This note was prepaid in September,
2000 at its full amount, plus $139,000 in accrued interest. 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 balance of these accrued liabilities
remaining at September 30, 2000 was $1,856,000. 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 Phase 1 of 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 phase of the program. In 1999,
approximately $213,000 was charged against the restructuring cost and
impairment reserves, as set forth below. The carrying amount of property
and equipment held for disposal in Phase 1 approximated $3 million with
the estimated fair value principally based upon assessments of value made
by local realtors or appraisals. Management anticipates disposal of the
remaining assets from Phase 1 by January 2001.
In fiscal 2000, approximately $1,910,000 was charged against the
restructuring cost and impairment reserves for finalization of the Phase 1
program (net of $234,000 in credits representing higher than anticipated
proceeds from the sale and abandonment of property and equipment
identified in the Phase 1 program). As set forth below, the Company
incurred approximately $206,000 in net additional charges, principally
related to unanticipated employee costs and other costs directly related
to the restructuring program which were not eligible for recognition in
1999 and thus expensed as incurred in 2000.
Also in fiscal 2000, the Company provided approximately $1,435,000 of
impairment and restructuring related costs in connection with Phase 2 of
its restructuring and Cost Reduction Program, which includes further
consolidation of certain U.S. manufacturing processes, the consolidation
of it Mexico operations into a new facility and additional personnel
reductions in manufacturing, sales, marketing and corporate activities. An
additional 170 employees (principally plant workers) are affected by the
second phase of the program. The carrying amount of additional property
held for disposal under Phase 2 of the program is $1.1 million. Management
expects to dispose of this additional property by June 2001.
The restructuring and impairment related charges and subsequent
utilization through fiscal 2000 are summarized below (in thousands):
Losses from
Employee impairment, sale
severance and abandonment
and related of property
costs and equipment Total
-------------- ----------------- ----------
1999 restructuring and impairment
related charges (Phase 1) $ 587 $ 1,330 $1,917
Utilized in fiscal 1999 (199) (14) (213)
-------------- ----------------- ----------
Reserve balances at September 30, 1999 388 1,316 1,704
Utilized in fiscal 2000 (Phase 1) (594) (1,316) (1,910)
-------------- ----------------- ----------
(206) - (206)
-------------- ----------------- ----------
Additional fiscal 2000 provisions
(Phase 1) 206 - 206
2000 restructuring and impairment
related charges (Phase 2) 967 468 1,435
-------------- ----------------- ----------
Total 2000 restructuring and
impairment related charges 1,173 468 1,641
-------------- ----------------- ----------
967 468 1,435
Utilized in fiscal 2000 (Phase 2) (161) (156) (317)
-------------- ----------------- ----------
Reserve balances at September 30, 2000 $ 806 $ 312 $1,118
============== ================= ==========
(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, 2000, 1999 and
1998, and for the years then ended (in thousands).
Consumer Industrial Total
Group Group Company
---------- ---------- ----------
Net revenues:
2000 $ 91,691 $11,188 $ 102,879
1999 97,372 17,317 114,689
1998 99,874 24,848 124,722
Consumer Industrial Total
Group Group Company
---------- ---------- ----------
Income before interest, taxes
and minority interest:
2000 $ 5,648 $ 358 $ 6,006
1999 8,815 10,332 19,147
1998 10,279 2,859 13,138
A reconciliation of income before interest, taxes and minority interest to
net income follows (in thousands):
2000
---------------------------------------------
Consumer Industrial Total
Group Group Corporate Company
--------- ---------- ---------- ----------
Income (loss) before interest
taxes and minority interest $ 5,648 $ 358 $ (2,981) $ 3,025
Interest expense (3,245) (417) (608) (4,270)
Income tax (expense) benefit (475) 15 931 471
Minority interest (24) - - (24)
--------- ---------- ---------- ----------
Net income (loss) $ 1,904 $ (44) $ (2,658) $ (798)
========= ========== ========== ==========
1999
---------------------------------------------
Consumer Industrial Total
Group Group Corporate Company
--------- ---------- ---------- ----------
Income (loss) 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 (loss) $ 2,773 $ 6,057 ($2,148) $ 6,682
========= ========== ========== ==========
1998
---------------------------------------------
Consumer Industrial Total
Group Group Corporate Company
--------- ---------- ---------- ----------
Income (loss) 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 (loss) $ 4,194 $ 1,107 ($2,165) $ 3,136
========= ========== ========== ==========
Operating profit of the Consumer Group in 2000 and 1999 includes charges
for restructuring and related costs of $1,641 and $1,917, respectively,
and the Industrial Group includes the gain on sale of the 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 Corporate Company
--------- ---------- ---------- ----------
Identifiable
assets:
2000 $ 74,093 $ 5,134 $ 7,491 $ 86,718
1999 75,609 5,978 11,301 92,888
1998 71,152 15,622 5,856 92,630
Depreciation and
amortization:
2000 $ 1,644 $ 295 $ 582 $ 2,521
1999 1,485 392 730 2,607
1998 1,722 532 680 2,934
Expenditures
for plant and
equipment:
2000 $ 1,585 $ 68 $ 333 $ 1,986
1999 802 150 58 1,010
1998 853 502 148 1,503
Operating Identifiable
Revenues Profit (Loss) Assets
------------ -------------- ----------------
Foreign operations:
2000:
Canada $ 9,515 $ 620 $ 6,741
Mexico 23,943 2,664 27,910
United Kingdom 1,124 (16) 616
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
(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 December 2000, for the
right to market and sell all types of pencils, pens, crayons, chalks,
markers, paints, art kits and related items. Through September 30, 2000,
the Company has paid $931,000 ($881,000 earned by Warner Bros.) through
September 30, 2000.
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 has also entered into
various agreements with nine additional employees which provide for
continuation of salaries (averaging $8,500 each per month) for periods up
to 24 months under certain circumstances.
The Company leases a distribution center in Macon, Georgia for
approximately $365,000 per year and in November 2000 opened a leased
manufacturing and distribution facility in Mexico at an initial annual
rental of $792,000 per year. The Company also leases certain manufacturing
equipment under a new five-year noncancelable operating lease arrangement.
The rental expense under this lease was $262,000 in 2000. Annual future
minimum rental payments are approximately $372,000 per year through 2004
and $93,000 in 2005. Rental expense under a previous equipment lease was
$417,000 in 1999 and 1998.
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 as a result of the judgment, the Company paid $3.6 million
in 1998 to satisfy this claim in full, including all accrued interest. The
Company continued to pursue other responsible parties for indemnification
and/or contribution to the payment of this claim (including its insurance
carriers) and in fiscal 2000 the Company reached settlements with its
various insurers for reimbursement of legal costs in the amount of
$653,000 (reflected as a reduction in selling and administrative
expenses). In 1999, a 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 $145,000 as of September 30, 2000), 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):
--------------------------------------
2000: First Second Third Fourth
----- ---------- --------- --------- ---------
Revenues $19,625 $22,392 $33,390 $27,472
Operating income (loss) (1,358) 612 3,489 282
Income (loss) before taxes
and minority interest (2,291) (377) 2,320 (897)
Minority interest 15 (27) (44) (31)
Net income (loss) (1,500) (247) 1,516 (567)
Earnings (loss) per share:(a)
Basic (.45) (.08) .48 (.18)
Diluted (.45) (.08) .48 (.18)
1999: First Second Third Fourth
----- ---------- --------- --------- ---------
Revenues $22,807 $24,916 $36,916 $30,050
Operating income 110 9,180 4,841 2,317
Income (loss) 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
(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, 2000, 1999 and 1998
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, 2000 $1,428,541 $ 218,795 $ (228,428) (2) $ 1,418,908
========== ========== ========== ===========
Year Ended
September 30, 1999 $1,369,815 $ 191,356 $ (132,630) (2) $ 1,428,541
========== ========== ========== ===========
Year Ended $ 616,205 (1)
September 30, 1998 $1,004,537 $ 105,126 $ (356,053) (2) $ 1,369,815
========== ========== ========== ===========
(1) Additions to reserve of Mexico subsidiary from acquisition of Vinci de
Mexico, S.A. 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 December 6, 2000, except as to Note 4, for which the date is January
10, 2001, relating to the financial statements and financial statement
schedule, which appear in this Form 10-K.
PricewaterhouseCoopers LLP
Tampa, Florida
January 12, 2001
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 2000 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 72 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 45 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 44 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; and Director
since May 1999.
Leonard D. Dahlberg, Jr. 49 Executive Vice President of operations
since August 2000: Executive Vice
President of Procurement since April
1999; prior there to 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.
John Adornetto 59 Vice President and Corporate Controller
since January 1991; prior thereto
Corporate Controller since September
1978.
Diego Cespedes Creixell 42 President, Grupo Dixon S.A. de C.V.,
since August 1996 and Director since May
2000.
ITEM 11. EXECUTIVE COMPENSATION
-----------------------
Information required under this Item will be contained in the Company's
2000 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
2000 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
2000 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 Incorporation. 2
(3) (ii) Amended and Restated Bylaws. 1
(4) a. Specimen Certificate of Company Common Stock. 2
(4) b. Amended and Restated Stock Option Plan. 3
(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 Canada. 1
(10) b. 12.00% Senior Subordinated Notes, Due 2003, Note and
Warrant Purchase Agreement. 1
(10) c. 12.00% Senior Subordinated Notes, Due 2003, Common Stock
Purchase Warrant Agreement. 1
(10) d. License and Technological Agreement between Carborundum
Corporation and New Castle Refractories Company, a division
of Dixon Ticonderoga Company. 1
(10) e. Equipment Option and Purchase Agreement between
Carborundum Corporation and New Castle Refractories
Company, a division of Dixon Ticonderoga Company. 1
(10) f. Product Purchase Agreement between Carborundum
Corporation and New Castle Refractories Company, a division
of Dixon Ticonderoga Company. 1
(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 Canada. 5
(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. 7
(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. 7
(10) j. Amendment No. 1 to 12.00% Senior Subordinated Notes, Due
2003, Note and Warrant Purchase Agreement.7
(10) k. Fourth Modification of Amended and Restated Revolving
Credit Loan and Security Agreement.
(10) l. Second Modification of Amended and Restated Term Loan
Agreement.
(10) m. Amendment No. 2 to Note and Warrant Purchase Agreement.
(21) Subsidiaries of the Company
1 Incorporated 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.
2 Incorporated 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.
3 Incorporated by reference to Appendix 3 to the Company's Proxy Statement dated
January 27, 1997, filed in Washington, D.C.
4 Incorporated by reference to the Company's current report on Form 8-K dated
December 12, 1997, filed in Washington D.C.
5 Incorporated 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.
6 Incorporated by reference to the Company's current report on Form 8-K dated
March 2, 1999, filed in Washington D.C.
7 Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 1999, file number 0-2615 filed in Washington, D.C.
(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: January 12, 2001
/s/ Richard F. Joyce
----------------------------
Richard F. Joyce Vice Chairman of Board,
Co-Chief Executive Officer,
President and Director
Date: January 12, 2001
/s/ Richard A. Asta
----------------------------
Richard A. Asta Executive Vice President of
Finance, Chief Financial
Officer and Director
Date: January 12, 2001
/s/ Diego Cespedes Creixell
----------------------------
Diego Cespedes Creixell President, Grupo Dixon S.A. de
C.V., and Director
Date: January 12, 2001
/s/ Harvey L. Massey
----------------------------
Harvey L. Massey Director
Date: January 12, 2001
/s/ Philip M. Shasteen
----------------------------
Philip M. Shasteen Director
Date: January 12, 2001
/s/ Ben Berzin, Jr.
----------------------------
Ben Berzin, Jr. Director
Date: January 12, 2001
/s/ Kent Kramer
----------------------------
Kent Kramer Director
Date: January 12, 2001
/s/ John Ritenour
----------------------------
John Ritenour Director
Date: January 12, 2001
Exhibit (10) k
FOURTH MODIFICATION OF AMENDED AND RESTATED
REVOLVING CREDIT LOAN AND SECURITY AGREEMENT
============================================
THIS FOURTH MODIFICATION dated as of August 4, 2000 (this "Fourth
Modification") of Amended and Restated Revolving Credit Loan and Security
Agreement dated as of July 10, 1996, as amended by, among other things, the
First Modification of Amended and Restated Revolving Credit Loan and Security
Agreement dated as of September 26, 1996, the Second Modification of Amended and
Restated Revolving Credit Loan and Security Agreement dated as of May 19, 1998,
and the Third Modification of Amended and Restated Revolving Credit Loan and
Security Agreement, Amendment to Loan Documents and Assignment dated as of
September 30, 1999 (the "Credit Agreement"), among Dixon Ticonderoga Company
("Dixon Ticonderoga") and Dixon Ticonderoga, Inc. ("DT Canada"), as Borrowers
(collectively, the "Borrowers"), the lenders named therein (the "Lenders") and
First Union Commercial Corporation, as Agent (in such capacity, the "Agent").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, pursuant to the Credit Agreement, the Lenders have made
Loans and other extensions of credit to the Borrowers which remain outstanding;
WHEREAS, the Borrowers have requested that the Agent and the
Lenders, and the Agent and the Lenders are willing to, amend certain covenants
contained in the Credit Agreement, but only on the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms. Unless otherwise defined herein,
capitalized terms used herein have the meanings assigned in the Credit
Agreement.
ARTICLE II
AMENDMENTS
Section 2.1. Amendment to Section 1.1 (Defined Terms). Section 1.1
of the Credit Agreement is hereby amended by (a) deleting in their entirety the
following definitions: "Adjusted LIBOR Rate", "Adjusted Prime Rate", "Applicable
Percentage" and "Subordinated Debt" and (b) adding the following new definitions
in the alphabetically appropriate places:
"Adjusted LIBOR Rate" means the LIBOR Rate plus 2.25% per annum.
"Adjusted Prime Rate" means the Prime Rate plus 0.75% per annum.
"Consolidated Interest and Dividend Coverage Ratio" means for any
Reference Period, the ratio of (a) 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 of the Borrower during
such Reference Period.
"Consolidated Interest Expense" means for any Reference Period,
Interest Expense of the Borrower and its consolidated Subsidiaries for
such Reference Period.
"Consolidated Net Income" means for any Reference Period, (a) the
net income (or deficit) of the Borrower and its Subsidiaries for such
period (taken as a cumulative whole), after deducting all operating
expenses, provisions for all taxes and reserves and all other proper
deductions, all determined in accordance with GAAP, less (b) the net
income (or deficit) of any Subsidiary that is less than wholly-owned
(other than Dixon-Mexico).
"Dixon-Mexico Financing" shall have the meaning assigned to such
term in section 8.4.
"Fixed Charges" means, for any period, (a) 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, and (iv) payments of all taxes on or measured by income, all
determined in accordance with GAAP, less (b) the then-current amount of
the Subordinated Debt Reserve, less (c) the amount of the Minimum
Availability Reserve (as defined in Exhibit A to the Credit Agreement).
"Fourth Modification" means the Fourth Modification of Amended and
Restated Revolving Credit Loan and Security Agreement, dated as of August
4, 2000.
"Fourth Modification Effective Date" means the first date on which
the conditions precedent specified in Article III of the Fourth
Modification shall have been satisfied or the satisfaction thereof shall
have been waived in accordance with the terms hereof.
"Interest Expense" means as applied to any Person with reference to
any period, interest expense of such Person for such period, including
amortization of debt discount and expense and imputed interest on Capital
Lease Obligations properly chargeable to income during such period in
accordance GAAP; provided, however, Interest Expense shall not include any
expense chargeable to income resulting from a reduction of the exercise
price of the Common Stock Purchase Warrants dated September 29, 1998 to
purchase a total of 300,000 shares of the Borrower's common stock.
"Reference Period" means as of any date of determination, the four
(4) consecutive full fiscal quarters ended most recently prior to such
date.
"Subordinated Debt" means the Amended Senior Subordinated Notes Due
September 26, 2003 of DTC payable to each of The Equitable Life Assurance
Society of the United States, John Hancock Life Insurance Company and
Signature 1A (Cayman), Ltd.
"Subordinated Debt Reserve" shall have the meaning assigned to such
term in Exhibit A.
Section 2.2. Amendment to Section 2.7 (Unused Line Fee). Section 2.7
is hereby amended by (a) inserting "(a)" after the phrase "an unused line fee
equal to" and (b) inserting the following phrase immediately prior to the period
at the end of the section: " and (b) an amount equal to $10,000 per month which
shall be due and payable on the first Business Day of each month beginning
January 2001 through and including December 2003".
Section 2.3. Amendment to Section 2 (The Loans; Interest; Fees; and
Proceeds of the Loans). (a) The following new Section 2.16 is hereby added after
Section 2.15:
"2.16 Prepayments; Commitment Reductions. (a) If the Borrower sells,
transfers or otherwise disposes of any Inventory pursuant to Section
8.4(b), (i) the Borrowing Base Certificate then in effect shall be deemed
to be reduced by an amount equal to the dollar amount assigned to such
Inventory in said Borrowing Base Certificate, after giving effect to the
eligibility standards set forth in the definition of Eligible Inventory
and the advance rates therefor set forth in Exhibit A, and (ii) the
Borrower shall, simultaneously in connection with such sale, transfer or
other disposition, prepay Revolving Credit Loans in an aggregate amount
equal to the dollar amount assigned to such Inventory in the Borrowing
Base Certificate then in effect. Concurrently with any prepayment made
pursuant to clause (ii) above, the Revolving Credit Commitment shall be
permanently reduced by an amount equal to the amount of such prepayment.
(b) If the Borrower sells, transfers or otherwise disposes of any
Equipment pursuant to Section 8.4(b), the Borrower shall, simultaneously
in connection with such sale, transfer or other disposition, prepay the
Term Loan in an amount equal to the greater of (i) 80% of the orderly
liquidation value of such Equipment, as determined by the appraisal
performed in June 1999 by Collateral Evaluation Associates in connection
with the execution and delivery of this Agreement and the Term Loan
Agreement, or (ii) 100% of the net book value of such Equipment as shown
on the Borrower's most recent balance sheet delivered to the Agent and the
Lenders. Notwithstanding the forgoing, the Borrower shall have prepaid the
Term Loan (x) on or before December 31, 2001 in an amount equal to at
least $1,360,000 relating to the sale, transfer or other disposition of
assets located at the Borrower's Versailles, Missouri facility and (y) on
March 31, 2003 in an amount equal to $560,000 relating to the sale,
transfer or other disposition of assets located at the Borrower's
Sandusky, Ohio facility; it being understood that to the extent the
Borrower sells, transfers or otherwise disposes (A) Equipment located at
the Versailles facility after December 31, 2001 and has made the
prepayment pursuant to clause (x) above or (B) Equipment located at the
Sandusky facility after March 31, 2003 and has made the prepayment
pursuant to clause (y) above, then the Borrower shall not be required to
prepay the Term Loan pursuant to the first sentence hereof with respect to
Equipment thereafter sold, transferred or otherwise disposed at such
facility. Each prepayment of the Term Loan pursuant to this section
2.16(b) shall be applied to the installments of such Term Loan in the
inverse order of the scheduled maturities of such installments.".
Section 2.4 Amendment to Section 7 (Affirmative Covenants). The
following new Section 7.14 is hereby added after Section 7.13:
"7.14 Dixon-Mexico Certifications. The Borrower shall, on or before
the last day of each fiscal quarter, deliver to the Agent and the Lenders
a certificate, in form and substance satisfactory to the Agent and the
Lenders, from the chief financial or accounting officer of the Borrower,
certifying to the Lenders that (i) no defaults or events of default shall
have occurred and be continuing with respect to the Dixon-Mexico
Financing, (ii) Dixon-Mexico has not received a notice of termination,
non-extension or similar notice with respect to the Dixon-Mexico Financing
and (iii) there shall exist no limitation, direct or indirect, on the
ability of Dixon-Mexico to (A) declare or pay any dividend on, or make any
payment on account of, its capital stock or (B) make any payment on
account of any intercompany loan or obligation.".
Section 2.5. Amendment of Section 8.4 (Disposition of Assets).
Section 8.4 of the Credit Agreement is hereby amended by deleting said section
in its entirety and inserting in lieu thereof the following:
"Sell, lease, transfer, convey or otherwise dispose of any of its assets
or property except for (a) sales of Inventory in the ordinary course of
business, (b) sales, transfers or other dispositions to Dixon-Mexico of
Inventory and Equipment in the amounts and from the locations set forth on
Exhibit R, (c) sales of Equipment during any twelve (12) month period with
an aggregate value of less than $100,000; provided, however, that no later
than three (3) Business Days prior to any sale, transfer or other
disposition pursuant to clause (b) above, the Borrower shall deliver to
the Agent and the Lenders a certificate, in form and substance
satisfactory to the Agent and the Lenders, from the chief financial or
accounting officer of the Borrower, certifying to the Lenders that
Dixon-Mexico has obtained committed financing from a financial institution
satisfactory to the Agent and the Lenders in an amount sufficient to
accommodate projected borrowings under the "7-up Case" referred to in the
Projections dated May 16, 2000 and delivered to the Agent and the Lenders
but in no event in an aggregate amount less than the U.S. equivalent of
Fourteen Million U.S. Dollars ($14,000,000) (the "Dixon-Mexico
Financing")."
Section 2.6 Amendment to Section 8.7 (Restrictions on Dividends and
Other Payments). Section 8.7 of the Credit Agreement is hereby amended by
deleting the first proviso in said section.
Section 2.7. Amendment to Section 8.10 (Leverage Ratio). Section
8.10 of the Credit Agreement is hereby amended by deleting said section in its
entirety and inserting in lieu thereof the following:
"Permit the Leverage Ratio to be greater than the ratio shown below for
fiscal quarters ended during the period corresponding thereto:
Dates Ratio
March 31, 2000 through June 30, 2000 7.35 to 1.0
July 1, 2000 through September 30, 2000 5.80 to 1.0
October 1, 2000 through December 31, 2000 5.00 to 1.0
January 1, 2001 through March 31, 2001 5.50 to 1.0
April 1, 2001 through June 30, 2001 5.40 to 1.0
July 1, 2001 through September 30, 2001 4.40 to 1.0
October 1, 2001 through March 31, 2002 3.80 to 1.0
April 1, 2002 through June 30, 2002 4.40 to 1.0
July 1, 2002 through September 30, 2002 3.60 to 1.0
October 1, 2002 through March 31, 2003 3.00 to 1.0
April 1, 2003 through June 30, 2003 3.60 to 1.0
July 1, 2003 and thereafter 3.00 to 1.0".
Section 2.8. Amendment to Section 8.11 (Fixed Charge Coverage
Ratio). Section 8.11 of the Credit Agreement is hereby amended by deleting said
section in its entirety and inserting in lieu thereof the following:
"Permit the Fixed Charge Coverage Ratio to be less than the ratio shown
below for fiscal quarters ended during the period corresponding thereto:
Dates Ratio
June 30, 2000 through March 31, 2001 1.20 to 1.0
April 1, 2001 through June 30, 2001 1.15 to 1.0
July 1, 2001 through September 30, 2001 1.05 to 1.0
October 1, 2001 through March 31, 2002 1.10 to 1.0
April 1, 2002 through June 30, 2002 1.20 to 1.0
July 1, 2002 through March 31, 2003 1.00 to 1.0
April 1, 2003 through June 30, 2003 1.20 to 1.0
July 1, 2003 through March 31, 2004 1.00 to 1.0
April 1, 2004 and thereafter 1.20 to 1.0".
Section 2.9. Amendment to Section 8.18 (Capital Expenditure
Limitation). Section 8.18 of the Credit Agreement is hereby amended by inserting
the following proviso prior to the period at the end thereof: "; provided,
however, in no event shall the aggregate amount of Capital Expenditures exceed
Three Million U.S. Dollars ($3,000,000) in any fiscal year".
Section 2.10. Amendment to Section 8.21 (Funded Debt Limitation).
Section 8.21 of the Credit Agreement is hereby amended by deleting the reference
to "$3,000,000" and inserting in lieu thereof a reference to "$15,000,000".
Section 2.11. Amendment to Section 8 (Negative Covenants). The
following new Section 8.31 is hereby added to the end of Section 8:
"8.31 Interest and Dividend Coverage Ratio. Permit the Consolidated
Interest and Dividend Coverage Ratio to be less than the ratio shown below
for fiscal quarters ended during the period corresponding thereto:
Dates Ratio
June 30, 2000 through June 30, 2001 1.60 to 1.0
July 1, 2001 through June 30, 2002 1.90 to 1.0
July 1, 2002 and thereafter 2.30 to 1.0".
Section 2.12. Amendment to Exhibit A (Borrowing Base/Availability).
(a) Exhibit A to the Credit Agreement is hereby amended by inserting
the following at the end of Section I thereto:
"The Agent hereby establishes a reserve against the Borrowing Base in an
amount equal to Two Million U.S. Dollars ($2,000,000) which reserve shall
be in effect during the term of the Agreement (the "Minimum Availability
Reserve").
Until such time as the Subordinated Debt shall have been paid in full and
completely discharged, in addition to the reserve established pursuant to
the forgoing paragraph, the Agent hereby establishes an additional reserve
against the Borrowing Base (the "Subordinated Debt Reserve"). The
Subordinated Debt Reserve shall be maintained in the amounts shown below
during the period corresponding thereto:
Dates Reserve
December 31, 2000 through June 29, 2001 $2,000,000
June 30, 2001 through August 30, 2001 $5,000,000
August 31, 2001 through September 29, 2001 $5,500,000
September 30, 2001 through June 29, 2002 $4,000,000
June 30, 2002 through August 30, 2002 $4,500,000
August 31, 2002 through September 29, 2002 $5,000,000
September 30, 2002 through June 29, 2003 $2,000,000
June 30, 2003 through August 30, 2003 $4,500,000
August 31, 2003 through September 29, 2003 $5,500,000
So long as no Default or Event of Default shall have occurred or be
continuing, and no Default or Event of Default shall exist after giving
effect to the payment by the Borrower of any amount owing under the
Subordinated Debt, the Subordinated Debt Reserve for any period set forth
above may, in the absolute and sole discretion of the Agent and the
Lenders, be reduced on the date of each payment made by the Borrower on
the Subordinated Debt by an amount equal to the amount of the payment so
made; provided that on the first day of any succeeding period set forth
above, the Agent shall again establish a reserve for such period in the
amount set forth above.".
(b) Exhibit A to the Credit Agreement is hereby further amended by
deleting clause (i) in Paragraph I in its entirety and inserting in lieu
thereof the following: "(i) against Eligible Inventory, the sublimit is
initially Twenty Million U.S. Dollars ($20,000,000) and shall be reduced
in conjunction with the sale, transfer or other disposition of Inventory
pursuant to Section 8.4(b) of the Credit Agreement by an amount equal to
57% of the dollar amount assigned to such Inventory in the Borrowing Base
Certificate then in effect, and".
Section 2.13 Amendment to the Credit Agreement. The Credit Agreement
is hereby amended by inserting a new Exhibit R in the form of Exhibit A attached
hereto.
ARTICLE III
EFFECTIVE DATE
This Fourth Modification shall become effective as of the date
hereof but only upon (a) receipt by the Agent of counterparts of this Fourth
Modification, duly executed and delivered by the Borrowers, the other Loan
Parties, the Agent and the Lenders, (b) receipt by the Agent of the Second
Modification, dated as of the date hereof, to the Term Loan Agreement, duly
executed and delivered by the Borrowers, the other Loan Parties, the Agent and
the Lenders, (c) receipt by the Agent of a true and correct copy of the
Amendment No. 2, dated as of the date hereof, to the Note and Warrant Purchase
Agreement, dated as of September 26, 1996, as amended (the "Note Purchase
Agreement") entered into by and among the Borrowers and the Subordinated
Lenders, which amendment shall be in form and substance satisfactory to the
Agent and the Lenders, (d) receipt by the Agent of that portion of the Amendment
Fee (as defined below) due on the Fourth Modification Effective Date and (e)
receipt by the Agent or its designee of payment in full in cash of the invoiced
and unpaid fees and expenses of the Agent's professionals.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Continuing Effect of the Credit Agreement. The Borrowers
and the other Loan Parties, the Agent and the Lenders hereby acknowledge and
agree that the Credit Agreement shall continue to be and shall remain unchanged
(except as expressly amended herein) and shall be in full force and effect in
accordance with its terms.
Section 4.2 No Waiver; Other Defaults or Events of Default. Nothing
contained in this Fourth Modification shall be construed or interpreted or is
intended as a waiver of any rights, powers, privileges or remedies that the
Agent or the Lenders have or may have under the Credit Agreement or any other
Loan Document.
Section 4.3 Representations and Warranties. The Borrowers hereby
represent and warrant as of the date hereof that, after giving effect to this
Fourth Modification, (a) no Default or Event of Default has occurred and is
continuing and (b) all representations and warranties of the Borrowers contained
in the Loan Documents (with such term being deemed to include this Fourth
Modification) are true and correct in all material respects with the same effect
as if made on and as of such date.
Section 4.4 Payment of Fees and Expenses. (a) The Borrowers agree to
pay to the Agent, for the account of each Lender who executes this Amendment on
a pro rata basis, a fee in an amount equal to $206,875 (the "Amendment Fee").
The Amendment Fee shall be deemed to be earned on the Fourth Modification
Effective Date and shall be payable as follows: (i) 1/3 on the Fourth
Modification Effective Date, (ii) 1/3 on September 30, 2000 and (iii) 1/3 on
December 31, 2000.
(b) The Borrowers agree to pay or reimburse the Agent on demand for
all its reasonable out-of-pocket costs and expenses incurred in connection
with the preparation and execution of this Fourth Modification, including,
without limitation, the reasonable fees and disbursements of counsel to
the Agent.
Section 4.5 Counterparts. This Fourth Modification may be executed
by the parties hereto in any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
Section 4.6 GOVERNING LAW. THIS FOURTH MODIFICATION AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES UNDER THIS FOURTH MODIFICATION SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
NEW YORK.
Section 4.7 Consent of Loan Parties. Each Loan Party hereby (i)
consents to the transactions contemplated hereby and (ii) acknowledges and
agrees that the Credit Agreement and the Guarantees (and all collateral security
therefor) are, and shall remain, in full force and effect after giving effect to
this Fourth Modification and all other prior modifications to the Credit
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Modification to be duly executed and delivered by their proper and duly
authorized officers as of the date first above written.
DIXON TICONDEROGA COMPANY
By: /s/ Richard A. Asta
Title: Treasurer
DIXON TICONDEROGA INC.
By: /s/ Richard A. Asta
Title: Treasurer
FIRST UNION COMMERCIAL CORPORATION, as Agent and a
Lender
By: /s/ Scott Goldstein
Title: Vice President
FLEET CAPITAL CORPORATION, as a Lender
By: /s/ Christopher Nairne
Title: Assistant Vice President
LASALLE BANK, NATIONAL ASSOCIATION, as a Lender
By: /s/ Roger N. Arsham
Title: Vice President
ACKNOWLEDGED AND AGREED
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) l
SECOND MODIFICATION OF AMENDED AND RESTATED
TERM LOAN AGREEMENT
THIS SECOND MODIFICATION dated as of August 4, 2000 (this "Second
Modification") of Amended and Restated Term Loan Agreement dated as of July 10,
1996, as amended by the First Modification of Amended and Restated Term Loan
Agreement and Assignment dated as of September 30, 1999 (the "Credit
Agreement"), among Dixon Ticonderoga Company ("Dixon Ticonderoga") and Dixon
Ticonderoga, Inc. ("DT Canada"), as Borrowers (collectively, the "Borrowers"),
the lenders named therein (the "Lenders") and First Union Commercial
Corporation, as Agent (in such capacity, the "Agent").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, pursuant to the Credit Agreement, the Lenders have made
Loans and other extensions of credit to the Borrowers which remain outstanding;
WHEREAS, the Borrowers have requested that the Agent and the
Lenders, and the Agent and the Lenders are willing to, amend certain covenants
contained in the Credit Agreement, but only on the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms. Unless otherwise defined herein,
capitalized terms used herein have the meanings assigned in the Credit
Agreement.
ARTICLE II
AMENDMENTS
Section 2.1. Amendment to Section 1.1 (Defined Terms). Section 1.1
of the Credit Agreement is hereby amended by adding the following new
definitions in the alphabetically appropriate places:
"Second Modification" means the Second Modification of Amended and
Restated Term Loan Agreement, dated as of August 4, 2000.
"Second Modification Effective Date" means the first date on which
the conditions precedent specified in Article III of the Second
Modification shall have been satisfied or the satisfaction thereof shall
have been waived in accordance with the terms hereof.
Section 2.2. Amendment to Section 3 (Payments). The following new
Section 3.7 is hereby added after Section 3.6.
"3.7 Prepayments. If the Borrower sells, transfers or otherwise
disposes of any Equipment pursuant to section 8.4(b) of the Revolving
Credit Agreement (as amended by the Fourth Modification), the Borrower
shall, simultaneously in connection with such sale, transfer or other
disposition, prepay the Term Loan in an amount equal to the greater of (i)
80% of the orderly liquidation value of such Equipment, as determined by
the appraisal performed in June 1999 by Collateral Evaluation Associates
in connection with the execution and delivery of this Agreement and the
Revolving Credit Agreement, or (ii) 100% of the net book value of such
Equipment as shown on the Borrower's most recent balance sheet delivered
to the Agent and the Lenders Notwithstanding the forgoing, the Borrower
shall have prepaid the Term Loan (x) on or before December 31, 2001 in an
amount equal to at least $1,360,000 relating to the sale, transfer or
other disposition of assets located at the Borrower's Versailles, Missouri
facility and (y) on March 31, 2003 in an amount equal to $560,000 relating
to the sale, transfer or other disposition of assets located at the
Borrower's Sandusky, Ohio facility; it being understood that to the extent
the Borrower sells, transfers or otherwise disposes (A) Equipment located
at the Versailles facility after December 31, 2001 and has made the
prepayment pursuant to clause (x) above or (B) Equipment located at the
Sandusky facility after March 31, 2003 and has made the prepayment
pursuant to clause (y) above, then the Borrower shall not be required to
prepay the Term Loan pursuant to the first sentence hereof with respect to
Equipment thereafter sold, transferred or otherwise disposed at such
facility. Each prepayment of the Term Loan pursuant to this Section 3.7
shall be applied to the installments of such Term Loan in the inverse
order of the scheduled maturities of such installments.".
ARTICLE III
EFFECTIVE DATE
This Second Modification shall become effective as of the date
hereof but only upon (a) receipt by the Agent of counterparts of this Second
Modification, duly executed and delivered by the Borrowers, the other Loan
Parties, the Agent and the Lenders, (b) receipt by the Agent of the Fourth
Modification, dated as of the date hereof, to the Revolving Credit Agreement,
duly executed and delivered by the Borrowers, the other Loan Parties, the Agent
and the Lenders, (c) receipt by the Agent of a true and correct copy of the
Amendment No. 2, dated as of the date hereof, to the Note and Warrant Purchase
Agreement dated as of September 26, 1996, as amended (the "Note Purchase
Agreement") entered into by and among the Borrowers and the Subordinated
Lenders, which a Amendment shall be in form and substance satisfactory to the
Agent and the Lenders, (d) receipt by the Agent of that portion of the Amendment
Fee (as defined below) due on the Second Modification Effective Date and (e)
receipt by the Agent or its designee of payment in full in cash of the invoiced
and unpaid fees and expenses of the Agent's professionals.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Continuing Effect of the Credit Agreement. The Borrowers
and the other Loan Parties, the Agent and the Lenders hereby acknowledge and
agree that the Credit Agreement shall continue to be and shall remain unchanged
(except as expressly amended herein) and shall be in full force and effect in
accordance with its terms.
Section 4.2 No Waiver; Other Defaults or Events of Default. Nothing
contained in this Second Modification shall be construed or interpreted or is
intended as a waiver of any rights, powers, privileges or remedies that the
Agent or the Lenders have or may have under the Credit Agreement or any other
Loan Document.
Section 4.3 Representations and Warranties. The Borrowers hereby
represent and warrant as of the date hereof that, after giving effect to this
Second Modification, (a) no Default or Event of Default has occurred and is
continuing and (b) all representations and warranties of the Borrowers contained
in the Loan Documents (with such term being deemed to include this Second
Modification) are true and correct in all material respects with the same effect
as if made on and as of such date.
Section 4.5 Counterparts. This Second Modification may be executed
by the parties hereto in any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
Section 4.6 GOVERNING LAW. THIS SECOND MODIFICATION AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES UNDER THIS SECOND MODIFICATION SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
NEW YORK.
Section 4.7 Consent of Loan Parties. Each Loan Party hereby (i)
consents to the transactions contemplated hereby and (ii) acknowledges and
agrees that the Credit Agreement and the Guarantees (and all collateral security
therefor) are, and shall remain, in full force and effect after giving effect to
this Second Modification and all other prior modifications to the Credit
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Modification to be duly executed and delivered by their proper and duly
authorized officers as of the date first above written.
DIXON TICONDEROGA COMPANY
By: /s/ Richard A. Asta
Title: Treasurer
DIXON TICONDEROGA INC.
By: /s/ Richard A. Asta
Title: Treasurer
FIRST UNION COMMERCIAL CORPORATION, as Agent and a
Lender
By: /s/ Scott Goldstein
Title: Vice President
FLEET CAPITAL CORPORATION, as a Lender
By: /s/ Christopher Nairne
Title: Assistant Vice President
LASALLE BANK, NATIONAL ASSOCIATION, as a Lender
By: /s/ Roger N. Arsham
Title: Vice President
ACKNOWLEDGED AND AGREED
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) m
DIXON TICONDEROGA COMPANY
195 INTERNATIONAL PARKWAY
HEATHROW, FLORIDA 32746
Dated as of August 4, 2000
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A
Amendment No. 2 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, as amended by Amendment No. 1, dated as of November
18, 1999 (as so amended, 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 Notes, 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 7. Section 7 of the Note
Agreement is hereby amended by renumbering paragraphs (e) through (j) as
paragraphs (f) through (k) and inserting a new paragraph (e) after paragraph (d)
as follows:
"(e) not later than thirty days after the end of each month, (x)
consolidated balance sheets of the Company and its Subsidiaries as at the
end of such month and related consolidated statements of income and cash
flows of the Company and its Subsidiaries for such month, setting forth in
each case in comparative form the consolidated figures for the
corresponding months of the previous fiscal year, all in reasonable detail
and certified by a principal financial officer of the Company as
presenting fairly, in accordance with generally accepted accounting
principles (except for the absence of notes thereto and the statement of
stockholders' equity and cash flows) applied (except as specifically set
forth therein) on a basis consistent with such prior fiscal periods, the
information contained therein, subject to changes resulting from normal
year-end adjustments, (y) a comparison of actual results to original
budget and (z) such supplemental information as the holders of the Notes
may reasonably request;"
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 $15,000,000; provided that any increase in the Debt of Dixon
Mexico above $8,000,000 may be incurred only to the extent that assets are
transferred to or otherwise acquired by Dixon Mexico to support such Debt;
and provided, further, that the Debt of the Company and its Subsidiaries
under the Credit Agreement is reduced to the extent necessary to conform
to the limits on availability set forth therein;"
1.3. Amendment of Section 10.3. Section 10.3 of the Note Agreement
is hereby amended to delete the word "and" at the end of paragraph (f), renumber
paragraph (g) as paragraph (h) and insert a new paragraph (g) as follows:
"(g) the Company may make and own Investments in a wholly-owned
Subsidiary in China engaged in pencil slat manufacturing or, if local
requirements prevent it from conducting its pencil slat venture in China
through a wholly-owned Subsidiary, the Company may make and own
investments in a pencil slat manufacturing facility in China, in either
case in an aggregate amount not to exceed $1,500,000; and"
1.4. Amendment of Section 10.4(a). Section 10.4(a) of the Note
Agreement is hereby amended and restated to read in its entirety as follows:
"(a) The Company will not directly or indirectly declare, order,
pay, make or set apart any sum or property for any Restricted Payment, and the
Company will not and will not permit any Subsidiary to make or become obligated
to make any Restricted Investment."
1.5. Amendment of Section 10.4(c). Section 10.4(c) of the Note
Agreement is hereby deleted in its entirety.
1.6. 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, 1996 and on or prior to September 30, 1997); 2.25 to
1.0 (if the date of determination occurs after September 30, 1997 and on
or prior to September 30, 1998); 2.30 to 1.0 (if the date of determination
occurs after September 30, 1998 and on or prior to September 30, 1999);
1.60 to 1.0 (if the date of determination occurs after September 30, 1999
and on or prior to June 30, 2001); 1.9 to 1.0 (if the date of
determination occurs after June 30, 2001 and on or prior to June 30,
2002); and 2.30 to 1.0 (if the date of determination occurs after June 30,
2002)."
1.7. Amendment of Section 10.8(c). Section 10.8(c) of the Note
Agreement is hereby amended and restated to read in its entirety as follows:
"(c) sell, lease, abandon or otherwise dispose of any of its assets
(except in a transaction permitted by subdivision (b) of this section
10.8), except that
(i) the Company and its Subsidiaries may sell their goods
and transfer goods to each other in the ordinary course of business;
(ii) the Company and its Subsidiaries may dispose of obsolete
inventory and equipment in the ordinary course of business and idle
assets, principally buildings, left vacant due to the Company's
consolidation program and may transfer other assets to Dixon Mexico
in connection with the Company's consolidation program; and
(iii) the Company and its Subsidiaries may sell additional
assets, in each case for a consideration at least 85% of which is in
the form of cash or cash equivalents of the type described in
section 10.3(a), if such consideration is at least equal to the Fair
Market Value of the assets to be sold and if the proceeds thereof
shall, on or prior to the 180th day following such sale, be applied
either
(x) to make a Permitted Acquisition; or
(y) to the prepayment of Debt of the Company, first
to Superior Debt of the Company and second to the Notes in the
manner contemplated by section 9.5;
it being agreed that if the Company shall not prior to such 180th
day have performed or given notice to the holders of the Notes of
its election to perform under one of the foregoing clauses (x) or
(y), it shall be deemed to have elected to perform the obligation
set forth in the foregoing clause (y), and the provisions of section
9.5 shall be applicable;
provided that in no event shall the Company sell assets comprising all or
substantially all of the assets of the Consumer Products Group or Dixon
Mexico."
1.8. Additional Section 10.17. The following section is hereby added
immediately following section 10.16 of the Note Agreement:
"10.17. Capital Expenditures. The Company will not, and will not
permit any of its Subsidiaries to, make any Capital Expenditure, except
that the Company and its Subsidiaries may make Capital Expenditures if the
aggregate amount of all such Capital Expenditures in the then current
fiscal year of the Company, calculated as of the date of each such Capital
Expenditure, shall not exceed $3,000,000."
1.9. Amendment of Certain Definitions. The definition of "Excess
Sale Proceeds" in section 14 of the Note Agreement is hereby amended to delete
the reference therein to section 10.8(c)(iv)(y) and insert in its place a
reference to section 10.8(c)(iii)(y), and the following defined term is hereby
amended and restated to read in its entirety as follows:
"Interest Expense: as applied to any Person with reference to any
period, interest expense of such Person for such period, including
amortization of debt discount and expense and imputed interest on Capital
Lease Obligations properly chargeable to income during such period in
accordance with generally accepted accounting principles, provided that
Interest Expense shall not include any expense chargeable to income
resulting from a reduction of the exercise price of the Warrants."
1.10. Additional Definitions. The following defined terms are hereby
added to section 14 of the Note Agreement in the appropriate alphabetical order:
"Capital Expenditures: for any period, the aggregate cost (less the
amount of trade-in allowance included in such cost) of all capital assets
(as defined by generally accepted accounting principles applied on a
consistent basis) acquired by the Company during such period, plus all
Capital Lease Obligations with respect to any Capital Lease entered into,
renewed, assumed or guaranteed by the Company during such period.
"Permitted Acquisition: the acquisition of the business or
substantially all of the assets or stock of any Person, provided that the
following conditions are met:
(a) the total purchase price for any one such acquisition shall
not exceed $5,000,000, and the aggregate purchase price for all such
acquisitions made in any fiscal year shall not exceed $10,000,000;
(b) the Company shall give the holders of the Notes 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;
(c) the assets or business to be acquired shall be in
substantially the same or similar line of business as that engaged
in by the Company;
(d) no condition or event shall exist which constitutes an
Event of Default or Potential Event of Default prior to or
immediately after giving effect to such acquisition; and
(e) the Company shall have delivered to the holders of the
Notes 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.
"PIK Notes: additional Notes issued from time to time hereafter
pursuant to the Notes as amended, in respect of interest on the Notes
payable in kind, in the form of Exhibit E."
1.11. Adjustment of Warrant Exercise Price. On the date which is the
day following the thirtieth Trading Day (as hereinafter defined) following the
date hereof, the Warrant Price (as defined in the Warrants) will be adjusted to
the lower of (a) $6.74 and (b) the average daily closing price for the Common
Stock on the American Stock Exchange during such 30 Trading Days; whereupon the
Warrant Price will be so adjusted, until further adjusted from time to time in
accordance with the terms of the Warrants. For purposes of this section 1.10,
"Trading Days" means days during which the American Stock Exchange was open for
trading.
1.12. Amendment of Exhibits. Exhibit A to the Note Agreement is
hereby amended and restated to read in its entirety as set forth in Exhibit A
attached to this Amendment No. 2. A new Exhibit E is hereby added to the Note
Agreement in the form attached to this Amendment No. 2.
1.13. References to "Notes". From and after the effectiveness of
this Amendment No. 2 and the execution and delivery of the amended Notes as
contemplated by Section 3.3, any reference to the "Notes" in the Note Agreement
and in the Guaranty Agreement shall be deemed to refer to the Notes as amended
pursuant to this Amendment No. 2 and shall be deemed also to refer to the PIK
Notes.
2. Limited Waiver. The Purchasers hereby waive compliance with the
covenants set forth in section 10.4 of the Note Agreement for the quarters ended
December 31, 1999 and March 31, 2000, only to the extent that such default was
caused by the Company making repurchases of stock through March 31, 2000 while
an Event of Default was continuing. The Company represents and warrants that,
except for the Company's non-compliance with section 10.4 of the Note Agreement,
no condition or event exists which constitutes an Event of Default or Potential
Event of Default. This waiver is limited to the matters described herein and may
not be construed to extend to any other or subsequent matters, whether or not
disclosed.
3. Conditions to Effectiveness. The effectiveness of the amendments,
waivers and other agreements contemplated hereby is subject to the fulfillment
to the satisfaction of the Purchasers of the following conditions:
3.1. 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.
3.2. 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.
3.3. Amended Notes. The Company shall have executed and delivered to
each of the Purchasers an amended Note, substantially in the form set out in
Exhibit A, in the principal amount specified opposite each such Purchaser's name
in Schedule A (in each case against surrender by such Purchaser of the original
Note being replaced by such amended Note), and in each case having attached
thereto an amended endorsement of Guaranty executed by the Subsidiaries of the
Company.
3.4. 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 signed 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.
3.5. Guaranties. The Company shall have caused each Subsidiary of
Dixon Mexico to execute and deliver to the holders of the Notes a Guaranty
Agreement with respect to the obligations of the Company under the Note
Agreement and the Notes, substantially in the form of Exhibit D to the Note
Agreement, with such changes to such form as may be appropriate to reflect the
identity and circumstances of the guarantor.
3.6. 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.
3.7. 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.
3.8. Fees. (a) The Company shall have paid to each Purchaser (or to
the Person designated by such Purchaser for payment in Schedule A of the Note
Agreement), in immediately available funds, a transaction fee equal to the
amount listed under "Fees" in Schedule A hereof, by crediting the account
specified below its name in Schedule A of the Note Agreement 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.
4. Ratification. Except as amended hereby, all of the provisions of
the Note Agreement shall remain in full force and effect.
5. 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 appear 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, Treasurer
The foregoing Amendment is hereby agreed to as of the date hereof.
THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES
By: /s/ James R. Wilson
Name: James R. Wilson
Title: Investment Officer
JOHN HANCOCK LIFE INSURANCE COMPANY, formerly
known as JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
By: /s/ Daniel C. Budde
Name: Daniel C. Budde
Title: Managing Director
SIGNATURE 1A (CAYMAN), LTD.
By: John Hancock Life Insurance Company,
Portfolio Advisor
By: /s/ Daniel C. Budde
Name: Daniel C. Budde
Title: Managing Director
SCHEDULE A
SCHEDULE OF PURCHASERS
Name and Address
of Purchaser Fees
------------ ----
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
UNITED STATES $27,272.73
JOHN HANCOCK LIFE INSURANCE COMPANY $10,606.06
SIGNATURE 1A (CAYMAN), LTD. $12,121.21
EXHIBIT A
DIXON TICONDEROGA COMPANY
AMENDED SENIOR SUBORDINATED NOTE DUE SEPTEMBER 26, 2003
PPN# 255860 A*9
R- New York, New York
$ September 26, 1996
DIXON TICONDEROGA COMPANY, a Delaware corporation (the "Company"),
for value received, hereby promises to pay to _____________, or registered
assigns, the principal amount of $_____________ on September 26, 2003, with
interest (computed on the basis of twelve 30-day months) on the unpaid balance
of such principal amount at the Applicable Rate (as hereinafter defined) from
the date hereof, payable semi-annually on each March 31 and September 30 after
the date hereof, commencing March 31, 1997, until such unpaid balance shall
become due and payable (whether at maturity or at a date fixed for prepayment or
by declaration or otherwise), and with interest on any overdue principal
(including any overdue prepayment of principal) and premium, if any, and (to the
extent permitted by applicable law) on any overdue interest, at a rate equal to
the Applicable Rate then in effect plus 2.00% per annum until paid, payable
semi-annually as aforesaid or, at the option of the holder hereof, on demand.
Payments of principal and interest on this Note shall be made in lawful money of
the United States of America at the principal office of The Chase Manhattan
Bank, N.A., in the Borough of Manhattan, the City and State of New York, or at
such other office or agency in such Borough as the Company shall have designated
by written notice to the holder of this Note as provided in the Note and Warrant
Purchase Agreements referred to below.
The term "Applicable Rate" as used herein with respect to any date
on which interest is payable, means an interest rate per annum equal to (a) for
the period from September 26, 1996 to July 9, 2000, 12.00%, (b) for the period
from July 10, 2000 to June 30, 2002, 13.50% and (c) for the period from and
after July 1, 2002, 12.25%.
On any interest payment date, the Company shall, with respect to any
portion of the interest payable on such interest payment date which is
attributable to the excess of the Applicable Rate over 12.00% for the
semi-annual period ending on such interest payment date (the "Excess Portion"),
in lieu of the cash payment of the Excess Portion, issue to the holder of this
Note an additional Note, in the form of Exhibit E to the Note and Warrant
Purchase Agreements referred to below, having a principal amount equal to the
Excess Portion, in full payment of the Excess Portion.
This Note is one of the Company's Amended Senior Subordinated Notes
due September 26, 2003 (the "Notes"), originally issued in the aggregate
principal amount of $16,500,000 on September 26, 1996 pursuant to the Note and
Warrant Purchase Agreements, each dated as of September 26, 1996, and amended by
Amendment No. 1 thereof, dated as of November 18, 1999, and Amendment No. 2
thereof, dated as of August 4, 2000, and as from time to time further amended,
between the Company and certain institutional investors named therein. The
holder of this Note is entitled to the benefits of such Note and Warrant
Purchase Agreements, as from time to time amended, and may enforce the
agreements of the Company contained therein and exercise the remedies provided
for thereby or otherwise available in respect thereof.
This Note is a registered Note and is transferable only upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the holder
hereof or such holder's attorney duly authorized in writing. Reference in this
Note to a "holder" shall mean the person in whose name this Note is at the time
registered on the register kept by the Company as provided in such Note and
Warrant Purchase Agreements and the Company may treat such person as the owner
of this Note for the purpose of receiving payment and for all other purposes,
and the Company shall not be affected by any notice to the contrary.
The holder of this Note is entitled to the benefits of a certain
Guaranty Agreement, dated as of September 26, 1996, by Dixon Ticonderoga, Inc.,
a corporation organized under the laws of Ontario, Canada, Dixon Europe,
Limited, a corporation organized under the laws of the United Kingdom, Grupo
Dixon de Mexico, S.A. de C.V., f/k/a Dixon Ticonderoga Company de Mexico, S.A.
de C.V., a corporation organized under the laws of Mexico, Bryn Mawr Ocean
Resorts, Inc., a Florida corporation, and Ticonderoga Graphite Inc., a New York
corporation, subsidiaries of the Company, and a certain Guaranty Agreement,
dated as of August 4, 2000, by Grupo Dixon de Mexico, S.A. de C.V., Vinci de
Mexico, S.A. de C.V., Vinci Manufactura, S.A. de C.V., Comercializadora Dixon,
S.A. de C.V., Servidix, S.A. de C.V., Dixon Industrial Mexico, S.A. de C.V. and
Dixon Ticonderoga de Mexico, S.A. de C.V., each a corporation organized under
the laws of Mexico.
The indebtedness evidenced by this instrument is subordinated to the
prior payment in full of the Superior Debt (as defined in such Note and Warrant
Purchase Agreements) pursuant to, and to the extent provided in, such Note and
Warrant Purchase Agreements.
The Notes are under certain circumstances subject to required and
optional prepayment, in whole or in part, in certain cases with a premium and in
other cases without a premium, all as specified in such Note and Warrant
Purchase Agreements.
In case an Event of Default, as defined in such Note and Warrant
Purchase Agreement, shall occur and be continuing, the unpaid balance of the
principal of this Note may become due and payable in the manner and with the
effect provided in such Note and Warrant Purchase Agreements.
This Note is made and delivered in New York, New York, and shall be
governed by the laws of the State of New York.
DIXON TICONDEROGA COMPANY
EXHIBIT E
[FORM OF PIK NOTE]
DIXON TICONDEROGA COMPANY
AMENDED SENIOR SUBORDINATED NOTE DUE SEPTEMBER 26, 2003
PPN# 255860 A*9
R- New York, New York
$ ___________, 20__
DIXON TICONDEROGA COMPANY, a Delaware corporation (the "Company"),
for value received, hereby promises to pay to _____________, or registered
assigns, the principal amount of $_____________ on September 26, 2003, with
interest (computed on the basis of twelve 30-day months) on the unpaid balance
of such principal amount at the Applicable Rate (as hereinafter defined) from
the date hereof, payable semi-annually on each March 31 and September 30 after
the date hereof, commencing [March 31] [September 30], 20__, until such unpaid
balance shall become due and payable (whether at maturity or at a date fixed for
prepayment or by declaration or otherwise), and with interest on any overdue
principal (including any overdue prepayment of principal) and premium, if any,
and (to the extent permitted by applicable law) on any overdue interest, at a
rate equal to the Applicable Rate then in effect plus 2.00% per annum until
paid, payable semi-annually as aforesaid or, at the option of the holder hereof,
on demand. Payments of principal and interest on this Note shall be made in
lawful money of the United States of America at the principal office of The
Chase Manhattan Bank, N.A., in the Borough of Manhattan, the City and State of
New York, or at such other office or agency in such Borough as the Company shall
have designated by written notice to the holder of this Note as provided in the
Note and Warrant Purchase Agreements referred to below.
The term "Applicable Rate" as used herein with respect to any date
on which interest is payable, means an interest rate per annum equal to (a) for
the period from July 10, 2000 to June 30, 2002, 13.50% and (b) for the period
from and after July 1, 2002, 12.25%.
On any interest payment date, the Company shall, with respect to any
portion of the interest payable on such interest payment date for the
semi-annual period ending on such interest payment date (the "PIK Interest"), in
lieu of the cash payment of the PIK Interest, issue to the holder of this Note
an additional Note having a principal amount equal to the PIK Interest and
otherwise of like tenor to this Note, in full payment of the PIK Interest.
This Note is one of the Company's Amended Senior Subordinated Notes
due September 26, 2003 (the "Notes"), originally issued in the aggregate
principal amount of $16,500,000 on September 26, 1996 pursuant to the Note and
Warrant Purchase Agreements, each dated as of September 26, 1996, and amended by
Amendment No. 1 thereof, dated as of November 18, 1999, and Amendment No. 2
thereof, dated as of August 4, 2000, and as from time to time further amended,
between the Company and certain institutional investors named therein. The
holder of this Note is entitled to the benefits of such Note and Warrant
Purchase Agreements, as from time to time amended, and may enforce the
agreements of the Company contained therein and exercise the remedies provided
for thereby or otherwise available in respect thereof.
This Note is a registered Note and is transferable only upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the holder
hereof or such holder's attorney duly authorized in writing. Reference in this
Note to a "holder" shall mean the person in whose name this Note is at the time
registered on the register kept by the Company as provided in such Note and
Warrant Purchase Agreements and the Company may treat such person as the owner
of this Note for the purpose of receiving payment and for all other purposes,
and the Company shall not be affected by any notice to the contrary.
The holder of this Note is entitled to the benefits of a certain
Guaranty Agreement, dated as of September 26, 1996, by Dixon Ticonderoga, Inc.,
a corporation organized under the laws of Ontario, Canada, Dixon Europe,
Limited, a corporation organized under the laws of the United Kingdom, Grupo
Dixon de Mexico, S.A. de C.V., f/k/a Dixon Ticonderoga Company de Mexico, S.A.
de C.V., a corporation organized under the laws of Mexico, Bryn Mawr Ocean
Resorts, Inc., a Florida corporation, and Ticonderoga Graphite Inc., a New York
corporation, subsidiaries of the Company, and a certain Guaranty Agreement,
dated as of August 4, 2000, by Grupo Dixon de Mexico, S.A. de C.V., Vinci de
Mexico, S.A. de C.V., Vinci Manufactura, S.A. de C.V., Comercializadora Dixon,
S.A. de C.V., Servidix, S.A. de C.V., Dixon Industrial Mexico, S.A. de C.V. and
Dixon Ticonderoga de Mexico, S.A. de C.V., each a corporation organized under
the laws of Mexico.
The indebtedness evidenced by this instrument is subordinated to the
prior payment in full of the Superior Debt (as defined in such Note and Warrant
Purchase Agreements) pursuant to, and to the extent provided in, such Note and
Warrant Purchase Agreements.
The Notes are under certain circumstances subject to required and
optional prepayment, in whole or in part, in certain cases with a premium and in
other cases without a premium, all as specified in such Note and Warrant
Purchase Agreements.
In case an Event of Default, as defined in such Note and Warrant
Purchase Agreement, shall occur and be continuing, the unpaid balance of the
principal of this Note may become due and payable in the manner and with the
effect provided in such Note and Warrant Purchase Agreements.
This Note is made and delivered in New York, New York, and shall be
governed by the laws of the State of New York.
DIXON TICONDEROGA COMPANY
Exhibit (21)
2000 ANNUAL REPORT ON FORM 10-K
SUBSIDIARIES OF THE COMPANY
All of the Registrant's subsidiaries as of September 30, 2000, are listed below.
Subsidiaries of a subsidiary are indented. All subsidiaries are included in the
consolidated financial statements of the Registrant.
Percentage of
State Or Voting
Jurisdiction of Securities
Organization 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%
Comercializadora Dixon, S.A. de C.V.
(Subsidiary of Grupo Dixon, S.A. de C.V.) Mexico 100%
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%
Beijing Dixon Ticonderoga Stationery Company, Ltd. China 100%
Ticonderoga Graphite, Inc. (a) New York 100%
Dixon Europe, Limited United Kingdom 100%
(a) Inactive