0000014995-95-000019.txt : 19950815 0000014995-95-000019.hdr.sgml : 19950815 ACCESSION NUMBER: 0000014995-95-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 SROS: AMEX 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-02655 FILM NUMBER: 95562584 BUSINESS ADDRESS: STREET 1: 2600 MAITLAND CENTER PKWY STREET 2: STE 200 CITY: MAITLAND STATE: FL ZIP: 32751 BUSINESS PHONE: 4078759000 MAIL ADDRESS: STREET 1: 2600 MAITLAND CTR PARKWAY STREET 2: STE 200 CITY: MAITLAND STATE: FL ZIP: 32751 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-Q 1 JUNE 30, 1995 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Judiciary Plaza, 450 Fifth Street, N.W. Washington, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED JUNE 30, 1995 COMMISSION FILE NO. O-2655 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DIXON TICONDEROGA COMPANY ----------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 23-0973760 --------------------------------- ---------------------------------- (State or other jurisdiction I.R.S. Employer of incorporation or organization) Identification No. 2600 Maitland Center Parkway, Suite 200, Maitland, FL 32751 ---------------------------------------------------------------------------- (Address of principal executive offices) Zip Code (407) 875-9000 Registrant's telephone number, including area code: ---------------------- 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report. Class Outstanding as of June 30, 1995 ---------------------------- ----------------------------------------- Common Stock $1 par value 3,192,820 DIXON TICONDEROGA COMPANY AND SUBSIDIARIES ------------------------------------------ INDEX ----- Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Information Consolidated Balance Sheets -- June 30, 1995 and September 30, 1994 3-4 Consolidated Statements of Operations -- For The Three Months and Nine Months Ended June 30, 1995 and 1994 5 Consolidated Statements of Cash Flows -- For The Nine Months Ended June 30, 1995 and 1994 6-7 Notes to Consolidated Financial Statements 8-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-14 PART II. OTHER INFORMATION Item 6. Exhibits 15 Signatures 16 PART I - FINANCIAL INFORMATION Item 1. DIXON TICONDEROGA COMPANY AND SUBSIDIARIES ------- CONSOLIDATED BALANCE SHEETS
June 30, September 30, 1995 1994 ------------ ------------- CURRENT ASSETS: Cash and cash equivalents $ 352,246 $ 1,822,764 Receivables, less allowance for doubtful accounts of $658,441 at June 30, 1995 and $564,905 at September 30, 1994 26,816,167 20,335,421 Inventories 31,961,943 28,881,083 Assets held for sale 242,231 256,947 Other current assets 1,838,106 1,924,754 ----------- ----------- Total current assets 61,210,693 53,220,969 ----------- ----------- CONDOMINIUMS UNDER DEVELOPMENT 783,973 773,067 ----------- ----------- PROPERTY, PLANT and EQUIPMENT: Land and buildings 12,124,542 11,867,046 Machinery and equipment 16,349,280 18,983,203 Furniture and fixtures 901,101 843,316 ----------- ----------- 29,374,923 31,693,565 Less accumulated depreciation (16,592,039) (18,308,662) ----------- ----------- 12,782,884 13,384,903 OTHER ASSETS 1,286,887 1,473,059 ----------- ----------- $76,064,437 $68,851,998 =========== =========== June 30, September 30, 1995 1994 ------------ ------------- CURRENT LIABILITIES: Notes payable $21,758,694 $11,054,169 Current maturities of long-term debt 4,415,106 4,431,570 Accounts payable 5,039,066 5,258,085 Accrued liabilities 7,086,340 8,626,772 ----------- ----------- Total current liabilities 38,299,206 29,370,596 ----------- ----------- LONG-TERM DEBT 18,317,812 19,140,668 ----------- ----------- OTHER NONCURRENT LIABILITIES 25,004 233,818 ----------- ----------- DEFERRED INCOME TAXES 1,096,636 1,144,799 ----------- ----------- MINORITY INTEREST 2,541,181 3,421,253 ----------- ----------- 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 3,447,966 shares as of June 30, 1995 and 3,424,873 as of September 30, 1994 3,447,966 3,424,873 Capital in excess of par value 2,124,167 2,042,639 Retained earnings 13,295,570 11,577,719 Cumulative translation adjustment (2,147,325) (531,455) ----------- ----------- 16,720,378 16,513,776 Less - treasury stock, at cost (255,146 shares at June 30, 1995, and 265,270 shares at September 30, 1994) (935,780) (972,912) ----------- ----------- 15,784,598 15,540,864 ----------- ----------- $76,064,437 $68,851,998 =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these statements. DIXON TICONDEROGA COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, 1995 1994 1995 1994 -------- -------- -------- -------- REVENUES $28,445,499 $27,915,779 $69,210,316 $65,952,818 ----------- ----------- ----------- ----------- COST AND EXPENSES: Cost of goods sold 18,327,627 18,966,629 45,390,700 45,496,712 Selling and administrative expenses 6,968,486 6,417,064 17,734,809 15,923,197 ----------- ----------- ----------- ----------- 25,296,113 25,383,693 63,125,509 61,419,909 ----------- ----------- ----------- ----------- OPERATING INCOME 3,149,386 2,532,086 6,084,807 4,532,909 INTEREST EXPENSE 995,385 1,144,946 2,589,685 2,978,043 ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 2,154,001 1,387,140 3,495,122 1,554,866 INCOME TAXES 733,260 385,757 1,233,864 497,061 ----------- ----------- ----------- ----------- 1,420,741 1,001,383 2,261,258 1,057,805 MINORITY INTEREST 154,049 --- 543,408 --- ----------- ----------- ----------- ----------- NET INCOME $ 1,266,692 $ 1,001,383 $ 1,717,850 $ 1,057,805 =========== =========== =========== =========== EARNINGS PER COMMON SHARE $ .40 $ .31 $ .54 $ .33 =========== =========== =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING 3,189,446 3,216,586 3,176,267 3,184,158 =========== =========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these statements. DIXON TICONDEROGA COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JUNE 30, 1995 AND 1994
1995 1994 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,717,850 $ 1,057,805 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,780,744 1,872,427 Deferred taxes 291,665 (163,499) Income attributable to currency translation (332,986) --- Income attributable to minority interest 543,408 --- Changes in assets and liabilities: Receivables, net (8,292,977) (10,704,032) Inventories (4,202,211) 30,173 Other current assets (28,150) (430,855) Accounts payable and accrued liabilities (1,286,285) 1,948,329 Condominiums (10,906) 120,712 Other assets (166,706) (511,004) ----------- ----------- Net cash provided by (used in) operations (9,986,554) (6,779,944) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of plant and equipment, net (1,774,462) (1,514,707) Proceeds from sale of assets --- 599,866 ----------- ----------- Net cash provided by (used in) investing activities (1,774,462) (914,841) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from notes payable 11,926,235 3,535,816 Net proceeds from (principal reductions of) long-term debt (855,427) 3,964,073 Exercise of stock options 167,657 53,001 Other non-current liabilities (101,283) 28,509 ----------- ----------- Net cash provided by (used in) financing activities 11,137,182 7,581,399 ----------- ----------- Effect of exchange rate changes on cash (846,684) (138,024) ----------- ----------- Net decrease in cash and cash equivalents (1,470,518) (251,410) Cash and cash equivalents, beginning of period 1,822,764 332,041 ----------- ----------- Cash and cash equivalents, end of period $ 352,246 $ 80,631 =========== =========== Supplemental Disclosures: Cash paid during the period: Interest (net of amount capitalized) $ 2,201,755 $ 2,439,984 Income taxes 1,392,130 218,358
The accompanying notes to consolidated financial statements are an integral part of these statements. DIXON TICONDEROGA COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of presentation: The condensed consolidated financial statements included herein have been prepared by the Registrant, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Registrant believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in the Registrant's latest annual report on Form 10-K. In the opinion of the Registrant, all adjustments (solely of a normal recurring nature) necessary to present fairly the financial position of the Dixon Ticonderoga Company and subsidiaries as of June 30, 1995, and the results of their operations and cash flows for the nine months ended June 30, 1995, and 1994, have been included. The results of operations for such interim periods are not necessarily indicative of the results for the entire year. 2. Inventories: Since amounts for inventories under the LIFO method are based on annual determinations of quantities and costs as of the end of the fiscal year, the inventories at June 30, 1995 (for which the LIFO method of accounting are used) are based on certain estimates relating to quantities and costs as of year end. Inventories consist of (in thousands): June 30, September 30, 1995 1994 ------------ ------------- Raw materials $12,663 $12,273 Work in process 4,889 4,494 Finished goods 14,410 12,114 ------- ------- $31,962 $28,881 ======= ======= 3. Accounting for long-lived assets: The Financial Accounting Standards Board issued Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". This statement, which must be adopted no later than fiscal 1997, establishes accounting standards with respect to the impairment of long-lived assets. Its adoption is not expected to materially affect the future results of operations or financial position of the Company. 4. Accounting for income taxes: The difference between income taxes calculated at the U.S statutory federal income tax rate and the provision in the condensed consolidated financial statements is primarily due to the net effect in 1994 of utilization of U.S. net operating loss carryforwards, foreign and state income taxes and other permanent items. 5. Contingencies: The Registrant, in the normal conduct of its business, is a party in certain litigation. In the opinion of management (after taking into account accruals), the ultimate outcome of this litigation will not materially affect the Company's future results of operations or financial position. Included in this litigation is a claim against the Company under New Jersey's Environmental Clean-up Responsibility Act, by a 1984 purchaser of industrial property from the Company. The Company has evaluated the merits of the case and believes the outcome will not be material to the future results of operations as well as the financial position of the Company. The Registrant is aware of several environmental matters related to certain facilities purchased or to be sold. The Registrant assesses the extent of these matters on an ongoing basis. In the opinion of management (after taking into account accruals), the resolution of these matters will not materially affect the Company's future results of operations or financial position. In conjunction with the sale of a discontinued business in a previous year, the Registrant guaranteed a loan to the buyer. The loan balance is approximately $350,000 as of June 30, 1995. In the opinion of management, the guarantee will not ultimately have any material effect on the Company's future results of operations or financial condition. 6. New financing arrangements: The Company's loan and security agreement with its primary lender was amended in February 1995, whereby its interest rate was reduced from the prime rate plus 1% to either the prime rate plus 0.5% or the prevailing LIBOR rate plus 2.5%. In July 1995, this agreement was further amended to provide up to an additional $5 million in the Company's revolving working capital line of credit. 7. Shareholders rights plan: In March 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 price 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 price of the Right. The Company may redeem the Rights at one cent per Right at any time until 10 days following the occurrence of an event that causes the Rights to become exercisable for common stock. The rights expire in ten years. 8. Executive employment agreements: The Company has entered into employment agreements with two executives which provide for the continuation of salary (currently aggregating $27,500 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. Item 2. ------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS REVENUES for the quarter ended June 30, 1995, increased $530,000 from the same quarter last year. The changes by segment are as follows: % Increase (Decrease) Increase --------------------- (Decrease) Total Volume Price/Mix ---------- ----- ------ --------- Consumer U.S. $ 1,913 13 10 3 Consumer Foreign (1,553) (23) (24) 1 Graphite & Lubricants 85 3 12 (9) Refractory 85 3 9 (6) Foreign Consumer revenue decreased $1,800,000 due to the decline in value of the Mexican peso compared to the U.S. dollar; however, this decline was more than offset by price increases during the period. Although the peso has stabilized from the activity in the first two fiscal quarters, revenue in Mexico is still depressed when compared to the same quarter last year. U.S. Consumer revenue reflects strong growth in the mass retail and office supply mega-store markets. Revenues for the nine months ended June 30, 1995, increased $3,257,000 over the same period last year. The changes by segment are as follows: % Increase (Decrease) Increase --------------------- (Decrease) Total Volume Price/Mix ---------- ----- ------ --------- Consumer U.S. $ 4,848 14 12 2 Consumer Foreign (2,802) (22) (16) (6) Graphite & Lubricants 517 6 8 (2) Refractory 823 9 7 2 Real Estate and Other (129) - - - U.S. Consumer revenue volume increases were primarily due to customers in the aforementioned mass retail and office supply mega-store markets. Revenue in Mexico and Canada decreased $2,800,000 and $100,000, respectively, due to the decline of their currencies' value compared to the U.S. dollar. In Mexico only part of this decline was offset by increased peso selling prices. Revenues increased $9,074,000 from the prior quarter as follows: % Increase (Decrease) Increase --------------------- (Decrease) Total Volume Price/Mix ---------- ----- ------ --------- Consumer U.S. $ 6,495 64 61 3 Consumer Foreign 2,374 86 84 2 Graphite & Lubricants (85) (3) 4 (7) Refractory 290 9 4 5 U.S. and Foreign Consumer products reflects the seasonality of these segments. Historically, this quarter represents approximately 30% of annual revenues being shipped. Real Estate revenues were not significant in any period presented. OPERATING INCOME increased $617,000 over the same quarter last year. U.S. Consumer increased $500,000 on higher revenue. Foreign Consumer products decreased $80,000 primarily due to the subsidiary in Mexico, where domestic sales remained below prior year levels. Refractory products increased $130,000 reflecting higher gross profit margins. Operating income for the nine months ended June 30, 1995, increased $1,552,000 over the same period last year. U.S. Consumer increased $770,000 on higher revenues partially offset by additional selling and distribution costs expended in order to service the mass retail and office supply mega- store markets. Foreign Consumer increased $330,000 primarily due to increased shipments to the U.S. and related currency gains and manufacturing efficiencies. Refractory products increased $235,000 on higher revenues and improved product mix. Operating income increased $1,559,000 over the prior quarter. U.S. Consumer products increased $1,460,000 primarily due to the aforementioned seasonality of revenues. INTEREST EXPENSE decreased $150,000 and $388,000 for the quarter and nine months ended June 30, 1995, from the comparable periods last year. These decreases were primarily due to reduced bank borrowing in Mexico reflecting the proceeds from the prior year sale of stock in this subsidiary. When compared to the prior quarter, interest expense increased $98,000, primarily due to higher borrowings to support seasonal sales. INCOME TAXES increased in 1995 due to higher pre-tax income and utilization of net operating loss carryforwards in the prior year. The Financial Accounting Standards Board issued Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". This statement, which must be adopted no later than fiscal 1997, establishes accounting standards with respect to the impairment of long-lived assets. Its adoption is not expected to materially affect the future results of operations or financial position of the Company. LIQUIDITY AND CAPITAL RESOURCES The financial condition of the Company improved dramatically in the past two years, principally due to its recent operating success and the completion of major financing initiatives. While consolidated pre-tax income has improved by approximately $2 million, cash flows used in operating activities in the first half of fiscal 1995 increased due to higher working capital requirements (primarily inventories) to support increasing business segments. Despite higher consolidated revenues, the Company managed to maintain its strong collection practices which have reduced average days outstanding in accounts receivable under normal terms. Investing activities included approximately $1,774,000 in purchases of property and equipment for the first nine months of 1995 (as compared with $1,515,000 in the prior year). Except as discussed below, all major capital projects are discretionary in nature and thus no material purchase commitments exist. The Company anticipates its normal capital expenditures to accelerate during the year and approximate $2 million, less than its annual depreciation expense. These expenditures will include strategic manufacturing equipment purchases as well as customary projects, and will continue to be funded from operations and existing financing arrangements. The Company intends to begin construction of a new corporate headquarters facility in Florida. The estimated total cost of the project is approximately $3 million with construction costs financed through a separate fixed-rate permanent mortgage arrangement. Approximately $700,000 in land and design costs have been incurred and included in the purchases of property disclosed above. The Company previously completed major financing arrangements, in the amount of $35 million, which refinanced certain short-term obligations and provided additional working capital. The arrangements provide additional financing and permit the Company to meet all current debt obligations. The related credit agreement provides for the maintenance of certain financial covenants and ratios, with which the Company is presently in compliance. In February 1995, the interest rate under this arrangement was reduced (as discussed in Note 6 to Consolidated Financial Statements). Increases in borrowings under this arrangement are used to finance cyclical working capital requirements discussed above. At June 30, 1995, the Registrant has approximately $4 million of unused lines of credit available under this financing agreement. In July 1995, the Company's working capital line of credit was increased by $5 million (as discussed in Note 6 to Consolidated Financial Statements). As of June 30, 1995, the Company also has $13.7 million of Senior Subordinated Notes outstanding with several insurance companies. The note agreement, as amended, provides for the payment of approximately $3.3 million annually, each August. This agreement also provides for the maintenance of certain financial covenants and ratios, with which the Company is presently in compliance. The new revolving credit agreement described above provides for the aforementioned subordinated note payments. The Company intends to satisfy future subordinated note payments from funds provided by these existing financing arrangements, from operations and/or an infusion of new equity or debt. In addition to these ongoing efforts, management believes that additional cash flows can be generated through the sale of certain remaining idle assets. The new and existing sources of financing, financing strategies discussed above and cash expected to be generated from future operations will, in management's opinion, be sufficient to fulfill all current and anticipated requirements of the Company's ongoing businesses. Moreover, any contemplated future sale of Company assets will contribute to lower borrowing levels, without any anticipated material negative impact upon operating results. PART II. OTHER INFORMATION Item 6. Exhibits ------- -------- (a) Exhibits: (28)a. Second Modification of Revolving Credit Loan and Security Agreement and Term Loan Agreement (28)b. Third Modification of Revolving Credit Loan and Security Agreement SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DIXON TICONDEROGA COMPANY Dated: August 14, 1995 By: /s/ Gino N. Pala ---------------------------- Gino N. Pala Chairman of the Board, President, Chief Executive Officer and Director Dated: August 14, 1995 By: /s/ Richard A. Asta ---------------------------- Richard A. Asta Executive Vice President of Finance and Chief Financial Officer Dated: August 14, 1995 By: /s/ John Adornetto ---------------------------- John Adornetto Vice President/Corporate Controller and Chief Accounting Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheets, the Consolidated Statement of Operations and the Consolidated Statement of Cash Flows, and is qualified in its entirety by reference to such financial statements. 9-MOS SEP-30-1995 JUN-30-1995 352,246 0 27,474,608 658,441 31,961,943 61,210,693 29,374,923 16,592,039 76,064,437 38,299,206 0 3,447,966 0 0 12,336,632 76,064,437 69,210,316 69,210,316 45,390,700 45,390,700 17,734,809 0 2,589,685 3,495,122 1,233,864 1,717,850 0 0 0 1,717,850 .54 .54
EX-99 3 2ND MOD OF REVOLV CREDIT LOAN AGR SECOND MODIFICATION OF REVOLVING CREDIT LOAN AND SECURITY AGREEMENT AND TERM LOAN AGREEMENT This Second Modification of Revolving Credit Loan and Security Agreement and Term Loan Agreement (this "First Modifica- tion") is made as of June 30, 1995 by and among DIXON TICONDEROGA COMPANY, a Delaware corporation ("DTC"), and DIXON TICONDEROGA INC., an Ontario corporation ("DTI"; DTC and DTI, collectively, the "Borrower"), and FIRST UNION COMMERCIAL CORPORATION, a North Carolina corporation (the "Lender"). W I T N E S S E T H: WHEREAS, the Borrower has entered into a Revolving Credit Loan, Foreign Exchange and Security Agreement, dated as of May 12, 1994, as amended by First Modification of Revolving Credit Loan and Security Agreement dated as of February 10, 1995 (said Agreement, as so amended and as it may be amended or otherwise modified from time to time hereafter, being hereinafter called the "Revolving Credit Agreement"), pursuant to which Lender has ex- tended financial accommodations to Borrower in the form of a $25,000,000 revolving line of credit, letter of credit and foreign exchange facility in accordance with, and subject to, the terms and conditions of the Revolving Credit Agreement; and WHEREAS, the Borrower has entered into a Term Loan Agreement, dated as of May 12, 1994 (said Agreement, as it may be amended or otherwise modified from time to time, being hereinafter called the "Term Loan Agreement"; and, together with the Revolving Credit Agreement, being hereinafter called the "Loan Agreements"), pursuant to which Lender has extended a term loan to Borrower in the principal amount of $10,000,000; and WHEREAS, the Borrower has requested Lender to engage in an interest rate swap transaction with the Borrower in order to obtain the benefits of a fixed rate of interest on a portion of the Loans (as such term is defined in the Revolving Credit Agree- ment); and WHEREAS, the Lender requires, as a condition of Lender entering into such swap transaction, that certain modifications be made to the Loan Agreements; NOW, THEREFORE, in consideration of the premises and the covenants and agreements hereinafter set forth, the parties hereto agree as follows: SECTION 1. Incorporation of Defined Terms. Capitalized terms used in this Second Modification and not otherwise defined herein, shall have the meanings ascribed to them in the Revolving Credit Agreement. SECTION 2. New and Amended Definitions. (a) Section 1 (Definitions) of the Revolving Credit Agreement is amended to add the following new definitions: "Banking Day" means, in respect of any city, any day on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) in that city. "Interest Rate Swap Agreement" shall mean the ISDA Master Agreement, including all schedules, confirmations and exhibits thereto, entered into as of the date hereof between Lender and the Borrower, as such agreement may be amended or otherwise modified from time to time here- after. "Reference Banks" means four prime banks in the London interbank market. (b) The definitions of "Eurodollar Business Day", "LIBOR Period", "LIBOR Rate", "Loan Documents" and "Obligations" in Section 1 (Definitions) of the Revolving Credit Agreement are amended to read as follows: "Eurodollar Business Day" means a day on which commercial banks and foreign exchange markets settle payments in New York City. "LIBOR Period" shall mean the period commencing on the date a LIBOR Loan is made and ending on the numeri- cally corresponding day in the first, second, third or sixth calendar month thereafter; provided that (a) no LIBOR Period may extend beyond the Commitment Termina- tion Date, and (b) if a LIBOR Period would end on a day which is not a Eurodollar Business Day, such LIBOR Peri- od shall be extended to the next Eurodollar Business Day unless, in the case of a LIBOR Loan, such Eurodollar Business Day would fall in the next calendar month, in which event such LIBOR Period shall end on the immedi- ately preceding Eurodollar Business Day. "LIBOR Rate" means, for any LIBOR Period, the amount obtained by dividing (a) the interest rate per annum for deposits in U.S. Dollars which appears on the Telerate Page 3750 as of 11:00 A.M. London time, on the day that is two London Banking Days preceding the first day of such LIBOR Period for a period equal to such LIBOR Period by (b) the percentage equal to One Hundred Percent (100%) (expressed as a decimal fraction) minus the Reserve Requirement for such LIBOR Period; provided, however, that if such rate does not so appear on the Telerate Page 3750, then "LIBOR Rate" means, for any LIBOR Period, the amount obtained by dividing (x) the interest rate per annum at which deposits in U.S. Dol- lars are offered by the Reference Banks (in the manner determined below) to prime banks in the London interbank market at approximately 11:00 A.M., London time on the day that is two London Banking Days preceding the first day of such LIBOR Period for a period equal to such LIBOR Period and in an amount substantially equal to the amount of such LIBOR Loan to be outstanding such LIBOR Period by (y) the percentage equal to One Hundred Per- cent (100%) (expressed as a decimal fraction) minus the Reserve Requirement for such LIBOR Period. In determin- ing the interest rate per annum in clause (x) above: (i) the Lender will request the principal London office of each of the Reference Banks to provide a quotation of its rate and if at least two such quotations are provid- ed, such rate will be the arithmetic mean of such quota- tions; and (ii) if fewer than two such quotations are provided as requested, such rate in clause (x) above will instead be equal to the arithmetic mean of the interest rates per annum quoted by major banks in New York City, selected by the Lender at approximately 11:00 A.M., New York City time, on the day that is two London Banking Days preceding the first day of such LIBOR Peri- od for loans in U.S. Dollars to leading European banks for a period equal to such LIBOR Period and in an amount substantially equal to the amount of such LIBOR Loan to be outstanding during such LIBOR Period. Each calcula- tion by the Lender of the applicable LIBOR Rate shall be conclusive and binding for all purposes, absent manifest error. "Loan Documents" shall mean and collectively refer to this Agreement, the Term Loan Agreement, the Mortgag- es, the Notes, the Letter of Credit Agreement, all For- eign Exchange Contracts, the Sweep Account Security Agreement, the Interest Rate Swap Agreement, the Envi- ronmental Indemnity and Compliance Agreement and all Supplemental Documentation and any and all agreements, instruments and documents, including, without limita- tion, notes, guaranties, mortgages, deeds to secure debt, deeds of trust, chattel mortgages, pledges, powers of attorney, consents, assignments, contracts, notices, security agreements, trust account agreements and all other written matters whether heretofore, now or hereaf- ter executed by or on behalf of the Borrower and/or delivered to Lender, First Union, or First Union-NC with respect to this Agreement, or with respect to the trans- actions contemplated by this Agreement, together with any amendments, modifications and supplements thereto, and any renewals or extensions thereof, in whole or in part. "Obligations" shall mean and include the Loans, the obligations of the Borrower under this Agreement and all other loans, advances, debts, liabilities, obligations, covenants and duties owing, arising, due or payable from the Borrower to the Lender, First Union and/or First Union-NC, of any kind or nature, whether or not ev- idenced by any note, guaranty or other instrument, aris- ing under this Agreement, the Term Loan Agreement, the Notes, the Mortgages, the Foreign Exchange Contracts, the Sweep Account Security Agreement, the Interest Rate Swap Agreement, or the other Loan Documents, whether direct or indirect (including those acquired by assign- ment), absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising and however acquired. The term includes, but without limi- tation, all interest, charges, expenses, fees, attorn- eys' and paralegals' fees and any other sums chargeable to the Borrower by the Lender, First Union or First Union-NC under this Agreement or any of the other Loan Documents. The term also includes, but without limita- tion, the obligations of the Borrower under the Interest Rate Swap Agreement for any and all "Loss", "Settlement Amount" and "Unpaid Amounts" as such terms are defined in the Interest Rate Swap Agreement. SECTION 3. Additional Cross-Default. Paragraph (d) of Section 1 (Events of Default) of the Revolving Credit Agreement is amended in its entirety to read as follows: (d) The occurrence of any (1) default or event of default on the part of the Borrower (including specifically, but without limitation, due to non-pay- ment) under the terms of the Subordinated Debt Loan Documents or any other agreement, document or instrument pursuant to which the Borrower has incurred any Indebt- edness (other than the Obligations), which default is not cured within the time, if any, permitted therefor in the agreement, document or instrument governing such Indebtedness, or (2) "Potential Event of Default" or "Event of Default", as such terms are defined in the Interest Rate Swap Agreement; SECTION 4. Maximum Facilities. Section 2.2 of the Revolving Credit Agreement (Maximum Revolving Credit Facility) is amended in its entirety to read as follows: 2.2 Maximum Revolving Credit Facility. Notwith- standing anything to the contrary contained in this Agreement or any of the other Loan Documents but subject to the sublimits on borrowing contained in Exhibit A attached hereto, the aggregate amount of Revolving Cred- it Loans, Letter of Credit Obligations and Foreign Ex- change Contracts shall not exceed Twenty-Five Million U.S. Dollars ($25,000,000) at any time outstanding LESS the aggregate amount, determined by the Lender in its sole discretion, of the obligations of the Borrower under the Interest Rate Swap Agreement for any and all "Loss", "Settlement Amount" and "Unpaid Amounts" as such terms are defined in the Interest Rate Swap Agreement. SECTION 5. Interest Rate on Revolving Credit Loans. Subsection (c) of Section 2.5 (Interest) of the Revolving Credit Agreement is deleted in its entirety and replaced with the follow- ing: (c) Conversion of Rate Options. On the terms and subject to the conditions of this Agreement, the Borrow- er may elect (A) at any time to convert a Revolving Credit Loan which is a Prime Rate Loan into a LIBOR Loan, or (B) at the end of any LIBOR Period with respect to a LIBOR Loan, to convert such LIBOR Loan into a Prime Rate Loan or to renew such LIBOR Loans for an additional LIBOR Period. Except as set forth in subsection (d) of this section, Loans may be renewed or converted in whole or in part. Each such election shall be made by deliv- ery to the Lender of an Interest Rate Election Notice prior to 10:00 a.m. (Charlotte, North Carolina, time) at least three (3) Eurodollar Business Days prior to the effective date of any conversion to or renewal of a LIBOR Loan and at least one (1) Eurodollar Business Day prior to the effective date of any conversion to a Prime Rate Loan, specifying (1) the date of conversion or renewal (which date shall be a Eurodollar Business Day, and in the case of a conversion from a LIBOR Loan to a Prime Rate Loan, the last day of the LIBOR Period there- for); (2) the amount and type of conversion or renewal; and (3) the length of the applicable LIBOR Period. If, within the time period required under this section 2.5(- c), the Lender shall not have received an Interest Rate Election Notice from the Borrower of an election to renew a LIBOR Loan for an additional LIBOR Period, then, upon the expiration of the LIBOR Period therefor, such LIBOR Loan shall be converted automatically to a Prime Rate Loan. SECTION 6. Borrowing Base. Exhibit "A" Borrowing Base/Availability to the Revolving Credit Agreement is amended by adding at the end of Part II (Availability) of said Exhibit "A", immediately before the period, the following: plus one hundred percent of the amount which the Lender, in its sole discretion, determines to be the aggregate amount of the "Loss", "Settlement Amount" and "Unpaid Amount", as such terms are defined in the Interest Rate Swap Agreement SECTION 7. Termination of Revolving Credit Agreement. Sections 12.2 (The Borrower's Right to Terminate) and 12.3 (The Lender's Right to Terminate) of the Revolving Credit Agreement are amended in their entirety to read as follows: 12.2 The Borrower's Right to Terminate. The Bor- rower may terminate the financing arrangements under this Agreement and the other Loan Documents at the end of the Term, by giving the Lender written notice of such termination, in the manner set forth in section 16.3 below, at least ninety (90) days, prior thereto; provid- ed, however, that in order for any such notice of termi- nation by the Borrower pursuant to this section 12.2 to become effective, the Borrower, on or before such termi- nation date, shall pay the Obligations in full in imme- diately available funds and cause all of the Letters of Credit, Foreign Exchange Contracts and the Interest Rate Swap Agreement to be canceled or terminated and First Union released from all liability thereunder. 12.3 The Lender's Right to Terminate. The Lender may terminate the financing arrangements under this Agreement and the other Loan Documents at any time, without demand, notice or legal process of any kind, upon the occurrence of an Event of Default; provided, however, that the Lender shall retain the right to pay- ment of the Obligations in accordance with section 3.1 above; and provided, further, that all of the Lender's and First Union's rights and remedies under this Agree- ment and the other Loan Documents shall survive such termination until all of the Obligations have been paid in full and all of the Letters of Credit, Foreign Ex- change Contracts and the Interest Rate Swap Agreement have been canceled or terminated and First Union re- leased from all liability thereunder. On or before the Commitment Termination Date, the Borrower shall pay the Obligations in full in immediately available funds and shall cause all of the Letters of Credit, Foreign Ex- change Contracts and the Interest Rate Swap Agreement to be canceled or terminated and First Union released from all liability thereunder. SECTION 8. Ratification. Except as modified hereby, the terms and conditions of the Loan Agreements and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed in all respects. SECTION 9. Representations and Warranties. The Bor- rower represents warrants to, and agrees with, the Lender and for the benefit of First Union and First Union-NC that (i) it has no defenses, set-offs, or counterclaims of any kind or nature whatso- ever against the Lender, First Union or First Union-NC with re- spect to the Obligations, any of the agreements among the parties hereto, including, without limitation, the obligations of the Borrower under the Loan Agreements, the Notes, this Second Modif- ication or any other Loan Document, or any action previously taken or not taken by the Lender, First Union and/or First Union-NC with respect thereto or with respect to any Lien or Collateral in connection therewith to secure the Obligations, and (ii) this Second Modification has been duly authorized by all necessary corporate action on the part of the Borrower, has been duly exe- cuted by a duly authorized officer of the Borrower, and consti- tutes the valid and binding obligation of the Borrower, enforce- able against each entity comprising the Borrower in accordance with the terms hereof. SECTION 10. Loan Agreement Representations and Warran- ties. The Borrower hereby certifies that the representations and warranties contained in the Loan Agreements continue to be true and correct and that no Event of Default, or event which with the passage of time or the giving of notice, or both, would constitute an Event of Default, has occurred. SECTION 11. Payment of Expenses. Borrower agrees to pay, upon receipt of an invoice therefor, all fees and expenses of separate legal counsel for the Lender in connection with the preparation, negotiation or execution of this Second Modification. SECTION 12. Counterparts. This Second Modification may be executed in any number of counterparts which, when taken to- gether, shall constitute one original. SECTION 13. Governing Law; Severability; Defined Terms. This Second Modification shall be governed by, and construed and interpreted in accordance with, the law of the State of Florida. Wherever possible, each provision of this Second Modification shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Second Modifi- cation shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity and without invalidating the remaining provisions of this Second Modification. SECTION 14. WAIVER OF TRIAL BY JURY. EACH OF THE BORROWER AND THE LENDER HEREBY KNOWINGLY, VOLUNTARILY, IRREVOCABLY AND INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY ACTION, PROCEEDING, COUNTERCLAIM OR OTHER LITI- GATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS SECOND MODIFICATION, THE LOAN AGREEMENTS OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATE- MENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT OF THE PARTIES TO ENTER INTO THIS SECOND MODIFICATION. SECTION 15. Titles. The Section titles contained in this Second Modification are and shall be without substantive meaning or content of any kind whatsoever and are not part of this Second Modification. IN WITNESS WHEREOF, the parties hereto have caused this Second Modification to be executed as of the date first above written. DIXON TICONDEROGA COMPANY By: /s/ Gino N. Pala -------------------------------------- Name: Gino N. Pala Title: President & CEO [Corporate Seal] DIXON TICONDEROGA INC. By: /s/ Gino N. Pala -------------------------------------- Name: Gino N. Pala Title: Chairman [Corporate Seal] FIRST UNION COMMERCIAL CORPORATION By: /s/ Roanne Disalvatore -------------------------------------- Name: Roanne Disalvatore Title: Vice President EX-99 4 3RD MOD OF REVOLV CREDIT LOAN AGR THIRD MODIFICATION OF REVOLVING CREDIT LOAN AND SECURITY AGREEMENT This Third Modification of Revolving Credit Loan and Security Agreement (this "Third Modification") is made as of July 31, 1995 by and among DIXON TICONDEROGA COMPANY, a Delaware corporation ("DTC"), and DIXON TICONDEROGA INC., an Ontario corporation ("DTI"; DTC and DTI, collectively, the "Borrower"), and FIRST UNION COMMERCIAL CORPORATION, a North Carolina corporation (the "Lender"). W I T N E S S E T H: WHEREAS, the Borrower has entered into a Revolving Credit Loan, Foreign Exchange and Security Agreement, dated as of May 12, 1994, as amended by First Modification of Revolving Credit Loan and Security Agreement dated as of February 10, 1995, and Second Modification of Revolving Credit Loan and Security Agreement dated as of July 30, 1995 (said Agreement, as so amended and as it may be amended or otherwise modified from time to time hereafter, being hereinafter called the "Revolving Credit Agreement"), pursu- ant to which Lender has extended financial accommodations to Borrower in the form of a $25,000,000 revolving line of credit, letter of credit and foreign exchange facility in accordance with, and subject to, the terms and conditions of the Revolving Credit Agreement; and WHEREAS, the Borrower has entered into a Term Loan Agreement, dated as of May 12, 1994 (said Agreement, as it may be amended or otherwise modified from time to time, being hereinafter called the "Term Loan Agreement"; and, together with the Revolving Credit Agreement, being hereinafter called the "Loan Agreements"), pursuant to which Lender has extended a term loan to Borrower in the principal amount of $10,000,000; and WHEREAS, the Borrower has requested Lender to increase (i) the maximum amount of Revolving Credit Loans (as such term is defined in the Revolving Credit Agreement) that may be outstanding at any time during the period May 1 through October 31 of each year, and (ii) the amount of the sublimit of Revolving Credit Loans (as such term is defined in the Revolving Credit Agreement) which may be advanced against Eligible Inventory (as such term is defined in the Revolving Credit Agreement); and WHEREAS, the Lender requires, as a condition of Lender agreeing to such increases, that certain modifi- cations be made to the Loan Agreements, including the establishment of a continuing reserve against the Borrowing Base for future installments of principal of the Subordinated Debt; NOW, THEREFORE, in consideration of the premises and the covenants and agreements hereinafter set forth, the parties hereto agree as follows: SECTION 1. Incorporation of Defined Terms. Capitalized terms used in this Third Modification and not otherwise defined herein, shall have the meanings ascribed to them in the Revolving Credit Agreement. SECTION 2. Maximum Revolving Credit Facility. Section 2.2 is amended in its entirety to read as follows: 2.2 Maximum Revolving Credit Facility. Notwithstanding anything to the contrary contained in this Agreement or any of the other Loan Documents but subject to the sublimits on borrowing contained in Exhibit A attached hereto, the aggregate amount of Revolving Credit Loans, Letter of Credit Obligations and Foreign Exchange Contracts shall not exceed (i) Twenty-Five Million U.S. Dollars ($25,000,000) at any time outstanding during each period commencing November 1 and ending April 30 and (ii) Thirty Million U.S. Dollars ($30,000,000) at any time outstanding during each period commencing May 1 and ending October 31, in each such case LESS the aggregate amount, determined by the Lender in its sole discretion, of the obligations of the Borrower under the Interest Rate Swap Agreement for any and all "Loss", "Settlement Amount" and "Unpaid Amounts" as such terms are defined in the Interest Rate Swap Agreement. SECTION 3. Borrowing Base. Exhibit "A" Borrowing Base/Availability to the Revolving Credit Agreement is amended by changing the number in clause (iii) of the proviso on page 1 of said Exhibit from $12,500,000 to $15,000,000, so as to increase the sublimit of aggregate Revolving Credit Loans which may be advanced against Eligible Inventory. SECTION 4. Borrowing Base. Exhibit "A" Borrowing Base/Availability to the Revolving Credit Agreement is amended by amending Paragraph A in Part I (Borrowing Base) of said Exhibit in its entirety to read as follows: A. Until such time as the Subordinated Debt shall have been paid in full and completely discharged, the Lender will establish a reserve against the Borrowing Base in order to assure that there is sufficient Availability to fund each re- quired principal payment of the Subordinated Debt. This reserve shall be established and maintained by adding thereto, on the first day of each cal- endar month, commencing on August 1, 1995, an amount equal to one-twelfth (1/12) of the next succeeding installment of principal required to be paid on the Subordinated Debt (or in the amount of the entire principal balance of the Subordinated Debt if the maturity thereof falls within the following 12-month period) and by reducing such accumulated reserve on the date of each principal payment of Subordinated Debt by the amount the principal payment so made. As an example of the operation of this reserve, on August 1, 1995 and on the first day of each month thereafter through and including July 1, 1996, the Lender will estab- lish a reserve equal to one-twelfth of $3,325,000 (the principal amount due on August 1, 1996) and, if and when the full principal installment of $3,325,000 is paid, by reducing the reserve by the amount of such payment; and on August 1, 1996, the Lender will again and monthly thereafter establish such a reserve to assure sufficient Availability for the payment due on August 1, 1997, and so on. SECTION 5. Ratification. Except as modified hereby, the terms and conditions of the Loan Agreements and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed in all respects. SECTION 6. Representations and Warranties. The Borrower represents warrants to, and agrees with, the Lender and for the benefit of First Union and First Union-NC that (i) it has no defenses, set-offs, or counterclaims of any kind or nature whatsoever against the Lender, First Union or First Union-NC with respect to the Obligations, any of the agreements among the parties hereto, including, without limitation, the obligations of the Borrower under the Loan Agreements, the Notes, this Third Modification or any other Loan Document, or any action previously taken or not taken by the Lender, First Union and/or First Union-NC with re- spect thereto or with respect to any Lien or Collateral in connection therewith to secure the Obligations, and (ii) this Third Modification has been duly authorized by all necessary corporate action on the part of the Borrower, has been duly executed by a duly authorized officer of the Borrower, and constitutes the valid and binding obligation of the Borrower, enforceable against each entity comprising the Borrower in accordance with the terms hereof. SECTION 7. Loan Agreement Representations and Warranties. The Borrower hereby certifies that the representations and warranties contained in the Loan Agreements continue to be true and correct and that no Event of Default, or event which with the passage of time or the giving of notice, or both, would constitute an Event of Default, has occurred. SECTION 8. Payment of Expenses. Borrower agrees to pay, upon receipt of an invoice therefor, all fees and expenses of separate legal counsel for the Lender in connection with the preparation, negotiation or execution of this Third Modification. SECTION 9. Counterparts. This Third Modification may be executed in any number of counterparts which, when taken together, shall constitute one original. SECTION 10. Governing Law; Severability; Defined Terms. This Third Modification shall be governed by, and construed and interpreted in accordance with, the law of the State of Florida. Wherever possible, each provision of this Third Modification shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Third Modification shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity and without invalidating the remaining provisions of this Third Modification. SECTION 11. WAIVER OF TRIAL BY JURY. EACH OF THE BORROWER AND THE LENDER HEREBY KNOWINGLY, VOLUNTARILY, IRREVOCABLY AND INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY ACTION, PROCEEDING, COUNTERCLAIM OR OTHER LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS THIRD MODIFICATION, THE LOAN AGREEMENTS OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT OF THE PARTIES TO ENTER INTO THIS THIRD MODIFICATION. SECTION 12. Titles. The Section titles contained in this Third Modification are and shall be without substantive meaning or content of any kind whatsoever and are not part of this Third Modification. IN WITNESS WHEREOF, the parties hereto have caused this Third Modification to be executed as of the date first above written. DIXON TICONDEROGA COMPANY By: /s/ Gino N. Pala -------------------------------------- Name: Gino N. Pala Title: Chief Executive Officer and President [Corporate Seal] DIXON TICONDEROGA INC. By: /s/ Gino N. Pala -------------------------------------- Name: Gino N. Pala Title: Chief Executive Officer and President [Corporate Seal] FIRST UNION COMMERCIAL CORPORATION By: /s/ Roanne Disalvatore -------------------------------------- Name: Roanne Disalvatore Title: Vice President