-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O4RBUcnnob1DU2K9KzhihE6vqt0eIAVKA3Pt3HHiz2L3G0wLtLYPbAOHrheL5gfz CPYi46aM08FicppWY7YZ0Q== 0000014995-03-000027.txt : 20031229 0000014995-03-000027.hdr.sgml : 20031225 20031229121151 ACCESSION NUMBER: 0000014995-03-000027 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031229 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIXON TICONDEROGA CO CENTRAL INDEX KEY: 0000014995 STANDARD INDUSTRIAL CLASSIFICATION: PENS, PENCILS & OTHER ARTISTS' MATERIALS [3950] IRS NUMBER: 230973760 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08689 FILM NUMBER: 031074687 BUSINESS ADDRESS: STREET 1: 195 INTERNATIONAL PKWY STREET 2: STE 200 CITY: HEATHROW STATE: FL ZIP: 32746-5036 BUSINESS PHONE: 4078759000 MAIL ADDRESS: STREET 1: PO BOX 958413 STREET 2: STE 200 CITY: HEATHROW STATE: FL ZIP: 32795-8413 FORMER COMPANY: FORMER CONFORMED NAME: BRYN MAWR CORP/DE/ DATE OF NAME CHANGE: 19831002 FORMER COMPANY: FORMER CONFORMED NAME: BRYN MAWR GROUP INC DATE OF NAME CHANGE: 19730619 FORMER COMPANY: FORMER CONFORMED NAME: BRYN MAWR CAMP RESORTS INC DATE OF NAME CHANGE: 19700608 10-K 1 form10k2003.txt FORM 10-K FOR PERIOD ENDED SEPTEMBER 30, 2003 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, 2003 Commission file number 1-8689 ------------------ ------ DIXON TICONDEROGA COMPANY - -------------------------------------------------------------------------------- (Exact name of Company as specified in its charter) Form 10-K - --------- X Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange - --- Act of 1934 (Fee Required) for the fiscal year ended September 30, 2003. Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 (No Fee Required) for the transaction period - --- from _____ to _____. Delaware 23-0973760 - --------------------------------------------- --------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 195 International Parkway, Heathrow, FL 32746 - --------------------------------------------- --------------------------------- (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 ----------------------------- ----------------------- 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 9, 2003, the aggregate market value of the voting stock held by non-affiliates of the Company was $7,760,188. Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of December 9, 2003: 3,202,149 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, 2003. PART I ------ ITEM 1. BUSINESS -------- RECENT EVENTS AND BUSINESS STRATEGIES ------------------------------------- Dixon Ticonderoga Company (hereinafter the "Company") achieved significantly improved operating results in fiscal 2003 as a result of its strategic initiatives over the past several years aimed at improving profitability through the rationalization of manufacturing operations and other cost reduction efforts. The Company's operating income increased approximately $1.8 million in the current fiscal year. The Company has continued its emphasis on debt reduction following the successful restructuring of its senior and subordinated debt arrangements in early fiscal 2003. Total long-term debt and notes payable have been reduced by approximately $9 million or 21% since the end of fiscal 2001. The final phase of the Company's aggressive manufacturing consolidation initiative was also completed in fiscal 2003, resulting in the shutdown of its Sandusky, Ohio manufacturing facility. As a further cost reduction strategy, in fiscal 2003 the Company entered into a distribution arrangement with a third party logistics partner located in Statesville, North Carolina. In addition, the Company's China subsidiary, Beijing Dixon Ticonderoga Stationery Company, Ltd., continued its expansion in 2003. The subsidiary not only increased further its production of wood slats used by the U.S. and Mexico in pencil manufacturing, but also began to produce colored and graphite pencils for export sale. This entity also acts as a sourcing arm, providing certain new and innovative products for international sale, while assisting in securing other critical raw materials used in production in the U.S. and Mexico. Effective July 2003, the Company completed the sale of its last Industrial Group business, its New Castle Refractories division, to local management. The Company received proceeds of approximately $3 million, used to reduce senior debt, and a note receivable in the amount of $500,000. (See Note 13 to Consolidated Financial Statements.) Further information regarding these matters is included elsewhere in this Annual Report on Form 10-K.
COMPANY ORGANIZATION -------------------- Dixon Ticonderoga Company (Parent) ----------------------------------------------------------------------- | | | | | | | | | | | | | | | Dixon Dixon Dixon Industrial Beijing Dixon Ticonderoga Ticonderoga, Europe, Ltd. Mexico, S.A. de C.V. Ticonderoga Graphite, Inc. Canada (Wholly-Owned) /Inactive(Wholly-Owned) Stationery Inc./Inactive (Wholly-Owned) Company, Ltd. (Wholly-Owned) (Wholly-Owned) | | Grupo Dixon, S.A. de C.V. and subsidiaries (97% Owned)
INDUSTRY SEGMENTS ----------------- The Company has one principal continuing business segment: its Consumer Group. This segment's primary operations are the manufacture and sale of writing and drawing pencils, pens, artist materials, felt tip markers, industrial markers, lumber crayons, correction materials and allied products. Certain financial information regarding net revenues, operating profits and identifiable assets for the years ended September 30, 2003, 2002 and 2001, is contained in Note 12 to Consolidated Financial Statements. 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. Through fiscal 2002, the Company manufactured some or all of its Prang(R) brand of soy-bean based and wax crayons, chalks, dry and liquid tempera, water colors and art materials, in Sandusky, Ohio. Commencing in fiscal 2003, these products are manufactured by the Company's majority-owned (97%) subsidiary, Grupo Dixon, S.A. de C.V. (Grupo Dixon). Under a licensing agreement with NASCAR(R), The Company markets pencils and pens with the NASCAR brand and features certain top NASCAR(R) drivers. Also, under an agreement with Warner Bros. Consumer Products, the Company also markets in Canada a line of pencils, pens and related products featuring the famous Looney Tunes(R) and Scooby Doo(R) characters. 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 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 previously manufactured at the Sandusky facility, as well as marker products and modeling clay. Grupo Dixon also manufactures special markers for industrial use, all of which are marketed and sold together with the Prang(R) products discussed above, by the U.S. Consumer division. 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 principally 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 addition, the subsidiary has recently begun to manufacture colored and graphite pencils for export sale. 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, Europe and China) in which its operations are being conducted. INDUSTRIAL GROUP (DISCONTINUED OPERATIONS) - ------------------------------------------ Effective July 2003, the Company completed its sale of the New Castle Refractories division, the last business of its Industrial Group. This division, with plants located in Ohio, Pennsylvania and West Virginia, had manufactured 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. (See Note 13 to Consolidated Financial Statements.) DISTRIBUTION ------------ Consumer products manufactured and/or marketed in the U.S. 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 entered into a strategic distribution arrangement with a third-party located in Statesville, North Carolina early in fiscal 2003. The consumer products manufactured and/or marketed by the Canada, Mexico and Europe subsidiaries are distributed nationally in these countries from leased facilities and sold through wholesalers, distributors, school supply houses and retailers. 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). There were no significant raw material shortages of any consequence during 2003 nor are any expected in the near future. TRADEMARKS, PATENTS AND COPYRIGHTS ---------------------------------- The Company owns a large number of trademarks, patents and copyrights 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 or at risk with respect to the protection of any patent or patent application or the expiration of any patent. SEASONAL ASPECTS OF THE BUSINESS -------------------------------- Greater portions (approximately 61% in 2003) of the Company's sales occur in the third and fourth fiscal quarters of the year due to shipments of back-to-school orders to its distribution network. This practice as well as certain extended customer payment terms, which are standard for this industry, requires the Company to increase its bank borrowings during the period between shipment and payment. COMPETITION ----------- The Company is 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, customer service 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 32 full-time professional employees in the area of quality control and product development. 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 1,596 of which 294 were employed in the United States. The Company does not unlawfully discriminate on the basis of race, color, creed, pregnancy, religion, sex, national origin, age, disability, veteran status, marital status or other characteristics protected by law. ITEM 2. PROPERTIES ---------- The properties of the Company, set forth in the following table are owned and are collateralized under the Company's senior and subordinated debt agreements. The Heathrow, Florida, property, is also 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 ------------------------------------------------------------- -------------- Heathrow, Florida (Corporate Headquarters) 33,000 Versailles, Missouri 120,000 Sandusky, Ohio (Idle) 276,000 Acton Vale, Quebec, Canada (Dixon Ticonderoga Inc.) 32,000 Beijing, China (Beijing Dixon Ticonderoga Stationery Company, Ltd.) 25,000 The Company's Mexico subsidiary leases a 300,000 square-foot facility near Mexico City, used for distribution and certain manufacturing operations, as well as its corporate headquarters. The Company's Canada subsidiary leases 12,000 square feet in Newmarket, Ontario and its Europe subsidiary leases 3,000 square feet in Peterborough, England for distribution and office space. ITEM 3. LEGAL PROCEEDINGS ----------------- The Company believes that there are no pending actions which will have a material adverse effect on the Company's financial condition or results of operations. (Also see Note 14 to Consolidated Financial Statements.) 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 2003 2002 -------------- ---- ---- LOW HIGH LOW HIGH --- ---- --- ---- December 31 $1.15 $1.95 $1.10 $2.50 March 31 1.35 1.95 1.62 1.75 June 30 1.62 3.50 1.45 2.00 September 30 2.84 4.05 1.10 1.63 The Board of Directors has indefinitely suspended the payment of dividends which is also restricted under the Company's new debt agreements. (See Note 4 to Consolidated Financial Statements.) The number of record holders of the Company's common stock at December 5, 2003 was 412.
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES FOR THE FIVE YEARS ENDED SEPTEMBER 30, 2003 (in thousands, except per share amounts) 2003 2002 2001 2000 1999 ---------- ---------- ---------- ---------- ---------- REVENUES $ 88,838 $ 88,591 $ 88,319 $ 88,867 $ 95,041 ========== ========== ========== ========== ========== INCOME (LOSS) FROM CONTINUING OPERATIONS $ (849) $ (683) $ 620 $ (733) $ 399 INCOME (LOSS) FROM DISCONTINUED OPERATIONS (579) 123 (1,100) (65) 6,283 ---------- ---------- ---------- ---------- ---------- NET INCOME (LOSS) $ (1,428) $ (560) $ (480) $ (798) $ 6,682 ========== ========== ========== ========== ========== EARNINGS (LOSS) PER COMMON SHARE (BASIC): CONTINUING OPERATIONS $ (.27) $ (.22) $ .20 $ (.23) $ .12 DISCONTINUED OPERATIONS (.18) .04 (.35) (.02) 1.83 ---------- ---------- ---------- ---------- ---------- NET INCOME (LOSS) $ (.45) $ (.18) $ (.15) $ (.25) $ 1.95 ========== ========== ========== ========== ========== EARNINGS (LOSS) PER COMMON SHARE (DILUTED): CONTINUING OPERATIONS $ (.27) $ (.22) $ .20 $ (.23) $ .12 DISCONTINUED OPERATIONS (.18) .04 (.35) (.02) 1.83 ---------- ---------- ---------- ---------- ---------- NET INCOME (LOSS) $ (.45) $ (.18) $ (.15) $ (.25) $ 1.95 ========== ========== ========== ========== ========== TOTAL ASSETS $ 72,034 $ 79,409 $ 86,091 $ 86,718 $ 92,888 ========== ========== ========== ========== ========== LONG-TERM DEBT $ 12,511 $ 16,383 3 $ 2,018 2 $ 30,210 $ 39,400 1 ========== ========== ========== ========== ========== DIVIDENDS PER COMMON SHARE $ - $ - $ - $ - $ - ========== ========== ========== ========== ==========
1The increase in long-term debt in 1999 is attributable to the refinancing of the Company's previous revolving credit agreement under a five-year facility. 2The reduction in long-term debt is due to reclassification of the Company's senior credit facility and subordinated notes to current maturities of long-term debt while in default. 3The increase in long-term debt in 2002 is attributable to the October 2002 restructuring of the Company's subordinated notes, previously classified as current maturities of long-term debt in 2001. (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 - ------------------------------------ Discontinued operations: - ------------------------ Effective July 2003, the Company completed its sale of the New Castle Refractories division, the last business of its Industrial group. The Industrial Group had revenues of $8,021,000, $9,169,000 and $9,529,000 in 2003, 2002 and 2001, respectively. Income (loss) from discontinued operations (before provisions in 2001 for loss on disposal, described below) was ($578,000), $123,000 and ($56,000) in 2003, 2002 and 2001, respectively (including pre-tax gains on sales of assets of $208,000 and $1,202,000 in 2002 and 2001, and income tax benefit (expense) of ($77,000) and $29,000 in 2002 and 2001, respectively). Interest expense of $270,000, $342,000 and $427,000 has been allocated to discontinued operations in 2003, 2002 and 2001, respectively. In fiscal 2001, the Company also recorded an anticipated loss on disposal of $1,570,000 (or $1,044,000 after tax benefit) including provisions for a loss on the sale of the New Castle Refractories division of $468,000, for the termination of that division's pension plans of $432,000 and for operating losses of $670,000. For financial reporting purposes, the Company is accounting for the disposition of its Industrial Segment as a discontinued operation and, accordingly, its statements of operations present the results of the discontinued Industrial Segment separately from the results of continuing operations. Since a discussion of the results of the Industrial Segment is not meaningful to an understanding of the continuing Consumer business, all discussions comparing the results of operations refer to the continuing operations of the U.S. and Foreign divisions of the Consumer Group. (For further information regarding discontinued operations, see Note 13 to Consolidated Financial Statements.) Continuing operations: - ---------------------- 2003 vs 2002: - ------------- Income from continuing operations before taxes and minority interest improved by $3,128,000 in 2003. Special items, including the effects of restructuring and related costs; debt refinancing costs; investment banking and related costs; and other income, net are set forth in the table below (in thousands): 2003 2002 ------------ ----------- Income (loss) from continuing operations before income taxes and minority interest $ 1,937 $ (1,191) Restructuring and related costs 487 1,573 Debt refinancing costs 625 - Investment banking and related costs 483 - Other income, net (1,052) (253) ------------ ----------- $ 2,480 $ 129 ============ =========== Restructuring costs decreased $1,086,000 in 2003 as the Company entered the final completion stage of its plant consolidation initiative. Debt refinancing costs consists of the write-off of costs from the former debt arrangements in connection with the Company's October 2002 debt restructuring. Investment banking and related costs were incurred in connection with unconsummated mergers and acquisition activity pursued through the Company's investment bankers. For further information regarding special items, see Notes 8, 9 and 10 to Consolidated Financial Statements. U.S. Consumer accounted for the majority of this net improvement, as the Company's manufacturing consolidation efforts led to significantly improved gross margins. Higher revenues and a decrease of approximately $400,000 in interest costs also contributed to the U.S. improvement. Foreign Consumer operating income also improved in all geographic areas due principally to higher gross margins from lower pencil raw materials costs and improved manufacturing overhead efficiencies. 2002 vs. 2001: - -------------- Income before taxes, minority interest and discontinued operations decreased $2,159,000. Restructuring costs increased $705,000 as the Company announced its final phase of plant consolidations. (See Note 10 to Consolidated Financial Statements.) Administrative costs in the U.S. increased primarily due to higher bank financing costs and the prior year administrative expenses reflecting a $575,000 reduction for settlement of a lawsuit. Higher administrative expenses were partially offset by lower interest costs as interest expense decreased $300,000 in 2002. REVENUES - -------- Revenues in 2003 increased $247,000 over the prior year. The changes are as follows: Decrease % Increase (Decrease) (in thousands) Total Volume Price / Mix -------------- ---------------------------- U.S. $ 1,401 3 5 (2) Foreign (1,154) (3) (7) 4 U.S. Revenue increased primarily in the educational market. Foreign revenue decreases were primarily in Mexico where an approximate 10% reduction in the value of the peso resulted in a decline of approximately $2.7 million. This decrease was partially offset by Mexico price increases, an increase in the value of the Canadian dollar and higher volume in Europe. Overall 2002 revenues increased $271,000 from the prior year. The changes are as follows: Increase (Decrease) % Increase (Decrease) (in thousands) Total Volume Price / Mix -------------- ---------------------------- U.S. $ (3,153) (6) (3) (3) Foreign 3,424 10 13 (3) U.S. Revenue decreased in the educational and promotional products markets primarily due to customer consolidations and their related inventory reduction efforts. Revenue increased in the retail channel, principally in the office supply superstores, partially offsetting reductions in other channels. Foreign revenue increased primarily in Mexico due to higher volume with existing mass market customers and additional government business. 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 occasional foreign currency hedges, local currency financing and by export sales to the U.S. denominated in U.S. dollars. OPERATING INCOME - ----------------- In 2003, operating income increased $1,826,000 as compared to the prior year. Special items, including restructuring and related costs; debt refinancing costs; and investment banking and related costs are as set forth in the table below (in thousands): 2003 2002 ---------------- ---------------- Operating income $ 4,470 $ 2,644 Restructuring and related costs 487 1,573 Debt refinancing costs 625 - Investment banking and related costs 483 - ---------------- ---------------- $ 6,065 $ 4,217 ================ ================ For further information regarding the aforementioned special items, see Notes 8 and 10 to Consolidated Financial Statements. U.S. operating income improved approximately $1.1 million principally due to the aforementioned manufacturing cost savings from plant consolidation efforts and higher revenue resulting in gross margin increases of approximately $800,000. In addition, selling and administrative expenses decreased overall, despite significantly higher legal, tax and audit professional fees. The reduction was principally due to lower sales and marketing salaries and related expenses, reflecting recent cost reduction activities. Foreign operating profit increased $700,000 as savings from consolidation efforts in Mexico and lower raw material costs and increased production resulted in higher profits in China. All of the aforementioned manufacturing efficiencies and costs savings contributed to a decrease in overall consolidated cost of sales (61.9% of revenues as compared to 64.5% in the prior year). Operating income decreased $2,712,000 in 2002 from the prior year. U.S. operating income decreased $2,998,000 (excluding restructuring charges) due to the aforementioned lower revenues and increased administrative costs. U.S. administrative costs also increased principally due to the prior year reflecting a reduction for legal settlements of $575,000 and significantly higher bank financing costs (approximately $417,000). These factors were primarily responsible for an increase in selling and administrative costs (30.5% of sales as compared to 28.7% of sales in the prior year). Restructuring and related costs increased $705,000 as the Company announced its final phase of its consolidation plan. Foreign operating profit increased $1,111,000 principally due to higher revenue described above. INCOME TAXES - ------------ As more fully described in Note 5 to Consolidated Financial Statements, in fiscal 2003 the Company provided additional valuation allowances for certain U.S. deferred tax assets in the amount of $2,232,000. Despite the significant improvement in U.S. operating results in 2003 described above, the Company again incurred tax losses in the U.S. Accordingly, the Company recorded the additional valuation allowances with respect to the related tax assets as of September 30, 2003. MINORITY INTEREST - ----------------- Minority interest represents 3% of the net income of the consolidated subsidiary, Grupo Dixon, S.A. de C.V., ($42,000, $51,000 and $31,000 in fiscal 2003, 2002 and 2001, respectively), equivalent to the extent of the investment of the minority shareholders. CURRENT ECONOMIC ENVIRONMENT AND EVENTS - --------------------------------------- Although not directly impacted by recent events in the U.S. and abroad, management believes that softening economic conditions have recently affected and could continue to affect the retail mass or other markets served by the Company's Consumer Group and thus could lead to reduced overall revenues. In addition, certain expenses which have risen recently (such as insurance costs) could continue to trend significantly higher in the coming years due to recent events. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Despite significantly improved results from operations, the Company's cash flows used in operating activities approximated $400,000 in fiscal 2003. The Company has generated annual cash flows from operating activities exceeding $4 million on average for the previous three fiscal years. After significant prior year reductions in inventories from its strict inventory management plan, the Company did not significantly reduce inventories in 2003, except from the sale of its New Castle Refractories division. Certain safety stock levels were increased as new manufacturing processes were implemented in Mexico. However, the Company did extinguish certain significant liabilities aggregating approximately $3.3 million in 2003 (consisting principally of deferred interest and restructuring charges). Cash flows from accounts receivable also decreased approximately $1.2 million in 2003 due to large Mexico government sales late in the fiscal year having payment terms extending beyond September 30, 2003. The Company's 2003 investing activities provided approximately $3.3 million in cash flows as compared with 2002 when $1.3 million in cash flows were used for purchase of plant and equipment, net of the effects of disposals. Major capital projects are discretionary in nature with no material purchase commitments. Capital expenditures are usually funded from operations and existing lending and leasing arrangements. In 2003, the Company's net capital expenditures were only $427,000, due to shrinking manufacturing facilities. Cash flows were provided from the sale of the aforementioned division assets and proceeds from the sale of securities received from insurance company demutualizations. In October 2002, the Company completed a financing agreement with a new senior lender and its existing subordinated lenders to restructure its present U.S. debt through fiscal 2005. Foothill Capital Corporation provided a three-year $28 million senior debt facility which replaced the Company's previous senior debt with a consortium of lenders. The new senior debt arrangement provided approximately $5 million in increased working capital liquidity for operations and to make certain subordinated debt payments. The senior debt facility includes a $25 million revolving loan, which bears interest at either the prime rate (4.0% at September 30, 2003), plus 0.75%, or the prevailing LIBOR rate (approximately 1.3% at September 30, 2003), plus 3.5%. Borrowings under the revolving loan are based upon 85% of eligible U.S. and Canada accounts receivable, as defined; 50% of certain accounts receivable having extended payment terms; and varying advance rates for U.S. and Canada raw materials and finished goods inventories. The facility also includes term loans aggregating an initial amount of $3 million, which bear interest at either the prime rate, plus 1.5%, or the prevailing LIBOR rate, plus 4.25%. These loans are payable in monthly installments of $50,000, plus interest, with the balance due in a balloon payment in October 2005. The loan agreement also contains restrictions regarding the payment of dividends as well as subordinated debt payments (discussed below), a requirement to maintain a minimum level of earnings before interest, taxes, depreciation and amortization and net worth and a limitation on the amount of annual capital expenditures. To better balance and manage overall interest rate exposure, the Company previously executed an interest rate swap agreement that effectively fixed the rate of interest on $8 million of its senior debt at 8.98% through August 2005. 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 guarantee by and pledge of capital stock of the Company's subsidiaries. As of September 30, 2003, the Company had approximately $14 million of unused lines of credit available. In October 2002, the Company also reached agreement with the holders of $16.5 million of Senior Subordinated Notes to restructure the notes, extending the maturity date to 2005. The Company is only required to pay monthly installments of $50,000 through December 2003 and $150,000 per month from January 2004 through the maturity date. However, the Company paid $1 million in principal (and $2.1 million of accrued interest) at closing of the new senior debt facility and made additional payments to its subordinated lenders of approximately $2.1 million in fiscal 2003. Payments to the subordinated lenders are subject to certain restrictions imposed under the senior debt facility. Interest on the balance of subordinated debt is paid quarterly. If the Company is unable to make scheduled and additional excess payments totaling at least $8 million by 2005 (due to restrictions imposed under the new senior debt facility or otherwise) the noteholders will receive warrants equivalent to approximately 1.6% of the diluted common shares outstanding for each $1 million in unpaid principal. The Company made sufficient payments in fiscal 2003 and expects to do so in fiscal 2004 to avoid the issuance of any such warrants, at least through that date. Any warrants received or earned will be relinquished if the notes are paid in full during the term of the new agreement. The agreement also grants the subordinated lenders a lien on Company assets (junior in all aspects to the new senior debt collateral agreements described above). The interest rate on the notes is 12.5% through maturity in October 2005. The new subordinated note agreement includes certain other provisions, including restrictions as to the payment of dividends and the elimination or adjustment of financial covenants contained in the original agreement to conform to those contained in the new senior debt agreements. In addition, the Company's Mexican subsidiary had approximately $12.5 million in bank lines of credit ($6 million unused) as of September 30, 2003, currently expiring at various dates from January 2004 through December 2004, 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 is presently reviewing other debt proposals for this subsidiary. The Company relies heavily upon the availability of the lines of credit in the U.S. and Mexico for liquidity in its operations. The Company believes that amounts available from its lines of credit under its senior debt and under lines of credit available to its Mexican subsidiary are sufficient to fulfill all current and anticipated operating requirements of its business through 2005. The Company's Mexican subsidiary cannot assure that each of its lines of credit will continue to be available after their respective expiration dates, or that replacement lines of credit will be secured. However, the Company believes there should be sufficient amounts available under its present or future facilities or lines of credit to cover any potential shortfalls due to any expiring lines of credit. Refer to Notes 3 and 4 to Consolidated Financial Statements for further description of the aforementioned financing arrangements. The Company has been assisted by investment bankers and certain other outside consultants to advise it in evaluating certain strategic alternatives, including capital restructuring, mergers and acquisitions, and/or other measures designed to maximize shareholder value. (See Note 8 to Consolidated Financial Statements.) RECENT ACCOUNTING PRONOUNCEMENTS - ---------------------------------- In April 2003, the FASB issued Statement No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contacts and for hedging activities under FASB Statement No. 133, "Accounting for Derivative instruments and Hedging Activities". Statement No. 149 provides greater clarification of the characteristics of a derivative instrument so that contracts with similar characteristics will be accounted for consistently. In general, the statement is effective for contracts with similar characteristics will be accounted for consistently. In general, the statement is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The Company did not enter into or modify any of their derivative financial instruments (which consists of only an interest rate swap agreement) since June 30,2 003 and thus the adoption of Statement No. 149 did not have any impact on the Company's consolidated financial statements. In May 2003, the FASB issued Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity", which clarifies the accounting for certain financial instruments with characteristics of both liabilities and equity and requires that those instruments be classified as liabilities in statements of financial position. Previously, many of those financial instruments were classified as equity. Statement No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective a the beginning of the first interim period beginning after June 15, 2003. As the Company does not have any of these financial instruments, the adoption of Statement No. 150 is not expected to have any impact on the Company's consolidated financial statements. CRITICAL ACCOUNTING POLICIES - ---------------------------- The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and revenue and expenses during the period reported. The following accounting policies require management to make estimates and assumptions. These estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period that they are determined to be necessary. If actual results differ significantly from management's estimates, the financial statements could be materially impacted. The Company promotes its products with significant marketing activities, including advertising, consumer incentives and trade promotions. Advertising costs are expensed as incurred. The Company records consumer incentive and trade promotion costs as a reduction of revenues in the year in which these programs are offered, based upon estimates of utilization and redemption rates that are developed from historical information. Accounts receivable is recorded net of allowance for doubtful accounts. The Company regularly reviews the adequacy of its accounts receivable allowance after considering the size of the accounts receivable, the age of each invoice, each customer's expected ability to pay and the collection history with each customer. The allowance for doubtful accounts represents management's best estimate, but changes in circumstances relating to accounts receivable may result in a requirement for additional allowances in the near future. Inventories are stated at the lower of cost or market. The Company regularly reviews inventory quantities on hand and records a provision for excess and obsolete inventory based primarily on the Company's estimated forecast of product demand. The Company's estimate of forecasted product demand may prove to be inaccurate, in which case the Company may have understated or overstated the provision required for excess and obsolete inventory. In the future, if the company's inventory is determined to be overvalued, the Company would be required to recognize such costs in its cost of goods sold at the time of such determination. Likewise if the Company's inventory is determined to be undervalued, the Company may have over-reported costs of goods sold. Therefore, although the Company makes every effort to ensure the accuracy of its forecasts of future product demand, any significant unanticipated changes in demand could have a significant impact on the value of inventory and the Company's reported operating results. Long-lived assets, such as property, plant and equipment, are reviewed for impairment when events and circumstances indicate that the carrying amount of an asset may not be recoverable. When such events occur, the Company compares the carrying amount of the assets to undiscounted expected future cash flows. Should this comparison indicate that there is an impairment, the amount of the impairment is calculated using discounted expected future cash flows. If the estimate of an asset's future cash flows is significantly different from the asset's actual cash flows, the Company may over- or under-estimate the value of an asset's impairment. A long-lived asset's value is also dependent upon its estimated useful life. A change in the useful life of a long-lived asset could result in higher or lower depreciation and amortization expense. If the asset's actual life is different than its estimated life, the asset could be over-valued or under-valued. Restructuring and related costs reserves are recorded in connection with the restructuring initiatives as they are announced. These reserves include estimates pertaining to employee severance costs, the settlement of contractual obligations and other matters. Although management does not anticipate significant changes, the actual costs may differ from these estimates, resulting in further charges or reversals of previously recorded charges. The carrying value of the Company's net deferred tax assets assumes that the Company will be able to generate sufficient future taxable income in certain jurisdictions, based on estimates and assumptions. If these estimates and related assumptions change in the future, the Company may be required to record additional valuation allowances against its deferred tax assets resulting in additional income tax expense in the Company's Consolidated Statement of Operations. Management evaluates the recoverability of the deferred tax assets quarterly and assesses the need for additional valuation allowances quarterly. In fiscal 2003, the Company provided additional valuation allowances for certain U.S. deferred tax assets, as more fully described above and in Note 5 to Consolidated Financial Statements. 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 sufficiency and continued availability of the Company's lines of credit and its ability to meet its current and anticipated obligations and operating requirements, including payments due under its subordinated debt; management's expectation as to the Company's ability to avoid the issuance of warrants to its subordinated lenders; management's expectation for continuing savings from the restructuring and cost-reduction program; the Company's ability to increase revenues in its core businesses; and its expectations regarding the Company's ability to utilize certain tax benefits in the future. 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) the risk that the shareholders ownership will be diluted by the issuance of common stock to the Company's subordinated lenders; the Company's lenders will not continue to fund the Company in the future; the cancellation of the lines of credit available to the Company's Mexico subsidiary; the inability to maintain and/or secure new sources of capital; manufacturing inefficiencies; difficulties encountered with the consolidation and cost-reduction program; increased competition; decreases in revenues; U.S. and foreign economic factors; foreign currency exchange risk; interest rate fluctuation risk; and the inability to generate taxable income to utilize certain tax benefits in the future, 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 39% of the Company's fiscal 2003 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 exchange rates would impact reported operating profit by approximately $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, 2003, approximately 47% of total short and long-term debt is fixed, at rates between 8% and 12.5%. The balance of the Company debt is variable, principally based upon the prevailing U.S. bank prime rate or LIBOR rate. An interest rate swap, which expires in 2005, fixes the rate of interest on $8 million of this debt at 8.98%. A change in the average prevailing interest rates of the remaining debt of 1% would have an estimated impact of $100,000 upon the Company's pre-tax results of operations and 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 SCHEDULES -------------------------------------------------------- PAGE Report of Independent Certified Public Accountants 17 Consolidated Balance Sheets as of September 30, 2003 and 2002 18 Consolidated Statements of Operations For the Years Ended September 30, 2003, 2002 and 2001 19 Consolidated Statements of Comprehensive Loss For the Years Ended September 30, 2003, 2002 and 2001 20 Consolidated Statements of Shareholders' Equity For the Years Ended September 30, 2003, 2002 and 2001 21 Consolidated Statements of Cash Flows For the Years Ended September 30, 2003, 2002 and 2001 22-23 Notes to Consolidated Financial Statements 24-42 Schedule For the Years Ended September 30, 2003, 2002 and 2001: 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. 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, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2003 in conformity with accounting principles generally accepted 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 and financial statement schedule 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 Orlando, Florida December 12, 2003 DIXON TICONDEROGA COMPANY AND SUBSIDIARIES ------------------------------------------ CONSOLIDATED BALANCE SHEETS --------------------------- SEPTEMBER 30, 2003 AND 2002 ---------------------------
2003 2002 ------------- ------------- ASSETS: ------- CURRENT ASSETS: Cash and cash equivalents $ 1,032,974 $ 2,589,493 Receivables, less allowance for doubtful accounts of $1,429,222 in 2003 and $1,381,780 in 2002 28,326,743 29,179,803 Inventories 26,439,361 28,761,337 Other current assets 2,350,813 3,914,817 ------------- ------------- Total current assets 58,149,891 64,445,450 ------------- ------------- PROPERTY, PLANT AND EQUIPMENT: Land and buildings 6,737,943 10,881,021 Machinery and equipment 8,288,647 16,948,612 Furniture and fixtures 1,307,980 1,607,449 ------------- ------------- 16,334,570 29,437,082 ------------- ------------- Less accumulated depreciation (8,225,067) (19,641,894) ------------- ------------- 8,109,503 9,795,188 ------------- ------------- OTHER ASSETS 5,774,649 7,872,957 ------------- ------------- $72,034,043 $82,113,595 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY: ------------------------------------ CURRENT LIABILITIES: Notes payable $ 6,382,065 $ 7,463,458 Current maturities of long-term debt 13,227,965 12,341,735 Accounts payable 9,102,711 8,819,499 Accrued liabilities 8,496,182 12,485,494 ------------- ------------- Total current liabilities 37,208,923 41,110,186 ------------- ------------- LONG-TERM DEBT 12,510,860 16,383,106 ------------- ------------- DEFERRED INCOME TAXES AND OTHER 894,601 1,183,467 ------------- ------------- MINORITY INTEREST 578,530 583,841 ------------- ------------- 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 2003 and 2002 3,710,309 3,710,309 Capital in excess of par value 3,547,567 3,593,826 Retained earnings 23,679,772 25,107,752 Accumulated other comprehensive loss (6,238,403) (5,640,262) ------------- ------------- 24,699,245 26,771,625 Less shareholder loans (557,721) (557,721) Less treasury stock, at cost (508,160 shares in 2003 and 517,477 shares in 2002) (3,300,395) (3,360,909) ------------- ------------- 20,841,129 22,852,995 ------------- ------------- $72,034,043 $82,113,595 ============= =============
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, 2003, 2002 AND 2001 ----------------------------------------------------- 2003 2002 2001 -------------- -------------- -------------- REVENUES $ 88,837,615 $ 88,590,730 $ 88,319,455 -------------- -------------- -------------- COSTS AND EXPENSES: Cost of goods sold 54,978,678 57,132,999 56,732,494 Selling and administrative expenses 27,793,534 27,240,511 25,363,628 Provision for restructuring and related costs 486,866 1,573,235 867,666 Debt refinancing costs 624,662 - - Investment banking and related costs 483,493 - - -------------- -------------- -------------- 84,367,233 85,946,745 82,963,788 -------------- -------------- -------------- OPERATING INCOME 4,470,382 2,643,985 5,355,667 OTHER INCOME, NET 1,052,500 252,676 - INTEREST EXPENSE (3,585,729) (4,087,731) (4,387,700) -------------- -------------- -------------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (BENEFIT) AND MINORITY INTEREST 1,937,153 (1,191,070) 967,967 INCOME TAXES (BENEFIT) 2,744,420 (559,064) 316,933 -------------- -------------- -------------- (807,267) (632,006) 651,034 MINORITY INTEREST 42,221 51,214 31,267 -------------- -------------- -------------- INCOME (LOSS) FROM CONTINUING OPERATIONS (849,488) (683,220) 619,767 INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF APPLICABLE INCOME TAXES (BENEFIT) (578,492) 123,297 (1,099,639) -------------- -------------- -------------- NET LOSS $ (1,427,980) $ (559,923) $ (479,872) ============== ============== ============== EARNINGS (LOSS) PER COMMON SHARE (BASIC): Continuing operations $ (.27) $ (.22) $ .20 Discontinued operations (.18) .04 (.35) -------------- -------------- -------------- Net loss $ (.45) $ (.18) $ (.15) ============== ============== ============== EARNINGS (LOSS) PER COMMON SHARE (DILUTED): Continuing operations $ (.27) $ (.22) $ .20 Discontinued operations (.18) .04 (.35) -------------- -------------- -------------- Net loss $ (.45) $ (.18) $ (.15) ============== ============== ==============
The accompanying notes are an integral part of the consolidated financial statements.
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES ------------------------------------------ CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS --------------------------------------------- FOR THE YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001 ----------------------------------------------------- 2003 2002 2001 --------------- --------------- --------------- NET LOSS $ (1,427,980) $ (559,923) $ (479,872) OTHER COMPREHENSIVE LOSS: Cumulative effect adjustment to recognize fair value of cash flow hedge - - (54,205) Adjustment to recognize fair value of cash flow hedge (138,672) (115,934) (451,388) Foreign currency translation adjustments (459,469) (1,422,647) (502,511) --------------- --------------- --------------- TOTAL COMPREHENSIVE LOSS $(2,026,121) $(2,098,504) $(1,487,976) =============== =============== ===============
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, 2003, 2002 AND 2001 ----------------------------------------------------- Common Capital in Accumulated Other Stock $1 Excess of Retained Comprehensive Shareholder Treasury Par Value Par Value Earnings Income (Loss) Loans Stock Total ------------ ------------- ------------- ------------------ -------------- ------------- ------------- BALANCE, September 30, 2000 $ 3,710,309 $ 3,700,272 $26,147,547 $ (3,093,577) $ (557,721) $(3,521,884) $26,384,946 Net loss (479,872) (479,872) Other comprehensive loss (1,008,104) (1,008,104) Employee Stock Purchase Plan (9,415 shares) (30,137) 61,150 31,013 ------------ ------------- ------------- ------------------ -------------- ------------- ------------- BALANCE, September 30, 2001 3,710,309 3,670,135 25,667,675 (4,101,681) (557,721) (3,460,734) 24,927,983 Net loss (559,923) (559,923) Other comprehensive loss (1,538,581) (1,538,581) Employee Stock Purchase Plan (15,370 shares) (76,309) 99,825 23,516 ------------ ------------- ------------- ------------------ -------------- ------------- ------------- BALANCE, September 30, 2002 3,710,309 3,593,826 25,107,752 (5,640,262) (557,721) (3,360,909) 22,852,995 Net loss (1,427,980) (1,427,980) Other comprehensive loss (598,141) (598,141) Employee Stock Purchase Plan (9,317 shares) (46,259) 60,514 14,255 ------------ ------------- ------------- ------------------ -------------- ------------- ------------- BALANCE, September 30, 2003 $ 3,710,309 $ 3,547,567 $23,679,772 $ (6,238,403) $ (557,721) $(3,300,395) $20,841,129 ============ ============= ============= ================== ============== ============= ============= The accompanying notes are an integral part of the consolidated financial statements.
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES ------------------------------------------ CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- FOR THE YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001 ----------------------------------------------------- 2003 2002 2001 -------------- -------------- -------------- Cash flows from operating activities: Net income (loss) from continuing operations $ (849,488) $ (683,220) $ 619,767 Net income (loss) from discontinued operations (578,492) 123,297 (1,099,639) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 2,414,819 2,322,692 2,219,658 Deferred taxes 2,504,854 (2,334,000) (534,000) Provision for doubtful accounts receivable 315,026 193,979 151,263 Debt refinancing costs 624,662 - - Gain on sale of assets - (208,290) (1,202,448) Gain on sale of securities received from insurance companies demutualizations (672,291) - - Income attributable to minority interest 42,221 51,214 31,267 (Income) loss attributable to foreign currency exchange (433,461) (215,955) 52,071 Changes in assets [(increase)decrease] and liabilities [increase (decrease)]: Receivables, net (1,230,691) (7,574) (660,434) Inventories (348,379) 6,226,836 474,990 Other current assets (109,737) (457,698) (134,308) Accounts payable and accrued liabilities (3,278,476) 3,673,182 1,039,899 Other assets 1,191,249 (250,686) 210,519 -------------- -------------- -------------- Net cash provided by (used in) operating activities (408,184) 8,433,777 1,168,605 -------------- -------------- -------------- Cash flows from investing activities: Purchases of plant and equipment, net (426,775) (1,520,088) (2,009,467) Proceeds on sale of assets 2,988,616 208,290 1,276,063 Proceeds on sale of securities received from insurance companies demutualizations 737,321 - - -------------- -------------- -------------- Net cash provided by (used in) investing activities 3,299,162 (1,311,798) (733,404) -------------- -------------- -------------- 2003 2002 2001 -------------- -------------- -------------- Cash flows from financing activities: Proceeds from long-term debt 14,449,123 - 138,566 Proceeds from (principal reductions of) notes payable (564,975) 1,716,828 2,779,894 Principal reductions of long-term debt (17,435,139) (6,101,200) (2,728,952) Deferred refinancing costs (549,193) (955,628) - Other non-current liabilities (100,545) 40,736 6,759 Employee Stock Purchase Plan 14,255 23,516 31,013 -------------- -------------- -------------- Net cash provided by (used in) financing activities (4,186,474) (5,275,748) 227,280 -------------- -------------- -------------- Effect of exchange rate changes on cash (261,023) (101,037) (266,634) -------------- -------------- -------------- Net increase (decrease) in cash and cash equivalents (1,556,519) 1,745,194 395,847 Cash and cash equivalents, beginning of year 2,589,493 844,299 448,452 -------------- -------------- -------------- Cash and cash equivalents, end of year $ 1,032,974 $ 2,589,493 $ 844,299 ============== ============== ============== Supplemental disclosures: Cash paid during the year for: Interest $ 5,684,833 $ 3,033,931 $ 4,647,079 Income taxes 882,246 1,677,478 2,434,487
Non-cash investing and financing activities: In fiscal 2003, the Company accepted a note receivable due August 2010 in the amount of $500,000 as partial consideration for the sale of its Newcastle Refractories division. In fiscal 2001, the Company accepted a note receivable due May 2006 in the amount of $1.64 million as consideration for the sale of an idle building in Deer Lake, Pennsylvania. The accompanying notes are an integral part of the consolidated inancial 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. Its largest customers are school products distributors and mass merchandisers, although none account for over 8% of revenues. 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 (3%) of the equity of the Company's Grupo Dixon, S.A. de C.V. subsidiary. Revenue recognition: -------------------- Revenues are comprised of gross sales from the shipment of product to customers, net of provisions for product returns, customer discounts (such as volume rebates), co-op advertising and other related discounts. The Company recognizes sales when the following has occurred: evidence of a sales arrangement exists; shipment of product to the customer; the price is fixed or determinable; and collectibility is reasonably assured. An estimate of sales returns and allowances is recorded in the period that the related product is shipped. 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. 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 loss. Gains and losses from foreign currency transactions are included in the accompanying Consolidated Statement of Operations. Total foreign currency exchange gains (losses) included in operating income were approximately $433,000, $216,000 and ($52,000) for fiscal years 2003, 2002 and 2001. 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. The Company regularly reviews inventory quantities on hand and records a provision for excess and obsolete inventory based primarily on the estimated forecast of product demand. Certain inventories amounting to $7,512,000 and $13,034,000 at September 30, 2003 and 2002, 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 ($266,000) and $1,007,000 (lower) higher at September 30, 2003 and 2002, respectively. All other inventories are valued for using the FIFO method. Inventories consist of (in thousands): September 30, 2003 2002 --------- --------- Raw material $10,486 $11,014 Work in process 2,198 2,718 Finished goods 13,755 15,029 --------- --------- $26,439 $28,761 ========= ========= 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 10.) The Company's policy is to record an impairment loss when it is determined 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", as amended by FASB Statement No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure". Pro forma net loss and net loss per share would have been as follows if the fair value estimates were used to record compensation expense: 2003 2002 2001 ------------ ------------ ------------ Net loss, as reported $(1,427,980) $ (559,923) $ (479,872) Deduct: total stock-based employee compensation expense determined under the fair value based method, net of related tax effects (73,601) (102,431) (25,409) ------------ ------------ ------------ Pro forma net loss $(1,501,581) $ (662,354) $ (505,281) ============ ============ ============ Loss per share: Basic, as reported $ (.45) $ (.18) $ (.15) ============ ============ ============ Basic, pro forma $ (.47) $ (.21) $ (.16) ============ ============ ============ Diluted, as reported $ (.45) $ (.18) $ (.15) ============ ============ ============ Diluted, pro forma $ (.47) $ (.21) $ (.16) ============ ============ ============ Income taxes: ------------- The Company recognizes deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. The Company regularly reviews its deferred tax assets, by taxing jurisdiction, for recoverability and establishes a valuation allowance based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing temporary differences. If there is a material change in the actual effective tax rates or time period within which the underlying temporary differences become taxable or deductible, the Company could be required to establish further valuation allowances against all or a significant portion of its deferred tax assets resulting in a substantial increase in the Company's effective tax rate and a material negative impact on its operating results and financial position. In fiscal 2003, the Company provided additional valuation allowances for certain U.S. deferred tax assets, as more fully described in Note 5. Derivative instruments and hedging activities: ---------------------------------------------- The Company adopted FASB Statement No.133, "Accounting for Derivative Instruments and Hedging Activities", as amended by FASB Statement No.137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133", an amendment of FASB Statement No.133, and FASB Statement No.138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities", an amendment of Statement No. 133 (referred to hereafter as "FAS 133") on October 1, 2000. As a result, the Company records the fair value of interest rate swaps designated as cash flow hedges in other liabilities with the offset in the other comprehensive income (loss) component of shareholders' equity. Upon adoption, the Company recorded its interest rate swap designated as a cash flow hedge with a fair value of $86,314 in other liabilities. Other comprehensive loss was increased $54,205 (net of tax benefit of $32,109) as a cumulative effect adjustment for this accounting change. During the years ended September 30, 2003, 2002 and 2001, the Company also recognized an adjustment to increase (decrease) the fair value of this cash flow hedge of ($203,408), $184,309 and $718,773, respectively, in other liabilities. Other comprehensive loss was increased $138,672, $115,934 and $451,388 (net of tax expense (benefit) of $342,080, ($68,375) and ($267,385), respectively) during these periods. The Company utilizes interest rate swap agreements to provide an exchange of interest payments computed on notional amounts that will offset any undesirable change in cash flows or fair value resulting from market rate changes on designated hedged bank borrowings. The Company limits the credit risks of the interest rate agreements by initiating the transactions with counterparties with significant financial positions, such as major financial institutions. FAS 133 requires companies to recognize all of its derivative instruments as either assets or liabilities in the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a Company must designate the hedging instrument, based upon the exposure being hedged, as either a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. For derivative instruments that are designated and qualify as a cash flow hedge (such as the Company's interest rate swap agreements), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive loss and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in current earnings during the period of the change in fair values. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of the change in fair values. The Company has entered into an interest rate swap agreement through August 2005 that effectively converts $8 million of its floating-rate debt to a fixed-rate basis, thus reducing the impact of interest-rate changes on future interest expense. The fair values of interest rate instruments are estimated by obtaining quotes from brokers and are the estimated amounts that the Company would receive or pay to terminate the agreements at the reporting date, taking into account current interest rates and other relevant factors. Recent accounting pronouncements: --------------------------------- In April 2003, the FASB issued Statement No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities". Statement No. 149 provides greater clarification of the characteristics of a derivative instrument so that contracts with similar characteristics will be accounted for consistently. In general, the statement is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The Company did not enter into or modify any of their derivative financial instruments (which consists of only an interest rate swap agreement) since June 30, 2003 and thus the adoption of Statement No. 149 did not have any impact on the Company's consolidated financial statements. In May 2003, the FASB issued Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity", which clarifies the accounting for certain financial instruments with characteristics of both liabilities and equity and requires that those instruments be classified as liabilities in statements of financial position. Previously, many of those financial instruments were classified as equity. Statement No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. As the Company does not have any of these financial instruments, the adoption of Statement No. 150 is not expected to have any impact on the Company's consolidated financial statements. Reclassifications: ------------------ Certain prior year amounts have been reclassified to conform with the current year classifications. (2) ACCRUED LIABILITIES: -------------------- The major components of accrued liabilities are as follows (in thousands): September 30, 2003 2002 --------- --------- Interest (see Note 4) $ 1,180 $ 2,844 Salaries and wages 1,014 1,110 Employee benefit plans 417 540 Income taxes 2,965 3,174 Other 2,920 4,817 --------- --------- $ 8,496 $ 12,485 ========= ========= (3) NOTES PAYABLE: -------------- The Company's Mexico subsidiary had bank lines of credit totaling approximately $12.5 million, under which $6.4 and $7.5 million of unsecured notes payable were outstanding as of September 30, 2003 and 2002, respectively. The notes, which currently mature at varying dates from January 2004 through December 2004, bear interest (weighted average interest rate of approximately 7.4% and 4.5% at September 30, 2003 and 2002, 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, 2003 2002 --------- --------- Senior Subordinated Notes $ 13,342 $ 16,500 Bank notes payable 8,348 8,208 Bank term loan 2,216 2,025 Building mortgage 1,833 1,992 --------- --------- 25,739 28,725 Less current maturities (13,228) (12,342) --------- --------- $ 12,511 $ 16,383 ========= ========= In October 2002, the Company completed a financing agreement with a new senior lender and its existing subordinated lenders to restructure its present U.S. debt through fiscal 2005. Foothill Capital Corporation has provided a three-year $28 million senior debt facility which replaces the Company's previous senior debt (bank notes payable and bank term loan) with a consortium of lenders. The new senior debt arrangement provides approximately $5 million in increased working capital liquidity for operations and to make certain subordinated debt payments. The senior debt facility includes a $25 million revolving loan, which bears interest at either the prime rate (4.0% at September 30, 2003), plus 0.75%, or the prevailing LIBOR rate (approximately 1.3% at September 30, 2003), plus 3.5%. Borrowings under the revolving loan are based upon 85% of eligible U.S. and Canada accounts receivable, as defined; 50% of certain accounts receivable having extended payment terms; and varying advance rates for U.S. and Canada raw materials and finished goods inventories. The facility also includes term loans aggregating an initial amount of $3 million, which bear interest at either the prime rate, plus 1.5%, or the prevailing LIBOR rate, plus 4.25%. These loans are payable in monthly installments of $50,000, plus interest, with the balance due in a balloon payment in October 2005. The loan agreement also contains restrictions regarding the payment of dividends as well as subordinated debt payments (discussed below), a requirement to maintain a minimum level of earnings before interest, taxes, depreciation and amortization and net worth and a limitation on the amount of annual capital expenditures. To better balance and manage overall interest rate exposure, the Company previously executed an interest note swap agreement that effectively fixed the rate of interest on $8 million of its senior debt at 8.98% through August 2005. 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 guarantee by and pledge of capital stock of the Company's subsidiaries. The new senior debt agreements include provisions which suggest the debt could become payable upon demand under certain circumstances and thus, this debt has been classified as current maturities of long-term debt. As of September 30, 2003 the Company had approximately $14 million of unused lines of credit available. In October 2002, the Company also reached agreement with the holders of $16.5 million of Senior Subordinated Notes to restructure the notes, extending the maturity date to 2005. The Company is required to pay monthly installments of $50,000 through December 2003 and $150,000 per month from January 2004 through the maturity date. However, the Company paid $1 million in principal (and $2.1 million of accrued interest) at closing of the new senior debt facility and made additional payments to its subordinated lenders of approximately $2.2 million in fiscal 2003. Payments to the subordinated lenders are subject to certain restrictions imposed under the senior debt facility. Interest on the balance of subordinated debt is paid quarterly. If the Company is unable to make scheduled and additional excess payments totaling at least $8 million by 2005 (due to restrictions imposed under the new senior debt facility or otherwise) the noteholders will receive warrants equivalent to approximately 1.6% of the diluted common shares outstanding for each $1 million in unpaid principal. Any warrants received or earned will be relinquished if the notes are paid in full during the term of the new agreement. The agreement also grants the subordinated lenders a lien on Company assets (junior in all aspects to the new senior debt collateral agreements described above). The interest rate on the subordinated notes is 12.5% through maturity in October 2005. In addition, the Company has due in October 2005 previously deferred payable-in-kind (PIK) interest in the amount of $642,000, included in accrued interest at September 30, 2003. (See Note 2). The new subordinated note agreement includes certain other provisions, including restrictions as to the payment of dividends and the elimination or adjustment of financial covenants contained in the original agreement to conform to those contained in the new senior debt agreements. The Company also has 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 are reasonable estimates of fair value as interest rates are based on prevailing market rates. Aggregate maturities of long-term debt are as follows (in thousands): 2004 $ 13,228 2005 3,437 2006 7,802 2007 219 Thereafter 1,053 ---------- $ 25,739 ========== (5) INCOME TAXES: ------------- The components of net deferred tax asset recognized in the accompanying consolidated balance sheet are as follows (in thousands): 2003 2002 ------------ ------------ U.S. current deferred tax assets (included in other current assets) $ - $ 1,514 Foreign current deferred tax liability (included in accrued liabilities) (1,455) (818) U.S. and foreign, noncurrent deferred tax asset (included in other assets and deferred income taxes and other) 602 2,829 ------------ ------------ Net deferred tax asset (liability) $ (853) $ 3,525 ============ ============ Deferred tax assets: U.S. tax credit carryforwards $ - $ 2,610 Provisions for losses from discontinued operations 48 174 Depreciation 157 214 Accrued pension 683 653 Interest 266 386 Other accrued expenses 481 430 Installment sale and related expenses (248) (197) Other items, net 289 96 Foreign net operating loss carryforward 602 512 Valuation allowance (1,676) (512) ------------ ------------ Total deferred tax asset 602 4,366 ------------ ------------ Deferred tax liabilities: Inventories (791) (748) Property, plant and equipment (108) (93) Valuation allowance (556) - ------------ ------------ Total deferred tax liability (1,455) (841) ------------ ------------ Net deferred tax asset (liability) $ (853) $ 3,525 ============ ============ 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. In fiscal 2003, the Company provided additional valuation allowances for certain U.S. deferred tax assets in the amount of $2,232,000 due to continuing U.S. taxable losses. The Company again incurred tax losses in the U.S., partially due to certain costs (Notes 8 and 10) and discontinued operations, among other factors. Accordingly, the Company recorded the additional valuation allowances with respect to the related tax assets as of September 30, 2003. At September 30, 2003 and 2002, the Company had valuation allowances against certain deferred tax assets totaling $2,232,000 and $512,000, respectively. These valuation allowances relate to tax assets in jurisdictions where there is significant probability that the benefit of the assets will not be realized in the associated tax returns. The provision (benefit) for income taxes from continuing operations is comprised of the following (in thousands): 2003 2002 2001 --------- -------- --------- Current: U.S. Federal $ - $ 640 $ (352) State 95 (40) (12) Foreign 474 1,175 1,215 --------- -------- --------- 569 1,775 851 --------- -------- --------- Deferred: U.S. Federal 2,050 (2,081) (199) State - (206) (71) Foreign 125 (47) 264 --------- -------- --------- 2,175 (2,334) (534) --------- -------- --------- $ 2,744 $ (559) $ 317 ========= ======== ========= Foreign deferred tax provision (benefit) is comprised principally of temporary differences related to Mexico asset purchases. The U.S. deferred expense in 2003 principally reflects the establishment of valuation allowances against certain net deferred assets, as discussed above. The U.S. deferred (benefit) in 2002 and 2001 result primarily from expenses accrued but not yet deductible for taxes and tax credit carryforwards. The differences between the provision (benefit) for income taxes from continuing operations computed at the U.S. statutory federal income tax rate and the provision (benefit) from continuing operations in the accompanying consolidated financial statements are as follows (in thousands): 2003 2002 2001 -------- -------- --------- Amount computed using statutory rate $ 659 $ (533) $ 329 Foreign income (518) (178) (28) State taxes, net of federal benefit 63 (162) (54) Permanent differences - 149 168 Valuation allowances 2,232 - - Other 308 165 (98) -------- -------- --------- Provision (benefit) for income taxes $ 2,744 $ (559) $ 317 ======== ======== ========= (6) EMPLOYEE BENEFIT PLANS: ----------------------- Prior to 2002, the Company maintained several defined benefit pension plans covering substantially all union employees. During 2002, several plans related to the Company's Industrial Group (discontinued operations) were terminated, leaving one defined benefit plan covering the remaining Company's U.S. Consumer division 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 is to fund the minimum annual contributions required by applicable regulations. The following tables set forth the plans' funded status and other information for the fiscal years ended September 30, 2003 and 2002 (in thousands): September 30, ------------- 2003 2002 ---------- ---------- Change in benefit obligation: Obligation at beginning of year $1,762 $3,831 Service cost 50 90 Interest cost 118 123 Actuarial gain 179 154 Benefit payments (294) (2,436) ---------- ---------- Obligation at end of year $1,815 $1,762 ========== ========== Change in market value of plan assets: Market value at beginning of year $2,108 $3,489 Actual return on plan assets 251 445 Employer contributions 146 610 Benefit payments (294) (2,436) ---------- ---------- Market value at end of year $2,211 $2,108 ========== ========== Prepaid pension asset: Projected benefit obligation $(1,815) $(1,762) Plan assets at market value 2,211 2,108 ---------- ---------- Projected benefit obligation less than plan assets 396 346 Unrecognized net (gain) loss from past experience different from assumptions 37 (69) Unrecognized net obligation being recognized over periods from 10 to 16 years 2 164 ---------- ---------- Prepaid pension asset $ 435 $ 441 ========== ========== Net periodic pension costs include the following components (in thousands): 2003 2002 2001 --------- ---------- ---------- Service costs - benefits earned during period $ 50 $ 90 $ 178 Interest cost on projected benefit obligation 118 123 245 Expected return on plan assets (186) (153) (248) Curtailment loss 162 - - Net amortization and deferral - 12 76 --------- ---------- ---------- Net periodic pension cost $ 144 $ 72 $ 251 ========= ========== ========== In determining the projected benefit obligation, the weighted average discount rates utilized were 6.5%, 6.4% and 6.4% for the periods ended September 30, 2003, 2002 and 2001, respectively. The expected long-term rates of return on assets used in determining net periodic pension cost ranged from 7.5 % to 8.0 % 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 two defined-contribution plans (401k) for all non-union domestic employees and certain union 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 amount of up to 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, 2003, 2002 and 2001 were $240,000, $243,000 and $588,000, respectively. In addition, the Company has a defined benefit retirement plan, which provides supplemental benefits for certain key executive officers, upon retirement, disability or death. The benefits are similar to those provided under the 401(k) plans, but are funded through the purchase of certain life insurance products. As of September 30, 2003 and 2002, the net liability under the plan (included in accrued liabilities), was $633,000 and $504,000, respectively. Amounts charged to expense under the plan totaled $93,000 and $118,000 in 2003 and 2002, respectively. There was no net expense under this plan in 2001. (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, 2003, 2002 and 2001, 9,317, 15,370 and 9,415 shares, respectively, were issued under this plan. At September 30, 2003, there are 47,619 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, 2003, there were 183,000 options outstanding and no shares available for future grants under the 1988 Plan. In addition, the Dixon Ticonderoga Company 1999 Stock Option Plan (the "1999 Plan") was adopted in fiscal 1999, covering a maximum aggregate 300,000 shares. Under the 1999 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 1999 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 2001, 159,800 options were granted to employees under the 1999 Plan. At September 30, 2003 there were 171,600 options outstanding and 128,400 shares available for future grants under the 1999 Plan. The following table summarizes the combined stock options activity for 2003, 2002 and 2001.
2003 2002 2001 -------------------- ------------------- -------------------- Number Option Number Option Number Option of Shares Price of Shares Price of Shares Price -------------------- ------------------- -------------------- Options outstanding at beginning of year 27,000 $8.63 21,250 6.75 34,125 6.75 2,500 7.13 2,500 7.13 10,750 7.13 231,000 8.88 231,000 8.88 258,000 8.88 2,500 12.88 2,500 12.88 10,000 11.38 10,000 11.38 10,000 11.38 25,000 11.00 25,000 11.00 30,000 11.00 5,000 4.25 5,000 4.25 7,500 4.25 2,500 3.81 147,300 3.70 147,300 3.70 10,000 4.75 10,000 4.75 Options granted 10,000 4.75 2,500 3.81 147,300 3.70 Options expired or canceled (5,000) 4.25 (2,500) 4.25 (27,000) 8.63 (21,250) 6.75 (12,875) 6.75 (59,250) 8.88 (27,000) 8.88 (1,250) 7.13 (8,250) 7.13 (5,000) 11.00 (5,000) 11.00 (2,500) 12.88 (2,500) 3.81 (5,700) 3.70 ---------- --------- ---------- 354,600 430,800 457,050 ========== ========= ==========
The Company has adopted the disclosure-only provisions of FASB Statement No. 123, as amended by FASB Statement No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" and, accordingly, there is no compensation expense recognized for its stock option plans. Pro forma information related to the fair value of stock-based compensation is presented in Note 1. The pro forma amounts were estimated using the Black-Scholes valuation model assuming no dividends, expected volatility of 36% for all years presented, an average risk-free interest rate of 4.7% for all years presented and expected lives of approximately six years for all grants prior to 2001 and eight years thereafter. No options were granted in 2002 or 2003. The weighted average fair value estimates of options granted in 2001 was $2.47. The weighted average remaining lives of options granted in 2001 were 5.5 years. In the past, the Company made loans under the aforementioned stock option plans to certain shareholders who are executive officers, for the purchase of Company common stock pursuant to the exercise of stock options. The loans must be repaid at the time the underlying shares of common stock are sold. Interest on a portion of the loans accrues at a rate of 8%. Total shareholder loans approximated $558,000 at September 30, 2003 and 2002. No such loans have been granted since late 1999. 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. (8) OTHER COSTS: ------------ In connection with the completion of its debt restructuring in October 2002, the Company expensed approximately $625,000 of deferred financing costs associated with its previous senior debt with a consortium of lenders (which was repaid) and its previous subordinated debt agreements (which were substantially modified). This expense is included in operating income as debt refinancing costs in the accompanying Consolidated Financial Statements. The Company also incurred approximately $483,000 in professional fees and other costs related to unconsummated mergers and acquisitions activity pursued by the Company through its investment bankers. These costs are included in operating income as investment banking and related costs in the accompanying Consolidated Financial Statements. (9) OTHER INCOME: ------------- Other income, net in fiscal 2003 includes $672,000 of gains from the sale of securities received by the Company as a policyholder following the demutualizations of certain insurance companies. Additionally, the Company received $380,000 and $253,000 in import duty rebates in 2003 and 2002, respectively. (10) RESTRUCTURING AND RELATED COSTS: -------------------------------- The Company began fiscal 2001 with reserves of approximately $1 million, previously provided in connection with its Restructuring and Cost Reduction Program, which was 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 300 employees (principally plant workers) were affected by the prior phases of the program. The carrying amount of property and equipment held for disposal at that time approximated $3.1 million. Management disposed of these remaining assets in 2001. In fiscal 2001, the Company incurred approximately $868,000 in costs (principally in Mexico) directly related to the restructuring program which were not eligible for recognition in prior periods and thus expensed as incurred in 2001. In fiscal 2002, the Company provided $418,000 in additional charges, principally for lease termination and employee costs related to the completion of prior phases of the restructuring program. Also in fiscal 2002, the Company provided approximately $1,155,000 for restructuring and improvement related costs in connection with the final phase of its Restructuring and Cost Reduction Program, which included a plant closure and further consolidation of its manufacturing operations into the Company's Mexico facility and additional personnel reductions, primarily in manufacturing and corporate activities. An additional 120 employees (principally plant workers) were affected by the final phase of the program. The carrying amount of additional property held for disposal from this final phase is approximately $200,000. In fiscal 2003, the Company incurred an additional $487,000 in restructuring costs related primarily to holding costs of a closed manufacturing facility (not accruable in advance) and additional severance related to personnel reductions in 2003. The restructuring and impairment related charges and subsequent utilization for the three fiscal years ended September 30, 2003 are summarized below (in thousands):
Losses from Employee impairment, sale severance and abandonment and related of property costs and equipment Total -------------- ----------------- ---------- Reserve balances at September 30, 2000 $ 673 $ 312 $ 985 2001 restructuring and impairment related charges - 868 868 Utilized in fiscal 2001 (334) (1,180) (1,514) -------------- ----------------- ---------- Reserve balances at September 30, 2001 339 - 339 -------------- ----------------- ---------- Additional fiscal 2002 provisions 135 283 418 2002 restructuring and impairment related charges 1,110 45 1,155 -------------- ----------------- ---------- Total 2002 restructuring and impairment related charges 1,245 328 1,573 Utilized in fiscal 2002 (474) (283) (757) -------------- ----------------- ---------- Reserve balances at September 30, 2002 1,110 45 1,155 -------------- ----------------- ---------- 2003 restructuring and impairment related charges 163 324 487 Utilized in fiscal 2003 (1,183) (369) (1,552) -------------- ----------------- ---------- Reserve balances at September 30, 2003 $ 90 $ - $ 90 ============== ================= ==========
(11) 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 the years ended September 30, 2003, 2002 and 2001, options and warrants to purchase 354,600, 730,800 and 607,250 shares of common stock, respectively, were excluded from the computation of diluted earnings (loss) per share as such options and warrants were anti-dilutive. Weighted average common shares used in the calculation of earnings (loss) per share are as follows: Year Basic Diluted ---- ---------- ---------- 2003 3,196,714 3,196,714 2002 3,183,866 3,183,866 2001 3,171,190 3,176,609 (12) LINE OF BUSINESS REPORTING: --------------------------- Due to the Company's sale of its Industrial Group (Note 13), the Company's continuing operations only consist of one principal business segment - its Consumer Group. The following information sets forth certain additional data pertaining to its operations as of September 30, 2003, 2002 and 2001 for the years then ended (in thousands). Operating Identifiable Revenues Profit (Loss) Assets ------------ -------------- ---------------- 2003: United States $ 53,087 $ (910) $ 35,844 Canada 8,705 914 6,414 Mexico 25,569 3,731 25,965 United Kingdom 1,321 107 1,277 China 156 628 2,534 2002: United States $ 51,685 $ (1,747) $ 41,127 Canada 8,694 792 5,879 Mexico 27,098 3,445 26,120 United Kingdom 1,094 29 642 China 20 125 1,435 2001: United States $ 54,837 $ 2,076 $ 44,598 Canada 8,435 527 5,673 Mexico 23,813 2,849 29,012 United Kingdom 1,046 (26) 674 China 188 (70) 1,363 (13) DISCONTINUED OPERATIONS: ------------------------ In September 2001, the Company formalized its decision to offer for sale its New Castle Refractories division, the last business of its Industrial Group. Accordingly, related operating results of the Industrial Group have been reported as discontinued operations in the accompanying Consolidated Financial Statements for all periods presented. In December 2002, the Company entered into an agreement to sell this division to local management. The transaction closed effective July 31, 2003. At closing, the Company received consideration of $500,000 in the form of a seven-year amortizing note receivable and net cash proceeds of approximately $3 million, utilized to reduce its senior debt. The Company retained tax and certain other net liabilities of approximately $800,000. Net revenues and income (loss) from discontinued operations are as follows (in thousands): 2003 2002 2001 ---------- ---------- ---------- Net revenues $ 8,021 $ 9,169 $ 9,529 ========== ========== ========== Income (loss) from discontinued operations before income taxes $ (578) $ 200 $ (85) Income tax benefit (expense) - (77) 29 ---------- ---------- ---------- (578) 123 (56) ---------- ---------- ---------- Loss on disposal of Industrial Group - - (1,570) Income tax benefit - - 526 ---------- ---------- ---------- - - (1,044) ---------- ---------- ---------- Income (loss) from discontinued $ (578) $ 123 $(1,100) ========== ========== ========== Earnings (loss) per share (basic) $ (0.18) $ .04 $ (0.35) ========== ========== ========== Earnings (loss) per share (diluted) $ (0.18) $ .04 $ (0.35) ========== ========== ========== Income (loss) from discontinued operations includes pre-tax gains on sales of assets of $208 and $1,202 in 2002 and 2001, respectively, attributable to the sale of the Company's Graphite and Lubricants division. In addition, interest expense of $270, $342 and $427 has been allocated to income (loss) from discontinued operations in 2003, 2002 and 2001, respectively, based upon the identifiable assets of such operations. The loss on disposal in 2001 includes the anticipated loss on the sale of the New Castle Refractories division of $468, a provision for the termination of that division's pension plans of $432, and a provision for anticipated operating losses of $670. Assets and liabilities relating to discontinued operations, included in the accompanying Consolidated Balance Sheet as of September 30, 2002 are as follows (in thousands): Current assets $ 3,905 Property, plant and equipment, net 386 Current liabilities (1,254) Long-term liabilities and other, net (813) ------------ Net assets of discontinued operations $ 2,224 ============ (14) COMMITMENTS AND CONTINGENCIES: ------------------------------ The Company has entered into employment agreements with four executives which provide for the continuation of salary (currently aggregating $68,700 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 six additional employees which provide for continuation of salaries (averaging $6,800 each per month) for periods up to 16 months under certain circumstances. In December 2002, the Company entered into a strategic distribution arrangement with a third-party logistics partner to provide turn-key distribution of the Company's products to its U.S. customers through June 2005. The Company incurred approximately $933,000 under this arrangement in 2003. The minimum remaining payments under the related contract are approximately $945,000 in 2004 and $709,000 in 2005. The Company leases certain manufacturing equipment under a five-year noncancelable operating lease arrangement. The rental expense under this lease was $433,000, $410,000 and $372,000 in 2003, 2002 and 2001, respectively. Annual future minimum rental payments are approximately $372,000 per year in 2004 and $93,000 in 2005. 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 and in fiscal 2000 the Company reached settlements with its various insurers for reimbursement of legal costs. In 2001, a pending malpractice suit against its previous legal counsel was settled and the Company received $575,000 (reflected as a reduction in selling and administrative expenses). The Company is involved in various legal proceedings incident to the conduct of its business. The Company does not expect the proceedings to have a 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 $269,000 as of September 30, 2003), the resolution of these matters will not materially affect the Company's future results of operations or financial position. (15) RELATED PARTY TRANSACTIONS -------------------------- A member of the Company's board of directors is a partner of a law firm which represents the Company in various legal matters. The Company incurred approximately $241,000, $33,000 and $20,000 for professional services rendered by this firm in the fiscal years ended September 30, 2003, 2002 and 2001, respectively. (16) SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED) ----------------------------------------------------------- (In Thousands, Except Per Share Data): --------------------------------------
2003: First Second Third Fourth ----- --------- --------- --------- -------- Revenues (a) $15,870 $18,893 $26,940 $27,135 Income (loss) from continuing operations (933) 146 1,850 (1,912) (c) Income (loss) from discontinued operations - (252) (59) (267) (c) Net income (loss) (933) (106) 1,791 (2,179) (c) Earnings (loss) per share: (b) Continuing operations: Basic (.29) .04 .58 (.60) Diluted (.29) .04 .58 (.60) Discontinued operations: Basic - (.07) (.02) (.08) Diluted - (.07) (.02) (.08) Net income (loss): Basic (.29) (.03) .56 (.68) Diluted (.29) (.03) .56 (.68) 2002: First Second Third Fourth ----- --------- --------- --------- -------- Revenues (a) $17,496 $17,928 $28,148 $25,019 Income (loss) from continuing operations (775) (656) 1,358 (610) Income (loss) from discontinued operations - 131 - (8) Net income (loss) (775) (525) 1,358 (618) Earnings (loss) per share: (b) Continuing operations: Basic (.24) (.21) .43 (.19) Diluted (.24) (.21) .43 (.19) Discontinued operations: Basic - .04 - - Diluted - .04 - - Net income (loss): Basic (.24) (.17) .43 (.19) Diluted (.24) (.17) .43 (.19)
(a) Certain reclassifications were made to classify certain sales incentives as reductions of gross revenues and/or increases in cost of goods sold that were previously classified as selling expenses (See Note 1 to Consolidated Financial Statements). (b) Calculated independently for each period, and consequently, the sum of the quarters may differ from the annual amount. (c) The fourth quarter of fiscal 2003 reflects the impact of providing for additional valuation allowances for the Company's U.S. deferred tax assets in the amounts of $2,232 and $190, included in continuing operations and discontinued operations, respectively (see Note 5). DIXON TICONDEROGA COMPANY AND SUBSIDIARIES ------------------------------------------ SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS ------------------------------------------------ FOR THE THREE YEARS ENDED SEPTEMBER 30, 2001, 2000 and 1999 ----------------------------------------------------------- Balance at Additions Additions to Balance Beginning Charged (Deductions From) at Close Description of Period to Income Reserves of Period - -------------------- ------------ ------------ --------------- ----------- Allowance for Doubtful Accounts: Year Ended September 30, 2003 $ 1,381,780 $ 315,026 $ (267,584) (1) $ 1,429,222 ============ ============ =============== =========== Year Ended September 30, 2002 $ 1,482,524 $ 193,979 $ (294,723) (1) $ 1,381,780 ============ ============ =============== =========== Year Ended September 30, 2001 $ 1,418,908 $ 151,263 $ (87,647) (1) $ 1,482,524 ============ ============ =============== =========== (1) Write-off of accounts considered to be uncollectible (net of recoveries). ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING - ------------------------------------------------------------------- AND FINANCIAL DISCLOSURES ------------------------- None. ITEM 9A. CONTROLS AND PROCEDURES - -------------------------------- Within the 90-day period prior to the date of this report, the Company's Co-Chief Executive Officers, Chief Financial Officer and Chief Accounting Officer evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures and concluded that such disclosure controls and procedures are effective. There have been no significant changes in internal controls or in other factors, which could significantly affect internal controls subsequent to the date that the officers carried out their evaluations. 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 2003 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 75 Chairman of the Board since February (Father-in-law of Richard F. Joyce) 1989; President and Chief Executive Officer or Co-Chief Executive Officer since 1978. Richard F. Joyce 48 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 47 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. 52 Executive Vice President of Operations since August 2000; Executive Vice President of Procurement since April 1999; prior thereto Executive Vice President, Industrial Group, since March 1996; Executive Vice President of Manufacturing / Consumer Products division since August 1995; Senior Vice President of Manufacturing since February 1993; Vice President of Manufacturing since March 1990. John Adornetto 62 Vice President and Corporate Controller since January 1991; prior thereto Corporate Controller since September 1978. Diego Cespedes Creixell 45 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 2003 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 2003 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 2003 Proxy Statement which is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES - ----------------------------------------------- Information required under this Item will be contained in the Company's 2003 Proxy Statement which is incorporated herein by reference. PART IV ------- ITEM 15. 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 1. Financial Information. 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 (2) c. Asset Purchase Agreement dated December 23, 2002, between Dixon Ticonderoga Company, as Seller and New Castle Refractories Company, Inc., Inc., as Buyer with addenda. (3) (i) Restated Certificate of Incorporation2 (3) (ii) Amended and Restated Bylaws1 (4) a. Specimen Certificate of Company Common Stock2 (4) b. Amended and Restated Stock Option Plan3 (10) a. First Modification of Amended and Restated Revolving Credit Loan and Security Agreement by and among Dixon Ticonderoga Company, Dixon Ticonderoga, Inc., First Union Commercial Corporation, First National Bank of Boston and National Bank of Canada1 (10) b. 12.00% Senior Subordinated Notes, Due 2003, Note and Warrant Purchase Agreement1 (10) c. 12.00% Senior Subordinated Notes, Due 2003, Common Stock Purchase Warrant Agreement1 (10) d. License and Technological Agreement between Carborundum Corporation and New Castle Refractories Company, a division of Dixon Ticonderoga Company1 (10) e. Equipment Option and Purchase Agreement between Carborundum Corporation and New Castle Refractories Company, a division of Dixon Ticonderoga Company1 (10) f. Product Purchase Agreement between Carborundum Corporation and New Castle Refractories Company, a division of Dixon Ticonderoga Company1 (10) g.Second Modification of Amended and Restated Revolving Credit Loan and Security Agreement by and among Dixon Ticonderoga Company, Dixon Ticonderoga, Inc., First Union Commercial Corporation, First National Bank of Boston and National Bank of Canada5 (10) h. Third Modification of Amended and Restated Revolving Credit Loan and Security Agreement, Amendment to Loan Documents and Assignment by and among Dixon Ticonderoga Company, Dixon Ticonderoga, Inc., First Union Commercial Corporation, BankBoston, N.A., National Bank of Canada and LaSalle Bank.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.8 (10) l. Second Modification of Amended and Restated Term Loan Agreement.8 (10) m. Amendment No. 2 to Note and Warrant Purchase Agreement.8 (10) n. Loan and Security Agreement by and among Dixon Ticonderoga Company and its Subsidiaries and Foothill Capital Corporation.10 (10) o. Dixon Ticonderoga Company Amended and Restated Note and Warrant Purchase Agreement, 12.5% Senior Subordinated Notes, due October 3, 2005.10 (21) Subsidiaries of the Company. (23) Consent of Independent Certified Public Accountants. (31.1)Chairman of the Board and Co-Chief Executive Officer Certification pursuant to Exchange Act Rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (31.2)Vice Chairman of the Board and Co-Chief Executive Officer Certification pursuant to Exchange Act Rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (31.3)Executive Vice President of Finance and Chief Financial Officer Certification pursuant to Exchange Act Rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (32.1)Chairman of the Board and Co-Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (32.2)Vice Chairman of the Board and Co-Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (32.3)Executive Vice President of Finance and Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 1Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended September 30, 1996, file number 0-2655, filed in Washington, D.C. 2Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1997, file number 0-2655, filed in Washington, D.C. 3Incorporated by reference to Appendix 3 to the Company's Proxy Statement dated January 27, 1997, filed in Washington, D.C. 4Incorporated by reference to the Company's Current Report on Form 8-K dated December 12, 1997, filed in Washington D.C. 5Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended September 30, 1998, file number 0-2655, filed in Washington, D.C. 6Incorporated by reference to the Company's Current Report on Form 8-K dated March 2, 1999, filed in Washington D.C. 7Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended September 30, 1999, file number 0-2655, filed in Washington, D.C. 8Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended September 30, 2000, file number 0-2655, filed in Washington, D.C. 9Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended September 30, 2002, file number 0-2655, filed in Washington, D.C. 10Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended December 31, 2002, file number 0-2655, filed in Washington, D.C. (b) Reports on Form 8-K: On August 15, 2003, the Company filed a Form 8-K which included as an exhibit its press release dated August 13, 2003, regarding its third fiscal quarter results. SIGNATURES ---------- Pursuant to the requirements of Section 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. DIXON TICONDEROGA COMPANY /s/ Gino N. Pala ----------------------------- Gino N. Pala, Chairman of Board and Co-Chief Executive Officer Pursuant to the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Company in the capacities indicated. /s/ Gino N. Pala ---------------------------- Gino N. Pala Chairman of Board, Co-Chief Executive Officer and Director Date: December 29, 2003 /s/ Richard F. Joyce ---------------------------- Richard F. Joyce Vice Chairman of Board, Co-Chief Executive Officer, President and Director Date: December 29, 2003 /s/ Richard A. Asta ---------------------------- Richard A. Asta Executive Vice President of Finance, Chief Financial Officer and Director Date: December 29, 2003 /s/ Diego Cespedes Creixell ---------------------------- Diego Cespedes Creixell President, Grupo Dixon S.A. de C.V., and Director Date: December 29, 2003 /s/ Philip M. Shasteen ---------------------------- Philip M. Shasteen Director Date: December 29, 2003 /s/ Ben Berzin, Jr. ---------------------------- Ben Berzin, Jr. Director Date: December 29, 2003 /s/ Kent Kramer ---------------------------- Kent Kramer Director Date: December 29, 2003 /s/ John Ritenour ---------------------------- John Ritenour Director Date: December 29, 2003 /s/ Wesley D. Scovanner ---------------------------- Wesley D. Scovanner Director Date: December 29, 2003 EX-2 3 exhibit2.txt ASSET PURCHASE AGREEMENT Exhibit 2.2(c) -------------- ASSET PURCHASE AGREEMENT Between: DIXON TICONDEROGA COMPANY, The Seller -AND- NEW CASTLE REFRACTORIES COMPANY, INC., The Purchaser David T. Mojock, Esquire Balph, Nicolls, Mitsos, Flannery & Clark 300 Sky Bank Building, 14 N. Mercer St. New Castle, PA 16101 (724) 658-2000 INDEX TO ASSET PURCHASE AGREEMENT DIXON TICONDEROGA COMPANY AND NEW CASTLE REFRACTORIES COMPANY, INC. Section Page ------- ---- 1. Asset Sale........................................................ 1 1.1 Agreement to Sell........................................... 1 1.2 Excluded Assets............................................. 2 1.3 The Closing................................................. 3 2. Purchase Price; Assumption of Liabilities of the Seller........... 3 2.1 Purchase Price.............................................. 3 2.2 Assumption of Liabilities................................... 4 3. Closing Date; Transfer Procedures................................. 5 3.1 Closing Date................................................ 5 3.2 Deliveries by the Seller.................................... 5 3.3 Deliveries by the Purchaser................................. 6 3.4 Release of Liens............................................ 7 3.5 Ad Valorem Taxes............................................ 7 4. Representations and Warranties of the Seller...................... 7 4.1 Organization and Good Standing.............................. 7 4.2 Title to Tangible Assets.................................... 8 4.3 Tax Matters................................................. 8 4.4 Litigation and Claims....................................... 8 4.5 Additional Information...................................... 9 4.6 Restrictions................................................ 10 4.7 Compliance with Laws........................................ 10 4.8 Employee Benefit Plans...................................... 10 4.9 Authorization............................................... 10 4.10 Fixed Assets................................................ 11 4.11 Accounts Receivable......................................... 11 4.12 Contracts................................................... 11 4.13 Financial Statements........................................ 11 4.14 Changes in Financial Condition.............................. 11 4.15 Patents and Similar Intangible Property..................... 12 4.16 Information Systems......................................... 12 4.17 Workers' Compensation Claims................................ 12 4.18 Disclosure/Disclaimer....................................... 12 i 5. Representations and Warranties of the Purchaser................... 12 5.1 Organization and Good Standing.............................. 12 5.2 Authorization............................................... 13 6. Conduct Pending the Closing....................................... 13 6.1 Conduct of Business......................................... 13 6.2 Access...................................................... 13 6.3 Contracts and Commitments................................... 13 6.4 Sale of Capital Assets...................................... 13 6.5 Liabilities................................................. 14 6.6 Insurance................................................... 14 6.7 Preservation of Organization and Employees.................. 14 6.8 Reasonable Efforts to Close................................. 14 6.9 Notice of Developments...................................... 14 7. Conditions Precedent to the Purchaser's Obligations.............. 14 7.1 Representations and Warranties............................. 15 7.2 Performance of Agreements.................................. 15 7.3 Damage or Destruction...................................... 15 7.4 Closing Deliveries......................................... 15 7.5 Closing Certificates....................................... 15 7.6 Opinion of Counsel......................................... 15 7.7 No Litigation.............................................. 15 7.8 Financing.................................................. 15 7.9 Union Contracts............................................ 15 7.10 Bulk Sale Laws............................................. 15 7.11 Material Adverse Change.................................... 15 8. Conditions Precedent to the Seller's Obligations.................. 16 8.1 Representations and Warranties.............................. 16 8.2 Performance of Agreements................................... 16 8.3 Closing Deliveries.......................................... 16 8.4 No Litigation............................................... 16 8.5 Union Contracts............................................. 16 8.6 Opinion of Counsel.......................................... 16 9. Fees and Expenses................................................. 16 9.1 Representations and Indemnity with Respect to Brokers....... 16 9.2 Expenses of the Transaction................................. 16 9.3 Sales, Transfer and Documentary Stamps...................... 17 10. Indemnification................................................... 17 10.1 Liabilities................................................. 17 10.2 Survival of Representations................................. 17 ii 10.3 Indemnification by the Seller............................... 17 10.4 Indemnification by Purchaser................................ 18 10.5 Defense of Claims........................................... 18 10.6 Exclusive Remedy............................................ 19 11. Post-Closing Matters.............................................. 19 11.1 Further Assurances.......................................... 19 11.2 Responsibility for Litigation............................... 19 11.3 Satisfaction of Debt........................................ 19 11.4 Employees and Employee Benefits............................. 19 11.5 Environmental Remediation................................... 21 12. Fire and Casualty................................................. 21 13. Termination of Agreement.......................................... 22 13.1 Termination of Agreement.................................... 22 13.2 Effect of Termination....................................... 23 14. Miscellaneous..................................................... 23 14.1 Governing Law............................................... 23 14.2 Headings for Reference Only................................. 23 14.3 No Publicity................................................ 23 14.4 Notices..................................................... 23 14.5 Non-Competition............................................. 24 14.6 Assignment.................................................. 25 14.7 Waiver...................................................... 25 14.8 Severability and Construction............................... 25 14.9 Entire Agreement and Amendment.............................. 25 14.10 Authority................................................... 26 14.11 Force Majeure............................................... 26 iii ASSET PURCHASE AGREEMENT ------------------------ This ASSET PURCHASE AGREEMENT dated December 23, 2002, is between DIXON TICONDEROGA COMPANY, a Delaware corporation (the "Seller"), and NEW CASTLE REFRACTORIES COMPANY, INC., a Pennsylvania corporation, (or a business entity to be designated by it), (the "Purchaser"). WHEREAS, the Seller desires to sell to the Purchaser substantially all of the assets and assume certain of the liabilities described herein relating to its business operated as a division of the Seller carried out under the name "New Castle Refractories Company," which division develops, manufactures, markets and sells clay and non-clay ceramic refractory products with plants or offices located in New Castle, Pennsylvania, Newell, West Virginia and Massillon, Ohio, (the "Business"); WHEREAS, the Purchaser wishes to purchase such assets and the Business as a going concern and to assume certain liabilities of the Business, all as set forth in this Agreement; and WHEREAS, the Purchaser is owned and managed by Thomas E. Shaffer, Edward Allison Jr., and Thomas A. Huffman (collectively, the "Managers"), who are all executive officers of the Business and as such have been managing the Business for the Seller for years. NOW, THEREFORE, in consideration of the premises set forth herein, other good and valuable consideration the receipt of which is hereby acknowledged, and intending to be legally bound, the parties hereto hereby covenant and agree as follows: Section 1. Asset Sale --------------------- 1.1. Agreement To Sell. At the Closing (hereinafter defined), the Seller shall sell, grant, convey, transfer, assign and deliver to the Purchaser, and the Purchaser shall purchase from the Seller upon the terms and subject to the conditions of this Agreement, free and clear of all liens, encumbrances and charges, all of the Seller's right, title and interest in the assets comprising, the Business, including, without limitation, the following (the "Assets"): (a) All inventory and stock in trade of the Business owned by the Seller on the Closing Date (as hereinafter defined); (b) All prepaid expenses (except insurance), accounts receivable not in excess of $1,500,000, notes and security for debts owed to and owned by the Seller on the Closing Date and relating to the operation of the Business; (c) All real estate owned by the Seller together with the Seller's interest in all mineral rights (including, without limitation, gas wells in Massillon, Ohio) and improvements thereto occupied by the Business at New Castle, Lawrence County, Pennsylvania, Newell, Hancock County, West Virginia, and Massillon (Townships of Lawrence and Tuscarawas) Stark 1 County, Ohio, (the "Premises"), described more fully in Exhibits "A", "B" and "C" attached hereto and incorporated herein; (d) All furniture, fixtures, supplies, materials, machinery, vehicles and equipment owned by the Seller on the Closing Date used in the Business and located on or about the Premises, including without limitation those items specifically listed on Exhibit "D" attached hereto and incorporated herein (the "Fixed Assets"); (e) All credits arising out of or relating to the operations of the Business due to the Seller from suppliers on the Closing Date; (f) All raw materials, work in progress and finished goods used in the Business; (g) All permits, approvals, licenses, authorizations and other rights obtained from any government or agency thereof related to the operation of the Business, to the extent transferable; (h) All books, records, warranties and information of the Seller relating to the Assets, management and operation of the Business; (i) All customer lists, patents, designs, trademarks, service marks, copyrights or applications therefor, licenses, permits and authorizations, the website at www.newcastlerefractories.com, trade names, slogans which the Seller is the owner, licensor or licensee, together with the name "New Castle Refractories Company" and "Corundite Refractories", and any similar name or names used by the Seller in connection with the Business (individually and collectively "Names") and any goodwill attaching thereto. After the closing, the Seller shall cease using the Names and any telephone numbers listed under the Names all of which are conveyed to the Purchaser and the Seller shall cancel its registration of the Names in all jurisdictions including Pennsylvania, West Virginia, Ohio and any other state where the Names may be registered. (j) All other assets owned by the Seller, tangible or intangible, wherever located, relating to or used or useful in connection with the Business, but not the Assets described in section 1.2; 1.2. Excluded Assets. Notwithstanding anything to the contrary contained in section 1.1 or elsewhere in this Agreement, the following assets of the Seller (collectively, the "Excluded Assets") are not part of the sale and purchase contemplated hereunder, are excluded from the Assets and shall remain the property of the Seller after the Closing: (a) all cash, cash equivalents and short-term investments not shown on the Closing Balance Sheet, Exhibit "E"; (b) all personnel records and other records that the Seller is required by law to retain in its possession. The Purchaser agrees that (i) all such records that are located at the Premises on the Closing Date may, at the Seller's discretion, remain at such Premises (ii) the Purchaser shall be responsible for the safe keeping of such records, (iii) the Seller and it's agents shall have access to all such records during normal business hours for inspection and copying, as long as the Seller doesn't 2 unreasonably interfere with the Purchaser's business, and (iv) the Seller may remove such records upon not less than 5 days prior notice to the Purchaser and the Purchaser may, except to the extent precluded by law, may copy such records. This provision shall be binding on the successors and assigns of the Purchaser; (c) all claims for refund of any and all taxes and other governmental charges of whatever nature; (d) all rights in connection with and assets of the Plans (as defined herein); (e) all rights of the Seller under this Agreement, all instruments pursuant to which assets are transferred, and the Note (as defined herein); (f) any and all Assets located at any of the Seller's properties other than in New Castle, Pennsylvania, Newell, West Virginia, and Massillon, Ohio; and (g) all Assets not used exclusively in the Business. 1.3. The Closing. At the consummation of the transactions contemplated hereby (the "Closing"), the Seller shall sell to the Purchaser and the Purchaser shall purchase from the Seller, upon the terms and subject to the conditions of this Agreement and in reliance upon the representations and warranties of the Seller in this Agreement and any representations made by the Seller in any of the Exhibits to section 4, the Assets and, as consideration therefor (the "Purchase Price"), shall: (a) pay to the Seller the amounts set forth in section 2.1; and (b) assume and agree to pay or discharge the Seller's liabilities and obligations to the extent and only as provided in section 2.2. Section 2. Purchase Price; Assumption of Liabilities of the Seller ------------------------------------------------------------------ 2.1. Purchase Price. The Purchase Price for the Assets shall be equal to the Net Book Value at the time of Closing plus $250,000.00. The Net Book Value shall be based upon the balance sheet of the Seller for the Business (the "Closing Balance Sheet") prepared as of the most recent practical date before the Closing, but in no event earlier than November 30, 2002 and shall be calculated in the same method as is used to calculate the Net Book Value of the Business in the Interim Balance Sheet provided for below. Attached hereto as Exhibit "E" and incorporated herein is a balance sheet and Net Book Value calculation for the Business prepared by the Seller as of the most recent practicable date prior to the date of this Agreement (the "Interim Balance Sheet"). The Interim Balance Sheet is and the Closing Balance Sheet shall be a true and accurate representation of the assets and liabilities of the Business as of their respective dates and shall be prepared on the same basis as that of previous periods. The Purchaser understands and agrees that the Interim Balance Sheet and the Closing Balance Sheet will not include accounts receivable in excess of $1,500,000 and any accounts receivable 90 or more days old as of the Closing Date. If, after excluding accounts receivable 90 or more days old, the accounts receivable still exceed $1,500,000, the Seller shall retain ownership of mutually agreed upon Griffin Wheel accounts receivable so that the total accounts receivable on the Closing Balance Sheet will not exceed $1,500,000. The Purchase Price shall be paid as follows: 3 (a) At the time of Closing, the Purchaser shall receive a credit in the amount of Two Hundred Fifty Thousand and 00/100 ($250,000.00) Dollars against the Purchase Price in consideration for the cancellation and termination of Employment Agreements between the Seller and Thomas E. Shaffer, L. Edward Allison, Jr. and Thomas A. Huffman (the "Employment Agreements"). The parties agree that any monies spent by the Seller for any and all expenses related to the sale of the Business to the Purchaser except for the Seller's legal fees, but including, without limitation, environmental reports and appraisals shall be deducted from the credit. (b) At the Closing, the Purchaser shall deliver to the Seller a promissory note in the principal amount of Five Hundred Thousand and 00/100 ($500,000.00) Dollars (the "Note") which will be secured by a mortgage on the Premises (the "Mortgage"), a security interest in the Assets (the "Security Agreement", and which Note, Mortgage, and Security Agreement shall be in a form mutually agreeable to the Purchaser and Seller. Said Note, Mortgage, and Security Agreement shall be subordinate only to the financing obtained by the Purchaser to pay the cash portion of the Purchase Price and an amount of not more than $300,000 to fund Purchaser's working capital. (c) At the Closing, the Purchaser shall pay the balance of the Purchase Price by wire transfer to the Seller; (d) This Agreement and the Closing are expressly subject to and contingent upon the Purchaser obtaining financing acceptable to the Purchaser for the completion of this transaction as set forth in section 7; (e) The Purchase Price shall be allocated as consistent with the Closing Balance Sheet. The parties shall make consistent use of such allocations for all tax purposes and in all filings, declarations and reports with the Internal Revenue Service with respect thereto. The Purchaser shall prepare and deliver Internal Revenue Service Form 8594 to the Seller within forty-five (45) days after the Closing Date to be filed with the Internal Revenue Service. In any proceeding relating to the determination of any tax, neither the Purchaser nor the Seller shall contend or represent that such allocation is not a correct allocation. 2.2. Assumption of Liabilities. On the Closing Date, the Purchaser shall assume and agree to pay or discharge only the following liabilities and obligations of the Seller and no others (the "Assumed Liabilities"): (a) All liabilities, trade accounts payable and accrued expenses of the Seller acquired in the ordinary course of Business and reflected on the Closing Balance Sheet. The parties agree that the Interim Balance Sheet is accurate as of its date but is only an example; (b) All executory liabilities and obligations of the Seller not required to be performed prior to the Closing Date under the leases, licenses, commitments and agreements listed on Exhibit "H" hereto, including, without limitation, the union contracts applicable to the Business; 4 (c) Any liability to the Seller's customers incurred by the Seller in the ordinary course of business for orders outstanding as of the Closing Date reflected on the Seller's books; (d) Any liability to the Seller's customers under written warranty agreements given by the Seller to its customers in the ordinary course of business prior to the Closing Date; and (e) The Purchaser's share of ad valorem real estate taxes as provided for in section 3.5. All debts, commitments, liabilities and obligations of the Seller, of every kind whatsoever, whether known or unknown, direct or contingent, in litigation or threatened or not yet asserted (other than the Assumed Liabilities) or any claims or demands based thereon or attributable thereto (other than Assumed Liabilities) are and shall remain the sole responsibility of the Seller. Without limiting the generality of the foregoing, specifically excluded from the Assumed Liabilities are any liabilities of the Seller with respect to any federal, state, local or foreign income, franchise or other tax imposed upon the Seller, any obligation of the Seller for any employee grievance pending at the Closing Date, any obligations of the Seller arising out of any pending or threatened litigation or for the adjustment or payment for returned or defective goods at any time sold by the Seller prior to the Closing Date, any liability or damages arising, directly or indirectly, from any violation or alleged violation by or on behalf of the Seller prior to the Closing Date of any federal, state, local or foreign laws, ordinances, regulations, decrees or rules or any unasserted claim, assessment or liability against the Seller arising prior to the Closing Date (except for the Assumed Liabilities) for all of which the Seller shall remain solely responsible and liable. Except as set forth in section 9.3, in no event shall the Purchaser assume, incur or be responsible for any liability, debt or obligation with respect to any income or other tax payable by the Seller incident to or arising as a consequence of the consummation by the Seller of this Agreement or any cost or expense incurred by the Seller incident to or arising as a consequence of such consummation of the negotiations in connection with this Agreement. Section 3. Closing Date; Transfer Procedures -------------------------------------------- 3.1. Closing Date. The closing of the sale and purchase of the Assets shall be held at 9:00 a.m., local time, on February 17, 2003, (the "Closing Date") at the Business's offices in New Castle, PA, or on such other date and at such other time or place as the parties may agree in writing. 3.2. Deliveries by the Seller. At the Closing, the Seller shall deliver to the Purchaser the following: (a) a bill of sale for all of the Assets that are tangible personal property in the form delivered to the Purchaser for examination and approval at least fifteen (15) days prior to the Closing Date executed by the Seller; 5 (b) an assignment of all of the Assets that are intangible personal property in the form delivered to the Purchaser for examination and approval at least fifteen (15) days prior to the Closing Date, which assignment shall also contain Buyer's undertaking and assumption of the Assumed Liabilities (the "Assignment and Assumption Agreement"), executed by the Seller; (c) for each Asset that is real property, a recordable general warranty deed, in the form delivered to the Purchaser for examination and approval at least fifteen (15) days prior to the Closing Date, executed by the Seller; (d) assignments of all intellectual property Assets and separate assignments of all registered trademarks in the form delivered to the Purchaser for examination and approval at least fifteen (15) days prior to the Closing Date, executed by the Seller; (e) such other deeds, bills of sale, assignments (including assignments of the union contracts applicable to the Business), certificates of title, documents and other instruments of transfer and conveyance as may reasonably be requested by Buyer, each in form and substance satisfactory to Buyer and its legal counsel and executed by the Seller; (f) all contracts, agreements, commitments, warranties and rights relating to the Assets and the Business and its operation and the Seller shall take all actions reasonably required to put the Purchaser in actual possession, ownership, operation and control of the Assets and Business; (g) evidence and documents acceptable to the Purchaser and its counsel that all contracts or rights of the Seller which cannot be transferred effectively without the consent of third parties have received such consent, or if such consent is unobtainable, an agreement satisfactory to the Purchaser and its counsel assuring to the Purchaser all of the benefits of such contracts or rights; (h) a Subsistence Certificate and a Corporate Tax Lien Certificate showing that the Seller owes no such taxes, both dated and issued by the Commonwealth of Pennsylvania, Certificates of Good Standing from the states of West Virginia (confirming that all West Virginia taxes have been paid) and Ohio, and a tax certificate from the State of Ohio, all dated within thirty (30) days before Closing and evidence and documents acceptable to Purchaser and its counsel that Seller has complied with the applicable Bulk Sales Laws in Pennsylvania, West Virginia and Ohio; (i) at the Closing, the Seller shall execute all documents and take all actions reasonably necessary to transfer to the Purchaser all of the Seller's right, title and interest in and to the www.newcastlerefractores.com website. The Seller and the Purchaser shall also enter into a written agreement, reasonably acceptable to the Seller and the Purchaser, providing the Purchaser the free use of the Seller's mainframe computer for a period of one (1) year after the Closing Date in a similar method, manner, time and procedure as currently exists; and (j) the certificates required by section 7.5 and 10.2. 6 3.3. Deliveries by the Purchaser. The Purchaser shall deliver to the Seller: (a) the portion of the Purchase Price provided for in section 2.1(c) by wire transfer to an account specified by the Seller in a writing delivered to the Purchaser at least one (1) business day prior to the Closing Date; (b) the Note, Mortgage and Security Agreement executed by the Purchaser; (c) the Assignment and Assumption Agreement executed by the Purchaser; (d) written terminations of the Employment Agreements executed by Messrs. Shaffer, Allison, and Huffman, and in form reasonably acceptable to the Seller; and (e) the certificate required by section 10.2. 3.4. Release of Liens. At or prior to the Closing, the Seller shall deliver all necessary releases or waivers of all liens, charges, encumbrances and Uniform Commercial Code termination statements in forms reasonably acceptable to the Purchaser's counsel so that the Seller's title to the Assets is in conformity with section 4.2 hereof. 3.5 Ad Valorem Taxes. Ad valorem real and tangible personal property taxes with respect to the Assets for the calendar year in which the Closing occurs shall be prorated between the Seller and the Purchaser as of the Closing Date on the basis of no applicable discount. If the amount of such taxes with respect to any of the Assets for the calendar year in which the Closing occurs has not been determined as of the Closing Date, then the taxes with respect to such Assets for the preceding calendar year, on the basis of no applicable discount, shall be used to calculate such prorations, with known changes in valuation or millage applied. The prorated taxes shall be an adjustment to the amount of cash due from the Purchaser at the Closing. If the actual amount of all such taxes varies by more than five thousand Dollars ($5,000) from estimates used at the Closing to prorate such taxes, then the parties shall prorate such taxes within ten (10) days following request by either party based on the actual amount of the tax bill. Section 4. Representations and Warranties of the Seller ------------------------------------------------------- To induce the Purchaser to enter into this Agreement, the Seller hereby represents and warrants to the Purchaser, as set forth below. However, the Purchaser acknowledges that the Managers have been operating the Business for the Seller and are therefore knowledgeable about the day to day operations of the Business. Accordingly, .the Purchaser shall not be entitled to rely on any representation or warranty set forth below if any of the Managers know or should know such representation or warranty is not true, accurate or complete. Representations and warranties set forth below that state that they are to the knowledge of the Seller or its executive officers responsible for a particular matter shall not include the knowledge of any of the Managers. For purposes of this Section 4, the term "knowledge" means actual knowledge without independent investigation. 4.1. Organization and Good Standing. The Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and is duly authorized and qualified to transact its business in the Commonwealth of Pennsylvania and states of Ohio and West Virginia. The Seller has all requisite corporate power and authority to conduct and transact at the 7 Premises its Business as it is presently being conducted, to enter into this Agreement and to perform and carry out the terms and provisions of this Agreement. 4.2. Title to Tangible Assets. The Seller owns outright, and has good and marketable title to or a valid leasehold interest in all of the material tangible Assets used by the Seller regularly in the conduct of the Business, to the best of the Seller's knowledge and belief, free and clear of all liens, pledges, mortgages, security interests, leases, charges, restrictions, conditional sales contracts or other encumbrances or conflicting claims of any nature whatsoever, except as set forth in Exhibit "I" hereto and except for Assets disposed of in the ordinary course of business since the date of this Agreement. To the best of the Seller's knowledge and belief, all premiums necessary to maintain insurance policies maintained by the Seller with respect to the Business have been paid or accrued in full and reflected in the Closing Balance Sheet. 4.3. Tax Matters. The types of state taxes paid by the Seller with respect to the Business are listed in Exhibit "I-1." To the best of the Seller's knowledge and belief, the Seller has filed or caused to be filed all such federal, state and local tax income returns and reports of the Seller through the taxable year ended September 30, 2001 which are due and required to be filed and has paid or caused to be paid all material taxes due through September 30, 2001 and, to the best of the Seller's knowledge and belief, any assessment of taxes received, except taxes or assessments that are being contested in good faith (and are separately and specifically identified on Exhibit I-1) and which have been adequately reserved against. Such returns have not been audited, and to the best of the Seller's knowledge and belief, the Seller has received no notice of, and to the best of the Seller's knowledge and belief, there is no pending or threatened proceeding or claim by any governmental agency for assessment or collection of taxes from the Seller. All such returns and reports have been prepared on the same basis as that of previous years and in accordance with all applicable laws, regulations and requirements, and accurately reflect the taxable income (or other measure of tax) of the Seller in all material respects. The Seller will pay all taxes applicable to the Business that accrue through the Closing Date other than those identified on the Closing Balance Sheet, Exhibit "E". 4.4. Litigation and Claims. To the best of the Seller's knowledge and belief, except as disclosed in Exhibit "J" attached hereto and incorporated herein,: (a) there is no dispute, claim, action, suit, proceeding, arbitration or governmental investigation, either administrative or judicial proceeding relating to the Business, (individually and collectively "Proceeding"), pending, or to the best of the Seller's knowledge and belief, information and belief threatened, against the Seller, the Business or the Assets nor is the Seller or any of its directors or officers (other than the Managers) aware of any facts that, to its or their knowledge, might result in any such claim or Proceeding; (b) the Seller is not in default with respect to any order, award, writ, injunction or decree of any court or governmental department, commission, board, bureau, agency or instrumentality, which involves the possibility of any judgment or liability which may result in any adverse 8 change in the financial condition of the Seller, the Business or the Assets; (c) without limiting the generality of the foregoing, except as noted in Exhibit "J," the Seller and its executive employees (other than the Managers) responsible for such matters have not received any notice of and have no knowledge of any pending or threatened Proceeding, demand, liability, claim, charge or assessment against the Business or the Assets relating to or arising, directly or indirectly, out of any of the following matters related to the Business: (i) unpaid tax or assessment; (ii) employment or collective bargaining agreement; (iii) worker's compensation claims, unpaid wages, salaries, overtime or vacation pay, sick leave or any law, rule or regulation relating to employment; (iv) any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, as amended, Benefit Plan, as hereinafter defined, or otherwise; (v) law, rule or regulation or violation of any law, rule or regulation, relating to the environment ("Environmental Claims"); (vi) patent, trademark, trade secret or other intellectual property; or (vii) product warranty or product liability claims. 4.5. Additional Information. To the best of the Seller's knowledge and belief, except as disclosed in Exhibit "K" attached hereto and incorporated herein, the Seller neither owns, has in existence, has any rights or interest in or to, nor uses in the Business: (a) any trademark, trade or fictitious name or registration or application therefor or any copyright, invention, letters patent or application for letters patent. After the Closing, the Seller will terminate its use of the Names "New Castle Refractories Company" and "Corundite Refractories" and any similar or confusing name or names and shall not use or, to the extent it has the right and power to do so, permit anyone else to use any such names. (b) any insurance policy or bond in force with respect to the Business, the Assets or employees of the Seller related to the Business and providing services at the Premises; (c) any employment agreement or arrangement, oral or written, with any present or former employee of the Seller related to the Business and providing services at the Premises, under which any amount remains unpaid on the date hereof or will become payable after the date hereof; (d) any lease pursuant to which the Seller leases personal or real property used in the Business to or from any person or entity. To Seller's knowledge, all of those leases listed in Exhibit "K" are in full force and effect; (e) any collective bargaining agreement of the Seller with any labor union or other representative of employees employed by the Seller in connection with the Business. Complete and correct copies of the documents referred to in subparagraphs (a) through (e) above have been made available to the Purchaser or the Managers. The Seller has no knowledge of any default or claimed or alleged default, or state of facts which with notice or lapse of time or both, may constitute a default, in any obligation of the Seller or of any other party to be performed 9 under any of the agreements described in subparagraphs (a) through (e) above. 4.6. Restrictions. To the best of the Seller's knowledge and belief, the Seller is not subject to any judgment, order, writ, injunction or decree which adversely affects or, so far as the Seller can now foresee, may in the future adversely affect, the Business or the Assets. 4.7. Compliance With Laws. To the best of the Seller's knowledge and belief, the Seller has received all necessary authorizations, approvals, licenses, permits and orders of and from all governmental and regulatory officers, agencies and bodies that are material to the operation of the Business as it is now being conducted and will take all necessary actions to transfer the same to the Purchaser, to the extent that they are transferable. To the best of the Seller's knowledge and belief, the Seller has fully complied with and has received no notice of default under, and to the best of the Seller's knowledge and belief, the Seller is not in violation of, any law, ordinance, rule, regulation or order relating to the Business or Assets (including, without limitation, any zoning, safety, occupational health and safety, or price or wage control law, ordinance, rule, regulation or order) applicable to the Business or Assets as presently constituted which adversely affect or, so far as the Seller can now foresee, may in the future adversely affect, the Business or the Assets. To the best of the Seller's knowledge and belief, the Seller has not received any orders, decrees or mandates of any federal, state or local court or regulatory agency relating to the Business and has not received any citations or notice of violation of any laws, regulations, standards or orders relating to the environmental or occupational health and safety relating to the Business, any proposed penalties relating to the Business, or any claim or charges of unfair labor practices, labor discrimination or other unfair labor practices relating to the Business pending or threatened before any federal, state or local court or regulatory agency which remain unresolved. To the best of the Seller's knowledge and belief, Exhibit "L" attached hereto and incorporated herein sets forth a true and complete list of all such authorizations, approvals, licenses, permits and orders. 4.8. Employee Benefit Plans. The Seller's only employee benefit plans applicable to employees of the Business other than its health insurance coverage, are its 401(k) plan. Its Employee Qualified Stock Purchase Plan, and its 125 Flexible Fringe Spending Benefits Plan (together, the "Plans"). The Seller shall assure that the employees of the Business will receive any employer matching payments under the Seller's 401(k) plan for the 2002 fiscal year of such plan even if the Closing occurs before December 31, 2002. To the best of the Seller's knowledge and belief,(i) the plans are in compliance with applicable laws, (ii) there is no actual or threatened liability under the applicable laws regarding the plans, and (iii) Seller has received no notice of such noncompliance or liability. 4.9. Authorization. The Seller has full corporate power and authority to enter into this Agreement and consummate the transactions on its part contemplated hereby. The execution and delivery of this Agreement, and the sale, transfer and other actions contemplated hereby have been duly approved, consented to and authorized by all requisite corporate action of the Seller and the Seller has or will have by the Closing Date taken all actions required by any applicable law or otherwise regarding the sale, transfer and other actions contemplated in this Agreement on the part of the Seller. Neither the execution 10 and delivery of this Agreement nor the consummation of the transactions herein by the Seller constitutes a violation or breach of applicable law or of the Seller's Articles of Incorporation or Bylaws, or any order, writ, injunction, decree or judgment applicable to it, or constitutes a default (or would but for the giving of notice or lapse of time or both, constitutes a default) under any contract or instrument to which the Seller is a party or by which it is bound except where the violation, breach, or default would not have a material adverse affect on the Business or the Assets, taken as a whole. This Agreement constitutes the legal, valid and binding obligation of the Seller enforceable in accordance with its terms. 4.10. Fixed Assets. Exhibit "D" sets forth a true and complete list of all of the Fixed Assets. 4.11 Accounts Receivable. To the best of the Seller's knowledge and belief, the Seller has entered into no agreements with customers of the Business to cancel give credits, or forgive any of the accounts receivable of the Business which are included on the Closing Balance Sheet, except as may be included in any reserve for bad debts reflected in the Closing Balance Sheet. 4.12 Contracts. To the best of the Seller's knowledge and belief , except as disclosed in Exhibit "M" attached hereto and incorporated herein, the Seller is not a party to any agreement for the future purchase of materials, supplies, goods, machinery or equipment, sales agreement, distributorship or sales agency agreement or lease agreement that relates to the Business and to any period beyond the Closing Date, whether written or oral. To best of the Seller's knowledge and belief, except as disclosed in Exhibits "J" or "K," the Seller is not in default under and there is no pending or threatened claim, action or proceeding relating to any contract, agreement, lease or other document connected with or relating to the Business, Premises or Assets. Copies of all such written contracts, agreements, leases and documents and all terms of all oral agreements are accessible to the Managers. 4.13 Financial Statements. To the best of the Seller's knowledge and belief, the Interim Balance Sheet presents and the Closing Balance Sheet will accurately present the financial condition of the Business at their dates and disclose all of the debts, liabilities, commitments and obligations of the Business, whether accrued, absolute, contingent, or otherwise due or to become due (including, without limitation, liabilities for taxes of any kind whatsoever) or arising out of transactions occurring, or any state of facts existing, on or prior to the date of the Interim Balance Sheet and the Closing Balance Sheet. The Interim Balance Sheet and the Closing Balance Sheet were prepared on a basis consistent with prior periods. To best of the Seller's knowledge and belief, as of the date hereof, there are no circumstances, conditions, events or arrangements, contractual or otherwise, which could be expected to give rise to any liabilities related to the Business, except in the normal course of the Business and consistent with the Seller's past practices, except as described in this Agreement. 4.14 Changes in Financial Condition. Between the date on the Interim Balance Sheet and the Closing Date, and with respect to the Business, to the best of the Seller's knowledge and belief, the Seller has not incurred and will not, to the Seller's knowledge incur any obligations or liabilities, absolute, 11 accrued, contingent or otherwise, except current liabilities incurred in the ordinary course of business; mortgaged, pledged, subjected to lien, charge or encumbrance, or granted a security interest in any of the Assets, tangible or intangible; canceled any debt or claim or sold or transferred any of the Assets or properties except sales out of inventory in the ordinary course of business; or waived any rights of substantial value; or entered into any transaction regarding or relating to the Assets or Business other than in the ordinary course of business. 4.15 Patents and Similar Intangible Property. The Seller has no knowledge of any pending or threatened claim, demand or reason to believe that it is or may be infringing on or otherwise acting adversely to, the rights of any person under or in respect of any patent, trademark, service mark, trade name, copyright, license, or other similar intangible rights; the Seller is not obligated or under any liability to make any payments by way of royalties, fees, or otherwise to any owner or licensee of, or other claimant to, a patent, trademark, trade name, copyright or other intangible asset with respect to the use of the intangible property or in connection with the Seller's conduct of the Business or otherwise except for royalty payments alleged by Saint-Gobain to be due and which the Seller disputes. 4.16 Information Systems. The information systems used by the Business consist of computer hardware with accompanying software located at the various Premises (the "On-Site Hardware"). The On-Site Hardware is leased by the Seller and the lease expires in approximately four months. The Business uses the Seller's mainframe computer for various purposes. 4.17 Workers' Compensation Claims. The Seller, at its sole cost and expense, shall defend, be solely liable and responsible for and pay in full all workers' compensation claims asserted, relating to or in any manner connected with the Business or arising, directly or indirectly, from any events or circumstances whatsoever prior to the time of Closing. The Seller shall provide to the Purchaser at least ten (10) days prior to the Closing, copies of insurance policies to fully insure, cover and/or pay all workers' compensation claims including, without limitation, the claims of Randall Kennedy and Michael Mangino. The Purchaser shall have no responsibility or liability whatsoever with regard to any and all such claims. 4.18. Disclosure/Disclaimer. All of the Seller's representations and warranties shall be deemed made again at the time of Closing and shall survive the Closing and transfer of the Assets, Premises and Business and shall not be merged therein. Except as expressly set forth in this Section 4, the Seller makes no representation or warranty, express or implied, at law or in equity, in respect of any of its assets (including, without limitation, the Assets), liabilities or operations, including, without limitation, with respect to merchantability or fitness for any particular purpose, and any such representations or warranties are hereby expressly disclaimed. The Purchaser hereby acknowledges and agrees that except to the extent specifically set forth in this Section 4, the Purchaser is purchasing the Assets on an "as is", "where-is" basis Section 5. Representations and Warranties of the Purchaser ---------------------------------------------------------- The Purchaser hereby represents and warrants to the Seller as follows: 12 5.1. Organization and Good Standing. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania and is duly authorized and qualified to transact business in the states of Ohio and West Virginia. The Purchaser has all requisite corporate power and authority to conduct and transact the Business at the Premises after the Closing as it is presently being conducted by the Seller, to enter into this Agreement, and to perform and carry out the terms and provisions of this Agreement. 5.2. Authorization. The execution and delivery of this Agreement, and the purchase and other actions contemplated hereby have been duly approved, authorized and consented to by all requisite corporate action on the part of the Purchaser and the Purchaser has taken all actions required by applicable law or otherwise regarding the purchase and other actions contemplated by this Agreement on the part of the Purchaser. The Purchaser has corporate power and authority to consummate the transactions on its part contemplated hereby, including without limitation, issuance of the Note and Mortgage. Neither the execution and delivery of this Agreement nor the consummation of the transactions herein by the Purchaser constitutes a violation or breach of applicable law or of the Purchaser's Articles of Incorporation or Bylaws, or any order, writ, injunction, decree or judgment applicable to it, or constitutes a default (or would but for the giving of notice or lapse of time or both, constitute a default) under any contract or instrument to which the Purchaser is a party or by which it is bound except where the violation, breach, or default would not have a material adverse affect on the Business or the Assets, taken as a whole. This Agreement constitutes, and the Note and Mortgage when executed and delivered will constitute, the legal, valid and binding obligations of the Purchaser, enforceable in accordance with their terms. Section 6. Conduct Pending the Closing -------------------------------------- The Seller hereby covenants and agrees that, during the period between the execution of this Agreement and the Closing and except as otherwise approved in advance in writing by the Purchaser: 6.1. Conduct of Business. The Seller shall carry on the Business in the ordinary course of business consistent with past custom and practice. 6.2. Access. The Purchaser and its authorized representatives shall have full access during normal business hours and so as not to interfere with normal Business operations to all properties, books, records, contracts and documents of the Seller, and the Seller shall furnish or cause to be furnished to the Purchaser and its authorized representatives all information with respect to the Assets, Premises or Business of the Seller as the Purchaser may reasonably request. In the event of the termination of this Agreement, all such information shall remain confidential and not be used by the Purchaser, its officers, directors, employees or agents, and all copies thereof shall be returned to the Seller. 6.3. Contracts and Commitments. The Seller shall not enter into any contract, obligation, agreement, commitment or transaction not in the usual and ordinary course of its Business and not consistent with past practices. 13 6.4. Sale of Capital Assets. The Seller will not sell or dispose of any Assets or capital assets of the Business. 6.5. Liabilities. The Seller will not, and will not agree to, knowingly and affirmatively create any indebtedness or any other fixed or contingent liability applicable to the Business including, without limitation, liability as a guarantor or otherwise with respect to the obligations of others, other than that incurred in the usual and ordinary course of its Business consistent with past practices, and that incurred pursuant to existing contracts and items disclosed in the Exhibits attached hereto or any writings to be assumed by the Purchaser. 6.6. Insurance. The Seller will use commercially reasonable efforts to maintain in full force and effect all present insurance insuring the Business, its employees, the Premises or the Assets wherever located. The Seller shall give notice to the Purchaser within two business days but in any event before the Closing of any cancellation or lapse of its insurance coverage before the Closing. 6.7. Preservation of Organization and Employees. The Seller will use commercially reasonable efforts to preserve the Business and Assets intact, to keep available its respective key officers and employees, and to preserve the present relationships of the Seller with its suppliers, customers, banks, employees and others having business relations with it. 6.8 Reasonable Efforts to Close. The Seller and the Purchaser each agree to use commercially reasonable efforts to take all action and do all things necessary, proper, or advisable in order to consummate and make effective the transactions contemplated by this Agreement, including satisfaction, but not waiver, of the closing conditions set forth in sections 7 and 8. 6.9 Notice of Developments. The Seller may elect any time to notify the Purchaser of any development causing a breach of any of its representations and warranties set forth in section 4. Unless the Purchaser has the right to terminate this Agreement pursuant to section 13.1(b) below by reason of the development and exercises that right within the period of twenty (20) business days referred to in section 13.1(b) below, the written notice pursuant to this section 6.9 will be deemed to have amended and qualified the representations and warranties contained in section 4 above, and to have cured any misrepresentation or breach of warranty that otherwise might have existed hereunder by reason of the development. The Purchaser may elect any time to notify the Seller of any development causing a breach of any of its representations and warranties set forth in section 5. Unless the Seller has the right to terminate this Agreement pursuant to section 13.1(b) below by reason of the development and exercises that right within the period of twenty (20) business days referred to in section 13.1(b) below, the written notice pursuant to this section 6.9 will be deemed to have amended and qualified the representations and warranties contained in section 5 above, and to have cured any misrepresentation or breach of warranty that otherwise might have existed hereunder by reason of the development. 14 Section 7. Conditions Precedent to the Purchaser's Obligations -------------------------------------------------------------- All obligations of the Purchaser under this Agreement are subject to the complete fulfillment, prior to or at the Closing, of each of the following conditions unless otherwise waived in writing by the Purchaser: 7.1. Representations and Warranties. The Seller's representations and warranties contained in section 4 of this Agreement shall be true in all respects at and as of the time of Closing. 7.2. Performance of Agreements. The Seller shall have fully performed and complied with all covenants and agreements required by this Agreement at or prior to the Closing. 7.3. Damage or Destruction. There shall have been no damage or destruction or other change with respect to any of the Premises that, as to each individual plant or in the aggregate, would have a material adverse effect on the use or occupancy of the Premises or the operation of the Business as currently conducted by the Seller. 7.4. Closing Deliveries. The Seller shall have delivered the documents, writings and other items described in this Agreement including, without limitation, those in sections 3.2 and 3.4 hereof. 7.5. Closing Certificate. At or prior to the Closing, the Seller shall have delivered to the Purchaser: (i) a certificate signed by the President and the Chief Financial Officer of the Seller, confirming satisfaction of the conditions set forth in sections 7.1, 7.2 and 7.3 above; (ii) a true certificate of the Secretary or Assistant Secretary of the Seller certifying and attaching true and complete copies of the Articles of Incorporation and By-Laws of the Seller as the same are in force on the Closing Date and the proper Resolution by Seller's Board of Directors authorizing the making of this Agreement, the conveyance of the assets and transactions contemplated hereby, and certifying the incumbency of the officers of the Seller executing this Agreement or any writing or documents delivered hereunder and the items required by Section 3.2 (h). 7.6. Opinion of Counsel. The Seller shall have delivered to the Purchaser a written opinion of counsel to the Seller dated as of the Closing Date addressed to the Purchaser in form and substance as set forth in Exhibit "N" attached hereto. 7.7. No Litigation. There shall not be any pending or to the knowledge of the Seller threatened claim, demand, action, proceeding or investigation by or before any court, arbitrator, governmental body or agency which shall or may seek to restrain, prohibit, restrict or invalidate the transactions contemplated hereby. 7.8 Financing. The Purchaser shall have obtained financing acceptable to the Purchaser for the purchase of the Business. 7.9 Union Contracts. The assignment by the Seller to the Purchaser of the three union contracts applicable to the Business; and 15 7.10 Bulk Sale Laws. Compliance by the Seller with the requirements of the applicable bulk sale laws in Ohio, Pennsylvania, and West Virginia. 7.11 Material Adverse Change. No material supplier of the Business shall have indicated in writing that it will stop, or materially decrease the rate of, supplying materials, products or services to the Business, and no customer which is one of the five largest customers of the Business during the past two years has indicated in writing that it will stop, or materially decrease the rate of, buying products from the Business, unless such lost business is likely to be recouped by written commitments for orders from other customers. Section 8. Conditions Precedent to the Seller's Obligations ----------------------------------------------------------- All obligations of the Seller under this Agreement are subject to the fulfillment, prior to or at the Closing, of the following conditions: 8.1. Representations and Warranties. The Purchaser's representations and warranties contained in section 5 of this Agreement shall be true at and as of the time of Closing. 8.2. Performance of Agreements. The Purchaser shall have performed and complied with all of its covenants and agreements required by this Agreement prior to or at the Closing. 8.3. Closing Deliveries. The Purchaser and the Managers shall have delivered the documents, writings and other items described in this Agreement, including, without limitation, those in Section 3.3 above and the Purchaser shall have paid the Purchase Price to the Seller as described in section 2.1 hereof. 8.4. No Litigation. There shall not be any pending or threatened action, proceeding or investigation by or before any court, arbitrator, governmental body or agency which shall seek to restrain, prohibit or invalidate the transactions contemplated hereby. 8.5 Union Contracts. The assumption by the Purchaser of the three union contracts applicable to the Business and legally binding written confirmation by the unions that the Seller is released from all of the Seller's obligations thereunder other than those accrued on the Closing Date. 8.6 Opinion of Counsel. The Purchaser shall have delivered to the Seller a written opinion of counsel to the Purchaser dated as of the Closing Date addressed to the Seller in form and substance acceptable to the Seller. Section 9. Fees and Expenses ---------------------------- 9.1. Representation and Indemnity With Respect to Brokers. Each party hereby represents and warrants to the other that it has not engaged or dealt with any broker or other person who may be entitled to any brokerage fee or commission in respect of the execution of this Agreement or the consummation of the transactions contemplated hereby. Without limiting the generality of the foregoing, each of the parties hereto shall fully defend, indemnify and hold the other harmless against any and all claim, loss, liability or expense which may be asserted against such other party as a result of such first mentioned party's dealings, arrangements or agreements with any such broker or person. 16 9.2. Expenses of the Transaction. Unless otherwise agreed in writing by the Seller and the Purchaser, each party hereto shall pay its own expenses incidental to the preparation of this Agreement and the consummation of the transactions contemplated hereby. 9.3. Sales, Transfer and Documentary Stamps. The Seller and the Purchaser shall share equally all realty transfer taxes or stamps, if any, due as a result of the transfers of the Premises, Business and Assets to the Purchaser hereunder. Real estate taxes on the Premises and property shall be prorated on the basis of the applicable tax year between the Seller and the Purchaser as of the Closing Date. The Seller shall pay all charges and assessments for all utilities used at the Premises through the Closing Date. Section 10. Indemnification --------------------------- 10.1 Liabilities. All liabilities and obligations of the Seller, relating or attributable to the Business, Premises or Assets and arising from conduct or transactions occurring prior to the time of Closing (including claims made after the Closing with respect to products sold by the Seller before the Closing) are and shall remain the sole responsibility of the Seller except for the Assumed Liabilities expressly assumed by the Purchaser in section 2.2. From and after the time of Closing, all liabilities and obligations with regard to the Business, Assets, Premises and property transferred under this Agreement shall be the sole responsibility of the Purchaser. 10.2 Survival of Representations, Warranties and Agreements. All representations, warranties and agreements made by the Seller and the Purchaser in this Agreement shall survive the Closing and delivery of the Business, Premises and Assets, and related documents and shall not merge therein and shall continue in full force and effect for a period of two years thereafter. Except as set forth in a certificate to be delivered by the Purchaser to the Seller at the Closing, to the knowledge of the Purchaser, the Purchaser, by closing the transactions contemplated hereby, certifies to the Seller that the Purchaser is not aware of any facts or circumstances that would serve as the basis for a claim by the Purchaser against the Seller based upon a breach of any representations and warranties of the Seller contained in this Agreement or breach of any of the Seller's covenants or agreements to be performed by it at or prior to the Closing. The Purchaser shall be deemed to have waived in full any breach of any of the Seller's representations and warranties and any such covenants and agreements of which the Purchaser has such awareness at the Closing. Except as set forth in a certificate to be delivered by the Seller to the Purchaser at the Closing, to the knowledge of the Seller, the Seller, by closing the transactions contemplated hereby, certifies to the Purchaser that the Seller is not aware of any facts or circumstances that would serve as the basis for a claim by the Seller against the Purchaser based upon a breach of any representations and warranties of the Purchaser contained in this Agreement or breach of any of the Purchaser's covenants or agreements to be performed by it at or prior to the Closing. The Seller shall be deemed to have waived in full any breach of any of the Purchaser's representations and warranties and any such covenants and agreements of which the Seller has such awareness at the Closing. 17 10.3 Indemnification by the Seller. The Seller shall fully indemnify, defend and hold the Purchaser harmless from and against: (a) any and all actual, potential or threatened claims, lawsuits, actions, suits, judgments, awards, orders, losses, penalties, fines, environmental claims, debts, liabilities or obligations of or claims, including, without limitation, reasonable attorney's fees in all trial and appellate proceedings ("Adverse Consequences") against the Seller (except those expressly assumed by the Purchaser as Assumed Liabilities pursuant to section 2.2) and relating or attributable to the Business, Premises, or Assets or caused proximately by the negligence or conduct of the Seller prior to the time of the Closing and delivery of actual possession of the Assets and Business to the Purchaser; and (b) all Adverse Consequences, (including environmental claims) (including reasonable attorneys' and experts' fees) judgment, order or award, or other loss incurred by the Purchaser caused proximately by any breach by the Seller of any representation or warranty made by the Seller in section 4, or the Seller's default or breach of any agreement or covenant made by the Seller in this Agreement. Provided, however, that (a) the Purchaser must make a written claim for indemnification against the Seller within two years after the Closing in order for the Purchaser to enforce the provisions of this section 10.3, and (b) the Seller shall not have any obligation to indemnify the Purchaser from and against any Adverse Consequences until the Purchaser has suffered Adverse Consequences in a dollar amount in excess of 4% of the Purchase Price in the aggregate, and then only for the amount by which the dollar amount of the Adverse Consequences exceeds 4% of the Purchase Price. 10.4 Indemnification by the Purchaser. The Purchaser shall fully indemnify and hold the Seller harmless from and against: (a) the Assumed Liabilities assumed by the Purchaser pursuant to this Agreement and especially section 2.2; (b) all Adverse Consequences, debts, liabilities and obligations directly relating or attributable to the Business or Assets and arising subsequent to the time of the Closing; and (c) all Adverse Consequences (including reasonable attorneys' fees) caused proximately by any breach by the Purchaser of any representation or warranty made by the Purchaser in section 5 of this Agreement or the breach by the Purchaser of any agreement or covenant made by the Purchaser in this Agreement. Provided, however, that (a) the Seller must make a written claim for indemnification against the Purchaser within two years after the Closing in order for the Seller to enforce the provisions of this section 10.4, and (b) the Purchaser shall not have any obligation to indemnify the Purchaser from and against any Adverse Consequences under section 10.4(c) until the Seller has suffered Adverse Consequences in a dollar amount in excess of 4% of the Purchase Price in the aggregate, and then only for the amount by which the dollar amount of the Adverse Consequences exceeds 4% of the Purchase Price. 10.5 Defense of Claims. Promptly after receipt of any written notice of claims or service of process by any third person in any litigation in respect of which indemnity may be sought from the other party pursuant to this section 10, the party so served shall immediately notify the indemnifying party of the commencement of such claim or litigation, and the indemnifying party shall be entitled to assume the defense thereof at its expense with counsel of its own choosing, which counsel shall be reasonably satisfactory to the indemnified party; provided, however, that the indemnifying party shall not consent to the entry of any judgment or enter into any settlement with respect to such third party claim without the consent of the indemnified party (not to be withheld 18 unreasonably). Unless and until the indemnifying party assumes the defense of such third party claim as provided for herein, the indemnified party may defend against the third party claim in any manner it reasonably deems appropriate. In no event will the indemnified party consent to the entry of any judgment or enter into any settlement with respect to a third party claim without the prior written consent of the indemnifying party (not to be withheld unreasonably). 10.6 Exclusive Remedy. The Purchaser and the Seller acknowledge and agree that the foregoing indemnification provisions in this section 10 shall be the exclusive remedy of the Purchaser and the Seller with respect to the Business, the Assets, and the transactions contemplated by this Agreement, except for any breach of the provisions of sections 11.2, 14.3 and 14.5 hereof. Section 11. Post-Closing Matters -------------------------------- 11.1. Further Assurances. In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, each of the parties will take such further action (including the execution and delivery of such further instruments and documents) as the other party reasonably may request, all at the sole cost and expense of the requesting party. 11.2. Responsibility for Litigation. The Seller shall be responsible for all present or future litigation, workers' compensation claims, demands and claims (including mixed dust, asbestos and/or silica cases, environmental claims) for any loss, damage and/or injury and all related costs or expenses arising out of its use of the Assets or the conduct of the Business up to the time of Closing. With respect to product liability claims, the Seller shall be responsible for all claims, demands and actions for loss, damage and/or injury arising out of products sold by the Seller prior to the Closing Date and the Purchaser shall be responsible for all claims for injury arising out of products sold or manufactured by the Purchaser after the time of Closing. The party liable shall direct or control, or continue to direct or control, as the case may be, the conduct of such litigation. The other party shall cooperate with any reasonable requests of the party liable or its attorneys in the investigation or defense of such litigation, including the availability of records, books or other corporate documents including the Assets. To the extent testimony of the other party's employees is necessary, the other party shall make them available consistent with the needs of the business and shall be reimbursed for all out-of-pocket expenses incurred by the other party or individual employees and pro rata salaries and payroll costs for the time such employees devote to complying with the requests of the party liable hereunder. 11.3 Satisfaction of Debt. The Seller covenants and warrants that, promptly after the Closing, it will satisfy in full all of the Seller's debts, liabilities and obligations relating to or connected with the Assets, Premises or Business as of the Closing Date, except for the Assumed Liabilities. 11.4 Employees and Employee Benefits. (a) Information on Active Employees. For the purpose of this Agreement, the term "Active Employees" shall mean all employees employed on the Closing Date by the Seller exclusively with respect to the Business as currently conducted, including employees on temporary lease of absence, 19 including family medical leave, military leave, temporary disability or sick leave. (b) Employment of Active Employees by The Purchaser. (i) The Purchaser is not obligated to hire any Active Employee. The Purchaser will provide the Seller with a list of Active Employees to whom the Purchaser has made an offer of employment that has been accepted to be effective on the Closing Date (the "Hired Active Employees"). Effective immediately before the Closing, the Seller will terminate the employment of all of its Hired Active Employees. (ii) The Purchaser shall inform the Seller promptly of the identities of those Active Employees to whom it will not make employment offers, and the Seller shall assist the Purchaser in complying with the Worker Adjustment and Retraining Notification Act as to those Active Employees. (iii) It is understood and agreed that (A) the Purchaser's expressed intention to extend offers of employment as set forth in this section shall not constitute any commitment, contract or understanding (expressed or implied) of any obligation on the part of the Purchaser to a post-Closing employment relationship of any fixed term or duration or upon any terms or conditions other than those that the Purchaser may establish pursuant to individual offers of employment, and (B) employment offered by the Purchaser is "at will" and may be terminated by the Purchaser or by an employee at any time for any reason (subject to any written commitments to the contrary made by the Purchaser or an employee and applicable legal requirements). Nothing in this Agreement shall be deemed to prevent or restrict in any way the right of the Purchaser to terminate, reassign, promote or demote any of the Hired active Employees after the Closing or to change adversely or favorably the title, powers, duties, responsibilities, functions, locations, salaries, other compensation or terms or conditions of employment of such employees. (c) Salaries and Benefits. (i) The Seller shall be responsible for the payment of all wages and other remuneration due to Active Employees with respect to their services as employees of the Seller through the close of business on the Closing Date, including pro rata bonus payments (excepting therefrom all accrued benefits included on the Closing Balance Sheet, Exhibit "E" (ii) The Seller shall be liable for any claims made or incurred by Active Employees and their beneficiaries through the Closing Date under any of the Seller's employee plans. For purposes of the immediately preceding sentence, a charge will be deemed incurred, in the case of hospital, medical or dental benefits, when the services that are the subject of the charge are performed and, in the case of other benefits (such as disability or life insurance), when an event has occurred or when a condition has been diagnosed that entitles the employee to the benefit. 20 (d) The Seller's 401(k) Plan. All Hired Active Employees who are participants in the Seller's 401(k) plan shall have such benefits as of the Closing Date as are provided for in such plan. The Seller shall amend its 401(k) plan to provide that all Hired Active Employees will be fully vested as of the Closing Date. (e) No Transfer of Assets. The Seller will not make any transfer of its 401(k) or any other employee benefits to the Purchaser. (f) General Employee Provisions. (i) The Purchaser shall not have any responsibility, liability or obligation, whether to Active Employees, former employees, their beneficiaries or to any other Person, with respect to any employee benefit plans, practices, programs or arrangements (including the establishment, operation or termination thereof and the notification and provision of COBRA coverage extension) maintained by the Seller. (ii) The Purchaser's employee plan shall provide that Hired Active Employees be given credit for service to the Seller for purposes of vesting or eligibility for benefits. 11.5 Environmental Remediation. The Purchaser has procured an environmental report, prepared by Clayton Group Services (the "Report"). The Seller will arrange for INTEX Environmental Group, Inc. (the "Remediation Company") and pay the Remediation Company for the remediation of the heating oil contamination (the "Remediation") described in the Report, pursuant to a plan prepared by the Remediation Company (the "Plan"). Prior to the Closing, the Seller shall submit to and obtain the written approval of the Plan by the lenders providing financing to the Purchaser to complete this transaction. The Seller will discuss with the Purchaser the plans and procedures for the Remediation before it is commenced and the Purchaser will cooperate with the Remediation Company, and provide the Remediation Company with power and a potable water supply. To the extent reasonably possible, the Remediation shall be conducted so as not to unreasonably interfere with the operation by the Purchaser of the Business. Such payments shall be made by the Seller to the applicable service providers within 10 days after the Seller's receipt of invoices from service providers therefor. The Seller shall procure such post-remediation certifications from applicable governmental authorities as are required by applicable law and will request from the contractor performing the work that to the best of its knowledge and belief, the work complies with applicable laws. Section 12. Fire and Casualty ----------------------------- The Seller assumes all risk of destruction, loss or damage due to fire or any other casualty up to the time of Closing. In the event of the destruction, loss or damage due to fire or other casualty, of substantially all of the Assets or Premises, the Purchaser shall have the option to terminate this Agreement, and all rights and obligations of the Purchaser and the Seller shall terminate. The Purchaser shall notify the Seller within thirty (30) days after receiving written notice from the Seller of the destruction, loss or damage due to fire or other casualty, of its decision to terminate this contract. If the Purchaser does not notify the Seller of the termination or if the destruction, loss or 21 damage due to fire or other casualty involves only a part of the Assets, this Agreement shall remain in full force and effect, provided, however, that the purchase price shall be adjusted prior to the Closing to reflect the destruction, loss or damage. If the Purchaser and the Seller are not able to agree on the amount of the adjustment, the dispute shall be determined by an independent and impartial appraiser selected by the Purchaser and the Seller and the determination of the appraiser shall be binding on both the Purchaser and the Seller. If the Purchaser and the Seller cannot agree on an independent, impartial appraiser, then either party may petition the Court of Common Pleas of Lawrence County, Pennsylvania for the appointment of such appraiser. Section 13. Termination of Agreement ------------------------------------ 13.1 Termination of Agreement. Certain of the parties may terminate this Agreement as provided below: (a) the Purchaser and the Seller may terminate this Agreement by mutual written consent at any time prior to the Closing, or in accordance with the provisions of section 12; (b) the Purchaser may terminate this Agreement by giving written notice to the Seller at any time prior to the Closing in the event (i) the Seller has within the then previous twenty (20) business days given the Purchaser any notice pursuant to section 6.9 above and (ii) the development that is the subject of the notice has had a material adverse effect upon the financial condition of the Business as to each individual plant or in the aggregate or adversely affect Purchaser's ability to obtain financing for this transaction. The Seller may terminate this Agreement by giving written notice to the Purchaser at any time prior to the Closing in the event (i) the Purchaser has within the then twenty (20) business days given the Seller any notice pursuant to section 6.9 above and (ii) the development that is the subject of the notice has had a material adverse effect upon the financial condition of the Business as to each individual plant or in the aggregate or affects Purchaser's ability to obtain financing for this transaction. (c) the Purchaser may terminate this Agreement by giving written notice to the Seller at any time prior to the Closing (i) in the event the Seller has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, the Purchaser has notified the Seller of the breach, and the breach has continued without cure for a period of thirty (30) days after the notice of breach or (ii) if the Closing shall not have occurred on or before February 17, 2003, by reason of the failure of any condition precedent under section 7 hereof (unless the failure results primarily from the Purchaser itself breaching any representation, warranty, or covenant contained in this Agreement); (d) the Seller may terminate this Agreement by giving notice to the Purchaser at any time prior to the Closing (i) in the event the Purchaser has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, the Seller has notified the Purchaser of the breach, and the breach has continued without cure for a period of thirty (30) days after the notice of breach or (ii) if the 22 Closing shall not have occurred on or before February 17, 2003, by reason of the failure of any condition precedent under section 8 hereof (unless the failure results primarily from the Seller itself breaching any representation, warranty, or covenant contained in this Agreement); and (e) the Purchaser may terminate this Agreement by giving written notice to the Seller at any time prior to the Closing in the event that Griffin Wheel ceases to be a customer of the Seller at any time prior to the Closing. 13.2 Effect of Termination. If any party terminates this Agreement pursuant to section 13.1 above, all rights and obligations of the parties hereunder shall terminate without any liability of any party to the other party (except for any liability of any party then in breach). In the event of a termination pursuant to the provisions of this section 13, each party shall pay its own expenses incident to the preparation and consummation of this Agreement and the transactions contemplated hereunder; provided, however, that if either party willfully fails or refuses to perform its obligations hereunder or to consummate the transactions contemplated by this Agreement in default of this Agreement the defaulting party shall be required to reimburse the non-defaulting party immediately upon demand for all reasonable costs and expenses (including attorneys and experts' fees) incurred by the non-defaulting party as a direct result of the default. Section 14. Miscellaneous ------------------------- 14.1. Governing Law. This Agreement shall be solely governed by, and construed and enforced in accordance with, the laws of the Commonwealth of Pennsylvania without regard to any principles of conflict of laws. The Seller and the Purchaser agree that all lawsuits, disputes or actions involving or relating to this Agreement or its interpretation or enforcement shall be brought only in the Court of Common Pleas of Lawrence County, Pennsylvania, and each party agrees to submit to the jurisdiction of said Court. 14.2. Headings for Reference Only. The section and paragraph headings in this Agreement are for convenience of reference only and shall not be deemed to modify or limit the provisions of this Agreement or affect the meaning or be used in interpretation of this Agreement. 14.3. No Publicity. No press releases or public disclosures, either written or oral, of the transactions contemplated by or concluded under this Agreement, shall be made by either party without the prior knowledge and written consent of the other party, except that no consent of the Purchaser shall be required for disclosures the Seller is required to make under provisions of the applicable federal and state securities laws and the parties may discuss this Agreement with representatives of the unions representing employees of the Business. 14.4. Notices. Any notice, communication, demand or other writing required or permitted to be given, made or accepted by any party to this Agreement ("Notice") shall be given by personal delivery or by depositing the same in the United States mail, properly addressed, postage prepaid and registered or certified with return receipt requested. A Notice given by personal delivery shall be effective upon delivery and a Notice given by registered or certified mail shall be deemed effective on the third business day after such deposit. For 23 purposes of Notice, the addresses of the parties shall be, until changed by a Notice given in accordance herewith, as follows: If to the Purchaser: Thomas E. Shaffer New Castle Refractories Company 915 Industrial Street New Castle, PA 16102 With a required copy to: David T. Mojock, Esquire Balph, Nicolls, Mitsos, Flannery & Clark 300 Sky Bank Bldg., 14 N. Mercer St. New Castle, PA 16101 If to the Seller: Dixon Ticonderoga Company Richard F. Joyce, Esquire 195 International Parkway Heathrow, FL 32746 With a required copy to: Philip M. Shasteen, Esquire Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A. 100 North Tampa Street, Suite 1800 Tampa, FL 33602-5145 14.5. Non-Competition. The Seller and its Chairman, co-CEOs and CFO (collectively, the "Restricted Parties") agree that for a term of five years after the Closing Date, they will not engage directly or indirectly, whether individually or in partnership or in conjunction with any other person, firm, association, syndicate or corporation, as principal, agent, shareholder, employee, consultant or in any other manner whatsoever, in any business activity competitive with the Business of the Seller as purchased by the Purchaser and constituted on the Closing Date within a radius of one thousand (1,000) miles of each of the plants and offices of the Seller being conveyed as the Premises under this Agreement. The Restricted Parties agree that the limitations set forth above are reasonable in time and geographic scope, and if any provision hereof is held invalid or unenforceable, the remainder shall nevertheless remain in full force and effect. In particular, the Restricted Parties agree that if any court of competent jurisdiction shall determine that the duration or geographical limit of the foregoing non-competition covenant is invalid or unenforceable, it is the intention of the Restricted Parties and the Purchaser that it shall not be terminated thereby but shall be deemed to have been amended to the extent required to render it valid and enforceable, such amendment to apply only with respect to the jurisdiction of the court making such adjudication. The Restricted Parties further agree or unless compelled by legal process or required under applicable federal or state securities laws: (i) not to disclose, in any manner, to any third parties or persons any confidential 24 information or trade secrets of the Seller with regard or related in any manner to the Business or Assets of the Seller unless already in the public domain through no act or omission of the Seller; (ii) not to solicit or contact any person or firm who on the Closing Date is a customer or supplier of the Seller with respect to any business activity competitive with the Purchaser's business; and (iii) not to interfere with, entice or hire away present employees of the Seller who become employed by the Purchaser. The Restricted Parties further acknowledge and agree that any violation of any of the covenants in this section 14.5 will cause substantial and irreparable injury to the Purchaser, whereupon the Restricted Parties shall be permanently enjoined from any breach or threatened breach thereof in addition to, but not in limitation of any of the rights or remedies to which the Purchaser is or may be entitled to at law, in equity, under this Agreement or otherwise. 14.6. Assignment. Except as set forth in this Agreement, neither this Agreement nor any of the parties rights or obligations hereunder shall be assignable by any party hereto without the prior written consent of the other party. In the event of any such assignment, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Nothing in this Agreement, express or implied, shall be deemed to confer upon any other person any rights or remedies under or by reason of this Agreement. 14.7 Waiver. Each party has the right at all times to strictly enforce any or all of the terms and provisions of this Agreement. Each party agrees that no course of dealing, custom or conduct by the other party nor any delay or failure on the part of the other party to exercise any right, power or remedy at any time or times shall operate as or be deemed a waiver or release of any such right, power or remedy nor shall any waiver of one breach be construed as a waiver or release of any rights, breach, benefits or remedies with respect to any subsequent breach. Neither party shall be deemed to have waived or released any rights, privileges or remedies under this Agreement unless such waiver or release is given in a writing signed by an authorized representative of such party. 14.8 Severability and Construction. If any part of this Agreement or the application thereof shall be held to be invalid, illegal or unenforceable with respect to any person or set of circumstances under any present or future laws in effect at any time during the term of this Agreement, such holdings shall not render that provision or term invalid or unenforceable as to any other persons or circumstances. If feasible, it is the intent of the parties that any such offending provision or term shall be deemed modified to be within the maximum limits of enforceability or validity while most nearly preserving its original intent and purpose; however, if the offending provision or term cannot be so modified, it shall be stricken and all other provisions and terms of this Agreement shall remain valid and enforceable. Each paragraph, term and provision constitutes a separate and distinct covenant and agreement. This Agreement has been made as a result of negotiations and, therefore, shall be construed in a neutral manner. The neuter shall be interpreted to include the masculine and feminine and the singular includes the plural and vice versa whenever necessary to give the term or provision its intended meaning and effect. The term "person" as used in this Agreement shall mean and include any individual, corporation, partnership, limited liability company, association, trust, estate or any other type of entity. 25 14.9 Entire Agreement and Amendment. This document constitutes the final and entire Agreement between the Purchaser and the Seller and supercedes all prior or contemporaneous agreements, understandings and representations, written or oral, between the parties. This Agreement may not be validly amended except by an agreement in writing signed by the only authorized representatives of the parties hereto. This Agreement has been made solely for the benefit of the parties hereto and is not intended to and shall not create any rights, remedies or interests in any other person or entity. 14.10 Authority. By execution of this Agreement, each person represents and warrants his right, ability and authority to sign and bind his principal to all terms and provisions of this Agreement, and each party may fully rely thereon without verification. 14.11 Force Majeure. If either party shall be delayed in the performance of any act required by this Agreement (but not the requirement to make payments due under the Note, Mortgage and Security Agreement) by reason of strikes, restrictive laws, riot, acts of God or other similar reasons not the fault of the non-performing party, then the performance time for such acts shall be extended for a period equivalent to the period of such delay. [The balance of this page intentionally left blank.] 26 IN WITNESS WHEREOF, the parties intending to be legally bound, have signed and sealed this Agreement in New Castle, Lawrence County, Pennsylvania, on the day and year first above written. SELLER: ATTEST: DIXON TICONDEROGA COMPANY /s/ Richard A. Asta BY: /s/ Gino N. Pala as Chairman as 12/23/02 WITNESS: PURCHASER: NEW CASTLE REFRACTORIES COMPANY, INC. /s/ Lauren Edward Allison BY: /s/ Thomas E. Shaffer /s/ Thomas H. Huffman as President and CEO 27 DIXON TICONDEROGA COMPANY NEW CASTLE REFRACTORIES COMPANY, INC. List of Exhibits to Asset Purchase Agreement Exhibit: Description and Where Referred to: ------- ---------------------------------- Exhibit "A"-"C" Real estate legal descriptions -ss.1.1(c) Exhibit "D" Fixed Assets list -ss.1.1(d) Exhibit "E" Net Book Value Calculation -ss.1.2(a) Exhibit "H" Assumed Liabilities -ss.2.2(b) Exhibit "I" Liens, mortgages, encumbrances, etc. -ss.4.2 Exhibit "I-1" State Taxes -ss.4.3 Exhibit "J" Litigation and Claims -ss.4.4 Exhibit "K" Trademarks, inventions, patents, insurance policies, employment agreements, leases, collective bargaining agreements -ss.4.5 Exhibit "L" List of Authorizations, Approvals, Licenses, Permits and Orders -ss.4.7 Exhibit "M" Contracts -ss.4.12 Exhibit "N" Opinion of Seller's Counsel -ss.7.6 Exhibit "A' ----------- Pennsylvania ------------ ALL THAT CERTAIN piece or parcel of land set in the Seventh Ward, City of New Castle, County of Lawrence and Commonwealth of Pennsylvania, bounded and described as follows: BEGINNING at a point on the East line of Industrial Street, 33 feet wide, at the northerly line of land now or formerly of Lockley Manufacturing Company; thence along the East line of Industrial Street North 42(Degree) 01' East 285.89 feet to a point on line of land heretofore conveyed by Edward King to the Pittsburgh & Lake Erie Railroad Company by deed dated December 11, 1914 and recorded in the Recorder's Office of Lawrence County in Deed Book 181, Page 393; thence along the line of the land conveyed to the Pittsburgh & Lake Erie Railroad Company by the aforesaid deed in a general eastwardly direction by the arc of a circle curving to the right having a radius of 277.98 feet an arc distance of 122.98 feet to a point; thence South 47(Degree) 59' East 823.50 feet to a point; thence South 51(Degree) 23' West 354.94 feet to a point; thence along the line of land now or formerly of Lockley Manufacturing Company North 47(Degree) 59' West 868.39 feet to the point on the easterly side of Industrial Street, 33 feet wide, being the point at the place of BEGINNING. TOGETHER with that certain right of way with the liberties and privileges granted to Edward King by the Pittsburgh & Lake Erie Railroad Company by Deed dated April 30, 1917, and recorded in Recorder's Office of Lawrence County in Deed Book Volume 188, Page 500. TOGETHER ALSO with the right to lay underground pipe lines across property now or formerly of Allegheny and Western Railway company to the Shenango River as set forth in that certain deed from said Allegheny and Western Railway Company to New Castle Stamping Company dated September 20, 1901, and recorded in the Recorder's Office of Lawrence County in Deed Book Volume 104, Page 36. Exhibit "B" ----------- West Virginia ------------- PARCEL I -------- Certain parcels of real estate situated in the Town of Newell, County of Hancock and State of West Virginia, and bounded and described as follows: 1. ALL those parts of lots numbered from eighteen hundred three (1803) to eighteen hundred twelve (1812), inclusive, together with that part of what was formerly an alley upon which the north ends of said lots abutted (which alley has since been abandoned) between Second Avenue and Third Avenue, bounded and described as follows: Beginning at a point in the west line of lot numbered eighteen hundred three (1803) in the east line of Third Avenue, which point is ninety (90) feet northward of the southwest corner of said lot numbered eighteen hundred three (1803), and running thence Northwardly with the East line of Third Avenue Forty (40) feet to the southwest corner of Lot numbered eighteen hundred thirty seven (1837); thence eastward following the south lines of lot numbered from eighteen hundred thirty-seven (1837) down to eighteen hundred twenty-eight (1828), inclusive, to the south east corner of said lot numbered eighteen hundred twenty-eight (1828) in the West line of Second Avenue; thence southwardly along the said West line of Second Avenue Forty (40) feet to a point in the East line of said lot numbered eighteen hundred twelve (1812) which point is ninety (90) feet North of the southeast corner of said lot numbered eighteen hundred twelve (1812); thence Westward in a line parallel with the north line of Harrison Street and Ninety (90) feet distant therefrom to the place of beginning, containing in area two hundred ninety-four thousandths (.294) acres, be the same more or less, and subject to all legal highways, the said lots being set forth and defined on the plan of Newell, which is recorded in the Office of the Clerk of the County Court of said County in Plat Book Vol. 1, Pages 54 to 57. 2. All those certain lots numbered eighteen hundred twenty-eight (1828), eighteen hundred twenty-nine (1829), eighteen hundred thirty (1830), and eighteen hundred thirty-one (1831), excepting from said lots eighteen hundred twenty-eight (1828) and eighteen hundred twenty-nine (1829) the parts or parcels bounded and described as follows: Beginning at the northeast corner of lot numbered eighteen hundred twenty-eight (1828) and running thence along the Northern lines of lots numbered eighteen hundred twenty-eight (1828) and eighteen hundred twenty-nine (1829) sixty-one and twenty-six hundredths (61.26) feet to a point; thence turning an angle of twenty (20) degrees thirty (30) minutes and forty-four (44) seconds in an easterly direction sixty-six and thirty-four hundredths (66.34) feet to the point of intersection with the Eastern line of lot numbered eighteen hundred twenty-eight (1828); thence along said Easterly line of lot numbered eighteen hundred twenty-eight (1828) twenty-five and thirty-nine hundredths (25.39) feet to the place of beginning; containing in area thirty-five thousandths (.035) acres, be the same more or less, the said lots being set forth and defined on the said plan of Newell recorded as aforesaid. 3. All that certain piece or parcel of ground bounded and described as follows: Beginning at a point in the northern line of lot numbered eighteen hundred twenty-nine (1829) sixty-one and twenty-six hundredths (61.26) feet distant from northeast corner of lot numbered eighteen hundred twenty-eight (1828) and running thence in a Westerly direction parallel with and five (5) feet from the south rail of the main siding of the North American Manufacturing Company sixty-nine (69) feet, more or less, to a point which is twenty-six (26) feet distant from the northern wall of the main brick building now or formerly of the Kenilworth Tile Corporation, formerly The Kenilworth Tile Company; thence in a Westerly direction to a point in the eastern line of Third Avenue Forty-four and thirty-four hundredths (44.34) feet distant from the northwest corner of lot numbered eighteen hundred thirty-seven (1837); thence along said eastern line of Third Avenue forty-four and thirty-four hundredths (44.34) feet to said northwest corner of lot numbered eighteen hundred thirty-seven (1837); thence at a right angle along the northern line of lots numbered from eighteen hundred thirty-seven (1837) down to eighteen hundred twenty-nine (1829), inclusive to the place of beginning: containing in area one-fourth of an acre, more or less, the said lots being set forth and defined on the said plan of Newell recorded as aforesaid. 4. All that certain piece or parcel of ground bounded and described as follows: Beginning at a point in the easterly line of Third Avenue, which point is distant forty-four and thirty-four hundredths (44.34) feet Northwardly from the Northwesterly corner of lot numbered eighteen hundred thirty-seven (1837) on said plan of Newell recorded as aforesaid, and running thence with the Easterly line of the Third Avenue northwardly to the southerly line of the right-of-way now or formerly of the Pittsburgh, Cincinnati, Chicago, and St. Louis Railway Company's main railroad siding immediately North of the plant now or formerly of the Kenilworth Tile Corporation, formerly the Kenilworth Tile Company; thence in an easterly direction with the said southerly line of said right-of-way a distance of one hundred fifty (150) feet to a point; thence in a southerly direction and in a line parallel with the easterly line of Third Avenue to the Northerly line of the third tract above described; thence with said northerly line of the third tract above described in a westerly direction to the place of beginning: containing in area one-forty-third (1/43) of an acre, be the same more or less. 5. All those certain lots numbered from eighteen hundred thirty-two (1832) to eighteen hundred thirty-seven (1837) both inclusive, as the same are set forth and defined on said plan of Newell recorded as aforesaid. 6. All those parts of lots numbered from eighteen hundred three (1803) to eighteen hundred twelve (1812), both inclusive, on said plan of Newell recorded as aforesaid, not already included in the first tract above described, fronting on the north side of Harrison Street, and each part having a depth of ninety (90) feet from the northerly line of said street, all the said parts of said lots forming a tract three hundred twenty (320) feet by ninety (90) feet in its dimensions. SUBJECT, however, as to said tracts one through six, to all the reservations, conditions, covenants, terms and provisions set forth and entered on the face of the aforesaid plan of Newell and in the instrument of writing mentioned and referred to in the adoption of said plan, and recorded contemporaneously therewith, and made a part hereof, by this reference thereto. PARCEL II --------- ALL those certain lost or parcels of ground situate in the Town of Newell, District of Grant, County of Hancock and State of West Virginia, known as and being lots numbered 1769, 1770, 1771 and 1772 as distinguished upon the Plan of Newell as recorded by the North American Manufacturing Company in Plat Book Vol. 1, pages 54-57, of the records of plats of said County. SUBJECT to the right of The Homer Laughlin China Company, its successors and assigns, to construct, maintain and operate street railways, with appurtenances thereunto; to lay pipes and conduits for gas and water, and to maintain and operate the same; and to construct, maintain and operate any and all other public utilities in and upon the streets and alleys of said plan. PARCEL III ---------- ALL those certain lots or parcels of ground situated in the Town of Newell, District of Grant, County of Hancock and State of West Virginia, known as and being described as follows: Beginning at a point in the easterly line of Third Avenue 284.34 feet north of the northeasterly corner of Harrison Street and Third Avenue and running thence in a northerly direction with the easterly line of Third Avenue to the southerly line of the right-of-way of the P. C. C. & St. L. R. R. Co.,; thence in an easterly direction with the southerly line of said railroad company's right-of-way to its intersection with the westerly line of Second Avenue; thence in a southerly direction with said westerly line of Second Avenue to a point 214.61 feet from the northwesterly corner of Harrison Street and Third Avenue; thence in a westerly direction with the northerly line of lands now or formerly of The New Castle Refractories Company to the place of beginning; containing in area bout 1.10 acres, but be the same more or less; ALSO, those parts of Los Nos. 1820, 1821 and 1822 lying north of a line parallel to the southerly line of the right-of-way of the existing railroad siding of the P. C. C. & St. L. R. R. Co. and five feet distant therefrom measured in a southerly direction; ALSO, Lots Nos. 1823, 1824, 1825, 1826 and 1827 as distinguished upon the Plan of Newell as recorded by North American Manufacturing Company in Plat Book Vol. 1, pages 54-57, of the records of plats of said County. SUBJECT to the right of The Homer Laughlin China Company, its successors and assigns, to construct, maintain and operate street railways, with appurtenances thereunto; to lay pipes and conduits for gas and water and to maintain and operate the same; and to construct, maintain and operate any and all other public utilities in and upon the streets and alleys of said plan; SUBJECT, ALSO, to the rights-of-way for the railroad sidings of the P. C. C. & St. L. R. R. Co. as now located on the respective tract and lots above described. PARCEL IV --------- THOSE certain tracts or parcels of land situate in the District of Grant, County of Hancock and State of West Virginia: 1. Beginning at the southeasterly corner of the present lands now or formerly of the party of the first part and running thence with the westerly line of Third Avenue 130 feet to the northerly line of Harrison Street; thence in a westerly direction along the northerly line of Harrison Street 90 feet to a point; thence at a right angle in a northerly direction 240 feet to a point; thence at a right angle in an easterly direction 30 feet to the northwesterly corner of the lands now or formerly of the said first party; thence in a southerly direction with the westerly line of the lands now or formerly of said first party 110 feet to the southwesterly corner of said land; thence at a right angle in an easterly direction with the southerly line of said lands 60 feet to the place of beginning, containing about 34/100 of an acre, but be the same more or less, and subject to all legal highways as distinguished on the Plan of Newell, as recorded by said North American Manufacturing Company in Plat Book No. 1, Pages 54 to 57 incl., of the records of plats of said County. 2. Beginning at a point in the West line of Third Avenue, northward of and 130 feet distant from the northwest corner of Harrison Street and Third Avenue and running thence northwardly along said west line of Third Avenue 110 feet to a point; thence, turning a right angle in a westerly direction 60 feet to a point; thence, turning a right angle in a southwardly direction in a line parallel with the west line of said Third Avenue 110 feet to a point; thence turning right angle in an eastwardly direction 60 feet to the place of beginning containing in area 5/32 acres, be the same more or less. PARCEL V -------- ALL that certain parcel of ground situated in the Town of Newell, District of Grant, County of Hancock and State of West Virginia, bounded and described as follows: Beginning at a point in the westerly line of Third Avenue which point is North 12(Degree) 47' West two hundred forty (240) feet distant from the northwest corner of the intersection of Harrison Street with Third Avenue; thence South 77(Degree) 13' West ninety (90) feet to a point; thence North 12(Degree) 47' West seventy six (76) feet to a point; thence North 77(Degree) 13' East ninety (90) feet to a point; thence South 12(Degree) 47' East seventy six (76) feet to the place of beginning, containing in area .15702 acres but be the same more or less and subject to all legal highways as distinguished upon the Plan of Newell as recorded by North American Manufacturing Company in Plat Book Vol. 1, pages 54-57, of the records of plats of said County. SUBJECT to the right of The Homer Laughlin China Company, it successors and assign, to construct maintain and operate street railways, with appurtenances thereunto; to lay pipes and conduits for gas and water, and to maintain and operate the same; and to construct, maintain and operate any and all other public utilities in and upon the streets and alleys of said plan. PARCEL VI --------- ALL that certain parcel of ground situated in the Town of Newell, District of Grant, County of Hancock and State of West Virginia, bounded and described as follows: That portion of Third Avenue bounded on the south by Harrison Street, on the east by the lands of The New Castle Refractories Company, on the north by a line parallel to Harrison Street three hundred sixteen (316) feet in a northerly direction from the intersection of Third Avenue with the northerly line of Harrison Street, and on the west by the lands now or formerly of The New Castle Refractories Company. Exhibit "C" ----------- Ohio ---- The land referred to in this policy is described as follows: Situated in the Townships of Lawrence and Tuscarawas, County of Stark, State of Ohio: Part of the Southeast Quarter of Section 35 and part of the Southwest Quarter of Section 36, Township 1 (Lawrence), Range 10, and part of the Northwest Quarter of Section 1, Township 12 (Tuscarawas), Range 10, Stark County, Ohio; beginning at an iron pin found at the Northwest corner of Section 1, Township 12, Range 10 said pin being North 88(Degree) 1 minute West, 87.12 feet from the Southeast corner of Section 35, Township 1, Range 10; thence North 88(Degree) 1 minute West, 577.50 feet along the south line of the Southeast Quarter of Section 35 to a stone found; thence North 1(Degree) 59 minutes East, 814 feet to the South line of the Pittsburgh, Ft. Wayne and Chicago Railroad Company's right of way; thence Eastward along the said right of way line on an arc of a curve concave to the left parallel with and 33 feet distant from the original center line thereof, the chord of which arc bears South 81(Degree) 29 minutes East 486.80 feet; thence continuing with said right of way line South 79(Degree) 29 minutes East, 104 feet to a point on the West line of Section 1, Township 12, Range 10, extended North 2(Degree) 18 minutes East, 709.10 feet from the iron pin at the place of beginning; thence continuing South 79(Degree) 29 minutes East 1048.80 feet with the aforesaid right of way line to a point in the Southwest Quarter of Section 36, Township 1, Range 10; thence South 68(Degree) 57 minutes East, 369.20 feet; thence South 1(Degree) 39 minutes East, 1286 feet to an iron pin in the Northwest Quarter of Section 1, Township 12, Range 10; thence South 87(Degree) 30 minutes East, 158.14 feet; thence South 2(Degree) 30 minutes West, 264 feet to an iron pin set in the center of a public highway; thence North 87(Degree) 30 minutes West 397.89 feet to an iron pin; thence North 4(Degree) West 231 feet; thence North 87(Degree) 30 minutes West, 333.24 feet; thence South 4(Degree) East, 231 feet to an iron pin found in the road, thence North 87(Degree) 30 minutes West, 912.50 feet to an iron pin found in the West line of the Northwest Quarter of Section 1, Township 12, Range 10, thence North 2(Degree) 18 minutes East, 1097.58 feet to the place of beginning, containing 65.224 acres of which 11.456 acres lie in the Southeast Quarter of Section 35, Township 1, Range 10; 36.00 acres in the Northwest Quarter of Section 1, Township 12, Range 10 and 17.768 acres in the Southwest Quarter of Section 36, Township 1, Range 10, be the same more or less. EXHIBIT "D" ----------- EXHIBIT "D" Assets (excluded) Exhibit "E" -----------
Net Book Value Calculation -------------------------- ACCOUNT ACCOUNT ACCOUNT TITLE NUMBER BALANCE -------- ---------- --------- ASSETS PETTY CASH - MA 71.1105 $200 PETTY CASH - NC 71.1106 2,000 PETTY CASH - NE 71.1107 600 CASH - CHECKING 71.1109 6,258 $9,058 A/R TRADE N/A 1,500,000 A/R OTHER 71.1361 7,841 ALLOWANCE - BAD DEBT 1.1390 (5,000) $1,502,841 RAW MATERIAL - MA 71.1402 51,657 RAW MATERIAL - NC 71.1403 189,323 RAW MATERIAL - NE 71.1404 222,295 WIP INVENTORY - MA 5 71.1423 69,541 WIP INVENTORY - MA 6 71.1424 1 WIP INVENTORY - MA 7 71.1425 7,656 WIP INVENTORY - NC 4 71.1427 89,974 WIP INVENTORY - NC 7 71.1428 13,280 WIP INVENTORY - NC 8 71.1429 9,140 WIP INVENTORY - NC 9 71.1430 0 WIP INVENTORY - NE 100 71.1431 80,801 WIP INVENTORY - NE 300 71.1432 539 WIP INVENTORY - NE 400 71.1433 36,956 WIP INVENTORY - NE 500 71.1434 26,054 FG RESALE - MA 71.1441 6,836 FG RESALE - NC 71.1442 10,647 FG RESALE - NE 71.1443 28,536 FG INVENTORY - MA 5 71.1447 335,379 FG INVENTORY - MA 6 71.1448 46,470 FG INVENTORY - NC 4 71.1450 720,251 FG INVENTORY - NC 7 71.1451 85,580 FG INVENTORY - NC 8 71.1452 64,643 FG INVENTORY - NC 9 71.1453 127,677 FG INVENTORY - NE 100 71.1454 651,543 FG INVENTORY - NE 300 71.1455 24,885 FG INVENTORY - NE 400 71.1456 394,751 FG INVENTORY - NE 500 71.1457 74,509 LIFO RESERVE 71.1471 (1,024,908) OBSOLETE RESERVE 71.1481 (274,838) $2,069,178 PREPAID W/C - PA 71.1554.2 0 PREPAID W/C - WV 71.1554.3 14,246 PREPAID - OTHER 71.1556 15,793 $30,039 LAND 71.1711 22,531 BUILDINGS 71.1721 1,758,228 CIP 71.1725 23,758 MACHINERY & EQUIPMENT 71.1731 4,467,558 AUTOS 71.1735 46,643 FURNITURE & FIXTURES 71.1741 173,963 ACC DEP - BLDG 71.1751 (1,632,498) ACC DEP - M & E 71.1752 (4,293,987) ACC DEP - F & F 71.1753 (166,307) ACC DEP - AUTO 71.1754 (26,465) $373,424 DEFERRED CARBO 71.1930 0 $0 TOTAL INCLUDED ASSETS $3,984,540 ========== LIABILITIES A/P - TRADE 71.2101 (597,660) A/P - ACCRUAL 71.2102 (113,428) A/P - CARBO 71.2154 0 ($711,088) ACCRUED WAGES 71.2202 0 ACCRUED P/R TAXES 71.2151-2199 0 ACCRUED HOLIDAY 71.2203 1,166 ACCRUED VACATION 71.2204 (137,899) ($136,733) ACCRUED PROPERTY TAX 71.2222 0 ACCRUED W/C - MA 71.2236 (24,838) ACCRUED W/C - NE 71.2236 0 ACCRUED W/C - CORP 71.2236 0 ($24,838) ACCRUED 401K - 3% 71.2241 0 ACCRUED LEGAL 71.2261 120 $120 TOTAL INCLUDE LIABILITIES ($872,539) NET BOOK VALUE $3,112,001 NBV PLUS PREMIUM $3,362,001
Exhibit "H" ----------- Executory Liabilities and Obligations ------------------------------------- LEASES: CANON COPIER/CANON FINANCIAL SERVICES COMMITMENTS: MESSER/MG INDUSTRIES NITROGEN SUPPLY AGREEMENT NITROGEN TANK RENTAL LICENSE: FEDERAL COMMUNICATIONS COMMISSION MAN DOWN ALARM SYSTEM AGENTS: PRODUCT REPRESENTATIVES MILT LODIE PDV SERVICES JEFF CURRY UNION CONTRACTS (2): NEW CASTLE: COLLECTIVE BARGAINING AGREEMENT WITH UNITED STEELWORKERS OF AMERICA - LOCAL 1016-09 MASSILLON: COLLECTIVE BARGAINING AGREEMENT WITH UNITED STEELWORKERS OF AMERICA - LOCAL 3610-05 NATURAL GAS PURCHASE CONTRACTS WITH EXCELON ENERGY AND FIRST ENERGY Exhibit "I" ----------- Liens, Encumbrances, Etc. ------------------------- Liens held by Seller's primary lender (Foothill) and a consortium of subordinated lenders. Liens, encumbrances, restructures, etc. which are matters of public record. Exhibit "I-1" ------------- Taxes ----- DIXON TICONDEROGA COMPANY NEW CASTLE DIVISION TAX CALENDAR OHIO ---- FRANCHISE TAX (Pay Higher of Corporate Income Tax or Net Worth Tax) INTER COUNTY PROPERTY TAX REPORT STARK COUNTY REAL ESTATE TAX STARK COUNTY PERSONAL PROPERTY TAX STATE WITHHOLDING TAX SCHOOL DISTRICT WITHHOLDING TAX SALES TAX CANTON, OHIO WITHHOLDING TAX EAST LIVERPOOL, OHIO WITHHOLDING TAX MASSILLON, OHIO WITHHOLDING TAX WELLSVILLE, OHIO WITHHOLDING TAX CANFIELD, OHIO WITHHOLDING TAX CANAL FULTON, OHIO WITHHOLDING TAX NEWCOMERSTOWN, OHIO WITHHOLDING TAX UNEMPLOYMENT TAX PENNSYLVANIA ------------ CORPORATE INCOME TAX CAPITAL STOCK/FRANCHISE TAX LAWRENCE COUNTY PROPERTY TAX NEW CASTLE, PA. CITY PROPERTY TAX NEW CASTLE AREA SCHOOL PROPERTY TAX STATE WITHHOLDING TAX SALES TAX NEW CASTLE, PA. WITHHOLDING TAX HOPEWELL TOWNSHIP, PA. WITHHOLDING TAX UPPER ST. CLAIR, PA. WITHHOLDING TAX NEW CASTLE, PA. OCCUPATIONAL PRIVILEGE TAX UNEMPLOYMENT TAX WEST VIRGINIA ------------- CORPORATE INCOME TAX FRANCHISE TAX BUSINESS PROPERTY TAX REPORT HANCOCK COUNTY PROPERTY TAX STATE WITHHOLDING TAX SALES TAX UNEMPLOYMENT TAX 1) A 1999 state tax return filed with the State of Pennsylvania is currently in dispute. The state has assessed the Company for additional taxes (approximately $100,000) and the Company is contesting the assessment. Exhibit "J" ----------- Litigation ---------- All Pending Patent Infringement Cases: In December 2001, Dri Mark Products Inc. (Dri Mark) sued Dixon Ticonderoga, in Federal Court (the Southern District of New York), alleging that Dixon Ticonderoga infringed Dri Mark Patent No. 6,224,284, entitled "Metallic Ink Compositions For Wick Type Writing Instruments." That action was consolidated with an action brought in July 2001, in which Dri Mark sued National Ink, Inc., RoseArt Industries, Inc. and Wal-Mart Stores, Inc., for infringement of the same patent. In March, 2002, Dixon Ticonderoga and National Ink moved for summary judgment of non-infringement. On April 10, 2002, the District Court granted that motion, and entered Final Judgment that Dixon Ticonderoga was not liable for patent infringement and dismissed Dri Mark's complaint. Dri Mark appealed the Final Judgment, and that appeal is currently pending before the Court of Appeals for the Federal Circuit. Pending New Castle Silica / Mixed Dust Cases: There exist numerous mixed dust asbestos, and/or silica cases relating to the New Castle Refractories, a division of Dixon Ticonderoga Company, operations. These are typically nuisance cases handled in the normal course by counsel retained by the respective insurance companies. Pending Technology Transfer Mediation: In 1996 New Castle Refractories, a division of Dixon Ticonderoga Company, and Saint-Gobain Industrial Ceramics and/or their subsidiary Carborundum Corporation entered into a Product Purchase Agreement and an Amended License and Technological Assistance Agreement. In 1998, the parties entered into a License and Technology Transfer Agreement in relation to the Silicon Carbide Refractory Brick Technology. On August 20, 2002, Saint-Gobain filed a Demand for Mediation regarding Saint-Gobain's demand for final payment of $200,000, which Dixon Ticonderoga Company maintains was extended to June 2003 in the 1998 agreement. Dixon Ticonderoga Company further maintains that no payment is due notwithstanding its prior agreements based upon Saint-Gobain's predatory pricing as well as their withholding of critical information and misrepresentation of facts during negotiations. After mediation, the parties agreed to settle the matter for $125,000 payable by Dixon on or before December 16, 2002. Exhibit "K" ----------- Additional Information ---------------------- (a) Trademarks, names, inventions, etc. Patent: U.S. Patent Number 4,578,363, "Silicon Carbide Refractories Having Modified Silicon Nitride Bond" dated March 25, 1986. Proprietary Products: CARBOFRAX A REFRAX 20 REFRAX 20 SBF SIALFRAX CARBOFRAX NO. 4 CARBOFRAX NO. 4A CARBOFRAX NO. 5 CARBOFRAX NO. 5B CARBOFRAX NO. 6 CARBOFRAX NO. 8XXF CARBOFRAX NO. 9 CARBOFRAX NO. 30 CARBOFRAX NO. 11L1 RAMFRAX FURM 3 Names:......New Castle Refractories Company ......Corundite Refractories (b) Insurance Policies: Property Insurance Primary: Lexington Insurance Company (60%) and Commercial Underwriters Insurance Company (40%) Policy Number: 9551854 Excess: Allianz Insurance Company Policy Number: CLP3001646 Boiler and Machinery: Travelers Property & Casualty Policy Number: BGM-535DO683-TIL-3 Casualty General Liability: CNA Policy Number: L163715655 Commercial Auto: CNA Policy Number: L163715686 Worker's Compensation: CNA Policy Number: 173723695 Excess W/C & Employers' Liability (Ohio): Midwest Employers Policy Number: 2945200H Stop Gap Liability (Ohio, WV): CNA Policy Number: 1063715669 Umbrella: National Union Fire Insurance Company Policy Number: BE8718977 (c) Employment Agreements: None other than the three employment Agreements to be terminated at Closing pursuant to the provisions of Section 2.1(a). (d) Leases: Cannon Copier with Canon Financial Services (e) New Castle: Collective Bargaining Agreement with United Steelworkers Of America - Local 1016-09 Massillon: Collective Bargaining Agreement with United Steelworkers Of America - Local 3610-05 Exhibit "L" ----------- PA STATE ONLY OPERATING AGREEMENT (AIR QUALITY) #37-00152 PA HAZARDOUS MATERIAL PERMIT OHIO TITLE V DRAFT PERMIT FACILITY ID #15-17-00-0082 WV WASTE WATER PERMIT WV 0005754 IFTA TRUCK PERMITS PA APPORTIONED REGISTRATION FOR TRUCKS VEHICLE OPERATING PERMITS FOR NEW YORK, KENTUCKY, KANSAS Exhibit "M" ----------- Contracts --------- TO THE BEST OF OUR KNOWLEDGE, THERE ARE BLANKET PURCHASE ORDERS OPEN UNTIL 12-31-02 FOR VARIOUS RAW MATERIALS AND SUPPLY ITEMS. THERE ARE NATURAL GAS PURCHASE CONTRACTS WITH EXCELON ENERGY AND FIRST ENERGY SEE ALSO EXHIBITS "H" AND "K", WHICH ARE INCORPORATED HEREIN BY REFERENCE. Exhibit "N" JOHNSON, BLAKELY, POPE, BOKOR, RUPPEL & BURNS, P.A ATTORNEYS AND COUNSELLORS AT LAW E. D. ARMSTRONG III LISA B. DODGE JOHN R. LAWSON, JR.* JOHN A. SCHAEFER BRUCE W. BARNES MARION HALE MICHAEL G. LITTLE BETHANN SCHARRER JOHN T. BLAKELY REBECCA A. HENSON MICHAEL C. MARKHAM PHILIP M. SHASTEEN BRUCE H. BOKOR JAMES W. HUMANN DAVID J. OTTINGER CHARLES M. TATELBAUM ALEXIS P. BROOKS SCOTT C. ILGENFRITZ F. WALLACE POPE, JR. JOAN M. VECCHIOLI GUY M. BURNS FRANK R. JAKES DARRYL R. RICHARDS ANTHONY P. ZINGE MICHAEL T. CRONIN TIMOTHY A. JOHNSON, JR. DENNIS G. RUPPEL* JULIUS J. ZSCHAU ELIZABETH J. DANIELS SHARON E. KRICK CHARLES A. SAMARKOS *OF COUNSEL Please Reply to Tampa E-MAIL ADDRESS: phils@jbpfirm.com FILE NO. 33435.105947
_____________, 200__ New Castle Refractories Company 915 Industrial Street New Castle, PA 16102 Ladies and Gentlemen: We have acted as counsel to Dixon Ticonderoga Company, a Delaware corporation ("Seller"), in connection with the Asset Purchase Agreement dated __________, 200__ (the "Agreement"), among Seller and New Castle Refractories, Inc., a Pennsylvania corporation ("Buyer"). This is the Opinion Letter contemplated by Section 7.6 of the Agreement. All capitalized terms used in this Opinion Letter without definition have the respective meanings given to them in the Agreement. This opinion has been prepared and is to be construed in accordance with the Report on Standards for Florida Opinions dated April 8, 1991 issued by the Business Law Section of The Florida Bar, as amended and supplemented (the "Report"). The Report is incorporated by reference in this opinion. In rendering the following opinions, we have relied, with your approval as to factual matters that affect our opinions, solely on our examination of the following documents and on the matters set forth in the government certificates described below and have made no independent verification of the facts asserted to be true and correct in those documents, including the factual representations and warranties contained in the Agreement: 1. The Agreement. 2. Certificate of Good Standing dated ___________, 200__ from the Delaware Secretary of State for the Seller. CLEARWATER OFFICE TAMPA OFFICE 911 CHESTNUT STREET (ZIP 33756) 100 NORTH TAMPA STREET POST OFFICE BOX 1368 SUITE 1800 (ZIP 33602) CLEARWATER, FLORIDA 33757-1368 POST OFFICE BOX 1100 TELEPHONE: (727) 461-1818 TAMPA, FLORIDA 33601-1100 TELECOPIER (727) 462-0365 TELEPHONE (813) 225-2500 TELECOPIER (813) 225-1857
JOHNSON, BLAKELY, POPE, BOKOR, RUPPEL & BURNS, P.A. ATTORNEYS AND COUNSELLORS AT LAW New Castle Factories Company _____________, 200__ Page 2 3. Certificate of Richard F. Joyce as President and Co-CEO of the Seller. 4. Certificate of Incorporation and Bylaws of the Seller. This opinion is furnished pursuant to your request and is given with the consent of the Seller. We do not express any opinion concerning any law other than the law of Florida, the Delaware General Corporation Act, and the federal law of the United States. We note that the Agreement provides that it is governed by the law of the Commonwealth of Pennsylvania (the law stipulated in the Agreement to be the law governing the interpretations and enforcement of the Agreement). We have assumed, with your permission, that the law of Pennsylvania is identical to the law of Florida in all respects material to our opinions. Based upon the foregoing and subject to the qualifications and limitations stated in this letter and in the Report, we are of the opinion that: 1. The Agreement and the Bill of Sale and Assignment to be executed by the Seller as part of the transactions contemplated by the Agreement (the "Contemplated Transactions") are enforceable against the Seller. 2. The Seller is a corporation validly existing and in good standing under the laws of Delaware with corporate power and authority to execute and deliver the Agreement and consummate the Contemplated Transactions and is duly qualified and in good standing as a foreign corporation in Pennsylvania, Ohio and West Virginia. 3. The Seller has the corporate power and authority to execute and deliver the Agreement and to perform its obligations thereunder. The transactions contemplated by the Agreement and the execution and delivery of and performance by Seller of its obligations under the Agreement have been authorized by all requisite corporate action, as the case may be. The officers respectively executing the Agreement on behalf of the Seller have been duly authorized to execute and deliver such documents. Subject to the limitations set forth in paragraph 4 below, the Agreement constitutes the valid and binding obligation of the Seller. 4. Subject to the limitations set forth in this paragraph 4, the Agreement may be enforced in accordance with its terms against the Seller under the law of Florida and of the United States. The validity, binding effect and enforceability of the Agreement might be limited or otherwise affected by (a) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar statutes, rules, regulations or other laws affecting the enforcement of creditors' rights and remedies generally and (b) the unavailability of, or limitation on the availability of, a particular right or JOHNSON, BLAKELY, POPE, BOKOR, RUPPEL & BURNS, P.A. ATTORNEYS AND COUNSELLORS AT LAW New Castle Factories Company _____________, 200__ Page 3 remedy (whether in a proceeding in equity or at law) because of an equitable principle or a requirement as to commercial reasonableness, conscionability or good faith. In addition, certain remedies, waivers and other provisions of the Agreement might not be enforceable; nevertheless, such unenforceability will not render the Agreement invalid as a whole. This opinion is furnished to you by us as counsel for the Seller, is solely for your benefit and is rendered solely in connection with the transaction to which this opinion relates. This opinion may be relied upon only in connection with this transaction and may not be relied upon by any other persons without our prior written consent. Very truly yours, JOHNSON, BLAKELY, POPE, BOKOR, RUPPEL & BURNS, P.A. PMS:mda "First Addendum" ---------------- First Addendum to Asset Purchase Agreement This is the First Addendum to the Asset Purchase Agreement dated December 23, 2002 (the "Agreement"), between Dixon Ticonderoga Company, a Delaware corporation ("Seller") and New Castle Refractories Company, Inc., a Pennsylvania corporation ("Purchaser"). Background: Section 3.1 of the Agreement provides for a Closing Date on February 17, 2003 and Section 7.8 provides that one condition of the Closing is that Purchaser shall have obtained financing acceptable to Purchaser for the Purchase of the Business. For valuable consideration, the parties hereby agree as follows: 1. Section 3.1 of the Agreement is hereby amended to change the Closing Date to March 14, 2003. 2. Exhibit "H" attached to this Addendum is hereby substituted for the Exhibit "H" attached to the Agreement. 3. This Addendum may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Addendum shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories hereto. 4. This Addendum may be executed by either of the parties (the "Originating Party") and transmitted to the other party (the "Receiving Party") by facsimile, telecopy, telex or other form of written electronic transmission, and, upon confirmation of receipt thereof by the Receiving Party, this Addendum shall be deemed to have been duly executed by the Originating Party. Upon the request of the Receiving Party, the Originating Party shall provide the Receiving Party with an executed duplicate original of this Agreement. 5. Except as amended hereby, the Agreement remains in full force and effect. Signature Page to First Addendum to Asset Purchase Agreement IN WITNESS WHEREOF, the parties intending to be legally bound, have signed and sealed this Agreement as of this 7th day of March, 2003. SELLER: ATTEST: DIXON TICONDEROGA COMPANY /s/ Laura H. Hemmings BY: /s/ Gino N. Pala Secretary as Chairman Co CEO WITNESS: PURCHASER: NEW CASTLE REFRACTORIES COMPANY, INC. /s/ Lauren Edward Allison BY: /s/ Thomas E. Shaffer as President and CEO "Second Addendum" ----------------- Second Addendum to Asset Purchase Agreement This is the Second Addendum to the Asset Purchase Agreement dated December 23, 2002 (the "Agreement"), between Dixon Ticonderoga Company, a Delaware corporation ("Seller") and New Castle Refractories Company, Inc., a Pennsylvania corporation ("Purchaser"). Background: Section 3.1 of the Agreement, as amended by the First Addendum dated March 7, 2003 (the "First Addendum"), provides for a Closing Date on February 17, 2003 and Section 7.8 provides that one condition of the Closing is that Purchaser shall have obtained financing acceptable to Purchaser for the Purchase of the Business. As of the date hereof, Purchaser has received commitments for all necessary financing, but the Closing Date must be extended in order to allow sufficient time for the lenders to be able to close. For valuable consideration, the parties hereby agree as follows: 1. Section 3.1 of the Agreement is hereby amended to change the Closing Date to April 30, 2003. 2. This Addendum may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Addendum shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories hereto. 4. This Addendum may be executed by either of the parties (the "Originating Party") and transmitted to the other party (the "Receiving Party") by facsimile, telecopy, telex or other form of written electronic transmission, and, upon confirmation of receipt thereof by the Receiving Party, this Addendum shall be deemed to have been duly executed by the Originating Party. Upon the request of the Receiving Party, the Originating Party shall provide the Receiving Party with an executed duplicate original of this Agreement. 5. Except as amended by the First Addendum and hereby, the Agreement remains in full force and effect. Signature Page to Second Addendum to Asset Purchase Agreement IN WITNESS WHEREOF, the parties intending to be legally bound, have signed and sealed this Agreement as of the 8th day of April, 2003. SELLER: ATTEST: DIXON TICONDEROGA COMPANY Jennifer J. Brooks BY: /s/ Richard F. Joyce as President WITNESS: PURCHASER: NEW CASTLE REFRACTORIES COMPANY, INC. /s/ Lauren Edward Allison BY: /s/ Thomas E. Shaffer as President and CEO "Third Addendum" ---------------- THIRD ADDENDUM TO ASSET PURCHASE AGREEMENT This is the Third Addendum to the Asset Purchase Agreement dated December 23, 2002, and thereafter amended, (as amended, the "Agreement") between Dixon Ticonderoga Company, a Delaware corporation ("Seller") and New Castle Refractories Company, Inc., a Pennsylvania corporation ("Purchaser"). Background: Section 3.1 of the Agreement, as amended by the First Addendum dated March 7, 2003, and as further amended by the Second Addendum dated April 8, 2003, provides for a Closing Date on or before April 30, 2003. The parties agree that additional time is required to obtain the appropriate approvals and finalize documentation pertaining to the transaction described in the Agreement. For valuable consideration, the parties hereby agree as follows: 1. Section 3.1 of the Agreement is hereby amended to change the Closing Date to on or before July 31, 2003. 2. This Addendum may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Addendum shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories hereto. 3. This Addendum may be executed by either of the parties (the "Originating Party") and transmitted to the other party (the "Receiving Party") by facsimile, telecopy, telex or other form of written electronic transmission, and, upon confirmation of receipt thereof by the Receiving Party, this Addendum shall be deemed to have been duly executed by the Originating Party. Upon the request of the Receiving Party, the Originating Party shall provide the Receiving Party with an executed duplicate original of this Agreement. 4. The Seller and Purchase hereby agree to and do ratify, affirm and adopt the covenants, terms and conditions of the Asset Purchase Agreement as previously amended by the first and second addenda thereto and agree that such Asset Purchase Agreement, as previously amended and modified shall be modified by this Third Addendum only as set forth herein. Except as amended by the First Addendum and Second Addendum and hereby, the Agreement remains in full force and effect. Signature Page to Third Addendum to Asset Purchase Agreement IN WITNESS WHEREOF, the parties intending to be legally bound, have signed and sealed this Agreement effective as of April 29, 2003. ATTEST: DIXON TICONDEROGA COMPANY /s/ Laura H. Hemmings BY: /s/ Gino N. Pala as Chairman Co CEO WITNESS: PURCHASER: NEW CASTLE REFRACTORIES COMPANY, INC. /s/ Lauren Edward Allison BY: /s/ Thomas E. Shaffer as President and CEO EX-21 4 exhibit21.txt SUBSIDIARIES OF THE COMPANY Exhibit (21) ------------ 2003 ANNUAL REPORT ON FORM 10-K ------------------------------- SUBSIDIARIES OF THE COMPANY --------------------------- All of the Registrant's subsidiaries as of September 30, 2003, are listed below. Subsidiaries of a subsidiary are indented. All subsidiaries are included in the consolidated financial statements of the Registrant. State Or Percentage of Jurisdiction of Voting Organization Securities Owned ----------------- ---------------- Dixon Ticonderoga, Inc. Canada 100% Grupo Dixon, S.A. de C.V. (50.1% Subsidiary of Dixon Ticonderoga, Inc.) Mexico 97% Dixon Ticonderoga de Mexico, S.A. de C.V. (Subsidiary of Grupo Dixon, S.A. Mexico 100% de C.V.) Dixon Comercializadora Dixon, S.A. de C.V. (Subsidiary of Grupo Dixon, S.A. Mexico 100% de C.V.) Servidix, S.A. de C.V. (Subsidiary of Grupo Dixon, S.A. de C.V.) Mexico 100% Dixon Industrial Mexico, S.A. de C.V. (a) Mexico 100% Beijing Dixon Ticonderoga Stationery China 100% Company, Ltd. Ticonderoga Graphite, Inc. (a) New York 100% Dixon Europe, Limited United Kingdom 100% (a) Inactive EX-23 5 exhibit23.txt CONSENT OF INDEPENDENT CPAS Exhibit (23) ------------ CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS --------------------------------------------------- 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) of Dixon Ticonderoga Company of our report dated December 12, 2003, relating to the financial statements and financial statement schedule, which appears in this Form 10-K. PricewaterhouseCoopers LLP Orlando, Florida December 29, 2003 EX-31 6 exhibit31.txt CERTIFICATION PURSUANT TO SECTION 302 Exhibit 31.1 ------------ CHAIRMAN OF THE BOARD AND CO-CHIEF EXECUTIVE OFFICER ---------------------------------------------------- CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13A-14 AS ADOPTED ------------------------------------------------------------- PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. ---------------------------------------------------------- I, Gino N. Pala, Chairman of the Board and Co-Chief Executive Officer of Dixon Ticonderoga Company, certify that: 1. I have reviewed this annual report on Form 10-K of Dixon Ticonderoga Company for the period ended September 30, 2003; 2. Based on my knowledge, this annual report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: December 29, 2003 By: /s/ GINO N. PALA ----------------- ---------------- Gino N. Pala Chairman of Board, Co-Chief Executive Officer and Director Exhibit 31.2 ------------ VICE CHAIRMAN OF BOARD AND CO-CHIEF EXECUTIVE OFFICER ----------------------------------------------------- CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13A-14 AS ADOPTED ------------------------------------------------------------- PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. ---------------------------------------------------------- I, Richard F. Joyce, Vice Chairman of Board, Co-Chief Executive Officer, President and Director of Dixon Ticonderoga Company, certify that: 1. I have reviewed this annual report on Form 10-K of Dixon Ticonderoga Company for the period ended September 30, 2003; 2. Based on my knowledge, this annual report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: December 29, 2003 By: /s/ RICHARD F. JOYCE ----------------- -------------------- Richard F. Joyce Vice Chairman of Board, Co-Chief Executive Officer, President and Director Exhibit 31.3 ------------ EXECUTIVE VICE PRESIDENT OF FINANCE AND CHIEF FINANCIAL OFFICER --------------------------------------------------------------- CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13A-14 AS ADOPTED ------------------------------------------------------------- PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. ---------------------------------------------------------- I, Richard A. Asta, Executive Vice President of Finance, Chief Financial Officer and Director of Dixon Ticonderoga Company, certify that: 1. I have reviewed this annual report on Form 10-K of Dixon Ticonderoga Company for the period ended September 30, 2003; 2. Based on my knowledge, this annual report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: December 29, 2003 By: /s/ RICHARD A. ASTA ----------------- ------------------- Richard A. Asta Executive Vice President of Finance, Chief Financial Officer and Director EX-32 7 exhibit32.txt CERTIFICATION ADOPTED PURSUANT TO SECTION 906 Exhibit 32.1 ------------ CHAIRMAN OF THE BOARD AND CO-CHIEF EXECUTIVE OFFICER ---------------------------------------------------- CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, ------------------------------------------------- AS ADOPTED PURSUANT TO SECTION 906 ---------------------------------- OF THE SARBANES-OXLEY ACT OF 2002. ---------------------------------- In connection with the Annual report of Dixon Ticonderoga Company (the "Company") on Form 10-K for the period ended September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gino N. Pala, Chairman of Board and Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. Date: December 29, 2003 By: /s/ GINO N. PALA ----------------- ---------------- Gino N. Pala Chairman of Board, Co-Chief Executive Officer and Director Exhibit 32.2 ------------ VICE CHAIRMAN OF BOARD AND CO-CHIEF EXECUTIVE OFFICER ---------------------------------------------------- CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, ------------------------------------------------- AS ADOPTED PURSUANT TO SECTION 906 ---------------------------------- OF THE SARBANES-OXLEY ACT OF 2002. ---------------------------------- In connection with the Annual report of Dixon Ticonderoga Company (the "Company") on Form 10-K for the period ended September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard F. Joyce, Vice Chairman of Board and Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. Date: December 29, 2003 By: /s/ RICHARD F. JOYCE ----------------- -------------------- Richard F. Joyce Vice Chairman of Board, Co-Chief Executive Officer, President and Director Exhibit 32.3 ------------ EXECUTIVE VICE PRESIDENT OF FINANCE AND CHIEF FINANCIAL OFFICER --------------------------------------------------------------- CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, ------------------------------------------------- AS ADOPTED PURSUANT TO SECTION 906 ---------------------------------- OF THE SARBANES-OXLEY ACT OF 2002. ---------------------------------- In connection with the Annual report of Dixon Ticonderoga Company (the "Company") on Form 10-K for the period ended September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard A. Asta, Executive Vice President of Finance and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. Date: December 29, 2003 By: /s/ RICHARD A. ASTA ----------------- ------------------- Richard A. Asta Executive Vice President of Finance, Chief Financial Officer and Director -----END PRIVACY-ENHANCED MESSAGE-----